Money Management | Vol. 35 No 19 | October 21, 2021

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Vol. 35 No 19 | October 21, 2021

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Multi-factor investing

Could financial advisers move to general advice?

BY CHRIS DASTOOR

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The new era of income protection INCOME protection products have been the bane of the life insurance industry and just in the last financial year lost $345.5 million and $1.29 billion the year prior.

But with the launch of the newly-designed products the question is whether they will be a more sustainable offering and if the industry can shake off poor practices.

MLC general manager for retail distribution, Michael Downey, believed the life insurance industry was more mature now and that insurers would not fall into the trap of trying to chase market share for the sake of it.

While the new products are a chance for a reinvention of the sector, it is no secret that financial advisers will face further administrative burden from the products’ introduction.

Most insurers had launched two or three variations of the new products, had stricter definitions, and required clients to reapply every five years.

HH Wealth director and financial adviser, Chris Holme, said: “There’s a fair bit more work that you need to do in identifying what suits the client, how to apply for it, whether they actually have existing income protection, and then post that having to review it every five years.

“That adds another administrative burden but it can be a positive thing because we’re taking into account more needs of the client and tailoring something that is actually in their best interest.”

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Full feature on page 14

28

MOVING to general advice could be an alternative to providing holistic advice for advisers disgruntled with the current regulatory requirements, but they will have to get past the stigma, according to a risk broker who has made the shift.

Tony Smilevski, insurance broker for Tony Insurance, said the Financial Adviser Standards and Ethics Authority (FASEA) education requirements, as well other regulatory demands, had motivated him personally to pursue providing general advice instead of personal advice.

“Personally, I’ve done full advice and general advice when it comes to [risk] insurance [and with a few of the bigger licensees] I’ve done holistic advice,” Smilevski said.

“Recently I moved away from

doing full advice because of everything going on. I’ve passed my FASEA exam, I’ve got my education requirements ticked off but I thought there was no point going on doing risk-only advice in the postFASEA world, it didn’t make sense.

“I know a lot of advisers are in that boat where they don’t know what to do; they’re either not passing the FASEA exam or they just not seeing it as being profitable to run a business that maybe specialises in risk-only [advice].”

Smilevski said it was a “massive mental shift” for an adviser to look at general advice as an alternative option.

“Because the way we currently look at it is general advice instead of personal advice is not good enough,” Smilevski said.

Continued on page 3

Harassment affecting over half of female employees

BY LAURA DEW

MORE than half of female employees in financial services have experienced, or know someone who has, harassment or sexism in the workplace, according to a report by the Financial Services Institute of Australasia (FINSIA).

According to a report which surveyed almost 800 members working in financial services, there were more incidences in the last five years combined with increased discomfort in raising issues of gender equality.

Some 51% of women said they had experienced or witnessed sexual harassment or sexism at work and 13% said they had ‘often’ done so.

Just over a third of women said they had ‘never’ experienced or witnessed it.

Continued on page 3

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October 21, 2021 Money Management | 3

News TWUSUPER ditches merger with EISS Super

Super funds need to balance returns and ESG

BY LAURA DEW

BY JASSMYN GOH

TWUSUPER has decided not to proceed with a merger with EISS Super, following extensive due diligence.

In a statement, a TWUSUPER spokesperson said: “Any merger must be in members’ best interest. TWUSUPER is now pursuing other growth options.

“TWUSUPER’s motivation in entering merger discussions with EISS was the potential benefit members of both funds would achieve from greater scale. We also felt EISS members would benefit from TWUSUPER’s strong investment performance.”

The two funds entered into a memorandum of understanding for a merger in April. However, EISS Super had recently come under scrutiny after its ex-chief executive, Alex Hutchison, resigned after investigations into sponsorship and bullying complaints.

Hutchison claimed his resignation was a result of a “smear campaign” and its former chair, Warren Mundy, departed the fund shortly after Hutchison.

ACHIEVING positive returns for retirees while acting ethically for younger members is a need superannuation funds are having to balance, according to a panel.

At the CFA Societies Australian Investment Conference, panellists were given a hypothetical case study on whether a super fund should abandon or retain its ex-fossil fuel stance in the face of underperformance.

Cassandra Crowe, vice president at T. Rowe Price, said some super funds would consider it

Could financial advisers move to general advice?

Continued from page 1 “And the stigma around it being sales-y, which in a lot of cases is warranted because that’s what happens with these things, is really what plays in a lot of advisers heads.

“Now they’re in this position that they don’t know general advice is an option so they’re leaving, clients are orphaned and the worst part of it is clients being turned away from an adviser because they’re not worth to the practice.

“It’s mind boggling to me, I walked into the industry to help people and now it’s gone the opposite, but I’ve found a way to do it.

“But we’re talking 95% of advisers out there either have a negative view of general advice or don’t even know that it’s an option.”

Smilevski pointed to another real-life example of a struggling adviser who had found success with this the changeover.

“A real-life example, there’s a 64-year-old adviser, who hasn’t

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been doing much risk lately because of the compliance requirements with the SoA [statement of advice] and everything else,” Smilevski said.

“We put in front of him the option to do it as general advice, so obviously not providing an opinion but still preparing quotes for people.

“And he’s been writing more business than he has in the last four or five years as a full-advice adviser.”

Despite all the changes that were meant to help general consumers, Smilevski said it only priced out people.

“Advisers are turning clients away that aren’t ready to get advice or don’t want advice or their premiums on their insurance is really low,” Smilevski said.

“Every adviser knows this; it’s just priced out anyone below a certain threshold. Advisers are becoming far and few between, especially the holistic ones.”

their fiduciary duty to maintain a fossil fuel-free stance but that it meant the super fund would lose the ability to engage with the companies who may be taking positive actions.

Clare Sa’adeh, director of relationship management and sales at MFS Investment Management, said she believed the fund opting to make selective reinvestments would run the risk of it selecting the wrong companies.

“I think [this option] allows trustees to maintain some sort of commitment to sustainability by selecting best-in-class companies and being discerning about that,” she said.

“But if they choose the wrong companies or those companies don’t execute well then that could slow down the energy transition.”

Nidal Danoun, executive director at Prosperity Financial Services, argued for abandoning the stance, which would likely be favoured by retirees but could “alienate” younger members.

“Although retirees have a significant chunk of the fund’s assets, the balances of younger members are naturally increasing so we need to be careful and find a balance for them.”

Harassment affecting over half of female employees Continued from page 1

For males, 62% said they ‘never’ experienced or witnessed it, 35% had done and just 3% said they had ‘often’.

The highest percentage of women who had experienced or witnessed sexual harassment or sexism at work was found in those under-25 with zero respondents in that category stating that they ‘never’ experienced or witnessed it.

Of the 13% of women in the survey who responded they had seen or experienced it ‘often’, the highest proportion were under-25.

There had also been an increase in discomfort about speaking up about gender inequality with the number of female respondents who said they would feel comfortable in raising issues to their organisation’s leadership falling from 43% to 32%.

If they did, they felt most comfortable doing so to another women (31%) rather than a man (7%).

Men also indicated they felt more uncomfortable with the number falling from 50% to 45% and said they would be most likely to raise it with a mixed group rather than another man.

Meanwhile, more women said they had experienced “differing treatment” in the workplace compared to their male colleagues.

Over 40% said they had experienced this related to promotional opportunities, rising to 50% related to meetings and 77% related to assignment of tasks.

Looking at the executive management specifically, there was a clear divide at the senior levels with 39% of men saying they had ‘never’ experienced differing treatment in promotions compared to just 8% of women. Similarly, 47% of men at executive management level had ‘never’ experienced differing treatment regarding pay or benefits compared to 9% of females.

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4 | Money Management October 21, 2021

Editorial

jassmyn.goh@moneymanagement.com.au

GOVT NEEDS TO ADDRESS COST TO SERVE AND ADVICE COST MISMATCH

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

Research has found advisers are currently unable to cover the cost of producing comprehensive advice despite charging already high fees and the Government needs to create solutions to prevent this.

The Government should take note of the figures released in KPMG’s recent research on financial advice that found the average cost to produce advice is around $5,335 but the average adviser charges $3,660.

It is important for Government to understand that the average Australian is unwilling to fork out $3,000 for advice but that advisers are losing, on average, $1,600 when servicing clients simply due to compliance costs. This is not including the likely additional costs the industry will face in the future due to changes to the compensation scheme of last resort, and the increased funding need of the standards authority when it is transferred to the corporate regulator.

This unwillingness to pay these exorbitant fees is especially true for clients simply seeking risk insurance advice.

Risk advisers are leaving the industry in troves thanks to decreased commissions, high compliance, and difficulty in writing business.

This has resulted in clients left to spend $3,000 for a single piece of risk advice because they had no

Associate Editor - Research: Oksana Patron Tel: 0439 137 814 oksana.patron@moneymanagement.com.au Features Editor: Laura Dew Tel: 0438 836 560 laura.dew@moneymanagement.com.au News Editor: Chris Dastoor Tel: 0439 076 518 chris.dastoor@moneymanagement.com.au Journalist: Liam Cormican Tel: 0438 789 214 liam.cormican@moneymanagement.com.au ADVERTISING Account Manager: Damien Quinn Tel: 0416 428 190 damien.quinn@moneymanagement.com.au Account Manager: Amy Barnett Tel: 0438 879 685 amy.barnett@moneymanagement.com.au Account Manager: Amelia King amelia.king@moneymanagement.com.au

choice but to receive holistic advice from advisers whose hands are tied in needing to create an entire statement of advice (SoA) for one product recommendation.

The Financial Services Council’s recent whitepaper’s recommendations are practical in trying to reduce the cost to serve and should be taken seriously along with proposals from other associations.

The corporate regulator recently made a sensible move to extend COVID-19 relief measures allowing advisers to provide a record of advice rather than an SoA to existing clients requiring advice due to the

impact of the pandemic.

Relief measures like this one are welcomed but collaboration with the industry needs to be thoughtful and regular.

The Quality of Advice review must not end up becoming a tick box exercise and the outcome of the life insurance framework and future for risk advisers is one that must be considered seriously.

It is already well known that the country is underinsured and this will not improve until the Australians who need this kind of advice are able to afford it.

Jassmyn Goh Editor

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14/10/2021 3:22:33 PM

October 21, 2021 Money Management | 5

News

Safe harbour removal needs to be top priority

BY JASSMYN GOH

REMOVING safe harbour and enhancing the Financial Adviser Standards and Ethics Authority (FASEA) code of ethics will reduce the cost of financial advice by 9% and reduce time spent by 7%, according to a panel.

Speaking on a Financial Services Council (FSC) panel on its whitepaper on financial advice, KPMG partner, Cecilia Storniolo, said over the last two years she had been hearing that the interplay between the FASEA code and best interest duty were causing the industry a great deal of angst.

The whitepaper had called for the removal of safe harbour steps in best interest duty and for it to be the first priority of the Government to enable a principles-based advice model under the existing regulatory framework.

“During the interviews, some of the advice practitioners highlighted to us examples of

where they actually may be successfully meeting part of one of those provisions but actually failing the other,” Storniolo said.

KPMG estimated the advice process to cost $5,334.64 and that the average cost of advice charged was $3,660. It said this showed advisers were not currently covering 100% of their cost production.

KPMG estimated that removing safe harbour while using the code of ethics as a tool to support compliance would reduce the cost of advice to $4,853.02. This was the proposal the FSC had recommended in its whitepaper.

However, removing safe harbour alone would reduce the cost by 11% to $4,746.84.

FSC policy manager for advice, Zach Castles, said safe harbour, FASEA, and best interest duty were all legislation created in isolation that impacted the provision of financial advice and made it risky to provide

MEETS

limited advice.

“We want to ensure that we unleash limited advice going forward but also enable a principles advice system to flourish,” Castles said.

“By removing safe harbour steps, it gives the code of ethics the space to evolve as the profession evolves and as consumer changes evolve.

“Most importantly, it enables the best interest duty to effectively be stronger as the overriding provision on the advice that advice providers offer – that advice is judged against best interest duty alone. How they meet it is up to them and formed by the code of ethics.”

Mercer Australia financial advice leader, Susie Peterson, said advice could be deemed in the best interest of clients even if it missed some safe harbour requirements. However, she said this advice would fail through a technical aspect of the law that was supposed to help and which needed to be fixed.

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6 | Money Management October 21, 2021

News

Pre-retirees with advisers are happier

BY LIAM CORMICAN

PRE-RETIREES with financial advisers are happier than those without because they feel more in control of their finances, according to a Fidelity survey.

Speaking at a Financial Planning Association webinar, Jason Andriessen, consulting partner at research consultancy MYMAVINS, broke down the findings of the randomised online survey of 1,500 older Australians, focusing on the pre-retiree cohort.

With 510 of those surveyed making up the pre-retirees, meaning those aged 50 or older in full time work, the survey found pre-retirees to be the least happy compared to those who were semi or fully retired.

Paradoxically, later stage retirees were happier than those in earlier stages, even though health was proven to have a significant impact on life satisfaction.

One of the reasons for this, as Andriessen said, was that pre-retirees suffered from

EISS investigating confidentiality breach

BY JASSMYN GOH

financial stress and a lack of financial confidence with three in four finding the retirement system rules too complex or worrying about their financial future from time to time.

“This is interesting and has implications for portfolio construction and broader advice processes,” Andriessen said.

Just over one-in-two had no medium to long-term financial plans or only had vague ones, with only around one-in-seven having documented plans in place, and almost half of pre-retirees considered themselves to have a low or very low risk tolerance.

“Some of these people are 50 years old and have 40-year time frames. It’s no coincidence that they feel cautious because they lack confidence and so that is clearly a conversation point and a way in which an adviser can add value,” Andriessen said.

Ninety-nine per cent were looking forward to progressively reducing working commitments but two-thirds wanted more financial advice support in this transition.

Only one-in-20 were receiving it.

“Pre retirees who have an active relationship with a financial planner are twice as likely to have a highrisk tolerance,” Andriessen said.

EISS Super is investigating a breach of confidentiality of board documents being sighted by the Electrical Trades Union of Australia (ETU) union.

Answering questions during a parliamentary hearing, EISS chair, Peter Tighe, was asked whether he was aware of any director who had shared board documents with a union.

Tighe said there was an issue in relation to documents being sighted by a shareholder that may have been provided by a director.

“There has been a process put in place to investigate that because of those documents are confidential to board discussions,” he said “…I understand the documents might have been sighted by the ETU.” Tighe said he was not fully aware of the details but that the investigation was internal to the operations of the board.

Natixis IM reduces equity overweight

BY LAURA DEW

NATIXIS Investment Managers has reduced its overweight exposure to equities as it believes valuations remain at a high level.

The firm said the economic recovery remained on track and the spread of the COVID-19 Delta variant had stabilised but that the peak had now passed.

“Equity markets have experienced volatility in recent weeks but we remain optimistic,” it said.

“We expect strong economic growth despite a deceleration with strong support from central banks and government spending.

“Valuations remain at high levels but we believe earnings growth will continue to support the market in the coming months.”

In an investment note, the firm said it had reduced its overweight position to equities because of this market environment.

“We have maintained a bullish bias but have reduced our overweight on equities in our portfolios, maintaining a preference for cyclical

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stocks,” it said.

“Sustained high growth and lower valuations should favour sectors such as financials and energy.

“A select portion of growth sectors show strong earnings resilience and can help diversify the equity basket.”

The firm was also cautious on China in light of the Evergrande crisis and was neutral on Asian emerging markets.

“Chinese regulatory headlines have given way to fears that Evergrande, China’s second-largest property developed by revenue, could collapse and create a systemic risk,” the firm said.

“We do not believe this is a major risk and that it will become a new Lehman Brothers, as financial exposure is limited and Chinese authorities will ensure contagion remains low.

“We are paying attention to the Chinese market where the regulatory crackdown and the Evergrande story have weighed on the market and could lead to attractive entry points.”

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8 | Money Management October 21, 2021

News

How to reduce advice costs by 37%: FSC whitepaper

BY JASSMYN GOH

THE cost of servicing financial advice could be reduced by 37% to $3,466 and allow advisers to see an extra 44 clients each year, according to a Financial Services Council’s (FSC) white paper.

The FSC released its ‘White Paper on Financial Advice’ which it said was a blueprint for a simplified regulatory framework that could reduce the cost of providing financial advice and allow advisers to spend more time with new and existing clients.

The whitepaper recommended: • Raising the threshold under which consumers are identified as ‘retail clients’ to those with assets of less than $5 million (up from $2.5 million) and index the threshold to CPI (currently not indexed); • Abolish the safe harbour steps for complying with the best interests duty; • Abolish complex statements of advice for a simpler, consumer-focused ‘letter of advice’; • Break the nexus between financial product

and advice and remove complex labels for different categories of advice; and • Move to sustainable self-regulation by 2030 in which prior learning and pathways, and individual registration are supported by the Australian financial services licensing regime.

The reclassification of retail clients would increase protection for up to 275,300 consumers, it said.

FSC chief executive, Sally Loane, said: “Current regulations prescribe compliance

obligations at every step of the advice process.

They are an unprecedented driver of cost for financial advisers and consumers, and are past their use-by date.

“Long-term the FSC’s reforms could generate cost savings for the advice industry of $91 billion over 20 years.”

KPMG undertook an analysis of the three key recommendations of safe harbour, letters of advice, and simplifying categories of advice.

Its analysis said the recommendations: • Would reduce the cost of providing financial advice per client from $5,334 to $3,466; • Would save financial advisers up to 32% of time when providing advice to clients; • Allow advisers to provide advice to up to an additional 44 new clients each year; • Enable advisers to produce 2.2 letters of advice as opposed to 1.5 statements of advice per adviser per week; and • Reduce the time required to complete the advice process from 23.9 hours to under 16.8 hours per client.

Investment governance frameworks must evolve as super funds grow

Diversa Trustees taken to court

BY LIAM CORMICAN

BY CHRIS DASTOOR

AS the superannuation industry continues along its ‘megafunds’ pathway, funds will need to evolve with the growing need for flexible and adaptive governance arrangements for internal and external factors, according to KPMG. KPMG projected that some super funds would grow by 200% to 300% by 2030 and that a small number of funds would be greater than $500 billion in five years’ time.

Speaking at Frontier’s annual conference, Platon Chris, director of actuarial and financial risk at KPMG, said: “The implications of such rapid and significant growth will require super funds to review and refine their investment arrangements and approach on a proactive basis to plan ahead for change”.

According to Chris, super funds would need to focus on five key elements to manage the growth KPMG anticipated for the sector, starting with improving access to investment opportunities.

“This may include the enhancement of strategic partnerships with external parties and or building an internal capability, both locally and globally,” Chris said.

The second factor was the need for super funds to address mandate capacity constraints which typically challenged Australian equity mandates, according to Chris.

Funds must also enhance their internal capability, he said.

“Depending on the investment management approach super funds that have greater reliance on outsource providers and managers will need to ensure they have a strong internal team to be able to scrutinise and challenge these providers to maximise outcome,” Chris said.

His fourth and fifth points were in relation to super funds realising economies of scale and reducing management costs.

He said super funds would need to implement strong investment governance frameworks to address these factors.

CIVIL penalty proceedings have commenced against Diversa Trustees Limited, after the corporate regulator alleged its former owner OneVue acted on behalf of Diversa to facilitate clients being put into products by an adviser that was being investigated for contraventions.

Nizi Bhandari, who was permanently banned by the Australian Securities and Investments Commission (ASIC) in March, put clients into Diversa products via Bhandari’s company, The Australian Dealer Group.

ASIC also alleged superannuation trustee Diversa did not act efficiently, honestly and fairly because it failed to provide proper oversight of the activities of OneVue nor take appropriate action regarding the activities of The Australian Dealer Group and Bhandari involving its super fund.

ASIC alleged between March 2019 and December 2020 Diversa or its representatives: • Were aware that ASIC was

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investigating a business run by financial adviser Bhandari for contraventions of the law; • Despite its knowledge of these matters, did not take adequate action and continued to allow Bhandari to put clients into Diversa’s super product; and • Continued to allow the payment of fees from the super fund to Bhandari.

ASIC said Diversa relied on “promoters” or third parties to run many of the day-to-day operations of its fund.

OneVue announced in December 2018 it would sell Diversa with the acquisition by Sargon being confirmed in July 2019.

This was the second case taken by ASIC against a professional trustee for conduct by outsourced service providers following enforcement action against Tidswell.

ASIC was seeking declarations and pecuniary penalty orders from the Federal Court and the date for the first case management hearing was yet to be scheduled.

13/10/2021 3:37:56 PM

October 21, 2021 Money Management | 9

News

EISS examining YFYS sponsorship requirements

BY JASSMYN GOH

EISS Super have not accepted any sponsorship proposals since the Your Future, Your Super legislation proposals on superannuation sponsorship were released in June as they are “looking at the impacting effect” of the legislation.

EISS chair, Peter Tighe, said at a parliamentary hearing the industry super fund had not entered into any new contracts since the new legislation came into force.

When asked about how conflicts of interests were managed in relation to sponsorships, Tighe said it was up to the team overseeing its community engagement program to evaluate whether a sponsorship application had any conflicts of interest.

Tighe said it was not up to the board to look at conflicts of interest.

“For people working in the team where these decisions are made there’s an obligation if there is a commercial interest for people to flag that,” Tighe said.

“We don’t believe there’s been any policy

breaches in relation to conflict of interest.” ”The team that looks after the community engagement program will make a recommendation to the chief executive officer who signs off on that. The chief executive officer signs off on it under a delegated authority from the board, and then the board gets an overarching report and is involved in setting the budget for that program.

“But the individual decisions in relation to merit don’t come to the board. They’re done through the administration process and signed off by the CEO who has this responsibility because of the financial obligations associated with his role.”

When asked whether there was a conflict of interest with the fund’s sponsorship of Ronald McDonald House given the sponsorship manager at EISS formerly worked at Ronald McDonald House and that the CEO’s wife became a manager at the charity, Tighe said there was no conflict.

Tighe and new chief executive, Lance Foster, both said the sponsorship manager worked at the charity prior to the sponsorship being entered and that the CEO’s wife had joined the charity after the

The ‘compelling’ investment case for Facebook

BY LAURA DEW

MONTAKA Global Investments will retain its investment in Facebook despite negative press as it believes investors need to be able to separate the investment case from the media noise.

Facebook was the largest holding in the Montaka Global Extension fund at 13.7% and secondlargest in the Montaka Global Long Only Equities fund.

Shares in Facebook had been falling in recent weeks after it experienced an outage of several hours and from a whistleblower testifying to the US Senate on the dangers of the company being able to “weaken democracy”.

Speaking to Money Management, chief investment officer, Andrew Macken, said the investment fundamentals for Facebook were “drastically compelling”.

“There is a lot of noise and polarising opinions but you have to separate the societal issues from the investment case and that is drastically compelling to the upside.

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“It has an enormous addressable market and is still in the early days for e-commerce and virtual reality, these are growth opportunities for the company... that are being valued at zero today but could be billion-dollar businesses in the future.”

E-commerce, in particular, accounted for less than 20% of US retail sales which indicated a substantial area for future growth, a trend which would also benefit firms like Amazon and Alphabet which was also held by both funds.

In an investor note on the Australian Securities Exchange (ASX), the firm said: “These businesses are creating the tools required for businesses, small and large, to create and execute effective marketing campaigns more easily.

“And at the same time, they are investing to make the consumer transaction experience more seamless and enjoyable.

“There remains enormous runway ahead and the winners are already relatively well-defined.”

sponsorship had been entered.

Liberal backbencher, Jason Falinski, said it was a conflict because “you’re spending other people’s money. I know this is difficult for industry super to understand, but it’s not your money.

When you start giving it away to people, and there is no management of conflicts, that’s a problem.

Does that make sense?”

Tighe said Falinski was talking about an occurrence that occurred after the application was oversighted and that if something arose after the event he did not see how that would be relevant to the memorandum of understanding that had been signed.

FSC to ban occupational exclusions THE Financial Services Council (FSC) is banning occupational exclusions in default group life insurance in superannuation for its super and life insurance members from 1 January, 2023, following a period of consultation.

The ban would be part of an enforceable FSC standard to prohibit the use of exclusions and restrictive disability definitions because a super member was employed in a high-risk occupation.

The ban also followed the Your Future, Your Super stapling reforms that would see some consumers unable to claim on life insurance cover because the fund had occupational exclusions in its default group life insurance.

The enforceable FSC standard would: • Apply to all default cover for life insurance, total and permanent disability and income protection insurance in MySuper and Choice products; and • Prohibit the use of exclusions and restrictive disability definitions because a member was employed in a high-risk occupation.

The FSC said it recognised that Australians must be able to claim on the default cover that they have been paying for through their super.

The ban however did not prevent trustees from choosing not to offer cover to a new member based on their occupation when the member joined the fund. In these circumstances the member would not be charged insurance premiums. The standard would also not apply to individually underwritten life insurance in super.

The target date of 1 January, 2023, would be subject to further consultation with regulators and the Australian Competition and Consumer Commission.

It said the 12-month transition period would allow trustees and life insurers to re-negotiate existing group life policies that were in place and to engage with members.

13/10/2021 10:14:25 AM

10 | Money Management October 21, 2021

News

Lower fees quoted by financial advice firms with no set target market

BY CHRIS DASTOOR

ADVISERS who service anyone who asks for advice quote fees significantly lower than advisers who have identified their market segment, according to research.

Speaking at a webinar hosted by the Association of Financial Advisers (AFA), Sue Viskovic, Elixir Consulting founder, said research by the firm found average earnings before interest and taxes (EBIT) was 20% lower for advisers who failed to identify their target market.

“When we look at figures they’re generating and the hours they’re working… often this becomes a problem when we see firms are still taking on anybody they like,” Viskovic said.

“We found targeted clientele was imperative when it came to pricing. When we did our pricing research we did a deep dive into all the firms that were achieving over 30% EBIT because there was a big difference between the average of what people were trying to achieve and what they were actually achieving.”

Firms that failed to identify their market segment had an EBIT of 19% versus 23% for those who did, but Viskovic said the drastic difference was in the fees charged.

“This is the really scary thing: the firms that said they work with anyone who wanted advice, the average initial fee for comprehensive advice without insurance was $2,600 and ongoing was $2,700 per annum,” Viskovic said.

“These figures were collected at the beginning of 2020; these firms still had grandfathered revenue coming into the business.

“If those firms hadn’t done anything differently, that 19% might be a lot lower from an EBIT perspective.

“If you look at the firms that identified their market segment the averages were higher, the EBIT was still not fantastic at 23%, but average initial fee was over $4,100 and ongoing was about $4,500.

When it came to identifying the correct fee pricing, Viskovic said everybody looked for the “magic number” and it depended on each individual situation.

Demand for alternative assets not being met

BY LIAM CORMICAN

THERE has never been stronger appetite globally for alternative assets but the market has not served institutional investors’ rising demands, according to alternative asset management firm Morrison and Co. Nicole Walker, Morrison and Co chief commercial officer, said the demand for private equity, private credit infrastructure and real estate was growing 10% a year.

“Every institutional investor, every sovereign wealth fund I speak to, would like to increase their exposure to Asian infrastructure, private equity, etc, and they can’t find enough credible managers to invest with compared to the plethora that they see in Europe, Australia and the US,” she said.

According to Walker, North America held about 50% of these products, with more and more interest coming from Europe and Asia.

She said private equity had always dominated this space but popularity in infrastructure and

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private credit were “really coming into their own”.

“They’ve always been quite well understood, particularly infrastructure in Australia as superannuation funds cannot invest enough in infrastructure, locally and globally,” she said.

But outside of Australia, the rate of investment in infrastructure from institutional investors, particularly from private credit, was picking up.

According to Walker, this was resulting in new inflows of money into Australia which was contributing to the mega-privatisation trend happening here.

“And that’s partly because all of these investors globally are growing at such a significant rate that they need to put away significant amounts of equity,” Walker said.

“They’re writing 500 $1 billion checks comfortably, and there just isn’t the supply of assets that they can invest in, so that’s why you’re seeing massive oversubscription to these sorts of deals.”

GQG to float on ASX

BY LAURA DEW

US-BASED investment manager GQG Partners is set to float on the Australian Securities Exchange (ASX) as an initial public offering (IPO).

In a statement from Pacific Current Group (PAC), which was an investor in GQG, 20% of GQG’s common stock was being offered to investors in the form of CHESS Depositary Interests (CDIs).

These CDIs would comprise beneficial interests in shares of common stock in GQG. It was expected this could raise as much as $1.2 billion, according to reports, and value the company between $5.9 billion to $6.5 billion.

Currently, the largest IPO this year had been PEXA which raised $3.3 billion.

PAC first invested in GQG in 2016 and received a preferred interest that entitled it to 10% of GQG’s annual net revenue between US$5 million to US$50 million ($6.8 million to $68 million) and 2% of net revenue thereafter.

Following the IPO, this would change to 4% of the common stock of GQG to be held in escrow until late August 2022 and cash in an amount of 1% of the value of GQG at the IPO price, assuming the offer was subscribed in full, less transaction costs.

Paul Greenwood, PAC chief executive, and Melda Donnelly, PAC executive director, would become directors of GQG. GQG was set up by Rajiv Jain in 2016 and in 2018, an Australian office was opened.

It ran a range of global and emerging markets funds and strategies which had $84 billion in assets under management.

13/10/2021 2:00:07 PM

October 21, 2021 Money Management | 11

News Small self-licensed advisers the only area of growth ‘Lack of talent’

BY OKSANA PATRON

SMALL self-licensed advisers, who are associated with financial planning and investment advice peer groups, has been the only area of growth in terms of advisers year-to-date, according to Wealth Data.

In the financial planning peer group segment there were 37 licensees with 127 advisers, collectively, that closed during the year. However, the industry saw an arrival of 95 new licensees, accounting for 219 advisers, which gave a positive net growth of 92 advisers.

Wealth Data’s director, Colin Williams, said: “To put this into perspective, it is the exact same growth as all growth for licensee owners with 50 or more advisers that have had some actual growth this year.

“However, the actual net growth of this sector of licensee owners with 50 or more advisers stood at [a loss of 1,554).”

The second area of growth took place across the investment advice peer groups sector. This

year so far, four with 10 advisers closed down but there were 11 new licensees with 44 advisers jointly, giving a net growth of 34 advisers.

The data showed losses across all other peer groups with accounting-limited model focused on limited self-managed super fund advice being the hardest hit after posting negative growth of 24.22% to a loss of under 3% (-2.17%) for licensees operating in the investment advice model, with a stronger focus on portfolio advice.

Taking into account only licensees that commenced this year with zero to 20 advisers and were not associated with any larger groups, 168 licensees shut

down and 121 licensees started operations during the year.

Most closures took places across the accounting-limited advice peer group (101 licensees) which accounted for a loss of 183 advisers year-to-date and there were no new licensees that launched.

As far as losses were concerned the week of 4 October, IOOF saw a net loss of 21 advisers, after three new appointments and 24 resignations. It was followed by AMP Group and Ord Minnett which both saw a departure of 12 advisers.

According to Wealth Data, while five ex-Ord Minnett advisers were reappointed at Oreana there were no former AMP Group advisers that had yet been reappointed elsewhere.

The overall number of advisers continued to fall and stood at 18,887, according to data from the Australian Securities and Investments Commission (ASIC’s) Financial Adviser Register (FAR).

Superannuation returns to be lower

BY CHRIS DASTOOR

THE last decade has seen strong returns in the superannuation industry, despite being a low-rate environment, but this is unlikely to continue in the future, according to a panel.

Speaking on a webinar hosted by Frontier, Mark Delaney, AustralianSuper chief investment officer (CIO) and deputy chief executive, said there had been a low-rate environment for 10 years and that returns had been “fantastic”.

“In 10 years, our balanced plan has done 9.7% per annum – crikey, if that continues forever that’s going to be fantastic,” Delaney said.

“It won’t. But there’s this assumption that low rates equal low returns and that hasn’t been case; low rates has equalled high returns.

“It’s also pushed up valuations which is a broader indicator of where returns are going to go but I wouldn’t read one into the other; valuations are a better indicator of what future returns will be.

“Returns in the future will be lower than the 10% [p.a.] we’ve made for the last 10 years but our job is to make as much money as we can for our members.”

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Kristian Fok, Cbus CIO, said it was fair to say if you were long duration/long risk during that period you made money no matter what.

“But at the same time there are big thematical plays… that tailwind is not sustainable,” Fok said.

“I keep saying there’s not going to be ongoing returns that are high – I don’t mind being proven wrong in that way.”

When it came to the expansion and consolidation of the industry, Delaney said “size can creep up on you” and he had not expected the super fund would grow as big as it had.

“I first started managing pension money 20 years ago and we were $3 billion and now we’re managing $250 billion,” Delaney said.

“No-one would’ve thought when we were managing $3 billion that we would be managing $20 billion let alone $100 billion. The unimaginable happens far too often in this part of it but we just seem to cope.

“There’s no point in building a portfolio or an approach for where we are today – we need to build one for five years’ time – look ahead five years’ time and think how big will we be.”

inhibiting female hiring practices

BY LAURA DEW

AN “industry deficiency” in female talent is financial services firms’ reason for hiring fewer female staff, according to Perennial.

The firm said diversity had “crept up in importance” for firms from third to second, behind greenhouse gas emissions, according to a survey by the firm, but that an inhibitor was the lack of talent.

Speaking to Money Management, Perennial Better Future co-head of ESG, Emilie O’Neill, said: “The inhibitors to this were named as industry deficiency in the talent pool, are females scared of working in finance?

“Some 62% of people said lack of talent was the reason followed by competition for talent, lack of graduates and firms’ hiring policies. People are acknowledging that it is an issue and are taking steps to address it.”

While there had been focus on achieving gender diversity at a senior level, O’Neill said Perennial also found firms were focused on staff at an entry-level as well.

The Better Future fund regularly questioned firms on their gender diversity and would exit a position if it did not see companies’ taking steps to improve their standing.

“We need to see management are aware of it [gender diversity] and are prepared to take steps to address it,” O’Neill said.

“We will give them the benefit of the doubt but we do need to see tangible progress over time and if we don’t then we will exit our position. We would like to see firms making an active effort.”

She said there was more interest in the environmental, social and governance (ESG) space from women as this gave them an opportunity to carry out meaningful work.

“In ESG, that is drawing more attention from females who want to have a positive impact, I don’t want to generalise, but females tend to want to feel they are making a difference in their work and to find meaning in their work,” O’Neill said.

As to how firms could improve their gender diversity, she suggested they educate themselves on the benefits of diversity and hold management accountable to reaching diversity goals via their remuneration.

Firms should also set up the working culture to accommodate women in the long term such as flexible working and parental leave.

13/10/2021 3:24:17 PM

12 | Money Management October 21, 2021

InFocus

MOVING TOWARDS CONSUMER-LED ADVICE There are three pathways that consumers take when seeking financial advice and firms are exploring how to best access these, writes Oksana Patron.

THE KNOWLEDGE OF how consumers prefer to access financial advice could help drive the shift away from traditional advice into consumer-led advice and comes in handy when designing new service model concepts, according to Industry Fund Services (IFS).

In its white paper ‘Reimagining how Australians access help and advice’ the firm singled out three of the most common avenues in which consumers access advice.

This included online (self) discovery, understood as having access to relevant and reliable targeted information based on consumers’ personal situation and life stage, followed by a process described as ‘learning with peers’, meaning consumers relied on the experience of other people in similar positions to theirs in how they approached or were approaching advice.

This would also be an opportunity to create a platform where people at similar life stages and with similar needs could share their personal experiences and learnings with peers.

The third way included access to an expert and the ease of engaging one. According to the paper, most people needed to know who they could go to when they needed expert advice and needed clarity about what it would cost and what the process would include.

Industry Fund Services (IFS) executive manager, Adrian Gervasoni, said the thinking around

HOW AUSTRALIANS ARE FEELING ABOUT THEIR FINANCES IN THE SECOND YEAR OF THE PANDEMIC

financial advice service models was often driven by regulation rather than underlying consumer needs.

“For some time, we were thinking why is it that we revert back to the same service delivery models, and we had that sort of clarity moment – it’s often because we start with what the rules allow first and then we are trying to get creative from there.”

Gervasoni said there were too few people receiving advice, specifically around retirement planning, and that led his firm to take a closer look at how to design a service model concept while staying solely focused on consumer needs.

“We had consulting helpers who helped around managing this project and a whole bunch of organisations engaged, the steering committee comprised of

a couple of technology companies, a couple of super funds, consumer advocacy group and a research house,” he said.

“There were a number of interesting things about how people go about giving help, and there was an element of selfdiscovery, engaging with a peer and seeking out the help of an expert. Out of these three ideas, I think moderated peer community is probably the one that is most controversial.”

According to Gervasoni, peer community groups presented the biggest challenges as it was difficult for the regulator to control but, at the same time, the use of support communities was commonplace in other industries.

“So we really saw this as the avenue that we want to explore further first just because it’s

potentially scalable but it also brings a different element to what advice can be shared,” he said.

“We think about the advice as how it’s defined in regulation and in law, but there is a human element to it when we are talking about the retirement and what people would do in retirement and how they would form new friendship groups.”

These are sort of things that the traditional advice models struggled to deal with very well and there was value in relying on other people’s similar experiences.

“If someone has recently been through a big life event and there is lots of knowledge that they have built up which should be valuable to someone else, and if we could find a way in a structured and safe space they could share their insights and reflections then it would be useful to someone else.”

23.1%

27.3%

49.6%

Somewhat stressed

Feeling OK

Feeling upbeat

Source: 2021 FPA 'Money and Life Tracker' report

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24/09/2021 4:02:29 PM

14 | Money Management October 21, 2021

Life insurance

THE NEW ERA OF INCOME PROTECTION

The life insurance industry’s losses have stemmed mostly from unsustainable income protection products, Jassmyn Goh writes, but will the new products help end bad habits?

INCOME PROTECTION (IP) insurance has been the bane of the life insurance industry but the wheels are in motion for a new sustainable era.

According to Australian Prudential Regulation Authority (APRA) data, over the year to 30 June, 2021, the life insurance industry lost $345.5 million from individual disability income

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insurance (IDII), and the prior year lost $1.29 billion.

The unsustainability of the products was a result of the vast number of people able to claim and for those on claim to be allowed to stay on claim for longer periods than necessary.

To allow insurers to keep providing income protection, APRA required insurers to cease offering

agreed value income protection policies to new clients from 31 March, 2020.

Following this, from 1 October, 2021, insurers were required under APRA to make changes to their income protection policies including income at risk, income replacement ratio, policy contract term, and benefit period.

This resulted in the recent

trove of new IP products released by insurers that will no doubt be highly scrutinised by the industry and will likely see, according to DEXX&R managing director, Mark Kachor, a number of revisions over the next 12 months.

Kachor said the new products were much more restrictive and financial advisers would need to be very careful when advising clients

14/10/2021 12:02:12 PM

October 21, 2021 Money Management | 15

Life insurance on existing policies.

“These products typically are only a little cheaper than the vastly more generous existing products the advisers were selling up until the first of October,” he said.

“There is a conflict so advisers need to be careful in spelling out everything a client loses if recommending a replacement of an existing contract that had more generous terms than the new generation contracts on sale now.”

HH Wealth director and financial adviser, Chris Holme, said while the new regime was a good thing and needed to happen for the industry, it would be more onerous for advisers.

“The new products compared to the previous ones aren’t quite as good, especially around being guaranteed re-insurance and the fact that clients have to reapply every five years,” Holme said.

“That’s going to be a little bit more onerous as we’re going to have to make sure that every five years we’re reviewing the policies for clients and continuing to act in their best interests.”

Holme said the new products made advisers more hesitant to change clients in existing policies prior to the new products, and noted there was likely a “mad rush” from advisers getting as many clients onto the old policy wording before 1 October.

While MLC’s general manager for retail distribution, Michael Downey, said he had not seen an uptick in activity prior to the launch of the new products, TAL chief executive, Brett Clark, said the insurer saw an elevated level of adviser activity in the lead up which was expected and anticipated.

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NEW IP PRODUCTS Holme said advisers would need to put a lot more thought into how to apply for income protection and into what policy as many of the insurers had launched two or three variations of the new products.

“There’s a fair bit more work that you need to do in identifying what suits the client, how to apply for it, whether they actually have existing income protection, and then post that having to review it every five years,” he said.

“That adds another administrative burden but it can be a positive thing because we’re taking into account more needs of the client and tailoring something that is actually in their best interest.”

He noted another pitfall is if clients were self-employed making sure to get three to five years of financial information and being very accurate on what was covered because of the indemnity factor.

“As long as you’re reading up on it and you’re understanding the policy definitions, you should be fine. If you’re haphazardly recommending it without looking at the policy wording you could fall into a trap there,” he said.

“It is going to be harder for advice because there is a lot more definitions and given some companies will bring out two or three policies, you need to be across those.”

Downey said the next 12 months would see advisers working out the new premiums and pricing, and once they had a good feel of the new benefits, features, and definitions they could decide on whether they would move clients to new products or not. But Downey

noted there would be some tradeoffs to look at.

Clark said both the new and old products would allow the majority of customers to get the base income protection need met.

The new products, however, while cheaper, did not have the bells and whistles the old products had.

WILL OLD HABITS DIE? Clark noted that it was important for the industry to avoid going back to the poor practices of the past that had gotten it in this situation in the first place.

The poor practices were insurers looking for more market share through continued product development in terms of widening scope, definitions, and benefits.

This led to more claims and thus higher prices.

“It’s certainly a period of significant disruption right now.

I’ve got no doubt that as companies better understand the customer experience, adviser experience, and the claims experience that these products will continue to evolve over the months and years ahead,” Clark said.

“I really hope the industry has learnt it’s lessons over the last few years and doesn’t fall back to poor practices and if they do then I’m reasonably confident APRA will hold us to account and they should.”

Downey said avoiding poor practices relied on insurers designing sensible products with good benefits and features, sustainable definitions, competitive but sustainable pricing, and not just trying to pick up market share for a year or two.

“It’s really about working with the regulator and making sure we as an industry stick to their

guidelines and turn this industry around. We need to make sure all of us are running sustainable, long-term income protection books because it’s such an important product offering out there for Australians to access,” he said.

Downey said the industry was more mature and that the dynamics had changed as the number of insurers had decreased and they were no longer fighting for 1% or 2% extra in market share.

“If you have six or seven reasonable insurers and you have your 15% market share that’s probably a pretty good result and you could run a long-term sustainable business,” he said.

“We’re all signed up to working with the regulator and if we get this wrong in the next few years the regulators can go a bit harder on us. We should control our own destiny and not have the regulator trying to drive the conversation.

We’ve got to take a leadership position here.

“I’m optimistic that we are all going to do the right thing and we’re not going to fall into that old trap of just trying to chase market share for the sake of it.”

THE ADVICE CONUNDRUM While many Australians will need access to income protection at some point, it is important to note that income protection benefits are generally for people under 65.

However, it is the younger cohort that find financial advice unaffordable. This issue is further exacerbated with advisers leaving the industry including those who have specialised in risk but find Continued on page 16

14/10/2021 12:02:16 PM

16 | Money Management October 21, 2021

Life insurance

Continued from page 15 they are no longer able to grow their business due to red tape.

Holme said it would be difficult to be a risk adviser at this time given the lowering of commissions and compliance burden.

Given most advisers are holistic advisers focused on wealth creation, Holme said it was unlikely holistic advisers would do as much research into risk insurance despite the country being underinsured.

“Taking away commissions from risk advisers makes it less favourable to be in that profession which means there’s going to be less people insured. It’s not really working as they were expecting it to. I think they were trying to overcome people rewriting policies, taking large commissions, and over insurance but I don’t actually think there was much of that out there,” he said.

“The fact that they’ve decreased commissions and they’ve made it harder to write businesses is actually shooting themselves in the foot.”

Kachor said this was a perfect storm and the industry needed to work through it and figure out who was going to train new advisers to give them expert knowledge on risk life insurance product knowledge, as a university degree did not suffice in this area.

Holme said he experienced difficult conversations with clients who only wanted risk advice and were not looking for a full statement of advice but were bound by compliance.

“How does someone propose that they pay a $3,000 plan fee to just get an income protection product? There’s a gap in the market there that they’re creating

19MM211021_14-27.indd 16

because the risk advisers are leaving the industry,” he said.

“So how do people obtain insurance, if that’s just what they want, without having to go through the whole advice process and pay all the fees associated with that?

We have to charge those fees because that’s to cover the cost of compliance and the cost to serve otherwise it’s not profitable for us.

“I just try and show as much value as I can for clients and try and get them to understand that it’s better for them to do advice on all areas and make income protection a part of it.”

INSURER SUPPORT FOR ADVISERS Downey said MLC and other insurers were looking to partner with technology firms to reduce the compliance burden advisers faced when constructing insurance advice from 15 hours to an hour or two.

“This would help with reducing the cost to serve and potentially still maintaining an appropriate profit margin for those advisers and their businesses,” he said.

“Advisers could have access to the offering either through the licensee they’re networked with or if they want to pay for a small fee for part of the technology.”

Both Downey and Clark said

life insurers needed to work with and support the advice industry.

Clark said this partnership extended beyond just providing new products including customer support and helping them be better advisers through education.

“We’re putting a lot of investing into our support and partnership with advisers through things like Risk Academy,” he said.

Clark said he was empathetic to the change in disruption for advisers over the last few years but believed there was an opportunity to look forward to through the Quality of Advice Review and other advocacy efforts to support financial advice in the future.

“The next three to five years is about working closely together, building together our confidence and optimism and as a result continuing to grow our industry again,” he said.

Kachor believed life companies that were strong in providing education and technical resources would play a significant role in supporting advisers.

“I think we’re going to go a bit back to the past where life companies are really going to have to step up, and they can without getting into conflicted remuneration space, by providing education and technical resources,” he said.

“Dealer group internal support for risk advisers is typically quite small and there’s only a small number of dealer groups who have risk experts on the payroll to support advisers.”

Holme said it was important for insurers to provide support, assistance, and communication and to be “absolutely triple A grade on claims”.

“They can be sort of average on the upfront stuff when you’re writing policy but if they’re not good on the claims side of things that’s where it really counts,” he said.

Despite the challenges, Kachor said he was optimistic for the future of life insurance given people still died, could get critically ill, or could get disabled meaning insurance was still a core need.

“We’re going through a shakeout of all the existing practices and entering a phase of reinvention and in three to five years down the road we are going to emerge from this with a stronger and more resilient distribution models and growing distribution models,” he said.

Downey was also confident about the future and said the advice industry would come out stronger and that well capitalised and well-run life insurance companies would be around for many years.

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8/10/2021 1:35:26 PM

18 | Money Management October 21, 2021

Boutiques

THE POWER IN STAYING SMALL The common perception is that growth in assets under management is the goal of a fund, Liam Cormican writes, but many boutique firms are keen to stay small and nimble.

WHEN SETTING UP businesses, many asset managers may focus on growing their funds under management as quickly as possible. But there are some boutique firms which are opting to eschew this route in favour of retaining control of their business and acting quickly for their clients.

Boutiques can offer many advantages for investors compared to their larger competitors. They often have less funds under management and a more flexible investment process. This allows them to move quickly and invest earlier than larger fund managers.

Bigger funds, with their committees, boards, management and compliance teams, may be restricted from deviating from the more rigid investment process frameworks that larger funds

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operate in. They also have a larger minimum investment size which can restrict their investable universe to the bigger, slower-growing businesses as opposed to the smaller, faster growing companies.

That’s why lean boutiques like MX Capital, Lumenary Investment Management, Fairlight Asset Management and Endeavor Asset Management (half of which have only one person running the show), can attract investors looking for unique strategies.

GOING IT ALONE Weimin Xie, portfolio manager and founder of MX Capital, a wholesale high conviction, fundamental-based investment fund, started his ‘one-man band’ boutique a few years ago.

“I decided that I wanted to start

my own fund because of a key difference that a small boutique offers,” he said.

“If I control the product, the size and I control my client base, then I should be able to better negate the adverse impacts from institutional imperatives.”

With about a decade of experience working on bigger funds, including the $600 million Ophir High Conviction fund, Xie believes a conflict of interest exists in bigger funds that is not present in smaller ones.

He said some owners of bigger funds are incentivised to increase their funds under management so they can maximise the return on their management fee – which ends up taking away a key advantage that small funds offer.

That’s because, as Xie puts it,

“too much money shrinks your investment universe” which is explained below.

ACTING QUICKLY Using the example of recent nervousness around China’s crackdown on the technology sector and the national education system, Lawrence Lam, founder and managing director of Lumenary Investment Management, said his investors benefited from his fund’s ability to actively seize opportunities as they appeared.

“A large fund may be very constrained in how they approach opportunities. They move like ocean liners, so decision making is slow. It may take weeks from inception of the investment strategy, moving the capital, through to trade execution. By that

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Boutiques Strap time, the window of opportunity can change as we saw during the pandemic last year,” Lam said.

“Whereas, if I just use my fund as an example, a boutique has that flexibility to capture opportunities in real time, unencumbered by red tape.”

Lam entered directly into the Shenzhen China A-shares market when institutional investors were pulling their capital out, as stock prices fell over 60% from fears of Chinese education sector reform.

Lumenary, which has $90 million in funds under management, aims to outperform the global market over the longterm (which the fund defined as more than one market cycle), by investing in founder-led companies through long-only, unhedged global equities.

Since its inception in July 2017, Lumenary has cumulatively returned 81.13% net of ongoing fees up to 31 August this year.

Part of the reason for that success, Lam said, was boutiques like his could avoid the kinds of “group thinking” that goes on at the institutional level.

“What happens is that when one [big fund] pulls their money out and the analyst recommends that it’s not a good time to be in a certain stock… [then this] leads to the 50% to 60% falls in price that we saw [after China’s overhaul of the education sector],” he said.

“I don’t have to take the advice from stock analysts, whereas institutional guys can’t stick their necks out too far, they want to stay within peer recommendations.

“I sit outside of that, I make up my own mind, my investors back me for the decisions I make, not the people I listen to. I’m also directly accountable for the decisions I make. That clear responsibility makes me closely aligned with my investors.”

Lam said he looked past falling stock prices in China and what the institutions were doing and, instead, capitalised on an opportunity he saw in a quality Chinese education company, buying stock at 60% discount to its valuation.

Similarly, Hayden Beamish, chief executive and portfolio

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manager of Endeavor Asset Management, said his high conviction fund, which targets small companies early, had been able to benefit from its nimbleness by finding high-quality companies before they were researched and well understood by the wider market.

Endeavor has $400 million spread across three core strategies.

One of which is its High Conviction fund, which has $100 million invested in 20 to 30 holdings, allowing the fund to invest in small companies earlier than competitors.

In other words, a smaller fund like Endeavor invests less per investment than a bigger fund which means it can buy or sell stock from small-cap firms earlier and without the same liquidity risks.

“That’s where you can really generate outperformance, especially relative to the Australian market which is concentrated at the top with the banks, resources and a telco,” Beamish said.

For example, Endeavor was able to buy 5% of IMDEX, a mining services company, when it was only valued at $65 million and trading at 16 cents per share. The company is now worth close to $1 billion.

Beamish said his fund was able to trim their IMDEX stock at 60 cents when the equity reached the level of liquidity that allowed bigger funds to invest for the first time.

“Our biggest successes have come from these smaller businesses on the [Australian Securities Exchange] ASX that end up in the top 200,” he said. “They’re not growing at the mercy of the economic cycle; they’re growing on their own merits.”

With this in mind, Beamish said he would look to soft close the high conviction fund when it reached $200 million and hard close at $300 million in order to retain the ability to source the type of smallcap opportunities that had contributed to its returns.

Nick Cregan, portfolio manager and co-founder at Fairlight Asset Management, a global long-only small and mid-cap fund, agreed that part of his boutique’s success is driven by acting fast.

“We break our process down with an emphasis on speed to

begin, ramping towards greater diligence and detail as the analysis moves through a series of steps.

The idea is to ensure our time is spent on the most prospective ideas and to keep morale high by not wasting time,” he said.

“Too often in large institutions analysts are asked to perform analysis on ideas that have no chance of portfolio inclusion. This wastes time and leads to employee turnover. Instead, our team works rapidly on ideas that interest them where we believe we have an edge.”

WHERE TO FOR BOUTIQUES? Cregan pointed to a 2018 analysis of boutiques published by Affiliated Managers Group, which demonstrated that boutiques significantly outperformed non-boutiques in institutional equity categories. The greatest outperformance, it said, was found in small-cap and emerging market equities.

Several factors were credited for this outperformance including improved alignment of interest, investment-centric organisational cultures and a team commitment to building an enduring franchise.

But investing in boutiques is costly and, according to Beamish, the situation is getting worse because of rising compliance and operating costs.

“So now it’s harder to service retail investors because of compliance costs so funds are having to get bigger and bigger to cover their operating costs, so there’s fewer smaller funds [starting up],” he said.

“Investing in the market has become more efficient, you’ve got access to all global products, brokerage is cheaper but your actual services like your accounting, your insurance, your custody – the actual operating model of a fund is becoming more expensive.”

So, boutiques that wish to stay small and independent must come up with clever and efficient business management solutions to deal with challenges and costs – often through technology and automation of manual tasks.

According to Lam, there was a big trend for boutiques to outsource

“If I control the product, the size and I control my client base, then I should be able to better negate the adverse impacts from institutional imperatives.”

– Weimin Xie, MX Capital tasks like fund administration to minimise costs and focus on the investment side of things.

Instead, Lam chose to keep as much in-house as possible because he believed that allowed for accountability to investors and most importantly, it allowed a fund to keep its independence.

He did this by developing his own client portal technology that saves headcount and, according to Lam, is a different approach to larger funds who tend to throw more people at operational challenges rather than leveraging technology.

“When you have that independence, when you stand on your own two feet – that’s when you can be truly be independent and make good decisions and not have to be unduly influenced,” he said.

Lam had been approached by several fund managers interested in his client portal technology who were looking to drive down their business costs and improve efficiencies, which Lam said would ultimately benefit retail investors.

As for what is holding boutiques back, Beamish says it is the status quo that wealth managers and financial planners adhere to which leads to them opting for larger firms which may perform worse than a boutique.

“I think the best returns are from boutique fund managers, but the industry is set up in a way that the people allocating clients’ money to fund managers, don’t want to look stupid so a lot of the flows go to the big brand institutional managers.

“I guess that’s the constant battle of the boutique manager.”

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20 | Money Management October 21, 2021

Advice

THE INVISIBLE DEMAND FOR FINANCIAL ADVICE There is a huge, almost invisible, demand for personal financial advice but advisers will only be able to meet this if they are willing to collaborate rather than compete, writes Neil Macdonald.

MUCH IS SPOKEN about the millennial generation but less perhaps on what they value in life.

It is our values that inform our behaviour and that will change as our lives change. This is, of course, true for all generations as everyone wants to live their best lives and create wealth but it is pleasing to see some millennials are considering financial advice.

CoreData’s 2020 COVID-19 research revealed around one in four (25.7%) Australians sought advice, with demand highest from Gen Y (32.2%). Also in 2020, Investment Trends found 2.6 million Australians said they intended to

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seek help from a financial adviser in the next two years, an increase of half a million since 2019, and double the number reported in 2015.

Demand is being spurred on by a number of factors. A greater interest in financial advice from younger people, who have more invested via their superannuation funds and are therefore seeking a better understanding of and an earlier interest in investments than previous generations, but also the financial impact of the pandemic and the ongoing exit of baby boomers from the workforce and into retirement.

I suggest there is also an almost

‘invisible’ demand for personal financial advice – many people recognise they need it but do not seek it for a number of reasons: they think they can’t afford it, they don’t have enough money to invest, they don’t know what they need, they don’t know how to access it, or they don’t know who to trust.

As a community, financial advisers are genuinely interested in the financial wellbeing of ordinary Australians and in helping them. But if everyone who needs or wants personal financial advice were to seek it, we could not possibly service them, given the onerous and expensive red tape. We simply don’t

have enough advisers to meet the demand, and we won’t have for quite some time, perhaps never.

AFFORDABLE ACCESS The reality is that although we are starting to see some regulatory concessions, such as the recent temporary freezing of the Australian Securities and Investments Commission (ASIC) adviser levy, and, according to the Association of Financial Advisers (AFA), a noticeable change in the tone of both politicians and regulators towards financial advice, the legislation and regulations are still here and won’t substantially

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Advice change for at least two years.

The other reality is that not all consumers want or need, or can afford, what personal financial advisers are currently forced to give them – that is, a full needs analysis leading to a statement of advice (SoA) and financial plan. A combination of legislation, regulation and licensee/adviser caution means that the possibility and the cost of scaled advice is beyond the reach of many people.

We might therefore need to face a further reality – that for some people guidance from their product provider, such as an industry fund, or digitally-enabled advice, is all that they can afford and that’s okay – as long as everybody (consumers, financial advisers and the providers of these services) clearly understands that this is not personal financial advice. If this is abundantly clear, then we could be collaborating rather than thinking of each other as the enemy.

DIGITAL ADVICE The minister for superannuation, financial services and the digital economy, Senator Jane Hume, recently described two ideas of digital advice: ‘robo-advice’ and ‘digitally augmented’ advice. The former is a robotic attempt at personal financial advice most often leading to a product recommendation, the latter helps make the delivery of personal financial advice more efficient and effective for consumers and advice businesses.

Let’s talk about digitallyaugmented advice first. There is a line of thought that because digitally-augmented advice will enable advisers to deliver advice more effectively and efficiently, they may be able to cost-effectively service more clients. I’m not sure how true this is. We know that clients see personal financial advice as much more than product advice, it’s about helping them set and reach their financial and personal goals, it’s a relationship business.

No matter how much technology improves the experience and delivery of advice, it doesn’t change the fact that personal financial advice is just that, personal. Clients

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want their choices validated, they need reassurance they are making the right choices and doing the right things. There is a limit to the number of people a financial adviser, or a financial advice business, can personally service and retain those relationships and there are simply not enough advisers to go round.

Robo-advice has the potential to help meet the invisible demand for financial advice, and given that the advice community cannot fully service this demand, as Senator Hume has pointed out, it is certainly no threat. It could even provide an introduction to personal financial advice for consumers and potential clients as the needs of the people who use it become more complex.

Robo-advice also has the potential to educate all Australians and future personal advice clients about the financial advice process, the value of personal financial advice and the cost. If it can do that, then it can help build greater trust in our community. I say potentially because although robo-advice is improving, unfortunately, at the moment, most solutions result in specific product recommendations – that is, they are used by providers to sell particular products.

If we as a community can collaborate with providers to improve robo-advice, it does have the power to make consumers more comfortable about seeking personal financial advice as their needs and, let’s not forget, their values change.

They will also be better educated about their own financial situation and needs.

All of which will only fuel more demand for personal financial advice.

PROFESSIONALISM AND TRUST We have certainly moved along the road towards professionalism in the past 10 years. The best interests duty has long been at the heart of the work financial advisers do.

With the adoption of the Financial Adviser Standards and Ethics Authority’s (FASEA’s) code of ethics, the FASEA national exam, and the requirement for financial advisers to become degree qualified by 2025, both

ethical and educational standards have lifted.

One positive thing the COVID-19 crisis has done for financial advice is inspire greater respect for what advisers do and how their advice improves client outcomes and adds value. A number of industry reports confirm that trust in financial advice is being restored. People who had financial advisers, who were encouraged not to panic, to stay the course and perhaps if they were in a position to, take up opportunities, fared much better than those who didn’t.

The '2021 Russell Investments Value of an Adviser Report’ has even put a number on it. The report indicates that since the beginning of the pandemic in 2020, advisers have added around 5.2% to client portfolios by helping clients to avoid bad investment decisions and, presumably, make better ones.

Greater levels of professionalism and restored trust will also increase demand for advice.

ADVISER EXITS The forced exit of highly experienced and skilled financial advisers from the industry in this environment is therefore nothing short of a tragedy – both for consumers and for those affected advisers.

One of reasons for exit is the educational requirements. And here we must ask, what other new profession has required existing incumbents with extensive experience to study at this level?

To undergo exams on topics they are expert in just to be able to continue to take care of their clients? I personally know of two advisers who are aged in their 70s, with 50 or so years of experience, who have completed the FASEA exam and are now studying for a degree so they can continue to look after their clients.

But others are unable to meet the requirements despite being compliant and extremely efficient and respected advisers.

And so widens the gap between the supply and demand of financial advice services. We need to find a way to increase the number of advisers so that we can meet demand – but we are

genuinely up against it.

The number of people entering the profession is dismally low – an industry that had its reputation sullied, however unfairly, that had remuneration restraints put on it, that introduced legislative and regulative constraints that made the task of delivering personal advice more time-consuming, expensive and difficult, that demanded more in terms of education and training and that made slow progress towards professionalism could hardly persuade many people to consider it as a career.

But according to some reports, there is a small increase in the number of new entrants. FASEA chief executive, Stephen Glenfield, is on record saying there was a threefold increase in the number of units being studied in FASEA-approved degrees between 2019 and 2020.

How many of those who are studying these degrees will ultimately venture into the world as financial advisers is, however, anyone’s guess.

We also need to overcome one of the other significant barriers to entry – the professional year (PY). The PY puts even greater demands on the small pool of existing advisers who are already under pressure to adapt to the new world of advice.

The AFA recently reported that since 2019, more than 550 provisional advisers have enrolled in the PY and another 260 are expected to start this quarter. We can only hope that this is the beginning of a trend but we urgently need to discover ways to bolster it.

We need to collaborate with universities and senior secondary schools to encourage people to consider a career as a personal financial adviser.

We need to work out how to provide advice in an accessible and cost-effective way, while ensuring we have a viable economy and appropriate consumer protection.

As we journey along this road and the demand for personal financial advice gathers momentum, the need for genuine collaboration by all key stakeholders becomes much more apparent.

Neil Macdonald is chief executive of The Advisers Association.

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22 | Money Management October 21, 2021

ESG

AN EVOLVING ROADMAP FOR ESG INTEGRATION It’s not easy being green, writes Charles Stodart, but that’s no excuse for managers not to try and implement it as ESG best practices and communication matures.

SUSTAINABILITY IS BECOMING a bigger issue today for investors precisely because it is becoming a bigger issue for society. In particular, the relationship between society and large corporations is shifting and people’s expectations are shifting with it.

A good example is climate change where there is a growing expectation that companies should be part of the solution rather than just avoid being part of the problem. This extends far more broadly to include expectations around governance, use of technology and indeed a company’s societal license to operate.

This idea that companies and society are interacting with each other is driving the need for investors to think more holistically and in far more detail about sustainability issues within their portfolios.

This raises three questions for (retail) investors – while society is demanding more positive accountability, how is this being measured from an investment point-of-view; secondly, does this shift in expectations challenge some of the initial thinking on sustainability; and thirdly, are there longer-term implications of investing sustainably that investors should be positioning for?

ESG IS A JOURNEY Much has been written in recent years on how environmental, social and governance (ESG) factors can evaluate a company’s sustainability.

Investors are no longer surprised to

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learn that ESG in some form has been around for decades, even centuries. There is also a growing awareness of the different motives for sustainable investing, from values-based to more practical, as well as the various investment approaches, from exclusions to ESG integration to impact investing.

But even with this growing appreciation of sustainable investing, there remains confusion given the current lack of agreed definitions and standards. It is not uncommon to find that different analysts may have differing views as to the ‘greenness’ or sustainability of the same company. How can this still be?

It is worth remembering that addressing ESG issues is not an overnight fix. The route to improvement, whether environmental, social, or from a corporate governance point of view should be seen more as a journey.

This is perhaps best demonstrated by the recent introduction of the European Green Deal, which has the ultimate environmental goal of making the European Union (EU) a net-zero emitter of greenhouse gases (GHG) by 2050.

The EU has also advanced legislative proposals to reduce GHG emissions to 55% below 1990 levels by 2030 as part of the roadmap to net-zero by 2050. The ‘Fit for 55’ legislative proposals cover a wide range of policy areas including climate, energy, transport and taxation. The EU Emissions Trading System will also be an important part of the solution.

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ESG There are two points that are worth highlighting: the first is that government policy is a key mechanism for driving change. This in turn reflects how societal norms have developed over time and which then gets codified into legislation and regulation – as we are seeing in Europe today. Companies need to be very aware of changes to legislation and make sure that they are on the right side of those policy changes. Investors also need to be mindful that changing legislation and changing policy can have a big impact on portfolio returns over the long term.

The second point is perhaps more immediately relevant to Australian investors – particularly given that Australian climate action ambitions are at a nascent stage – namely that the path to sustainability is a journey.

Common standards will evolve and develop and coalesce around those that are the most supported. Don’t obsess on the contradictions or the small print, instead focus on the direction of travel.

It is frustrating and challenging that non-financial disclosures today are not completely reliable, not always consistent or even uniformly verifiable. But this will improve.

There may not be consistency across all ESG guardians and promoters – sometimes with good reason – but they are all adding something to the discussion and taking it forward.

One thing that is clear is ESG awareness and integration across quality fund managers has been far better communicated over the last few years. One needs only consider the commitment to the Principles for Responsible Investment (PRI) by Investment Managers and Asset Owners, with assets under ‘PRI’ management today north of $120 trillion, a figure which has nearly doubled in the last five years.

As this ESG journey develops further, it is possible that some commonly-held beliefs about ESG ‘best practice’ also evolve.

A FIX FOR TODAY OR MEND TOMORROW? A relatively well-understood approach to ESG investing is to apply a negative screen and

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exclude companies whose business activities do not meet client-specific values or guidelines.

These may include so-called ‘sin stocks’, such as those involved in tobacco or gambling. But perhaps this net of negatively screened stocks (and industries) is now being cast too widely.

There is a risk today that ESG-labelling is winning out over ESG action – after all, carbon divestment has no real ESG impact.

It might fix your investment problem, but it does not fix the underlying GHG issues.

ESG is a dynamic space; static definitions risk becoming obsolete. Companies that may score poorly on today’s subjective (and often backward-looking) scale, might be part of the longterm environmental solution.

Thinking about divestment in a holistic sense, is it ethical to make your problem someone else’s?

Maybe a better indication of an investor’s ‘ESG-ness’ is to mark them on their willingness to engage to effect ESG change rather than just exclude ESG risk.

The reality is that while net zero is a lofty ambition, tackling decarbonisation will require significant capital expenditure.

Partly this will be addressed by government programmes and incentives, but much will also rely on the private sector. And those companies with the biggest incentive to drive change are those in related industries – think integrated oil companies, for example. In most cases, they also have the cashflow to make it happen.

As the thinking on ESG investment, especially the environmental component, matures, the hope is that investors increasingly give due consideration to the full implications of divestment and lean instead towards managing those assets more sensibly – and indeed remove the investment ownership stigma. It is becoming clear that you need to be invested to be part of the solution.

The other incentive is the return opportunity. Not only are these companies out of favour and trading at attractive valuations, they may also provide good access to duration

given the required long-life investment of a de-carbonising world. With net zero likely to be a hot topic over the coming months and years – for companies, industries and governments alike – the regulatory and political environment are also likely to be supportive.

INFLATION: THE COST OF DOING GOOD? A focus on net zero and how we collectively get there also introduces a different investment implication for investors to think about – could ESG-initiatives be inflationary? Sustainability is about accounting for externalities and putting a price on something that used to be free.

For example, think about the EU’s ‘Fit for 55’ initiative. The plans are extremely ambitious and if implemented in full would transform the way economic activity is carried out. But this has a cost to implement.

The EU’s aim of zero emissions by 2035 for passenger cars and light trucks implies the complete phasing out of diesel and petrol cars in favour of electric vehicles and would necessitate a network of electric charging stations. The imposition of a carbon border tax by 2026 that would tax polluting imports or the push for ‘green’ steel could also raise prices.

If you accept climate change science, then you must adopt these environmental policies. How will society react to higher prices driven by these initiatives as it is almost inevitable that prices will rise in the energy complex? Cash handouts may be offered in conjunction with policy initiatives to ease the burden, especially on lower income households – can all of society afford to be green?

The inflation debate, especially in the longer term, may hinge on policy change, but an observation from the pandemic policy response is that there is a higher tolerance today for handing out money. If this thinking is carried forward into government support for implementing green policy, then this could also bring an inflationary impulse.

While much of the current debate and implementation

“While there continues to be some frustration with the lack of clear standards, policy roadmaps and associated legislation is providing much more clarity.” focuses on the environmental aspect of ESG, the broader concept of sustainable investing is a movement that is gathering pace. What is apparent is that the debate on ESG is no longer in its infancy and the focus on climate change has become mainstream – indeed ESG is rapidly becoming a ‘hygiene factor’, with ESG integration into the investment process becoming the rule rather than the exception.

ESG does remain a fastmoving environment in terms of implementation. And while there continues to be some frustration with the lack of clear standards, policy roadmaps and associated legislation is providing much more clarity, led by Europe. These will be accompanied by new benchmarks and greater scrutiny on green investments – given the red-hot demand for ESG products, we should not be surprised to learn that definitions around what constitutes a ‘sustainable’ investment are also being handed down to reduce the risk of misrepresentation – or ‘green-washing’.

The direction of ESG is both clear and maturing in terms of the shift away from simple ESG positioning towards more ESG engaged action. It is a journey that will include advisers and trustees in their pursuit of best interest duties as well as investors more broadly. ESG is here to stay and is a long-term factor for all investors to consider. Being green may not be easy, but we have an increasing responsibility to try.

Charles Stodart is an investment specialist at Zurich Investments.

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24 | Money Management October 21, 2021

Index investing

REINVENTING INDEX INVESTING

Growing demand for affordable financial advice is powering appetite for a new breed of low-cost index funds as a core holding in portfolios, writes Bryce Quirk.

ONE GLIMMER OF light to come from the COVID-19 pandemic is the surge in demand for financial advice from Australians.

The number of unadvised Australians who intend to seek financial advice in the next two years rose to 2.6 million in 2020 from just 1.3 million in 2015, according to Investment Trends’ 2020 Financial Advice Report, which surveyed 4,394 people in July last year.

This presents an enormous opportunity for financial advisers to expand their businesses.

However, the cost of serving aspiring Australians with more modest wealth can act as a barrier.

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To make financial advice more accessible, product manufacturers must support advisers to find sustainable ways to make advice affordable to a wider range of people, while ensuring that clients’ needs are met and the advice is in their clients’ best interests.

LOW-COST MARKET EXPOSURE While not a new investing concept, low-cost index funds are gaining popularity with advisers looking for ways to build efficient portfolios without compromising on quality. At Colonial First State (CFS) we are seeing a sustained

resurgence of interest in index funds, with almost $2 billion inflows into the CFS Index Australian Share fund and over $1.3 billion into the CFS Index Global Share fund since the start of 2020 alone.

Index funds provide investors with broad and diversified exposure to market returns at a low price point.

Fees for index funds are significantly lower than actively managed funds investing in the same asset class. Costs in index funds are kept to a minimum by using systematic processes to track a benchmark index. Portfolio turnover is usually low, which

minimises transaction costs and offers the potential for tax efficiency.

In contrast, actively-managed funds draw on the expertise of specialist investment managers.

Clients pay for these professionals’ analytical skills, industry knowledge and judgement, as well as the access they have to investments that would otherwise be difficult or impossible for investors to participate in. Such expertise and access can deliver strong returns for investors, but it does come with higher fees to cover the costs of those service benefits.

Active fund managers that are

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Index investing seeking to outperform the market may change their portfolio holdings frequently, leading to higher transaction costs and tax implications for investors.

SMARTER INVESTMENTS Beyond their cost advantages, index funds have become far more sophisticated, making them more appealing to investment savvy but cost-conscious clients.

Traditionally, index funds have focused on giving exposure to a single asset class such as shares or bonds. More recently, multisector index funds have become available with strategic asset allocation built in, saving investors and advisers the time and effort of creating diversified portfolios that suit their risk profile.

Demand for these multi-sector index funds has been strong and there has been strong take up of the four other multi-sector index offerings with balanced, moderate, growth and high growth profiles.

This shows us that Australians are looking for low-risk and low-cost investment options to allow for a diversified portfolio that suit their end goals.

Geared equity index options are set to be added to the mix in the coming months for growthfocused clients who want to boost their returns in the low interest rate environment, while controlling portfolio costs.

IN SEARCH OF PASSIVE RETURNS The growth in unlisted index funds has been mirrored by an increase in demand for passively managed exchange traded funds (ETFs).

Passive ETFs are similar to index funds in that they aim to replicate the returns of a benchmark index, rather than aiming to achieve higher performance by actively skewing their portfolios to capture or avoid particular sectors or investments.

Like unlisted index funds, passive ETFs typically have low portfolio turnover and charge low management fees.

A key difference between the two investment types is that ETFs are listed on a stock exchange and are traded like shares,

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whereas index funds are unlisted and are purchased like other managed funds.

This means that every time a client wishes to increase or redeem their investment in an ETF, they will incur brokerage fees. Index funds on the other hand, do not charge transaction fees for clients adding to or redeeming their investments.

For clients making regular contributions to their investment portfolio as part of a wealth creation strategy, the brokerage costs incurred in using ETFs may make unlisted index funds more competitive on the basis of transaction costs.

HIGHER RETURNS FROM A STABLE BASE Numerous academic studies have shown that asset allocation is one of the biggest drivers of long-term portfolio performance. The influential study 'Determinants of Portfolio Performance‘ by Gary Brinson suggested that over 90% of a portfolio’s long-term returns could be attributed to its strategic asset allocation.

As index funds do not try to outperform their benchmark, investors looking for returns above the benchmark results will need to augment their portfolio with actively-managed strategies.

A common approach involves using index products to achieve diversification at a low cost, then adding selective exposures to active funds with particular outcomes in mind. This is known as a coresatellite approach to portfolio design, with the ‘core’ being the index product and the ‘satellites’ referring to more aggressive actively managed investments.

A core-satellite investment strategy, particularly when using a multi-sector index fund as the core, allows advisers to efficiently achieve an asset allocation mix that aligns risk with their client’s risk appetite while minimising costs.

For instance, a client approaching retirement with a short-term investment horizon might prioritise capital preservation and investment stability, but still need some potential for growth.

They might allocate 80% of their assets to a conservative multi-sector index fund that has a 70% allocation to defensive index investments and 30% to growth index assets, providing a stable base of returns.

To that core, they may add ‘satellite’ exposures to incomeproducing assets, such as global infrastructure and global property, and funds expected to deliver higher growth prospects over time, such as Asian shares or small companies.

Meanwhile, a wealth accumulator client looking for growth, with a longer investment time horizon and a higher risk tolerance, might consider a 75% allocation to a growth-focused index option as a core, with smaller satellite exposures to funds giving access to specific themes, regions or gearing. This might include allocations to technology funds, emerging markets funds or small companies share funds that the adviser and client believe will outperform over the long term.

Using this core-satellite portfolio approach combines the benefits of passive investment – including low cost, diversification and tax efficiency – with the potential for outperformance offered by actively managed strategies.

MANAGING OPERATING COSTS Of course, investment expenses are only part of the cost of advice equation. The costs and complexity of running a modern financial advice business are high, with compliance demands and work overload both significant sources of stress for financial planners.

To reduce the burden, advisers need access to a comprehensive reporting suite that enables them to efficiently keep track of their clients and their business. They need access to technical support on demand from platforms, software and other service providers where relevant.

In this era of COVID-19, the ability to interact with clients in a digital world, using electronic signatures and executing client

transactions digitally in conjunction with planning software and other tools has never been more important.

Platforms and other adviser technology are evolving to support these requirements.

VALUE OF ADVICE Advances in technology are helping advisers to provide clients with more information about their portfolios. For example, portfolio holding tools that accompany the new breed of index funds now available give advisers and their clients a detailed view of the underlying assets in each investment option, right down to the names of familiar companies they are invested in.

This level of transparency can make it easier for clients to fully appreciate the investment strategy that the adviser is recommending.

We know from our own adviser research that clients want to be more engaged with their investments. Advisers can assist clients to become actively engaged in their portfolios by helping them to develop a deeper understanding of the investments they hold. With a greater level of understanding, clients are more likely to value the advice they have received.

How highly the client values advice is a critical factor in how much they are prepared to pay for advice. This is the case both for clients with lower levels of wealth where affordability is a consideration, and for higher wealth clients who are becoming increasingly cost conscious as information allowing for cost comparisons becomes more readily available.

Improving business efficiency gives advisers the option to pass operational savings on to clients in lower fees for their service.

Building portfolios around increasingly sophisticated indexbased investment solutions lowers the cost of investing. When combined, these measures, can help advisers to achieve goals for their clients, as well as growth for their business.

Bryce Quirk is chief distribution officer at Colonial First State.

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26 | Money Management October 21, 2021

ETFs

A NEW ETF DEMOGRAPHIC Locked out of the market with increased household savings, Alice Shen examines how younger generations are putting their money to work in ETFs. MILLENNIALS AND WOMEN are increasing their use of exchange traded funds (ETFs) in their investment portfolios as they seek to grow their wealth and diversify their risks. Both groups are helping to drive the growth of the ETF industry as it heads towards a $140 billion market capitalisation by the year’s end.

Australia is a nation of investors with close to nine million adult Australians holding investments outside their superannuation and residential property, according to the 'ASX Australian Investor Study 2020’. Increasingly, women and millennials are investing in ETFs which enable diversification beyond holding a handful of shares.

Women made up 45% of all new investors in the past 12 months, up from 31% five years ago.

20 years ago, women made up just one-in-10 ETF investors.

Today, they reportedly account for one-in-four ETF investors. Record low interest rates, increased savings and the desire to secure economic freedom are encouraging more women and millennials to invest in ETFs and govern their own future with their investment decisions. Research has found that women too are flocking to responsible investments more than men, and ETFs have opened up the options.

Significantly, the Australian Securities Exchange (ASX) study found that ‘next generation investors’, or people aged 18 to 24 years, are drawn to ETFs more than shares. This age group is the least likely to hold Australian shares directly (36%, compared to 77% of retirees), but they are the most likely to invest in ETFs (20% versus

19MM211021_14-27.indd 26

7% of retirees), as shown in Chart 1.

Like women, younger investors are drawn to ETFs for several reasons, including their low cost, accessibility and convenience.

Investing in one share represents an investment in one company; ETFs enable people to invest in a range of companies or assets in just one trade on the ASX, saving time and money.

A distinct increase in the number of female key opinion leaders in the industry has helped to fuel more women into ETFs and self-directed investments. The top money podcast in Australia, She’s on the Money, is hosted by millennial money expert and financial adviser, Victoria Devine, while a plethora of female ‘finfluencers’ like Tash Invests have garnered swathes of followers online. Another top finance podcast, Equity Mates recently pivoted to launch You’re in Good Company, another finance podcast targeting young female millennials and the Zoomer generation.

MILLENNIAL INVESTING The proliferation of investing apps has also made investing more accessible and much cheaper; Superhero, Sharesies, Commsec Pocket and Stake are streamlining investment online and typically have no or a very low minimum investment levels. Some of these platforms offer zero brokerage fees, target millennials with their investor education and promote the convenience of long-term investing through ETFs. In the US, a study published in mid-2021 has similarly found millennials are continuing to outpace generation X and baby

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October 21, 2021 Money Management | 27

Strap ETFs

previously available to retail investors including offshore equities and assets such as infrastructure and property. The expected increase in usage will drive further growth of the ETF market in Australia as it heads towards a market capitalisation of $140 billion by end of 2021 and $200 billion in the next two years.

With its growth so far, we have seen the range of ETFs develop from simple market capitalisation index-tracking ETFs to smart beta ETFs to active ETFs. Popular investment themes such as environmental, social and governance (ESG), clean energy and video gaming are drawing in the younger demographic and those investors who want to align their values with their investment dollars.

A recent survey conducted by RBC Wealth Management shows women in particular are driving demand for socially responsible

boomers in ETF adoption. Over the next year, 29% of millennial ETF investors plan to significantly increase investments in ETFs, compared to 23% of Gen X investors and 9% of boomer investors, according to the ‘ETF Investor Study’ by Charles Schwab and Co. Millennials estimate that in five years, 43% of their portfolios will be in ETFs, compared to 39% for Gen X and 29% for boomers. This move to ETFs is coming at the expense of individual stocks, with more than half of millennials surveyed saying they have dumped all their equity holdings for ETFs. Reflecting the broad appeal of ETFs, the VanEck survey found that 89% of respondents said they would recommend ETFs to other investors, reinforcing that ETFs are the topic du jour when talking investments.

ETFs open up opportunities in asset classes which may not have been

Chart 1: Next generation investors 36%

Australian shares, held directly

33% 21% 23%

Term deposits

28%

International shares, held directly

11%

Exchange traded funds (ETFs)

Hybrid securities Infrastructure funds mFunds Exchange traded options (ETOs)

3%

15%

15%

9% 10%

1%

16%

7% 7%

11%

4% 3% 4% 4% 4% 2% 5% 3% 1% 3% 4% 3% 2% 2% 4% 2% 2% 3% 1% 2% 2% 0% 2%

Warrants

2% 1% 0% 1%

I don't know

44 %

15% 16%

10% 7% 9% 8%

Futures

Other

38%

10% 10% 10% 10%

Real estate investment trusts (REITs)

Government/corporate bonds

41%

20% 17%

7%

Other investment (commercial) property

Unlisted managed funds

77%

58 % 31%

Residential investment property

Listed investment companies (LICs)

54%

2%

6%

6% 6%

3% 2% 4%

Next generation 9%

Wealth accumulator 12%

Retiree All investors

investing, or ESG. Women are more than twice as likely as men to say it is extremely important that the companies in which they invest in integrate ESG factors into their decisions. Importantly, among the other ESG factors, when it came to the “S” in social, women ranked human rights at 80%, workplace health and safety at 75%, and social justice at 64% as the most important elements for them.

This is just one reason why funds are pouring into ESG and thematic ETFs listed on the ASX. Over the six months to 31 August, 2021, funds under management (FUM) in thematic ETFs grew by 39% to $5.1 billion, while FUM in sustainable investment or ESG ETFs jumped 53% to $4.6 billion.

That growth easily exceeded growth in FUM of ASX-listed market capitalisation ETFs which grew by 25% to $75 billion.

Growth in VanEck thematic ETFs grew by even more, at 126% to a FUM of $191 million.

SHUT OUT OF PROPERTY Other factors have driven millennials into ETFs. Millennials, in particular, have been shut out of the Australian property market given the very high cost of real estate. Equities are more equitable because they are more accessible than property and offer comparable, if not better, returns over the long term and are less sensitive to interest rate rises.

ETFs do not demand a huge stamp duty slug or require a deposit. You can invest much smaller amounts of money, unlike the property market, which demands a huge chunk of your investment dollars and is often a life-long commitment.

Australians too, including women, have greater wealth to invest. Net Australian household worth rose to a fresh record high of $13.43 trillion in the second

“20 years ago, women made up just one-in10 ETF investors.

Today, they reportedly account for one-in-four ETF investors.” quarter of 2021 and wealth per capita rose to a record high of $522,032. Household cash deposits rose to record $1.34 trillion. This cash is waiting to be invested, and some of it will go into ETFs. Lockdowns too have forced us to save and given us more money to invest. Commonwealth Bank economists estimate that Australians have amassed around $230 billion in extra savings during lockdowns, enabling those ‘stuckat-home’ to invest in value adding assets such as ETFs. The nation’s prosperity has gained through the pandemic and government support has helped to put money into women’s and millennials’ pockets which is waiting to be invested. In many cases, there is nowhere else to spend that money.

As we enter 2022, the push of millennials and women into ETFs will only likely gain momentum.

With interest rates close to zero on cash and government bonds offering minuscule yield, women and millennial investors have been forced to look elsewhere to draw a decent income. ETFs are democratising investing so that now all types of investors can buy the exact same exposure that were once only available to institutional or high-net-worth investors.

Alice Shen is senior associate investments and capital markets at VanEck.

Source: ASX Australian Investor Study 2020.

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12/10/2021 2:53:46 PM

28 | Money Management October 21, 2021

Toolbox

IMPROVING DIVERSIFICATION WITH SMART BETA There are ways for smart beta multi-factor strategies to help improve portfolio diversification and offer benefits for investors, explains Mike Aked.

FACTOR INVESTING, ALSO known as smart beta, has become increasingly popular as investors realise they can harvest factor-driven excess returns and diversification over the market capitalisation-weighted benchmark through a simple, transparent, and rules-based approach.

Based on Research Affiliates’ research, the six factors of value, low beta, profitability, low investment, momentum, and size produce a substantial diversification benefit across multiple return drivers. Some factors have conveniently been placed together, such as profitability and investment, which are labelled as indicators of quality companies. The diversifying aspect of combining factors with different risk and return characteristics and low correlations helps investors “weather the storm” during adverse market conditions.

But a question arises when

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deciding on a multi-factor portfolio: which factors should be included?

We find the right balance is achieved by making a decision based on the trade-off between the effective harvesting of the factor premium and low-cost implementation.

COMBINING SMART BETA FACTOR STRATEGIES Research Affiliates has analysed the six factor-based smart beta strategies by constructing simple long-only investable portfolios.

We start with the large-cap universe of US stocks, except for the small-size strategy. For each we select the best stocks based on the corresponding characteristics. For example, we construct the value portfolio by choosing the top 30% by book-tomarket ratio. Within the portfolios, we weight the selected stocks by capitalisation, except for low beta which we weight by beta ranking. The portfolios are

rebalanced annually each July with the exception of momentum and low beta, which are rebalanced quarterly.

We found that, on average, the six factor-based smart beta strategies deliver enhanced returns, with an average annualised excess return of 1.86% over the study period, July 1973 to December 2018, as indicated in Table 1.

The correlations of the six factors’ excess returns are mostly low or negative. We did find, however, a more positive correlation between the investment factor with value and with low beta.

Historical data tells us that the momentum and size factors appear to offer a substantial diversification benefit for the multi-factor strategy. The momentum factor has a negative correlation with three of the other factors—value, low beta, and investment—and a slight positive correlation with profitability and size. The size

factor is relatively lowly correlated with the other factors, and especially seems to be a particularly strong diversifier of the profitability factor. It seems that small companies are spending time growing, rather than being profitable.

IMPLEMENTATION MATTERS It is very important to look at factor investing from a practitioner’s, rather than an academic’s, perspective. The difference is that while research can find a relationship between a financial characteristic of companies and future returns, investors are only interested in those relationships that can deliver an excess return in realworld portfolios.

Implementation requires thoughtful analysis given the notorious reputation of the high transaction costs associated with many factors, with the greatest

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October 21, 2021 Money Management | 29

Toolbox Table 1: Performance of long-only factor-based smart beta strategies, United States Jul 1973-Dec 2018

offenders being momentum and the small-size factor. The explicit costs of implementation, such as brokerage, are generally well managed. We focused on the implicit component of implementation cost, which can be measured by the market impact of the trade, or in other words, the movement in a security’s price due to trading.

Understanding the importance of lowering implicit implementation costs, we have analysed them closely. We incorporate means of reducing the market impact of a strategy directly into its design.

The market impact of a portfolio rebalancing can be attributed to several factors. The first, and most familiar, is the strategy’s turnover.

The more you trade, the more it will cost. But we also need to consider a strategy’s portfolio volume, liquidity, turnover concentration, and tilt.

Portfolio volume is the aggregate of median daily trading volume of all stocks you hold in your portfolio. Lower portfolio volume, that is, when the portfolio holds more illiquid stocks, increases implementation costs.

Liquidity refers to how quickly and easily a security can be bought and sold. Stocks of larger, betterknown firms with greater market capitalisation are typically more liquid than stocks of smaller, lesser-known firms with lower market capitalisation.

Turnover concentration measures how spread out your trades are across the securities held in your portfolio. When turnover (trading) is focused on only a few securities, and in relatively large size, in your portfolio, the trades are typically more expensive to execute than if trades are more equally spread out, and generally of smaller size, across all securities in the portfolio.

Lastly, tilt measures the illiquidity of a portfolio as compared to the most liquid possible portfolio. When your portfolio holds more illiquid stocks, which are more costly to trade, the portfolio will have higher tilt.

Intuitively, we can understand that high portfolio volume, low tilt, low turnover, and low-turnover-

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Table 2: Implementation cost of long-only factor-based smart beta strategies, United States Jul 1973-Dec 2018

Source: Research Affiliates, LLC, using data from CRSP/Compustat

concentration strategies are associated with a low marketimpact cost, while low portfolio volume, high tilt, high turnover, and high-turnover-concentration strategies are associated with a high market-impact cost.

The average turnover across the six strategies we analysed from 1973 to 2018 is 61.6% and the average estimated trading cost of the strategies is 127 basis points (bps), assuming US$10 billion ($13.6 million) in assets under management (AUM), as shown in Table 2.

The cost of implementing a strategy that has high turnover, high tilt, or low portfolio volume can be quite large. The momentum strategy, for example, has annualised one-way turnover of a very high 159.5%, which generates a comparatively high trading cost of 241bps for a US$10 billion portfolio, even though portfolio volume and tilt are at reasonable levels. When we consider the implementation shortfall, using a

naively-constructed momentum factor as a standalone investment strategy does not seem to produce a good outcome.

In contrast, strategies with high portfolio volume, low tilt, or low turnover typically have lower implementation costs. For example, the profitability strategy, which has the lowest trading cost of the six factors (17bps for a US$10 billion portfolio) is characterised by all three of the low-cost traits.

The value strategy also incurs low trading costs (56bps) by virtue of its relatively low turnover and tilt. Interestingly, the size strategy, which focuses on small-cap stocks, has a below-average trading cost (91bps). Although the size factor tends to trade small, illiquid stocks as indicated by its comparatively low portfolio volume and high tilt, it has low turnover due to its broad coverage—2,352 names as of December 2018. On balance, the higher coverage of the size strategy almost offsets the cost of trading smaller companies.

MULTI-FACTOR WITH MOMENTUM AND SIZE Although momentum is very expensive to implement as a stand-alone strategy, and size seems to be risky from a volatility and tracking error perspective, these factors can be good additions to a multi-factor strategy because of their negative or low positive correlations with other factors.

We also analysed four portfolios to assess how including both of these factors impacts the performance characteristics and implementation costs of a multifactor strategy. We look at four multi-factor portfolios with an equal allocation to each set of nominated factors: • Portfolio 1: Value, low beta, profitability, and investment; • Portfolio 2: Four factors in Portfolio 1 plus momentum; • Portfolio 3: Four factors in Portfolio 1 plus size; and Continued on page 30

12/10/2021 4:16:58 PM

30 | Money Management October 21, 2021

Toolbox

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

Continued from page 29 • Portfolio 4: Four factors in Portfolio 1 plus momentum and size.

When we add momentum to the equally weighted four-factor portfolio to create Portfolio 2, because of momentum’s negative or low positive correlations with the other factors, tracking error is reduced by 84bps and the information ratio (IR) improves to 0.57 versus 0.46. The trading cost of Portfolio 2 is surprisingly lower than that of Portfolio 1, 32bps versus 33bps, respectively, at the US$10 billion portfolio level.

Adding momentum to a multi-factor portfolio increases portfolio volume and lowers portfolio tilt, which lowers trading costs. Because momentum is associated with more-liquid stocks, the additional liquidity compensates for the increased turnover. In addition, momentum’s low or negative correlations with other factors leads to trades initiated by momentum’s rebalancing, which cancels out trades initiated by value or other factors.

Adding the size factor in Portfolio 3 also yields performance and implementation cost benefits. Adding size to the four-factor portfolio improves the return by 26bps (13.13% versus 12.87%), while lowering the cost by 7bps for a US$10 billion portfolio. Admittedly, the size strategy has the highest volatility of the six factors in our analysis. Thus, by including size, the volatility of the four-factor strategy increases by 0.6%, whereas the low correlation of size with the other factors reduces tracking error by 0.27%, improving the IR. In summary, because of diversification, in both performance and trading activity, adding momentum and size strategies to a multi-factor portfolio can have positive results. Importantly, however, the two strategies must be in the same portfolio so the off-setting trades realise the lower implementation costs.

STRIKING THE RIGHT BALANCE As investors’ interest in multi-factor smart beta investing grows, understanding how to optimally combine factors is critical for desirable investment outcomes. A good understanding of the correlation and implementation cost of each factor needs to be investigated. When properly constructed and blended with other factors, the momentum and size factors, perhaps surprisingly, are helpful components in a multi-factor smart beta strategy.

The addition of momentum helps lower tracking error and improves the IR because of negative or low positive correlations with other factors.

These benefits are achieved without a large increase in implementation cost because offsetting trades across the factor strategies cancel each other out and because adding momentum improves liquidity.

The size factor is actually rather inexpensive to trade because of its relatively broad coverage and low turnover. Thus, adding the size factor to the combination of other factors can improve the performance, and lower the tracking error, of the multi-factor strategy given the low correlation of size with the other factors, resulting in a higher IR together with a reduction in trading cost.

Research Affiliates strongly advocates the thoughtful design of a multifactor strategy, which requires a conscious and deliberate decision to find the most advantageous balance between effectively harvesting the factor premium and implementation cost.

Mike Aked is director of research, Australia at Research Affiliates.

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1. In the multi-factor strategy analysed, what type of correlation does the momentum factor have with three of the other factors—value, low beta, and investment? a) The correlation is negative b) The correlation is positive c) There is no correlation with any of those factors d) There is a strong relationship between momentum and value 2. Is the size factor correlated with the other factors in a multifactor strategy? a) Size is highly correlated with the other factors b) There is no correlation with the other factors c) Size is lowly correlated with the other factors d) There is a strong relationship between momentum and size 3. Which factor strategy has the lowest trading cost of the six factors examined in this multi-factor strategy? a) The value strategy has the lowest trading cost b) The profitability strategy has the lowest trading cost c) The momentum strategy has the lowest trading cost d) Size has the lowest trading cost 4. How can you reduce the implementation cost of a momentum strategy without sacrificing return? a) Rebalance the momentum portfolio monthly b) It’s not possible to reduce implementation costs of a momentum portfolio c) Rebalance the momentum portfolio yearly d) The implementation cost of a momentum strategy can be lowered by adding it to a multi-factor portfolio 5. Which factor is associated with profitability and investment characteristics? a) They are associated with the value factor b) They are associated with the quality factor c) They are associated with the size factor d) They are associated with the momentum factor

TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/ features/tools-guides/ improving-diversification-smart-beta For more information about the CPD Quiz, please email education@moneymanagement.com.au

12/10/2021 2:22:43 PM

October 21, 2021 Money Management | 31

Send your appointments to liam.cormican@moneymanagement.com.au

Appointments

Move of the WEEK Karin van Baardwijk Chief executive Robeco

Robeco appointed Karin van Baardwijk as chief executive, whose role will commence at the start of next year. van Baardwijk was deputy CEO and chief operating officer (COO) and would take over from Gilbert Van Hassel who had served as Robeco CEO since September 2016.

van Baardwijk joined Robeco in 2006 and held various positions ranging from head of operational risk management to chief information officer.

Part of Robeco’s executive committee since 2015, van Baardwijk played an important

The Pro Bono Financial Advice Network (PFAN) has appointed existing board members Nicola Beswick as chair, and Natalie Kleibert as deputy chair.

Beswick and Kleibert would be responsible for leading PFAN’s board tasked with improving the financial wellbeing of Australians living with serious illness and/ or disability by providing pro bono financial advice. Western Australian financial adviser, Stephen Knight, also joined the board.

Beswick succeeded Nick Hakes, who stepped down as PFAN chair after four years of service but remained on as treasurer. Tim Meggitt had also stepped down as a director after seven years.

Martin Currie has made three appointments to its investment team as it expands its presence in Australia.

James Douglas was appointed as an investment client portfolio manager, working on the firm’s Australian and global capabilities in the institutional space while Julia Wang was appointed as a research analyst for large-cap equities.

Both joined from Franklin Templeton’s balanced equity management team.

Finally, Bowei (Sam) Li was appointed as a quantitative analyst, joining from Frontier Advisors. Li had worked at Martin Currie since January 2021 but this was a newlycreated permanent role.

Small to medium Australian financial service licence (AFSL) licensee services firm, Connexus Solutions, has appointed Mark Stephen as managing director.

Stephen was most recently chief executive of IOOF Group owned, Lonsdale Financial Group, which he led for over 10 years.

Connexus director, Murray Swilks, said: “We are fortunate to have someone of Mark’s calibre and experience joining the business”.

Launched in 2020, Connexus Solutions was a provider of licensee solutions to boutique AFSL owners.

AMP Capital has announced the appointment of Robert Hattersley to the newly-created role of chief investment officer (CIO) – real estate, leading the real estate division.

With over 30 years’ experience in the industry, he joined from global property company Lendlease, where he was most recently the group CIO, and prior to that held senior roles with Mirvac.

Hattersley would be responsible for raising capital for AMP Capital Real Estate’s existing funds and mandates and would be working closely with the

19MM211021_28-32.indd 31

role in developing and executing Robeco’s corporate strategy for 2021 to 2025 and was responsible for leading several transitions.

Van Hassel would relocate back to the US where he would assume a senior role for ORIX Group based in New York.

origination team to raise capital for new products, a key priority for the future de-merged private markets business.

Zenith Investment Partners has promoted Dugald Higgins to the expanded role of head of responsible investment and real assets, responsible for leading the firm’s growth in responsible investing.

Higgins was previously Zenith’s head of real assets and listed strategies, having worked for Zenith since 2009 and would continue to report to general manager and head of research, Bronwen Moncrieff.

He was also chair of Zenith’s responsible investment committee.

Moncrieff said having a dedicated resource to give environmental, social and governance (ESG) the focus it needed would result in a stronger capability and consistent group approach to responsible investing for the broader Zenith Group, which included Chant West.

“Zenith believes responsible investment issues should be fully incorporated into the broader fund analysis process and Dugald’s strong research background will bring a unique perspective on how this needs to work in order to optimise outcomes for investors,” Moncrieff said.

Boutique financial and investment strategy firm Profile Financial Services has promoted Lena Ridley to chief executive, replacing chair Peter Coleman.

Coleman stepped down from the role of interim CEO but would remain as chair.

Ridley, who had over 22 years in the wealth advice industry joined Profile in March 2018 as head of operations and was promoted to general manager in November 2019.

Industry superannuation fund Equip has appointed Andrew Howard as chief investment officer (CIO) of the fund and Catholic Super, commencing in November.

Howard had over 25 years of experience in the investment industry and would continue to work as deputy CIO of Hostplus until November. Prior to Hostplus he was CIO at VicSuper.

Equip chief executive, Scott Cameron, said Howard’s experience would help deliver long-term value for members while it continued to execute its growth strategy.

“Andrew brings considerable knowledge and skills, and his strong understanding of responsible investment will be a great asset to our fund and our Equip and Catholic Super members,” Cameron said.

13/10/2021 3:26:58 PM

OUTSIDER OUT

ManagementOctober April 2, 21, 2015 32 | Money Management 2021

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

Solid as a rock

Looking forward to a swift one

IT can feel like a long time for readers between Money Management editions, but Outsider is just as shocked as anyone that we would have a new premier in that time.

Dominic Perrottet, whose surname’s linguistic lineage is derived from the Ancient Greek word for rock, is the man now leading New South Wales. Outsider hopes he will live up to this name and provide a strong, stable footing for the state as it navigates the latest COVID-19 recovery.

Although Outsider is aware of Perrottet’s tenure as Treasurer, particularly his role during the COVID-19 crisis, he knew little about him as a person. So, Outsider has taken on this change to do some more research on the new face of the state.

In his maiden speech to New South Wales Parliament in 2011, he promoted his beliefs in individual freedoms. Although this freedom does not seem to be extended for women’s reproductive rights, marriage equality, or voluntary euthanasia.

IT was cheers all round in the Money Management office this month as New South Wales eased restrictions for its residents.

Although, of course, the cheers were all virtual over Zoom as no one is back in the Martin Place office yet, but Outsider appreciated the sentiment all the same.

While it will undoubtedly be a few weeks yet (or months?) before life is back to normal, Outsider is feeling oddly sentimental about a few things from his lockdown life: • Watching MPs argue about intermittent internet connections in Parliament; • Hampers being delivered for ‘virtual lunches’; • Seeing the Sydney Harbour out his Sentimen tal Ln window rather than on a poster; • Mrs O bringing his coffee so no need to go out in the rain; and • No need to wake up for Outsider’s 6.30am morning commute.

However, regular readers will be aware of Outsider’s view on working from home so there is no need for him to elaborate on how keen he is to return to the city. Back to his desk and back to meeting the great and the good of financial services for a swift half on a Friday afternoon.

Although with four months’ worth of gossip to catch up on, it may have to be more than just one afternoon a week…

Outsider has tried to gauge Perrottet’s hobbies which seem to include an ongoing passion for political and economic issues, preserving the “history and heritage” of New South Wales, and various sports.

As for departing Premier Gladys Berejiklian and Deputy Premier John Barilaro, one door closes and another pork-barrelled one may well open.

Though Outsider wishes for such drama to cease.

A change in the chair OUTSIDER noticed a definite change in the air this month and wondered if it was the onset of spring or Sydney coming out of lockdown.

No, it was neither of those things. It was the familiar face and voice of Tim Wilson that was missing in the Parliamentary grilling of industry superannuation fund EISS Super.

Of course, Wilson had recently been promoted to Assistant Minister to the Minister for Industry, Energy, and Emissions Reduction and would no longer chair the House of Representatives Standing Committee on Economics.

Outsider did not realise he would miss Wilson’s speed reading with a tone of boredom

OUT OF CONTEXT www.moneymanagement.com.au

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when opening the committee or his usual probing line of questioning for super funds.

Though, industry super funds must be glad Wilson is no longer there to scrutinise their salaries and bonus structures.

It will take some time for Outsider to get used to Wilson’s absence when covering Parliament, but it seems committee member and fellow Liberal, Celia Hammond, has already done so.

Hammond referred to Wilson as the “previous chair” and admitted she had already forgotten his name.

Outsider wishes Wilson well in his new role and sure hopes he does everything in his power to actually reduce emissions.

"Not many people call that pleasurable."

"You're going to get a lot of dad jokes."

– Jason Falinski, on meeting Senator Andrew Bragg

– Frontier principal consultant, Philip Naylor’s pre-presentation disclaimer

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14/10/2021 10:30:39 AM