MAGAZINE OF CHOICE FOR AUSTRALIA’S WEALTH INDUSTRY
www.moneymanagement.com.au
Vol. 35 No 11 | July 1, 2021
CONSTRUCTING A PORTFOLIO
Lessons from COVID-19
17
TOOLBOX
Retaking the exam
Investing in LICs
20
Opportunity for FASEA exam retake in 2022
VALUE
BY LAURA DEW
THE Government has granted a limited one-time extension to advisers who have failed the Financial Adviser Standards and Ethics Authority (FASEA) exam twice to sit it next year. A statement from Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, said there would be limited exemptions available. These would apply to those who had made previous exam attempts but failed at those. “For those who have made two
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An overdue market rotation AFTER a decade of outperformance by growth stocks, markets are seeing a reversal with value stocks now being in favour. Since the announcement of the COVID-19 vaccine in November, value stocks such as commodities and financials had been blazing a trail while their growth counterparts such as technology were seeing sell-offs of 30%-40%. The positive economic environment was also highlighting the extreme multiples of growth stocks with some investors being reluctant to buy in at those prices. As to whether there was still time for investors to buy in to the value trade, managers felt it still had further to run, particularly if there was a high inflation environment which tended to benefit those cyclical stocks. Dougal Maple-Brown, head of Australian equities at MapleBrown Abbott, said: “Essentially growth has outperformed value for a decade and value has had a good six to nine months. Over the entire time, value has underperformed growth by approximately 50% and value has probably recaptured around 10% more recently. “So, whether you look at the time periods or indeed the underperformance, we would argue that value’s run is only just getting started”.
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FASEA
Full feature on page 14
genuine attempts to pass the FASEA exam, and were unable, there will be a one-time, limited extension into next year. There will be at least one further opportunity to pass the exam offered in 2022 for those who qualify for the exemption. Costs, and timings for the 2022 period have yet to be confirmed,” she said. “If advisers have not sat the exam twice prior to the end of this year, no extension will be granted. Please do not delay – these exemptions will be very limited.” There were only two more exam sittings taking place in 2021.
Half of Count Financial advisers have left CountPlus since acquisition BY CHRIS DASTOOR
APPROXIMATELY half of the original adviser cohort that CountPlus acquired from Count Financial have left post-acquisition, either due to retirement or they had ceased to provide financial advice, according to a business update from the adviser firm. It had also established a pipeline of 73 firms and 197 advisers, with four firms currently being onboarded with 11 financial advisers and gross business earnings of $3.9 million. It said 85% of Count Financial advisers had passed the Financial Adviser Standards and Ethics Authority (FASEA) exam, compared to 65% for the industry average. Over 60% of Count Financial advisers had two or fewer education units to complete before the 1 January, 2026 deadline. The number of advice documents produced by the firm had increased 59% for the year up to 31 May, 2021. This was with less financial advisers, which meant an 87% increase in advice documents produced per financial adviser. The firm also noted it raised a provision for remediation related to historical conduct of $252 million, and Count Financial and CountPlus had been granted indemnity from the Commonwealth Bank of Australia (CBA) for $200 million to cover remediation of Continued on page 3
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Investment companies a better alternative to family trusts BY CHRIS DASTOOR
INVESTMENT companies present an alternative for family trusts, when it comes to planning alongside superannuation for high net worth clients, according to HLB Mann Judd. Michael Hutton, HLB Mann Judd partner, said investment companies could be used to house and invest family wealth. “One of the things we’re talking to our wealthier clients about is using it as an alternative structure in addition to superannuation,” Hutton said. “The benefit there is you’re not limited by contribution limits, a family can loan money into the company and then have that company invest money from them and earn income on those investments. “It’s taxed at the company rate of 30%, rather than perhaps the top marginal tax rate if they were to invest that money in their own name.
Half of Count Financial advisers have left CountPlus since acquisition Continued from page 3 certain historical conduct within Count Financial. As of 31 May, 2021, the total payment against CBA indemnity was $4.9 million. Matthew Rowe, CountPlus managing director and chief executive, said that Count Financial had a strategic focus on growing the capability of its adviser community and bringing in new firms that were a positive cultural fit. “Since October 2019, around half of our original adviser cohort have retired or left, and we have brought in 107 new advisers with a focus on quality and clientcentric values,” Rowe said. “Our clean, sustainable operating model is resonating with advice businesses that want to be part of a licensee which is focused on professional services rather than product distribution, which is one of the reasons why we are seeing this productivity enhancement.”
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“That’s not as good as superannuation, which is why it should be part of the strategy and perhaps the major part of the strategy.” For that reason, Hutton said investment companies had come into play more often with discussions with wealthier clients. “Where they’re not able to draw enough from their super because they didn’t build it up enough, they can draw down on the investment portfolio and effectively they’re drawing down on a loan account so there’s no tax payable,” Hutton said. “They can pay dividends out of that to themselves as these would come out as franked dividends. “It doesn’t have to declare a dividend each year, it doesn’t have to pay out profits, which is different to a family trust, so were finding that to be a flexible way to go. “It’s also perpetual and can continue on past the death of the shareholders, whereas a super fund cannot.”
Retirees need to be careful relying on franking credits to support income RETIREES relying on dividends and franking credits to support income may need to consider alternative options in case of further market and legislative risks, according to a panel. Speaking on the Money Management Retirement Income Webinar, Brian Parker, Sunsuper chief economist, said one of the lessons of the last Federal election campaigns was the cost to the Budget due to franking credits had become significant. “That issue could be re-visited by a future Government or opposition so although retirees have done very well in Australia because of fullyfranked dividends and having significant exposure to Australian shares, what worked in the past may not work as well over the next five, 10 or 20 years,” Parker said.
Even more broadly speaking, Parker said it was important that members and their clients had realistic expectations about what returns can be achieved. “Especially as interest rates and risk-free assets are going to deliver very poor returns,” Parker said. “How are you going to deliver CPI [consumer price index] plus 3.5% net when 20% to 30% of your portfolio is going to be delivering virtually nothing over the next three to five years and beyond. That is the challenge we face every day.” John Maroney, SMSF Association chief executive, said many self-managed super fund (SMSF) retirees had achieved good performance from ASX-listed companies due to franking credits. “The shifting away from traditional high allocations to listed shares and cash deposits is unlikely to occur quickly,” Maroney said. “There’s certainly increased interest in diversification and opportunities for this, particularly for those in their 70s and 80s, they have done particularly well over the most of their retirement already. “They are probably less likely to shift quickly, but again it’s important for them to think about the future direction of their asset allocations and their product selections as well.”
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4 | Money Management July 1, 2021
Editorial
jassmyn.goh@moneymanagement.com.au
FASEA EXAM EXTENSION A SENSIBLE MOVE BY GOVT
FE Money Management Pty Ltd Level 10 4 Martin Place, Sydney, 2000
While the extension provides some leeway for advisers who have not passed the Financial Adviser Standards and Ethics Authority exam this year, clarity is needed on whether advisers will still be able to practice next year.
Editor: Jassmyn Goh Tel: 0438 957 266 jassmyn.goh@moneymanagement.com.au Associate Editor - Research: Oksana Patron
THE GOVERNMENT seems to have listened to the financial adviser industry with its change of heart regarding no extensions or exemptions to passing the Financial Adviser Standards and Ethics Authority (FASEA) exam by the end of 2021. With the current expectation that there are to be only 15,000 advisers left by the end of the year at a time when affordable advice is more needed than ever, the decision to give a one-time extension is a rational one. Advisers and industry associations have been left confused ever since FASEA chief executive, Stephen Glenfield, told a Senate committee that advisers would be able to take the exam next year if they had not passed by the end of the year. Glenfield was sparse on details during his appearance but FASEA later updated its website FAQs to allude to a possible ‘career break’ pathway for existing advisers who had not passed by the end of 2020. However, industry associations warned this technical workaround should only be used by advisers as a last resort. Therefore, the Government’s decision for the exam extension
Tel: 0439 137 814 oksana.patron@moneymanagement.com.au Senior Journalist: Laura Dew Tel: 0438 836 560 laura.dew@moneymanagement.com.au Journalist: Chris Dastoor Tel: 0439 076 518 chris.dastoor@moneymanagement.com.au ADVERTISING Account Manager: Damien Quinn Tel: 0416 428 190 damien.quinn@moneymanagement.com.au
is a welcome one. However, the extension can only be used by advisers who have failed at least two exams so any advisers who sit their first exam in September and fail will be unable to use the extension given the three-month rule for registering to re-sit the exam. Currently, there are only three exam sittings left – July, September, and November. So, while it is a welcome move by the Government, when the measure was announced it gave advisers who had not sat any exams yet just one day before July registrations closed. The only detail the Government has given so far is that advisers who use the extension measure will have until 30 September,
2022, to pass the exam. The announcement by the Minister for Superannuation, Financial Services, and the Digital Economy Jane Hume said: “There will be at least one further opportunity to pass the exam offered in 2022 for those who qualify for the exemption. Costs, and timings for the 2022 period have yet to be confirmed”. Clarity from the Government and the Australian Securities Investments Commission (ASIC), which will oversee the exam from next year, is still needed on whether advisers will be able to provide advice between 1 January, 2022, and when they pass the exam.
Jassmyn Goh Editor
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WHAT’S ON VIC Risk and Compliance Discussion Group Online 6 July superannuation.asn.au/ events
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24/06/2021 4:11:43 PM
July 1, 2021 Money Management | 5
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Financial advisers can continue as business owners without FASEA requirement BY OKSANA PATRON
ADVISERS who do not sit the Financial Adviser Standards and Ethics Authority (FASEA) exam by the end of the year have an opportunity to stay in the industry by being business owners, according to Sequoia Financial Group. Michael Butler, head of advice and compliance at Sequoia, said that it was important to recognise that there would be some advisers who were not ready to take on the amount of study and continue in their role while their clients would continue to need the services. “We are trying to work with our advisers and we recognise that there is a number of advisers who, for one reason or another, will not sit the exam, even though this is in the minority,” he said. “We believe that the need for providing advice
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is only going to grow and we are looking to work with those advisers who don’t want to go on in the advice but who have a successful business. These are either accounting or financial planning business, for them to be owners and for those businesses to generate the sufficient income to actually employ an adviser to work within that business because otherwise we won’t be able to service the clients who need advice.” Butler stressed that the current ongoing changes within the industry were going to impact those clients who could least afford to be impacted such as mums and dads who really need advice. “We are working to keep our practice numbers up so that we service such clients,” he added. Commenting on the adviser numbers within the group, Butler pointed out that it was
unfortunate that the professional year requirements came to the industry at the same time as the big institutions were on their way out. “They were probably in the best place to run these programs, but now groups like ourselves will have to step in,” he said. “We are putting in place programs to meet the professional year requirement but it’s only a small program at the moment because there is not a lot of demand for it but there is a programme that would be able to ramp up as it is required when there will be a need for graduates to come through.” Butler said that for now there were still a number of people who had been forced out from institutions and were already qualified but this situation would change over the next couple of years.
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ASIC breach guidance leaves room for subjectivity Equip chair calls for more ‘logical mergers’
BY JASSMYN GOH
THE corporate regulator’s guidance on the incoming breach reporting regime leaves for subjective assessments of breaches by Australian financial services (AFS) licensees, according to the Australian Institute of Superannuation Trustees (AIST). In its submission to the Government on breach reporting, AIST said while the scope of breaches or likely breaches of core obligations in the draft guidance had a level of objectivity there was room for subjective assessment. “There is a risk that a lack of more granular guidance on what must be reported to ASIC [the Australian Securities and Investments Commission] may result in licensees inadvertently breaching their obligations as they may interpret guidance differently to how ASIC might do so,” the submission said. “A breach or likely breach of a core obligation captures a wide range of scenarios and includes any contravention of a civil penalty
provision. “Considering the scope of civil penalty provisions and what may amount to trivial breaches, AIST considers that high-level guidance does not provide sufficient objectivity to assist AFS licensees determine if a breach or likely breach of a core obligation is a reportable situation. AIST supports measures that enhance breach reporting but notes that there is scope in draft RG 78 for additional and targeted guidance on what constitutes ‘core obligation’.” AIST said there needed to be guidance on how to determine whether a breach or likely breach of a core obligation was “significant”. “Significance’ is not defined, and although we welcome the intent of
objectivity by the introduction of ‘deemed significance’, the broad scope of civil penalty provisions leaves room for specific examples or case studies using one of the many civil penalty provisions outlined in the Corporations Act,” AIST said. “In relation to ‘deemed significance’, we acknowledge its objective application to investigations that take more than 30 days, but would welcome further clarity and guidance on the ‘material loss or damage’ aspect, in particular more examples of what constitutes ‘material loss or damage’ both in financial and non-financial terms given that any such loss could result in a breach being deemed significant.”
Media reporting causing financial adviser pain BY CHRIS DASTOOR
THE negative light the advice industry is being painted in by the media has been acknowledged as one of the greatest contributing factors to poor mental health factors for advisers. This was along with regulatory and cost pressures which had been well-documented issues in the industry. In a webinar with the Association of Financial Advisers (AFA), Dr Adam Fraser said all the changes in the industry had made it hard to do the role. “It’s very demanding and puts a lot of pressure on them and all the regulatory restraints take time,” Fraser said. “How they’re being painted in the media, how they’re being judged – and that one really hurts. “What we haven’t paid enough attention too is the impact of that on people; it’s deeply wounding and scaring for many advisers who have worked hard, who have so much meaning and purpose attached to what they do to have this unfair criticism of them out there in the market place.” Fraser, along with AIA Australia, The e-lab and
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Deakin University, had released the ‘Australian Financial Advisers Wellbeing Report 2021’ in June, which showed advisers were showing high levels of burnout. “What [the research] shows is that we have serious concerns about sustainability and can they continue doing the job, but also that their wellbeing is suffering terribly,” Fraser said. “It’s important to the public because its critical for people to have proper cover and good financial advice. “This is an important job and it’s a group of people that are finding it hard to stay in the job.” Michael Nowak, AFA national president, said he took the media messaging personally. “It really hurt my confidence as an adviser, but then also the rapid regulatory changes that came out of that, the changing of fee structures and the education requirements are quite confronting and difficult to deal with,” Nowak said. The AFA had earlier called for the end of the “vilification” of financial advisers after criticism from a Labor Senator during the passing of the Your Future, Your Super bill.
EQUIP Super and Catholic Super director and chair, Andrew Fairley, will step down from the role on 30 June, 2021, after 12 years. In stepping down, Fairley called on superannuation funds and trustees to place greater priority on members’ interests and performance, and to embrace “more logical mergers”. “It is a fundamental duty of all trustees to put members’ interests ahead of their own interests. I don’t think that that is always the case,” he said. Fairley noted he supported the Australian Prudential Regulation Authority (APRA’s) performance outcomes test. “APRA’s traffic light approach is very helpful. The more disclosure of underperformance, the better informed the sector is and consequently members become. Members must have the ability to vote with their feet where they are part of an underperforming fund,” he said. Commenting, Equip and Catholic Super’s chief executive, Scott Cameron, said: “Andrew’s leadership has been integral to our growth and success. “He has ensured a skillsbased professional approach for the trustee that has created better retirement outcomes. Beyond Equip and Catholic Super, he has been a guiding force across the industry.” Fairley signalled his intention to step down from the role two years ago but continued as chair to see through Equip’s joint venture with Catholic Super. Fairley would continue as an industry director of the Australian Financial Complaints Authority and intends to maintain an ongoing involvement in the superannuation sector.
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8 | Money Management July 1, 2021
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Parliamentary criticism of advisers ‘borders abuse’: AFA BY JASSMYN GOH
THE ongoing “vilification” of financial advisers in the Federal Parliament “borders abuse”, according to the Association of Financial Advisers (AFA) chief executive, Phil Anderson. The AFA called for an end to the “persecution” of the financial advice sector. Anderson pointed to a statement made by Labor senator, Jenny McAllister, in the Senate last week who said: “The people who will benefit most from these arrangements are financial advisers giving shonky advice—the kind of advice we’ve seen again and again and again, the kind of advice exposed in the Hayne Royal Commission”. He said the majority of advisers worked in the best interest of clients and that the Royal Commission only looked at a “tiny fraction” of the adviser population. Anderson noted the number of advisers in the country had fallen by over 30% since the Royal
Commission which reduced access and affordability of financial advice for everyday Australians. “Is the decline in adviser numbers really in the best interests of Australians, who need help to balance their budgets, invest their savings, save for retirement or protect their family in the event of an insurance event?” he said. “Financial advisers are humans, they have families and friends. They have emotions. For too long they have been forced to feel uncomfortable talking publicly about what they do. This is not right. No professional should be made to feel this way, and particularly not by elected members of their own Parliament.” He said the association called on all stakeholders to enable financial advice to make a new start “one free from constant criticism and scepticism”. “The time has come. Enough is enough. We call on all fair-minded Australians to make this happen,” he said.
Compensation scheme of last resort delayed again
ASIC probed on ‘why not litigate’ future
BY CHRIS DASTOOR
THE corporate watchdog has said it will be looking at its enforcement settings as its priorities have changed but that it intends to be an active litigant if needed. The Australian Securities and Investments Commission (ASIC) was probed by a parliamentary committee on whether it would continue its “why not litigate” regime following the commencement of its new chair, Joe Longo. In his opening statement, Longo said the commission was entering a new phase of its enforcement and regulatory work as it was finalising enforcement actions arising from the Hayne Royal Commission. Longo was asked whether ASIC’s approach to enforcement would change given his new role. “For my part one of the things I’m working with the other commissioners is what our enforcement settings should be in the next couple of years because our priorities have changed,” he said. “Our commitment to enforcement will not change but the critical question is what enforcement, what cases do you run, what investigations do you launch – those are the critical questions. And then I can reassure the committee we intend to be an active litigant in furtherance of those objectives.” ASIC deputy chair, Sarah Court, noted that when deciding on what action to take from its toolbox – including infringement notices, undertakings, other new powers ASIC had recently been given, criminal proceedings, and civil litigation – the commission needed to make sure the action was proportionate and that it needed to be an efficient and timely use of its resources. Responding to this, Labor Senator, Deborah O’Neill, pointed to instances when ASIC did not go ahead with court cases as cost was a prohibitive factor and that this did not meet community expectations. ASIC deputy chair, Karen Chester, said the commission had been using “express investigations”. “An effective regulator means using all the toolkit but when we are we use it in the least cost way. Express investigations have resulted in a reduction in cost for the entities involved in 70% of legal fees,” she said.
THE Government has again put on hold implementing the compensation scheme of last resort (CSLR), as it has been delayed for budgetary reasons, according to the Australian Securities and Investments Commission (ASIC). The CSLR was expected to be put up for legislation by the middle of the year, with some of the funding arrangements announced as part of the Budget. Karen Chester, ASIC deputy chair, was asked by a Senate Committee whether it had had discussions with the Government over the compensation scheme of last resort being put in place. “As part of the Government’s response to the Hayne Royal Commission, CSLR was considered by a group comprising treasury as the chair. “We have discussed CSLR in that context and there has been a deferral by the Government to deal with CSLR. “We understand that it’s still on the radar and it is to be happening, but it has been pushed out for budgetary reasons. “ASIC is a huge supporter of CSLR, it’s the final part of the vision of the Ramsey Report.” Chester said any question over the status of CSLR was best put to Treasury, but she understood it was close to entering consultation. “While the Government did accept the decision to do a CSLR after the Hayne Royal Commission, it does go back to the Ramsey Review,” Chester said. “[The Ramsey Review] drew the line in the sand and set up the scheme for how it was meant to be implemented. “The Government did exhaustive consultation on this then wanted to wait to see what came out of the Royal Commission.”
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Median balanced super fund up 1.1% in May BY JASSMYN GOH
THE median balanced superannuation fund rose 1.1% in May as investor confidence remained high despite vaccinations lag and snap lockdowns in the country, according to SuperRatings. The research house’s latest data found the median growth option rose 1.3%, and the median stable option rose an estimated 0.6%. It also found over the 2020/21 financial year-to-date, the median balanced option returned 15.8%, to
position funds to end the financial year on a high. The median balanced pension option returned 1.3% during the month of May and 17.1% over the financial year-to-date. The median pension growth option returned 1.4% during the month, and the median capital stable option gained an estimated 0.6%. SuperRatings executive director, Kirby Rappell, said: “As we reflect on the financial year to date, May is the eleventh month in a row we have seen a positive result for the median
balanced fund and we are on track to see a double-digit return for the year ending 30 June, 2021. “While strong performance this year is pleasing, market volatility prevails and we are erring on the side of caution in terms of the future outlook, with equity markets likely to provide investors with a bumpy ride. Further with rates remaining at record lows, more defensive assets such as cash and bonds have delivered meagre returns, which is impacting retirees’ incomes.” It also found over the 2020/21
financial year-to-date, the median balanced option returned 15.8%, to position funds to end the financial year on a high.
Mixed industry reactions to Your Future, Your Super bill passage WHILE the Financial Services Council (FSC) has welcomed the Your Future, Your Super reforms which were passed by the Senate in June, Industry Super Australia (ISA) and the Australian Institute of Superannuation Trustees (AIST) believe workers could be the big losers from the passage. FSC chief executive, Sally Loane, said the council supported the stapling recommendation as having a single superannuation account would save Australian workers up to $1.8 billion in fees over the first three years. Loane also pointed to the performance benchmarks for super products and said this would work alongside stapling to give members “confidence” their super was generating “best in show” investment returns. “The challenge now for the regulators and Government is to ensure performance assessments use rigorous and comparable data for all products so that comparisons are undertaken on a ‘like-for-like’ basis,” she said. However, ISA said at least 2.6 million super fund accounts were locked in funds that could fail the performance test. It also said over $500 billion of members
savings were “shielded” from the performance test and that it would push the Government to ensure the funds they carved out were included in the test. ISA chief executive, Bernie Dean, said: “We’ll monitor the impact of the bill and may press future Parliaments to mandate that Australians can only be stapled to the bestperforming funds and not the worst ones. “After almost universal criticism the government was forced to drop a number of ideological proposals and to improve the performance tests for funds, but sadly it stopped short of protecting workers from losing their savings by being stuck in a dud super fund.” Similarly, AIST chief executive, Eva Scheerlinck, said: “AIST remains deeply concerned that these legislative carve outs provide incentives to unscrupulous providers to push high fee, under-performing products onto unsuspecting consumers. “Many Australians could remain stapled to dud products for life and be none the wiser as their super fund won’t be subject to performance testing.” She said addressing underperformance
should be the responsibility for the regulator, not consumers. “Expecting all members in an underperforming fund to respond to a letter and take appropriate action places a huge burden on individuals to ‘fix’ their super,” Scheerlinck said. “While some may respond, many will not, in particular vulnerable Australians, leaving them languishing and stapled to an underperforming fund, compounding disadvantage and reducing their retirement balances.” The FSC also welcomed the Senate’s passage of the ‘More Flexible Super’ reforms. “The changes to contribution arrangements for older Australians will make it easier for them to manage their superannuation and retirement planning,” Loane said. “We were also pleased to see the Government support amendments tabled by Pauline Hanson’s One Nation to allow individuals who withdrew superannuation during the COVID-19 crisis to recontribute those amounts without being penalised. This is consistent with FSC advocacy as part of a holistic response to the COVID-19 early release scheme.”
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10 | Money Management July 1, 2021
News
Corporate regulator needs to clarify commissions treated as ongoing fee ‘consent’: AFA BY JASSMYN GOH
THE use of the word ‘consent’ in the corporate regulator’s guidance on commissions considered as ongoing fees is confusing and more clarity is needed, according to the Association of Financial Advisers (AFA). Speaking to Money Management, AFA chief executive, Phil Anderson said while he thought the Australian Securities and Investments Commission (ASIC) did “a good job” with the guidance, it
needed to provide more clarity on its definition of an ongoing fee. Anderson pointed to question three of ASIC’s FAQ guidance on ongoing fee arrangements which said: “An ‘ongoing fee’ is any fee (however described or structured) that is paid under the terms of an ongoing fee arrangement between the fee recipient and the client: see section 962B. “If a third party pays the fee recipient a fee (e.g. commissions), this will generally not be an ongoing
fee, where it is paid under a commercial arrangement between a product issuer or platform operator and a fee recipient. “However, commissions may also be considered ongoing fees if they are paid with the clear consent, or at the direction, of the client.” Anderson said the word ‘consent’ was likely to confuse advisers as clients already needed to provide consent to the payment of commissions on life insurance products through the Statement of Advice (SoA) and signing the Authority to Proceed. “Aren’t they already providing consent? I think it’s talking about a higher level of confirmation from the client than a routine fact in the SoA, and they are agreeing to the SoA. Nonetheless the risk is that it causes confusion and uncertainty,” Anderson said. “I think that this is intended to refer to a situation where there is a dial up commission, rather than a standard life insurance commission. “It’s the use of the term ‘consent’ so obviously you need to
Wealth Today buys Sentry Group BY OKSANA PATRON
WT Financial Group Limited (WTL), the ASX-listed parent company of national financial advisory dealer group Wealth Today, has entered into an agreement to acquire 100% of its industry peer, Sentry Group Pty Limited. The company said in the announcement to the Australian Securities Exchange (ASX) that WTL had undergone a transformational restructure over the past three and a half years and reduce our focus on business-to-consumer (B2C) financial services and emerge as a primarily business-to-business (B2B) enterprise. WTL managing director, Keith Cullen said: “The acquisition of Sentry extends this strategy and sets the platform for further significant growth”. On completion of the acquisition Sentry director (and shareholder) Michael Harrison would join the WTL board as a non-executive director, while Sentry managing director (and shareholder) David Newman would assume the role of WTL joint chief operating officer (COO)
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focussing on business development and management of west coast operations – and will also remain as managing director of the Sentry subsidiary. Current WTL COO, Frank Paul, would focus on east coast operations and head WTL’s risk management processes, while current WTL head of advice Jack Standing; current Sentry head of legal and compliance Shelly Radford; and current Sentry head of finance, Ricton Jones, would each assume expanded responsibilities across the group. “While we will continue to operate both the Wealth Today and Sentry B2B brands, merging our operations provides a powerful combination and expanded resources,” Sentry managing director, David Newman, said. “The alignment we have on key philosophical and operational issues, coupled with the complementary nature of the IP, skills, and experience across the two businesses, presents for a seamless integration to the benefit of our advisers and their clients.”
be very careful about how you are treating those life insurance commissions and you’re not putting yourself in that position where someone could argue that point. That’s something we’d like to get more clarity on from ASIC.” Anderson warned that the regime that would come into force on 1 July and advisers needed to pay attention to it and plan for it. “Advisers need to get on top of the detail of what is required. They need to understand how the transition period works, the requirements about the 12 months, and the fact that the day they issue the fee disclosure statements (FDS) becomes it becomes the anniversary day going forward,” he said. “They need to have a very clear plan on how to approach this. You’ve got flexibility in choosing when to provide the FDS from the transition year but you need to be making those decisions in advance. “They need to understand what they need to do and have a clear plan to do it.”
Mainstream to pursue Apex acquisition offer BY CHRIS DASTOOR
FOLLOWING a “superior proposal” to what was offered by SS&C, fund administrator Mainstream Group Holdings will pursue discussions with Apex Group Limited after reaching the deadline for SS&C to exercise matching rights. Apex offered the acquisition of 100% of shares by way of scheme of arrangement for $2.80 per share. As part of the terms, SS&C had until 5pm on 17 June, 2021, to match or offer more favourable terms. However, Mainstream was still bound to the SS&C share implementation deed (SID) and the Mainstream board had not changed its recommendation that shareholders vote in favour of the SS&C scheme in absence of a “superior proposal”.
23/06/2021 9:42:10 AM
July 1, 2021 Money Management | 11
News
Advisers choosing fixed-term fees due to compliance complexity BY JASSMYN GOH
FINANCIAL advisers will need to make sure their fee-charging systems for clients in a fixed-term agreements do not perpetuate fees charging over 12 months, a lawyer has warned. Herbert Smith Freehills partner, Michael Vrisakis, told Money Management that given the stringent compliance requirements for ongoing fee arrangements, many advisers who found it difficult to meet those requirements had decided to adopt the KIS principle and entered into arrangements of 12 months or less. “The reality is that many licensees and advisers are choosing to service clients through a period of 12 months or less,” Vrisakis said. “The really important issue is to make sure that the fee charging systems do not perpetuate fee charging over more than 12 months and that this is incorporated into the arrangement with the client so that they don’t pay fees for longer than the 12
months period. “But if this can be achieved, the NOFA – the Non-Ongoing Fee Arrangement – is a good and legally valid alternative.” In June, the Australian Securities and Investments Commission (ASIC) released guidance surrounding ongoing fee arrangements and clarified what was and what was not an ongoing fee arrangement. “An ongoing fee arrangement exists when: • The fee recipient gives personal advice to a retail client (‘client’) • The fee recipient and client enter into an arrangement, and • Under the terms of the arrangement, the client must pay the fee recipient a fee
RBA vows to extend QE beyond September BY LAURA DEW
THE Reserve Bank of Australia has committed to extending its quantitative easing program of bond purchases beyond September 2021. In a speech, RBA governor Philip Lowe said the RBA had been considering its actions once the first six-month round of quantitative easing concluded in September. There were four options, he said, which were ceasing bond purchases, repeating the $100 billion purchase programme for a second time, scaling back the amount purchased or spreading it over a longer period or moving to an approach where the pace of bond purchases was reviewed more frequently based and data and economic outlook. “The bond purchase program has also been an important part of the RBA’s monetary policy response. It has lowered bond yields and funding costs across the economy and
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contributed to a lower exchange rate,” he said. “We have made no decisions yet, other than to rule out the first option – the cessation of bond purchases in September. The RBA’s bond purchase program is one of the factors underpinning the accommodative conditions necessary for our economic recovery. It is premature to be considering ceasing bond purchases.” There would be no increase in the cash rate until inflation was within 2% to 3% target range which the RBA said was “some way off”. The central bank had previously said rates were expected to remain at 0.1% until late 2023. “Inflation pressures remain subdued and are likely to remain so. For inflation to be sustainable in the 2% to 3% range, wage increases will need to be materially higher than they have been recently. Partly for the reasons I talked about earlier, this still seems some way off,” he said.
(however described or structured) during a period of more than 12 months: see section 962A. The following examples are not ongoing fee arrangements: • A payment plan meeting the requirements in section 962A(3), and • An arrangement under which the only fee payable is: • An insurance premium (see section 962A(4)), or • A product fee (see section 962A(5)).” • However, ASIC noted that licensees and advisers “frequently” entered into fixedterm agreements where they changed clients for a period of 12 months or less.
“There are a range of factors that ASIC will consider in determining whether or not such an agreement is an ongoing fee arrangement. In addition to the terms of the written agreement, these factors include but are not limited to: • Whether the agreement is limited to a fixed-term period of 12 months or less; • Whether fees stop being charged at the end of the fixed-term period and do not exceed 12 months – for example, because the adviser or licensee has backoffice or administrative systems in place to turn off the fees by the end of the fixed-term period; and • Whether there is an understanding between the client and the adviser or licensee that the client will be charged for a period of 12 months or less. This can be demonstrated by information given to the client, including brochures and marketing material, and a general record of discussions with the client,” ASIC said.
LICAT hits back at Monash criticism THE Listed Investment Companies and Trusts Association (LICAT) has hit back at criticism from Monash Investors that their closed-ended structure is difficult to run. Last month, Monash listed its Absolute Investment Company as an exchange traded managed fund after admitting it was a mistake to opt for a LIC structure, a restructure that had taken three years to complete. “There are lots of characteristics of LICs that were not obvious to us at the time such as tax and franking credit rules and they were hard to explain to clients,” portfolio manager, Simon Shields, said. “We wouldn’t choose a LIC if we were setting it up now.” However, LICAT disputed this criticism and said LICs were suitable for investors who were looking to “steadily and carefully invest over the long term”. It was therefore unsuitable for investors who were looking to withdraw their capital easily or investment managers without a steady pool of long-term clients. The structure, it said, was therefore perhaps unsuitable for Monash although this did not detract from their overall viability and benefits. “Monash is a boutique investment manager running a highly concentrated, long short portfolio, with which the investing public have limited familiarity. While they have recently generated favourable returns, there evidently remained an ongoing mismatch between the volume of the patient and willing buyers of their shares and the volume of existing investors seeking to sell,” it said. “Monash should perhaps acknowledge and appreciate the difficulties of establishing a committed clientele of investors – a challenge that must be faced by all investment funds – whatever their structure.”
23/06/2021 1:35:37 PM
12 | Money Management July 1, 2021
InFocus
CLIMBING UP THE RANKS Oksana Patron writes how recent acquisitions position former mid-tier financial planning groups higher up the ranks in terms of financial adviser numbers. SINCE THE BANKS announced their departure, there has been an ongoing race among the mid-tier financial planning groups to fill the void. The key groups in this segment have been busy over the past few months expanding their businesses through both organic growth and acquisitions, including looking at possibilities presented by businesses of advisers who are exiting the industry and other Australian financial services license (AFSL) holders. On top of that, mid-tier groups have also been trying to lure in advisers who left institutional groups and are now looking for a new home. The changes have already been captured by data and, as of June 2021, institutionally-aligned groups were in minority within the top 10 largest financial firms by adviser numbers. By comparison, five years ago, Synchron was the only independent group in this ranking, according to Money Management’s 2016 Top Financial Planning Groups research. At the same time, there has been significant changes within the licensee owners, as groups such as Easton and Sequoia, which own numerous AFSLs, having risen to the top 10 biggest groups in the country. One thing that is inevitable across this market segment is the consolidation, in particular at the practice level, according to Keith Cullen, managing director at WT Financial Group, the Australian Securities Exchange-listed parent of Wealth Today, which announced the acquisition of Sentry Group in June. Cullen will now head an entity with the combined number of 275 advisers, including a combination of general advice and wholesale advisers, who are not listed on the Australian Securities Investments
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Commission (ASIC’s) Financial Advisers Register (FAR). He said he expected new advisers to join the group in July and aspired to build a substantially larger group over the next few years. More specifically, his plan was to grow his adviser numbers to surpass the average mid-tier group. This would position the business as a serious competitor to other listed entities such as Centrepoint Alliance, CountPlus, and Sequoia Financial Group. Further to that, Cullen said Sentry was already in the process of scaling back to one AFSL and the advisers who had been sitting under those other AFSLs had been gradually moving across to their main AFSL. “We’ve done the same on our side once we acquired Wealth Today when we had two AFSLs but we moved everything out of one of them and we are in the process of shutting it down,” he said. Wealth Today was acquired by the publicly-listed Spring FG in 2018 which rebranded WT Financial Group a year later. Further to that, Cullen said once Sentry Group had completed moving everyone across to one AFSL, the
new combined group would operate two AFSLs. However, he did not dismiss the idea of merging the two AFSLs ‘at some point’ down the road, but stressed this would not apply to brand names. “For the foreseeable future we intend to keep operating both the Wealth Today and the Sentry brands but it does not mean that we need two AFSLs ultimately because all that does is it makes additional costs – two compliance committees, two sets of insurance, two sets of everything,” he said. Also, Sequoia Financial Group, which currently owned a number of licensees, including Interprac Financial Planning, Libertas Financial Planning and Sequoia Wealth Management, announced acquisitions in June. According to its announcement to the ASX, Interprac FP, which had over 300 advisers alone and was ranked seventh-largest financial planning group in the 2020 edition of Money Management’s Top Financial Planning Groups ranking, bought additional customer books in June. These were Hobart-based FF Planning Solutions and Melbournebased SFG Financial Services and the move expected to add more than
$500,000 of annual recurring fee-for-service income. The acquisitions were made from former authorised representatives of the firm and were in line with the strategy under which retiring advisers were provided equity in the group and their customers could continue to be served by the group. Michael Butler, head of advice and compliance at Sequoia, said: “We believe that providing the scale of having the advisers under the main license is better than just adding the conglomeration of licenses. “If you look at the Sequoia Group as a whole we have a very horizontally-integrated model where we offer services to financial planners and accountants across the whole name – we have a stock brokering licence, corporate document services, we can open up trusts and super funds and we have a self-administration and information channel. “So, it’s based on the provision of services and we like to think that the advisers that choose to come to us are looking for that sort of service rather than product or distribution services.”
24/06/2021 2:00:32 PM
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7/06/2021 2:55:21 PM
14 | Money Management July 1, 2021
Value
AN OVERDUE MARKET ROTATION
After decades of underperformance, value is seeing a turnaround and outpacing growth stocks for the first time in years, writes Laura Dew. VALUE HAS SEEN the biggest turnaround since World War II with value managers being vindicated after years of underperformance. Value had underperformed growth for over a decade in an environment where interest rates have fallen which benefits growth stocks as they are longerduration assets. This means they have more of their cashflows in
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the future than a short-duration value stocks. Companies have also struggled to find earnings growth in a weak economic environment as profits are under pressure which meant investors paid a premium. But since the announcement of the COVID-19 vaccine from Pfizer and BioNTech in November, value stocks have seen a sharp turnaround.
In the six months from October 2020 to March 2021, the S&P Australia BMI Value index beat the S&P Australia BMI Growth index by 19.7%, the strongest six-month period on record. Meanwhile, the MSCI ACWI Value index had returned 27.4% since 1 November to 17 June, 2021, compared to returns of 10.6% by the MSCI ACWI Growth index. “The numbers highlight in
dramatic fashion how quickly the value premium- the additional return available over time from low relative price stocks – can kick in,” said Bhanu Singh, head of Asia-Pacific portfolio management at Dimensional. “This is the sharpest turnaround we have seen since World War II, especially in the US, and it comes hot on the heels of a market drawdown.”
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July 1, 2021 Money Management | 15
Value
Chart 1: Performance of MSCI ACWI Value versus MSCI ACWI Growth from 1 November to 17 June 2021
Chart 2: Performance of ASX Financials, Energy and Resources sector from 1 November to 17 June 2021
Source: FE Analytics
When there was an economic recovery, values names tended to bounce back stronger than growth ones while expectations of rate rises penalised growth names and favoured short duration assets instead. Sectors which were particularly benefitting were commodities, housebuilders, agricultural companies and financials and value managers described how they were overweight to these sectors but stressed value was an overall portfolio theme, rather than a style limited to individual sectors. Within the ASX 200, the financials sector returned 44.6% since the start of November while the energy and resources sector had also seen returns of more than 20%. Others pointed out that it was not necessarily the fact that value was outperforming but rather that growth stocks were performing worse than they had done in the past. Sinclair Currie, principal and co-portfolio manager at Novaport Capital, said: “Several years of strong performance by growth themes reinforced investor confidence in companies exposed
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to these trends. As a result, investors steadily raised the valuation premium for these companies. This created a yawning valuation gap relative to companies which did not enjoy the benefits of those thematic tailwinds. “As time has passed many of these growth themes are now showing signs of maturity. Some remain robust however others are not maturing well and compare unfavourably to emerging themes. Rather than point to a generally positive environment for value, we highlight that many of the companies exposed to the newly emerging investment themes have substantially more attractive valuations. This is driving a rotation of market leadership.” “It is a combination of both,” said Hamish Tadgell, portfolio manager at SG Hiscock, “growth stocks have de-rated, some tech companies have fallen by 30% to 40% but at the same time, value-orientated ones have been rallying.” However, managers were modest and declined to signal that this period of outperformance was a ‘victory’ for them after years of their chosen style being out of favour. They said investing as a value manager required discipline
as markets could move very quickly and a systematic, fundamental investment process which could be explained to clients in periods of underperformance. “While the recent performance has clearly been pleasing for value managers, I still think it is a bit early to claim victory! Value has had a very tough decade and the recent outperformance only began less than a year ago,” said Dougal Maple-Brown, head of Australian equities at MapleBrown Abbott. James Williamson, chief investment officer at Wentworth Williamson, echoed: “If any value manager worth their salt calls the last few months a victory than they are setting a very low bar for themselves”.
INFLATIONARY ENVIRONMENT Managers said they expected value stocks to do better than growth stocks in a high-inflationary environment and a favourable economic environment would also highlight the lofty valuation multiples of growth stocks. According to Bank of America, the threat of rising inflation had been the biggest tail risk for
global fund managers for several months and 64% of respondents were expecting inflation to rise over the next 12 months. Tadgell detailed the theory of a regime shift, of which there had only been eight in the last 100 years. “A regime shift is when we see rising inflation and then it moves materially higher to around 5% or more, equities struggle in that case but cyclicals and commodities tend to do better as real assets outperform equities in that type of environment. “Until now, we have been in a deflationary environment but when does that break and we move to an inflationary phase? There is likely to be shift towards an inflationary regime rather than lower interest rates.” Maple-Brown said: “A reason value should do well in a high inflationary environment is that commodities, still one of our favoured sectors, historically have provided a reasonable hedge to inflation. Now every cycle is different, indeed individual commodity markets can be quite nuanced, but we would expect this historical relationship to hold”. Continued on page 16
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16 | Money Management July 1, 2021
Value
Continued from page 15 Lewis Grant, senior global equities portfolio manager, at the international business of Federated Hermes, said: “The unleashing of pent-up demand onto fragile supply chains still reeling from the pandemic has driven inflation expectations higher, with the debate shifting from whether we would see inflation to whether it will last. “An inflationary environment will be supportive for value names, even if the Federal Reserve maintains course. Eventually, we are likely to see some form of taper tantrum but this will further support the case for value names.” “We expect companies which are able to pass through cost inflation to outperform in a high inflation environment. Some (but not all) companies currently in the ‘value’ basket appear well placed for a high-inflation environment. For example, industries with sunk capital and high operational leverage present an interesting opportunity in a high inflation environment,” said Currie.
TIME TO ROTATE PORTFOLIOS? So, should investors consider moving their portfolios into value stocks or have they missed the bulk of the rally? Managers said there were expectations that value could continue to outperform for several more months so there was still time to get in on the trade. However, they said value was an “evergreen principle” which investors should hold a long-term allocation to it rather than taking a temporary position. Maple-Brown said: “Essentially growth has outperformed value for a decade
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and value has had a good six to nine months. Over the entire time, value has underperformed growth by approximately 50% and value has probably recaptured around 10% more recently. “So, whether you look at the time periods or indeed the underperformance, we would argue that value’s run is only just getting started.” Tadgell said: “We moved from despair in March to hope very quickly then we entered the growth phase in October where we have been ever since and this is the longest phase. We have seen a pick-up in synchronised global growth but I expect it will slow in the second half of the year. “Growth will slow in the next few quarters and the question is how the market will react to that. I think value will remain attractive but the breadth of returns will broaden out, it won’t just be about growth versus value. We are already seeing healthcare and technology do a bit better in recent weeks.” Singh said: “When you have six months of outperformance by value, then there is usually a six months follow-on from that. Value
“Whether you look at the time periods or indeed the underperformance, we would argue that value’s run is only just getting started.” – Dougal Maple-Brown is an evergreen principle, it makes sense to have a long-term allocation to value rather than trying to time the market”. Ben Sheehan, senior investment specialist for AsiaPacific equities at Aberdeen Standard Investments, added: “Over the long-term, we believe owning companies that are exposed to structural growth will do well regardless of the value versus growth regime as the importance of strong stock selection should ultimately transcend the importance of style factor performance. “A balanced portfolio of value and growth stocks can provide exposure to cyclical and structural growth forces. This may be a more prudent approach than choosing one style over another.”
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July 1, 2021 Money Management | 17
Constructing a portfolio
LEARNING ALLOCATION LESSONS FROM COVID-19 The COVID-19 pandemic tested traditional asset allocations and portfolio builds, writes Chris Dastoor, so what lessons have been learnt a year on? THE COVID-19 PANDEMIC was a wake-up call for asset allocation as traditional allocation strategies failed to offer downside protection as markets crashed in March. As equities rebounded by April, conservative assets (particularly fixed income) lagged in the recovery, while equities grew quickly. This was costly for those that switched late into fixed interest or cash and missed out on the
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rebound from equities. Pat Noble, Zurich Investments senior investment strategist, said looking at the world a year after the pandemic started showed expectations could change quickly. “But it also can show that we shouldn’t extrapolate things forever,” Noble said. “When we saw one of the fastest bear markets in history just over 12 months ago, the tendency was to either not rebalance portfolios or allocate into a very
defensive position like in cash. “It’s hard to get out of that, but almost as fast as the market fell, we did see rapid responses from governments and central banks around the world. “If you went into cash and you elected not to rebalance and stick to your discipline, then it’s fair to say you’ve done yourself a disservice.” But looking forward, Bhanu Singh, Dimensional Fund Advisors head of Asia-Pacific portfolio management, said even in the
Continued on page 18
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18 | Money Management July 1, 2021
Constructing a portfolio
Continued from page 17 post-COVID world there was not enough information to say anything was fundamentally different. “All the parameters haven’t changed in a material way, if you ask what the equity premium is going forward, I think it’s within the historical range,” Singh said. “What’s the bond premium going forward? Depending on how you build the portfolio that’s a bit more interesting because fixed income is pretty cool in the sense you can build different portfolios for different needs. “For advisers, all the things they’ve done in the past are still just as applicable going forward and there isn’t anything that requires any dramatic change.” Stan Shamu, Crestone Wealth Management senior portfolio strategist, said quality had to be the emphasis post-COVID regardless of asset class. “Quality has to be the main differentiator of what you invest in, in this part of the market as well as being conscious and cognizant of rebalancing,” Shamu said. “We’ve seen, particularly with equities, run fairly hard postCOVID and the temptation is to keep those positions running for a prolonged period. “We encourage investors to remain vigilant with their rebalancing and ensuring the don’t get overexposed to any particularly asset class. “You need to have a quality filter to avoid debt-laden companies, so if we get to the point and get to the other side and there’s less monetary and fiscal support then the business will still be around for a lot longer rather than ones that are relying on debt.”
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60/40 SPLIT The 60/40 split – 60% into equities and 40% into fixed income – had long been the basic template for a portfolio. However, as fixed income did not offer reliable downside protection during the pandemic, the merit of the future of that strategy had been questioned. Ilya Figelman, Acadian Asset Management senior vice president and director – multi-asset strategies, said for many investors, the 60/40 split may still be broadly suitable as a long-term static benchmark. “However, given the very low level of current bond yields, and expectation of global reflation on the horizon, the 40% allocation to bonds may not only generate low returns, but also may not act as a diversifier to equity risk,” Figelman said. “There are other options that may be worth considering depending on an investors particular investment requirements.” Shamu said portfolios generally should have other options to utilise, one example being looking in the defensive
alternatives space. “[Alternatives] can work and fulfil that defensive role that bonds used to take, perhaps reducing the fixed income allocation and being more flexible with strategies that can still perform the same role,” Shamu said. Shamu said defensive alternatives tended to have similar characteristics to bonds, particularly from a volatility and return perspective. “That’s one main reason we’ve seen a lot of our clients focus on,” Shamu said. “Just having a more unconstrained approach to fixed income so you can split it into other buckets that tend to give you more flexibility.” Noble said there was always a long debate about how an asset allocation was going to perform or not perform. “[For example] if there are high equity market valuations or if markets are a bit frothy or if your bond portfolio is not going to provide any diversification benefit and give you a return,” Noble said. Figelman said one option was to take a more dynamic approach to asset allocation and include a
PATRICK NOBLE
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July 1, 2021 Money Management | 19
Constructing a portfolio
broader asset class exposure. “For example, investors may allocate to a 60/40 strategic benchmark to equities and bonds but invest with a manager that is able to incorporate exposure to other non-benchmark asset classes and then dynamically allocate across these,” Figelman said. “From an end investors’ perspective, this may include some directional exposure to various commodities, foreign currency and maybe even volatility, but the objective would be to target return and focus risk within these asset classes at a market selection level. “For example, taking a long position in gold and offsetting this with a short position in silver has the potential of adding consistent active returns in excess of the 60/40 benchmark while managing directional exposure to any one asset class. “Another option is to look for defensive alternatives investments that may take the place of government and corporate bonds given their current low yields and credit spreads.” Singh said it was important to define what defensive assets meant within the context of a portfolio. “If your client is a 70-year-old person in retirement and you have built up financial capital and you’re looking at your portfolio, you might come up with some allocation to equities,” Singh said. “We think it makes sense to have some allocation to equities in retirement or building something like a 40/60 [to equities and bonds] portfolio. “When it comes to the fixed income part of the portfolio they
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probably want to be fairly conservative. “If you flip that to a 30-yearold and they’re willing to take more risk in the portfolio, they might hold an 80/20 portfolio.” Any risk/return metric would be driven by the 80% in equities, which meant the 20% in fixed income would do little to prevent volatility, so the fixed income allocation did not need to be as conservative. “In that scenario, models would swing the bat with that 20% with more longer-dated, more duration, more credit, to get the most return out of it,” Singh said.
INFLATION Noble said advisers needed to check whether there were investments in their clients’ portfolios that could help deal with inflation risk. “You could have inflationlinked bonds or if you don’t want that duration risk or inflation risk in your bond portfolio you might look to something shorter duration or – dare I say – even cash,” Noble said. “You might consider where some people think there is some inflationary protection qualities in listed investments – that could be in infrastructure or commodities. “And then there’s underlying equities investments where companies have pricing power. “We haven’t seen outright inflation bring problematic for a long time in markets that is potentially one of the big questions and the debate that is ongoing at the moment as to how transitory or structural these inflationary pressures may be in financial markets.”
“We’ve seen, particularly equities, run fairly hard post-COVID and the temptation is to keep those positions running for a prolonged period, so we encourage investors to remain vigilant.” – Stan Shamu, Crestone Shamu said there had been plenty of talk around whether the recent burst in inflation was going to be sustained or was just going to be a flash in the pan. “But it’s better to be cautious, there are different ways of getting inflation protection, the most obvious being to just get inflation insurance through some sort of inflation linked securities,” Shamu said. “There are other levers such as real assets, particularly real estate and infrastructure, where you do get protection if inflation does rise.” Figelman said while inflation expectations had climbed, fixed income and commodities markets had priced in largely rising but controlled inflation with some headwinds against sweeping increases in input prices. “Inflation is only one theme that drives markets and it is important to incorporate a wide array of themes when making investment decisions including: stimulus, growth, supply/demand and valuations,” Figelman said. “In light of this we would caution investors to avoid reflexive and reductive inflation trades that dismiss information that we see markets efficiently pricing.”
STAN SHAMU
23/06/2021 9:40:40 AM
20 | Money Management July 1, 2021
FASEA
SUPPORTING FASEA CANDIDATES Phil Anderson writes how advisers can be supported in the in the run up to the FASEA exam deadline as this can be a stressful period for those yet to pass. AS A LEADER of a professional association in the midst of the most tumultuous period in the history of the financial advice profession, I am acutely aware of the morale and mindset of the financial adviser community. Some advisers have continued to do well in the current environment, but many have not. The issues facing advisers have recently been highlighted by the release of a research report prepared by Dr Adam Fraser of The e-lab and Dr John Molineux of Deakin University. This research highlighted the elevated levels of
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stress, anxiety and burnout amongst the adviser population. The reasons for this are many and varied. High up on the list are the increasing level of compliance, the new education standard, the Financial Adviser Standards and Ethics Authority (FASEA) exam and financial pressures arising as a result of reduced income and rising business costs. The extended ongoing wave of major reforms has also been a big issue. Almost universally, it is felt that these reforms have been excessive, overwhelming and counterproductive to the goal of financial
advice being accessible and affordable for everyday Australians.
THRIVING OR STRUGGLING TO SURVIVE Not all advisers are in the same position – 65% have already passed the FASEA exam and many will have already achieved the required ‘degree equivalence’ study requirements. Similarly, not all businesses have been as exposed to the impact and consequences of the ongoing stream of reforms as others. Some advisers are in a much better position, and also in a
much better mindset than others, being well-positioned to face the challenges of the future. However, others are suffering from undue stress and a negative mindset. One of those stressors is the knowledge that if they don’t pass the FASEA exam by January 2022, they will no longer be able to continue to practise as a financial adviser beyond this date. Recent statements by FASEA suggest that around 2,000 advisers have failed the exam so far, with 882 resitting it at least once and only 578 of these ultimately passing. There are seemingly 1,437
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July 1, 2021 Money Management | 21
FASEA
advisers who have sat the exam at least once and are yet to pass. Based upon the numbers available after the March exam, there are at least 5,000 who are yet to attempt it. That means that there are a lot of financial advisers who will be very anxious about what their future holds.
THE EMOTIONAL IMPACT
certainly not the case for many, who often come out of it uncertain as to whether they passed or not. The exam has been set at a high education standard and the result required to pass is the credit level (typically somewhere between 65% and 75%). There are a range of reasons why some people are struggling with the exam, including a lack of exam technique, and an inability to cope with the stress of the exam. In the case of many experienced advisers, it has been decades since they last sat exams and the anxiety alone can be overwhelming. We all need to show compassion and play a role in providing comfort and support to those who are struggling to pass the exam. Failing does not necessarily reflect an adviser’s ability to provide great advice to their clients. Neither does it necessarily mean they don’t have the right ethical standards or technical knowledge and strategic capability. However, failure creates selfdoubt, which makes the problem worse when they come around to sitting again. Anxiety levels only escalate. As we all know, when sitting exams, having the right state of mind is critical. We therefore need to work as a financial advice community to acknowledge the emotional impact of failing the exam and the need for support and guidance.
“We all need to show compassion and play a role in providing comfort and support to those who are struggling to pass the exam.” – Phil Anderson
CHALLENGING EXAM
HOW THE COMMUNITY CAN HELP
everyone in our community to do everything they can to help those who are struggling with the exam. This starts by reaching out to others to ask how they are going, by not judging them and by offering to help. Just having someone to talk to may help them develop a better mindset to attempt the exam, when that next opportunity arises. Help is also available in the form of webinars, adviser videos, exam tips and techniques and other study options and resources. Please play your part in helping pull the financial advice community together to get through this challenge and the many other challenges already in front of us and those still to come. Let our community be one that reaches out to help others. We don’t want advisers to feel embarrassed about failing the exam or about seeking help. Just as financial advisers do so much great work to help their clients, please also do everything that you can to assist your colleagues. Together we can make a big difference over the next six months.
There will be some who say that the exam is easy, and they passed without much study. Good for them, if that is the case. It is
There are enough clients for everyone, and the more advisers in the profession, the better for the profession, so I call upon
Phil Anderson is acting chief executive of the Association of Financial Advisers.
It has recently been put to me that some of the advisers who have sat and failed the FASEA exam are experiencing a sense of shame. I suspect that this is an insightful perspective. No doubt this feeling would be compounded where they have failed it more than once. This sense of shame is most concerning as it is likely these advisers are being very hard on themselves. This emotional response may also be preventing them from reaching out to professionals and their colleagues for the help they need. It is the fear of what their colleagues will think, if they know they have failed the exam. We have recently been seeking the assistance of members who have passed the exam first up, as well as those who have first failed the exam and then subsequently passed it, as part of an activity to help those who are struggling. Very few of those who have failed, are willing to go public with the impact that it has had. We all need to be aware of the emotional toll that the exam is having on many in our profession.
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23/06/2021 9:39:45 AM
22 | Money Management July 1, 2021
Practice management
PLANNING FOR THE END When running an advice practice, writes Craig West, it is prudent to think about how to exit it in the best possible way from the beginning.
INTEREST IN EMPLOYEE share ownership plans (ESOPs) has increased dramatically in the last 12 months as business owners seek to ensure their workforce is aligned, motivated and focussed amid the disruption to work arrangements brought on by the COVID-19 pandemic. We have seen a 400% increase in enquiries from small-to-medium enterprises (SMEs) about how best to offer ESOPs to their employees, with many business owners noting that the demand is coming from the employees themselves. Increasingly, staff want to own equity in the business they work for, and this can have significant benefits for both the business and its owner. Even before 2020, demand for ESOPs was strong, prompting the government to launch two separate enquiries to enhance the effectiveness of them. As a result, in 2015, employee share scheme (ESS) tax concessions were announced, leading to growing awareness and improved take-up. And, in May this year, further changes to make it easier for businesses to offer ESSs to their employees were announced as part of the Federal Budget.
WHAT ARE ESOPs? An ESOP is a mechanism to allow employees to own a share of the company they work for. There are different types of plans based on the size and structure of the business and what the business owner hopes to achieve from offering one. ESOPs can be suitable for both private and public companies, large and small. They can be particularly useful as a succession planning
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tool for owners of SMEs who are starting to think about their eventual exit from the business and want to maximise its value. The academic research around ESOPs is overwhelmingly positive. Research published by US-based not for profit Certified EO found that employees earned more, stayed longer, were more productive and far more engaged as equity owners. The research also found a third of job seekers were more likely to apply when they learned the company was employee-owned, and almost half of consumers were willing to pay a premium price.
HOW DOES AN ESOP WORK? There are several different types of plans, including one specifically designed for start-ups. The definition of a start-up is very generous: less than 10 years old, less than $50 million turnover, not listed and an Australian resident taxpayer. Many Australian SMEs would qualify. If a firm does qualify, then there is no tax until the sale, as long as the firm issues the shares at less than a 15% discount, employees each own less than 10% of the equity and hold the shares for three years, and the plan is broadly based (available to at least 75% of employees with more than three years’ service). If a firm is not a start-up or does not meet the criteria then a model that utilises a trust may be a better option. A trust would allow the company to set up an ESOP, invite key employees and then fund the purchase in three ways: have them buy-in using cash or savings, earn in using a profit share-funded model based on improved business
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July 1, 2021 Money Management | 23
Practice management performance, or take advantage of the various tax concessions ($1,000 tax-free and up to $5,000 salary sacrifice) to contribute. Additionally, for some businesses, it is possible to accelerate the plan using debt. Leveraged ESOPs are popular in the US and are becoming increasingly so in Australia. The trust structure can include good leaver, bad leaver rules and the ability to discount the value of shares when people leave early. It can allow employees to hold shares in a family trust, which cannot be done in the start-up plans. The trust structure is becoming popular among privately-owned businesses. In the last three years, we have implemented over 50 of them.
EMPLOYEE REMUNERATION MODELS One of the most critical aspects of business is how to pay for the team. Employee behaviour is directly influenced by the way staff are rewarded and this is not an area to get wrong. The ladder to equity in Chart 1 outlines the five steps to building a remuneration structure. The steps on the ladder build
up a robust remuneration model without the various issues that poorly designed models encourage, such as discretionary bonuses, misaligned targets and silo behaviour.
ESOPS FOR SUCCESSION AND EXIT A recent MGI Family and Private Business Survey revealed that 60% of private business owners are approaching retirement and the ensuing transfer of ownership of assets and business equates to approximately $607 billion. With baby boomers reaching 65 at a rate of over 5,000 per week, many business owner clients will be heading for the exit over the next decade. Strategic succession planning via a carefully implemented ESOP means firms have a detailed and documented plan covering every aspect of the business that continually moves closer to the ultimate exit outcome. However, most business owners are so caught up in running the business at a day-to-day level that they do not have the time, effort and attention to focus on the end outcome.
“Most business owners are so caught up in running the business at a day-to-day level that they do not have the time, effort and attention to focus on the end outcome.” – Craig West Understanding clients and the challenges they face can help ensure an ESOP is implemented correctly. From our work with this section of the market, it is clear they have two key themes: • Financial harvest: A focus on cashing in and extracting maximum value from the business after years of blood, sweat and tears; and • Stewardship/legacy: A focus on preserving the legacy of the owners and looking after crucial stakeholders, including employees, clients and suppliers. Most exit strategies fit into one of these two themes. However, an ESOP can provide the best aspects of both: a combination of financial
Chart 1: Five steps to a remuneration structure
harvest (selling the equity at a reasonable price) and stewardship by enabling the key people to buy the business and continue the culture, style and character of the company. They also have the significant benefit of being a more gradual, controlled and documented exit allowing a smooth handover of control, upskilling of key people to run the business and more time to finance the transition. Investing time to develop an ESOP is one of the most important financial decisions a business owner will ever make, because without one the value in the business will retire as soon as they do. If designed correctly and integrated well into the corporate governance and employee engagement programs, an ESOP will ensure that business owners are excellently placed to navigate what can be a challenging time fraught with uncertainty. When accompanied by a strong education and upskilling program, ESOPs can indeed be a win for all involved.
CONCLUSION ESOPs are increasingly being sought by business owners who want to gain immediate term productivity and engagement benefits while providing longer-term stability for their business. They can be an innovative way to gain productivity and retention benefits and a key succession planning tool. Exploring the benefits of ESOPs with clients who own a business may be an excellent tool for maximising the value of that business and ensuring a successful transition into retirement when they are ready. Craig West is founder of Succession Plus. Source: Succession Plus.
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24 | Money Management July 1, 2021
Platforms
CHALLENGING THE TRADITIONAL PLATFORM ROLE Platform providers need to consider how they can best work together with advice practices to help them run smarter businesses, Edwina Maloney writes. AS I BEGIN my leadership of AMP’s platform business, it’s clear to me the only way we can shape the future of our industry is by designing solutions through the lens of advisers. That is, how can we, as platform providers help advice practices set up for long-term sustainable growth amid an industry that has faced significant disruption and increased costs. More specifically, how can we support them in providing high quality, professional advice, while at the same time reducing their cost to serve? There are four fundamental ways we, as an industry, can achieve this:
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1. SUPPORTING PRACTICE EFFICIENCY The first objective of any platform provider should be to help advisers run their businesses smarter and more efficiently. This starts with great reporting and easy to use advice implementation tools. But if we take a longer-term view of where our industry should aspire to be, we should challenge ourselves to move beyond the traditional role of the wrap platform. In running their practices, most advisers operate multiple technology platforms – the wrap will support advice and investment strategy execution, but they rely on separate
platforms to support the modelling and statement of advice process, and require a client relationship management (CRM) system and accounting software. How wrap platforms can better integrate with, or even provide these other services through the platform, should be key considerations for providers. The ability for example, for a wrap to generate a fullycompliant statement of advice using the latest available technology, would likely create significant business efficiencies, both in terms of cost and time, and ultimately deliver a more seamless experience for clients. Our industry has work to do to
get to this potential future state, but if we can work closely with advisers in developing and integrating the core advice processes and systems that make it easier to run their practices and deliver, high-quality, compliant and professional advice we’ll be moving in the right direction.
2. UNDERSTANDING WHAT ADVISERS MOST VALUE IN A PLATFORM In developing the value proposition for advisers, we must also take the time to understand what they most value in a wrap platform. At the top of the list is low fees, the need for which has been
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July 1, 2021 Money Management | 25
Platforms
reinforced by the increasing cost of providing advice. But we also require greater fee transparency across the industry. As AMP Australia’s new chief executive, Scott Hartley, recently said, all financial advisers should have access to the same platform pricing from their chosen provider and not have to compete with selected advisers getting preferential deals. The use of rate cards, for example, is distorting pricing and equity in super and pension wrap products, as not all financial advisers using the same platform can access the same prices for their clients. Low and transparent fees shouldn’t come at the expense of investment in the features which enhance the investment strategy execution process – the core function of any wrap platform. For example, we know advisers value investment switch functionality because it enables the modelling of various investment portfolio changes, and the ability to understand impacts to fees and a client’s risk profile before submitting trades, all through a single process. It’s the most used feature on our North platform, with more than 100,000 switches conducted annually, and something we’ll continue to invest in and refine. Other core features popular with advisers using platforms include flexible pension payments, streamlined account transfers from super to pension and straight through processing. It’s high use, everyday functionality like this that makes a real difference to the effectiveness of implementing advice strategy. It also saves advisers time, giving them more capacity to spend with existing, and new clients.
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3. SUPPORTING CLIENTS FOR LIFE The investment needs of Australians evolve through the different phases of their lives, and platforms must provide choice and investment solutions accordingly. A growing portion of advised clients in Australia, for example, are nearing and entering retirement. We should therefore offer simple solutions through our platforms that help clients manage the often-complex transition to retirement. Improvements are made by considering questions such as: How do we make it easy for advisers to help their clients understand critical concepts such as longevity and sequencing risk, and provide solutions through the platform to mitigate them? How do ensure we cater to the growing demand for socially responsible investment options? How do we provide transparent, efficient and low-cost access to the industry’s leading investment managers? This has led us to continue to invest in retirement-focused solutions are designed to manage sequencing risk in retirement. Managed portfolios have seen an acceleration in use across the advice industry – 44% of advisers in Australia now use them for their clients according to research published by Investment Trends in February this year. They’ll continue to grow in popularity because they embody the attributes which advisers most value in running their practices, i.e. high-quality, low-cost and responsive investment solutions which are delivered simply, efficiently and transparently. These characteristics are directly applicable with how our industry should be thinking about the overall platform proposition.
“The investment needs of Australians evolve through the different phases of their lives, and platforms must provide choice and investment solutions accordingly.” – Edwina Maloney 4. EDUCATE AND INFORM Finally, if our industry aspires to become more integrated with advice delivery, platform providers need to consider how they can help advisers stay on top of what matters most to their clients through insights, education and expertise. Providing the right investment solutions is one thing, but helping advisers understand the value of these solutions within the context of a continually changing market environment is another. The value advisers get from education resources is reflected in the number of requests received by our technical insights team every year to understand Australia’s complex and changing retirement and superannuation system. So far this year, the team has received almost 7,000 calls from advisers with questions covering a range of topics. The questions are wide and varied, covering everything from concessional, non-concessional super contributions and death benefits, to topics such as means testing requirements for social security, transfer balance caps for retirement income streams, self-managed super fund investment rules, capital gains tax rules on the sale of investment assets, and the financial treatment of a former home as it relates to aged care.
The team also continues to spend significant time helping advisers understand the many regulatory changes impacting super, including the latest changes to take effect from 30 June this year. Helping advisers understand how these changes impact their clients, and the implications for their investment and retirement strategies, is essential to quality advice. And, if the goal is for platforms to become more embedded in the advice process, it makes sense to offer these resources as part of a more complete service and solution. It all comes down to what platform providers see as their role, and deeply understanding the advice process and how advisers run their businesses – because it’s about being a partner, not just a provider. Platforms, and their supporting services, should have ambitions to better integrate with advice practices – working side by side with advisers to support practice efficiency and deliver high quality advice to clients. This will not only improve outcomes for advisers, but also help to better develop the platform itself, with innovations that put the advisers and their clients at the centre. Edwina Maloney is director of platforms at AMP.
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26 | Money Management July 1, 2021
Toolbox
INVESTING IN CLOSED-ENDED TRUSTS
Closed-ended investment funds have received negative press lately, writes Angus Gluskie, so how do they work and what do investors need to know about premiums and discounts? PREMIUMS OR DISCOUNTS to intrinsic value are a normal and inherent part of the successful functioning of listed markets. As with any listed shares, investors in Australian Securities Exchange (ASX) listed closed-end investment funds (commonly known as listed investment companies/trusts) should appreciate the opportunities and risks that this creates.
WHAT HAPPENS WHEN AN INVESTOR BUYS/SELLS SHARES? Listed Investment Companies and Trusts (LICs and LITs) are ASX-listed
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closed-end investment funds. If an investor seeks to increase or decrease their investment in the LIC/LIT, they may buy or sell shares in the LIC/ LIT through the stock exchange. This transaction involves an exchange of shares between investors. The capital of the LIC/ LIT itself remains unchanged. In contrast when investors buy or sell exchange traded fund (ETF) units or deposit or withdraw money to or from an unlisted fund, the capital of the investment fund rises or falls and the fund must buy or sell investments to
the extent there are more net buys or sells.
PREMIUMS OR DISCOUNTS? The price at which listed closedend fund shares/units trade is determined in the open market by buyers and sellers. Buyers and sellers will agree on a price that reflects the underlying net asset value of the fund, any other perceived influences on value and the effect of supply and demand of the fund’s shares/units on the day of trade. As a consequence, the market
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July 1, 2021 Money Management | 27
Toolbox
price of a listed closed-end fund may be higher (trades at a ‘premium’), the same as, or lower (trades at a ‘discount’) than the net asset backing of the fund. As with the purchase or sale of any listed share – fluctuations in the open market price are the method by which the volume of buyers and sellers may be matched. This is a normal and integral function of open market pricing on share markets. This is also the fundamental mechanism that provides investors with the ability to increase or decrease their investment at any time while concurrently allowing the fund to make longer term investment commitments. As with the purchase or sale of any listed share, the potential to buy or sell a share cheaply or at an expensive level creates a dimension of opportunity and risk that should be appreciated by an investor. Both history and theory suggest that closed-end fund premiums and discounts may change over time due to: a) Changes in perceived value (examples include a change to investment strategy, personnel, cost structure, taxation, regulation or size); b) Changes in the demand for the underlying assets of the fund (for example, changes in the economic outlook); and c) Changes in the supply of the fund’s shares (examples include a new issue of shares or a buyback of shares). The price at which investors buy and sell in the open market has no direct impact on the income or gains
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generated by the fund’s assets. This means that an investor who has bought their shares at a discount will be receiving the benefit of an investment return on an asset backing that is higher than the price they paid, over the period during which they continue to hold their shares.
OPPORTUNITIES AND RISKS Similar to an investment in any listed share, an investor in an ASX-listed LIC/LIT may be exposed to the opportunities and risks that stem from: a) Favourable or unfavourable changes in the premium/ discount to intrinsic value between the date they purchased and the date they sell their investment; b) The opportunity for added return from acquiring an asset for less than it is worth, and the risk from acquiring an asset for more than it is worth; and c) To the extent (if any) the open market value of the shares may affect the investor – favourable or unfavourable movements in that market value. Typically, investors in ASX-listed investment funds will seek to adopt an investment strategy that allows them to control the risk and/or capitalise on the opportunities created by openmarket pricing.
NET ASSET BACKING All LICs and LITs disclose their net asset backing to the ASX within 14 days of each month-end. An investor may compare the net asset backing to the traded share price on that same
month-end to determine the premium or discount. In many cases this information will be shown on the LIC/LIT’s monthly asset backing releases. A LIC or LIT’s monthly net asset backing release can be found as an ASX announcement on the ASX website or in most cases can also be accessed directly from the LIC or LIT’s own website. Importantly, investors should understand that the premium or discount at which a LIC or LIT trades during a month may differ from the month-end premium or discount. While generally there is some synchronisation between the movement in the LIC/LITs net asset backing and its share price, the two items can be expected to move differentially and as a result the premium or discount may grow or shrink. Researchers, stockbrokers or investors specialising in LIC/LIT investment will often estimate the daily asset backing of LICs and LITs. They may seek to calculate these estimates based on the movements in the market values of the LIC/LIT’s major investments, or from movements in an appropriate benchmark index for the LIC/LIT. (For example, the S&P/ASX 200 Accumulation Index return may be used as a guide to the daily return of a LIC investing in a diversified Australian share portfolio). Investors may be able to access daily or weekly LIC/LIT premium and discount tables from the stockbrokers or research providers specialising in this area. Investors should appreciate that LICs are tax-paying companies (and are slightly
Continued on page 28
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28 | Money Management July 1, 2021
Toolbox
CPD QUIZ This activity has been pre-accredited by the Financial Planning Association for 0.25 CPD credit, which may be used by financial planners as supporting evidence of ongoing professional development.
Continued from page 27 different to LITs). They will often quote their net asset backing on a Before Tax Provision basis, as well as an After Tax Provision basis. The Before Tax Provision net asset backing is equivalent to the net asset backing of a LIT or managed fund, and is generally considered the asset backing that should be used to determine the fair value for the LIC, and to determine the LIC’s premium or discount. The simple explanation is that while LICs may make a provision for company tax which reduces their net asset backing, investors will receive the benefit of a franking credit for tax paid when the LIC subsequently distributes its profits as franked dividends. For those more technically minded, a financial calculation properly allowing for the flow through of tax through the franking credit will mathematically illustrate the Before Tax Asset Backing as the more correct measure of value.
PREMIUMS AND DISCOUNTS IN ACTION Some real-world examples of LIC/LIT premiums and discounts are shown below. Example A: Australian Foundation Investment Company Ltd [ASX: AFI] Australian Foundation Investment Company (often referred to as AFIC) is Australia’s largest listed investment company. It holds a diversified portfolio of listed Australian shares. AFIC has traded across a range of premiums and discounts over the last five years. At its most expensive it traded at a 12.6% premium to net asset backing, at its lowest it traded at a discount of (4.0%), and it has traded at a 2.2% premium on average over the five years. A long-term investor seeking to buy and accumulate AFIC shares, and who was able to acquire shares at the cheapest point will benefit from the company generating investment returns on the asset backing that was 4% higher than their purchase price. Example B: Future Generation Investment Company Ltd [ASX: FGX] Future Generation Investment Company provides exposure to a diversified range of Australian share funds, managed by leading Australian fund managers. The company has traded over the last five years from a discount of (17.3%) to a premium of 7.4%, and at an average discount of (4.6%). An investor acquiring and accumulating shares at the point of largest discount would have benefited from the company generating investment returns and paying dividends on an asset base that was 17.3% higher than his purchase price. Angus Gluskie is chair of the Listed Investment Companies and Trusts Association (LICAT).
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1. How does the capital of a LIC or LIT change when you buy or sell a share in it? a) It increases b) It doesn’t change as it is a closed-end investment fund c) It decreases d) It depends on whether you buy or sell 2. Which statement/s are correct? a) The market price of any ASX-listed share fluctuates. Sometimes the price will be expensive and other times cheap b) The market price of an ASX-listed LIC/LIT fluctuates. Sometimes the price will be expensive and other times cheap c) Fluctuations in share prices are the way in which the volume of buyers and sellers of listed shares may be matched up, without the company or fund having to sell its underlying assets d) Neither a, b or c e) All of a, b and c 3. Closed-end fund premiums and discounts may change over time due to: a) Changes in the perceived attractiveness of the fund’s cost structure b) Changes in the fund’s net asset backing c) Changes in the demand and supply of the fund’s shares d) All of the above e) None of the above 4. If I buy a LIC or LIT at a discount to net asset backing and the discount doesn’t change, the investment return I earn over future years when dividends are paid will be: a) Higher than the underlying fund return, as the income has been generated on a larger value of assets than the price I have paid b) The same as the underlying fund return c) Lower than the underlying fund return 5. If I buy a LIC or LIT at a 5% discount to net asset value, and sell the LIC/LIT at a 5% discount to the net asset backing in 2 years time, the investment return I receive over the holding period will be: a) Higher than the underlying fund return if the fund has paid dividends, and the same as the underlying fund return if the fund hasn’t paid dividends b) 5% lower than the underlying fund return if it has paid dividends c) 5% lower than the underlying fund return if it hasn’t paid dividends
TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/ features/tools-guides/ investing-closed-ended-trusts For more information about the CPD Quiz, please email education@moneymanagement.com.au
22/06/2021 2:31:51 PM
HELPING ISSUERS AND DISTRIBUTORS MEET THEIR DDO OBLIGATIONS Target market data collection TMD document creation Data & TMD dissemination Data & document feeds Our extensive capabilities in data, dissemination and regulatory compliance help product issuers and distributors meet regulatory obligations, optimise resources and reduce risk. Contact a specialist to find out more fe-fundinfo.com @fefundinfo.com DDO@fefundinfo.com
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25/05/2021 4:03:33 PM
30 | Money Management July 1, 2021
Send your appointments to chris.dastoor@moneymanagement.com.au
Appointments
Move of the WEEK Shawn Johnson Chief executive AMP Capital
AMP has appointed former State Street Global Advisors (SSGA) executive Shawn Johnson as chief executive of AMP Capital. Johnson previously worked as senior managing director and chair of the investment committee at SSGA for almost a decade. In the role, he had global oversight and responsibility for over 450 investment strategies and US$2.1 trillion
The Financial Services Council (FSC) has appointed Sean West, Macquarie Banking and Financial Services Group executive director – head of wealth management, and Justin Delaney, chief executive – life and investments at Zurich Australia, as directors to the FSC board. West had worked across financial advice, investment management, life insurance, private banking, superannuation and wealth platforms, and had over 20 years’ experience in the industry. He joined Macquarie Group in 2011 and held several senior executive roles before becoming head of wealth management in April 2019. Delaney had over 25 years’ experience in the financial services industry, and prior to joining Zurich in December 2019, he was the chief operating officer for TAL Australia and spent 12 years working with wealth product and platforms at Macquarie Group. The FSC and the Australian Financial Complaints Authority (AFCA) have jointly appointed Jan McClelland as chair of the Life
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($2.8 trillion) in client assets. He left the firm in 2013 and had since been running his own alternative investment business including a global macro hedge fund. At AMP Capital, he would lead the firm’s international growth strategy and the proposed de-merger of the private markets business which was expected to complete in the first half of 2022. He would be scheduled to start on 28
Code Compliance Committee (LCCC). McClelland was currently the deputy chancellor of the University of New England, chair of the Gateway Network Governance Body, and a member of the advisory board of the NSW Circular Economy Innovation Network. She had extensive experience in industry codes of practice, and served on audit and risk committees in the legal, health and local government sectors. Established in 2017, the LCCC was the independent body responsible for overseeing compliance with the FSC Life Insurance Code of Practice. McClelland would take over the LCCC chair responsibilities from Anne Brown, who completed her three-year appointment earlier this year. Industry super fund REST has appointed AMP Capital’s Corrine Henville as head of operations. At AMP Capital, she held a number of roles in their public markets division, including head of global client services and enablement and head of retail sales.
June, based in Sydney, while David Atkin, deputy AMP Capital chief executive, would continue in his role until 31 July to facilitate a smooth handover. The appointment followed the departure of Boe Pahari as AMP Capital chief executive last August after a sexual harassment allegation and the role had been filled by Francesco De Ferrari in the interim.
Prior to this, she worked with Colonial First State (CFS) in executive management roles across their corporate super operations and operational risk divisions. She was also a major contributor to initiatives around diversity and organisational cultural change at both organisations. She would join the fund in June and would be based in REST’s Sydney office, reporting to David Madden, general manager – administration solutions and governance. Henville had over 20 years’ experience in managing operational and sales functions, dealing with funds management, superannuation, pensions, and investments. Metrics Credit Partners has appointed three investment directors, two joining from Investec Australia. Marc Hurwitz would join from Investec Australia’s corporate and acquisition finance (CAF) team while Charles Tandy and Mathew Fulton joined Metrics in April from ANZ and Investec Australia respectively. Hurwitz had 20 years’
experience including 11 years at Investec and previous roles at Ellerston Capital. In March, Metrics acquired the Investec Australia CAF loan portfolio, creating a portfolio in excess of $6.5 billion in assets under management. Fulton and Hurwitz would focus on corporate origination while Tandy would look at commercial real estate asset origination. Financial services technology firm Iress has appointed Amir Ansari as global head of product design. Prior to joining Iress, Ansari was director of user experience at digital consultancy Transpire where he managed a team to delivered digital experiences for clients such as Vodafone, RACV, Virgin Australia and AWS. Before that, Ansari was head of user experience at technology consultancy DiUS Computing, where he was responsible for building and growing their design capability across Melbourne and Sydney. Ansari would be based in Melbourne, reporting to Iress’ chief product officer, Joydip Das.
23/06/2021 12:22:15 PM
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25/05/2021 4:02:44 PM
OUTSIDER OUT
ManagementJuly April1,2,2021 2015 32 | Money Management
A light-hearted look at the other side of making money
Turning a certain age
Not talking the talk
AS a man of a certain age, Outsider might be forgiven for not being keen to celebrate his birthday when it rolls around each year. What was once full of excitement, presents and balloons becomes a reminder of the passing of time that Outsider would rather not contemplate without a single malt whisky at his side. However, unlike One Nation Senator Pauline Hanson, he does still know what date his birthday is. Hanson came under fire in the Senate last month regarding her amendments to a superannuation bill for those people aged 67 or above. Conveniently, Hanson told the chamber that she had, in fact, just turned 67 the day before which would put her in line for a pay rise if her amendments passed. Later on in the debate, she retracted her statement and said she had actually turned 67 earlier in May, much to the confusion and amusement of her fellow Senators.
OUTSIDER was left feeling perplexed when he sat next to an AMP employee at a recent conference after his seat companion laughed at the idea that inappropriate behaviour was no longer tolerated. Laughter, Outsider thought, was not perhaps the reaction the speaker was looking for. In a world where employees and management were under ever-increasing scrutiny for inappropriate behaviour and those involved were outed in the media for their actions, it would be expected this was being seen as a positive movement by the industry. However, during the conference, the comment made was about how the financial services sector had improved in light of environmental, social and governance awareness but it received a mixed response. “Inappropriate behaviour is no longer being tolerated by the industry,” the speaker said in their presentation. Rather than nods of approval, there were laughs from the audience including the AMP employee seated at Outsider’s table. Outsider considered that this was an interesting reaction given AMP had been the face of one of last year’s most high-profile sexual harassment allegations. Former AMP Capital chief executive, Boe Pahari, was alleged to have acted inappropriately towards a female colleague and lost his CEO position, but not his job at the firm where he was global head of infrastructure. Perhaps Outsider’s esteemed AMP neighbour believes his workplace may talk the talk but isn’t quite walking the walk just yet.
Having done some light Googling, Outsider can confirm her birthday is indeed in May and sympathises with the Senator that, once you pass 65, you don’t think on your feet quite so quickly anymore.
Putting YOU in the picture OUTSIDER thought he already heard about the strangest rebrand of 2021 when he read about Standard Life Aberdeen rebranding as ‘Abrdn’ earlier this year. But he had not bet on those UK asset managers using all those months that they had been in COVID-19 lockdown to think of alternative business names. Unlike Australia, UK-based firms have been working from home for months and many are yet to even return to the office. Clearly being unable to go to the office has left some asset managers with extra time and creativity on their hands or maybe this is the outcome of yet another Zoom
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brainstorming session. The latest is investment management group Beaufort Investment which chose to change the name of its business to ‘YOU Asset Management’. Detailing the thinking behind the name change, the team said it was inspired by their clients. “We have always believed that if we operate in the best interests of our clients, and keep them as our focus, we will achieve a mutually beneficial outcome for all involved,” it said. Outsider hopes that all firms operate in the best interest of their clients regardless and don’t need a name change to remind them of those company values.
"Thank you for sharing with me what musical instrument you played."
"There is no happiness in life."
– Karen Chester, ASIC deputy chair, to Qld Senator Angie Bell
– Russian President Vladimir Putin
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23/06/2021 1:40:22 PM