Money Management | Vol. 34 No 20 | November 5, 2020

MAGAZINE OF CHOICE FOR AUSTRALIA’S WEALTH INDUSTRY

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Vol. 34 No 19 | November 5, 2020

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Decade of responsible investing

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Adjusting for low rates

RATE THE RATERS

Managed accounts

Parliamentarian demands FASEA Standard 3 clarity

BY MIKE TAYLOR

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Planners choose Morningstar FOR the first time in more than four years, Morningstar has been chosen a preferred research house by the majority of financial planners participating in the second part of Money Management’s ‘Rate the Raters’ survey and Lonsec has been dropped down to second place.

In the eyes of planners, Morningstar benefited from its corporate strength and ability to provide the best fund company research as well as its website and tools, which were two categories that planners placed the highest importance on when choosing their qualitative fund research ratings provider. Of those participating in the survey and rating Morningstar, 92% granted the firm with an either ‘excellent’ or ‘good’ rating for its underlying corporate strength.

Altogether Morningstar came on top in seven-out-of-10 categories, including client service, asset allocation research capabilities, consulting services and value for money. On top of this, Morningstar shared the top spot with Lonsec in one other category (staff quality) while Lonsec was voted the best provider of model portfolios. Zenith also made it to the podium and came third in seven categories as well as being a silver medallist in one other.

Full feature on page 16

30

TOOLBOX

A GOVERNMENT backbencher has complained that it will be impossible to determine why the Financial Adviser Standards and Ethics Authority (FASEA) changed Standard 3 of its code of ethics in the absence of all relevant submissions being made public on the authority’s website.

Queensland Liberal Senator, Amanda Stoker, used Senate

Estimates to ask FASEA chief executive, Stephen Glenfield, why the authority had not released any of the submissions it had received through the consultation exercises around the code of ethics.

In doing so, she pointed to the fact that she had first raised the issue a year earlier in October, last year.

Continued on page 3

What drove HUB24’s pragmatic exit from full Paragem ownership THE RELATIONSHIPS and combinations of assets between platforms and financial planning firms has taken yet another turn via HUB24’s trio of transactions announced this week.

The nature of the transaction and its substantial exit from Paragem means that it is at once picking up platform capability via its acquisition of Xplore Wealth and Ord Minnett’s non-custody portfolio administration and reporting service, while picking up further reach into financial planning via Easton Investment Limited’s acquisition of Paragem.

The increased financial planning reach comes via Easton’s existing ownership of or shareholdings in Merit Wealth, GPS Wealth and First Financial. In short, HUB24 will not own Paragem but it will own 40% of Easton.

In terms of platform reach and capability, the nature of the acquisition of the publicly-listed Xplore Wealth appears to represent Continued on page 3

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November 5, 2020 Money Management | 3

News

Hume and remaining ASIC commissioners were in the dark on Shipton

BY MIKE TAYLOR

FOUR members of the Australian Securities and Investments Commission (ASIC) executive board were left unaware of the issues which led to the standing aside of their chair, James Shipton, until little more than a month before it occurred.

What is more, the Assistant Minister for Superannuation, Financial Services and Financial Technology, Senator Jane Hume, has confirmed that she was unaware of the issue until hours before Shipton and his deputy chair, Daniel Crennan, declared they would be standing aside.

The manner in which the matters surrounding the payment of a $118,000 tax advice fee for Shipton were kept from the knowledge of other members of the ASIC board were laid bare during Senate Estimates last week, as those commissioners, led by deputy chair, Karen Chester, sought to maintain a business as usual approach within the regulator.

What also became clear is that there is a

Parliamentarian demands FASEA Standard 3 clarity Continued from page 1 “You took that question on notice, and when you responded, you advised that you had listed the names of the submitters on your website and noted that ‘FASEA is reviewing its ability to create links to lodged submissions or otherwise make them publicly available’,” she said.

“I see that you now have that functionality, and you have released the submissions that you received in response to the ‘Financial Planners and Advisers Code of Ethics 2019 Guidance’ document that you issued in October 2019, however you have still not released the submissions that you received on the consultation exercise that led to the finalisation of the code of ethics.

“It is now a year later, and these submissions have still not been released and we are all still none the wiser as to why you made that significant change to Standard 3 prior to it being issued in February last year. Why haven’t these submissions on the code of ethics been released?”

Glenfield responded that the submissions were available on the FASEA website and repeated that assertion when challenged on the issue by Stoker.

Stoker then asked Glenfield to provide her with the links to the submission.

A search of the FASEA website at the time of publication could not locate any submissions other than those referenced by Stoker.

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bipartisan view that, notwithstanding an independent inquiry commissioned by the Treasury, Shipton’s position may not be survival.

Both the Liberal acting chair of the Senate Economics Committee, Senator James Shipton and Federal Opposition frontbencher,

Katy Gallagher, expressed strong views about the ASIC chairman’s future position.

Gallagher described ASIC having “a bigger problem than an expenses scandal”.

“How realistic is it that the corporate cop survives?” she asked.

Earlier, the acting chair of the Senate Economics Legislation Committee, Senator James Patterson said that it was clear to him that ASIC’s leadership structure was “a total mess that did not have its own house in order”.

Asked when she became aware of the issues within the ASIC leaders, Hume said that it was the day of the announcement, when she had received a call from the Treasurer, Josh Frydenberg.

Pressed by Gallagher, she said that she did not think it was a problem “that I was not brought into the loop on this”.

ASIC’s Chester confirmed for Gallagher that while Shipton had stood aside he was on paid leave and would remain so until the Treasury’s independent review had been completed.

What drove HUB24’s pragmatic exit from full Paragem ownership Continued from page 1 good value for Xplore shareholders because it is valued at $60 million and delivers a combination of cash and scrip at a considerable premium on the company’s closing share price on 27 October.

HUB24 told investors it believed the Xplore acquisition would add material scale to the platform business with a further $23 billion in funds under advice while delivering access to new capabilities including global and domestic bonds, international domiciled managed funds and additional scale in international listed securities and foreign currency.

The Paragem transaction needs to be regarded as more tactical because it takes the licensee off HUB24’s balance sheet while delivering the company a 40% shareholding in Easton with HUB24 acknowledging that it delivers it access to a leading service provider to financial advisers and licensees while securing an anchor client for the expansion of HUB24’s data and technology services.

Importantly, in terms of the adviser landscape, the Paragem transaction will see Easton having approximately 250 full-service advisers, together with 510 limited service advisers and $8.3 billion in funds under advice.

In many respects, the HUB24 announcement needs to be viewed against the background of other acquisitions in the Australian market this year including Morningstar’s acquisition of AdviserLogic and the ongoing Iress acquisition of OneVue both of which have the potential to substantially increase capability and reach in the planning and platforms space.

It further exemplifies the manner in which the Australian wealth management market is reshaping and consolidating in the wake of the exit of the major banks, with pragmatic boards recognising the imperative of scale.

This was reflected in the comments of the chair of Xplore Wealth, Alex Hutchison, who pointed to the changing face of the wealth management industry and the need to recognise the evolving nature of the market.

“The HUB24 transaction is an opportunity for Xplore shareholders to receive a highly attractive takeover premium and to retain an exposure to the investment platform industry via receive HUB24 shares,” he said. “For Xplore staff, the transaction underlines a critical point – a growing business sees strong value in our highly experienced staff.”

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4 | Money Management November 5, 2020

Editorial

mike.taylor@moneymanagement.com.au

ASIC NEEDS TO BE A REGULATOR, NOT A REVENUE CENTRE

FE Money Management Pty Ltd Level 10 4 Martin Place, Sydney, 2000 Managing Director: Mika-John Southworth Tel: 0455 553 775 mika-john.southworth@moneymanagement.com.au

The standing aside of Australian Securities and Investments Commission chair, James Shipton, points to fundamental issues with respect to the regulator.

Managing Editor/Editorial Director: Mike Taylor Tel: 0438 789 214 mike.taylor@moneymanagement.com.au Associate Editor - Research: Oksana Patron Tel: 0439 137 814 oksana.patron@moneymanagement.com.au

IT IS unusual in the extreme for the chair and the deputy chair of a Commonwealth regulator to feel compelled to stand aside from their roles and for the deputy chair to then resign his position.

But that is exactly what has happened at the Australian Securities and Investments Commission (ASIC) and all because some administrative anomalies were identified by the Australian National Audit Office (ANAO) in the form of a six-figure tax advice bill paid for the chair, James Shipton, and a relocation allowance paid for the deputy chair, Daniel Crennan QC. All of this has emerged in circumstances where ASIC is no longer covered by the Public Service Act and has been operating, not unlike Australia Post, as a Government agency rather than as an integral part of the Australian Public Service and therefore subject to the rules and conventions which go with being overseen by the Public Service Commission (PSC).

Why does this matter to financial advisers? Because they are fundamental to funding ASIC’s operations under the user-pays regime imposed by the Government to enable the removal of ASIC from the Public Service Act – something which was enthusiastically pursued by former ASIC chair, Greg Medcraft, and equally enthusiastically embraced by his successor, the now stood-aside, James Shipton.

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And perhaps their enthusiasm is explained in a key section of ASIC’s annual report tabled in Parliament at the same time as Shipton and Crennan stood aside – a document which reveals that Shipton’s total remuneration for the 2019-20 financial year was $855,364, while Crennan trousered $674,628 and the regulator’s second deputy chair, Karen Chester, took home $623,459.

That’s right, the chair and two deputy chairs account for over $2 million in salaries and that is before you even start looking at the salaries paid to lesser ASIC executives such as the executive director of wealth management, Joanna Bird, who received total remuneration for the period of $407,744.

Yes, they are working in the financial services environment and it is true that some of the best funds management portfolio managers can easily be rewarded with seven-figure sums in a financial year but the salaries being paid to executives within ASIC will not sit comfortably with other public servants such as nurses, policemen and even public hospital medical registrars who are earning considerably less.

When Medcraft pursued removing ASIC from the Public Service Act a part of his argument was the need to remove the salary structures so that the regulator could better compete for experienced talent in the financial services industry. That appeared to most

publicly manifest in the recruitment of a senior lawyer in the form of Queens Counsel, Crennan; former Productivity Commission (PC) deputy chair, Karen Chester; former super fund chief executive, Danielle Press; and former chief executive of the Financial Markets Authority in New Zealand, Sean Hughes.

While all of these recruits arguably have a degree of broad financial services experience, that does not necessarily translate into the type of technical, detailed experience that is vital to overseeing the minutiae of complex financial sectors such as financial planning and, indeed, funds management. What we have witnessed is what you would expect of two lawyers, an economist and a fund manager.

So, the question arises whether releasing ASIC from the Public Service Act achieved any genuine change beyond lifting the lid on salary levels and access to bonuses. The observations of the ANAO suggest that ASIC has not become administratively cheaper or more efficient.

ASIC is supposed to be a regulator, not a business. It is there to look after the interests of consumers and taxpayers. Not to be a profit centre. Government policymakers need to come to terms with that reality and treat the regulator accordingly.

News Editor: Jassmyn Goh Tel: 0438 957 266 jassmyn.goh@moneymanagement.com.au Senior Journalist: Laura Dew Tel: 0438 836 560 laura.dew@moneymanagement.com.au Journalist: Chris Dastoor Tel: 0439 076 518 chris.dastoor@moneymanagement.com.au Events Executive: Candace Qi Tel: 0439 355 561 candace.qi@fefundinfo.com ADVERTISING Sales Director: Craig Pecar Tel: 0438 905 121 craig.pecar@moneymanagement.com.au Account Manager: Amy Barnett Tel: 0438 879 685 amy.barnett@moneymanagement.com.au Account Manager: Damien Quinn Tel: 0416 428 190 damien.quinn@moneymanagement.com.au PRODUCTION Graphic Design: Henry Blazhevskyi

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Mike Taylor Managing Editor

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6 | Money Management November 5, 2020

News

No question. ASIC thinks advisers view it positively

BY MIKE TAYLOR

THE Australian Securities and Investments Commission (ASIC) says it has received positive feedback from financial advisers and industry associations about its consultative processes but has never actually surveyed advisers to determine what they think.

Outlining its consultative processes in answer to questions on notice to a Parliamentary Committee, ASIC acknowledged that it had never actually surveyed advisers for their opinions, The regulator said that in 2019-20 it had met with “financial advice industry groups and other advice industry stakeholders” 137 times (not including engagement in a surveillance context).

“ASIC ensures that our engagement with the financial advice industry is effective through regular communications with industry and ensuring that we consult on major policies and issues with a broad range of stakeholders from industry, including industry associations, Australian financial services (AFS) licensees and individual financial advisers,” it said.

“This means that we hear perspectives from a broad cross-section of industry. For example, in relation to ASIC’s LIF [Life Insurance Framework] Review, we established the LIF Working Group with representatives from both the advice and life insurance industries, as well as consumer advocacy

groups and other government agencies,” the ASIC answer said.

“The LIF Working Group is designed to increase transparency around the LIF Review and to give industry an opportunity to provide guidance and feedback directly to ASIC. In March 2020, we briefed the LIF Working Group about the proposed sampling methodology for ASIC’s review of life insurance advice files. As a result of the feedback from the advice industry representatives, ASIC amended the methodology to reduce the burden on industry.”

Asked what sort of feedback it had received

from advisers around its process, ASIC said it had “received positive feedback from financial advisers and industry associations in relation to our consultation process, for example, in relation to recent ASIC relief and communications during the COVID-19 pandemic.”

“ASIC seeks to work closely and collaboratively with the financial advice industry,” it said.

“ASIC has not conducted a separate survey to determine the satisfaction of financial advisers with the consultation process.”

ASIC explains no action position on superannuation advice THE Australian Securities and Investments Commission (ASIC) has revealed it did not take action against superannuation funds which it identified as having delivered defective advice but, instead, contacted them an asked them to fix the problem and then to confirm they had done so.

Answers provided by ASIC to a key Parliamentary Committee have revealed the regulator has not and does not intend taking action with respect to the advice.

Answering questions on notice from NSW backbencher, Jason Falinski ASIC stated: “ASIC has not taken enforcement action against any specific funds as a result of the advice review findings and it does not plan to do so.

“For the files where there was an indication that the member was at risk of suffering financial or non-financial detriment, we contacted the advice licensee

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of the advice provider requesting them to review the advice and where required, remediate those affected members. We asked advice licensees to confirm that they had undertaken the appropriate steps and to provide us with an update on the outcome.”

ASIC referenced its financial advice by superannuation funds project which it said included a review of personal advice provided to 233 members of 21 industry, retail, corporate and public sector superannuation funds.

“In the review we assessed 32 files recording advice that was provided under an intra-fund arrangement, 68 files recording advice that was scaled/limited in scope but not provided under an intra-fund arrangement and 133 files recording advice that was comprehensive in scope,” it said.

“The findings from the advice review

identified the need for improvement in the advice provided to members of superannuation funds. For most files, that did not demonstrate full compliance with the best interests and related obligations, this was due to procedural, disclosure or record keeping deficiencies.

“However, the file did not indicate that the member was at risk of suffering detriment as a result of the advice. For a smaller number of files (36) that did not demonstrate compliance with the best interest duty and related obligations, there was an indication that the member was at risk of suffering detriment as a result of the advice.”

It said it was with respect to those instances of advice that it had “not taken enforcement action against any specific funds as a result of the advice review findings and it does not plan to do so”.

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8 | Money Management November 5, 2020

News

Industry needs to better address value of advice

BY CHRIS DASTOOR

THE financial advice industry needs to do a better job of addressing the value of advice, not just the cost of advice, according to a panel.

Speaking at the Financial Services Council (FSC) Future of Advice summit, Danielle Press, Australian Securities and Investments Commission (ASIC) commissioner, said the industry needed to do better at articulating the value of advice.

“We can reduce the regulatory burden, we can change the legislative landscape but if consumers don’t think there’s value in advice then it’s not going to matter one iota,” Press said.

“It’s about making sure we can better articulate the value of advice so that the cost doesn’t become the issue, whereas cost is central to the issue at the moment.”

Press said what simpler and less-costly advice looked like was when advisers were trusted to use their professional judgement and where the advice process was not overengineered by overly-cautious licensees because they did not trust their advisers.

“It’s an industry that works sensibly in articulating some of the things we need to see improve and I think collectively to do that, there are a lot of voices in this industry and often the voices are not particularly well-aligned,” Press said.

“Which means you’re getting conflicting advice, not just in the regulatory space but in the government space.

“That makes it difficult to create a simple, cost-effective advice process when you don’t know what problem it is you’re trying to solve.”

Geoff Rogers, MLC acting group executive of

advice, said it was too costly to provide advice and regulation was not the only reason behind that.

“It’s [also] the cost of doing business, digitalisation, and even the fact that this industry gets professional indemnity insurance which is 35% higher than last year with only two real providers in the country,” Rogers said.

“That’s a very serious issue if you’re a responsible manager or head of a licence as to how you handle that complexity and obligation.”

Bryan Ashenden, BT head of financial literacy and advocacy, said it was important to raise the value that people see in advice.

“It’s not about reducing the cost of advice until people can afford it, it’s more about the middle ground where you reduce cost but at the same time you’re lifting the value so people will be willing to pay the appropriate price,” Ashenden said.

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Perpetual looks for financial advice growth

BY MIKE TAYLOR

PERPETUAL Limited has flagged possible further growth in its financial advice business, Perpetual Private, via “bolt-on acquisitions”.

The company has flagged the growth on the back of a 2% increase in funds under advice (FUA) to $14.6 billion.

It said the $0.3 billion increase in FUA was predominantly due to $0.2 billion positive net flows largely from its new advisor growth strategy combined with $-0.1 billion of mark to market movement.

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The announcement around Perpetual Private came within the company’s first quarter business update to the Australian Securities Exchange within which it reported that Perpetual Investments assets under management were up

2% to $29 billion due to mark to market and positive net inflows.

Commenting on the quarter, Perpetual chief executive, Rob Adams, said the company’s diversified business model continued to demonstrate its value.

On Perpetual Private he said the company had seen positive flows from its new advisers as they transitioned clients across to Perpetual.

“We welcomed another adviser during the quarter and continue to explore complementary bolt-on acquisitions that align with our professional services business model,” he said.

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November 5, 2020 Money Management | 9

News

Three layers required to solve advice

BY CHRIS DASTOOR

THERE are three key layers needed to fix advice: regulatory reform, technology and subsidisation, according to the Financial Planners Association of Australia (FPA).

Speaking at the Financial Services Council (FSC) Future of Advice summit, Dante De Gori, FPA chief executive, said those three together could lead to greater enhancement in terms of delivering more advice to people.

“It may not make the price $500 and I’m not sure we should get there, but I think we need to look at those things,” De Gori said.

“I know there are steps taken that have been taken to try and reduce risks and this goes back to the point that there are regulatory costs that are too high, cumbersome and duplicated, so we should spend a lot of time trying to reduce that.”

De Gori said that some form of government subsidisation would be necessary to help keep advice affordable.

“Where it works in the medical system, where everyone talks about that as a comparison, there is a supplement going on there in terms of the government subsidising some of that cost and

this brings us to the discussion of how do we look at the tax deductibility of advice,” De Gori said.

The issue between “simple” and “complex” advice was also significant, as what constituted simple advice could still require depth of knowledge and training.

“There is still this issue that financial planners should still be paid for the work they do,” de Gori said.

“If you’re qualified, done the training, qualifications and you’re a professional – and you’re delivering simple advice, given it might reduce the amount of hours

DANTE DE GORI

it might take – you’re still charging a higher rate per hour to deliver that advice.”

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Sam Henderson sentenced to two years good behaviour

BY JASSMYN GOH

ROYAL Commission witness and former financial adviser Sam Henderson has been sentenced to two years of good behaviour and has been fined $10,000, according to an announcement by the Australian Securities and Investments Commission (ASIC).

The former chief executive, director, and senior financial adviser of Henderson Maxwell

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was convicted of charges relation to defective disclosure documents and dishonest conduct.

In handing down her sentence, Magistrate Atkinson noted the need for the court to send a message to the community at large that being a financial advisor is a specialist position. Marketing material and websites, including qualifications, needed to be correct.

She applied a 25% discount to the sentence due Henderson’s guilty plea.

On 25 August, 2020, Henderson pleaded guilty to one ‘rolled up’ charge of dishonest conduct, an offence under section 1041G of the Corporations Act 2001 (Cth), and two counts of making a disclosure document available to a person knowing it to be defective, contrary to section 952D(2)(a)(ii) of the Corporations Act.

ASIC alleged and the Court had declared that Henderson made false representations that he had a Master of Commerce between 1 July, 2010, and November 2017, when he did not.

ASIC also alleged Henderson breached the law in two instances in 2014 and 2016 by giving two clients a Financial Services Guide, containing the false representation that he held a Master of Commerce (Financial Planning).

28/10/2020 11:42:41 AM

10 | Money Management November 5, 2020

News

AMP New Zealand Wealth Management ASIC wants moves to passive investment structure to remove

barriers to scaled advice

BY JASSMYN GOH

AMP’S New Zealand Wealth Management (NZWM) has announced it will move towards a predominantly index-based investment approach through providing a simpler and more cost-effective investment structure with the aim of improving performance for clients.

BlackRock Investment Management would be appointed to deliver NZWM’s new passive investment structure with funds expected to transition by end of 1H 2021.

NZWM and AMP Capital would work together to ensure a seamless transition for clients and that business impacts are minimised, it said.

“The change in investment approach responds to broader and long-term trends in expectations from clients, regulators and governments for

KiwiSaver schemes,” NZWM said.

It noted that AMP Capital New Zealand would continue to provide active investment management options on NZWM’s

WealthView platform, along with investment solutions for external clients across real estate, infrastructure, fixed income, and global equities.

Jane Hume signals 2021 implementation of single disciplinary body

BY MIKE TAYLOR

IT will be the middle of next year before the Government delivers the legislation around a single disciplinary body and a compensation scheme of last resort.

The Assistant Minister for Superannuation,

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THE Australian Securities and Investments Commission (ASIC) has signalled it is prepared to consider ways of making scaled advice more accessible.

ASIC Commissioner, Danielle Press, has used a Financial Services Council (FSC) online forum to confirm that the regulator would initiate a consultation process in an attempt to identify what are perceived to be the obstacles to the greater use of scaled advice.

She acknowledged that there was a perception that ASIC was opposed to the use of scaled advice but said this was not the case.

“We want to know what it is about what we are doing as a regulator that we can do differently with respect to the delivery of scaled advice,” Press said.

However, she said that whatever it was that ASIC initially delivered would be from the perspective of regulatory remedies, with any legislative efforts being in the realm of the Federal Government.

Financial Services and Financial Technology, Senator Jane Hume told a Financial Services Council (FSC) online forum that the Government is looking to introduce the necessary legislation in 2021.

However, she stopped short of outlining the detail of the structure of the single disciplinary body whilst suggesting that she had taken on board considerable feedback from the financial planning industry.

Her comments came amid suggestions by the Financial Planning Association (FPA) and other organisations that the new single disciplinary body should encompass the role of the current Financial Adviser Standards and Ethics Authority (FASEA).

Hume pointed to the Government working with the Australian Securities and Investments Commission (ASIC) to reduce the level of red tape confronting financial planners and flagged that the Government would be encouraging the greater use of technology to lower the cost of advice provision.

28/10/2020 11:43:00 AM

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12 | Money Management November 5, 2020

News

Active fund returns exceed passive funds in September

BY OKSANA PATRON

ALMOST 70% of Australian active funds and 62% of global active funds have exceeded passive fund returns in September, according to Activus Investment Advisors.

At the same time, the average Australian active outperformance stood at 0.7% while average global active outperformance was 0.3%.

During the last quarter, a percentage of Australian active funds outperforming index funds was 66.2%. The same percentage stood at 59% when looking at the past six months.

The percentage of Australian active funds outperforming index funds climbed to 60.3% for the past 12 months compared to only 35.6% for the period of five years.

As far as global shares were concerned, the percentage of funds outperforming index ones stood at 41.4% and 51.7% for the past three months and the past six months, respectively.

The same figure stood at 40.9% for the period of the past 12 months compared to only 28.2% of global active funds outperforming their index fund counterparts for the past five years.

The Australian equity small-cap fund returning 140%

BY LAURA DEW

SEVERAL Australian small-cap equity funds are listing in the Asia Pacific ex Japan sector and may have been ignored by investors who could be missing out on significant returns.

According to FE Analytics, there were four funds which invested in Australian small-cap equities sitting in the sector, within the Australian Core Strategies universe, as they also held exposure to stocks in New Zealand.

This included the Saville Emerging Companies fund which had returned 140% over the past six months. It sought companies which were in their early

development phase or which were being mispriced. Stocks needed to sit outside the ASX 100 or NZX 20 and be less than $500 million at the time of investment.

Over the six months to 30 September, 2020, the fund, which was launched in 2017, returned 140% and it had returned 55% over one year to 30 September, 2020, according to FE Analytics. It was also the best-performing fund in the Asia Pacific ex Japan sector over both one year and six months.

The performance of the Saville fund also compared positively to its peers in the Australian small and mid-cap sector where the best-performing fund, Lennox

Chart 1: Performance of Saville Emerging Companies versus sectors over the six months to 30 September 2020

Australian Microcap, returned 74%.

The Saville fund was highly concentrated with 90% of the portfolio invested in 17 stocks and manager Jonathan Collett acknowledged the high returns recently were ‘unsustainable’.

“Almost our entire portfolio generated positive performance, however the most pleasing aspect was that the largest contributors were generally those stocks that either reported strong earnings results or made significant company announcements,” he said in the latest company report.

“Nonetheless, we acknowledge that these are unsustainably high monthly performance figures and

that a return to more benign monthly returns is inevitable, if not imminent.”

The other three funds in the Asia Pacific ex Japan sector were the Ellerston Australian MicroCap fund, the Perennial eInvest Future Impact Small Caps fund and the Montgomery Small Companies fund.

Over six months, the Ellerston fund had returned 64%, the Montgomery fund had returned 45% and Perennial returned 32%.

These compared to average returns of 22% by the Asia Pacific ex Japan sector and 37% by the Australian small and mid-cap sector over the six-month period.

Chart 2: Performance of Ellerston, Perennial and Montgomery funds versus sectors over the six months to 30 September 2020

Source: FE Analytics

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28/10/2020 11:43:20 AM

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27/10/2020 3:22:27 PM

14 | Money Management November 5, 2020

News

FSC board appointment gives air of permanency to AMP’s Vernon

BY MIKE TAYLOR

THE appointment of Blair Vernon as acting chief executive officer of AMP Australia has taken on an air of permanency with his appointment to the board of the Financial Services Council (FSC).

While AMP Limited has yet to announce a permanent appointment to the Australian CEO role, the FSC announced that Vernon had been appointed to its board, noting that he brought more than 25 years’ experience in the industry.

Vernon joined AMP in 2009 and has held several senior executive roles before being appointed as managing director of AMP Wealth Management New Zealand in January 2017 becoming chief executive in February, 2019.

He was appointed acting CEO of AMP Australia responsible for the company’s Australian business, including its wealth management and banking divisions in August.

Vernon’s appointment followed the somewhat controversial departure of Alex Wade from the organisation.

Dealer group competition to attract financial advice practices heats up AS dealer groups compete to attract planning firms to their bands, publicly-listed Centrepoint Alliance has urged them to look at long-term viability rather than reacting to short-term incentives.

Centrepoint’s urging comes at the same time as a fuller picture is expected to emerge of the number of MLC-aligned advice practices which are opting to move under IOOF licenses following the company’s recent acquisition of the MLC Wealth business.

Centrepoint Alliance group executive, advice, Paul Cullen, said the disruption which had occurred in the financial advice industry in recent years had increased interest in mid-tier dealer groups offering both licensing and self-licensing options, but finding the right licensee required close scrutiny.

He said that scrutiny needed to include proving how licensees were adapting to the changing regulatory environment.

“With grandfathered commissions ceasing from 1 January, 2021, advisers need to ensure

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licensees have the necessary scale and structure in place to manage the transition to new revenue models or they risk significant fee increases,” Cullen said.

“Advisers are now more focused on what they get for their money and are looking to align with a provider that has both financial strength and longevity. Advice technology, approved product lists, business support and access to the right training opportunities are also critical areas of focus.

“This is not only being driven by the advisers but also by their clients, who have become increasingly savvy and want reassurance the licensee is reputable.”

He acknowledged that the IOOF acquisition of the MLC Wealth business was a factor in generating adviser movements together with AMP’s comprehensive review of its business.

“We are seeing a second wave of movements as advice firms either review their initial decision or take first steps towards finding a new licensee to call home,” Cullen said.

NAB hit with $15 million civil penalty over loan introducers NATIONAL Australia Bank (NAB) has been ordered to pay a $15 million civil penalty as the Australian Securities and Investments Commission (ASIC) has broken new ground by successfully prosecuting the use of introducers.

ASIC announced that the Federal Court of Australia had ordered National Australia Bank (NAB) pay a civil penalty in the amount of $15 million for contravening section 31(1) of the National Consumer Credit Protection Act 2009 (National Credit Act) with respect to so-called introducers.

ASIC stressed that this marked the first time ASIC had brought proceedings for contravening s31(1) of the National Credit Act, which prohibits credit licensees from conducting business with persons engaging in credit activity without an Australian credit licence (ACL).

It said the court also declared that NAB breached the National Credit Act 260 times by engaging in a credit activity with ‘introducers’ who did not have an ACL and were engaging in a credit activity, namely by assisting NAB customers enter into home loans.

ASIC’s investigation revealed that between 3 September, 2013, and 29 July, 2016, 16 NAB bankers accepted information and documents in support of at least 260 consumer loan applications from 25 third party introducers who were not licensed to engage in credit activity.

Commenting on the outcome, ASIC deputy chair, Daniel Crennan QC said: “The penalty imposed by the court reflects the serious contraventions by NAB and is an important result for ASIC’s first civil action alleging contraventions of s31(1) of the National Credit Act. “In arriving at the penalty to be imposed, the court took into account NAB’s cooperation with ASIC and admissions of contravention of the law.”

28/10/2020 1:25:48 PM

November 5, 2020 Money Management | 15

InFocus

WILL COMMERCIAL REALITY DRIVE CONSOLIDATION OF PLANNING ORGANISATIONS? The two largest financial planning organisations have increasingly been singing from the same hymn book in delivering their policy messages to Canberra but they are still some distance from the next step – a merger, Mike Taylor writes.

WHEN THE FINANCIAL Planning Association (FPA) publishes its 2019-20 annual report it will likely confirm a decline in membership. The Association of Financial Advisers (AFA) will likely register a similar decline. For both organisations, the only thing in question is the level of that decline.

Each month, data derived from the Australian Securities and Investments Commission (ASIC) Financial Adviser Register (FAR) has pointed to advisers continuing to exit the industry with, at this stage, only a modest number of replacements in the form of graduates and others.

The exit of financial planners allied to the exit of the major banks has also generated a significant consolidation of financial planning businesses – something evidenced by IOOF’s current acquisition of MLC Wealth, the continuing restructuring occurring with AMP Limited and the growth of mid-sized licensees such as CountPlus and Centrepoint Alliance.

It ought to therefore be regarded as significant that a recent survey conducted by Money Management found a significant majority of respondents believed that there should also be consolidation in the organisations representing financial advisers.

In short, 80% of respondents to the survey said they believed there should be a merger of the FPA and the AFA with 74% of respondents believing there are

COVID-19 SUPERANNUATION EARLY RELEASE SCHEME

currently too many organisations seeking to represent the interests of financial planners.

Just as importantly, more than 60% of respondents to the Money Management survey said they were members of the FPA. There are, of course, four or five organisations which claim to represent financial advisers not least the SMSF Association and the Association of Independent Financial Professionals, but the two organisations boasting the largest memberships and the most significant infrastructure are the FPA and the AFA. And it is worth reflecting upon the fact that the FPA and the AFA have been working more closely together on policy issues for most of the past three years in large measure because of their efforts over 18 months alongside the SMSF Association to establish a code

monitoring body.

It was widely expected that if the FPA, AFA and SMSF Association consortium had succeeded in having their code monitoring body approved

by ASIC then this might have served to form the foundation of an overarching body representing the interests of financial advisers and overseeing their behaviour.

But it was not to be. The recommendations of the Hayne Royal Commission derailed the Government’s plans for industrybased code monitoring bodies and replaced them with the establishment of another Government agency – a single disciplinary body which is likely to have little or no industry input.

So the bottom line is that code monitoring will not be the catalyst for a consolidation of financial planning organisations meaning that any merger activity will have to be

generated by the organisations themselves – something which neither have acknowledged as being formally on the table, at this stage.

There is also the reality that the messaging being received by financial planning organisations from Canberra is that the Government would actually welcome a single representative voice from the financial planning industry.

This has not been the first occasion on which a merger of the FPA and AFA has been canvassed, with a number of attempts having been made over the past decade to start a formal process between the two organisations. What makes 2020-21 different is that many of personalities which have been seen as opposing the prospects of a successful merger have either exited the industry or have indicated they are likely to do so.

What is also important is that with the exodus of financial planners, the underlying commercial models of the FPA and the AFA have been placed under pressure not the least the revenue generated for the FPA from its Certified Financial Planner designation amid the increased focus on the Financial Adviser Standards and Ethics Authority (FASEA) exam process.

The question is: Will political and commercial reality be enough to generate the merger so many planners have made clear they think is justified?

$34.4b

$7,663

3.3

Payments made

Average payment

Average business days to payment

Source: Australian Prudential Regulation Authority (APRA), from inception of scheme to 18 October 2020

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16 | Money Management November 5, 2020

Rate the Raters

PLANNERS CHOOSE MORNINGSTAR

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November 5, 2020 Money Management | 17

Rate the Raters

For the first time in more than four years financial planners have chosen Morningstar as their preferred research house, effectively ending the long-lasting reign of Lonsec, Oksana Patron writes.

THE FINDINGS FROM the second part of the Money Management’s 2020 ‘Rate the Raters’ survey, in which financial planners are asked to rate research houses on a range of measures, found that Morningstar has overtaken Lonsec for the first time in over four years.

Planners also decided that the most important criteria, when it comes to choosing a qualitative fund research ratings provider, were their ability to provide good fund company research as well as website information and tools that research houses offer, with more than 90% of planners having described both categories as either ‘very important’ or ‘essential’.

Additionally, the ability of providing good and easy-to-use software has gained a new meaning at a time of global pandemic and lockdowns which have essentially forced the entire financial services sector to heavily rely on technology.

All in all, Morningstar has emerged top in seven-out-of-10 categories which included website and tools, fund company research, corporate strength, client service, asset allocation

20MM051120_16-29.indd 17

research capabilities, consulting services and good value for money. On top of this, Morningstar shared the top spot with Lonsec in one other category (staff quality), which was, according to financial planners, the third most important category when it comes to selecting a research provider.

At the same time, Lonsec, which dropped down to the second place overall, triumphed across two categories which were model portfolios and overall rating.

Zenith, which was acquired earlier this year by Sydneybased private equity firm Five V Capital, managed to climb up to the podium and came third in seven categories on top of being a silver medallist in one other.

OVERALL RATING Once again, Lonsec managed to attract the highest score across this category with 68% of respondents granting the firm a combined ‘good’ or ‘excellent’ rating.

However, this year it was closely followed by Morningstar which received a positive overall rating of either ‘good’ or ‘excellent’ from 67% of financial planners participating in the study.

This meant that financial planners decided to drop last year’s silver medallist Zenith to third place this year with its overall rating being rated as either ‘good’ or ‘excellent’ by only 53% of respondents, down from 58% in the last survey.

FUND AND FUND COMPANY RESEARCH For the fourth time in a row, planners confirmed the ability to provide thorough fund and fund company research was their most important criterion when it came to research houses, with the vast majority of respondents (97%) saying this was of an ‘essential’ or ‘very important’ service for them.

Following this, Morningstar emerged as a clear winner in this category with almost 80% of respondents describing its fund research as either ‘excellent’ or ‘good’. By contrast, last year’s winner Lonsec, which saw its fund research ability rated as above average by close to 63%, slipped to the second place this year. However, the total number of planners who appreciated the firm in this category grew to 78.6%.

Continued on page 18

28/10/2020 2:35:18 PM

18 | Money Management November 5, 2020

Rate the Raters

Continued from page 17 At the same time, Zenith’s research was rated above average by 74% of planners who participated in the study and almost half of respondents rated SQM Research’s ability to provide useful fund company research as either ‘excellent’ or ‘good’. At the same time, SQM’s head of research, Rob da Silva, was individually appreciated as one of the best researchers in the market and the “only researcher who has managed money”.

WEBSITE AND TOOLS With the arrival of COVID-19 pandemic this year and an obligatory switch to technology, planners rated the research houses’ website and tools as the second most important criterion.

They also had no doubt that Morningstar, which was described by some as having the best software in the market, had provided the greatest level of satisfaction when it comes to website and planning tools, almost 90% (88%) of respondents gave it an either ‘excellent’ or ‘good’ rating. This was also the second win in a row for Morningstar in this category.

By comparison, last year’s winner Lonsec, which had

20MM051120_16-29.indd 18

previously held the gold trophy in this category for a number of years, came second with only 64% of participants rewarding its website and tools with an ‘above average’ rating.

Following this, the ability of providing highly-satisfying tools and technology by all the remaining raters Zenith, SQM Research and Mercer were viewed positively by less than a half of respondents.

STAFF QUALITY This has been historically one of the most contentious categories for both financial planners and fund managers who rate the raters every year due to the high expectations they hold for research houses’ staff that they deal with.

Additionally, according to part two of the ‘Rate the Raters’ 2020 survey, as many as 85% of all planners participating in the study admitted that the quality of staff of each of the research houses was key to them, making this category the third most

important criterion for them.

Although Lonsec was viewed as a research house which continued to struggle with staff turnover across its research team while Morningstar’s research and consulting teams were criticised by some as having “little knowledge of the real world”, the two firms still managed to attract the highest number (71%) of either ‘excellent’ or ‘good’ ratings for their staff quality.

At the same time, the Zenith’s staff was rated as above average by more than 60% (63%) of respondents. SQM Research, which according to part one of Money Management's ‘Rate the Raters’ survey, saw its personnel highly appreciated by more than 80% of fund managers participating in the study, attracted a combined ‘excellent’ and ‘good’ rating with regards to its staff quality from only 44% of financial planners who participated in the study.

28/10/2020 2:35:33 PM

November 5, 2020 Money Management | 19

Rate the Raters

VALUE FOR MONEY This year financial planners chose, for the first time in almost five years, Morningstar as the research house offering the best value for money, since it attracted a combined ‘excellent’ and ‘good’ rating from 64% of those who participated in the study and was described as “a bit expensive but great value”.

Zenith, which came second in this category, received a similar rating from 58% of respondents while Lonsec, which also climbed to the podium, was appreciated as a good value for money by half of the respondents.

Following this, 38% of respondents, were of opinion that SQM Research also offered above average value for money.

CORPORATE STRENGTH This category, which focuses on how planners perceive financial strength and stability of each of the research houses, was viewed as either ‘essential’ or ‘very important’ by more than half of respondents.

Once again, Morningstar was the sole winner in this category with 92% of financial planners participating in the study rewarding its brand with either an ‘excellent’ or ‘good’ rating.

20MM051120_16-29.indd 19

Last year Morningstar managed to climb up from the second place to the top spot but saw no more than 80% of responses according to which its corporate strength was described as either ‘excellent’ or ‘good’.

Following this, Lonsec managed to return to second spot, after being pushed down in 2019 to third by rival Zenith, and saw its corporate strength rated as either ‘good’ or ‘excellent’ by 79% of respondents.

Mercer took out the bronze medal across this category as over 60% of planners, who chose to share their opinions in the survey, rated the firm’s brand as above average and appreciating its corporate strength.

Zenith managed to attract above average ratings for its corporate strength from over half (53%) of respondents.

CLIENT SERVICE With 74% of planners who participated in the survey believing that client service was either ‘essential’ or ‘very important’ criterion in their process selection, Morningstar defended its last year’s win and continued to top the table, having improved the percentage of positive responses to 75%

according to which its client service stood above average.

At the same time, Lonsec managed to return to second spot, after finding itself in third place last year with only 42% of voters rating its client service as either ‘excellent’ or ‘good’, and attracted the combined highest ratings from 67% of surveyed planners.

By comparison, Zenith, which landed in second place last year, dropped to the third place this year with only 37% of respondents having described its client service as either ‘excellent’ or ‘good’.

The client services of Mercer and SQM Research were viewed as above average by only 30% of the respondents.

Continued on page 20

28/10/2020 2:35:50 PM

20 | Money Management November 5, 2020

Rate the Raters

Continued from page 19

ASSET ALLOCATION RESEARCH The category, that focuses on the resourcing, value-add and methodology employed by raters, was deemed as either ‘essential’ or ‘very important’ by more than 70% of planners participating in the study this year.

Surprisingly, Morningstar managed to outshine Lonsec by delivering top performance and being rated as above average by 64% of financial planners who voted in the survey.

At the same time, Lonsec, which previously won this category three times in a row, dropped one spot down and saw a slightly lower proportion (61%) of those who viewed its asset allocation research capabilities as either ‘excellent’ or ‘good’.

The second part of the 2020 ‘Rate the Raters’ survey also found that half of respondents rewarded Mercer with positive feedback, describing the firm’s asset allocation research as either ‘excellent’ or ‘good’ and putting it onto the podium.

However, both Zenith and SQM Research saw the combined ‘excellent’ and ‘good’ ratings from less than 50% of respondents

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across this category.

MODEL PORTFOLIOS Lonsec continued its win across this category with 54% of financial planners participating in the survey rewarding its model portfolios with the highest score.

By comparison, two years ago 44% of respondents rated Lonsec’s model portfolios as ‘good’ and further 16% described it as ‘excellent’.

Lonsec was followed by Morningstar and Zenith which garnered positive feedback, described as a combined ‘excellent’ and ‘good’ ratings, from 46% and 37%, respectively.

At the same time, both Mercer and SQM Research managed to attract a similarly positive ratings from between 20% to 30% of respondents.

CONSULTING SERVICES As far as the consulting services category was concerned, Morningstar continued to demonstrate the highest value, scoring the highest combined rating from close to 60% of respondents.

This represented a significant growth compared to last year

when the research house shared the top spot across this category with Lonsec and the consulting services of both groups were rated as either ‘good’ or ‘excellent’ by only 44% of respondents.

Following this, Lonsec saw half of respondents highly satisfied with the quality of its consulting services, while Zenith was appreciated in this category by close to 40% of voters.

Mercer and SQM Research attracted above average ratings from 31% and 20%, respectively, of financial planners who rated the quality of their consulting services this year.

28/10/2020 2:36:02 PM

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22/10/2020 10:15:42 AM

22 | Money Management November 5, 2020

Wealth management

CHANGE SHOULD BE DRIVEN BY INDUSTRY, NOT REGULATORS

As a part of its wealth management series, Money Management speaks to financial planning groups and asks them to share their views on the industry in a new environment. This month, Money Management spoke to Adrian Gervasoni, executive manager, advice solutions at Industry Fund Services (IFS).

MONEY MANAGEMENT: WHAT are your general thoughts on the financial advice as an industry?

Adrian Gervasoni: I think for a long time, advice has had a pre-defined definition of what financial advice is and it has very much followed closely how the regulation defines it. So we are probably missing the opportunity to think about advice from the consumers’ perspective – what is that they are really challenged by and

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worried about, or what help do they need to achieve their goal?

From a really fundamental perspective, consistent data points that half of all Australians have some sort of unmet advice needs in this space, so there is an unlimited amount of needs out there and we [as an industry] can help solve it.

On the other hand, there is a contraction of the advice industry in terms of the number of advisers exiting due to higher education standards, traditional

business models being challenged and unfortunately we have got the supply reducing when the demand and the need for advice has never been greater.

It is really time for those who want to be in the advice industry to start again and think about what forms of help they want to be able to provide to a customer base they are targeting, and be prepared to try some new things. The advice which is being provided today, serves a small

segment reasonably well, particularly those who have portfolio management or advice strategy needs. But in a traditional sense, the advice offerings of today do not serve the people who either do not have the means to pay $3,000 to $5,000 or, more importantly, those people whose real needs are a bit more fundamental when it comes to coaching financial wellness and basically getting organised. We do not tend to have a strong proposition

28/10/2020 5:15:07 PM

November 5, 2020 Money Management | 23

Wealth management

in the advice industry for those more fundamental needs.

MM: How do you think the business model across the industry will evolve and which ones will struggle?

AG: COVID-19 has really shone a light on this in terms of what help people really need and I think most of traditional advice businesses will struggle going forward unless they really rethink the advice proposition that they are putting to their client base. Even the high net worth practices who have been able to increase and consolidate their clients base to get profitable, they will struggle to continue to grow and scale unless they think about the value they are providing to their clients.

In the past it was portfolio management, managing money, but of course the challenge is now we have got digital solutions and portfolio construction tools that do as good job as an adviser could possibly do, and do it cheaper. If your value proposition is “I am going to pick the right investment for you” then you will probably struggle long-term to maintain a value proposition in that space.

My view is centred on what humans will continue to be challenged by; as humans we are imperfect and we do not make perfect decisions because we are driven by a number of different things when we make a decision. When it comes to managing money, I expect people will always be challenged, so we need a value proposition that focuses on people and how they perceive money and how they are motivated in terms of how they make decisions.

In our private sector, we are dealing with people for who their home and superannuation are their two most significant assets and most of the value we can provide is helping them make decisions through their working life so they can have a much more meaningful retirement.

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I think what we place value on at the moment is not in the right areas particularly because technology is increasingly becoming so much better in the advice setting.

Over time we will have a digital journey in which you would put your circumstances in and it will tell you the steps you should be taking, so the question is whether advisers will be out of a job in this future and my short answer to that would be no.

Because we know that digital tools alone will not be enough, they are a great way for people to discover a little bit of themselves and discover what is possible, but at a minimum people tend to like having some validation of the advice.

MM: What do you think is the next ‘big thing’ for the industry?

AG: There is this compelling need now to start from scratch in terms of if you have never known the financial advice market and what it looked like and just thought about the problem that we are trying to solve. That is that a bunch of people who struggle with making decisions, want to have a plan, but do not know quite where to start then you would come up with a different service model. And I think that we would be so well rewarded for spending a little bit more time on that.

We should not be relying on policymakers and regulators to design our service, we should be doing that ourselves so I think that is a big opportunity. There will be groups who look at this and say “actually, we are still centred very much around an adviser and a client having a relationship” and naturally that limits the amount of people that you can help.

The role of digital advice will be significant and needs a strong service model that supports it, but more importantly it will be where technology and humans each need to play a role together, not the one replacing the other entirely.

We are investing in the areas of data management, proposition and experience design, digital advice and licensing, and incorporating member segmentation and experience into advice to mimic what funds are otherwise doing in terms of their member engagement campaign, and advice needs to a part of that.

More recently, we are seeing funds are now looking to their propositions more broadly, and more closely, to integrate the different types of help they provide. That is a good starting point but ideally it will be about how you would have this proposition and would put through a member so that they can discover a little bit of themselves.

Over a number of years there has been a significant change in advice but the change has been done to us. It is not anything that we have driven ourselves and most of that has been the regulatory change. For advisers, the challenge is being on the receiving end of this change and you end up with significant fatigue and also become quite sceptical of such a change whereas if you are in industry that is driving the change, you as a part of that industry, accept that it is something you do to be successful.

We need to be the instigators of industry change as much as it is done to us and that was a sort of a play on taking back some control of what our destiny would be, not allowing it to be purely a discussion around the regulatory environment but also more about our relevance and our value in what we do and how we are going to do it so I think that this is something I know the advisers would be challenged by.

MM: What is your view on regulation across the financial services sector?

AG: Ultimately regulatory reform and better guidance would be helpful and at the moment. IFS is working with the Australian Securities Investments Commission (ASIC) and the

ADRIAN GERVASONI

industry on a discussion paper on where funds, particular superannuation funds, are challenged by the current regulatory environment and in terms of being able to provide more help and advice to its members. And that has been a really interesting piece of work because it is the gaps and overlap between different regulatory bodies which creates the uncertainty.

I think that a move to a single regulatory body would definitely help solve some of this and I think the regulatory piece can also be a convenient excuse for why we do not just try different things as well but I still feel there is room for innovation despite the heavily-regulated nature of advice. We do obsess around the big advice, the advice that fits into the statement of advice (SoA) and that is obviously at the core of what we do but we tend to miss at the edges, what are the other areas that we could provide assistance and how that is valued by a consumer.

I do think that at some point we will need to revisit what we are training for in terms of adviser education standards notwithstanding that it is a good thing of having higher watermark in terms of education standards more broadly but the education framework is really training advisers to be technical experts and that is not a good thing.

Obviously, you need to be proficient in the area in which you are advising but I think what we are missing is that in time technology would solve much of this.

29/10/2020 10:32:34 AM

24 | Money Management November 5, 2020

Responsible investment

A DECADE OF RESPONSIBLE INVESTING After a decade in responsible investing, Stephane Andre and Bruce Smith, share what they have learnt and how the ESG environment has changed.

THERE HAS ALWAYS been some confusion about what responsible investing is, and that confusion has only increased over the last decade.

There is certainly a lot more interest now from investors in the space than there was a decade ago, many now expect that their wealth should have a conscience.

And proponents of the sector like to point out that you don’t necessarily need to give up good returns to assuage that conscience.

We started managing what is now the Alphinity Sustainable Share fund in 2010 and the three biggest shifts we have noticed since then are: a) The way people define it; b) The screens they use; and c) Collaboration between investors.

WHAT IS IT? There are a lot of terms used which are all subtly different and mean different things to different people. There is environment, social and governance (ESG), ethical, socially responsible, and more recently impact and sustainable funds. While they are often seen as pretty much the same thing, the funds themselves will likely end up investing in very different things and investors need to do some research to make sure they are comfortable with the companies that end up in the portfolio.

ESG investing these days is

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fairly mainstream, and most managers would at least say they take ESG into account. It primarily takes a risk management approach, ensuring a company has proper governance and the social licence to operate. The problem is, a company’s ESG performance is not easy to assess and there is no definitive measure of performance.

There are a number of different research providers and each come up with different views about what constitutes good practice and what does not. We have some highlyqualified external experts that sit on a committee to adjudicate on these grey areas.

Defining ethical investing is challenging, as everyone’s ethics are different. For instance one person might see a company operating nuclear reactors as ethical as it is producing power without CO2 emissions; another person would see the same company as highly unethical as its by-product, radioactive waste, is difficult to treat and will last for hundreds of years. Socially responsible investing is a similar case: what is thought by one person as being responsible is different to what another might think.

Proving impact is a difficult thing to do, and there is heated debate within the responsible investment industry about what can credibly claim to be an impact fund, how that impact is measured, and what sort of assets can credibly claim impact. There is a school of thought that listed equity

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November 5, 2020 Money Management | 25

Responsible investment Strap

funds should not claim impact: if it is buying shares on the secondary market then it is just aligning itself with what would have happened anyway. Taking that train of thought to its logical conclusion, you could argue that buying shares in, say, coal mining or armaments companies is also harmless as that activity is going to happen anyway too! We do not agree with that.

Some argue that the only true impact comes from direct investment into projects that are, almost by definition, not available to investors in the listed space and therefore only open to very large investors: a large investor putting say $100 million into building affordable housing can point to a very tangible impact on the people it is helping. That option is not available to us under our mandate, nor does it appeal to us to be locked into illiquid assets.

However, there are other ways to have an impact on listed companies, for instance by influencing its decision-making process, although again, showing a direct linkage between agitation and change can be a challenge. And when a company is supported by equity investors, its share price tends to go up, which increases its ability to pursue activities that ‘do good’.

The most recent trend is sustainable investing but again, you can define this in various ways. We have used the UN’s Sustainable Development Goals (SDGs) as a framework for determining whether a company can be considered to be ‘sustainable’, with our compliance committee making the final determination. While it is not easy, we expect the SDGs will become more widely adopted in the future.

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COMPANY SCREENING A decade ago, most funds in this space just applied negative screens: they would identify companies involved in products or services they wanted to avoid and remove them from the investable universe Negative screens are a little frustrating from an equity manager’s point of view as whenever you restrict the investable universe you limit the possible outcome.

Many in the industry like to say that you will earn better returns as the companies you leave out underperform, but that’s not the case all the time. Sometimes ‘bad’ companies can do very well, although we have generally been able to find other positions to compensate when that’s been a headwind.

As equity investors, we are pre-disposed to looking for positive opportunities, and a few years ago we shifted the focus of our fund towards positive screening. We wanted to proactively invest in companies doing good, rather than just avoid the negatives.

Of course, there are still some industries we screen out – tobacco, gambling, fossil fuels and so on, as these are incongruent with the achievement of SDGs – but most of our effort is expended on looking for companies whose products or services do ‘good’.

As mentioned above, we’ve defined ‘good’ as those that can make a net contribution to achieving one or more of the SDGs. These are 17 goals covering themes like poverty, health improvement, clean and affordable energy, clean water, equality, reliable infrastructure and so on. If the goals are achieved the world

and many of its poorest people will be much better off. While very much big picture, the purpose of these goals is very hard to argue against. Some of them require government action to achieve, but some certainly can be helped along by products and services produced by listed companies.

We are always looking for companies which can help to meet one or more of the goals, have good ESG characteristics and fit our investment process which looks for reasonably valued companies in an earnings upgrade cycle.

COLLABORATION Over the last decade the Principles for Responsible Investment (PRI) has become almost universal, not just in Australia but around the world, and its members are now cumulatively accountable for several trillion dollars across all asset classes.

It was a global initiative, first propagated by the United Nations but now self-sustaining, which aims to provide a positive influence on the world from the enormous amount of capital we investors have at our disposal.

The PRI is primarily an organisation for asset owners, such as pension and wealth funds, but fund managers like us are often more responsible for directing that capital into the assets where most of the impact takes place.

The PRI, and local organisations like the Responsible Investment Association of Australasia (RIAA) provide forums for fiercely competitive fund managers to collaborate with each other in order to achieve an aim for the betterment of society.

“While we alone might have some influence through our ownership of company shares, getting people together who own similar amounts magnifies the voice.”

While we alone might have some influence through our ownership of 2% or 3% of a company’s shares, getting people together who own similar amounts just magnifies the voice. Provided the views are well founded, this can be a source for good.

THE NEXT DECADE As we head into our second decade, we feel very positive about the prospects for responsible investing. The industry is wellestablished and gaining in prominence. Sustainable investing in particular has a bright future.

By investing in companies that do good (by which we mean their activities are supportive of the SDGs) and do it well (by which we mean they have strong ESG practices), investors can be assured that their capital is being invested in a manner that is aligned with their values.

Stephane Andre and Bruce Smith are principal and portfolio manager at Alphinity.

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Fixed income

ADJUSTING RATES EXPECTATIONS

Rates are likely to be lower for longer globally, writes Daniel Gerard, so it is up to advisers to help adjust their clients’ return expectations to the new rate environment.

CENTRAL BANKS AND governments are facing many challenges as they consider the best policy response to stimulate the economy post COVID-19. With the pandemic hitting at a time of historically low interest rates, governments intervening through loan guarantees and a banking system grappling with falling loan demand, policymakers have limited options on the table. So, what can investors expect to see over the next 12 months and beyond and how should they adjust their expectations?

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A CENTRAL BANK CONUNDRUM Ahead of the COVID-19 pandemic, the world had already shifted into a coordinated easing cycle to combat the impact of a slowing economy.

By the time the pandemic struck, interest rates in many countries were already near historic lows.

This left central banks with two obstacles: there was little room to cut rates any further and the disruption to business supply lines and demand meant the impact of low rates was not enough to kick start the recovery.

Central banks moved from stimulating the demand for money to increasing money supply through quantitative easing.

Although previously used by Japan, Europe and the United States during crises, emerging markets had shied away from this measure, fearing it would lead to inflation and capital flight. However, given the unique nature of the pandemic, inflation has been absent from the current environment for the most part. Some emerging market central banks including India, South Africa and Turkey have begun to

engage in long-term government asset purchases.

LOWER RATES FOR LONGER As yield opportunities have fallen dramatically, one might expect that capital is seeking out higher relative yields. But for the most part, markets have been more concerned with growth over yield or better said, yield without growth is not attracting foreign capital.

Investors are not as attracted to the delta on growth (quarter on quarter seasonally adjusted annual rate), but the level of growth and

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Fixed income

speed at which national economies will return to pre-pandemic nominal gross domestic product.

Given the need to prioritize growth, central banks will err on the side of easing for a prolonged period rather than easing too little and risking a low inflation rut.

Even in countries such as Turkey, where inflation is becoming an issue, there has not been any discussion of rate hikes yet. While in Mexico, central bank governors have agreed on cutting rates further with the only dissenting views focused on how low they should go.

What could change the minds of monetary authorities? Persistent demand-driven inflation in a wide basket of ex-food, ex-energy items would likely change central bankers’ views on low rates. However, without a widely available and accepted vaccine, broad-based inflation in most markets is not likely to happen. A weakening dollar is also helping to shelter emerging markets from imported inflation, providing those countries with more cover to keep rates low.

DEFLATION REMAINS A CONCERN Many central banks are just as worried about the insidious problem of deflation as they are with inflation.

This seems counterintuitive given the low interest rates and widespread money printing – where even emerging markets are monetizing their own debt – but, there are two powerful trends driving disinflation, if not a deflationary effect.

The first is structural. In modern history and especially in developed markets, high inflation has been largely theoretical outside of commodity shocks. Even as low rates have driven financial asset and real estate inflation over recent decades, goods and services

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inflation as measured by statistical offices has been benign.

Technology has played a significant role in this. Advancing technology creates rising productivity and lower prices.

Consumer goods, media, entertainment, healthcare, financial services and automotive and agriculture are all being enhanced or replaced by technological productivity gains, driving prices lower by scaling distribution. COVID19 has provided a turbo boost to many of these trends.

The second factor is transactional. Central banks aim to control the flow of liquidity; however, for the most part, the actual creation of money happens in the commercial banking system.

Central banks use market operations to control the very short end of rates, but money supply grows as commercial banks create and expand credit.

This can be tracked in some markets due to transparent data and filings, especially in the US. The aggregated transactions and assets at commercial banks can help us measure whether conventional monetary policy (rate adjustments) and unconventional policy (buying of debt instruments) are creating more liquidity.

The targets of current stimulus measures have been quite broad, with programs aimed at helping large and small businesses as well as ordinary consumers, but the impact on bank credit expansion was short-lived.

The US Federal Reserve (Fed) certainly prevented a deeper and longer liquidity crisis from devastating the global economy in March with repo, swap and purchase facilities that backstopped the flow of capital.

Meanwhile, the US Treasury’s loan guarantees enticed banks to

“Loan demand and higher rates are possible only once the damage from the potential spread of COVID-19 is minimized through immunity or therapeutics.” make loans that they may not have otherwise made. In a downturn, commercial and industrial lending demand falls, requiring banks to look elsewhere to grow credit. In the early stages of the pandemic, the exact opposite happened due to the policy response. However, the fiscal policy response did have constraints on eligibility, amounts offered and time available, which quickly receded the early surge of lending.

In the US, when loan demand falls, commercial banks have another alternative: they can buy government or agency debt, expanding credit through securities markets.

As rates collapsed toward zero, the marginal benefit of buying securities versus holding cash on deposit at the Fed fell too. Banks were not buying securities at the level to which lending was drying up.

Remarkably, total credit in the US commercial banks has been flat since the end of April. After the initial surge in guaranteed loans in March and April, transmission of monetary policy has been nearly non-existent in aggregate in the US. More recently, banks have been participating in the mortgage market again. A large part of the demand has been for refinancing existing loans to lower rates. This should be a net positive as banks earn and consumers have more money in their pockets, potentially boosting retail spending. But this

activity may be muted by surcharges from agency securitisation firms as they look to protect their capital base to emerge from government conservatorship.

As of now, mortgage lending is carrying the weight of a banking system which is neither lending nor buying treasuries in sufficient quantity to replace the drop in lending. This does not bode well for policymakers seeking to support the real economy. Outside the US, other monetary authorities are pausing rate cuts to weigh the strength of loan demand and the likelihood that cuts will be passed on to consumers.

China has halted a reduction to its loan prime rates, which affects corporates, mortgage issuers and consumers as it gauges the effectiveness of its current policy transmission.

There are limits to the effectiveness of monetary policy when rates approach zero and real rates turn negative. The reality is that demand elasticity in the unique conditions caused by a pandemic is significantly less than one. Loan demand and higher rates are possible only once the damage from the potential spread of COVID-19 is minimized through immunity or therapeutics.

Daniel Gerard is senior multi-asset strategist at State Street Global Markets.

28/10/2020 11:45:11 AM

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ESG

UNBOXING ESG IN REAL ASSETS Recent events have highlighted the importance of the ESG characteristics of real asset investments as part of COVID-19 recovery programmes and to futureproof portfolios, writes Ed Dixon.

IN THE MIDST of a global pandemic, Apple announced its intention to reduce the climate impact of all of its devices to net zero by 2030. As Apple expands and needs more stores, offices and data centres, this will be a monumental task.

Globally, 39% of all carbon emitted comes from building and construction, and operational emissions account for about 28%.

Commercial property landlords and tenants can cut energy use by shifting to non-fossil fuel sources, by using less energy, or both. Opting for materials, logistics and construction methodologies with less carbon impact can also help.

‘Embodied’ carbon emissions account for the remaining 11% of emissions from building and construction. By comparison, air travel accounts for about 2.5%.

There is a window of opportunity as we reconfigure assets in response to COVID-19, where delivering healthy and low-carbon products can meet the needs of tomorrow’s occupiers.

When COVID-19 began spreading globally earlier this year, the concern was that environmental, social and governance (ESG) considerations would take a backseat as efforts were focused on battling the health crisis. In fact, the opposite may be happening.

Whether through the UK’s ‘Build Back Better’ initiative or the European Union’s ‘Green New Deal’, ESG considerations have a central

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role to play in COVID-19 recovery programmes. One of the main sectors to be affected will be real assets. They are long term, they transform communities, and they are crucial to economies.

Here, we consider four areas set to shape the ESG agenda for real assets: the path to net-zero emissions, transformation of the workplace, increased focus on social impact, and the embedding of ESG considerations throughout the lifecycle of investments.

MAPPING NET ZERO Efforts to mitigate climate risks worldwide centre on the 2015 Paris Agreement, which seeks to keep global temperature rises this century less than two degrees Celsius above pre-industrial levels and, if possible, to 1.5 degrees Celsius. To achieve this, the world’s carbon emissions need to reach net zero by 2050, according to the Intergovernmental Panel on Climate Change (IPCC).

Nearly a quarter of the world’s top corporations have committed to climate targets, a fourfold rise since 2015. Local and national governments have their own targets. As governments and corporations reduce emissions, investment portfolios will need to align (see Chart 1). This means only buying assets where you have full confidence they can be decarbonised in time, and refurbishing, redeveloping or disposing of everything else.

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Strap ESG

Chart 1: Investing in net zero

The scale of the required transition is enormous. In the UK, for example, the expectation is for consumption to double in the next 30 years while net carbon must fall to zero.

The growth of renewable energy will not be enough to meet this need, particularly as wind and solar are intermittent. Achieving net zero will require significant investment to decarbonise both power and transport. The Government will need to provide the right framework to support investments in existing and developing technologies such as heat pumps, battery storage, carbon capture and storage (CCS) or hydrogen. Incentives could include higher carbon prices, as well as new regulation.

WORK, AT A DISTANCE One enduring legacy of COVID-19 could be a fundamental change to working practices. Office buildings will likely accommodate fewer people on average as more employees work from home. Yet higher peak periods could be expected if more employees are coming into the office at the same time to seek face-to-face interaction and collaboration with colleagues, still an important ingredient to fuel the knowledge economy.

Upon returning to the office, occupiers are likely to expect more of a destination for their staff, accelerating the demand for modern, flexible office space with stronger environmental credentials such as energy efficiency, state-ofthe-art digital technology, and greater emphasis on health and wellbeing.

With real assets portfolios likely to be reconfigured to adapt to this new world, asset owners share the challenge of managing partners and

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suppliers responsibly.

The rights of employees and communities will likely hold larger implications for real asset investors – not only in terms of the workplace but also the workforce.

As responsible investors, asset owners can no longer be faceless bystanders – they have to become an integral part of the change required.

SOCIAL IMPACT: VITAL, BUT HARD TO MEASURE The aims of the ‘S’ don’t always align with that of the ‘E’ and ‘G’ in ESG. Therefore, asset owners need a consistent process to guide how they balance the trade-offs in their investment decisions.

Questions around the social aspects of ESG are becoming more important. There is a lot of discussion about how to measure social improvements as part of an investment, which is challenging because social metrics are less quantifiable compared to environmental improvements.

Such difficulties have led more institutional investors to turn to the Sustainable Development Goals (SDGs) to target specific ESG goals.

According to the United Nations Principles for Responsible Investment (UNPRI), the recent push to use the 17 SDGs to set investment targets has the potential to help real asset investors obtain much better clarity on how they are shaping outcomes.

Asset owners and investment managers are beginning to use the SDGs to set targets for asset allocation or other elements of asset management.

Some governments are also using the SDGs to help shape their infrastructure planning and project design requirements.

Source: "Sustainability: Decarbonisation: The race to net zero", Morgan Stanley, October 21, 2019

INCORPORATING ESG THROUGH THE LIFECYCLE Understanding ESG characteristics is a dynamic process; for real assets, this is even more complex given the longer timeframe of investments.

To truly invest for the long term, investors will need to embed ESG in their decision-making process – from origination through to investment management and finally disposal.

As with traditional financial analysis, ESG impact will differ according to the nature of project, sustainability credentials of the company and where the investment sits in the capital structure, among other factors.

Once assets are added to the portfolio, active ownership helps mitigate ESG risks and maximise value. Estimates suggest about 90% of European real estate was built before 1990, likely with poor-quality insulation, outdated heating systems that rely on gas, and poor air quality

management. Yet according to commercial real estate firm JLL, office buildings with the highest levels of sustainability certification command significant rental premiums of at least 10% above average. This presents a significant opportunity to refurbish assets and realise the uplift in rents and asset value.

When it is time to divest or dispose of assets, asset owners have a responsibility to minimise the on customers, employees and wider society. In cases where assets are sold to another investor, due diligence will be key. ESG liabilities may extend far beyond the point of divestment.

Without absolute certainty on what tomorrow holds, the best way to futureproof portfolios is to constantly scrutinise the potential for change and make sure you are prepared for it.

Ed Dixon is head of ESG, real assets at Aviva Investors.

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Toolbox

USING MANAGED ACCOUNTS IN YOUR ADVICE PROPOSITION Use of tax-effective strategies can be one of the most important ways that advisers can add value for their clients beyond advice, writes Tanya Hoshek.

RUSSELL INVESTMENTS’ ANNUAL 2020 Value of an Adviser report found that the tax-effective investing benefit advisers provide to clients could add at least 1.5% p.a. to a client’s returns – representing a significant part of the overall

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value advisers deliver to clients.

Tax has often been viewed as the realm of accountants.

However, many advisers provide expertise on managing and optimising investment tax and do so with the help of managed accounts.

Financial advisers can help clients make tax-savvy decisions through structural tax recommendations. This refers to being intentional about location and flow of a clients’ assets based on the tax rate of different structures. This may include

simple strategies such as salary sacrifice into super, transition to retirement strategies, using tax-paid investment bonds through to more complex strategies. Much of this is business as usual for advisers, but there is an opportunity to

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Toolbox

point to each of these strategies and highlight to the client the tax smart recommendations as part of their adviser value.

Secondly, advisers can help clients to select tax-smart investment solutions. As many financial advisers know, tax can have a significant impact on asset value and portfolio return.

Minimising the ‘tax drag’ on a client’s investments may help them reach their financial goals much sooner.

For example, the evolution of managed accounts now provides advisers with a level of flexibility and optionality on how they can help clients reduce the tax drag on their portfolios. Here we outline some key points advisers and investors should know about managed accounts – what they are, the benefits for advisers and clients and why additional services such as tax management should be given more time in client conversations.

MANAGED ACCOUNTS: THE BASICS A managed account is a portfolio made up of underlying assets that may include listed individual securities, exchange traded funds (ETFs) and managed funds. The portfolios are managed by an investment solutions partner on behalf of the investor and are accessed via a managed account platform.

Equity separately managed accounts can be an all-equity portfolio managed by an investment manager. The client has the beneficial ownership of the shares, with an investment manager managing and trading the portfolio on behalf of the client. The investor can have their own unique tax parcel history and direct benefits of all income and dividends arising from the investment and tax credits (i.e. franking credits).

Beyond just an equity portfolio, multi-asset managed accounts can provide total

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portfolio solutions for advisers to recommend to their clients.

These can incorporate ETFs for a lower cost approach or managed funds for a more active approach.

There are also multi-asset managed accounts that incorporate direct shares, ETFs and an active and dynamic core to deliver a best of breed solution.

A managed account platform provides flexibility for advisers and clients to manage their portfolio. Depending on the platform, there are options to select tax parcels when trading for the client, in-specie current holdings in and out of these portfolios, along with the ability to substitute one share for another or even to lock holdings, meaning that if a manager sells down that position, the client can elect to retain that holding, particularly if they have concerns such as triggering capital gains.

All of these options provide opportunities for advisers to provide additional value add by reducing unwanted or unintentional tax impacts on a client portfolio.

When selecting a managed account portfolio, it is important to consider the tax-smart elements in all components of the portfolio, and to what extent the capabilities of the managed account platform can be utilised.

TAX IMPLICATIONS OF MANAGED ACCOUNTS Managed accounts, ETFs and managed funds are all portfolio structures, however, fundamental differences exist between them.

Firstly, for direct shares within a managed account, they aren’t pooled portfolios but are held directly by the investor.

Secondly, direct equity holdings can be transferred to a managed account, and lastly, investors aren’t subject to any embedded tax liability that may exist in pooled investment vehicles like managed funds.

ETFs are pooled vehicles however, they are often low turnover index strategies, and lower trading can reduce unnecessary triggering of realised capital gains. The secondary market nature of ETFs also reduce the level of portfolio turnover which can further enhance the tax effectiveness of ETFs compared to managed funds.

Managed funds are pooled vehicles, which means that when an investor purchases units in the fund, they are buying into the combined tax experience of the portfolio, and all the trading and activity in the fund. However, it is important to note, some managed funds can implement tax aware strategies that reduce unnecessary trading and reduces potential tax burden on unitholders.

ADVISERS EMBRACING MANAGED ACCOUNTS According to Investments Trends, around 35% of financial advisers currently use managed accounts.

The appetite among advisers for tax-efficient investment vehicles such as managed accounts has grown due to three key reasons: 1) Addressing changing client demands, which includes a growing desire for portfolio holdings and tax transparency; 2) Cost pressures have prompted advisers to change their advice business model, with a focus on increasing productivity and scalability; and 3) Technological advancements and the entry of new, sophisticated platforms have seen the broadening use of managed accounts from purely a solution for high net worth clients.

In Australia, the managed accounts sector was worth over $71 billion in funds under management, as of 30 June, 2019.

We expect managed accounts to become a core offering as pricing of platforms becomes

more competitive, and advisers and clients continue to realise the benefits.

How can an adviser help a client’s portfolio be more tax effective?

We believe it may be rare for a client to proactively ask their adviser for a managed account portfolio. This is about building a mindset when working with your clients on helping them articulate and identify their needs and delivering solutions to meet these needs.

Firstly, advisers can help identify what are some tax-savvy decisions that can be made today, but also into the future as the client’s personal wealth grows. How can you help a client build a solid foundation for today, that is flexible to adapt for future needs?

A multi-asset managed portfolio may provide a total portfolio solution that provides transparency, direct share ownership while also being cost effective. Advisers can highlight the tax-effective choices in the type of portfolio and platform being recommended and how that may meet today’s needs.

As the client’s wealth grows or their needs evolve, there is an opportunity for the adviser to elevate the service offering to more bespoke and pro-active tax management of their portfolio.

Advisers may also want to consider a best-of-breed approach to maximise the tax-smart opportunities for their clients.

How can an adviser provide comfort and confidence in what is in a client’s portfolio?

By holding the beneficial ownership in the underlying assets, and through improved reporting via platforms, investors and advisers have a higher level of transparency over the assets and Continued on page 32

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Toolbox

Continued from page 31 investments held. Ultimately, this enables clients to become more engaged with their investments, translating into more sophisticated adviser-client conversations.

How can advisers benefit from using managed accounts?

Business efficiencies: Managed accounts allow advisers to set the investment objective together with clients upfront, leaving the portfolio to be rebalanced without having to provide additional advice. This creates future practice efficiencies, as advisers don’t need to seek permission every time a portfolio change is made or perform individual trades to get clients in and out of a particular stock or get caught up in timeconsuming corporate actions.

Reduce compliance burden: Advisers are under increasing pressure to satisfy compliance objectives and licensee obligations, so any scale that can be built into the service delivery for their clients is of huge value.

Seven-in-10 advisers identified compliance burden as the top business challenge they face in further research from Investment Trends.

Managed accounts enable advisers to have confidence that all client’s assets are managed professionally with robust investment governance, portfolio updates are implemented fairly and in real time while enabling some levels of customisation for clients that need it.

Broadening the adviser-client relationship: In times of market uncertainty, continued focus on advisory fees and natural customer scepticism about delivered value, having a structure in place that enables advisers to deliver a service that is easy to articulate is very beneficial.

Managed accounts help advisers to be solution-led not product-led, helping to clearly

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demonstrate how their service is going to help achieve the client’s future wealth and personal goals today and into the future of the advice relationship.

For example, clients who may have part of their assets in a higher marginal tax rate, may require additional support to ensure they avoid unintended tax impacts on their portfolio.

Having their assets on a managed account platform for both super and non-super assets provides advisers the ability to demonstrate how they’re proactively managing the tax implications in the portfolio across different tax rates, and therefore the value in higher advice fees for this additional service.

A more customised tax service on the non-super assets could have a bigger after tax impact for these clients and requires more attention. The result is a more transparent conversation with the client around the value of added services and potential additional fees as the client needs change and evolve over time.

From our perspective, many advisers are already making tax-smart recommendations to clients but may not be calling out that component of their advice to clients proactively or effectively enough. Perhaps review your most recent client advice, and think of how many tax-savvy elements of advice you could highlight to clients, and what more could you do?

By looking at the full value equation of an adviser’s services – asset allocation, preventing behavioural mistakes, financial expertise, additional wealth management services and tax-effective investing – advisers can clearly demonstrate the value they deliver.

Tanya Hoshek is head of distribution at Russell Investments.

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

1. How much is the managed account sector currently worth in Australia? a) $51 billion b) $61 billion c) $71 billion d) $81 billion 2. What are the key differences between a managed account and a managed fund? a) A ssets within a managed account aren’t pooled but held directly by the investor b) Direct equity holdings can be transferred to a managed account c) Investors aren’t subject to any embedded tax liability that may exist in pooled investment vehicles like managed funds d) All of the above 3. What types of managed accounts are currently available? a) Direct share separately managed accounts b) Multi-asset managed accounts made up of all ETFs c) Multi-asset managed accounts made up of all managed funds d) M ulti-asset managed accounts made up of direct shares, ETFs and managed funds e) All of the above 4. Transferring existing direct assets both in and out of a managed account structure, without triggering a capital gains tax event is called: a) ‘Alternative risk’ transfer b) ‘In specie’ transfer c) ‘Asset’ transfer d) ‘International’ transfer 5. Which of the following statements are false? a) I n a managed account structure, investors aren’t entitled to receiving tax credits such as franking credits b) Managed accounts have several benefits for both advisers and their clients including transparency, flexibility, and efficiency c) Managed accounts can help advisers manage compliance burden d) Managed accounts have some similarities with managed funds

TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/ features/tools-guides/ using-managed-accounts-your-advice-proposition For more information about the CPD Quiz, please email education@moneymanagement.com.au

28/10/2020 2:34:41 PM

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34 | Money Management November 5, 2020

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

Appointments

Move of the WEEK Rebecca Collins Key account manager SG Hiscock and Company

SG Hiscock and Company (SGH) has appointed Rebecca Collins to the newlycreated role of key account manager.

She would be responsible for further developing channel opportunities across Australian equities and Australian property securities, as well as global equities and global property securities through SGH’s Partnership Program with Morgan Stanley Investment Management and LaSalle

The Financial Planning Association of Australia (FPA) has elected Kearsten James, Julie Matheson and Julian Place to the board.

James and Place would serve on the board for the first time, while Matheson had been re-elected after previously serving until 2016.

All three positions were for a three-year term and would commence at the Annual General Meeting on 25 November, 2020.

The three appointments followed the expiry of terms for board members Marisa Broome, Delma Newton and Michelle Tate-Lovery.

Broome, FPA chair, had been appointed by the board as an additional director and continued as chair for an additional term.

Newton had served two terms on the board and was ineligible to stand again; Tate-Lovery was eligible for re-election but made the decision not to stand again.

James was the Gold Coast FPA chapter chair, a multiple FPA Award finalist and winner, and had presented at the FPA Professionals Congress.

Matheson was a long-standing member of the FPA, an FPA Distinguished Service Award recipient and had previously

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Investment Management Securities.

She would be based in the Sydney office of the Melbourne-based asset manager and report to head of distribution, Anthony Cochran.

Collins had worked in financial services for two decades across a variety of marketing and relationship management roles.

She had previously been employed

served on the board and many FPA committees.

Place had been the FPA Chapter chair for Melbourne for the last 10 years and was a member of the Financial Planning Education Council (FPEC).

Elston Asset Management has appointed Artem Zainitdinov as equities dealer/portfolio analyst and David Seager as investment analyst (multi-asset).

Zainitdinov would be responsible for the execution of trades across Elston portfolios as well as providing broader investment support functions.

Before joining Elston, he worked at Pinnacle Investment Management as a middle office analyst.

Seager would be responsible for supporting the portfolio managers in the multi-asset team, focused on portfolio construction, asset allocation and manager selection.

He had over nine years’ experience in the financial services industry with four in multi-asset portfolio management.

Centrepoint Alliance has appointed former MLC Wealth business growth manager, Charles Smith, as

with MLC Asset Management, NAB Asset Management and NAB Wealth Distribution, Ellerston Capital, UBS Wealth Management, and Macquarie Bank.

Cochran said the appointment reflected strong investor demand as well as the strategic need to broaden distribution lines, primarily through national dealer groups, model portfolio inclusion and managed accounts.

national recruitment manager.

Smith spent over four years as business growth manager at MLC Wealth, where he was responsible for recruiting quality self-employed financial advisers into MLC licensees.

Smith had been in the industry for several decades and had held many senior institutional positions as well as executive and nonexecutive roles for major licensees.

Statewide Super has announced it appointed David Cook as its chief technology officer, responsible for information services, project management, ICT, contract management, and facilities functions.

Prior to Statewide, Cook lead the digital and technology for a statutory office in Queensland, and was head of technology strategy and chief security officer for Sunsuper.

Bell Direct has appointed Ryan Phillips and Lewis Hsu to its new Bell Direct Advantage Service, which is created to support its growing list of high value clients and expanding the online broker’s specialist offering for clients.

Based in Sydney, Phillips and Hsu would be responsible for

enhancing the trading experience for Bell Direct’s growing base of sophisticated, self-directed, active investors and supporting them in their trading activities.

Phillips joined with over two decades’ experience in the financial services industry and was most recently the executive manager, broking and markets, at CommSec. This experience included ten years working as the executive manager at CommSec One, which was CommSec’s high value client desk.

Hsu had over 15 years’ experience and also joined from CommSec One where he was senior relationship manager.

Independent investment consultancy firm bfinance has appointed Daniele Goldberg as client consultant.

Goldberg joined after a decade of experience at Lloyds Banking Group across a variety of roles in the London and Sydney offices.

She was previously based in London covering UK pension fund and insurance clients as a fixed income sales specialist.

Based in Sydney, Goldberg would report to Australian senior director Frithjof van Zyp to expand the firm’s footprint in Australia.

28/10/2020 1:39:16 PM

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

Two Crowns demonstrates funds that place in the third quartile

Three Crowns demonstrates funds that sit in the second quartile

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

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

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29/10/2020 11:17:31 AM

OUTSIDER OUT

ManagementNovember April 2, 2015 36 | Money Management 5, 2020

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

In the dark, out of the loop and an execrable diet

Bountiful experiences as first mate takes the helm

Outsider knows what it’s like to be treated like a mushroom. He is not unfamiliar with being kept in the dark and being fed execrable information.

And thus your humble correspondent feels some sympathy for the Assistant Minister for Superannuation, Financial Services and Financial Technology, Senator Jane Hume, who was forced to admit to a Senate Estimates hearing that she was among the last to know about the six-figure expenses issue surrounding Australian Securities and Investments Commission chair, James Shipton.

Hume, somewhat embarrassed, admitted that she had only formally learned of the problems surrounding Shipton on the same Friday the ASIC chair announced he would be standing aside, albeit she stated: “I don’t think it is a problem that I was not brought into the loop on this”.

Outsider was pleased to note that Hume later told the committee that, in

AT the time of writing, Australian Securities and Investments Commission chair, James Shipton remains stood aside awaiting a Treasury-instigated independent review of the six-figure sum paid by taxpayers to cover his tax advice.

That, and the resignation of his deputy, Daniel Crennan QC, meant that the running of ASIC fell to Shipton’s remaining deputy, the ever upwardly-mobile, Karen Chester, who found herself knee-deep in questions during Senate Estimates.

But Shipton should have been in no doubt that ASIC was in good hands in his absence, with Chester making clear that she and ASIC’s remaining commissioners, notwithstanding having been kept in the dark about the chairman’s trevails until September, had matters well under control and along with ASIC staff were getting on with the job.

“We are anything but drifting. We continue our work. We are busy doing our jobs,” Chester said.

What is more she said she had issued an all-staff message stating that accountability for the controversy resided with the ASIC commissioners, not with staff.

Chester said she believed there would be a bumpy road ahead for the next while and that if she was one of the staff she’d be angry and disappointed.

Outsider feels certain that Shipton would be greatly reassured by Chester’s efforts in his absence.

fact, she may have been less in the dark than it seemed because during a personal telephone call with Shipton on the Thursday he had offered a glimmer by alluding to some issues which might arise around ASIC’s financial statements without actually going into the details.

It seems to be the fate of junior ministers that they must live in the shade of their senior ministers, with Treasurer, Josh Frydenberg, casting so much shade that Hume was left in dark.

Getting to the bottom of illicit habits OUTSIDER knows that there are those who believe that some inhabitants of Sydney’s so-called big end of town occasionally indulge in illicit substances reflective of their large incomes but, let’s face it, the big end of town has been pretty much empty since March.

Which possibly explains why testing of Sydney’s sewerage has detected an upsurge in cocaine and other drug use, but not necessarily in the CBD.

Now Outsider is not one to be alarmist, but he notes that the COVID-19 pandemic has not only largely emptied out Sydney’s Barangaroo and Martin Place but given rise to Government authorities testing sewage much more often than is normally the case.

This, of course, has not only helped them detect fragments of the coronavirus in various suburbs but also detect those who may have had runny noses for reasons other than COVID-19.

OUT OF CONTEXT www.moneymanagement.com.au

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Now Outsider doesn’t want to rain on anyone’s parade in these difficult times, but when it comes to tracking the coronavirus and illicit drug use, it seems clear to him that the health authorities really know their shit.

Outsider is not sure how accurate the testing is with respect to traces of 21-yearold Knockando but he is prepared to answer any questions the authorities may care to put to him.

Bottoms up!

"I might go a little higher up the shelf."

- Victorian premier Dan Andrews asked if he would 'get on the beers' now lockdown was over

"If you're having visitors, you can't be a visitor to somebody else's home."

- Victorian premier Dan Andrews

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29/10/2020 11:37:32 AM