Financial Standard Volume 18 Number 16

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17 August 2020 | Volume 18 Number 16

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Macquarie

Technical Services Forum

Christian Super, AMP Capital, Zenith

Feature:

Profile:

Publisher’s forum:

09

Opinion: Chris Mather BTl

Events:

14 IFAs

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07

11

21

Macquarie

Technical Services Forum

Christian Super, AMP Capital, Zenith

Feature:

Profile:

Publisher’s forum:

09

Opinion: Chris Mather BTl

Cash plus funds shape shift under ASIC Kanika Sood

he corporate regulator is intervening in T fixed income funds sold as “cash plus” or “enhanced cash” strategies, as it sharpens its watch on managed funds advertising.

In recent weeks, Legg Mason’s Western Asset and UBS shed the term “cash plus” for “conservative income” and “short term fixed income” respectively.

It is understood that ASIC intervened in some cases, and will put out guidance for cash plus funds, as part of a wider piece, in the coming weeks. A spokesperson declined to comment on individual funds.

The bone of contention is that some of these funds initially invested conservatively in the 1990s, but didn’t discard the cash plus tag as debt markets expanded.

This scrutiny is part of a wider push from ASIC. In June, it disciplined 13 funds and issued a wider call to the industry, asking them to state clearly capital losses and liquidity risk.

Zenith Investment Partners head of multiasset and Australian fixed income Andrew Yap says ASIC is not the first regulator to be interested in the cash plus tag.

APRA’s June 2018 review of cash fund options at registerable superannuation entities (RSEs) kick started the conversation on cash plus funds, while March’s credit liquidity squeeze crystallised action in managed funds.

APRA’s review found super funds were misclassifying investments that fell out outside of the Superannuation Reporting Standard (SRS) 530 ‘Investments’ as well as Australian Accounting Standard Board (AASB) 107 ‘Cash Flow Statements’ which notes cash equivalents have maturity of three months or less.

APRA said asset-backed and mortgagebacked securities, commercial bonds and hybrid debt instruments, credit default swaps and loans did not cut it as cash.

“As cash rates near a zero bound, it’s feasible that ASIC increase their focus on those strategies that try to give investors better than cash returns while masquerading under the cash banner,” Yap says.

He says the name changes don’t affect Zenith’s ratings (it rates nine such funds).

Zenith went from classifying them as “cash enhanced” as a sub-asset class within the cash/ cash management trusts to using “short-term credit” in May 2019, as it saw APRA’s action spilling into managed funds.

Hamilton Wealth Management financial adviser Will Hamilton has used cash plus strategies from Realm Investment House for about three years and from Janus Henderson Group for about seven years, allocating five to 10% of client portfolios to them, per risk profile.

“We don’t go by the name, we have always classified them as “diversified credit” in our client portfolios. You can’t treat them as cash,” Hamilton says.

Meanwhile, Diana Saad of Silway Private Wealth says the naming convention change is most relevant to non-advised retail clients who may assume the funds are 100% and advisers should have always dug deeper.

Saad says in the past she would have considered annuities or term deposits as alternatives to cash plus funds.

“However I have not done so for quite some time now, as a result of interest rates reducing over the last several years, combined with the inflexibility of these products,” she says. fs

17 August 2020 | Volume 18 Number 16 www.financialstandard.com.au 20 January 2020 | Volume 18 Number 01

Events:

Executive appts:

14 IFAs

32

Talal Yassine Crescent Wealth

BDM salaries likely to drop Jamie Williamson

Diana Saad

senior financial planner Silway Private Wealth

Salaries for funds management and platform business distribution managers are expected to decrease over the next six to 12 months along with bonuses, according to Riva Recruitment.

Salaries for BDMs have seen little change in the last six months, but with a select number of distribution roles being made redundant as a result of COVID-19, Riva Recruitment said salaries are likely to decrease slightly in the coming months as more people apply for new roles – something also in relatively short supply.

That said, BDMs with strong client relationships and investment knowledge will continue to demand and receive a premium to Continued on page 4

Bond investor sues government Elizabeth McArthur

A 23-year-old woman is suing the Australian government, claiming climate change risk was not disclosed properly when she invested in exchange traded bonds.

Kathleen (Katta) O’Donnell is being represented

by Equity Generation Lawyers principal David Barnden, who is also taking registrations of interest from bond holders for a possible class action on the back of O’Donnell’s case.

O’Donnell’s case and the class action will not be seeking any dollar amount in damages. Instead, Barnden said the case is about whether the government has a responsibility to disclose climate change as a risk in bond information statements.

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News

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

Alex Wade leaves AMP

Editorial

Jamie Williamson

A

Jamie Williamson

Editor

If we reflect on the last few weeks and months, you’d be forgiven for thinking a class action has been filed against just about anyone and everything in the financial services sector.

We saw two filed against AMP in the final week of July alone, IOOF settled one of its class actions in May (there are others still on the boil), while NAB, MLC, Commonwealth Bank, Colonial First State and Westpac also fight their own share.

Interestingly, despite what appears to be have been an explosion in such actions, class actions actually account for less than 1% of all cases filed in the Federal Court, according to the Australian Law Reform Commission.

Still, many – including, most notably, AMP chief executive Francesco De Ferrari – are singing the praises of proposed new regulation that would require litigation funders to have an Australian financial services licence in order to operate.

This would, in effect, make plaintiffs in a class action ‘investors’ in a managed investment scheme. It would also make taking such action much more expensive, thus reducing the number of firms capable of spearheading an action.

It comes on the back of concerns that increased litigation funding activity hasn’t resulted in improved outcomes for members of the class action, with some funders found to be claiming substantial portions of settlements as fees, leaving members with very little after other costs are paid.

The corporate regulator itself is among those in opposition to the proposed regulation, saying neither the AFSL nor managed investment scheme regime is a suitable means of regulating litigation funders.

It’s clear that the motivation here is to hinder class actions to the point that even fewer, if any, are filed against major corporates [read: those that employ thousands of Australians and support our economy like no other] again.

In doing so, it removes the consumer’s last line of defence. If the likes of CBA and AMP were charging fees to dead people when the threat of legal action was a tangible risk, who’s to know what kind of behaviour will be allowed to fester.

That said, many of the class actions we’ve seen filed or proposed against financial institutions have come from one of two firms: Maurice Blackburn or Slater & Gordon.

These two firms are so well capitalised and are easily the most recognised names in law in Australia, particularly through the lens of the consumer. Less competition for them means this profile simply improves, along with their balance sheets and the potential to get their hands even dirtier.

So, does such regulation mean class actions are less likely to occur? Maybe. But it also means that when they do, you know there’s something to them.

As The Advisers Association chief executive Neil Macdonald said when AMP’s advisers filed their own class action against the wealth giant, you don’t take legal action unless you think you can win. fs

The quote

We have a strong team in AMP Australia, who have been transforming the business, managing the successful separation of AMP Life, reshaping advice and increasing our focus on clients.

MP has announced the departure of AMP Australia chief executive Alex Wade, effective immediately on August 6.

Wade tendered his resignation and AMP accepted it, the group said.

Chief executive of AMP’s New Zealand Wealth Management, Blair Vernon, will replace Wade in an acting capacity while a search is conducted for a permanent successor.

Vernon has over 25 years’ financial services experience in both Australia and New Zealand and has been with AMP since 2009, prior to which he worked at Bank of New Zealand.

Jeff Ruscoe, currently chief client officer, will lead the New Zealand wealth business going forward. He has been with AMP for more than 15 years and has held a number of key leadership roles over the years.

In a statement, AMP chief executive Francesco De Ferrari said: “We have a strong team in AMP Australia, who have been transforming the business, managing the successful separation of AMP Life, reshaping advice and increasing our focus on clients.”

“I’m pleased we are able to call on an experienced executive in Blair Vernon to lead this team and continue to drive our strategy forward.”

Wade has been with AMP for less than two years, having joined in December 2018 as group executive, advice and New Zealand. In doing so, he replaced Jack Regan who retired after an extended period of leave following his appearance at the Royal Commission.

In October 2019 AMP combined its wealth management and banking units, creating AMP Australia and Wade was named chief executive.

His resignation comes as AMP battles numerous class actions, one filed on behalf of its own financial advisers who have seen the value of their businesses decimated by the group’s decision to no longer honour their Buyer of Last Resort (BOLR) agreements.

ASIC currently has five investigations into AMP ongoing and has briefed the Commonwealth Director of Public Prosecutions on a number of matters, ASIC deputy chair Daniel Crennan stated yesterday during a House of Representatives public hearing. fs

MySuper returns negative Elizabeth McArthur

Default MySuper products delivered negative returns in the 2019/2020 financial year, but the results weren’t as bad as they could have been.

According to the Rainmaker MySuper investment performance index, MySuper products delivered an average return of -0.9% last financial year.

It is the first negative annual financial return for default super products since the Global Financial Crisis.

The GFC in 2008-2009 delivered financial returns in default superannuation products of -13%. The 2007-2008 financial year also saw negative returns for default products of 7%.

By comparison, Rainmaker last year’s result was “reassuringly upbeat”.

However, the 2019-2020 median return of 0.9% was significantly down on the 2018-2019 return of 7% and the 2018-2019 return of 9%.

“The upbeat financial year results reinforce the view that the COVID-19 Financial Crisis (CFC) is vastly different to the GFC,” Rainmaker said.

“As a result, the Rainmaker MySuper investment performance cumulative index is pretty much back to where it was 12 months ago, which, all things considered, is an amazingly strong outcome.”

The research found that super fund members with higher exposures to growth assets suffered heavier impacts in the financial year compared with those in conservative choices. Those in growth options had a median loss of -2.1% compared to -0.9% for balanced options and -0.2% for capital stable.

Over the five year period, the growth index delivered 5.5% per annum, the balanced index 5.1% and the capital stable index 3.9%.

Rainmaker found that international equities held up the MySuper index last financial year, delivering 5.8%, Australian bonds delivered 4.3%, international bonds delivered 5.2% and cash delivered 0.7%.

The best performing MySuper product last year was the Fire and Emergency Services Superannuation Fund which delivered 2.5%.

Australian Ethical’s and BUSSQ’s MySuper options weren’t far behind on 2.2% each.

Future Super’s balanced option and UniSuper’s sustainable balanced option were the best performing balanced options with 5.3%.

The Rainmaker ESG Diversified Index returned 0.3% over the financial year to significantly outperform the MySuper index by a 125 basis points.

The research suggested that ESG edge was visible in Australian Ethical, Future Super and UniSuper’s sustainable option, ranking among the top performers.

Rainmaker initially estimated MySuper returns would come in at an average of -0.7%.

It came as the research house adjusted its growth expectations for the super system.

The super industry was projected to hit $10 trillion over the next two decades, but Rainmaker has now revised this down to $7 trillion.

This follows the news that more than $30 billion has so far been withdrawn from the system as part of the early release of super scheme, with more anticipated to be withdrawn over the next six months after the government’s announcement yesterday that the scheme has been extended to December 31.

In reaching this outcome, Rainmaker’s modelling factored in Australia’s recession, rising unemployment, lowering super contribution levels, lower long-run super fund earnings expectations and reduced population growth on the back of COVID-19 travel restrictions.

Rainmaker executive director of research and compliance Alex Dunnin said the removal of $3 trillion worth of capital could have major ramifications.

“This lower projected outlook for superannuation savings outlook could have significant economic consequences on Australia if it is not carefully managed,” he said.

“Super funds are major investors into Australia’s economy with their investments spanning infrastructure, property, purchase of government bonds, company shares, agribusiness, seeding start-ups and energy projects.” fs

News

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

First company lists on SSX

01: Fabian Ross

chief executive WA Super

Elizabeth McArthur

Junior gold miner Torque Metals has become the first company to list on the Sydney Stock Exchange.

Sydney Stock Exchange chief executive Michael Go said the listing was the first under the exchange’s new strategy and that several more companies were well advanced in the listing application process.

“Last year we announced we were focusing on providing a flexible, efficient alternative for growth companies to list and further their ambitions,” he said.

“That’s exactly what Torque Metals is doing and I’m delighted that we can support them, and the other companies getting ready to list, as part of a thriving Australian financial ecosystem.”

Sydney Stock Exchange offers a six-week listing process focused on Australian companies. The exchange is the only venue in Australia with a dedicated ESG board, and the exchange expects listings to go live on that board in the last quarter of 2020.

Torque Metals managing director Ian Finch celebrated listing on the exchange.

“Junior resources companies have found it increasingly difficult to float in recent years, but listing remains an excellent path to growth,” he said.

“SSX have been very supportive and helpful as we have brought Torque to market.”

Go added that the exchange’s plan is to help growth companies succeed and assist in the recovery from the COVID-19 pandemic. fs

Shadforth sees global recognition Shadforth Financial Group has achieved the international fiduciary certification following an assessment by the Centre for Fiduciary Excellence.

Shadforth is now one of just seven Australian advice firms to have the certification.

“Advice relationships are fiduciary in nature.

They are based on a foundation of trust,” Shadforth chief executive Terry Dillon said.

“This is so important because in most cases our clients are entrusting us with the management of their total balance sheets and consequently their financial futures. To be a fiduciary means we are bound by the highest standards and three primary duties.”

Centre for Fiduciary Excellence managing director Carlos Panskep said the centre’s independent assesments provide assurance to high net worth clients that firms that achieve the certification are adhering to the industry’s best fiduciary practices.

These include always putting clients’ best interests first, managing conflicts of interest and acting at all times in a prudent and professional manner with a commitment to ethical behavior.

“There is such disparity in the quality and range of services provided in the advice market.

It is hard for consumers to compare providers and understand what good looks like. Becoming a fiduciary is one way we can set the gold standard to signal to consumers that we stand for them,” Dillon added. fs

3

First State Super, WA Super explore merge Kanika Sood

F The quote

If we don’t merge it will be more difficult for us to continue to offer the current level of services, and members will be required to pay higher fees at some stage.

resh on the back of merging with VicSuper on July 1, First State Super has decided to merge with WA Super by November 30.

First State and WA Super signed a memorandum of understanding and entered due diligence on March 4 this year.

Smaller of the two, WA Super, will get low fees, more investment options and ongoing support for local services, First State said.

WA Super chief Fabian Ross01 said key component of the negotiations for it was to maintain its local office in Perth.

“If we don’t merge it will be more difficult for us to continue to offer the current level of services, and members will be required to pay higher fees at some stage. We do not believe this would be in our members’ best interest in the long-term, which is why a merger with First State Super is the right step to take, with the right culturally aligned partner,” Fabian said.

First State Super chief executive Deanne Stewart said the merger will benefit both funds.

“We have had a presence in Western Australia for some time, and as a result of this merger, will look to strengthen our local services and support in the state,” Stewart said.

“Following the merger, we will have additional representatives of our telephone-based Member Service Centre based in WA. This means, our members in the West will be able to contact us throughout full business hours, while our members nationally will benefit from extended hours of support.”

At $125 billion, First State (soon to renamed Aware Super, around September) will be the second largest superannuation fund after AustralianSuper.

WA Super, which is the default fund for local government employees in Western Australia, previously tried and abandoned a merger with Statewide Super and Tasplan which would have created $24 billion fund.

In March, Tasplan and MTAA Super, who committed to a merger late last year, moved back the date of the merger from 1 October 2020 to 31 March 2021, citing COVID-19. fs

ASIC slammed over SMSF data Annabelle Dickson

The House Economics Committee scrutinised ASIC over its SMSF fact sheet in a public hearing reviewing the 2019 ASIC Annual Report.

ASIC’s SMSF Fact Sheet published last year outlined that the average cost of running an SMSF is $13,900 per year.

Earlier this year the ATO released its 2017-18 Statistical Overview of SMSFs and defied these costs by showing the median operating expense of SMSFs is $3923 a year and the average at $6152.

Chair of the House Economics Committee Tim Wilson said the data released by ASIC was deeply questionable and, as a result, false and misleading.

“The challenge I have as chair of this committee and as a parliamentarian holding ASIC to account is if you go to the MoneySmart website, it still has today that the average cost of running SMSF is $14,879. That misinformation is still out there,” he said.

“I just find it extraordinary to think that you found out that data and didn’t scrutinise it further before releasing it to the public and misleading the public.”

ASIC’s MoneySmart website explains the maximum contribution that someone can make to their super fund is $25,000, therefore a concerning amount would be going to operating costs if relying on ASIC’s factsheet.

“ASIC didn’t put in the effort to enquire as to why half of the max contribution to their super fund would be eaten up in fees and costs,” Wilson said.

ASIC chair James Shipton said he has been working with his colleagues in the last 24 hours to ensure the data on MoneySmart is up to date with the current ATO data.

“When you look at our media release that we do highlight amongst other things, that this data is no longer current and should not be relied on,” he said.

“In time, there will be updates and further refinements of the data that I think is the best way of taking this matter forward.”

Member of the House of Economics Jason Falinski questioned if ASIC is holding themselves to the same standards as they set for financial institutions.

“It’s fair to say it was the way ASIC presented that data and I can’t believe that if a financial institution did something similar that you would not have come down on them like a tonne of bricks,” he said.

Shipton said ASIC does hold itself to the same standard but attributed the misleading data as coming directly from the ATO. “The data was from the ATO which is the core repository of these types of information and it was at the time the best available data. Time has passed that data has now been updated and we recognise that,” he said.

Wilson asked if an entity presents ASIC with data and it does not make coherent sense whether ASIC accepts it on face value and not scrutinise it as a regulator.

ASIC’s Shipton said: “We applied the appropriate procedures at the appropriate time in relation to that data, which was coming from a very reputable brethren agency in the Commonwealth and our responsibility is not to second guess it.”

Shipton went on to explain the SMSF fact sheet was a pilot program to explore the utility which ASIC has learnt from.

“I want to be focused on moving for another learning from this experience was that this exercise, did not actually turn out to be as meaningful as perhaps parties were intended in the first place,” he said. fs

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News

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

01: Wayne Byres

BDM salaries to drop

chair APRA

Continued from page 1 average salary, the firm said.

According to Riva, a regional sales manager working for an investment platform should set their salary expectations at between $190,000 and $230,000. The same role at a retail funds management business could command between $200,000 and $270,000, while those on the insto side should expect anything from $250,000 to $330,000.

Meanwhile, a senior BDM at an investment platform can expect to be paid between $140,000 and $190,000. Those working for a retail fund manager should see between $160,000 and $200,000, while institutional funds management BDMs can command between $170,000 and $250,000.

Junior BDMs can expect to be paid anything from $95,000 to $170,000, depending on where they sit in the sector.

These salaries are base and inclusive of superannuation but don’t account for bonuses, which Riva says have remained steady but will likely reduce by up to 15% over the next 12 months.

“The majority of funds management BDM bonuses range between 30% and 50% of base salary with a few exceptional BDMs receiving more than 75% of their base salary as a bonus. Business development associate’s (BDAs) bonuses normally range between 10% – 20% of their base salary,” Riva said. fs

APRA spells out unlisted asset valuation standards Annabelle Dickson

A

The quote

If it looked like it was completely out of line or completely outrageous then absolutely, we would challenge that.

Bond investor sues government Continued from page 1 Barnden is the same lawyer representing Mark McVeigh in his suit against superannuation fund Rest for its alleged failure to address and disclose climate risk appropriately. He has taken on O’Donnell’s case on a pro bono basis.

O’Donnell made an investment of approximately $1000 in exchange traded Australian government bonds through the CommSec app earlier this year.

Her investment came after meeting Barnden when he delivered a guest lecture at La Trobe University in July 2019, where O’Donnell is studying law.

Barnden was speaking to the law students about the McVeigh v Rest case and O’Donnell was so interested in the matter that she approached Barnden for a chat after the lecture and the two kept in touch.

Linking financial risks and climate change was something O’Donnell said she hadn’t considered much before hearing the lecture – and it sparked her interest.

“I bought the bonds this year and when I started to understand them I realised how much of a risk climate change is presenting to bonds. Climate change is going to have very real physical impacts on our country and that is going to impact our economy and, in turn, the value of government bonds,” O’Donnell told Financial Standard.

“I really think the connection between investment and the economy and climate really needs to be highlighted and well-known because it is a huge driving factor in where we are with climate change.”

Now O’Donnell hopes her case will force the government to act on climate change by emphasising the financial and economic consequences of climate change. fs

PRA has been forced to clarify the standards it holds for superannuation trustees when valuing unlisted assets.

It comes as the market downturn as a result of the pandemic and the Early Release of Superannuation Scheme (ERS) has led to industry concerns about the appropriate valuations of unlisted assets.

Speaking at the House of Representatives Standing Committee on Economics public hearing reviewing the 2019 APRA Annual Report, chair of the Committee Tim Wilson questioned the regulator over the accounting standards that are being applied to unlisted assets.

“I’ve written to you previously about whether the accounting standards for unlisted assets are appropriate and whether various industry and retail superfunds are using the appropriate accounting standards to give valuations,” he said.

Leigh pushed ahead and asked APRA chair Wayne Byres01 to articulate APRA’s position and if the regulator is willing to investigate further.

Byres explained: “We do examine where the funds are valuing assets and we do seek to make sure that funds whatever the assets might be listed or unlisted are being appropriately valued, that’s a normal part of supervision.”

Leigh then questioned how the regulator would approach and identify a situation where the wrong accounting standard was applied to the valuation of an unlisted asset.

“That would be a concern to us because some of our requirements are based on the premise

that they are using the up to date accounting standards, particularly for things like unlisted assets,” Byres said.

He went on to explain that there is a degree of judgement involved when valuing an unlisted asset and one person may have a different view, technique of set of assumptions within the accounting standards that produces a slightly different value to anyone else.

Byres explained: “If it looked like it was completely out of line or completely outrageous then absolutely, we would challenge that. We have some steps we could take including requiring another auditor to look at the issue or issuing a direction under the Superannuation Industry Supervision act.”

APRA deputy chair Helen Rowell explained that the accounting standard in valuing unlisted assets is not particularly prescriptive, so the regulator’s focus is on understanding the process trustees used to come to the valuation.

“It often relies on, for significant liquid assets, independent valuations from at least one party if not multiple parties to form a view,” she said.

“Those valuations would be reviewed by the internal staff and they would also be reviewed by either or both of the investment committee and the audit committee and put to the board for final sign off of the financial statements.”

Rowell said if they had any concerns about the elements of the process, they would ask the trustee to review it, make a change to its process of take action where appropriate to ensure the return being achieved for members was also appropriate. fs

Adviser salaries unchanged: Research Elizabeth McArthur

The latest insights from Kaizen Recruitment show the benchmark salaries for financial advisers and paraplanners remain as they were in early 2019.

The recruitment firm found that senior financial advisers with more than 10 years of experience can expect to be paid between $120,000 and $160,000.

Financial advisers with five to 10 years’ experience can expect between $90,000 and $120,000.

Associate advisers with less than five years of experience are generally paid between $75,000 and $95,000.

The expectation of bonuses for financial advisers is shifting, Kaizen said, as the industry moves away from revenue-only linked bonuses to a balanced scorecard method that looks at financial and non-financial performance metrics.

Kaizen said the change in bonus structures could be attributed to the Royal Commission as firms are ensuring clients are serviced in a compliant manner mitigating risk and trying to make sure they stay on the right side of ASIC. According to PayScale, the average salary for a Certified Financial

Planner in Australia is $104,588, but can range up to $155,000.

Meanwhile, senior paraplanners are in high demand and remunerated accordingly – they can expect to be paid between $90,000 and $110,000 with three to five years of experience.

Paraplanners with one to four years of experience can expect to be paid between $65,000 and $90,000 a year.

“Seldom do good paraplanners stay in their role for a long period of time; most consider it as a stepping stone in their careers to move onto other roles with higher salary and bigger challenges,” Kaizen recruitment consultant Simon Gvalda said.

“Recent trends demonstrate that most people take on the paraplanning role to create a strong foundation in the financial planning field, and utilise the experience to transition into other roles within the financial services industry.”

While outsourcing paraplanning is becoming more popular, Gvalda said only firms with very effective online processes are able to take advantage of these services. And for outsourced paraplanners to write Statements of Advice in-house paraplanners must send across detailed summaries. fs

News

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

AFP charges early release scammers The Australian Federal Police have charged three people with allegedly submitting false claims to gain early access to superannuation under the new COVID-19 measures.

AFP Taskforce Iris has charged seven people in total with submitting false early release of super (ERS) claims.

Police will allege the group submitted several fraudulent applications, claiming to be other superannuation fund accountholders, to attempt to access early release of superannuation payments totaling $113,500.

As part of the investigation, search warrants were served at five addresses in South East Queensland in Morayfield, Worongary, Balmoral, Eagleby and Burpengary East.

A number of electronic devices were seized which police claim are significant to the investigation.

A 41-year-old woman has been refused bail and is charged with conspiring to dishonestly obtain or deal in personal financial information.

The maximum penalty for the offence is five years in prison.

Another 41-year-old woman will appear in Pine Rivers Magistrates Court on September 2 and a 36-year-old woman is expected to appear in Southport Magistrates Court on September 4.

They are both charged with conspiring to dishonestly obtain or deal in personal financial information, conspiring to receive a designated service using a false customer name and conspiring to give false or misleading information to a Commonwealth entity.

Combined, the charges could carry a maximum penalty of eight years in prison. fs

Finance workers remain fearful

5

01: Renato Mota

chief executive IOOF

IOOF increases FUMA, lifts remediation costs Annabelle Dickson

The quote

The increased provision is a consequence of a change in methodology relating to adviser categorisation, which now aligns to that used

by IOOF.

I

OOF has recorded an increase in funds under management, advice and administration of 3.4% to $202.3 billion while also increasing remediation provisions by $80 million.

The wealth manager is expecting an underlying profit from continuing operations of $123 million to $125 million. The result has been impacted by the volatility in financial markets relating to the impacts of the pandemic.

IOOF chief executive Renato Mota01 said: “The recent recovery in equity markets has been the major contributor to the $6.7 billion uplift in FUMA and pleasingly, we have continued to attract strong flows into our platforms.

That said, the impacts of the COVID-19 pandemic are continuing.”

However, the total advice remediation provision relating to the ex-ANZ advice licensees is expected to increase by approximately $80 million. This is to be offset by a corresponding increase in an equivalent receivable from ANZ. The company said in its quarterly results the increase is expected to fall within the financial cap of the remediation program arrangements with ANZ. “The increased provision is a consequence of a change in methodology relating to adviser categorisation, which now aligns to that used by IOOF,” IOOF said.

For the June quarter, IOOF recorded net outflows of $93 million in financial advice, a stark decrease from the previous corresponding period that recorded outflows of $853 million.

The recorded outflows for the quarter are a result of off-boarding two advice practices from ex-ANZ advice licensees, resulting in $155 million in outflows.

In addition, there were 12 sub-scale single adviser practices off-boarded which had $115 million in funds under advice. These were offset by a number of practices joining the group.

Early release of superannuation requests impacted net flows, having paid 99,174 requests totalling approximately $743 million.

Mota said the COVID-19 environment sparked client concern and uncertainty around macro-economic conditions.

“Our advisers are seeing first-hand client concern and uncertainty around macro-economic conditions. This client sentiment is particularly apparent through withdrawals associated with the Early Release of Superannuation scheme (ERS) and subdued flows in financial advice,” he said.

“Providing the community with guidance and support is at the core of IOOF. In the face of economic uncertainty and financial stress the value and importance of financial advice, for all Australians, has never been more evident.” fs

Ally Selby

While finance employees rank among those most confident in Australia’s workforce, they are also the most likely to have numerous concerns on the risks of returning to the office.

According to LinkedIn’s Workforce Confidence Index, the financial services sector ranked second in terms of individual confidence, which encompasses workers’ ability to get and keep a job, improve their financial situation and advance in their careers.

Yet, finance employees were the most likely to have numerous concerns on whether heading back to the office could heighten their risk of exposure to COVID-19.

Of those surveyed, 64% said they were worried about the commute, while 59% said they were concerned that others may not be taking safety guidelines seriously.

Meantime, 32% feared close proximity to other co-workers could increase their likelihood of exposure to the coronavirus.

That compares to healthcare and construction workers, many of whom have continued to work on site throughout the crisis (58% and 55%, respectively), who are the least likely to have concerns about returning to the workplace. fs

Macquarie fired 32 people in “consequence management” Elizabeth McArthur

During the Macquarie Group annual general meeting chair Peter Warne touched on the bank’s “consequence management”, highlighting the consequences of inappropriate behaviour.

He said that in financial year 2020, there were 164 matters at Macquarie Group that involved conduct or policy breaches that led to formal consequences.

“Of these, 32 matters resulted in termination of employment. Formal warnings were issued in the remaining 132 matters and in 19 of these, the individual subsequently left the organisation,” Warne said.

“Importantly, the circumstances surrounding all of these matters were analysed and it was found that these were isolated matters with no evidence of broader systematic issues.”

Almost all of Macquarie’s staff, more than 98%, has been working remotely throughout the COVID19 pandemic.

He added that with COVID-19 necessitating a

move to working from home, senior management at Macquarie communicated to staff more regularly to remind them of ongoing expectations and responsibilities.

Macquarie chief executive Shemara Wikramanayake said Macquarie was impacted by mixed trading conditions, with the operating group’s net profit contribution slightly down on the first quarter of last year.

Macquarie Asset Management had $568 billion in assets under management at 30 June 2020, down 5% on 31 March 2020.

“Macquarie remains well positioned to deliver superior performance in the medium term due to its deep expertise in major markets, strength in business and geographic diversity and ability to adapt its portfolio mix to changing market conditions, ongoing programs to identify cost saving initiatives and efficiency, strong and conservative balance sheet and proven risk management framework and culture,” Wikramanayake said. fs

6

News

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

CBA ups remediation bill

01: Sally Loane

chief executive Financial Services Council

Eliza Bavin

The Commonwealth Bank of Australia has announced an extra $300 million has been added to its remediation bill in relation to ongoing service fee and customer remediation costs.

CBA said it is constantly addressing the full range of remediation issues impacting its customers of its aligned advice businesses including Count Financial, Financial Wisdom and Commonwealth Financial Planning.

“The estimates of provisions for customer remediation payments in relation to ongoing service fees have been revised to reflect the latest information on the ongoing service fee population, and updates to the remediation methodology and estimated refund rate,” the bank said in a statement to the ASX. “CBA has therefore recognised in operation expenses additional pre-tax customer remediation provisions of $300 million across our aligned advice businesses for the financial year ended 30 June 2020.”

The additional costs have brought the banks total remediation bill across its advice practices to $834 million, including $698 million in customer refunds and $136 million in program costs.

The bank said the updated provisions assumes an average refund rate of 37% (excluding interest) of the outgoing service fees collected between FY09 and FY19, with 61% including interest.

“While these additional provisions are estimates that may change, CBA believes it has adequately provided for these issues,” the bank said.

“CBA will continue to monitor the adequacy of these provisions.” fs

FSC calls for scaled advice Ally Selby

T

The quote

The FSC recommends the government implement a temporary, two-year reform to enable scalable advice to help Australians through this period of economic uncertainty.

ERS scheme referred to AG The Labor party has referred the government’s Early Release of Superannuation scheme to the Auditor-General, citing administrative failures.

Shadow Assistant Treasurer Stephen Jones sent the letter to the Auditor-General Grant Hehir asking him to review the integrity and performance of the ERS scheme.

“The scheme was designed to provide financial relief for people experiencing income loss and hardship caused by the economic impact of COVID-19. This was the clear intent of Parliament in legislating for increased early access,” he said.

“The government administration of the scheme appears to have departed from this legislated purpose.

Evidence given to the Senate Select Committee overseeing the government’s response to COVID-19 had revealed major problems with the scheme.”

In particular, Jones highlighted theft and fraud issues, lack of verification and inaccurate and misleading promotion of the scheme as key issues.

Jones blamed the alleged “administrative failures” for Australians removing their super without meeting the requirements.

“The consequences of these administrative failures for taxpayers are dire,” he said.

“Fines of up to $12,600 for false declarations and withdrawals, tax liabilities on fund withdrawals and disqualification form income support such as JobSeeker.” fs

he Financial Services Council (FSC) has called on the government to implement a two-year trial of a scalable advice model.

The COVID-19 crisis has seen a surge in demand for financial advice on issues relating to redundancies, retirement, life insurance and superannuation, the FSC said. Yet, increased costs and regulation continue to obstruct the delivery of advice.

With the median cost of up-front advice sitting at approximately $3600, the industry body urged the government to implement a trial of a scalable advice model in a bid to drive costs down.

“The FSC recommends the government implement a temporary, two-year reform to enable scalable advice to help Australians through this period of economic uncertainty,” it said.

“Scaled advice would be documented through a Record of Advice and allow a client to seek advice on a specific subject, such as the impact of a redundancy or a hardship withdrawal from superannuation.”

It’s one of the FSC’s core proposals in its Accelerating Australia’s Economic Recovery 2020 Report, in which it tenders several policy ideas for economic growth in the wake of the COVID-19 crisis across superannuation, funds management, life insurance and financial advice.

Scalable advice would have widespread social and economic benefits, the FSC said, including improving the financial literacy of more Australians, reducing the likelihood of individuals making poor investment choices, reducing pressure on public financial counselors and volunteers, and lowering costs to improve access to financial advice.

The FSC also noted that an independent

review of the program could be held part-way through the trail period as an additional consumer safeguard.

This would help determine whether the advice provided as part of the program was helping clients better manage their financial affairs.

The advice provided under this model would also continue to operate within the best interest duty and would be free of conflicted remuneration, the FSC said.

FSC chief executive Sally Loane 01 said the industry body’s recommendations would help drive Australia’s long-term economic recovery.

“As Australia’s federal and state governments meet as the National Cabinet to develop a new economic agenda to get Australia back to work, other recovery plans are being developed by one of the country’s largest sectors – financial services,” she said.

“By implementing the reforms raised in this report, the National Cabinet and Commonwealth Government can get the best bang for the nation’s buck and get Australia back on its feet.”

Other recommendations in the report include the creation of infrastructure vehicles traded on secondary markets to allow super funds and SMSFs to finance new infrastructure projects; reducing the company tax rate to 25% for all companies to promote international business investment, economic growth and employment; abolish stamp duties on insurance products and property transactions; as well as lowering “inefficient” payroll taxes.

The FSC also recommended the government implement a co-contribution scheme for superannuation, whereby the government contributes $1 for every $5 in voluntary contributions made by a member (to a maximum of $10,000). fs

Pinnacle puts zero-fee ETF experiment to bed Kanika Sood

Less than a year after Pinnacle launched Australia’s first zero-fee ETF, it has decided to wind up the fund after struggling to attract investors.

Pinnacle listed the aShares Dynamic Cash Fund (Managed Fund) on the ASX in late August, 2019. It was managed by Omega Global Investors.

Listed under the ticker Z3RO, it was the first ETF in Australia to charge no performance or management fees, and came at the heels of Fidelity’s zero-fee ETF push in the United States.

“We are not looking to break even on this product, its [other costs] will be funded from our own balance sheet,” Pinnacle said in an interview with Financial Standard last year.

“What we are aiming for is that once the investors have a pleasant experience with us, they become more comfortable in investing with us.”

There were recoverable expenses though, which were capped at 15bps p.a. and Pinnacle said these were expected to

be lower than 5bps a year once the fund was at scale.

However, the ETF did not scale up, hitting $4 million at May end.

Z3RO completed its final distribution today, after taking a decision to terminate the ETF in late May. Another ETF, Global Dynamic Income Fund (SAVE) which targeted cash +4% monthly dividend income was also wound up.

While its zero-fee ETF experiment did not work out, Pinnacle Investment Management (PNI) has had a great year with Hyperion, Plato and ResCap’s funds performing well amid volatility. It is also making inroads into global distribution with about $4 billion now raised from overseas clients.

A research note from Ord Minnett reiterated a buy on PNI. “Strong mark to market with this update which we expect to extend across consensus at the result, with FY21 forecasts far too low. We see long-term value in the business given its formidable distribution team and ability to pick and partner with growing affiliates,” Ord Minnett head of institutional research Nicholas McGarrigle said in a July 27 note. fs

Publisher’s forum

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

01: Olivia McArdle head of payments and deposits Macquarie’s Banking and Financial Services Group

We need to talk about cash

Cash has long been considered a safe haven, but there’s a lot at stake if it’s not managed proactively. ash is the ballast in a diversified portfolio.

C It provides liquidity to fund investment into other assets, reduces the impact of volatile markets and can help preserve capital. However, for conservative investors seeking reliable income with comparative safety, it is increasingly challenging to demonstrate returns.

With official cash rates at an all-time low, it’s never been more important for advisers to actively manage their clients’ cash portfolios.

The challenge may be overcoming investor inertia: clients can see cash as straightforward, and not something they need advice on.

Increased volumes, static returns During the first half of 2020, as the impact of COVID-19 weakened equity markets and economic confidence, we saw strong increases in cash holdings. According to RFi research into private bank clients, in April 2020 cash at call was second only to real estate as a proportion of total investible assets.

At the same time as cash volumes are growing, cash investment options have become increasingly complex. In the hunt for yield, the number of cash, cash equivalent and cash alternative products has grown exponentially. And some of these products may involve a trade-off between risk and return that may not align with the client’s objectives – or satisfy the best interests duty for advisers.

If your clients see cash as simple, you may not get visibility of their full cash holdings.

And this can limit your ability as an adviser to provide holistic advice. So how can you overcome this problem of cash complacency?

Defining cash Investors hold cash for a variety of reasons: as ‘just in case’ ready cash as a safety net, for increased liquidity in a diversified portfolio, for certainty of capital preservation, or for the ability to act on opportunities as they arise.

Australian Prudential Regulation Authority (APRA) defines cash as cash on hand and demand deposits, as well as cash equivalents. And it has noted that for an investment to be labelled as ‘cash’ the underlying investments need to be generally considered cash or cash-like in nature.

In our new white paper, Hidden risks in a safe haven, we look at three types of products: cash at call, cash equivalents and cash alternatives.

• Cash at call products are governmentguaranteed and offer total liquidity. These include everyday bank accounts, savings accounts and cash management accounts – such as Macquarie’s CMA. In exchange for unrestricted access, interest rates are typically quite low.

• Cash equivalent products include term deposits and notice savers, but can also include things like bonds. These types of products offer fixed income at slightly higher returns, with a liquidity trade-off.

• Cash alternatives can get a little more complex. Genuine cash alternatives like the Macquarie Master Cash Fund tend to sit low on the risk spectrum. But some funds labelled ‘cash’ invest outside that asset class. When you unpack these ‘cash-enhanced’ funds, they may be more like an income fund – and carry higher risk to offset that higher return.

7

Many investors may be missing out on cash returns because of their long-held belief that there’s barely any wriggle room when it comes to extracting more from their cash holdings.

On the contrary, this is the investment and savings type where financial advisers can better demonstrate the benefits of holistic advice.

For example, there’s a way to proactively manage cash and balance the risk and the associated returns. Because these days, investors have the option to weigh their exposure to cash at call, cash equivalent and cash alternatives to suit their needs.

In this issue, we ask Macquarie’s Banking and Financial Services Group how financial advisers can help their clients overcome the problem of ‘cash complacency’.

Michelle Baltazar Director of Media & Publishing

came into effect on 1 January 2020, specifically notes the adviser has a duty to investigate the products – they cannot simply rely on the marketing information provided.

So if enhanced returns are on offer, it’s essential to read the fine print first.

If a fund’s underlying assets include residential mortgage-backed security (RMBS) or corporate holdings, these investments can’t be considered ‘cash-like’. Other signs to look out for can include charging performance fees as well as management fees, or the application of a buy/sell spread.

Proactive cash management The quote

If your clients see cash as simple, you may not get visibility of their full cash holdings. And this can limit your ability as an adviser to provide holistic advice.

Meaningful conversations about cash and proactive cash management start with the client’s goals, life stage and risk appetite. And those may have changed in recent months – some may be more concerned about losing their income in an uncertain environment, while others might want more liquidity so they can move quickly on market opportunities.

With the client’s needs front and centre, you can then show how actively managing their cash portfolios can help them get a healthy rate of return with an acceptable level of risk – while keeping them on track to meet their goals.

Balancing risk and return

Begin the conversation

There is growing tension between performance, liquidity and risk, and as a result, an opportunity for advisers to start having more proactive conversations with clients about cash. But if advisers lack visibility over their clients’ cash holdings, this raises several potential risks.

At a minimum, investors may be missing out on returns. Funds left untouched in a transaction account are unlikely to receive the most competitive rates, for example. But conversely, when capital is locked away, clients may not be able to access it when they need it, whether to act on opportunities or to meed debt obligations if they face an unexpected life event.

More importantly, advisers could fail to meet their best interests duty obligations if they don’t fully understand how these assets are invested consistently with the client’s relevant circumstances and the subject matter of the advice they are seeking.

A major part of acting in good faith involves fully explaining the risks of any product recommended. FASEA’s Code of Ethics, which

It’s time to challenge that perception that cash is simple. Passive cash investments can create risks. Proactive cash management is essential in the current market.

If you can work with your clients to see their total cash holdings, and make recommendations to help them proactively manage their cash, they will start to see the benefits of active cash management.

As you’re having more of these conversations, make sure you understand the underlying investment mix and risk involved in any cash alternative products you recommend to clients – and make sure your clients understand it as well. Because if a return looks too good to be true, it’s likely to come with a hidden risk. fs

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News

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

Tough year at Challenger

01: Sonya SawtellRickson

chief investment officer HESTA

Kanika Sood

Challenger reported $416 million in statutory net loss for FY20, as its investments fell by $750 million during the COVID-19 pandemic.

The -$416 million statutory NPAT is a stark contrast to previous years, where it reported $308 million in FY19 and $323 million in FY18.

Normalised NPAT was down 14% to $344 million -- after deducting for investment experience of $750 million and the $9 million cost associated with windup of a Fidante boutique.

Funds management business – which includes multi-boutique Fidante Partners and institutional manager CIP Asset Management – ended FY20 with $80.6 billion in average FUM, up 4%. It generated net income of $8 million, up 5%.

Fidante Partners attracted $3.8 billion in net inflows ($2.3 billion from instos and $1.5 billion from retail) for the period with strong fixed income and equity flows. Its performance fees were up $11 million but Europe transaction fees were down $4 million. Similar ASX-listed business Pinnacle Investment Management has $3 billion in net inflows ($2.1 billion from instos and $0.9 billion from retail).

CIP Asset Management, which pivoted earlier from managing just Challenger Life assets to accepting external money as well, saw -$1.3 billion in net outflows (from Challenger Life’s investment portfolio rejig) but was able to attract about $400 million of external money during FY20.

Challenger Life – which includes annuities as well as other life products – saw total sales rise 13% to $5.2 billion. But total annuity sales were down about 12% to just $3.1 billion. fs

HESTA consolidates investment options Jamie Williamson

T The quote

While some options are closing, others will have a name change or be a mix of existing options.

Magellan readies lower-cost funds Kanika Sood

The Magellan Core series will kick off as openended funds on Chi-X (so far its ETFs use ASX as the primary listing venue) by the end of the year.

The inaugural set of three includes the MFG Core International Fund, MFG Core ESG Fund and the MFG Core Infrastructure Fund – all for 50bps a year, which is almost half of what Magellan charges But the new lineup will be different to Magellan’s existing actively managed strategies. They use Magellan’s propriety research but have a less active management involvement.

“Some people don’t really want to pay for full active management, nevertheless they want some exposure to research and so we tried to build something lower cost…we are very mindful there is an audience we are not addressing,” Magellan Financial Group chief executive Brett Cairns said.

While the Core International Fund and Core ESG are new additions, Magellan has already offered the core infrastructure strategy to institutional investors since December 2009. It is now $8.2 billion in size and has beat its benchmark by wide margin on all time horizons since inception.

“It is obviously very scalable. From a capacity point of view, it doesn’t impact on other products,” he said, but declined to comment on the FUM Magellan expects to raise from the Core lineup in coming years.

Additionally, Magellan will introduce its global sustainable strategy to retail investors. fs

he $52 billion industry fund is closing some of its investment options and merging others in a move that will see some fees change.

HESTA has informed members that investment options across both super and income streams will be changed from October 1 in order for the fund to better concentrate its investment expertise on a more focused set of choices.

In a statement to Financial Standard, HESTA chief investment officer Sonya Sawtell-Rickson01 said the changes will support the “continued delivery of strong, competitive, long-term returns for members” and are the result of more than 18 months’ worth of extensive research into member needs and choices.

“The changes will help members to make decisions about their super and will ensure our investment offerings continue to meet their needs,” she said.

“While some options are closing, others will have a name change or be a mix of existing options. This will provide members with a better understanding of the respective investment option and a seamless experience when moving from accumulation to when they begin taking an income stream.”

The fund is merging its Infrastructure and Property options and closing its Private Equity option.

For the newly-created Property and Infrastructure option, investment fees will be set at 0.93% with an indirect cost ratio 0.17%. This is a reduction to the Property option’s current 1.07% investment fee and 0.17% ICR. Meanwhile, the strategic asset allocation will change to 10% cash, 45% property and 45% infrastructure.

Those currently invested in its Private Equity option will be transferred to the Shares Plus op-

tion which is set to be renamed High Growth with the risk profile renamed to ‘aggressive’ from ‘very ambitious’.

Elsewhere, its Cash option will now comprise 50% term deposit assets and be renamed to Cash and Term Deposits. There will be no changes to the fees charged on this option, but the risk profile will change from ‘cautious’ to ‘very cautious’.

“The investment options will be consistently named across both super and income stream.

This will give you a better understanding of the investment option and a seamless experience when moving from the accumulation phase of super to taking an income stream as you approach or reach retirement,” HESTA said.

Other name changes include renaming the MySuper investment option Balanced Growth as opposed to Core Pool and changing Conservative Pool to simply Conservative. The Eco Pool option will change to Sustainable Growth, while Global Bonds will be renamed Diversified Bonds.

The changes will impact all members with some of their super invested in any of the Your Choice Asset Classes as at September 30.

Retirees will also see changes, with the fund opting to close its Defensive option, impacting HESTA Retirement Income Stream and Term Allocated Pension members. All those invested in the option will be transferred to the Conservative option The Transition to Retirement Income Stream option will also close, moving everyone into the Conservative option.

Those members in the Diversified option or invested in sector-specific options will also see a range of changes to fees, ICRs, risk profiles and strategic asset allocations. fs

Regulatory, legal exam questions trip up advisers Elizabeth McArthur

FASEA has revealed the areas that financial advisers struggle with in the exam – with regulatory and legal questions presenting a challenge.

In the June FASEA exam results for the first time the authority has provided some feedback from the exam data and revealed the areas of the exam that advisers are underperforming in, particularly unsuccessful candidates.

The exam’s testing of advice documentation requirements, the difference between personal and general advice, the Privacy Act and Anti-money Laundering Act were among the areas where advisers were most likely to underperform.

Understanding the application of the FASEA Code of Ethics and the Corporations Act to advice scenarios also proved challenging to many. So too did the identification of client bases and how they may influence clients’ financial decisions and/or investment choices.

The June exam results saw an 84% pass rate, better than the 79% pass rate in April. However, significantly more advisers sat this round with 2282 advisers sitting the exam, compared to just 470 in April.

A total of 10,239 advisers sat the exam in June – with the exam held online due to COVID-19 restrictions.

Over 1600 advisers have registered for the August exam, which was held in metropolitan and regional locations and online from August 13-18. The Melbourne exams will only be online due to COVID-19 restrictions.

Registration is open for the October exam, to be held from October 8-13 and the November exam to be held from November 5-10.Subject to COVID-19 restrictions, the exams will be offered in physical locations as well as online. Over 600 advisers are currently registered for the October exam and over 300 for the November exam. fs

Opinion

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

9

01: Chris Mather

head of distribution BT

The great wealth transfer wave s businesses adapt to what we hope is a postA COVID world, more will be able to turn their focus from survival and business continu-

to news feeds and a digital document library to store and share documents with advisers.

ity planning, to longer time horizons. For advice practices, a key consideration is ensuring they are poised to support clients during the great wealth transfer – expected to amount to $3.5 trillion in Australia over the next 20 years, according to McCrindle’s Wealth Transfer Report.

Although it’s not a new theme, the great wealth transfer amongst baby boomers and younger generations is continuing to escalate, presenting immense opportunities for advice practices that are well-prepared – and, conversely, risks for those that are not. Before wealth is transferred to the next generation, it is usually inherited by the surviving spouses. Research shows that advisers have a 44% retention rate when money moves between spouses and drops dramatically to just 2% when it moves to the children, according to Barons and Dow Jones.

For advisers who are planning for the great wealth transfer, at the heart of the challenge is learning what type of offer and engagement model may appeal to these segments now; and what tools are available which can enable advisers to provide more comprehensive services down the track, when the clients’ needs change.

At BT we are keeping a close eye on how the great wealth transfer is unfolding here and in other markets such as the US, where it equates to $30 trillion over the next few decades (based on Accenture’s analysis of Cerulli Associates’ data). Here are five key themes we’ve noted which may strike a chord with advisers:

2. Have a business development strategy for attracting female and millennial clients.

1. Provide a seamless digital experience to connect with tech-savvy clients.

Millennials expect every touchpoint to be accessible via mobile – reporting, communication, document management, consenting to transactions and moving cash between accounts. COVID-19 has encouraged older client segments as well as advisers to become more familiar with digital tools.

We assist advisers with delivering advice efficiently with the use of technology. While usage of tools such as the BT Panorama mobile app had been growing steadily last year, during the market volatility of COVID-19 it exploded. We saw the use of the app nearly double among investors in the first five months of the year (more than 80%), while advisers’ usage of BT Panorama across the app and via the web was up by 35%.

The app facilitates advice consent and records of advice – and, during COVID-19, usage of this digital consent tool doubled. Other tools include portfolio implementation, access

Baby boomers comprise a quarter of the Australian population but own 53% of the nation’s wealth, according to the Australian Bureau of Statistics. As wealth typically will move from male baby boomers to their spouses and then their children, a business development strategy that addresses the great wealth transfer should consider how the advice offer should be positioned for older women as well as children.

The priorities of each segment may be vastly different. Some partners may have had limited exposure to the family’s financial position or wealth management before the client passes away, and may have a very different idea of what a good investment is, compared to their partner.

Millennials tend to have less savings and lower super balances – ranging from around $5000 for those in their twenties to $50,000 for thirtysomethings, according to research by ASFA. As an alternative to providing an ongoing service, advisers may wish to consider a model that allows younger clients to be included on the same advice technology but perform many of the day-to-day tasks themselves. The adviser’s annual advice obligations are reduced, however they retain transparency around the client’s positions. When a full service option is more suitable down the track, the move between investor-managed models to adviser-managed is seamless, immediate and does not trigger any capital gains tax nor incur brokerage, transaction costs or buy-sell spreads.

3. S peak to your current clients about planning for the great wealth transfer.

Help break down the great Australian taboo on discussing wealth within the family by addressing wealth transfer considerations with your clients.

A financial advice consideration might be whether to grant inheritances earlier, so that beneficiaries can access the money when they need it most; for example, to pay down debt such as mortgages, or even to get into the property market in the first place.

The discussion may involve the children earlier in the piece, so that the family’s purpose for wealth building and distribution is understood across generations.

Advisers can also engage the interest of younger generations by leveraging family pricing and reporting; for example, include the children when they start their first job or establish their first super fund.

4. Incorporate ESG and philanthropy in your advice offer.

The quote

Research shows that advisers have a 44% retention rate when money moves between spouses and drops dramatically to just 2% when it moves to the children.

According to Morgan Stanley, millennials and females in the US have an overwhelming interest (84% for millennials) in environmental, social and governance investment considerations. In comparison, only a very small proportion of advisers (8%) have ESG incorporated within their offer. As a first step, advisers can incorporate ESG conversations in their reporting and client communications.

In addition, surviving spouses who may not have turned their mind to philanthropy previously could be considering their own legacy in their later years, and so philanthropy starts to become important.

5. I t’s an investment, so look at how to keep costs down.

Targeting new client segments and marketing to them can be costly. Apart from investing in new technology, additional costs come in the form of hiring and training new staff. The Australian adviser workforce is an ageing one (similar to the US advice industry, where half of all US advisers are over the age of 50, according to eFinancialCareers). Marketing to younger segments will almost always require hiring younger advisers whom potential clients feel can empathise with their needs.

To reduce costs elsewhere and increase business efficiency, some advisers are outsourcing non-client facing functions, such as back office work. This decision can also give advisers more time for communicating with current clients and business development.

They will inherit the wealth

Right now, compared to their parents, millennials are asset-poor, with small balances in their super funds and savings accounts.

However, the time will come when millennials will inherit wealth, while their salaries also increase. Advice practices who are positioned to help this generation out with their financial needs are future-proofing themselves for the great wealth transfer that will span the next 20 years. fs DISCLAIMER The information provided is factual only and does not constitute financial product advice. Before acting on it, you should seek independent advice about its appropriateness to your objectives, financial situation and needs.

Any information in this article which has been derived from third party sources is believed to be accurate at its issue date. The Westpac Group accepts no responsibility for the accuracy or completeness of, nor does it endorse any such third party material. To the maximum extent permitted by law, we intend by this notice to exclude liability for this third party material. © BT – Part of Westpac Banking Corporation

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News

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

Lazard dumps AMP shares

01: Matt Heine

joint managing director Netwealth

Elizabeth McArthur

In a notice to the ASX, AMP said Lazard Asset Management has ceased being a substantial holder in the company.

On June 30, Lazard sold more than 17 million shares in AMP worth over $29 million.

In Lazard’s June fund updates, AMP was among the top five holdings in the Lazard Select Australian Equity Fund – representing 7.9% of the fund. It was also in the top five holdings of the Lazard Australian Equity Fund with a 4% allocation.

AMP’s share price recovering by 39% in June was noted by Lazard as contributing to the Lazard Select Australian Equity Fund’s overall performance. The sale of AMP Life was noted as one of the reasons for the share price bump.

“After the transaction, we estimate that AMP holds about $1bn (or 29cps) of excess capital, even allowing for the multi- year investment program outlined by the company,” Lazard said in a fund update.

“We assess AMP as having an absolute fair value of $2.15 and a relative value in today’s expensive market of ca $3.15 per share – the stock remains one of our larger holdings.”

A spokesperson for Lazard said the fund manager does not comment on individual holdings.

However, its decision to sell below the 5% threshold for significant ownership comes after some turmoil at AMP. In the last week of July alone AMP was hit with two class actions and announced to the market that it expected profits to be 50% lower due to the impacts of COVID-19. fs

Netwealth hits fund managers with new fee Kanika Sood

N

The quote

Rebate administration is time consuming, complex and is not offered by all platforms for this reason.

CFA institute exam moves online The CFA Institute has bid farewell to paper-based exams and has announced more flexible and convenient scheduling.

The move comes in what the CFA Institute says will turn the challenges of the COVID-19 pandemic “into positive opportunities”; modernising the exam to make it more convenient and accessible for candidates around the world.

The Level II and Level III CFA exams will shift from paper-based to online testing from 2021, while the already-online Level I exam will now be offered four times per year. Level II and III exams will be offered two times per year.

The changes allow the CFA Institute to provide smaller group sizes, better social distancing, easier scheduling and less uncertainty about planning for its candidates, it said.

“Moving to computer-based testing provides us with operational flexibility to quickly and reliably adjust to the changing landscape in response to either global or local situations; particularly relevant in a COVID-19 impacted world,” the CFA Institute said.

Digital testing will also enable the Institute to shift from single-day test administration to a more convenient and computer based administration process. fs

etwealth has begun to charge fund managers an additional $2000 for each fee rebate arrangement, saying its costs of administering them have gone up.

The platform business allows fund managers to process fee discounts to financial advisers, licensees or managed accounts providers, which are processed as fee rebates. So far, Netwealth did not charge fund managers a fee for this.

But in July, the platform sent updated contracts to fund managers saying it will now charge them an administration fee of $2000 plus GST per individual rebate arrangement per year.

Netwealth said it “appreciate[d] the current economic and financial impacts many businesses are currently facing” and therefore will charge $1000 plus GST for FY21, after which it will go to $2000 plus GST per rebate agreement.

As an example, a fund manager offering fee rebates on one fund to 10 advisers, licensees or managed accounts providers will end up paying $20,000 to Netwealth in rebate admin fee. The cost adds up if a manager offers multiple strategies.

Netwealth joint managing director Matt Heine 01 said the company typically doesn’t discuss commercial agreements but confirmed the new fee applied all across the board.

“The fee is for administration. It is not based on FUM, it is the same for all managers and it seeks to recover the significant overhead that we incur processing rebates arrangements back to the client,” he said via email.

“Rebate administration is time consuming, complex and is not offered by all platforms for this reason. It is something we believe is valuable for our clients and therefore offer as a service to managers.”

“To process client rebates resources are required to implement and contract, maintain the arrang[e]ment, calculate and invoice quarterly and allocate the rebates to eligible investors platform cash accounts; “Clients get the benefit which is great, but equally managers also receive a commercial benefit by Netwealth administering the fee. The alternative for managers is to issue another unit class that is costly.”

He also declined to comment on how many fund managers offer fee rebates via Netwealth, or revenues.

“As we are listed I unfortunately cannot provide revenue information that has not been shared with the market but as mentioned the administration fee is seeking to recover costs associated with the management and processing of the client rebates,” he said.

The new rebate fee comes at a time when Netwealth is understood to have raised the fees for fund manager to host their funds on its platform from $7700 per fund to $10,000 in recent months.

A funds management executive, who did not want to be named, said Netwealth has professed customisation to their clients, of which rebates are a part. fs

ESG funds crowned winners of COVID-19 crisis Ally Selby

Morningstar’s latest Global Sustainable Fund Flows report, which examined 3432 sustainable open-end funds and exchange-traded funds (ETFs) across the globe in the second quarter of 2020, found that sustainable funds outperformed following the March market sell-off.

Assets in Australasian sustainable funds increased substantially during the second quarter, up 18% from $14.9 billion (US$10.6 billion) at the close of the first quarter to $17.7 billion (US$12.6 billion).

At the end of June, sustainable assets recorded one of their highest levels, only outpaced by their peak at December 2019.

Morningstar found there are now 108 strategies in the Australasian sustainable fund universe, up from 86 at the close of the first quarter 2020.

Interestingly, the Australian sustainable funds market is relatively concentrated, with the top 15 funds accounting for 60% of all assets in the sustainable fund arena.

Australian Ethical and Vanguard, in particular, account for 41% of all Australasian sustainable fund assets on Morningstar’s database.

Despite the increase in sustainable strategies, there was

only one sustainable fund launch (Fidelity Sustainable Water & Waste) in the second quarter of the year.

However, this does not include the growing number of funds that now consider ESG factors in a non-determinative way in their asset selection, Morningstar said.

On a global scale, sustainable fund inflows were up 72% in the second quarter to $99.8 billion (US$71.1 billion) supported by growing investor interest in environmental, social and governance issues.

European sustainable funds reaped the majority of inflows for the second quarter, garnering 86% of total inflows.

Meantime, sustainable funds in the United States took in 14.6% of total inflows, while the rest of the world (including Canada, Australia and New Zealand) reported US$260 million in inflows. In comparison, Asian and Japanese sustainable funds reported outflows of US$920 million for the quarter.

Assets in sustainable funds hit a record high of nearly $1.49 trillion (US$1.06 trillion) at the end of June, up 23% from the previous quarter.

Product development was also strong in the second quarter, with funds releasing 125 new offerings. fs

Technical Services Forum | Events

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

01: Claudine Siou

11

02: Melanie Dunn

Challenger Financial Standard Technical Services Forum

The Technical Services Forum was delivered via video on demand, with IOOF and Accurium discussing estate planning and retirement.

As with any aspect of financial planning, there is no such thing as a one-size-fits-all approach to estate planning. However, OnePath says varying legislative frameworks make this especially true.

IOOF senior technical services manager Claudine Siou01 recommended advisers “dig deep down into the detail” of specific state and territory legislation to find practical guidance.

Advanced care planning; where advisers have pre-emptive discussions with clients to anticipate the future loss of the ability to make or communicate decisions, would also alleviate some of the pain points associated with estate planning, she said.

This allows health professionals and a client’s loved ones to know what kind of treatment and care the client would want in the future, Siou said.

“It’s particularly relevant for clients who are approaching the end of life, or who may develop dementia, but it is not common compared to having a will,” she said.

“This could be due to a lack of awareness, or a general reluctance to discuss issues such as cognitive decline, end of life, and death, which require the client to face their own mortality and plan for the worst case scenarios.”

Ideally the discussion would result in an advanced care plan, Siou said, made up of an advance care directive (a legal document containing future care and treatment plan), a substitute decision maker (typically an enduring power of guardianship and/or attorney), and medical support persons (only in Victoria).

Enduring power of attorney (or attorneys) (EPOA) have the power to make financial and legal decisions on behalf of the client, she explained, and continue to have effect if the principal loses capacity to manage their own affairs.

Various factors need to be considered before appointing an EPOA, Siou said, including ensuring the individuals are trustworthy, that the commencement of powers can be specified (either immediately or on the loss of capacity), as well as their powers (limited or broad).

“A common misconception with an EPOA is that it commences only on the loss of capacity – this is not true,” Siou said.

“The EPOA continues to have effect after loss of capacity.”

There are also several situations during which advisers need to exercise vigilance when dealing with an EPOA, Siou said, as some may choose to

A common misconception with an EPOA is that it commences only on the loss of capacity – this is not true.The EPOA continues to have effect after loss of capacity.

Claudine Siou

misuse their powers, resulting in the financial abuse of an elderly client.

“There could be a conflict of interest, which could be flagged by the attorney focusing on their own needs or the needs of their loved ones,” she said.

“In these situations where there is a conflict of interest, advisers need to focus on the interests of the client and disregard the interests of all others.”

Other situations during which advisers should exercise vigilance include when there are doubts about the client’s loss of capacity (client might be able to make some decisions but not others), and determining whether the attorney is acting within the scope of their powers (e.g. gifts, conflict transactions, validity, and binding nominations).

To check whether an EPOA can make a binding death benefit nomination, Siou recommended the adviser check with the client’s super fund trust deed permit, and check the EPOA document for any conditions, restrictions or express powers given to make a binding death benefit nomination.

“Generally an EPOA may be able to confirm or renew a binding death benefit nomination previously made by the member.

“Arguably the attorney is acting on behalf and in the interest of the principal and ensuring their interests are meant. However, making a new, varying or revoking a binding death benefit nomination may not be permitted.

“If in doubt, you can suggest an EPOA seek legal advice or advice from a state or territory tribunal.”

Techniques for assessing retirement risk Meanwhile, Accurium head of technical services and consulting actuary Melanie Dunn02 said there are various challenges that threaten the success and the quantitative outcomes of retirement.

“Our age pension is one of - if not - the most complex government pensions in the world,” she said, noting that retirees can move in and out of the Age Pension as their entitlements change over time, making it notoriously difficult to plan around how much income they need from other sources to afford their desired expenditure.

Other challenges to achieving outcomes in

retirement are market risk, inflation risk, and longevity risk, she said, encouraging advisers to measure success by focusing on the likelihood of achieving their client’s retirement goals.

“When we think about modelling retirement strategies it can be useful to think about actuarial techniques that assist in managing risk,” Dunn said.

“The first thing to understand with any models of retirement or any model is that it’s not going to exactly predict the future; it just provides an estimate.”

The real world is not static and outcomes are not fixed, she said, with clients likely to experience a range of possible future outcomes across market, inflation and longevity risk.

Longevity risk is one of the greatest uncertainties facing retirees, she said, noting that with lifespans improving advisers should steer clear from referring to life expectancies of cohorts in the past.

“How long you are going to live is one of the greatest uncertainties faced by everyone, we could have an accident tomorrow or live until the ripe old age of 110 – and that is really challenging when you think about the finances around that,” Dunn said.

“Planning for 10 years versus 40 years makes a big difference in how much you can afford to spend and how long your money needs to last.”

Currently, women are predicted to outlive their male peers, while 25% of retirees will survive to 93 (men) or 95 (women).

To allow for this uncertainty, Dunn recommended advisers use stochastic modelling to help illuminate the range of possible retirement outcomes of a client.

Stochastic modelling uses the three pillars to fund income in retirement, and considers correlations and interactions between factors over time to allow for a realistic variation in returns. It can also be tailored to an individual’s retirement objectives and can use thousands of simulations of what the client’s retirement would look like to stress test the likelihood of success.

“In the past this type of modelling, which is quite computer heavy, wasn’t very common, but it is now becoming much more common and is seen as best practice in terms of risk analysis – especially in retirement,” Dunn said. fs

In association with

12

News

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

Advice firm partners

01: Dante De Gori

chief executive, Financial Planning Association of Australia

Elizabeth McArthur

Encore Advisory Group has partnered with Loan Market, a mortgage aggregator, establishing a new business.

The new joint business will be called Financial Advice Mortgage Solutions (FAMS).

FAMS said the new business will bring together everything a professional financial advice business needs to deliver debt advice and mortgage broking.

“Client value needs to be proven more than ever and advice will need to go beyond traditional areas of investment, superannuation and insurance and into areas of advice on cashflow and managing debt,” FAMS chief executive Mark Zaglas said.

“We believe this is a win for consumers, will accelerate business growth and business value, and must be part of a financial advisory firm of the future.”

Zaglas has been chief executive of Encore for two and a half years after an almost decade long career with National Australia Bank.

The FAMS partnership with Loan Market will mean the business has access to Loan Market’s technology.

“We seek out businesses that look to lead the next generation of financial services and who embrace the combination of wealth management and mortgage broking,” Loan Market chair Sam White said. fs

Adviser jailed over $2m scheme Jamie Williamson

Graeme Walter Miller was sentenced on July 31 after pleading guilty to six counts of engaging in dishonest conduct in the course of running a financial services business.

Miller was the director of CFS Private Wealth, which was wound up in January 2019 when Miller was banned from the financial services industry for 25 years. He was also disqualified from managing corporations for three years and was also the director of CFS Corporation Pty Ltd. The charges against Miller related to 10 clients that were encouraged or facilitated the transfer of between $50,000 and $950,000 by way of an investment in CFS Corporation Pty Ltd, which Miller was also a director of, for the benefit of the client.

Four counts related to funds invested with Miller through clients’ self-managed super funds.

Miller did not invest the funds with CFS but instead used them for his own benefit and to meet business expenses, which included payments made to other clients as dividends.

In all, Miller misappropriated $1.865 million. Of this, $987,000 was transferred to bank accounts and credit cards held by Miller and his family members; $318,500 was used to pay other clients dividends, interest or return of capital; $135,000 was used for other personal and business expenses and; $27,000 was withdrawn in cash or transferred overseas.

In sentencing Miller, the judge described his conduct as a “Ponzi scheme” involving a “significant breach of trust” and a “cruel and deceitful betrayal inevitably leading to financial disaster”.

The judge also ordered reparations to the tune of $1.777 million in favour of the 10 clients impacted.

ASIC deputy chair Daniel Crennan said Miller was found to have systematically breached the trust of his clients over a long period. The offences occurred over a four-year period between July 2013 and April 2017. fs

FPA award nominations open, new award announced Ally Selby

T The quote

I strongly encourage all FPA members across Australia to enter this year, the nomination process itself can be hugely rewarding.

he Financial Planning Association of Australia has announced a new category in its annual FPA Awards, set to recognise members who have used technologies in innovative ways to deliver advice.

The FPA Advice Innovation Award has been introduced to highlight the FPA’s continued focus on innovation, technology and digital delivery of advice to consumers, it said.

The FPA Awards acknowledge the achievements of exceptional financial planners, paraplanners, university students and practices across the country, to celebrate individuals and businesses that “go above and beyond” for their clients.

FPA chief executive Dante De Gori01 said the challenges and disruptions caused by the coronavirus pandemic, combined with ongoing changes in the wealth management sector, make this year’s awards all the more significant.

“2020 is unfolding as the most challenging year in decades,” he said.

“FPA members are playing a critical role in supporting their clients and the broader community with advice as many Australians find themselves in a financial situation they have never experienced before.”

The awards provide the FPA the opportunity to highlight the positive and vital work the asso-

ciation’s members do for their clients and local communities, he said.

“This year we’ll be recognising the achievements of talented professionals across seven different award categories, with the award winners announced during a live broadcast awards ceremony later this year,” De Gori said.

Submissions for the seven awards are now open and close on Monday, August 31.

The categories include FPA Certified Financial Planner Professional of the Year Award, FPA Professional Practice of the Year Award, FPA Financial Planner AFP of the Year Award, FPA Paraplanner of the Year Award, FPA University Student of the Year Award, FPA Advice Innovation Award, and the Community Service Award supported by the Future2 Foundation.

All categories will be judged by a panel of experts, with award winners receiving consumer media opportunities and complimentary registration to next year’s FPA Professionals Congress.

De Gori urged advisers and students to enter the awards and trumpet their achievements.

“I strongly encourage all FPA members across Australia to enter this year, the nomination process itself can be hugely rewarding as you take the time to recall and articulate the positive difference you or a peer have made,” he said. fs

Chief executives cop pay cuts Annabelle Dickson

Australia’s top ranking bosses have endured pay cuts as boards have reined in bonuses ahead of the COVID-19 pandemic,according to the Australian Council of Superannuation Investors (ACSI).

ACSI’s CEO Pay in ASX200 Companies research shows that fixed pay and bonuses were sliding down prior to the pandemic. Realised and reported pay for chief executives fell an average of 7.4%.

The average chief executive’s realised pay within the ASX100 universe was the lowest figure recorded in six years at $5.24 million.

Realised pay is calculated on a ‘cash pay’ basis, reporting pay excluding share-based payments expense but including the value of any equity that vested during the reporting year.

The number of eligible ASX200 CEOs who did not get a bonus drastically increased from seven to 25. From the ASX100, 12 chief executives did not receive a bonus, up from one the previous year.

ASCI chief executive Louise Davidson said: “Our research provides a snapshot of what executive remuneration looked like in the year prior to the COVID-19 pandemic. It is encouraging to see that, after many years of engagement and scrutiny from

investors, boards have applied a greater level of restraint assessing executive remuneration.”

“More boards are using sensible discretion to rein in outcomes for senior executives – demonstrated by the fact that 25 chief executives in the last year had their bonuses zeroed out where performance was not adequate, compared with only seven a year earlier.”

Despite this, substantial increases in share prices which increased the value of equity incentives saw newcomers to the highest paid chief executives.

IDP Education chief executive Andrew Barkla received $37.7 million in realised pay. He was followed by CSL’s Paul Perreault at $30.5 million, Clinuvel Pharmaceuticals chief Philippe Wolgen at $20.6 million and Treasury Wine Estates chief Michael Clarke at $19.8 million.

“Boards of ASX200 companies will need to seriously consider how remuneration outcomes will be perceived externally, given the widespread impact of the pandemic on investors, staff, customers, governments and other key stakeholders,” Davidson said.

Interestingly, no female executives or bank executives made the top 10 highest paid chief executives. fs

Products

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

13

Products 01: Shannon Bernasconi

Chi-X TraCRs added to specialist platform Chi-X TraCRs and funds will now be offered on a $1.9 billion privately owned wealth management platform, granting financial advisers and their clients access to some of the world’s biggest listed companies.

All 35 Chi-X TraCRs and all quoted Chi-X Funds are now accessible to financial advisers on WealthO2.

It follows the recent launch of five new TraCRs’ with exposure to COVID-related outperformers, including teleconferencing provider Zoom, protective healthcare equipment producer 3M, global payments giant Mastercard and pharmaceutical company Gilead Sciences.

WealthO2 co-founder and managing director Shannon Bernasconi01 said the new low cost and innovative Chi-X solution would enable financial advisers and their clients using the platform to gain exposures to offshore assets.

“Financial advisers are increasingly looking to broaden the investment universe available to their clients,” she said.

“Chi-X TraCRs provide that exposure to US mega caps that clients have, until now, been unable to easily invest in.

“Chi-X TraCRs provide the added advantage of HIN based ownership, AUD dividends repatriated at institutional foreign exchange rates, fungibility to the underlying offshore asset and T+2 settlement, which makes this pathway to the US stocks even more attractive.”

Chi-X Australia chief executive Vic Jokovic welcomed the new partnership.

“The COVID-19 pandemic has created a surge in trading among retail investors in recent months,” he said.

“Financial advisers are critical in this environment as Australians look for guidance on their investment decisions.”

BetaShares rejigs oil ETF… again BetaShares’ ETF that tracks crude oil futures is once again changing the length of contracts it tracks and is taking extra measures to automatically convert the ETF to all cash if the price drops significantly again.

The BetaShares Crude Oil Index ETF (OOO) tracks an index composed of WTI crude oil future contracts, focusing on shorter-dated deliveries, and is the only such ETF exposure in Australia.

OOO has had a wild ride this year, since WTI Futures first slipped into negative territory around April 20, as COVID-19 sapped demand for oil.

On April 29, BetaShares said the ETF would go from tracking one-month WTI crude futures to three-month futures, to mitigate the risk of more immediate contracts trading at negative value.

This would have made the ETF’s assets go to zero or negative.

That measure was a temporary one, as it waited for S&P to finalise its review of negatively-priced commodities future contracts.

Janus Henderson lists new active ETF The Janus Henderson Tactical Income Active ETF (TACT) is structured as an additional share class of the Janus Henderson Tactical Income Fund, which is managed by Jay Sivapalan.

It has delivered 5.50% p.a. (gross) and 5.03% p.a. (net) since 2009 inception to June end.

“Our clients are demanding more choice in how they access our world class investment options.

We are naturally excited to complement our existing fund range with an active ETF for investors who seek to preserve capital, without sacrificing diversification, steady income and transparency,” Janus Henderson head of Australia Matt Gaden 02 said.

The fund has also been available as an mFund.

The strategy invests in a diversified portfolio of mostly Australian income producing assets, with 443 securities on a look through basis at June end.

Weighted average credit quality was AA- and fund’s modified duration was 1.29 years compared to benchmark’s 2.93.

It had 47% of the portfolio allocated to corporate senior debt, followed by semi government (18%); subordinated corporate debt (9%), government bonds (5%).

The rest was split across asset-backed securities, cash and derivatives, global high yield, hybrids and supranationals.

On August 3, BetaShares said S&P had completed its review and the underlying index [S&P] would go back to tracking one-month futures that are rolled every month. S&P added the ability to implement future rolls that it saw fit in the market conditions.

Additionally, BetaShares amended the swap agreement by which it gets access to the index, so that if any contract in the index slips below US$9.50, the swap will be automatically terminated, and OOO will seek a replacement contract.

During the time OOO looks for a replacement contract, the fund will revert to just cash.

It is now the worst-performing of all ASX-listed ETFs at -73.1% return year to date, as at July 24.

It raked up significant inflows earlier in the year but ended June with negative net inflows at $233 million after about $29 million of outflows.

Macquarie to transfer legacy product Macquarie closed the SuperOptions product to new members in June 2012. After a recent review of all its pension and superannuation products, it has decided to transition its pension accounts to the Macquarie Pension Manager.

The transfer is slated for September 14. “…as SuperOptions has been closed to new members since June, 2012, it now provides a more limited range of product features relative to many other superannuation and pension products in the market. In addition, the membership has also been declining over recent years,” it said in a notice sent to members.

“The above factors are impacting on SuperOptions’ market competitiveness and ongoing viability as a stand-along superannuation and pension product. Trustee has determined that these factors are also likely to impact on its ability to continue to deliver financial and operational outcomes which are in the best interests of the SuperOptions members.”

The change will lower administration fees for all transferring members, according to the trustee, Macquarie Investment Management.

For example, a member with $60,000 balance paid $870 to $1360 per year in admin fees. This will now go down to about $590 with Pension Manager.

Members will also get more than 1600 investment options (managed funds, listed securities, term deposits, separately managed accounts) and improved features such as online access for account balances, it said in a significant event notice.

Any ongoing adviser fees currently in place for SuperOptions members will continue with PensionManager. From the date of the transfer to Pension Manager, any commission currently paid will no longer be paid. Members with advisers will be able to authorise relationships to pay advice fees.

Any current, valid death benefit nominations will be transferred over to the Pension Manager, where the nomination type is available.

02: Matt Gaden

The transfer will see the ‘guaranteed’ death benefit end after July 2021. In SuperOptions, Macquarie Life paid 1% of the member’s balance as if it was less the aggregate premiums paid by member.

Ninety One launches China A-shares fund Ninety One, formerly known as Investec Asset Management, has is touting a new China A-shares fund to local institutional and wholesale investors.

Its China A-shares fund holds a portfolio of 30-50 stocks, with at least two thirds of the assets in mainland China stocks with the rest in H shares.

The goal is to beat the MSCI China A-shares index by 3-5% p.a. on a rolling three-year basis.

Ninety One head of institutional for Asia Pacific Justin Cowper said the fund will have a small to mid-cap bias, as it looks to hone in on opportunities outside those usually picked up by other managers.

“This portfolio is very different to the index and it is very different form the china exposure in an emerging market portfolio as well. When you get a Chinese allocation though an EM manager, they don’t have specific expertise in mainland [China] stocks end up buying large caps,” he said.

A team of nine investors works on the fund (six in Hong Kong and three in London).

The underlying fund, which launched in July, is a Luxembourg domiciled vehicle. Australian investors will have access through an AUD denominated share class.

The launch builds from its All-China strategy, which has tallied up a strong performance track record since it 2014 launch.

Super fund for women adds fee A superannuation fund that markets itself to women has created a new administration fee.

FairVine Super, a sub-plan of Aracon Super, has added a $104 per annum administration fee (equating to $2 a week) for members in its balanced and growth options.

The percentage based administration fee has decreased from 1.09% to 0.826% for both options.

Rainmaker analysis indicates the new flat admin fee will cover almost all the percentage fee reduction – however, the administration fees overall are likely to become slightly cheaper for most members.

The Product Disclosure Statement has also changed in regards to the low balance rebate for FairVine members.

Previously, members could access a fee rebate if their balance was less than $5000. Those who signed up to the fund under the old PDS will still be able to do that, but those who join since the introduction of the new PDS will only be eligible for a fee rebate if their balance is under $2500.

The indirect cost ratio for the balanced option went from 0.11% to 0.124% in the balanced option and from 0.11% to 0.143% in the new option.

The fee changes will be effective from August 31. fs

14

Feature | IFAs

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

DO IT YOURSELF

Having traditionally been the outliers, IFAs now account for about half of all advisers. While it’s not as easy as it once was to go your own way, that’s all the more reason to take the leap.

Jamie Williamson and Elizabeth McArthur write.

IFAs | Feature

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

T

he word ‘independent’ is quite the cause of contention in the financial services sector. Under section 923A of the Corporations Act, its use is actually restricted, alongside such terms as ‘impartial’ and ‘unbiased’.

Yet, the word now pervades the financial advice industry. With the bulk of the major institutions having now vacated the space, and far fewer financial advisers attached to those that remain, more advisers than ever are finding themselves non-aligned.

Now, about half of all advisers are associated with non-institutionally owned or aligned licensees, according to Rainmaker data. Of the 22,334 advisers on the ASIC Financial Adviser Register as at June 2020, 10,797 are non-aligned.

And, as the industry experiences mass exodus as a result of regulatory upheaval, advisers that do call an institution home are more likely to exit. In the 12 months to March 2020, the number of advisers associated with institutionally-owned or aligned licensees fell by 3801, or 25%. Meanwhile, just 400 non-aligned advisers exited in the same period.

Despite the Corporations Act clearly defining an independent financial adviser, or IFA, as one that doesn’t receive any commissions (unless rebated in full), volume-based payments or other gifts or benefits for recommending products and is without conflicts of interest, the term ‘IFA’ is now short-hand for all those that are no longer tied to an institution.

SmartBrave Consulting managing director Brad Fox01 says this definition applies an interpretation that is too narrow.

“In an industry context, to me an IFA is an adviser or practice that is self-licensed or authorised through a licensee that has no institutional owners that own or distribute product, or related entities that own or distribute product,” Fox says.

Morningstar Australia managing director Jamie Wickham02 agrees, saying the lines are becoming increasingly blurred.

“Some would say an IFA is someone who is self-licensed and wholly independent of a dealer group, but I think many advisers who are licensed by dealer groups are increasingly operating more indepen­dently and have more freedom than they have had previously,” he says.

As the number of advisers reverts back to where it was four years ago, the landscape couldn’t be more different and the challenges and opportunities it presents for all industry stakeholders are both abundant and nuanced.

However, advisers must be warned, it’s not as easy as it once was to tread your own path.

Going it alone New legislation introduced earlier this year handed the regulator much stronger powers, impacting application assessments and the decisions ASIC ultimately makes about licensing.

01: Brad Fox

02: Jamie Wickham

03: Sonia Cruz

managing director SmartBrave Consulting

managing director Morningstar Australia

head of licensing The Fold Legal

Specifically, The Fold Legal head of licensing Sonia Cruz03 points to the Fit and Proper Person Test which all responsible managers, officers of the licence applicant and officers of the control of the licence must now satisfy. It replaces the good fame and character requirement that had been in place since the Financial Services Reform Act came into force.

This includes a national criminal history check, a bankruptcy check and a completed Statement of Personal Information which essentially seeks to compile a person’s complete work history in relation to the running of a company.

“That means ASIC is collecting a lot more information about all the people that will be making decisions in a financial services business. In the past, it didn’t necessarily have access to that information and certainly didn’t ask for it,” Cruz says.

The added due diligence on ASIC’s end means it takes much longer to complete the application process – something Cruz says applicants already underestimated.

According to ASIC’s website, the regulator aims to approve 70% of applications within 150 days and 90% within 240 days. The majority of applications coming across Cruz’s desk at the moment are taking in excess of six months, she says.

“How long it’s going to take depends on the person and the type of licence you’re trying to get… ASIC is also very particular about the information it requests and if it isn’t structured in the way outlined in ASIC’s guidance or doesn’t cover all of the information requested, it’ll be rejected on pre-lodgement and you’ll be asked to resubmit,” Cruz explains.

It’s also increased the cost of entry, she adds, with the licensing fee charged at anywhere between $2200 and $7500 depending on the authorisations the applicant has sought.

Other costs to consider include the annual funding levy that licensees are required to pay, additional levy per advisers appointed or employed by the licence, engaging an external auditor, membership fees for the Australian Financial Complaints Authority and, the kicker, professional indemnity insurance.

In recent years, a number of providers have withdrawn from the Australian PI insurance market. This has not only seen the cost of PI insurance skyrocket, but also allows insurers to be more selective about who or to what extent they cover.

“I think there was a perception that anyone could get insurance, but that’s shifted since the Royal Commission,” Insight Investment Partners chief executive Christopher Fellas 04 says.

“I know that many firms will not insure a one-man band, so can you even find an insurer for the size of your practice?”

If you can demonstrate a lower risk profile, that will go a long way towards helping you attain cover, Fellas says.

“We live in such a compliance-heavy industry. If you’re looking to start your own licence

15

and you don’t have a strong understanding of compliance, that’s going to be an issue. It takes time to learn and, if you get it wrong, it can be very costly,” Fellas says.

But this shouldn’t be a deterrent, Bravium managing director Scott Farmer05 says.

“I figured it was better for me to throw myself in the deep end and learn all about running a licence so that I knew all there was to know about that licence… I wanted to understand intimately what was required of me,” he says.

“I’ve never regretted that decision and, as time’s progressed, I’ve felt even more like I made the right choice.”

Scaling up

If you’re looking to start your own licence and you don’t have a strong understanding of compliance, that’s going to be an issue. It takes time to learn and, if you get it wrong, it can be very costly.

Christopher Fellas

Fox agrees that compliance is all too often an advice practice’s Achilles heel, saying he sees many IFAs that have underestimated the time, focus and cost they need to set aside to meet the standard of compliant financial advice when shifting AFSL. “A worrying trend is that in the change to a new licensee, businesses are missing out on up to a year of new client growth through the need to complete ‘foundation Statements of Advice’ for existing clients under the new licensee [and their PI cover], and getting used to new compliance regimes, software, and perennially slow paraplanning processes,” he says.

For Fellas, using technology to manage compliance requirements is a non-negotiable, saying it’s simply not acceptable to rely on word documents and spreadsheets anymore.

“All the checks and balances that ASIC would do in a review, you want to have a solution that does that… ASIC has already flagged that it will look dimly on those that don’t have a tech approach to how they manage compliance,” he says.

And it’s not the only technology a practice owner needs to think about.

Having historically serviced the big end of town, Morningstar recognised the shift occurring about 18-24 months ago and began con­ necting at a deeper level with dealer groups and self-licensed firms.

“We work with each advice practice to clearly understand their needs and we have different solutions depending on the way they run their practice. At a base-level all practices need financial planning software and most, if not all, require in­vestment research,” Wickham says.

Having recently acquired AdviserLogic, Morningstar is intent on delivering a broader set of solutions to advice practices, drawing on its global ex­pertise and renowned research capabilities to add value.

“We wanted to own financial planning software, given it is the workbench where advisers do all their work day-to-day, and would allow us to support advisers in a deeper, more meaningful way than we have historically,” Wickham says.

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18

Feature | IFAs

Morningstar is looking to integrate more capabilities within AdviserLogic, including bringing its goals-based planning capability Goal Bridge to help advisers engage clients in setting and tracking goals, and introducing its Cli­ent Web Portal.

And where IFAs are doing more to build their own investment solutions, Morning­ star Direct is becoming increasingly relevant, Wickham says.

“They’re typically using Direct to build portfolios, including asset allocation, manager selection and customised reporting, underpinned by our data and research.

Farmer says we have reached the point where it’s no longer possible for an advice firm to succeed without tech at its core.

He has spent a number of years perfecting the Bravium tech stack; after struggling with industry-based software, he sought out alternatives and adopted a mind mapping software, video conferencing tools, cashflow solutions and a template workflow tool.

“I would say tech is now at the core of any good financial planning business in the business. It’s so critical to how well a business runs which ultimately leads to the client experience and, if you don’t have the right technology, the client bears the brunt of that,” Farmer says.

However, at the other end of the spectrum is Majella Wealth director Lisa Faddy06 , who isn’t convinced that more technology equals greater efficiency. The unique nature of each client also means there is no one-size-fits-all solution, she adds.

“We have attempted to implement a number of financial planning software packages over the years, but we haven’t found one that is the perfect fit for our business and don’t think there is such a thing,” she says.

“Most of our SOA templates are still on Word and we use Excel to do client modelling. I know this is not always the most efficient manner to manage clients, but it works most of the time.”

When it comes to platforms, Majella Wealth prefers to have most if not all client investments in just one or two platforms or Wraps, saying the addition of more lower cost funds to incumbent platforms like Colonial First State’s FirstChoice has helped reduce costs overall.

“In the earlier years, we were using a lot of investments which were outside a Wrap and definitely caused extra work for us to manage efficiently,” Faddy says.

Thinking errors One of the most common reasons advisers are choosing to go their own way or switch licensee is because their ability to deliver that quality advice is hampered by an unyielding approved product list (APL) or investment committee.

Rainmaker head of investment research John Dyall has sat on a number of investment committees throughout his career. He’s seen how

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

04: Christopher Fellas

05: Scott Farmer

06: Lisa Faddy

chief executive Insight Investment Partners

founder and wealth adviser Bravium

director Majella Wealth

well they can function, and also where things can go wrong.

“Possibly the greatest danger in licensee investment committees is something called the Dunning-Kruger effect,” he says.

The Dunning-Kruger effect happens when people of below average ability rate their expertise very highly – they cannot recognise their own incompetence – while people of above average ability rate their abilities lower than they should.

This often plays out in investment committees, Dyall says, where the loudest, most opinionated people should speak the least and listen the most.

“Sometimes the most competent members speak less forcefully than they should… They assume that if everyone has the same information they should come to the same conclusion, but the world doesn’t work like that,” he says.

“The best investment committees understand that everyone should have a voice, there should be respect for the knowledge and experience of others, and that our own understanding of sometimes complex issues is always flawed.”

The best investment committees are always learning and striving to do the best they can for the people who trust them to do just that, he adds.

Dyall’s insight appear to be backed by the Thinking Ahead Institute, which recently found governance has a huge impact on the outcomes investment committees produce – making sure the right people are in the right roles on the committee, that the culture and engagement is effective, and that the strategic focus of the committee is clear were highlighted as key ingredients to success.

And while there’s no prescribed methodology on how to select an investment committee, satisfying all these ideals doesn’t have to mean filling a board room, so long as at least one member is independent, Fellas says.

Meanwhile, Centrepoint Alliance chief executive Angus Benbow argues that it shouldn’t be the role of an investment committee to select investments. Instead, they would develop and implement a well-defined investment philosophy and put processes in place to achieve it.

“They should ensure the process is working and being adhered to, but the research team should be the experts in investments,” he says.

Activus Investment Advisors managing director Robert Talevski07 agrees, saying the actual investment philosophy is the most important component for the committee.

“That is a foundation document that is a complement to the committee and it needs to be able to refer to it when making decisions and exists to ensure consistency. And I would suggest that you’d want to regularly review your investment committee too, to make sure it’s as effective as it can be,” he says.

Unfortunately, as the cost of providing advice goes up, it’s becoming increasingly less commercially viable to operate a large AFSL. When cost cutting measures are introduced, it often

The best investment committees under­stand that everyone should have a voice, there should be respect for the knowledge and experi­ence of others, and that our own understanding of sometimes complex issues is always flawed.

John Dyall

begins with headcount in non-revenue generating divisions, such as research.

“Advisers are looking for an open APL but, anecdotally, most groups seem to be shrinking their APLs or at least have an intention to,” Milford Asset Management head of distribution Regan van Berlo says.

“When an in-house research team becomes smaller, they often cut the number of funds or offerings on the APL to make it more manageable. And that will only continue.”

It’s just one more thing making van Berlo’s job that much harder.

As superannuation funds increasingly opt to in-house their investment functions, fund managers are paying greater attention to the IFA market to make up the shortfall in their funds under management and maintain scale themselves.

Milford was well aware in-housing was happening when it established its Australian distribution function in 2018, van Berlo says, leading the fund manager to set its sights primarily on self-licensed groups, having also recognised the major institutions were no longer sustainable post-Royal Commission.

In doing so, van Berlo finds himself increasingly dealing with investment committees and they’ve gotten progressively more sophisticated.

However, it depends on the size of the business.

“From a distribution point of view, it can be different depending on the license an adviser belongs to. It’s much easier and far more transparent when it comes to decision-making [with self-licensed firms], if a group or adviser wants to start using our funds it tends to be a much faster decision-making process,” van Berlo says.

“The investment committees tend to be much less prescriptive about what the underlying advisers can use because the investment committee and the advisers are often one and the same.”

But a formal pitch is still required, and the due diligence process is more extensive; a completed Financial Services Council investment management questionnaire, proof of adviser demand and the support they’ll be provided, the platforms the fund is available on and its ratings.

Increasingly, there’s also the added pressure of satisfying an intermediary, like an investment consultant, which typically means third-party ratings won’t cut it.

“We will still consider that research, but we will also do our own independent research on each fund manager and it’s a good thing – it means there’s a robustness to the process,” Talevski says.

The other areas where investment consultants add value is in negotiating with fund managers and driving fees lower or determining exactly which investment solution to adopt, with the debate usually around managed accounts versus managed portfolios, Talevski says.

Farmer was an early adopter of model portfolios, with just about all of Bravium’s clients that are invested in Australian equities doing so this

IFAs | Feature

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

way. Bravium doesn’t have an investment committee, nor does it use an investment consultant.

“We deal with the portfolio managers for the models once a month, they provide the research and we do all the asset allocation, and we’ve been successful at that for many years,” he says.

It’s an efficiency play which, Farmer says, is what Bravium is all about, recalling new clients that walk in the door with 35 managed funds in their portfolio making them “so diversified they may as well just have one index fund”.

“We spend a lot of time with clients on our wealth creation philosophy and explaining how it works. A lot of it is just patience – we’re not interested in the minute buy/sell decisions on stocks because in the long-term it’s probably not going to make much difference,” Farmer says.

Moving forward The long-term is exactly what IFAs, prospective or existing, should be considering. As reform reshapes the advice industry as a whole, sustainability and resilience is on everyone’s mind.

“Regrettably, we will see thousands more advisers leave the industry, and it will be years before there are enough graduates coming through to fill the void that is left,” Fox says.

“In the meantime, average client advice fees will soar as advisers move up the value chain to higher fee paying clients… Once-off advice fees for a new client will quickly climb to a minimum of $8000, and value will need to be established by the quality of advice.”

Cost pressures have been an issue for some time now, but hastened by the Royal Commission.

“It’s more pronounced the further away you move from the client, having impacted those most removed first and trickled down,” Morn­ ingstar’s Wickham says.

“When you bring greater transparency to what a client is paying, the onus is on the adviser to articulate the value they’re delivering relative to the price. Now, the real challenge for advisers is to be clear about that value proposition while bringing down their own costs at the same time to build an efficient, profitable business.”

Part of this is the move to fee-for-service – something many are working through at the moment, as the clock winds down on risk and grandfathered commissions.

07: Robert Talevski

08: Regan van Berlo

09: Anne Fuchs

managing director Activus Investment Advisors

head of distribution Milford Asset Management

head of advice and retirement Sunsuper

For both Bravium and Majella Wealth, feefor-service is and always has been the norm.

Bravium uses a pricing model which Farmer says other advisers have told him is ridiculous. He says this is because too many advisers still think of advice in terms of product recommendations.

“Products aren’t valuable to the client, they just solve problems,” Farmer says.

“We look at all that we need to do for a client for the coming 12 months, so if the fee is $15,000 it’s there in black and white, they opt-in if they want to go ahead. You have to get good at explaining the value you add.”

In contrast, Faddy says Majella has never charged upfront fees and prefers an ongoing fee arrangement. Some clients are charged a variable percentage of FUM fee depending on their size and the amount of work needed, but this changes as the client’s needs change, she says.

“More clients are now being charged a flat monthly fee plus a percentage of FUM, or they may just pay the flat fee,” Faddy adds.

Scrutiny of how advisers charge is likely to grow, with providers they work with taking greater responsibility for client outcomes.

Sunsuper head of advice and retirement Anne Fuchs 09 says super trustees are doubling down on their duties, particularly when it comes to the Sole Purpose Test which, in turn, means greater focus on ensuring advice fees charged through super aren’t eroding account balances.

The fund now has very prescriptive advice fee rules to ensure the SPT and members’ best interest is adhered to, including caps on how much an adviser can charge a client via their super fund.

“There are many things that don’t meet SPT that have historically been charged through super,” she says.

“I think we’ve taken a leadership position on advice fee governance in super which not all advisers love. It would be a deterrent to some advisers, but the law is the law.”

With super funds expected by many to carve out a sizeable share of the advice market in the coming years, the amount of due diligence carried out by funds on the advisers it works with is also likely to increase.

Sunsuper is unique in how it interacts with advisers. In addition to its intra-fund advisers,

When you bring greater transparency to what a client is paying, the onus is on the adviser to articulate the value they’re delivering relative to the price.

Jamie Wickham

19

the fund refers members to its national advice panel which consists of about 40 advisers in areas with a high density of Sunsuper members, the majority of which are IFAs. The due diligence for advisers on the panel is extensive. Each one is subjected to a background check, including compliance and complaints records, and will also look at example SOAs. They must also pass what Fuchs calls “the nana test”.

“Would I feel comfortable sending my grandmother to them for advice? If not, they don’t make the cut,” she says.

Fuchs anticipates the number of advisers recommending industry funds will grow as the number of IFAs grows and historic tensions between advisers and industry funds ease.

“There’s been a lot of anger directed at industry funds, and rightly so, because they’ve gotten in the way of advisers servicing their clients,” Fuchs says.

“The breaking down of structural reasons advisers recommended retail funds [commissions] and regulatory changes will see that perception shift increasingly.”

It also comes down to best interests duty, Fellas says.

“If a 22-year-old comes in with $4000 in super, there isn’t a retail product out there that would be appropriate. It’s just best practice – a new AFSL should not be excluding industry funds,” he says.

It’s this kind of progressive thinking that is the hallmark of the IFA and, as they continue this way in a shrinking market, the opportunities for growth and success are endless – so long as the foundations are strong and sustainable.

Centrepoint’s Benbow says it is unfortunate that reform has focused so heavily on the negative, but it’s accelerated professionalism and driven businesses to evolve to provide the transparency expected by the Australian community.

“Combined, these changes will result in shifting community perceptions and provide clarity on the quality and value of the advice that clients receive.”

Fox agrees, saying the future is bright; “But don’t for one minute assume it will be business as usual – it will be different, and it will take courage and energy.” fs

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20

News

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

IOOF divests Australian Ethical IOOF has sold its minority shareholding in Australian Ethical for $74.5 million.

IOOF said it has sold 14.2 million shares in Australian Ethical, reducing its stake to approximately 5.5 million shares.

That reduces IOOF’s ownership in Australian Ethical to 4.9%.

IOOF chief executive Renato Mota said the sale aligns IOOF’s strategy to simplify its business.

“Our investment in Australian Ethical has realised significant returns for our shareholders.

This sale aligns to our transformation strategy which includes simplification of our business,” Mota said.

“We remain committed to providing access to ethical investment for the benefit of our clients as well as society generally. Australian Ethical’s award winning funds will remain available alongside several other ethical investment options on our platforms.”

IOOF added that the proceeds from the divestment will be used to reduce debt and provide strategic flexibility for growth opportunities. The impact on underlying net profit after tax is immaterial.

Australian Ethical has campaigned against unethical behaviour in the Australian financial services industry in the past.

It divested its $8.8 million stake in IOOF in January 2019, saying the decision was driven by IOOF’s failure to put governance and conflicts management arrangements into place to safeguard the interests of super members over a long period. fs

SG amnesty deadline nears Ally Selby

The ATO has put Australian businesses on notice, as the amnesty allowing employers to disclose and reimburse previously unpaid superannuation – dating back to 1 July 1992 – fast approaches its closing date.

To take up the amnesty, employers must come forward and disclose the outstanding amounts before the amnesty expires on September 7.

Business must either pay the unpaid amounts in full with interest, or put a payment plan in place to do so in the future. Payments made by the cut-off date will be tax deductible.

Assistant minister for superannuation, financial services and financial technology, Senator Jane Hume said the amnesty allows employers to set things right without the fear of ATO retribution.

“Super is a form of deferred wages and every bit as important to be paid, and paid in full,” she said.

“The super guarantee amnesty allows employers a one-off opportunity to come forward, pay or put a plan in place to pay, and set things right without facing financial penalties from the tax office.

“If you are in any doubt, it is vitally important that you talk to your tax agent or the ATO today; the amnesty expires in a month and it will take time to verify the amount of any unpaid super and pay it or put a payment plan in place.” fs

01: Roger Urwin

co-founder Thinking Ahead Institute

Investment committees not up to scratch Elizabeth McArthur

N The quote

The aircraft industry ensures the safety of billions of people through learning from experi­ence. Investment committees can likewise pro­vide for the financial safety of billions of people by applying best-practice frameworks.

ew research from Thinking Ahead Institute has identified the flaws in investment committee practices and governance.

The research, Going from good to great, points to the aviation industry as one the investment industry could stand to learn from.

The aircraft industry uses structured-learning environments to learn from experience and errors. This structured-learning has delivered increased levels of safety in aviation.

That increase in safety was delivered in a structured way by the industry as it developed checklists to improve decision making and dashboards for tracking mission critical issues.

“The aircraft industry ensures the safety of billions of people through learning from experience. Investment committees can likewise provide for the financial safety of billions of people by applying best-practice frameworks to their context,” Thinking Ahead Institute co-founder Roger Urwin01 said.

“In doing so they will be better placed to tackle the challenges that lie ahead such as systemic risks, performance pressures, complexity management, increased regulatory influence and the growing influences from multiple stakeholders.”

The institute’s research has applied this to best practice governance for investment committees by setting out a checklist committees can follow to improve outcomes.

For more ambitious and well-resourced organisations it suggests the adoption of the total portfolio approach (TPA) to introduce more dynamism and focus on goals in decisions.

“Large asset owners are using advanced bestpractice governance to unlock the complexities of modern investment, notably when dealing with ESG considerations, and employing TPA helps the integrated thinking required,” Urwin said.

“We believe that this crisis will accelerate the adoption of TPA and, in time, it will become one of the defining innovations of this period.”

The research identified key areas where investment committees can make the biggest gains in outcomes. These include: Getting the right people on the committee and focussing on their competency and accountability, exploiting opportunities for improved efficiency and collective intelligence, and taking the opportunities the COVID-19 crisis presents.

In terms of getting the right people on the committee diversity, engagement and collective intelligence were highlighted as key governance considerations. fs

Franklin Templeton completes Legg Mason acquisition Eliza Bavin

Franklin Resources, a global investment management organisation with subsidiaries operating as Franklin Templeton, announced the completion of its previously announced acquisition of Legg Mason.

The newly-combined organisation has created one of the world’s largest independent, specialised global investment managers with a combined US$1.4 trillion in assets under management.

Franklin Templeton said the combined footprint significantly deepens its presence in key geographies and creates an expansive investment platform that is well balanced between institutional and retail client AUM. “We’re extremely excited to announce the close of our Legg Mason acquisition, representing the largest and most significant transaction in Franklin Templeton’s history,” said Franklin Templeton president and chief executive Jenny Johnson.

“A tremendous amount has happened since we made our announcement in mid-February, but the strategic rationale for this powerful combination has only strengthened.

“This acquisition unlocks substantial value and growth opportunities driven by greater scale, diversity and balance across investment strategies, distribution channels and geographies.

Our combined firm is aligned in terms of culture and our shared focus on delivering strong investment results for our valued clients.”

The acquisition has expanded the firm’s multi-asset solution capabilities as well as combining leadership in core fixed income, equities and alternatives.

Franklin Templeton said no changes are planned for Legg Mason’s differentiated investment strategies, which it said will benefit from Franklin Templeton’s global infrastructure and ongoing investment in technology and innovation.

“A significant amount of work has gone into preparing us for this exciting firm combination over the past five months, all during an unprecedented pandemic with nearly everyone involved working remotely,” Johnson said.

“I want to thank employees from both companies for their tremendous contributions and exceptional focus on our clients and the business throughout the process.” fs

News

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

21

Executive appointments 01: Mark Rider

Zenith names new general manager Zenith Investment Partners has appointed a new general manager, following the acquisition of Chant West’s superannuation and consulting business.

Former Chant West head of research Ian Fryer has been promoted as Chant West’s general manager, and will report directly to Zenith’s chief executive David Wright.

Zenith completed its acquisition of the Chant West business on June 30, with the combined group now employing 70 staff across both Sydney and Melbourne.

In the new role, Fryer will join Zenith’s management committee and will focus on various integration initiatives to help align the two businesses.

He will retain his current research and client duties, and will be supported by the existing management team at Chant West and Zenith.

Wright said he was delighted to promote Fryer into the new role.

“Ian has been a senior member of the Chant West business for over 15 years and is very well respected by the broader team and clients,” he said.

“I’m delighted that he has accepted this expanded role and we look forward to his leadership and contribution to our group management team and client initiatives”.

Fryer noted the new integrated businesses would be able to deliver greater insights and services to the firm’s superannuation, advice, pension and boutique clients.

“We remain focused on delivering relevant insights and tools that assist our clients improve outcomes for members and investors,” he said.

“With Chant West’s strong focus on superannuation fund research and Zenith’s strong focus on managed fund research, we are confident that together we can deliver superior services to our wide range of clients.”

Link Group hires new chief executive An insurance giant’s chief executive has snagged the top job at Link Group, as John McMurtrie announces his retirement in early 2021.

Vivek Bhatia is currently the Asia Pacific chief executive of $14.8 billion market cap QBE Insurance Group, after being appointed in 2018.

He was also the inaugural chief executive of New South Wales government’s iCare.

Bhatia has 22 years of experience and was the standout candidate in a global search, Link said.

Link will pay Bhatia $1.3 million in fixed annual remuneration (base pay and superannuation).

His short-term incentives will target 100% of the fixed annual pay, while long-term incentives will be 150% of it (subject to shareholder approval and the vesting subject to hurdles of earnings per share, and total shareholder return). In five years of his appointment, he must hold at least $1.3 million in Link shares.

His start date is yet to be announced. McMurtrie will present the August 27 FY20 results and the annual general meeting on October 27.

New chief risk officer at boutique Boutique investment manager Maple-Brown Abbott has appointed a new chief risk officer and created a new head of finance role.

Lata McNulty will step into the role of chief risk officer, reporting to chief executive and managing director Sophia Rahmani.

McNulty will transition into the new role in September for an initial six month term. She will also transition into the role of company secretary by the end of the year.

She is currently head of projects at Maple-Brown Abbott, a position she has held for six months.

Prior to joining Maple-Brown Abbott, McNulty spent over three years working in risk and compliance at Link Group.

Maple-Brown Abbott also announced Wendy Cox will be joining the firm in a newly created head of finance and human resources role. She joins from RF Capital where she was a finance consultant.

Cox spent three years as a financial controller at Challenger and worked at Commonwealth Bank, Deloitte and Barclays earlier in her career.

McMurtrie initially joined Link as a managing director in 2002. Prior to this, he had worked as UBS Australia’s chief executive, and the executive general manager of the ASX’s investors and companies division.

“Vivek is a proven leader with a track record of delivering improved business performance, technological transformation and enhanced client engagement, building on the strengths of Link Group, he will bring fresh and innovative thinking to the business, helping to ensure it is best positioned to manage the challenges of an integrated global business in a post-COVID-19 world,” Link Group chair Michael Carapiet said.

Christian Super appoints new CIO Christian Super chief investment officer Tim Macready is stepping down after 15 years with the fund.

Macready is moving on to focus on his work with impact investment firm Brightlight.

Mark Rider 01 will be stepping into the chief investment officer role at Christian Super.

Rider was previously chief investment officer at ANZ Wealth and Private Banking. Earlier in his career he was head of investment strategy Australia at UBS Global Asset Manager.

Between 1987 and 1997 Rider was an economist at the Reserve Bank of Australia.

“Mark Rider’s appointment as Christian Super’s new CIO is a significant milestone for the fund,” Christian Super chief executive Ross Piper said.

“Mark is a highly qualified and experienced investment leader, and his appointment will underpin Christian Super’s strong continued focus on maximizing outcomes for our members, and ensuring their money is invested in line with their values and beliefs.”

During Macready’s time as chief investment officer, Christian Super gained an ethical and impact investing focus – in part thanks to Macready’s work establishing Brightlight.

Macready was previously both chief investment officer of Brightlight and Christian Super. Last year he told Financial Standard that his role would have to be split in two eventually as Brightlight grew.

Brightlight was established in 2017, with Macready as chief investment officer, to leverage the impact investing skills within the Christian Super investment team.

Class bolsters tech team Jarrod Yates and Glen MacLarty have been appointed as head of technology product and NextGen respectively, and report directly to Class’ chief technology officer Alexis Rouch.

Rouch said she was delighted to welcome the two new technology leads to the software provider.

“Both Jarrod and Glen bring a wealth of skills and experience to Class from within and outside the industry,” she said.

“This is a significant step in our ongoing investment in building world class technologies and product delivery capabilities as we grow.”

Yates previously worked as the general manager

02: Kylie O’Connor

of technology at financial planning software provider CCUBE Integrated Wealth. He also spent eight years with financial software provider Iress, where he was responsible for the development, deliver and quality the firm’s XPLAN software package.

He has also held roles with JobAdder, IWL Limited, the UK Department for Environment, Food and Rural Affairs, Professional Advantage, and the Sydney Adventist Hospital.

Yates said he was looking forward to joining Class as it invests further in its digital offerings.

“Class have a reputation for creating innovative, best-of-breed software solutions,” Yates said.

“It’s a pleasure to be joining such strong leadership and delivery team that continues to focus on innovation and technology to simplify the management of SMSF, portfolios and trusts.”

MacLarty most recently worked as a technology enablement manager at Qantas’ Loyalty business, where he worked for more than five years.

AMP Capital names real estate head AMP Capital named its new head of real estate following Carmel Hourigan’s decision to join Charter Hall.

Kylie O’Connor 02 has been promoted to the position, currently working as AMP Capital Real Estate chief operating officer and managing director separate accounts.

She is set to replace Hourigan who resigned after five years to take on the role of chief executive of Charter Hall Office.

As head of real estate, O’Connor will lead the team managing more than $28 billion of commercial real estate on behalf of institutional and retail investors across equity and debt investment solutions.

This includes the management of AMP Capital’s integrated fund, investment, development and property management platform, as well as its strategic global partnerships.

O’Connor joined AMP Capital in 2015 as fund manager for AMP Capital Diversified Property Fund, before taking on the role of chief operating officer in 2018.

She has 25 years’ experience in property funds management and has been involved in the delivery of several large development projects on behalf of wholesale investors.

Prior to AMP Capital, she held a number of senior fund management, audit and advisory roles at Lendlease and Arthur Andersen.

Additionally, Luke Briscoe will take on the role as chief operating officer, real estate, reporting to O’Connor.

Briscoe held the position of managing director, office & logistics for the past five years and as chief operating officer will also lead AMP Capital’s $10 billion separate accounts business.

“I am proud of the high calibre of talent in our real estate business and look forward to continuing to work closely with Luke and the rest of the real estate leadership team who are united in our commitment to lead the business into its next chapter of growth,” O’Connor said. fs

22

News

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

AIST pushes for policy reform

01: Jeff Oughton

consulting economist ME Bank

Ally Selby

The Australian Institute of Superannuation Trustees has pushed for greater regulatory reform, in a bid to scale up super fund investment in infrastructure, energy and housing.

In a statement sent to state governments, relevant department heads and the National COVID-19 Coordination Commission, the AIST identified a range of investment opportunities which it says would contribute to growth, jobs and productivity in the COVID-19 economic recovery.

AIST chief executive Eva Scheerlinck said there was enormous potential in housing and energy in particular, but policy reform was needed to enable funds to invest on a larger scale.

Profit-to-member super funds have significant capital available to scale up investments in these areas moving forward, she said, with housing affordability of key concern given it is very difficult for Australians to enjoy a financially secure retirement without owning a home.

“Barely a week goes by these days without one commentator or another suggesting that Australians should be allowed to tap into mandatory super savings to buy their first home,” Scheerlinck said “Aside from the negative impact this would have people’s retirement incomes; it does nothing to address the root cause of Australia’s housing affordability problem, which is lack of supply.

“Turning housing into an asset class that could provide institutional investors with a competitive return would not only be a watershed for housing affordability in this country, it would create jobs to assist the recovery while providing strong investment outcomes for the millions of Australians who invest through superannuation funds.” fs

Financial comfort reliant on fiscal support: ME Bank Annabelle Dickson

H The quote

Government stimulus has bought some time and helped boost the financial resilience of Aus­tralian households for now. But a household sav­ings cliff remains.

Platforms reveal merger details Powerwrap has released its target statement recommending its shareholders accept the offmarket takeover offer moves forward with Praemium.

The target statement prices Powerwrap at 29.75 cents per share based on a price of 44.50 cents per Praemium Share as at July 28.

Praemium will split the $55.6 million purchase price as 7.5 cents per share in cash and one Praemium share for every two Powerwrap shares.

It is also the largest shareholder of Powerwrap with a 15.1% stake in the business.

Praemium chair Barry Lewin said: “The merger is an exciting opportunity for Powerwrap and Praemium shareholders alike. For many years, Praemium has been on a growth trajectory with a recent history of generating steadily growing profitability.”

The merger of the platform providers will create the second largest independent specialised platform provider with combined funds under administration just shy of $29 billion.

The target’s report states the merger will improve inflows, create a more a more diversified customer base, international reach and a larger more flexible balance sheet, which is expected to accelerate the disruption of the sector’s incumbent platforms. fs

ousehold financial comfort increased 3% to 5.76 out of 10 in the six months to June 2020, marginally short of its historic high of 5.78, recorded in 2014.

ME Bank’s consulting economist Jeff Oughton 01 attributed the high financial comfort to a combination of prudent financial actions by households in response to the pandemic as well as JobKeeper, JobSeeker and the Early Release of Super scheme.

Almost all 11 measures that make up the Household Financial Comfort Index improved, notably the ability to cope with a financial emergency increased 9% to a record 5.25 and cash savings up 8% to 5.48.

“Fear of COVID-19 and a very weak labour market triggered many households to increase precautionary savings, reduce spending, draw on long-term savings, such as superannuation, and delay bills or loan repayments,” he said.

More than half of households spent less than they earned each month, up 8% to the highest level of households saving in the survey’s history.

However, Oughton warns this cautious behaviour and a lack of spending may cause a negative knock-on effect to the economy and a deeper recession, especially if the government starts to pull back in fiscal support.

“Government stimulus has bought some time and helped boost the financial resilience of Australian households for now. But a household sav-

ings cliff remains as government support tapers.

Unless the economy gains momentum, tapering government support too soon could have disastrous consequences on the financial comfort of households,” Oughton said.

In June, only 32% of households indicated they could maintain their lifestyle for more than three months if they lost their income.

Interestingly, 21% of households have less than $1000 in savings with just an average of $300 which is significantly lower than the current JobSeeker fortnightly payment.

“Financial comfort levels are up for now, but many households are on the cliff’s edge.

They’ve lost income, their jobs and entire livelihoods, their wafer-thin savings buffer is dwindling, and government support is the main action stopping them from falling over,” he said.

Almost 40% of households have benefitted from at least one of the recent government payments or taken their own actions in response to the pandemic.

Around one in five households are receiving JobKeeper and or JobSeeker with those aged up to 25 years the largest recipient of JobSeeker at 20% and the second largest recipient of JobKeeper at 14%.

In addition, 8% of households accessed up to $10,000 of their superannuation. This was much higher among those aged up to 25 years, at 30%. fs

AMP, BT and CBA to face class action Elizabeth McArthur

A new class action from Shine Lawyers alleges that more than half a million Australians were charged excessive insurance premiums by financial advisers aligned with AMP, BT and Commonwealth Bank.

Proceedings have already been filed against AMP, which AMP says it will defend.

The proceedings relate to financial advisers aligned with AMP Financial Planning and Hillross Financial Services.

“AMPFP and Hillross are committed to complying with their obligations relating to ensuring their advisers act in the best interests of clients and take these obligations seriously,” AMP said in a statement to the ASX. “AMPFP and Hillross will defend the proceedings.”

Proceedings have also commenced against AMP Life Limited.

Shine is alleging that BT and CBA also sold customers overpriced in-house life, income protection and total and permanent disability insurance but so far proceedings have only been filed against AMP.

“We argue all three financial services providers behaved in a way that was unfair and illegal,” Shine class actions practice leader Craig Allsopp said.

“The sheer number of people affected by these premium rorts shows we’re not just talking about a few bad apples here but a systemic misconduct in the industry.”

Anyone who holds or previously held AMP Flexible Lifetime policies provided through AMPFP, Hillross or Charter Financial Planning advisers is being called on to join the class action along with anyone who held BT Super for Life, BT Super for Life Westpac Group, BT SuperWrap, BT SuperWrap Essentials, BT Panorama Super or BT Superannuation Invest Fund plans between 2014 and 2020.

Also asked to join the class action by Shine are CommInsure life or income protection policy holders who got their insurance through Commonwealth Financial Planning, Financial Wisdom, Count Financial or BW Financial Advice.

The class action against AMP has been filed in the Federal Court. Shine said it expects to file class actions against BT and CBA in the near future. fs

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24

Between the lines

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

GQG Partners wins mandate

01: Andrew Alcock

managing director HUB24

A Sydney advice firm has allocated $20 million for global equities to Florida-headquartered GQG Partners.

PlayfairTan investment director Darren Cunneen said GQG’s global equity strategy had a strong track record, is competitively priced and benchmark unaware.

“Backing exceptional fund managers is a core part of what we do for our clients at PlayfairTan and so it was easy to invest with GQG Partners,” Cunneen said.

“Though GQG Partners Emerging Markets Equity is new to the Australian market [entering in December, 2018], our global view of its highly experienced manager [Rajiv Jain] who has proven himself running a time-tested investment process, sees it rise to the top echelons of the emerging market category.

“Jain has an impressive long-term record which tends to hold up better in volatile markets – evident in equity market falls of early 2020.

Add a very compelling fee and many of the areas we look at are more than satisfied and ensures this new strategy to our coverage earns our highest praise.”

Last month, GQG trimmed the management fees for the global equities fund from 0.90% to 0.75% per year.

The US fund manager, which is led in Australia by former head of retail investment sales at Colonial First State Laird Abernethy, has had a great year in Australia. fs

HUB24 awards super trustee mandate Kanika Sood

The quote

Despite the challenging environment we have continued to invest in the superannuation trustee business.

E

quity Trustee’s HTFS Nominees will now act as the trustee for HUB24 Super.

“We are delighted to have Equity Trustees provide specialised trustee services and fund governance for the HUB24 Super fund members. We look forward to working with Equity Trustees to deliver our strategic objectives as our business evolves,” HUB24 managing director Andrew Alcock01 said.

HTFS is one of two superannuation trustee entities, alongside Equity Trustees Superannuation Limited (ETFL).

In July, Equity Trustees won the mandate for AMP Life’s superannuation funds after its sale to Resolution Life. It included 340,000 members and about $7 billion and was previously under AMP-aligned trustees N M Superannuation and AMP Superannuation.

Earlier in the year, it was appointed to AIA-

Rainmaker Mandate Top 20

owned CommInsure superannuation funds.

“Despite the challenging environment we have continued to invest in the superannuation trustee business to ensure it is positioned to capture these opportunities,” Equity Trustees managing director Mick O’Brien said.

“HUB24’s market share has been growing over recent years due to their continued focus on innovation and customer service excellence. The appointment to act as trustee for the HUB24 Super Fund is another great addition to our rapidly growing superannuation trustee business.

“We have focused on building the technical and professional capability, with a number of new professionals joining the team in recent months, to ensure we are the preferred independent trustee for Australian institutions, and the investment is paying off.”.

EQT now has about $8 billion in superannuation assets. fs

Note: Largest cash and bond investment mandate appointments 2019-20

Appointed by

Asset consultant

Investment manager

Mandate type

Alcoa of Australia Retirement Plan

JANA Investment Advisers

Ardea Investment Management Pty Limited

Fixed Interest

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

IFM Investors Pty Ltd

Cash

361

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Ardea Investment Management Pty Limited

Fixed Interest

110

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

IFM Investors Pty Ltd

Cash

70

AustralianSuper

Frontier Advisors; JANA Investment Advisers

IFM Investors Pty Ltd

Cash

127

Care Super

JANA Investment Advisers

Apollo Global Management, LLC

Global Fixed Interest Credit

151

Care Super

JANA Investment Advisers

Marathon Asset Management (Australia) Limited

International Fixed Interest

69

ClearView Wealth Limited

First Sentier Investors

Cash

Construction & Building Unions Superannuation

Frontier Advisors

Self

Australian Fixed Interest

First State Superannuation Scheme

Willis Towers Watson

Oaktree Capital Management, LLC

International Fixed Interest

Hostplus Superannuation Fund

JANA Investment Advisers

JANA Implemented Consulting

Global Fixed Interest Diversified

38

Intrust Super Fund

JANA Investment Advisers

Western Asset Management Company Pty Ltd

Fixed Interest

68

legalsuper

Willis Towers Watson

Macquarie Investment Management Australia Limited

International Fixed Interest

207

legalsuper

Willis Towers Watson

Macquarie Investment Management Australia Limited

Australian Fixed Interest

202

Local Authorities Superannuation Fund

Frontier Advisors

Brandywine Global Investment Management, LLC

Fixed Interest

297

Local Authorities Superannuation Fund

Frontier Advisors

Amundi Asset Management Australia Limited

Australian Fixed Interest - Diversified

199

Local Authorities Superannuation Fund

Frontier Advisors

Amundi Asset Management Australia Limited

International Fixed Interest

199

Maritime Super

JANA Investment Advisers; Quentin Ayers

IFM Investors Pty Ltd

Australian Fixed Interest

69

Maritime Super

JANA Investment Advisers; Quentin Ayers

IFM Investors Pty Ltd

Cash

48

Sunsuper Superannuation Fund

Aksia; JANA Investment Advisers; Mercer

Ardea Investment Management Pty Limited

Cash

200

Investment Consulting; StepStone Group

Amount ($m) 60

134 39 313

Source: Rainmaker Information

International

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

CDPQ pursues global growth One of Canada’s biggest pension funds is restructuring to better position itself for international opportunities, including in the Asia Pacific region.

Caisse de dépôt et placement du Québec (CDPQ) is shifting to an integrated structure for international activities in order to have a global view when managing its presence in different regions.

“After building multidisciplinary teams in Asia, Latin America, the United States and Europe, and increasing our international exposure by over $140 billion (AUD$146.4 billion) in five years, moving toward a more integrated structure is the natural next step in our evolution,” the fund said.

To drive the strategy, CDPQ has appointed Marc-André Blanchard as executive vice president and head of CDPQ Global. He will have direct responsibility for the fund’s three main regional hubs outside of Canada: the US and Latin America, Europe and Asia Pacific.

The pension fund has also appointed Anita George as executive vice president and deputy head of CDPQ Global. She was previously executive vice president, strategic partnerships – growth markets, and her new role is an expansion of that role and includes all geographies.

“Under Marc‑André’s leadership, and with Anita’s support, this new structure will allow us to continue diversifying our portfolio and go to market with a cross-functional and global view, backed by strong leadership in Montréal and strengthened responsibilities in our key regional hubs and satellite offices,” CDPQ president and chief executive Charles Emond said. fs

01: Mark Fawcett

chief investment officer National Employment Savings Trust

UK pension fund to divest half its portfolio Jamie Williamson

N The quote

No-one wants to save throughout their life to retire into a world devastated by climate change.

Former politician in Ponzi scheme Ally Selby

Former Georgia state legislator and member of the Georgia board of Regents, Clarence “Dean” Alford, has been accused of defrauding at least 100 investors by selling promissory notes to his now-bankrupt energy development company, Allied Energy Services LLC. The SEC alleges that from 2017 to 2019, Alford raised US$23 million by selling the notes to primarily Indian-American community, falsely guaranteeing their investment would generate high annual rates of return.

Alford presented Allied Energy Services as a successful business to investors when in fact it was struggling, the SEC said. He also claimed that investors’ funds would be used to finance energy products, but in reality, the funds were used to make interest payments to earlier investors and for personal expenses, including building himself a multimillion-dollar home.

“Beginning as early as January 2017, Alford grossly misrepresented to potential investors in the promissory notes, among other things, Allied’s financial condition, leading investors to falsely believe that Allied was a robust and thriving energy-related business,” the SEC alleged.

“Defendant also misrepresented and exaggerated Allied’s experience and expertise in developing various energy projects to further entice prospective investors. fs

25

EST, home to more than nine million members, has introduced a new investment policy aimed at achieving net-zero status by 2050 or earlier. It expects carbon emissions in its portfolio will have halved by 2030.

The pension fund is immediately shifting close to $10 billion in equities – roughly 45% of its portfolio – to climate aware strategies, instantly reducing its carbon footprint by the equivalent of taking 200,000 cars off the road, the fund said.

The divestment includes its investments in emerging market equities and represents $2.17 billion being removed from the world’s largest carbon emitters, NEST said.

It will also begin divesting from companies involved in thermal coal, oil sands and arctic drilling.

NEST will divest all companies with more than 20% of revenues from these activities by 2020 end; all companies with more than 10% of revenues from these activities by 2023; and then all companies still involved in these activities by 2025, unless the companies implement a clear plan to phase out all related activity by 2030.

“No-one wants to save throughout their life to retire into a world devastated by climate change,” NEST chief investment officer Mark Fawcett 01 said.

The fund has also committed to investing a greater proportion of its funds directly in green infrastructure – it already has about $180 million invested in renewable projects across Europe.

It will also actively pressure companies to align with the Paris goals and divest from companies that fail to progress following engagement, while committing its fund managers to make progress against set benchmarks – incumbent managers will have three years to do so.

“We will continue to research the impact of climate change on asset-class risks and returns. This includes running scenario analyses as recommended by the TCFD. In the future we may invest more or less in certain asset classes or regions depending on how we believe they will perform in a low-carbon economy,” NEST said.

Investing in private markets continues to present opportunities to generate returns while still supporting companies and projects contributing to the low-carbon transition, it said, commencing an allocation to renewable energy in private equity infrastructure.

“Just like coronavirus, climate change poses serious risks to both our savers and their investments. It has the potential to cause catastrophic damage and completely disrupt our way of life.

No-one wants to save throughout their life to retire into a world devastated by climate change,” Fawcett said.

“As the world’s economy slowly recovers from coronavirus, we want to ensure this recovery is a green one. We have a unique opportunity to support sustainable growth and transition towards a low-carbon economy.” fs

Franklin Templeton completes acquisition Eliza Bavin

Franklin Templeton has officially completed its acquisition of investment manager Legg Mason, creating one of the world’s largest specialist managers.

Franklin Resources, a global investment management organisation with subsidiaries operating as Franklin Templeton, announced the completion of its previously announced acquisition of Legg Mason.

The newly-combined organisation has created one of the world’s largest independent, specialised global investment managers with a combined US$1.4 trillion in assets under management.

Franklin Templeton said the combined footprint significantly deepens its presence in key geographies and creates an expansive investment platform that is well balanced between institutional and retail client AUM. “We’re extremely excited to announce the close of our Legg Mason acquisition, representing the largest and most significant transaction in Franklin Templeton’s history,” said Franklin Templeton president and chief executive Jenny Johnson.

“A tremendous amount has happened since we made our announcement in mid-February, but the strategic rationale for this powerful combination has only strengthened.

“This acquisition unlocks substantial value and growth opportunities driven by greater scale, diversity and balance across investment strategies, distribution channels and geographies. Our combined firm is aligned in terms of culture and our shared focus on delivering strong investment results for our valued clients.”

The acquisition has expanded the firm’s multi-asset solution capabilities as well as combining leadership in core fixed income, equities and alternatives.

Franklin Templeton said no changes are planned for Legg Mason’s differentiated investment strategies, which it said will benefit from Franklin Templeton’s global infrastructure and ongoing investment in technology and innovation.

“A significant amount of work has gone into preparing us for this exciting firm combination over the past five months, all during an unprecedented pandemic with nearly everyone involved working remotely,” Johnson said.

“I want to thank employees from both companies for their tremendous contributions and exceptional focus on our clients and the business throughout the process.”

Prior to the completion of the merger, the firm announced a number of leadership changes in Asia Pacific as Franklin Templeton continues to expand in the region. fs

26

Managed funds

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16 PERIOD ENDING – 30 JUNE 2020

Size 1 year 3 years 5 years

Size 1 year 3 years 5 years

Fund name

Fund name

Managed Funds

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

GROWTH IOOF MultiMix Growth Trust

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

CAPITAL STABLE 616

1.4

1

7.4

1

7.5

1

Macquarie Capital Stable Fund

31

7.2

1

6.4

1

5.3

3

Vanguard High Growth Index Fund

3026

-0.8

6

6.9

2

7.0

3

IOOF MultiMix Moderate Trust

576

1.3

5

5.5

2

5.7

1

Vanguard Growth Index Fund

5348

0.6

3

6.6

3

6.5

5

Vanguard Conservative Index Fund

2486

2.8

2

5.4

3

5.2

4

Fiducian Growth Fund

138

-1.2

7

6.3

4

7.0

2

IOOF MultiMix Conservative Trust

661

2.3

3

4.6

4

4.8

6

MLC Wholesale Horizon 6 Share

236

-4.1

19

5.6

5

6.2

6

Fiducian Capital Stable Fund

303

1.4

4

4.5

5

4.5

7

11

-4.0

18

5.5

6

6.2

7

Dimensional World Allocation 50/50 Trust

510

-1.1

14

4.2

6

4.9

5

187

-1.9

8

5.3

7

6.7

4

UBS Tactical Beta Fund - Conservative

93

1.2

6

4.1

7

3.8

10

Perpetual Split Growth Fund

39

-5.0

23

5.2

8

6.0

8

Perpetual Conservative Growth Fund

337

0.5

7

4.0

8

4.0

8

BT Multi-Manager Growth Fund

40

-3.7

17

5.0

9

5.7

9

Perpetual Diversified Growth Fund

103

-1.3

15

4.0

9

3.7

13

MLC Wholesale Horizon 5 Growth

509

-3.1

12

4.8

10

5.3

10

33

-0.6

12

3.6

10

3.7

12

Sector average

479

-3.2

4.7

5.6

4.2

BT Multi-Manager High Growth Fund Fiducian Ultra Growth Fund

Sector average

BALANCED Macquarie Balanced Growth Fund

BT Multi-Manager Conservative Fund

374

0.2

3.8

CREDIT 720

4.9

1

7.5

1

7.3

1

VanEck Vectors Aust. Corp. Bond Plus ETF

229

3.3

6

5.5

1

1769

2.1

2

6.9

2

6.9

2

Pendal Enhanced Credit Fund

409

4.1

3

5.2

2

4.8

3

475

-1.0

7

6.2

3

3.7

18

Vanguard Australian Corp Fixed Interest Index

234

3.5

5

5.2

3

4.8

4

81

-1.8

10

6.2

4

6.3

4

Metrics Credit Div. Aust. Sen. Loan Fund

2313

4.8

2

5.1

4

5.0

2

5129

1.9

3

6.1

5

6.0

5

Vanguard Aust Corp. Fixed Interest Index ETF

327

3.3

7

4.9

5

Fiducian Balanced Fund

336

-0.4

4

6.1

6

6.6

3

Yarra Enhanced Income Fund

Ausbil Balanced Fund

110

-3.1

18

5.9

7

5.5

7

PIMCO Global Credit Fund

Responsible Investment Leaders Bal

936

-0.6

5

5.5

8

4.9

11

Vanguard Managed Payout Fund

28

-2.6

13

5.0

9

BT Multi-Manager Balanced Fund

86

-3.0

17

4.8

IOOF MultiMix Balanced Growth Trust BlackRock Tactical Growth Fund SSGA Passive Balanced Trust Vanguard Balanced Index Fund

Sector average

840

-2.0

10

5.3

4.6

5.0

Note: The performance figures for diversified funds are net of fees, performance figures for sector specific funds are adjusted for fees.

9

76

0.2

21

4.2

6

5.3

1

1208

3.7

4

3.9

7

4.5

5

Franklin Australian Absolute Return Bond

381

2.7

10

3.9

8

3.8

8

PIMCO Australian Short-Term Bond Fund

327

2.7

11

3.7

9

3.4

11

Janus Henderson Diversified Credit Fund

589

2.9

8

3.5

10

4.0

7

Sector average

759

2.1

3.2

3.5

Source: Rainmaker Information

COVID’s $3tn superannuation squeeze time to start thinking about COVID-19 It’swill impact superannuation long-term.

While it may seem crazy-brave to do amid the

Brumbie

By Alex Dunnin alex.dunnin@ financialstandard .com.au www.twitter.com /alexdunnin

COVID-19 crisis, Rainmaker saw it as an opportunity to compare superannuation’s outlook before and after COVID-19.

The contrast does not paint a pretty picture, but it’s not all doom and gloom either. Superannuation will still grow to be much larger than it is now, but where Rainmaker was projecting superannuation to triple to $10 trillion by 2040; we now expect it to only hit $7 trillion.

However, it is $3 trillion less that will be available to invest into infrastructure, develop property projects, buy government bonds, invest into Australian companies, seed start-ups, capitalise agribusiness, invest into new energy projects, and fund the rebuilding of Australia’s energy grid.

With the post-COVID economy needing every ounce of investment energy it can muster, this is cap-ex that will be sorely missed.

To come up with these projections, we should remind ourselves that the superannuation sector does not exist in a vacuum.

When trying to gauge the long-run outlook there are two perspectives: what it means for individuals and what it means for the nation.

For individuals, the amount of money they

will have when they retire is obviously driven by how much they contribute and what interest rates they earn. The sum of all this across the nation builds the national picture.

This is where the post-COVID economic outlook becomes significant. Australia is now in recession and has gone into massive debt hoping to insulate itself against the effects of COVID-19.

Poor global economic outlook numbers that suggest future returns will be lower than normal for a long while only make this worse.

On top of this, the ERS scheme has seen many super fund members clean out their accounts.

Millions will meanwhile probably not get the wage rises they expected.

As a result, their future levels of contributions will be lower in dollar terms than they previously expected. At face value this means they’ll likely retire with less than they thought pre-COVID. We can argue what the shortfall might be but one-quarter to one-third may not be an extreme gap. Now we need to add in the effects of rising unemployment.

Unfortunately, these effects multiply when we realise a huge driver in Australia’s economic expansion story has always been population growth. And this is where COVID really bites.

At a time when nations are either locking or

restricting their international borders and air travel volumes have all but collapsed, it’s highly unlikely folks will be migrating.

This is a big deal because about half of Australia’s population is fuelled by net immigration. Commentatorsare already saying they expect it will take a decade for Australia’s migration levels to recover.

Against this backdrop, Rainmaker’s estimate of Australia’s official population growth projections halving in the short-run may not be far-fetched.

All this has to have huge macro-economic fiscal consequences, such as less people having big superannuation balances and more needing higher age pension payments than previously projected. This could add billions to projected age pension outlays, putting further strain on our already under-pressure finances.

If this doesn’t fuel a serious review of super’s disjointed and inequitable tax subsidy regime, nothing will. Let’s hope this is precisely what’s in store in the Retirement Income Review report that is awaiting release.

Already there are warning shots being fired over funds’ bow by conservative MPs who are saying they will be driving hard for more super fund fee cuts, more mergers and to freeze the SG rate.

Super’s COVID crisis is a long way from over.

Giddyup. fs

Super funds

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16 PERIOD ENDING – 30 JUNE 2020

Workplace Super Products

1 year % p.a. Rank

3 years

5 years

SS

% p.a. Rank % p.a. Rank Quality*

GROWTH INVESTMENT OPTIONS

27

* SelectingSuper [SS] quality assessment

Retirement Products

1 year % p.a. Rank

3 years

5 years

SS

% p.a. Rank % p.a. Rank Quality*

GROWTH INVESTMENT OPTIONS

UniSuper - Sustainable High Growth

6.7

2

9.4

1

8.8

1

AAA

UniSuper Pension - Sustainable High Growth

7.8

1

10.6

1

9.9

1

AAA

Vision Super Saver - Just Shares

1.8

4

7.5

2

7.7

4

AAA

Vision Income Streams - Just Shares

1.1

7

8.1

2

8.4

4

AAA

Equip MyFuture - Growth Plus

0.9

12

7.3

3

7.3

6

AAA

Equip Pensions - Growth Plus

0.4

15

8.1

3

7.8

8

AAA

First State Super Employer - High Growth

1.1

10

7.0

4

7.1

9

AAA

Cbus Super Income Stream - High Growth

0.4

14

7.7

4

8.8

2

AAA

AustralianSuper - High Growth

0.4

17

6.9

5

7.5

5

AAA

Vision Income Streams - Growth

1.2

6

7.6

5

7.8

7

AAA

HOSTPLUS - Shares Plus

0.5

15

6.9

6

7.9

2

AAA

AustralianSuper Choice Income - High Growth

0.5

12

7.6

6

8.2

5

AAA

Vision Super Saver - Growth

1.3

8

6.8

7

7.1

8

AAA

WA Super Retirement - Diversified High Growth

2.0

4

7.5

7

7.2

21

AAA

Cbus Industry Super - High Growth

0.4

16

6.8

8

7.8

3

AAA

Lutheran Super Pension - High Growth

0.8

11

7.5

8

7.2

22

AAA

WA Super - Diversified High Growth

1.6

6

6.6

9

6.4

24

AAA

First State Super Pension - High Growth

0.9

8

7.4

9

7.6

14

AAA

Lutheran Super - High Growth

0.7

13

6.6

10

6.4

25

AAA

TASPLAN Tasplan Pension - Growth

0.0

20

7.3

10

7.4

16

AAA

Rainmaker Growth Index

-2.1

5.0

5.5

Rainmaker Growth Index

BALANCED INVESTMENT OPTIONS

-2.2

5.5

6.1

BALANCED INVESTMENT OPTIONS

UniSuper - Sustainable Balanced

5.3

1

7.9

1

7.3

2

AAA

UniSuper Pension - Sustainable Balanced

6.3

1

9.0

1

8.4

2

AAA

HESTA - Eco-Pool

2.4

3

7.2

2

8.4

1

AAA

HESTA Income Stream - Eco

2.6

4

7.8

2

9.1

1

AAA

WA Super - Sustainable Future

2.2

4

6.5

3

6.7

10

AAA

Media Super Pension - Growth

-1.3

71

7.3

3

7.8

4

AAA

AustralianSuper - Balanced

0.3

31

6.4

4

7.1

3

AAA

Australian Catholic Super RetireChoice - Socially Responsible

2.9

2

7.2

4

6.2

38

AAA

Australian Ethical Super Employer - Balanced (accumulation)

2.2

5

6.3

5

6.3

20

AAA

AustralianSuper Choice Income - Indexed Diversified

1.4

11

7.1

5

6.7

27

AAA

Australian Catholic Super Employer - Socially Responsible

2.8

2

6.3

6

5.3

46

AAA

Cbus Super Income Stream - Growth (Cbus Choice)

1.0

15

7.0

6

8.1

3

AAA

Media Super - Growth

-1.2

73

6.3

7

6.8

7

AAA

AustralianSuper Choice Income - Balanced

0.3

32

7.0

7

7.7

5

AAA

CareSuper - Sustainable Balanced

1.7

8

6.3

8

6.3

15

AAA

Vision Income Streams - Balanced Growth

1.8

8

6.9

8

7.1

9

AAA

AustralianSuper - Indexed Diversified

1.1

14

6.2

9

5.9

33

AAA

TASPLAN Tasplan Pension - Balanced

0.7

25

6.9

9

7.0

16

AAA

Vision Super Saver - Balanced Growth

1.6

9

6.2

10

6.4

12

AAA

CareSuper Pension - Sustainable Balanced

0.8

22

6.7

10

6.9

19

AAA

Rainmaker Balanced Index

-0.8

Rainmaker Balanced Index

-0.9

4.6

5.1

CAPITAL STABLE INVESTMENT OPTIONS

5.5

CAPITAL STABLE INVESTMENT OPTIONS

VicSuper FutureSaver - Socially Conscious

4.1

1

6.2

1

1

AAA

Cbus Super Income Stream - Conservative Growth

2.5

4

6.5

1

7.1

1

AAA

TASPLAN - OnTrack Control

1.1

27

5.5

2

AAA

AustralianSuper Choice Income - Conservative Balanced

1.3

20

6.1

2

6.7

2

AAA

AustralianSuper - Conservative Balanced

1.1

26

5.4

3

2

AAA

UniSuper Pension - Conservative Balanced

0.2

52

5.6

3

6.4

3

AAA

Cbus Industry Super - Conservative Growth

1.7

9

5.2

4

AAA

TASPLAN Tasplan Pension - Moderate

1.7

12

5.6

4

AAA

First State Super Employer - Balanced Growth

0.9

35

5.2

5

5.5

4

AAA

First State Super Pension - Balanced Growth

0.8

34

5.6

5

5.9

5

AAA

StatewideSuper - Conservative Balanced

0.5

43

5.0

6

5.6

3

AAA

Cbus Super Income Stream - Conservative

3.0

1

5.5

6

5.7

9

AAA

HESTA - Conservative Pool

1.8

7

5.0

7

5.1

8

AAA

Energy Super Income Stream - SRI Balanced

-1.0

89

5.4

7

4.9

25

AAA

TASPLAN - OnTrack Maintain

1.4

16

4.9

8

AAA

VicSuper Flexible Income - Socially Conscious

2.9

2

5.4

8

4.9

24

AAA

Virgin Money SED - Enhanced Indexed Conservative Growth

2.6

2

4.8

9

AAA

StatewideSuper Pension - Conservative Balanced

0.5

41

5.3

9

6.2

4

AAA

NGS Super - Balanced

0.0

63

4.8

AAA

HESTA Income Stream - Conservative

1.9

9

5.3

10

5.5

11

AAA

Rainmaker Capital Stable Index

0.2

3.7

10

6.3

5.1

6.0

5.3

6

3.9

Rainmaker Capital Stable Index

Notes: A ll figures reflect net investment performance, i.e. net of investment tax, investment management fees and the maximum applicable ongoing management and membership fees.

WORKPLACE SUPER | PERSONAL SUPER | RETIREMENT PRODUCTS

Compare superannuation returns across asset classes using over 27 years of industry insights and research with SelectingSuper’s performance tables.

Simply visit selectingsuper.com.au/tools/performance_tables

0.2

3.8

4.1 Source: SelectingSuper www.selectingsuper.com.au

28

Economics

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

Not about human rights, but human life

Consumption

Ben Ong

ictorian Premier Dan Andrews declared a V State of Disaster on August 2 and imposed Stage 4 restrictions that will run for six weeks (until September 13) as his government tries to contain the second wave of the coronavirus outbreak.

This followed the failure of targeted restrictions – the lockdown of certain Victorian postcodes and public housing – Stage 3 restrictions and, mandatory wearing of masks.

This is because, as Andrews put it: “too many people are not taking this seriously”. Worse, a few even flout the restrictions, protesting that they infringe on their civil liberties and invoking their “human rights”.

As an obviously irritated Dan pronounced a week before: “Seriously, one more comment about human rights ... it’s about human life.

Their views have no basis in science, fact or law.”

Now it’s a disaster. A state of disaster, that is.

As the AFR explains: “Under a state of disaster, police have extra powers and various acts of parliament can be suspended.”

“There is no question about the enforceability and the way in which new rules are going to operate,” Andrews said.

The actions of a few selfish, stupid, human rights placard-carrying Karens have now further limited the freedom of Victorians all – among which is a daily curfew that prohibits Melburnians from leaving their homes between 8pm to 5am unless for “work, medical care and caregiving”.

They, have forced the temporary closure of all non-essential businesses that could turn into a permanent bankruptcy and with them, rising unemployment, reduced business and income

tax revenues for the state of Victoria coupled with increased welfare and health spending and ultimately, weaker economic activity that would surely drag the rest of Australia down.

Recent reports are that Victoria’s six-week lockdown could wipe $9 billion from the national economy and cost hundreds of thousands of jobs – not to mention an even bigger budget deficit.

But just as Federal Treasurer Josh Frydenberg says, “the extent of the damage would depend on the effectiveness of the restrictions that’s slowing the spread of the virus”.

When Treasury released its July economic and financial update just a little over two weeks ago, it assumed that restrictions re-introduced “across metropolitan Melbourne and the Mitchell Shire from July 9” would “remain in place for six weeks, easing of restrictions until mid-September before the gradual move to the final step by mid-December”.

These assumptions were embedded in the Treasury’s prediction that the overall economy would contract by 0.25% in FY 2019/20 and by 2.5% in FY2020/21; the unemployment rate rising from 5.2% in FY 2018/19 to 7.0% in 2019/20 to 8.75% next year; and the budget deficit ballooning to $184.5 billion (9.7% of GDP) this fiscal year – the biggest deficit since World War II. Recent developments in Victoria would result in lower national economic growth, higher unemployment and a bigger budget deficit.

“All the temporary sacrifices we make now – all the time missed with mates, those delayed visits to mum – those sacrifices will help keep our mates and our mums and our fellow Victorians safe,” Andrews said. …and help Australia grow again! fs

Monthly Indicators

Jul-20

Jun-20

May-20 Apr-20 Mar-20

Retail Sales (%m/m)

-

2.72

16.86

-17.67

8.47

Retail Sales (%y/y)

-

8.52

5.79

-9.18

10.07

Sales of New Motor Vehicles (%y/y)

-

-6.44

-35.29

-48.48

-17.85

Employment Employed, Persons (Chg, 000’s, sa) Job Advertisements (%m/m, sa) Unemployment Rate (sa)

-

210.83

-264.14

-607.40

-3.14

16.75

41.38

-0.09

-53.32

-9.20

-

7.45

7.08

6.37

5.23

Housing & Construction Dwellings approved, Tot, (%m/m, sa)

-

-5.68

-4.05

2.42

-0.58

Dwellings approved, Private Sector, (%m/m, sa)

-

-4.94

-15.76

-2.36

-1.39

Housing Finance Commitments, Number (%m/m, sa) - Housing Finance Commitments, Value (%m/m, sa)

-

Survey Data Consumer Sentiment Index

87.92

93.65

88.10

75.64

AiG Manufacturing PMI Index

53.50

51.50

41.60

35.80

91.94 41.60

NAB Business Conditions Index

-

-7.48

-24.14

-33.84

-21.99

NAB Business Confidence Index

-

1.47

-20.33

-45.76

-65.36

Trade Trade Balance (Mil. AUD)

-

8202.00

7341.00

7864.00

Exports (%y/y)

-

-14.90

-16.93

-6.28

6.99

Imports (%y/y)

-

-19.31

-23.22

-16.15

-9.52

Jun-20

Mar-20

Dec-19

Sep-19

Quarterly Indicators

10631.00

Jun-19

Balance of Payments Current Account Balance (Bil. AUD, sa)

-

8.40

1.72

7.26

4.87

% of GDP

-

1.66

0.34

1.44

0.98

Corporate Profits Company Gross Operating Profits (%q/q)

-

1.11

-3.47

-1.15

5.20

Employment Average Weekly Earnings (%y/y)

-

-

3.24

-

3.02

Wages Total All Industries (%q/q, sa)

-

0.53

0.53

0.53

0.54

Wages Total Private Industries (%q/q, sa)

-

0.38

0.45

0.92

0.38

Wages Total Public Industries (%q/q, sa)

-

0.45

0.45

0.83

0.46

Inflation CPI (%y/y) headline

-0.35

2.19

1.84

1.67

1.59

CPI (%y/y) trimmed mean

1.20

1.80

1.60

1.60

1.50

CPI (%y/y) weighted median

1.30

1.60

1.20

1.20

1.20

Output

News bites

Eurozone GDP Preliminary estimates of the Eurozone’s June quarter economy underscore the extent of the lockdown and social restrictions imposed by governments of member nations in efforts to contain the spread of coronavirus infections. The single currency region’s GDP dropped by 12.1% in the three months to June following a 3.6% contraction in the March quarter – satisfying the technical definition of a recession. The June quarter plunge was the sharpest on record and is worse than consensus expectations for a 12.0% decline. The region’s top four economies all suffered sharp quarterly drops: Spain contracted by 18.5%; France by 13.8%; Italy by 12.4% and Germany by 10.1%.

China industrial profits China’s National Bureau of Statistics (NBS) released

data showing that profits at the country’s industrial firms jumped by 11.5% in the month of June – the fastest pace since March 2019 and quickening from May’s 5.5% increase (from declines of 4.3% in April and 34.9% in March). NBS figures also showed that 37 out of 41 major sectors registered stronger growth or smaller rates of decline. This followed sequential improvement in other domestic activity indicators such as retail sales, industrial production and fixed asset investment.

RBA holds The Reserve Bank of Australia (RBA) kept monetary policy settings unchanged – cash rate target at 0.25% and the target yield on three-year Australian government bonds at 25 basis points – at the conclusion of its August 4 meeting. In his statement, RBA Governor Philip Lowe noted that: “This recovery is … likely to be both uneven and bumpy, with the coronavirus outbreak in Victoria having a major effect on the Victorian economy and reporting that “the board considered a range of scenarios at its meeting”. The baseline scenario is for output to contract by 6% over 2020 before growing by 5% in the following year. Lowe added: “In this scenario, the unemployment rate rises to around 10% later in 2020 due to further job losses in Victoria and more people elsewhere in Australia looking for jobs. Over the following couple of years, the unemployment rate is expected to decline gradually to around 7%.” fs

Real GDP Growth (%q/q, sa)

-

-0.31

0.52

0.55

0.61

Real GDP Growth (%y/y, sa)

-

1.39

2.16

1.80

1.56

Industrial Production (%q/q, sa)

-

-0.09

1.25

0.39

1.07

Survey Data Private New Capex, Total, Chain, Vol, (%q/q, sa)

Financial Indicators

-

31-Jul

-1.65

-2.58

-0.55

-1.43

Mth ago 3 mths ago 1 yr ago 3 yrs ago

Interest rates RBA Cash Rate

0.25

0.25

0.25

1.00

1.50

Australian 10Y Government Bond Yield

0.82

0.87

0.89

1.19

2.63

Australian 10Y Corporate Bond Yield

1.64

1.80

2.17

1.96

3.16

Stockmarket All Ordinaries Index

6058.3

0.95%

8.23%

-12.16%

S&P/ASX 300 Index

5894.1

0.61%

7.49%

-12.84%

4.93% 3.97%

S&P/ASX 200 Index

5927.8

0.51%

7.34%

-12.99%

3.62%

S&P/ASX 100 Index

4898.8

0.52%

7.26%

-13.06%

3.26%

Small Ordinaries

2633.7

1.33%

9.50%

-11.07%

10.75%

Exchange rates A$ trade weighted index

61.90

A$/US$

0.7172 0.6885 0.6547 0.6893 0.7984

60.00

57.80

59.50

67.30

A$/Euro

0.6065 0.6130 0.5977 0.6190 0.6771

A$/Yen

75.82 74.28 70.01 74.84 88.21

Commodity Prices S&P GSCI - commodity index

339.82

325.48

257.04

422.44

388.07

Iron ore

108.05

102.95

83.84

120.02

73.10

Gold

1964.90 1768.10 1702.75 1427.55 1267.55

WTI oil

40.25

39.27

19.23

58.53

Source: Rainmaker /

50.21

Sector reviews

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

Australian equities

Figure 1: Australian headline CPI inflation ANNUAL CHANGE %

ANNUAL CHANGE %

Trimmed mean

4.0

4.0

Headline

Weighted median

3.0

3.0 2.0

Prepared by: Rainmaker Information Source: Thompson Reuters /

CPD Program Instructions

Figure 2: Australian core CPI inflation 5.0

5.0

RBA target band

2.0

1.0

1.0

0.0

0.0

-1.0

-1.0

RBA target band

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Coronavirus-induced deflation Ben Ong

T

he Australian Bureau of Statistics (ABS) reported that the country’s headline inflation dropped by 1.9% in the Juned quarter – the largest quarter on quarter decline in the 72-year history that the Statistician had been tracking consumer prices.

This takes the annual inflation rate down from plus 2.2% (almost at the mid-point of the RBA’s 2-3% target band) in the March quarter to minus 0.3% by the end of the June quarter – only the third time Australia has been in deflation.

For sure and for certain, everyone loves a bargain. This is the reason why online trade has taken off (they’re cheaper than bricks and mortar stores), why consumers the world over are buying cheaper “Made in China” products and services, and why western countries have established manufacturing and call centres in countries where wage costs are cheaper.

It may seem counter-intuitive but falling prices

International equities

are bad news bears for the economy, any economy. Just like John Maynard Keynes’ Paradox of Thrift – savings by individuals during recessions lead to a general decline in aggregate demand and therefore, even slower overall economic growth – deflation has nasty consequences for the economy.

This is because cheapening prices of goods and services, if it goes on long enough, would spark decreasing inflation expectations.

Unless a necessity (like toilet paper in our current pandemic circumstance), consumers of whatever colour, creed or political affiliation would postpone purchasing new everything (home furnishings, clothes, shoes, TV, even houses) on expectations that tomorrow and the day after, prices would be cheaper.

Consumer spending accounts for around 60% of the economy – most economies. Declining inflation expectations will discourage consumer spending that, in turn, becomes a drag on overall economic growth.

But have no fear, Australia’s headline deflation may just be a one-off. As ABS chief economist Bruce Hockman explains:“The June quarter fall was mainly the result of free child care (-95%), a significant fall in the price of automotive fuel (-19.3%) and a fall in preschool and primary education (-16.2%), with free pre-school being provided in NSW, Victoria and Queensland … Excluding these three components, the CPI would have risen 0.1% in the June quarter.”

Similarly, while the annual headline CPI measure has fallen into deflation, core inflation measures remain positive – trimmed mean inflation slowed to 1.2% in the year to the June quarter from 1.8% in the March quarter; the weighted median measure eased to 1.3% from 1.6%.

This is good news, suggesting that the June quarter’s deflationary conditions are temporary and should prevent a persistent drop in inflation expectations. fs

Figure 1: Euro Stoxx 50 index

Figure 2: Euro/US$ exchange rate

4000

1.30 INDEX

1.25

3600 3400

1.10

2600

1.05

2400 2200

1.00 2016

2017

2018

2019

2020

2015

2016

2017

2018

2019

2020

EU: The Next Generation mously agreed to an unprecedented €750 billion “Next Generation EU” (NGEU) Recovery Fund – to support member countries’ recovery from the pandemic-induced recession, and multinational financial framework (MFF) – the regular EU Budget – amounting to around €1.1 trillion over seven years.

The size of the NGEU fund was huge but the ECB’s pandemic emergency purchase programme (PEPP) – currently at €1,350 billion – is almost double that.

What is historic is the fact that EU leaders agreed to agree. Recall the fiscal funding disputes between “austere” countries, led by Germany, and the PIGS (Portugal, Italy, Greece, Spain) during the European sovereign debt crisis seven years before.

1. Which Australian CPI measure went into deflation in the June 2020 quarter? a) Headline CPI b) Trimmed mean c) Weighted median d) All of the above 2. According to the ABS, what accounted for the June quarter drop in the CPI? a) Child care b) Automotive fuel c) Pre-school and primary education d) All of the above

CPD Questions 4–6

1.15

2800

fter five days of deliberation, negotiation A and compromise, the 27 governments that make up the European Union (EU) unani-

CPD Questions 1–3

International equities

1.20

3000

Ben Ong

Australian equities

US$

3800

2015

The Financial Standard CPD Program has been developed for professionals governed by the Corporations Act 2001 and hold an AFS Licence which provides an obligation to undertake continuous professional development (CPD). Test your knowledge with the following questions.

[See next page for instructions on how to submit your answers].

3. Falling inflation could lead to decreasing inflation expectations. a) True b) False

3200

Prepared by: FSIU Sources: Factset Prepared by: Rainmaker Information Source:

29

…it’s the implication for fiscal union.

As Richard McGuire, head of rates strategy at Rabobank, put it: “The importance of this fund is not its scale or conditionality but rather its historic significance in terms of the region’s policymakers crossing the hitherto unbreachable red line of liability sharing. This is all the more notable given the current absence of market pressure upon the region’s politicians to rise above national interests and act on a supra-national level.”

Berenberg Bank chief economist, Dr. Holger Schmieding, adds: “With the biggest-ever effort of cross-border solidarity, the EU is sending a strong signal of internal cohesion. Near-term, the confidence effect can matter even more than the money itself. The deal will support the recovery of the EU/Eurozone economies with a pro-investment, pro-green and pro-growth tilt.

But more importantly, it strengthens the cohesion of the region and may help to reduce po-

litical risks. The deal shows that the European Union is working.”

The Euro Stoxx-50 index rose by 0.5% on the day, the broader Stoxx 600 rallied by as much as 1.3% and closed at its highest level since early March. The euro currency surged to US$1.15 for the first time since January 2019.

It’s still a long way away from the EU having a central fiscal authority, or what’s called a “Hamilton moment” – “the historic constitutional compromise forged by the first US Treasury secretary Alexander Hamilton, James Madison, and Thomas Jefferson in that year [1790]” where “the US federal government assumed all the debt incurred by the US states during the War of Independence, laying the foundation for a strong central federal government in the United States,” according to the Peterson Institute for International Economics.

Perhaps Europe never will. But the July 21 deal provides a positive precedent. fs

4. How much was the Next Generation EU Recovery Fund? a) €50 billion b) €75 billion c) €500 billion d) €750 billion 5. Which one reacted positively to the NGEU Recovery Fund announcement? a) Euro Stoxx-50 index b) Stoxx 600 index c) Euro currency d) All of the above 6. The EU’s agreement on the recovery fund has positive implications for fiscal union. a) True b) False

30

Sector reviews

Fixed interest CPD Questions 7–9

7. Which Japanese PMI measure indicated expansion in June? a) Composite PMI b) Manufacturing PMI c) Services PMI d) None of the above 8. Which Japanese inflation measure improved between May and June? a) Headline inflation b) Core inflation c) Both a and b d) Neither a nor b 9. The Bank of Japan lowered interest rates at its July meeting. a) True b) False Alternatives CPD Questions 10–12

10. When did the US Federal Reserve cut interest rates in 2019? a) July b) September c) October d) All of the above 11. What is/are behind gold’s rally? a) Money printing b) Central bank buying c) Low interest rates d) All of the above

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

Fixed interest

Figure 1: au Jibun Bank Japan PMI 55

Figure 2: Japanese CPI inflation 4

INDEX

ANNUAL RATE %

50

3

45

2

40

1

35

0 Services

30

-1

Composite Manufacturing

Prepared by: Rainmaker Information Prepared by: FSIU Source: Trading Economics Sources: Factset

25

Headline inflation

-2

20

Core inflation (ex-food)

-3 2017

2018

2019

2020

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Second wave comes to Japan Ben Ong

T

he second wave looks like it’s come to Japan.

According to Kyodo News: “Japan reported on July 23 more than 980 new daily coronavirus infections, marking a record for a second straight day in a resurgence since the government lifted a state of emergency about two months ago.”

The state of emergency was lifted on May 25, and since then economic activity has picked up.

This is underscored by the improvement in the au Jibun Bank Japan PMI surveys.

The composite index moved closer to the expansion mark, rising to a reading of 43.9 in July from 40.8 in June and 27.8 in May and the all-time low reading of 25.8 recorded in April.

The services PMI increased to 45. 2 in July 45.0 in the previous month from 26.5 in May and the manufacturing PMI improved to 42.6 in July from 40.1 in June from 38.4 in May. This has kept headline inflation stable at

Alternatives

0.1% in June from May and core inflation to zero from the previous two months’ deflation readings of minus 0.2% each.

This allowed the Bank of Japan (BOJ) to take a breather, keeping its monetary policy settings and asset purchases unchanged at its July 15 meeting while at the same time providing an optimistic outlook on the economy.

The BOJ’s baseline scenario is for the economy “to improve gradually from the second half of this year through the materialization of pent-up demand and supported by accommodative financial conditions and the government’s economic measures” … “based on the assumption that a second wave of COVID-19 will not occur on a large scale”.

But the Kyodo News’ latest report indicates that it may be starting to happen.

It’s just as well that the Bank of Japan’s (BOJ) has already accounted for this in its Outlook Report…

Figure 1: Gold

Figure 2: Gold & Fed QE

2000

2100

1900

US$/OUNCE

1700

1700

US$ TRILLION

Gold QE

7.0 6.0

1600

1500

5.0

1500

1300

4.0

1400

1100

3.0

900

2.0

1100

700

1.0

1000

500

0.0

1300 1200

Prepared by: Rainmaker Information Prepared by: FSIU Source: Sources: Factset

8.0 US$/OUNCE

1900

1800

12. Gold is at overbought levels. a) True b) False

“Until effective medicines and vaccines are developed, it is highly unclear how the COVID-19 pandemic will evolve and how long it will take for it to subside. In particular, if a second wave of COVID-19 occurs on a large scale, economic activity is likely to be constrained significantly again,” it reads.

“In addition, households’ and firms’ behavior at home and abroad is also uncertain, with people continuing to voluntarily make precautionary efforts until COVID-19 subsides.” …promising that: “…the Bank will closely monitor the impact of the novel coronavirus (COVID-19) and will not hesitate to take additional easing measures if necessary, and also it expects short- and long-term policy interest rates to remain at their present or lower levels.”

At its June meeting, the BOJ increased. the size of its corporate support package from ¥75 trillion to ¥110 trillion (US$1 trillion). Prior to that, it launched a new SME lending program. fs

2015

2016

2017

2018

2019

2020

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Gold 2000 Ben Ong

G

Go to our website to

Submit

All answers can be submitted to our website.

old prices have already been on the up and up last year, buoyed by major world central banks’ about face towards a more accommodative policy – led by the US Federal Reserve’s interest rate cuts (July, September and October 2019).

Gold prices surged from US$1,282.10 an ounce in January 2019 to a high of US$1,552.00/ ounce in September before ending the year at US$1,515.00 per ounce.

Despite the strong upward momentum, there was nary a whisper of gold catching up with its previous record high of US$1,900.30/ounce it set back in September 2011.

The coronavirus pandemic has changed all this. The price of gold has now soared to a new high of US$1,964.05/ounce and sparking speculations for a break above the US$2,000 mark.

This reminds me of speculations of seven years before.

At the start of the year 2013 — when gold

was fetching around US$1,600 an ounce, not a few expected the shiny metal to rally to around US$2,000 by year end — US$3,000 if they got lucky.

Perhaps, they’ve learned their lesson for so far I haven’t seen fearless prices forecasts of the kind.

Just as today, the rationales for the continued ascent in gold prices were rational.

Massive amounts of money printing are debasing currencies. When faith in the fiat currency is lost, hard commodities, especially gold, provide a safer haven.

So much so that even central banks are loading up (or plan to) on gold. After buying 650 metric tonnes of the metal last year, Forbes magazine cites a World Gold Council survey indicating that: “Overall, three quarters of all the central banks that responded to the survey thought that global bank gold holdings would increase.”

And why wouldn’t they?

With interest rates at near-zero, zero, or

even negative, the opportunity cost of holding gold is basically nil. The still uncertain outlook brought on by the pandemic could force interest rates lower and for longer.

Low interest rates offer little incentive to hold bonds. Sure, there is no interest payment attached to gold, but it also does not contain the prospect of a fall in capital value should interest rates head even lower.

The massive amount of monetary and fiscal stimulus implemented around the globe could lead to rising inflation – gold’s best friend.

All signs appear to point to further gains in gold prices.

Then again, the yellow metal’s sharp rally has put it at overbought levels.

Fundamentally, there is very limited scope for interest rates to decline further and that inflation fears are unjustified given the longerlasting negative impact of the pandemic on consumer and business sentiment. fs

Sector reviews

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

31

Property

Property

CPD Questions 13–15

Prepared by: Rainmaker Information Source: Cromwell Property Group

ince the onset of COVID-19, the listed propS erty sector has been amongst the most volatile core asset classes both domestically and globally.

The 35.1% fall of the S&P/ASX 300 Property Accumulation Index in March 2020 was swiftly followed by a 20.2% rally in the June quarter.

Outperformers over the quarter were broadly those that had previously underperformed due to exposure to COVID-19 restrictions.

Domestic retail landlords were particularly exposed to this theme and rebounded strongly from prior losses. In early June, Vicinity Centres (VCX) undertook an equity raise, adding resilience to its balance sheet. VCX moved 38.2% higher over the quarter. Scentre Group (SCG) provided an update, suggesting customer visitation for the weekend of June 27-28 was 86% of comparable dates in 2019.

Performance among office owners was very divergent as debate over the future of office utilisation continues amongst market participants. Both Growthpoint Properties Australia (GOZ) and Centuria Office REIT (COF) outperformed, as each provided updates to the market demonstrat-

Where next for A-REITs? Stuart Cartledge, managing director, Phoenix Portfolios

ing resilient earnings and rent collections. Alternatively, Dexus (DXS) Mirvac Group (MGR), Cromwell Property Group (CMW) and GPT Group (GPT) underperformed.

However, large capitalisation fund managers were strong performers in the June quarter.

Charter Hall Group was up 43.9% as it managed to grow assets under management and reaffirmed strong earnings guidance amid an uncertain economic backdrop. Goodman Group (GMG) also outperformed, up 24% as global demand for industrial property remains robust.

Smaller property fund managers had more mixed performance, with Elanor Investors Group (ENN) rising 40.3%, while others gained less than 10%.

Smaller residential property developers were underperformers for the quarter as residential property transactions slowed materially.

The extreme volatility seen of late can partly be explained by the uncertain impacts of the crisis, where a once very forecastable sector has suffered from the withdrawal of earnings guidance, expected cuts to contracted rents in sup-

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port of tenants and a renewed focus on balance sheets and the cost and availability of debt.

In Phoenix’s view, a lot of earnings deterioration is now priced into listed property stocks providing some downside protection from today’s levels.

With the GFC still fresh in the minds of many property trust managers, gearing levels are much lower today and the diversity of debt source and tenure positions the sector well to cater for all but the most extreme environments.

This is not another GFC. Phoenix does however remain cognisant of the structural changes occurring in the retail sector.

Recent events will likely accelerate these changes.

These issues are well understood – it is the trajectory towards a new “normal” that is difficult to project and explains why retail stocks have been the most volatile of all property sub-sectors.

As COVID-19 passes, and the sector becomes more forecastable again, the market will be able to refocus on a high yielding sector that is likely to continue to be supported by low bond yields for the foreseeable future. fs

All editorial is copyright and may not be reproduced without consent. Opinions expressed in the Financial Standard are not necessarily those of Financial Standard or Rainmaker Information. Financial Standard is a Rainmaker Information company. ABN 57 604 552 874.

14. The impacts of the COVID crisis on the listed property sector include which of the following? a) A renewed focus on balance sheets b) Cuts to contracted rents c) The withdrawal of earnings guidance d) All of the above 15. According to the commentary, we are experiencing another GFC. a) True b) False

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13. Which statement reflects the June quarter trends for A-REITs? a) Large capitalisation fund managers underperformed b) Smaller residential property developers were strong performers c) Large capitalisation fund managers were strong performers d) Smaller property fund managers were consistent performers

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Profile

www.financialstandard.com.au 17 August 2020 | Volume 18 Number 16

SOUL PURPOSE As the oldest of eight children, Crescent Wealth chief executive Talal Yassine was firmly on the path to leadership from a young age. And for him, that path is paved green. Eliza Bavin writes.

ow the chief executive of the world’s only N privately-owned Islamic-compliant superannuation fund, Crescent Wealth, Talal Yassine’s journey started when he was just a child.

Yassine’s parents fled Lebanon during the civil war when he was just four years old, coming to Australia in 1977 and settling in Sydney’s western suburbs.

“My parents were not educated people, they couldn’t read or write in Arabic let alone speak English,” Yassine says.

His father worked as a taxi driver, something Yassine would later also do, to sustain the family while his mother raised him and his siblings.

Yassine says that his parents were always present, and while they may not have been able to help with homework or buy their kids computers, there was a constant, underlying, unconditional love.

He attended Granville Boys high school, a place Yassine says provided him with an unmatched education in all things.

“It prepared me, and my siblings, for all manner of things in life. It wasn’t the best school from an educational perspective but we got through it and learnt a lot,” he says.

“I became school captain and leadership was something I really liked and aspired to.”

Yassine says that despite being a young and brash boy, he and his siblings avoided getting into trouble mostly due to the fear of upsetting their mother.

He jokes there is nothing in life, quite like upsetting an immigrant mother.

“We were much more afraid of her than we ever were of the police, and that is probably the same case today,” he says.

It would appear that the tactic worked, with Yassine and his siblings developing quite the sense of discipline – one that has seen them attain at least 30 degrees between them.

“Everybody has been to university, everybody has taken advantage of the great opportunity this country has provided,” he says.

“It has allowed us to climb all kinds of ladders; social economic and cultural so to speak.”

Though, Yassine says while he loves Australia, racism has been and continues to be somewhat of an issue.

“Australia has a very high level of low level racism; things that come up in everyday life that perhaps don’t influence you too much, but it also has a very low level of high level racism; structural racism in the way other countries have it,” he explains.

“From my point of view, care-to-compare to anywhere else in the world, we are a very lucky country and there are opportunities here that are, relatively, amazing and we should be proud of that.”

After graduating high school Yassine’s HSC results saw him secure a spot in a law degree at Sydney University “by the skin of his teeth”.

“That was where I really discovered myself, and thought ‘wow, there is really a whole world out there’,” he says.

After two years, he transferred to Macquarie University.

“I rose to leadership as a student leader at Macquarie as secretary of the Student Union, and I engaged in every element of university life,” Yassine says.

“I got an education there as well; not only did I graduate with a Bachelor of Arts and Bachelor of Laws, I completed an education in life and got to be around people I wouldn’t have been otherwise.”

To support himself, Yassine took to driving a cab, just like his dad who tells him that because Yassine only has four children instead of eight, he will always be half the man.

After graduating, Yassine started full-time at law firm Dunhill Madden Butler, which was quickly acquired by PricewaterhouseCoopers (PwC) soon after.

Working as a lawyer for 10 years was an achievement for Yassine, who says he was never a particularly good lawyer.

“I dabbled in all things from politics to sport, and I was hopeless at all of them. I wasn’t even that good of a lawyer I don’t think, but I learnt a lot,” he says.

“I was taught very well and that helped me move onto something I was good at, which was business and investments.”

Yassine began working as a senior investment banker at Babcock & Brown for around two years, and managed to leave just prior to the Global Financial Crisis.

“I left, not because I foresaw anything or I had some really intelligent view and a plan. It was just time to move on so I could do my own thing,” he explains.

Yassine set out to contribute back into the community and forge his own path forwards.

He saved much of his money; he stayed living in Sydney’s west near his parents when many of his co-workers lived in Mosman and Vaucluse.

And he started investing in and buying companies that had a “moral dimension”.

“We were looking for companies that did good; good corporate practice and made a profit, but a profit for purpose, and there were plenty of them,” he says.

One industry he was an early investor in was electric vehicles. Along with two others Yassine invested in a company called Better Place and together were able to raise $10 million in Australia and around $1 billion globally.

“We said at the time we were 10 years too early, but it seems like we might have been 20 years too early with the way electric vehicles are going now,” he jokes.

“But we had a fundamental belief that we need to rid the world of oil because it causes so many problems and wars.”

From there, Yassine invested in all kinds of environmentally friendly, green, socially conscious companies.

Eventually, he established

We are unashamedly Australian and unashamedly Muslim.The two are not mutually exclusive.

Talal Yassine

Crescent Wealth, Australia’s only Islamic-compliant super fund and investment manager.

“I saw an opportunity in the market for ethical, clean investments that were also Islamiccompliant,” he says.

“We don’t invest in livestock, tobacco, alcohol, banks or insurance companies. People would always say to me ‘no banks, no insurance companies, that’s a bit weird’ but then the Royal Commission came along and no one thought it was weird anymore.”

Yassine says he has received a lot of support from corporate Australia and regulators alike, encouraging them to go to market.

“We’ve had our fair share of criticism, but to a large degree there has been interest and warranted questions and we’ve received support in explaining what we do and why we’re doing it,” Yassine says.

“It’s been a wonderful experience that has brought me from my upbringing in some of Sydney’s more notorious areas to where I am today, and I am extremely proud of what we have accomplished.”

Yassine says most of Crescent Wealth’s employees are not Muslim, they simply believe in the values and purpose of the company.

“We are unashamedly Australian and unashamedly Muslim. The two are not mutually exclusive,” he says.

“What we want is to contribute to the social fabric of Australia, and for all Australians not just Muslim Australians.” fs

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