Money Management | Vol. 33 No 18 | October 24, 2019

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Vol. 33 No 18 | October 24, 2019

18

INFOCUS

BOLR & AMP

MARKETS

34

Re-evaluating returns

FIXED INCOME

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TOOLBOX

Buy-write strategies

It’s not only about gender

BY JASSMYN GOH

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Pockets of yield despite record-low interest rates WHILE bonds used to be a safe haven for investors, the market has become a difficult place to find yield and it is not getting any better.

With interest rates at a record low globally, and some even in the negative, bond managers are having a hard time finding value and generating positive returns without taking too much risk.

However, there is yield still out there. But it is not to be found in traditional sovereign bonds.

As JP Morgan Asset Management’s chief investment officer, Bob Michele, points out, advisers can use this as an opportunity to look at other bond markets.

These include higher investment grade corporate bonds, US securitised credit or mortgage backed securities as they provided yield, diversification, and further price appreciation as central banks continue to cut rates.

According to FE Analytics, over one year to 30 September, 2019 emerging market debt funds were the performance winner with the top fund – Colchester Emerging Market Bond I – returning 17.6%.

Colchester’s investment officer, Martyn Simpson, warned advisers to avoid emerging markets that traded in hard currency debt denominated in US dollar bonds as those countries tended to find repaying the debt more difficult.

“These countries also have a lower credit rating quality unlike local currency debt denominated countries. In the local market the credit quality tends to be higher,” he said.

However, over three years, income bonds outperformed but fund managers were not convinced that their success would last due to the lower grade of the bond.

Simpson stressed that it was important to find a bond manager that had a good long-term track record and stuck to their process as it would make it easier to fit into an adviser’s overall asset allocation.

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Full feature on page 27

GENDER diversity is only a subset of the larger inclusion story and that is what is important to develop the financial services industry, Money Management and Super Review's 2019 Woman of the Year believes.

OneVue’s founder and chief executive, Connie McKeage, took out this year’s award for her commitment to the financial services industry and for going beyond to create more inclusion and diversity in the sector.

McKeage is also one of the board founders of the Financial Executive Women (FEW) which helps further careers for women in financial services through mentoring.

While McKeage said she did not feel disadvantaged by being a woman in financial services, she was a founding member of FEW because she did not believe the industry could make a systemic difference in equality during her lifetime.

WOMAN OF THE YEAR WINNER: Connie McKeage, OneVue

“What I can do is influence one woman and one man at a time through FEW. There are also good men at FEW who mentor that genuinely believe in diversity and women,” she said.

“I think I have made a difference to a number of women’s lives by guiding them, giving them confidence in themselves, helping them navigate their careers, and helping Continued on page 3

IOOF secures OnePath Pensions and Investments business

BY MIKE TAYLOR

IOOF has been given the go-ahead to complete its acquisition of ANZ’s OnePath Custodians IOOF told the Australian Securities Exchange (ASX) that it had received a “No Objections Notice” from both OnePath Custodians and ANZ in relation to the transfer of the ANZ Wealth Pensions and Investments to IOOF. The announcement followed the Australian Prudential Regulation Authority’s recent loss of legal action against IOOF which acted as an impediment to completion of the transaction.

The company’s announcement said that, additionally, ANZ Continued on page 3

17/10/2019 4:48:26 PM

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October 24, 2019 Money Management | 3

News

Significant design and claims handling issues in TPD found

BY JASSMYN GOH

THE corporate watchdog has found 60% of total and permanent disability (TPD) activities of daily living (ADL) claims are declined, five times higher than the average decline rate for other TPD claims.

The Australian Securities and Investments Commission (ASIC) said many consumers could not rely on TPD insurance cover when they needed it most after it found a significant industry-wide problem with the design of TPD insurance and the claims handling process.

It said nearly half a million Australians were covered by a very narrow TPD policy definition that only paid out in the most catastrophic circumstances, if they were unable to perform several ADLs such as feeding, dressing or washing themselves.

It found that the poor claims handling process led to 12% of claims lodged with insurers failing to proceed with a decision as consumers withdrew their claims.

ASIC Commissioner, Sean Hughes, said: “Alarmingly, we found that three TPD claims a day are assessed under the restrictive ‘activities of daily living’ definition, which has a concerningly high decline rate.

“People that hold this type of automatic

cover through superannuation are typically paying the same premium – for what is essentially junk insurance – as people who can access less-restrictive definitions under general TPD cover.

“We also find it inexcusable that insurers did not use, or in some cases even collect, data to enable them to identify the very poor consumer outcomes that are being produced because of these restrictive definitions.”

Hughes said superannuation trustees had a crucial role to play in the delivery of life insurance to their members and needed to act in their members’ best interests to provide

It’s not only about gender Continued from page 1 them not make excuses when things go wrong so that they understand it happens to both genders.

“Some of my achievements so far are that I’m still in an industry that I love, I’ve created many jobs along the way for people, and I’ve been extremely supportive of talented people regardless of gender.”

McKeage said rather than thinking about gender diversity only, it was more about inclusion such as differences in personality, religious backgrounds and cultural backgrounds.

She said firms in the industry could start by getting employees to stop calling others by colloquial nicknames.

“It’s a particular vernacular that does not apply very well to multiculturalism or mixed genders. It’s what you do every day in an organisation. When people use that language there’s a level of familiarity that means you become

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part of a club,” she said.

“By virtue of being part of a club you are excluding others because you only use that kind of language when you’re close to somebody, generally.”

The industry veteran for over 35 years, originally from Canada, said if women or anyone at a firm felt like they were not being heard they needed to speak up and say how they feel.

“The reason we don’t speak up is because we’re concerned about our jobs. But the reality is we’re going to leave anyways,” she said.

“The worst thing that will happen is those people don’t listen and then you know it’s not the right place to work at.

Often, it’s not about the women or the person, it’s the wrong culture.”

McKeage said she had worked with many men who were unaware of the way they had impacted another woman and when they were told they would make an effort to make the environment more amenable to mixed gender.

access to affordable insurance products that were suitably designed for their members while safeguarding super balances from inappropriate erosion.

ASIC said the review identified that insurer practices such as difficult lodgement processes, poor communication practices, multiple requests for medical assessments, and excessive delays were just some of the problems consumers found during the claims assessment process.

It also found that claims from AMP, Asteron, and Westpac had declined claim rates higher than expected, and Asteron’s decline rate was double ASIC’s prediction.

ASIC said its data looked at 35,000 TPD claims and commission consumer research which focused on: • AIA Australia Limited; • AMP Life Limited and the National Mutual Life Association of Australasia Limited (part of the AMP Group of companies); • Asteron Life & Superannuation Limited – previously Suncorp Life & Superannuation Limited; • MetLife Insurance Limited; • MLC Limited; • TAL Life Limited; and • Westpac Life Insurance Services Limited.

IOOF secures OnePath Pensions and Investments business Continued from page 1 and IOOF had also agreed the following changes to the terms of the ANZ P&I acquisition: • A purchase price of $825 million for ANZ P&I, revised down from $950 million, with the purchase price remaining subject to a completion adjustment for the net assets of ANZ P&I; • A revised date after which either party may terminate the acquisition of ANZ P&I if there are any outstanding conditions precedent on that date. Previously that date was 17 October, 2019, and the parties have agreed to extend that date to 31 December, 2019, with each party having the ability to extend that date on a monthly basis up to but not later than 30 June, 2020; and • Changes to warranty caps associated with reduced purchase price and an amendment to the Strategic Alliance Agreement allowing for an earlier termination right by either party.

17/10/2019 4:48:27 PM

4 | Money Management October 24, 2019

Editorial

mike.taylor@moneymanagement.com.au

RC/FRYDENBERG PUT PAID TO SELF-REGULATION

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

The question has to be asked whether the financial planning industry’s lacklustre past efforts on member discipline and sanctions fatally undermined proposals for self-regulation via Financial Adviser Standards and Ethics Authority code-monitoring authorities.

WILL the Government’s single disciplinary body covering financial advisers be a lawyer’s picnic, or will it actually deliver a balance of legal, financial services and community experience sufficient to deliver appropriate outcomes for advisers who are accused of having broken the rules?

In the immediate aftermath of the Treasurer, Josh Frydenberg’s announcement that the Government would be fully embracing the recommendations of Royal Commissioner, Kenneth Hayne, and pursuing the single disciplinary body in preference to the code-monitoring authorities envisaged under the Financial Adviser Standards and Ethics Authority (FASEA) regime it was suggested that FASEA itself or even the Australian Financial Complaints Authority (AFCA) should be empowered as the single disciplinary authority. Such suggestions are flawed.

AFCA is an external dispute resolution body which should not be put in the position of being judge, jury and executioner with respect to financial advisers. FASEA is a standards-setting organisation which is already struggling to fulfil its remit.

Having aborted the concept of industry self-regulation inherent in

FASEA code-monitoring authorities, the Government needs to establish and fund a body which, while understanding the industry, stands apart, has judicial powers and is unquestionably independent. To do otherwise is to beg more controversy and criticism.

Given the amount of time, effort and money which was expended by the Financial Planning Association (FPA), the Association of Financial Advisers (AFA), the SMSF Association and the other members of the Code Monitoring Australia consortium, their disappointment at the Treasurer’s announcement is understandable.

However, the writing was on the wall from the moment political and electoral expediency dictated that the Government committed to the implementation of all of Hayne’s recommendations irrespective of how much of the FASEA regime was already on foot.

Then, again, perhaps the writing was on the wall for industry associations and self-regulation when the Royal Commission was informed of the manner and time taken by the FPA Conduct Review Commission in its handling of allegations levelled against former celebrity planner, Sam Henderson.

To a jurist such as Commissioner Hayne, the

processes, responses and time taken may not have appeared suitably effective.

The FPA CRC is actually chaired by a lawyer and, in truth, it followed procedure and arrived at an appropriate determination but it seems obvious with hindsight that this process did not find favour with Hayne who doubtless took into consideration the processes other financial adviser bodies such as the Association of Financial Advisers (AFA).

But the question needs to be asked. Would any lawyer heading a Royal Commission into misconduct in the Banking, Superannuation and Financial Services industry ever have felt comfortable in backing a regime entailing self-regulation?

The answer was always going to be a necessarily cautious and conservative ‘no’.

Thus, financial advisers are faced with the prospect of a single disciplinary body the constitution and rules of which have not even been sorted out but the cost of which is likely to be high.

The times and political expediency have once again conspired against advisers.

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@financialexpress.net ADVERTISING Sales Director: Craig Pecar Tel: 0438 905 121 craig.pecar@moneymanagement.com.au Account Manager: Amy Barnett Tel: 0438 879 685 amy.barnett@financialexpress.net Account Manager: Amelia King Tel: 0407 702 765 amelia.king@financialexpress.net PRODUCTION Graphic Design: Henry Blazhevskyi

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WHAT’S ON QLD Inspire and Genxt: VIC Member Politicians meet the Services Professionals Discussion Group

WA Member Services Discussion Group

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17/10/2019 9:22:46 AM

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6 | Money Management October 24, 2019

News

Banks urged to show leniency on grandfathering loans

BY MIKE TAYLOR

THE end of grandfathering will be ‘devastating’ for some advisers, particularly those who in good faith borrowed money to kick-start or grow their client base, according to the Association of Financial Advisers (AFA).

In a communication to members the AFA chief executive, Phil Kewin, has expressed the association’s disappointment at what he described as a lack of due process around grandfathering and the simplified narrative that it had few implications beyond stopping payments to advisers who weren’t servicing their clients.

What is more, Kewin has urged that banks which have loaned money to advisers using grandfathered commissions as security to be “flexible and understanding” with advisers who are impacted.

“If their [the bank’s] due diligence didn’t identify a future issue with grandfathered remuneration, then the small business adviser would likewise be challenged in anticipating this outcome,” Kewin said. “Indeed, the ABA [Australian Bankers

Association] was one of the parties calling for a ban on grandfathering in their Royal Commission submission.”

Kewin has also warned that product providers who cease paying grandfathered commissions ahead of the Government’s end-date should be made to prove they have passed on the full benefit to the client.

“This does not mean ‘where practicable’, or ‘generally’, it means all commissions, volume and shelf space payments. Ceasing these payments must be to the benefit of the client.

Otherwise, why are we doing this?” he said.

“To say that we are disappointed in the process, or more lack of due process, on

this issue is an understatement. We recognise grandfathering does not impact all advisers and indeed many see it as a blight on our industry that needs to be removed. We also recognise that banning grandfathered conflicted remuneration will remove another of the layers of opaqueness that fuels negative perceptions of financial advice,” the AFA communication said.

“However, the outcome will be devastating for some advisers, particularly those, who in good faith borrowed money to kick start or grow their client base, and now will not have time to review their clients whilst trying to maintain an income to repay a loan on an asset that now has no value.”

Industry needs to keep pressure on govt

BY CHRIS DASTOOR

THE political climate will get tougher for financial services as the economy weakens, but the industry can benefit by remaining engaged with Canberra, according to Alastair Kinloch, director of government affairs at AMP. Speaking at AMP’s ‘Realise the Possibilities’ workshop, Kinloch said the industry had to be involved early in the process to guide change.

“From a financial services perspective we have a good of a team both in government and opposition as we’ve ever had,” Kinloch said.

“But to change the government’s mind when it gets towards the parliamentary process is

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harder, it means you have to influence early in policy process,” Kinloch said.

He was positive about Superannuation, Financial Services and Financial Technology Minister, Senator Jane Hume’s background and capabilities to help the industry, as well the capabilities of the opposition.

“We know them well, that doesn’t mean all the outcomes are going to be good and positive, but at least we have a good working relationship with these people,” Kinloch said.

“I think there’s going to be challenges ahead for the coalition, as the economy softens it’s going to be harder, but they’re well placed for the moment.”

BOLR rights ‘not a sure thing’

BY JASSMYN GOH

BUYER of last resort (BOLR) rights do not guarantee an exit strategy and there has been a definite shift in attitude from dealer groups and licensees when it comes to honouring them, according to The Fold Legal.

The law firm’s senior associate, Katie Johnston, said in an analysis that this attitude shift could delay the exit process or have changes in the agreed valuation approach for their client book for the adviser.

Johnston said the BOLR process might not be what advisers expect especially if the agreement had been amended over the years or was poorly drafted from the beginning.

“In either case, the contract terms for the BOLR may be subject to interpretation. There could be scope for the licensee to argue it is optional rather than mandatory, or the value you thought you were entitled to is less,” she said.

Johnston said advisers needed to plan ahead as despite being contractually bound, dealer groups and licensees were not always willing to follow BOLR timeframes. She said that a BOLR exit plan should take about three to five years to implement.

She said advisers first needed to get their house in order as some licensees added hurdles to exit such as additional compliance reviews and audits.

“They are looking at a far broader range of issues (following the Royal Commission) and particular areas of focus for them include quality of advice, fees, FDS/opt in compliance, and risk profiles/fact finds in addition to SoAs [statements of advice] and RoAs [records of advice],” “They are also looking at many more client files and where there are breaches/non-compliance, they are seeking to have the adviser remediate those issues before they will proceed with the purchase.”

Johnston noted that licensees were also focusing on where they could manoeuvre away from the agreed valuation – reducing it to take account of compliance issues and recoverability of recurring fees.

“Review your fee for service arrangements and ensure that they are appropriate and allow you to future-proof for regulatory changes like the ban on grandfathered remuneration and life insurance commissions,” she said.

Johnston said the second thing advisers needed to do was to know their rights and be aware of any limitations. She said advisers could get legal advice on: • How their book would be valued; • What their options were; • What the timeframes in the BOLR process were; and • What ‘notice’ must be given to commence the BOLR process.

17/10/2019 11:13:44 AM

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14/10/2019 4:22:47 PM

8 | Money Management October 24, 2019

News

Perpetual funds under management decreases by $1.1b Chart 1: Perpetual Australian Share fund and Ethical SRI fund v benchmark and sector performance three years to 30 September 2019

BY JASSMYN GOH

PERPETUAL Investments has posted a decrease in funds under management (FUM) of $1.1 billion to $26.1 billion at the end of September 2019.

In an announcement to the Australian Securities Exchange (ASX), the firm said the decrease comprised of $1.8 billion in net outflows from Australian equities, offset by market appreciation of $0.7 billion.

A Perpetual spokesperson told Money Management: “As an active value manager, the current market is expensive, and quality companies are trading at a premium.

“These market conditions have impacted the investment performance of our Australian Equities’ strategies. We remain true to label and consistent in our investment style which has delivered over the long-term.”

According to the announcement, the firm’s institutional channels experienced the largest outflows of $1.2 billion to $6 billion.

According to FE Analytics, over the three years to 30 September, 2019, Perpetual’s Australian Share fund returned 21.9% and its Ethical SRI fund at 13.7%. However,

Source: FE Analytics

neither funds beat its ASX 300 benchmark which returned 40%, or the sector average at 32.6%.

The Australian Share fund’s factsheet said its largest sector allocation was financials ex property (31.1%), followed by materials

Morningstar hops on the managed account wagon MORNINGSTAR Australasia has nabbed BT as a client to provide managed account research advisory services, it has announced, following fellow research house Lonsec’s managed accounts offering available on Netwealth.

Morningstar would support the six Multi-Sector Series Portfolios (previously known as the BT MultiSector Portfolios) available to advisers through BT Managed Portfolios on Panorama.

Morningstar would provide investment advice in relation to asset allocation and investment selection, with BT Investment Solutions providing investment governance oversight.

Morningstar’s director of manager research for AsiaPacific, Tim Murphy, said: “We are seeing that licensees, advisers and investors welcome the rigour, independent approach and transparency that Morningstar can bring to their managed account offering”.

The firm’s said its advisory service supported clients through governance frameworks, investment philosophy, strategic asset allocation, manager selection, investment committee representation, reporting and client engagement.

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(15.5%), consumer discretionary (12.6%), and cash and fixed interest (9.4%).

The fund’s largest holding was Commonwealth Bank at 7.7%, followed by Westpac at 6.3%, Suncorp at 6.2%, Telstra at 4.9%, and Woolworths at 4.8%.

GBST shareholders vote in favour for sale to FNZ

BY MIKE TAYLOR

SHAREHOLDERS in publicly-listed financial services technology company, GBST have overwhelmingly voted in favour of the acquisition of the company by New Zealand-originated and UK-based player, FNZ. A meeting of shareholders voted in favour of the transaction which saw the company, originally founded in Wollongong, valued at $3.50 per share.

The outcome sees one of the company’s founders and its current chief executive, Rob DeDominicis, benefit to the tune of a cash payment of up to $490,000 under the terms of the company’s long-term and shortterm incentive plan as well as the value of 699,055 GBST shares and

1,509,436 GBST options.

The acquisition scheme remains subject to court approval but it is expected that shares in GBST will cease trading on the Australian Securities Exchange (ASX) on 18 October.

The shareholder vote came less than a week after GBST announced to the ASX that its former chief executive and managing director, Stephen Lake, had won a legal case concerning the termination of his employment in 2016.

The company said that Lake had alleged GBST owed him $2.6 million in connection with the termination and that the court had found that he was entitled to his claim of $2,2225,205.04 plus interest.

GBST said at the time of the judgement that it was reviewing its options.

17/10/2019 9:23:07 AM

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14/10/2019 10:17:19 AM

10 | Money Management October 24, 2019

News

Australian consumers unafraid to switch banks

BY LAURA DEW

COMPETITION between banks for customers remains ‘fierce’, according to the Australian Banking Association (ABA), as more than two million Australians switched provider last year.

According to data from Deloitte Access Economics, which had been commissioned by the Australian Banking Association, 15% of account holders switched bank for everyday transactions.

This compared to a switching rate of just 3% for everyday transaction account holders in the UK and 11% in the US. This was followed by 10% of Australians who switched credit card provider and 5% who switched their mortgage provider.

While 79% said they were satisfied with their everyday transaction provider, the data indicated those who were unsatisfied were

highly likely to look elsewhere.

Price-related factors were important to consumers, particularly among mortgage holders where 87% said price was ‘important’ or ‘very important’. Other important factors were customer service and fraud protection.

The ABA said the data showed competition was fiercer than it had ever been and that it paid for customers to shop around if they were unhappy with their current bank. This could be via online comparison sites or other bank’s marketing materials.

“The message to all Australians is if you aren’t satisfied with your home loan, credit card or other product it pays to shop around to get the best deal possible,” said Anna Bligh, chief executive of the ABA. In recent years, the Big Four banks have chosen to exit the wealth management market with Westpac being the final firm to depart the

Life insurance professional standards framework to be established

market when it announced earlier this year that it was exiting personal advice by financial planners.

Queensland financial adviser banned for seven years

BY JASSMYN GOH

BY OKSANA PATRON

THE Australian and New Zealand Institute of Insurance and Finance (ANZIIF) and the Life Insurance Professional Standards Working Group (LIPSWG) will partner to establish the professional standards framework.

The two groups signed a Memorandum of Understanding to work together to benefit the industry and would also undertake a demographic survey and develop an approach to assess current knowledge defined within the agreed framework.

ANZIIF board president and AMP Life chief executive, Megan Beer, said: “Becoming more trustworthy requires us to demonstrate competence. Our commitment to lifting professionalism in our industry starts with key roles that deliver value to our customers.

“Defining what it means to be an insurance professional is fundamental to the future of our industry and working collaboratively is the way we will achieve meaningful change.”

The LIPSWG said its members believed the program would improve the professionalism of the life insurance industry, build and improve community confidence in life insurance, and create a significantly better experience for customers. It noted the project had the added benefit of creating cultural change and driving strategy to attract and retain career employees.

The demographic study would survey the industry to understand what level of background and skills people brought to the life insurance industry and another study would develop a knowledge-based assessment within the agreed framework.

ANZIIF chief executive, Prue Willsford, said: “We will lead the collaborative project to establish a professional standards framework which will determine the different job families, and the competencies required to fulfil job roles at every level of experience.

“The significant undertaking will assist CEOs and leaders to create a comprehensive roadmap to understand the investment required to build professional skills within their business.”

LIPSWG’s membership comprised of AIA Australia, AMP Life, BT Life Insurance, ClearView, MLC Life Insurance, TAL Life Limited and Zurich.

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THE Australian Securities and Investments Commission (ASIC) has banned Queensland adviser, Ian Haisman, from providing financial services for seven years after he failed to act in the best interest of his clients, the regulator said.

ASIC reviewed advice provided by Haisman to his clients from early 2016 to early 2018 when he was an authorised representative of Bristol Street Financial Services.

The investigation found that the advice provided was not tailored to his clients’ individual circumstances, needs and financial goals and when recommending an investment strategy which involved product switching, he did not adequately investigate his clients’ existing superannuation and insurance arrangements, or provide product cost and risk comparisons.

Instead, Haisman used templated strategies and made recommendations that were applied regardless of his clients’ personal circumstances, ASIC said.

Additionally, in some instances, he recommended very high levels of insurance cover compared to the clients’ income or recommended life insurance policies to clients with no known dependants and no reasonable basis for the policies.

ASIC also found that Haisman failed to provide statements of advice that were clear, concise and effective to all his clients.

“ASIC expects advisers to take into account their clients’ personal circumstances, needs and financial goals to ensure that the advice they provide is appropriate. Failing to do so clearly indicates a lack of regard for the law and for the interests of clients,” ASIC Commissioner Danielle Press said.

“Financial advisers providing personal advice are required by law to act in the best interests of their clients.”

15/10/2019 4:55:42 PM

October 24, 2019 Money Management | 11

News

ISA wants super funds and unions delegated to pursue SG debts

BY MIKE TAYLOR

INDUSTRY Super Australia (ISA) has again raised the proposition of unions or superannuation funds being empowered by the Australian Taxation Office (ATO) to act as agents against recalcitrant employers to recoup unpaid superannuation guarantee (SG) payments.

In a submission filed with the Senate Economics Legislation Committee review of the Government’s legislation delivering an amnesty to employers on unpaid SG obligations, ISA suggested that, to date, the ATO had been less than effective in dealing with unpaid superannuation and suggested greater Government oversight of the ATO’s approach.

“The ATO Annual Report 2017-18 reveals some progress has been made to recover unpaid super through compliance activities however unfortunately, the amounts raised are insignificant compared to the $5.9 billion of super entitlements that are not paid,” the ISA submission said.

As well, it said that the ATO had never enforced its ability to impose penalties of up to 200% in instances where employers had fallen short in their obligations.

“In the 2019/20 Federal Budget, the ATO was given additional funding to recover unpaid super. It is critical that the ATO can demonstrate that the additional funding is being effectively used for enforcement,” the ISA submissions said.

“Other relevant agencies such as the Fair Work Ombudsman and third parties such as unions or superannuation funds should be given greater scope to work with the ATO to recover unpaid super. This could be achieved through permitting the ATO to delegate an agent (such as a fund or service provider to them) to recover unpaid SG on application.”

Equity Trustees partners with CMLA

BY OKSANA PATRON

EQUITY Trustees has entered into agreements with The Colonial Mutual Life Assurance Society (CMLA) which will increase total funds under supervision to more than $100 billion.

Under the terms of the agreements, EQT subsidiary Equity Trustees would take on the trustee role for $10.5 billion of CMLA’s assets while another subsidiary, Equity Trustees Superannuation Limited (ETSL), would become the registrable superannuation entity (RSE) licensee for $4.5 billion of superannuation funds.

Additionally, CMLA and ETSL signed an agreement under which ETSL would continue to operate as administrator and life insurer of these funds.

“Each appointment is independent, and the funds will be overseen by separate specialist subsidiary trustee companies,” EQT Holdings managing director, Mick O’Brien said.

“In our superannuation and responsible entity businesses, our focus is on looking after the rights of members and unitholders within funds, independent of all other parties.

“Our recent investment in resources, including senior personnel and technology, strengthens our ability to support opportunities such as this. We look forward to partnering with CMLA.”

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RETIREMENT INCOME MONTHLY UPDATE

Does change drive opportunity for those prepared to embrace it?

The new future for Advice.

THE FUTURE of the Australian financial advice industry is being shaped before our very eyes by powerful forces whose impact will be felt for decades. There are changing consumer demands, shifting demographics and a significant overhaul of the regulatory system.

These forces are redefining how financial advisers develop services, how consumers expect those services to be delivered, and the standards of conduct and qualifications demanded of financial advisers.

EMBRACING CHANGE

Of course, it’s a confronting environment for advisers to be operating in, but it’s one that presents significant opportunities. As the industry continues to increase its education requirements, advisers who can successfully adapt and evolve what they do–and how they do it–will find themselves in a strong position: trusted and respected by the community as professionals offering a valuable service, and catering to a rapidly-growing demand for financial guidance and advice.

The forces shaping the advice industry are intertwined and closely related.

Essentially, financial advisers face several concurrent challenges. On the one hand, they are being pushed by the Financial Advice Standards and Ethics Authority (FASEA) to upgrade their formal qualifications. On the other, they are being pushed in another direction by the ongoing effects of the Future of Financial Advice (FoFA) laws, as well as the findings of the Royal Commission, to deliver advice in a way that clearly and demonstrably serves the best interests of consumers. And, they’re under pressure to develop relevant value propositions as more and more individuals begin to grapple with how to best for their own retirement.

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

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

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

AND THE WINNERS ARE…

Advisers that rapidly embrace the opportunities presented by regulatory reform, consumer demands and the needs of an aging population. Will you be one of them?

CONTENT PRODUCED BY

IN PARTNERSHIP WITH MONEY MANAGEMENT

16/10/2019 10:32:18 AM

12 | Money Management October 24, 2019

News

Ethical considerations less important than returns and fees

BY JASSMYN GOH

AUSTRALIAN millennials care more about fees and long-term returns than ethical considerations, according to a Calastone report.

The report found only 37% of millennials surveyed found investment in ethical funds, causes and products to be important – this was the leastimportant factor for them when choosing an investment fund.

This was compared to 60% who had long-term returns as the most important factor, followed by fees and expenses at 59%, and fund/firm/institution reputation at 58%.

However, Australians were not alone in their priorities as respondents in the UK, US, France, Germany and Hong Kong felt the same when it came to ethical considerations.

The report said this was a surprise outcome given the fact that the generation was

generally labelled as being behaviourally led by their support for social, ethical, and governance issues.

Calastone said another surprising outcome was that millennials preferred to speak with an expert in person prior to allocating capital, as well as prioritising online and app capabilities, “highlighting the need for asset managers to provide omnichannel services”.

Calastone managing director for Australia and New Zealand, Ross Fox, said: “This study shows a generation of investors who are clearly outcomes focused and demand greater transparency, accountability and engagement than comparatively wealthier generations before them.

“Managers who can tailor product offerings, diversify direct engagement channels, demonstrate their value and maintain transparent investor communication will be the

winners in attracting and retaining capital from this maturing millennial market.”

While 71% of Australian millennials were saving, only 10% were invested in funds with 76% planning to invest in the future. However, of the ones that already invested in a fund, they had an average investment value of $63,850 which was higher than the global average of $44,500.

Channel Capital and Bell AM enter strategic distribution partnership

BY OKSANA PATRON

MULTI-BOUTIQUE investment firm, Channel Capital, and global equities asset management specialist, Bell Asset Management, have announced a strategic distribution partnership.

The agreement would aim to drive further engagement with research houses, financial advisers and wholesale/sophisticated investors for its two strategies: global equity (Bell Global Equities Fund) and global small and mid-cap (Bell Global Emerging Companies Fund).

Channel Capital’s managing director, Glen Holding, said that Bell AM was selected due to the high alignment to its own qualities and value proposition in terms of its investment process, active returns, the quality of its investment team as well as domestic and offshore institutional investor support.

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“In addition, with ‘growth ‘and ‘value’ offerings being quite overcrowded, we are of the view that the Bell Asset Management ‘quality at a reasonable price’ process that has delivered world class numbers to investors to date, will have a distinct role to play in our clients’ portfolios,” he said.

During the year to 31 August, 2019, the Bell Global Equities Fund, which invested in a globally diversified portfolio of shares, delivered a return of 14.22% and outperformed its benchmark MSCI World ex Australia Index by 6.65%.

Over the same period, the Bell Global Emerging Companies Fund, which invested in a globally diversified portfolio of small and midcap companies, returned 10.07% and outperformed the benchmark MSCI World SMID Index by 8.99%, net of fees, the firm said.

Estate planning needs holistic approach A holistic approach to estate planning for blended families is needed as mistakes could cause irreparable damage to finances and family relationships, according to Stanford Brown.

The private wealth firm’s adviser Kirsten Lynn said while tax effectiveness and asset protection was important, so too were legacy and the preservation of family bonds.

Lynn said six planning mistakes that blended families needed to avoid were: • Expecting a single solution; • Not asking about beneficiaries’ hopes and expectations; • Focusing only on what happened after death; • Intermingling family finances; • Tying beneficiaries together financially; and • Assuming the family would never be blended.

“There is no one single solution. Blended families and their advisers will generally settle on a strategy in line with the competing responsibilities and goals, and the emotional and financial trade-offs,” she said.

Lynn noted that thinking about transferring wealth before death could open up planning opportunities such as providing help to a child when it was most needed, making a philanthropic gift when you see the impact, or undertaking lifetime restructures of an asset base.

On avoiding intermingling family finances, Lynn said that it was important to keep in mind the accumulated wealth of couples that had more than one family when they managed their joint finances.

“It’s worth getting advice about how your decisions now affect your plans later on. It is important to take the time to plan before you sell your home or help your partner renovate their house, or before you buy a home as joint tenants,” she said.

Lynn said estate planning was about protecting loved ones if anything happened and protecting wealth a couple had built together to benefit their children.

“Ultimately, how you plan for the transfer of your family wealth can help to preserve or contribute to damaging relationships in your family,” she said.

“You should consider whether your financial and estate planning recognises your values, your family dynamics, and the goals and interests of the parties involved.”

16/10/2019 2:17:27 PM

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14 | Money Management October 24, 2019

News

APRA to take four years to restore trust in financial sector

BY JASSMYN GOH

THE Australian Prudential and Regulation Authority’s (APRA’s) plan to change and improve the financial sector’s governance, culture, remuneration, and accountability (GCRA) will take four years, according to its chair Wayne Byres.

In a speech at an Australian Banking Association event, APRA chair Byres said the agenda was ‘ambitious’ and the four components were inter-dependent of each other and weakness in one would undermine the other three.

“We don’t underestimate the challenge. And given the scale of the task, it won’t be done overnight,” he said.

“It is a four-year plan for APRA, and we’ll need every bit of that time to drive change and observe whether we’ve been successful.”

Byres pointed to the Royal Commission and its

own Capability Review that both concluded that APRA needed to do more to broaden its focus in relation to GCRA through more robust standards and intensifying its scrutiny and challenge of financial institutions.

He said APRA intended on doing this by strengthening the prudential framework, sharpening its supervision of GCRA, and sharing insights and findings with industry and the broader community.

“The message from recent commissions, reviews and inquiries is clear: regulated institutions must lift standards of governance, improve their internal cultures, and embed systems and practices of remuneration and accountability that support the long-term interests of their full range of stakeholders,” he said. “…It is an ambitious agenda, undoubtedly, but one we are committed to delivering on.”

Byres said its success would entail: • Stronger governance frameworks and processes, providing robust oversight of organisational activities; • Organisational cultures that acknowledge the need for risks (of all types) to be prudently managed, and to deliver outcomes that balance the interests of all stakeholders; • Remuneration arrangements that reflect a holistic assessment of performance and risk management; and • Clear accountability (individually and collectively) for outcomes achieved.

“If we achieve these outcomes, APRA will have enhanced the financial resilience of regulated entities, reduced the likelihood of poor behaviour and misconduct, and helped to restore community trust and confidence in the Australian financial sector,” he said.

No right to appeal SMSF compliance status change

SELF-MANAGED superannuation funds (SMSF) that fail to lodge their annual returns by the 31 October, 2019 due date and have their compliance status changed will have no rights to appeal to the Administrative Appeals Tribunal (AAT), according to SUPERCentral.

The Australian Taxation Office (ATO) recently announced that the compliance status of SMSFs would change from “complying” to “regulation details removed” if the funds did not lodge annual returns by the due date.

Rollovers to the SMSF would not occur and unrelated employer contributions would not be made as the SMSF would not appear on the Super Fund lookup website to be above board.

SUPERCentral, a compliance-based documentation service, said the action had no effective legal redress as the Super Fund Lookup website was not mandated by legislation there would be no rights of appeal to the AAT or right of review under the Administrative Decisions (Judicial Review) Act 1977.

“A complaint to the Taxation Ombudsman may not be effective as there is no statutory right to be listed on the website and, in any event, the Ombudsman may view the delisting of late lodging SMSFs to be a reasonable and non-punitive means of ensuring SMSFs perform their statutory obligation to lodge returns by the due date,” it said.

SUPERCentral noted that if the SMSF had lodged the returns on time and it was de-listed this might be a basis from an effective complaint to the Taxation Ombudsman.

“If the SMSF has remedied its late lodgements by lodging the missing returns, the non-rehabilitation of the SMSF may also be a basis for an effective complaint to the Taxation Ombudsman,” it said.

SUPERCentral said an SMSF should ensure the annual returns were lodged by the due date and not rely on the two-week grace period. If the 31 October, 2019 deadline could not be met, then the SMSF should consider appointing a tax agent before the date so that the lodgement of the return would be determined by the agent’s lodgement schedule.

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SMSF Association appoints chair following Ralston resignation

BY LAURA DEW

THE SMSF Association, which represents the $750 billion selfmanaged superannuation fund industry, has appointed Robin Bowerman as its new chair, replacing Dr Deborah Ralston who has joined the Review of the Retirement Income System.

Bowerman is head of corporate affairs at Vanguard Investments and has been vice chair of the Association for the past three years. Andrew Hamilton will take over as vice chair.

Ralston resigned from her chair position at the end of September following her appointment to the three-strong Review of the Retirement Income System panel, which was announced by Treasurer

Josh Frydenberg.

Bowerman said: “I am very honoured that my fellow directors have asked me to succeed Deborah as chair. Although we are all greatly disappointed at losing Deborah before the end of her term, we totally appreciate why she has chosen to resign and wish her all the best in this new important role.

“She has provided the association with sound leadership at a difficult time for the industry, and I know I speak for all members when I say her contribution has been greatly valued.”

Ralston said: “It has been a privilege to work with my fellow directors, the executive, and the members, all of whom are dedicated to ensuring Australians enjoy a secure retirement”.

16/10/2019 2:16:50 PM

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14/10/2019 10:14:17 AM

16 | Money Management October 24, 2019

News

BetaShares expands its SMA presence Integrity Life

launches group insurance for SMEs

BY OKSANA PATRON

BETASHARES has broadened its separately managed accounts (SMA) presence with an addition of its Dynamic Asset Allocation ETF Model portfolios to the Netwealth investment platform.

The firm said that the addition of the models, available via SMAs, aimed to provide advisers with convenient access to its intelligent investment solutions.

BetaShares chief executive, Alex Vynokur, said: “We’ve seen the strong demand from advisers for model portfolios, and we’re delighted that our ETF [exchange traded fund] models are now accessible on Netwealth’s award-winning platform.

“Advisers have increasing compliance and administration loads to manage, as well as meeting the ever-changing needs of clients.

“Implementing ETF model portfolios for some, or all, of their clients provides a costefficient, scaleable solution with high portfolio construction integrity, while saving significant time on investment and manager selection, and portfolio management.”

BetaShares also said it used

an open architecture ‘best-ofbreed’ ETF selection process and, as such, the model portfolios were not constructed by using only the firm’s funds, but with other ETF managers’ offerings included in the models which were based upon investment merit.

Netwealth’s joint managing director, Matt Heine, said: “It is no secret that the ETF market continues to grow exponentially. The addition of the BetaShares models, provided by one of Australia’s leading ETF manufacturers, further supports this objective”.

ANZ customer remediation charges up $559m

BY JASSMYN GOH

ANZ’S 2H19 cash profit has been impacted by a customer remediation charge of $559 million after tax.

In an announcement to the Australian Securities Exchange (ASX), the bank said the remediation charges within continuing operations in the second half of 2019 would be $405 million after tax, largely related to product reviews in Australia retail and commercial for fee and interest calculation and related matters.

In regards to discontinued operations, ANZ said the remediation charges during the second half of 2019 would be $154 million after tax,

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primarily associated with the advice remediation program and customer compensation charges for other wealth products.

The announcement noted that customer remediation for the full year 2019 was $682 million for both continuing and discontinued operations.

ANZ chief financial officer, Michelle Jablko, said: “We recognise the impact this has on both customers and shareholders.

“We are well progressed in fixing issues and have a dedicated team of more than 500 specialists working hard to get any money owed back to customers as quickly as possible.”

INTEGRITY Life has launched an offthe-shelf group insurance offering for small-to-medium sized businesses.

The product, Five plus, would combine income and life insurance and allowed employers manage their financial risk if they temporarily lost an employee due to extended illness, and needed to hire a temporary worker to do the affected job.

The product, available for business with five to 50 employees, was offered though a select group of national insurance broker networks, and will gradually be extended to the broader market over the coming months.

Integrity managing director, Chris Powell, said: “It is very much an offthe-shelf solution that is easy for business owners to understand, purchase and administer, and provides SMEs with a great way of protecting their greatest asset – their employees.

“SMEs and start-ups report challenges in attracting and retaining talent as they generally can’t offer the same perks and benefits that their larger competitors do. This new product will help employers create a compelling offer to lure the talent they need to grow their business on a cost effective and affordable basis.”

Integrity Life said the product would feature: • An off-the-shelf product; • No minimum premium; • Instant quotation and straight through application process; • New event cover resulting in no health questions to ask when buying the product; • Instant acceptance of the application after submission; • Death and terminal illness benefit of $200,000 and Group Salary Continuance (100% of salary, 80% to employee, 20% to employer); and • A price point of usually between 1% and 2% of salary.

17/10/2019 1:35:11 PM

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18 | Money Management October 24, 2019

InFocus

BOLR: NOT CUT AND DRIED Following the announcement by AMP of unilateral changes to the buyer of last resort policy, some AMP advisers are now facing financial devastation, Dan Mackay writes.

FOLLOWING THE ANNOUNCEMENT by AMP of unilateral changes to the buyer of last resort (BOLR) policy, some AMP advisers are now facing financial devastation.

After a recent meeting with a client (an AMP adviser who exercised their BOLR option rights with AMP before the announced changes) I realised that many advisers may not be aware that the situation they face is not as straightforward as AMP may like them to believe. There are more legal issues, and potentially more “weapons”, at the disposal of AMP advisers, than they may realise.

Advisers shouldn’t just accept the position AMP has constructed as a fait accompli.

A BRUTAL APPROACH The announced changes by AMP regarding BOLR have been brutal in their potential impact upon some advisers. It is highly likely that advisers relied upon the security of the ‘4X’ BOLR put option when they purchased their businesses or client-books, in many cases borrowing amounts based on the 4X value. The stark reality now, is that AMP’s unilateral revisions to the BOLR terms means advisers may have negative equity in their businesses against their debt.

Their position might be further diminished by the effect of ‘lookback’ audits.

Contrary to promises of ‘working together’ and ‘support’, the reality of the process appears that it will be very different. AMP advisers need a properly-informed understanding of this complicated situation so they can assess the position, their options and respond.

This needs to take into account not just broader legal issues, but also the specific circumstances and story of each adviser, as this can directly affect the application of the principles discussed below.

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THE CONTRACT AND BOLR The BOLR issue arises because of what appears to be a unilateral change by AMP to the terms of contract between AMP and AMP advisers. It is common for contractual arrangements between AFS licensees and large authorised representative adviser groups to be constituted by a suite of interrelated contracts and ancillary documents, including policies. Assuming this is the case here, the relationship between AMP and the advisers is not straightforward. Rather than being neatly laid out in a single contractual document, the contractual relationship may be constituted by a number of interconnected agreements and deeds, with key aspects left to AMP policies, such as the BOLR policy, which apparently may be changed from time to time.

It is the purported changes by AMP to the BOLR policy on 8 August, 2019, that are having the greatest impact. Most of the focus has been on the decrease in the BOLR multiple from 4X to 2.5X. But media reports suggest that the multiple on grandfathered commission is being reduced to almost zero months in advance of the regulatory changes behind it.

Further, we expect that these changes may be accompanied by heightened attention to seemingly innocuous compliance issues which may impact on the valuation.

The speed and vigour of AMP in making these changes, coupled with the complex framework, may cause advisers to view the issues, and their legal rights and options, narrowly or as unnecessarily limited. This is not the case.

ADVISERS’ LEGAL RIGHTS While AMP may want to characterise the issues as straightforward (it is their policy after all, written in ‘black and white’), advisers should not make

the mistake of accepting this at face value.

Contracts formed by a suite of documents, especially those where one party can or might be able to unilaterally vary the contract terms through a document external to the suite are inherently complex. In my view, interpreting multiple documents together, as opposed to a single document, increases the risk of inconsistency and the potential for terms to be implied, varied or even ignored by a court.

This increases the relevance of the broader legal and regulatory framework in which the agreement ‘exists’ including the Corporations Act 2001, Financial Services Laws, Australian Consumer Law, the law of misleading or deceptive conduct and equity. Advisers should not ignore this complexity or the impact of this broader framework, in interpreting the contract, and in the law’s consideration of how AMP can act in reliance on it.

Where contracts are akin to standard form – prepared and presented by the dominant contracting party for use with multiple different counterparties – the law will closely examine their terms and asserted operation.

Where such contracts heavily prescribe the obligations of the weaker contracting party and amplify the rights of the dominant one, then the factual and regulatory context becomes more relevant.

Under the Corporations Act 2001 and its financial services laws, it is AMP who is responsible to ensure that advice given under its licence is provided ‘efficiently, honestly and fairly’. Where it isn’t, AMP is responsible under those laws. It is arguable that AMP’s liability, problems with its financial services business model and related losses of shareholder value, are ultimately because of its failure in oversight and compliance with the law. If AMP are attempting to transfer or offset the downside of these effects to

AMP advisers, including by AMP’s revisions to the BOLR policy, that attempt ought to be tested in court.

Last, but far from least, for AMP advisers, there’s equity. Often misunderstood by laypeople (and many lawyers), equity is law ‘through the looking glass’. It is not concerned with what contracts say so much as what people do and did.

‘Black letter’ gives way to consideration of ‘all the circumstances’, including circumstances specific to each adviser. Fundamentally, equity is concerned by what is fair.

Assuming for a moment that AMP has the ‘black letter’ legal right to reduce the BOLR valuation metric from 4X to 2.5X, should it be allowed to do so? In considering this question, equity might ask: were advisers induced by the promise and security of the 4X BOLR put option to buy AMP businesses, with loans from AMP Bank, at a price based on that 4X multiple? If AMP says that practices are now worth less because they are riddled with compliance issues, should AMP have discovered and addressed them before a Royal Commission did? Should AMP have made these risks clearer to advisers earlier, even if it risked lessening AMP’s profits from them? If AMP advisers now risk losing everything because of changes to the BOLR policy, and AMP might profit from these changes, in all these circumstances, should AMP be allowed to rely on the changes to BOLR? Equity may answer ‘no’.

CONCLUSION Each adviser’s legal position will depend on their own particular circumstances. Find out what that position is. Don’t take what AMP might say about BOLR at face value.

It’s not that simple. AMP just wants it to be.

Dan Mackay is a director at Mackay Lawyers and Advisors, Melbourne.

17/10/2019 1:35:37 PM

October 24, 2019 Money Management | 19

Recognise those who inspire Gold sponsor

CONTENTS 1 Woman of the Year 19 Selecting the winners 20 Advocate of the Year 20 BDM of the Year 21 Employer of the Year 21 Financial Planner of the Year 22 Innovator of the Year

22 Investment Professional of the Year 23 Life Insurance Executive of the Year 23 Marketing and Communications Professional of the Year 24 Mentor of the Year 24 Pro Bono 25 Rising Star 25 Superannuation Executive of the Year

Selecting the winner This year’s Women in Financial Services Awards focused on celebrating financial services professionals who both delivered excellent performance in their respective fields and contributed to the advancement of women. The finalists made this contribution in their organisations and the industry more broadly, and often in both.

The expert judging panel used their considerable industry experience to evaluate what defines ‘performance’ within each award that looked at professional achievements. An underlying consideration of these awards was also not rewarding people who just do their job, but those who go above what their role strictly requires.

The judges also looked at how the nominees had, regardless of their gender, proactively helped advance women within the industry. They could have, for example, supported women into senior positions or helped create a female-friendly work environment and culture. Women lifting each other up is crucial to advancing gender equity in the industry, and this year’s winners exemplify leadership in this area.

The Women in Financial Services Awards were judged by an esteemed panel of industry experts who span the various sectors of financial sectors. They were: • Julie Berry – principal, Berry Financial Services • Deborah Kent – financial adviser and director, Integra Financial Services • Claire MacKay – financial adviser and director, Quantum Financial • Jassmyn Goh – news editor, Money Management and Super Review

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17/10/2019 2:12:02 PM

20 | Money Management October 24, 2019

Women in Financial Services Awards 2019

‘Finance is the opposite of the Wolf of Wall Street’ FOR KYLIE JONES, it was her work on the AIA Women at Work committee that won her this year’s Advocate of the Year award.

The judges commented that Jones, change manager for Infinity at AIA, was an “excellent example of someone working hard to advance women at work”.

She began her career at AIA in Melbourne in 2012 after a nineyear stint in the United Kingdom and says she “fell into” the insurance industry. As a way to get to know people at the firm, she volunteered for the firm’s Women at Work committee and became its co-chair two years ago.

Having been formed in 2011, the committee runs activities and events, lunch and learn sessions and raises awareness within the firm of gender equality.

“It is about having senior leaders modelling behaviour such as doing school drop-offs and not being penalised for that, it is not just about childcare either but about having a work-life balance and being able to work flexibly,” she commented.

“I volunteered for Women at Work as I have an interest in gender equality and it is a great way to network. You make a difference in people’s lives and we know we are having an impact, it is not just something happening in the background.”

Unlike many financial services firms, she praised AIA for its gender equality which had an equal gender split on its executive board and a 48% split in senior leadership which was unusual for the sector.

As to what she would

recommend to another female starting out in the industry, she said it was important to understand all the different roles available and find out where you would be a good fit. She also felt it had matured over the years and was a ‘family-friendly’ workplace.

“You don’t have to be really good at numbers, there is such a breadth of different opportunities. We are seeing more and more female leaders coming through in financial services.

“It is a very family-friendly industry, it is changing from just being men in suits and it isn’t cut-throat, it is the opposite from the Wolf of Wall Street nowadays.”

ADVOCATE OF THE YEAR WINNER: Kylie Jones, AIA Australia FINALISTS: • Emma Sakellaris, Australian Unity Trustees • Laura Parr, Google • Vy Pham, Zurich/OnePath • Nicola Cordell, AIA Australia • Pina Sciarrone, AIA Australia

By Laura Dew

Fast development to fast results

BDM OF THE YEAR WINNER: Maree Cridland, Generation Life FINALISTS: • Daniella Mancuso, Wisr • H olly Old, Bennelong Funds Management • Sadia Rahman, JANA • Sarah Nichols, Zurich/OnePath

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MAREE CRIDLAND, BUSINESS development manager (BDM) for Generation Life, is the winner of Money Management’s and Super Review's Women in Financial Services award for BDM of the year, a significant achievement for someone only in their second year in the role.

Judges noted her client-focused mantra, going above and beyond in her role by finishing second in inflows with a new panel of advisers.

She was promoted to the role as the company was going through a rebrand with a whole new management team being put in place.

“It’s really integral you have a phenomenal leadership team and the team around you, otherwise it’s really hard to succeed if you don’t have that support,” Cridland said.

“I understand what it’s like now, when people get onto a podium and they have an entire team to thank, because they’ve

given me every single opportunity to succeed.

“Through winning this award, I dedicate it unequivocally to them because they’ve just given me every tool to be able to be the best BDM I can be.”

For women thinking of getting into the industry, she said now was the best time to do it.

“I’ve noticed, especially over the last two years, there’s a lot of women out there who are really passionate about educating women in the public about financial literacy and taking ownership of their finances,” Cridland said.

“It’s becoming an empowering and encouraging place where women should be able to enter this industry and feel completely comfortable in what they’re doing.

“You feel like they’re making a difference in their role and in their everyday life as well.”

She said despite the odd adviser who still viewed her as a

woman and thought she shouldn’t be in her role, she thinks women have become well-respected in the industry.

She took inspiration from her bosses, co-chief executive and managing directors Lucy Foster and Catherine van der Veen – co-winners of the Life Insurance Executive award – and their approach to work/life balance.

“They’re women who job share, doing a [chief executive] role three days a week being able to balance home and family life, while being in a pioneering career at an excellent company,” Cridland said.

“It just shows how far the industry is coming and to work under those two women is really phenomenal.”

Foster and van der Veen said they wished they could clone Cridland and described her as their brand personified.

By Chris Dastoor

17/10/2019 4:09:22 PM

October 24, 2019 Money Management | 21

Women in Financial Services Awards 2019

‘People’s finances are an emotional topic’ IT IS NEVER too late for women to understand their finances, according to Felicity Cooper, winner of this year’s Money Management and Super Review Financial Planner of the Year awards.

Cooper, owner of financial planning firm Cooper Wealth Management in Queensland, said she was passionate about helping women understand their finances through her work with Financial Literacy for Women, particularly those aged 55 and over.

As part of this, she has travelled around Australia on a pro bono basis and presented to over 400 women in the last 12 months.

This age group, she said, were most likely to have left the finances to their partner in the past and tend to underestimate their own wealth.

“We help women come to terms with their wealth.

Statistically, women underestimate their wealth by 50% because they just don’t know what they have. They have never been responsible for their own investments or income, they only did the family budget.

“It is so important women know about their finances, they live longer than men, they retire with less super and need to be invested for longer.

“Women need to get over the fear they will be judged or look silly for asking these questions. It is so important they have someone they trust who they can ask.”

At Cooper Wealth Management, which she founded in 2015, the firm’s five staff are all female, although Cooper said this was a coincidence rather than a conscious choice.

Nevertheless, she felt financial planning was an ideal career for women.

“We have the chance to make a difference. Lots of women want to work with a female financial planner as they are more empathetic than men. As well as being about finance, it is about psychology as people’s finances are an emotional topic for them.

“On our side, it is not a job where you are tied to a desk and can be very flexible. It would be great to see more females in the industry.”

As to how she would motivate women to join the industry, she encouraged females to be confident to reach out to others for help.

“I would ask them to reach out, there are plenty of women who want to help you if only you are willing to ask for it. Use this advice then to get your foot in the door and build relationships.”

FINANCIAL PLANNER OF THE YEAR WINNER: Felicity Cooper, Cooper Wealth Management FINALISTS: • Christine Hallowes, Robson Partners • Karen Ryrie, Wealth Planning Solutions • Natallia Smith, TruWealth Advice • Sarah Lochran, Henry Financial Group

By Laura Dew

Strong focus on diversity makes a better workplace EMPLOYER OF THE YEAR WINNER: TAL FINALISTS: • AIA Australia • Australian Unity Trustees • La Trobe Financial • Z urich/OnePath

PEOPLE COME FROM all walks of life and a strong focus on diversity and inclusivity makes for a stronger workplace, according to TAL’s chief people and culture officer, Ceri Ittensohn.

TAL has taken the title of Employer of the Year at Money Management and Super Review's Women in Financial Services Awards for the second time in a row.

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According to TAL, the “Employer of the Year for women in financial services” is one that is “deliberate about attracting, developing, rewarding and retaining women and men equally”.

“It is one that looks deeply into how systems, processes and practices help to promote equality, eliminate bias and support conscious inclusion for all people,” Ittensohn said.

“A ‘best employer’ engages its people and leaders at all levels to take proactive action, valuing, measuring and communicating inclusion as a foundational part of organisational culture.”

The company, which managed to achieve a 50/50 representation of women and men in the executive roles directly reporting to the group’s chief executive, Brett Clark, said

it was proud to have achieved gender parity in its senior leadership roles several years ago.

“We know that bringing about gender equality isn’t just about setting targets, it is about taking action to achieve the business benefits that both diversity and inclusion deliver.”

Also, gender equality was strongly supported by the firm’s executive team and its group’s chief executive who is the chair of diversity and inclusion council, a group that governs the key focus areas of gender equality, LGBTI+, Aboriginal and Torres Strait Islander peoples and inclusive culture and flexibility.

Additionally, the firm implemented a number of benefits to support expectant mothers as well as took an ‘all roles flex approach’ to allow flexible working, for both men

and women.

When asked what else the industry needed to do in order to better support women in their professional development, Ittensohn said: “Our industry shares a common challenge – achieving gender balance in leadership.

“Providing the opportunity to develop leadership potential and capability is important, as is sponsorship of female talent.

Changing hiring practices is also important to increase the representation of women applying for roles and in shortlists.

“Selection that values potential not just experience is an important way employers can help women build knowledge and expertise in fields that have traditionally been dominated by men.”

By Oksana Patron

17/10/2019 2:13:13 PM

22 | Money Management October 24, 2019

Women in Financial Services Awards 2019

Create, innovate and change the world SANGEETA VENKATESAN’S, EXECUTIVE chair for FairVine Super and winner of Money Management and Super Review’s Women in Financial Services award for Innovator of the Year said her proudest moment was the launching of FairVine as it encapsulated everything to do with her life and who she is as a person.

She helped lead the launch of the fund in June 2019, which was specifically designed to meet the superannuation needs of Australian women.

She initially didn’t think there was a point to the concept, but after further consideration she felt the industry was not catered enough towards members,

specifically in the case for women.

“Women have different life cycles, we have kids, take career breaks, we get into part-time employment or take time off to care for dependents,” Venkatesan said.

“I don’t think specifically women are socially excluded or denied power, money or equal opportunity. But I think there’s a unconscious bias where you tend to promote or look after people who are more like you.

“The same thing goes for superannuation, who designed this evaluation sector? Men. Therefore, the products are catered for men.”

With over 23 years of experience in banking and finance, Venkatesan has worked for major firms in

Sydney, London, Singapore, and Hong Kong.

“I don’t think I want to call myself a feminist here, but of course, it’s a very male-dominated industry,” Venkatesan said.

“Before FairVine I worked with more male colleagues than female, when I was in London I was the only female in a team of 52 guys.”

She said women often needed to be more innovative, work harder or try looking at opportunities slightly differently.

“I feel that compared to my male counterparts, I have taken more risks, I have put myself out there and had to work harder to be seen as relevant,” Venkatesan said.

INNOVATOR OF THE YEAR WINNER: Sangeeta Venkatesan, FairVine Super FINALISTS: • D anielle Blaschuk, Australian Unity Trustees • Emily Chen, Iress • Lizzy Keenan, HESTA • Louise Biti, Aged Care Steps • Sasha Lincoln, ThinkCaddie • V ictoria Devine, Zella Wealth / She’s on the Money

By Chris Dastoor

Climate change and member outcomes for the win

INVESTMENT PROFESSIONAL OF THE YEAR WINNER: Diana Callebaut, Cbus Superannuation FINALISTS: • Alev Dover, FinClear • A nna Shelley, Equip Super and Catholic Super • Sonya Sawtell-Rickson, HESTA

DESIGN, INNOVATION, AND implementing climate change initiatives have led Cbus Superannuation’s head of

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infrastructure, Diana Callebaut, to win Money Management and Super Review’s Investment Professional of the Year award.

Over the last year, Callebaut has notably achieved strong riskadjusted returns that are 350bps above the benchmark and has managed to reduce the fund’s member fees by up to 30bps per annum.

She also led the Utilities Trust of Australia portfolio management Investor review in collaboration with other superannuation funds, resulting in up to $50 million in annual savings for all investors.

Callebaut said she was able to achieve these results through collaboration with other investors, the board, a robust review process with a diverse set of stakeholders with a lot of uncertainty.

“It was about navigating uncertainty and always keeping the end goal which was driving value for all investors in focus.”

Callebaut also lead the fund’s

first investment in the climate change portfolio, targeting generation assets in the UK, Europe and the USA, and completed Cbus’ first Australian direct renewables investment in Bright Energy Investments, alongside the Dutch Infrastructure Fund and Synergy.

“It provides strong riskadjusted returns. We believe mitigating climate change is a growing thematic and expect more capital will be deployed in this area to manage what we see as a significant risk,” she said.

“It is part of a broader initiative across the various portfolios which is not exclusive to infrastructure.”

A supporting letter for her entry stated that Callebaut also took the time to nurture and empower her team.

“My leadership approach is to set the parameters for the team to work with but let them determine how they feel is best to achieve the objectives that are set for their

particular roles and for us as a team,” Callebaut said.

While she noted that in the past she felt that her gender had been a disadvantage, Callebaut said she overcame this by working harder and achieving better results to land her senior roles.

“The legacy I’d like to leave is that younger women will not have to perform better just because of prejudices and unconscious bias,” she said.

“I’d like women and men to feel they can perform their roles without prejudice assessment.

“Women in financial services should not feel they are required to perform better than their male counterparts just because they look or sound different, or because they have a different way of expressing themselves or moving things forward.”

By Jassmyn Goh

17/10/2019 3:37:29 PM

October 24, 2019 Money Management | 23

Women in Financial Services Awards 2019

Creating a ‘top talent partnership’ HAVING THE FLEXIBILITY to job-share their chief executive and managing director role has been a key decider in the career advancement of Generation Life’s Lucy Foster and Catherine van der Veen.

The pair, who jointly won Money Management and Super Review's Life Insurance Executive of the Year award, were praised by the judges for their great leadership and innovative job-sharing abilities at the life insurer.

Van der Veen works the first half of the week while Foster does the second and both meet together on Wednesdays for the role which involves full responsibility for everything from distribution, marketing, operations and finance.

While it may seem unusual to

job-share such a senior role within a company, both said it had positive characteristics and suggested more firms take up this idea. They also felt this arrangement enabled them to enhance their careers while still being able to work flexibly.

Foster said: “Rather than splitting the role in half, it’s about creating a top talent partnership.

There was a stigma [with job shares] before but you are getting the best of two people, it is very difficult for one person to meet all the requirements of a job”.

“We are well-matched, our strengths and weakness match, we learn from each other and that makes us better than one person,” van der Veen added.

“If firms want access to all the talent that is out there then job sharing should be an option,

there may be women out there who would be excellent for a role but have commitments that mean they don’t want to work five days,” said Foster.

Asked if they had encountered any difficulties as a woman in finance, van der Veen said she had only had positive experiences so far but Foster admitted it could be tough.

She said: “In my 20 years in finance, I am often the only women in the room and there hasn’t been a significant change there. The structure of the roles and the culture that exists can put women, and men, off those senior jobs.

“I think it is harder for women because if it wasn’t then why don’t we see 50/50 representation at those levels?”

By Laura Dew

LIFE INSURANCE EXECUTIVE OF THE YEAR WINNER: Lucy Foster and Catherine van der Veen, Generation Life FINALISTS: • Cass Walton, MLC Life Insurance • Kristine Brooks, Zurich/OnePath • Natalie Lackner, Elston • Patricia Priest, NobleOak

Building a winning team

MARKETING AND COMMUNICATIONS PROFESSIONAL OF THE YEAR WINNER: Georgie Obst, HESTA FINALISTS: • Anne McDonnell, HUB24 • Caitlin Johnson, AON • Daniela Roberts, IOOF • Kate Leplaw, AIA Australia • Keren Holland, Fidelity International Australia • Kristiina Lumeste, Mayfair 101

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GEORGIE OBST, GENERAL manager customer loyalty at HESTA and winner of Money Management’s and Super Review’s Women in Financial Services award for Marketing and Communications Professional of the Year, said her proudest achievement was building a great team.

“Getting everyone to work together to achieve great outcomes is what I’m incredibly proud of with what we do and how we help women in Australia,” Obst said.

She started in industry funds after returning to Australia from the UK and had remained in the industry ever since.

“In 2005 I had been working

in London, and I’d come back and I was looking for a new marketing gig,” Obst said.

“SuperChoice opened up in 2005, and industry super funds were pitching for agencies to help them and I was part of the pitch, I just fell in love with industry super from that pitch.

“I worked agency side but now [I work] within a fund, and I absolutely thought it was one of the most valuable and useful things I could do with my skill set.”

Working for HESTA allowed Obst to work for a fund which heavily supported working women, while working with women.

“I have the incredible privilege of working [for a fund] with an 80% female membership

base, and that drives an incredible purpose,” Obst said.

“I’m surrounded by inspiring female leaders, from our chair, to our chief executive, to our chief investment officer, to my boss – the CXO [chief experience officer].

“They’re all women I admire and respect, so I’m very privileged to work where I am, and I probably have a pretty rose-coloured view of industry super because of it.

“Super isn’t always like that but it’s probably why I love where I am the most, because we have no gender pay gap and we are 50/50 gender split across the whole fund.”

By Chris Dastoor

17/10/2019 4:10:04 PM

24 | Money Management October 24, 2019

Women in Financial Services Awards 2019

Genuinely caring to help brighten lives BRIGHTENING A LIFE and experiencing the positive impact it has on someone else are some of the highlights of Shadé Zahrai’s mentoring career.

Zahrai scooped Money Management and Super Review’s Mentor of the Year award at the Women in Financial Services Awards this year and said mentoring had to come from the right place to genuinely add value and help others in a way that they needed.

The Bank of Melbourne’s strategy manager said she started mentoring after a pivotal moment in her career. A lack of confidence after moving from law to banking had Zahrai seek out a mentor by accident who told her to focus on what she could do instead of her weaknesses.

“This was an absolute turning point for me. It helped me align my career with my strengths and to find ways to contribute by using them,” she said.

“And this is what I now share with the women I mentor and coach. Instead of focussing on weaknesses that de-energise you, identify your authentic talents that energise you and that you can develop into strengths.”

Zahrai believes that women don’t have to have decades of experience to be helpful, they just have to care.

“I’m not there to just dish out advice – I’m there to support and guide. It’s about being willing to challenge somebody in a gentle and loving way,” she said.

Zahrai noted that women tended to focus on what they lacked and

became consumed with that mindset.

“The reality is that we are in a male-dominated industry thanks to legacy issues and old school ways of thinking. If you allow that mindset to take over then you’re playing into the victim mentality,” she said.

The judges said that Zahrai was a fantastic role model for women who put herself out there for others.

Some of Zahrai’s achievements include a pro bono education series workshop for women, a pro bono four-month program for emerging women at her workplace, and a structured mentoring program for six individuals each quarter in the industry.

MENTOR OF THE YEAR WINNER: Shadé Zahrai, Bank of Melbourne FINALIST: Pina Sciarrone, AIA Australia

By Jassmyn Goh

Not giving up when the going gets tough

PRO BONO WINNER: Esther Althaus, Perspective Financial Services FINALISTS: • P atricia Garcia, WB Financial • V ictoria Devine, She’s on the Money

REMAINING COMMITTED TO your career choice and not giving up when the going gets tough coupled with passion towards what you do were some of the key attributes that helped Esther Althaus take Money Management and Super Review’s Pro Bono award for its Women in Financial Services Awards.

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After establishing Perspective Financial Services in 2003, where she was the sole principal of the business, admin person and coffee maker in one, Althaus began her journey towards carving out herself a place across the financial services sector.

However, she quickly realised that in a male-dominated environment, being a single mother with a young family was not really working in her favour.

“I was determined not to be put off by that attitude and persisted in making contacts in the industry,” Althaus said about her beginning in the industry.

“It is relevant to note that the business development manager was female and [she was] the first woman in my professional journey, including my entire education, who supported, mentored and, more importantly, believed in me.”

Sixteen years later Althaus, who now runs a business that services many different demographics, has made a name for herself in the community as an adviser who promotes and supports the interests of women when it comes to financial literacy and empowerment.

Althaus regularly runs workshops for women during which she reaches out to broader community and makes sure that each party are involved as far as financial planning is concerned.

She said that her presentations usually consisted of three key elements.

“One is why it is important for women to understand money, a second section is to talk about some concepts that they should be thinking about and the third part is actually promoting financial planning as a career

option,” she said.

When asked what should still be done in order to increase women’s role in the financial services, Althaus said that women should put themselves out there.

“We need to look out for the opportunities to put ourselves out there to be able to demonstrate to the industry and to the general public that women can do this, women can understand finance, women can make decisions about money, women can help other people make decisions about their money,” she said.

“We can have the campaigns going from banks to financial institutions promoting women in a variety of different things but essentially we need the women who work with banks to be out there telling people what we do.”

By Oksana Patron

17/10/2019 4:10:31 PM

October 24, 2019 Money Management | 25

Women in Financial Services Awards 2019

Step back and reflect on your values STEFANIE RUGIANO, A rehabilitation consultant at AIA Life Insurance with a goal of transferring her occupational rehab knowledge within a wider organisational context, has been named this year’s Rising Star at the 2019 Money Management and Super Review Women in Financial Services Awards.

Rugiano, who holds a Masters in coaching psychology and has more than 11 years of experience across community health, rehabilitation and life insurance under her belt, said her success was all about values she believed in as well as personal persistence, passion, growth, discipline, and focus.

“Those qualities allowed me

to keep going when the going gets tough,” she said.

Her biggest advice to those who were just about to take their first steps in the industry would be to step back and reflect on their personal attributes, qualities and values and make sure that the role they are going for would align with those values.

“For me it’s about focusing on what values you hold initially and if your values don’t align with the role that you are going for then it’s unlikely to succeed.

“I always encourage people to step back and understand what they value and what drives them because that would allow anyone to move forward and

succeed in a particular role,” she said.

Rugiano is passionate about rehabilitating people back to being productive members of society and holds a strong value for pro-social behaviour. She also runs a six-month co-managed program between rehabilitation and claims assessors focusing on developing rehabilitation skills and its application to the claims portfolio.

She was nominated for her consistent dedication and commitment to customers and positivity while assisting them at one of the most difficult times of their lives.

RISING STAR WINNER: Stefanie Rugiano, AIA Australia FINALISTS: • Anez Narayan, AIA Australia • Kristiina Lumeste, Mayfair 101 • Reshma Govindrajan, Private Wealth, Westpac Group

By Oksana Patron

A super fossil-free future

SUPERANNUATION EXECUTIVE OF THE YEAR WINNER: Kirstin Hunter, Future Super FINALISTS: • Lisa Samuels, HESTA • Sonya Sawtell-Rickson, HESTA

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KIRSTIN HUNTER, MANAGING director at Future Super and winner of Money Management and Super Review’s Women in Financial Services award for Superannuation Executive of the Year, is not afraid to shake up the system to create a better world while improving wealth.

For her and the team at Future Super, winning the award was a great acknowledgement of the work they were doing to use the financial system to build a future free from climate change and inequality.

Future Super is Australia’s first 100% fossil-free superannuation fund and Hunter centres her life around ethics: she’s a strong advocate for veganism, gender pay equality, the environment and corporate behaviour.

During the recent climate strikes, the firm led a coalition

of businesses called the ‘not business as usual alliance’, which saw over 3,000 businesses across Australia and New Zealand participate.

It started as a request from inside their team to join the strike but led to them calling on other businesses to close their door for the day to take action.

“We called on other businesses to take the same action and made it so that employees didn’t have to choose between a pay cheque and the planet,” Hunter said.

“As a result of that, between 100,000-150,000 employees were able to take time out of work on 20 September and attend the climate strikes across Australia.”

She said the best piece of career advice she had been given was to think about “who

your personal ‘board of directors’ are”.

“These are the people who advise you on your career direction, in a similar way to a board of directors would advise a company,” Hunter said.

Once you make it to the top, it was important to remember you started at the bottom and to reciprocate the same help.

“Pay it forward with generosity, all of us who have been successful in our careers, particularly in financial services have done so with the benefit of the advice of our mentors and people who’ve come before us,” Hunter said.

“As leaders, particularly as female leaders, it’s incumbent on us to pay forward that advice and to help build up the next generation of leaders.”

By Chris Dastoor

17/10/2019 4:10:25 PM

26 | Money Management October 24, 2019

Tips for women in financial services "I would ask them to reach out, there are plenty of women who want to help you if only you are willing to ask for it. Use this advice then to get your foot in the door and build relationships."

-Felicity Cooper, winner of Financial Planner of the Year

"Be yourself, sometimes women think they need to act like men to get ahead but this isn't the case, just be confident in yourself.

"I would encourage women to speak up and give their opinion, make yourself known around the office and put your hand up for opportunities."

-Pina Sciarrone, finalist for Advocate and Mentor of the Year

"Understand the different roles available in this industry, there is such a breadth of opportunity out there and you don't necessarily have to be really good with numbers."

-Kylie Jones, winner of Advocate of the Year

"Pay it forward with generosity, all of us who have been successful in our careers, particularly in financial services have done so with the benefit of the advice of our mentors and people who've come before us.

"As leaders, particularly as female leaders, it's incumbent on us to pay forward that advice and to help build up the next generation of leaders."

-Kirstin Hunter, winner for Superannuation Executive of the Year

"Back yourself because no one is going to do that for you and don't focus on all the stuff you don't have. Focus on your strength because that gets you further.

"Find yourself a mentor with different perspective, someone you resonate with but one that can also challenge you. Always find a way to give back to your mentor as well.

"Change the way you view risks and turn them into opportunities."

"Speak out if you feel like you're not being heard because the worst thing that can happen is that they won't listen and then you know that it's not the right place. Often it is not about the woman or person, it's the wrong culture.

"Don't use gender as an excuse. If you believe you have a right to lead genuinely then you don't come up against quite as many obstacles."

-Connie McKeage, winner of Woman of the Year

-ShadĂŠ Zahrai, winner of Mentor of the Year

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17/10/2019 2:15:15 PM

October 24, 2019 Money Management | 27

Fixed income

POCKETS OF YIELD DESPITE RECORD-LOW INTEREST RATES As central banks worldwide fight with low or even negative rates, advisers should look towards higher-quality investment grade bonds and emerging market debt to seek out better returns, Jassmyn Goh writes.

WITH INTEREST RATES at records lows, and even negative in some cases, advisers could still find some yield and diversification if they look outside traditional sovereign bonds.

At the time of writing, developed market bonds were at record lows such as Australian 10-year government bonds at 1.01%, US 10-year bonds at 1.69%, and German 10-year bunds at -0.46%.

In August, US two and 10-year Treasury yields inverted for the first time in over a decade, signalling a looming recession,

18MM2410_19-39.indd 27

and indicating bond yields would not increase anytime soon.

However, according to Bank of America Merrill Lynch’s latest data, bonds globally had US$11.1 billion ($16.4 billion) in inflows over the year to September, 2019.

Fidelity’s latest investment outlook said the ongoing trade war between the US and China, and weak economic data, had spurred investors to seek out safe havens such as government bonds and gold.

Other macro events like Brexit had caused Gilt yields to rise and

beyond that the UK could be set to plunge into a technical recession, while the European Central Bank’s announcement of a new round of quantitative easing would widen spreads between semi-core countries and Germany, Fidelity said.

JP Morgan Asset Management’s chief investment officer of the global fixed income, currency and commodities group, Bob Michele, said the biggest problems in terms of finding yield were in Japan and Europe as central banks were concerned

that these economies had the potential to roll into a recession.

“Some of the data that has come out of Europe is horrible particularly on the manufacturing side and especially purchasing managers surveys as they don’t look good,” he said.

“In Japan they have been trying for decades to generate stronger growth and some inflation but they are getting concerned that this far into a recovery they don’t have that yet. In those markets the Continued on page 28

17/10/2019 5:04:27 PM

28 | Money Management October 24, 2019

Fixed income

Chart 1. Top five bond funds performance vs ACS Fixed Interest - Global Bond sector over one year to 30 September 2019

Continued from page 27 central banks are looking at the US/China trade war and concerned that ultimately that will spill over to the global economy and cause a recession.

“But these central banks are committed to keeping rates low.”

However, Michele noted that over the year to August German bunds managed to generate a positive return despite negative yields.

“Although you generate a negative return on the interest rate carry of the bond, the price appreciated because the yield continued to fall further into the negative territory and this created a positive yield.

“Everyone is struggling with how to value that. If you’re an investor in a higher yield market you could have bought European bonds at negative yield, hedged it back to your base currency, picked up between 2-3% depending whether you were in Australia or the US and suddenly you had a positive yield.”

He said there were still many reasons to be invested in bonds as the asset class could generate positive returns in places such as the US, and in Australia, and Canada where rates cuts would continue.

18MM2410_19-39.indd 28

Source: FE Analytics

“Many of the emerging market banks are also cutting rates and we think you get really high real yield there and gain some capital appreciation,” Michele said.

GETTING AWAY FROM TRADITIONAL GOVT BONDS However, given the low yield globally, Michele said this was an opportunity to look at other bond markets such as investment grade corporate bonds, US securitised credit or mortgage-backed securities as they provided yield, diversity and had further price appreciation to come as central banks continued to cut rates.

Agreeing, Mercer head of portfolio management for delegated solutions, Ronan McCabe, said investors should look away from traditional sovereign bond markets such as absolute return bond funds as they were defensive in nature and were actively managed.

Acknowledging the downfall of large absolute return bond funds such as GAM Absolute Return Bond funds, and Aberdeen Standard’s Global Absolute Return Strategies which had liquidity and cultural issues, McCabe said advisers needed to do their due diligence on managers.

“Other than traditional credit

and sovereign space advisers can also look at multi-asset credit, which have managers that are more dynamic and nimbler, high yield, emerging market debt, and certain stress debt opportunities, and investment grade,” he said.

“In the alternative less liquid space we find private debt and direct lending attractive which is a combination of investing in corporate loans, real estate debt, and infrastructure debt.”

McCabe noted that senior private debt along with infrastructure debt was also attractive. He said infrastructure debt was less liquid and had fairly defensive features. He noted that

17/10/2019 5:04:44 PM

October 24, 2019 Money Management | 29

Fixed income

Chart 2. Top five global bond funds performance v ACS Fixed Interest - Global Bond sector over three years to 30 September 2019

Source: FE Analytics

globally there was a huge pipeline of infrastructure projects in Australia, Germany, and in particular the US.

EMERGING MARKET BONDS On emerging market debt, Fidelity said it had a positive outlook overall, backed by “the chorus of dovish global central banks and further domestic stimulus expected from China”.

It noted that it had added tactical positions in Russia, Brazil, the Philippines, and India, and was underweight in Israel and Korea.

For Colchester Global

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Investor’s investment officer, Martyn Simpson, advisers should look for emerging markets that did not have a currency issue and said he avoided low-yielding countries like Czech Republic, Hungary, Argentina, and Turkey.

“The emerging market countries that have hard currency debt denominated in US dollars bonds tend to be more risky as repaying the debt is difficult.

“These countries also have a lower credit rating quality unlike local currency debt denominated countries. In the local market the credit quality tends to be higher.

The average in our benchmark is BBB which is investment grade.

While there is some non-investment grade in the index, by in large the average is triple BBB,” he said.

Looking at short-term bond fund performance, FE Analytics data showed that over the year to 30 September, 2019, the top two performing funds were emerging market debt funds – Colchester Emerging Markets Bond I at 17.7% and Mercer Emerging Market Debt at 15.9%.

These funds were followed by two high yield funds – CFS High Quality US High Yield A at 15.3% and CFS US Select High Yield A at 14.4%. Coming in fifth was GCI Diversified Income Wholesale

Unhedged at 14.1%.

Simpson said his fund had performed well and bonds had delivered two-thirds of the alpha and one-third from currency.

“If you look at our emerging market fund we use real yield as main valuation tool, and at the moment Mexico has a very attractive real yield,” he said.

“While there are a few worries with the Mexican government’s president being seen more as a left winger, if you look at the budget they’ve produced it looks relatively conservative. Inflation has been falling down to about 3.4% and we’re seeing things move in the right direction and the central bank will be able to control inflation with rates.”

When considering political worries, Simpson said he valued countries by their real bond yield but made an adjustment on that yield with the country’s financial balance sheet strength and part of that was Colchester’s environmental, social, and governance (ESG) evaluation.

“Although there’s political risk in Mexico we tend to think that that is sometimes overstated. In the Continued on page 30

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30 | Money Management October 24, 2019

Fixed income

Continued from page 29 longer term most political events that seem quite big at the time tend not to be so big when you look back in six to 12 months,” he said.

INCOME BONDS OUTPERFORM BUT NOT VIABLE Looking over the longer-term, over the three years to 30 September, 2019, three of the top five performing funds were income funds.

The GCI Diversified Income Wholesale Unhedged fund returned 25.1%, followed by Challenger Guaranteed Income 400cents per annum at 18.9%, Mercer Emerging Markets Debt at 18.5%, Mercer Global Sovereign Bond at 15.6%, and PIMCO Income Wholesale fund at 15.1%. The global bond sector average returned 11.7%.

Michele warned that advisers should be careful around income bonds as a lot of these funds included some investment grade corporate bonds but also high yield, and emerging market debt that provided the income.

“We’re saying migrate out of all of that into the higher quality investment grade space,” he said.

RECESSION WORRIES For advisers expecting a recession, Michele said to look at higher quality intermediate duration bonds as the US/China trade war was impacting

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corporate profitability and default rates which were around 2% could increase.

“Current US high yield spreads is about 4% and insufficient to compensate you for default rates.

We’re starting to scale out of below investment grade securities, as part of this move into the higher quality end of bond market,” he said.

He noted that if the trade war triggered a global recession then the bond market would be the beneficiary of flows coming out of corporate earnings and investors scrambling for safety as default rates rose.

McCabe said advisers who had a possible recession on their minds should tilt their portfolios towards government bonds that had a longer duration depending on how long they thought the recession would last.

He also agreed that moving towards higher quality credit was wise along with multi-asset credit due to its defensive nature.

“A good manager will rotate different parts of the credit space and the fixed income space. They might be quite high in investment grade at this point in time and if a recession happens then lower quality fixed income securities will sell off. Then these managers will rotate portions of the portfolio into sectors they think are undervalued,” he said.

HOW TO PICK A BOND MANAGER McCabe noted that advisers needed to make sure the bond manager’s team was experienced and had been through many different investment cycles to make sure they had outperformed the benchmark in the past.

“You have to understand what their edge is and really find out what their philosophy is and why you should deploy capital with them.

Always be mindful and careful about taking risk. You need to get paid take risk and don’t take risk for risk sake as investment is really a risk management game,” he said.

He said red flags were large staff turnover, a dramatic drop in funds under management over a short time period, and cultural issues.

“Things like humility are important too, they should be humble and passionate about what they do, and know what their edge is and know what their edge is not, and they don’t try to be something they’re not,” McCabe said.

“They should be willing to take risk but concerned about it all the time. Good managers can minimise things that are outside of their control, and when they do take risk they make sure they get paid for that risk.”

For Simpson, finding a manager that stuck to their process and a good long-term track record was

important.

“When you get to the mid to late cycle of the economic expansion, managers start to chase yield or do something different than they have in the past to produce some returns,” he said.

“This could lead to difficulties and surprises after you select the manager. What you want in a manager is one that sticks to their process they say they are going to deliver and that makes it easier to fit it into an adviser’s overall asset allocation.”

Similarly, Michele said advisers should look for funds that performed well during periods when rates were rising and falling as it indicated it was an ‘all-weather bond fund’.

“Then you have to think about what resources is the manager using. If they had a global footprint, if they have a research team, and portfolio manager in different locations around the world, and if they use that to find ideas and put them in the portfolio. Then you have to start thinking about whether there’s any bias?” he said.

“The bond market has become more difficult and yields are not going to go up anytime soon, if anything a lot lower, so it really puts a lot of pressure on bond managers to find value, generate a positive returns, and not take too much risk for clients.”

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15/10/2019 11:00:30 AM

32 | Money Management October 24, 2019

REITS

THE PROPERTY ALLOCATION DEMANDS RECONSIDERATION

While most Australian investors have exposure to local property securities for income and potential capital growth, it’s unlikely that they’ve considered investing in property beyond their own local shores, VanEck’s Arian Neiron writes.

THE RATIONALE FOR an allocation to international property for investors is compelling. As interest rates hover at historic low levels, with another rate cut from the central bank in October making three Australian rate cuts this year, investors are being starved of income from traditional sources such as bonds or savings accounts. Investors are having to take on more risk and are moving to real estate investment trusts (REITs) because they provide a reliable income stream.

Savvy investors are also looking beyond Australian shores and starting to include international

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REITs as a way to diversify their portfolios and achieve superior risk-adjusted returns.

BENEFITS OF INTERNATIONAL REITS The global economy, in the aftermath of the GFC, has been characterised by periods of low economic growth and low interest rates. By mid-2019, 10-year government bond yields around the world had fallen to historical low levels. In Australia these fell below 1% for the first time and have stayed low. In other developed nations they went to zero. Cash investments returns were barely sitting above 0%.

This has raised significant challenges for investors seeking to generate income from their portfolios while also preserving capital value. Some are seeking income by taking extra risk. REITs have been a target. A key benefit of REITs is the defensive income streams they can provide.

Property assets typically earn reliable income from rent, which provides a regular income stream to investors, even during an economic downturn.

Additionally, rents can be linked to inflation, which is important because it means income increases with the costs of living.

DIVERSIFICATION – SECTORS AND EXPOSURES BEYOND AUSTRALIA Australia was one of the pioneers of listed real estate investing.

General Property Trust was the first Australian listed property trust (LPT) in 1971. Other worldleading names included Westfield, General Property Trust and Multiplex. But the market has diminished. Since the beginning of this century, the proportion of the S&P/ASX 200 represented by Australian REITs (AREITs) has fallen to just 8%, down from a peak of 25% in 2006 as illustrated in Chart 1. One of the major

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October 24, 2019 Money Management | 33

REITS reasons for this has been corporate actions and mergers and acquisitions. In 2006 there were a record 71 listed AREITs, today there are 44.

For example, Westfield and its various entities have experienced several corporate actions consolidating, spinning off and finally being taken over by Unibail Rodamco for $32 billion. The Australian shopping centres branded as Westfield were not acquired by Unibail and are now held by Scentre.

For those investors still holding AREITs, the Australian market is dominated by a few big trusts, where the top 10 AREITs accounted for over 90% of the S&P/ASX 200 AREIT Index as at June 2019. That contrasts with listed property assets offshore which are better diversified and include some sectors that are not readily available in Australia such as healthcare property trusts, hotel and resorts, and specialised REITs such as data centres. Investing offshore can broaden investors’ property opportunities and increase their diversification significantly.

DIVERSIFICATION – LOW CORRELATION WITH OTHER ASSET CLASSES REITs have been used by investors for their defensive qualities as they achieve a high proportion of their returns from income rather than capital. In addition, listed property has a low correlation of returns with those of other equities and fixed income investments.

In Chart 2, we compare the two standard market benchmarks for international property and equities. For international equities, the MSCI World ex Australia Index is used. For international property, as most investors seek a hedged exposure to the asset class to limit currency volatility eroding income, the International REIT Index is used.

International REITs show a downward-sloping term structure of correlations with the broad international equities market. As their underlying return drivers are fundamentally different, REITs

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Chart 1. AREIT’s diminishing importance on ASX

Source: Factset, ASX, VanEck 2000 to 2019.

have a powerful diversification role in investment portfolios.

SUPERIOR RISKADJUSTED RETURNS A new VanEck research paper, The Proper(ty) Allocation, also reveals that a portfolio including international REITs delivers superior risk-adjusted returns compared to a portfolio without international property over five years.

We constructed a hypotheical balanced fund with and without an allocation to international listed REITs. This is based on ASIC’s MoneySmart balanced investment option which “invests around 70% in shares or property and the rest in fixed interest and cash”.

Our analysis reveals that a portfolio including international REITs produces a historically higher annualised portfolio return than a portfolio without international REITs, and without incurring significant incremental risk as measured by standard deviation.

STRONGER BALANCE SHEETS THAN IN THE PAST The long-term fundamentals for selecting real estate investments

are robust. Restricted funding in the current environment has limited supply and with improving demand, strong rental growth has emerged in the latter half of 2019. We expect this trend to continue in many markets and sectors around the world, particularly in developed markets.

Once a concern for investors, REIT balance sheets have been de-risked over the last 10 years and are in stronger shape. Since the GFC, the REIT industry has reduced leverage and extended maturities of debt instruments to lock-in low interest rates for many years ahead. Collectively, REITs have reduced their overall leverage ratios to the lowest in at least two decades.

ACCESS THE PROPER ALLOCATION Traditionally the domain of large institutions, investors of all sizes can now access international REITs via managed funds or ASX-listed exchange traded funds (ETFs).

Arian Neiron is managing director and head of Asia Pacific at VanEck.

Chart 2: Correlations between International REIT Index and MSCI World ex Australia Index Portfolio

Source: Morningstar Direct, VanEck to 31 August 2019

17/10/2019 1:36:08 PM

34 | Money Management October 24, 2019

Markets

RE-EVALUATING YOUR RETURNS As local and global markets continue to endure political and economic impediments, investors are re-evaluating their return expectations. So, Simon Doyle writes, what’s an acceptable level of real return and what are the factors influencing this outcome?

THE STRUCTURAL PRESSURES at play on the global economy are acute and being mitigated by extreme policy measures – both on the monetary and fiscal side – which are providing temporary, albeit extended, support.

Markets are enjoying the support of policymakers who are collectively attempting to underwrite and encourage riskseeking behaviour and this is driving a wedge between the inherent and deep-seated risks in markets and economies, and investor behaviour.

This moral hazard has the potential to unravel quickly, resulting in asymmetric risk to market returns, especially risk assets – credit and equities.

In a global environment of low interest rates, narrow credit spreads and demanding equity valuations, is a real return of 5% achievable without undue risk?

While the re-engagement of the Federal Reserve has been a big driver of recent returns, this is unlikely to continue at the same pace, or be as effective. Managing asset allocation will be paramount, as will be extracting

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alpha from a broad array of sources including interest rates, currencies, style biases (value versus growth) and active stock selection. While there are risks to both the upside and the downside, real 5% returns remain an achievable, but nonetheless challenging, objective over the next three years.

With a US recession looming within this timeframe, managing downside risk will be paramount.

There are risks to both the upside and the downside over the coming three-year period and, on balance, they are likely skewed to the downside over this timeframe.

So, on the basis that 5% returns are achievable, how should investors start assessing opportunities for sourcing this level of return?

ALL EYES ON YIELD In consideration of likely returns going forward, a good place to start is the underlying yield currently available on each asset. Yields are important as they are embedded within a return forecasting framework. From a bond perspective this is relatively clear;

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for equities, the earnings yield is a better proxy than the dividend yield given it reflects the effective return to the equity holder as opposed to simply the cash distribution.

Accordingly, in a steady state and assuming no re-investment, this is effectively the return to investors from owning these assets.

If an investor were to seek 5% real return from this group of assets, significant capital appreciation is required to augment the shortfall between the yield and the target return. This is possible in both equity and bond markets but how likely is hard to judge.

Materially lower bond yields presumably require a weakening in growth as a catalyst which at some point would be damaging for earnings. In current markets where bad data is clearly good, it raises hopes of further central bank support, although there is inevitably an inflexion point.

As a pragmatic observer of market behaviour, it would also be foolish to dismiss the possibility of across-the-board price appreciation across these assets. 2019 to date is a good example where sovereign yields have lurched lower and equity markets higher.

STRUCTURAL DEMANDS While the business cycle has evolved and faces significant challenges, the structural environment remains just as problematic, if not more so, than three years ago. Structural challenges to the global economy include: • High and growing debt levels, particularly government debt, and high levels of household debt in Australia (127% gross domestic product (GDP) and 190% household income); • Challenging demographics

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including ageing populations, rising dependency ratios and increasing health care costs; • Rising income inequality and the associated rise of populism, which adversely impacts the ability of governments to undertake structural reforms as well as leading to increased social and political instability; • Globalisation is giving way to increased protectionism and a reversal of the free trade agenda; • Geopolitical power shift with the rise of China challenging the US’s global dominance, with the likelihood of ongoing and escalating tensions; and • Climate change.

On the positive side of the structural ledger, however, areas such as technology and automation are boosting productivity, climate change is fast-tracking innovation around renewable energy, and emerging economies (particularly those in Asia) continue to grow and evolve.

As the balance of the positive and negative suggest, the structural environment has been a solid headwind for global growth, further exacerbated by implications such as low rates of inflation. This has allowed central banks to suppress interest rates and continue to enact quantitative easing programs to support asset prices, risk taking, activity and confidence.

While government debt levels have been high and rising for some time, governments have increasingly viewed budget deficits and rising debt as the lesser evil and have looked to increasingly support growth through fiscal stimulus. There is clearly a circularity to this latter point – global indebtedness has increasingly constrained central

bankers and reduced the effectiveness of monetary policy as a demand management tool.

However, low interest rates have encouraged governments to borrow which has fuelled this vicious cycle and further crimped the effectiveness of monetary policy as a demand management tool. The net result has been an extended business cycle, but also a relatively muted and vulnerable one. The determination of central bankers and governments to avoid a cataclysmic end to this increasingly vulnerable and vicious cycle is without question.

US IN THE HOT SEAT In this regard, there are two key vulnerabilities. One being the re-emergence of inflation, especially as the absence of inflation has provided central banks with the latitude to push the boundaries on monetary policy. Secondly, a recession in the key US economy (with broader implications for global growth) is now highly likely - this has been an area of increasing focus, particularly given the downward pressure on the business cycle due to US/China trade.

While forecasting recessions is well known to be a difficult exercise, there are some ways to assess the risks and the timing.

The NY Fed Model currently suggests an elevated recession risk (reflecting the flattening of the US yield curve) while the Schroders model is less negative reflecting ongoing resilience in profit margins.

Markets, particularly the US, have re-rated on the basis of lower rates, but also supported by the resilience of profits. Our modelling on profits suggests both significant weakness ahead, and a significant mismatch

between current profits/ bottomup expectations and the outlook based on top-down factors.

The ‘best guess’ on timing for a US recession is within a one to two-year time horizon and is based on analysis which assesses the relationship between a range of real economy and financial indicators and recession risk. The longer lead indicators in this analysis are elevated, consistent with elevated recession risk on a one to two-year horizon.

Of course, the wildcard is US trade which has the potential to push the US, and by extension, the global economy, into recession if it worsens materially.

Conversely, this risk could reduce if a substantive resolution is reached. This is clearly a risk, albeit hard, if not impossible, to forecast. Outside of the US, Chinese growth has moderated, and stimulus has been tepid compared to past cyclical slowdowns. Europe remains problematic and the UK is clearly at risk of a poor Brexit outcome.

In Australia, after 28 years of continuous growth, the risks of recession have risen amid declining housing prices, digestion of new housing supply, a tightening in credit conditions, and exposure to moderating global trade. Lower rates, tax cuts and the potential for more monetary and fiscal stimulus should help moderate the slowdown and support growth based on domestic considerations, but the swing factor is global growth and a broader slowdown/recession in the US would be difficult for Australia to withstand.

Simon Doyle is head of fixed income and multi-asset at Schroders Australia.

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36 | Money Management October 24, 2019

Portfolio construction

INVESTING IN EARNINGS LEADERSHIP TO FUTURE-PROOF A PORTFOLIO

In The Empire Strikes Back, Yoda utters the line: “Difficult to see. Always in motion is the future”, a line that equally applies to investment, writes Alphinity’s Jonas Palmqvist.

IF YODA HADN’T been a Jedi warrior, he would have been a great fund manager. Because even though he was able to partly see the future, he still understood his limitations.

Risk can be so many different things, from the individual stock level all the way up to career risk.

The best definition I know is ‘making decisions when you don’t know the future’.

That captures what risk means to a portfolio. We make decisions today in the portfolio, and when that portfolio meets the future, hopefully good things happen.

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BOTTOM UP IS BETTER IN AN UNCERTAIN MACRO ENVIRONMENT The first thing to accept is that there are many factors and risks where we don’t know the exact outcome. We can have views and thoughts, but these will be lower probability decisions. Once we accept what we don’t know, it’s easier to build a futureproof process and portfolio.

The vast landscape of macro and other top-down factors holds a number of potential traps. Most forecasters have been getting bond yield and interest rate

expectations wrong for a long time now, with big implications for markets.

Currencies are another highlevel asset class which continue to impact markets but are notoriously difficult to get right.

Then we have the debate about how and if you can time style investing – the rotations between value and growth investing.

It is always tempting to adopt a top-down view, a macro lens, and then look at all stocks through this lens. It makes the hunt for investments seem easier; it is a mental shortcut.

I’m not saying these factors don’t participate in driving individual stocks. They do. But to produce more consistent investment returns, we think it is the wrong starting point for equity investing.

We believe an investment process is better off being founded in bottom-up fundamentals, and then taking these macro factors into account when analysing different scenarios and risks to these stocks. Even if you can’t predict, you can still prepare.

The MSCI World, worth $100 in 1988 was sitting at just over $700

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October 24, 2019 Money Management | 37

Portfolio construction

at end 2017. That’s a 7% p.a. compound return. Very attractive.

This illustrates Lesson 1: you want to invest in global equities long-term.

If you instead just simply rank all stocks on earnings revisions over the past three months, and buy the top 20% of the stocks, you turn $100 into almost $2,000 (that’s 3% p.a. compound above the market).

Lesson 2 is that earnings revisions drive share prices. If, through good fundamental analysis, you can instead buy this top bucket of upgrading stocks just one month in advance, you would turn $100 into over $10,000 (that’s 10% p.a. compound above the market or 17% p.a. compound).

Finally, Lesson 3: Adding a bit of foresight massively improves the outcome.

The evidence says that a positive earnings announcement by a company is more likely than not to be followed by a period of sustained positive earnings revisions/surprises driving share price outperformance (and vice versa for negative earnings announcements). In short, price momentum and earnings momentum go hand in hand.

This makes intuitive sense, but why does it exist and how do you exploit it?

OBSERVABLE BIASES LEAD TO CONSISTENT BEHAVIOURS In Berkshire Hathaway’s 2014 annual report, legendary investor Warren Buffet said: “In the world of business, bad news often surfaces serially. You see a cockroach in your kitchen, as the days go by, you meet his relatives”.

Buffet was referring here to inherent human biases and flawed corporate behaviours, as well some built-in flaws in our financial markets. For example,

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company managements try to manage expectations both on the way up and down to maximise their own careers.

And then there are the thousands of sharp analysts out there. Most of them are not incentivised to get earnings right ahead of the curve. They move in herds, to manage their own career risk. They are not primarily paid to get it right. A portfolio manager on the other hand, is incentivised to try and get it right, certainly if working in a boutique environment.

Fundamental analysis, however, is able to foresee earnings upgrades and downgrades. Adding data analytics tools and quantitative analysis gives a higher level of discipline and counteracts your own emotions and biases around that analysis.

INVESTING AT THE RIGHT TIME OF THE EARNINGS CYCLE An Alphinity Investment Management tenet is that earnings can help lead you to the right stocks. There is a consistent opportunity here, as long as you do the analyst legwork on companies and their earnings.

It is about looking for quality companies which are undervalued, but what is clearly differentiated is that you have a strict view of when is a good time to own that stock.

Even high-quality companies go through tough periods and cycles, with downgrades, when investors are better off staying away.

What’s interesting is that when the market underestimates the earnings power of a company, it can take a long time for everyone to catch up with the new reality. The same goes during a downgrade cycle, it is often equally sticky. The earnings expectations are anchored to the past.

WHERE IS GLOBAL EARNINGS LEADERSHIP RIGHT NOW? The global universe is full of stockpicking options, but what types of stocks are currently in the right time of their earnings cycles?

We have been in a broad global earnings downgrade cycle for over a year now. It started in emerging markets, swept via Europe and hit the US at the end of last year.

This is the normal way of things – expectations were just too high again after synchronised global growth plus tax cuts, and analysts have been spending over a year trying to catch up with the weaker reality.

What’s even more interesting are the ‘internals’ of the market, or the relative leadership. Cyclical stocks had a clear leadership on the previous, strong global upgrade cycle of 2016/17, but they gradually lost that leadership from 2018.

The relative earnings leadership continues to sit firmly on the more defensive, quality and growth side. That’s the type of stock which is leading, looking at the big picture. This trend is clear and consistent.

But, let’s pause and think of Yoda: “Always in motion is the future”. Just because the leadership is clear now, does not mean it’s time for complacency.

Quite the opposite.

The leadership is guaranteed to change, even though we haven’t seen a strong enough trigger for change yet. But it will come, and we should follow it when we get conviction in it.

BUILDING A PORTFOLIO FOCUSED ON SUSTAINED EARNINGS LEADERSHIP Owning a concentrated portfolio of stocks in the right time of their individual earnings cycles helps us achieve the outcomes we want

long term, irrespective of where the market heads.

Earnings leadership is a reliable partner, tuning out market noise and helping us avoid making brave top-down timing calls.

The market’s earnings forecasts (expectations) have developed for the global index, and for a portfolio of earnings leaders.

It has been possible to find stocks with better earnings revisions consistently, even though the market has gone through some material rotations in the past few years.

We have gradually changed the portfolio stocks as a result. Some stocks have lasted through all gyrations, their earnings stories are powerful and idiosyncratic enough, whereas other stocks have had to be replaced.

Not everything has to change but put another way: the portfolio which performed well in 2017 would have had no chance to outperform in 2019. When the facts change you change with them.

This approach is more unconstrained from the macro backdrop and we believe it enhances long-term returns and protects against unintended risks.

This agility leads to performance consistency.

To state the obvious: Investing is difficult. It’s not supposed to be easy. I personally find the current environment, with its gyrations, extremely challenging.

So, we need an approach that helps us to pick risks that we better understand, and helps us make good, informed decisions regardless of where the market takes us.

Investing in stocks with global earnings leadership is one such approach that will help to futureproof a portfolio.

Jonas Palmqvist is a portfolio manager at Alphinity Global.

17/10/2019 1:54:17 PM

38 | Money Management October 24, 2019

Ethics

APPROACHING ETHICS WITH 20:20 VISION There are numerous examinations facing advisers in the short-term, even with a potential Government extension, so how can advisers be prepared while still doing their day job?

IT MIGHT SEEM far fetched, but an important task for advisers and advice businesses right now is to plan to hit the new year with clarity on what to achieve next year – having a 2020 vision. And with the 11 October, 2019 announcement from the Government on changes to the code monitoring approach, getting the right focus is even more important.

But with some careful planning, a path forward can still be set.

PASS THE FASEA EXAM AND START YOUR EDUCATION PATHWAY With the majority of advisers yet to pass (or even sit) the Financial Adviser Standards and Ethics Authority (FASEA) exam, a plan should be put in place as to how to do this in 2020. Whilst we have seen the Government announce that it will extend the timeframe for an existing adviser to complete the exam by 12 months to 1 January, 2022, this extension is not yet legislated.

Despite this proposed extension, sitting back and waiting may not be the best approach. For the first cohort of advisers that sat the FASEA exam in June, 2019, the overall success rate was

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higher than 90% passing. This should give some comfort that passing the exam is achievable.

Like any exam though, the key to success will be about preparation.

Today, there are a number of courses and options available to assist advisers to prepare. From intensive workshops to practice exams, and various suggestions on recommended reading, an adviser has the ability to be well-equipped for success.

Beyond this, advisers can really consider how their approach can actually assist to deliver multiple outcomes at once. FASEA have now approved a number of bridging courses in the area of ethics (and particularly the FASEA code) and regulatory and legal obligations.

These are two key areas assessed as part of the FASEA exam. The ethics subject is one that every continuing adviser will need to complete, and many will also need to complete the regulatory and legal obligations subject.

A considered approach towards the exam could be to consider completing the Ethics bridging subject (as a minimum first), as it will assist in meeting education requirements, but it will also help prepare for the FASEA exam.

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October 24, 2019 Money Management | 39

Strap Ethics

GET ON TOP OF CPD REQUIREMENTS New continuing professional development (CPD) requirements from FASEA commenced 1 January, 2019. For the majority of advisers, this start date has meant a transitional approach to CPD for the first ‘CPD year’ which for many will be for 18 months (ie from 1 January, 2019, to 30 June, 2020), before moving to an annualised approach.

With nine hours of CPD per annum required in the area of ethics and professionalism, and this being increased to 13.5 hours in the transitional period for many, some have been concerned about how to source the required hours. Completing the mandated ethics subject will cover the increased CPD requirement also (in this transitional year).

If an adviser is subject to the transitional year, it will also be important to plan out other CPD requirements as you wouldn’t want to be left in a position of trying to complete 60 hours of CPD at the busy time of year that 30 June normally presents.

UNDERSTAND HOW TO DOCUMENT ADHERENCE TO THE FASEA CODE OF ETHICS Despite the Government’s announcement on 11 October, 2019, to no longer pursue the establishment of code monitoring bodies, and to fold their oversight requirements of compliance with the FASEA Code of Ethics into the future single disciplinary body approach (proposed to be operational in 2021), this does not absolve advisers of their requirements to adhere to the Code.

The Code will apply from 1

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January, 2020, and as an interim measure, its expected licensees will have a formal responsibility to monitor compliance of their advisers with the Code.

Realistically, licensees should have been looking to do this anyway.

There has been a lot of discussion about the Code and how some of the Standards will be implemented. Some of this confusion may arise from the fact that the Standards read as a set of prescriptive rules, but their intention (as explained by FASEA) is to be a set of principles to guide advisers.

To use Standard 3 as an example, which has created a lot of discussion about the ability to act where there is a conflict of interest, it is important to note that there are many and varied types of conflicts of interests that arise every day.

Some of these are real, some are perceived. Some are possible, and some are probable. But each is technically a conflict.

An approach to Standard 3 could be to consider that if the conflict is managed in a certain way (e.g. by disclosure as required under corporations law), then do you as an adviser still believe there is a relevant conflict of interest that would prevent you from providing unbiased, impartial advice to your client that is in their best interest? If you believe this is the case, then clearly document how you came to that decision, and then move on and provide your quality advice outcomes to your clients.

It’s important to remember that FASEA is not trying to hinder the delivery of advice to clients – on the contrary they have recognised that the delivery of quality advice is important. Indeed, as part of the

Code itself, FASEA recognise that financial advisers are part of the newest profession to emerge in Australia. The Code has an integral role to play in the formation of the profession, as adherence to a Code is a characteristic to differentiate a profession from an industry.

A DEFINING YEAR The year 2020 represents a defining year for financial advisers. Working together as a collective profession, rather than as a cohort of individual professionals, will go a long way towards rebuilding consumer trust in the act of engaging with an adviser and obtaining advice.

And it is the broader, untapped consumer that needs to be considered. Existing clients seem to be less affected by impacts of negative headlines as they see and value the advice they receive and the adviser they engaged.

Whilst it’s always important to have long-term vision, 2020 is just around the corner so we can’t afford to continue to put things off. Actions will speak louder than words. Similarly, a short-sighted approach that continues to question the intent of the Code could do long-term damage.

Having a 2020 vision will not only help advisers, but can also free up time to allow advisers to do what they have set out to do – help clients to achieve their goals.

And we can’t forget there are plenty of 2020 options for clients too, particularly around proposed changes to superannuation contributions rules due to take effect from 1 July, 2020.

Bryan Ashenden is head of financial literacy and advocacy at BT.

17/10/2019 2:43:24 PM

40 | Money Management October 24, 2019

Toolbox

SECURING CONSISTENT RETURNS AMID NEW WORLD ORDER

Markets across the globe are treading murky waters as geopolitical issues impede on economic growth. But, writes Wheelhouse’s Alastair MacLeod, there are some investment strategies offering a diversified source of return to portfolios, including buy-write strategies.

BUY-WRITE OVERLAY STRATEGIES are well-placed to capitalise on these tumultous conditions by adding a consistent and diversified source of real return to investor portfolios. It’s one of the most basic forms of derivative overlay strategy, where equity is owned, and a corresponding call option is sold over the underlying position.

A buy-write strategy effectively replaces ‘expected but uncertain’

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capital gains with far more consistent income streams, while still receiving all dividends (and franking credits on the ASX 200).

A buy-write strategy differs from a typical long-only investment strategy in that it converts a large component of return to income.

Typically, most investment returns from owning equities are delivered via growth in capital, with a smaller component delivered via income (namely dividends). A buy-write

strategy reverses this relationship, with most return coming from income. This conversion to income fundamentally changes the path of investment returns, as income return is more certain, less volatile and protects against losses.

However, as return from income is capped, it also causes the strategy to underperform equity markets when they are strong. Over time, total investment returns from systematic buy-write strategies

have proven very similar to equities, albeit with a different shape that is reflective of a lowerrisk, income-driven return profile.

GENERATING RETURNS DESPITE LOW GROWTH Research across all major global markets, including Australia, highlights the defensive characteristics of buy-write strategies. As the income is generated at the outset, this

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needs to be lost before the investor suffers a portfolio loss.

Thus, it should come as no surprise that buy-write strategies have historically performed well when markets are weak or low growth, and particularly well when volatility is high and remains elevated. For example, during the GFC, buy-write strategies performed particularly well in terms of preserving capital and hence recovering from drawdowns far quicker than equity indices. Conversely, when markets are consistently strong with low volatility, relative returns suffer (despite delivery of meaningful positive returns in an absolute sense). The strong outperformance in weak and low growth conditions, and underperformance in high growth, reflect the far higher contribution to return from income.

Historically, systematic buy-write strategies have delivered equity rates of return with significantly reduced volatility, improved capital preservation and a higher income component. These characteristics are extremely well suited for investors seeking a lower risk equity return, where preservation of capital and reliability of income is valued more highly than outperforming equity markets when they are strong. As the income generation is not dependent on interest rates or high yielding shares, a buy-write strategy can also significantly diversify the sources of retirement income. This can meaningfully lower risk in a portfolio where often the dominant source of retirement income is generated from a concentrated exposure such as Australian banks. However, caution is advised: just as there are different types of active equity styles, there are different approaches to buy-write strategies, with differing results.

Well-managed systematic approaches, which are

KEY CHARACTERISTICS OF BUY-WRITE STRATEGIES 1. Equity rates of growth – Systematic buy-writes are an equity replacement strategy. While intra-cycle returns deviate from benchmark returns, over longer time horizons returns have been very similar to underlying equity benchmarks (including dividends reinvested).

2. Delivering ‘alpha’ when you need it – Systematic buy-write strategies have consistently generated outperformance when equity markets have failed to deliver on their expected 9%-10% annual return. Specifically, in lowgrowth environments, buy-writes have nudged annual returns up far closer to ‘expected’ equity returns. Importantly, the relationships are not dependent upon a particular defensive sector or idiosyncratic characteristic. As the following table shows, the results are consistent across markets and time periods, and reflective of the underlying market movement as opposed to intra-market investor preferences.

By delivering equity returns far more consistently, and preserving capital far more effectively, the ‘alpha’ has been delivered precisely when you need it most. Conversely in strong markets, while underperformance should also be expected, highly positive absolute returns were also consistently delivered, as the following chart illustrates.

Source: Wheelhouse Partners 3. Improved capital security and reduced volatility – The improved defensive characteristics are also reflected in far fewer periods of negative absolute returns on a rolling 12-month basis.

The hypothetical scenario below calculates a simulated Australian investor’s typical equity exposure using the following: I. 50% ASX 200 Index (total return); II. 25% MSCI World ex Australia Index (unhedged); and III. 25% MSCI World ex Australia Index (hedged).

Source: Wheelhouse Partners Continued on page 42

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42 | Money Management October 24, 2019

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CPD QUIZ Continued from page 41

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.

non-directional in nature, are better placed in our view to deliver the key benefits of a buy-write strategy in a predictable and more reliable return profile.

1. In what type of economic environment do buy-write

STATE OF PLAY

a) Low growth

Over the past 12 to 24 months, investment returns for the Wheelhouse Global Equity Income Fund have proven to deliver lower risk returns with reduced drawdowns, alongside consistent income generation. One key advantage of systematic buy-write strategies is the high degree of predictability of returns, for a given market return. During 2018 for example, when global sharemarkets were negative, the strategy outperformed by 6% and preserved capital when it was needed most.

With the market rebound in 2019, the fund has underperformed by a similar amount, despite delivering an absolute return of over 13%.

Looking ahead, with interest rates seemingly stagnating at record lows and equity markets nearing record highs, the key benefits of a systematic buy-write approach – namely high-income generation and improved capital preservation – would appear well suited for the current market environment. There are a number of buy-write strategies on the market, and investors are encouraged to look for systematic approaches that increase the predictability and consistency of investment returns.

In the US, Morningstar recently reported that overlay strategies have experienced 24% growth in assets under management over the past 12 months, as investors increasingly look for lower risk, higher income yielding investment options. The report suggests that this increase is on track to be one of the biggest advances of the past decade after hitting $US22 billion ($32.5 billion) in August this year. The strategies range in styles and levels of risk. Often, they seek to generate additional income by regularly selling options contracts. Other times, they use options in an attempt to protect against potential stock losses.

This type of investment strategy – like all others – comes with a degree of risk, so adequate risk controls are fundamental to the approach.

Buy-write strategies offer the investor enhanced real returns on equities and are not dependent on style factors such as growth/defensive to reduce risk. The relationships are consistent across jurisdictions, making them suitable for MSCI World as well as Australian-specific exposures, and the index-based buy-write strategies reshape the beta, or the market return. Investors also receive full dividend entitlements, including franking credits on Australian-based exposures, making it particularly appealing in this low rate, low growth environment.

After calculating the global equity exposure – based on the same weightings as the underlying index – the buy-write overlay provided an equity replacement return over this period.

However, when the shape of returns is further analysed, volatility and the frequency of negative periods (on a 12-month basis) significantly improved. Volatility was reduced by 30% versus the equivalent equity exposure, and up to 50% less than the stand-alone indices.

Negative returns were only observed 6% of the time during the 11-year period (versus 19% observed from the equivalent equity exposure), with most occurring during the GFC (when losses were also far shallower for the buy-write overlay). For investors focused on sequencing risk and the importance of avoiding extended periods of negative returns, this can have a meaningful impact on outcomes.

Alastair MacLeod is a portfolio manager at Wheelhouse Partners.

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strategies perform particularly well? b) High growth c) They perform well irrespective of market conditions 2. Over time, total investment returns from buy-write strategies have proven similar to which other investment class? a) Fixed income b) Equities c) Alternatives 3. According to Morningstar (US), assets under management in overlay strategies have generated how much growth over the past 12 months? a) 7% b) 16% c) 24% 4. Can a buy-write strategy investor still receive dividends (and franking credits) on the ASX200? a) Yes, assuming the same eligibility rules from owning regular shares are met b) No c) Sometimes 5. What is the key benefit of a systematic buy-write approach? a) High-income generation b) Improved capital preservation c) Both high-income generation and improved capital preservation

TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/features/ tools-guides/ securing-consistent-returns-amid-new-world-order

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

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Appointments

Move of the WEEK Kevin Roadnight Chief operating officer UniSuper

UniSuper has appointed former National Australia Bank (NAB) executive Kevin Roadnight as its chief operating officer to lead the finance, and legal and governance functions.

Roadnight was most recently chief financial officer and company secretary of Vision Australia, after a move

to the not-for-profit sector.

He worked at NAB for over 20 years where he held a number of senior finance positions globally including CFO of a NAB subsidiary in the US. He has also worked at ANZ and State Superannuation Board of Victoria.

Kevin O’Sullivan, Uni-

National Australia Bank (NAB) has appointed Kathryn Fagg as a nonexecutive director, effective from 16 December, 2019 and subject to regulatory approval.

Fagg had been a board member of the Reserve Bank of Australia and was currently chairperson of Boral Limited and a nonexecutive director of Djerriwarrh Investments.

She was also a non-executive director of Incitec Pivot but would retire at the conclusion of their annual general meeting on 20 December, 2019.

Fagg was appointed an Officer of the Order of Australia (AO) in the 2019 Queen’s Birthday Honours for distinguished service to business and finance, central banking, logistics and manufacturing sectors and to women.

She was also a board member of the Grattan Institute, The Myer Foundation and a former president of Chief Executive Women.

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Super chief executive, said: “Following a comprehensive selection process I’m delighted to announce Kevin’s appointment. His breadth of experience will be a real asset to UniSuper”.

Roadnight would commence the role on 18 November.

Acadian Asset Management has appointed Andrew Hair to the newly-created role of head of Asia Pacific to drive their next phase of regional growth.

Hair would also continue his role as chief executive of Acadian Asset Management (Australia), which he had held since 2012.

He would be responsible for Acadian’s business in Australia and New Zealand, as well as its affiliated offices in Tokyo and Singapore.

Hair had more than 20 years’ experience in financial markets, where the last 12 of those had been with Acadian Australia.

Netwealth has appointed Sally Freeman as an independent nonexecutive director to capitalise on her risk management expertise.

Netwealth said Freeman would also be appointed to the audit committee, compliance and risk management committee, remuneration committee, and

the nomination committee.

“The board considers that Sally’s experience and expertise will complement the existing board skills generally and specifically in the field of risk management,” it said.

Freeman had over 25 years of experience as a risk consulting and corporate governance executive and is head of KPMG’s national risk consulting practice.

She is also an independent expert on the audit committee of Commonwealth Games Australia and Caulfield Grammar.

MLC Life Insurance has appointed Andrea Forbes as executive lead – relationship management, group insurance.

Forbes’ main responsibility would be to drive retention and deep engagement with existing and prospective clients while contributing to the development of the life insurer’s growing group insurance business.

She was the former director of the commercial policy and risk team at NSW Treasury, and would report to Sean McCormack, chief of group and retail partners as a member of his leadership team.

Pengana Capital Group has hired Karyn Jones to its distribution and marketing team as business development manager (BDM) for Victoria, responsible for managing relationships with Victorian and Tasmanian advisers.

She joins from Perpetual where she was BDM for Victoria and Northern Territory. Prior to joining Perpetual, she spent 15 years working at Macquarie Bank from 1987 to 2002.

Adam Myers, executive director at Pengana, said: “We’re very pleased to have Karyn join the team. She has a demonstrated track record of managing longterm relationships and supporting quality advisory businesses”.

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OUTSIDER

Money Management ManagementOctober April 2, 24, 2015 44 | Money 2019

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

Sticking the boot into a fallen giant

Walking the walk on #MeToo HAVING worked in journalism for many years, Outsider can cast his mind back to a time when sexist comments were frequently made about women and nobody blinked an eye.

However, even he knows times have changed and that those type of comments are totally unacceptable now meaning he has little sympathy for those being called out.

So, Outsider nodded sagely when he read that famous US investor Ken Fisher, whose firm Fisher Investments manages over US$100 billion and who regularly appears on TV, had his work with Fidelity Investments terminated over disparaging remarks.

Attending an industry conference in San Francisco, Fisher is

understood to have made derogatory comments about genitalia, ‘trying to get into a girl’s pants’, and alleged sex trafficker Jeffrey Epstein.

Outsider congratulates Fidelity on putting its money where its mouth is and removing their $500 million mandate from Fisher’s firm, saying his ‘views do not align’ with the firm’s values.

Fidelity was joined by the state of Michigan which pulled $600 million of its

pension fund from the wealth manager, the Philadelphia board of pension, which had $54 million with the firm, and the Florida Pension Fund, which had $175 million with Fisher, said it was carrying out an investigation on him.

While it is easy to talk the talk on the #MeToo scandal and hopping onto the ESG investing wagon, it is reassuring to see some companies are also ‘walking the walk’ and taking their assets elsewhere.

OUTSIDER is an old rugby player so he knows there are rules about kicking a player on the ground, so notes that AMP was further kicked in the guts when it recently received a “Shonky Award” from consumer group, Choice.

Specifically, Choice awarded the “Shonky” to the ‘grossly underperforming superannuation division’ for charging customers substantial financial advice fee while delivering nothing in return.

As anyone watching the current Rugby World Cup would know, past performance is no guide to future performance and notes Choice’s analysis that AMP had been recognised for, among other things, discouraging people from rolling their super funds into a new super fund, once they realised they were being overcharged by offering them the high exit fees.

Outsider has been closely watching AMP over the past few years and is worried that, unlike the Wallabies, the company may be undergoing more than just a form slump, notwithstanding a change to the captaincy and the coaching staff.

What Outsider does know is that with a buyer of last resort (BOLR) class action in the offing as well as some serious challenges in retaining corporate superannuation mandates, the Wallabies look like a better bet for a return to form and public admiration than AMP.

Don’t rattle the SG can, it might erode the base OUTSIDER has been around long enough to reflect that when the superannuation guarantee was first established by the then Labor Treasurer, Paul Keating who envisaged it reaching healthy double-digits well inside a couple of decades.

Then, of course, the Liberal/National Party Coalition assumed the Treasury benches under Prime Minister, John Howard, and the SG remained pretty static only to resume a decidedly cautious upward momentum with the election the Rudd/Gillard/Rudd Labor Government which was hardly accelerated by the election of Tony Abbott in 2013.

As things currently stand, the SG is sitting at 9.5% and under the Abbott time-table will rise to 10% in 2021, 10.5% in 2022, 11% in 2023, 11.5% in 2024 and then, finally, 12% in 2025.

OUT OF CONTEXT www.moneymanagement.com.au

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But Outsider heard quite some time ago that there are more than one or two Coalition back-benchers who would happily see the SG not rise at all, and the Assistant Minister for Superannuation, Financial Services and Financial Technology, Senator Jane Hume, has been quoted as suggesting 10% is a nice round number.

So, what is the Government’s agenda? Well Outsider notes that with former rugby player, Tony Abbott having kicked the SG can down the road in 2017, that can is about to pick up significant momentum from 2021 onwards and that acceleration appears to coincide with the election cycle.

If things had turned out differently on 18 May, 2019, none of this would be an issue for a Coalition Government but Outsider can well understand why no one wants to upset employer groups running into an election.

"The Australian people are sick and tired of this merry dance."

"You're very tough negotiators."

- Treasurer Frydenberg on RBA cuts not being passed on by the banks.

- US President Trump's high praise for the Chinese trade delegation.

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