Money Management | Vol. 34 No 15 | August 27, 2020

MAGAZINE OF CHOICE FOR AUSTRALIA’S WEALTH INDUSTRY

www.moneymanagement.com.au

Vol. 34 No 15 | August 27, 2020

ESTATE PLANNING

Planning for each life stage

20

TOOLBOX

The changing face of retirement products

Listed investment companies and trusts

26

Are advisers facing an eighth layer of regulation and cost?

PROPERTY

BY MIKE TAYLOR

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The future of property THE COVID-19 pandemic has affected every element of our lives and how we behave. From working from home to shopping online or ordering takeout, the value of Australian Real Estate Investment Trusts (A-REITs) has not struggled with an existential crisis this significant since the Global Financial Crisis (GFC).

Behavioural changes that would normally take years to develop have been condensed into a space of weeks, negatively impacting sectors such as residential, office and retail, while some benefitted, like industrial.

However, not only is there uncertainty as to how long the pandemic will affect the property market, there is the question of what changes might become permanent trends.

Janine Yoong, Principal Global Investors portfolio manager, said the pandemic had polarised the sectors and it could not be looked as a single entity.

“There are certain stocks that are attractive, I wouldn’t say you can look at the entire sector and buy an index, because there are divergent stories within the space,” Yoong said.

Chris Bedingfield, Quay Global Investors portfolio manager, said it was important to stay focused on buying value and keep a longterm vision to the portfolio.

“There are other sectors that have interesting longer-term opportunities and you just have to grit your teeth and accept real estate is set up to be a long-term investment – you’re not supposed to be trading all the time,” Bedingfield said.

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30

RETIREMENT

Full feature on page 16

THE Australian Competition and Consumer Commission (ACCC) has been warned against imposing more cost and regulation on financial advisers via the implementation of Consumer Data Rights (CDR) rules.

The warning has come from the Financial Planning Association (FPA) which has expressed concern that together with needing to be registered with the Australian Securities and Investments Commission (ASIC) and the Tax Practitioners Board (TPB) advisers would need to be registered with the ACCC. It said that financial advisers were already the subject of a “plethora of regulators” with financial advice being regulated and monitored by seven regulators.

“…the FPA is concerned about the administration and cost of maintaining their registration with the ACCC. Many of these regulators operate under or will shortly transition to compulsory fees, cost and levies,” the FPA said.

“This surmounting regulatory cost increases the cost to provide advice, which hinders the Australian consumer’s ability to afford financial advice when they require it.”

The FPA has asked the ACCC to clarify what costs for advisers would be associated with the CDR regime, noting that any additional cost associated with registration would “exacerbate the cost of financial advice, noting we also expect software licensing fees to increase to cover the costs associated with providers”.

Continued on page 3

Climate change focused funds to outperform

BY JASSMYN GOH

OVER 40% of global fund managers believe that climate change will be the outperforming environmental, social, and governance (ESG) theme over the next 12 months, and only two climate-related funds have managed to make a return so far this year.

Bank of America (BofA) data said innovation would the second ESG theme to outperform, followed by health and safety, and corporate governance.

According to FE Analytics, within the Australian Core Strategies universe, there were seven equity funds focused on climate change.

Only two so far this year have managed to make a return, and another two only launched this year.

Continued on page 3

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August 27, 2020 Money Management | 3

News

TPB receives adviser formal request on ABN establishment

Continued from page 1

BY MIKE TAYLOR

A senior financial planner has written to the Tax Practitioners Board (TPB) requesting that it hand financial advisers the same powers as BAS Agents to obtain Australian Business Numbers (ABNs).

The adviser, Adrian Hanrahan has published his letter to the TPB in which he requests the creation of a legislative instrument to allow Tax Financial Advisers (TFAs) to apply for ABNs on behalf of clients.

His letter notes that the TPB in 2016 created a similar legislative instrument that permitted a BAS Agent to apply for an ABN on behalf of a client.

“Amending the law in a similar manner to permit a TFA to apply

for an ABN on behalf of a client would be a practical and welcomed change for financial advisers,” Hanrahan’s letter said.

It pointed out that under the Corporations Act financial advisers are permitted to provide financial product advice and to recommend the establishment of a superannuation fund, including a self-managed superannuation fund (SMSF).

“To implement the recommendation of SMSF establishment, one of the early steps (among others) is the establishment of an Australian Business Number and a Tax File Number for the new entity,” Hanrahan’s letter said.

Are advisers facing an eighth layer of regulation and cost?

Continued from page 1 It noted that there were already Government registers of financial planners held with ASIC and the TPB with these registers also used by the general public to verify the status of their financial planner, accompanied with education resources to help consumers navigate financial providers.

“The FPA would, therefore, recommend that rather than creating a third register, there is an opportunity to use these existing registers. This provides an opportunity to reduce duplicate administration activity and costs, as well as assisting with future verification of ‘principals’ as these will be mapped to ‘CAP providers’.

Alternatively, the ASIC or TPB registers could be used to autoregister financial planners and given the requirement that these are kept up to date can be considered as the source of truth

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Climate change focused funds to outperform

for the ACCC register of principals.”

The submission said that an additional consideration for the ACCC was that in terms of consent, financial planners often acted as the representative of the consumer which product providers and were required to maintain third party authority to represent their clients and access their financial information, as well as consent for collection of advice service fees.

“These are to be mandated on an annual basis depending on the development of recommendations of the financial services royal commission. Thus, FPA recommends that rather than creating a new process or standard, consumers are able to authorise their financial planner as a ‘principal’ as part of this existing process. This will assist in minimising cost and regulatory duplication,” it said.

The top-performing fund was AtlasTrend Clean Disruption at 8.65%, followed by BNP Paribas Environmental Equity Trust at 0.52%.

State Street International Equities Index Trust Low Carbon ESG lost 1.8%, and this was followed by Russell Investments Low Carbon Global Shares at a loss of 1.82%, and Russell Investments Low Carbon Australian Shares A at a loss of 9.77%.

The other two funds, Fidelity Sustainable Water and Waste and Future Renewables fund were both launched this year in January and June respectively.

The AtlasTrend fund was the only fund to recover losses from the March sell-off induced by the COVID-19 pandemic. The fund said it invested in clean disruption of energy in areas such as energy storage, transportation, infrastructure, manufacturing, building materials and lighting, and recycling and waste management.

Looking over the longer term, the top-performing fund was again the AtlasTrend fund at 22.75% over the two years to 31 July, 2020, as most of the funds were launched after 2018.

The State Street fund followed at 18.2%, Russell Investments Low Carbon Global Shares at 16.64%, and BNP Paribas Environmental Equity Trust at 16.56%.

Chart 1: Which ESG theme do you see to outperform most over the next 12 month

Source: BofA Global Fund Manager Survey

Chart 2: Performance of climate-focused funds over two years to 31 July 2020

Source: FE Analytics

20/08/2020 10:52:06 AM

4 | Money Management August 27, 2020

Editorial

mike.taylor@moneymanagement.com.au

THERE IS A CASE FOR DEFERRING, NOT CANCELLING A RISE IN THE SG

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

By the time Australia kicks off 2021, many more businesses will be closed and many more people will be officially unemployed, as opposed to the synthetic unemployment rate being generated by Government measures such as JobKeeper.

Even before the harsh reality of the COVID-19 pandemic set in, wages growth in Australia was modest to non-existent and the nation should now be reconciling itself to up to half a decade of higher than normal unemployment as the nation seeks to drag itself out of what will be one of its deepest-ever recessions.

It is in such environments that wages growth will, of necessity, remain subdued. So, too, will interest rates and share dividends.

This will be harsh economic reality writ large with international borders all but shut and key sectors of the economy effectively closed.

It is against this background that all sides of politics should be viewing the timetable for increasing the superannuation guarantee (SG), with the next scheduled rise to 10% due on 1 July, next year.

What is certain is that it will be most unlikely that Australia will be anywhere near on the road to recovery in what is, in reality, barely 10 months’ time. What is also certain is that unemployment will still be high and that many companies will have confirmed the reality of their insolvency.

It is on that basis that, rather than entirely abandoning next year’s scheduled increase in the superannuation guarantee to 10% it

should be deferred for a further 12 months and, depending upon a review of the prevailing economic circumstances, perhaps consolidated into the scheduled 1 July, 2022, rise to 10.5%.

It is clear that key sections of the Federal Government backbench have an agenda to radically change Australia’s superannuation guarantee regime by eroding compulsion, extending hardship early access arrangements and allowing the use of super balances to fund first home deposits, but they should not be seeking to do so amid the fear and confusion created by the pandemic.

Unusually for someone elevated to a status just outside the Cabinet room, the Assistant Minister for Superannuation, Financial Services and Financial Technology, Senator Jane Hume, has been heard to echo many of the arguments of her party’s more vocal antisuperannuation backbenchers – something which has elevated those arguments to quasi-formal policy positions.

What is more, Hume has elevated the status of those arguments before her boss, the Treasurer, Josh Frydenberg, has even released or commented on the report of the Retirement Income Review panel which has been sitting

on his desk since at least the beginning of August.

In circumstances where the Retirement Income Review is intended to form the basis of consultation and discussion some of the messaging coming from the Government, not least Hume, could be interpreted as highly pre-emptive.

Of course much of the Government’s backbench antipathy can be attributed to the reality that the superannuation guarantee owes its birth to the relationship between the Australian Labor Party and the trade union movement and that many serving and former union officials sit on the trustee boards of industry superannuation funds.

It is also notable that the industry superannuation funds, via Industry Super Australia, were not backward in attacking retail superannuation funds and financial advisers many of whom could be regarded as constituents of the Liberal and National Party.

Irrespective of that history, superannuation is far too important to the broader Australian economy to be the subject of a juvenile game of political tit for tat in the midst of a pandemic and consequent recession.

Mike Taylor Managing Editor

Managing Director: Mika-John Southworth Tel: 0455 553 775 mika-john.southworth@moneymanagement.com.au Managing Editor/Editorial Director: Mike Taylor Tel: 0438 789 214 mike.taylor@moneymanagement.com.au Associate Editor - Research: Oksana Patron Tel: 0439 137 814 oksana.patron@moneymanagement.com.au 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@fefundinfo.com ADVERTISING Sales Director: Craig Pecar Tel: 0438 905 121 craig.pecar@moneymanagement.com.au Account Manager: Amy Barnett Tel: 0438 879 685 amy.barnett@moneymanagement.com.au PRODUCTION Graphic Design: Henry Blazhevskyi

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19/08/2020 5:15:24 PM

August 27, 2020 Money Management | 5

News

ASIC green lights super fund financial advice model

BY MIKE TAYLOR

Financial planning arrangements between planning groups and superannuation funds underpinned by a written “attestation” as to fees for service have been given the green light by the Australian Securities and Investments Commission (ASIC).

Answering questions on notice from the Joint Parliamentary Committee on Corporations and Financial Services, particularly concerns raised by Queensland Liberal backbencher, Bert Van Manen, ASIC said it had seen one of the attestation documents and believed they were broadly compliant.

Further, ASIC said there were good reasons for superannuation funds to enter into such arrangements.

However, the regulator made clear that much of the onus rested with the licensees providing the service to the superannuation fund.

“Superannuation trustees are not prevented from asking the responsible manager of an AFS licensee to sign an agreement attesting to the provision of advice in return for the advice fees payable to the AFS licensee,” the ASIC answer said.

“AFS licensees should ensure that advice is provided in return for the advice fees they and their representatives are paid. They must behave fairly, honestly and efficiently (see s912A(1)(a) of the Corporations Act 2001) and take reasonable steps to ensure that their

representatives comply with the financial services law (see s912A(1)(ca) of the Corporations Act 2001).

“In Regulatory Guide 104 AFS Licensing: Meeting the general obligations (RG 104), ASIC sets out its expectations that AFS licensees monitor and supervise their representatives pursuant to their general obligations. This includes monitoring a representative’s compliance when the representative provides their services (paragraphs RG 104.62 to RG 104.72).

“Further, there are good reasons why a superannuation trustee might seek to ensure the provision of advice services in return for fees deducted from a superannuation account through an attestation from a responsible manager and/or other mechanisms,” it said.

“It is important that superannuation trustees have appropriate oversight of fees and other charges being deducted from members’ superannuation accounts for payment to third parties such as financial advisers.”

The answer said that ASIC and APRA were not prescriptive about how a superannuation fund manager should operate but added “we did point out that trustees need to take care to ensure that controls on advice fee deductions do not place undue reliance on assurances or attestations from financial advisers or other third parties, given the potential personal conflict of interest that these parties might have in the continuation of fee payments”.

MOMENTUM

There for you, through good times and tough Extreme and unanticipated market conditions like those resulting from the coronavirus pandemic cause great concern, particularly for those nearing or in retirement. It’s only natural when your client’s life savings decrease in value. And emotive responses aren’t always abated by the rational view that the Australian share market has delivered returns of more than 111% in the 10 years to 31 December 2019.1 Communication is always important between advisers, clients and asset managers, and never more so than in volatile times.

You can access a range of resources at mlc.com.au/coronavirus

1 Source: returns for the S&P/ASX 300 Accumulation Index for the 10 years ending 31 December 2019 are sourced from FactSet Research Systems Inc., trading as FactSet. FactSet is a financial data and software company headquartered in Norwalk, Connecticut, United States. The company provides integrated data and software. MLC Asset Management Services Limited subscribes to data made available

by FactSet under a licence agreement.

National Wealth Management Services Limited (ABN 97 071 514 264), 105 Miller Street, North Sydney NSW 2060, a wholly owned, non-guaranteed member of the National Australia Bank Limited (‘NAB’) Group of Companies (‘NAB Group’). “MLC” and the “Nest Egg” logo and all associated trademarks are owned by National Wealth Management Holdings Limited (ABN 73 093 329 983), a member of a group of companies wholly owned by the National Australia Bank Limited (ABN 12 004 044 937) (NAB Group), and are used under licence by companies in the NAB Group that provide wealth management services.

An investment with us is not a deposit with or liability of, and is not guaranteed by, NAB or other members of the NAB Group. M155546-0820

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20/08/2020 10:58:04 AM

6 | Money Management August 27, 2020

News

ASIC hires experts to help solve financial advice crisis

BY MIKE TAYLOR

THE Australian Securities and Investments Commission (ASIC) has acknowledged the impact of the mass exodus of advisers from the industry, revealing it has hired outside experts to help it decide how to make financial advice more accessible and affordable in the aftermath.

The regulator has told a Parliamentary Committee that it has engaged external consultants to undertake several pieces of research to help it understand key issues related to access to advice with the research focusing on: 1) What financial decisions Australian consumers are required to make; 2) What factors contribute to the cost of personal advice; and 3) What types of information an adviser is required to gather and analyse when advising a consumer to switch from a financial product which the consumer holds to a new product.

In doing so, ASIC told the House of Representatives Standing Committee on Financial Services and Economics that “there is evidence of a reduction in the supply of financial advice to Australian consumers”, noting that “as at 25 June 2020, there were approximately 22,200 current financial advisers on the Financial Advisers Register,

which is 11% below the long-term average (of 24,930 advisers) prior to 1 January, 2019, when much of the Professional Standard Reforms commenced”.

“More advisers may leave the industry as the Professional Standards Reforms are fully implemented. Further, a number of large financial institutions have withdrawn or are proposing to withdraw from the retail financial advice market altogether. Others have scaled-back their retail financial advice businesses,” the ASIC answer said.

“ASIC wants Australian consumers to have access affordable, quality personal financial advice that meets their needs. In

light of this, ASIC is currently undertaking a project that is looking at unmet advice needs and how to address them,” the regulator said.

“Specifically, ASIC is examining what impediments industry is facing in providing affordable and scaled advice to consumers.

ASIC research shows that consumers want access to scaled and affordable personal advice,” it said.

“ASIC also knows, because industry has repeatedly told us, that it struggles to provide scaled and affordable personal advice. ASIC is focusing on identifying what steps industry and/or ASIC can take to overcome these impediments.”

ASIC brackets intra-fund advice with scaled and personal advice THE provision of intra-fund advice has been framed in the same context as scaled advice by the Australian Securities and Investments Commission (ASIC) in an explanation of the difference between ‘personal’ and ‘general’ advice.

And, in doing so, ASIC has made clear that intra-fund and scaled advice fall within the requirements of the provision of personal advice.

Answering a question on notice from NSW Liberal backbencher, Jason Falinksi, ASIC said that advice providers “can give scaled advice (including intra-fund advice) that is limited in scope that meets all these legal obligations.

This is because what an advice provider must do to meet the legal requirements, including the best interests duty and related obligations, can be ‘scaled up’ or ‘scaled down’ depending on the nature of the advice”.

“When considering how the best interests duty and related obligations apply in the context of giving scaled advice, advice provid-

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ers need to remember that: 1) All advice is scaled to some extent – advice is either less or more comprehensive in scope along a continuous spectrum (i.e. there are not two categories of advice: ‘scaled’ and ‘comprehensive’ advice); and 2) The same rules apply to all personal advice on the same topic, regardless of the scope of the advice. Scaled advice does not equate to lesser quality advice for clients or lower training standards for advice providers. All advice providers who give personal advice, whether scaled or more comprehensive, must meet the training requirements for financial product advisers.

Falinski had asked ASIC chair, James Shipton, how Industry Super Australia (ISA) financial planners could give general advice as financial planners without running foul of the regulator.

ASIC’s answer said that Section 961B(1) of the Corporations Act required that advice

providers acted in the best interests of their clients in relation to the advice given.

“Section 961B(2) provides a ‘safe harbour’ that advice providers may rely on to prove that they have complied with s961B(1). If an advice provider can show they have taken the steps in s961B(2), they are considered to have met the best interests duty,” it said.

“Consumers who seek financial advice, including scaled advice, expect that the advice provided will leave them in a better position.

When assessing whether an advice provider has complied with the best interests duty, we will consider whether a reasonable advice provider would believe that the client is likely to be in a better position if the client follows the advice provided.”

Another Parliamentary Committee, the House of Representatives Standing Committee on Economics, has asked ASIC provide a comprehensive answer on the status of intrafund advice.

19/08/2020 12:04:07 PM

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14/08/2020 10:37:38 AM

8 | Money Management August 27, 2020

News

CommBank posts solid result citing exit from wealth

BY MIKE TAYLOR

THE Commonwealth Bank has attributed a durable full year financial result, in part to, substantially divesting its wealth management businesses.

The bank announced a 12.4% increase in statutory net profit after tax to $9,643 million which it said included gains realised on the sale of businesses, while cash net profit after tax was down 11.3% to $7,296 million.

Commenting on the result, CBA chief executive, Matt Comyn, said the strength of the core businesses combined with strong operational performance had delivered good outcomes for customers and shareholders despite the challenges presented by lower interest rates and COVID-19.

“We have substantially divested our wealth management businesses in line with our simpler, better bank strategy,” he said. “This has allowed us to focus on delivering

performance in our banking businesses.”

Looking to the future, Comyn pointed to the challenges tied up in the COVID-19 pandemic but said that the bank was prepared for a range of economic scenarios and had provisioned accordingly.

“We anticipate that lower credit growth and low interest rates will continue to put pressure on our revenue, requiring a focus on performance, efficiency and capital allocation,” he said.

Which ethical fund has returned 34% despite COVID-19?

BY JASSMYN GOH

ASIC’s $1.8 million+ failed pursuit of Westpac THE Australian Securities and Investments Commission (ASIC) has revealed the high cost it has paid in unsuccessfully pursuing legal action against Westpac over responsible lending.

The regulator has revealed to a Parliamentary Committee that it spent over $1.8 million on the failed litigation.

What is more, having lost the case in the Federal and Full Federal Court the regulator will be facing payment of some or all of Westpac’s costs.

Answering questions on notice from the Parliamentary Joint Committee on Corporations and Financial Services, ASIC said that its expenditure on the Westpac responsible lending litigation in the Federal and Full Federal Court was $1,830,569.

“This amount is up to 30 June, 2020, and includes the cost of ASIC’s pre-litigation investigation,” the answer said. “At this time, Westpac has not indicated to ASIC what its costs are.”

ASIC’s pursuit of Westpac was a part of its “if not, why not” approach to pursuing litigation.

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DESPITE markets being rocked with uncertainty stemming from the COVID-19 pandemic, CFS Ballie Gifford Global Stewardship A fund has managed to return 34.2% since the start of the year to 31 July, 2020, according to data.

FE Analytics data found that this was a huge jump from second place BetaShares Global Sustainability Leaders ETF at 11.7% when looking at equity funds labelled as ‘ethical/sustainable’, within the Australian Core Strategies universe.

During the March sell-off, the CFS Ballie Gifford fund hit a low of -11.2% and has now returned over 16% more than its previous 2020 high of 15.4% in late February.

The fund also beat its global equity sector average, a loss of 3.66%, and its MSCI All Country World Index benchmark, a loss of 3.25%, since the start of the year. Since the fund’s inception in July 2019, it has returned 37.25%.

All five of the top-performing funds were focused on global equities.

Pengana International Ethical fund came in third at 5.67%, followed by Pengana International Ethical Opportunity at 5.19%, and CFS Stewart Investors Wholesale Worldwide Sustainability at 4.74%.

The CFS Ballie Gifford fund’s quarterly report in June said the largest geographic weighting was to North America (58.8%), developed Asia Pacific (12.5%), Europe ex UK (11.8%), emerging markets (10.5%), and the UK (4.1%).

The fund said it held stocks that it believed would “radically” alter the way people shopped (Amazon, JD.com), work (Zoom), learn (Chegg), and play (Spotify and Netflix).

“The coronavirus and resulting lockdown measures have accelerated the adoption of these disruptive services, and in many cases this has resulted in remarkable growth for the

companies concerned,” it said.

“Canadian ecommerce platform Shopify continues to be one of the best examples of this.

The company was quick to introduce and widen access to new features to help its merchants during the pandemic, such as extended free trials, gift card capabilities and in-store/kerbside pickup and delivery options.

“These measures contributed to a 62% increase in new store creation on the Shopify platform between mid-March and mid-April when compared to the previous six weeks, leading to a 47% year-on-year increase in revenue for the company in the first quarter.”

On the other end of the scale it was 4D Emerging Markets Infrastructure fund that came in last at a loss of 23.85%, followed by Russell Australian Responsible Investment ETF at a loss of 17.98%.

According to EPFR data at the start of August, globally socially responsible (SRI) or environmental, social, and governance (ESG) mandated equity funds posted a “rare outflow”.

“It is only their second since the beginning of last year and comes as the growing focus on the SRI/ESG theme has intensified the debate over the right definitions, criteria and standards for funds operating in this space,” it said.

“Year-to-date the SRI/ESG Equity and Bond Funds tracked by EPFR have attracted over US$100 ($139.57) billion.”

Over the five years to 31 July, 2020, the topperforming ethical/sustainable fund was Pengana High Conviction Equities at 232.1%.

This was followed by Australian Ethical Emerging Companies at 91.5%, CFS Generation Walter Scott Global Share at 83.8%, UBS IW MSCI Asia APEX 50 Ethical at 66.46%, and Macquarie Walter Scott Global Equity at 63.54%.

The bottom-performing fund over five years was again Russell Australian Responsible Investment ETF at a loss of 0.26%, followed by Pengana Australian Equities Income at 0.99%.

19/08/2020 5:14:41 PM

We’re delighted that IOOF has been recognised at the 2020 Money Management Fund Manager of the Year Awards

FUND MANAGER

OF THE YEAR 2020 AUSTRALIA’S FIRST INDEPENDENT AND WHOLE OF MARKET AWARDS

WINNER

Multi Asset - Balanced

FUND MANAGER

FUND MANAGER

OF THE YEAR 2020

OF THE YEAR 2020 AUSTRALIA’S FIRST INDEPENDENT AND WHOLE OF MARKET AWARDS

FINALIST

AUSTRALIA’S FIRST INDEPENDENT AND WHOLE OF MARKET AWARDS

FINALIST

Australian Fixed Income

Global Property Securities

Multi Asset - Balanced Winner 2020

Australian Fixed Income Finalist 2020

Global Property Securities Finalist 2020

IOOF Balanced Investor Trust

OptiMix Wholesale Australian Fixed Interest Trust A

Specialist Property Fund

We’re proud to deliver quality investment solutions that help your clients to reach their financial goals.

These results acknowledge our hard work, dedication and the depth and breadth of our investment expertise.

To learn more about our award-winning investment solutions, contact your Client Solutions Manager at ioof.com.au/MyCSM This information has been prepared on behalf of IOOF Investment Management Limited (IIML) ABN 53 006 695 021, AFSL 230524, RSE License No. L000040, IOOF Investment Services Ltd (IISL) ABN 80 007 350 405, AFSL 230703, OnePath Funds Management Limited (OPFM) ABN 21 003 002 800, AFSL 238342 and OnePath Custodians Pty Limited (OPC) ABN 12 008 508 496 AFSL 238346, RSE L0000673. IIML, IISL, OPFM and OPC are part of the IOOF Group of companies, consisting of IOOF Holdings Limited ABN 49 100 103 722 and its related bodies corporate. This material may be considered to be general financial product advice. Before making any investment decisions for clients, advisers and their clients should consider the client’s own objectives, financial situation and needs, and read the relevant Product Disclosure Statement available from us at www.ioof.com.au or by calling 1800 002 217 (IIML and IISL products) and www.onepath.com. au or by calling 133 665 (OPC and OPFM products). Fund Manager of the Year award do not constitute investment advice offered by FE Money Management and should not be used as the sole basis for making any investment decision. All rights reserved. INV-2248 (53255) 0820

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12/08/2020 9:12:10 AM

10 | Money Management August 27, 2020

News

ASIC details early release and other COVID-19 rorts

BY MIKE TAYLOR

THE Australian Securities and Investments Commission (ASIC) has confirmed it has received multiple referrals from other Government agencies around scams and fraud relating to Government stimulus related to COVID-19 including early release superannuation (ERS).

Providing answers to a question on notice from the Joint Parliamentary Committee on Corporations and Financial Services, ASIC said it had received referrals from the following agencies regarding COVID-19 scams and fraud: Australian Taxation Office (ATO), Australian Federal Police (AFP), Australian Competition and Consumer Commission (ACCC), Australian Cyber Security Centre (ACSC), Australian Criminal Intelligence Commission (ACIC), Attorney General’s Department (AGD), Australian Prudential Regulation Authority (APRA) and the Australian Financial Complaints Authority (AFCA).

It said examples of matters referred to ASIC included: “Serious and organised fraud targeting superannuation funds, cybercrime, use of malware and ransomware to target Australians and property crime and government program fraud, identity theft linked to COVID-19 stimulus schemes, suspicious COVID-19 international payments and money transfers, fraudulent

websites providing misleading information and unlicensed financial advice about the JobKeeper stimulus program, and multiple fraudulent claims of COVID-19 small business support grants,” the ASIC answer said.

As well, it said there had been concerns around “serious and organised crime targeting ERS, real estate agents encouraging tenants to access ERS to meet rental payments, credit providers advising borrowers to use ERS meet loan repayments and members of the public being charged fees to access ERS”.

It said that the conduct of insurers towards travel insurance and business interruption insurance claims, and the adequacy of responses by lenders to borrowers that have made hardship applications had also

been referred for its attention.

In an answer to another question on notice from the committee, ASIC said it was aware of different groups advertising or encouraging the use of ERS such as credit providers advising borrowers to use ERS meet loan repayments and a property developer offering cash incentives for home deposits when customers use ERS. “To date, ASIC has issued warnings to a business offering the opportunity to purchase a franchise with them and a school that encouraged parents to pay school fees using ERS funds,” it said.

“ASIC continues to receive information regarding such conduct in other groups. We will continue to assess these reports of misconduct to determine appropriate next steps.”

Challenger hit by decline in domestic annuity sales

BY LAURA DEW

CHALLENGER has reported a $0.9 billion decline in domestic annuity sales as a result of the restructure of the bank-aligned advice network as the firm repositions for the new advice market.

In the firm’s full-year 2020 results which were announced on the Australian Securities Exchange (ASX), it said the lower domestic annuity sales offset higher ‘other life’ sales which rose by $1 billion.

“Domestic annuity sales were down $0.9 billion with a decline in term sales driven by a major structural change in the bank-aligned advice networks.

Lifetime annuities were also significantly impacted by the

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transition to new means test rules,” it said.

“While the new means testing rules are supportive of lifetime annuities, they require a period of adjustment as advisers become familiar with the lifetime annuity products that work best for customers under the new rules. In addition, COVID-19 has adversely impacted the ability of advisers to engage with their customers.”

It said Challenger had launched initiatives to react to this such as Retire with Confidence tool and refreshing its Index Plus product.

“Challenger also continues to improve customer engagement and education while building stronger relationships with

independent financial advisers and establishing relationships with superannuation funds to develop retirement income solutions for customers,” it said.

Managing director and chief executive, Richard Howes, said: “Our domestic annuities business continues to be impacted by structural changes to the wealth management market and this year have been additionally affected by new age pension means test rules and the COVID19 disruption. We are quickly evolving the business in response to the changes and we are seeing positive signs that we are well positioned to rebuild momentum in the new market environment”.

In the wider group, total assets under management were

up 4% to $85.2 billion, pre-tax profit was down 8% to $507 million and its fund management arm saw net flows of $2.5 billion to bring average funds under management to $80.6 billion.

The fund management flows consisted of $3.8 billion inflows into Fidante Partners, particularly into fixed income and equity strategies, but this was offset by a $1.3 billion outflows from CIP Asset Management following changes to Challenger Life’s investment portfolio.

Looking ahead, the firm said it expected net pre-tax profit in FY21 to be between $390 million and $440 million which “reflects an intention to maintain defensive portfolio settings and carefully manage expenses”.

19/08/2020 9:40:29 AM

August 27, 2020 Money Management | 11

News

CBA, Westpac and AMP facing new FoFA-related class actions

Australian ETF industry reaches $67.2b in July

BY MIKE TAYLOR

BY OKSANA PATRON

COMMISSION-BASED remuneration and the implementation of the Future of Financial Advice (FoFA) legislation will be wheeled into the courts again, with a legal firm announcing it is preparing class actions against AMP, the Commonwealth Bank and Westpac and their former dealer groups.

The legal firm, Piper Alderman, said it was planning to bring a series of class actions arising out of a failure by the institutions to properly engage with the changes designed to be implemented by the FoFA reforms.

In a statement issued on 7 August, Piper Alderman said the Financial Services Royal Commission had uncovered serial misconduct and “Piper Alderman is now planning to bring claims designed to compensate customers of three institutions who were charged commissions in contravention of the law”.

“More particularly, Piper Alderman’s claims will allege that AMP financial services licensees (AMP Financial Planning, Charter Financial Planning, and Hillross Financial Services), CBA financial services licensees (Commonwealth Financial Planning, Count Financial and

THE Australian exchange traded funds (ETF) industry closed July at $67.2 billion, an all-time end of month high, according to BetaShares.

At the same time, funds under management (FUM) grew by $1.3 billion (a 2% month-on-month increase) with industry growth over the last 12 months of 26%, representing absolute growth of $13.8 billion over this period.

Also, all of the industry growth this month came from net new money, as opposed to market movements, and totalled $1.2 billion, with the best performance this month coming from precious metals, particularly gold and silver, along with gold miners, the firm said.

“While the start of the year saw the highest level of flows into Australian equities exposures, this month was notable for having net outflows in this category (-$192m),” BetaShares said.

“Instead, we saw a return to more defensive allocations – with Australian bonds and gold receiving the highest amount of net flows at a sub-category level.

To the extent money went into equities, this was particularly in the technology sector.”

The product development activity continued to be strong throughout the month, according to BetaShares, with five new products launches and an entrance of a new issuer to the market via the Chi-X exchange with Janus Henderson launching an income-oriented diversified fixed income product.

Financial Wisdom) and Westpac financial services licences (Securitor and Magnitude) contravened specific obligations owed to their customers when taking commissions from product issuers and/or customers themselves.”

The actions will be backed by litigation funder, Woodsford Litigation Funding and will seek the return of commissions to clients.

Commenting on the move, Piper Alderman partner, Martin del Allego, said the FoFA reforms were designed to protect customers and the Piper Alderman claims would “demonstrate these institutions’ failure to do just that”.

“These claims have the prospect of recovering significant sums of money for a large

number of individuals. On the institutions’ own numbers, over a million individuals may have been affected. We are encouraging any individual who acquired, renewed or continued to hold a financial product (including life insurance) on the advice of an adviser from one of these institutions to register their details with us.”

Del Allego and the other partners claimed the claims that would be made by the company did not overlap with other already commenced actions against the financial institutions.

Both the Commonwealth Bank and Westpac have sold out of their financial planning businesses but have indemnified the new owners against legal action relating to past events.

In 2019 alone, we paid $1.5 billion in claims.

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19/08/2020 12:03:19 PM

12 | Money Management August 27, 2020

News

Investment clock ‘ticks’ past property: Wealth Within

BY CHRIS DASTOOR

THE investment clock has ‘ticked’ past property as an asset class, making it the time to gain exposure in that sector, according to Wealth Within.

Dale Gillham, Wealth Within chief analyst, said the stockmarket had been underperforming in many sectors and that represented better buying opportunities in property.

“Understanding when the right time to enter an asset is very important, as you want to gain a solid return from both income and capital gains,” Gillham said.

“That said, what is even more critical is knowing the right time to exit. In my experience, investors tend to hang onto poor performing asset classes or hang on way too long in the

hope they will perform better.

“As [Warren] Buffett states, ‘sell in boom and buy in doom’, which means buy when assets are priced low and sell when they are high because this way you will avoid the ugly rollercoaster ride that the majority of investors endure.”

Gillham said the idea of an investment clock was to look for opportunities in asset classes that were underperforming and likely to move with the next phase of the clock.

“In short, you are looking to buy just before the asset begins to rise not after it has already risen,” Gillham said.

“Sadly, too many investors are indecisive when it comes to investing and jump from one investment to another hoping to get into the next best thing after it has already risen strongly.”

Early release fraud concerns around differing bank account details

BY MIKE TAYLOR

A number of major superannuation funds have been double-checking second-round early release requests against concerns about fraud in circumstances where members have cited different bank account numbers to those used in first round requests.

Superannuation fund executives have told Money Management that there have been concerns about the possibility of fraud because the instances of member requests citing two different bank account numbers has been running at higher than 10%.

“We would normally expect the citing of different bank account numbers to be at much lower levels and so we have been conducting checks to confirm the identities of the members and their intentions,” a senior superannuation fund executive said.

Concerns about the citing of different bank account numbers have come at the same time as the Australian Federal Police (AFP) confirmation of charges being laid against three women in Queensland.

It said the AFP anti-fraud Taskforce Iris charged three people with allegedly submitting false claims to gain early access to superannuation under the Government’s early release of superannuation (ERS) measure, designed to assist Australians impacted by COVID-19.

It said the alleged offending was identified through lines of enquiry undertaken by a separate Taskforce investigation and following initial analysis, the matter was endorsed as a priority operation by the Australian Taxation Office (ATO)-led Serious Financial Crime Taskforce (SFCT).

It said the action had brought the total number of people charged by the AFP Taskforce Iris to seven.

The AFP said it would allege the group submitted several fraudulent applications, claiming to be other superannuation fund-holders, to attempt to access early release of superannuation payments totalling $113,500.

The superannuation fund concern around the citing of different bank account numbers follows on from the Australian Prudential Regulation Authority (APRA) confirming to a Parliamentary Committee that while the ATO was responsible for checking member eligibility, superannuation were wholly responsible for checking member identity and intentions.

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Calls for insurers to only pay medical bills a ‘Trojan horse’

BY JASSMYN GOH

THE Financial Services Council’s (FSC’s) campaign to change the law to allow insurers to only pay medical bills of sick workers instead of the entire insurance claim is a “Trojan horse to push past privacy and other legal rights”, Maurice Blackburn Lawyers believe.

The law firm’s principal, Josh Mennen, said renewed calls for greater involvement in worker rehabilitation was part of a push to expand insurer’s powers so fewer claims would need to be paid out.

“The FSC has itself acknowledged that the opportunities for disability insurance claimants to return to work are extremely limited under normal circumstances, let alone under the current economic crisis engulfing Australia,” he said.

“It’s therefore irresponsible to suggest that an insurer should be calling the shots on claimants medical treatment plans in an attempt to get them back into a severely diminished job market.

“What insurers should be instead focusing on is the ongoing and timely payment of legitimate claims so that disabled consumers can afford the medical and other support they need – and without the inappropriate interference of an insurer in those therapeutic relationship.”

Mennen noted the proposal had been previously rejected by a Parliamentary Joint Committee in 2018 which recommended the Australian Securities and Investments Committee to conduct an investigation into the use of in-house rehabilitation services by insurers.

“The Parliamentary Joint Committee made a series of sensible findings and recommendations which would ensure that consumers were protected from potential insurer overreach,” he said.

“While it appears to be altruistic, the FSC’s campaign to change the law has always been a Trojan horse to push past the privacy and other legal rights of their disabled claimants and gain greater control over their medical treatment.

“Until the committee’s recommendations have been faithfully completed and the findings of the ASIC investigation are released, then any calls for an expansion of a life insurer’s rights in the medical decisions of claimants is premature and unwarranted.”

18/08/2020 4:52:02 PM

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14/08/2020 12:54:44 PM

14 | Money Management August 27, 2020

InFocus

ARE POLITICIANS FINALLY AWAKE TO THEIR FINANCIAL PLANNING MESS? Mike Taylor writes that both Treasury and ASIC are conducting consultations which suggest that politicians of both stripes have finally woken up to the mess created in the financial planning industry.

THE EXIT OF up to 40% of financial advisers from the industry over a five-year period has gained the attention of Government.

While both sides of politics are a long way from admitting that successive Governments of both stripes may have gone too far in dealing with financial advice – that they have used a meat cleaver when they should have used a scalpel – they are recognising that they have created a mess which has the potential to get significantly worse.

No one in Government is openly acknowledging the creation of a mess, but Treasury and the Australian Securities and Investments Commission (ASIC) are actively reviewing the state of the financial planning industry, the reality that there is increasing demand for financial advice and what must be done to ensure that advice is delivered.

ASIC acknowledged its work when answering questions from the House of Representatives Standing Committee on Financial Services and Economics when it said that it had engaged external consultants to help it understand issues related to “access to advice”.

Less public and vastly less obvious has been consultations being undertaken by the Treasury under the auspices of the Licensee

KEY ECONOMIC INDICATORS

Leadership Forum (LLF) in which it has sought the views of the major licensees with respect to key issues impacting the financial planning industry both now and into the future.

Importantly, elements of that consultation have picked up issues raised by the Financial Planning Association (FPA) around adviser registration and self-licensing. Among the questions being canvassed within the so-called LLF are individual licensing and the benefits of the “authorised representative” regime which has been the foundation of financial planning for the best part of two decades.

What is clear from the work of both the Treasury and ASIC is that exit of advisers from the industry driven by a number of factors not excluding the Financial Adviser Standards and Ethics Authority (FASEA) regime have acted as catalyst for the Government to

seek advice about how the looming advice gap might be filled.

Thus, ASIC this month told the Parliamentary Committee that it had engaged external consultants to undertake several pieces of research to help it understand key issues related to Access to Advice with the research focusing on: 1) What financial decisions Australian consumers are required to make; 2) What factors contribute to the cost of personal advice; and 3) What types of information an adviser is required to gather and analyse when advising a consumer to switch from a financial product which the consumer holds to a new product.

In doing so, ASIC admitted “there is evidence of a reduction in the supply of financial advice to Australian consumers”, noting that “as at 25 June 2020, there were approximately 22,200

current financial advisers on the Financial Advisers Register, which is 11% below the long-term average (of 24,930 advisers) prior to 1 January, 2019, when much of the Professional Standard Reforms commenced”.

“More advisers may leave the industry as the Professional Standards Reforms are fully implemented. Further, a number of large financial institutions have withdrawn or are proposing to withdraw from the retail financial advice market altogether. Others have scaled-back their retail financial advice businesses,” it said.

“ASIC wants Australian consumers to have access to affordable, quality personal financial advice that meets their needs. In light of this, ASIC is currently undertaking a project that is looking at unmet advice needs and how to address them,” the regulator said.

“Specifically, ASIC is examining what impediments industry is facing in providing affordable and scaled advice to consumers. ASIC research shows that consumers want access to scaled and affordable personal advice.

“ASIC also knows, because industry has repeatedly told us, that it struggles to provide scaled and affordable personal advice. ASIC is focusing on identifying what steps industry and/or ASIC can take to overcome these impediments.”

0.25%

1.4%

-0.3%

Cash rate

Economic growth

Inflation

Source: Reserve Bank of Australia, 10 August, 2020.

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19/08/2020 3:28:15 PM

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16 | Money Management August 27, 2020

AREITs/Property

THE FUTURE OF PROPERTY The COVID-19 pandemic has been a massive disruptor to our lifestyles, Chris Dastoor writes, and this has impacted the value of the properties affected by those activities.

FROM BRICKS AND mortar retail to the future of office usage, the COVID-19 pandemic has been a disruptor to Australian real estate investment trusts (AREITS).

However, what is unknown is whether the pandemic will be a temporary disruption that will eventually lead back to normalcy or a catalyst for a transition into permanent change.

The COVID-19 pandemic has impacted every facet of our day-to-day lives: non-essential office workers have been working from home, and although

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essential retailers like grocers have continued, many other retailers and entertainment venues closed, leaving once densely-packed shopping centres as ghost towns.

However, not all property was created equal and different sectors have been impacted in different ways.

OFFICE SPACE Will Gray, head of real estate at Real Asset Management, said that commercial offices had not seen any disruptive elements impacting it – apart from

hot-desking and open-plan offices – for the last five to seven years. However, this had abruptly changed with the pandemic.

“COVID-19 has come along, it’s changing everything and we don’t know what the trends are going to be in the future,” Gray said.

“What I do know is that the downsizing that everyone has been talking about isn’t exactly the trend that we expect to happen.

“Offices are going to need more space and there’s going to be a greater emphasis on the ability to maintain social distancing.”

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August 27, 2020 Money Management | 17

AREITs/Property

Janine Yoong, Principal Global Investors portfolio manager, said COVID-19 had created questions around the long-term sustainability of office demand.

“With so many companies working from home, as well as companies like Google who are extending that to the middle of 2021 for their employees, there’s a question about how much office space do corporations actually need,” Yoong said.

“But at the same time the flip side of the argument is that workspace density has increased tremendously in the last 10 years, so we’ve squeezed more and more workers into a small space.

“What’s happened is with COVID-19, you now need to have social distancing and increase the amount of space per worker so that’s going to offset some of the weaker demand from work from home.”

Paul Meierdierck, LaSalle Investment Management managing director and portfolio manager, said we were at the early stages of a transformation in which companies would reimagine how they used real estate.

“That starts with them harnessing the behaviours of working from home during this pandemic and that it will further ingrain remote working as a tool to attract and retain talent, reduce carbon footprint and control costs,” Meierdierck said.

“It doesn’t mean every single company is going to 100% work from home… some occupiers by nature of their business need to have people in the office more.”

Grant Berry, SG Hiscock director and portfolio manager, said offices were the core of business

15MM270820_16-29.indd 17

culture as they were the place where you need to go to mentor staff and connect with clients.

“The social distancing argument is positive in the shortterm in that it stems the densification of offices,” Berry said.

“Offices have got more and more jammed so it’s a little bit of a pushback from that, however, I would challenge that argument a little as social distancing is very much a transitional phase.

“We’re unlikely to be living with COVID forever, you still have to get to work and people are probably going to have more challenges with public transport.”

Berry expected people would still want an element of working from home in the future and predicted an increase of 10% of people working from home going forward.

From a geographic perspective, there was significant pressure on effective central business district (CBD) office rents in Sydney and Melbourne where rents had effectively doubled over the last five years.

“Sub-lease vacancy is the key metric we are focusing on at the moment and we can see that starting to gather pace, which could lead to a meaningful correction,” said Steve Bulloch, PGIM Real Estate managing director and head of Australia.

“Some non-CBD markets in Sydney may hold up relatively well, particularly those where rents are at historically large spreads to the CBD. “Declining corporate profits and structural themes like employees wanting to work close to home also support this theme.”

“What COVID-19 has done is it’s actually polarised a lot of sectors, so you’re going to have to drill down to a sector level.”

– Janine Yoong, Principal Global Investors WINNERS AND LOSERS Yoong said it was difficult to look at AREITs as one broad group, as sectors perform differently based on environmental circumstances.

“There are certain stocks that are attractive, I wouldn’t say you can look at the entire sector and buy an index, because there are divergent stories within the space,” Yoong said.

“What COVID-19 has done is actually polarised a lot of sectors, so you’re going to have to drill down to a sector level.”

Retail was an example of this, although it was already struggling prior to the pandemic, it had now been put in an even worse position.

“Retail was already under pressure from online retail, so with COVID-19 and related lockdowns, it has accelerated the penetration for online retail, meanwhile physical shops haven’t been able to open,” Yoong said.

“That’s put added pressure onto retail AREITs and the tenants are either covered by the code of conduct, which requires the landlord to provide some rental relief or the tenants are just not in a position to pay rent.”

Since April, there had been tenants withholding rent which had created cashflow pressure within the retail space.

“There’s also questions about future leases – where rents are

Continued on page 18

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18 | Money Management August 27, 2020

AREITs/Property

Continued from page 17 going to get set and how that relationship is going to go moving forward,” Yoong said.

“If you flip to the polar opposite, industrial is a beneficiary, from the growth in online retail you’re seeing more retailers increase their online offering, so industrial AREITs are a benefit of that trend.

Bulloch agreed that industrial property remained the favoured asset class.

“The pandemic has accelerated several themes that were already playing out, including online shopping and we think strong e-commerce locations will continue to do well,” Bulloch said.

Gray said tourism-based assets had been impacted, because of a significant burden on income due to its inability to trade and operate.

“That’s an area that will bounce back strongly postCOVID-19 but it might take some time once international travel and mobility comes back up,” Gray said.

Supermarket-based retail had also performed strong during the pandemic, showing resiliency when previously it was facing significant disruptive elements.

“Supermarket-based retail is not your large Westfield-type enclosed shopping malls where you dwell on a weekend,” Gray said.

“It’s more your local neighbourhood Coles, Woolworths or IGA that typically also has a pharmacy, medical centre, bakery and butcher. Those smaller supermarket-based shopping centres are located in every one of our suburbs around the country.”

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DIRECT V LISTED AREITS Investing in property through AREITs was not the only option investors had and Bulloch said direct property offered a purer exposure to real estate.

“It also typically provides the ability to have a longer-term focus, as REITS tend to be more focused on short-term results,” Bulloch said.

“The other major advantage is that REITs are usually active buyers only when acquisitions are accretive – that is, when they have a low cost of capital and/or are trading at a premium.

“With asset prices likely to correct further in the next year, it will be difficult for the REITs to take advantage of the better opportunities, particularly given the significant dry powder available in the unlisted market.

“Having said that, with valuations yet to change

significantly for many forms of physical real estate, the significant discounts to net tangible assets that some of the REITs are trading at, suggests they may be relatively attractive.”

GLOBAL OPTIONS Global REITs also provided an alternative to AREITS, providing an advantage by gaining access to sectors that were either unavailable or in limited supply in the Australian market.

Chris Bedingfield, Quay Global Investors portfolio manager, said the Australian market was dominated by office, retail, industrial and some residential development.

The Quay Global Real Estate fund had won Money Management’s Fund Manager of the Year 2020 Award for global property securities.

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August 27, 2020 Money Management | 19

AREITs/Property

“When you think about the current environment, two of those asset classes – office and retail – are very challenged right now,” Bedingfield said.

Although there were smaller sectors like storage and healthcare, the choices outside the major asset classes were stark.

“If you stick to the current market, you’d have to pay through the teeth to buy industrial, which by every metric is so expensive, notwithstanding the positive themes,” Bedingfield said.

“The beauty about being offshore is that you can fish around asset classes that aren’t as readily available here in Australia.”

That included sectors like senior living, hospitals, nursing facilities, self-storage, datastorage – all of which could be available in Australia but on a smaller scale.

OUTLOOK Bulloch said Australia was currently facing significant headwinds as many of our key economic and real estate drivers were under pressure, which included factors such as population growth, employment, housing, education and tourism.

“Some of this is yet to fully hit property prices due to the stimulus measures and supportive banks, therefore we see more downside to valuations,” Bulloch said.

“However, we expect Australia will bounce back reasonably strongly when the health crisis is under control because we think it will still look relatively attractive to foreign capital and many of the key

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drivers will return.”

Bedingfield said it was important to stay focused on buying value and keep a longterm vision to the portfolio.

“It’s pretty easy to pile all your money into those sectors doing well and feel like you’re going to be safe for a while, but you have to pay up big-time to get into those sectors,” Bedingfield said.

“There are other sectors that have interesting longer-term opportunities and you just have to grit your teeth and accept real estate is set up to be a long-term investment – you’re not supposed to be trading all the time.

“We’re just trying to find opportunities that we think in five years’ time, we are going to look back on as great buying opportunities during the pandemic.”

Yoong said valuation dispersion had increased since COVID-19 started and defensive sectors like industrial and long-leased assets were trading at a premium.

“We went into COVID-19 being positioned to the defensive with a structural growth story, so industrials had a structural growth story there that was being supported by online penetration,” Yoong said.

“Retail and office are more of a challenge and we’ve been underweight in those sectors, but we continue to assess it because everything has an appropriate price.”

Berry said there’s “certainly uncertainty” out there in the current economic environment but it was still a good opportunity to invest in REITS at this time.

“We have seen quite a sell-off

“You just have to grit your teeth and accept real estate is set up to be a long-term investment.”

– Chris Bedingfield, Quay Global Investors in March because of the uncertainty with what’s happening with tenants and things of that nature,” Berry said.

“But having said when you look at the implied fall on some of the assets, it’s actually thrown up some interesting opportunities.”

Although the situation was fluid and continuously evolving, Berry said there was past pandemics, particularly in Asia, that showed a roadmap to a functional recovery.

“We have seen a snapshot of that already in retail, for example Melbourne is going through a second wave at the moment, but when things opened up, we saw foot traffic return to retail assets in a meaningful way,” Berry said.

“With over 90% of their stores back open, foot traffic was back up to 86%, while companies saw foot traffic back up 110% on the same month as prior year.”

Gray said investors would want to put their money into real estate because bonds are so low, debt is obviously cheap, and the cash rate was at a historical low.

“Where else can you get a stabilised yield outcome where it’s perceived to be relatively safe and managed by specialists?” Gray said.

18/08/2020 4:33:49 PM

20 | Money Management August 27, 2020

Estate planning

PLANNING THROUGH THE AGES Laura Dew explores how estate planning varies by age and what people need to do at each different stage of their life.

THERE IS NO denying that 2020 has brought people’s health and wellbeing to the forefront of their mind. With the COVID-19 pandemic causing hundreds of thousands of deaths worldwide, many people may now be considering their own mortality and how they can plan for their family should the worst-case scenario occur.

Other people may be working from home and have more free time to consider personal and financial affairs.

The first step in estate planning would be writing a will which is a legal document that sets up how you want your assets distributed upon your death. It could also include your power of attorney wishes, advanced health directives, end of life preferences and any wishes surrounding your funeral.

There are variations on wills and succession laws between different states which need to be considered. The state law will apply in the state where the deceased’s assets were held but the tax payable is decided at a federal level.

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Failure to have a valid will can also cause significant legal fees which will reduce the volume of assets in the estate.

While many may not think about estate planning until they are older, this article will consider what steps people can take at three different life stages.

SINGLE AND CHILD-FREE Experts pointed out just because someone is in their 20s, does not mean they may not have a family or property so it was more important to focus on the ‘life stage’ someone is at more so than their age.

Nevertheless, young people are the demographic least likely to have a will or feel the need for one as they believe they do not have major assets or any dependants.

Anna Hacker, principal at Australian Unity Trustees Legal Services, said this was a misleading perception for young people to have.

“Young people don’t think they have anything but they probably have more assets than they think, even if it’s just a car, and then you can also add on their super and insurance,” she said.

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August 27, 2020 Money Management | 21

Estate planning Strap

It is important for a person to specify a death beneficiary on their super who would receive their super upon death as super did not automatically form part of a person’s estate.

Anna Mirzoyan, estate planning expert at Lifespan, said: “Without a valid nomination, your will cannot deal with your superannuation and that might form a significant part of a person’s wealth especially if there is life insurance too.

“If a person has not nominated someone then it may go to a family member and it will be at the discretion of the executor to choose who is the most appropriate person.”

David Glen, national technical manager at TAL, said: “In the infamous McIntosh case, the deceased’s assets outside superannuation were worth about $80,000, but his superannuation balance, increased by insurance claim proceeds, was $454,000.

“Sadly, in this case, the deceased’s surviving relatives squabbled over these assets. The deceased in this case did not have a will and did not nominate any person to receive the superannuation death benefit.”

Another factor young people may be unaware of is power of attorney which would decide who could make medical or financial decisions for them if they were to become incapacitated. Without this being decided while the person is healthy and of sound mind, it could quickly become complicated and possibly require a court to decide on the outcome.

The final factor to consider is that, while a person may be single in legal terms, they may still have a partner and this could cause a

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HOW TO BEGIN YOUR ESTATE PLAN TAL’s national technical manager David Glen shares three steps people can take to begin their estate planning 1. Identify and list all assets and liabilities including all assets owned by the family such as personally-owned assets and superannuation.

2. Determine who should receive these assets in the event of death and how any liabilities should be discharged upon your death. Remember liabilities do not die with you.

3. Gather evidence on the location of assets and ownership documentation including insurance policies, wills, power of attorney.

dispute in the event of their death.

Currently, partners must be living together for two continuous years if they wish to benefit from the will and this can be problematic if partners have been together for many years but not cohabited. It can also cause problems with parents who may dislike or be unaware of the partner and feel they are unentitled to any of the assets.

MARRIED WITH KIDS It is at this stage in life that most people begin to think about creating an estate plan and what will happen to their children.

Craig Mowll, general manager at trustee company TPT Wealth, said: “Life can change very quickly but the moment you have kids, you need to think about how they will be looked after, especially if both parents died”.

This would cover factors such as the cost of the education, appointing a guardian to look after the children, how the costs of their upbringing would be covered and whether a trust would need to be set up to hold assets until the children were 18 or 21 years old.

There may be also steps needed to prevent the appointed guardian from accessing the money unlawfully.

For joint assets held with a spouse such as property or bank accounts a will was irrelevant as these would automatically be transferred to the surviving partner.

“A will only covers those assets of which you have sole ownership,” Hacker said.

Robin Bowerman, head of corporate affairs at Vanguard, said: “It is tempting to think that with one spouse and children from that relationship only, your family will get your assets when you die anyway so why go to the trouble of making a will?

“One problem is the trouble and expense of administering the estate. Leaving your spouse and children with the uncertainty of having to follow fixed statutory formulas can take time and become emotionally taxing on the family.”

However, things are less simple when it came to blended families where partners may have children from previous relationships.

Because joint assets are automatically transferred to the surviving spouse, there was the danger that they could then overrule the wishes of the former spouse as they would now have control of the assets and could possibly cut out the spouse’s children from a former relationship.

Continued on page 22

18/08/2020 4:34:21 PM

22 | Money Management August 27, 2020

Estate planning

Continued from page 21 For those assets which are not jointly-held, people must nominate a designated beneficiary. There is also the option to set up a testamentary trust to help distribute assets in a tax-effective way and reduce the likelihood of it being challenged.

Trusts also protect beneficiaries who are prone to potential liabilities or matrimonial disputes.

In June 2020, a new law was passed regarding testamentary trusts which aimed to prevent the practice of injecting property which is unrelated to the deceased estate into a trust and generating ‘concessional’ taxed income. The first $22,000 of income distributed to a child from a trust could be tax-free, known as a concessional tax treatment but the new law means there will now be additional tests to determine the type of property that can generate this income.

If the person is self-employed, they would want to set up business succession plan for what would happen to their company.

It is important for a will to be reviewed regularly in light of the changing circumstances with experts recommending every three to five years.

Mowll said: “Around half of Australians die with an out-ofdate will that is invalid and that means it becomes contestable.

People contest wills for a lot of different reasons and start punching holes in it to try and stake a claim”.

Reasons for a will requiring updates include separating from a partner, remarrying a second partner, having children or

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grandchildren, changing career, buying additional property or land or setting up a business.

RETIREMENT For people who are into their retirement, this is when a will becomes “no longer hypothetical” according to Hacker, and when clients will begin to think about their legacy and what they want to leave behind for family and friends.

This meant they gave more thought to ‘chattels’ such as jewellery and artwork.

With grown-up children and having paid off their own debts, parents may consider financial assistance for their children via early inheritance or loans. These should be documented with details of terms of payments and interest rates.

A bigger financial problem is the possibility of needing to go to an aged care home which could cost a substantial amount and often necessitated the sale of the family home as it is required to be funded by the person rather than the state.

This would then affect the will as the family home would no longer be in inheritance and the person may want to help their children in other ways.

It is also more likely at this age that an executor or a beneficiary of the will could have died which means a will needs to be updated to reflect the change. The appointment of an executor is an important decision as they will have the final say on the distribution of assets to the beneficiaries as well as settling debts, lodging tax returns and liaising with financial institutions.

Options for an executor included spouse, adult children, solicitor,

Table 1: Options for estate planning

Type

Pros

Cons

Online/DIY will kit

Quick Cheaper

Likely to be contestable May be invalid without two witnesses

Estate planning professional

Their speciality business Will work closely with family Reduces likelihood of contest

Expensive May not be necessary if you have a simple estate

Solicitor

May already be familiar with your estate if it is a solicitor you use regularly

Solicitor unlikely to act as an executor

trustee company or accountant.

Mowll said: “Appointing an executor can be very complicated, we joke people should appoint their worst enemy!”

“Don’t appoint an executor without asking them first especially if it is a third party or someone without an interest in the estate as they can always recuse themselves from the job.

Make sure whoever you choose is someone willing, someone you trust and who you believe will be responsible with your estate,” Mirzoyan added.

18/08/2020 4:34:32 PM

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19/08/2020 3:41:31 PM

24 | Money Management August 27, 2020

ESG

DO YOU KNOW YOUR ESG FROM YOUR SRI? Client pressure prompted by factors such as the bushfires is encouraging firms to consider their environmental, social and governance criteria, writes Matthew Picone.

BOTH SOCIALLY RESPONSIBLE investments (SRI) and environmental, social and governance (ESG) investments have seen significant investor interest recently, as global, local and social media coverage of issues such as COVID-19, climate change, modern slavery and plastics pollution have increased.

Events such as the Australian bushfires, and widespread criticism of corporate culture of various firms, have highlighted the need for deeper understanding of the companies in which we all invest.

Consider the numbers: in 2017, ESG investments grew 25% from 2015 to US$23 trillion

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($32 trillion), accounting for about one-quarter of all professionally managed investments globally, according to Bloomberg.

In a recent study by KPMG International, more than one-third (36%) of C-suite and board members surveyed indicated that investor pressure had increased the company’s focus on ESG.

SELECTING THE ‘RIGHT’ INVESTMENT When considering which investments most closely align to their views and values, it is important for investors to understand that responsible investment is a very broad term, encompassing a range of

investment styles.

SRI typically refers to the divestment of companies whose business activities focus on socially objectionable industries.

Examples include tobacco or gambling but definitions can vary widely based on investors’ own social views and beliefs.

We view ESG, on the other hand, as having a greater focus company fundamentals and subsequently, investment outcomes. It is broader in the range of issues covered (i.e. it also considers environmental and governance themes) and also in the way it can be integrated, whether it is a negative screen, portfolio constraint or factors within the investment decision-

making process itself.

When considering the ESG style of an investment manager, there are a number of areas for investors to consider. For example, does the manager integrate ESG issues into its core investment process? The reason for this is that investment managers who consider ESG issues material to the performance of a company generally have a better chance of maximising risk-adjusted returns for investors.

Investors should also consider how active is the manager is in engaging with the companies in which it invests.

Active owners communicate with companies they invest in and vote on important company

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August 27, 2020 Money Management | 25

ESG

“Investment managers who consider ESG issues material to the performance of a company generally have a better chance of maximising risk-adjusted returns for investors.”

– Matthew Picone

issues to help determine the future direction of the company.

The best ESG managers also issue extensive reporting on their practices – whether that is portfolio composition, risk exposures or engagement practices, and clearly display this information for investors to digest.

Most thorough and sophisticated investment managers should be incorporating some level of ESG assessment into their traditional strategies.

However, sustainability parameters vary by investment manager depending on their style, process and level of ESG integration.

ESG is a term that is overused by many in the wealth management industry. It requires more than a tick-thebox approach, more than an ESG-overlay. ESG elements provide myriad factors that can

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Table 1: Difference between ESG and SRI

Environmental, social and governance

Factors are considered on the basis of how they affect an investment performance.

Socially responsible investment

Divestment of companies whose business activities focus on socially objectionable industries.

This includes broad term issues such as: • Climate change and energy (environment); • Diversity and human rights (social); and • Board composition and company transparency (governance).

Firms may exclude businesses involved in: • Alcohol or tobacco; • Gambling; • Weapons; or • Environmental damage.

Source: Acadian

make a difference to your investments. ESG can be a proxy for management quality, or it can be a warning indicator for companies carrying greater risk.

Acadian incorporates a range of material ESG factors when

assessing investment targets.

Many of these apply across our entire investment universe, while others vary by region and industry.

We make these considerations on a consistent and ongoing basis, not just a few times a year.

Investors need to do the same. ESG can help them improve their returns.

Matthew Picone is vice-president and portfolio manager at Acadian Asset Management.

19/08/2020 12:02:57 PM

26 | Money Management August 27, 2020

Retirement

FLAWED THINKING ON RETIREMENT PRODUCTS MUST CHANGE The investment industry needs greater focus on protecting retirees’ second biggest asset in drawdown phase, writes Jacqui Lennon.

WHY DOES THE investment industry continue to fail so many retirees? And how many crises will it take before our industry changes? Yet again, retirees have been let down by retirement products based on outdated thinking for a different world.

Australia’s 3.9 million retirees deserve better. Some 12 years on from the Global Financial Crisis and the vast majority are still subject to the share market rollercoaster. Yet they tell us they want peace of mind, not wild wealth swings that not only damage their financial health but

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their personal wellbeing too.

For too long, our industry has told people to invest for the long term, diversify and take less risk as they age. But that is not enough to protect retiree wealth during crises.

We need the industry to adopt genuine innovation that puts retiree behaviours and specific retirement risk at the heart of investment product design.

Innovation, that responds to a world of persistent higher volatility and lower growth – in the context of an ageing population.

Innovation that retirees tell us they desperately want.

REDEFINING RISK I see three related flaws in many traditional retirement-investment products. First, our industry spends millions trying to deliver solutions for current and prospective retirees, yet consistently delivers similar products inadequate to their needs.

Too much focus is on wealth accumulation and returns, and not enough on decumulation as retirees draw down savings.

When our industry talks of risk, it refers to volatility and standard deviation – sadly both are foreign and irrelevant

concepts to most retirees.

Allianz Retire+ research shows “running out of money” is the biggest retiree fear. In one of our surveys, almost two-thirds of respondents feared this more than death. This is never used as a risk metric and is really the only one that matters.

ALIGNING PORTFOLIO CONSTRUCTION TO RETIREMENT RISK This critical misconception of risk creates the second flaw: moving to overly conservative asset allocations as retirees age.

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August 27, 2020 Money Management | 27

Retirement

Holding lots of cash and bonds magnifies the risk of retirees running out of money in a low-yield world.

Research undertaken by Callan Associates shows in 2004 a 50/50 split of growth and defensive assets would achieve an expected return of 7.5%. However, to achieve the same return in 2019, the portfolio would have to consist of mostly growth assets, with a mere 4% allocation to defensive assets. Simply put, portfolios and strategies that used to work in a high interest rate world, don’t work anymore.

Lonsec Investment Consulting recently challenged the measure of risk in retirement and the optimal combination of bonds and equities. They replaced volatility as the traditional risk measure with “the probability of running out of money”.

Portfolio theory assumes equities offer the highest risk and returns. However, when “running out of money” defines risk, equities offer the lowest risk and highest returns. Why? Holding equities reduces the risk of running out of money in retirement.

Conversely, a portfolio of only bonds has the highest risk of retirees running out of money.

Retirees must hold more equities for their money to last longer in a low-yield world. But more needs to be done to help retirees be fully or partly shielded from market shocks.

ADEQUATE PROTECTION IS VITAL This highlights the third flaw: lack of adequate protection. It’s all well and good to say that a growth portfolio reduces the risk of

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running out of money in retirement, but it also opens up the retiree to another retirement risk – sequencing risk.

Our industry does little to mitigate sequencing risk – that is, being subject to a market downturn at the worst possible time. For example, holding equities during a market crash and having to drawdown on investments that have fallen in value, as one stops working.

Since we know that moving to conservative assets isn’t the answer, it would suggest we need a higher allocation to growth in retirement portfolios, but there has been little opportunity to manage both the risk of running out of money and sequencing risk simultaneously.

Retirement specific behaviours compound this issue, particularly loss aversion.

We know retirees feel the pain of an investment loss up to 10 times more than the joy of a gain. Yet our industry is yet to factor in retirement savings products that provide exposure to equities, deal with sequencing risk and address loss aversion through adequate protection.

DEVASTATING OUTCOMES These flaws have real consequences. When retirees fear the future, they spend less and avoid drawing down on savings.

They live frugally to “self-insure” against running out of money.

When retirees feel their savings are at the mercy of global markets, some become confused about the safety of their investments and are likely to make knee jerk decisions which can have devastating long-term consequences. Four-in-five

“We need the industry to adopt genuine innovation that puts retiree behaviours and specific retirement risk at the heart of investment product design.”

– Jacqui Lennon retirees felt their investments were not safe during COVID-19 while one-in-three prospective retirees had more negative expectations of retirement as a result of the pandemic.

How much longer can our industry ignore the obvious?

Retirees must hold a larger allocation of higher-growth assets as they age and that is only achievable if retirement products can genuinely protect retirement income, and a stronger culture of wealth protection develops.

Nobody wants retirees to fear the future or have less dignity in retirement. Or force them up the risk curve to achieve higher returns, without adequate protection. One-in-three prospective retirees in our research said they would consider a product that insures them from market downturns. A telling statistic of just how “at the mercy of share markets” they must be feeling.

Let’s hope the Retirement Income Review helps address these issues once and for all and that more retirees seek financial advice and use investment products that reflect a changing world.

Jacqui Lennon is head of product and customer experience at Allianz Retire+.

19/08/2020 12:02:13 PM

28 | Money Management August 27, 2020

Equities

THE ALPHABET SOUP OF MARKET RECOVERY As markets rebound from the crisis, writes Rajiv Jain, the next question for industry experts is what letter or shape will the economic recovery take?

EVEN FOR THOSE of us who have been working in investment markets for decades, the first half of 2020 delivered unprecedented circumstances.

These times have tested the resiliency of the global markets, specifically, as well as society at large more broadly. We are all still adapting to new norms brought on by the COVID-19 pandemic, and seeking to understand what the future will look like.

As investors, an important part of this has been what an eventual recovery will look like.

Indeed, a common debate in recent months has been the shape the recovery is likely to take — V-shaped or some other letter ranging from a W to an L, an M, an N, or the trademarked (but non-letter) “swoosh”.

Oblivious to letter preferences, the markets have simply gone up.

In the past six or so months, global central banks have rolled out their own alphabet soups, consisting of letter-laden fiscal and monetary interventions, yielding several key events that led to questions ranging from whether this is actually possible to why is this happening now?

Some of the more unusual events in recent months include:

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• In April, the price of front month oil futures on the Chicago Mercantile Exchange traded with a negative price; • Just as global economies were shutting down en masse, the number of people suddenly interested in day trading (due to boredom or newfound analytical skills) hit an all-time high. This latest cohort of day traders represent a new generation of speculators, whose mantra can be summarised by “stocks only go up”; • Coinciding with the rise of the new generation of ‘traders’, global car hire company Hertz not only filed for bankruptcy during the quarter, but was the first company in our collective memories that attempted to issue equity knowing the shares were worthless! The US Securities and Exchange Commission (SEC) ultimately shut the offering down; and • A certain German payments processor suddenly found itself ‘missing’ €1.9 billion ($3.1 billion) in cash as at 18 June, 2020. For a company whose business model is predicated upon tracking other people’s cash, to the nth decimal, how they couldn’t keep track of their own cash is quite extraordinary.

19/08/2020 12:00:33 PM

August 27, 2020 Money Management | 29

Equities Strap

Chart 2: Hertz (HTZ) Stock price and Robinhood users over past year Chart 1: Google trends interest over time for “day trading” searches over past five years

Source: Google trends

These — and other — events have all been astounding, but what gives us concern is something different: the sustainability of price movements for those areas of the market where fundamentals remain quite weak.

After all, we still believe fundamentals drive stock prices over the long term. But when an ex post narrative becomes the justification for current prices, a pause is needed.

For example, many companies across the hospitality space — including cruise lines, airlines, restaurants, and car hire companies — saw strong price appreciation during the quarter. We agree with consensus that not every company in those industries is going bankrupt, but it’s generally going to be a long slog back to ‘normalcy’ across those areas.

Based on that logic, we have put many of the aforementioned industries in the ‘avoid’ bucket. We believe that it’s quite difficult to get high visibility on earnings for many of the companies in the hospitality space, so we would rather wait for the fundamental data to confirm the price than the price to be justification of the fundamentals.

We believe it’s preferable to react to data rather than try to predict

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Source: Morningstar

events and we’re comfortable with this trade-off.

Like most things in life, whether that’s investing or capital allocation, trade-offs exist. In the world of statistics and data science, there’s generally a tradeoff between ‘bias’ and ‘variance’ In economics, it is about consumption today versus tomorrow (although we’re venturing more and more into “I’ll gladly pay you Tuesday for a hamburger today” territory). And in investing, there’s generally a trade-off between returns and volatility (though not always), as well as quality and price.

We’re asked quite often these days how we are thinking about valuations. There’s no doubt that prices in aggregate are higher today than they were in the past.

While this is a function of a series of variables, we still believe we can find compelling risk-adjusted opportunities around the globe.

Rather than simply asking what the price is, the real question should be what you are getting for the price you are paying. On this basis, we believe there are still good opportunities for investors in the current market.

So while the global investing

landscape may be at fever pitch in terms of uncertainty, we think the long-term growth potential of our portfolio companies is less so.

We believe that high growth with high uncertainty yields a margin of error for the future that is too small and this high uncertainty has traditionally been a pitfall for growth-oriented managers over time.

Among the many takeaways we have had from this year, the first six months of 2020 have reinforced our belief, as mentioned above, that we are far better off reacting to the changing market environment than trying to predict the future.

As we move into the second half of the year, we’re not deluding ourselves into thinking that the intersection of COVID-19, global political tensions, government and central bank actions, and a US presidential election are going to have a calming effect on global markets.

Regardless, we believe our focus on fundamentals, particularly earnings and earnings stability, will provide direction as we look to compound our clients’ capital.

“We are far better off reacting to the changing market environment than trying to predict the future.”

– Rajiv Jain, GQG Partners

Rajiv Jain is chief investment officer at GQG Partners.

19/08/2020 12:00:43 PM

30 | Money Management August 27, 2020

Toolbox

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19/08/2020 12:26:55 PM

August 27, 2020 Money Management | 31

Toolbox

CONSIDERING A LISTED VEHICLE Angus Gluskie outlines the difference between listed vehicles and their open-ended counterparts and the benefits they offer investors.

THE LISTED INVESTMENT company (LIC) and trust (LIT) sector contains some of the largest and most costefficient actively managed investment entities that can be accessed by retail investors in Australia with more than 700,000 individual investors in LICs and LITs. Here we outline some of the key things financial advisers and investors need to know about this unique sector.

PROFESSIONAL INVESTMENT MANAGEMENT At their most fundamental level LICs and LITs are professionallymanaged investment entities which provide investors with the potential to receive the income and capital growth from the underlying investments.

As such they can give investors: • Access to assets and asset classes that may not otherwise be available to a small private investor; and • Exposure to differing investment management strategies and investment teams.

CLOSED-END STRUCTURE A key feature of LICs and LITs is that they are closed-end investment entities that have a fixed capital base. A fixed capital base, means that: 1) A LIC or LIT raises capital in one block at a specified point of time (unlike open-ended managed funds that may

15MM270820_30-36.indd 31

raise capital via investor deposits continuously); and 2) Investors in LICs/LITs increase or decrease their investment by buying and selling shares in the LIC/LIT via the Australian Securities Exchange (ASX), rather than depositing/withdrawing moneys from the LIC/LIT.

A STRUCTURE SUITED TO LONGER-TERM INVESTING In any well-functioning economy, it is vital to have investment structures that can provide long term investment funding.

Property, fixed income, infrastructure, renewable energy, lending, and even general business investment all require longer-term capital.

Closed-end funds, with their fixed capital, are one of the few investment entities that are naturally suited to the funding of assets that require this longerterm investment horizon.

This is in contrast when open-ended funds invest in longer term assets, they may be forced to sell those investments in order to fund investor withdrawal requests. This would particularly be the case in weak and fearful markets.

TAX AND COST BENEFITS A further potential benefit of the closed-end structure of LICs/ LITs are tax and cost savings.

Open-ended managed funds and exchange traded funds (ETFs) must repeatedly buy and

sell assets to match the continuous ebb and flow of investor deposits and withdrawals. These repeated purchases and sales incur transaction costs and crystallise tax liabilities on gains.

Because they do not have to sell assets to fund periodic investor withdrawals, a LIC or LIT should incur fewer transactional costs (the costs of buying and selling the underlying investment assets) and may also realise capital gains for tax purposes less frequently than open-ended funds.

LIC and LIT investors are also less exposed to the risks faced by investors in openended funds, where the hidden, deferred tax liabilities of the fund become the burden of the residual ongoing investors following a period of large withdrawals by others.

TRANSPARENT VALUATION By buying and selling shares and units in LICs and LITs on an exchange, investors transact at a price which takes account of all factors considered relevant.

This may include asset backing, structural risks, benefits and opportunities, expectations, embedded tax liabilities or benefits or differing views on the value of underlying assets.

The price of a LIC or LIT determined in the open market on the ASX may be higher, lower or the same as the underlying net asset backing. This is

Continued on page 32

19/08/2020 12:27:02 PM

32 | Money Management August 27, 2020

Toolbox

CPD QUIZ This activity has been pre-accredited by the Financial Planning Association for 0.25 CPD credit, which may be used by financial planners as supporting evidence of ongoing professional development.

1 What are LICs and LITs? a) ASX listed closed end investment vehicles b) A SX listed open ended investment structures c) T ax minimisation investments d) A variation of ETFs e) Unlisted investments Continued from page 31 referred to as trading at a premium or discount to asset backing.

The trading of LICs and LITs at premiums or discounts to net asset backing or value is a normal and important part of closedended fund operation and is the mechanism by which the net demand of buyers and net supply by sellers may be matched-up.

STABILITY BENEFITS Because of their fixed capital, LICs and LITs are one of the few entities that can be a buyer of assets in weak and fearful markets.

This has the important benefit of assisting in the stabilisation of investment markets.

In contrast, open-ended funds and ETFs typically receive net investor deposits, and must invest those moneys, during periods of market buoyancy in turn pushing market prices higher. Similarly, such funds typically receive net investor withdrawal requests during periods of fear and market weakness and accordingly they become a seller of their underlying assets which may push asset prices down further. In this way open-ended funds and ETFs are pro-cyclical investors with the consequence for investment markets that this may exacerbate market volatility.

CORPORATE GOVERNANCE DISCIPLINES FROM ASX LISTING As ASX-listed entities, LICs and LITs must comply with the ASX Listing Rules. These listing rules contain important requirements designed to protect shareholders. They seek to promote transparent and timely disclosures of information that may be needed by investors and encourage high standards of corporate governance and oversight to be implemented.

The strength of these corporate governance protections may be one of the reasons why the ASX listed LIC & LIT sector contains several of Australia’s largest and oldest investment funds.

LOOKING AHEAD LICs and LITs have been assisting investors in growing their wealth for nearly 100 years. The efficiency and stability of their closed-end structure coupled with the corporate governance disciplines of ASX listing have proven to be far more durable than many other investment structures.

As market conditions stabilise, the industry hopes that a further range of LICs and LITs will be brought to market, in turn providing investors with a continued expansion of investment choice.

Angus Gluskie is chair of Listed Investment Companies and Trusts Association.

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2 What is the aim of the ASX Listing Rules? a) P rovide rules to protect the interests of shareholders in ASX listed LICs and LITs b) Seek to protect investors in unlisted managed funds c) S eek to protect investors in ETFs d) P rovide rules to protect advisers e) Provide rules that specify which shares an investor may buy and sell 3 As LICs and LITs do not have to sell assets to fund periodic investor withdrawals, they: a) M ay incur fewer transaction costs and realise capital gains less frequently than open-end funds b) Repeatedly buy and sell assets to match the continuous ebb and flow of investor deposits and withdrawals ave greater trading costs c) H d) A re more volatile than general equity investments e) Are harder to value 4 In any well-functioning economy, it is vital to have investment structures that can provide: a) I nvestment funding for longer-term projects b) Tax-minimisation investing for investors c) E xposure to overseas investments d) C apital-gains focused assets 5 The trading of LICs and LITs at premiums or discounts to net asset backing or value: a) I s a normal and important part of closed-end fund operations b) Does not take account of any factors other than asset backing c) I s where investor deposits and withdrawals result in variations in net asset backing d) O ffers opportunities for financial advisers

TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/ features/tools-guides/considering-listed-vehicle

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

19/08/2020 12:27:12 PM

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34 | Money Management August 27, 2020

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

Appointments

Move of the WEEK MOVE OF THE WEEK Hanna Abdullah Head of compliance – policy and regulation

Synchron has appointed Hanna Abdullah as head of compliance – policy and regulation, and will relocate to Melbourne when COVID-19 provisions permit.

Abdullah’s appointment followed the resignation of Synchron general manager for legal, risk and compliance, Michael Jones, effective 14 August 2020.

She would work alongside head of compliance-advice assurance Alison Massey.

Global investment manager Schroders has appointed Nicole Kidd in the newly-created role as head of private debt for Australia.

The role, which would commence from 1 September, would focus on building and developing Schroders’ private debt capabilities in Australia.

Kidd had 25 years of investment banking and asset management experience and joined from RBC where she was most recently managing director and head of corporate banking Australia and institutional client management Asia-Pacific.

The Australian private debt team would sit within the broader fixed income and multi-asset team, reporting to Simon Doyle, head of fixed income and multi-asset.

Chris Durack, Schroders Australia chief executive, said a key strategic priority for the firm was to continually develop and evolve its Australian investment teams and capabilities.

US-based global equities firm Wasatch Global Investors has

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Abdullah was a governance risk and compliance specialist with over 20 years’ financial service experience.

She was most recently head of compliance and chief risk officer at Sentry Group for the past 10 years.

Stefanie Georgiades had also been promoted to team leader – regulatory compliance, reporting to Abdullah.

Georgiades had authored Synchron’s recent Financial Advisers Standards and Ethics

appointed former ANZ private banking and advice head of research and governance, Amelia Kennedy, to a newly-created role to lead distribution in the Asia-Pacific.

Eric Bergeson, Wasatch president, said Kennedy’s experience and knowledge of the Australian market for investment services would be crucial for Wasatch’s growth in the region.

“She will build on Wasatch’s successful platform in Australia, which has been due to the immense efforts of our longstanding distribution partner, Terrain Placement Services,” Bergeson said.

Wasatch had increased its global client based in recent years and had $788 million in assets under management of Australian clients.

The firm originated around small-cap investing but had grown to include high-conviction and emerging market strategies as well.

NAB’s wealth management arm, MLC Wealth has appointed David Clarke as chief risk officer (CRO), joining from the Queensland

Authority (FASEA) Code of Ethics ready reference book.

Don Trapnell, Synchron director, said the firm had decided not to fill the role vacated

by Jones, but to instead elevate both heads of compliance so that they reported directly to the Synchron board.

“We thank Michael for the valuable contribution he made to Synchron during his time with us, he leaves with our very best wishes,” Trapnell said.

Investment Corporation (QIC) where he was CRO for the past seven years.

Clarke joined QIC in 2007 after four years with Macquarie Bank’s financial services group, and had also worked with Linklaters in London and Toyko, as well as Clayton Utz in Sydney.

Geoff Lloyd, MLC Wealth chief executive, said Clarke would join a newly-formed and highly experienced MLC executive leadership team.

His appointment would commence in October.

First Sentier Investors has appointed Susie Rippingall to the board as its third non-executive director.

Based in Hong Kong, the appointment would be effective from 3 August.

In her career, Rippingall worked as a senior portfolio manager at First State Investments (Hong Kong) and a portfolio manager at First State Investment Management in the UK. First State Investments was

the former name of First Sentier Investors, the firm transitioned to the new name in September 2020.

In Australia, it was previously known as Colonial First State Global Asset Management.

First Sentier Investors chair, Sunao Yokokawa, said he had been appointed on the basis of her investment management experience in Asia.

Superannuation fund executive professional body, the Fund Executives Association Ltd (FEAL), has appointed Laura Wright to the board of directors, while Jane Perry has been reappointed as chair for a further two-year term.

The next term would be Perry’s final as chair and she said it was her goal to support members during this period of uncertain change due to the COVID-19 pandemic.

Graeme Arnott had stepped down following his resignation from First State Super but would join the FEAL Programme Committee.

19/08/2020 3:26:42 PM

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19/08/2020 3:30:44 PM

OUTSIDER OUT

ManagementAugust April 2,27, 2015 36 | Money Management 2020

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

All the drama of a TV show without the crew OUTSIDER chuckled when he came across a story about a Japanese television drama about a salaryman who was ascending the ranks of an institution that looked a lot like Japan’s Mitsubishi UFJ Financial Group.

The hero of the show confronted situations such as faltering regional manufacturers, ambitious start-ups, perilously indebted hotels and workplace stereotypes such as schemers, bullies, and bloodhound-faced patriarchs.

The story Outsider read made a point to say that it was a “glorious fantasy” because individuals would scream in righteous rage at their superiors, longstanding wrongs were avenged, and the corporate boardroom was a place of fevered dynamism rather than snailpaced consensus-building and deference.

As Outsider imagined what this TV show would be like he thought “Why is Mitsubishi UFJ Financial Group so familiar?”

“Ah!” he thought as the lightbulb turned on, it was the Japanese financial

giant that was to exit its stake in AMP Capital.

AMP Capital seems like its very own international cross-border drama, Outsider thought, as he tried to imagine what a drama based of AMP Capital would look like.

Then Outsider realised that there was no need for such imagination as AMP Capital was dishing out the drama without a television crew.

Though, Outsider lamented, would longstanding wrongs be avenged?

Stay tuned, dear AMP Capital TV fans, stay tuned.

Real estate, super and who ultimately clips the ticket IS it just Outsider, or does tyro, hipster NSW Liberal Senator, Andrew Bragg, have an fascination for residential real estate?

Why, it was as early as April that Bragg, notwithstanding warnings to real estate agents by the Australian Securities and Investments Commission, was encouraging his hard-pressed constituents to avail themselves of early access to superannuation because “superannuation is for a rainy day and today is the rainy day”.

A little later, the good Senator came to notice for having been made a Grand Commander in the Greek Orthodox Archdiocese of Australia’s Order of Christ-loving for having assisted his Eminence Archbishop Markarios of Australia to gain permanent residency and to source a luxury Sydney apartment with “stunning views of the Sydney Harbour Bridge, the Opera House, a concierge and a heated pool”.

Now, having dealt with the modest accommodations of Archbishop Makarios, Bragg evidently wants to help some of Australia’s young battlers get into a three-bedroom brick veneer with ensuite and lock-up garage by raiding their superannuation.

Outsider assumes that Bragg has done the numbers on this exercise, including holding the superannuation guarantee at 9.5%, and that when those battlers find themselves retiring with an inadequate superannuation balance he will help them access a reverse mortgage.

That’s all good, because whether it’s a mortgage or reverse mortgage, someone is clipping the ticket somewhere.

Queensland, balmy one day, barmier the next OUTSIDER remembers his first flight from Sydney to Brisbane back in the 1970s flying TAA (Google it) and when the plane landed the pilot welcomed everyone to Queensland where they could set their watches back one hour and two decades.

It was a joke redolent of the times – Queensland was being run by the late Premier, Sir Joh Bjelke-Petersen and it was commonly agreed that daylight saving time was not for Queenslanders because it faded the curtains and disoriented the cows who would not know when to come in for the milking.

Ah, the good old days of safari suits, long socks and Queenslanders who harboured a somewhat healthy disdain for anyone living south of the Tweed River which meant New South Welshpersons and the odd Victorian.

And how much has changed? Well, Outsider’s colleague Oksana Patron has sought to relocate to Brisbane from

OUT OF CONTEXT www.moneymanagement.com.au

15MM270820_30-36.indd 36

Money Management Central in Sydney and has spent the past couple of weeks locked up in a Gold Coast hotel as part of Annastasia Palaszczuk’s COVID-19 quarantine regime.

The good news for Money Management readers is that Oksana has continued to work and write through the experience, but the bad news for she and her partner is that they have experienced a crash course in Queensland being ‘different’ while being confined to a small hotel room without a view of the beach.

Still, Oksana says she is expecting plenty of birthday cards next year as everyone who has called her during her enforced isolation has asked her for her date of birth.

Outsider recognises there is an election on in Queensland and a population of banana-benders to protect but he seriously doubts whether the Premier has won any votes from those who have been forced to endure her quarantine.

Ah, Queensland, balmy one day, barmier the next.

"The longer the delay in the rise of the superannuation guarantee, another generation of women will potentially face economic insecurity in retirement as a direct result of inadequate retirement savings." – Jane Hume in 2015 "I'm ambivalent." – Jane Hume in 2020

Stephen Jones, Shadow Assistant Treasurer and Shadow Minister for Financial Services, pointed to the juxtaposition of the Assistant Minister for Financial Services' opinion on the SG.

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20/08/2020 10:18:18 AM