Money Management | Vol. 33 No 13 | August 15, 2019 by FE Money Management

www.moneymanagement.com.au

MAGAZINE OF CHOICE FOR AUSTRALIA’S WEALTH INDUSTRY

Vol. 33 No 13 | August 15, 2019

FACT CHECK

Investing in Europe

AGED CARE

Spotting a corporate turnaround

Funding care in retirement

PORTFOLIO CONSTRUCTION

AMP strategy – fewer more productive advisers BY MIKE TAYLOR

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Building a diverse portfolio WHEN it comes to building a portfolio for clients, there will be many things for financial advisers to consider based on their clients’ needs and goals. The first (and second and third) rule of investing is diversification, according to GSFM’s Stephen Miller, but choosing which assets to include in a diverse portfolio can be a minefield considering all the various options available. As the investment market has expanded over the years, what traditionally included just equities and bonds, now includes alternatives such as commodities, property, infrastructure and long/ short or market neutral funds. There is also the factor of rebalancing to consider and how often it should be done in order to maintain a portfolio suitable for clients’ goals and risk tolerances. Rebalance too often and clients incur multiple transaction costs and the danger of reacting to short-term market risks but rebalance too little and there is the risk of holding a portfolio that is no longer suitable for clients’ needs. This was echoed in the factor of behavioural finance and clients’ ‘irrational behaviour’ which sees them running for the door in falling markets or holding onto unsuccessful stocks until they break even. In the words of Bell Direct’s Tim Sparks, there were several pointers to remember when it came to successful portfolio construction: “Investors shouldn’t be distracted by market noise, should be measured, should understand volatility exists and rebalance on an annual basis”.

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Full feature on page 23

EQUITIES

THE KEY MESSAGE from AMP chief executive, Francesco De Ferrari, in last week’s half-year results and strategy reset is that there will be fewer but more productive advisers and changes to buyer of last resort arrangements. The AMP strategy is underpinned by a more than $1 billion investment and a capital-raising, but the most important message for AMP advisers is contained in a strategy which entails a focus on “direct to client” solutions and “reshaping aligned advice (buyback changes; fewer, more product advisers)” This appears to confirm the manner in which AMP will focus on the most profitable elements of its advice business while leaving others with the company’s briefing materials stating 20 per cent of advice practices account for 60 per cent of revenue.

It foreshadowed scaling up employed advisers, while scaling back aligned advisers. At the same time AMP has declared it will further localise New Zealand wealth management, exploring options to divest and together with Resolution Life create a new holding company for its life insurance businesses. The company has said its strategy would be supported by a $1 billion to $1.3 billion program to invest in transformation in doing so it also announced a $650 million capital raising. AMP announced that it also entered a revised agreement for the sale of its life insurance business to Resolution Life entailing $2.5 billion in cash and $500 million equity interest representing about 20 per cent of Resolution Life. It said that instead a new Australian-domiciled holding Continued on page 3

Commbank to close FinWis in 2020 THE Commonwealth Bank has declared it will cease to provide licensee services through Financial Wisdom by June, next year. The big banking group used the release of full-year results to the Australian Securities Exchange to announce that it intended to cease providing licensee services through Financial Wisdom by June 2020 and would proceed with an assisted closure. It said that the Commonwealth Bank would support advisers through an orderly transition to alternative arrangements, including self-licensing and joining another licensee. “CBA will also continue to manage customer remediation arising from past issues at Financial Wisdom,” it said.

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News

ICMA welcomes parliamentary audit inquiry BY LAURA DEW

THE Institute of Certified Management Accountants (ICMA) has welcomed a parliamentary inquiry into the conduct of audit firms. The inquiry into the big four audit firms, triggered due to a scandal involving National Australia Bank (NAB) and EY, was due to start in late 2019 which ICMA said was “welcome and long overdue”. The Parliamentary Joint Committee on Corporations and Financial Services said it would look at audit quality and competition related to KPMG, Deloitte, PwC and EY and report back by late March 2020. The EY/NAB scandal involved outgoing NAB chairman Ken Henry stating to EY in 2018 that it was selling products that were ripping off its customers and

Continued from page 1

would eventually require compensation. Between 2008 and 2018, EY earnt $286 million from NAB. ICMA said there was a need for external auditors to be held to account in the same way as other professions. Professor Janek Ratnatunga, chief executive of ICMA Australia, said: “External audits should act as trust mechanisms that assure the public that capitalist corporations and management are not corrupt

and that companies and their directors are accountable. But audit is also big business.” He said accounting standards auditors adhere to were set by auditors themselves and the International Accounting Standards Board which presented a conflict of interest. “It is time for an independent body, such as Parliament, to be responsible for setting accounting standards.”

Superannuation trustees to follow whistleblower policies BY JASSMYN GOH

THE Australian Securities and Investments Commission (ASIC) has made a proposal guidance for companies, including superannuation entities, to implement a whistleblower policy. By 1 January, 2020 public companies, large proprietary companies and corporate trustees of registrable superannuation entities must implement a whistleblower policy and make it available to their officers and employees. ASIC’s proposed ‘Regulatory Guide Whistleblower policies’ covered what information companies needed to include such as how they would support and protect whistleblowers and handle and investigate whistleblower disclosures. ASIC commissioner, John Price, said: “Transparent whistleblower policies are essential to good risk management and corporate governance. They help uncover wrongdoing that may not otherwise be detected. “Implemented appropriately,

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AMP strategy – fewer more productive advisers

whistleblower policies will help companies to comply with their legal obligations to protect whistleblowers from being identified and to protect whistleblowers from detriment,” he said. “Whistleblower policies help ensure those who put their personal and financial lives at risk to report wrongdoing can access their rights and protections under the law.” ASIC said these policies would help: • ensure whistleblowers are protected; • encourage whistleblowers to come forward; • reveal and address misconduct occurring within companies; • deter wrongdoing within companies, by increasing the likelihood that wrongdoing will be reported; • improve compliance with the law; and • foster a more ethical culture. The regulatory body has called for public input on its proposed guidance and will accept feedback until 18 September 2019.

Resolution-controlled holding company would become the owner of the Australia and New Zealand insurance businesses. The company declared a loss attributable to shareholders for the half-year ended 30 June of $2,292 million, leaving the company an underlying profit for the half of $309 million. AMP also announced that its chief financial officer designate, John Patrick Moorhead, had decided to leave the business and that the current AMP deputy chief financial officer, James Georgeson, had been appointed in an acting capacity.

SMSF Association claims designation trumps bridging courses BY MIKE TAYLOR

The SMSF Association has sought to make a commercial virtue out of the one-unit Financial Adviser Standards and Ethics Authority (FASEA) recognition it has received for SMSF Specialist Advisor (SSA) designation. The Association has pointed to the one-unit recognition of prior learning (RPL) value for the designation and has sought to market it as a reason for advisers to complete the course as a cheaper option to pursuing bridging courses. “To celebrate, the SMSF Association is offering an exclusive deal, providing you the opportunity to complete the SSATM accreditation for $1,670 – substantially less than the $2,400-$3,500 cost expected for a FASEA bridging course,” the SMSF Association said. “Completion of the SSATM for RPL will reduce the number of bridging courses or degree/diploma courses that those holding the SSATM designation may be required to undertake to meet the FASEA education standards. “This exclusive package offers you an opportunity to complete SMSF education directly related to your work advising SMSFs instead of a FASEA bridging course,” the SMSF Association promotional material said.

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Editorial

mike.taylor@moneymanagement.com.au

CHANGING POLICY DIRECTION BY DEGREES

FE Money Management Pty Ltd Level 10 4 Martin Place, Sydney, 2000 Managing Director: Mika-John Southworth

The Treasurer, Josh Frydenberg’s decision to task the Standing Committee on Economics with reviewing the implementation of the Royal Commission recommendations has serious implications which should not be underestimated. REMEMBER the efforts the Federal Government went to obviate the need for a Royal Commission? Remember the manner in which the House of Representatives Standing Committee on Economics was tasked with scrutinising the four major banks? It is now history that despite the hearings conducted by that Parliamentary committee and the then Treasurer’s assertions that it was a sufficient measure, the Government nonetheless found itself compelled to hold the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Now, three years, a Royal Commission and a Federal election later, the Standing Committee on Economics has again been handed an important strategic task – inquiring into progress made by relevant financial institutions with implementing the recommendations of the Royal Commission. While it would be tempting to regard this announcement by the Treasurer, Josh Frydenberg, as just more post-Royal Commission window-dressing, it is worth noting

that this time the Parliamentary Committee has been empowered to look beyond the major banks. This time it is empowered to look at “other major relevant financial institutions and leading financial services associations”. The reference to “other relevant financial institutions” does, of course, bring into scope companies such as IOOF Limited and AMP Limited and the major insurers. Also, arguably, it brings major superannuation funds into scope. The reference to financial services associations brings into play not only planning groups such as the Financial Planning Association (FPA) but also superannuation groups such as the Association of Superannuation Funds of Australia (ASFA), Industry Super Australia (ISA) and the Australian Institute of Superannuation Trustees (AIST). It is in this context that it is worth noting the degree to which the major banks have sought to move ahead of the Royal Commission findings by putting in place a range of measures to take themselves out of the spotlight. They are almost all in the process of or already have exited wealth management, some have changed

their leadership teams and most have altered remuneration arrangements. So, if the major banks have succeeded in lowering their exposure to problematic areas such as advice, then the Parliamentary Committee will obviously be more disposed to looking at other segments of the industry and this appears to coincide with the Treasurer’s promised review of retirement incomes and the criticisms of the current superannuation regime being expressed by a number of key Coalition back-benchers. For better or worse, it seems that the broad financial services industry and superannuation funds in particular should brace for a significant ongoing debate which, depending on the Government’s assessment of public mood, may act as a precursor to a range of policy changes including with respect to the timetable for lifting the superannuation guarantee (SG). The hearings of the Standing Committee on Economics should be monitored with close interest.

Mike Taylor Managing Editor

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 News Editor: Jassmyn Goh Tel: 0438 957 266 jassmyn.goh@moneymanagement.com.au Senior Journalist: Laura Dew Tel: 0438 836 560 laura.dew@moneymanagement.com.au Journalist: Chris Dastoor Tel: 0439 076 518 chris.dastoor@moneymanagement.com.au Events Executive: Candace Qi Tel: 0439 355 561 candace.qi@financialexpress.net ADVERTISING Sales Director: Craig Pecar Tel: 0438 905 121 craig.pecar@moneymanagement.com.au Account Manager: Ben Lloyd Tel: 0438 941 577 ben.lloyd@moneymanagement.com.au Account Manager: Amy Barnett Tel: 0438 879 685 amy.barnett@financialexpress.net PRODUCTION Graphic Design: Henry Blazhevskyi

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News

Sequoia acquires Libertas Financial Planning BY OKSANA PATRON

Sequoia Financial Group has announced the acquisition of national licensee Libertas Financial Planning. Under the terms of the agreement, Libertas would remain separate from InterPrac and would continue to operate under its own Australian Financial Services licence (AFSL), brand and identity. Garry Crole, Sequoia’s chief executive, said that Libertas was a successful and wellestablished financial advice dealer group and had an extensive, Australia-wide network of approximately 70 authorised representatives. “The acquisition provides Sequoia with further scale in the advice marketplace and based on the latest Money Management dealer group survey makes Sequoia the third largest non-bank owned financial adviser group in the country”, said Crole. Libertas’ managing director, Mark Euvrard, said that its planners would benefit immensely from being part of a larger licensee focussed on the provision of highly complaint advice and client service. The acquisition was Sequoia’s eighth AFSL business that operated under their own identity and license within the

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Securities • Sequoia Asset Management • InterPrac General Insurance • Libertas Financial Planning

Sequoia Group. These included: • InterPrac Financial Planning • Insurance Finance Services • Morrison

financial advice with immediate financial benefit to the group and is highly earnings per share accretive,” Crole said. “We are actively

• My Own Super Fund • Sequoia Wealth Management. “Libertas will provide Sequoia with additional scale in

recruiting financial advisers where they fit with our culture and client service objectives and are delighted to be working with the Libertas team.”

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News

CountPlus to gain 359 advisers from Count Financial BY JASSMYN GOH

Almost all (99.8%) CountPlus shareholders voted in favour to acquire Count Financial from the Commonwealth Bank of Australia. In an announcement, CountPlus said it would acquire Count Financial for $2.5 million, which would provide $200 million indemnity for certain pre-acquisition advice. Count Financial is the Australian Financial Services License (AFSL) licensee of 160 practices that comprises of 359 advisers. The announcement also said that CBA intended to sell down its 35.9 per cent stake in CountPlus.

CountPlus chief executive, Matthew Rowe, said: “We have long been believers that there are clear benefits in businesses that provide both accounting services, and financial advice”. “We are encouraged by the clear support from our shareholders for this transaction and look forward to returning Count Financial to the CountPlus business,” he said. “We will work hard to ensure that all Count Financial firms fit the CountPlus ‘family photograph’ and align with our key objective of making a decent profit, decently.” This announcement comes at the same time as CBA’s intent to close its Financial Wisdom license in June 2020.

Do advisers face being squeezed out of superannuation? BY MIKE TAYLOR

Changes capable of impacting advice inside superannuation could see the role of non-intrafund advisers all but disappear, according to the manager of policy and technical services at online advice business wealthdigital, Rob Lavery. As well, Lavery believes that those arguing that accountants will readily fill the gap left by planners who depart in the wake of the Financial Adviser Standards and Ethics Authority (FASEA) regime may be well wide of the mark. He said the discussion around accountants stepping in to an advice gap left by departing advisers had largely undervalued two major factors. “The first is that the implementation of a number of reforms will result in a reduction in demand for traditional financial advice services. The second is the significant impediment to entering the advice industry that is the newly created professional year,” Lavery said. “There are two dates that will see the greatest falls in existing adviser numbers under the FASEA reforms – January 1, 2021, the date by which existing advisers must have passed the new exam, and January 1, 2024, the date by which advisers must meet the new tertiary education requirements,” he said. “Around both of these dates,

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other changes are likely to take effect that will result in a counteracting drop in demand for advice services.” Lavery said that January 1, 2021 was a significant date for financial adviser revenue models because it was on this date that grandfathered commissions on superannuation and investment products would cease to be payable. “2021 is also the year in which ASIC [Australian Securities and Investments Commission] is due to conduct a review of life insurance and consider whether commissions paid to advisers should be allowed to continue. The maximum upfront commissions on life insurance will have already been halved by the Life Insurance Framework (LIF) reforms by the start of 2020,” he said adding that he believed these two factors would see a significant drop in adviser revenues. “These two changes combined could see a drop in industry-wide

adviser revenue of as much as 20 per cent, and that is without ASIC banning life insurance commissions altogether,” Lavery said. “Furthermore, if you look at the future of advice on superannuation and retirement incomes, the Royal Commission’s recommendations on default super funds, coupled with government policies on superannuation income streams, could see the role non-intra-fund advisers play in this space all but disappear.” “The proportion of adviser revenue attributable to advice on super and retirement incomes was identified by the Productivity Commission to be around 35 per cent,” Lavery said. “In the most extreme circumstances it can be seen that, while a large number of advisers may exit the industry, they are likely to be followed by a similar proportion because of the decreased demand for advice.” He said he also believed the impediments to entering the advice

industry as too high to encourage accountants to diversify their skills or switch professions. “New advisers are now required to undertake a professional year,” Lavery said. “Accountants are no strangers to undertaking a professional year. The question is, would established accountants be willing to undertake a second one to become a planner? FASEA’s 1,600hour professional year requirement would seriously limit any accountant’s income earning ability over this period. “So, perhaps new accountants will fill this space. On this front they have two major hurdles – the double professional year, and the degree qualification requirements to become a planner. Rather than new accountants becoming hybrid accountant/planners, it is more likely that enrolments in accounting degrees will be cannibalised by an increase in enrolments in financial planning degrees. Rather than becoming both, budding professionals will choose one or the other and proceed straight down their chosen path. “There is one potential joker in the deck, and that is the possible reintroduction of the accountants’ exemption. In a review of the TPB [Tax Practitioners Board], Treasury identified it as one of seven options. In any event, such a narrow exemption would only slightly overlap with the advice industry.”

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News

Tax practitioners may face EUs and permanent bannings BY MIKE TAYLOR

Enforceable undertakings (EUs) may become a fact of life for tax practitioners within an array of strengthened sanctions being considered for the Tax Practitioners Board (TPB). The Government-initiated review of the TPB has canvassed the use of EUs alongside, at the highest level, giving the TPB the ability to permanently ban tax practitioners. The review noted that the Australian Taxation Office (ATO) had been supportive of the TPB being given a broader range of sanctions and had noted that part of the so-called “individual’s tax gap” was attributable to poor behaviour by some tax practitioners. Further it said that both the ATO and the TPB itself had highlighted how high risk tax practitioners had been able to avoid sanction. “Higher risk tax practitioners are able to circumvent the

investigation process and avoid disciplinary action through voluntarily deregistering before a formal investigation commences,” the TPB review said. It said that Tax Agent Services Act also did not have a mechanism for treating the close associates of tax practitioners in the same way as a practitioner and that the ATO had “highlighted

instances where certain persons closely associated with a de-registered or unregistered tax practitioner operate as a proxy of the de-registered or unregistered practitioners”. The review said the TPB had suggested that the suite of sanctions it could use were insufficient in targeting and changing particular tax agent behaviours.

SMSFs have post-election relief, but current legislative changes could still impact clients BY CHRIS DASTOOR

Self-managed superannuation fund (SMSF) clients have felt a sense of relief since the election, but legislative changes may still impact them, according to Jenneke Mills, manager at MLC Technical Services. Speaking at the SMSF Association Technical Day Series in Sydney earlier this month, she said it was noticeable that SMSF clients were feeling positive again about superannuation, with certainty post-election. “With a historic number of Opposition tax and super policies announced prior to the election, many investment and super plans were put on hold, pending the outcome,” Mills said. “For SMSFs, we may see those who had put plans on hold to purchase certain assets in super using borrowings, proceeding with these arrangements, given that the proposal to abolish LRBAs [limited recourse borrowing arrangements] was a policy of the Opposition.” “However because many of the major lenders

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have withdrawn from this market, we may see SMSFs increasingly relying on related party loans to do so. And this carries with it a whole range of potential issues and important considerations.” Despite keeping the incumbent government, there were still proposed legislative changes that could affect the SMSF industry. Key measures that had not been successfully passed before the election had been reintroduced in Parliament this month. “The key one here for SMSFs will be the inclusion of the outstanding balance of a LRBA in a member’s total super balance (TSB) in certain circumstances,” Mills said. “TSB determines eligibility to make many types of contributions to super, so consideration of the longer-term super and even estate planning strategies and implications will be crucial before going ahead.” “We may also see legislation passed to give effect to those key Budget 2019 measures – opening up even greater contribution opportunities to older Australians.”

BetaShares’ ETF model portfolio now available on BT Panorama platform BY OKSANA PATRON

BetaShares has announced that its exchange traded fund model portfolio is now available on BT Panorama’s platform. The firm also said that its ETF model portfolio, Dynamic Asset Allocation ETF Model Portfolios, were made available to advisers via separately managed accounts (SMAs) on other platforms such as HUB24, Praemium and Macquarie Wrap. BetaShares’ chief executive, Alex Vynokur, said: “Using model portfolios for some or all of their clients provides a solution with high portfolio construction integrity, cost efficiency and scalability, at the same time saving a significant amount of time on investment and manager selection and portfolio management. “The addition of the models to another major investment platform in Australia makes accessing BetaShares’ costeffective, transparent model portfolio solutions even easier.” The portfolios were designed to factor in varying client risk profiles, based on the APRA Standard Risk Measure, to match to clients’ financial objectives and risk profiles: • BetaShares Dynamic Moderate ETF Model Portfolio; • BetaShares Dynamic Balanced ETF Model Portfolio; • BetaShares Dynamic Growth ETF Model Portfolio; • BetaShares Dynamic High Growth ETF Model Portfolio; and • BetaShares Dynamic Conservative ETF Model Portfolio.

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August 15, 2019 Money Management | 9

Anomalies could disadvantage grandfathered clients BY MIKE TAYLOR

The Government needs to fix a number of anomalies in its legislation which would see the removal of grandfathered remuneration for financial planners, not least the risk of forcibly moving clients in to worse products, according to the Association of Financial Advisers (AFA). The AFA has responded to the legislative outline released last week, not only noting its deep concern about the lack of industry consultation, the limited timeframe and the lack of guidance being provided to financial advisers but also pointing out anomalies in the bill. AFA chief executive, Phil Kewin, said his organisation was particularly concerned that the Bill to end the grandfathering of commissions on investment and superannuation products did not adequately provide a mechanism for exemptions where the client is better off in their current arrangement. “We are also concerned that there has been no assessment of the number of consumers impacted by this measure,” he said. Kewin also called for a proper Regulation Impact Statement to be delivered with respect to the legislation, arguing that the assertion in the Explanatory Memorandum that the Royal Commission was an equivalent process to a Regulation Impact Statement was not valid. “The removal of grandfathered commissions is actually highly complex and can’t be dealt with simplistically, and certainly not in such a short timeframe. Retrospective legislation is not common for Governments, and often creates significant challenges,” he said. “The complexity arises because of the huge

variety of products, administration systems and client situations,” Kewin said. “There are numerous different scenarios with a multitude of different consequences,” he said. “In some cases this might be straightforward for the financial adviser and their client, however in many thousands of cases there is a genuine risk that clients who are happy in their current product and receiving valuable ongoing financial advice and related services will either lose access to that support or be required to pay more to retain it.” Further, he said consideration needed to be given where a client is prevented from moving products as a result of Capital Gains Tax, grandfathered Centrelink Asset Test treatment or insurance issues. “Financial advisers will need to spend a significant amount of time dealing with a variety of challenging situations. They will be required to contact their clients, review their circumstances and

FASEA announces regional locations for December exam

make a recommendation, which in many cases would involve an additional fee for that service. “It will take some time for the product providers to prepare for these changes, meaning that the proposed window will not be sufficient for either the advisers or the hundreds of thousands of impacted clients. Financial advisers will also need guidance on how to confront this challenge but none has yet been provided.” The AFA is arguing for greater industry-wide consultation on the unintended consequences of a ban on grandfathered commissions, a three-year transition period and provision for exemptions where the existing product is best suited to the client or the client may be disadvantaged by changing their current investment or superannuation product. “Removing grandfathering in a manner that ensures that it works in the best interests of clients will take a lot of work by many stakeholders and that takes time,” he said.

CBA completes divestment of CFSGAM BY OKSANA PATRON

BY CHRIS DASTOOR

The Financial Adviser Standards and Ethics Authority (FASEA) has confirmed 10 regional locations for the December exam sitting: Townsville, Rockhampton, Mackay, Sunshine Coast, Toowoomba, Gosford, Orange, Wagga Wagga, Albury/Wodonga and Bendigo. Advisers can register for the December 2019 exam from 30 July to 8 November, as well as from 30 July to 30 August for the September 2019 exam. Each location would have at least two sitting days with up to two sessions a day, depending on the level of demand. Stephen Glenfield, FASEA chief executive, said: “We continue to work closely with the Australian Council for Education Research (ACER) and industry to expand the geographical and frequency of exam opportunities to optimise advisers’ ability to sit the exam and help them comply with the education standard in 2021.”

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Commonwealth Bank of Australia (CBA) has announced the completion of the divestment of its global asset management business, Colonial First State Global Asset Management (CFSGAM) to Mitsubishi UFJ Trust and Banking Corporation (MUTB). The final sale proceeds would be $4.2 billion, subject to completion adjustments, with the total consideration representing a multiple of 19.4x CFSGAM’s unaudited pro forma FY19 net profit after tax of $218 million and a post-tax gain on sale of approximately $1.5 billion. “Today’s announcement represents an important milestone towards executing CBA’s strategy to become a simpler, better bank,” CBA’s chief executive, Matt Comyn, said. “The sale of CFSGAM to MUTB creates significant value for CBA shareholders and is a positive outcome for CFSGAM clients and employees.”

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News

AFCA appoints deputy chief ombudsman BY CHRIS DASTOOR

THE Australian Financial Complaints Authority (AFCA) has appointed Dr June Smith as deputy chief ombudsman, and Evelyn Halls as lead ombudsman banking and finance. Smith was an internal promotion having previously been lead ombudsman superannuation, advice, investments and life insurance. Halls was promoted from being ombudsman banking and finance decisions. Both appointments were effective from 29 July, 2019. David Locke, AFCA chief executive and chief ombudsman, said Smith had a proven track record at AFCA and predecessor schemes. “June has a wealth of financial sector experience and well-developed relationships with regulators, industry and consumer groups,” Locke said. “June is well recognised for her work developing codes of practice to improve customer outcomes, along with her efforts in promoting professional standards and busi-

ness ethics in the financial advice industry.” Smith said fairness underpinned what the organisation does and one of her first tasks would be to oversee AFCA’s Fairness Project. “Work has already commenced on a new

Govt locks in 1 January, 2021 end to grandfathering BY MIKE TAYLOR

THE Federal Government has moved the legislation to end grandfathered commissions as of 1 January, 2021. The Federal Treasurer, Josh Frydenberg announced the decision to introduce the necessary legislation in a statement issued late last month. He said the move was in line with meeting the key recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Frydenberg said Government’s reform would benefit retail clients, as they will receive higher quality advice and stop paying higher fees to fund grandfathered conflicted remuneration. He said the Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 implemented the Government’s response to the Final Report, to end the grandfathering of conflicted remuneration by 1 January, 2021. To ensure that the benefits of industry renegotiating current arrangements to remove grandfathered conflicted remuneration ahead of 1 January, 2021 flow through to clients, the Government has commissioned ASIC to monitor and report on the extent to which product issuers are acting to end the grandfathering of conflicted remuneration.

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Fairness Project to investigate how we can ensure AFCA decisions are made fairly and to identify a framework for confirming that complaints are consistently resolved in a way that is fair, efficient, timely and independent,” Smith said.

Heavy lifting on grandfathering falls to product issuers PRODUCT issuers rather than financial planners or dealer groups will have to do the heavy lifting of rebating grandfathered remuneration under the Government’s legislation banning grandfathered arrangements from 1 January, 2021. A key element of the Treasurer, Josh Frydenberg’s announcement was that product issuers would be responsible for ending grandfathered remuneration, something which is consistent with submissions from both the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA). The requirement is expected to generate a push by financial services product manufacturers to speed up the transfer of clients out of legacy products which generate commissions to planners and therefore reducing the consequent administrative burden. The FPA had specifically used a submission to Treasury responding to the regulatory exposure draft to state: “The task of managing the rebating process should rest with product

providers and clients should receive the full dollar amount of a commission as a rebate”. In the end, the Treasurer, Josh Frydenberg, pointed out that the legislation provided for the establishment of “a scheme that will provide that those people paying conflicted remuneration rebate clients for any remuneration that would be paid after 1 January, 2021”. Further, he said that to ensure that the benefits of industry renegotiating current arrangements to remove grandfathered conflicted remuneration ahead of 1 January, 2021 flowed through to clients, the Government had commissioned the Australian Securities and Investments Commission (ASIC) to monitor and report on the extent to which product issuers are acting to end the grandfathering of conflicted remuneration. This is consistent with the exposure draft which stated that, “generally, the covered person is a product issuer and the other person is a financial adviser or licensee”.

5/08/2019 5:09:27 PM

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so you can give your clients even more value. For full details, contact your MLC Business Development Manager or visit mlc.com.au/wrap 1 Based on benchmarking conducted by Chant West. Cash account interest rates are as at 31 December 2018. Chant West is solely liable for this information. 2 Based on price changes across MLC Wrap Super Series 2 and MLC Navigator Retirement Plan Series 2 super products only. See the relevant Product Disclosure Statement (PDS) for further details. 3 Terms and conditions apply. Issued by National Wealth Management Services Limited ABN 97 071 514 264. The information in this flyer is correct as at 4 February 2019, but may change in the future. Interests in MLC Wrap Super and MLC Navigator Retirement Plan are issued by NULIS Nominees (Australia) Limited, ABN 80 008 515 633, AFSL 236465 as trustee of the MLC Superannuation Fund, ABN 40 022 701 955. Interests in MLC Wrap Investments and MLC Navigator Investment Plan are issued by Navigator Australia Limited, ABN 45 006 302 987. Before making a decision to purchase or continue to hold a product, you should read the relevant PDS or Financial Services Guide, which can be obtained by calling us on 133 652. The information in this document is general information only and doesn’t take into account your personal financial situation or individual needs. A150004-0519

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31/07/2019 4:42:58 PM

12 | Money Management August 15, 2019

News

Uncertainty hampers new advice regime Corporate super reviews hit unprecedented levels

BY MIKE TAYLOR

INTENSE lobbying by financial advisers has clearly resonated in Canberra with many parliamentarians acknowledging their understanding of the Financial Adviser Standards and Ethics Authority (FASEA) regime but delivering no certainty on key issues such as extending the implementation timetable. As well, the major financial advice industry organisations are still seeking greater clarity from the Government around its intentions with respect to implementing code of conduct monitoring arrangements. Association of Financial Advisers (AFA) chief executive, Phil Kewin, said recent lobbying in Canberra had persuaded him financial advisers had been highly active and successful in informing their local parliamentarians about the problems and uncertainty currently confronting the industry. However, he said uncertainty remained about if and when the Government would introduce legislation aimed at extending the time frames around the FASEA regime to return it to its originally-envisaged timetable.

Both the AFA and the Financial Planning Association (FPA) have called for a 12-month extension of the FASEA timetable to 1 January, 2022, claiming such a move would restore the full two-year period for financial planners to study for and take the exam. The two organisations are also keen to obtain clearer signals from the Government on its intentions with respect to FASEA code of conduct monitoring bodies in circumstances where the Royal Commission has recommended an alternative regime but where planners will need to subscribe to an authorised scheme by 15 November, this year. The AFA, FPA, the Boutique

Financial Planners (BFP), Financial Services Institute of Australasia (FINSIA), SMSF Association, and Stockbrokers and Financial Advisers Association (SAFAA) have entered into an agreement aimed at establishing a code-monitoring body but are seeking greater certainty because of the high financial commitment which would be involved. Kewin said that the AFA and the other parties remained committed but needed certainty about the Government’s longerterm intentions before embarking on what represented a significant financial commitment.

ASIC to review market maker funds BY LAURA DEW

THE Australian Investments and Securities Commission (ASIC) has asked market operators to exclude any new managed funds that fail to disclose their daily portfolio holdings and use internal market makers while it conducts a review. Internal market makers occurred when the responsible entity of a managed fund, usually one which was actively managed, submitted bids and offers itself or engaged a transaction agent to do so. They made up around six per cent of exchange traded products by funds under management. ASIC said the problem had ‘changed materially’ as a result of the substantial market in active funds, innovation in fund structures and changes to the composition of market makers for exchange

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traded managed funds. ASIC said it intended to review the regulation for these types of funds so asked for a pause on new admission of these products until further notice. Existing actively managed exchange traded managed funds were not impacted by the move.

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FALL-OUT from the Royal Commission is continuing to play out in the superannuation industry with at least a dozen corporate superannuation fund boards reviewing arrangements and considering changing outsource providers. Tender consultants contacted by Money Management have confirmed unprecedented levels of work generated by the boards of corporate superannuation funds looking to review their current outsource arrangements. The confirmation of the number of reviews underway has come barely two months following Australia Post’s confirmation that it had opted to end its long-standing outsourcing arrangement with AMP Limited and move to AustralianSuper. The tender consultants did not specify AMP but said that the current review process involved mainly medium to large corporates, none of which were currently using industry superannuation funds such as AustralianSuper. In the wake of the Royal Commission a number of corporate superannuation outsource providers including both AMP and IOOF Limited have come in for scrutiny . The tender consultants said that given the pace of the review processes, it was likely to be a number of months before final decisions were made, possibly in the final quarter of the calendar year. While AMP Limited earlier this year acknowledged the loss of AustralianSuper corporate super mandate, it also said that in the past 12 months it had continued to win new mandates while growing some existing mandates. The status of the AMP corporate superannuation business is expected to become clearer when the company announces its full-year results to the Australian Securities Exchange next month.

6/08/2019 1:20:07 PM

August 15, 2019 Money Management | 13

News

GBST finally embraces FNZ offer BY MIKE TAYLOR

Industry funds claim polling rejects super wind-back

INDUSTRY Super Australia (ISA) has pointed to specific polling to reinforce that Australians will not back a Liberal Party push to change arrangements around the superannuation guarantee (SG). ISA has pointed to polling conducted by polling company UMR to state: “Australians have overwhelmingly rejected a push by a group of minority backbenchers to freeze the superannuation guarantee at 9.5 per cent”. It said the research confirmed strong support for an increase in super contributions, with 87 per cent of people surveyed in favour of increasing the super guarantee above its current level of 9.5 per cent. ISA said the poll showed that just 19 per cent, or one in five Australians, with superannuation said they expected to be able to live comfortably off their super in retirement, with a majority saying they would either need to work longer to have enough money to retire, or rely on the pension if super contributions didn’t increase. It said the research had also shown that increased reliance on the pension as a result of freezing super contribucertainty of value for GBST pleased to have entered into tions was also a big concern, with twoshareholders through the cash the agreement with FNZ on thirds of people surveyed (66 per cent) offer and limited conditionality. worried that everyone would end up terms acceptable to the board. GBST had earlier entered He said the FNZ offer reprefooting the bill because the governinto exclusive due diligence sented a significant premium ment will have to support more people and provided a higher degree of with SS&C. on the pension. Proposals to make super ‘opt-out’ for particular groups such as low income workers or high income earners received low support, with only a third of “We understand this is something which falls those polled expressing support – BY CHRIS DASTOOR including low income earners. outside of most advisers’ day to day experience, ISA chief executive, Bernie Dean, and yet it’s an essential step in enabling them to LIFE insurance specialist TAL has added additional said the poll confirmed that Australians continue providing financial advice to their Risk Academy Financial Adviser Standards and had overwhelmingly rejected a push to clients,” Riley said. Ethics Authority (FASEA) Exam Masterclasses, to wind back the super guarantee. “We know there is a huge amount of knowlkeep up with adviser demand. “These results should send a edge and expertise within the financial advice Commencing in July, the TAL Risk Academy FASEA clear message to the Government to sector, and these courses are designed to help Exam Masterclass would focus on supporting advisers de-mystify the way in which that knowledge will keep their hands off Australians’ in exam preparation to help with first-time success. super,” he said. They have doubled sessions in most locations, be tested as part of FASEA compliance.” “Australians are rightly concerned Existing advisers are required to pass the which are being hosted in Brisbane, Newcastle, about their retirement and whether they exam before 1 January, 2021, while new and Melbourne and Geelong. returning entrants to the industry are required to will be able to make ends meet. Beau Riley, TAL head of licensees and partFreezing the super guarantee will force pass it after completion of a FASEA-approved nerships, said the masterclasses had played an degree and before commencing quarter three in Australians to work longer, and increase important role in addressing confusion and anxithe burden on the pension.” their professional year. ety around the process. PUBLICLY-LISTED financial services technology provider, GBST has emerged from a trading halt on the Australian Securities Exchange (ASX) to announce that it has entered into a binding Scheme Implementation Deed for acquisition by New Zealand-based FNZ. GBST has announced to the ASX that the two companies have entered into the binding scheme under which it is proposed FNZ will acquire 100 per cent of the shares in GBST with shareholders to receive $3.85 in cash per share, which will be reduced by the amount of any special dividend of up to 0.35 cents per share. It said the GBST directors were unanimously recommending shareholders vote in favour of the scheme and intended to vote shares in their control in favour of the scheme, in the absence of a superior proposal. The GBST announcement followed on from a trading halt announced last month which had, in turn, followed the company’s rebuff of an earlier approach by FNZ. GBST chairman, Allan Brackin, said the board was

TAL adds additional FASEA Exam Masterclasses

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5/08/2019 5:10:00 PM

14 | Money Management August 15, 2019

News

ASIC to sue ANZ over unlawful transaction charges BY LAURA DEW

THE Australian Securities and Investments Commission (ASIC) has commenced civil proceedings against ANZ over account and periodic payment fees after it was alleged to have unlawfully charged customers over a million times. The regulator argued ANZ was not entitled to charge fees on certain periodic payments, defined as a debit from an ANZ account which the customer instructed ANZ to make to the account of another person or business. It excluded payments between two accounts in the same name. ASIC’s argument is that between August 2003 and February 2016, ANZ charged fees on both successful and unsuccessful periodical payments between these accounts of the same name. It also alleged ANZ was first made aware of the problem in 2011 but failed to take action until 2014. The unlawful charges were alleged to have been made on over 1,340,000 occasions which

equated to $50 million in gross loss to customers. ANZ had already paid $28 million in remediation but this excluded any customers affected prior to 2007. Finally, ASIC said ANZ breached the

Fixed income continues to drive ETF industry BY OKSANA PATRON

THE global exchange traded fund (ETF) industry has reached a high of US$5.6 trillion ($8.3 million) thanks to investors still showing high interest in fixed income, according to BetaShares’ Global ETF Review Q2 2019. The industry continued its upward trend and grew six per cent during the second quarter as the primary allocation moves came from continued heavy investment in fixed income and with a slight growth in equity inflows. Fixed income saw record flows during the first six months of the year, taking in US$39 billion, the report found. According to BetaShares’ chief executive, Alex Vynokur, the Australian market mirrored the global trend and saw fixed income category receive nearly $1.4 billion, becoming the number one category for net inflows as at the end of June, 2019. “Following growing investor caution about the extended bull run in equities, it is not surprising that we are seeing investors move to a

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decidedly risk-off position in their portfolios,” he said. “The growth of the Australian fixed income ETF product range means local investors can achieve targeted and diversified exposure to defend against volatility in the share market.” As far as the sectors were concerned, Q2 saw investors increase equities allocations to yield-oriented utilities, tech and financials. At the same time, healthcare exposures saw dramatic outflows. The study also found that even though the Australian industry was still far away from striking levels of inflows versus outflows, in 2018 out of total flows into Australian retail funds, Australian ETFs received more than 50c out of every dollar invested. “In Australia, we haven’t seen the same levels of net inflows into Australian gold ETFs as yet, and, in fact, we’ve seen net selling as investors have apparently sold for profit taking purposes. That said, we are definitely seeing increased interest in gold ETFs and think this is going to be a trend worth watching more carefully as the year progresses,” Vynokur added.

Australian Securities and Investments Commission Act 2001 by engaging in misleading or deceptive conduct by continuing to charge the fees, knowing it was highly unlikely it would be able to remediate all affected customers, failing to inform customers of the unlawful charging and deliberately not making payments to customers who were charged between 2003-2007. Contravention of this act attracts a maximum penalty of $1.7 million-$2.1 million per contravention. In reply, ANZ issued a statement: “While ANZ is still considering the matters raised by ASIC, ANZ categorically denies any deliberate wrongdoing and intends to vigorously defend any such allegation. “These fees were subject of a class action which was settled in December 2018 for $1.5 million, pending court approval. Separately, ANZ has already provided for approximately $50 million in customer remediation payments for this matter of which more than $28 million has already been paid to impacted customers since 2008.”

Keating weighs into SG debate BY MIKE TAYLOR

THE debate over the future of the superannuation guarantee has heated up with one of its founding fathers, former Prime Minister and Treasurer, Paul Keating, lambasting those who have called for either delaying the SG timetable or making superannuation voluntary for those earning less than $50,000 a year. Keating’s comments were reported in the Sydney Morning Herald where he had been quoted as saying the impact of holding back the increase would dwarf the impact of the Australian Labor Party policy on removing refundable franking credits. The debate around the future of superannuation guarantee is continuing despite the Treasurer, Josh Frydenberg, making it clear that such measures are not currently on the agenda for the Government. However, Keating suggested that both Frydenberg and the Prime Minister, Scott Morrison, needed to rule out the superannuation guarantee being included in the terms of reference for the retirement savings review foreshadowed by the Treasurer soon after the election. However, this has not been enough to stifle discussion within the Liberal Party or to allay concerns within the industry funds movement, with both the Australian Institute of Superannuation Trustees (AIST) and Industry Super Australia (ISA) calling on the Government to specifically rule out any such measures. Keating was quoted as seriously questioning suggestions that delaying the SG timetable would allow employers to direct the savings to paying higher wages. Rather, he suggested that the employers would simply “pocket all the productivity”.

6/08/2019 10:13:54 PM

August 15, 2019 Money Management | 15

News

Which ANZ-aligned advice business jumped off the IOOF acquisition? BY MIKE TAYLOR

IOOF has acknowledged that at least one business operating under the ANZ financial planning licenses it acquired did not transition across, generating a $1.3 billion impact on funds under advice (FUA). In an update filed with the Australian Securities Exchange, IOOF noted that “ex-ANZ wealth aligned dealer group flows were impacted by the departure of one practice which was acquired by a third party”. However, the IOOF announcement claimed that although related funds under advice were $1.3 billion, this had an insignificant impact on licensee revenue. The loss of what must have been an advice firm of scale from the ANZ transaction clouded what IOOF chief executive, Renato Mota, described as having been the best quarter of inflows recorded across

IOOF’s platforms and financial advice businesses since June, 2018. “Pleasingly, it demonstrates the strong organic growth momentum achieved in a challenging year for the industry,” he said. “In a year which has seen the reputation of the sector challenged, many of our competitors have suffered significant net outflows. IOOF’s emphasis on the value of financial advice, putting our clients first and resetting our organisational culture has translated into a strong business performance for the quarter.” IOOF reported that, broadly, funds under management, advice and administration stood at $149.5 billion as at 30 June, representing an increase of 18.7 per cent over the prior year and an increase of 5.9 per cent or $7.5 billion when excluding ANZ Wealth-aligned dealer group funds under advice acquired during the year.

Rule out damaging the SG urge industry funds INDUSTRY superannuation groups have pointed to comments by newly-elected NSW Liberal Party Senator, Andrew Bragg, as further evidence of the Government’s doubtful intentions with respect to delivering the timetable for increasing the superannuation guarantee to 12 per cent. Both the Australian Institute of Superannuation Trustees (AIST) and Industry Super Australia (ISA) have expressed concern about the Government’s intentions with AIST chief executive, Eva Scheerlinck, being particularly critical of Bragg’s suggestion that the superannuation guarantee should be optional for workers earning less than $50,000. Scheerlinck said taking super away from low income earners would consign them to years of poverty in retirement and was a step backwards to the days when superannuation was a privilege granted only to company execs and career public servants. Industry Super Australia chief executive, Bernie Dean, said that taking away compulsory superannuation for low income earners would not only undermine the very premise of Australia’s superannuation system, it would see vulnerable workers pay more taxes for less money at retirement. “Any claim that this would save $1.8 billion conveniently ignores the fact that wages are taxed at a higher rate than superannuation – meaning this would actually cost low income workers more in the long run,” he said.

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Scheerlinck said calls to effectively remove low income earners from the super system had nothing to do with helping the less well-off and everything to do with saving the Government money. “Well-paid Coalition MPs who receive super contributions of at least 15.4 per cent need to step out of their bubble and ask people what it is like to live on the Age Pension without any extra savings,” she said. Scheerlinck said the legislated increase in the Superannuation Guarantee rate from 9.5 per cent to 12 per cent would improve the retirement outcomes for all working Australians and that any changes to the timetable would only serve to further undermine confidence in the superannuation system. “The current debate and uncertainty surrounding the legislated timetable for increasing the Superannuation Guarantee rate is unhelpful for Australians trying to make retirement plans and only serves to undermine confidence in a superannuation system that is routinely rated as one of the best pension systems in the world,” she said. “We need strong leadership from the Morrison Government to rule out further changes to the legislated timetable for increasing the Superannuation Guarantee rate and make it clear that superannuation is for everyone, not just the well-off,” Scheerlinck said.

Fake tax agents a risk during tax time BY CHRIS DASTOOR

THE Australian Tax Office (ATO) is warning taxpayers to look out for people posing as tax agents who aren’t registered with the Tax Practitioners Board (TPD). They recommend three steps to protect yourself from potential fraudulent tax agents: • Check your tax agent was registered via tpb. gov.au/search-register; • Protect your myGov login details and password as registered tax agents had access to this information via ATO portals; and • Know your tax affairs by logging into myGov to review your return and refund details, and to contact your registered tax agent or the ATO. Karen Foat, ATO assistant commissioner, said she was concerned with the number of people claiming to be tax agents, especially ones overpromising on tax refunds or exceptionally low-cost services. “These unregistered preparers pose a threat to vulnerable taxpayers and risk the reputation of registered tax agents,” Foat said. “Unfortunately, we see too many instances where people have unwittingly used an unregistered preparer, which has resulted in a significant tax debt and loss of money. “We also see instances where people do not receive their refund, or where fraudulent claims are lodged in their name without their knowledge.” Tip-offs can be made to TPB or ATO if there is someone that is posing as a tax agent and providing those services.

6/08/2019 1:19:19 PM

16 | Money Management August 15, 2019

News

ASIC confirms end to Spectrum license BY MIKE TAYLOR

THE virtual cessation of Freedom Insurance Group has had its corollary in an announcement by the Australian Securities and Investments Commission (ASIC) that Spectrum Wealth Advisers has sought cancellation of its license meaning any remaining advisers will need to seek authorisation elsewhere. The regulator has also revealed that it was considering suspending or cancelling Spectrum’s license before the company’s application was received. The regulator has issued a statement advising clients of Spectrum Wealth Advisers and financial advisers represented under Spectrum’s Australian financial services (AFS) licence that the company is seeking to cancel its licence and is no longer providing financial services. The regulator said Spectrum had advised that it had stopped providing financial services and that therefore, advisers who were authorised through Spectrum’s AFS licence would need to become authorised by another AFS licensee before they can continue to provide financial advice to their clients. “If you are a client of Spectrum and wish to find a new adviser, you should make sure you are dealing with an adviser authorised by an AFS licensee,” it said.

BY LAURA DEW

The ASIC announcement said that on 30 May, 2019, Spectrum advised ASIC that it would seek to voluntarily cancel its AFS licence because of the departure of some key persons and responsible managers. This information was subsequently disclosed to the market by Spectrum’s parent

entity, Freedom Insurance Group, on 31 May, 2019. The regulator said it had previously notified Spectrum that it was considering suspending or cancelling Spectrum’s AFS licence because of concerns that Spectrum had failed to meet some of its legal obligations.

Women undervalue life insurance worth BY CHRIS DASTOOR

WOMEN underestimate their life insurance value by 125 per cent ($373,000), while men underestimate it by only 19 per cent ($97,000), on average, according to a study from Noble Oak. The study also found that Gen Z women (19972012) underestimated their value by $702,000 on average, which was the most of any group, followed by Gen Z men with $697,000. Millennial women (1981-1996) undervalued it by

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Auditor disqualifications commended by SMSF Association

$609,000, which was drastically different to millennial men who were undervalued by $268,000. Gen X men (1965-1980) and baby boomers (1946-1964) overvalued themselves by $102,000 and $174,000 respectively. Gen X women were undervalued by $115,000, while baby boomers only $13,000, silent generation women (pre-1945) had the highest overvalue at $658,000, while silent generation men were undervalued at $57,000.

THE SMSF Association has thrown its support behind the Australian Securities and Investments Commission (ASIC) decision to disqualify or add conditions to 17 auditors of selfmanaged superannuation funds. As reported last month, three individual auditors were suspended by ASIC while a further 14 had conditions imposed on them such as peer reviews and restricted audits. This action was taken following concerns highlighted by the Australian Taxation Office (ATO) over the auditors’ ability to meet certain requirements. SMSF Association chief executive, John Maroney, said the decision was ‘to be commended’ as it helped to uphold the high standards of the SMSF industry. “The action taken by the regulator to disqualify three SMSF auditors and impose conditions on the registration of another 14 where their work failed to meet the necessary professional standards is to be commended. “The Association maintains that SMSF auditors are key to the long-term health of the sector. This is why it is so important that auditors are held to the rigorous standards expected of them under the law by the regulators.” He added the decision highlighted the need for SMSF professionals to have specific SMSF education and qualifications to underpin the services they provide.

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August 15, 2019 Money Management | 17

InFocus

AMP AND FINWIZ ANNOUNCEMENTS CREATE NEW CHALLENGES Mike Taylor writes that scores of financial advisers will be left looking for new licensees in the wake of this month’s announcements by the Commonwealth Bank and AMP Limited. THE AUSTRALIAN FINANCIAL planning industry as we knew it in 2018 will never be the same again. All of the major banks have either departed wealth management or are in the process of doing so while the AMP Limited adviser workforce and the arrangements under which they work will look very different as the company moves to implement its new strategy. The question which should now be being asked in the financial planning industry is how it will accommodate the scores of financial advisers who will be searching for new licensees in the wake of the changes which have been announced by AMP Limited and the Commonwealth Bank. The numbers who will be looking over the next 12 months will be unprecedented. AMP Limited did not immediately specify how many advisers were likely to exit its businesses, but some key hints were given with statements such as the company having “fewer, more productive” advisers and with the somewhat blunt message that “less than 20 per cent of adviser practices account for around 60 per cent of revenue and assets under management”. These statements gave solidity to the rumours which had been

AUSTRALIAN SAVING HABITS

swirling in the market that AMP was going to jettison those elements of its adviser workforce which it saw as low-value while focusing on the high-value businesses. Just as importantly for those advisers exiting the business, the company’s statements to the Australian Securities Exchange (ASX) made clear it recognised that buyer of last resort (BOLR) arrangements represented a liability for the company and would have to be changed. Thus, last week’s announcement by AMP talking about a “reset of commercial terms” entailing resetting client register buy-back valuations to market-based multiples and redesigning the licensee offer to

rebalance risk and return. Importantly, its briefing materials revealed that it had estimated that the cost of doing this would be around $550 million to cover retention and support and to register acquisitions. AMP also signalled an “increasing focus on direct to client channels” including via digital fulfilment, employed advisers, aligned advisers and external advisers who were using AMP’s MyNorth platform. Its briefing documents pointed to the company scaling up its employed adviser channel and increasing adviser productivity, while aligned advisers became a smaller, more productive and higher quality network. The bottom line of the AMP

strategy is that a large number of advisers working in aligned practices appear likely to need to find new licensees to work under and it will be easier for some than others, in circumstances where the company has already nominated those which it believed were most productive and best of breed. Money Management canvassed the views of a number of licensees on their appetite for absorbing former AMP aligned advisers, with the responses being cautious with many noting the number of Financial Wisdom advisers who would also be looking for a home. One of the key areas of concern noted by the licensees was the level of due diligence required in bringing new advisers aboard because of the level of scrutiny on the part of the Australian Securities and Investments Commission. They also noted that AMP advisers affected by the company’s strategic change would also be impacted by their obligations to meeting the new Financial Adviser Standards and Ethics Authority (FASEA) regime exam obligations, something which was likely to complicate the issue. They said those who had passed the FASEA exam would clearly be more attractive than those who had not.

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admit buy now/pay later products create more impulse purchases

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8/08/2019 12:20:43 PM

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A bias towards Eastern Europe away from the political and market turmoil of Brexit has led to outstanding returns for the activelymanaged Platinum European fund, Laura Dew writes. IN ONE CONTINENT rocked by political turmoil, many investors are turning their backs on investing in Europe at the moment until Brexit uncertainty is resolved. But for those who still wish to include the area in their allocations, one fund stands out as offering an alternative option for portfolios. The Platinum European (C share) fund was launched in 1998 and has $889 million in assets under management. Its attraction is that it is one of the few activelymanaged funds in the ACS EquityEurope sector, for investing heavily in Eastern Europe and for returns of more than 1,000 per cent since inception. Out of the seven funds in the ACS Equity-Europe sector, only this fund and the Pendal European Share fund are actively managed with the remainder being ETFs from companies like BetaShares and Vanguard. The manager is Nikola Dvornak who has worked at Platinum for over 12 years and managed this fund since June 2014.

According to its Product Disclosure Statement (PDS) it aims to achieve capital growth over the long term, defined as five years or more, by investing in undervalued companies in the European region. Unlike other funds, Platinum has a very broad definition of ‘Europe’ and includes “all countries from the UK to the Ural Mountains, a line which runs from the Arctic to the Caspian Sea then to the Black Sea.” It said: “Contrary to the perception that Europe is a dull, mature market with slow growth, we see Europe as offering the best of both worlds as Western Europe’s industrialised economies meet Eastern Europe’s emerging markets. From British and French consumer brands to Eastern European banks, from Scandinavian and German industrials to Swiss pharmaceuticals, we believe there are plenty of gems to be found.” Although it focuses primarily on Europe, it also has seven per cent allocated to North America, which is the result of investing in

Chart 1: Performance of Platinum European over three years to 31 July, 2019 versus ACS Equity - Europe sector

Source: FE Analytics

13MM1508_18-34.indd 19

companies such as IHS Markit which have their primary listing in the US or those which predominantly conduct their business in Europe. Over one year to 31 July, 2019 the fund has returned one per cent which was less than returns of 4.2 per cent by the ACS EquityEurope sector. But looking over the long term, the fund has significantly beaten the sector over three, five and ten years, indicating this is only a shortterm blip for the fund. If you look back to the fund’s performance since inception, it has returned more than 1,000 per cent compared to sector returns of 273 per cent over the same period, according to FE Analytics.

PORTFOLIO CONSTRUCTION In its PDS, the firm says the fund will typically hold between 30-70 securities and will hold no more than five per cent of total assets in any single stock. In line with this, it currently has 47 holdings and its largest weighting is four per cent in an Austrian bank. As of 30 June, 2019 the fund has 20 per cent in industrials, its highest weighting, 18 per cent in financials and 12 per cent in healthcare. This includes established players such as Swiss pharma Roche and miner Glencore as well as lesserknown names such as Romanian bank Banca Transilvania. The firm noted it currently had a skew towards cyclical companies rather than crowded ‘bond proxies’ within the portfolio but that this had been an unconscious outcome as the firm

LAURA DEW

takes a bottom-up approach to company selection. It also shunned the ‘clamouring for safety and predictability’ by investors which was causing high valuations for defensive businesses. “We investigate a broad range of investment ideas at a company level and invest in those we think have merit. Our portfolio positioning is a by-product of these decisions. It just so happens that the opportunities that are currently appealing to us are increasingly clustered in the cyclical category.” However, in the short term, the manager said this cyclical bias had been a ‘primary impediment’ to performance with the fund underperforming the index over the last six months. But the firm was hopeful of making a ‘respectable return’ from its holdings in the longer term. “Our portfolio continues to be skewed to cyclical businesses. These businesses may continue to underperform in an environment of high uncertainty, weak growth and low interest rates. However, the valuation of these stocks is now so low that even with significant deterioration in commercial circumstances, we expect to still make a respectable return on our investment. “Evidence that global economic growth is more resilient than expected, or a concerted effort, could be positive catalysts.”

6/08/2019 10:09:52 PM

INVESTMENT CENTRE

a part of

ACS CASH - AUSTRALIAN DOLLAR

ACS EQUITY - AUSTRALIA EQUITY INCOME

Fund name

Macquarie Australian Diversified Income ATR in AU

0.28

2.91

3.11

Armytage Australian Equity Income ATR in AU

3.44

9.39

11.17

109

Macquarie Diversified Treasury AA ATR in AU

0.28

2.87

3.04

Plato Australian Shares Income A ATR in AU

4.04

9.92

10.67

102

Mutual Cash Term Deposits and Bank Bills B ATR in AU

0.15

2.28

2.25

Lincoln Australian Income Wholesale ATR in AU

2.98

10.5

10.45

Mutual Cash Term Deposits and Bank Bills A ATR in AU

0.15

2.28

2.22

Nikko AM Australian Share Income ATR in AU

2.02

4.86

10.39

110

Pendal Stable Cash Plus ATR in AU

0.19

2.26

2.22

Lincoln Australian Income Retail ATR in AU

2.91

9.91

9.69

Australian Ethical Income Wholesale ATR in AU

8.26

9.14

104

2.26

2.16

Legg Mason Martin Currie Equity Income X ATR in AU

1.92

0.17

Macquarie Treasury ATR in AU

0.15

2.31

2.07

UBS IQ Morningstar Australia Dividend Yield ETF ATR in AU

3.24

11.33

9.1

114

CFS Colonial First State Wholesale Strategic Cash ATR in AU

0.15

2.04

2.01

Merlon Australian Share I ATR in AU

2.38

8.59

8.86

114

IOOF Cash Management Trust ATR in AU

0.15

2.07

MLC Wholesale IncomeBuilderTM ATR in AU

2.02

8.78

8.46

105

Mercer Cash Term Deposit Units ATR in AU

0.14

2.05

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

2.16

8.87

8.46

106

Crown Rating

Risk Score

Crown Rating

Risk Score

ACS EQUITY - AUSTRALIA SMALL/MID CAP

ACS EQUITY - ASIA PACIFIC EX JAPAN

Fund name

SGH Emerging Companies Professional Investors ATR in AU

1.3

27.01

17.13

130

OC Micro-Cap ATR in AU

0.75

4.79

16.88

108

Macquarie Small Companies ATR in AU

2.66

3.52

15.92

127

Macquarie Australian Small Companies ATR in AU

2.67

3.83

15.47

126

Smallco Investment Manager Smallco Investment ATR in AU

0.6

9.91

15.36

138

Fidelity Future Leaders ATR in AU

4.54

11.62

15.23

118

105

SGH Emerging Companies ATR in AU

1.02

21.4

15.05

130

14.8

114

Ophir Opportunities Ordinary ATR in AU

4.16

14.2

14.88

145

7.28

13.75

125

Allan Gray Australia Equity A ATR in AU

2.87

7.14

14.86

114

5.56

13.41

134

Perennial Value Smaller Companies Trust ATR in AU

3.09

0.1

14.82

119

Fund name

Schroder Asia Pacific Wholesale ATR in AU

5.69

6.59

18.1

137

Fidelity Asia ATR in AU

5.44

12.77

16.74

135

Advance Asian Equity Wholesale ATR in AU

5.38

6.44

16.38

134

SGH Tiger ATR in AU

-1.39 15.54

16.11

133

Advance Asian Equity ATR in AU

5.31

5.44

15.29

134

Premium Asia ATR in AU

6.31

4.7

15.02

146

CI Asian Tiger ATR in AU

5.55

11.18

14.91

Maple-Brown Abbott Asia Pacific Trust ATR in AU

3.84

6.47

Maple-Brown Abbott Asian Investment Trust ATR in AU

4.51

T. Rowe Price Asia Ex Japan ATR in AU

5.02

Crown Rating

Risk Score

Crown Rating

Risk Score

ACS EQUITY - EMERGING MARKETS

ACS EQUITY - AUSTRALIA

Fund name

137

JPMorgan Emerging Markets Opportunities ATR in AU

5.96

10.46

17.56

121

16.64

102

Fidelity Global Emerging Markets ATR in AU

7.37

17.53

16.5

110

9.34

16.36

110

Legg Mason Martin Currie Emerging Markets ATR in AU

6.11

3.87

15.97

133

4.64

14.06

16.14

103

CFS Realindex Emerging Markets A ATR in AU

4.51

11.26

14.59

114

Macquarie Wholesale Australian Equities ATR in AU

4.55

10.02

15.94

103

MFS Emerging Markets Equity Trust ATR in AU

5.54

5.94

14.46

115

Macquarie Australian Equities ATR in AU

4.57

10.03

15.8

102

Schroder Global Emerging Markets Wholesale ATR in AU

5.82

6.2

14.2

119

Alphinity Sustainable Share B ATR in AU

4.63

13.93

15.44

103

OnePath Wholesale Global Emerging Markets Share ATR in AU

5.42

6.23

14.06

112

Legg Mason Martin Currie Select Opportunities X ATR in AU

1.11

0.02

111

Pendal Global Emerging Markets Opportunities-WS ATR in AU

4.48

6.81

13.25

100

Maple-Brown Abbott Australian Equity Trust ATR in AU

2.41

10.8

14.92

129

Macquarie True Index Emerging Markets ATR in AU

4.96

6.53

12.85

118

Macquarie Active Plus Equities ATR in AU

4.23

10.47

14.88

101

Dimensional Emerging Markets Trust ATR in AU

3.7

7.71

12.71

100

Fund name

DDH Selector Australian Equities ATR in AU

3.48

13.97

17.49

Macquarie Australian Shares ATR in AU

4.51

10.18

Dimensional Australian Value Trust ATR in AU

2.84

Alphinity Sustainable Share ATR in AU

13MM1508_18-34.indd 20

Crown Rating

Risk Score

Crown Rating

Risk Score

7/08/2019 2:40:45 PM

INVESTMENT CENTRE

a part of

ACS EQUITY - GLOBAL

ACS EQUITY - INFRASTRUCTURE

Fund name

Hyperion Global Growth Companies B ATR in AU

3.12

17.45

23.73

132

Zurich Investments Concentrated Global Growth ATR in AU

5.73

23.43

21.85

CFS FirstChoice Acadian Wholesale Geared Global Equity ATR in AU

11.2

2.66

CFS Generation WS Global Share ATR in AU

5.6

CC Marsico Global Institutional ATR in AU

Crown Rating

Risk Score

Fund name

Crown Rating

Risk Score

Macquarie Global Infrastructure Trust II B ATR in AU

20.33

20.89

200

138

Macquarie Global Infrastructure Trust II A ATR in AU

20.36

20.81

202

21.65

267

Lazard Global Listed Infrastructure ATR in AU

3.54

10.52

14.22

18.01

20.26

124

BlackRock Global Listed Infrastructure ATR in AU

3.04

22.98

13.33

100

5.18

6.87

20.2

146

AMP Capital Global Infrastructure Securities Unhedged Wholesale ATR in AU

3.95

22.55

11.41

106

PM Capital Long Term Investment ATR in AU

4.77

2.75

19.97

141

Magellan Infrastructure Unhedged ATR in AU

4.12

20.23

11.36

CC Marsico Global B ATR in AU

5.2

7.45

19.8

146

Loftus Peak Global Disruption ATR in AU

2.84

20.39

11.28

6.5

12.02

19.06

163

Macquarie True Index Global Infrastructure Securities ATR in AU

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

AMP Capital Global Infrastructure Securities Unhedged R ATR in AU

3.94

22.2

11.16

106

6.71

21.91

18.46

115

AMP Capital Global Infrastructure Securities Unhedged A ATR in AU

3.94

22.19

11.16

106

T. Rowe Price Global Equity ATR in AU

4.49

13.05

18.39

122

Mercer Global Unlisted Infrastructure ATR in AU

-0.16

9.66

11.05

Fund name

BT Technology Retail ATR in AU

3.93

14.6

25.72

167

CFS Wholesale Global Technology & Communications ATR in AU

6.16

18.66

21.49

159

Fiducian Technology ATR in AU

6.29

12.26

20.61

179

Barwon Global Listed Private Equity ATR in AU

5.68

4.91

14.72

109

Platinum International Brands C ATR in AU

0.6

-2.05

13.9

129

ACS EQUITY - GLOBAL HEDGED ACS EQUITY - SPECIALIST

Fund name

Zurich Investments Hedged Concentrated Global Growth ATR in AU

6.6

17.13

18.45

146

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

5.82

18.65

16.57

134

Magellan Global Hedged ATR in AU

5.84

13.84

15.54

112

Evans And Partners International Hedged B ATR in AU

7.21

22.31

14.66

123

Evans And Partners International Hedged ATR in AU

7.17

21.64

14.02

123

Zurich Investments Hedged Global Growth Share ATR in AU

5.35

9.91

13.79

137

Cooper Investors Global Equities Hedged ATR in AU

6.41

9.84

13.54

114

Platinum International Technology C ATR in AU

4.55

4.71

13.69

121

Fidelity Hedged Global Equities ATR in AU

5.02

6.01

13.47

116

Platinum International Health Care C ATR in AU

1.98

4.7

13.58

127

MLC Wholesale Hedged Global Share A ATR in AU

4.19

5.09

13.35

114

CFS Wholesale Global Health & Biotechnology ATR in AU

4.91

10.91

11.74

156

Russell Global Opportunities NZ Hedged A AUD ATR in AU

6.84

8.86

13.09

119

CFS Colonial First State Australian Share Growth ATR in AU

3.71

9.8

10.97

107

IML Industrial Share ATR in AU

2.36

6.66

8.07

Crown Rating

Risk Score

Crown Rating

Risk Score

ACS EQUITY - GLOBAL SMALL/MID CAP Crown Rating

Fund name

Risk Score

Yarra Global Small Companies ATR in AU

5.63

4.37

14.41

128

Fund name

Bell Global Emerging Companies ATR in AU

4.81

13.56

112

IOOF MultiMix Diversified Fixed Interest ATR in AU

1.07

6.9

4.31

Pengana Global Small Companies ATR in AU

5.3

-4

12.58

100

Macquarie Dynamic Bond ATR in AU

1.14

8.1

4.09

Dimensional Global Small Company Trust ATR in AU

1.13

7.77

4.08

5.43

0.75

12.12

128

PIMCO Diversified Fixed Interest ATR in AU

Mercer Global Small Companies Shares ATR in AU

1.12

7.72

4.03

4.61

1.22

11.73

129

PIMCO Diversified Fixed Interest Wholesale ATR in AU OnePath Wholesale Diversified Fixed Interest Trust ATR in AU

1.08

7.29

3.92

ClearView CFML Fixed Interest ATR in AU

1.03

6.46

3.8

CFS FirstChoice Wholesale Fixed Interest ATR in AU

1.29

8.36

3.74

ACS FIXED INT - AUSTRALIA / GLOBAL Crown Rating

Risk Score

Supervised The Supervised ATR in AU

7.8

8.06

11.64

117

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

3.95

1.77

11.27

117

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

3.95

1.61

11.06

117

AMP Experts' Choice Diversified Interest Income ATR in AU

0.98

7.17

3.73

Microequities Global Value Microcap Ordinary ATR in AU

1.47

0.43

10.67

110

CFS Colonial First State Wholesale Diversified Fixed Interest ATR in AU

1.19

8.92

3.72

Ellerston Global Mid Small Unhedged ATR in AU

3.48

4.9

10.56

123

UBS Diversified Fixed Income Fund ATR in AU

0.97

7.4

3.7

INVESTMENT CENTRE

a part of

ACS FIXED INT - AUSTRALIAN BOND

ACS FIXED INT - GLOBAL STRATEGIC BOND

Fund name

Elstree Enhanced Income ATR in AU

1.2

7.71

7.92

DDH Preferred Income ATR in AU

0.2

4.99

6.09

Legg Mason Western Asset Australian Bond X ATR in AU

1.08

9.86

4.81

BlackRock Enhanced Australian Bond ATR in AU

1.04

9.71

4.6

Macquarie Core Australian Fixed Interest ATR in AU

1.08

Legg Mason Western Asset Australian Bond A ATR in AU

1.06

9.46

4.46

AMP Capital Wholesale Australian Bond ATR in AU

1.05

9.67

4.39

Fund name

OnePath ANZ Fixed Income ATR in AU

1.09

9.76

4.37

Ardea Real Outcome ATR in AU

1.06

7.37

5.81

Morningstar Australian Bonds Z ATR in AU

-0.05

8.87

4.97

0.95

8.92

4.33

Ardea Premier Australian Inflation Linked Bond ATR in AU PIMCO Global RealReturn Wholesale ATR in AU

0.65

6.54

4.72

IOOF Income ATR in AU

0.44

4.16

4.32

Ardea Australian Inflation Linked Bond ATR in AU

-0.06

8.58

4.72

Macquarie Inflation Linked Bond ATR in AU

-0.25

8.63

Mercer Australian Inflation Plus ATR in AU

0.39

4.4

3.54

Morningstar Global Inflation Linked Securities Hedged Z ATR in AU

0.57

5.13

3.12

-0.23

4.31

2.87

9.64

Crown Rating

4.53

Risk Score

ACS FIXED INT - DIVERSIFIED CREDIT Crown Rating

Risk Score

Crown Rating

Fund name

Risk Score

PIMCO Dynamic Bond C ATR in AU

0.57

3.84

4.77

PIMCO Dynamic Bond Wholesale ATR in AU

0.56

3.72

4.67

Dimensional Global Bond Trust NZD ATR in AU

3.34

13.62

4.08

Dimensional Global Bond Trust AUD ATR in AU

1.58

8.77

3.81

JPMorgan Global Strategic Bond ATR in AU

0.98

3.63

3.17

IOOF Strategic Fixed Interest ATR in AU

0.39

3.47

2.32

T. Rowe Price Dynamic Global Bond ATR in AU

-0.82

1.84

1.36

ACS FIXED INT - INFLATION LINKED BOND Crown Rating

Risk Score

Fund name

Premium Asia Income ATR in AU

0.03

12.37

8.87

Aberdeen Standard Inflation Linked Bond ATR in AU

PIMCO Capital Securities Wholesale ATR in AU

2.57

7.44

7.78

ACS PROPERTY - AUSTRALIA LISTED

DirectMoney Personal Loan ATR in AU

0.65

8.31

7.71

Fund name

BENTHAM HIGH YIELD ATR IN AU

6.77

7.66

Bentham Global Income NZD ATR in AU

Macquarie Property Securities ATR in AU

5.52

24.68

10.91

155

2.06

5.66

6.45

5.5

24.4

10.78

155

Bentham Global Income ATR in AU

0.26

0.96

6.38

Macquarie Wholesale Property Securities ATR in AU

Bentham Syndicated Loan ATR in AU

0.1

2.17

5.95

UBS Property Securities Fund ATR in AU

4.94

24.77

10.58

140

Bentham Syndicated Loan NZD ATR in AU

1.85

6.7

5.62

AMP Capital Listed Property Trusts ATR in AU

5.76

25.74

10.37

146

CFS Wholesale Global Credit ATR in AU

1.42

7.64

5.61

Charter Hall Maxim Property Securities ATR in AU

5.37

18.93

10.37

106

Macquarie Core Plus Australian Fixed Interest ATR in AU

1.61

12.4

5.48

AMP Capital Property Securities ATR in AU

5.76

25.69

10.27

146

The Trust Company Diversified Property ATR in AU

4.08

18.47

9.86

138

AMP Capital Listed Property Trusts A ATR in AU

5.73

25.09

9.81

146

Resolution Core Plus Property Securities A PF ATR in AU

4.29

19.58

9.77

140

Pendal Property Investment ATR in AU

5.5

23.52

9.69

137

Fund name

Premium Asia Property ATR in AU

3.7

14.54

14.71

APN Asian REIT ATR in AU

4.37

28.89

12.34

Quay Global Real Estate C ATR in AU

0.26

15.74

9.21

106

IOOF Specialist Property ATR in AU

0.27

12.24

8.75

Quay Global Real Estate A ATR in AU

0.25

15.53

8.75

106

Resolution Capita Global Property Securities Unhedged II ATR in AU

-0.22

14.41

8.73

109

ACS FIXED INT - GLOBAL BOND Crown Rating

Risk Score

Crown Rating

Risk Score

Fund name

PIMCO INCOME WHOLESALE ATR IN AU

1.24

6.85

6.07

PIMCO Emerging Markets Bond ATR in AU

4.32

9.36

5.32

PIMCO Emerging Markets Bond Wholesale ATR in AU

4.3

9.22

5.22

Invesco Senior Secured Loans ATR in AU

0.17

3.02

5.22

Invesco Wholesale Senior Secured Income ATR in AU

0.18

2.99

5.15

SPW Global Income ATR in AU

-0.46

1.6

5.03

Mercer Emerging Markets Debt ATR in AU

3.86

11.74

4.66

Legg Mason Brandywine Global Fixed Income Trust X ATR in AU

1.97

6.26

4.57

CFS Colonial First State Wholesale Geared Global Property Securities ATR in AU

3.06

8.57

8.43

224

Templeton Global Bond Plus I ATR in AU

1.36

6.23

4.52

Perpetual Private Real Estate Implemented Portfolio ATR in AU

1.52

14.46

8.43

107

Legg Mason Brandywine Global Opportunistic Fixed Income X ATR in AU

Advance Global Property ATR in AU

0.84

11.6

8.33

103

2.41

Principal Global Property Securities ATR in AU

0.84

11.51

8.22

103

ACS PROPERTY - GLOBAL

6.55

4.37

Crown Rating

Risk Score 154

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.

13MM1508_18-34.indd 22

7/08/2019 2:41:14 PM

August 15, 2019 Money Management | 23

Asset allocation

CONSTRUCTING A DIVERSE PORTFOLIO Everyone knows the first rule of portfolio construction is diversification, Laura Dew writes, so how can advisers utilise asset classes to build a diverse portfolio in line with their clients’ objectives? VARIETY IS THE spice of the life, so the saying goes, and the same goes with your finances with experts recommending investors hold a variety of assets in their portfolios to avoid ‘holding all their eggs in one basket’. Holding too many equities leaves you at risk of sharp losses while holding too much fixed income could be too cautious and mean you miss out of equity gains, with the ASX 200 already up 23 per cent in 2019. The solution is to hold a broad range of equities, fixed income, cash and alternative assets such as property or alternative funds. In simple terms, according to Clime portfolio manager Vincent Chen, investors should work by the ‘rule of 100’ which describes how investors should deduct their age from 100 and invest that amount in growth assets and the remainder in defensive assets.

13MM1508_18-34.indd 23

So a 30-year-old with many years until retirement should invest 70 per cent in growth assets and 30 per cent in defensive while a 60-year-old due to retire soon should only hold 40 per cent in growth and 60 per cent in defensive as they have fewer years to make back any losses and will need the income sooner.

RISK PROFILING As a first step, a financial planner will usually conduct a riskprofiling questionnaire with a client which works out a client’s risk tolerance (how emotionally comfortable a client is with taking financial risk), the risk required (how much risk is needed for the client to reach their financial goals) and the client’s risk capacity (how much financial risk they can afford to take). These questions will cover factors such as age, existing assets, expected

retirement date, future earnings and financial outgoings. If a client expresses a desire for the highest possible returns and are willing to accept large swings in the value of their portfolio then they would be a risk-seeking client. On the other hand, a cautious client may be fearful of risky investments and unwilling to regularly turnover their portfolio. A global survey by Natixis Investment Managers found 41 per cent of investors said they were unprepared to handle market challenges and 77 per cent would take safety over outperformance if forced to choose. At the same time, 86 per cent said long-term gains were most important to them, a ‘fundamental disconnect’ with the need for safety. It also found two-thirds of investors said they were prepared

for market risk at the start of 2018 but with the benefit of hindsight, only 59 per cent said they were actually prepared for the downturn at the end of the year. “Investors don’t seem to grasp that if they are looking for doubledigit returns, they need to invest at the higher end of the risk spectrum. The fundamental disconnect between their expectations about return and their ability to tolerate risk highlights how important it is for investors with their advisers to better understand risk and volatility,” said Damon Hambly, chief executive, Australia, at Natixis Investment Managers. According to the CFA Institute, there are four types of investors; cautious and methodical ones who have a low willingness to take risk and spontaneous and Continued on page 24

6/08/2019 10:10:44 PM

24 | Money Management August 15, 2019

Asset allocation

Continued from page 23 individualists who have a high willingness to take risk. Paul Resnik, co-founder of risk profiler FinaMetrica, said: “We score people between zero and 100 and then tell them how that compares to others and how people of a similar score to them invest their money. “We suggest people re-test their risk profile every two to three years or after a major life event, we find your risk tolerance tends not to change but your financial needs will do over time.”

PORTFOLIO CONSTRUCTION The next step for the advisers will be to use this information to build a portfolio suitable for their risk levels which could include managed funds, direct equities, bonds, property, cash, ETFs and alternatives. Or in the words of GSFM adviser Stephen Miller, when it comes to portfolio construction, ‘the first rule of finance is diversification, so is the second and so is the third’. As shown with the risk tolerances, it is impossible to define the ‘correct’ portfolio as each persons’ needs will vary so

firms will usually use a range of five or six different risk levels. While these definitions vary by firm, most will tend to work along the lines of conservative, moderate, balanced, growth, aggressive and highly aggressive. For example, the lowest-risk conservative one will hold around 85 per cent in defensive assets and 15 per cent in growth while the highest-risk highly aggressive one will hold zero in defensive and 100 per cent in growth assets. FinaMetrica scores are mapped with the model portfolios of large asset managers such as HSBC, Vanguard and Zurich. For example, at Vanguard, a client with a FinaMetrica score of between 41-53 would be suitable for a Vanguard LifeStrategy 40% Equity fund. Stuart Fechner, account director of research relationships at Bennelong Funds Management, said: “I’m a big fan of funds for purpose, it’s not about the number of funds but the differentiation between them. You need different roles for different purposes depending on how the market unfolds. It’s about how all the funds work together in a portfolio”. Equities, either directly via

Table 1: Individual personality types

Investor type

Risk level

Characteristics

Cautious

Low

Dislike losing money Uncomfortable with volatility Low portfolio turnover

Methodical

Low

Well-informed Willing to accept lower returns for lower risk

Spontaneous

High

High portfolio turnover Chasing investment trends

Individualist

High

Self-assured Well-informed

Source: CFA Institute

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stocks or via equity funds, can bring capital appreciation, dividend income and a potential hedge against inflation. Bonds then bring income generation, capital preservation and hedge against an economic slowdown. The expectation is that when equities fall, bonds will rise which will offset equity losses and smooth returns. However, since the global financial crisis, this idea has become increasingly ineffective thanks to monetary policy and the effect of the financial crisis on investor sentiment. Tim Sparks, head of sales and marketing at Bell Direct, said Australian investors tended to have a home bias with their equity investments and it would be worth them including international equities as well to get exposure to areas such as IT and pharmaceuticals which were less covered in Australia.

“Previously, getting access to international markets has been difficult, there have been tax incentives to invest in domestic stocks and investors have familiarity with domestic stocks such as Woolworths. But that barrier has been coming down over time as global brands come into the market which has driven increased demand for international stocks,” he said. The next step would be considering assets which are uncorrelated with other sources and for that reason, many advisers will then add alternatives to a portfolio. Philippe Jordan, president of CFM International, said: “A portfolio filled with positively correlated assets will generally not perform as well as a diversified portfolio which contains de-correlated assets – because if all assets fall at the same time, overall losses will be greater”.

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Asset allocation

ALTERNATIVES The aforementioned Natixis survey found 57 per cent of global investors were looking at alternative investments to enhance the diversification of their portfolio and 65 per cent said they wanted strategies less tied to the market. However, there was significant less awareness of alternatives compared to other asset classes with 15 per cent unsure if they held them in their portfolio. There is also a difference between alternative assets such as property and commodities and alternative strategies such as market neutral funds and long/ short funds which use multiple strategies to create a product with low correlation to equity and bonds. According to Fechner, an alternative should provide diversification that is uncorrelated with other core portfolio exposures. They are usually held for one of three reasons; to provide downside protection, to offer a consistent return or to counter negative equity markets. Unlike other assets, the focus of alternative performance is on achieving better risk-adjusted returns rather than best absolute returns. Neither is it the aim for alternatives to improve their performance each month, often they will be flat or underperform the stockmarket as the expectation is they will provide steady returns in all types of market environments rather than fluctuate like equities. “It’s important to remember that the investment isn’t happening in isolation, but rather is part of an overall portfolio. Therefore how it correlates and interacts with other assets is paramount. “Diversification is a key aspect of structuring a robust investment

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portfolio, but it’s more than a numbers game. Adding more investments that perform or correlate highly with an existing asset isn’t adding true diversification – it’s not improving the portfolio’s risk/return outcome,” he noted. Jordan said: “Alternative strategies are most effective when used over the long term. Like any investment strategy they will over – as well as underperform in the short term – but the important thing is that over the long-term they provide diversification benefits which smooth returns and help keep investors invested”.

REBALANCING Once the portfolio is in place, the ideal scenario would be to leave it to accumulate, investors are regularly criticised for being too ‘hands-on’ and making changes too frequently on the basis of short-term market movements. Behavioural finance dictates few people are ‘perfectly rational’ and will make mistakes on the basis of emotional or cognitive biases, such as presuming a stock will perform based on past performance, holding riskier investments in the belief they will outperform safer ones or holding onto a falling stock until they break even rather than suffer a loss. But life and markets aren’t always that simple and many factors will require the portfolio to be rebalanced. Other times life circumstances such as a wedding, divorce, new baby or retirement will dictate the need for a change to a person’s plan. Jordan said: “We know that investors are more likely to change allocations during times of market upheaval or change

THINGS TO CONSIDER WHEN SELECTING ASSETS FOR A PORTFOLIO: • What is your time horizon? • What is your capacity for loss? • What are you trying to achieve from this investment? • Does it offer diversification benefits? • Are you comfortable with the level of volatility? • Are you comfortable with the possibility of losing money from this asset? – but this is often the time when remaining invested and sticking to a rational strategy is the best course of action – and changing is potentially the worst. “Having said that, an investor’s investment horizon is important here as well. If you have a long investment horizon you are likely to get the best outcome by keeping everything constant – and even with a shorter horizon, moving allocations too frequently is rarely a successful strategy. Lots of investors believe that they are good at timing the market, but the reality is that virtually no one is. Sticking with a rational strategy will yield better results.” In the scenario of a nervous client who wanted to exit their holdings after experiencing market volatility, Fechner said, advisers had two options for how to deal with this. “You can either use it as an opportunity for client education and a buying opportunity or the client may say they no longer feel comfortable with that level of risk and it is out of whack in which case it may need to be re-jigged. It’s about whether they can sleep at night.” Life circumstances were not the only reason to rebalance portfolios, they should also be assessed in light of market conditions. With rising stockmarkets in Australia and two

interest rate cuts, GSFM’s Miller said he would be considering changing his allocation now before any major fall. “People are happy with equity and bond returns right now and that’s when you should be diversified because the party won’t last forever and there are only needs to be one uncertainty to manifest itself and we could need to rapidly rethink the investment environment. “Indexes have done so well recently that people aren’t as focused on diversification as they should be.” However, Sparks highlighted it is not in investors’ favour to rebalance too regularly due to transactions costs. These are charged on a per transaction basis or as a percentage of the gross value of the transaction order. “It takes a disciplined investor in a balanced portfolio to see the short-term market movements and take money out of bonds and into equities. Investors should review annually, the opportunity is there to do so more often but transactions costs build up, even though the costs of buying and selling are much less than 10 years ago. “Investors shouldn’t be distracted by market noise, should be measured, should understand volatility exists and rebalance on an annual basis.”

6/08/2019 10:10:51 PM

26 | Money Management August 15, 2019

Philanthropy

GIVING PHILANTHROPY CENTRE STAGE While many of us know we should undertake philanthropic activities, Emma Sakellaris writes, why charitable giving should be a key component of our financial planning. FOR SOME, THERE are key periods of the year due to which philanthropic activities are undertaken, whether it be the often-isolating feelings of the festive season; the harsh chill of the winter months; or when a new financial year tax strategy is being meticulously mapped out. But the practise of giving to those in need must extend beyond particular times of the calendar to be regarded as a key component of our moral and financial obligations – as well as to be most effective for the charities involved. There are many reasons why people decide to engage in philanthropic endeavours – to provide a sense of financial obligation to those less fortunate for next generations; to actively contribute to positive change across communities; as a legacy, often in reflection of personal circumstances or experiences; or perhaps as one is able to give, they do give. While the motivations of donors are essentially driven by the desire to contribute to a better world for all, the detail regarding execution of the strategy and the more granular giving approach, should be regularly reviewed by individuals, and indeed, their financial professionals. While leaving charitable giving to the end of the financial year, when tax advantages are being maximised, is understandable, it may not be the most effective way of implementing a philanthropic strategy. There are some notable trends within the philanthropy sector which indicate this ad-hoc trend could be changing, and that people are beginning to regard philanthropy alongside more

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traditional aspects of managing their financial position and strategy. Statistics shows that philanthropic giving in Australia is on the rise, increasing $1 billion to $121 billion over the past two years – with this expected to continue to grow. As well, those financial advisers who raise philanthropy with their clients during regular reviews, often find that strengthened client relationships, across multiple generations, result.

SOCIAL MEDIA INCREASES FREQUENCY OF GIVING One trend to emerge in recent years has been the relatively high rates of philanthropic giving among millennials and women. For the former, social media has served to facilitate and grow this trend, and the platform also benefits the notion that philanthropy is not intrinsically linked to tax time, for example, but should be something that is routinely considered throughout the year. Younger generations are promoting their own charitable giving on social media through status updates and other feeds, and motivating others to give and contribute to a better community for all. More generally, online platforms, giving circles and crowdfunding initiatives are also playing an increasingly important role in Australian philanthropy and the formation of strong and diverse connections across communities. Furthermore, women are playing an increasingly significant role in philanthropy and charitable giving, with statistics showing that donors worldwide are predominantly female (73 per cent). This is arguably being driven by multiple factors, namely women’s

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Philanthropy life expectancy rates in developed countries and subsequent inheritance from elderly parents and often partners, as well as the shift in women’s workforce participation rates. Interestingly, research has shown that single women are more likely to undertake charitable giving, and they tend to donate greater amounts when compared to single men. Women also give to a broader range of organisations when compared to men, are more likely to act collaboratively in their philanthropy, and pool their giving with others. There is also considerably greater transparency now with regard to individuals sharing their involvement in philanthropic causes. Unlike other countries – such as the United States – where philanthropy is significantly more culturally embedded, until recently

philanthropic activities often remained largely very private with little public acknowledgement. With the rise of social media, that anonymity has given way to people actively sharing their charitable giving and, in doing so, motivating others to give too. With the rise of online platforms and crowdfunding, this trend has gained strong momentum. Globally, it is a time of unprecedented change within philanthropy, with an emerging cohort of substantial donors contributing directly to highly impactful community projects. It is yet another example of the changing nature of philanthropy and how it is no longer the exclusive domain of the very wealthy or seen as only a way to gain a year-end tax benefit. This shift has also continued to increase donor interest in concepts such as impact investing.

“Philantrophy is no longer the exclusive domain of the very wealthy or seen as only a way to gain a year-end tax benefit.” –

Emma Sakellaris, Australian Unity Trustees

Many charities have felt the downstream impact of this shift and are even more reliant on regular, consistent grants through charitable foundations, structured giving and bequests.

LEAVING A LASTING LEGACY While more traditional grantmaking via structured giving contributes critical funding to charitable initiatives and remains a key component of tax planning, at the same time significant global events, such as unprecedented

CHARITABLE GIVING: HOW TO GET STARTED There are three main options available to individuals who wish to set up a philanthropic legacy, all of which provide a structure that allows funds to be invested and managed, with income generated available for distribution to charitable entities and programs. Public Ancillary Fund A Public Ancillary Fund (PuAF) is a fund usually managed by a trustee company, which allows individuals with smaller amounts available for an initial donation, to establish a charitable sub-fund during their lifetime. The sub-fund established can accept future donations from the individual; members of the individual’s family; and the broader community. All donations received into the sub-fund are tax deductible. A key benefit of this approach is that the minimum initial donation required to establish a sub-fund is around $20,000, which is lower than other structures, and the tax deduction from the initial donation can be spread over five years. Charitable trusts are designed to support growth capital over time, whilst generating sustainable income for granting distributions. In addition, all the investment, compliance and administrative requirements are undertaken by the trustee. Private Ancillary Funds A Private Ancillary Fund (PAF) is established by an individual via a Deed but is only able to receive future, additional donations from the original donors. As a standalone trust, the fund’s financial statements must be annually audited and an appropriate investment strategy must be implemented and regularly reviewed. The minimum initial donation required to establish a PAF is around $200,000. This initial donation provides a sufficient capital base to seek to generate required income, in line with annual minimum distribution requirements (at least five per cent each year of the fund’s net value or $11,000 – whichever is greater – must be distributed), as well as meeting administration, reporting and compliance costs. Testamentary Trusts A testamentary trust is established via a clause in a Will upon the passing of the individual. As the trust is established upon passing, the funds donated into the trust are not tax deductible. The trust is then administered by the appointed trustee into perpetuity. Usually, initial capital of at least $50,000 is required to ensure the trust is viable. These structures all represent the more traditional means of establishing a lasting legacy however a key difference with regard to testamentary trusts is there are fewer limitations regarding the charitable entities to which the trust may grant funds. This can provide the individual with broader options for granting, although does mean individuals don’t see the benefit of the grants while they are alive.

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natural disasters and mass people displacement have shaped community movements towards fundraising. There is an increasing level of focus on sustainability and meaningful philanthropy that establishes a lasting impact or legacy. The key advantage of a structured philanthropic legacy is the ability for the donor to give back to their community, now and into perpetuity, not just through ad-hoc donations. It is regular, recurring giving that provides the most benefit. Regardless of the structure established, all provide the benefit of enabling people to become involved in the causes that are most important to them and their families, and often bring family members, across multiple generations together to consider and discuss their philanthropic values and legacy. Fundamentally, families can be connected through a shared purpose. For advisers, raising the subject of philanthropy is a way to more deeply understand a client’s philanthropic objectives; further strengthen trusted relationships; and establish long-lasting relationships across multiple generations, many of whom may choose to maintain and grow the charitable trust long after the original donor passes. Philanthropy is a highly personal and often emotional journey and can be undertaken in a number of ways across an individual’s lifetime and multiple generations. Irrespective of circumstances and preferences, there is a structure that is suited to most individuals, allowing the creation of a tailored philanthropic legacy. And the right time to start is now. Emma Sakellaris is executive general manager at Australian Unity Trustees.

6/08/2019 12:57:05 PM

28 | Money Management August 15, 2019

Aged care

THE AGE OF CARE

Saving for retirement is important, but how those savings are implemented into planning and covering future residences is an important part of any retirement plan, Chris Dastoor writes. HAVING ENOUGH MONEY for retirement is always at the forefront when it comes to retirement planning but there are finer details, like the actual physical space you will live in and the care provided, which need to be thought about too. The most recent statistics (20172018) provided by the Federal Government’s Australian Institute of Health and Welfare (AIHW) state there are 207,695 places in aged care residence around the country. Those allocations have increased from approximately 184,600 in 2012, with there currently being a 90 per cent occupancy rate,

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and New South Wales, Queensland and Victoria accounting for 79 per cent of aged care locations. Samantha Geelan, senior financial adviser aged care professional at Rethink Financial, said there would be a shortage of quality aged care providers in the future as different requirements were coming into effect which would put pressure on aged care facilities to provide a high standard of quality. “The issue being it requires a level of expertise and staffing, a lot of facilities may not be able to provide that optimally,” Geelan said. “If they want to be in the best

type of facility, there are huge waiting lists that apply to those ones that do it well.” With the ever-increasing ageing population, advisers must keep this a priority when it comes to planning their clients’ futures. But is moving to an aged care residence the best fit? Or if leaving the family home that has been occupied for decades is undesirable, then is home care feasible? According to the AIHW, the government spends around $18 billion on aged care, with $12.4 billion being spent specifically on residential aged care and $5.1 billion on home care.

WHAT CAN ADVISERS DO? Louise Biti, director of Aged Care Steps, said aged care planning is just part of normal retirement planning. “As soon as you start retirement planning, you need to contemplate aged care needs and issues,” Biti said. “The last 15-20 per cent of our retirement years are likely to be periods of frailty where we need extra support and help. “When planning for retirement, we need to be thinking about the adequacy of savings to get through not just the fun parts of retirement, but also the frailty parts.”

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Aged care

Figuring out how clients are structuring their assets, and making sure they appropriately select powers of attorney, naturally comes with the start of retirement planning. It’s important to make sure there are adequate resources left for when they reach that frailty period, when there could be a struggle with independence and autonomy. “It’s when they move from being in their active years to their quieter years, where they’re less keen to travel and are finding things a little bit more difficult,” Biti said. “Whether where they’re living is going to be appropriate for the longer term or not, whether they need to make a change and how they start funding for those needs as well.” Geelan said advisers with the proper background and client relationship should be able to flag the areas in which clients need the specialist support. “That can include a review of the standard investments, but it should also be access to entitlements and government support services through retirement and ageing,” Geelan said. “You also need to consider impact for wills and powers of attorneys — if it’s been structured correctly — and the impact these things have to their aged care, Centrelink, tax and legal matters.”

BUILDING THE FUND-ATION Biti said everybody has different needs for aged care, and the finances and cost are quite different. “If we’re looking at all options, cashflows are the key to being able to pay them, once they get to residential care, they’ve got choices around paying lump sums instead of cashflow,” Biti said. “But if they have cashflow, they know they can afford it whether it’s paying privately for services, people helping them, a home care package or residential care. “It’s about making sure they’ve got investments that will create regular steady cashflow that can ramp up in the later years to cover

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those additional needs.” Claudine Siou, senior technical services manager at IOOF, said one of the key considerations is the family home, especially if there’s a single person moving into an aged care facility. “There are practical considerations that relate mainly to the locality of the facility, whether it’s within a certain distance of relatives and friends,” Siou said. “But in terms of financial considerations, we’re looking at cashflow and if the person can afford to pay the fees, and whether they can afford to keep the family home. “Especially if it’s being rented out to a related party or relative and they might not be getting the full amount of rent in that situation.” The other common alternative is selling the family home, which can be used to cover funding of an aged care residence. “We need to change the mindset that our home provides us somewhere safe to live,” Biti said. “If they can no longer live in their home, then it provides the money to buy the next home, which might be residential care. “Or it can be turned into equity that creates an income stream and cashflow to pay for the care needs.” Siou said the most common decision she sees is to sell the family home because from a capital gains tax (CGT) point of view it can be exempt, as it’s been the main residence for the period of time they’ve owned it. “It’s just more practical, often the home can be in a state of disrepair and that on-going maintenance can be a burden on relatives who might have to look after that person’s financial affairs,” Siou said. Not everyone owns a home, and this will be a potential issue for many Australians in the future, for which planners will have to find alternative solutions. “If they don’t own a home, you can’t fund a lump sum refundable accommodation deposit,” Siou said. “If they do have the means to pay for some of their care, they’re

“When planning for retirement, we need to be thinking about the adequacy of savings to get through not just the fun parts of retirement, but also the frailty parts.” —

Louise Biti, director of Aged Care Steps

paying high daily accommodation payments because they aren’t able to fund that lump sum which becomes a cashflow issue. “If they don’t have other people who can support them in paying that, they would be better off staying in their home and paying the fees and receiving care in that situation.” Geelan said it’s a fundamental flaw to assume people who don’t have substantial amounts of money can’t get value out of receiving advice in this respect. If they can’t afford to pay their up-front accommodation costs because they don’t have a house or reach the asset threshold, clients may be able to be supported by the government. “A lot of the lower means or lower socioeconomic clients can actually get the most amount of value,” said Geelan. “There’s actually a requirement with aged care facilities that receive government subsidized funding and support, they are required to have at least 30 to 45 per cent of residents in aged care facilities to be supported. “If these clients don’t receive that advice beforehand, they’re worse off because they don’t have the money to be able to pay the full upfront accommodation costs.”

CARING AT HOME Having a real estate asset to sell can work if they’re moving into an aged care residence, but if they choose to remain at home, this can create a funding hole if they require home care. They might have the cashflow to cover it, but if not, there are other options to provide funding to cover home care. Equity release is an important and valuable strategy available that can be used as an alternative

solution. “If it’s equity release using a reverse mortgage product, the government has improved its equity release program, the pension loan scheme, so that could also be an option,” Biti said. “There are different sales schemes emerging in the market around where you sell part of your property off and continue progressively selling parts of it off. “You still own it, you still have the right to live in it, but you’re progressively selling parts of it and getting extra capital which you can then use to pay for your care needs.”

ENDURING POWERS OF ATTORNEY As wills only come into effect when you die, clients still to need to appoint an enduring power of attorney for when they lose capacity. “There are studies that indicate your capacity to [make decisions] can actually start to decline from age 60,” Siou said. “It’s really important to consider this, not when someone’s moving into aged care, but at an earlier stage in life.” It’s a necessary appointment, regardless of whether you’re going to be staying in an aged care residence or going the home care route. “Every single person should have an enduring power of attorney in place, which says ‘if I can’t make the decisions, or I choose not to make those decisions, here’s who I nominate,’” Biti said. “They’re nominating who is going to act in their place and they can specify what sort of decisions they’re going to be able to make. “Then they also need to look at whether you might need somebody to make decisions around what sort of care you get where you live.”

6/08/2019 1:00:40 PM

30 | Money Management August 15, 2019

Equities

WHEN TURNAROUNDS WORK The potential for a company in turnaround process is rich with opportunity, writes Lawrence Lam, so what clues can investors look for to determine those with an optimistic future? INVESTING IN CORPORATE turnarounds is like buying a broken vintage car. Most will end up in decline, but a special few will be fixed and reward their owners handsomely. When corporate turnarounds work, they yield spectacular returns in the multiples. This is the model private equity firms employ. So can ordinary investors apply the same principles to profit from these special situations? What factors should be considered in the analysis? Many investors shy away from turnarounds. After all, the company in consideration is usually experiencing historical decline. Think about Qantas 10 years ago. From 2008 to 2010, Qantas revenues fell by $2 billion (13 per cent decrease over two years). Add to that an industrial dispute that lasted two years, Qantas was a very unpopular blue chip. Its share price fell by 82 per cent from 2007 to 2012. But we all know what has happened since then. It turned out to be the perfect window of opportunity to invest as Qantas has returned a multiple of 4x total shareholder return since then.

CORPORATE DECLINE OR MULTIBAGGER TURNAROUND? Most corporate turnarounds will not work. These companies have left it too late to adapt to changing business environment. For example, many retail companies reliant purely on foot traffic have realised too late they should have invested heavily in online sales (think J.C. Penney).

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But environmental challenges exist all the time. This is not the cause of failure. It is the inability to adapt and evolve that leads to erosion of a business model. For every J.C. Penney, there are companies like Home Depot that have continued to grow with the market. As investors, we focus a lot on asking ourselves, “are we being too optimistic? Is this a bubble?” but we should equally consider the flipside, “are we being too pessimistic? Is the stock underpriced?” Opportunities reveal themselves only to those that investigate further. This was why Warren Buffett invested a quarter of his assets in American Express when its share price halved in 1964. The company had been left with an immense financial obligation after being defrauded by one of its clients. The trust in the brand had been severely damaged and the company was in trouble. Despite this, the clue to the future growth of Amex was in the Oracle’s analysis. After delving deeper, Buffett concluded the fundamentals of the company were robust. Customers continued to use Amex cards and the brand was unlikely to be permanently impaired. The rest is history. Just because a company’s share price is declining, should not mean it’s an automatic write off. The very essence of investing urges us to seek out the truth through analysis. But most struggling companies aren’t like American Express. Many have weak underlying fundamentals. Everyday investors

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August 15, 2019 Money Management | 31

Equities Strap

don’t have the ability to aggressively restructure companies like private equity firms. Does this exclude investors from participating in potentially lucrative turnarounds? What are the clues investors can use to determine if these companies will be future multibaggers?

Clue 1: Look for companies with a smallersized board with less external directors. Corporate turnarounds require rolling up of sleeves. The board's role in getting their hands dirty has greater value than being a typical challenger/debater when crucial decisions are required. Executive directors are likely to add greater value in this respect than non-executive directors. Conventional wisdom dictates that corporate boards should separate the role of the chief executive and chair. External independent directors should be favoured. Textbooks say this governance model is how corporations maintain proper checks and balances. This doesn’t work for turnaround situations. A core ingredient in any turnaround is the minimisation of bureaucracy. The company needs all hands on deck and all hands need to be fully aligned. Often hard decisions need to be made, and made with conviction. This is not the time for board politics; independent directors looking for their next board gig won’t help the situation. Conventional governance doesn’t work in this case because there are too many chefs in the kitchen.

Clue 2: Companies that implement ways to grow themselves out of decline are more likely to be multibagger turnarounds, as opposed to those that reactively cost-cut when times get tough. Fixing a broken vintage car isn’t

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easy. It requires correct diagnosis of the issues and then applying the right actions. Most of the time CEOs aren’t focused on the correct areas. Research has shown that turnaround strategies focused on building and growing are significantly more effective than those on cost-cutting. It requires greater courage to launch new products or increase research and development spend in the face of decline. Most CEOs are reluctant to take career risk with this approach when conventional cost-cutting exercises like downsizing can yield immediate short-term improvements.

Clue 3: Founders are more likely to lead a successful turnaround of their companies. Crucial to any successful turnaround is a CEO who is resourceful, creative and an adept capital allocator. There’s a certain type that fit this mold well, those founders our fund is very familiar with. The benefits of investing in founder-led companies are wellknown. This is our specialty. It also happens to be underestimated by many investors. Founders who remain long-term managers and owners of their companies are the best candidates to lead a successful turnaround. Captains of their own leaking boat are highly motivated to repair it permanently rather than jump ship. The Corporate Governance International Review found there to be historically a 24 per cent greater likelihood of success when founders led a corporate turnaround. There are many examples of these types of leaders, the wellknown ones are Steve Jobs and Howard Schultz. The resurrection of Apple and Starbucks can only be attributed to the brilliant impact of

these founders and the heart they had in their business.

Clue 4: Look for close alignment between board, management and ownership. This is often represented by economic interest or voting rights. Being joined at the hip pocket is a wonderful thing. Strong leaders who stand to gain as much as owners is a strong clue for the likely success of a turnaround. One media-shy businessman has had an incredible track record of rebuilding companies. Luc Tack hails from a small country town in Belgium called Deinze. I confess that our admiration for Luc’s abilities is biased. Our fund is invested alongside him and we stand to benefit from his nous. The son of an operator of a small flax factory, it was 1979 when young Luc saw an opportunity in the growing Belgian furniture market. But it wasn’t selling furniture itself, that was far too competitive for Luc. The real opportunity was in supplying the wood instead. So the 21-year-old flew to the United States, secured a wood supplier and founded a company called Oostrowood. As he later recalls, his longterm business mindset came from his mother who always said to him, “do not cackle, lay eggs”, and laying eggs he did. By the 90s, Oostrowood had transformed itself into a wooden flooring company and Luc began moving into an equally unsexy industry – textiles. Weaving mill companies Ter Molst and Oostrotex were eggs laid in the nineties that would later prove crucial to Luc’s future success. On the back of the success of his diverse businesses, in the early 2000s Luc took majority control of a struggling weaving loom

“Just because a company’s share price is declining, should not mean it’s an automatic write off. The very essence of investing urges us to seek out the truth through analysis.” – Lawrence Lam, Lumenary

manufacturer called Picanol. It was 2009 and the quiet entrepreneur pumped €15 million ($25 million) into the then-ailing company that was on the verge of bankruptcy. No one else believed in the company at the time. It was a neglected manufacturing business riddled with internal division and hadn’t adapted to the changing market. His first objective as CEO was to turn a profit. He announced that for as long as the company made losses, he would not pay himself a salary. He suffered for only one year. Since his tenure, the company has increased its revenues by 2.5x and almost tripled its net profit. To this day, Luc Tack sets himself a measly salary of €100,000 each year. His focus remains firmly on ‘laying eggs’. Investors can make a lot of money from corporate turnarounds and have lower risk as prices are depressed. The clues above help to see whether a company has the heart, stomach and brains necessary to change their fortunes. Sometimes things aren’t as dire as we think. Lawrence Lam is managing director and founder of Lumenary Investment Management.

7/08/2019 9:37:44 AM

32 | Money Management August 15, 2019

Life insurance

INSURERS BEHAVING BADLY With many individuals unknowingly finding themselves without life insurance as a result of low super balances, Col Fullagar outlines whether the conduct of insurers has improved post-Royal Commission. A JOURNALIST RECENTLY asked “So, has the conduct of insurance companies changed since the introduction of the Code of Practice and subsequent to the Royal Commission?” “Oh, absolutely” was the immediate response. “In what way?” came the follow-up question. “Well, from what I can see things are decidedly worse.” The three situations below have involved interaction with insurers over the last three months. Whilst names and dates have been amended to enable anonymity, the essential facts remain.

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SUPER INDUSTRY FUND NOT SO SUPER In 2005, Dennis joined an industry fund. He maintained a relatively small account balance to which was attached default cover. On 4 August 2014, Dennis completed a Change of Member Details form to advise the fund of his new address and updated beneficiaries following the birth of a second child. Unwittingly he dated the form 2010. Dennis heard nothing to the contrary so he reasonably assumed that his instructions had been carried out. On 11 November 2017, the fund wrote to Dennis and advised him that his account balance was less

than $10,000 and employer contributions were not being made, thus his insurance would lapse in 30 days’ time unless remedial action, as detailed in the letter, was enacted. Unfortunately, the letter went to Dennis’s previous address because the fund had not altered his details despite the instructions given in 2014. As a result, the letter was not received and Dennis’s insurances duly lapsed. In October 2018, Dennis was diagnosed with cancer and it was only when he contacted the insurer to make an income protection insurance claim that he was made aware his cover was no longer in

place and why it had lapsed. Realising that his change of address request in 2014 had not been actioned, Dennis wrote to the fund, formally advised them what had happened and asked that his insurances be reinstated so that his claim could be considered on its merits. It took almost two months for the fund to come up with a number of reasons why the failure to update Dennis’s address details was not their fault, including: “The Change of Member Details form was received by fax 5 August 2014 but was dated 4 August 2010. As the form was well over 90 days old (six years), it was only possible to

5/08/2019 4:52:10 PM

August 15, 2019 Money Management | 33

Life insurance

update the beneficiaries not the address details” Several things were clear: • The fund had made a conscious decision to not update the address details; • The fund had not thought to question if the date on the form was 4 August 2010 and it was received by fax 5 August 2014, perhaps the year might have been completed in error; • The fund had not checked the print date on the form which, in the bottom right corner was shown as “03/14” – in other words, for the fund’s position to hold merit, Dennis would have needed to sign the form almost four years prior to it being printed; • The fund was evidently comfortable to change beneficiary details but not address details based on a form that was judged to be more than 90 days old; and • The fund cannot count as 2010 to 2014 is four years not six years. The other reasons given by the fund for not actioning Dennis’s instructions were equally lacking in merit. A response to the fund’s position was made with a further request that the insurances be reinstated. This time it took three months for the fund to come up with a new reason not to correct its error: “Unfortunately, we are unable to offer an extension to the lapsed insurance cover as our insurer, (NAME), has declined to support this request. The insurer has advised that they cannot offer the option to extend your cover that has lapsed, back-dated to 2017, given the length of time since the cover had lapsed and the impact a decision like this would have on

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the pricing and risk for all members of the fund.” Not only is the above essentially cobblers but neither the fund nor the insurer, in any way addressed the crucial issue, i.e. the policy lapse arose out of the funds failure to carry out Dennis’ instruction. If a financial services institution fails to carry out the reasonable request of a policy owner, is it unreasonable to suggest that the policy owner should not be financially prejudiced as a result of the failure? Dennis’s matter is ongoing.

PONTIUS PILATE; ALIVE AND WELL Mary was on a long-term income protection insurance claim, the validity of which was not in question. In 2018, the insurer wrote to Mary and advised it had discovered an error in the calculation of benefits over the duration of her claim. A full reconciliation had been undertaken and the outcome was that an amount of $20,000, which included interest, had been credited to her account. The usual apology for any inconvenience caused, was given. For all intents and purposes, the insurer had done the right thing. Unfortunately, two additional, but not surprising, flow-on problems were created for Mary: • the lump sum payment impacted adversely on her means-tested Centrelink benefits; and • it put Mary into a higher tax bracket than would have been the case had the income protection payments been spread over the duration of the claim. Indicatively, the impact of the above came to around half of the lump sum payment.

The insurer was contacted and provided with the relevant facts and documents, and asked if it could use one of its internal resources to calculate the exact amount of Mary’s loss, and provide her with additional compensation in a way that would not lead to a new bout of problems. The insurer’s financial specialist replied “Having paid the underpaid amount, we have no further responsibility in this matter”. A referral to the insurer’s ‘client advocate’ aka internal dispute resolution person, eventually brought the following, equally unhelpful, advice: “(INSURER) recommends that Mary seeks advice from a qualified accountant with regard to the payments which have been made …… in order to confirm how these payments are treated by the Australian Tax Office and may influence the entitlement to additional benefits under family assistance law.” Organisations are capable of making errors but, if an error is made the insurer should not only correct it but do so in a consultative way such that the policy owner is not financially prejudiced, including the cost of professional referrals. Mary’s matter is also ongoing.

DUE PROCESS IN REMISSION Thomas had been on a mental and nervous disorder income protection insurance claim for several years. Initially benefits were paid on a total disability basis; eventually, however, Thomas managed to return to work in a less demanding and stressful role such that benefits reverted to something approximating 50 per cent partial. Benefits were paid monthly in arrears, on the 10th of each month.

COL FULLAGAR

Thomas regularly saw his general practitioner and a psychologist, in regard to his ongoing condition. In October 2018, Thomas attended an insurer-arranged neuropsychological examination. The subsequent report concluded, in part: “Speed of information processing is the main area of functioning in which significant dysfunction was demonstrated. This also impacted on the speed with which (Thomas) was able to sequence and visually scan over information …… Slowed processing speed suggests that (Thomas) may experience some difficulty working under time pressure and meeting tight deadlines.” Notwithstanding the above, the examination report concluded that, provided Thomas used coping strategies, he should be able “to complete the duties associated with the role of private banker”, Thomas’s pre-illness occupation. Thomas’s insurer continued to pay partial disability benefits through to March 2019 when a second independent examination was undertaken; this time with a consultant physician. Continued on page 34

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Continued from page 33 The subsequent report largely agreed with the October 2018 findings, adding that Thomas “has only seen a psychologist and there have been no inpatient admissions ….. his adjustment disorder is now in remission ….” The examiner made no mention of why Thomas’s condition might have been in remission, for example, he was avoiding exacerbating stressors such as working under time pressures and trying to meet tight deadlines, nor was comment made about what might trigger his condition coming out of remission. On 9 July, the day prior to the June benefit payment being due, the insurer wrote to Thomas and advised that “You have been assessed as no longer suffering any diagnosable or incapacitating condition that prevents you from returning to work in your pre-disability role.” The same letter noted that a copy of the above reports had been sent to the treating general practitioner. There was no mention of whether a copy had been sent to the treating psychologist. Crucially, however, neither the treating general practitioner nor the psychologist were asked to opine in regard to the report findings. Independent medical examinations have been criticised in the past coming out of a perception of examiner cherry-picking and the inadequacy of opinions based on a single examination versus that of the treating practitioner’s opinion based on a much longer-term exposure to the patient. Even setting that aside, it is relevant to note that an insurer seeking to take action in regard to an alleged non-disclosure, provides the claimant with an opportunity to

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respond prior to the insurer making a final decision. Generally, income protection insurance benefits continue during this period. This is called “due process.” Apparently, for some insurers, due process is in remission when it comes to the cessation of a claim where there is no suggestion of non-disclosure. Whilst Thomas’s matter is ongoing, the insurer has conceded that the actions taken were less than ideal and has now sought an opinion from the treating general practitioner.

CODE COMPLIANCE WOULD BE A GREAT START Section 8 of the Life Insurance Code, is headed “When you make a claim” and sub-section 8.5 indicates: “We will only ask for and rely on information and assessments that are relevant to your claim and policy, and we will explain why we are requesting these. This can include, for example, financial, occupational and medical information. If you disagree with the relevance of any information, we will review the request, and if you are not satisfied with our review we will tell you how you can make a complaint.”

This makes three things clear: • An insurer will only ask for information and assessments that are relevant to the claim and policy; and • Having identified that information and assessments are relevant, an explanation will be provided to the claimant, or their representative, explaining the relevance of the information and assessments to the claim and the policy; and • The nature of the explanation will be sufficiently detailed to enable an informed decision to be made by the claimant or their representative to agree to provide that which has been requested or to challenge said relevance. Has the presence of sub-section 8.5 made a difference? Example — A recent question put to an insurer after a request was made by the insurer for a claimant to sign a Medicare/PBS report authority: “I noticed that the claim pack requested that my client sign a Medicare Report Request that was pre-populated such that a report dating back to 1984 could be obtained. Similarly, the Pharmaceutical Benefits Scheme

Report Request was pre-populated to 2002. Could you please advise why reports going back so far are required?” The response: “As for the Medicare and PBS Authority, those dates have been pre-filled to enable our assessor to obtain all the information needed to assess the claim.” By definition, sub-section 8.5 above already resides in the Code so why is compliance with it not evident? It would be meanspirited to suggest that efforts and changes have not been made and no doubt improvements have occurred in some areas since the introduction of the Life Insurance Code of Practice and the Royal Commission. It would, however, be naïve in the extreme to think that the Code and the Commission have been panaceas, solving all the problems that led to their creation. Inexperience and intent remain and with them examples of poor behaviour. Adviser vigilance is even more necessary and important when it comes to client protection. Col Fullagar is the principal of Integrity Resolutions.

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SUPER’S ‘SPECIAL’ STATUS IN BANKRUPTCY

IOOF’s Claudine Siou explains how your super would be affected in the event of bankruptcy. ONE OF THE aims of bankruptcy law is to provide a ‘fresh start’ for the person after being discharged from bankruptcy. The concept of a fresh start is embodied in laws which release the person from the future liability to pay existing debts upon discharge. Consequently, the individual can start afresh in rebuilding financial security. Superannuation (subject to contributions recovered by the trustee in bankruptcy) has a

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special status in bankruptcy as it is property which is not divisible among the creditors of a bankrupt. The protection of super from creditors recognises that the accumulation of super over a person’s working life is instrumental in giving them a fresh start. This protected status is given to few other assets and those assets may be restricted in value. Super has a ‘special’ status in bankruptcy law because an unlimited value is protected and its status is above the family

home, which has prime status in other areas of the law, for example social security and tax.

THE PERSONAL EFFECTS OF BANKRUPTCY Bankruptcy doesn’t only affect a person’s economic status but can also affect them personally. For example: • a bankrupt must surrender their passport and cannot travel overseas without the consent of the trustee • a bankrupt is automatically

disqualified from managing a corporation and ceases to be a director • a bankrupt cannot be a member of an SMSF • a bankrupt is disqualified from being an individual trustee and ceases to be a director of a corporate trustee. A bankrupt member has six months to exit the fund or restructure the fund to a small APRA fund. Continued on page 36

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Continued from page 35

WHAT PROPERTY IS DIVISIBLE AMONG CREDITORS? Property owned by the bankrupt at the commencement of bankruptcy and property acquired by, or devolves on, the bankrupt, from the commencement of bankruptcy until discharge, vests in the trustee in bankruptcy and is divisible among creditors, subject to some exceptions. Property owned by the bankrupt at the commencement of bankruptcy which vests in the trustee could include: • their home or share of the home -the rights of secured creditors, normally a mortgagee, are generally not affected. • superannuation payments and life insurance proceeds received before bankruptcy. Property that vests in the trustee as soon as it is acquired by or devolves on the bankrupt during bankruptcy may include: • an inheritance from a deceased estate • a lottery win.

WHAT SUPERANNUATION CONTRIBUTIONS ARE VOIDABLE? Superannuation contributions made, by a person who later becomes bankrupt, at any time before bankruptcy are void against the trustee, if the trustee can establish: • the property would probably have become part of the bankrupt’s estate or been available to creditors if the contribution was not made, and • the person’s main purpose in making the contribution was to prevent (or hinder or delay) the property becoming divisible among creditors (‘to defeat creditors’). Void means ‘voidable’ which generally requires the trustee in bankruptcy to undertake legal proceedings to have the transfer declared void by a court. This is an important point because unless the trustee takes action and succeeds in recovering the property, the contribution remains valid.

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HOW IS IT DETERMINED THAT THE MAIN PURPOSE WAS TO DEFEAT CREDITORS? In determining whether the person’s main purpose in making the contribution was to defeat creditors: • The trustee needs to establish the person’s actual intention was to defeat creditors. However, an inference may be readily drawn in circumstances where the contribution leaves the person without sufficient assets to meet their debts, since the result is the property is not available for division among creditors. • The bankrupt is deemed to have that main purpose, if it can reasonably be inferred that at the time of the contribution the person was or was about to become insolvent. The actual intention of the contributor is irrelevant. • The court must consider whether, at any time before the contribution was made, the person had established a pattern of making contributions and whether that contribution is out of character. - ‘Out of character’ contributions are not automatically assumed to be made with the main purpose to defeat creditors. - ‘Out of character’ contributions may indicate the contributor was aware of impending insolvency.

Superannuation contributions made by a third party, for example an employer or spouse, for the benefit of the bankrupt are voidable under similar conditions, except the contribution was made under a scheme, to which the bankrupt was a party and the bankrupt’s main purpose in entering the scheme was to defeat creditors. Employer salary sacrifice and spouse contributions made from a joint bank account could be captured under this provision.

THE IMPORTANCE OF ESTABLISHING A PATTERN OF CONTRIBUTIONS Irrespective of circumstances which may clearly indicate the person was insolvent or was to become insolvent, the court ‘must’ consider whether the person had established a pattern of contributions. If the contribution forms part of an established pattern of contributions, it would not be ‘out of character’ and not indicate that the person was aware of impending insolvency. By establishing a pattern of contributions, superannuation of an unlimited amount may be accumulated and protected in bankruptcy.

PROPERTY NOT DIVISIBLE AMONG CREDITORS Property which is protected in bankruptcy includes: • an interest of the bankrupt in a

•

• •

•

super fund, except super contributions recovered by the trustee a payment, except a pension, from a super fund, received on or after the date of bankruptcy life and endowment insurance policies on the life of the bankrupt or their spouse and proceeds from such policies received on or after the date of bankruptcy damages and compensation for personal injury, wrong or death, in certain circumstances, whether recovered before or after bankruptcy property held by the bankrupt in trust for another person household items reasonably necessary for the domestic use of the bankrupt’s household a vehicle primarily used for transport worth up to $7,900 – the current threshold tools of trade worth up to a total of $3,750 – the current threshold.

ARE PAYMENTS FROM A SUPER FUND PROTECTED? Apart from pensions, all payments from a super fund received on or after bankruptcy, are protected and are not divisible among creditors. The protection is not qualified by who receives the payment from a super fund and reflects that a payment may be made not only to a member, but also to a spouse, child or other dependant of a

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deceased member. However, only payments made directly from a super fund are protected. A super death benefit may be paid to the legal personal representative (‘estate’) in which case a beneficiary receives the payment from the deceased estate. The payment loses its character as a payment from a super fund and is not protected from creditors of a bankrupt beneficiary. Bankruptcy of a beneficiary is an important aspect of estate planning for super. Provided the beneficiary is an eligible dependant, a binding nomination in favour of a bankrupt beneficiary will ensure the payment is made from a super fund and protected from creditors. Careful consideration is required when nominating a beneficiary who is at risk of bankruptcy. If the super death benefit is paid prior to bankruptcy, the payment is divisible among creditors. If the direct payment occurs after bankruptcy it is protected. Protected money includes a payment from a super fund and any proceeds of life and endowment policies on the life of the bankrupt or their spouse, received on or after bankruptcy. Property which is acquired wholly or substantially with protected money is also protected and not divisible among creditors.

WHAT INCOME CONTRIBUTIONS MUST BE MADE DURING BANKRUPTCY? A bankrupt is required to make income contributions if their income exceeds the relevant threshold – currently $57,866.90, net of tax, for a person with no dependants which increases depending on the number of dependants. Half of any income which exceeds the threshold is a contribution for the benefit of creditors. Income is according to ordinary concepts but also includes specific items such as: • employer super contributions in excess of an employer’s obligation to make

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superannuation guarantee contributions (currently 9.5%), under an industrial agreement solely between the employer and bankrupt • an annuity or pension paid from a super fund • a payment to the bankrupt in consequence of termination of employment • an annuity or pension from a policy of life or endowment insurance. Bankruptcy statistics indicate that income contributions are a far more effective means to recover property. Registered trustees recover almost three times the amount of money from income contributions than voidable transfers of property.

WHEN IS A BANKRUPT DISCHARGED? A bankrupt is automatically discharged three years after the date of filing a statement of their affairs. However, the period of bankruptcy can be extended up to eight years if the trustee objects to discharge using any of a broad range of grounds. Failure to comply with requests by or disclose information to, the trustee are grounds for objection, therefore a bankrupt has a strong incentive to co-operate during bankruptcy.

SUPER’S SPECIAL STATUS IN BANKRUPTCY PROVIDES THE POSSIBILITY OF A FRESH START Making regular super contributions helps clients achieve their retirement objectives. The added benefit of establishing a regular pattern of contributions is that the client is reassured that if they become bankrupt, their superannuation will be protected from creditors. Upon discharge from bankruptcy, a client who has accumulated super in this way, may have ample resources to facilitate a fresh start. Claudine Siou is senior technical services manager at IOOF TechConnect.

CPD QUIZ This activity has been pre-accredited by the Financial Planning Association for 0.25 CPD credit, which may be used by financial planners as supporting evidence of ongoing professional development. 1. How far back in time may a trustee in bankruptcy go to recover super contributions where the main purpose of the contribution is to defeat creditors? a) Five years before bankruptcy. b) Four years before bankruptcy. c) Within a certain period of time. d) There is no time limit. 2. What is the maximum value of superannuation that can be protected in bankruptcy? a) $1.6 million. b) The accumulated value of compulsory superannuation guarantee contributions. c) Unlimited value. d) The accumulated value of regular contributions made over the person’s working life. 3. Is a super death benefit paid to the estate of the deceased member protected from creditors of an ultimate beneficiary who is bankrupt? a) No, because the payment to the beneficiary from the deceased estate loses its character as a payment from a super fund. b) No, because it is not the bankrupt beneficiary’s interest in a super fund. c) Yes, because the payment originated from a super fund. d) Yes, because a payment from a deceased estate to a beneficiary is protected from creditors of the beneficiary. 4. If a transfer of property is void against the trustee in bankruptcy, this means: a) The transfer is not valid. b) The transfer is valid unless the trustee in bankruptcy takes legal action to recover the property and succeeds. c) The transfer of property is only validated by a court declaring that it is valid. d) The trustee must consider the circumstances before determining whether it is valid or not. 5. What property is divisible among creditors in bankruptcy? a) Property owned by the bankrupt at the commencement of bankruptcy and property acquired or which devolves on the bankrupt from that date until discharge. b) Property owned by the bankrupt, property held in trust by the bankrupt, property in which the bankrupt has a beneficial interest. c) Property owned by the bankrupt and their spouse, property which is not required primarily for personal use, work or transport. d) Property owned by the bankrupt in Australia but not overseas. 6. What property is not divisible among creditors in bankruptcy? a) Necessary household items, a car up to a certain value, tools of trade for work, compensation payments and pension payments. b) An interest in a super fund and any type of payment from a super fund. c) Life insurance policies and proceeds from life insurance policies where the bankrupt or their spouse is the owner of the policy. d) An interest in a super fund, a payment, except a pension, from a super fund or proceeds from a life insurance policy on the life of the bankrupt or their spouse, received on or after the date of bankruptcy, and property held by the bankrupt in trust for another person.

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

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Send your appointments to chris.dastoor@moneymanagement.com.au

Appointments

Move of the WEEK MICHAEL WRIGHT Chief executive Xplore Wealth

Xplore Wealth has appointed Michael Wright as chief executive, joining from BT, as it embarks on a targeted growth programme. Wright would join on 9 September and be paid $500,000 per annum, inclusive of superannuation. He would also receive a sign-on bonus of $100,000 and up to $250,000 in cash for the full year 2020 subject to meeting performance objectives.

Suncorp has appointed Lisa Harrison as chief customer and digital officer, leading the new customer and digital function, while Pip Marlow, chief executive customer marketplace, departs. The new customer and digital function would develop innovative, digitalfirst customer propositions, having responsibility for group, customer and digital strategy; digital distribution; brand marketing; and the enterprise portfolio management office. Due to those changes, Marlow would depart the organisation effective from the end of August. Suncorp would also align its Australian contact centres, stores and intermediary distribution teams with its banking and insurance operations. Harrison had almost 15 years’

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He joins from his role as general manager for Bank Financial Advice at BT where he was responsible for 200,000 clients and revenue of $150 million. Prior to this, he was state general manager for retail and business banking in Queensland. Wright would be responsible for leading Xplore Wealth through its growth and development plans as the firm embarked

experience at Suncorp and held executive general management roles in product, pricing, digital sales, marketing and insurance operations. National Australia Bank (NAB) has appointed Susan Ferrier as group chief people officer, commencing 1 October 2019, subject to regulatory approvals. Ferrier was appointed due to previous experience in the role, as well as other senior executive human resources roles in Australia and overseas. She had worked with boards and executive teams in sectors across global financial services, including HSBC, Deutsche Bank, ING Barings, Barclays and most recently at KPMG. Philip Chronican, NAB chief executive officer and chairman-

on a targeted growth programme. This was the first of two senior hires as the firm said it also intends to hire a head of distribution and marketing imminently. Wright said: “The opportunity to lead Xplore Wealth during this formative time for the company is genuinely exciting as the wealth management and financial services sector is transforming, creating growth opportunities.”

elect, said Ferrier had a passion for developing diverse and inclusive workplaces. “She is a deeply experienced human resources executive who has led large transformation and culture change programs, increasing leadership capability and engagement,” Chronican said. MLC Life Insurance has appointed Sean Williamson as executive lead, new business for group insurance. Williamson would be responsible for new growth opportunities for group distribution and the industry fund sector and large corporate market and would also focus on customers. He would report to the firm’s chief of group and retail partners, Sean McCormack, who said Williamson would have a pivotal

role in building and embedding the firm’s growth strategy. “His extensive experience in the sector will help us to grow our existing group portfolio, develop new opportunities and boost our credentials in the group insurance market,” McCormack said. JANA Investment Consultants has appointed Michael Watt as head of quantitative applications as it grows its variety of analytical tools. Watt was formerly principal consultant at PortfolioMetrics where he developed risk and portfolio analysis systems. Prior to this, he was head of investment risk at VFMC for 10 years. JANA said the role was a reflection of the firm’s desire to evolve these type of tools and techniques amid the ‘noise and complexity’ surrounding them.

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

Recognise those who inspire

Nominations closing soon! The future of the financial services sector relies upon the next great leaders to forge the way. As research continues to show the value of a diverse leadership team, it is increasingly important to encourage and reward women in the industry for leading, innovating and mentoring the next generation. Money Management and Super Review will recognise the determination, commitment and amazing achievements of women in financial services with its seventh annual Women in Financial Services Awards. Help us recognise these amazing women by nominating: www.wifsawards.com.au Alternatively, scan the QR code below with your tablet/phone camera to visit our event page.

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

• Funds Management

Executive of the Year • Life Insurance Executive of the Year • Superannuation Executive of the Year

Advocacy Awards • Pro-bono Contributor of the Year • Mentor of the Year • Employer of the Year • Advocate of the Year Overall awards • Rising Star • Woman of the Year *

GOLD SPONSOR

*WINNER WILL BE PICKED BY MONEY MANAGEMENT AND SUPER REVIEW AND ANNOUNCED AT THE WOMEN IN FINANCIAL SERVICES AWARDS NIGHT 2019 ON 23RD OCTOBER

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2/08/2019 11:19:48 AM

OUTSIDER

ManagementAugust April 2,15, 2015 40 | Money Management 2019

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

When perceptions of history weigh more than gold OUTSIDER was among those who were somewhat surprised that the Commonwealth Bank opted to close down the Financial Wisdom license rather than sell it. You see, Outsider had heard tell that CommBank had received more than a few expressions of interest in acquiring the FinWis business, particularly from those who had become familiar with the terms of the CountPlus acquisition of Count Financial. Indeed, word on the street was that at least some of that interest was being expressed by someone who had headed up FinWis but exited before the issues which gave rise to CommBank’s ongoing advice remediation challenge became public. It is always difficult to secondguess the decisions taken by the boards of major banks, but it seems that when it comes to disposing of assets, the optics and resultant public

perceptions carry great weight. It seems that on a multi-billion dollar balance sheet, foregoing the value that might be extracted from selling an aligned dealer group is relatively inconsequential. In other words, the Commonwealth Bank board clearly had an eye to history when it decided on closure of the FinWis license rather than a sale.

Attention grabbing sentiments IT is possibly a measure of Outsider’s recent bout of insomnia (perhaps the Ashes is being played in mother England) that he found himself reading the so-called ‘Promontory Report’ aka the Independent Review of the Commonwealth Bank’s Remedial Action Plan. And what a stunning job the people at the Commonwealth Bank seem to be doing in trying to straighten up and fly right in the wake of the Prudential Review imposed by the Australian Prudential Regulation Authority (APRA) and, of course, the Royal Commission. Matt Comyn is, indeed, Captain Courageous. But what caught Outsider’s eye was the sense of urgency the report appeared to be encouraging in the leadership of the Commonwealth Bank, noting that “the implementation phase the Program has now entered will play a critical role in ensuring the Program’s long-term success and effectiveness”. “That success and effectiveness will require the Program to engage with and capture the hearts and minds of all employees about the need for change,” it said. With the phrase ‘hearts and minds’ ringing in his head, Outsider was given to recall a quote attributed variously to US President, Theodore Roosevelt and former Nixon aide, Charles ‘Chuck’ Colson: “Once you have them by the balls, their hearts and minds will follow”. Outsider is not at all sure, that Messrs Roosevelt and Colson would get a pass mark for empathy from HR in 2019.

Midas? No, just call me Hamish OUTSIDER has to admit that Magellan co-founder, Hamish Douglass has more than earned his reputation for making the right investment calls. After all, Magellan’s financial results and the performance of its funds speak for themselves. So, the question in Outsider’s mind is, to what degree did Douglass back himself when setting up Magellan? I mean there is confidence and then there is, well, very strong self-belief. How else does one explain the vehicles via which Douglass holds his interests in Magellan, particularly “Midas Touch Investments Pty Ltd”.

OUT OF CONTEXT www.moneymanagement.com.au

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King Midas is, of course, remembered in Greek mythology for his ability to turn everything he touched into gold, so it is pretty easy to see what Hamish might have had on his mind when he established that particular vehicle. It is unquestionable that Douglass has created a fair bit of gold for Magellan investors but Outsider wonders how the current US/China trade war will impact some of his market calls, particularly those in the technology sphere. Alchemy is such a dark art.

"They are nothing more than self-congratulatory leeches, making misleading and lying statements with no commercial basis." Clive Palmer's measured statement on liquidators.

"The ASX 200 is your Zeus of a market." Chris Weston, Pepperstone head of research, on the stock market hitting its highest level ever.

Find us here:

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