Money Management | Vol. 33 No 19 | November 7, 2019 by FE Money Management

MAGAZINE OF CHOICE FOR AUSTRALIA’S WEALTH INDUSTRY

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Vol. 33 No 19 | November 7, 2019

ETFS

Debunking ETF myths

INSURANCE

Insurance in super

RATE THE RATERS

ALTERNATIVES

Multi—factor strategies

ASIC spotlights third party advisers on super insurance messaging BY MIKE TAYLOR

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Lonsec again the preferred ratings house WHILE Lonsec has once again been labelled as financial planners’ favourite ratings house, this year’s Money Management Rate the Raters survey finds its popularity isn’t what it used to be with planners making room for new entrants and thus breaking the oligopoly. Lonsec this year was highly regarded for its quality of its staff, model portfolio capabilities, good value for money, consulting services, and fund and fund company and asset allocation research. Despite the research house being the top rated for six categories this year, it was a lesser result than last year. In 2018, Lonsec was the top-rated research house for eight categories. This year, Morningstar overtook Lonsec’s lead in client services and website tool and services. Lonsec’s gold spot in client services dropped to third place this year with only 42% of planners believing its service was ‘excellent’ or ‘good’ compared to 53% last year. Morningstar was also the unquestionable winner in the corporate strength category with 80% of planners rating it as either ‘excellent’ or ‘good’. While Lonsec won this category last year, it slipped to third place with only 63% of planners rating it as higher than average. The survey also found that the relatively younger research house, SQM Research, was making its mark by securing third place when it came to value for money, behind Lonsec and Zenith. SQM beat out long-standing research house Morningstar with over 45% of surveyed financial planners rating its value for money as either ‘good’ or ‘excellent’.

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Full feature on page 28

THE Australian Securities and Investments Commission (ASIC) has claimed it has seen some examples of communications from third parties such as financial advisers about insurance inside superannuation which “have lacked balance and context”. In a letter sent to superannuation funds ahead of the Government’s implementation of its new Putting Members Interests First legislation, the regulator specifically referenced advisers and its ability to take action against them. Under the heading of “Other ASIC Concerns” the letter said: “ASIC has seen examples of disclosure from third parties about the reforms that have

lacked balance or context”. “ASIC can take action against third parties, including advisers, who make misleading statements about the changes. Trustees need to ensure that advisers and others that they interact with are provided with accurate information,” the letter said. The ASIC letter to superannuation funds has made clear that “communications should be developed with the member’s best interests as a priority” and suggested that members should not be left with the impression that the only option was to retain insurance. “Trustees should not solely communicate the benefits of one option. In particular, it may be important to explain why ceasing Continued on page 3

FASEA funding drying up FINANCIAL advisers should be bracing for another levy to fund the Financial Adviser Standards and Ethics Authority (FASEA) in next year’s Federal Budget because most of the major banks will no longer be there to do so. Over the past three years the bulk of FASEA’s funding has come from seven of the banks plus AMP, but only AMP and National Australia Bank (NAB) still have significant current wealth management interests in the wake of ANZ, Westpac, Suncorp and Bendigo largely exiting the space and with the Commonwealth Bank in the process of doing so. The FASEA funding arrangements put in place by the Treasury saw ANZ, Bendigo, the Commonwealth Bank, Macquarie Equities, NAB, Suncorp, Westpac and AMP providing total funding of $3.9 million a year but the arrangement will expire in May. However the Government has yet to flag how it intends to fund FASEA in the 2020-21 Budget year in circumstances where it has also Continued on page 3

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November 7, 2019 Money Management | 3

News

ANZ profit down, remediation bill up BY MIKE TAYLOR

ANZ has revealed that its total provisioning for customer remediation has now reached $1.2 billion at the same time as announcing a 7% decline in full-year statutory profit after tax of $5.95 billion on the back of a flat cash profit of $6.74 billion. The board has proposed a final dividend of 80 cents per share, partially franked to 70%. The result prompted ANZ chief executive, Shayne Elliott to refer to a “challenging year of slow economic growth, increased competition, regulatory change and global uncertainty”. However, he said that despite the challenges, the bank had maintained focus on improving customer experience, balance sheet strength and

improving its culture and capability. Having exited its wealth management business via a major transaction with IOOF, the banking group’s outline of its customer remediation costs was significant. It said that an additional charge of $559 million had been announced earlier this month as a result of an increase in provisions for remediation work, taking the total charge to $1.2 billion since the first half of 2017. The ASX announcement said that the banking group recognised the impact this had on both customers and shareholders and was taking a proactive approach and conducting detail reviews across the group. “There are more than 1,000 people working on remediation,” it said. “We returned more than $100

Super funds will get a few weeks before feeling the APRA heat SUPERANNUATION funds are going to get “a few weeks” headsup to understand the Australian Prudential Regulation Authority’s (APRA’s) methodology around its controversial heat map approach to assessing member outcomes. Confronted by strong questioning during Senate Estimates, Rowell said that while the regulator was open to feedback “at the end of the day, I think it is our call as to how we publish our data and the information that we present”. “This is not a policy consultation,” she said. Northern Territory Labor Senator, Malarndirri McCarthy had directly queried APRA’s approach stating the regulator was developing a new product which was going to apply judgements about the performance of different funds on different dimensions. “It’s a new product and it’s going to have an impact on the sector. Explain to me the extent to which participants in the sector will have visibility on the methodology you’re using to prepare these heat maps before you finalise that methodology. Just step me through it. What is the exposure?” she asked. Rowell said that APRA was proposing to publish an information paper with details around the methodology a few weeks ahead of the publication of the actual heat map, with data in it. “We’re providing a few weeks for industry and other stakeholders to understand the methodology and the approach before the actual data and the heat maps are in the public domain,” she said. “I think it is also important to note that we have been through a fairly rigorous internal approach to develop our measures and our approach. It’s gone through our internal governance processes and we’ll do that before it’s finally released. We’ve also got external advisers – experts in the field, if you like – to review and validate the approach that we’ve taken.” Rowell said that APRA was open to feedback but that it was not undertaking a consultation.

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million to impacted customers this financial year.” Looking over the horizon, Elliott said that while the Australian housing market was recovering, the banking group expected challenging

trading conditions to continue for the foreseeable future. He noted that increased compliance and remediation costs would need to be closely managed over the foreseeable future.

ASIC spotlights third party advisers on superannuation insurance messaging Continued from page 1 insurance cover may be appropriate,” it said. It said ASIC had been systematically reviewing a sample of disclosures concerning superannuation funds and the manner in which they handled the earlier Protecting Your Super legislation. “Our sample included both insurance and inactive low balance communications. A number of trustees have failed to meet the needs of theirmembers in the communications issued to date and we are actively exploring whether enforcement action is an appropriate outcome in some instances,” it said. “We will continue to review a selection of member communications and anticipate highlighting good and bad examples of these in future public statements.”

FASEA funding drying up

Continued from page 1 yet to outline either the structure or the funding model for the single disciplinary body recommended in the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The future funding structure is also being viewed against the background of the decision by the Financial Planning Association (FPA), the Association of Financial Advisers (AFA), the SMSF Association and other members of a consortium not to proceed with establishing a FASEA code-monitoring authority. While the members of the industry consortium would have funded establishment of the code-monitoring authority, its ongoing operational expenses were to be funded by membership fees from financial advisers. The Government is yet to release details of its proposed Single Disciplinary Body.

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4 | Money Management November 7, 2019

Editorial

mike.taylor@moneymanagement.com.au

IS IT TIME TO RESET THE FASEA BOARD? In circumstances where the Financial Adviser Standards and Ethics Authority has struggled to meet its legislative mandate and garner the respect and confidence of the broader financial adviser community, is it time for some new faces in the board room? Let’s call a spade a spade. The establishment of the Financial Adviser Standards and Ethics Authority (FASEA) was a wellintentioned and much-needed action on the part of the Government but FASEA itself has struggled and is still struggling to effectively deliver on its mandate. The corollary of FASEA’s struggles is that the organisation cannot and does not boast the confidence of the financial planning industry. Indeed, key financial planning stakeholders such as the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA) have firmly pointed to their disappointment at outcomes, not least and most recently the guidance around the FASEA code of ethics. Then, too, the Government has tacitly acknowledged the failings of FASEA by signalling that it will seek to legislate to extend the timeframes available to advisers to meet the FASEA exam requirements because of the time taken by the organisation to put the relevant structures in place. Little wonder then that during last month’s Senate Estimates hearings, Queensland Liberal Senator, Amanda Stoker saw fit to give FASEA’s chief executive, Stephen Glenfield, a grilling about the authority’s actions around matters such as the recognition of continuing professional development (CPD) and the likely

consequent exodus of experienced financial advisers. And let it be said that it was not unreasonable for a senior public servant such as Glenfield to assert that FASEA was simply implementing Government legislation as it is required to do – something Money Management described as “the Nuremberg defence”. Glenfield is right. It is FASEA’s role to implement the Government’s legislation – the Corporations Amendment (Professional Standards of Financial Advisers) Act 2018 – by setting education, training and ethical standards for licensed financial advisers. What he might also have explained to Senate Estimates, however, is that the level of flexibility and discretion which is exercised in the pursuit of that legislative objective is very much the responsibility of the FASEA board. When the relatively new Assistant Minister for Superannuation Financial Services and Financial Technology, Senator Jane Hume announced that the Government would seek to grant advisers an extension around the FASEA exam, she might equally have asked her own advisers why that had become necessary and whether the FASEA board should be called to account. On the face of it, the FASEA board appears balanced with an independent chair, a couple of academics, two financial adviser

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

representatives, an ethicist and two consumer representatives. However, as anyone who has sat on a board will know, capable leadership is necessary from the chair if forceful and politicallymotivated personalities are not to dominate. Can the minister be satisfied that adequate and effective leadership has been shown? No one should want FASEA to fail. The underlying concept of an independent, Governmentmandated body tasked with setting and overseeing the education, training and ethical standards of financial advisers is vital to ensuring that an industry becomes a profession. And nor should anyone seek to wind-back from the FASEA minimum standards of Bachelor (or higher) degrees. These, too, are necessary. However, in June 2020 it will have been three years since formal establishment of FASEA and three years and two months since the appointment of the original board by the former Minister for Revenue and Financial Services, Kelly O’Dwyer. In all the circumstances, the current minister might consider a review of the FASEA board’s performance and effectiveness and whether the best interests of both consumers and advisers might be served by some new appointments including the chair.

Tel: 0455 553 775 mika-john.southworth@moneymanagement.com.au Managing Editor/Editorial Director: Mike Taylor Tel: 0438 789 214 mike.taylor@moneymanagement.com.au Associate Editor - Research: Oksana Patron Tel: 0439 137 814 oksana.patron@moneymanagement.com.au News Editor: Jassmyn Goh Tel: 0438 957 266 jassmyn.goh@moneymanagement.com.au Senior Journalist: Laura Dew Tel: 0438 836 560 laura.dew@moneymanagement.com.au Journalist: Chris Dastoor Tel: 0439 076 518 chris.dastoor@moneymanagement.com.au Events Executive: Candace Qi Tel: 0439 355 561 candace.qi@fefundinfo.com ADVERTISING Sales Director: Craig Pecar Tel: 0438 905 121 craig.pecar@moneymanagement.com.au Account Manager: Amy Barnett Tel: 0438 879 685 amy.barnett@moneymanagement.com.au Account Manager: Amelia King Tel: 0407 702 765 amelia.king@moneymanagement.com.au PRODUCTION Graphic Design: Henry Blazhevskyi

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November 7, 2019 Money Management | 5

News

Has FASEA invoked the Nuremberg defence on adviser exits? BY MIKE TAYLOR

The Financial Adviser Standards and Ethics Authority (FASEA) chief executive, Stephen Glenfield, has responded to strong questioning during Senate Estimates about the likely outflow of financial advisers from the industry by reinforcing that the authority is simply implementing legislation as it is required to do. Queensland Liberal Senator, Amanda Stoker, directly challenged Glenfield on whether FASEA “acknowledged the risk of losing an awful lot of experienced financial advisers for whom doing a full eight-subject graduate diploma late in their careers is just too much, too expensive and, quite frankly, too disrespectful to the role they play in the culture of the profession?” Glenfield said that FASEA’s was implementing legislation that came from the Parliament and that the authority did not go beyond that. Senator Stoker also noted that the number of advisers on the Financial Advisers Register had decreased from nearly 29,000 at the start

of this year to around 25,500 as at the beginning of October. “I would suggest this is a significant drop that we can expect to see continue to decline over the next year or so as an unreasonable approach to valuing [continuing professional development] CPD and industry experience kicks in,” she said. “Tell me,” she asked Glenfield. “Is it not the case that the profession is losing around 6.4% of financial advisers a quarter?” Glenfield said he did not have those particular figures and acknowledged that he also did not have data on how many new advisers had joined the profession this year. In asking her question, Senator Stoker provided what she described as case studies by way of example. “You said that there’s no prejudice to older members of the profession by the requirements FASEA’s imposing. I’ll give you the example of three advisers, each of which have more than 30 years of experience in the

profession, who have been leading it, teaching others, mentoring others as they come through to be wise and fair and working in the interests of customers,” she said. “Paul Franklin is 72 and he wants to continue to practice for another eight years. He’s been told he needs to do a full eight-unit diploma to continue. James Forde is 64. He would be required to do the full eight-subject graduate diploma. And Wayne Leggett is 64, has a bachelor’s degree and an eight-subject diploma of financial planning and would need to do five subjects. All have over 30 years’ experience in the profession. Can I suggest that the approach that is being adopted by FASEA is not sufficiently recognising the service, experience and prior learning of people who are at the upper end of the profession?” Glenfield responded: “I would only respond that the legislation requires, as part of the lifting of the standards that it was aiming to achieve, that advisers reach a bachelor or higher level of education”.

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News

Extra ASFL condition for IOOF Investment Services BY JASSMYN GOH

THE corporate watchdog has imposed an additional condition on the Australian Financial Services (ASF) Licence of IOOF Investment Services (IISL) to improve governance and conflicts management. The Australian Securities and Investments Commission (ASIC) said IISL sought a variation to its licence to facilitate the current responsible entity (RE) and service operation functions of IOOF Investment Management (IIML), a dual regulated entity, to be transitioned to IISL, leaving IIML as a standalong registrable superannuation entity (RSE). ASIC said it imposed the additional licence conditions after considering concerns highlighted by the Royal Commission about “the real and continuing possibility of conflicts of interests in IOOF Group’s business structure, ASIC’s past supervisory experience of these entities and material supplied by IISL as part of its licence variation application”. Commenting, IOOF chief executive, Renato Mota said: “This stronger governance framework for IISL is in line with our amibtion of

establishing higher standards of governance for ourselves and the industry. “As we accelerate our focus on governance, together with the proposed acquisition of ANZ’s P and I business, we are confident we are building better outcomes for all our stakeholders and the communities we serve.” IOOF said it had been working towards the separation of the IIML RE and RSE functions by 31 December, 2019. The additional conditions covered: • Governance – by requiring that IISL has a majority of independent directors with a breadth of skills and background relevant to the operation of managed investment schemes and IDPS platforms; • The establishment of an Office of the Responsible Entity (ORE) – that is adequately resourced and reports directly to the IISL board, with responsibility for: - O versight of IISL’s compliance with its AFS licence obligations; - Ensuring IISL’s managed investment schemes are operated in the best interests of their members; and - O verseeing the quality and pricing of

services provided to IISL by all service providers (including related companies) • The appointment of an independent expert, approved by ASIC, to report on their assessment of the implementation of the additional licence conditions. ASIC commissioner Danielle Press said ASIC was serious about improving the quality of governance and conflicts management across the funds management sector and ensuring that investors’ best interests are the highest priority of fund managers. “ASIC will use its licensing power, including through the imposition of tailored licence conditions to address governance weaknesses, the risk of poor conduct or vulnerabilities to conflicts of interest in a licensee’s business model,” she said.

Bravura acquires FinoComp

Bill Kelty: Fix wages, not superannuation

BY MIKE TAYLOR

BILL Kelty, one of the founders of Australia’s superannuation system under the Keating government, says it isn’t the superannuation system or superannuation guarantee (SG) that needed to be fixed, but wages for workers. Speaking at the ‘Superannuation: Rebooting the system that is failing many Australians’ panel at the Crescent Think Tank launch, Kelty said all the discussion around changes to super prevented generational confidence in the system. “The most important thing to say to working people and the people of Australia is stop all the changes in super, stop all this nonsense, stop threatening it all the time,” Kelty said. “Leave it alone so the [new] generation can get confidence in the system again. “It’s not to say there aren’t issues, but people making generational decisions are sick and tired of governments coming in, changing and reviewing it.” He acknowledged there were still issues for people who were out of the labour force for periods of time, particularly women, as well as for young people who drifted between casual jobs. “Women are treated unfairly, fix up that

PUBLICLY-LISTED financial services technology company, Bravura Solutions has announced yet another acquisition – this time UK-focused software firm, FinoComp for $25 million. Bravura announced to the Australian Securities Exchange (ASX) that it had acquired FinoComp, an Australian software company that builds unique, registryagnostic software to support the UK wealth market. The announcement said FinoComp’s clients included firms such as Aegon and Nucleus. It said the acquisition deepened Bravura’s technical capabilities and created significant cross-sell opportunities between FinoComp and Bravura clients. “Further revenue opportunities are also possible by expanding FinoComp’s software to adjacent markets and geographies in the future, including financial advice, funds administration and private client wealth management.” It said FinoComp has 35 employees in Australia and the UK.

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BY CHRIS DASTOOR

issue, but leave the system as it is. Leave the commitments as they were,” Kelty said. Kelty said the government should follow through on increasing the super guarantee (SG) to 12% as it was originally agreed and to stop deferring changes. “Not one word was said in the last election about moving the SG to 12%, but now the election is over and suddenly people are having an enquiry. “We wonder why people lost trust in politics, they got told by no one this was on the agenda. “Just meet your commitments, do what you told people you would do and implement the 12% and keep your promise. “Leave super, fix up wages, don’t continue to steal money and steal super off decent working people, because that’s all that argument is.” Former Liberal opposition leader, John Hewson, said assistant minister for superannuation, financial services and financial technology, Senator Jane Hume’s proposal for a 10% SG would be inadequate. “I think it’s ridiculous to imagine you can set a policy by saying this is a nice round number, because I don’t think that makes any sense at all,” Hewson said.

29/10/2019 5:06:16 PM

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News

What happened to the complaining FASEA bypassed Royal Commission witnesses? consultation on code guidance BY MIKE TAYLOR

OF the 26 financial institution customers who were witnesses at the Royal Commission, only three had previously raised their concerns about alleged misconduct with the Australian Securities and Investments Commission (ASIC). The regulator told a Parliamentary Committee that of the concerns raised by the three witnesses, two had been referred to specialist teams within ASIC and the third was referred to an external dispute resolution scheme. “ASIC did not take further action because the matter was better dealt with by the external dispute resolution process (EDR), to get individual rectification,” the ASIC said in an answer to a question on notice from the Parliamentary Joint

Committee on Corporations and Financial Services. ASIC said the witness referred to EDR had initially been referred to a specialist team for further consideration but that “the specialist team declined the matter on the basis the concerns were

better dealt with by the Financial Ombudsman Service to get individual rectification and compensation”. However, it said ASIC was currently investigating the financial institution in question.

ASIC should withdraw its SMSF factsheet THE Australian Securities and Investments Commission (ASIC) should withdraw its selfmanaged superannuation fund (SMSF) factsheet because it contains “an array of seemingly deliberate inaccuracies”, according to economist, David French of the Investment Collective. According to French, he has identified four glaring inaccuracies “so blatant that that the factsheet could only be described as misleading and deceptive”. He said those inaccuracies included ASIC’s claim that the average cost of running an SMSF was $13,900 per annum and that it takes more than 100 hours per annum to run an SMSF. French ascribed many of the inaccuracies to ASIC’s reliance on the Productivity Commission (PC) and noted that ASIC had made no attempt to explain that the PC’s data around the costs of running an SMSF had been distorted by the costs of some very large funds. He said that the suggestion that it takes 100 hours a year could only have been derived

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from including portfolio management tasks. “ASIC knows it’s on shaky ground in reporting PC return figures for SMSFs. That’s why it has included a footnote to cover the inadequacies of the data. As ASIC would know, the PC data revealed that returns from SMSF’s overall, exceeded those of either industry or retail funds,” French said. “Regardless, the data used in the PC analysis is in turn based on data from the ATO. Such data is distorted by any number of factors peculiar to the individual fund and is not suitable for the calculation of performance figures. “In particular, many investors are conservative by nature and they often prefer higher weightings of lower-risk assets,” French said. “In our experience, the asset allocations of public offer funds often cannot be relied on to provide a clear indication of the characteristics of the underlying investments, and consequently people use SMSF’s to gain certainty.”

THE Financial Adviser Standards and Ethics Authority (FASEA) could have conducted a pre-release consultation around its code of ethics guidelines with the major financial adviser groups but chose not to do so. Instead the authority has run into a barrage of criticism from individual advisers and the Association of Financial Advisers (AFA) and is now offering a consultation process in November. However, AFA chief executive, Phil Kewin has told Money Management that he has concerns about the effectiveness of a consultation process in November when the code of ethics is due to be implemented in from 1 January. Kewin was commenting after he signed off a communication to AFA members in which he said the AFA had used code of ethics guidance to go beyond its remit with respect to the management of conflicts of interest to “create its own laws, way above current laws”. “We simply do not understand how it is possible, when the Corporations Act only requires conflicts to be managed, and the law specifically permits life insurance commissions and other conflicted arrangements, that FASEA could issue a Code of Ethics, that is binding on all financial advisers that appears to completely ban conflicts of interest,” the AFA communication said. In a subsequent interview with Money Management, Kewin said the issues relate to the FASEA code of ethics guidance could have been resolved if the authority had lived up to an undertaking to consult with adviser groups before it released the guidance. “Now they are promising us a consultation process in November but I have concerns about how that will work because the code of ethics is due to come into effect on 1 January, next year,” he said. Kewin expressed particular concern about the fact that the original Standard 3 in the code, dealing with conflicts of interest or duty had been viewed as “reasonable” by advisers but that it had now been subject to substantial change. Kewin’s comments have come amid concerns that consumer representatives on the FASEA board have been allowed to exercise undue influence.

29/10/2019 5:06:38 PM

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10 | Money Management November 7, 2019

News

CFS acts on adviser fees with its superannuation funds BY MIKE TAYLOR

COLONIAL First State (CFS) will end Adviser Services Fees within its superannuation funds unless clients opt-in, motivated in large part by the joint letter sent by the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) earlier this year. CFS has written to advisers informing them that it will be contacting members of the superannuation in early December asking them to confirm their willingness to continue having fees deducted from their superannuation and pension accounts. The Association of Financial Advisers chief executive, Phil Kewin, expressed concern at the impact of the joint letter from the regulators had prompted the CFS move. The CFS letter said that from 2 December the firm would be contacting superannuation

fund members who had an ongoing Adviser Service Fee (ASF) deducted from their account for 12 months or longer. However, it said that from 23 October it would be contacting advisers with a list of their impacted clients to help them prepare. “If we receive a completed Adviser Service Fee and Adviser Trail Rebate Nomination form from a member before 20 November, 2019, this will be sufficient confirmation to the trustee that the member is aware of the advice fees they pay from their account and we won’t seek an additional authorisation,” it said. “We’ll provide advisers a copy of the member communications in the week commencing 18 November, 2019.” The CFS documentation said that superannuation fund members would receive a letter, authority form and information sheet and then have 90 days (with reminders at 30 and 60 days) from the date of the letter.

Life insurance APLs need to be banned: ClearView BY JASSMYN GOH

LIFE insurance approved product lists (APLs) from vertically-integrated advice licensees should be banned as institutions are unable to properly manage conflicts of interests, according to whistleblower Jeff Morris. In a ClearView commissioned paper, Morris said institutionallyaligned Australian Financial Services Licensees (AFSLs) continued to funnel new clients into in-house products which was a potential breach in best interests duty obligations. “In putting this paper together, it became clear that institutionally-aligned AFSLs knew all the right things to say and how to look remorseful but scratch the surface and there have been no real changes to the culture and practices inside these organisations,” Morris said. “Heavily-restricted life insurance APLs are still the norm and not even heat from the recent Financial Services Royal Commission has been enough to

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compel them to apply higher standards and put their clients first.” The paper claimed there was no reasonable basis to exclude any of the 12 retail life insurers regulated with the Australian Prudential Regulation Authority and that there was a distinct lack of innovation in the life insurance to limited APLs. “APLs are at odds with the government’s agenda and changing community standards, and it is time for unrestricted choice of life insurance provider to be mandated,” Morris said. Commenting, ClearView managing director, Simon Swanson, said while most people did not deliberately act in bad faith it was no accident that the vast majority of clients connected to an institutionally-aligned financial adviser found their way into in-house products. “If the regulator agrees that this is not a coincidence but rather the orchestrated outcome of flawed processes then they must act to ban restricted APLs,” Swanson said.

Advice remediation still dragging on Westpac WESTPAC may have substantially exited financial advice but it has announced an increase in its provisioning for advice remediation. The big banking group told the Australian Securities Exchange (ASX) that its second half earnings would be recued by an estimated $341 million due to customer remediation programs, totalling $958 million in customer remediation for FY19. It said the aggregate customer remediation programs and costs related to the previously announced wealth reset would reduce earnings by $377 million in the second half. The ASX announcement said that of the $341 million impact on cash earnings, 72% related to customer payments (including interest) while the rest related to costs associated with running the remediation programs. It said the majority of new provisions related to ongoing advice service fees and changes in how the time value of money was calculated including extending the forecast timing over which payments were likely to be made. “The current estimated provision associated with authorised representatives now represents 32% of the ongoing advice fees collected over the period,” the announcement said. “For salaried planners the estimated per centage is 26%.”

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12 | Money Management November 7, 2019

News

AFA accuses FASEA of going beyond its remit on code BY MIKE TAYLOR

THE Association of Financial Advisers (AFA) has accused the Financial Adviser Standards and Ethics Authority (FASEA) of utilising its code of ethics approach in a manner “tantamount to FASEA creating its own laws, way above the current laws”. Responding to FASEA’s release of guidance around its code of ethics, the AFA said the exercise had served to increase industry concerns and urged changes and clarifications. The AFA specifically referred to FASEA’s announcement that: “The making of the code and changes to education and training standards, reflect community expectations that the provision of professional advice be centred on serving the best interests of the client free from any conflict”. In a communication to members signed by chief executive, Phil Kewin, the AFA said the statement was

“tantamount to FASEA creating its own laws, way above the current law”. “We do not understand how it is possible, when the Corporations Act only requires conflicts to be managed, and the law specifically permits life insurance commissions and other conflicted arrangements, that FASEA could issue a code that is binding on all financial advisers that appears to completely ban conflicts of interest. “Any expectation to totally remove conflicts of interest is simply impractical. FASEA clearly do not understand the extent of conflicts in financial services, the impact that their removal would have, or appreciate how conflicts are managed to ensure that advice is provided that is in the best interest of the

client. Conflicts exist in many different ways and not just with respect to remuneration.” The AFA said that as 1 January drew closer, it would be consulting with FASEA to advocate for change, including: • Seeking a blanket statement that the receipt of a commission for the provision of advice on life insurance is acceptable; • Clarification and greater flexibility with respect to referral arrangements; and • Clarification regarding the need to obtain consent from existing clients as soon as practicable, in order to continue to receive remuneration.

FSC’s Loane calls for implementation of ‘default once’ system for superannnution BY CHRIS DASTOOR

FINANCIAL Services Council (FSC) chief executive, Sally Loane, has reinforced the need for important policy reforms, particularly the introduction of a ‘default once’ system for superannuation. Speaking at the launch of the Melbourne Mercer Global Pension Index at the FSC, she said there needed to be greater focus on the implementation of outstanding reforms to superannuation and retirement systems. “We know Australia’s world class superannuation system is being held back by outdated policy settings that create inefficiencies and erode retirement savings,” Loane said.

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“We continue to urge the Government, and Parliament, to implement the recommendations of both the Royal Commission and Productivity Commission to reform default superannuation by introducing a ‘default once’ system.” This system would create a single default account for superannuation members, like a bank account or tax file number, which would allow a simpler transition process when moving jobs. “Decoupling superannuation from the industrial relations system is an essential reform to deliver a superannuation system that is fit for purpose in a changing economy and increasingly flexible work patterns, where the numbers of people with more than job is rising,” Loane said.

Three years jail for illegal SMSF operation BY JASSMYN GOH

KENT Nguyen has been sentenced to three years in jail after pleading guilty to orchestrating an illegal early release of a superannuation scheme. In an announcement, the Australian Taxation Office (ATO) said the 51-year-old man was found to have unlawfully created, operated, and benefitted from a fraudulent self-managed superannuation fund (SMSF) named Tot Form Super Fund. It said the fund did not comply with the relevant protocol, procedures and requirements of super legislation to make it a legal SMSF. He was found to have arranged the unlawful early release of super funds for 25 people in the community between 2007 and 2009. “Many of the people were in financial trouble and were approached by friends who told them ‘they knew someone’ who could help,” the ATO said. The 25 people had super held within a retail super fund and were rolled to Tot Form Super Fund, with the total amount of funds unlawfully withdrawn exceeding $700,000. Nguyen retained a significant portion of this amount and told his clients that the money had been paid to the ATO as tax. ATO assistant commissioner, Ian Read, said: “While the majority of SMSFs do the right thing, this case serves as a reminder that there are severe penalties for those who attempt to cheat the system. Taking your super out from any super fund early without meeting a condition of release, or encouraging others to do so, is illegal. “This case is also an important reminder for people to be aware of their super affairs, and their obligations. There are some very limited circumstances where you may be able to withdraw your super early, but generally you can only withdraw your super when you reach preservation age and stop working. “Illegally accessing super early will cost people a lot more than the super they access and may get them into trouble as there are serious consequences for withdrawing super before they are legally entitled to do so. These consequences could include declaring the accessed amount as income in their income tax return, administrative penalties and disqualification from being a trustee.”

30/10/2019 1:09:59 PM

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14 | Money Management November 7, 2019

News

Class looks beyond SMSF market BY MIKE TAYLOR

PUBLICLY-LISTED cloud-based selfmanaged superannuation fund (SMSF) administration company, Class, will undertake a 33% increase in spend to move its product offerings beyond SMSFs under its so-called Reimagination Strategy. Class chief executive, Andrew Russell, flagged the increased spend at the same time as noting account growth on Class Super had slowed while the cost of acquiring new business was rising. He also noted that the company’s Class Portfolio product had not performed to expectations and was not addressing customers’ pain points successfully enough with the current features, particularly with respect to investment reporting. “Furthermore, we have not invested

enough in the product development and engaged our customers to the extent of delivering a winning product proposition,” Russell said. As a result, he said, the company intended to improve and evolve the portfolio product and launch a new product this year focused on the trust account space. “We believe the trust market opportunity is similar or bigger than the SMSF marketplace,” Russell said. Dealing with the so-called Reimagination Strategy, the CEO said the company needed to increase its market opportunity through new products and new markets. “We need to look for strategic acquisitions or partnering opportunities to get us there faster,” he said. “And for us to be able to execute, we need to invest to improve.”

SMSF members reaching aspirational retirement lifestyles BY JASSMYN GOH

AROUND 40% of self-managed superannuation fund (SMSF) couples and 46% of SMSF singles are on track to afford an aspirational retirement lifestyle, according to Accurium. Pointing to Association of Superannuation Funds of Australia (ASFA) figures that suggest a 65-yearold couple needed to spend $100,000 per annum and $70,000 for singles to achieve an aspirational retirement lifestyle, and $61,522 per annum for couples and $43,601 for singles to achieve a comfortable lifestyle, Accurium said SMSF member figures were well above the comfortable standards. Accurium general manager, Doug McBirnie, said: “However, our previous research has shown that many SMSF trustees are hoping to achieve more affluent lifestyles in retirement, with around a quarter of couples planning on spending over $100,000 per annum in retirement. “Based on this aspiration, we estimate couples will need around $2 million in savings at the point of retirement. The good news is that 40% of 65-year-old SMSF couples and 46% of singles have saved enough to be confident of achieving an aspirational lifestyle. “This demonstrates that people who take control of their superannuation with an SMSF are well placed to enjoy a higher standard of living in retirement.”

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Financial planners are over-burdened and over-regulated: FPA IT has become almost an unworkable proposition to provide advice to consumers over the past 10 years because of the plethora of regulation imposed on financial planners, according to the Financial Planning Association (FPA). What is more, the FPA wants the Government to address the situation via a review by the Productivity Commission, the Australian Law Reform Commission or as part of the Royal Commission’s recommendation 2.3 for a review of measures to improve the quality of advice. In a submission filed with the Federal Treasury dealing with the role of the Tax Practitioners Board, the FPA has claimed that financial planners must comply with four laws which are regulated by seven different regulators and which are subject to complaints handling and disciplinary interpretations by three different bodies. It said that, as well, planners are also subject to authorisation, supervision and monitoring by a licensee. “While in theory there is logic for these different bodies of law and regulation, it has become an almost unworkable proposition to provide advice to consumers over the last 10 years due to a lack of

consultation and discussion between these different bodies,” it said. “Professional associations – whose primary focus is development of professional community for the good of the community who they serve, have been left frustrated by the lack of discussion and consultation between these bodies – which has left in some instances crippling regulatory cost and burden.” “As stated, the lack of consultation and agreement between all of these entities on a set of minimum standards under which the profession of financial advice is able to operate under, the outcome has been a significant amount of duplication and additional cost created by this unworkable regulatory environment,” the FPA said. “What is worse, when a consumer has a complaint, there are 10 different entry points (although 14 when you consider the number of regulators) at which a consumer can take their complaint up at. To this point – at some points there are multiple bodies and regulators. Further, if a financial planner has made a mistake, sanctions may be imposed by all seven regulators, three investigative bodies and their licensee for a single error (plus professional associations if applicable).”

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16 | Money Management November 7, 2019

News

AMP advisers hit by CPD problems BY MIKE TAYLOR

AMP Limited has hit another advice road bump, confirming that it has had to revert to its old platform for handling financial adviser continuing professional development (CPD). The company has confirmed to Money Management that it has delayed the roll-out of its new CPD/learning management system and reverted to its old platform known to advisers as *L@AMP. The new platform had been aimed at adviser’s CPD obligations were calculated appropriately against the new standards imposed under the Financial Adviser Standards and Ethics Authority (FASEA) regime. Money Management understands that the pre-existing portal was taken down from service on 30 August to allow a transfer to the new platform but that the it had become beset by problems and delays.

BY CHRIS DASTOOR

A number of AMP advisers told Money Management they had been concerned that the problems would hamper them in meeting their CPD obligations to FASEA. They acknowledged that, while ultimately, it was the responsibility of the adviser to keep accurate

records there had been reliance on AMP with respect to AMP-based webinars, professional development days and other training. AMP is now expected to continue with its reliance on the old platform and move gradually to bring the new regime on line.

ASIC moves result in robo-advice tools shut down A robo-advice provider has shut down two digital advice tools following concerns raised by the Australian Securities and Investments Commission (ASIC). The regulator said that Sydney-based Lime FS Pty Ltd had voluntarily shut down the advice tools. Lime FS corporate authorised representatives, Plenty Wealth Pty Ltd and Lime Wealth, are digital advice providers authorised to provide personal financial advice to consumers. ASIC said Plenty Wealth provided advice via an online tool about budgeting analysis, life insurance reviews, tax, investment and superannuation recommendations. Lime Wealth provided advice via an online tool about the establishment of self-managed super funds (SMSFs), purchasing property with superannuation, commencing and ceasing pensions, and contributions into superannuation. “After reviewing a sample of advice files from Plenty Wealth and Lime Wealth, ASIC raised concerns with Lime FS about the quality of advice being generated by the online tools and Lime FS’

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FASEA releases code of ethics guidance THE Financial Advisers Standards and Ethics Authority (FASEA) has released its code of ethics guidance, FG002 Code of Ethics Guidance, to help assist understanding and interpretation of the guide. The guide included case study examples to help understanding the code, as all of the formal obligations lie in the code’s language. FASEA was also planning on hosting a series of consultation briefing sessions with educational, professional, consumer and industry stakeholders. The code was designed to encourage higher standards of behaviour and professionalism in the financial advice industry. The established ethical duties created by the code would go beyond the minimum requirements of existing law, and as a legislative instrument had the force of the law. The code, including its five values and 12 standards for financial advisers, would come into effect on 1 January, 2020.

ability to monitor the advice,” the regulator said. “ASIC was concerned that the level of inquires made by the online tools about client objectives, financial situation and needs, were inadequate. In some instances, the recommendations generated by the tools were in conflict with client goals or with other recommendations also generated by the tools.” It said Lime FS decided to close down both online tools for the foreseeable future as a result of ASIC’s concerns. Plenty Plus and Plenty Wealth later issued a statement in which they said that despite dialogue with ASIC, they had formed the view that it was overly challenging to provide holistic digital advice within the constraints of the existing regulatory framework. “Unfortunately, the further steps we would need to take (over and above the extensive steps we have already taken both proactively and responsively) would not be commercially viable for us at this point in time. Given the above, that the Plenty Wealth and Plenty Plus businesses will cease providing advice,” the statement said.

29/10/2019 5:13:59 PM

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18 | Money Management November 7, 2019

News

Second class action against CFS BY JASSMYN GOH

SLATER and Gordon has announced it has filed a class action against Colonial First State (CFS) on behalf of 500,000 Australians, joining Maurice Blackburn who did the same. The class action related to members of FirstChoice Super fund that alleged that since 2013 CFS failed to act in the best interests of its members and acted unconscionably by charging them higher fees for ongoing commissions to financial advisers who were not required to provide any ongoing services to members. The announcement said CFS paid advisers or licensees over $400 million in commissions that were funded by charging higher fees to superannuation members. Slater and Gordon special counsel, Nathan Rapoport, said ever since the government banned commissions to advisers for new members in 2013 CFS continued to do so with respect to existing members under grandfathering.

“The Hayne Report found there was no justification for continuing to pay commissions to financial advisers. We agree,” he said. “Paying these commissions – and as a result charging members higher fees – ripped hundreds of millions of dollars out of members’ retirement savings to profit the financial advisers or the licensees they worked for who were not required to provide any services in exchange. “We allege that Colonial should have stopped paying the commissions for all its members and reduced their fees accordingly, as it properly did for new members… We believe Colonial’s conduct was in breach of the law and it should be held to account and required to compensate its members.” Rapoport noted CFS had the power to transfer existing FirstChoice Super members into identical products with lower fees and where commissions were not paid. “Rather than use this power for the benefit of its members, Colonial kept them in the more expensive products, preying on their

Former Brisbane financial adviser sentenced for 12 years BY CHRIS DASTOOR

FORMER financial adviser Ben Jayaweera has been found guilty of six charges of dishonestly causing detriment to clients, involving approximately $5.9 million and had been sentenced to 12 years after a three-week trial. The Australian Securities and Investments Commission (ASIC) alleged the Mount Gravatt East, Queensland, adviser induced various investors to transfer funds through his company Growth Plus Financial Group, now in liquidation. This included funds from clients selfmanaged superannuation fund (SMSF), for investment into an unregistered managed investment scheme, known as the Australian Diversified Sector Income Fund (ADSIF). ASIC also alleged Jayaweera invested some clients’ superannuation funds into ADSIF without their knowledge or permission. Jayaweera claimed ADSIF was a diversified fund investing in cash, property, shares, aquaculture and

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agriculture when the only investment was a single project – an abalone farm in South Australia operated under his control. Danielle Press, ASIC commissioner, said the majority of Jayaweera’s clients were near or at retirement age and suffered significant financial harm due to his actions. “Financial advisers are entrusted with other people’s money. ASIC takes breaches of trust very seriously,” Press said. The jury found Jayaweera guilty of each of the six counts of dishonestly causing a detriment to various clients who invested approximately $5.9 million, which were directed to company bank accounts to make payments to the abalone farm and other third parties. The abalone farm had been wound up by receivers and the liquidators of Growth Plus and there would be no returns available for ADSIF investors from Growth Plus. The matter was prosecuted by the Commonwealth Director of Public Prosecutors after referral from ASIC.

passivity so it could continue to charge them higher fees to fund the commissions,” he said. The class action is being funded by litigation funder, Augusta Ventures.

Elkins named in CFS class action filing BY MIKE TAYLOR

LINDA Elkins may have left Colonial First State and become a partner at KPMG but that has not stopped her being drawn into a class action mounted by plaintiff law firm, Maurice Blackburn. The Commonwealth Bank acknowledged to the Australian Securities Exchange that the class action proceedings had been filed by Maurice Blackburn in the Federal Court against Colonial First State Investments Limited (CFSIL) and a former executive director of CFSIL. It said the class action related to the transfer of certain default balances held by members of FirstChoice Employer Super to a MySuper product. The bank said that both it and CFSIL were reviewing the claim and would provide any update as required. Elkins was the executive director of CFSIL until earlier this year when she announced her move to KPMG. Maurice Blackburn flagged the filing of the class action and is alleging breaches of super trustee duties leading substantial losses by members of the fund.

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28/10/2019 2:37:24 PMam 16/10/2019 10:55:03 AM 16/10/19 9:44

20 | Money Management November 7, 2019

InFocus

ADVISERS NEED LESS CONVERSATION, MORE ACTION ON BOLR A financial adviser class action against AMP Limited may not be in the best interests of all advisers, writes lawyer, Dan Mackay.

Advisers who gave notice under BOLR prior to the announcement by AMP of purported changes to its terms 8 August, 2019 (pre-8/8 advisers)

Advisers who gave notice under BOLR after AMP’s announcement of purported changes to its terms 8 August, 2019

We are concerned that where individual advisers have not sought and received legal advice which will afford them a strategy suited to their specific situation, there is a strong possibility of a poor outcome for them. AMP advisers need not fear persecution by anyone by separating themselves from the pack and obtaining their own advice. Having been the providers of advice for many years, I would now encourage AMP advisers to get their own advice, and not rely upon second or third-hand rumour, or ‘big’ generalised commentary from people whose motivations are unclear. In the past, how well would your clients have fared if they had sat back and followed the pack and made their decisions based on vague and unreliable public or general information, rather than obtaining your customised professional guidance. We think it is more sensible that advisers approach the BOLR issue by keeping in mind which category they belong to and what their individual needs are.

Advisers who have not given notice under BOLR to AMP, who will not be terminated and continue to operate their business

REAL ISSUES FACE PRE-8/8 ADVISERS NOW

Advisers who have received a termination letter

EVIDENTLY TALK IS cheap. Since AMP announced its potentially devastating purported changes to buyer of last resort (BOLR) on 8 August, 2019, talk is pretty much all there has been. Talk of litigation, talk of class actions and lots of big talk from industry ‘heads’. Lots of talk, but no action. The problem is, many advisers need to act now. Advisers are facing very serious and ‘impactful’ issues and there are critical decisions they need to make. Big talk is not helping advisers navigate the issues – and waiting is not a good option. AMP advisers are not a homogenous group In our view, AMP advisers broadly fall into one of the following four categories: Category

Situation

The purported BOLR changes have affected advisers differently depending upon what steps they have taken so far. Advisers in each of those categories face some common problems but many also face different legal and distinct practical issues.

THERE’S NOT ALWAYS SAFETY IN NUMBERS ‘Safety in numbers’ is, of course, a well-worn saying. However, we do not believe it applies in the case of BOLR. Advisers are facing individual issues now. These can’t be resolved by being part of a single group and waiting. Further, advisers have individual legal issues, and some categories have different (and we think stronger) legal claims against AMP. If there was a class action, which included all AMP advisers, we believe this could be problematic for quite a number of reasons. In the battle to come, we don’t think individuals are ‘safer’ simply because there are a large number of them heading in one direction. In fact, grouping together and being ‘in the pack’ might prove to be counterproductive, even dangerous.

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Many of the pre-8/8 advisers I have spoken to, and those who I act for, have deadlines under the BOLR process right now. A key deadline is the exercise date. For some advisers, their exercise date has passed without any formal exercise by AMP of its right to a six-week extension. Moreover, some of those advisers are yet to receive valuations (or even be told when a valuation is likely to be forthcoming). Moreover, in some instances, BOLR audits are incomplete, responses to BOLR audits have not been received and/or ‘look back audit’ processes are seemingly hanging over the heads of advisers like the Sword of Damocles. Some advisers are facing the difficult decision of whether to close the doors of their business on their exercise date (or after the six-week extension) prior to having their audit and valuation issues resolved and without any clear proposed outcome being articulated by AMP. What may well be one of the worst outcomes of this debacle is some advisers have told me they don’t believe they can communicate openly to their clients about the situation given all the uncertainty. Seemingly this is unimportant as, according to a recent media article, AMP now takes the view

that the average Aussie need not be paying ongoing advice fees anyway.

IN A VACUUM Despite all the talk, advisers are grappling with these issues in a vacuum. Not only is there a lack of responsiveness from AMP on a ‘case-by-case’ but also there is little useful or practical advice being made available by almost anyone. In fact, we have heard of examples of what can only be termed misinformation being circulated in relation to potential class actions (which can by definition only consider the circumstances of the lead claimant) encouraging advisers not to seek independent advice to deal with immediate practical issues. We don’t know what the motivation or agendas of the people circulating such information really is, but one thing is for certain, they are not helping advisers with the problems they face today.

IGNORE THE CHEAP TALK, TAKE CONTROL Clearly, advisers facing these circumstances need to take control and act now, for their own wellbeing, including their health. The key thing these advisers need to understand is that acting in response to their individual situation now, need not be at the expense of maintaining their broader rights, including potential rights to compensation or damages and/or proper performance of their contract with AMP. Further, responding in a properly informed and strategic way to the practical issues you face now, doesn’t necessarily mean that you can’t be part of a larger action or a class action if that is something that you want to do. If someone is telling you this, then ask them to explain very clearly on what basis and whose advice they are telling you this (and ask what their real motivation or agenda is). Advisers need to get ‘cut-through’ with AMP now. The only way to do this is to step away from the pack and deal with AMP one-on-one at a practical level and the only way to do that is from an informed position and individual strategy.

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Investment Centre a part of

VERDICT: PASS FACT CHECK: Investment MIRAE ASSET ASIA Centre GREAT CONSUMER EQUITY a part of

The Mirae Asset Asia Great Consumer Equity fund has returned to form after a difficult 2018 by taking an alternative view to its MSCI benchmark, writes Laura Dew. LAUNCHED IN DECEMBER 2016, this fund tracks the MSCI ACWI Asia ex Japan sector and looks for a concentrated portfolio of 30-40 stocks based on high conviction ideas. Mirae said the fund was particularly focused on those stocks which could benefit from the increase in consumption by the Asian population. In its product disclosure statement (PDS), the firm said: “Asia is currently undergoing rapid levels of industrialisation and urbanisation as well as income growth, wealth accumulation, population growth and favourable demographics, which is leading to the emergence of a new consumer class, whose greater disposable income and purchasing power is leading to a dramatic increase in consumption activities across the region”. When the fund is compared to the benchmark, one can see its

allocations take a different skew to other rival Asia-Pacific funds. Mirae acknowledged the fund took an off-benchmark approach, which it added could mean the fund underperformed its relative benchmark. “When researching a company, whether a company maintains or gains sustainable competitiveness and sustainable earnings growth are key to the fund’s buy and sell discipline. The benchmark has little impact on the investments of the fund as the investment manager seeks out the best companies in the best-performing sectors.” According to its latest factsheet to 31 August, 2019, the fund has 55% of its assets invested in China and 28.5% invested in India. Both of these are significant overweights to its benchmark which has only 38% and 10% in the two respective countries. Unsurprisingly, the fund’s top

Chart 1: Performance of Mirae Asset Asia Great Consumer Equity versus ACS Equity-Asia Paciﬁc ex Japan and MSCI AC Asia ex Japan over three years to 30 September, 2019.

10 holdings are all held in these two countries with six coming from China and four from India. The top weighting is Alibaba at 6.7%, which has grown from being a technology e-commerce site to sit in the consumer discretionary space with over US $352 billion ($513.9 billion) market cap. As a result of this large allocation to two major countries, the fund is underweight smaller countries such as Hong Kong and doesn’t have any allocation towards Korea, Malaysia, Pakistan, Singapore and Taiwan. Looking at sectors, the fund’s largest weighting to consumer discretionary and consumer staples, both over 30%. It also holds 18% in financials, although this is less than the 23% held by the benchmark. The weighting to consumer staples is more than five times the sector’s benchmark weighting. Surprisingly for an Asia fund, it has a zero weighting to technology companies, which is a large constituent of the index at 17% thanks to companies such as Taiwan Semiconductor, Samsung and Tencent.

PERFORMANCE

Source: FE Analytics

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The fund aims to achieve longterm capital growth by investing mainly in equities of Asian companies which are expected to benefit from growing consumption activities in the Asian region. However, investors needed to be aware that the uncertain nature of emerging markets combined with the high

LAURA DEW

concentration of the portfolio meant it was riskier and could be more volatile than other funds and had a suggested time horizon of five to seven years. “There is a risk associated with investing in securities issued by companies domiciled in countries with less developed political, economic and financial systems. Some countries in the Asia region may prohibit or impose substantial restrictions on investment by foreign investors. Additionally, the share price and currency volatility are generally higher in emerging markets than developed markets, and may be subject to greater fluctuation,” the PDS said. Over one year to 30 September, 2019 it returned 30.3% and over three years, it returned 70.8%, according to FE Analytics. This is compared to benchmark returns of 3.7% and 40.7% respectively and returns by the ACS Equity – Asia Pacific ex Japan sector of 9.5% and 43.3%. This was a positive for the fund as it had underperformed in the 12 months to 30 September, 2018 with returns of 2.25%, far below the average sector returns of 9.7%. It peaked during June 2018 and then fell gradually until it bottomed out in October, 2019, reporting a loss of 25% over the period. However, it has since regained this and, from April 2019, has been significantly outperforming the sector.

29/10/2019 3:15:12 PM

Investment Centre a part of

ACS CASH - AUSTRALIAN DOLLAR

ACS EQUITY - AUSTRALIA EQUITY INCOME

Fund name

Macquarie Australian Diversified Income ATR in AU

0.17

3.01

3.02

Macquarie Diversified Treasury AA ATR in AU

0.17

3.01

Mutual Cash Term Deposits and Bank Bills B ATR in AU

0.14

Mutual Cash Term Deposits and Bank Bills A ATR in AU

Fund name

UBS IQ Morningstar Australia Dividend Yield ETF ATR in AU

1.1

16.2

10.36

114

2.96

Armytage Australian Equity Income ATR in AU

1.93

7.38

9.52

109

2.14

2.19

Nikko AM Australian Share Income ATR in AU

4.46

8.01

9.51

109

0.13

2.12

2.17

Plato Australian Shares Income A ATR in AU

1.27

8.72

9.24

101

Pendal Stable Cash Plus ATR in AU

0.12

2.16

Legg Mason Martin Currie Equity Income X ATR in AU

2.41

12.96

8.97

100

Australian Ethical Income Wholesale ATR in AU

-0.72 10.58

8.59

0.08

2.07

2.09

Lincoln Australian Income Wholesale ATR in AU

Macquarie Treasury ATR in AU

0.11

2.25

2.02

Legg Mason Martin Currie Equity Income A ATR in AU

2.33

12.08

8.3

100

Mercer Cash Term Deposit Units ATR in AU

0.13

1.97

1.99

Nikko AM Australian Share Concentrated LT ATR in AU

5.1

6.38

8.09

112

CFS Colonial First State Wholesale Strategic Cash ATR in AU

0.08

1.84

1.94

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

2.21

12.5

7.93

100

IOOF Cash Management Trust ATR in AU

0.07

Lincoln Australian Income Retail ATR in AU

-0.79

7.84

1.81

Crown Rating

1.92

Risk Score

Crown Rating

Risk Score

ACS EQUITY - AUSTRALIA SMALL/MID CAP

ACS EQUITY - ASIA PACIFIC EX JAPAN Fund name

Crown Rating

Risk Score

Fidelity Asia ATR in AU

2.66

14.89

16.3

124

Schroder Asia Pacific Wholesale ATR in AU

1.41

7.05

14.46

126

SGH Tiger ATR in AU

7.16

19.87

13.7

127

CI Cooper Investors Asian Equities ATR in AU

0.1

13.71

13.49

100

Premium Asia ATR in AU

1.16

10.23

13.02

132

T. Rowe Price Asia Ex Japan ATR in AU

2.93

13.06

12.46

121

Fund name

Crown Rating

Risk Score

Macquarie Small Companies ATR in AU

-0.36

6.69

15.77

124

OC Micro-Cap ATR in AU

5.19

15.98

15.15

107

Macquarie Australian Small Companies ATR in AU

-0.67

6.35

15.13

123

Ophir Opportunities Ordinary ATR in AU

3.59

16.3

14.89

143

SGH Emerging Companies Professional Investors ATR in AU

6.41

28.95

14.7

124

Australian Ethical Emerging Companies Wholesale ATR in AU

3.3

24.75

14.54

Fidelity Future Leaders ATR in AU

-2.56 11.16

14.3

117

3.25

24.23

13.69

Maple-Brown Abbott Asia Pacific Trust ATR in AU

2.02

-0.21

12.12

112

Aberdeen Standard Asian Opportunities ATR in AU

Australian Ethical Emerging Companies ATR in AU

1.63

11.16

10.86

104

Perennial Value Smaller Companies Trust ATR in AU

4.56

5.6

13.69

112

CFS FirstChoice Wholesale Asian Share ATR in AU

1.84

3.08

10.64

112

Allan Gray Australia Equity A ATR in AU

3.16

9.5

13.66

112

CFS Asian Growth A ATR in AU

0.46

11.09

10.55

ACS EQUITY - EMERGING MARKETS ACS EQUITY - AUSTRALIA Fund name

Crown Rating

Risk Score

DDH Selector Australian Equities ATR in AU

1.98

17.03

15.95

137

Macquarie Australian Shares ATR in AU

1.08

11.36

14.85

Alphinity Sustainable Share ATR in AU

1.65

12.47

Solaris High Alpha Australian Equity Inst ATR in AU

1.66

Alphinity Sustainable Share B ATR in AU

Fund name

Crown Rating

Risk Score

Fidelity Global Emerging Markets ATR in AU

-0.29 17.58

15.3

100

JPMorgan Emerging Markets Opportunities ATR in AU

1.85

9.73

14.57

111

14.2

102

Legg Mason Martin Currie Emerging Markets ATR in AU

10.2

14.06

10.91

13.75

106

MFS Emerging Markets Equity Trust ATR in AU

1.55

4.57

12.16

106

1.61

12.3

13.57

102

Schroder Global Emerging Markets Wholesale ATR in AU

1.52

6.67

12.04

108

Macquarie Wholesale Australian Equities ATR in AU

1.23

4.89

11.86

105

1.13

10.92

13.55

101

OnePath Wholesale Global Emerging Markets Share ATR in AU

Bennelong Australian Equities ATR in AU

0.14

13.04

11.49

2.23

9.33

13.52

106

CFS Wholesale Global Emerging Markets Sustainability ATR in AU

Solaris Core Australian Equity I ATR in AU

1.37

11.9

13.51

102

Northcape Capital Global Emerging Markets ATR in AU

1.2

9.08

11.4

Greencape Broadcap P ATR in AU

4.12

11.36

13.51

CFS Realindex Emerging Markets A ATR in AU

2.81

2.86

11.34

108

Pendal Focus Australian Share ATR in AU

1.53

9.11

13.51

102

Robeco Emerging Conservative Equity ATR in AU

1.54

6.56

10.56

19MM0711_23-43.indd 24

30/10/2019 4:21:28 PM

Investment Centre a part of

ACS EQUITY - GLOBAL

ACS EQUITY - SPECIALIST

Fund name

Hyperion Global Growth Companies B ATR in AU

-1.91

11.33

22.32

Zurich Investments Concentrated Global Growth ATR in AU

-1.4

21.8

CFS Generation WS Global Share ATR in AU

2.09

PM Capital Long Term Investment ATR in AU CFS FirstChoice Acadian Wholesale Geared Global Equity ATR in AU

Crown Rating

Risk Score

Fund name

Crown Rating

Risk Score

121

BT Technology Retail ATR in AU

-2.1

7.23

23.3

153

21.6

126

CFS Wholesale Global Technology & Communications ATR in AU

-0.71 12.88

19.77

145

14.86

20.06

116

Fiducian Technology ATR in AU

-2.08

4.96

17.21

162

0.52

8.62

13.37

109

4.36

2.91

19.44

140

Platinum International Technology C ATR in AU

0.43

2.59

12.57

122

2.7

-6.96

19.3

241

Platinum International Brands C ATR in AU

-1.61

1.83

19.18

132

CFS Wholesale Global Health & Biotechnology ATR in AU

-1.05

0.93

12.43

142

CC Marsico Global Institutional ATR in AU Zurich Investments Unhedged Global Growth Share Scheme ATR in AU

17.18

18.96

114

3.3

5.08

12.42

115

0.07

Barwon Global Listed Private Equity ATR in AU

Zurich Investments Global Growth Share Scheme ATR in AU

-1.37

-3.81

11.09

123

0.06

17.05

18.89

113

Platinum International Health Care C ATR in AU

CC Marsico Global B ATR in AU

-1.59

2.1

18.78

132

CFS Colonial First State Australian Share Growth ATR in AU

1.48

10.03

10.63

105

AMP Capital Global Growth Opportunities ATR in AU

-0.39

16.15

18.26

113

BlackRock Concentrated Industrial Share D ATR in AU

0.03

-3.71

8.94

127

ACS EQUITY - GLOBAL SMALL/MID CAP Fund name

Crown Rating

Risk Score

Bell Global Emerging Companies ATR in AU

2.03

12.6

15.67

100

Yarra Global Small Companies ATR in AU

1.31

3.2

13.94

114

Mercer Global Small Companies Shares ATR in AU

2.25

0.23

11.84

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

1.32

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

1.31

-0.79

11.53

Dimensional Global Small Company Trust ATR in AU

2.46

-0.68

Ellerston Global Mid Small Unhedged ATR in AU

1.74

Lazard Global Small Caps I ATR in AU

ACS FIXED INT - AUSTRALIA / GLOBAL Fund name

Crown Rating

Risk Score

IOOF MultiMix Diversified Fixed Interest ATR in AU

-0.19

8.44

4.37

117

CFS FirstChoice Wholesale Fixed Interest ATR in AU

-0.32 10.66

4.22

104

PIMCO Diversified Fixed Interest ATR in AU

-0.5

9.25

4.14

PIMCO Diversified Fixed Interest Wholesale ATR in AU

-0.5

9.18

4.09

104

UBS Diversified Fixed Income Fund ATR in AU

-0.57

8.87

4.01

11.2

119

BT Wholesale Multi-manager Fixed Interest ATR in AU

-0.45

9.83

7.3

11.07

115

Onepath Wholesale Diversified Fixed Interest Trust ATR in AU

-0.46

8.67

3.99

4.19

0.51

10.61

115

-0.56 10.29

3.87

Pengana Global Small Companies ATR in AU

1.87

1.34

9.81

CFS Colonial First State Wholesale Diversified Fixed Interest ATR in AU

Supervised The Supervised ATR in AU

-0.45

8.96

3.85

5.97

8.69

9.54

102

AMP Experts' Choice Diversified Interest Income ATR in AU AMP Capital Specialist Diversified Fixed Income A ATR in AU

-0.44

8.94

3.83

-0.64

11.71

ACS EQUITY - INFRASTRUCTURE Fund name

Crown Rating

Risk Score

Macquarie Global Infrastructure Trust II A ATR in AU

16.45

21.97

179

Macquarie Global Infrastructure Trust II B ATR in AU

16.34

21.93

176

ACS FIXED INT - AUSTRALIAN BOND Fund name

Crown Rating

Risk Score

Elstree Enhanced Income ATR in AU

0.24

6.38

7.34

DDH Preferred Income ATR in AU

0.09

4.8

5.8

Legg Mason Western Asset Australian Bond X ATR in AU

-0.45 11.54

5.23

BlackRock Enhanced Australian Bond ATR in AU

-0.45 11.35

4.91

Mercer Australian Sovereign Bond ATR in AU

-0.74 13.15

4.87

BlackRock Global Listed Infrastructure ATR in AU

1.35

28.87

16.86

4D Global Infrastructure A ATR in AU

2.22

25.73

14.85

Magellan Infrastructure Unhedged ATR in AU

0.85

25.33

14.35

Macquarie True Index Global Infrastructure Securities ATR in AU

1.47

25.63

14.26

QIC Australian Fixed Interest ATR in AU

-0.52 11.15

4.85

ClearView CFML Colonial Infrastructure ATR in AU

1.73

26.75

13.97

-0.39 11.39

4.83

Lazard Global Listed Infrastructure ATR in AU

Macquarie Core Australian Fixed Interest ATR in AU

2.48

14.98

13.95

-0.47 11.13

4.8

AMP Capital Global Infrastructure Securities Unhedged Wholesale ATR in AU

Legg Mason Western Asset Australian Bond A ATR in AU

3.51

28.73

13.74

Macquarie True Index Sovereign Bond ATR in AU

-0.67

12.94

4.76

AMP Capital Global Infrastructure Securities Unhedged R ATR in AU

3.49

28.4

13.48

Schroder Fixed Income Standard ATR in AU

-0.63

11.16

4.76

19MM0711_23-43.indd 25

30/10/2019 5:04:09 PM

Investment Centre a part of

ACS FIXED INT - INFLATION LINKED BOND

ACS FIXED INT - DIVERSIFIED CREDIT

Fund name

Ardea Real Outcome ATR in AU

0.29

9.33

5.92

Ardea Australian Inflation Linked Bond I ATR in AU

0.05

12.5

5.45

6.75

Ardea Australian Inflation Linked Bond ATR in AU

0.05

12.34

5.26

6.56

6.5

Macquarie Inflation Linked Bond ATR in AU

0.09

11.33

4.43

0.34

6.49

6.47

-1.12

10.46

4.14

Macquarie Core Plus Australian Fixed Interest ATR in AU

PIMCO Global RealReturn Wholesale ATR in AU

-0.48

14.47

5.61

Mercer Australian Inflation Plus ATR in AU

0.22

6.06

3.86

CFS Wholesale Global Credit ATR in AU

-0.03

7.98

5.15

-0.36

6.68

3.07

Bentham Global Income ATR in AU

0.3

-0.2

5.12

Morningstar Global Inflation Linked Securities Hedged Z ATR in AU

Firstmac High Livez Wholesale ATR in AU

0.3

5.28

5.04

Aberdeen Standard Inflation Linked Bond ATR in AU

0.23

5.5

2.9

Bentham Syndicated Loan ATR in AU

0.39

0.97

4.91

QIC GFI Inflation Plus ATR in AU

0.23

-0.65

1.68

Fund name

Premium Asia Income ATR in AU

0.27

12.18

8.25

DirectMoney Personal Loan ATR in AU

0.56

8.09

7.69

Pimco Capital Securities Wholesale ATR in AU

0.92

8.47

MANNING PRIVATE DEBT ATR IN AU

0.39

Bentham High Yield ATR in AU

Crown Rating

Risk Score

Crown Rating

Risk Score

ACS PROPERTY - AUSTRALIA LISTED ACS FIXED INT - GLOBAL BOND Crown Rating

Risk Score

Fund name

Crown Rating

Risk Score

Macquarie Property Securities ATR in AU

-3.41

21.32

11.43

141

Macquarie Wholesale Property Securities ATR in AU

-3.4

21.15

11.3

141

UBS Property Securities Fund ATR in AU

-2.87

23.42

11.21

128

Resolution Capital Core Plus Property Securities A PF ATR in AU

-2.8

18.91

125

AMP Capital Listed Property Trusts ATR in AU

-3.13

23.69

10.86

133

AU Property Securities Growth Units ATR in AU

-1.84

18.62

10.79

162

AMP Capital Property Securities ATR in AU

-3.11

23.7

10.77

133

Fund name

GCI DIVERSIFIED INCOME WHOLESALE UNHEDGED USD ATR IN AU

-0.16

13.91

7.69

Challenger Guaranteed Income 400 cents pa 30/09/22 ATR in AU

0.1

8.94

6.03

Mercer Emerging Markets Debt ATR in AU

0.74

16.09

5.84

Mercer Global Sovereign Bond ATR in AU

0.15

12.27

4.96

Pimco Income Wholesale ATR in AU

0.6

6.06

4.8

IPAC SIS International Fixed Interest Strategy No 2 ATR in AU

-0.44

11.32

4.59

Pendal Property Securities ATR in AU

-3.13

21.03

10.54

126

SPW Global Income ATR in AU

0.04

1.82

4.54

Pendal Property Investment ATR in AU

-3.14

20.93

10.53

124

Legg Mason Brandywine Global Fixed Income Trust X ATR in AU

0.55

6.05

4.3

Charter Hall Maxim Property Securities ATR in AU

-1.97

15.2

10.34

Invesco Senior Secured Loans ATR in AU

0.19

1.47

4.09

PIMCO Global Bond ATR in AU

-0.61

8.24

4.05

Fund name

APN Asian REIT ATR in AU

1.66

31.52

Quay Global Real Estate A ATR in AU

0.9

21.78

13.6

Quay Global Real Estate C ATR in AU

0.87

21.99

13.51

Resolution Capital Global Property Securities Unhedged II ATR in AU

1.28

22.26

12.52

102

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

5.16

23.14

12.38

198

Dimensional Global Real Estate Trust Inc AUD ATR in AU

1.21

25.66

11.1

IOOF Specialist Property ATR in AU

1.67

19.52

10.96

BetaShares AMP Capital Global Property Securities Unhedged ATR in AU

1.71

21.82

10.67

Perpetual Private Real Estate Implemented Portfolio ATR in AU

-0.3

18.7

10.29

Premium Asia Property ATR in AU

0.41

11.29

10.2

145

ACS PROPERTY - GLOBAL

ACS FIXED INT - GLOBAL STRATEGIC BOND Fund name

Dimensional Global Bond Trust AUD ATR in AU

-0.68

11.44

4.13

Pimco Dynamic Bond Wholesale ATR in AU

0.22

1.97

3.78

Dimensional Global Bond Trust NZD ATR in AU

-1.37

13.11

3.58

Pimco Dynamic Bond C ATR in AU

0.24

2.08

3.45

MacKay Shields Unconstrained Bond ATR in AU

0.07

2.75

3.17

Crown Rating

Risk Score

JPMorgan Global Strategic Bond ATR in AU

0.05

3.04

2.63

IOOF Strategic Fixed Interest ATR in AU

-0.09

3.65

2.2

T. Rowe Price Dynamic Global Bond ATR in AU

-0.02

-0.58

0.08

Crown Rating

Risk Score

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

19MM0711_23-43.indd 26

30/10/2019 5:03:52 PM

HELPING AUSTRALIAâ&#x20AC;&#x2122;S LEADING ADVISERS BUILD BETTER PORTFOLIOS fe-fundinfo.com enquiries@fefundinfo.com

5265_FE Update MM FP 2.indd 27

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28 | Money Management November 7, 2019

Rate the raters

19MM0711_23-43.indd 28

29/10/2019 1:49:26 PM

November 7, 2019 Money Management | 29

Rate the raters

LONSEC WINS AGAIN Although Lonsec has managed to retain its momentum and attracted the highest ratings from financial planners for the third year in a row, planners say it might be time to break up the oligopoly with new entrants, Oksana Patron writes. THE FINDINGS FROM the second part of Money Management’s 2019 Rate the Raters survey, which aims to measure financial planners’ sentiment towards the major research houses, has shown that Lonsec has managed once again to demonstrate its value as a preferred provider of fund research and ratings among planners. This year, Lonsec received recognition for the quality of its staff, model portfolio capabilities, good value for money as well as for fund and fund company and asset allocation research. Additionally, it has also earned the highest overall rating. Further to that, the planners rated the quality of Lonsec’s consulting services on par with Morningstar and both companies were rewarded with the highest score in this category, meaning Lonsec was the sole winner in six out of 10 categories this year. By comparison, last year the planners voted in favour of Lonsec across eight categories. This year Morningstar overtook Lonsec in the two other categories: client service and website tool and services. What is more, Morningstar also topped the chart for its corporate

19MM0711_23-43.indd 29

strength, pushing Lonsec down to the third spot. The planners and groups which participated in the 2019’s edition of Money Management's ‘Rate the Raters’ were more willing than in prior years to share their views and rate the longestablished researchers such as Lonsec, Zenith and Morningstar.

FUND AND FUND COMPANY RESEARCH Planners once again confirmed the ability to provide immaculate fund and fund company research was the most important criterion when it came to selecting a research house. According to the survey, all respondents participating in the survey agreed that this category was either ‘essential’, ‘very important’ or ‘important’ to them. The interviewees also admitted their key concerns revolved around the accuracy and quality of the said research as well as how well the research houses could demonstrate their understanding of investment managers. Also, planners expressed concerns around the methodology on which research houses based

their decisions with regards to the breadth of their coverage. In particular, they stressed that some raters had a limited universe and no interest in adding new investment managers while others were highly praised for taking a different approach and including somewhat smaller managers into their research. When it came to data, Lonsec technically won this category however it was closely followed by Zenith. Lonsec’s funds research and fund company capabilities were rated as either ‘good’ or ‘excellent’ by almost 63% of respondents. Zenith, on the other hand, was appreciated for its fund research capabilities by 62% of respondents who granted the firm either ‘good’ or ‘excellent’. This means that last year’s winner, Morningstar, has been pushed down to the third place and saw slightly over half of respondents rate its fund and fund company research as above average.

CLIENT SERVICE As far as this category was concerned, Morningstar managed to come out on top of the table, as Continued on page 30

29/10/2019 1:49:36 PM

30 | Money Management November 7, 2019

Rate the raters

Chart 1: Client services

Continued from page 29 more than half of its respondents rewarded the firm with either ‘good’ or ‘excellent’ rating for its client service. As a result of that, last year’s winner, Lonsec, found itself in the third spot with only 42% of planners participating in the survey saying its client service was either ‘excellent’ or ‘good’. By comparison, in 2018 Lonsec scored a combined ‘excellent’ and ‘good’ rating from 53% of participants who rated the firm. Zenith, which landed in second place, saw a somewhat lower score even though 30% of planners, of those who participated in Money Management ’s survey, rated its client service as ‘good’ and a further 16.7% described it as ‘excellent’. This year Lonsec, which landed in third place, was followed by SQM Research which in this category earned ‘good’ and ‘excellent’ ratings from 23.1% and 15.4%, respectively, of those planners who rated the company in the study.

WEBSITE AND TOOLS This category was voted by planners as one of the most important metrics to look at for the research houses. For

19MM0711_23-43.indd 30

planners, the website and tools category was equally important as client service, staff and value for money, with over 95% of interviewees admitting that all the four criteria were either ‘essential, ‘very important’ or ‘important’ factors in their decision-making process regarding the research houses. This year Lonsec, which previously grabbed the gold trophy for three consecutive years across this category, was overtaken by Morningstar. Lonsec still managed to earn one of the top two ratings from 70% of the respondents, however Morningstar was rewarded with the same rating by 74% of planners who voted this year. Following this, Zenith received above average ratings for this category from around 40% while SQM Research and Mercer saw the similar ratings granted by 38.5% and 23.1% of respondents, respectively.

STAFF In this category planners were asked to take into account factors such as the average level of professional experience among employees as well as staff turnover. Historically, this has

29/10/2019 1:49:49 PM

November 7, 2019 Money Management | 31

Rate the raters

Chart 2: Website and tools

been one of the most contentious issues for both financial planners and fund managers who rate the raters due to the high expectations both parties hold with regards to the level of competence of the research houses’ personnel. As far as Lonsec was concerned, some planners expressed views that the company might have struggled a bit with resourcing issues earlier this year, in particular across its consulting division. However, they felt it had managed to address and overcome the majority of them. As a result, Lonsec’s staff were highly appreciated and the company managed to retain its top position from last year as 59% of those who participated in the survey rated its staff as ‘good’ and the further 11% of respondents said that the quality of Lonsec’s staff was ‘excellent’. Zenith came second with 64% of respondents granting the firm a combined rating of ‘good’ or ‘excellent’ for its staff. Morningstar ended up in the third place with less than half of respondents granting the research house with the any of the two highest ratings.

19MM0711_23-43.indd 31

CONSULTING SERVICES After last year saw Lonsec give up its top spot to Zenith, this year saw the arrival of Morningstar which landed on par with Lonsec on the top of the list. According to financial planning groups, consulting services offered by both groups were rated as either ‘good’ or ‘excellent’ by 44% of respondents. At the same time, Zenith, which retained its second spot, saw only 41.7% of planners who rated the firm in the survey grant it either ‘good’ or ‘excellent’ across this category. This also represented a significant decline from the number of respondents who rated Zenith’s consulting services as above average last year (57.7%).

ASSET ALLOCATION RESEARCH This is the category where financial planners are encouraged to focus on the resourcing, valueadd and methodology employed by raters. However, only a half of respondents described this Continued on page 32

29/10/2019 5:05:06 PM

32 | Money Management November 7, 2019

Rate the raters

Chart 3: Corporate Strength

Continued from page 31 category as either ‘essential’ or ‘very important’ criterion for their preferred research house. Although this year there was no surprise and Lonsec continued to deliver its top performance, the proportion of positive responses from planners was slightly lower. Two years ago, Lonsec managed to gather positive feedback for its asset allocation research capability from 75% of respondents while last year this number dropped to below 60% of planners who shared their opinions with Money Management and described Lonsec’s asset allocation research as such. The 2019 Rate the Raters survey showed a further drop to 56% of positive ratings for Lonsec from planners who viewed the firm’s asset allocation research as either ‘good’ or ‘excellent’. Following this, Zenith and Morningstar’s asset allocation research was rated by 43% and 39%, respectively, as above the average.

CORPORATE STRENGH This category was viewed by half of the financial groups, of those who participated in our survey, as either ‘essential’ or ‘very important’ and further 34%

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described this category as ‘important’ in their selection process when it comes to research houses. For Morningstar, which last year maintained its second position and saw only 67% of respondents who rated its corporate strength as either ‘good’ or ‘excellent’, this year’s figure climbed up to 80%, with 60% of respondents rating Morningstar’s corporate strength as ‘good’ and a further 20% believed it was ‘excellent’. Such a result made Morningstar an unquestionable winner in this category. Following this, Lonsec, which won this title last year, landed in third place with only 63% of planners granting it a higher than average rating. Zenith ended up ahead of its rival and took out the silver position with a cumulative either ‘excellent’ or ‘good’ rating being granted by 65% of respondents. At the same time, Mercer’s corporate strength was recognised as above average by 46% of respondents, of which 15.4% rewarded its corporate strength with a ‘good’ rating and the remaining 30.7% said that its corporate strength was ‘excellent’.

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November 7, 2019 Money Management | 33

Rate the raters

Chart 4: Overall Rating

The corporate strength of SQM Research, which is still less-known by planners than its long-established rivals, was appreciated by 14% of the respondents who described it as either ‘good’ or ‘excellent’.

VALUE FOR MONEY For the fourth time in a row, financial planners decided that Lonsec offered the best value for money, a view that was consistent with the findings of the survey from the previous years. Additionally, the company saw its combined ‘excellent’ and ‘good’ ratings go up from 60.6% last year to 67% this year. However, it was still much lower when compared with 2017 levels when 76.6% of financial planners in the study said that Lonsec offered either ‘good’ or ‘excellent’ value for money. Zenith, which again came second, saw a similar result where 48% of respondents described its value for money as ‘good’ and another 8% said it offered ‘excellent’ value for money. This category also saw that a relatively younger researcher, SQM Research, managed to secure a third position, ahead of

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Morningstar, as more than 45% of those planners who voted in the survey rated the SQM’s offering value for money as either ‘good’ or ‘excellent’.

OVERALL RATING Lonsec once again demonstrated its value as the company scored the highest rating in this category, with a slightly higher number of planners (62%) compared to last year granting the firm a combined ‘excellent’ and ‘good’ rating in this category. Zenith again proved it was a silver medallist although the number of planners who rewarded it with an overall ‘good’ rating climbed up to 46% from 37% last year but the number of ‘excellent’ rating fell to 11.5% against 15% in 2018. This means that 58% of planners who rated Zenith in the 2019 survey were of the thought that its overall value was above average. Morningstar again came third in this category and saw a number of users from whom the firm received an overall rating higher than average stood at approximately the same level as last year (41%).

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34 | Money Management November 7, 2019

ETFs

MYTHBUSTING ETFs

There’s a great deal of information around ETFs, but what are the facts and the myths? Chris Dastoor spoke to some of the top minds in the ETF industry to separate fact from fiction. EXCHANGE TRADED FUNDS (ETFs) have exploded in popularity with the total value of the Australian exchange traded products (ETPs) industry surpassing $56 billion, and it is expected to reach the $60 billion mark by the end of the year. It has become a great tool for advisers who want to get clients a taste of certain exposures, including different stock exchanges, indicies, bonds, commodities and currencies. Since many ETFs have reliably outperformed active managers, with much lower fees, it’s made them an attractive choice for investors and financial advisers.

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However, as with all trends and disruptions, there is often conflicting information given about these type of products.

ACTIVE V PASSIVE It has been argued whether active ETFs should be described as ETFs at all, if they are actively managed rather than passively tracking an index. Kris Walesby, ETF Securities Australia chief executive, described himself as a big of fan of active ETFs as it gave investors more choice by allowing people to get access to what would’ve usually been unlisted options.

“To me the debate about active ETFs is around a number of active managers who have failed to outperform an index over time, in which case people are paying a lot of money to get not much out of it,” Walesby said. “ETF investments can be highly active and I’m not talking about the individual ETFs but the asset allocation choices which, even if you only use passive ETFs, is active.” Alex Vynokur, Betashares chief executive, said there is a place for both active and passive, and the debate is a waste of time as it detracts from the big picture.

“Getting the big picture right is what’s most important and that’s getting asset allocation right, research over many decades has shown asset allocation drives over 90% of investors returns,” Vynokur said. “We need to be focused on building the right portfolios for clients, and if they are getting diversified, cost-effective portfolios then that’s really the big prize.” For investors the perception is reality, and they see ETFs as low-cost, transparent and that it followed an index, said VanEck managing director and head of Asia Pacific Arian Neiron.

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ETFs “We find we’re persistently educating all types of investors and advisers that this active exchange traded product, which can be labelled from a marketing perspective an active ETF, but it is legally characterised by ASIC and the ASX (Australian Securities Exchange) as a managed fund, [but] is being dressed up as an ETF,” Neiron said. “We’ve had investors in conferences come up to us [to say] ‘oh, I’ve underperformed in X product and I’ve looked at the fees and the fees are so high, it’s an ETF so I don’t understand why this has happened’, but it’s not an ETF.” Chris Meyer, head of listed investments at Pinnacle Investment Management said active and passive strategies should be able to co-exist in the market. “I don’t think the passive industry should own the ETF moniker… there’s nothing about exchange traded funds that suggests it’s an index tracking fund,” Meyer said. “The ETF part relates to the fact that it’s traded on an exchange, so active ETF is perfectly fine as a term for an active fund traded on an exchange.” Christian Obrist, head of iShares, BlackRock Australia, said it’s not about active versus passive but a combination of both, and everything is an active decision when you build a portfolio. “When you make the decision to buy 30% of your portfolio in ASX 200 ETFs, that’s an active decision, because you could have made it 35% or 25%,” Obrist said. “You specifically decided to build that part of your portfolio with that exposure, in that weight, and in general we just believe there’s space for both.”

ASIC PAUSE In July, the Australian Securities and Investments Commission (ASIC) asked market makers to exclude any new managed funds which failed to disclose their daily portfolio holdings and to use internal market makers while it conducted a review. Vynokur said the pause was a positive and should be beneficial to the industry for the long-term. “Active ETFs have definitely been

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growing fast and the regulator is clearly taking the opportunity to take a look at some of the recent growth,” Vynokur said. “The barriers to entry in traditional index ETFs are pretty high, and barriers to entry on the active side should be the same, so we definitely welcome the pause and the review taking place. “In the scheme of things, a pause of a few months is a little blip in the context of the significant opportunities the ETF industry has.” Meyer said it’s an issue close to him and that he thinks there is nothing wrong with the active ETF industry. “Any new industry that may be growing quickly where the regulator doesn’t have a good grasp of what’s going on needs to pause and have a look at it,” Meyer said. “I would say it’s probably a healthy check but as long as it doesn’t take too long for ASIC to reopen the market.” He said it needed to be done quickly without putting the industry at risk of investors and brokers losing interest as it was just taking off. Walesby said the pause was a big issue, but it’s important to assume ASIC was given the benefit of the doubt they were doing it for the right reasons. “Unless ASIC becomes comfortable with fund managers using internal market managers to protect their IP [intellectual property], which personally I think is unlikely,” Walesby said. “Or another solution is found which allows active fund managers to not show their IP but satisfy ASIC requirements around price discovery and fairness to all investors, which could happen. “That’s what the SEC [Securities Exchange Commission] in America has been working on for a long time, at some point a solution will be found there and that could work for Australia.” Obrist said BlackRock advocated for the right framework for a healthy eco-system for good product development. “That way you get products that meet investor demands, that are understood by clients and

lead to good investor outcomes. “Looking back at the framework that was in place, we had some concerns about the transparency and conflicts of interest, but we’re not against active ETFs.”

IMPACT ON MARKETS The rise of ETFs had meant more inflows into ETF products, theoretically at the expense of actively-managed funds. As with any change or disruption, there were fears ETFs would have too much effect over the market, artificially distorting its valuation as it throws money at indicies rather than stocks. Walesby said the myth about market impact was one that has always irritated him. “On the whole, there are exceptional circumstances where ETFs, especially ETFs trading in certain markets under certain conditions, do not work perfectly,” Walesby said. “There’s been maybe three or four instances in the last 10 years where prices have declined rapidly and that’s not so much about the ETFs, it’s around the high frequency traders that are market making the ETFs.” Obrist said the impact on markets was misunderstood and there often needed to be education for people to understand the actual impact. “You shouldn’t be misguided by reading in the paper that ‘28% of US equity trading on exchange comes from ETFs’, because that is secondary market trading,” Obrist said. “That is not impacting the underlying markets where you know the ETF is creating and redeeming units and essentially putting pressure on those underlying stock or bonds, it’s happening on the exchange. “For every dollar that trades passively, roughly about $28 is traded actively.” Vynokur said in Australia some 80% of investment was actively managed, so it was still a long way from being overtaken by passives. “Passive differs very significantly, there are varieties in the types of indices, you can see

market capitalisation, equal weight, small or large cap, so all of them are adding to the variety in the market,” Vynokur said. Meyer said index tracking wasn’t purely just ETFs and there are massive index-tracking funds in the institutional space, as well as unlisted index-tracking funds. “People confuse ETFs with just passive index-tracking, which is much bigger and broader,” Meyer said. “ETF ownership of the global equity market is tiny, less than 3%, so it’s hard for me to believe ETFs flows on their own have driven the market.”

COULD SELF-DIRECTED INVESTORS OVERTAKE FINANCIAL ADVISERS? Vynokur said there was already a significant extent of participation from individual investors, which had been happening for some time but had now accelerated. “In terms of individuals, who are un-advised or are SMSF investors who buy ETFs to not have a financial adviser, that creates a tremendous opportunity for financial advisers to provide advice on ETFs,” Vynokur said. Neiron said he doesn’t expect to see self-directed investors overtake intermediaries, but the usage of the term ‘self-directed’ was ambiguous as there is a spectrum of what may be considered under the term. “A lot of the clients that we see come to VanEck, by way of example, they’re self-directed but they work with a stockbroker,” Neiron said. “They’re not necessarily doing it on their own independently, they’re doing it within a microcosm of influences and that includes their accountant as well.” Meyer doesn’t expect either advisers or self-directed investors to become the dominant force. “If you look at most ETFs providers in Australia and you ask them how is your client-base split today and what do they expect in the future, most of them would say it’s a combination of advisers, stock brokers and self-directed investors,” Meyer said.

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36 | Money Management November 7, 2019

WIFS

IT’S JUST SUPER It’s not easy finding a home in financial services, especially one that lines up to your personal values. But for Mary Delahunty, finding that home in industry superannuation was unexpected, Chris Dastoor writes. MARY DELAHUNTY, HEAD of impact at HESTA, said it took her a while to find a home in financial services that lived up to her social values – and it was somewhat accidental that home turned out to be in superannuation. “When you’re learning finance, banking, etc. at school and university, the curriculum doesn’t really cover superannuation,” Delahunty said. “I knew I liked the concepts in financial services, I liked how enabling finance can be to build better societies, but I didn’t have an understanding of how superannuation could contribute to that.” The more she was exposed to the culture and ethos of industry funds she realised it was where she wanted to work. “The understanding and appreciation of the size and social license of the industry funds in particular was news to me,” Delahunty said. To her, working for an industry super fund meant never losing sight of their actual purpose, which included a strong culture. “We have a really strong culture given how the industry funds came about as a result of industrial unrest,” Delahunty said. The Royal Commission gave some vindication for the way industry funds had operated, which was no shock for HESTA. “I think undoubtedly you can see from the way the Royal Commission rolled out that our culture held strong,” Delahunty said. “The way in which we operate and make decisions all aligned with our purpose, and that became clear the more the Royal Commission went through the findings.” For organisations with strong

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cultural practices, it was more than having a handbook policy, it was putting those policies into practice. “HESTA is that type of employer where you don’t need to have the values painted on the walls because you feel it when you walk in,” Delahunty said. “I vividly remember being interviewed by the then chief executive who was a woman, the deputy CEO – who’s now the current CEO – who was a woman, and the head of people and culture who was also a woman. “We have policies in place that signal our values, like gender blind parental leave schemes. “Regardless of what gender you are, if you’re the primary carer for a child, there is a period of time you can access parental leave.” A previous winner of Advocate of the Year for Money Management’s and Super Review’s 2018 Women in Financial Services awards, she had worked hard to do her part to improve the industry. Although there was still much left to be done, she said, women should open their mind to working in superannuation. “For women, it remains unfinished business because systemically it’s really not serving women with broken work patterns,” Delahunty said. “There’s a lot of work done by people who understand what a women’s working life actually looks like.” Delahunty wanted there to be increased focus at university level to help women see the career path they could have in industry funds. “We want to build diverse teams that bring in different viewpoints, the only way we can really do that is by reaching out to people who may not have thought

“HESTA is that type of employer where you don’t need to have the values painted on the walls because you feel it when you walk in.” – Mary Delahunty, head of impact at HESTA of superannuation as a career,” Delahunty said. “We need to see changes not just at the board level in financial services in terms of diversity and representation, but also through the pipeline.” The industry still needed to adapt to the broken work patterns of women, particularly when it came to child care. Pay gap issues, whether it was difference in salary or the final superannuation account balances for women, was another concern. “Financial services still has a

massive pay gap so for us to be advocating about pay equality, and especially in the retirement space about what that does to gender equality in retirement, we need to have a good hard look at our own house,” Delahunty said. “Making sure all financial services companies, just as HESTA does, actually report and monitor their pay gap and take action to close it. “This is one of the most crucial things we can do to make sure that we are getting talented women into this area.”

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Insurance

CAN SMARTER PRODUCT DESIGN LEAD TO BETTER MENTAL HEALTH OUTCOMES? Many Australians will have insurance as part of their superannuation, writes SuperFriend’s Sandy Macleod, but could the industry do more to support its clients? THE $2.8 TRILLION superannuation sector certainly has power to effect large-scale change. Take the sector’s efforts to address underinsurance; the past decade has seen default cover improvements and better outcomes particularly for members on claim. Further, we know more than 90% of claims are paid, equating to around $7 billion in benefits paid each year. Many receiving these benefits would have been in financial distress if this cover was not linked to their super.

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However, cover does come at a cost. Not only through the premiums paid (roughly $9 billion per annum) but also the opportunity cost that comes through the reduction in a member’s retirement savings. Understandably, questions have been raised about whether the cover offered—particularly default cover provided on an opt-out basis—is appropriate and aligned with community expectations? Many aspects of insurance within super have been scrutinised, from policy terms and conditions to premium rates,

claims and underwriting practices. Public interest has been increasingly intense, fuelled by a parliamentary joint commission, a royal commission and new regulations and reforms. When designing insurance products in conjunction with fund trustees, the role of the insurer is not easy or simple. The balance between affordability and accessibility of benefits is difficult and will largely depend on the appetite of the trustee and their membership demographics. Policies with high barriers of entry and strong benefit accessibility

restrictions mean lower premiums, but the consequence is lower claims payable and member complaints and criticisms. Policies with easily accessible benefits pay more claims but come with higher premiums which risk eroding super account balances. We need to improve the foundations for there to be sustainable change. This includes product design and policy terms and conditions that more effectively accommodate psychological conditions. Continued on page 38

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Insurance

Continued from page 37

THE SLEEPING GIANT How do our current policies respond to mental health claims? And in an ideal world, where we take premiums out of the equation, could we do more as an industry to support our members? There’s a great opportunity to realise both economic benefits for insurers, and health benefits for members through taking an early intervention approach to claims related to mental ill-health. There have been recent discussions within the industry about an insurer’s ability to take a more proactive role in recovery by paying for treatment through the private medical sector. Until now, insurers have been prohibited from doing so, but considering a relaxation in this legislation, when all parties stand to benefit, could be a positive move. There is a sound argument that insurers would be acting in the member’s best interests by paying for treatment and helping them return to work earlier, rather than sit on a public waiting list. Longterm periods on claim often mean people lose the connectedness that comes from working, increasing the risk of secondary psychological conditions.

INCOME PROTECTION Income protection is often overlooked by members. Despite the importance of having salary continuance in place, few funds offer this cover automatically on an opt-out basis. Where it is offered under a default

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arrangement, it generally comes with a 90-day waiting period, being more cost-effective than 30 or 60-day waiting period. For the person on claim, it seems counter-productive to provide cover with inbuilt delays, which is not ideal from a mental health and wellbeing perspective. While many insurers have invested heavily in rehabilitation resources and can provide genuine support even before members are eligible to receive a benefit (i.e. during the waiting period) there’s a reliance on members being aware of how to access this support, including being aware that claims can be lodged within that waiting period. To achieve the best possible outcomes, it is important that employers, super funds and their insurers are proactively communicating and working together. Imagine the difference it would make to the mental health and wellbeing of a member who checks their email a few days after a serious accident and sees a message from their employer stating that sick leave entitlements

have commenced and, further to that, their super fund and insurer have been engaged and have conditionally approved income protection benefits which will commence in a few weeks’ time. Much of this has more to do with communication rather than product design, but there are ways in which early notification can be incentivised which may help facilitate this exchange of information. Insurers could offer a reduced waiting period where a claim has been lodged immediately after the disability commences. In some instances, a claim may be avoided completely by being able to implement rehabilitation strategies from an earlier date.

TPD Total and permanent disablement (TPD) pays a lump sum benefit to a member who is unlikely or unable to ever work again. Insurers can assess a member’s eligibility in a range of ways, but most common is the member’s capacity to work based on their education, training and experience (ETE).

In many instances, only members employed immediately prior to disablement can access this definition. In other instances, benefits will only be paid if the member satisfies an alternative definition contained within the policy such as specific loss (loss of limb and/or eyesight), activities of daily living (ADL) or activities of daily work (ADW). This is where members with a mental illness can fall through the cracks. A member with severe depression may have days where they are unable to get out of bed and get dressed, but they may be deemed physically ‘capable’ of doing so and therefore would not be considered under the ADL definition. If the member’s primary reason for being totally disabled is mental illness and the unlikely ETE definition does not explicitly cater for their presentation, then it is highly unlikely they will be deemed eligible for a TPD benefit. Even when the ETE definition is applicable, TPD can be somewhat problematic in respect to mental illness claims. Psychologists and other treating practitioners will rarely want to acknowledge the

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November 7, 2019 Money Management | 39

Insurance

member is languishing to the point where there is no hope returning to the workforce, especially for younger members. And yet, we are often asking medical professionals to do just this. The choice may come down to what is more detrimental to their patients’ health – lacking financial support or the removal of hope. With this in mind, TPD instalment products designed to introduce rehabilitation opportunities and return members to work when previously they may have been considered totally and permanently disabled, provide positive flow on effects to members’ mental health and wellbeing. Hybrid disability policies, which pay a benefit to members regardless of the severity of the condition, are also worth exploring. One of the main benefits they offer is that the trustee can elect to remove the provision of lump sum benefits altogether and allow for continued access to rehabilitation services offered by the insurer in the hope of returning to gainful employment. While the member and trustee benefits are hard to dispute with this type of product, they would be difficult to roll this out in the current climate with the focus on premium. Carefully phased pilot programs is one way to begin making steps toward better outcomes.

DEATH Death cover is often a difficult conversation when we’re talking mental health, but it’s one we

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must have. For most policies, members can access death cover automatically with no restrictions. Only when cover is increased, is a suicide exclusion applied and generally only for 12 months. While there is no direct evidence to suggest that being able to access a death benefit incentivises suicide in any way, we do know how important any reason for pause is within a suicidal crisis moment. A suicide exclusion period could be just that reason. At the same time, supporting the families of people who lose loved ones by suicide, at a time when they are already experiencing significant grief and trauma is at the core of what insurance is all about. In other words, when people need insurance the most, they are there. Regardless of whether policies should be reviewed in relation to suicide, there should be a focus on building awareness and empathy within our homes, workplaces and claims departments, regarding risk factors for mental ill-health and suicide, and how to respond appropriately to reduce risk and save lives. In Australia, 3,200 families are impacted by suicide each year. These families need our support – financial and otherwise – and everyone has a part to play. The responsibility for a mentally-healthy Australia lies with us all. As family members, friends and colleagues we can have a huge impact by simply recognising when someone may

be languishing and having the courage to ask whether that person is OK. As employers and managers, we hold the responsibility of ensuring we provide our employees with a psychologically safe workplace. When we achieve this, when individuals feel supported, when they are aware and can access support in the early stages, then they are less likely to reach a point where insurance cover needs to respond. This is why SuperFriend’s vision, together with our partner insurers and funds, is for an Australia where all workplaces are mentally healthy. There’s comfort in knowing the insurance cover through our super is there to provide financial support when it’s needed most. We must acknowledge however that there are limitations. Group insurance cannot be all things to all people. But it can play an important part in the 20% of all disability claims that are related to mental health, and it’s time for insurance product designers to explore proactive solutions or look more to income protection to provide support. Sandy MacLeod is general manager of insurance solutions at SuperFriend. The author would like to acknowledge the input of Philip Bracken in the drafting of this content. Phil has extensive product experience and expertise within group insurance and is currently the head of group product for MLC Life.

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40 | Money Management November 7, 2019

Alternatives

FACTOR ATTRACTION: WHY MULTI-FACTOR INVESTING IS ON THE RISE The basic premise of investing is simple – diversify, diversify, diversify. And with factor investing offering the additional premise of higher returns and lower risk in a single investment strategy, its application will only continue to grow, Guido Baltussen writes. OVER THE PAST 20-odd years, many investors have started expanding their portfolios into alternative asset classes, such as hedge funds and commodities, in order to improve diversification. However, the past decade has seen a significant part of the purported correlation benefits turn out to be misleading, or at least absent when most needed. Exacerbating this is the fact expected returns on the two main return drivers of most portfolios – equity and bond markets – are also now at seemingly historical lows. Factor-based strategies are there to help. Factor strategies are proven, systematic strategies, based on a clear economic rationale, that show persistent superior risk-adjusted returns across markets and over long periods of time. They provide attractive expected returns, especially when they harvest multiple factors across asset classes, supported by over multiple decades of (academic and investment) research and investment applications. Recent research by Robeco confirms the existence of factor premiums in global (including Australian) markets all the way back to the 19th century.

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Further, factor-based strategies come mostly with low correlations to traditional asset classes. As such, they are set to provide a natural solution to these challenges. How do factor strategies work? They boil down to transparent investment rules in which you score every asset in your universe on measures of the factors and you build a portfolio with good exposure to these measures, while managing all your risk. For example, an equity value factor strategy systematically ranks all the stocks in the universe in order of attractiveness based on measures like a stock’s valuation and buys those that are top ranked. Due to the systematic nature, this process is very scalable and transparent, so that a very large investment universe can be efficiently evaluated. Instead of buying the whole market with index weights (as holds for passive strategies), or a small subset of the investment universe (as commonly holds for fundamental active portfolios), factor portfolios can screen the whole universe and over or underweight hundreds to thousands of instruments simultaneously. At the same time, it eliminates the human or

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November 7, 2019 Money Management | 41

Alternatives Strap

emotional biases that might at times drive investment decisions. Then a multi-factor investment model uses a number of factors simultaneously in its assessment of market prices, targeting exposure to the underlying factors to achieve the maximum possible return-risk tradeoff. Commonly characterised as market-neutral, highly liquid and demonstrating remarkable levels of transparency in their investment processes, factorbased strategies can be used as portfolio enhancers next to traditional investment approaches, as well as hedge fund allocations. Furthermore, the rules-based nature of factor investing makes them a lowercost alternative to typical active funds, in particular, hedge funds.

HOW IT WORKS IN PRACTICE Every factor-based asset manager will employ a slightly different approach, and there are many factors to choose from in the investing universe. Robeco has identified six key multi-asset factor premiums: low risk, value, momentum, quality, carry, and flow. 1) The low-risk factor is the fact that securities characterised as low risk achieve higher riskadjusted returns than high-risk assets, within an asset class. For individual stocks, for example, low risk involves ranking stocks based on volatility, beta and distress risk and buying the low-risk assets relative to the index. 2) The value factor is that undervalued assets outperform expensive ones. Market prices are subject to overvaluation and undervaluation cycles, which eventually reverse over the long run. That is, buy low, sell high. 3) The momentum factor represents the fact that, on average, recent winners

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outperform, and recent losers underperform. In other words, follow the trend. 4) The quality factor is the empirical finding that highquality assets outperform assets with low underlying quality. Quality is linked to the favourable nature of macroeconomic fundamentals for that market. In the case of government bonds, for example, if we expect inflation to decline in a specific market, interest rates will likely decline as well, which means the macro environment is favourable for that bond market. 5) Carry captures the yield of an asset. For example, the carry of a US/Australian dollar currency forward is the difference between the respective US and Australian interest rate. And an investor will earn this difference exactly if the exchange rate does not change. 6) Flow captures the impact of predictable buying and selling pressures, or liquidity characteristics. In other words, exploiting supply and demand. These price pressures create price distortions and needs for liquidity provision, which result in a flow factor premium across markets. Each of these six key factors delivers superior returns, in individual asset classes, but also when combined across asset classes. In fact, it turns out factor premiums can be harvested in all major markets and asset classes, well beyond developed market equities. A multi-factor, multiasset approach applies this knowledge and executes factor investing across several asset classes. As correlations between value, momentum, low risk, quality, carry and flow, when applied to all assets, are also close to zero, such a portfolio benefits from strong diversification benefits. These lead to more stable

returns over time compared to an investment restricted to a subset of the different factors. Importantly, they have the ability to significantly enhance the net returns and diversification benefits of a traditional portfolio at limited cost and with sufficient liquidity. This multi-factor multi-asset approach targets equity-like returns at a balanced risk profile, while at the same time aiming for close to zero correlations with equity markets. In this approach, thereâ&#x20AC;&#x2122;s a stable risk balance between the factors and a wide investment universe to harvest factor premiums. These include a wide set of individual equities (developed and emerging markets, large caps and small caps), individual bonds (investment grade and high yield corporate bonds) and strategies implemented at the market-level in equity, bond, currency, credit and commodity derivatives. Sustainability is also something that neednâ&#x20AC;&#x2122;t be ignored in factor investing. Integrating sustainability in the investment process can be achieved through various methods, including ensuring the environmental, social and governance (ESG) score is above that of the referenced indices, as well as applying exclusion lists to avoid companies involved in weapons, tobacco and the like. By combining multiple factor premiums across all major asset classes, many diversifying returns sources are combined to achieve stable expected returns. These factor premiums can be harvested in wide investment universes and can be harvested in a liquid and sustainable manner.

BENEFITTING OTHER INVESTMENT STRATEGIES The factor approach provides strong diversification benefits when added to a traditional multi-asset portfolio and can be

used to complement existing portfolio allocations. Implementing factor investing within specific asset classes, in particular, equities, is now a widely accepted approach, as it improves the likelihood of increasing returns while reducing risk. A multi-factor multi asset approach fits well as a true portfolio diversifier next to traditional investment approaches. Many investors see our solution as portfolio diversifier, a diversifier in their equity or multi-asset allocation, or a (sustainable) liquid alternatives product. Furthermore, many investors see such a solution as an alternative to typical active funds, in particular, hedge funds. Combined with its systematic nature and attractive diversification properties, this strategy represents a lowercost, evidence-based, more transparent and more liquid solution compared to other strategies with the conventional hedge fund space. In effectively implementing a factor-based investment strategy, investors should seek out managers with experience managing quantitative strategies, and who extend the reach beyond the more standard practice of factor-based selection in developed markets equities. The appeal of factor investing can only grow, with greater diversification, higher returns and lower risk wrapped up in single investment strategy. Itâ&#x20AC;&#x2122;s a win for investors and creates efficiency for asset managers offering this progressive, dynamic approach. Guido Baltussen is lead portfolio manager (liquid alternatives and multi-asset strategies) at Robeco.

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Superannuation

WILL THE PLANNED SUPER CHANGES EVER GO AHEAD? Senator Jane Hume may have spoken about changes to superannuation but, based on previous experience, writes Graeme Colley, it may be a while until they come to fruition. WHETHER THE ADDRESS by Senator Jane Hume to the Financial Services Council (FSC) Summit in late August this year will serve as a wake-up call that the government means business for superannuation remains to be seen. Any positive change will only reveal itself when the industry starts to act and implement the recommendations of the reviews and reports currently in the pipeline. Previously, we have seen the industry simply ignore recommendations, water them down or make them suddenly disappear in the past so the history of reform is not good. Out of the 76 recommendations from the Hayne Royal Commission we saw 10 of these directed to industry. The minister saw that if

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these recommendations were acted on, consumer protection would improve, there would be stronger and more effective regulators, executive accountability would increase and remediation of consumers and small business would occur at appropriate levels. The minister pointed out that reform in super was plagued with long-term problems which should have been fixed by the industry and not the result of funds being ‘dragged kicking and screaming by Government towards a solution’. Unfortunately, this type of reaction is the easy way out and based on premise that, if fund members don’t complain, then its OK for the status quo to remain. Automatic insurance in super is one example,

where the question of whether it was actually required by the member became irrelevant as the one size fits all scenario prevailed. It’s recognised that structural problems in superannuation have eroded trust in the system and at the same time impacted members’ balances. But super is unlike no other investment as nearly one-tenth of every workers’ pay is compulsorily ‘saved’ in a system where the savings are put at risk for up to 40 years or more. This places strict obligations on the custodians of super money at the top end, such as fund trustees, investment houses and regulators who are bound to act in the best interests of the fund members. The review of the Australian

Prudential Regulation Authority (APRA) is a case in point which emphasises the obligations of regulators and Graeme Samuel as chair of the review telling them that super is for members.

APRA REVIEW Chapter five of the report is headed up – Regulating the Superannuation System for members – which provides comments on the regulation of superannuation in Australia as well as an assessment of APRA’s regulation of superannuation. Just like many reviews before, we again see superannuation recognised as different from other regulation such as banking and insurance which is no surprise. The difference is

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November 7, 2019 Money Management | 43

Superannuation

because of compulsory contributions and the substantial tax assistance that super gets. However, the regulatory approach has been neutral and aligns with the way APRA supervises its other responsibilities. The APRA review identifies the failings of the regulator and what’s required to ensure its role is ‘more than prudential regulation’. This is more than the current focus on the financial stability of funds and identifying associated systemic risks. To some extent the Hayne Royal Commission points out clearly that the regulatory focus is to be extended to providing outcomes for members just like the Samuel review. In contrast to Hayne, the Samuel report points out the conflicts that exist within the regulator, imbalance of resource allocation and the need to concentrate on member outcomes – something you would have thought was mandatory. Maybe in future APRA and the funds it regulates will be able to show more clearly how super is protected and the way it is managed improves our level of confidence in the system. I dare use the words ‘how about greater transparency’ as the disclosure by some overseas funds makes Australia’s super system look like a closed shop.

PRODUCTIVITY COMMISSION The announcement of another review of the super system as recommended by the Productivity Commission in its report, ‘Superannuation: Assessing Efficiency and Competitiveness’ is interesting. The review which was recently announced is to look at a retirement income system which centres around the three pillars. These were put forward by the World Bank in the 1990s as a way of classifying retirement systems. While this may still be valid, maybe the world has changed, and the classification of the pillars may need to be revisited to redefine what a retirement

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income system looks like in the 21st century. While parts of the Productivity Commission report have been sensationalised, there are some recommendations that certainly need further consideration. Whether these will be covered in the Retirement Income Review is yet to be seen but the release of the consultation paper which will happen in November will give us some idea. Three issues that have come out of the Commission’s report are the default fund issue, ‘best in show’ fund and curbing unnecessary insurance in super. The default fund issue is to provide the individual with choice as to which superannuation fund will hold that employee’s superannuation contributions. This contrasts with the current arrangements where the default choice is with each employer. The current rules contemplate an individual having a number of funds as they move from employer to employer bringing with it the additional costs of multiple funds. The introduction of a memberselected default fund where all employer contributions will be made to the fund is really a de facto exercise of choice by the member as allowed by the current system. In addition, other changes such as greater efficiency in rolling over amounts between APRA funds and the use of MyGov accounts has helped consolidate member’s super accounts. The problem may now be additional effort to consolidate lost member accounts for a member. However, consolidation may be impossible for some lost accounts which have an assumed name like that of a cartoon character. The ‘best in show’ ranking of funds may have some use but in view of the many different situations for individuals, merely looking at a fund’s returns may have issues. Will this lead to an emphasis on short-term performance and members who adopt a flight to fancy only to miss out on longer term gains if they

had stayed where they were. Will it result in a ratings agency type approach where the more bells and whistles the higher the rating? This has a long way to go and getting an agreed approach with a useful and valid measure may never be found. One thing that seems to come out of the ‘best in show’ ranking is that financial planners may end up with a greater role to work out which of the ranked funds is suited to the individual client.

INSURANCE IN SUPER The curbing of unnecessary insurance in super should have been in place many years ago. There are many stories of, usually younger, members who had a number of jobs and their superannuation disappeared in the payment of premiums. The minister’s comments in the FSC speech about having to drag the industry kicking and screaming are well justified. Most of our children who took up jobs during the holidays were impacted. Any analysis of their situations would have shown that the type of insurance being offered was unsuitable as many had no debts, no dependants and leaving the amounts accumulate in the fund was probably the right decision. Maybe disability insurance could have been considered which may have required developing a new type of insurance for super members. I do recall one member who wished to exercise member investment choice into the ‘balanced’ option for the fund. Insurance was not required as it was inappropriate, and the level of cover was very low in any case. As the balanced option turned out to be the default option, the member was required to take out insurance as part of the balanced investment option at the time. Let’s have a look at some of the history of superannuation changes, many of which seem to be continually peppered with a long line of resistance. Take for example, the introduction of the

preservation rules, rolling over amounts between funds within three days and even compulsory superannuation which ended up as compulsory superannuation guarantee. Even approval of allocated pensions, which received bureaucratic approval in the 1980s, didn’t make it into the law for many years due to industry resistance, and are now the mainstay of the income stream system. But my favourite example of resistance must be the contributions surcharge which was put in place to plug a revenue black hole. By any means, it was a hated tax as it met many of the model rules of a creditable tax system as it was simple, relatively easy to understand and wasn’t easy to drive a truck through. At the time it was also revolutionary as it required reporting of many transactions electronically to the regulator. While this doesn’t sound extraordinary these days, it came at a time when a sizable proportion of funds still kept manual records. The renaissance from manual to computer systems was met with cries of protest because of the cost of the legislation but in the background it led to more modernised systems from an industry that was dragged kicking and screaming into the new world. Where to from here, another very rough road to see change implemented. As fund members we really need to challenge the industry, regulators and government to make some decisions and put them in place efficiently and effectively. The history on this is not good as for some of the issues under consideration we have travelled a very short distance. If the super funds really want us to have greater faith in their operation I want to feel the love and not be frozen out as I’m sure we all have felt from time to time. Graeme Colley is executive manager, SMSF technical and private wealth, at SuperConcepts.

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44 | Money Management November 7, 2019

Toolbox

PLANNING FOR CO-INVESTMENT OWNERS AND PARTNERSHIPS

Linda Bruce looks at receiving income jointly as co-owners of an investment and its impact on assessable income. IT’S NOT COMMONLY understood that co-owners of passive investments are partners in a partnership for tax law purposes, and therefore any associated financial planning considerations are often overlooked or misunderstood. This article looks at which can then impact financial planning strategies such as the government co-contribution and spouse contribution tax offset. Co-ownership can also impact related party transactions when a self-managed superannuation fund (SMSF) is involved. Limited partnerships are outside the scope of this article.

TAX LAW PARTNERSHIPS For general law purposes a partnership is defined in various state and territory partnership acts as a relationship that exists between persons carrying on a business in common with a view to profit. ‘Carrying on a business’ is an important factor for a partnership at general law to exist.

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However, for tax law purposes, a ‘partnership’ is defined as an association of persons (other than a company) carrying on business as partners or in receipt of ordinary income or statutory income jointly. Under the tax law definition, co-owners of a passive investment, such as a rental property, a share portfolio or a bank account are partners for tax law purposes as they share income from the investment. This is the case irrespective of whether the investment is owned as joint tenants or tenants in common. However, co-owners may not be partners at general law, unless the ownership amounts to the carrying on of a business.

PARTNERSHIP TAX RETURN Section 91 of Income Tax Assessment Act 1936 (ITAA36) states ‘a partnership shall furnish a return of the income of the partnership, but shall not be liable to pay tax thereon’. In general

terms this means a partnership at tax law is a reporting entity but not a taxable entity. A partnership does not pay tax on its income and a partnership loss is not tax deductible to the partnership. Rather, tax is payable by the partners in the partnership based on their share of the partnership’s net income, or partners may be entitled to a deduction for their share of partnership loss. As a partnership is a reporting entity, it must lodge an information return to provide the basis to determine the partner’s share of net income or loss in the partnership. However, how the information return is lodged depends on whether the partnership carries on a business or not. The Australian Taxation Office (ATO) in its partnership tax return instructions – general information instructs: • For a business that carried on in a partnership, a partnership tax return must be lodged. Each partner then includes their share of net income or

loss from the partnership in their individual tax return; and • For co-owners of an investment that does not amount to the carrying on of a business, a partnership tax return is not required. Co-owners are required to report their share of gross investment income, such as rent or dividends, and associated expenses in their individual tax returns.

PARTNER’S ASSESSABLE AND TAXABLE INCOME Assessable income for tax law purposes includes ordinary and statutory income before any deductions. It excludes exempt income and non-assessable non-exempt income. In comparison, taxable income is assessable income less allowable deductions for income tax purposes.

PARTNERSHIP NET INCOME Assessable income of an individual partner in a partnership includes

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November 7, 2019 Money Management | 45

Toolbox the partner’s share of partnership’s net income, and partnership’s net income is the assessable income of the partnership less allowable deductions. This applies to partnerships at tax law, that is, both partnerships that carry on a business and co-owners of an investment who share income from the investment.

PARTNERSHIP LOSS Where a partnership’s allowable deductions exceed its assessable income, a partnership incurs a partnership loss. The partnership loss is then distributed to the partners in the year in which it is incurred according to the partners’ respective interests in the loss. Where a partnership loss resulted from carrying on a business, an individual partner can only claim their share of loss against other income if certain tests can be satisfied. These tests apply to certain non-commercial business losses and further detail can be found on the ATO website. Where a partnership does not carry on a business and partners are mere co-owners of an investment, the owners of the investment can generally claim their respective share of investment loss as a deduction to offset against other income in their individual tax returns.

PARTNERSHIP TAX RETURN Where a partnership is carrying on a business, a partnership tax return must be lodged to report the partnership’s assessable income and deductions. An individual partner is only required to declare their share of the partnership net income or

partnership loss in their individual tax return. It is relatively straight forward to identify that only the partner’s share of the net income of the partnership will be included in a partner’s assessable income as the gross business income from the partnership is not reflected in the individual’s tax return. If a partnership incurs a loss, $0 is included in the individual partner’s assessable income. On the other hand, where a partnership is not carrying on a business and partners are mere co-investment owners who receive income jointly, it can be tricky to determine a co-owner’s assessable income from the investment. This is because co-owners are not required to lodge a separate partnership tax return. Rather, they are required to declare their share of the gross investment income and associated expenses in their own individual tax return. It is a common misconception that a co-owner’s share of gross investment income forms part of their assessable income, rather than the net investment income after applying any allowable deductions. As a result, a co-owner’s assessable income can very often be less than expected. The two examples below illustrate the differences in tax return reporting between a partnership that carries on a business and a partnership where partners are mere co-owners of a passive investment who receive income jointly.

since school. They run a small business designing figure skating costumes through a partnership structure and they are both partners in the partnership. The partnership generates $200,000 gross profit and claims $140,000 tax deductions in a tax year. The net income of the partnership in that tax year is $60,000. Wendy has 40% interest and Linda has 60% interest in the partnership. Wendy and Linda’s assessable income includes their share of net income in the partnership, that is: • Wendy’s assessable income includes 40% of the partnership’s net income (i.e. $24,000); and • Linda’s assessable income includes 60% of the partnership’s net income (i.e. $36,000). As Wendy and Linda’s partnership carries on a business, a partnership tax return must be lodged to the ATO. The partnership tax return provides a statement of distribution. Wendy must then declare $24,000 and Linda $36,000, representing distribution from the partnership, at the relevant item in their respective individual tax returns. Because Wendy and Linda’s share of net income in the partnership, instead of the gross partnership income, is required to be declared in their individual tax returns, it is relatively straight forward to identify that only $24,000 is included in Wendy’s assessable income and $36,000 in Linda’s assessable income.

EXAMPLE – PARTNERSHIP 1 CARRIES ON A BUSINESS

EXAMPLE – PARTNERSHIP 2 CO-INVESTMENT OWNERS

Wendy and Linda are both 40 years old. They have been friends

Wendy and Linda also have an investment property owned as

tenants in common. Wendy has 60% interest and Linda has 40% interest in the property. The property generates $50,000 gross rental income and the associated tax deductions are $30,000 in a tax year. As Wendy and Linda receive rental income from this property jointly, they are partners in a partnership for tax law purposes. However, because this partnership doesn’t carry on a business, Wendy and Linda are not required to lodge a partnership tax return to report the rental income and expenses. Instead, Wendy and Linda are required to report in their individual tax returns the information as follows: • Wendy reports her share of gross rental income of $30,000 (i.e. $50,000 x 60%) and deductible expenses of $18,000 (i.e. $30,000 x 60%) in her tax return. Wendy’s share of net rental income is $12,000; and • Linda reports her share of gross rental income of $20,000 (i.e. $50,000 x 40%) and deductible expenses of $12,000 (i.e. $30,000 x 40%) in her tax return. Linda’ share of net rental income is $8,000. Because Wendy and Linda’s share of the gross rental income is reported in their individual tax return, the common misconception is that $30,000 forms part of Wendy’s assessable income and $20,000 counts for Linda’s assessable income. It is also commonly misunderstood that Wendy and Linda can then claim their share of deductions. As a result, it is commonly thought that $12,000 counts towards Wendy’s taxable income Continued on page 46

Wendy – 60% interest in rental property

Common misconception of co-owner’s assessable income

Correct application of co-owner’s assessable income

Linda – 40% interest in rental property

Common misconception of co-owner’s assessable income

Correct application Source: of co-owner’s assessable income

Assessable income

$30,000 (share of gross rental income)

$12,000 (i.e. $30,000 - $18,000)

Assessable income

$20,000 (share of gross rental income)

$8,000 (ie $20,000 $12,000)

Deductions

$18,000 (share of deductible expenses)

Nil, deduction has been applied in partnership

Deductions

$12,000 (share of deductible expenses)

Nil6, deduction has been applied in partnership

Wendy’s taxable income

$12,000

Linda’s taxable income

$8,000

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Toolbox

Continued from page 45 individual may not receive the correct co-contribution payment. When recommending the government co-contribution strategy to individuals with income from partnership distributions or shared income from a passive investment, it may be worthwhile directing them to speak with their tax accountants to ensure that the government co-contribution label in an individual’s tax return is completed correctly.

and $8,000 counts towards Linda’s taxable income. Actually, as Wendy and Linda are tax law partners, a co-owner’s share of net income in the partnership, rather than the gross income, is included in their assessable income. That is, only $12,000 counts towards Wendy’s assessable income and $8,000 counts towards Linda’s assessable income. The tables on page 45 summarise the common misconception and the correct application of a partner’s assessable income when it comes to co-owners of an investment.

MISCONCEPTIONS As illustrated in the tables, either under the common misconception or the correct application of the legislation, Wendy and Linda will end up with the same amount of taxable income. This means even if their assessable income can be mistakenly overestimated as co-owners of a passive investment asset, the amount of tax they need to pay (based on their taxable income calculated by the ATO based on the information reported in their tax returns) would not be overstated. If an individual overestimates their assessable income, they could miss out on valuable financial planning strategies where the related income tests are based on an assessable income. Examples include the government super co-contribution and spouse contribution tax offset. It is important to note that where an investment is held solely by an individual, the gross investment income will form part of their assessable income and they can then claim allowable deductions in their own right. The issue surrounding mistaken inclusion of the gross investment income in assessable income stated above only relates to co-owners of an investment (i.e. a partnership at tax law), but not to a sole owner of an investment asset.

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PARTNERSHIPS AND FINANCIAL PLANNING CONSIDERATIONS If a co-owner’s assessable income is over estimated, it may not affect financial planning strategies based on taxable income or adjusted taxable income. However, valuable financial planning strategies based on assessable income could be impacted, such as the government super co-contribution and spouse contribution tax offset. Being a partner in a partnership could also impact related party issues when an SMSF is involved.

1. Government super co-contribution eligibility If an individual’s total income is less than $53,564 (in 2019/20 financial year) and at least 10% of this income is derived from employment activities (including self-employment), an individual may qualify for the government super co-contribution. Total income for this purpose includes an individual’s assessable income, reportable fringe benefits and reportable employer super contributions. In Wendy and Linda’s example, assuming they both do not have income from other sources, their

Partnership loss and the impact on co-contribution 10% test respective assessable income is $36,000 and $44,000 respectively in a tax year. Given more than 10% of their income is from carrying on a business (i.e. net income distribution from partnership 1 that carries on a business), both Wendy and Linda are eligible for government super co-contributions if they make after-tax member contributions to super. However, if Wendy and Linda’s share of gross rental income is mistakenly included in estimating their assessable income to assess their eligibility for the government co-contribution, their total income would have exceeded the eligibility threshold. As a result, they may miss out on making after-tax member contributions to super to receive government co-contributions. Additional labels The ATO instructs that if an individual receives any income as a co-owner of an investment or partnership distributions, they may need to complete the additional labels and associated worksheets in their tax return to work out their income for co-contribution purposes. If the additional label in the individual tax return is not completed, or completed incorrectly, this

To qualify for the government super co-contribution, one condition is to require at least 10% of an individual’s total income (i.e. assessable income, reportable fringe benefits and reportable employer super contributions) to be derived from employment activities (including self-employment). Where a partnership carries on a business, the distribution of partnership net income to a partner will form part of their assessable income and can count towards meeting the 10% test condition. However, if this partnership incurs a loss, $0 relating to this partnership distribution is included in a partner’s assessable income and count towards the 10% test. If the partner does not have any income from other employment or self-employment, the 10% test cannot be satisfied and therefore this partner won’t qualify for the co-contribution, even though their total income may be lower than the eligibility threshold.

2. Spouse contribution tax offset The thresholds for spouse contribution tax offset purposes increased from 1 July, 2017, and since then many individuals may now become entitled to this tax offset by making spouse contributions.

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Toolbox

CPD QUIZ The maximum tax offset of $540 is available to the contributing spouse for making a $3,000 contribution to their spouse’s super, where the receiving spouse’s assessable income, total reportable fringe benefits and reportable employer super contributions is $37,000 or less. The tax offset gradually reduces for income above $37,000 and completely phases out when income reaches $40,000. This non-refundable tax offset can help the contributing spouse to reduce their tax liability. Similar to the government co-contribution, if assessable income is mistakenly overestimated for co-owners of a passive investment asset, their spouse may miss out on making a spouse contribution and receiving the spouse contribution tax offset. Tax offset To receive the correct spouse contribution tax offset, the relevant item (i.e. Superannuation contributions on behalf of your spouse) in an individual’s tax return needs to be completed correctly. Similar to government super co-contributions, when recommending the spouse contribution strategy, it may be worthwhile directing individuals with income from partnership distributions or shared income from a passive investment to speak with their tax accountants to ensure that the spouse contribution tax offset label in the contributing spouse’s tax return is completed correctly before the tax return is lodged.

3. Partnerships and related party issues A number of investment restrictions, such as the related party acquisition rule and the in-house assets rule, apply to transactions involving ‘related parties’ of an SMSF. A related party is defined under section 10(1) of the Superannuation

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Industry (Supervision) Act 1993 (SIS Act) as any of the following: (a) A member of the fund; (b) A standard employer sponsor of the fund; or (c) A Part 8 associate of an entity referred to in paragraph (a) or (b). Part 8 associates of a member in an SMSF include a partner (and their spouse and children) of a member or a partnership in which the member is a partner. The definition of partnership under section 70E of SIS Act has the same meaning as in section 995-1(1) of ITAA97. This means a partnership for SIS purposes not only includes partners in a partnership that carries on a business, but also includes co-owners of an investment that receives income jointly. In our example, Wendy and Linda are friends but are not otherwise related. However, they are considered to be associates either because they are partners in their partnership that carries on a business, or because they jointly own the investment property and they receive rental income jointly. If Wendy wants to sell her share in the jointly owned rental property to Linda (or vice versa), their SMSFs are prohibited from acquiring that interest in a residential rental property due to the application of the related party acquisition restriction. Caution Advisers need to exercise caution if the trustee(s) of an SMSF are looking at acquiring an asset (that is not exempt from related party acquisition rules) from an otherwise unrelated party such as a friend. It is important to check whether parties are running a business through a partnership, or simply receive income jointly as co-owners of an investment. Linda Bruce is senior technical manager at Colonial First State.

This activity has been pre-accredited by the Financial Planning Association for 0.25 CPD credit, which may be used by financial planners as supporting evidence of ongoing professional development. 1. Linda and Peter are co-owners of an investment property and the ownership does not amount to carrying on a business. Which statement below is correct? a) Linda and Peter are not partners for tax law purposes but they are partners for general law purposes b) Linda and Peter are partners for both tax law purposes and general law purposes c) Linda and Peter are not partners for either tax law purposes or general law purposes d) Linda and Peter are only partners for tax law purposes but not partners for general law purposes 2. A partnership is a reporting entity and it must lodge an information return. Which statement below is correct? a) Where a partnership is carrying on a business, a partnership return must be lodged to report the partnership’s assessable income and deductions b) Where a partnership is not carrying on a business and partners are mere co-investment owners who receive income jointly, a partnership return must be lodged to report investment income and deductions c) Where a partnership is carrying on a business, the partners must include the business assessable income and deductions in their own individual tax return d) It doesn’t matter whether a partnership is carrying on a business or not, a partnership return must be lodged 3. An investment property generates $50,000 gross rental income and the associated tax deductions are $20,000 per annum. Which statement below is correct? a) If the property is solely owned, $30,000 (i.e. gross rental less deductions) forms the sole owner’s assessable income b) If the property is owned jointly, a co-owner’s share of gross rental income ($50,000) forms part of their assessable income as the individual co-owners must report the gross rental income and deductions in the individuals’ tax return c) If the property is owned jointly, a co-owner’s’ share of net income from this property ($30,000) forms part of their assessable income, although the gross rental income and deductions are reported in the individual co-owner’s tax return d) It doesn’t matter whether the property is owned solely or jointly, the gross rental forms part of the individual’s assessable income 4. Linda and Wendy are mere friends and are not otherwise related. They have a bank account together to save for a trip they plan to take together. Linda is the sole member of her SMSF and the fund wants to purchase an investment property solely owned by Wendy. Which statement is correct? a) Wendy is not a related party as she is merely a friend of Linda. Therefore Linda’s SMSF can purchase the investment property owned by Wendy without breaching the related party acquisition rules. b) As Wendy and Linda have a bank account together, they are partners for tax law purposes which makes Wendy a related party. Linda’s SMSF is prohibited from acquiring this investment property from Wendy. c) Wendy is a related party, however, Linda’s SMSF is able to purchase this investment property from Wendy as an investment property is exempt from related party acquisition rules. d) Wendy is not a related party but an SMSF is not allowed to invest in the property market. Therefore it is not possible for the SMSF to purchase the investment property.

TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/features/toolsguides/planning-co-investment-owners-and-partnerships

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

31/10/2019 10:18:35 AM

OUTSIDER

Money Management ManagementNovember April 2, 2015 48 | Money 7, 2019

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

Spooked about recession or just a bit bored? THANKS to the guys at Fidelity International, Outsider has discovered that Australians are a timid lot because they can be spooked by things like recessions. Indeed, Fidelity’s cross asset investment specialist, Anthony Doyle went to the trouble of looking at Google search trends (you need to get a life or a hobby Tony) and found that they suggest that Australians are becoming increasingly concerned about the outlook for the economy. Apparently, Aussies have been searching

the term “Australian recession” in numbers not seen since the global financial crisis. While Anthony Doyle’s analysis is undoubtedly valid, Outsider reckons the search activity has more to do with the end of the footy season, Australia’s untimely exit from the Rugby World Cup and the gap between the end of the Ashes in the UK and the start of the cricket season here in Australia. Notwithstanding this analysis, and given he is writing on Halloween, Outsider is delighted to share Fidelity’s graphic.

Attention grabbing engagement techniques DESPITE his jaunty step and fresh-faced demeanour Outsider is quite old and so doesn’t understand concepts such as employees being “engaged” when they come to work. He is happy to recognise that superannuation fund, Statewide Super has won a prize for its employees being “engaged” but he is wondering what is meant by “engaged” in circumstances where if Outsider and his colleagues weren’t “engaged” you wouldn’t be reading this. For the record, Statewide Super has won the Korn Ferry Engagement Award which it proudly boasts “says a lot about the work that we’ve done to create a culture of pride in working at Statewide Super”. Outsider is not sure whether his colleagues are proud about working for Money Management but he knows they are pretty bloody relieved when they push another edition out the door and are even more relieved when they check that their bank accounts have been topped up every month. Perhaps, then, a certain former US politician was right when he asserted “if you’ve got them by the balls, their hearts and minds will follow”. Outsider congratulates Statewide Super on its award and feels sure the fund has used a much more subtle and suitable technique in engaging its staff.

Remember the Financial Systems Inquiry? It’s been trumped. OUTSIDER knows that the Treasurer, Josh Frydenberg is absolutely focused on implementing the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. How committed? So committed that Treasury has committed 75% of its legislative capacity to the Royal Commission – an almost unprecedented level of focus when, clearly, the department has plenty else it should be doing. It also represents a significant focus when it is considered that Treasury accounts for about a quarter of the Government’s entire legislative agenda in any one year.

OUT OF CONTEXT www.moneymanagement.com.au

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Outsider knows this because under questioning in Senate Estimates last month, Treasury officials said that the 75% commitment to the Royal Commission recommendations implementation compared to a somewhat lesser commitment to the implementation of the Financial System Inquiry (FSI) recommendations. Those same Treasury officials also revealed that those FSI recommendations, finalised in 2016, had still not not been fully implemented in 2019. Outsider reckons notwithstanding the core policy objectives of the FSI it has clearly been trumped on the Government’s list of priorities.

"When rates are low, any other asset class looks sexy."

"If your dog can vomit your name, you don't have a pretty name."

- Francesco De Ferrari, AMP chief executive

- Mel Buttle, MCing at the WIFS Awards

Find us here:

31/10/2019 1:03:52 PM

luent Learning Mandarin is one thing. Mastering it is quite another. It takes dedication, time and a deeper understanding. With the wrong inflection you might tell a waiter you would like “to sleep”, (rather than order boiled dumplings). Or at a tourism office you might ask where you can see “chest hair” (instead of pandas). At Fidelity, our knowledge of Asian markets and immersion in the local culture helps us to uncover great businesses. With 50 years doing business in Asia and a large on-the-ground investment team we have a unique view of factors shaping returns across this dynamic market. Access the exciting growth story of Asia with a proven investment manager fluent in investing in Asian markets.

Discover more at fidelity.com.au/asia-expert Issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (‘Fidelity Australia’). Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International. ©2019 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited.

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28/10/2019 11:39:39 AM

BE BETTER INFORMED:

FE Crown Fund Ratings are highly respected and widely recognised across the UK, European, and Asian markets. Now, available in Australia in partnership with Money Management, FEâ&#x20AC;&#x2122;s quantitative ratings are designed to help advisers identify funds which have displayed superior performance in terms of stockpicking, consistency and risk control.

A one Crown rating represents a fund that falls into the fourth/ bottom quartile

Two Crowns demonstrates funds that place in the third quartile

Three Crowns demonstrates funds that sit in the second quartile

Four Crowns are given to funds that have placed between 75-90% of their sector peers

Five Crowns are awarded to funds that place in the top 10%

WHERE CAN YOU VIEW CROWN RATINGS? Investment Centre a part of

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25/10/2019 12:25:29 PM

Sustainable and quant investing: Two powerful forces, one positive outcome Discover a winning combination for strong returns Robeco is a leader in two very different investment fields: sustainable and quant investing. By combining the strengths of both, we can meet our clients’ needs with the best possible solutions. These include a range of quant strategies that take into account various sustainability considerations. As pioneers in factor investing, we also offer single and multi-factor solutions, for both equities and fixed income. And all these strategies benefit from sustainability research by our center of sustainable investing expertise, RobecoSAM.

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Important information This document is distributed in Australia by Robeco Hong Kong Limited (ARBN 156 512 659) (‘Robeco’) which is exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 (Cth) pursuant to ASIC Class Order 03/1103. Robeco is regulated by the Securities and Futures Commission under the laws of Hong Kong and those laws may differ from Australian laws.

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29/10/2019 10:30:44 AM 28-10-2019 11:03:47