Money Management | Vol. 33 No 12 | August 1, 2019 by FE Money Management

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Vol. 33 No 12 | August 1, 2019

EQUITIES

The opportunities in global equities

ACCOUNTING

The convergence of accounting and advice

ADVISER SENTIMENT

questions on ETFs

Let us give ‘incidental advice’ say accountants BY MIKE TAYLOR

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A perfect storm AS financial advisers embark on a tumultuous period in their careers with the Royal Commission effects coming through and FASEA exams, it is no surprise many of them are feeling the pressure. From speaking to advisers and organisations such as the Financial Planning Association and Association of Financial Advisers, Money Management has found a worrying sense of negativity and malaise in the industry. Nearly 100 per cent of advisers surveyed for an Investment Trends report said they had experienced negative impacts from the publicity surrounding the Royal Commission while 47 per cent said they had ongoing stress at work, compared to the national average of only nine per cent. Others, meanwhile, were experiencing anxiety, depression or struggling profitability in their business. For some it may be a case of too much to bear with much talk of advisers leaving the sector or selling up their businesses rather than take on the additional regulatory burden. But even this leads to further problems with the ongoing issues passed onto younger buyers instead who end up saddled with debt. Others end up accelerated into junior partner or salaried adviser positions before they are ready and with minimal support from other staff. As to what can be done, advice included keeping on top of health, getting enough sleep and eating well. At work, look at peers to see how they are handling the changes and what you can learn from them.

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Full feature on page 14

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Accountants who give “incidental advice” should not have to be licensed, according to major accounting industry body, Chartered Accountants ANZ (CA ANZ). However, the major accounting body has denied it is actually advocating for a return of the so-called “accountants’ exemption”. In a submission addressing the future of the Tax Practitioners’ Board (TPB) which has been made public by the Federal Treasury, CA ANZ has canvassed whether financial advisers should be carved out of TPB jurisdiction with accountants being carved out of the financial advice regulatory regime. It said the TPB Review Panel should consider whether financial advisers “should now be carved out of regulation of the tax profession”. “And vice versa [the Review Panel should], consider whether tax professionals, including all forms of professional tax and accounting advisers, should be carved out of the

regulatory regime for financial advisers and be dealt with under a tax profession/industry regulatory regime,” the submission said. “Specifically, should the tax advice incidental to financial advice now be regulated by the financial advice regulator? And should financial advice incidental to taxation advice, such as some SMSF / superannuation strategic advice now be regulated by the TPB under the tax services regulatory regime rather than by ASIC under the limited licensing regime?” the submission asked. The CA ANZ submission said the organisation was not seeking a return of the accountants’ exemption but, rather, “a new way to allow accountants who maintain their CPD and practice under a strict Code of Ethics to provide additional areas of strategic advice to their clients”. “The outcome of a new way to provide strategic advice in superannuation may well further enhance the basic value propositions of FASEA as well as that of Commissioner Hayne.” it said.

Should product advice negate tax deductibility? MOST financial advisers believe financial advice should be tax deductible for clients, but a significant cohort believe it should not be tax deductible for advice around product sales. A survey conducted by Money Management has revealed that while virtually 100 per cent of advisers support the Government moving to make advice tax-deductible, there is disagreement around whether that deductibility should be applied to all advice. In fact, the survey revealed most support for highly specific advice around transition to retirement (TTR) and superannuation, with significantly less support for where life/risk sales are concerned. The survey has been undertaken at the same time as the Continued on page 3

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Lib Senator: Make SG voluntary for low income earners BY MIKE TAYLOR

NEWLY-ELECTED NSW Liberal Senator and former Financial Services Council (FSC) policy executive, Andrew Bragg, has called for the superannuation guarantee (SG) to be made voluntary for people earning less than $50,000. Bragg used his maiden speech in the Senate to claim that the superannuation system was not working for Australians and that the industry had not made a case for even bigger super. “I would change direction,” he said. “Superannuation should be made voluntary for

Should product advice negate tax deductibility? Continued from page 1 Financial Planning Association (FPA) has pressed the Government to make advice tax deductible around advice helping people decide whether or not to opt in to insurance inside superannuation. What the Money Management research has revealed is that while 70 per cent of respondents supported tax deductibility for “holistic” advice they became somewhat more selective when they were asked to specify what sorts of advice should qualify. Where life/risk advice was concerned, only 56 per cent of respondents believed it should be tax deductible, while nearly 44 per cent believed it should not. This compared to the 75 per cent who supported superannuation advice being tax deductible and the 69 per cent of transition to retirement advice.

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Australians earning under $50,000.” In doing so, Bragg pointed to Grattan Institute analysis which claimed that Australians were spending $23 billion a year on energy costs, but $30 billion a year on superannuation fees. “Superannuation is a classic case of vested interests triumphing over the national interest,” he said. “Fees are too high and there is not enough competition.” Senator Bragg will be delivering a keynote address at Super Review's Future of Superannuation event in Melbourne, this month.

Sam Henderson banned for three years HIGH profile former adviser, Sam Henderson has been banned from providing financial services for three years following an Australian Securities and Investments Commission (ASIC) surveillance. The regulator announced today that Henderson, who became notable after appearing before the Royal Commission, had been banned on the basis that he had failed to act in the best interests of his clients, provide appropriate advice and to prioritise his clients’ interests when providing financial advice.

It said this led to clients either losing money or being at risk of losing money. ASIC said Henderson was an authorised representative, responsible manager, director and chief executive of Australian Financial Services Licensee, Henderson Maxwell Pty Ltd. In one example, cited by the regulator, it said Henderson failed to adequately investigate and assess his clients’ existing deferred benefit superannuation products. This resulted in a financial loss of several thousand dollars to one client when they rolled over their deferred

benefit. Another client, who did not roll over their deferred benefit, would have incurred a $500,000 loss had they implemented Mr Henderson’s advice. ASIC also found that Henderson did not properly document or investigate his clients’ existing products, failed to provide advice that was relevant to their specific goals and recommended the use of in-house Henderson Maxwell products without providing product comparisons or justifying why the in-house products were better than his clients’ existing products.

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Editorial

mike.taylor@moneymanagement.com.au

FE Money Management Pty Ltd

FOLLY IN THE GOVT’S RUSH ON INSURANCE INSIDE SUPER LEGISLATION There is already a good deal of confusion about the Government’s recent legislative efforts around insurance inside superannuation meaning that it should accede to industry requests for a longer delay to the implementation of its Treasury Laws Amendment (Putting Members’ Interests First) Bill.

Level 10 4 Martin Place, Sydney, 2000 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 Journalist: Chris Dastoor

NOTWITHSTANDING THE VIEWS of some members of the Senate Economics Legislation Committee, one thing should by now be obvious to the re-elected Morrison Federal Government – it is a folly and wholly unnecessary to rush the implementation of further legislative changes to insurance inside superannuation. The legislation in question, the Treasury Laws Amendment (Putting Members' Interests First) Bill 2019 was originally intended to be implemented as part of a larger legislative package and is proof of how quickly such initiatives can date and why the Government should not have blindly assumed that what was appropriate in mid-tolate 2018 would be appropriate in the middle of 2019. The legislation, largely drafted whilst the now-retired Kelly O’Dwyer was the relevant minister, is clumsy and, in the context of the already implemented Protecting Your Super (PYS) legislation, already proving confusing to fund members. Further, and as has been pointed out by actuarial research house, Rice Warner, there is little that is likely to be achieved by this latest round of legislation that cannot be achieved by way of the superannuation funds and

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insurers themselves fully implementing the Insurance Inside Superannuation Code of Conduct to ensure that premium erosion does not occur. Any objective reading of the 50 or so submissions filed with the Senate Economics Legislation Committee review of the legislation will have told Parliamentarians that the superannuation and insurance industries are not opposed to the underlying objectives of the legislation but are deeply concerned about the timing and the possible unintended consequences. Among those unintended consequences is the likelihood that so-called “risk-only” members will lose insurance cover they have obtained after taking good financial advice and have quite deliberately sought to maintain. Given that the legislation quite specifically targets low balance and “inactive” accounts, it cannot help but impact “riskonly” members who conventionally only transact on their accounts once or twice a year. Further, according to industry data, the number of members who can be counted as “risk-only” runs into the scores of thousands. Then, too, there is the danger that superannuation fund members will be left surprised and at serious risk of loss

because, despite the best efforts of the industry, they were unaware that new Government rules had removed their insurance cover. The degree to which superannuation fund members are at risk of being surprised was rammed home by the AMP Limited submission which told the Senate Committee that as at 15 July, it had received more than 440 customer requests to reinstate insurance cancelled as a result of the PYS legislation. Just as importantly, AMP said it had received elections to retain insurance from more than 5,000 superannuation customers with supposedly inactive accounts under the PYS rules, that also had balances of less than $6,000. Given all of these circumstances, it is unfortunate that the Senate Economics Legislation Committee failed to adequately recognise that the time-frames the legislation seeks to impose on the superannuation and insurance industries are inappropriate and that the two-month extension it has recommended is not going to be long enough. The Government may yet be made to pay a political price for its haste.

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AMP maintained equity stake strategy BY MIKE TAYLOR

LITTLE more than a month out from releasing its first-half results and an expected outline of its new corporate direction, AMP Limited has confirmed that it has maintained its strategy of taking equity stakes in aligned advice firms. Amid increasing speculation over the future direction and shape of the AMP advice business in the wake of the Royal Commission, Money Management formally asked the company whether it had continued the equity stake strategy first outlined in 2017. Money Management also asked the exact number of the aligned businesses AMP now had a stake in. A company spokesman confirmed the equity stake strategy had remained on foot but declined to specify the number of advice businesses in which AMP had taken a stake. Instead, he said that the position would become clear when the company announced its half-year results next month. AMP made clear its equity stake intentions in 2017 during an investor strategy day in which it directly referred to

“equity participation to drive mutual revenue growth” in aligned advice firms, and while recent attention has been focused on its proposed sale of AMP Life to Resolution Life, adviser interest has continued to be focused on the future of its advice business. AMP in February appeared to signal some of its strategic intent when it revealed that the number of advisers within its core licensees had declined by 4.6 per cent last year. The company published a chart of the existing shape of its advice network in Australia, revealing that the total number of so-called “core licensees” had declined to 2,567 as at December, last year, compared to 2,692.

That chart also revealed that the greatest decline had been amongst AMP Financial Planning advisers – down to 1,334 in 2018 from 1,437 a year before. At that time, the company continued to point to the manner in which it intended to “reshape” the advice network and improve economics. The company’s most recent material filed with the Australian Securities Exchange (ASX) reveals that the bulk of its advisers are employed under the AMP Financial Planning umbrella but, importantly, the secondlargest number fall under Charter Financial Planning which is comprised of 343 financial planning practices, most of which are privately owned.

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Government to make advice tax deductible around advice helping people decide whether or not to opt in to insurance inside superannuation. What the Money Management research has revealed is that while 70 per cent of respondents supported tax deductibility for “holistic” advice they became somewhat more selective when they were asked to specify what sorts of advice should qualify. Where life/risk advice was concerned, only 56 per cent of respondents believed it should be tax deductible, while nearly 44 per cent believed it should not. This compared to the 75 per cent who supported superannuation advice being tax deductible and the 69 per cent of transition to retirement advice.

Harder to become a super multimillionaire GOING forward it will be challenging for an individual to achieve account balances in excess of $2 million, according to a new report produced by the Association of Superannuation Funds of Australia (ASFA). The report, Better Retirement Outcomes: a snapshot of account balances in Australia, has suggested that the only way in which people are likely to achieve a balance in excess of $2 million is if they have a selfmanaged superannuation fund (SMSF) which holds equity in a small business that markedly increases in value. It said this was because of the tightening in the concessional and non-concessional contributions caps over recent years. Releasing the report, ASFA chief executive, Dr Martin Fahy, noted other elements of its findings and the need to increase superannuation fund balances in circumstances where people were still likely to be heavily reliant on the Age Pension. However, he noted that the proportion of new retirees who were fully self-funded had been increasing. “Hard working Australians aspire to selfsufficiency in retirement and want more than what the Age Pension can provide. They want to be able to have financial security in their old age to cover medical costs, aged care and general expenses,” Fahy said. He noted that a recently conducted survey had shown that 80 per cent of Australians wanted to achieve ASFA’s Comfortable Retirement Standard, or higher, but that despite the promising growth of account balances, many Australians still faced a retirement savings shortfall. “The bipartisan, legislated policy of increasing the Superannuation Guarantee (SG) to 12 per cent is by far and away the most critical step to ensuring an adequate retirement for all Australians,” he said. The ASFA report also calculated average account balance data across all Australian states, territories and electoral regions. The ACT ($186,743), Victoria ($142,412) and NSW ($133,643) have average balances above the national average of $132,646, while balances are lower in South Australia ($131,914), Tasmania ($126,348), Queensland ($123,636), Western Australia ($119,980) and the Northern Territory ($95,170). “Levels of retirement savings vary widely across the country,” Fahy said. “Increasing the SG will provide the biggest boost for people in regions with lower balances, who most need the additional savings.”

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More than 440 AMP customers want insurance reinstated BY MIKE TAYLOR

AMP has received more than 440 customer requests to reinstate insurance cancelled as a result of the Government’s Protecting Your Superannuation legislation and it is warning the situation could get worse if the Government does not delay the implementation of further legislation impacting insurance inside superannuation. AMP also revealed that more than 5,000 of its superannuation customers with inactive accounts under the new Protecting Your Super rules and with balances less than $6,000 had elected to retain their insurance. In a submission filed with the Senate Economics Legislation committee, AMP said the proposed 1 October 2019 commencement date for the new legislation – the Treasury Laws Amendment (Putting Members' Interests First) Bill 2019 did not provide sufficient time for customers impacted by the low balance account measure to comprehend the impact of the changes or consider their circumstances. “Based on customer responses to engagement in respect of the PYS changes, AMP does not believe

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sufficient time was provided for customers with inactive accounts to comprehend the impact of the changes, consider their circumstances and make an informed decision about whether to keep their insurance, before it was cancelled from 1 July 2019,” it said. “Despite the considerable effort AMP made to communicate the PYS changes to our customers, and the combined efforts the industry made to raise awareness before and after 1 May 2019, as at 15 July 2019 we have received more than 440 customer requests to reinstate insurance cancelled as a result of PYS. “This was a significant increase from the first week, where on 8 July we had received 47 customer requests for insurance reinstatement,” AMP said. “We anticipate the number of insurance reinstatement requests to continue to increase as customers receive insurance cancellation notices. “Based on the customer experience and response to the PYS changes which allowed for two months’ notice prior to cancellation, we believe that longer than two months’ prior notice is required to ensure customers with low balance accounts are not adversely impacted by the proposed PMIF changes.”

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FPA confirms CFP sign-ups have taken a hit BY MIKE TAYLOR

THE Financial Planning Association (FPA) has acknowledged a significant downturn in the number of registrations for its Certified Financial Planner (CFP) designation, but its chief executive, Dante De Gori, believes it can survive and thrive beyond the Financial Adviser Standards and Ethics Authority (FASEA) regime. At the same time as publishing an explanation of the continuing value of the CFP designation, De Gori confirmed to Money Management that while his organisation had forecast on the basis of fewer sign-ups this year, that (reduced) budget forecast had almost been met. Past FPA annual reports had revealed the CFP designation as being one of the organisation’s most important on-going sources of revenue. De Gori said he was also optimistic that notwithstanding the reduced revenue generated by the CFP designation and the costs

Australia outperforms as risk rally continues BY CHRIS DASTOOR

GLOBAL equity markets continued to rally in June as Australian equities continue to overperform, but there are cautions over stock selection as equity market gets more expensive. According to market commentary from Bruce Apted, head of portfolio management – Australia active quantitative equities at State Street Global Advisers, the risk rally had driven global equity markets to more expensive valuations. The year to date returns had seen the MSCI World index up 17.8 per cent and the S&P ASX 300 up 19.8 per cent. “The current PE multiple for the S&P ASX 300 index stands at 16.2 times compared to the long run average of 14.3 times,” Apted said. “With the risk rally driving global equity markets to more expensive valuations we will be looking for company earnings in coming months to start to improve to justify current prices. “As the broader market indices become more expensive it becomes more important for careful stock selection.” The communications and materials sectors had also seen strong performances for the first half of the year, with the latter benefitting from iron ore prices. “The iron ore market has continued to tighten and iron ore prices have rallied from AU$69 to AU$109 or 58% in the last six months,” Apted said. “The communication services sector has been the standout performer up 30.8 per cent in the last six months with Telstra being a major contributor.”

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associated with meeting other FASEA obligations, including the possibility of becoming a code-monitoring body, the FPA would end the year with a financial surplus. “We always knew that the obligations imposed on planners by FASEA would impact the CFP equation and we budgeted accordingly,” he said. “Members are simply prioritising the FASEA regime and the need to pass the examination.” However, De Gori said the reality for those already undertaking the CFP designation, there was an imperative for them to finish to ensure they received the FASEA credits attached to the course. He said that while it was undeniable that there had been a reduction in the revenue flowing from the CFP designation, the FPA was still benefiting from its continuing professional development (CPD) regime. “We are actually looking to enhance that CPD regime, recognising the needs of planners in the current environment,” De Gori said.

APRA urged to be more forceful THE capability review of the Australian Prudential Regulation Authority (APRA) led by former Australian Competition and Consumer Commission (ACCC) chair, Graeme Samuel has delivered what was broadly expected by recommending measures which would toughen-up the regulator’s approach. The Treasurer, Josh Frydenberg, commissioned the review in early February and selectively released its final report which revealed a view that APRA should have a greater ability to object to the appointment of directors and executives to the financial institutions it regulates if it believes they are inappropriate. And at a time when APRA is locked in litigation with IOOF over matters arising from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the capability review questioned the manner in which the regulator handled the resolution of prudential matters – specifically citing “protracted behind the scenes negotiations of prudential issues”. The Treasurer signalled the Government’s preparedness to act on

the report’s recommendations – something which may lead to a strengthening of the Bank Executive Accountability Regime, which is already ear-marked for expansion to other areas of the financial services. APRA’s formal response to the capability review said: “APRA will engage with the government on how the objectives identified by the capability review can best be achieved, noting the potential for moral hazard and administrative burden”.

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Law firm warns against further group insurance removal BY HANNAH WOOTTON

THE commencement date for switching off insurance inside super for low balance accounts should be deferred to 1 October, this year, according to a leading superannuation and insurance lawyer, following a proposal from the Government that the removal of default group cover for inactive accounts be extended to their low balance counterparts. Berrill & Watson Lawyers principal, John Berrill, wrote to the Senate Standing Committee on Economics urging the deferral, saying that more time was needed to identify and contact impacted super fund members, and to allow funds to negotiate new group contracts or amendment with their insurers if needed. Both insurers and super funds alike flagged the former concern repeatedly in the leadup to the 1 July commencement date for the initial removal of default cover for inactive accounts this month, warning that some members would be left high and dry without

insurance unintentionally as they had been unable to communicate with them. Further, while Berrill offered his support to aspects of the Treasury Laws Amendment (Putting Members' Interests First) Bill, which proposed the new removal category, he cautioned that switching off insurance inside super for low balance accounts puts vulnerable workers in dangerous occupations at unnecessary risk. While the Explanatory Memorandum (EM) accompanying the bill acknowledged that

those with low balances tended to be low income earners, women and seasonal workers, Berrill believed that indigenous Australians, new migrants, people with disabilities, and workers in industries with problematic employer compliance with super obligations and the gig economy. “People from such cohorts work disproportionately in physically demanding or high-risk occupations and their only opportunity to obtain affordable insurance cover would be through group insurance in

superannuation,” the letter warned. “If they are locked out of default cover for a significant period of time, they would be exposed to the risk of disability or death without any insurance to top up their meagre account balances and thereby they (or their dependents) would almost certainly be reliant on Centrelink income support.” Further, the law firm said that the EM failed to acknowledge the progressive effect of an insurance payout on a low balance account; a $200,000 total and permanent disability payout to a $5,000 account, for example, would have a proportionately greater impact than that same payout to a $500,000 balance account. Adding to this, Berrill said: “Whilst the rate of group insurance premiums is not linked to account size, they are often tied to age and gender, with cheaper premiums routinely charged to younger members and younger women. This ameliorates the regressive effect of premiums on low balance accounts.”

Heard about bad planners, what about tax practitioners? BY MIKE TAYLOR

A tax practitioner has been penalised by the Tax Practitioners Board (TPB) because he prioritised personal spending on cars, holidays and dining expenses over meeting his own tax obligations. The tax practitioner found himself suspended for a year because of his activities, which hardly compared to the five-year penalties imposed on other tax practitioners for offences such as failing to disclose a $1 million tax debt and overdue lodgement for more than 30 companies, and fraudulently lodging income tax returns for several clients. Then, too, there was the five-year registration termination imposed on a practitioner for not providing evidence of professional indemnity insurance. The TPB announced it was currently investigating more than 350 tax practitioners who are suspected of “high-risk behaviour”

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including failure to meet personal tax obligations, over-claiming work-related expenses on behalf of clients, egregious conduct which is considered black economy behaviour and non-lodgement of annual returns. The TPB said a number of these cases were the result of referrals from the Australian Taxation Office (ATO) with TPB chief executive, Michael O’Neill, pointing out the organisation had handed down some heavy sanctions. “Of eight cases investigated under the debt and lodgement project, five tax practitioners had their registrations terminated for failure to meet personal tax obligations, four of these with a five-year exclusion period,” he said. “And of the eight investigations into noncompliance with CPE requirements, five tax practitioners were issued with suspensions, three with cautions and all eight ordered to complete additional hours of CPE.”

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News

CBA moves to exit Pathways franchise

BY MIKE TAYLOR

THE Commonwealth Bank has cleared the way for exiting its self-employed adviser ‘Pathways’ franchise. Financial Wisdom and CFP Pathways general manager, Mark Ballantyne wrote to adviser confirming that a Sale and Purchase agreement for the business was now due for final approval and noted that the move took the option of transitioning to

Financial Wisdom out of play. Pathways Advisers have been in negotiation with Commonwealth Financial Planning since late last year with respect to the terms and conditions surrounding the sale of client books which would allow them to continue to the service the clients under a different ownership and licensing structure in the future. The intention of the Pathways

advisers was revealed to the Australian Competition and Consumer Commission (ACCC) in early December which declared that the Commonwealth Financial Planning Pathways Adviser Council intended to collectively bargain with Commonwealth Financial Planning “in relation to the terms, conditions and commercial matters with respect to CFPL’s sale of its Pathways client books”. “Each participating Pathways Adviser is expected to enter into one or more agreements to give effect to the sale of the relevant client books, which will allow the Pathways Adviser’s financial advisory practice to continue to service these clients under a different ownership and licensing structure in the future,” the ACCC notification said. It said there were “approximately 60 Pathways Advisers and 46 of these have agreed to participate in the collective bargaining group. The notification provides for the remaining Pathways Advisers to join the group”. Ballantyne’s note to the Pathways principals stated: “Together with the need to provide you and your team with greater certainty, we will enable you to complete the transaction and apply for your own licence, or move to another licensee. “This means you will no longer have the option to transition to Financial Wisdom as previously planned,” his note said.

Frydenberg rules out super drawdown changes

THE Government may have signalled its preparedness to move on reducing deeming rates but it is not prepared to move on superannuation draw-down rates for those aged over 65. The Treasurer, Josh Frydenberg used a Sydney radio interview to make clear that Government’s unwillingness to change the drawdown rate formula, despite acknowledging that the deeming rates warranted a review. In doing so, Frydenberg reinforced the point that the superannuation was not intended to be a wealth accumulation vehicle, but something spent inside the lives of account-holders. “… it’s supposed to be either a substitute or a supplement to the aged pension,” the Treasurer said. “That’s why you get a concessional tax arrangement in relation to your super. And when the Government Actuary looked at the current minimum draw down rules, they found that it would lead to people at death still having around 25 per cent of that initial balance in their accounts.”

ASIC targets licensees over lack of AFCA membership BY LAURA DEW

OVER 50 financial services and credit licensees have had their licenses formally suspended or cancelled by the Australian Securities and Investments Commission (ASIC) after failing to obtain membership of the Australian Financial Complaints Authority (AFCA). AFCA was formed last November to provide external dispute resolution for consumers with unresolved complaints. It went on to find 58 financial services licensees and 217 credit licensees had not obtained AFCA membership and could have been in breach of their licence conduct obligations.

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The matter was referred to ASIC and 48 credit licensees and four financial services licences had their licences cancelled or suspended. Some 50 financial services and 131 credit licensees obtained AFCA membership and the remainder voluntarily cancelled their licenses. ASIC commissioner, Sean Hughes, said: “ASIC’s intervention means that consumers now have access to the independent dispute resolution scheme of AFCA if their complaints are not being properly considered by the financial services licensee or credit licensee.” It said it would continue to work closely with AFCA to identify those who were not complying with their obligations.

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ASIC cancels licence of Sydney financial services provider BY LAURA DEW

THE Australian Securities and Investments Commission (ASIC) has cancelled the licence of Sydney-based Australian Mutual Holdings after the banning of its joint executive directors in April. Joint chief executives Jeffrey Worboys and Matthew Barnett were banned from providing financial services for six years after failing to exercise the degree of care and due diligence required and failing to act in the best interests of the Courtenay House Capital Investment Fund members. ASIC said there was also a failure to ensure that the person’s responsible for trading funds had the requisite qualifications and experience to manage a foreign exchange and derivatives fund.

Superannuation grows as proportion of personal wealth

On 28 June 2019, Peter Paul Krejci of BRI Ferrier was appointed voluntary administrator of Australian Mutual. The terms of the cancellation allowed Australian Mutual’s AFS licence to provide financial services related to the winding up of Australian Pink Diamond Fund, Grange Capital Management Growth Plus Fund and Accelerated Trend Hedge Fund. The terms of the cancellation were effective from 5 July 2019. ASIC commissioner, Danielle Press, said: “A key priority for ASIC is ensuring that responsible entities take their duty to act in the best interest of investors seriously. This duty of loyalty has been described as the ‘most fundamental’ rule of trust law. The community expects responsible entities to fully comply with the best interest duty and ASIC will take legal action to enforce this.”

SMSFs in need of advice in key areas BY HANNAH WOOTTON

BY MIKE TAYLOR

OWNER-OCCUPIED housing continues to dominate Australian personal net wealth but superannuation is becoming an increasingly important factor, according to new research released by Roy Morgan. The Roy Morgan Wealth Report has revealed that roughly half (49.8 per cent) of Australia’s personal wealth continues to be held in the form of owner-occupied housing, down slightly from 2007, where superannuation accounts for 24.4 per cent up from 19.2 per cent over the same period. Importantly, the Roy Morgan data showed that the value of assets held by Australians had almost doubled from 2007 to 2019, while debt increased by 78.6 per cent over the same period. “As a result, net wealth is now 98.7 per cent higher in 2019 than it was in 2007,” the Roy Morgan analysis said. It said that average per capita net wealth in real (inflation adjusted) terms was 28 per cent higher than it was in 2007 just before the onset of the global financial crisis (GFC). Commenting on the research, Roy Morgan chief executive, Michele Levine, said that while daily headlines pointed to the risks posed by high levels of debt and falling property prices, drilling down on the data produced a more balanced long-term picture. “Although the last 12 months has seen a marginal decline in household net worth, it is important to understand it in the context of the long-term trend,” she said. “What we have seen here is a very positive long-term trend.” “Housing debt has grown considerably since 2007, but not uniformly - Roy Morgan’s data shows wealthier cohorts have shown a much greater propensity to take on debt and those investors have more ability to handle downturns than more marginal borrowers in lowerwealth segments,” Levine said.

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SELF-MANAGED superannuation fund (SMSF) members are experiencing a dearth in financial advice, with 315,000 reporting they had unmet advice needs this year, up from 275,000 last year, across a broad spectrum of issues. SMSF pension strategies, inheritance and estate planning, and identifying undervalued assets were the areas in which they wanted to receive advice most, but currently weren’t, with the Vanguard/Investment Trends 2019 SelfManaged Super Fund Report finding that 80,000 SMSFs fell into each category. Tax planning was also a pain point for SMSFs, with 75,000 wanting to receive advice in this area, while guidance on investment strategy/portfolio review, investing for regular income, offshore investing, and protecting assets and income against market falls was also sought. Considering the importance of these issues to running a strong SMSF, Investment Trends chief executive, Michael Blomfield, believed that “what they have unmet needs in is pretty troubling”. At the same time, overall satisfaction with financial planners by the SMSFs that used them had declined to a seven-year low, dropping seven percentage points from last year to hit 74 per cent. It’s worth noting that this figure was still relatively high, and 37

per cent rated their planners as ‘very good’ overall and 42 per cent as ‘good’. The decline in satisfaction was largely due to interrelated issues of the level of fees, clarity around fees and charges, and value for money. There was a drop in satisfaction of five percentage points from SMSFs using advisers for each of these areas. According to Blomfield, this reflected that clients often found it difficult to work out what they were getting for their money from advisers, especially when they may want a specific service but planners required a more holistic view of the SMSF first. “They [SMSFs] just aren’t finding the value proposition at a price that they think is worth it,” he added. Other areas to record decreasing satisfaction were frequency of contact, online portals to monitor SMSFs, and investment selection. In contrast, advisers’ tax and technical expertise, accessibility when they were needed, and ability to explain investment concepts all saw slight increases in satisfaction. From an adviser perspective, those surveyed expected administration and compliance to be the key service challenges amongst planners who expected their SMSF practice to decline over the next three years. Blomfield said this was a well-founded fear: “They think most things are going to become harder, and they’re probably right post-Royal Commission”.

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12 | Money Management August 1, 2019

News

Differences in AREITs’ structure bring varied results BY OKSANA PATRON

THE differences in the way Australian real estate investment trusts (AREITs) are structured were one of the main reasons for large dispersions in fund outcomes, according to Zenith Investment Partners. Zenith’s 2019 Property Sector Report found that the Australian REIT market had a more relaxed approach of how AREITs could generate earnings by allowing them to hold some exposure to development and funds management. Additionally, due to their defining characteristics the AREIT market could result in some unexpected outcomes at various points of both the property and economic cycles. “The differences across AREIT structures, fund objectives and manager’s risk appetite for more volatile/nonproperty earnings can and has resulted

Focus turns to future of Financial Wisdom BY MIKE TAYLOR

THE Commonwealth Bank’s decision to exit its self-employed adviser franchise, “Pathways”, together with its recent sale of Count Financial to CountPlus has prompted speculation about the future of its Financial Wisdom license. Both Count Financial and the Pathways business were originally part of the Commonwealth Bank’s demerger strategy announced in the second half of last year but which the big banking group put on hold in March, telling the Australian Securities Exchange (ASX) it would be prioritising implementing issues arising out of the Royal Commission. The bank is now sending a clear message to advisers that it is its intention to exit its wealth management and mortgage broking businesses “over time” and that it will be operating its advice licenses accordingly. The bank’s strategic decision with respect to “Pathways” represented a significant alteration of strategy on the part of the bank, with Financial

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Wisdom general manager, Mark Ballantyne, telling Pathways advisers they would “no longer have the option to transition to Financial Wisdom as previously planned”. A number of Pathways advisers had looked to joining the Financial Wisdom commensurate upon formally acquiring their client books. As recently as June’s decision to sell the Count Financial business to CountPlus, the banking group also informed the Australian Securities Exchange (ASX) that the remaining wealth management businesses contained with its demerged “NewCo” structure were Colonial First State, Financial Wisdom, Aussie Home Loans and the bank’s 16 per cent stake in Mortgage Choice. “Consistent with the announcement in March 2019, CBA remains committed to the exit of these businesses over time,” it said. “The current focus is on continuing to implement the recommendations from the Royal Commission and ensuring CBA puts things right by its customers.”

in large dispersions in fund outcomes at certain points in the market cycle,” Zenith’s head of property and listed strategies, Dugald Higgins, said. “As a result, amongst Zenith’s rated AREIT funds, median performance dispersion relative to the market benchmark reached its highest level in 20 years. “Given the differences in approaches and objectives, some funds are less able to participate fully in the momentum being generated in the index by stocks which are viewed as being less property-like.” Although the 12 months to 31 May 2019 were positive for AREITs, with the S&P/ASX 300 AREIT Accumulation Index returning 14.3 per cent and the FTSE EPRA/NAREIT Developed $A (Hedged) Index returning 10.6 per cent, the last two years were challenging for some of Zenith’s rate AREITs, the firm said.

YBR completes exit of another wealth business CHRISTOPHER Joyce’s Coolabah Capital Investments now owns 100 per cent of public-listed institutionallyfocused active fixed income manager, Smarter Money Investment Pty Ltd following the confirmed exit of 50 per cent shareholder, Mark Bouris’ Yellow Brick Road (YBR). YBR announced that the sale of its 50 per cent interest in Smarter Money had been completed bringing to an end a relationship with Coolabah Capital which had begun in 2011. The start of the transaction was announced on 10 July, entailing a purchase price of $7.5 million and with all the company’s staff being absorbed by Coolabah. YBR said its mortgage broking network would continue to offer Smarter Money Investments products and Coolabah’s existing and future cash and fixed interest products to its clients. Explaining the decision to sell down its stake in the business, Bouris said it reflected the company’s recent strategic pivot away from wealth management to focus on the mortgage market.

25/07/2019 10:35:28 AM

August 1, 2019 Money Management | 13

InFocus

ADVISERS ARE HURTING OUT THERE Paragem managing director, Nathan Jacobsen argues that while the march towards financial planning professionalism is welcome and necessary, it would be folly to overlook the accumulated wisdom of experienced advisers. LICENSEES ARE MAKING big decisions about the future of their businesses, leaving many advice practices to work out what is next for them. Other practices are dealing with rising compliance activity, business succession, and confronting FASEA education pathways â&#x20AC;&#x201C; all reasons to reassess their operating model. Some advisers are even reassessing their future as an advice professional. Do they want to be part of the future advice industry and does it want them? The Royal Commission shone the spotlight on what was bad in the industry, and some more experienced advisers feel they have been tarnished with this brush. While heightened professional standards and regulatory change is necessary to restore trust, the departure of the expertise held by the more experienced advisers is leaving a huge hole in many businesses. The fact is, the professional and business skills of these experienced advisers cannot easily be replaced in a small business with limited staff. As a result, principals are facing premature business transformation and accelerated business succession to junior partners or salaried advisers who may not yet be ready or equipped for this level of change at this point in time. While they may have brought in extra support

INITIAL PUBLIC OFFERING (IPO) MARKET MID-YEAR RESULTS

staff and advisers to assist with business growth and added compliance obligations, it is the wisdom and experience that comes with 30 years in front of clients and owning a business that cannot be replaced quickly. The key question is this â&#x20AC;&#x201C; who do you need around you to help make this change a successful one? Who are the network of peers and mentors that guide and support you? This environment we are in underlines the importance of community. Partnering for change is crucial and despite all the hype and noise around what is being offered by licensees in the market, the culture of the community that an advice practice wraps around itself & the quality of the person leading that community, is a real differentiator. If your business is one of those

facing the departure of significant expertise, it is a good time to think about what community your business needs to help you to steady the ship and start moving forward again. A practice that recently joined a new licensee community is going through this exact transformation. Its challenge was the unplanned departure of a senior adviser who had decided to retire rather than meet the new education requirements. The challenge for this business is that it has built its niche around providing aged care expertise to clients. The departure of this adviser from providing advice meant the practice had a brand promise that its younger advisers, whilst experienced and capable, were not yet well equipped to deliver. This business decided to leave

its existing licensee and to partner with a new licensee where they could join a community of advisers who had this expertise and who could provide the support to help them through the change. Accessing a community of like-minded peers that shares expertise to help each other grow, makes all the difference in these transitions. A well organised community which knows where the relevant expertise sits and can help guide you through the journey is invaluable. The right community for your practice feels easy. You feel heard. You are treated like an adult. You belong and you not only benefit from the expertise in the community, you contribute to it. Nathan Jacobsen is managing director of Paragem Pty

$823m

H1 2019 total IPO listings, down from 39 in H1 2018

H1 2019 small-cap IPO listings, down from 31 in H1 2018

H1 2019 amount raised, down from $2.5 billion in H1 2018

Source: HLB Mann Judd IPO Watch Mid-Year Report

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25/07/2019 11:45:44 AM

14 | Money Management August 1, 2019

Adviser sentiment

A PERFECT STORM

As advisers battle with the effects of the Banking Royal Commission, education reforms, the banks exiting wealth, and changes to business structures, Hannah Wootton finds that the biggest fight they face in a time of increasingly negative sentiment is with their own minds. “THIS STANDS OUT as the toughest time … The GFC was a tough time, but that was dealing with clients who were impacted. Now it’s the advisers being impacted.” This observation by the Association of Financial Advisers’ (AFA’s) general manager, policy and professionalism, Phil Anderson, may sound dramatic but, given the current low levels of positive sentiment held by advisers about the industry, it holds true. Advisers have faced a “perfect storm”, according to both the AFA and the Financial

Planning Association (FPA), of factors contributing to plummeting optimism, as the Banking Royal Commission, the Financial Adviser Standards and Ethics Authority’s (FASEA’s) reforms, the banks exiting wealth, and the general stresses of financial services in general have combined. Wealth Insights’ Adviser Sentiment Index for 2018 backed this up; in their role as a financial planner, less than half of surveyed advisers believe times are good or very good, 40 per cent believe they’re average, and 19 per cent

think they’re bad or very bad. For many advisers, too, this has turned into something more concerning than just low sentiment. The FPA’s chief executive, Dante De Gori, says, anecdotally, he has heard of increased mental health concerns amongst its members, and Anderson has noticed the same. For advisers, sometimes professional help is needed to make sure that the current flurry of change faced by the financial planning industry doesn’t lead to even lower sentiment and mental health.

TRIGGERING THE TOUGH TIMES The main culprit for poor adviser sentiment is, interestingly considering the current fuss around FASEA, last year’s Banking Royal Commission. According to Investment Trends’ 2018 Planner Business Model Report, which was based on surveys of around 900 advisers, 99 per cent of advisers felt they’d experienced some negative impact from the publicity surrounding the Commission. This included the cost of advice, trust levels in advisers, the number of planners

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August 1, 2019 Money Management | 15

Adviser sentiment in the industry overall, and the propensity for consumers to turn to planners for advice. Anderson says that the Commission changed perceptions of advisers too, contributing to the strain many were feeling: “Clients used to trust advisers and now [many] don’t … they’re looking at them differently since the Royal Commission”. Amongst the FPA’s membership base, stress, concern and anxiety amongst planners increased over the last 12 months, especially at the start of this year and end of last. De Gori believes that this timing was triggered by the bad publicity surrounding the Royal Commission and then its final report. Then there’s practical changes to advisers’ bottom lines stemming from the Commission also contributing to declining sentiment. The biggest is the loss of grandfathering; while this won’t impact all advisers, the rapid loss of that revenue stream is proving crippling to the sentiment (and possibly businesses) of some. Indeed, the AFA flagged this consequence of the change with the Government in a submission to the Federal Treasury on grandfathering this year. On the push to rapidly phase out the commission structure, it wrote: “We are deeply concerned that there are unintended consequences playing out right now that impact the financial integrity of financial advice practices and in turn the emotional health and wellbeing of honest hard-working financial advisers.” The group warned that it wouldn’t just be older advisers impacted either, going against a perception that it’s more senior members of the profession clinging

to an outdated payment structure who are most impacted. Rather, the AFA said that the emotional wellbeing consequences could extend to “those younger advisers who have recently acquired businesses with debt, based on the valuation of recurring revenue, including grandfathered commissions”. A further cost to business following the Royal Commission is increasing professional indemnity insurance, as the sector seems riskier to underwrite. With the Government recently telling the Australian Financial Complaints Authority (AFCA) to look at complaints back to 2008, too, the willingness of insurers to engage with the market for the prices it used to, looks set to continue. “All of these things are combining to make people look at the value of their business differently,” Anderson says, adding that a non-Royal Commission triggered impact is rising business costs in general. On top of this, FASEA’s education reforms are also causing strain to advisers, translating into negative sentiment as many claim they will either leave the industry, or have to undertake extensive study to be able to stay. The uncertainty around the reforms for much of the last two years also hasn’t helped: “Uncertainty is a key contributing factor to stress, and the longer that went on [around FASEA’s reforms] the more it had an impact,” Anderson says. “The perception that FASEA wasn’t consulting advisers, and then they weren’t contactable for a period” contributed to stress about the reforms, De Gori adds.

UNDERLYING CAUSES FOR STRESS Financial services in general also has a bad reputation for sentiment even in calmer times. Within the industry, 26.3 per cent of employees experienced a very high level of stress at their job, up from the national average of 24.8 per cent, and 47 per cent reporting ongoing stress at work, above the national average of nine per cent. The same studies, which are sourced from SuperFriend, found that the proportion of employees in the industry who didn’t particularly like doing their job was 6.8 per cent above the national average, and there was also less optimism in the industry that workplace mental health and wellbeing would improve in the foreseeable future. Indeed, SuperFriend chief executive, Margo Lydon, observes that the targets and expectations placed upon advisers aren’t realistic, as “society puts an expectation on financial services to continue to perform year on year on year”. This goes against human needs of renewal and refreshment, and she believes that a shift in this perception of the industry is therefore needed. Then, there’s the fact that many advisers work for small businesses or own them themselves. With the shift away from large dealer groups and toward smaller licensee firms, the number of planners running or working for SMEs is growing – and it was already a large figure compared to other industries to start with. According to the Bank of Queensland’s 2018 Business Balance Report, over half (53 per cent) of SME owners experienced emotional strain from family and friends because of their business,

up from 49 per cent in 2017. Further, 13 per cent had been diagnosed with stress, depression or anxiety in the last year and 34 per cent were struggling. It makes sense then, that industry bodies are seeing evidence of growing pessimistic sentiment amongst this cohort. De Gori says that stress and negativity is impacting some SME owners, especially as often these businesses are reliant on grandfathering. Anderson adds that increasing costs to running businesses also may be more keenly felt by those in small businesses, which may particularly contribute to negative sentiment as some independent practice owners plan to fund their retirement with their business. The Investment Trends report showed signed of struggling profitability growth; while the report found that more than half (53 per cent) of surveyed advisers had seen their business’ profitability improve in 2018, that was down from 72 per cent in 2014. “Being self-employed is a great thing when things are going well, but when they’re not … that can cause greater anxiety,” Anderson says, encapsulating this issue.

TAKING ACTION  The list of things that individuals can do to improve their mental wellbeing is well-traversed, but advisers struggling to stay positive in the current landscape of change could do well to remember them. CommSec Adviser Services recommends taking time out, looking after your body with good diet and exercise, improving sleep hygiene, avoiding isolation, asking Continued on page 16

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16 | Money Management August 1, 2019

Adviser sentiment Continued from page 15 for help, supporting your staff, quieting and clearing your mind, and setting realistic goals. Lydon backs this up, saying that health, sleep, and having a sense of belonging and connectiveness are vital to strong mental health. These may seem like baby steps, but she notes that “it’s small, incrementally applied changes that you work on consistently that make the biggest long-term change to mental health”. There are also individuals and businesses within the industry who are handling its current period of change well; flourishing, even. Lydon recommends “looking at those doing it well and learning from them”, as “some will be having a much easier time in this period of substantive change, so look at them and see what they’re doing to cope well”. Anderson believes that having conversations and engagement around the issues causing stress within the industry helps, as advisers stay informed and can then feel more control. De Gori also says this; he has found that some members thought the education requirements they needed to undertake were actually more extensive than they are, lessening their stress when they learnt the truth. “People need to look after themselves … and others around them, and they need to keep engaged. They need to remember why they chose this profession in the first place … and hopefully we can start to turn things around,” Anderson says. Of course, there’s a point where negative sentiment about the profession may become something more serious for some, and Anderson says that in these cases, professional help is where some people need to start. He encourages advisers to call the AFA in these situations, with the AFA Care program providing confidential coaching and wellbeing service for members, their staff, and their families. The FPA also runs a similar service, with its Wellbeing program, launched in May, this year, offering members confidential support by

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qualified counsellors and psychologists by phone, live chat or face-to-face. It also provides access to a library of health and wellbeing resources, aimed at prevention. De Gori notes that some bigger organisations may have these structures in place, this service could help the numerous planners in small businesses.

She recommends employers minimise this insecurity, which doesn’t necessarily mean guaranteeing jobs, which may not be possible. Rather, she says that clear communications and co-designing solutions with staff to deal with the change advising firms are facing can help.

EMPLOYERS STEPPING UP

While adviser sentiment toward the industry is generally low at the moment, that doesn’t mean there aren’t pockets of optimism. Amongst some, there’s a sense that the current period of change is an opportunity to improve – indeed, Lydon observes that neurologically, change opens up our creativity. It’s also an opportunity for businesses looking to run their businesses ‘right’ for the new advice world to seize on the growth that the banks and other advisers exiting wealth offers. “Following the Royal Commission, independent advice seems to be the flavour,” De Gori says, meaning advisers in that space are well-positioned. “A lot of self-licensed actually feel quite optimistic that they don’t have the baggage of the banks and are quite nimble, so their main concern is how to attract enough quality advisers to meet the growth opportunities,” he adds. Anderson, too, has noticed that there’s some “highly educated and nimble advisers who aren’t reliant on commissions” within the AFA’s memberships, and that they’re looking positively toward the future. He also notes that there’s some positive signs that advisers are

Planning businesses also have a crucial role to play in improving their employees’ sentiment. It’s in their interests to do so, too; in a survey of 5,000 financial services and insurance workers, SuperFriend found that 66 per cent of employees believed that investment in workplace mental health and wellbeing would improve productivity, and 63 per cent thought it would reduce absenteeism. Part of this can be through practical support. FASEA’s new standards, for example, are clearly causing stress amongst some advisers, and help from employers with both preparation and time to undertake the requirements. They can also offer more team-based activities to their employees, Lydon says, as “belonging and connectiveness, especially in times of shared challenges”, can help improve mental wellbeing. Lydon also advises making sure that employees know their jobs are secure. One-third of financial services employees report their jobs feel insecure, which Lydon says can contribute to feelings of uncertainty, stress, and poor mental health.

HERE COMES THE SUN

moving proactively to overcome the stresses associated with FASEA; nearly 600 advisers registered for the first exam, and “it will make a difference when they start to get results” to fears about the reforms. Anderson adds, however, that one of the biggest contributors to improving sentiment could be 12 and 24 month extensions to the exam and qualification requirements respectively coming into force, which he urges the Government to consider. There’s also source for optimism in the fact that there’s a genuine need for advisers amongst Australians, and that it’s growing. Again looking to the Investment Trends’ survey, 97 per cent of planners’ clients say that their adviser has had a positive impact on them, and 31 per cent of surveyed Australians who aren’t advised signalled that they’d potentially seek a planner in the next two years. There’s some education needed to translate these unmet advice needs into clients. De Gori says more transparency around fees and the value of advice would help, as would more information about what financial advice involves. “There’s a lot of unknown in how to make the most of that opportunity, but the opportunity is there,” he says. “If you do adopt and change your business model for a post-Royal Commission world, if you work to meet those education standards, then there’s a lot of opportunity there.” Surely a cause for some optimism.

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investmentcentre.moneymanagement.com.au

INVESTMENT CENTRE a part of

EXPLORING EQUITIES ALL OVER THE WORLD Laura Dew writes that the Global sector offers investors exposure to a wide-ranging set of worldwide themes that would be ‘impossible’ for them to access otherwise IN A WORLD full of opportunities, narrowing down your asset allocation to a few countries can make it tough to select the best options. Should you opt for the United States to benefit from the tech boom or should you pick Japan to gain from the ageing demographic? The solution is a global equities fund which invests in all of these areas. Global equity funds provide a diversified range of investments investing in international equities, usually from both developed and emerging markets. Some may also hold global debt depending on their mandate. The developed market portion of the portfolio provides stability and secure companies while emerging markets represent some of the fastest-growing economies such as China and offer strong potential for returns from companies such as Chinese technology firm Alibaba. Some of the funds also include domestic exposure, although investors should make sure they are not duplicating their existing Australian investments. Adrian Warner, fund manager at Avenir Capital, said the benefit of global funds was they gave investors the ability to gain exposure to other global trends which may not be easy to access from within Australia. “There are greater opportunities outside of Australia to buy high quality businesses at low prices with greater growth potential. It is challenging to find opportunities in Australia as it is an expensive market, our sectors are dominated by only a few companies and are often priced at

12MM0108_14-29.indd 17

high multiples.” According to FE Analytics, there are more than three hundred funds in the ACS EquityGlobal sector including 33 which are holding more than $1 billion in assets under management. The largest fund, Vanguard International Share Index fund, is $17 billion in size and the AMP Capital Enhanced Index International Share fund is more than $12 billion. The sector has consistently performed strongly over the years, outperforming the ACS Equity-Australia sector over one, three and ten years. Over one year to 30 June, the average global fund has returned nine per cent versus returns of seven per cent by ACS EquityAustralia while it has returned 42 per cent over three years versus average Australian sector performance of 35 per cent. Looking at a decade of performance, the ACS EquityGlobal sector has returned 180 per cent compared to 135 per cent by the Australia sector. Global index MSCI AC World,

the benchmark for the majority of the global funds in the sector, has returned 11.9 per cent over the year to 30 June and 9.5 per cent over three years. In fact, the sector has outperformed not only the ACS Equity-Australia sector but also ACS Equity-Emerging Markets, ACS Equity-Europe and ACS Equity-Asia Pacific ex Japan sectors. The only geographic sector it did not beat was ACS Equity- North America which returned 12.7 per cent over one year to 30 June, 2019. This indicates it may be to investors’ benefit to opt to take a broader global exposure rather than a commit to a single geographic asset class. The best-performing fund over one year was the Evan and Partners International fund which saw returns of 28.1 per cent to 30 June, 2019. This fund aims to provide attractive risk-adjusted returns over a rolling five to seven year period, nearly half of the fund is invested in North America, according to its most recent factsheet, and a further 28 per

Chart 1: Performance of ACS Equity- Global versus ACS Equity-Australia over one year to 30 June, 2019

Source: FE Analytics

LAURA DEW

cent is invested in EMEA & UK. Some 200 of the funds in the sector had returned more than one per cent over one year and 94 had returned more than 10 per cent. Only 16 funds, just four per cent of the total sector, saw negative returns last year. Nevertheless, global funds are not without the risks, the downside is investors could be exposed to a broad set of risks from all over the world. These include the US/China trade war affecting Asia and North America, elections in India and the unknowns of Brexit in the UK. But, Warner said, the skills of an active manager, which gave it a benefit over a passive fund, meant they should be able to avoid holding too much exposure to any of these risks at any one time. “If anything, being in a global fund gives investors the opportunity to diversify away from those affected areas. Instead, they can benefit from places like the rising middle class in China which would be impossible to get exposure to in an Australian fund,” he said. For those investors who are considering investing in a global fund or strategy, they need to check the funds’ track record and whether it has performed consistently over the relevant time period. They should also look at whether the fund’s holdings are just replicating its benchmark and how diversified it is from a geographic perspective.

24/07/2019 2:57:50 PM

INVESTMENT CENTRE

a part of

ACS CASH - AUSTRALIAN DOLLAR

ACS EQUITY - AUSTRALIA EQUITY INCOME

Fund name

Macquarie Australian Diversified Income ATR in AU

0.22

2.8

3.09

Armytage Australian Equity Income ATR in AU

0.96

9.2

9.03

109

Macquarie Diversified Treasury AA ATR in AU

0.22

2.77

3.04

Plato Australian Shares Income A ATR in AU

1.84

9.2

8.51

104

Mutual Cash Term Deposits and Bank Bills B ATR in AU

0.19

2.3

2.26

Nikko AM Australian Share Income ATR in AU

-0.01

5.62

8.43

109

Pendal Stable Cash Plus ATR in AU

0.19

2.25

2.24

Lincoln Australian Income Wholesale ATR in AU

-0.58 10.18

8.36

Mutual Cash Term Deposits and Bank Bills A ATR in AU

0.19

2.3

2.23

Zurich Investments Equity Income Pool ATR in AU

2.02

11.12

8.28

Australian Ethical Income Wholesale ATR in AU

8.88

8.17

101

2.23

2.16

Legg Mason Martin Currie Equity Income X ATR in AU

2.36

0.18

Macquarie Treasury ATR in AU

0.46

2.3

2.08

Lincoln Australian Income Retail ATR in AU

-0.64

9.61

7.61

CFS Colonial First State Wholesale Strategic Cash ATR in AU

0.16

2.03

Legg Mason Martin Currie Ethical Values with Income A ATR in AU

3.21

8.51

7.5

103

IOOF Cash Management Trust ATR in AU

0.17

2.07

2.01

Legg Mason Martin Currie Equity Income A ATR in AU

2.29

8.04

7.4

101

Mercer Cash Term Deposit Units ATR in AU

0.18

2.07

2.01

UBS IQ Morningstar Australia Dividend Yield ETF ATR in AU

0.33

11.8

7.22

109

Crown Rating

Risk Score

Crown Rating

Risk Score

ACS EQUITY - AUSTRALIA SMALL/MID CAP

ACS EQUITY - ASIA PACIFIC EX JAPAN

Fund name

OC Micro-Cap ATR in AU

1.91

4.42

16.96

106

SGH Emerging Companies Professional Investors ATR in AU

7.95

19.2

16.61

126

Macquarie Small Companies ATR in AU

-1.6

0.44

15.24

125

Cromwell Phoenix Opportunities ATR in AU

-1.38

4.96

15.03

111

SGH Emerging Companies ATR in AU

6.99

14.93

14.89

126

114

Macquarie Australian Small Companies ATR in AU

-1.58

0.75

14.79

125

12.27

144

Pendal MicroCap Opportunities ATR in AU

0.8

8.78

14.77

2.74

12.12

103

Smallco Investment Manager Smallco Investment ATR in AU

-0.52 13.73

14.04

139

-0.11

11.64

126

Fidelity Future Leaders ATR in AU

-0.13

9.55

13.47

113

132

Allan Gray Australia Equity A ATR in AU

0.83

6.77

13.29

109

Fund name

SGH Tiger ATR in AU

3.93

17.55

15.84

128

Schroder Asia Pacific Wholesale ATR in AU

-8.2

-0.44

15.61

137

Advance Asian Equity Wholesale ATR in AU

-6.74

-1.89

14.42

133

Fidelity Asia ATR in AU

-5.55

4.49

13.92

133

Advance Asian Equity ATR in AU

-6.82

-2.82

13.35

133

Maple-Brown Abbott Asia Pacific Trust ATR in AU

-5.11

1.54

12.55

Premium Asia ATR in AU

-7.71

-5.84

CI Asian Tiger ATR in AU

-5.74

Maple-Brown Abbott Asian Investment Trust ATR in AU

-7.21

T. Rowe Price Asia Ex Japan ATR in AU

-5.84

-0.74

Crown Rating

11.17

Risk Score

Crown Rating

Risk Score

ACS EQUITY - EMERGING MARKETS

ACS EQUITY - AUSTRALIA

Crown Rating

Risk Score

Dimensional Australian Value Trust ATR in AU

1.89

9.22

14.54

111

JPMorgan Emerging Markets Opportunities ATR in AU

-6.06

3.84

15.27

123

DDH Selector Australian Equities ATR in AU

-1.03 14.26

14.44

135

Legg Mason Martin Currie Emerging Markets ATR in AU

-6.62

-3.36

14.5

133

Alphinity Sustainable Share ATR in AU

2.47

12.85

13.32

103

CFS Realindex Emerging Markets A ATR in AU

-4.17

2.6

14.18

115

Macquarie Australian Shares ATR in AU

1.15

8.14

13.24

101

Fidelity Global Emerging Markets ATR in AU

-2.4

8.63

14.12

110

Macquarie Wholesale Australian Equities ATR in AU

1.05

8.07

13.14

102

MFS Emerging Markets Equity Trust ATR in AU

-5.52

-0.32

12.48

113

Macquarie Australian Equities ATR in AU

1.05

8.02

12.98

102

Schroder Global Emerging Markets Wholesale ATR in AU

-5.23

-0.47

12.38

119

Legg Mason Martin Currie Select Opportunities X ATR in AU

0.43

2.4

12.7

108

Dimensional Emerging Markets Trust ATR in AU

-3.43

0.85

12.15

101

Alphinity Sustainable Share B ATR in AU

2.46

12.71

12.6

103

OnePath Wholesale Global Emerging Markets Share ATR in AU

-5.6

0.34

12.14

112

Maple-Brown Abbott Australian Equity Trust ATR in AU

1.34

11.27

12.48

130

Pendal Global Emerging Markets Opportunities-WS ATR in AU

-2.82

1.86

12.07

Lincoln Australian Growth Wholesale ATR in AU

-0.01

16.36

12.44

107

CFS Wholesale Global Emerging Markets Sustainability ATR in AU

0.73

9.55

11.59

12MM0108_14-29.indd 18

Crown Rating

Risk Score

Fund name

24/07/2019 2:58:15 PM

INVESTMENT CENTRE

a part of

ACS EQUITY - GLOBAL

ACS EQUITY - INFRASTRUCTURE

Fund name

Hyperion Global Growth Companies B ATR in AU

-2.51

19.16

20.83

126

Zurich Investments Concentrated Global Growth ATR in AU

-1.05

17.2

CFS Generation WS Global Share ATR in AU

-5.81

14.98

CFS FirstChoice Acadian Wholesale Geared Global Equity ATR in AU

-10.65

CC Marsico Global Institutional ATR in AU

Crown Rating

Risk Score

Fund name

Crown Rating

Risk Score

Macquarie Global Infrastructure Trust II A ATR in AU

40.53

29.37

203

134

Macquarie Global Infrastructure Trust II B ATR in AU

40.07

29.36

200

16.56

118

BlackRock Global Listed Infrastructure ATR in AU

1.22

24.89

12.76

-7.17

16.04

260

Lazard Global Listed Infrastructure ATR in AU

-1.29

9.95

12.59

1.95

9.45

12.39

-4.05

6.37

15.32

139

Mercer Global Unlisted Infrastructure ATR in AU

T. Rowe Price Global Equity ATR in AU

-4.07

9.95

15.03

118

RARE Infrastructure Income A ATR in AU

0.11

20.64

11.68

CC Marsico Global B ATR in AU

-4.04

6.41

14.98

139

Legg Mason Martin Currie Global Long-Term Unconstrained A ATR in AU

0.74

22.58

10.74

-3.65

17.16

14.61

115

Macquarie True Index Global Infrastructure Securities ATR in AU

Loftus Peak Global Disruption ATR in AU

-9.02

7.31

14.52

160

AMP Capital Global Infrastructure Securities Unhedged Wholesale ATR in AU

1.56

24.94

10.57

104

Zurich Investments Unhedged Global Growth Share Scheme ATR in AU

-2.2

14.45

13.92

122

AMP Capital Global Infrastructure Securities Unhedged R ATR in AU

1.54

24.59

10.32

104

AMP Capital Global Infrastructure Securities Unhedged A ATR in AU

1.53

24.57

10.32

104

ACS EQUITY - GLOBAL HEDGED Fund name

Zurich Investments Hedged Concentrated Global Growth ATR in AU

-2.58

9.34

13.61

147

Evans And Partners International Hedged B ATR in AU

Fund name

-3.39

14.51

13.08

121

BT Technology Retail ATR in AU

-4.11 14.13

21.82

159

Magellan Global Equities (Currency Hedged) (Managed) ATR in AU

-4.12

8.3

12.61

123

-7.87 14.56

17.43

151

Evans And Partners International Hedged ATR in AU

CFS Wholesale Global Technology & Communications ATR in AU

-3.44

13.9

12.46

121

Fiducian Technology ATR in AU

-6.96

6.36

16.1

177

Magellan Global Hedged ATR in AU

-4.13

8.05

12.37

109

-7.99

-4.61

12.08

123

Macquarie Arrowstreet Global Equity Hedged ATR in AU

Platinum International Brands C ATR in AU

-5.12

0.29

11.52

124

Fidelity Hedged Global Equities ATR in AU

-4.01

1.27

11.28

108

-4.03

1.27

11.34

116

Barwon Global Listed Private Equity ATR in AU

Cooper Investors Global Equities Hedged ATR in AU

-1.85

6.91

10.82

127

-4.3

3.34

10.92

114

Platinum International Health Care C ATR in AU

MLC Wholesale Hedged Global Share A ATR in AU

0.31

10.48

112

-4.41

0.23

10.87

114

Platinum International Technology -6.61 C ATR in AU

Russell Global Opportunities NZ Hedged A AUD ATR in AU

-6.1

0.32

10.82

121

CFS Wholesale Global Health & Biotechnology ATR in AU

-1.39

8.58

9.29

154

CFS Colonial First State Australian Share Growth ATR in AU

1.54

10.65

8.12

108

IML Industrial Share ATR in AU

0.28

6.81

6.19

Crown Rating

Risk Score

ACS EQUITY - GLOBAL SMALL/MID CAP Fund name

Crown Rating

Risk Score

Bell Global Emerging Companies ATR in AU

-2.11

16.19

11.05

Yarra Global Small Companies ATR in AU

-4.68

1.14

10.43

122

Supervised The Supervised ATR in AU

-3.78

-2.44

9.44

108

Microequities Global Value Microcap Ordinary ATR in AU

-2.16

1.36

9.17

110

Pengana Global Small Companies ATR in AU

-6.08

-8.67

8.95

OnePath Optimix Wholesale Global Smaller Companies Share Trust B ATR in AU

-4.15

-1.23

8.5

113

Mercer Global Small Companies Shares ATR in AU

-5.24

-1.5

8.36

126

OnePath Optimix Wholesale Global Smaller Companies Share Trust A ATR in AU

-4.17

Pengana International Ethical Opportunity ATR in AU

-3.25

3.88

8.24

Dimensional Global Small Company Trust ATR in AU

-5.94

-2.8

8.16

12MM0108_14-29.indd 19

-1.38

8.29

109

ACS EQUITY - SPECIALIST Crown Rating

Risk Score

ACS FIXED INT - AUSTRALIA / GLOBAL Fund name

IOOF MultiMix Diversified Fixed Interest ATR in AU

1.3

5.94

4.36

PIMCO Diversified Fixed Interest ATR in AU

1.42

6.89

4.25

PIMCO Diversified Fixed Interest Wholesale ATR in AU

1.42

6.83

4.2

Macquarie Dynamic Bond ATR in AU

1.1

7.28

4.1

OnePath Wholesale Diversified Fixed Interest Trust ATR in AU

1.37

6.47

3.97

UBS Diversified Fixed Income Fund ATR in AU

1.51

6.76

3.83

CFS FirstChoice Wholesale Fixed Interest ATR in AU

1.31

7.47

3.76

AMP Capital Specialist Diversified Fixed Income A ATR in AU

1.83

6.95

3.75

AMP Experts' Choice Diversified Interest Income ATR in AU

1.85

6.97

3.75

124

BT Wholesale Multi-manager Fixed Interest ATR in AU

1.45

6.96

3.66

113

Crown Rating

Risk Score

24/07/2019 2:58:25 PM

INVESTMENT CENTRE

a part of

ACS FIXED INT - AUSTRALIAN BOND Fund name

ACS FIXED INT - GLOBAL STRATEGIC BOND Crown Rating

Risk Score

Crown Rating

Fund name

Risk Score

Dimensional Global Bond Trust NZD ATR in AU

0.72

8.8

4.52

6.53

Pimco Dynamic Bond C ATR in AU

0.12

3.04

4.49

4.89

Pimco Dynamic Bond Wholesale ATR in AU

0.11

2.92

4.39

Dimensional Global Bond Trust AUD ATR in AU

1.43

7.22

4.02

JPMorgan Global Strategic Bond ATR in AU

-0.27

2.7

3.15

IOOF Strategic Fixed Interest ATR in AU

0.3

3.24

2.54

Australian Unity Strategic Fixed Interest Trust Wholesale ATR in AU

-0.02

2.8

2.12

T. Rowe Price Dynamic Global Bond ATR in AU

2.29

3.02

2.01

Elstree Enhanced Income ATR in AU

8.15

7.71

DDH Preferred Income ATR in AU

0.28

5.31

Legg Mason Western Asset Australian Bond X ATR in AU

1.76

9.19

BlackRock Enhanced Australian Bond ATR in AU

1.73

9.1

4.69

Macquarie Core Australian Fixed Interest ATR in AU

1.74

8.95

4.61

Legg Mason Western Asset Australian Bond A ATR in AU

1.72

8.79

4.54

Macquarie True Index Sovereign Bond ATR in AU

2.09

10.31

4.5

ACS FIXED INT - INFLATION LINKED BOND

AMP Capital Wholesale Australian Bond ATR in AU

1.73

8.99

4.48

Fund name

OnePath ANZ Fixed Income ATR in AU

1.71

9.11

4.45

PIMCO Global RealReturn Wholesale ATR in AU

2.09

6.1

5.77

Morningstar Australian Bonds Z ATR in AU

Ardea Real Outcome ATR in AU

0.93

6.25

5.59

1.62

9.04

4.41

Ardea Premier Australian Inflation Linked Bond ATR in AU

3.35

10.15

5.26

Ardea Australian Inflation Linked Bond ATR in AU

3.34

9.82

Macquarie Inflation Linked Bond ATR in AU

2.93

10.02

4.37

Mercer Australian Inflation Plus ATR in AU

1.03

4.16

3.42

Morningstar Global Inflation Linked Securities Hedged Z ATR in AU

1.11

5.16

3.37

Aberdeen Standard Inflation Linked Bond ATR in AU

1.47

5.35

2.96

ACS FIXED INT - DIVERSIFIED CREDIT Crown Rating

Risk Score

Crown Rating

Risk Score

Fund name

Premium Asia Income ATR in AU

0.48

11.01

8.94

DirectMoney Personal Loan ATR in AU

0.64

8.34

7.67

Bentham High Yield ATR in AU

-1.23

4.87

7.16

PIMCO Capital Securities Wholesale ATR in AU

-0.93

4.24

6.29

Bentham Global Income NZD ATR in AU

-1.58

2.61

6.08

Fund name

Bentham Syndicated Loan ATR in AU

-0.44

2.21

5.95

3.3

20.55

10.12

142

Bentham Syndicated Loan NZD ATR in AU

Macquarie Property Securities ATR in AU

-1.12

3.76

5.88

UBS Property Securities Fund ATR in AU

2.63

21.47

10.06

128

Bentham Global Income ATR in AU

-0.88

0.96

5.76

Macquarie Core Plus Australian Fixed Interest ATR in AU

3.28

20.35

9.99

142

2.07

11.08

5.31

Macquarie Wholesale Property Securities ATR in AU Charter Hall Maxim Property Securities ATR in AU

1.02

16.79

9.89

CFS Wholesale Global Credit ATR in AU

0.27

6.31

5.27

AU Property Securities Growth Units ATR in AU

1.78

19.28

9.66

162

Crescent Wealth Property Retail ATR in AU

0.41

9.37

9.63

Resolution Core Plus Property Securities A PF ATR in AU

2.1

17.47

9.61

126

AMP Capital Listed Property Trusts ATR in AU

2.24

21.91

9.59

135

AMP Capital Property Securities ATR in AU

2.26

21.87

9.48

135

The Trust Company Diversified Property ATR in AU

2.34

15.49

9.28

123

ACS FIXED INT - GLOBAL BOND Fund name

Crown Rating

Risk Score

PIMCO Income Wholesale ATR in AU

0.42

5.4

5.75

PIMCO Emerging Markets Bond ATR in AU

0.56

2.59

5.35

Supervised Global Income ATR in AU

0.88

2.37

5.35

ACS PROPERTY - AUSTRALIA LISTED Crown Rating

Risk Score

ACS PROPERTY - GLOBAL PIMCO Emerging Markets Bond Wholesale ATR in AU

0.56

2.47

5.26

Mercer Emerging Markets Debt ATR in AU

1.9

6.49

5.14

Invesco Senior Secured Loans ATR in AU

-0.5

2.74

5.1

Invesco Wholesale Senior Secured Income ATR in AU

-0.5

Legg Mason Brandywine Global Fixed Income Trust X ATR in AU

0.84

4.03

4.46

PIMCO Global Bond ATR in AU

1.23

5.49

4.4

Legg Mason Brandywine Global Opportunistic Fixed Income X ATR in AU

0.74

3.64

4.39

2.7

5.03

Fund name

Crown Rating

Risk Score

Premium Asia Property ATR in AU

-3.5

6.26

13.2

150

APN Asian REIT ATR in AU

2.66

24.06

11.45

IOOF Specialist Property ATR in AU

1.09

14.91

9.59

Quay Global Real Estate C ATR in AU

1.71

20.92

9.58

Quay Global Real Estate A ATR in AU

1.67

20.88

9.11

Advance Global Property ATR in AU

0.82

12.72

9.03

Perpetual Private Real Estate Implemented Portfolio ATR in AU

1.94

15.83

8.95

Resolution Capita Global Property Securities Hedged II ATR in AU

0.41

10.33

8.95

Principal Global Property Securities ATR in AU

0.89

12.63

8.92

Resolution Capita Global Property Securities Unhedged II ATR in AU

1.79

18.39

8.84

The tables and data contained in the Investment Centre are intended for use by professional investors and advisers only and are not to be relied upon by any other persons.

12MM0108_14-29.indd 20

24/07/2019 2:58:50 PM

Laundry is a tax deduction

An upfront SOA is not

HOW DOES THAT STACK UP?

xyadviser.com/join

_FP ad Test.indd 21

18/07/2019 12:26:50 PM

22 | Money Management August 1, 2019

Advice-accounting convergence

ADVICE AND ACCOUNTING – CONVERGENCE ON THE RIGHT TERMS Mike Taylor writes that new research conducted by Money Management has confirmed general acceptance of the convergence of accounting and advice but only on the right terms. HOW MANY FINANCIAL advice firms have grown out of accounting businesses? There are, of course, the obvious accounting/advice firms such as Count Financial and CountPlus but there have been many less obvious firms such as Findex, and Premium Wealth Management, which is now part of Australian Unity, not to mention the advice businesses sitting inside accounting firm such as RSM. Then, too, there was the less than stellar venture into the financial planning arena by major

12MM0108_14-29.indd 22

accounting body, CPA Australia, when it established CPA Advice. So, the story of the convergence of accounting and advice has been long-running and one of some notable successes such as Barry Lambert’s establishment of Count Financial and some significant failures – that of CPA Advice. However, for the principal of financial planning business brokerage, Connect Financial Service Brokers, Paul Tynan, putting advice businesses together with accountancy businesses

remains a compelling model if you can achieve the right fit. “The smart ones are doing it. The ones who are looking to pursue a progressive strategy and understand that consumers are looking to engage with a ‘trusted adviser’ without differentiating about whether that person is a financial planner or an accountant,” he said. Given his background in accountancy and as the managing director of Adelaide-based mid-tier accountancy firm, Hood Sweeney, there can be no

questioning the views of CountPlus chief executive, Matthew Rowe, who has been overseeing his company’s acquisition of Count Financial from the Commonwealth Bank. Rowe strongly advocated for the acquisition of Count Financial because he is a believer in the convergence of accounting and advice in the new dynamic created by the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and the exit of the banks.

25/07/2019 1:21:26 PM

Answered: 16

Skipped: 7

August 1, 2019 Money Management | 23

Advice-accounting convergence Q9 Should tax-deductible fees apply only to Q9 Should tax-deductible fees apply only to Chart 1: Should tax-deductible fees apply only to

holistic advice holistic advice

Life/risk advice Life/risk advice

An independent expert report provided to CountPlus shareholders to justify the Count Financial acquisition also reinforced the importance of convergence. It stated that: “The acquisition will also increase the scale and diversity of the CountPlus business and is consistent with the increased market alignment expected between accounting firms and financial planning firms moving forward (as financial advisers are moving away from major institutions towards smaller independent businesses (including accounting firms) due to the changing regulatory environment)”. But what do financial advisers really think about a further convergence of accounting and financial planning, in circumstances where recent history has suggested a level of dissatisfaction with the so-called accountants’ exemption and the subsequent limited licensing regime? Also a factor is how advisers, particularly those who qualify as ‘financial tax advisers’ feel about the additional regulatory oversight entailed in answering to the Tax Practitioners Board (TPB). According to a survey undertaken by Money Management in mid-July, as many as 45 per cent of advisers are working within structures which deliver both financial advice and accountancy but most are solely focused on the provision of advice. Importantly, notwithstanding their cynicism about the capacity of traditional accountants, most advisers who responded to the survey (82 per cent) said they believed that the convergence of accounting and financial planning would continue simply because

12MM0108_14-29.indd 23

there were commercial advantages in the converged models. Asked to explain their views, respondents appeared to reflect some of Tynan’s sentiments in suggesting that there were significant benefits to providing a one stop shop for clients. One respondent put it in the following terms: “The economies of scale from having both professionals working on one client in the same room is hard to look past. I deal with more and more clients who have complex needs in terms of structuring and tax minimisation - it works really well when I have the accountant in the room. I think having in-house legal affairs will be the next logical step for a firm. We are looking to acquire accounting firms under our AFSL and establish joint ventures.” Another said: “There is definitely an overlap of tax-related advice that financial planners and accountants provide. Being able to offer full services in both professions would enable our business to have more significant relationships with our clients.” A further respondent said: “The current rules are crazy particularly where unlicensed accountants can’t discuss different types of superannuation etc. It’s true the previous rules were probably too open but accountants should be able to talk with people about options etc without providing financial advice and having to produce useless SoA’s at great cost to the end user. It would also help if some of the strictures on planners around compliance paperwork were moderated. Let’s get real so ordinary people can afford advice - this is far more important than product advice and is currently leading to all sorts of weird things

being done to avoid having to be TTR Advice licenced.” TTR Advice

Superannuation Superannuation 0% 0%

10%

Y es

20% 20%

30% 30%

40% 40%

50% 50%

60% 60%

70% 70%

80% 80%

Y es No Source: Money Management survey

SHOULD ALL ADVICE BE TAX DEDUCTIBLE OR JUST SOME? Most financial advisers believe financial advice should be tax deductible for clients, but a significant cohort believe it should not be tax deductible for advice around product sales. A survey conducted by Money Management has revealed that while virtually 100 per cent of advisers support the Government 4 / 5moving to make advice tax-deductible, there is disagreement around whether that deductibility 4/5 should be applied to all advice. In fact, the survey revealed most support for highly specific advice around transition to retirement (TTR) and superannuation, with significantly less support for where life/risk sales are concerned. The survey has been undertaken at the same time as the Financial Planning Association (FPA) has pressed the Government to make advice tax deductible around advice helping people decide whether or not to opt in to insurance inside superannuation. What the Money Management research has revealed is that while 70 per cent of respondents supported tax deductibility for “holistic” advice they became somewhat more selective when they were asked to specify what sorts of advice should qualify. Where life/risk advice was concerned, only 56 per cent of respondents believed it should be tax deductible, while nearly 44 per cent believed it should not. This compared to the 75 per cent who supported superannuation advice being tax deductible and the 69 per cent of transition to retirement advice. Both the FPA and the XY Adviser group have been lobbying the Government in support of the tax deductibility of advice but have not specified any particular segments, although the FPA recent told the Senate Economics Legislation Committee that advice should be made tax deductible in the context of decisions around insurance inside superannuation while the XY Adviser group’s Clayton Daniel has said it is campaiging for tax deductibility on the basis of advice being treated like a profession. “Financial advice clients deserve the benefit of tax-deductible advice,” he said. “This will offset rising costs of financial advice fees, and also provide a clear path for more Australians to receive advice.”

25/07/2019 1:21:32 PM

90%

90% 100%

24 | Money Management August 1, 2019

Fixed income

WHY FIXED INCOME AT LOW YIELDS STILL MAKES INVESTMENT SENSE In a low-yielding world, Louis Crous examines how investors can still utilise fixed income within their portfolios.

MOST INVESTORS APPRECIATE the role of fixed income in a diversified portfolio â&#x20AC;&#x201C; steady income streams, lower volatility, and protection against falls in equity values during periods of market stress. However, by the end of June 2019 the Australian Government 10-year bond yield had fallen to an all-time low of 1.32 per cent. In the last two months the RBA cash rate has been lowered from 1.50 per cent to one per cent with many economists predicting further interest rate cuts to as low as 0.5 per cent. The question often asked is whether an allocation to fixed income at such low yields is still worthwhile? To add to the conundrum, yields offered on international bonds are similarly at or near historic lows.

This article looks at a number of factors to consider when assessing whether allocating to fixed income in low-yielding environments still makes investment sense. In particular, we revisit the concept of yield to maturity (YTM) and look at the performance of fixed income over shorter timeframes, the role of diversification, and the risk of capital loss should yields rise.

YTM AND CHANGING EXPECTATIONS Investors tend to focus on YTM as the single most accurate gauge of the future total return from their bond portfolio. However, YTM is only an accurate measure of total return if a bond is actually held until maturity. Managed bond portfolios, whether active or passive, engage in a program of rolling bonds

Table 1: Returns over Q4, 2018 â&#x20AC;&#x201C; S&P 500 vs. bond indices (in USD)

Index

Change in index, Q4 2018

S&P 500

-13.52%

Bloomberg Barclays US Corporate High Yield Bond Index

-4.53%

Bloomberg Barclays US Aggregate Total Return Index

+1.64%

Bloomberg Barclays US Intermediate Treasury Index

+2.24%

Source: Bloomberg

12MM0108_14-29.indd 24

24/07/2019 2:59:16 PM

August 1, 2019 Money Management | 25

Fixed income

prior to maturity. The extent to which this occurs will affect the accuracy of YTM as a measure of the expected total return for the portfolio. More important is that for duration exposures, changes in expected economic conditions and investor sentiment have a far greater impact on bond returns over short to medium time frames than the yield itself. As well as having important implications for portfolio outcomes, this also allows for investors to benefit from tactical allocations during certain market conditions.

DIVERSIFICATION BENEFITS Whilst the current low-yield environment may make it tempting to allocate to higher-yielding bonds (of lower credit quality and most often sub-investment grade),

â&#x20AC;&#x153;Whilst the current low-yield environment may make it tempting to allocate to higheryielding bonds, these assets are unlikely to offer meaningful diversification benefits in the event of market stress.â&#x20AC;? - Louis Crous, BetaShares these assets are unlikely to offer meaningful diversification benefits in the event of market stress. In fact, given that credit risk premia and equity beta are positively correlated, high-yield bonds are likely to suffer from negative returns at the same time as equities during such periods. Take for example the most

recent market drawdown of Q4 2018. In the US the S&P 500 Index fell 13.52 per cent whilst the Bloomberg Barclays US Corporate High Yield Bond Index fell 4.53 per cent. The flight to safety resulted in investors directing their flows to higher quality assets, and consequently, the Bloomberg Barclays US Aggregate Total

Chart 1: Australia and US 10-year government bond yields Australia

% Yield

9 8 7 6 5 4 3 2 1 0 Dec-96 Mar-98 Jun-99 Sep-00 Dec-01 Mar-03 Jun-04 Sep-05 Dec-06 Mar-08 Jun-09 Sep-10 Dec-11 Mar-13 Jun-14 Sep-15 Dec-16 Mar-18

Source: Bloomberg

CRED ETF Total Return 115

12MM0108_14-29.indd 25

S&P/ASX 200 Index

LOUIS CROUS

Return Index (comprising a broader set of investment grade bonds) returned 1.64 per cent for the quarter. US Treasuries, considered the safest of all bonds, benefited even more from the flight to safety with the Bloomberg Barclays US Intermediate Treasury Index increasing 2.24 per cent over the period (see table 1). This reinforces the fact that over shorter timeframes bond returns are driven largely by changes to expected economic conditions and investor sentiment. It is this attribute that can provide additional sources of return to investors and/or diversify away the beta risk of equities. The longer the duration and the higher the credit quality of bonds in the portfolio, the greater the potential diversification benefit and vice versa. Cash, whilst providing capital stability, simply will not provide the same level of portfolio insurance or Continued on page 26

Bloomberg Ausbond Composite 0+ Yr Index 24/07/2019 2:59:29 PM

26 | Money Management August 1, 2019

Fixed income

Continued from page 25 diversification over such periods. For example, the BetaShares Australian Investment Grade Corporate Bond ETF (CRED) holds a portfolio of fixed-rate corporate bonds, rated investment grade or higher. In the 12 months following inception on 31 May 2018, it returned 11.36 per cent, and just as important, provided diversification vs. the S&P/ASX 200 Index, as shown in chart two. The defensive benefits were especially evident during the stockmarket downturn in % Yield the last quarter of 2018. 9

8 INVESTMENT RISK FROM RISING YIELDS 7

Up until recently, many investors 6 have been calling the end of the 5 multi-decade bull market in bonds. 4 However, history demonstrates that3 future yield levels are incredibly hard to predict. 2 While rising interest rates will 1 a negative impact on capital have values of fixed income bonds, the 0

Table 2: Australian cumulative returns over interest rate hike periods

30/8/1993 to 31/12/1994

31/12/1998 to 31/8/2000

29/12/2005 to 31/3/2008

30/6/2009 to 31/12/2010

Change in cash rate

268bps

156bps

175bps

Composite

-2.52%

4.87%

9.14%

9.02%

Composite 5-10yr

-5.85%

3.09%

6.06%

11.04%

Government

-3.63%

4.40%

9.89%

7.18%

Government 5-10yr

-6.37%

2.92%

8.23%

8.94%

Credit

2.22%

6.61%

8.25%

11.85%

-4.99%

21.35%

23.20%

27.59%

Period

S&P/ASX 200 Index

Australia

Source: Bloomberg, BetaShares.

overall effect may be less than expected for two reasons: 1) Yield expectations are reflected in the yield curve: to the extent that interest rates are expected to increase, the chances are that this is already priced into bonds. Only to the extent that interest rates rise by more than what is reflected in the yield curve, will

bonds experience further capital losses. 2) Bond reinvestment into higher yields: As mentioned previously, bond portfolios engage in a program of rolling bonds prior to maturity. If interest rates rise, new bonds will be purchased at higher yield levels, dampening the initial capital

Dec-96 Mar-98 Jun-99 Sep-00 Dec-01 Mar-03 Jun-04 Sep-05 Dec-06 Mar-08 Jun-09 Sep-10 Dec-11 Mar-13 Jun-14 Sep-15 Dec-16 Mar-18

Chart 2: CRED performance since inception versus S&P/ASX 200 and Bloomberg Ausbond Composite 0+ Year Index. CRED ETF Total Return

S&P/ASX 200 Index

Bloomberg Ausbond Composite 0+ Yr Index

115

110

105

100

90 May-18 Jun-18 Jul-18 Aug-18 Aug-18 Sep-18 Oct-18 Oct-18 Nov-18 Dec-18 Dec-18 Jan-19 Feb-19 Mar-19 Mar-19 Apr-19 May-19 May-19

Source: Bloomberg, BetaShares.

12MM0108_14-29.indd 26

impact of the rate increase. Table 2 shows the cumulative returns in Australia over previous periods of interest rate hikes since 1990. Whilst negative returns can be experienced over short time frames (especially when significant hikes have not been anticipated such as in 1994), investors with a longer-term focus should still benefit from positive returns. Whilst there will always be a focus on whether interest rates will move higher or lower, it is more important investors focus on the overall benefits of allocating to fixed income - diversification benefits, capital stability, and reliable income streams. A low-yielding environment does imply a lower income stream, but there can be no assurance that interest rates will not fall further in the future. The added diversification remains a key benefit. Whilst there will be investors who shy away from fixed income due to their view of the risk of rising interest rates â&#x20AC;&#x201C; we view the overall long-term risk to portfolio outcomes of not allocating to fixed income to be even greater. Louis Crous is CIO at BetaShares

24/07/2019 4:40:23 PM

FOUR SEASONS, SYDNEY WEDNESDAY, 23RD OCTOBER Wednesday 23rd October

Recognise those who inspire

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CATEGORIES Achievement Awards • BDM of the Year • Financial Planner of the Year • Innovator of the Year • Investment Professional of the Year • Marketing and Communications Professional of the Year

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24/07/2019 4:45:10 PM

28 | Money Management August 1, 2019

Selling up

ASSESSING THE VALUE OF YOUR FINANCIAL PLANNING FIRM As some advisers look to sell their firms in light of the Royal Commission, Tizzy Vigilante explores what factors potential buyers will be looking for in your business AN INCREASING NUMBER of financial advisers are considering their options following recent market changes – including enhanced professional standards requirements and amendments to revenue structuring. What’s more, partly in response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services, there’s been an increase in the number of firms considering independent licensing or looking to independent groups with scale. Whenever considering change and especially when considering the relative value of one firm to another, one thing is clear – technology plays a critical role in being able to present your business as an attractive opportunity; one with a value that can be quickly recognised and appreciated.

KEY ASSESSMENT FACTORS When assessing the value of financial advice firm, some of the factors a potential partner or acquirer may consider are: • Systematisation Are business processes well documented? Do all employees work in a consistent, measurable way? Are their risks around reliance on key personnel? What

12MM0108_14-29.indd 28

technology and tools have you invested in? Are they being used to their full potential? • Data Where is your data stored? Is it easily accessible? Is there a single source of truth? Can you verify the accuracy and authenticity of your data? Do you leverage the data you have? • Efficiency How much manual work is involved in your business? Do you measure the way work flows throughout your business to improve productivity? Are you able to clearly segment your client data to ensure you’re spending time on the things that really matter? Do you know what it costs you to deliver advice? • Risk management What controls do you have in place when it comes to protecting your clients? Do you have a proactive approach to scanning your business for risks as well as adhering to legislative and regulatory requirements? How solid is your information security plan? These are just a few factors an external party may examine when assessing the value of an advice firm. They’re equally useful in assessing a business’ sustainability and propensity to scale. What’s clear is that in an increasingly competitive environment, taking the time to

24/07/2019 4:30:40 PM

August 1, 2019 Money Management | 29

Selling up

develop a sound strategy for managing data, streamlining processes and automating for productivity and risk management will be a competitive advantage at any stage of a business’ maturity.

‘Taking the time to develop a sound strategy for managing data, streamlining processes and automating for productivity and risk management will be a competitive advantage at any stage of a business’ maturity.’ Tizzy Vigilante, Iress

COMPETING FOR VALUE External views will have different criteria as to what represents value. But the ability to present a clear picture of your business is critical in attracting the highest possible value. If there are two firms, both wishing to present themselves as attractive purchase options to an acquirer, equal in all respects other than the quality of data and the underlying technology

ecosystem, it’s likely going to be the one that has strategically invested in technology, and able to demonstrate a data-driven insight with business results to show for it, that’s going to be the more attractive proposition. If you’re unable to provide evidence around these key factors, you’re probably going to miss out in this competitive environment.

CASTING A BUYER’S EYE Just as we might suddenly see the flaws in our family home when considering putting it up for sale, it may be daunting to cast a buyer’s eye over your practice and notice the many areas that require improvement. But it needn’t be. The right technology partner will help you identify which aspects of your business would most benefit from investment in

automation, systematisation and data management. They can also share their expertise of how other advice firms have successfully overhauled their technology foundations and reaped the benefits of a data-driven approach to practice management. Tizzy Vigilante is managing directorwealth management, Australia and New Zealand at Iress

What does the future of Managed Accounts look like? Don’t miss your chance to Ask The Experts. Register for this FREE webinar: www.asktheexpertswebinar.moneymanagement.com.au

12MM0108_14-29.indd 29

24/07/2019 4:30:57 PM

30 | Money Management August 1, 2019

Toolbox

UNDERSTANDING THE REALITY OF ETFS iSharesâ&#x20AC;&#x2122; Christian Obrist answers ten popular questions investors have about ETFs. SWEEPING DEVELOPMENTS WITHIN the investment management industry are putting Exchange Traded Funds (ETFs) on course to potentially gather more assets over the next five years than in the previous 25 years combined. With global ETF assets currently totalling US$5.7 trillion, they are poised to more than double to US$12 trillion by the end of 2023. Australiaâ&#x20AC;&#x2122;s ETF market is following suit, having recently exceeded AU$50 billion AUM on the ASX. As the ETF market continues

12MM0108_30-36.indd 30

to grow in Australia, I answer ten common questions about the market realities of ETFs.

1. HOW DO ETFS IMPACT MARKET LIQUIDITY? Exchange Traded Funds (ETFs) are unique; they provide exposure to a diversified collection of assets, like a managed fund, but trade on exchange, like a stock. This structure makes the liquidity of ETFs unique, too. Liquidity refers to the ease of buying or selling a stock, and ETFs

provide two layers of liquidity to the market. The first is primary market liquidity, which is provided by the underlying securities or instruments of the ETF. The second layer is secondary market liquidity, which is provided by the ability to trade ETFs on exchange. This means ETFs are net contributors to market liquidity. At a minimum, an ETF will be as liquid as its underlying securities or instruments; often, however, ETFs provide even greater market liquidity than their underlying instruments.

2. DO ETFS DRIVE THE DIRECTION OF MARKETS? Given the size of some of the largest ETFs in overseas markets, one might think that buying and selling within those funds actually moves market prices. In fact, asset allocation decisions made by asset owners, such as pension funds and individuals, drive flows into different asset classes, sectors and geographies. Their allocation decisions are guided by factors such as macroeconomic

24/07/2019 3:08:38 PM

August 1, 2019 Money Management | 31

Toolbox

developments (like global interest rate policy), risk preferences and investment horizon. ETFs are just one way for investors to express their views about the market. If ETFs didn’t exist, investors could use other tools, like single stocks, managed funds and derivatives.

3. HOW BIG IS THE ETF MARKET? As of 16 July 2019, there were $5.7 trillion of ETF assets worldwide. This means that ETF assets represent approximately five per cent of global market capitalisation, or the dollar value of the global market. Even within the United States – the largest ETF market – just nine per cent of the total assets invested in US equities are in US-listed equity ETFs. The fixed income ETF market is even smaller, at 1.6 per cent of the total US bond market. Coming back to the Australian domestic market, while ETF assets are growing quickly, Australian Equity ETFs currently represent just under one per cent of the total assets invested in the Australian equity market

4. DO ETFS INCREASE MARKET VOLATILITY? No. In fact, ETFs have acted as “shock absorbers” during many volatile trading sessions as buyers and sellers transact on the exchange, at real-time prices, without having to trade the underlying stocks and bonds. What’s more, since ETF shares

12MM0108_30-36.indd 31

are traded directly by buyers and sellers on-exchange, an ETF can circumvent ‘forced selling’; something a managed fund may need to do when investors want to sell their shares. This means the underlying securities may remain intact.

5. ARE ALL EXCHANGETRADED PRODUCTS THE SAME? While all exchange-traded products share certain characteristics, some have embedded structural risks that go beyond the scope of ‘plain vanilla’ ETFs. BlackRock defines an ETF as a publicly offered investment fund that: • Trades on an exchange • Tracks underlying securities of stocks, bonds or other investment instruments • Does not seek to provide a leveraged or inverse return • Gives daily transparent holdings to all market participants BlackRock, along with others in the industry, has called for a clear-cut ETF naming convention to better serve investors.

6. DO INDEX REBALANCES MAKE INDEX INVESTING LESS EFFICIENT? Indexes are periodically rebalanced as changes in market prices affect the relative weightings of individual securities. Funds that track indexes are professionally

managed, and there’s a lot of work that goes on behind the scenes by skilled professionals to make sure these publicised events are smoothly executed. • Some funds use knowledge of the indexing process to capture price movements or lessen any temporary price effects by trading in names added to the index. Others may try to capture information by predicting inclusions and deletions. • Competition ensures any indexing effects are modest, however. It is not easy to beat index benchmarks.

7. DOES INDEX INVESTING INCREASE ASSET PRICE CORRELATION? Correlation measures the degree to which two securities’ prices move in relation to one another. Correlation between stocks has risen in recent years, giving rise to a misperception that the growth of index funds is the cause; in other words, that the unique, fundamental drivers of individual stock prices are being superseded by their inclusion in an index. There are other, more plausible causes for increased correlations in stock and other asset prices, including macroeconomic factors such as global interest rate policy or the price of raw materials, which can cause asset prices to move in tandem, and heightened market volatility, as we saw during the 2008 Global Financial Crisis.

8. HOW DO ETFS IMPACT STOCK PRICES? Questions sometimes arise about whether ETFs influence the prices of the stocks they hold. In short, not all ETF activities affect the market prices of underlying stocks via a buy or sell in the underlying markets. When ETF trading increases, the activity on the underlying stock does not increase proportionally. In the largest ETF market in the US, on average approximately five per cent of trading in individual stocks is attributable to ETF flows. This is because 90 per cent of ETF activity takes place on-exchange between buyers and sellers of ETF shares, which means that – most of the time – shares of underlying stocks do not need to be bought or sold to adjust for changes in investor demand.

9. WHAT WOULD HAPPEN IF AN AUTHORISED PARTICIPANT OR MARKET MAKER WITHDREW FROM THE ETF MARKET? An authorised participant (AP) is a financial institution that manages the creation and redemption of ETF shares in the primary market. Each AP has an agreement with an ETF sponsor that gives it the right (but not the obligation) to create and redeem ETF shares. APs may act on their own, or on behalf of market participants. Continued on page 32

24/07/2019 3:08:49 PM

32 | Money Management August 1, 2019

Toolbox

CPD QUIZ Chart 1: Performance of IEMG ETF during US/China trade talks

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 percentage of trading in individual stocks attributable to ETF flows? a) 2% b) 12% Source: iShares

c) 5% 2. How big is the ETF market today globally?

Continued from page 31 Market makers are broker dealers that regularly provide two-sided (buy and sell) quotes to clients on the exchange. In some instances, an ETF’s market makers may also be APs. APs and market makers operate in a highly competitive environment and are economically incentivised to take part in making or trading ETF shares. If an AP or market maker were to withdraw from the ETF market, other APs would likely step in to facilitate the creation and redemption of ETF shares. With transparent ETFs, the ability to exchange the ETFs for either cash or the underlying assets provides economic incentives for market makers to trade when the price deviates from the value of the underlying assets. This self-policing mechanism ensures the exchange price does not materially deviate from the values of the fund’s assets. Any drifting in the price of an ETF away from the current value of the ETF’s portfolio of securities will economically incentivise market makers due to the fact that profit can be made by selling the higherpriced asset while simultaneously buying the lower-priced asset. We term this the ‘ETF arbitrage mechanism’. Ultimately, it is this arbitrage mechanism that helps keep the ETF market price close to the value of its underlying holdings each day.

10. WHAT ROLE DO ETFS PLAY IN PRICE DISCOVERY? Price discovery helps investors identify the proper market price of securities or other instruments based on factors like supply and demand. The on-exchange trading of ETFs plays an important role in price discovery across markets, sectors and individual stocks. For example, international ETFs traded during Australian market hours help investors set prices daily when non-Australian markets are closed. Additionally, during suspensions of international stocks or markets, AUD-domiciled ETFs could be the primary source of pricing information available to market participants. ETF flows provide crucial information. As greater numbers of sophisticated investors use ETFs to express their views, flows from one asset to another can serve as indicators of investor sentiment about potential risk and return. Note that ETFs don’t set prices or drive volatility. They hold up a mirror to what investors are thinking. For example, the iShares Core MSCI Emerging Markets ETF (IEMG), a US-listed ETF that seeks to track an index of emerging market equities, traded almost 2.5 times more than its daily average on days when the status of US and China trade talks changed through the end of 2018. Christian Obrist is head of BlackRock's iShares business in Australiasia

12MM0108_30-36.indd 32

a) $5.7 Trillion b) $4.2 Trillion c) $7.5 Trillion 3. What happened to the trading volume of emerging markets equities exposure through our iShares ETF IEMG when there were changes in US-China trade-relationships? a) Trading volume decreased b) Trading volume spiked c) Trading volume remained at current levels 4. What is the main role of an authorised participant? a) They are broker-dealers that provide quotes to clients. b) They manage the creation and redemptions of ETF shares in the primary market. c) They hold customers’ securities for safekeeping to minimise the risk of theft or loss. 5. How does BlackRock define an ETF? Select all that apply a) Trades on an exchange b) Tracks underlying securities of stocks, bonds or other investment instruments c) Discloses holding to all investors with a three-month lag d) Does not seek to provide a leveraged or inverse return e) A, B and D

TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/ features/tools-guides/understanding-reality-etfs

For more information about the CPD Quiz, please email education@moneymanagement.com.au

24/07/2019 4:25:15 PM

THURSDAY, 12TH SEPTEMBER 2019 AMORA HOTEL JAMISON | SYDNEY

FUTURE

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Post Royal Commission, Survive or Thrive? This is your invitation to join leading financial advisers, practice management specialists, compliance experts and specialist lawyers to discuss how you can survive or thrive in these times of change. We will provide you with the knowledge to help you make the right adjustments - to develop commercial models and practice management techniques to make your practice successful.

AGENDA HIGHLIGHTS Shadow Assistant Minister for Financial Services and the Republic, Hon Matt Thistlethwaite MP 2019 Australian of the Year, Dr Craig Challen SC OAM AFA chief executive, Philip Kewin and FPA chief executive, Dante De Gori discussing the new code monitoring regime Leading lawyers explaining the legal enforceability of Buyer of Last Resort Practice and dealer group heads discussing new commercial models

Register now for FREE! www.fowmadvice.com.au Alternatively, scan the QR code below with your tablet/phone camera to visit our event page.

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17/07/2019 4:07:47 PM

34 | Money Management August 1, 2019

Move of the WEEK Ross McEwan CEO and managing director NAB

National Australia Bank has appointed Ross McEwan as its group chief executive officer and managing director. McEwan was formerly group executive of retail banking services at Commonwealth Bank and then chief executive of Royal Bank of Scotland (RBS) from 2013. He announced his resignation

Industry superannuation fund HESTA has announced the appointment of Gerard Brown as the fund’s head of investment execution, commencing 29 July. In the newly-created role, he would take over leading the investment execution function from Rob Fowler who was moving into semi-retirement. Brown had over 30 years’ experience in the industry having led large scale cross-functional global operating teams. He had been responsible for transformational projects including redesigning investment operating models and executing complex technology solutions. Before joining HESTA, he had worked at BNP Paribas as programme director and had held executive positions in the

12MM0108_30-36.indd 34

from RBS in April 2019 and will start at NAB no later than April 2020, subject to regulatory approval. The appointment meant Philip Chronican would transition from interim CEO, a role he had held since March 2019 following the resignation of Andrew Thorburn, to chairman in mid-November 2019 replacing Ken Henry.

investment industry and funds management sector. Tasmanian super fund Tasplan has appointed its new chief investment officer (CIO), David Stuart, who had previously been the lead consultant advising Tasplan for over a decade in his previous role as chief strategist for Mercer in the Pacific region. With almost 40 years’ industry experience, the former partner in Mercer’s Wealth business had also served as the chair of Mercer Australia’s Dynamic Asset Allocation Committee, as well as chairing the Global Dynamic Asset Allocation Committee. Prior to joining Mercer, he worked as regional CIO for HSBC Asset Management, responsible for all Asia Pacific investment teams.

McEwan will receive a fixed remuneration of $2.5 million per annum (inclusive of superannuation and any salary sacrifice arrangements) and potential to earn between zero per cent and 150 per cent of fixed remuneration in annual variable reward which Chronican said was “appropriate” relative to international and domestic peers.

Before emigrating to Australia in 1994, he was the investment manager for the British Gas pension funds in London. UniSuper has announced the appointment of Anand Thomas as chief strategy and marketing officer, to lead the fund’s marketing, strategy, product and digital functions. The appointment comes after the fund undertook a review of its organisational structure in April to ensure it remained in position to respond to the changing competitive landscape and regulatory environment. He would work closely with chief executive Kevin O’Sullivan to develop and drive the strategy of the fund, which represented the higher education and research sector. Thomas joined from MLC Life

Insurance where he had a lead role in the demerger from NAB. Other previous roles included strategy development, digital, customer experience, marketing, and large-scale program management for Citicorp, ANZ, NAB, OCBC Bank and MLC. The Association of Financial Advisers (AFA) has announced the appointment of Rob Coulter to the position of general manager, partnerships. He was most recently head of corporate development at IPAC Securities and prior to that, head of employer superannuation sales at One Path (formerly ING). Philip Kewin, AFA chief executive, said Coulter had come to the AFA with extensive experience in financial services.

25/07/2019 10:33:12 AM

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18/07/2019 12:05:56 PM

OUTSIDER

ManagementAugust April 2,1,2015 36 | Money Management 2019

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

Who starves if they’re paid on results?

What does the AMP carpark barometer tell us? OUTSIDER understands that when AMP Limited later this month announces its full-year results to the Australian Securities Exchange (ASX) it will also be delivering investors some useful information about the strategy it believes will help it continue as a wealth management company over the coming years. It goes without saying that Outsider can make a few astute guesses about the directions that strategy will take the company, but your ageing correspondent has always valued facts over speculation and so he believes that part of that strategy will entail reducing executive numbers. The fact underlying Outsider’s assumption is that other financial services executives working around AMP’s Sydney’s Circular Quay headquarters are reporting that a large number of car parking spots which were once filled by the BMWs, Mercedes and Audis of those on the AMP executive payroll now appear

to be sitting unused. Now, it may be the case that those executives and their European cars are enjoying a well-earned holiday break, but Outsider suspects that the reality is that those empty car parking spots will soon be available for lease by others. Given certain Royal Commission referrals to the Australian Securities and Investments Commission, the proximity of Circular Quay to the NSW Supreme Court building might have proved handy.

HAS paying market rates for executives worked for the Australian Securities and Investments Commission (ASIC)? The jury is out because while the Government moved ASIC employment outside of the terms of the Australian Public Service more than a year ago, and the Royal Commission and a number of other factors has made it too early to say. But, as a former Queensland Premier was known to say “don’t you worry about that” because the recent capability review of the Australian Prudential Regulation Authority (APRA) has suggested that it, too, should be removed from strictures of Australian Public Service employment conditions. The capability review, led by someone who should know the remunerative value of a Government appointment, former Australian Competition and Consumer Commission (ACCC) chairman, Graeme Samuel, recommended “the Government should remove APRA from the application of the APS Workplace Bargaining Policy.” It added that, “APRA should engage with the Government to consider ways to enable greater variation in remuneration levels.” Well, Outsider has always believed that if you pay peanuts you’ll get monkeys, but he also recalls that the former chairman of APRA, Dr John Laker, was the highest paid head of a Government authority during his tenure and the victims of the Trio/Astarra debacle will attest to how that worked out. On that basis, perhaps the most senior financial services regulatory executives should be paid on results.

Where super’s concerned he’s not Bragging OUTSIDER notes that former Financial Services Council (FSC) policy executive and long-time political aspirant, Senator Andrew Bragg, delivered his maiden speech in the Senate late last month and managed to upset a few of his old FSC constituents. Given that the FSC counts amongst its members major superannuation companies such as AMP, IOOF et al, Outsider can only imagine how some of their policy wonks must feel having sat on FSC committees with Bragg only to discover what he was really thinking. Bragg, you see, appears to have climbed aboard the Grattan Institute bus where superannuation is concerned using his maiden speech to decry the

OUT OF CONTEXT www.moneymanagement.com.au

12MM0108_30-36.indd 36

superannuation sector as being riven with vested interests and suggesting that the superannuation guarantee should be voluntary for those earning less than $50,000. Outsider is, of course, far too polite to repeat some of things said about Bragg by some of the denizens of the superannuation industry following his maiden speech but, suffice to say, they suggested he was putting his own interests ahead of member best interests. Given Bragg’s presence on the Senate Economics Committee, Outsider suspects the superannuation industry can expect some awkward questions over the next three years, at least.

"For financials sector analysts, a briefing from a member of the Basel Committee on Banking Supervision is about as close to a BTS concert as you can get." Alphinity's Andrew Martin misses out on tickets for South Korean boy band BTS while in Paris

"I've tried with some degree of success to ban the term 'passive' from the lexicon of BlackRock, because every decision an investor makes is an active decision," BlackRock's Mark Wiseman to the AFR

Find us here:

25/07/2019 1:31:31 PM