Money Management | Vol. 33 No 11 | July 18, 2019

MAGAZINE OF CHOICE FOR AUSTRALIA’S WEALTH INDUSTRY

www.moneymanagement.com.au

Vol. 33 No 11 | July 18, 2019

ESTATE PLANNING

INFOCUS

Making clients’ final plan

Everyone is responsible for investing in the planet’s future

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How life insurers can put customers first

Politicians lobbied on FASEA failings

MARKETS

BY MIKE TAYLOR

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A new dawn for financial markets AS we begin the new financial year, Money Management has spoken to industry experts on their outlook for markets in a world dominated by volatility and US/China trade wars.

From a macro perspective, global growth has been slowing as the trade wars between US President Donald Trump and Chinese Premier Xi Jinping continue to drag on. But for Australia, the country could be an unlikely beneficiary of the dispute due to China’s reliance on our iron ore supply.

The iron ore price, one of Australia’s biggest exports, reached a five-year high in July, helping Australia report a record trade surplus of $5.7 billion.

Meanwhile, all eyes will be on Scott Morrison’s Coalition Government this year following his shock victory in May, as pressure builds on the Government to push ahead with fiscal spending.

Governor of the Reserve Bank of Australia, Philip Lowe, has already warned the Government that monetary policy will not alone be enough to support the economy, having repeatedly initiated rate cuts in June and July.

Instead, Lowe suggested fiscal support or structural polices were needed if improvements were to be seen in the economy and inflation was to stay within range.

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WIFS

Full feature on page 18

FINANCIAL advisers are using a Financial Planning Association (FPA) document highlighting the still unfinished elements of the new Financial Adviser Standards and Ethics Authority (FASEA) regime to lobby parliamentarians to back the legislative amendments necessary for a 12-month extension to the FASEA adviser exam deadline.

The FPA produced a document calling for the 12-month extension to 1 January, 2022, which it claims will restore the full two-year period for financial planners to study for and take the exam.

In doing so, the FPA document not only pointed to what the FASEA has not yet delivered but pointed out the following: “The roll-out of the exam has been delayed, along with

supporting elements for the exam including reading and study material, bridging courses and a guidance document for the Code of Ethics.

“The first exam sitting was only held in June 2019 and was only available in capital cities.

Financial planners in regional areas will have to wait until 2020 for the exam to be available in their area through digital delivery.

“It will take between six and eight weeks to get the results of the exam, meaning planners will not be able to rely on sitting the exam after October 2020, as they will not receive the results before the deadline.

“The Code of Ethics, which is a key subject of the exam, was released in February 2019. FASEA has yet to release a promised guidance document on how it will Continued on page 3

Grattan super analysis just plain wrong CONSERVATIVE think tank, the Grattan Institute has managed to unite the superannuation industry against it with its latest analysis around retirement funding and lifting the superannuation guarantee (SG) to 12 per cent.

The Association of Superannuation Funds of Australia (ASFA), the Australian Institute of Superannuation Trustees (AIST) and Industry Super Australia (ISA) were all prompted to dismiss the Grattan Institute analysis on the basis of it being yet another spurious attack on the superannuation system.

ASFA chief executive, Dr Martin Fahy, led the way by claiming the Grattan analysis “continues the pattern of selective and misleading modelling that seeks to undermine a retirement system that is globally acknowledged as one of the best in the world”.

Continued on page 3

11/07/2019 1:01:31 PM

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11/07/2019 12:00:20 PM

July 18, 2019 Money Management | 3

News

Industry funds confirmed as RC winners Australians invest

BY MIKE TAYLOR

THE degree to which industry superannuation funds have emerged as Royal Commission winners has been reinforced by new Roy Morgan research which has confirmed the degree to which they have pulled away from retail funds in terms of member satisfaction.

What was more, AMP Limited funds appeared to encounter the worst of the fall-out.

The Roy Morgan research revealed industry funds had out-performed their retail counterparts in terms of satisfaction with their financial performance and satisfaction overall.

The research, undertaken in May, revealed industry funds scored 62.5 per cent with respect to satisfaction with their financial performance, well above that of retail funds which scored 56.5 per cent, with the Roy Morgan analysis stating that this six point lead was up from 1.8 per cent 12 months ago.

The research analysis said that in the six months to May, this year, the average member satisfaction with retail funds decreased by 3.7 per cent and that over the same period, industry funds improved by 0.5 per cent The analysis said that in May 2019, 10 of the top 12 performing retail and industry funds, based on member satisfaction with their financial performance were industry funds, with the highest rating for Unisuper with 70.9 per cent, followed by Tasplan on 69.6 per cent.

It said the only two retail funds to make it to

the top 12 were Macquarie with 66.6 per cent and Mercer on 64.3 per cent.

“The top 12 are by no means a uniform group, ranging from 70.9 per cent member satisfaction down to only 58.2 per cent for Sunsuper,” the analysis said.

The Roy Morgan analysis said the lowest satisfaction for major super funds beyond the 12 best performers were AMP (49.3 per cent), ASGARD (50.9 per cent) and BT (52.2 per cent).

Politicians lobbied on FASEA failings Continued from page 1 apply in practice. Bridging courses on the Code of Ethics won’t be available until late 2019.

“The consequences for the exam are severe. Each attempt at passing the exam will cost a planner $540 and failure to pass the exam in time will result in them losing their jobs, careers and/or businesses.”

Elsewhere, the FPA document called on FASEA to “urgently settle its decisions on recognition of prior learning for all outstanding professional certifications and reconsider providing credit for experience and training through continued professional development”.

As well, it stated that FASEA only approved the first round of bridging courses and graduate diploma programs in June, and that advisers who needed to complete a full eight-unit diploma would need to complete two units a year for the next fours.

It said that, on this basis, it was requesting the Government extend the deadline for meeting the FASEA education standard by 24 months to January, 2026.

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$50 billion in ETFs

BY CHRIS DASTOOR

THE Australian exchange traded fund (ETF) market has grown to just over $50 billion in assets under management in the second quarter of 2019, according to the latest figures from the Australian Securities Exchange (ASX).

With the tailwinds of strong market returns and robust cash flows, the ETF market grew by $10 billion or 25 per cent in the first half of 2019.

ETF investors in Q2 2019 continued to display a flight to more defensive products with the first half of the year seeing Australian fixed income ETFs receiving in the largest proportion of cash flows of any asset class.

Duncan Burns, Vanguard’s head of equity index Asia Pacific, said cash flows into Australian shares ETFs returned normal levels during the June quarter, after a slow start of the year, potentially reflecting the outcome of the election with fears over franking changes put to rest.

“The heightened interest in fixed income is potentially reflecting investors’ concerns about equity market growth prospects, with recently announced interest rate cuts not seeming to deter investors,” Burns said.

“Including an allocation to fixed income in your portfolio is a great way to increase balance and diversification, but we would caution that, as with any asset allocation decisions, it should be done in line with investors’ long-term goals, rather than a reaction to market events or cycles.”

Grattan super analysis just plain wrong Continued from page 1 “Good public policy will always benefit from lucid, rigorous research and modelling,” he said. “However, the Grattan Institute’s latest output is based on unsound assumptions regarding average earnings, working patterns, the future rate of the Age Pension, how the means test for the Age Pension works, and most importantly working Australians’ aspirations for a dignified retirement.”

Fahy’s attack on the Grattan analysis was followed by that of ISA with its acting chief executive, Matthew Linden claiming the analysis actually contradicted other recent Grattan analysis which had claimed increasing the SG to 12 per cent would ease the burden on the age pension.

Like ASFA, Linden accused the Grattan Institute of having double-counted salary sacrifice contributions and

having over-estimated voluntary contributions and the amount of the age pension.

AIST head of advocacy, Ailsa Goodwin added her voice to the criticism and said it was the assets test, not the superannuation system or the superannuation guarantee time-table that were flawed.

“The changes to the age pension asset test in the Coalition’s budget of 2015 have hit middle Australia hard, with many retirees either losing their part pension altogether or suffering pension cuts,” she said. “Adjusting the taper rate is critical to the integrity of our super system and indeed the wider retirement income systems. We need to restore appropriate savings incentives so that that super can do what it was designed to do for middle Australia, which is to supplement the age pension.”

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4 | Money Management July 18, 2019

Editorial

mike.taylor@moneymanagement.com.au

PLACING BETS ON THE FUTURE OF ADVICE Events over the past two months have revealed the number of commercial bets which have been placed predicated on the expected shape of the Australian financial planning industry.

OVER the past two months the gravity of the commercial challenges confronting the Australian financial planning industry have been laid bare by a series of separate events ranging from the CountPlus acquisition of Count Financial through to Lonsec’s ambitions in the Managed Accounts space and HUB24’s denial of media reports on the impact of its fees.

CountPlus is looking to shareholders to sign-off on its acquisition of Count Financial at an extraordinary general meeting and what we learned from the documentation attaching to its Extraordinary General Meeting (EGM) explains in large measure why the major banks have chosen to exit their wealth management businesses.

The core statistic contained in the CountPlus EGM document was the expected 60 per cent decrease in revenue resulting from an end to an assortment of revenue streams such as licensee adviser fees, platform rebates and grandfathered commissions. In other words, a decade’s worth of Government policy changes had served to erode more than half of the commercial foundations of a significant, bankowned financial planning business.

But the question testing the minds of financial planning executives is what the industry will look like within five years. Will vertically-integrated groups such as IOOF continue to dominate? Will the

CountPlus approach of accountancy-based advice groups gain ascendancy? Will self-licensing continue to grow or will some other model emerge?

It goes without saying that the reason CountPlus moved to acquire the Count business, despite the harsh commercial realities, was that the terms of the transaction were undeniably favourable (the Commonwealth Bank has provided substantial indemnities) and because the CountPlus board believes it has the right strategy to move beyond the current commercial/regulatory environment.

The strategy is predicated in large part on acceptance that over the next five years the financial planning industry will become almost entirely user-pays, that smaller firms will exit the industry and that the CountPlus “ownerdriver” model is suited to the resultant environment.

A consultant’s report commissioned by CountPlus as part of its transaction stated: “Currently, the biggest four financial institutions have almost 3,950 advisers. Over time, this number could diminish as independent converged accounting and advice firms become more active players in the financial advice industry, coupled with a growing number of independent financial advisers operating in a more transparent and heavily regulated industry.”

FE Money Management Pty Ltd Level 10 4 Martin Place, Sydney, 2000

Dealing with the changing environment requires pragmatism and the CountPlus board has already exhibited its willingness to be hard-edged having used a strategic review to part company with loss-making and underperforming member firms and to adopt the “owner-driver” model.

But, as the events of early July also proved, financial planning dealer groups are not the only businesses facing pressure, with the report around the impact of interest rate cuts on the fees charged by platforms such as HUB24 and Netwealth for cash pointing to other market dynamics.

Then, too, there is the question of how the Australian Securities and Investments Commission (ASIC) will continue to treat Managed Accounts in circumstances where groups such as Lonsec are offering to acquire in-house managed portfolios from advice licensees.

The Lonsec approach is predicated on a belief that a tougher approach on the part of ASIC will bring with it increased regulatory risk for advice licensees which can be mitigated by outsourcing responsibility to specialist investment manager.

It is clear the commercial models are changing to adapt to the changing regulatory times and that some strategic bets are being placed.

Mike Taylor Managing Editor

Managing Director: Mika-John Southworth Tel: 0455 553 775 mika-john.southworth@moneymanagement.com.au Managing Editor/Editorial Director: Mike Taylor Tel: 0438 789 214 mike.taylor@moneymanagement.com.au Associate Editor - Research: Oksana Patron Tel: 0439 137 814 oksana.patron@moneymanagement.com.au Senior Journalist: Laura Dew Tel: 0438 836 560 laura.dew@moneymanagement.com.au Features Journalist: Hannah Wootton Tel: 0438 957 266 hannah.wootton@moneymanagement.com.au Journalist: Chris Dastoor Tel: 0439 076 518 chris.dastoor@moneymanagement.com.au Events Executive: Candace Qi Tel: 0439 355 561 candace.qi@financialexpress.net ADVERTISING Sales Director: Craig Pecar Tel: 0438 905 121 craig.pecar@moneymanagement.com.au Account Manager: Ben Lloyd Tel: 0438 941 577 ben.lloyd@moneymanagement.com.au Account Manager: Amy Barnett Tel: 0438 879 685 amy.barnett@financialexpress.net PRODUCTION Graphic Design: Henry Blazhevskyi

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WHAT’S ON SMSF Discussion Group Melbourne, Vic 23 July superannuation.asn. au/events

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Sydney Chapter Women in Wealth Networking Lunch

Networking young finance professionals

Sydney, NSW 29 July fpa.com.au/events

Perth, WA 1 August finsia.com/events

ASFA Policy Roadshow Brisbane, QLD 2 August superannuation.asn.au/ events

ACN 618 558 295 www.financialexpress.net © Copyright FE Money Management Pty Ltd, 2019

10/07/2019 4:40:48 PM

July 18, 2019 Money Management | 5

News

Freedom exits with $33.4m loss

BY MIKE TAYLOR

FREEDOM Insurance Group Limited has issued what is likely one of its final reports to the Australian Securities Exchange (ASX), reporting a $33.4 million loss for the half-year ended 31 December, the departure of its chief executive and virtually confirming that Noble Oak was the party which had picked up the remaining facets of its business.

In a belated December-half report to the ASX, the company said the $33.4 million loss reflected the cessation of sales in October 2018 following the release of Australian Securities and Investments Commission (ASIC) Report 587 into the sale of direct life insurance and the resulting structure of Feedom’s operations.

It also cited the impact on Freedom following the findings of the Hayne Royal Commission, the write-down of goodwill with respect to Spectrum Wealth Advisers and provision for the customer remediation program.

It said that with the winding down of its remaining operations, the role of the chief executive had been made

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by the fact that around 43 employees were transferred to Genus Life Insurance Services

policy administration business, the involvement of Noble Oak in the winddown was revealed

While Freedom initially declined to name the company to which it had transferred its

redundant with the result that Sean Williamson would be leaving Freedom in early August.

which is part of Noble Oak Life.

Other employees were made redundant.

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10/07/2019 4:44:51 PM

6 | Money Management July 18, 2019

News

TPB should not shelter tax agents from scrutiny

BY MIKE TAYLOR

THE SMSF Association has backed investing the Tax Practitioners Board (TPB) with greater powers arguing that it is important that tax practitioners not be sheltered from change or greater scrutiny.

In a submission filed as part of the Treasury’s review of the TPB, the SMSF Association said it was important that the TPB “is a proactive and effective regulatory body to ensure misbehaviour which has occurred in other industries does not occur in the highly respected tax agent industry.”

“It is therefore important the TPB does not seek to shelter tax practitioners from change or greater scrutiny expected by the public,” the

submission said.

The SMSF Association said the TPB had typically been perceived to be a low profile and tightly resourced regulator and cautioned that “this may lead to perceptions from the tax agent profession that they are unlikely to be penalised with serious contraventions that affect their daily practice.”

“As highlighted by the Royal Commission, one hallmark of a profession is the existence of a credible and coherent system of professional discipline – the ultimate sanction being expulsion. Experience shows that those who feel they are unlikely to face consequences for their poor conduct are much more likely to engage in that conduct,” the SMSF Association submission said.

Sovereign funds walk away from Europe

BY OKSANA PATRON

THE sovereign wealth funds (SWFs) and central banks are increasing allocation to fixed income, Chinese and alternative assets at the expense of European exposures, the Invesco Global Sovereign Asset Management Study has found.

Of these three, fixed income became the largest asset class for sovereigns, overtaking equities which went through a turbulent year in 2018, and saw an increase in allocations to 33 per cent in 2019 from 30 per cent a year before.

At the same time, allocations to equities fell from 33 per cent to 30 per cent as 89 per cent of sovereigns said they expected the end of the economic cycle within the next two years as well as greater volatility and the prospect of negative returns from equities.

“Fixed income has re-emerged as the primary allocation for asset owners, but a higher proportion of Asia Pacific respondents plan to either maintain or increase their exposure to equities,” Invesco’s chief executive for Greater China, Southeast Asia and Korea, Terry Pan, said.

“Meanwhile there is also clear global demand for Chinese assets including RMB reserves at central banks. This points to continued appetite for risk assets and a strategic approach to diversification.”

The study also confirmed that sovereign wealth funds and central banks, which participated in the survey, showed a growing appetite for Chinese assets. However, Asia Pacific-based sovereigns revealed

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It said the TPB’s disciplinary feature was a positive for the sector because it was important for regulators to be seen to be acting in a supervisory capacity in order for there to be trust in the regulators from consumers.

“Furthermore, individuals are more likely to complain to an independent regulator such as the TPB rather than a professional association,” the SMSF Association said. “We support the disciplinary regime of the TPB which can ultimately cancel a tax practitioner’s registration and believe the TPB should not shy away from this process.”

It said this would be important in the context of the TPB having completed the backlog of registrations built up from transitioning tax financial advisers into the regime.

Terra Capital removes ethical from fund name

BY LAURA DEW

different trends than their global peers and increased exposure to equities as well as their allocation to North America.

Chinese assets grew in popularity among the sovereigns looking for more diversification, with equities continuing to be the asset class most favoured.

According to Invesco, an increased exposure to Chinese equities was the result of the government’s measures to open the market to foreign investors.

However, transparency remained a significant obstacle to higher allocations in China for foreigners. Additionally, for those funds that had no existing allocation to China the investment restrictions and currency risk remained the biggest hindrance.

On the other hand, economic attractiveness of Europe was declining for sovereigns due to slowing growth and rising political risks, with 64 per cent of respondents saying that Brexit had an influence on their asset allocation decisions with a further 46 per cent of sovereigns admitting that sovereign investors decreased allocations to Europe in 2018.

THE former Terra Capital Ethical Emerging Companies fund has chosen to remove the word ‘ethical’ from its title in light of its investment in cannabis companies.

The fund, which was launched in January 2016, was now known as the Emerging Companies fund after a name change in May. It was awarded an ethical certification by the Responsible Investment Association of Australasia (RIAA) last year, one of only 14 funds, but has since returned that.

The reason for the change was the firm’s holdings in cannabis companies, specifically those for recreational purposes. While some cannabis companies worked for medicinal purposes, whether the fast-growing sector could be held in ethical funds still remained a ‘grey area’.

Following a trip to North America earlier this year, the fund held 36 per cent in cannabis companies, up from 20 per cent in February 2019.

In its monthly newsletter, the firm said: “Our research confirmed our investment thesis from the first half of 2018 which is that access to US customers through premium brands will lead to the highest margins. A new focus for the fund over the past quarter has been health and wellbeing CBD products–following our trip we expect this will be a bigger market than the recreational cannabis market. Given the current market fragmentation we believed both these investment themes are still in their infancy.”

Despite the name change, the firm still maintained an overall ethical approach to fund management which included negative screening to avoid companies such as defence, gambling and human rights violators.

11/07/2019 12:11:42 PM

July 18, 2019 Money Management | 7

News

Count’s 60% revenue challenge a pointer to industry pain

BY MIKE TAYLOR

THE magnitude of the challenges confronting financial planning groups has been laid bare by a document prepared by CountPlus as part of its acquisition of Count Financial, revealing a potential revenue decease of as much as 60 per cent.

The CountPlus document, prepared for an extraordinary general meeting (EGM) to ratify acquiring Count Financial from the Commonwealth Bank, made clear the dramatic declines in revenue which have flowed from Government policy and regulatory changes, including the Future of Financial Advice (FoFA) changes and the Royal Commission.

The document also foreshadowed the likelihood that some firms working under the Count Financial license may opt not to move to CountPlus.

It said that legacy revenue streams associated with Count’s platform contracts included “licensee adviser fees (which ceased from 1 March, 2019) and platform rebates (which are decreasing based on grandfathering run-out)”.

“As such, while Count (and therefore the Group from Completion) may benefit from legacy income until 1 January 2021 (eg platform rebates and investment trail commissions), Count is expected to experience an approximate 60 per cent revenue decrease in this regard once all expected reforms are implemented,” the document said.

It said that there was accordingly a risk that the loss of the licensee advice fees and grandfathered commissions would have a material impact on Count’s revenue, and therefore profitability.

“There is also a risk that platform providers may seek to terminate their arrangements if they do not consider the arrangements to be

Tax strategy options open up via catch-up contributions CATCH-UP superannuation contributions have just become a staple of tax management strategies under the changes which came into effect on 1 July, according to wealthdigital technical manager, Rob Lavery.

Pointing to the changed arrangements under which the unused portion of a previous year’s concessional contribution cap can be carried forward, Lavery said the strategic opportunities were “immense”.

“Capital Gains Tax (CGT) bills can be controlled by deductions, high taxable incomes can be reduced and bonuses can be added to super tax-effectively,” he said. “Catch-up contributions just became a staple of tax-management strategies.”

However, he said the biggest change which came into effect from 1 July was that lifetime income streams purchased after that date were subject to different social security rules.

He pointed to asset test concessions of 40 per cent up to the owner’s 85th birthday, and 70 per cent thereafter, as well as an income test concession of 40 per cent.

He said these represented attractive propositions for some clients.

in their interest once the revenue arrangements change,” the CountPlus document said.

It said that, historically, member firm attrition had been mitigated under the current model which had been characterised by selective discounts to fees charged by Count to members of up to 45 per cent and discounted provided to members on the recovery of various charges by Count.

“Due to changes in revenue, Count must transition to a new revenue model which covers costs and delivers a return to Count as member firm licensor,” the document said.

“It is expected that there will be a repricing of licensor services in the market generally.

As a result of the envisaged market re-pricing, there is a risk that count’s member firms may terminate their arrangements with Count if they do not support the new pricing model.

This may have a material impact on Count’s revenue and future profitability,” it said.

TPB warns on unregistered tax agents THE Tax Practitioner’s Board (TPB) has fired a shot over the bows of unregistered tax agents warning it will act on any intelligence it receives from tax practitioners or members of the public.

In a statement issued this month, TPB chief executive, Michael O’Neill warned that people using unregistered tax practitioners would not be covered by safe-harbour provisions which offer protection against penalties imposed by the Australian Taxation Office (ATO) when a registered tax practitioner failed to lodge on time or made a false or misleading statement on a return.

“Unregistered agents often try to convince potential clients that they can obtain unrealistically large tax refunds but if it sounds too good to be true, it probably is,” O’Neill said. “Using an

unregistered tax practitioner can cost thousands of dollars in tax bills and penalties.”

The TPB chief executive pointed to recent cases of people posing as registered tax practitioners lodging returns on behalf of clients using their myGov accounts and lodging through myTax. “We urge everyone this tax-time not to share their personal myGov password with anyone, and if they plan to use a tax agent, to make sure they are registered with the TPB,” he said.

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10/07/2019 4:45:54 PM

8 | Money Management July 18, 2019

News

HUB24 dismisses negative reports

BY MIKE TAYLOR

PLATFORM provider, HUB24 has defended itself against media reports that in the wake of interest rate cuts the fees it charges for cash on its platforms risked leaving planning clients facing negative net returns on their cash.

In doing so, it claimed the fee examples used in the report were not representative of the administration fees paid and interest rates received by the majority of clients and claimed that an analyst cited in the newspaper report was just one voice in the sector.

In an announcement released to the Australian Securities Exchange (ASX) following a trading halt, HUB24 said it maintained flexible fee arrangements with licensees for their clients and that the fee example reference in the Australian Financial Review article was “not representative of the administration fees paid and interest rates received for the majority of our clients”.

The platform provider said its cash account

was a working transaction account that facilitated the comprehensive capabilities that supported the broad range of services provided to clients of the platform, for example investment trading, portfolio rebalancing and pension payments.

“The platform provides a variety of additional cash investment options including term deposits, cash ETFs and cash management funds for advisers and clients seeking cash risk/return exposure,” it said. “The cash transaction account is not the sole cash investment option available.”

The HUB24 announcement said the platform administration fee related to the platform services provided to customers and were independent of the rates of return or performance of individual assets and investment options available on the platform.

“The HUB24 cash ‘transaction’ account offers a competitive rate when compared to peers and when compared to similar bank products, which do not provide the same level of capability provided by the platform,” it said.

“All clients of HUB24 are receiving a positive interest rate on their cash account, post the Reserve Bank of Australia rate change.”

ASIC targets payday lenders with new powers

FinClear partners with Shadforth

BY LAURA DEW

BY CHRIS DASTOOR

THE Australian Securities and Investments Commission (ASIC) has proposed the first use for its product intervention powers will be addressing significant consumer detriment in the shortterm credit industry.

These powers would allow ASIC to intervene where financial and credit products had resulted in, or were likely to, result in significant consumer detriment. This particularly targeted a model where products provided consumers on low income or in financial difficulty with short-term credit at high costs.

One specific model used by two firms, Cigno Pty and GoldSilver Standard Finance Pty, involved a short-term credit provider and associate who charged fees under separate contracts, which added up to around 990 per cent of the loan amount.

ASIC Commissioner, Sean Hughes, said it had already received ‘many instances’ of these types of products affecting consumers.

“Sadly, we have already seen too many examples of significant harm affecting particularly vulnerable members of our community through the use of this short-term lending model.

Consumers and representatives have brought many instances of the impacts of this type of lending model to us.

“Given we only recently received this additional power, then it is both timely and vital that we consult on our use of this tool to protect consumers from significant harms which arise from this type of product.”

ASIC said it would consult with affected and interested parties before exercising these product intervention powers and people would have until 30 July 2019 to submit their input via product.regulation@asic.gov.au

FINCLEAR has partnered with Shadforth Financial Group to deliver trading, clearing and settlement services, as well as its TradeCentre front-end technology.

David Ferrall, chief executive of FinClear, said Shadforth was an important addition to FinClear’s client stable.

“It’s great to see a strong, national brand like Shadforth join our community of banks, brokers and advisers,” Ferrall said.

“We’ve grown more than 200 per cent over the [last] 12 months, and this new partnership is really the icing on

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the cake for what’s been an outstanding 2018-19 financial year for FinClear.”

Gene Phair, head of Shadforth, Tasmania, said the partnership was a result of a rigorous search.

“We were seeking a provider who could not only deliver a fast and efficient broking service, but whose client-first values aligned with our own,” Phair said.

“FinClear demonstrated a clear and thorough understanding of our business, and despite being relative newcomers to the industry, are genuinely focused on delivering a first-class client and adviser experience.”

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10 | Money Management July 18, 2019

News Xplore Wealth launches wrap platform

BY LAURA DEW

XPLORE Wealth has launched a wrap platform for discretionary investments, superannuation and pension money, the first in a series of planned product launches for the firm.

Xplore Wrap would offer multi-currency and multimarket investment access and trading through clients’ broker of choice. It would deliver access to a range of managed funds, ASX-listed equities, international equities from 28 exchanges and cash investment products.

The firm said the new platform would complement the firm’s existing managed discretionary account capabilities and

support the evolving needs of the firm’s client base.

Xplore Wealth non-executive chair, Peter Brook, said: “Xplore Wrap was developed partly to help transform client and adviser relationships. It offers advisers a genuine range of investment solutions to meet a choice of client need.

“For example, advisers can provide clients with the advanced benefit of a consolidated view of investments, access to managed funds, international securities and portfolio rebalancing under a single instruction.”

This was the first product launch by the firm since it was rebranded from Managed Accounts to Xplore Wealth in March 2019.

FIND YOUR WAY IN A WORLD OF FIXED INCOME OPPORTUNITIES

Legg Mason Asset Management Australia Ltd (ABN 76 004 835 849 AFSL 240827) is part of the Global Legg Mason Inc. group. Before making an investment decision you should read the PDS for the relevant Fund carefully and you need to consider, with or without the assistance of a financial advisor, whether such an investment is appropriate in light of your particular investment needs, objectives and financial circumstances. Past performance is not necessarily indicative of future performance.

SuperConcepts says it’s #Time2Enshrine super objective

BY HANNAH WOOTTON

SUPERCONCEPTS has launched a campaign to enshrine the objective of the superannuation system in legislation, timing with the resumption of Parliament sitting and getting ahead of another inquiry into the retirement system, which the Government has signalled is on the cards.

The #Time2Enshrine campaign aimed to underpin stability and enhance focus in superannuation, as constant changes to super rules were a big turnoff (the biggest, according to some surveys) for consumers considering making additional contributions to super.

“Superannuation is the most

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tax advantaged retirement savings vehicle and it’s disappointing these concessions and the advantages of making voluntary super contributions are often overshadowed by the constant fear of rule changes,”

SuperConcepts chief executive, Lara Bourguignon, said.

“It’s now time for the objectives of super to once and for all be enshrined in the legislation to avoid such a clash of policy ideas and the potential impact on

people’s lives.”

In Bourguignon’s opinion, the objective of super should be aspirational and encourage self-provision in retirement, serving not only as a safety net but also as a means to financial independence and a dignified retirement.

Further, she believed that it wasn’t enough to just legislate these objectives, but that a mechanism should also be put in place to compel policymakers to refer to it when assessing competing superannuation proposals.

The #Time2Enshrine campaign encouraged people to discuss what purpose the superannuation system should serve, tagging comments and posts on social media that did so with the hashtag.

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News

Making super investment decisions does not represent “activity”

BY MIKE TAYLOR

A member’s decision to change the investment strategy for a superannuation fund will not be enough to demonstrate that it is “active” and exempt it from key provisions of the Government’s Protecting Your Super Regime, according to the Australian Prudential Regulation Authority (APRA).

In correspondence to superannuation funds outlining its approach to the new legislative regime, APRA made it clear that accounts will need to have received contributions for a continuous period of 16 months to have been deemed active.

“An inactive account is defined for the purposes of the

insurance opt-in change as a MySuper or choice product for which no contributions and/or rollovers have been received for a continuous period of 16 months,” it said. “No other actions may be taken to indicate activity.”

However, superannuation funds guilty of breaching elements of existing

superannuation legislation would be able to cite changes to the regime which have not yet passed the Parliament, according to APRA. In what represented a highly unusual approach, APRA told superannuation funds it will take account of legislation that has not even passed the Parliament, because the Government

believed it would pass.

That legislation was the Superannuation Industry (Supervision) Act which was part of the Government’s so-called “Protecting Your Super Package” and would impact account aggregation and insurance inside superannuation.

APRA’s letter to superannuation funds stated that they should follow standard breach procedures and report breaches to APRA within the required timeframe but added: “Where the breach may relate to future law changes, a trustee may rely on identifying this matter in its breach report, subject to further advice from APRA regarding whether any additional action is required”.

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Suncorp to defend class action over fees

BY HANNAH WOOTTON

CONFLICTED fees are once again a hot legal topic, with Suncorp being hit with a class action in the New South Wales Supreme Court over superannuation commissions paid to advisers.

Law firm, William Roberts Lawyers, and the litigation funder backing the action, Litigation Capital Management, filed the action against Suncorp’s whollyowned subsidiary, Suncorp Portfolio Service Limited, which was a trustee responsible for the administration of Suncorp Super Funds.

Suncorp planned to put up a fight against the charges, announcing on the Australian Securities Exchange (ASX) that

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“the matter will be defended”.

The class action, initially announced in June, would allege that Suncorp Super executed agreements to entrench fees to be used for payment of conflicted remuneration that would otherwise have been banned from 1 July, 2013, under the Future of Financial Advice reforms.

In this, William Roberts Lawyers would allege that Suncorp Super breached its duties to avoid conflicts, act with due care and diligence, and act in its members’ best interests. The law firm specified that the company would be the subject of the proceedings however, saying it didn’t propose suing any of the financial advisers receiving the fees.

All Spectrum Advice ARs terminated as of 30 June FREEDOM Insurance Group has confirmed that all authorised representative agreements associated with its advice business, Spectrum Wealth Advisers will be terminated on 30 June.

In an announcement released to the Australian Securities Exchange (ASX) the company pointed to its continuing exit with both respect to advice and its insurance business.

The company said that Spectrum had supported the orderly transition of a large number of authorised representatives to other licenses.

It said that the transition of administration services with its insurers announced on 29 April had now been completed and resulted in a final settlement consideration of $5 million with this payment being separate to commission and clawback arrangements.

It said that the business would continue to incur costs associated with the wind-down.

The company said it had commenced the cancellation process of its Australian Financial Services Licences for both Freedom Insurance and Spectrum with the Australian Securities and Investments Commission (ASIC).

However, it said that despite the cancellation of the licence there might be continuing obligations imposed by ASIC on one or both companies that would need to be addressed.ot even close to being over.”

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12 | Money Management July 18, 2019

News

FASEA approves AFA professional designations

BY CHRIS DASTOOR

THE Financial Adviser Standards and Ethics Authority (FASEA) has approved the Kaplan version of two Association of Financial Advisers (AFA) Professional Designations — the Fellow Chartered Financial Practitioner (FChFP) and Chartered Life Practitioner (ChLP).

These would count for two credits towards the Graduate Diploma or as credits against an adviser’s education requirements.

Philip Kewin, AFA chief executive, said: “This is great news for the many members who have completed the Kaplan version of both the FChFP and ChLP, as it allows them to

move forward and plan the further study that they need to complete in order to meet the FASEA education standard.”

The FChFP and ChLP designations were both awarded through the Asia Pacific Financial Services Association (APFinSA) and were recognised by all 10 member countries.

The FChFP designation was the AFA’s professional designation and designed for advisers who were seeking to enhance their professional reputation and business performance.

The ChLP designation was designed for risk advisers who wanted formal recognition as a specialist in the financial advice profession.

Ord Minnett now 100% privately owned

BY MIKE TAYLOR

ORD Minnett is to be 100 per cent owned by private investors following a decision by both IOOF and JP Morgan.

Ord Minnett announced that following on from IOOF’s recently announcement that it had divested its 70 per cent shareholding in Ord Minnett, the private investors had acquired JP Morgan’s 30 per cent stake giving them full ownership of the business.

The domestic consortium was being led by Ord Minnett executive chair, Karl Morris, who said the investors were strongly committed to achieving the best outcome for staff, clients and the business.

“Over the coming months, the consortium intends to enhance the investor pool with parties that align with Ord Minnett’s business values and desire for future growth,” he said.

“Importantly, it is anticipated that the new ownership structure could allow staff participation in the future shareholding of Ord Minnett.”

The statement said Ord Minnett’s longstanding arrangements with JP Morgan to access research and Australian capital raisings in the form of IPOs, placements and other corporate originations will remain in place to ensure Ord Minnett clients and key business areas continue to maintain a competitive advantage.

It said the new ownership structure allows Ord Minnett business groups to provide industry leading investment advice and research, while offering a strong platform for growth.

Ord Minnett had $10.1 billion FUA (31 May, 2019) and a national network of 10 offices in capital and regional cities throughout Australia and Hong Kong.

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ASIC bans adviser for ‘templated’ financial advice

BY LAURA DEW

TAKING a templated approach to financial advice has seen a financial adviser banned from providing financial services by the Australian Securities and Investments Commission (ASIC) for five years.

ASIC found Frazer Jon Muscat, who worked at Bristol Street Financial Services Pty Ltd in Beenleigh, QLD between August 2010 and December 2018, failed to take into account his clients’ individual circumstances as he used a template for all clients.

This ‘insurance needs calculation template’ recommended his clients apply for levels of insurance which were higher than their needs. ASIC said many cases were ‘at complete odds’ with clients’ objective and needs.

He also switched superannuation accounts of some clients from one provider

to another without investigating their existing arrangements or demonstrating why the switch would be in their best interest.

Lastly, ASIC said he failed to provide advice on other areas requested by his clients such as debt reduction, instead focusing solely on insurance and superannuation.

ASIC Commissioner, Danielle Press, said: “When providing personal advice, ASIC expects financial advisers to take reasonable steps to understand their clients’ individual circumstances, needs and objectives before making any recommendations.

“Advisers have a legal obligation to act in the best interests of their clients at all times and, because client circumstances often vary considerably, using a templated approach will not produce the most appropriate advice recommendations in all instances.”

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July 18, 2019 Money Management | 13

News

Rate hike prompts trustees to reconsider their LRBA rate

BY LAURA DEW

SELF-MANAGED super funds (SMSFs) trustees are being encouraged to review their current finance rates after changes to the safe harbour rates benchmark affecting Limited Recourse Borrowing Arrangements (LRBAs).

The standard investor interest rate for residential property, set by the Reserve Bank of Australia and used for the LRBA safe harbour rates, was raised in May from 5.80 per cent to 5.94 per cent.

In light of this rate increase, trustees were urged to look around for the best deal possible to ensure they were getting the maximum retirement benefit available by paying lower expenses.

“We’re seeing a lot of enquiries from trustees and administrators wanting to know their options around lowering the rates and expenses incurred by funds given the rates elsewhere in the market,” said Phil La Greca, SuperConcepts executive manager of SMSF technical and strategic services.

“Even though official rates are falling, and could possibly fall further, it looks likely that rates for SMSFS with related party loans will be charged higher interest if they follow the guidelines.

“A lot of the banks have pulled out of LRBAs but the gap is being filled by smaller providers who are trying to establish themselves with competitive offers.”

La Greca added advisers and trustees had a best interest duty to the fund or client which should encourage them to seek the fund with the least expenses.

Life risk sales fall to five-year low ACCORDING to Dexx&R, only one of the top 10 life companies, AIA Australia, recorded an increase in individual lump sum new business with the firm seeing a 40 per cent increase from $75 million in March 2018 to $105 million in March 2019.

Individual life risk covers death, trauma, disability income and business expense products sold through advice channels or direct.

The current largest life company was TAL which has a 19 per cent market share but this would be replaced by AIA once its acquisition of CommInsure was completed, with TAL dropping into second place, notwithstanding its acquisition of Suncorp’s Life business.

Looking at quarterly business, new business fell by 11.4 per cent from $274 million to $239 million.

The fall in overall business was cited as being the result of lower sales through advice channels and the suspension or cessation of sales of direct lump sum products by several major life companies.

This included AMP, which was closed to new business, and Asteron which was being acquired by TAL. Dexx&R said there was “little prospect” of a short-term turnaround in risk product sales as there was a dislocation caused by the sale or restructuring of bank-owned dealer groups who had previously played a significant role in the distribution of risk products.

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Yet, demand for higher education, professional and ethical standards may not have reached the crescendo it did if it weren’t for the Royal Commission. The issues of misconduct and poor client outcomes naturally become bigger when there is a pressing need for more people to seek financial advice.

For instance, with over five million baby boomers reaching retirement age in the next 12 years, the demand for advice is only going to rise. Many Australians will be seeking to become self-sufficient retirees and financial advisers will play a critical role in helping them achieve this goal. These clients will no doubt need closer ongoing management and reassurance to remain on track, and so advisers will need to structure their businesses accordingly.

Product providers have a responsibility to support advisers by developing retirement solutions that provide meaningful outcomes for retirees. Products need to address the financial and emotional issues many retirees face, but also support advisers in delivering professional and ongoing services.

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14 | Money Management July 18, 2019

News

TPB warned it risks accelerating adviser exodus

BY MIKE TAYLOR

THE Tax Practitioners Board (TPB) has been told that financial advisers already provide extensive initial and ongoing disclosures to clients and that seeking to impose the need for Letters of Engagement is going too far.

In a submission directly addressing the TPB proposal, the Association of Financial Advisers (AFA) said financial advice disclosure and client consent requirements “are extensive and the addition of further obligations is likely to deliver limited additional benefit, whilst also driving up the costs of providing financial advice”.

“In our view, the requirement for tax (financial) advisers to provide an extensive engagement letter, including doing so on an annual basis for ongoing clients, is excessive and unnecessary. We do not believe that this will serve any beneficial purpose for clients who will be inconvenienced as a result,” the AFA submission said.

In doing so the AFA repeated the assertions contained in an earlier submission to the TPB noting that the proposal was being put forward “at the same time as a large number of advisers are reconsidering their intention to remain in the financial advice profession”.

It said the key drivers of an expected exodus of financial advisers were the new education standards and the likely impacts from the Banking Royal Commission.

“The Royal Commission has recommended that clients be required to provide specific authority for the continuation of fees on an annual basis (Recommendation 2.1). The new FASEA Code of Ethics also refers to additional requirements to obtain client consent for services being provided and ongoing remuneration,” the submission said.

“The net impact of all these changes is to substantially increase the cost of providing financial advice, which will have a much greater impact upon average Australians seeking

financial advice, where it may no longer be accessible or affordable.”

“This proposal from the TPB, along with the Transfer of Business proposal, is likely to have a further negative impact upon the viability of the financial advice sector.”

“On the grounds of the existing disclosures already provided, and the anticipated further changes to flow from the Royal Commission with respect to client renewal arrangements, we recommend that this TPB engagement letter proposal does not apply to financial advisers, and certainly not for the next two years whilst other regulatory issues are finalised,” the AFA submission said.

Hume reiterates call to end super culture wars SOME industry superannuation funds have been just as guilty of investment under-performance as some retail funds, according to the Assistant Minister for Superannuation, Financial Services and Financial Services Technology, Senator Jane Hume.

Interviewed on radio, Hume reiterated her call for an end to the culture wars between the various types of superannuation funds while acknowledging that while some industry funds had performed exceptionally well, there were also some industry funds which underperformed.

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“The most important thing now is that we put aside the sector wars, whether it’s between industry or retail, whether it’s between self-managed super funds (SMSFs) and industry and retail super, and say, right, well, what’s in the best interest of members?” she said. “That’s what we’re all about, the best member outcomes that we can get to.”

Hume also signalled that the Government had no intention of altering the existing time-table for lifting the superannuation guarantee, noting that it had been legislated and there was no intention to alter that approach.

APRA data confirms value added by advisers NEW data released by the Australian Prudential Regulation Authority (APRA) has confirmed that people who use an adviser for their insurance needs are significantly more likely to have them approved by the insurer.

The APRA Life Insurance Claims and Disputes Statistics covering the year to December, 2018, found that, “generally, Individual Advised business shows higher admittance rates than Individual Non-Advised for the same cover type”.

“This could be due to the policy-holder having clearer expectations up front of what is covered by the product, or (related to the previous point) the adviser discouraging the policyholder from lodging a claim that is not covered by the policy,” the APRA analysis said.

The APRA data revealed that the admittance rate across all cover types and distribution channels was 93 per cent, with the highest level of admittance applying to trauma cover (100 per cent) followed by death cover (99 per cent) and disability cover (96 per cent).

This compared to total and permanent disability cover (TPD) where the admittance rate was just 68 per cent.

The APRA analysis said the relatively lower admittance rate in respect of cover types such as TPD, trauma and accident reflected the complexities of assessing the claims, as well as consumer clarity on what exactly is covered by the policy.

It said that, by comparison, death and funeral claims were relatively straightforward to assess, which was reflected in the admittance rates.

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July 18, 2019 Money Management | 15

News

Netwealth still tops satisfaction ratings

BY MIKE TAYLOR

FINANCIAL planners are consolidating the platforms they use with increasing number using industry superannuation funds, according to the latest research from research house, Investment Trends.

The latest 2019 Planner Technology Report released by Investment Trends revealed that the number of platforms used by financial planners had declined from as many as 3.5 in 2009 to just 2.1 today with Investment Trends research director, Recep Peker, claiming the platform landscape was changing at pace.

He said that in the wake of the Royal Commission the most cited platform selection driver was fees and that industry super funds were growing their usage among planners, with nine per cent of

planners allocating client inflows to industry super fund platforms collectively in 2019.

Where planner satisfaction with platforms was concerned, Netwealth again topped the rankings as assessed by Investment Trends.

It said that in 2019, Netwealth remained the highest-rated platform by overall satisfaction, with 55 per cent of primary users rating their overall satisfaction as ‘very good’, ahead of HUB24 (43 per cent) in second spot.

The top five platforms by overall satisfaction were: 1) Netwealth 2) HUB24 3) Asgard eWRAP 4) CFS FirstChoice 5) BT Panorama

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16 | Money Management July 18, 2019

InFocus

EVERYONE’S RESPONSIBILITY TO BE INVESTED IN THE PLANET’S FUTURE Responsible Investment Association Australasia chief executive, Simon O’Connor writes that while ESG investing may have become mainstream it is still a work in progress.

RESPONSIBLE AND ETHICAL investing in Australia has reached a critical juncture. With almost $1 trillion now allocated across capital markets in accordance with environmental, social, governance and ethical factors, it could be tempting to suggest this once niche style of investing has almost become mainstream.

Certainly, there is plenty to support the view that those charged with the stewardship of Australia’s $2.25 trillion in professionally managed assets are taking new heed of the financial imperatives around responsible investing.

The Responsible Investment Association Australasia’s (RIAA) annual Benchmark Report shows responsible investment growing in 2018 to a record $980 billion, up 13 per cent for the year. To put this in perspective, the latest figure represents a fivefold increase since 2013 when just $178 billion found its way into responsibly managed funds.

It is part of a global phenomenon that has seen responsible investment assets swell to US$31 trillion around the world.

New legislation, a rapidly warming climate, shifting consumer expectations, a hypertransparent world and the importance of maintaining a social licence, have all become triggers for shifting the operating context of companies and influencing share prices and markets.

These factors are driving many of Australia’s largest investment organisations to demonstrably embed responsible investment approaches within their investing strategy. Approaches are diverse from screening out harmful industries such as tobacco and controversial weapons; integrating ESG considerations such as how human rights are managed within supply chains;

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corporate engagement and voting to manage climate risk; and impact investing in social impact bonds to tackle recidivism.

Of significance, responsible investments continue to deliver on financial performance. Again, this year, our report shows outperformance by responsible investment funds across most time horizons for equities and balanced funds. This underscores how these responsible investment approaches are helping to identify and avoid these non-traditional investment risks, whilst also capturing upside investment returns.

From climate change to modern slavery, responsible investment considerations are moving from ‘nice to have’ to being issues of compliance in Australia.

The Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) have both indicated they are moving to supervise regulated financial entities on how they are managing climate change risk after having spent recent months speaking with investors on their current practices.

This is resulting in investors focusing greater effort to understand the climate risks in their portfolios as a matter of compliance - emissions of companies, comparing portfolio companies against their industry peers, assessing the risk of severe weather, storm surges, sea level rises, floods and other physical risks on their property and infrastructure portfolios – and aiming to reduce these risks. As a consequence, we’ll see ever more capital shifting in greater amounts away from poorly managed companies and high emitting industries, and towards companies better positioned to perform well in a cleaner economy.

But responsible investment still has a long way to run to align all capital with achieving a healthy society, environment and economy.

The Australian National Outlook project, recently launched by CSIRO, showed Australia is at risk of falling into a slow decline if no action is taken on its most significant economic, social and environmental challenges. The study highlighted this in stark terms, recognising the bright future

and superior economic outcomes for Australia that will come if we tackle these challenges head on.

Similar realisations are occurring internationally and influencing major economies to shift to align the financial services sector with delivering on this stronger and brighter future. From Europe to the UK, China to Canada, sustainable finance roadmaps are setting out to align the financial system policy settings with stronger social and environmental outcomes, to ensure finance is aligned to these goals, and to mobilise private sector capital towards this future.

Australia is also now setting off on this course, with the recent establishment of the Australian Sustainable Finance Initiative (ASFI). Overseen by a Steering Committee of leaders and senior executives of Australia’s major banks, superannuation funds, insurance companies, financial sector peak bodies and academia, ASFI is an unprecedented collaboration to help shape an Australian economy that prioritises human wellbeing, social equity and environmental protection, while underpinning financial system stability, consistent with outcomes as set out by the CSIRO. A great convergence is underway, with a growing responsible investment sector that is interested in meeting the needs and interests of its clients – knowing that nine in 10 Australians expect their savings and investments to be managed with consideration of their values. This convergence is being recognised and hastened into place globally, as a way of ensuring that financial services can deliver for citizens, both for their retirement savings, as well as contributing to the kind of Australia they want to retire into.

11/07/2019 12:20:06 PM

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18 | Money Management July 18, 2019

Markets

A NEW DAWN FOR FINANCIAL MARKETS

As the new financial year is upon us, Laura Dew examines what we can expect from markets in the year ahead as interest rates fall to historic lows and the world watches the actions of US President Donald Trump.

WITH DOUBLE-DIGIT RETURNS seen during 2018/19, it seems likely Australia’s ongoing stream of positive returns are set to continue with the market set to reach all-time highs 12 years after previous highs during the mining boom. But with house prices falling, several new financial policies enforced on 1 July and volatility caused by the US/China trade war, will 2019/20 be as good as the previous one?

Already, there have been two significant economic events in 2019 – the re-election of the Coalition Government and the two cuts by the Reserve Bank of

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Australia (RBA) – so Australia will be facing rather different circumstances than it had at the start of the year.

POLITICS Possibly the biggest event this year has already taken place with the re-election of the Coalition government at the 18 May Federal election.

It was a shock victory for the Coalition who defeated frontrunners Labor after a fiveweek national election campaign.

For markets, it was a positive as it ended a period of uncertainty and ushered in a second term of ‘more

of the same’ for the Liberals under Prime Minister Scott Morrison.

Prior to the election, Australians had held off making big decisions due to the uncertainty around proposed tax changes put forward by Labor.

This included holding off house purchases due to fears around possible negative gearing changes but since the election, house purchases have begun to pick up again with Sydney and Melbourne reporting a rise in residential property prices in June for the first time since 2017.

Hopefully this is an early indicator that prices are at or near the

bottom of their downturns.

Dale Gillham, chief analyst at Wealth Within, said the positive reaction to the election result was because it was a case of ‘better the devil you know’ for businesses who had already priced in the potential negative effects of Labor.

“Businesses didn’t trust [Labor candidate] Bill Shorten, especially financial companies, as he was cracking down on underperforming union-backed industry super funds and the removal of franking credits.

Whereas now we know who the Prime Minister will be for the next three or four years and we know

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July 18, 2019 Money Management | 19

Markets

what his policies are.”

In the aftermath of election day, the ASX 200 rose 1.7 per cent while the Big Four banks rose between six to nine per cent, reassured by the lack of a Labor government which could have dented their profits by reducing the capital gains tax discount and imposing higher bank levies.

Randal Jenneke, manager of the T. Rowe Price Australian Equity Strategy, said the re-election of the same Government indicated Australians voted for growth and jobs rather than the ‘more radical agenda’ put forward by Labor.

“The clear election outcome rewarded investors with a shortterm bounce across most sectors.

As the excitement fades, the market’s focus is expected to return to more fundamental factors, such as the ongoing trade and tariff tensions between the US and China and domestic housing weakness.”

As to what the Coalition will look to do with its second term, Shane Oliver, chief economist at AMP Capital, said he expected more fiscal policy and infrastructure spending.

“The share market should keep going up as investors had feared a Labor Government would be negative for bank, consumer and property stocks. The Federal government will look to do more fiscal spending, infrastructure spending and also focus on removing business regulation that has held back investment,” he commented.

MONETARY POLICY Oliver’s desire for more fiscal spending from the Morrison government was echoed by the

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“It is not the time to put everything in cash but you do have to be aware of the risks and be wary of how to position yourself.”

- Kerry Craig, JP Morgan RBA as it tries to get monetary policy under control.

For the first time since 2012, Australia saw its interest rates slashed to 1.25 per cent in June, then to 1 per cent the following month. This is a record low for the country and makes them the sixth-lowest interest rate in the world. That is not all; speculation among economists remains rife that there will be a third cut this year which could see them come down below 1 per cent.

Governor Philip Lowe said the RBA’s reasoning behind the second cut was that inflation remained subdued, the housing market remained soft and the Australian economy was growing below trend. But unlike after June’s meeting, Lowe said in July that monetary policy would only be adjusted again ‘if needed’ to support sustainable growth.

However, once there had been a third cut, it is likely the RBA would need to find an alternative option if further support was needed, said Oliver.

“Rates could be cut to 0.5 per cent but it would not be worth cutting them after that. It is more likely the Bank will do quantitative easing (QE) or fiscal policy. Doing QE would be a last resort but they could do it if it was needed. It would more likely be a combination of the two things,” he said.

Governor Lowe has already

called on the Federal Government to do more to help the RBA in terms of fiscal spending and said monetary policy by the RBA should not be relied upon as the only option.

Speaking at an event in Darwin on 2 July, he said: “One option is fiscal support, including through spending on infrastructure [….] It is appropriate to be thinking about further investments in this area, especially with interest rates at a record low, the economy having spare capacity and some of our existing infrastructure struggling to cope with ongoing population growth.

“Another option is structural policies that support firms expanding, investing, innovating and employing people.

“Monetary policy does have a significant role to play and our decisions are helping support the Australian economy. But, we should not rely on monetary policy alone. We will achieve a better outcome for society as a whole if the various arms of public policy are all pointing in the same direction.”

Chris Rands, fixed income portfolio manager at Nikko AM, said: “I don’t think the RBA will deliver what the market expects, as many have been talking 0.5 – 0.75 per cent cash rates and quantitative easing. The economic data does not yet warrant this, so

we would likely need to see a further economic slowdown before forecasting this outcome.

“Easing out of the European Central Bank and Federal Reserve could take some of the weight off the RBA. Should this improve the global outlook, the RBA may be able to adopt a slightly more positive tone.”

STOCKMARKETS Moving away from fixed income and looking to equities, experts were sure the stockmarket would continue rising and would approach record highs this year.

In the 2018/19 financial year, the S&P ASX 200 returned 11.5 per cent while the S&P ASX All Ordinaries index returned 11 per cent and industry experts said they expected stockmarkets would remain in positive territory, although returns would be unlikely to reach double-digit highs again.

Oliver said: “For the next six to 12 months, I think we will have reasonably good returns as global growth will pick up and the valuations on equities are not onerous. They will not be as strong as they were in the past 12 months but will still be good.

“We are only 1.5 per cent away from a record high on the All Ordinaries index but it has taken us 12 years to reach this point from the last record high during the mining boom. We haven’t had quantitative easing and the strong Aussie dollar has held us back.”

This was echoed by Gillham who said it had taken Australia 140 months to approach a record high again, which he described as a ‘massive’ amount of time Continued on page 20

10/07/2019 4:56:05 PM

20 | Money Management July 18, 2019

Markets

Continued from page 19 relative to normal market cycles.

“The Australian stock market has so far traded up consecutively for the past six months, which is the second-longest period for a sustained rise over the last 10 years.

“While a move down in the All Ordinaries index is inevitable, I don’t expect it to start moving down until late July/early August. Right now we are searching for a new all-time high before falling into the next low, which will occur sometime in late September/early October.

“Many may be concerned about the speculation of a significant fall in the market but the expected fall later this year is just part of normal market movements.”

As to potential detractors from stockmarket performance, there was universal agreement the ongoing trade war between the US and China remained the biggest risk to markets.

US President Donald Trump and Chinese Premier Xi Jinping have been locked in tariff discussions for more than a year and the US has slapped tariffs on US$250 billion worth of Chinese goods while China has retaliated with US$110 billion tariffs on US goods. Although there have been periods of hiatus between the two countries, they seem far from reaching an agreement yet. It is even more pressing for Trump as he is starting his re-election campaign and will want to appear a successful negotiator before the election in November 2020.

Jenneke said: “The risk is that the longer the current impasse continues, the more collateral damage there is likely to be to the global economy. History shows that spikes in policy uncertainty can weigh on consumer and business sentiment.

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“Companies respond by reducing inventories and capex plans with adverse consequences for GDP growth and employment.

The global economy is considerably less robust today than 12 months ago. So any negative spillovers from US/China trade fears are coming at a very inopportune moment.”

The impact would most likely be felt by the US, where tariffs could mean higher prices on consumer goods and fuel, but if the US enters into a recession, Australia will be unlikely to go unscathed as well as feeling the effects of rising volatility.

However, JP Morgan’s chief economist, Kerry Craig, highlighted Australia has actually been a beneficiary of the trade war conflict thanks to the rising price of iron ore which had reached a five-year high of $126 per tonne driven by Chinese steel demand. The price had also benefitted from a dam collapse in Brazil at iron ore producer Vale which has taken millions of tonnes of production offline.

“It’s said there are no winners from a trade war but Australia has been a beneficiary due to the iron ore price so we are actually gaining from it,” said Craig.

PORTFOLIO ACTIVITY With the expectation of increased volatility and lessthan-stellar returns from stock markets, managers were unsurprisingly taking defensive positions in their portfolios.

Jenneke said: “The rising

external risks and strong performance year to date has made us turn more cautious near term. We increased cash and reduced exposure to high-beta, economy-sensitive stocks and added to more high-quality, defensive, lower-beta stocks.

“These changes were intended to protect against another sell-off while maintaining our positions in high-quality companies that we expect to drive alpha over the medium term.”

Craig said: “It is not the time to put everything in cash but you do have to be aware of the risks and be wary of how to position yourself. We are also talking to clients about diversification and uncorrelated return streams available from real assets such as property and infrastructure.”

As to specific sectors which could do well in 2019/20, Gillham tipped areas such as financials, energy, materials and consumer staples.

“Companies like BHP Billiton, Rio Tinto and Fortescue Metals are going to drive the market and have a lot of upside, as do banks, led by Macquarie.Insurers also offer a potential value opportunity,” he said.

“We continue to see good opportunities in stocks with exposure to the Chinese consumer and select multinational structural growers with big offshore operations. We maintain our overweight position in healthcare, industrials and business services, and consumer staples,” added Jenneke.

10/07/2019 4:56:18 PM

July 18, 2019 Money Management | 21

Women in Financial Services

PUTTING THE CUSTOMER FIRST Customers’ needs are at the heart of the innovation in life and total and permanent disability insurance that last year’s Women in Financial Services Life Executive of the Year, Fiona Macgregor, is rolling out at TAL, Hannah Wootton writes.

LIFE INSURANCE DOESN’T have a great reputation with consumers, and the tales of unreasonably rejected claims and poor sales practices revealed by the Hayne Royal Commission encapsulate why. For insurers and the advisers selling their policies alike, then, products that put clients front and centre are key.

For TAL’s chief information and innovation officer and the 2018 Money Management Women in Financial Services Life Insurance Executive of the Year, Fiona Macgregor, innovation is crucial to achieving this goal.

“A culture that encourages innovation and the capability to deliver on it are at the heart of being able to keep pace with community expectations,” she says.

“There is nothing mystical in how we approach innovation.

Simply, we always start with the customer need and we do that through talking directly to people rather than sitting behind the glass in a focus group.

“There is no substitute for listening to your customers - and nowhere to hide if you’re not getting things right for them.”

LOOKING BEYOND TECHNOLOGY When people think of innovation, minds often wander to technology.

While that is an important part of the picture, Macgregor believes that in reality the start point is always customer need (or frustration).

One area where it is vitally important that life insurers innovate, for example, is in its responses to the growing recognition and prevalence of mental illness (and many companies are racing to work this out for their clients), and with the issues that longevity and its related illnesses pose to total and permanent disability (TPD) cover.

“More and more of us are living

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with chronic conditions and mental illness and our product design and their economics need to reflect that,” Macgregor says, showing that “starting with the customer need” when innovating can mean going to the heart of why they are seeking cover in the first place.

This could lead to innovation of the insurance industry itself: “This creates the potential to fundamentally shift our role in life insurance from one of purely protection to one that also focuses on prevention,” she says.

TAL’s Health Sense Plus program, for example, which is currently only available to advised clients but is being considered for rollout to insurance inside super members, rewards consumers who engage in healthy practices by offering discounts on premiums. These include having a healthy body mass index and taking preventative screening tests for health conditions.

TAL isn’t the only insurer in this space, either; AIA has been especially industry-leading in this regard, with its Vitality program that offers incentives for healthy living and exercise and discounts on relevant services and

products. Zurich, too, recently entered that space with its LiveWell app, which offers new advised insureds healthy recipes, exercise tracking, and, again, discounts and incentives.

These initiatives tangibly benefit insurers’ bottom lines – Zurich cites evidence that clients that take more than 5,000 steps per day represent a lower claims risk – but also help insurers ensure they are both satisfying clients and meeting their changing role in society.

And according to Macgregor, this is a crucial reason innovation (beyond simply improved technology offerings) in insurance is needed.

“Taking an industry view there is the issue of sustainability. TAL paid out $1.62bn in claims last calendar year. That’s an important economic and societal purpose and we have a responsibility to keep our products, business and industry in good shape for the long term,” the 2018 Life Executive of the Year says.

“The question for all businesses in Australia today is: is good for our customers, good for us? And vice versa. And if not, find a better business model.”

DIGITAL INNOVATION Of course, tech still has a role to play in creating new services and approaches that help improve member outcomes.

Innovation at TAL, for example, led to the creation of TAL Claims Assist, which allows members to manage and track their claim application in real time via an app.

This is important at a customer service level, Macgregor says: “I can track my pizza delivery or my Uber so I expect to be able to track something really important like my claim”.

For insurance inside super clients, too, tech innovation can improve outcomes. Macgregor points to TAL’s CORA digital support service, which helps members of five of its super fund partners during their return to health after a claim.

There’s also smart start-ups and promising companies out there developing their own technology that will help clients.

“Regtech, for example, is very promising and, in particular, applications of artificial intelligence to enable 100% quality checking,” Macgregor believes.

“That’s good for members.”

10/07/2019 5:02:48 PM

22 | Money Management July 18, 2019

Estate Planning

THE FINAL PLAN Planning for the times beyond your own existence is always a grim prospect, but Chris Dastoor writes that being organised will help reduce unnecessary heartache and hassle.

ESTATE PLANNING IS often overlooked because people can feel dissuaded from planning their financial legacy beyond their own life. However, doing so can have a lasting effect on the family you leave behind by making things simple during their time of grief.

Having a financial adviser involved in the process can eliminate potential complications to give everyone involved peace of mind.

Director of Estate Planning DNA, Mike Sayer, said financial planners are in a good position to contribute with estate planning because they often build long-term relationships with clients.

“Because we have that relationship, we can explore it before handing over information to a lawyer to actually put the legal documentation in place,” Sayer said.

“We explore values, we have a thing called the ‘three C’s of succession’, which are certainty, choices and conflict.

“We find what people are most keen to do is to avoid conflict or to ensure they leave harmony behind them rather than mess and conflict.”

Sayer said distribution of assets is an important factor people need to consider as those choices can have lasting implications.

“It’s making sure it doesn’t produce something they would regret if they were alive to see the result,” Sayer said.

Perpetual partner, Anthony Lam, who works within the firm’s private clients division, said getting good specialist advice means the deceased’s wealth can be distributed efficiently and taxed effectively. This means it will significantly reduce the likelihood of delays, disputes or litigation amongst family.

“An estate plan is more than just a will, it’s taking control of the

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future, it’s important clients have backup plans in place whilst they are still alive in the event they may not be able to act for themselves,” Lam said.

National manager of estate planning at Australian Unity Trustees Legal Services, Anna Hacker, said people often think when they get a will prepared, it’s just a document and they’re only focused on the end of the process.

However, the will is more than just the final document, as the advice component is crucial.

“If you don’t have the right advice, the document won’t actually meet your objectives,” Hacker said.

“What they need to do is understand what they actually want to achieve and that’s really the most important thing to think about when you’re getting a will prepared.”

PICKING THE RIGHT EXECUTOR Picking an executor of the will is another under-appreciated factor as it’s important to make the choice appropriate for your situation, not what may seem the most convenient.

“A lot of people just assume this is something that if I asked my friend or my family member, this is an honour, this is something they’re going to be really grateful to do,” Hacker said.

“The reality is, what they need to look for is someone who is up to the task, someone who can act impartially, especially if there’s beneficiaries that don’t agree with each other.”

If this isn’t considered, there can be tax consequences when administering an estate: “If it’s not taken into account, it can negatively affect beneficiaries, the estate or the executor,” Hacker said.

“There is actually a personal

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July 18, 2019 Money Management | 23

Estate Planning Strap

N liability in a lot of cases if someone does the wrong thing even if it’s done in good faith.

“They need to choose someone who understands how complex this can be and is happy to understand what the legal implications of different things are.”

SUPER AND ESTATES According to the principal of Townsend Business and Corporate Lawyers, Peter Townsend, superannuation can’t be dealt with by a will because it is held by the trustee of a super fund.

“Because you have to deal with both your superannuation assets, which are a dealt with through death benefit nomination, and your non-superannuation assets, which are dealt with through a will, you have to plan the two documents,” Townsend said.

“Obviously, people want to live comfortably in their retirement, but the big problem is when people say to me ‘I don’t really need an estate plan, I’m going to spend it all’ that’s very interesting.

“And when is it that you’re going to die precisely? Because nobody knows that, you can’t make any real decisions about planning and how much money you’re going to leave.”

However, given that superannuation is meant for retirement and not expected to exceed the lifetime of its contributors, it isn’t treated as an easily transferable asset.

It’s important to consider this with an adviser when estate planning, because if there are leftover funds, the tax liability varies depending on the beneficiary.

“It’s important to understand that superannuation is there to fund your own retirement, if not, then the focus has to be on supporting your dependents,” Hacker said.

“People often look at the balance they’re going to have at the end and they think about their beneficiaries.

But there can be tax consequences of that superannuation going to people who are non-tax dependents.

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“It’s important to check the tax implication of any beneficiaries as non-tax dependents are different to people that can benefit from superannuation.”

Hacker pointed to an example of a client who was getting an inheritance, but didn’t realise it was through her mother’s super fund.

“When I told her about it, I explained what she’s going to receive is going to be taxed and she was just horrified,” Hacker said.

“She said she had to pay for a funeral with this amount and it’s actually not going to be enough.

“People don’t actually understand it’s meant to be there to fund dependents and if people are not technically tax dependents, then there will be tax consequences.

“There are ways that you can avoid the tax payment to non-tax dependents from superannuation, but it has to be carefully done.”

Craig Day, head of technical services at Colonial First State, said if someone wants their super paid directly to a beneficiary they need to consider putting in place a valid death benefit nomination.

“This nomination can provide certainty and allow the payment of a death benefit to a member’s dependants quickly,” Day said.

“It also avoids a member’s benefit being subject to a family provision claim if it is paid to their estate.”

Lam said there had been several instances where clients had worked hard to build wealth but did not use up all their super.

“In order to be well prepared for super passing to beneficiaries such as the next generation, the need for good advice and a deep understanding of the family dynamics and desired outcomes is crucial,” Lam said.

“For example, with the recent $1.6 million balance transfer cap being applied to superannuation savings, it’s very important to consider the super balance of a surviving spouse.

“You don’t want to get caught out by this change and find the transfer

“It’s really easy to know which types of clients need a power of attorney – and that’s all of them, you never know when you’re going to lose capacity” - Anna Hacker, Australian Unity Trustees Legal Services balance cap is exceeded, a great estate plan is designed to manage such challenges.”

PASSING IT ON There are other assets people will need to pass on, which all have various tax implications that an adviser can help with.

Inherited shares can be the trickiest, as dealing with capital gains tax (CGT) can vary depending on the situation of the beneficiary.

“Normally in deceased estates if you inherit shares, you have CGT rollover relief or you have an exemption where you don’t have to pay it at the time that you inherit that asset, it’s deferred until you sell it,” Hacker said.

“That means it’s good for those beneficiaries, but it means when they sell it there’s CGT paid at that time, rather than when they inherited it.”

However, there can be issues with these exemptions in certain circumstances, such as if one of those inheriting it are no longer an Australian resident for tax purposes.

“If you have a beneficiary who is not an Australian resident for tax purposes then they don’t get that rollover relief and they don’t get the exemption at that time, the capital gains is paid at the time they inherit that asset,” Hacker said.

POWER OF ATTORNEY Sayer said an estate plan is not just a will, as people need to look at power of attorney, succession of attorney, living wills, enduring guardianship

and testamentary trusts. “[Enduring guardianship], that’s making sure if they’re on life support they can take the power now to make a decision as to whether it be switched off or not,” Sayer said.

“As opposed to leaving it to their children, which could create conflict because one child might disagree with another.

“Testamentary trusts are a key issue because under the bankruptcy act they can protect against creditors, very often they’re missed out and they can have tax advantages as well.”

Just as choosing an executor and enduring guardian are important decisions needed to be taken seriously, power of attorney needs to be considered likewise.

“It’s really easy to know which types of clients need a power of attorney – and that’s all of them, you never know when you’re going to lose capacity,” Hacker said.

By waiting until retirement to select a power of attorney, there is a risk of complicated financial matters turning into a worst-case scenario.

“If you don’t have it in place and someone needs to act as your power of attorney and you don’t have one in place, then they need to go to the local guardianship tribunal and be appointed as your administrator,” Hacker said.

“That may well be all good and it might end up being the same person, but it’s obviously a process and potentially not a quick one.

“There could be fighting over who it is, so that’s why I always say everyone should have one.”

11/07/2019 12:32:13 PM

24 | Money Management July 18, 2019

Fact check

FACT CHECK:

VERDICT: FAIL (FOR NOW)

TERRA CAPITAL EMERGING COMPANIES A preference for the fast-growing sector of cannabis products has led to a mandate change for the Terra Capital Emerging Companies fund as the sector comes under scrutiny, Laura Dew writes.

THANKS TO REAMS of industry research, it is a truth universally acknowledged that investing ethically does not have to come at the expense of positive longterm performance.

But what constitutes responsible investing remains up for debate with one fund revoking its ethical credentials as a result of a disagreement with the Responsible Investment Association of Australasia (RIAA).

The former Terra Capital Ethical Emerging Companies fund was certified as an ethical fund last year, one of only 14 certified during the year, but this year the fund chose to remove ‘ethical’ from its title.

The reason for the move was that the high conviction fund was holding a large amount of its assets in cannabis companies, specifically those for recreational purposes.

The use of cannabis companies was a ‘grey area’ over whether it should be included in ethical or responsible funds. RIAA chief executive Simon O’Connor said he had not seen many funds which opted to formally exclude cannabis yet as cannabis firms had not been part of the index until recently. However, he said he expected to see it in the future given how prominent cannabis firms were becoming.

The firm said it had also seen pushback from clients on its ethical name as some would have preferred the fund to have an unconstrained ability to consider all companies.

In light of the desire for a more unconstrained fund, the firm also changed the investment remit to remove geographical limitations and remove limits on the amount of unlisted stocks it could hold.

Nevertheless, the fund retains its ethical investing approach even if it is no longer in the official title.

This involved using a negative screen to exclude companies that have involvement in areas such as weapons, tobacco, gambling, human rights violations and environmental destruction.

When it came to the controversial cannabis exposure, this was an area where the fund has been boosting its investment in recent months. In February 2019, the fund had 20 per cent invested in cannabis companies and this has grown to 36 per cent by June thanks to involvement with companies such as Canadian business Nextleaf Solutions and US firm Plus Products.

In its latest fund newsletter, the firm said it had spent time in North America this year visiting cannabis companies and found the highest margins would be via access to US

Chart 1: Total return over three years of the fund compared to StP ASX Small Ordinaries index

customers through premium brands.

“Our research confirmed our investment thesis from the first half of 2018 which is that access to US customers through premium brands will lead to highest margins.

A new focus for the fund over the past quarter has been health and wellbeing CBD products- following our trip we expect this will be a bigger market than the recreational cannabis market.”

PERFORMANCE However, when it comes to performance, the fund fails to achieve its investment remit, which when combined with the need for mandate changes, means it fails Fact Check. However, Fact Check appreciates it only has a three-year track record so performance may improve over ‘the long term’, following the mandate change.

It aims to invest in small cap emerging companies utilising a high conviction, high concentration approach. Its objective is to deliver superior absolute returns over the medium to long term by investing in small and mid-cap companies as well as unlisted companies.

According to its Product Disclosure Statement, the fund aims to achieve 5 per cent annually but this has only been achieved in the first of its three full-year tenure. In

2016/17 it returned 24 per cent but in 2017/18 and 2018/19, it reported losses, according to FE Analytics.

Overall, the fund has returned 21 per cent since inception. While this sounds good, it is less than half the 48 per cent returns by its benchmark.

Over one year to 30 June 2019, the fund has lost 7.9 per cent, according to FE Analytics, versus positive returns of 1.9 per cent by its S&P ASX Small Ordinaries index benchmark. It has lost 13.8 per cent versus benchmark returns of 26.6 per cent over three years to 30 June 2019.

A spokesperson for the firm said the reason for the recent underperformance was the volatility of the small and mid-cap company sector. The sector, which was the best-performing ACS sector in 2017/18, has been one of the worst this year with returns of just 1.7 per cent in the 2018/19 financial year.

The fund was also impacted by its high conviction approach to its portfolio with the 10 largest constituents of the fund making up nearly half of the portfolio.

Despite the underperformance, the firm said it would continue with this investing approach so it will be interesting to see if the recent changes will have an positive impact on future performance.

Chart 2: Fund exposure 31 May 2019

Cannabis 36% Software and services 20% eSports 15% Media, Fintech and Financial Services 14% Infrastructure and Services 6%

Source: FE Analytics

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Source: Terra Capital Emerging Companies fact sheet

11/07/2019 12:40:16 PM

July 18, 2019 Money Management | 25

Sustainable investing

FROM SOLELY WEALTH CREATION TO WEALTH CREATION AND WELLBEING Those looking at sustainable investments rarely consider its role on their credit portfolios. As Guido Moret writes, however, doing so can both improve sustainability and reduce downside risk.

IT’S AN INVESTMENT sector that’s yet to be fully realised and is widely misunderstood.

But for those looking to capitalise on the merits of sustainable investing, applying the various dimensions of sustainability to credit portfolios – and excluding some of the most controversial companies in the selection process – can significantly contribute to reducing downside risks in these credit portfolios as well.

Launched in 2015 and often used as the basis for impact investing, the United Nation’s (UN’s) Sustainable Development

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Goals (SDGs) take the quest for sustainability to the next level by making integration tangible and measurable.

In recent years, it’s become increasingly apparent that incorporating sustainable investing (SI) into an investment strategy doesn’t detract from performance. In contrast, professional investors intentionally seek to leverage SI and the payoff is two-fold; not only are they likely to benefit financially, but the ability to give to the greater good is also a driving force.

Investors are increasingly

looking to create more sustainable portfolios. The natural consequence of moving from an exercise of pure financial gain to one that equally recognises non-monetary gains is leading to the emergence of a new investment industry – it’s an industry that has evolved from wealth creation, to one of wealth creation and well-being. And the UN’s SDGs are fundamental to this shift.

Investors are becoming increasingly interested in investment products that contribute to the realisation of these goals and at the same time

offer attractive returns. But with 17 goals and 169 targets – such as the elimination of poverty and hunger, decent work and growth, sustainable cities and communities – the SDGs address a very broad range of issues, some of which have conflicting impacts on each other.

HOW TO INTRODUCE AN SDG ASSESSMENT FRAMEWORK? There are many intuitive reasons why it’s essential to incorporate SDG considerations into Continued on page 26

10/07/2019 4:51:01 PM

26 | Money Management July 18, 2019

Sustainable investing

Continued from page 25 investment strategies. In an increasingly renewables-powered global economy, it is easy to foresee that the business models of companies such as coal miners, oil producers and fossil fuel-based electricity generators will come under severe pressure.

Although less obvious, the same applies to car manufacturers that do not adapt quickly enough to a world of electric vehicles.

The financial consequences – in the form of fines, compensation and potential license withdrawals – can be very material for companies that fail to act in accordance with the SDGs. Environmental spills, bribery, money laundering and mis-selling are a few examples.

Ignoring the SDGs could therefore ultimately affect every investor, reinforcing the relevance of SDG-linked investment strategies.

The UN Commission on Trade and Development (UNCTAD) estimates that between US$5 – 7 trillion per year will be needed to achieve these goals within the desired timescale. As governments alone are unlikely to be able to find such huge sums of money, the UN has explicitly asked the private sector, including asset owners, to contribute as well. According to a survey among Dutch institutional investors carried out by the Dutch Association of Investors for Sustainable Development, SDGs are on the agenda of pension fund boards, although most of them have yet to integrate SDGs into their portfolios.

Using clear, objective and consistent guidelines it is possible to deal with some of the

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“Financial consequences – in the form of fines, compensation and potential license withdrawals – can be very material for companies that fail to act in accordance with the Sustainable Development Goals.”

- Guido Moret, Robeco challenges faced by screening companies for their SDG preparedness. These guidelines include analysis of: • What do companies produce?

The first step links the products and services offered by companies to the SDGs and assesses to what extent they contribute to or detract from them.

• How do companies produce?

The second step is about how a company operates. Does it cause pollution, respect labour rights, respect the rule of law and have a diversified management?

• Are there any controversies?

A company can meet the criteria outlined in these first two steps by making the right products and operating in the right manner but still be caught up in controversies such as oil spills, fraud or bribery. In this context, it is important to know if the controversy is structural or just a one-off, and whether the management has taken sufficient precautions to prevent recurrence in the foreseeable future.

Then, based on this information, a credit portfolio can be created that not only makes a positive

contribution to the UN SDGs but also delivers attractive financial returns.

But the fact that a credit has made it through the SDG screening is never the only reason to invest in it. A fundamental credit analysis should be conducted, and a position only taken if it offers attractive valuations relative to its fundamentals.

As an example, Robeco’s Credits team has applied its SDG framework to a credit universe of over 600 names. The overall outcome was that 60 per cent of the companies were assessed as making a positive contribution to the SDGs; 24 per cent of companies received a negative SDG score; and 16 per cent received a neutral ranking. In 10 per cent of cases, the scores were adjusted in steps two and three.

SECTOR SDG PROFILES It’s difficult to approach SDGs purely through sectors.

Nevertheless, based on the framework analysis applied, grid operators and companies in the banking, healthcare, utility and communications sectors generally have a strong SDG profile, while companies in the food and beverage, automotive and energy sectors generally

have a weaker one.

The weaker SDG profile of companies in the food and beverage sector might seem somewhat surprising. Intuitively, one would expect the food and beverage sector as a whole to contribute significantly to SDG Two (Zero Hunger). Unfortunately, however, the opposite turns out to be the case. Both SDG Two and SDG Three (Good Health and Wellbeing) require healthy and nutritious food. And herein lies the problem. Most food and beverage producers add too much sugar and/or fat to their products. The result is unhealthy high-calorie foods that are helping fuel the global obesity epidemic. More and more food manufacturers are adapting their product palette to tackle this, but the proportion of healthy foods they produce is generally still far below the thresholds defined in our SDG framework.

Another challenging industry from an SDG perspective is the energy sector. In our SDG framework both the E&P (exploration and production) and oil services (oilfield services and refining) industries are assessed as negative. We currently categorise natural gas as an ‘intermediate’ energy source and believe it could facilitate the transition to a global economy based entirely on renewable sources of energy. Those E&P companies at which over 65 per cent of production consists of natural gas actually receive a positive-low impact SDG score, while those with 45 per cent receive a neutral impact score. An additional requirement is that companies in this industry should

11/07/2019 12:34:13 PM

July 18, 2019 Money Management | 27

Sustainable investing

not engage in fracking.

Unfortunately, there are very few companies that are able to achieve these thresholds. Other sectors that generally do not do particularly well in the SDG assessment are the aerospace, defense, tobacco, and gaming industries. Sectors that have a more positive impact from an SDG perspective include telecoms, banks, grid operators, and healthcare/pharmaceutical

companies.

So, while it is easy for asset managers to talk about sustainability, it is much more challenging for them to implement it. Compounding the lack of a clear definition is the challenge of measuring the impact sustainable investors make.

Nevertheless, it is clear that applying various dimensions of sustainability to credit portfolios – including exclusion, ESG

integration, engagement, environmental footprint reduction, green bonds and alignment with the UN SDGs – and using financially-material ESG information, will lead to betterinformed investment decisions with the added bonus of providing benefits to society.

Guido Moret is head of sustainability integration credits at Robeco

What does the future of Managed Accounts look like?

Don’t miss your chance to Ask The Experts.

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10/07/2019 4:52:14 PM

28 | Money Management July 18, 2019

Client data

A SAFER WAY TO APPROACH CLIENT DATA Customer data has a chequered history of misuse, inaccuracies and poor oversight, but in a post-Hayne world, managing and protecting customer data is more important than ever.

Stephen Mahoney looks at how financial businesses can look after client data better.

THE HAYNE ROYAL Commission rightfully and very publicly raised a question mark over the quality of customer data held by financial institutions. It also highlighted that data remediation – the cleansing, organisation and migrating of data – after costly and often lengthy investigation, warrants greater focus.

However, before companies can make tangible changes to the way data is managed and protected, it is important to understand why data held by financial institutions is prone to error.

Generally speaking, the more data there is, the greater the margin for error. Secondly, data is inherently ‘dirty’. If new data is entering a system, remediation activities will not disappear; nor should they. Customer data must be treated with ongoing and systematic data quality processes.

A typical financial services

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institution will have multiple business units managing constantly changing customer data from multiple channels, across multiple technology platforms and in line with ever-changing business rules and regulatory requirements. Keeping data clean is understandably a challenging – but not insurmountable – task.

HOW CAN DATA QUALITY BE MADE SIMPLER? Data quality is made much simpler with the right people, process and technology.

Depending on the size and scale of the business, a dedicated internal data quality team is a good move, along with the implementation of data quality management technology which monitors, remediates and reports on data quality effectively and economically. Using Word documents, SQL scripts or Excel

spreadsheets to check data is archaic and high risk and should no longer be considered acceptable business practice.

The scenarios in which data can go wrong are infinite, but critically, errors must be detected and corrected early. If this doesn’t happen, there is a tendency for the error to spread and ‘contaminate’ other data, across other systems. Monitoring of data would ideally be carried out in real-time or as close to real-time as possible across all related platforms simultaneously.

This is particularly important for exiting customers; once monies have been paid out, remediation becomes more difficult politically, reputationally and practically as the organisation typically no longer has the funds. This became glaringly apparent throughout the Hayne Royal Commission.

DATA ERROR TRIGGERS The types of data remediation projects in financial services vary significantly in terms of size and complexity, but all are due to one or more defects. These defects could have been introduced by anything from an administrative mistake to a system issue. The exposure of the defects triggering the need for the data remediation will fall into one of two categories: 1. A reactive trigger is an ad-hoc or accidental identification of a wider issue, for instance, an issue identified by a customer or regulatory body. Remediation programs tend to run with tight deadlines and budgets. Teams are usually stretched with their efforts and the possibility of errors introduced during the remediation are increased, meaning the quality of the final implementation can suffer.

2. A focused trigger results from

10/07/2019 4:56:58 PM

July 18, 2019 Money Management | 29

Client data cyclic and ongoing data quality assessment, instigated by a controlled data quality processes and part of a wider data management system.

Focused triggers are more likely to be well structured, scoped and budgeted. This approach also drives towards a root cause analysis where the underlying problem will be addressed.

Focused remediations require a mature data management system and unfortunately, many financial services organisations are still working towards this level of sophistication in their systems; therefore, most remediations are still very much reactive.

MOST COMMON CAUSES OF DATA ERROR IN FINANCIAL INSTITUTIONS Customers expect financial institutions to correctly calculate their financial position and to know exactly who they are. A miscalculation, an administrative mistake, lack of insurance coverage, or other errors, can cause customers to feel wronged, robbed, not cared about or even marginalised.

Achieving error-free data is unrealistic, but effective measures can be put in place to reduce the incidence and severity of data errors by identifying issues early.

The most common causes of data errors in financial institutions include: 1. Fee calculations as misinterpretation between various controlling documents such as product disclosure statements, deeds and administrative contracts typically lead to fee calculation issues. This misinterpretation can occur across several departments; for instance, there may be a different opinion from the legal or risk and compliance department than that taken by the actual business.

2. Interest crediting relates to direct errors or issues involving delays in crediting or calculation of interest to customer accounts, and it occurs quite often. Delay issues may also be

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caused by processing issues, for instance any delay in processing a customer investment switch request could have a large positive or negative impact on customer accounts.

3. Eligibility requirements around certain benefits, particularly those related to insurance or credit requirements, can have huge impacts on both customers and the institution.

Insurance issues are usually highly emotive because they involve someone who is hurt or has died, and typically involve large sums of benefit payments.

4. Lack of internal controls stemming from a lack of adherence to, or inadequate controls around, various calculators used for financial decision making. For example, the Royal Commission noted that lack of controls around overdraft facilities led to clients being granted access to funds that they otherwise would not have received.

5. Lack of critical information as missing or lost information can lead to misinterpretation of business rules. For instance, if income protection benefits are calculated based on salary, but some employers submitting electronic data for members are not providing salary with their contribution data, then different calculations may need to be derived. These calculations may be based on incorrect or invalid data and assumptions.

HOW TO SUCCEED WITH DATA REMEDIATION Many data remediation programs are typically initiatives after an issue has been raised by a customer or group of customers, and upon investigation, this gives rise to a whole other host of issues that may have been impacting thousands of customers over several years.

Remediation requires exact knowledge of business rules. It often requires collaboration across several departments, including legal, risk and compliance, actuarial, project

management, investments, marketing, call centre staff, administration, and IT. Often in data remediation work, further investigation turns up other, previously undiscovered issues. This investigation is complicated by issues extending across years, as customer status may have changed. For example, in the case of superannuation, members may have changed from the accumulation to retirement phase where adjustments may be more difficult, switches have been carried out, members may have exited, and accounts may have been merged.

Communication and keeping all relevant parties (including regulatory bodies) informed throughout data remediation work is key to ensuring the same mistakes are not repeated.

Companies need to ensure that the appropriate assessments are completed in determining whether the data errors have caused a breach. If that breach is material, it is then reportable to the relevant regulator, meaning either the Australian Prudential Regulation Authority (APRA) or Australian Securities and Investments Commission (ASIC).

Everyone involved must clearly understand procedures, such as prioritisation of issues, particularly in a large program of work. It is especially important for significant data remediation events to be calling in the best possible team; otherwise, scope creep and program costs may blow out and data problems could be compounded.

WHAT CONTROLS ARE NEEDED TO PREVENT DATA ERROR? When carried out correctly, data remediation contributes to the important cycle of continuous improvement and raising the value of the data within any financial services organisation.

Remediation activities themselves are not necessarily an indication of poor controls, but what gave rise to these remediations is. If most remediations are instigated by ad-hoc triggers and external

parties, then there is a clear lack of a reliable data quality process.

To improve data quality and avoid spending millions on data remediation, there are a few key controls to have in place: 1) Develop a series of data quality metrics as, put simply, you cannot manage what you do not measure. A metrics-based approach will provide a factual basis on which to justify, focus and monitor efforts while acting as a leading risk indicator.

2) Determine ownership as, like all strategic initiatives, data quality will not succeed without the oversight, collaboration and accountability of all key stakeholders.

3) Embed data quality into the culture through continuous training and prominent visibility of the importance of customer data to all relevant staff, from the call centre to senior management. This is essential practice.

4) Invest in data quality system solution as, to break the cycle of Word documents, spreadsheets and SQL scripts, an integrated data quality platform is required. This will drive real cost efficiencies and risk management that true data quality can deliver.

5) Measure return on investment (ROI), remembering that the key to measuring ROI is about choosing the metrics that matter most to the business – those that can be measured and offer the biggest potential for improvement.

Addressing the points above should help transition from a reactive approach heavily focused on correction to one that finds the appropriate balance between prevention, detection and correction controls. While prevention is better than cure and remains the optimum solution, early detection is also a critical tool that can significantly reduce the cost and impact of data errors.

Stephen Mahoney is the executive director of superannuation consultancy, QMV.

10/07/2019 4:57:01 PM

30 | Money Management July 18, 2019

Toolbox

THE FUTURE OF SUPER CONTRIBUTION STRATEGIES David Barrett outlines what advisers need to consider to ensure their clients get the most out of their superannuation contributions going forward.

THE LEGISLATIVE TREND since 2007 towards lower super contribution caps means financial services professionals must be even more vigilant about maximising their clients’ super contribution opportunities. Although several Federal governments have attempted to simplify the superannuation system, the

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contribution rules remain complicated, and may become even more so in future years.

CONCESSIONAL CONTRIBUTIONS The concessional contribution (CC) cap remains at $25,000 in the 2019-20 income year. Although indexed with the average weekly

ordinary time earnings (AWOTE) rate, the CC cap will not change until the accumulated indexation on the 2017-18 base exceeds $2,500. That is unlikely to happen in the 2020-21 income year and will only occur in 2021-22 if the average rate of AWOTE over the next two years exceeds 2.5 per cent per annum. AWOTE has trended at

approximately 2.3 per cent per annum over the last two years.

If we project forward with a range of future AWOTE rates, the past and future CC cap may appear as in table one.

From 1 July 2019, the unused CC cap from 2018-19 and subsequent income years can be carried forward for up to five years.

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July 18, 2019 Money Management | 31

Toolbox The amount carried forward can be used to effectively increase the CC cap in an income year where the client’s total superannuation balance on the prior 30 June is less than $500,000.

Consider, for example, a client (Pat) who stops working in 2019-20 to raise a family. After five years Pat’s CC cap in 2024-25 could be $160,000 if AWOTE increases at 2.5 per cent per annum.

Note also that the removal of the ’10 per cent’ test from 1 July 2017 means that generally clients can claim a tax deduction in relation to personal superannuation contributions up to their CC cap. So, Pat may be able to make a personal contribution in 2024-25 and claim a tax deduction for $160,000.

The combination of these two relatively recent measures presents a valuable opportunity for clients who are not fully using their CC cap each year. Where they foresee the receipt of a large, lumpy amount of assessable income in a future year, for example resulting from the disposal of a CGT asset, there may be a significant opportunity to offset some of the resulting assessable income with a tax deduction.

NON-CONCESSIONAL CONTRIBUTIONS The annual non-concessional contribution (NCC) cap is defined to be four times the CC cap. So, the annual NCC cap remains at $100,000 in 2019-20 and will increase to $110,000 when the CC cap increases to $27,500. The possible timing of the increase is illustrated in table two, based on different assumed AWOTE rates.

The NCC bring-forward rule Generally, clients who are eligible to contribute to superannuation may contribute up to three times the annual NCC cap (i.e. up to $300,000 in 2019-20) if the contribution is made in or before the income year of their 65th birthday.

It’s worth noting that in the 2019 Federal Budget announcement the previous Government proposed changes to allow clients aged 65 and 66 to contribute to superannuation without meeting the work test. The changes would

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Chart 1: NCC capacity in 2019/20

be effective from 1 July, 2020.

Coupled with this, the Government also proposed extending the bringforward rules by two years, which may mean the option to trigger the bring-forward rule will apply until 30 June following a client’s 67th birthday.

However, a client’s total superannuation balance (TSB), and whether or not they have triggered the bring-forward rule in either 2017-18 or 2018-19, will impact on their capacity to use the bring-forward rule in the 2019-2020 income year.

The interaction of these three criteria (age, TSB and previous triggering of the bring-forward rule) is complex and is summarised in chart one.

Interaction of the NCC bringforward rules with the transfer balance cap The TSB thresholds referred to above ($1.6 million, $1.5 million and $1.4 million) are determined by reference to the transfer balance cap (TBC) and the annual NCC cap, as follows: • TSB threshold of $1.6 million = TBC (currently $1.6 million) • TSB threshold of $1.5 million = TBC less the annual NCC cap • TSB threshold of $1.4 million = TBC less 2 times the annual NCC cap The TBC is indexed with the consumer price index (CPI), in contrast to the annual NCC cap, which is indexed with AWOTE. The different rates of indexation may Continued on page 32

Table 1: Past and future CC cap for range of future AWOTE rates

Table 2: Possible timing of cap increases based on AWOTE rates

Table 3: Impact of indexation rates dependent on year

Source: Macquarie * actual figures; ~ projected at the stated CPI and AWOTE rates from 2019-20

11/07/2019 12:05:58 PM

32 | Money Management July 18, 2019

Toolbox

Continued from page 31 create some anomalies if the indexation of the two thresholds occurs in different years. This possibility is illustrated in table three.

When a client’s TSB exceeds the lower TSB threshold, but doesn’t exceed the middle TSB threshold, their bring-forward NCC cap is two times the annual NCC cap and applies over two income years.

In the table above, the lower TSB threshold decreases from the 202425 income year to $1.56 million in the 2025-26 income year. This has occurred because the annual NCC cap has increased to $120,000, but the TBC hasn’t changed from $1.8 million.

DOWNSIZER CONTRIBUTIONS Downsizer contributions may be a significant opportunity for those over age 65 to increase their funds in superannuation. From 1 July, 2018, a super contribution of up to $300,000 per person can be made by clients who are age 65 and over, and meet certain eligibility criteria.

Importantly, there are no maximum age, work test or TSB limitations when making a downsizer contribution, and the contribution is not counted towards either the CC cap or the NCC cap.

Clients can make downsizer contributions even if they have fully exhausted their TBC. If the latter applies, the downsizer contribution funds would have to be held in an accumulation account.

Key criteria for downsizer contributions are: • the disposal of a property located in Australia; • the property was owned by the client (and/or their spouse or former spouse) for at least 10 years; and • a full or partial main residence CGT exemption applies, or would apply if the property is a pre-CGT asset or owned by a spouse or former spouse.

A downsizer contribution must be made within 90 days of the property settlement, and is a once-off opportunity as it’s only available in relation to the disposal of one property.

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.

1. What rate of AWOTE is required for the concessional contribution (CC) cap to increase to $27,500 by 2021-22? a) 2.1 per cent per annum b) 2.3 per cent per annum c) 2.5 per cent per annum d) 2.7 per cent per annum 2. When will the annual non-concessional contribution (NCC) cap increase? a) 2019-20 b) 2020-21 c) It won’t increase above the current level of $100,000 d) It will increase only when the CC cap increases e) None of the above 3. If the previous Government’s 2019 Budget announcement becomes law, from what age will a client have to satisfy the work test before making a voluntary super contribution? a) 65 b) 66 c) 67

SMALL BUSINESS CGT CONCESSION CONTRIBUTIONS

d) 68

The small business CGT concession contribution (SBCC) lifetime cap was indexed to $1.515 million from 1 July 2019. It remains a significant opportunity to make very large superannuation contributions.

In particular, clients that dispose of small business assets which meet the criteria for the 15-year exemption may be able to contribute the entire proceeds (cost base and capital gains) from the sale of the asset to superannuation. Where the small business retirement exemption applies instead to an asset, a lifetime cap of $500,000 applies, limiting the SBCC contribution potential unless another asset qualifies for the 15-year exemption.

Strict criteria apply to the timing and documentation applicable to the contribution, including: • if the contribution results from the sale of an asset owned by an individual, the contribution must be made by the later of: - the day of lodgement of the individual’s tax return lodgement or - 30 days from the receipt of the capital proceeds; • if the contribution results from the sale of an asset owned by a company or trust, the contribution must be made within 30 days of the payment to CGT concession stakeholder; and • the choice to treat the contribution as a SBCC contribution must be made using the relevant ATO form no later than the time of the contribution.

As the disposal of business real property may trigger a SBCC contribution opportunity, financial services professionals may wish to review their small business clients and alert them to the possible opportunity.

e) 69

David Barrett is the head of Macquarie Technical Services.

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4. From what age can a downsizer contribution be made? a) 18 b) 40 c) 55 d) 60 e) 65 5. Ignoring personal injury contributions, the largest single contribution that can be made to a super fund (without exceeding a cap) is currently $1.515 million. a) True b) False

TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/ features/tools-guides/ future-super-contribution-strategies For more information about the CPD Quiz, please email education@moneymanagement.com.au

11/07/2019 12:34:48 PM

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34 | Money Management July 18, 2019

Move of the WEEK Linda Elkins National sector leader, Asset and Wealth Management KPMG

Colonial First State (CFS) executive general manager, Linda Elkins has been named as the new national sector leader for Asset and Wealth Management at KPMG. KPMG announced that Elkins, whose departure from CFS was announced on 8 July, would be taking up her new role on 5 August.

Ausbil Investment Management has announced the appointment of Vicki Gemisis as chief financial officer.

Gemisis was previously head of group finance operations at Pendal Group and prior to that was head of business management and financial controller at Fidante/ Challenger.

She had over 20 years’ experience at Pendal Group, Challenger, Macquarie, ABN AMRO and HLB Mann Judd.

Gemisis spent 11 years at Challenger Limited working with a range of local and international boutique investment managers, bringing with her a deep understanding of finance in investment management and knowledge of how investment managers operate.

Cloud-based technology company Class has made three new appointments to the senior executive team to support chief executive Andrew Russell drive their ‘reimagination’ strategy.

11MM1807_30-36.indd 34

It said Paul Howes who is currently head of asset and wealth management, had become national managing partner of KPMG Enterprise and would continue to lead the Asset and Wealth Management practice and transition responsibilities to Elkins who would take over as sector leader on 1 October.

Jason Wilson, previously the general manager, digital at the Commonwealth Bank of Australia (CBA), had been appointed chief product and marketing officer.

James Delmar, previously with Salesforce and with over 16 years’ experience in information technology and telecommunications, had been appointed chief sales officer.

Dan Coutts, former chief technology officer (CTO) with Visual Risk in Sydney, had been appointed CTO. Coutts had experience in business application development, infrastructure, cloud delivery and digital transformation.

Russell said these appointments were an important milestone in implementing their ‘reimagination’ strategy, using new cloud-based technologies to enable people in the industry to better automate and reduce back-office costs.

Socially responsible superannuation fund Crescent Wealth has appointed Jason Hazell as its chief

investment officer (CIO).

Hazell had more than 20 years’ experience in superannuation, investment management, mergers and acquisitions and private equity.

He had joined Crescent Wealth from Nightingale Partners, a Sydney-based venture capital firm that invested in early and growth stage companies.

Prior to that, he had spent more than eight years with NAB Asset Management where he was head of investment specialists. He had also held a 10-year stint with MLC Investment Management, managing Australian and global real estate portfolios.

In his new role, he would work closely with the investment committee to set investment objectives, formulate investment strategies and manage portfolios that invest in ethical and Islamic compliant industries.

Financial services group Evans Dixon has announced Peter

Anderson as its new chief executive officer, effective immediately.

The company’s chief financial officer and company secretary, Tristan O’Connell, was retiring from the firm to focus on his health with Warwick Keneally taking up the acting role while the position is filled.

The company announced to the Australian Securities Exchange (ASX) that Anderson had been an independent non-executive director of the firm since April and would be stepping down from the board pending his appointment.

Evans Dixon executive chair, David Evans said the company had begun an executive search process but called it off when it became apparent that Anderson was available to lead the business.

Anderson was most recently executive chair of McGrath Nicol where he oversaw the transformation of the business from a specialist restructuring practice with over 50 per cent of its turnover relating to general advisory services.

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11/07/2019 12:03:47 PM

OUTSIDER

ManagementJuly April18, 2, 2019 2015 36 | Money Management

A light-hearted look at the other side of making money

Barefoot but certainly not penniless OUTSIDER feels sure that financial advisers were delighted to read that Scott Pape, “Australia’s most trusted independent finance expert”, had produced an updated version of his book, The Barefoot Investor.

Just like Outsider, he believes advisers were rivetted by the news that the update covered off new topics such as the Royal Commission, Afterpay, changes to the Federal

Budget, and the declining housing market and saving for a home.

After all, surely Pape, who is described by his publishers as “an investment adviser, author, radio host and television presenter”, is simply issuing general advice and nothing he says or does could possibly be misconstrued as personal advice, could it?

Still, Outsider is reminded of just how much an earlier edition of Pape’s book moved the inflows needle for a particular superannuation fund and he wonders whether Australian Securities and Investments Commission chair, James Shipton, might care to do a bit of bed-time reading.

Shipton might then care to pass the book along to his deputy chairs, Karen Chester and Daniel Crennan, to see whether it passes their “if not why not” scrutiny.

Barefoot? Perhaps. Penniless?

Certainly not.

Not all reigns end in pain OUTSIDER wishes Linda Elkins well as she moves from her role as executive general manager at Colonial First State (CFS) to her new gig as National Sector Leader for Asset and Wealth Management at major consultancy, KPMG. However, he is reminded that the Elkins departure from CFS is significant in terms of women in leadership over at the Commonwealth Bank – something which was front and centre during the reign of former chief executive and onetime child thespian, Ian Narev.

At the height of Narev’s rule, Outsider recalls that it was not just Elkins who rose to power but also Annabelle Spring who was running the wealth business before it sailed into the rough waters of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

Then too, there was the somewhat more modest but no less auspicious ascendancy of Marianne Perkovic in Spring’s duchy of wealth before she moved off into the somewhat more genteel environment of private banking.

Unlike Elkins and Perkovic, Spring never actually fronted the Royal Commission and is now apparently happily domiciled in London and working for HSBC where events in the colonies and the resultant Royal Commission transcripts seem most unlikely to cloud her days in the city.

KPMG wins gold medal for forgetting RoCo IN one of the most-publicised gaffes before the Royal Commission, the former Colonial First State executive, Linda Elkins, agreed with counsel that the Commonwealth Bank would be “the gold medallist if ASIC was handing out medals for fees for no service”. Talk about biting the hand that feeds you.

But KPMG has now won gold for being the fastest to move on from the RoCo, offering Elkins a premium role leading – of all things, given the RoCo’s focus – its asset and wealth management division.

While most of the industry is still reeling from the Commission’s aftermath and heads continue to roll, KPMG is demonstrating that the past is the past and one must look to the future by not only

OUT OF CONTEXT www.moneymanagement.com.au

11MM1807_30-36.indd 36

hiring Elkins to fill the role substantially held by former union boss, Paul Howes, but promoting him to further greatness. One serves as one can, comrade.

Perhaps that promotion was owed to the fact that Howes was revealed as being intimately connected to many appearing before the Royal Commission when he helped some of the banks prepare their most senior executives for their appearances.

Westpac top dog, Brian Hartzer, was one to

receive his guidance, and Howes must have done something right – Hartzer was one of the few banking executives to keep their title and at least some dignity intact in the aftermath of the Commission.

Outsider wonders why KPMG would want to move on from the Royal Commission, however – after all, it appears to be the gift that just keeps on giving and would seem guaranteed to keep the coffers of the big consulting firms full for some years yet.

"This is one of the biggest areas of sclerosis in the Australian economy.''

"I haven't given up on the government seeing common sense yet."

Prime Minister Scott Morrison on the digital economy.

Labor leader, Anthony Albanese, on the Coalition's income tax cut plan.

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11/07/2019 11:57:03 AM