Financial Standard vol18 n22

www.financialstandard.com.au

9 November 2020 | Volume 18 Number 22

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La Trobe Financial

Pendal, ClearView, Australian Ethical

Managed Accounts Forum

Feature:

Profile:

Product showcase:

10

Opinion: Hamish Tadgell SG Hiscock

Executive appts:

14

FS Power50

Events:

32

Nicole Connolly Invest Unlisted

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This material is issued by First Sentier Investors (Australia) IM Ltd (ABN 89 114 194 311, AFSL 289017). It contains general information only and is not intended to provide you with financial product advice and does not take into account the objectives, financial situation or needs of any particular person. © First Sentier Investors (Australia) Services Pty Limited (ABN 73 624 305 595) *as at 30 September 2020

www.financialstandard.com.au

9 November 2020 | Volume 18 Number 22

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12

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La Trobe Financial

Pendal, ClearView, Australian Ethical

Managed Accounts Forum

Feature:

Profile:

Product showcase:

10

Opinion: Hamish Tadgell SG Hiscock

Super switching under scrutiny Elizabeth McArthur

serious accusation was levelled at sevA eral superannuation funds regarding the conduct of employees during a recent Standing Committee on Economics, but the person in the wrong may well be the committee chair himself.

Committee chair Tim Wilson suggested that some people working at super funds - perhaps privy to market sensitive information - moved their own retirement savings between investment options to benefit from ASX volatility and the revaluation of unlisted assets.

“Earlier this year there was a bottoming out of the ASX as a result of COVID-19, then there was a delayed period, in many cases, where super funds had unlisted assets for revaluation and that enabled people to move about money within funds based on knowledge or inside information to potentially profit,” Wilson said.

“This seems to me to be quasi-insider trading if it was to occur.”

Wilson asked a series of super funds to provide information about employees doing this.

Among them, Wilson said: “UniSuper have admitted that one member who is also an executive of the fund had one or more switch requests processed during the high and low periods of their fund to a total value of $445,368.”

But, a spokesperson for UniSuper says this was far from “quasi-insider trading”.

“As noted in our response to the Parliamentary Committee, UniSuper has policies dealing specifically with issues connected to personal transactions. There was no breach of UniSuper’s policies and no breach of the insider-trading provisions of the Corporations Act,” the spokesperson says.

“There was only one individual who was an executive and who switched options during the relevant period and that individual is not involved in the fund’s investment operations and would not have had access to non-public price sensitive information related to their switching.”

AustralianSuper was also mentioned, with Wilson saying that six trustees, one fund manager and 78 staff at the fund moved money during the period. A spokesperson for AustralianSuper also confirms none of these transactions were against the funds’ policies, nor were they outside the law.

And, as far as The Ethics Centre executive

director Simon Longstaff is concerned, it’s actually Wilson who may be crossing a line.

“There’s no such thing as a quasi-crime,” Longstaff says.

“Something either meets the definition of criminal conduct or it does not. I think anyone, including a member of parliament with parliamentary privilege, should be cautious about applying even the hint of illegality unless that’s what the facts support.”

QMV Legal partner Jonathan Steffanoni agrees, noting that funds use many measures to limit investment option switching activity related arbitrage.

Steffanoni says most funds now adopt a forward daily pricing cycle for each investment option. This limits the ability for members to game the process by switching before changes in asset values are reflected using historic pricing.

Other things funds do to ensure the insider trading line is never crossed include limiting the number of investment switches available to members and monitoring for abnormal switching.

“The enquiry however appears to be more concerned with the fact that the valuation of some assets don’t occur at the same frequency as unit pricing – and therefore that employees might have access to an asset valuation (such as a direct real estate asset) before it is reflected in pricing,” Steffanoni says.

While a case of an employee gaining unfair advantage would be clearly wrong, he cautions that having a high level of financial literacy and an understanding of economic and market conditions is not the same thing as having specific information about the valuation of a specific asset.

In fact, Longstaff says the average person would likely not begrudge such conduct if they had been afforded the same opportunity.

Still, while Wilson’s accusation of “quasi-insider trading” may be a stretch, Longstaff says there’s a reason the super industry comes under this kind of scrutiny.

“There’s a certain moral responsibility that falls upon all actors within superannuation because a portion of the money that would have otherwise been paid to wage earners is compulsorily put into super, and it’s put in even though the government – which requires this to be done – makes no promise that the money will be there when you need it,” he says.

“Super is a highly ethically charged industry.” fs

Executive appts:

14

FS Power50

Events:

32

Nicole Connolly Invest Unlisted

Worst investment ideas revealed Elizabeth McArthur

Simon Longstaff

executive director The Ethics Centre

The research team behind ARK Invest have released a new ‘bad ideas report’, revealing the industries they believe investors should avoid.

Top of the list of bad ideas was physical bank branches, as the ARK researchers think consumer banking will shift to digital and mobile and banks that have invested too much in physical locations could be set to lose out.

Digital-only banks are poised to take market share away from the big banks globally, especially because the cost of acquiring a customer is so much lower for a digital-only bank. ARK estimates some digital wallets invest only US $20 to acquire each new customer.

“In our view, the 77,000+ bank branches in the US represent an untenable commitment to acquire customers for roughly $1000 on average and monetise them,” the report said.

It’s also bad news for brick and mortar retail, according to ARK, which the report named as the second bad investment idea.

Continued on page 4

Climate threat outstrips COVID-19 Eliza Bavin

Climate change is set to have a greater impact on the economy than the COVID-19 lockdowns, according to a new report from Deloitte Access Economics.

The report, A new choice: Australia’s climate for growth, found if climate change goes unchecked, Australia’s economy will be 6% smaller and have 880,000 fewer jobs by 2070.

However, it also found that there would be a large financial gain if the country did act now to fight the effects of climate change.

“That’s a $3.4 trillion lost opportunity over the next half a century. But there’s a $680 billion dividend that’s ours for the taking if we do rise to this challenge, along with 250,000 more jobs,” it said.

The report found that over 30% of employed Australians, and over 30% of national income, is in industries exposed to economic disruption and risk from climate change.

Continued on page 4

2

News

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

Ares bids for AMP

Editorial

Eliza Bavin

A

Jamie Williamson

Editor

And the hits keep on coming.

I have to admit, despite all of the craziness that this year has thrown our way, I did not have ‘ASIC overpayment scandal’ on my 2020 bingo card.

But here we are; James Shipton has stood aside pending a review of his remuneration and deputy chair Daniel Crennan has resigned, having also been overpaid.

Even though it’s what it is, the word ‘overpaid’ doesn’t feel like it fits in this context.

When I think of being overpaid, I think back to when I was fresh out of high school, working as a (terrible) waitress and getting handed an envelope of cash at the end of each Sunday only to, maybe once or twice, open it and find an extra $20 or $50 note that had stuck to another.

Delighted, I’d wonder what good deed I was being rewarded for, what had I done to generate such good karma.

I certainly don’t think of tens of thousands of dollars or, in Crennan’s case, having my rent “accidentally” paid for me.

According to Financial Standard’s calculations, Shipton was nearly $79,500 over the maximum cap that is placed on total remuneration for an ASIC chair, set at $775,910.

And this is after having already agreed to pay back about $118,500 in expenses covered by the regulator in Shipton relocating to Australia to take up the role in 2018.

Had Shipton not said he’d pay it back, in all, his total remuneration would have come in $198,000 over the specified cap.

It’s difficult to comprehend, let alone imagine a world in which you’re “overpaid” almost $200,000 in a year and someone else has to alert you to the issue.

The average Aussie wishes they were taking home so much it cost them over $60,000 just to get a tax return done, particularly at a time like this.

While they’re not set by him, I would argue it is ultimately Shipton’s responsibility to ensure that his own remuneration is above board and adhering to the legislated caps. It’s also up to him to ensure Crennan’s, and every other ASIC executive’s pay is too.

How Shipton could survive this review is beyond me; the hypocrisy alone is shocking.

Then again, 2020 has been a wild ride and, arguably, weirder things have happened. If he doesn’t survive, I think the considerable pay packet will more than cushion the blow.

And no, I never did return any of the extra cash to my employer. But they never paid me any super either, so fair’s fair. fs CORRECTION: The previous edition of Financial Standard featured commentary from Praemium chief operating officer Mat Walker in the special feature.

Unfortunately, the wrong photo was used alongside Walker’s name. Financial Standard apologises for the confusion caused.

The quote

The brand damage has been extensive in recent years while it never re­covered properly after the GFC.

res Management made an offer to takeover 100% of AMP shares at an implied value of $1.85 per share, totaling around $6.35 billion.

On October 30, AMP announced to the ASX it had received an indicative, non-binding, conditional proposal from US-based Ares Management.

The offer is to acquire 100% of the shares in AMP by way of a scheme of arrangement, but did not reveal the proposed value.

“AMP notes discussions on the proposal are at a very preliminary stage and there is no certainty that a transaction will eventuate,” AMP said.

“AMP continues to progress its portfolio review announced in 2 September 2020. AMP has received significant interest in its assets and businesses and is assessing a range of options in a considered and holistic manner, including continuing to pursue its three-year transformation strategy, with a focus on maximising shareholder value.”

Deep Data Analytics chief executive Mathan Somasundaram told Financial Standard: “The bid looks to be lower than where the sum of the parts range is likely to fall. After you discount for the problems and brand damage, I think everyone involved may be happy to just move on.”

“It is not good for shareholders but AMP has been a bad investment for a decade and unlikely to improve anytime soon.”

Somasundaram said despite it not being an appealing offer for shareholders it would be good for management.

“They can all move on from this disaster.

Major shareholders probably will hold out for

something above $2. It is the start of a song and a dance to settle on a price,” he said.

Somasundaram said the Ares bid is “opportunistic” but AMP has little choice but to sell out.

“AMP has had a volatile path since listing nearly 20 years ago. The brand damage has been extensive in recent years while it never recovered properly after the GFC,” he said.

“Management has offered a lot of plans over the last decade but the execution has been accumulation of failure after failure.”

Deputy head of research at InvestSMART Gaurav Sodhi agreed the bid should come as a relief to shareholders, adding that Ares will likely look at disassembling the business.

“I would guess that Ares will do what the AMP board should have been doing - looking at breaking up AMP and collecting the bits,” he said.

“In my view, AMP has no role in the modern world where high-fee, low-performance products have been thoroughly disrupted.”

Sodhi said the selling of AMP should be viewed as a positive for the industry and consumers.

“It shows what happens when big brands milk their profits too gleefully without regard to the value they are providing,” he said.

“Make no mistake - this takeover isn’t a winning finish for AMP; it is a final act of failure.

Even when on its knees, someone else had to clean up the mess.

“Hopefully, the board acts rationally and accepts this bid; the alternative is a long, messy breakup organised by a board with a poor track record.” fs

ASIC chair steps aside, deputy resigns Jamie Williamson, Kanika Sood and Elizabeth McArthur

ASIC chair James Shipton has stepped aside pending the outcome of a review into his remuneration arrangements, while deputy chair Daniel Crennan has resigned.

Tabling the 2019/20 ASIC annual report on October 23 and addressing the Senate Estimates committee, Shipton flagged certain relocation expenses incurred by both him and Crennan.

Shipton said the Australian National Audit Office is of the belief that the total remuneration paid to both Shipton and Crennan exceeds the limits set within the relevant Remuneration Tribunal Determinations. An independent review will be undertaken, led by Vivienne Thom.

Shipton relocated from the US to lead the regulator, while Crennan moved from Melbourne to Sydney in 2018 to take up his role.

ASIC was first notified of the issue over 12 months ago, saying it was only raised with Shipton and Crennan recently.

However, on October 28, remaining ASIC deputy chair Karen Chester said Crennan had known about the issue for much longer.

Crennan, who resigned on October 26 requested his housing expenses of $750 a week be ceased and offered to repay $69,921 as a debt due to the Commonwealth, following legal advice, in mid-October.

For his part, Shipton said he will voluntarily reimburse ASIC for taxation-related expenses paid by the regulator following his relocation in 2018.

According to a letter sent to the Treasurer from the AuditorGeneral, prior to Shipton joining ASIC, the regulator approved an engagement letter from KPMG to provide taxation services to Shipton at a cost of $4050. Shipton was later informed by KPMG the fees would actually be between $60,000 and $70,000, and ASIC would cover $9500 of this.

“Email correspondence provided by ASIC indicates that on 11 October 2018 advice provided to the chair by ASIC was that the full amount would be paid by ASIC given it fitted within the overall relocation limits discussed with Treasury and the services fitted within the definition of tax briefings and returns,” the letter reads.

The services were documents in ASIC’s procurement workflow system and approved as three $25,000 procurements on 30 October 2018. The final invoices issued in August 2019 totalled $118,557, with KPMG saying this was because of the complexity of the tax matters. A further $78,266 was paid in fringe benefits tax.

Shipton was paid $855,364 in total remuneration, according to papers tabled in the Senate. The maximum cap on the total annual remuneration for the ASIC chair was set at $775,910.

This means Shipton’s pay may have overshot the cap by $79,454.

Not reimbursing the payments would have taken his total remuneration to about $973,921 for the year.

Crennan, if he hadn’t repaid the almost $70,000 in housing expenses, would have tallied a total remuneration of $681,549 for the year. fs

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www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

01: Eugene Ardino

Worst investment ideas revealed

chief executive Lifespan Financial Planning

Continued from page 1 The researchers said COVID-19 has accelerated the shift to e-commerce, and experiments companies like Amazon are currently conducting with autonomous delivery could make shopping online even cheaper and more convenient.

“In our view, companies with large retail real estate footprints will continue to suffer from a decline in foot traffic,” ARK said.

“We believe the brick and mortar retail apocalypse will continue to impact both equity and fixed income holders. ARK estimates that roughly $2 trillion in enterprise value is at risk in the public equity markets across the retail categories with heavy real estate footprints, as shown below.”

Next on the list of bad ideas was linear TV, which refers to real-time traditional programming.

This industry has been disrupted by streaming services like Netflix.

“As a result, viewers have begun to “cut the cord”, cancelling their linear TV services at an accelerating rate during the last few years. Without sports, the pace of cord cutting intensified during the pandemic,” ARK said.

Freight rail, perhaps surprisingly, also made ARK’s list of bad ideas. The researchers think that autonomous electric trucks will compete cost-effectively with freight rail and offer a more convenient service.

If this is true, in the US alone $400 billion of assets could be at risk.

ARK also believes that traditional transport – cars, buses and planes – could be history with robo-taxis taking over. fs

Calls to axe TPB for financial advisers Elizabeth McArthur

T The quote

Its responsibilities should be handed over to either ASIC or the disciplinary body, as it is unnecessary to have a separate regulator for one small area of financial advice.

Climate threat outstrips COVID-19 Continued from page 1 However, in contrast, delivering net zero by 2050 and consistent with keeping global warming to 1.5 degrees Celsius, could add $680 billion and grow the economy by 2.6% in 2070.

Deloitte Australia chief economist Chris Richardson said climate change is a bigger threat to the economy than COVID-19.

“COVID shows the cost of overlooking catastrophic risks. So it’s an urgent wake-up call for us to get ahead of that other big risk – climate change,” Richardson said.

“The best and most effective way to tackle climate change is through market mechanisms. Australians need policy and regulatory reform that modernises our economy and unleashes business investment.

“The benefits of acting are huge. But we are fast running out of opportunity.”

Principal report author, and Deloitte Access Economics lead partner, Pradeep Philip said the costs of climate change are still rising each year, as are the costs associated with reducing the risks it presents.

“Climate change is no longer a possibility. It is a reality. Doing nothing is now a policy choice, and it is costly,” Philip said.

“While there are a significant number of jobs and growth at risk – enough to drive future recessions – the good news is that the rest of our economy can help create the change we will need.”

Philip said that doing nothing is set to be a costly choice and choosing net zero will be an “economic necessity”. fs

here are calls to stop financial advisers having to register for the Tax Practitioners Board (TPB) after a recent reshuffle of the board has seen the regulator without an advice representative.

Writing for FS Advice, Lifespan Financial Planning chief executive Eugene Ardino 01 has said the TPB should be axed as a regulator for financial advisers all together.

Currently, financial advisers must pay an application fee of $560 to renew their TPB registration at least every three years.

“The Tax Practitioners Board should be removed as a regulator for financial advisers. Its responsibilities should be handed over to either ASIC or the disciplinary body, as it is unnecessary to have a separate regulator for one small area of financial advice,” Ardino said.

“Instead, some tax experts should be embedded within the main regulator. These are the core changes that need to be made to increase the accessibility of financial advice to more Australians.”

His views are in line with those of the Financial Planning Association of Australia (FPA).

FPA chief executive Dante De Gori recently said that the establishment of a new single disciplinary body for financial advisers, as recommended by the Royal Commission, could be yet another agency that advisers had to fund which duplicates regulation.

“The single disciplinary body should have primary responsibility for government oversight of the conduct of financial planners, setting mandatory professional standards, investigating potential breaches of mandatory standards and law, and applying discipline,” De Gori said.

“A number of these functions currently exist in other government agencies, including FASEA, ASIC and the TPB. Rather than duplicate them, the single government body should assume these functions.”

Tax financial adviser Julie Berry recently departed the TPB, leaving the regulator without a financial advice representative on its board.

Financial advisers must be registered with the TPB, but there are now accusations that it duplicates regulation already applied to the industry by ASIC and the associations.

As Berry departed the TPB, chair Ian Klug acknowledged her contribution.

“Ms Berry has provided great insight in her understanding of the wider financial adviser landscape during her time with the board,” he said.

“When tax (financial) advisers were first required to register, Ms Berry was actively involved in implementing a smooth transition into the TPB and as chair of the Board Conduct Committee she worked tirelessly to ensure the integrity of the tax profession.”

None of the new appointments are known to have worked in the financial advice industry. fs

Super funds bullish on hiring Karren Vergara

Recruitment activity in the superannuation industry has surged as many want to hire professionals skilled in the areas of data, ESG and risk, Kaizen Recruitment data reveals.

Less than 5% of superannuation fund executives told the specialist recruiter that hiring activity ceased in the three months to October.

Since June, recruitment activity has jumped by 47%, while for the majority (68%) of larger super funds with over 500 employees recruitment activity was business as usual.

According to Kaizen managing director Matt McGilton, there were no reductions in salaries during this period and some professionals can be “surprised by the demand for their skills”.

Some of the skills in the demand were in data (particularly investment data), project management, business analytics, risk and compliance, and investments (particularly asset class specialists).

There is also strong demand for ESG and responsible investment professionals but appears to be a shortage of appropriately skilled professionals in this area.

“There is positive sentiment for candidates in this sector with many candidates we have worked with during the last

six months receiving multiple job offers, and salary increases when they are prepared to move,” he added.

The latest survey also found medium-sized super funds with 50 to 500 employees and large funds are better resourced and are able to clearly defined multi-year growth strategies.

Smaller super funds with staff numbers of 50 and less only recruited to replace essential roles.

McGilton said: “Across the industry there have been very few redundancies, and most redundancies have come due to mergers, namely First State Super and VicSuper and Equip and Catholic Super, mostly these were senior executives.”

“Some projects had been delayed as a result of staff working from home and home schooling, their productivity was significantly reduced. Now with kids back at school, working parents’ productivity has been freed up and we have seen several large projects commencing or ramping back up.”

Gender diversity continues to be on the agenda for many super funds.

“Most funds we talked to are aiming to achieve 40/60 gender ratios in investment teams. Some are doing this better than others,” he said. fs

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News

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

GSFM enters active ETF space

01: Mat Walker

chief commercial officer Praemium

Kanika Sood

The Sydney multi-boutique is dipping its toes into active ETFs, with the first being a long/short fund from Munro Global Partners.

The Munro Global Growth Fund (Hedge Fund) started trading on the ASX on November 2 with the ticker MAET. The active ETF will invest in the unlisted $800 million Munro Global Growth Fund, which has returned 16.9% per year since its inception nearly four years ago.

The fund invests in 30-50 positions, with a gross exposure of 50-150%, making it a “variable beta” type long/short product.

Average long positions are 3% of the fund’s NAV while average short positions are 1.5% of NAV. GSFM chief executive Damien McIntyre said the multi-boutique has been eyeing the listed space for some time. MAET is its first such product. It doesn’t have any LICs or LITs. “The ASX is an important distribution channel through self-advised investors as well as those advisers who prefer to execute in either listed securities, ETFs etc. That includes the stockbroking channel as well as the advice channel,” McIntyre told Financial Standard.

“We would have gone in earlier save for ASIC’s review of the space. We wanted them to complete it comprehensively, and make sure the rules and pathway were clear.”

GSFM and Munro built the product in-house, as opposed to using an established ETF provider, such as BetaShares which created ETFs for Legg Mason (since merged into Franklin Templeton) and AMP Capital. fs

Hostplus invests in vegan meat Annabelle Dickson

The $48 billion industry fund’s annual report outlined the investments in medical technology, vegan food, robotics and solar, all of which are aligned with UN Sustainable Development Goals.

“Today, and into the future, we believe these assets can deliver investment growth as well as providing an important balance to listed assets, which can often be more volatile,” it said.

The fund has invested in Jack Cowin-backed v2food, the company behind Hungry Jack’s vegan Rebel Whopper burger and its creation of a vegan alternative to animal meat.

The company’s mission is to make “meat” without farming animals as growing plants to make meat takes carbon dioxide out of the air and back in the soil.

“In seeking and securing investment opportunities that generate returns while also working to improve the world we live in, we recognise that many of these investments also support one or more of the UN Sustainable Development Goals,” Hostplus said.

The fund has also invested in Australian medical technology company Vaxxas that has designed a needle-free vaccine in the form of a patch. It intends on reducing the cost of shipping temperature dependant vaccines.

The allocation to private equity has invested in Australian farm robotics company Agerris. fs

Advisers using more platforms he number of platforms financial advisers T use on behalf of clients has increased, leading to more time logging into different portals

The quote

Advisers are struggling to deal with non-custodial investments which are more difficult to administer and report on for their client port­folios.

and conducting administrative tasks.

Praemium chief commercial officer Mat Walker01 says that compared to 10 years ago, advisers used three different platforms on average, but this number decreased as technology and functionality improved, and the advent of managed accounts brought it down closer to two.

“But interestingly in the last year or so, the average has increased a little bit. I think the key reason for that is some firms haven’t embraced the efficiency benefits of managed accounts or haven’t found a platform that can house all of the clients’ assets,” he told Financial Standard.

The ASX-listed platform conducted a study with Investment Trends and found that on average, advisers are using platforms (including managed accounts) for about 78% of the assets on behalf of their clients. For the remaining 22% of assets, many participants said platforms were unsuitable.

According to the Australian Taxation Office, some $342 million of the $733 billion

SMSF industry is invested in assets that are challenging to hold on platforms, such as artwork, jewelry, antiques, memorabilia and motor vehicles.

“Advisers are struggling to deal with noncustodial investments which are more difficult to administer and report on for their client portfolios,” he said.

“To solve this problem for advisers, in the last couple of years, we developed an integrated managed accounts platform so advisers can access custodial separately managed accounts (SMAs) and individually managed accounts (IMAs) on the platform, and have integrated reporting of non-custodial investments as well such as property, collectibles and other investment assets.”

During FY20, Praemium’s non-custody asset offering, virtual managed accounts (VMAs), saw a 10% increase in billable portfolios.

Other enhancements on the platform included a multi-account reconciliation screen and what-if analysis to help financial advisers assess the impact of portfolio changes in terms of asset allocation, income and CGT. fs

WA Super provides merger update Jamie Williamson

WA Super has updated members on its planned merger with Aware Super, confirming its solutions will transfer on December 3.

Members of WA Super have been notified their membership with Aware Super will commence from December 4, with their accounts to transfer on the day prior.

The two super funds first announced their intention to merge at July end, having signed a memorandum of understanding and commenced due diligence about four months prior.

“Despite being small, WA Super is a strong, credible and well-managed superannuation fund. However, looking ahead, we recognise that over time we will not be able to provide the same benefits to members as the larger funds,” WA Super said.

“We are incredibly proud of WA Super’s achievements over the past 40 years and the outcomes we’ve delivered for our members.

“But we know this is the right decision to make for our members and are confident that being part of a larger fund should provide you with even better retirement outcomes in the future.”

Interruptions to services will commence from 5pm on November 18, before all WA Super accounts close on December 3. An Aware Super account will be opened for every transferring WA Super member on December 4, and they will be able to transact on that account from December 9.

The merged fund will manage more than $125 billion on behalf of more than one million members – the second largest super fund.

With the merger, WA Super members will benefit from reduced investment and administration fees, as well as more investment options to choose from.

For Retirement Solutions and Term Allocated Pension members, the final income stream payment from WA Super will come on or before November 15.

WA Super is encouraging all its members to ensure their contact details are up to date and also whether they are impacted by any planned service interruptions prior to the transfer.

WA Super and Aware Super first announced their intention to merge at the end of July, having been in talks since early March.

“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,” WA Super chief executive Fabian Ross said at the time.

“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,” Aware Super Deanne Stewart said. fs

Product showcase

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

7

01: Michael Watson

head of distribution APAC La Trobe Financial

Building resilience

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This belief has remained since La Trobe Financial’s founding in 1952, and has continued to flourish since leading US investment firm Blackstone’s acquisition of 80% of the company in December 2017.

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La Trobe Financial has also amassed more than $11 billion in assets under management. This is via more than 50,000 investors across Classic Notice Accounts, 90 Day Notice Accounts, 12 Month Term Accounts, its Peer to Peer offering, and High Yield Credit Accounts.

Each account type has a different duration profile, but each invests in secured Australia property credit.

“Each of our products maintains defined liquidity parameters to suit different investment horizons, and each offers different rate profiles to suit a range of investors,” La Trobe Financial’s head of distribution, APAC Michael Watson 01 says.

“Importantly, each of our portfolio products is highly diversified, with high quality, granular exposures across a range of sectors from the Australian secured property credit sector.”

He adds that the offering has always been a low volatility strategy, providing regular monthly income.

“None of our portfolio offerings – whether for institutional investors or in our Classic Notice, 90 Day, 12 Month or High Yield Credit Accounts has ever lost a cent of capital,” says Watson.

The La Trobe Australian Credit Fund now holds $5 billion in assets and invests in diversified portfolios of residential and commercial registered first mortgage loans with all security properties located in Australia.

Its 12 Month Term Account holds the highest ratings of any fund in the sector and is considered by Zenith Investment Partners to also be the most diversified.

“Our high-quality borrower portfolios are enhanced with our strong security position – a conservative maximum loan to value ratio of 75%, and a low weighted average of 63.43% as at 31 October 2020,” Watson explains.

Incredibly, no investor in La Trobe’s portfolio products has ever experienced a capital loss over the course of the strategy’s 19year history.

“The 12 Month Term Account has operated through a range of political and economic conditions, such as the GFC and most recently the volatility of COVID-19,” Watson says.

“The resilience of the assets and the strength of the strategy has been demonstrated throughout each of these events, again with no capital losses for investors and all monthly distributions being made on time and in full.”

This is an impressive anecdote to share with financial advisers considering La Trobe Financial for their clients – and it works.

There are currently 1500 financial advisers placing direct investments on behalf of clients from more than 400 licensees across Australia.

“Financial advisers are supported with national BDM coverage across each state and a dedicated Adviser Support desk, which sits separate to our administration team solely to serve our financial adviser partners with their specific requirements,” Watson explains.

La Trobe Financial also offers support in the form of CPD webinars and educational content, and the company regularly gets involved in licensee Professional Development days, conferences and other industry events.

But, in times such as these, it’s not just professional support that people are in need of – and La Trobe Financial understands that too.

In March, when the realities of the COVID-19 pandemic really started to set in, the

The quote

The resilience of the assets and the strength of the strategy has been demonstrated... with no capital losses for investors in pooled portfolios and all monthly distributions being made on time and in full.

non-bank financial institution began offering hardship assistance to financially affected small businesses.

It followed the announcement of a $1 million bushfire relief package to help people affected by the devastating bushfires Australia suffered through from late 2019 to early 2020.

While it has been a very difficult year for many, La Trobe Financial anticipates there will be smoother waters in the New Year.

So far, there have been three very distinct phases of the coronavirus and its economic effects, Watson says.

“The first is the hibernation phase, as populations and economies are placed into enforced shutdowns. We saw this in first waves across Australia and second waves in Victoria (now ending) and Europe,” he says.

“After hibernation, we enter the rebound phase as businesses reopen, people return to jobs and pent-up demand is released. Naturally, the pace of rebound will vary in each location depending on the various conditions at play.

“Finally, after economies rebound, we will enter the restructure phase as markets, communities and nations find new settings in the post-COVID world.”

The restructure phase, Watson says, will be driven by a range of factors: Alignment of policy from central banks and governments committed to doing “whatever it takes” will be key to kickstarting economies towards preCOVID levels.

“This restructure phase will be hard going economically. Nationally, 2021 will see communities and the economy begin the process of readjusting or ‘restructuring’ to new, COVID-normal settings,” he says.

“We will, of course, remain vigilant, monitoring those key factors impacting the coronavirus response as this process continues.”

For investors, all of this adds up to a familiar theme.

“We continue to live in a ‘lower for longer’ world,” Watson says.

“The hunt for low volatility yield is here for the foreseeable future.” fs

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8

News

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

ASX delays CHESS replacement again The Australian Stock Exchange has pushed back the CHESS replacement date by another year to April 2023.

The ASX announced it has increased the scope of the project as a result of COVID-19 following industry consultation.

Many stakeholders the ASX consulted have raised concerns about the lingering impact of the pandemic and their ability to cope with trading volumes. Many are requesting more testing.

Early March 2020 saw an “unprecedented bursting of daily trade volumes”, eclipsing previous records by approximately 3.5 million trades, compared to historical bursts of 0.5 million trades, the ASX said.

“This increase has reset industry and regulator expectations about the possibility of further step increases in daily trading records. The need for the replacement system to scale to much higher processing levels and sooner, is now a Day 1 requirement.”

This is the second time the ASX has delayed the switch to distributed ledger technology (DLT), which was originally slated to go live in April 2021 and then pushed back to April 2022.

Despite the setbacks, ASX chief executive Dominic Stevens said replacing CHESS is an important and innovative project, with significant long-term benefits for Australia’s financial market users.

“It is ASX’s responsibility to deliver it in a safe and timely manner, and to consider the feedback from all our stakeholders. We thank all our industry participants, who are working in collaboration with us to ensure the successful delivery of the new system, as well as the ongoing engagement of our regulatory agencies,” he said.

In the meantime, the ASX said it continues to invest and develop CHESS. fs

AMP extends life insurance APL Elizabeth McArthur

AMP has updated its approved product list (APL), allowing aligned financial advisers to recommend an enhanced suite of insurers.

The new APL includes AIA, BT, MetLife, OnePath/Zurich and TAL. BT and MetLife are the two new additions.

And, for the first time, the APL will be consistent across all AMP licensees; AMP Financial Planning, Hillross and Charter will now have the same APL. “Our advice research team undertook a rigorous industry review and tender process in selecting these insurers,” AMP director of adviser partnerships Brian George said.

“Clients and advisers will benefit from a competitive choice of policies and the enhanced service levels these insurers are offering, including claims resolution and support, technology support (including data feeds, shared portals), licenseecentric reporting, education and technical support, and future product development.”

Existing clients who have life policies with insurers not on the APL will not be impacted by the changes, AMP said. fs

01: Phil Kewin

chief executive Association of Financial Advisers

Association of Financial Advisers rejigs board Annabelle Dickson

T The quote

The AFA has... a strong policy and advocacy focus and a business plan that is well positioned to meet the current challenging COVID-19 economic con­ditions.

he Association of Financial Advisers (AFA) has made a number of appointments to its board and promoted its vice president to replace its longstanding national president.

Michael Nowak has been vice president for the past two terms and will replace outgoing president Marc Bineham who served on the board for 10 years.

Nowak was previously president during the Future of Financial Advice Reform period in 2013/14 and has been a member of the AFA board for over eight years.

He has been managing director of Nowak Financial Services for over 18 years and served as AFA Queensland director in 2010.

Commenting on the appointment, Nowak said he is honoured to be president again.

“The AFA has set a firm forward strategy, with a strong policy and advocacy focus and a

business plan that is well positioned to meet the current challenging COVID-19 economic conditions,” he said.

Board member and treasurer Sam Perera has taken on the role of vice president while Tasmanian state director Matthew Hawkins has stepped into the role of treasurer, leaving the state director role vacant.

Canberra-based adviser Katherine Hayes has been appointed as state director for NSW/ACT while veteran adviser Stephen Knight has been named as WA state director following James Ford stepping down.

AFA chief executive Philip Kewin 01 welcomed the new board and thanked Bineham for his contribution.

“Marc is a passionate advocate for financial advice, and has served on the board for 10 years, including two consecutive terms as president,” Kewin said. fs

Spaceship delivers for millennials Karren Vergara

Spaceship is the best-value superannuation for younger members, which, based on new research, is outperforming its competitors by a long shot.

Rainmaker’s newly-released June 2020 Benchmarking report found Spaceship outclassed its peers in terms of performance over a oneyear and three-year period, delivering 11.9% p.a. and 12.3% p.a. respectively. Future Super came in second, returning 3.3% p.a. and 5.6% p.a. respectively.

Over the longer term, QSuper came out on top with 6.5% p.a. on a five-year basis. For the same period, Aware Super delivered 5.4% p.a. while Media Super returned 5.2% p.a. for younger members.

Rainmaker examined single-strategy products against lifecycle products for members in their 20s.

Investment returns, which normally assume a $50,000 balance, were then adjusted to reflect a $5000 average account balance (insurance costs were excluded).

“The way super funds structure their fees mean young members pay disproportionately higher fees than older people. This leaves superannuation open to claims it’s a product designed only for old people,” the report read.

“In 2020, default MySuper products charged on average 0.15% p.a. for administration, 0.8% p.a. for investment management and $78 p.a. for member account-keeping.”

For its balanced fund, AustralianSuper for example, charges admin fees of $117 per year ($2.25 per week) and 0.04% based on the

account balance, as well 0.60% of investment fees deducted from the member’s total balance.

Spaceship’s flagship GrowthX option charges admin fees of $78 per year and 0.795% for every $50,000 invested, as well as investment fees of 0.195% from the member’s total balance.

An average older member pays about 1% p.a. in fees. Younger members on the other hand can pay as high as 8% p.a. (before the fee-cap cuts in).

Factoring in insurance, younger members can pay as much as 25% p.a., Rainmaker found.

Four of the best 10 funds for young people were lifecycle products. Three of the top 10 super funds were retail funds and the rest were not-for-profit funds.

Elsewhere in the report, Rainmaker’s MySuper index returned its first negative financial year return since the Global Financial Crisis of -0.90% at the end of FY20.

The index registered 5.1% p.a. (three years), 5.5% p.a. (five years) and 7.5% p.a. (10 years).

The result for Spaceship is just the next in a long line of successes for the company this year, with a $10 million capital raise and its Voyager business boosting the super product.

In August Spaceship received $10 million in investments from existing stakeholders, including the family office of Atlassian co-founder Mike Cannon-Brookes.

Grok Ventures was also involved.

Voyager ended FY20 with stellar returns on both options (its universe portfolio returned 37.39% in the year ending May 31) but also with great customer growth, which Spaceship hopes will transform into growth for its superannuation fund. fs

10

Opinion

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

01: Hamish Tadgell

portfolio manager SG Hiscock & Company

Navigating the economic twilight zone he current crisis has been the sharpest T downturn in economic activity in the post war era and sharpest bear market rally on record. This is in part explained by the highly unusual nature of the pandemic shock to the economic cycle and unparalleled speed and scale of the subsequent policy response.

The ultra-low interest rate and monetary setting environment coming into the crisis has been super-sized by a new wave of fiscal stimulus.

The combination of this new policy mix has reduced the downside risk, and helped to alleviate short-term economic distress. However, the sheer scale of policy response has been staggering and, in combination with the social measures to manage the spread of the virus, created significant distortions, making it a most unusual recession.

Companies benefitting from the stay-athome phenomena have prospered, as we’ve been forced to eat, work, school and play within the confines of our homes. This was strongly evident in the August reporting season where companies exposed to online and home delivery consumption trends like JB Hi-Fi and Kogan saw extraordinary growth in sales.

Income support, mandated loan deferrals, superannuation withdrawals and the inability to get out and about has also seen household cash flow rise so far this recession, while insolvencies and unemployment have been suppressed, which is highly unusual.

The disconnect between the economic shock, prevailing financial conditions and market reaction seems somewhat surreal, and more at times like an absurd episode of Rod Serling’s The Twilight Zone. The tug of war between stimulus and unemployment and the growing question of “when will reality bite and underlying unemployment and business insolvencies surface?”, remain the burning issues.

The emerging domestic fiscal cliff, which was seen as a potential catalyst for a pickup in unemployment during the September quarter, has largely been pushed out to the first quarter of calendar 2021, with the government extending its JobKeeper policy to the end of March 2021 and a relaxation of creditor provisions around insolvency and loan repayments extended to the end of this year.

The recent federal budget has provided a further fiscal injection aimed at underwriting the economy as JobKeeper rolls off, with a shift in focus from saving jobs to creating jobs. In the budget assumptions and commentary, the government also indicated a preparedness to provide even more aid beyond this if required.

Explicitly, there is no focus to return to surplus and stabilise debt until the unemployment

rate is “comfortably below 6%”, and tucked away in the detail, the ‘contingency reserve’ for future cost blowouts and future COVID-19 spending has quadrupled to $57 billion (from $15 billion).

‘The fiscal put’ and moral hazard of temporary stimulus After a decade of markets being supported by the extreme monetary policy intervention, there seems growing evidence that governments are willing to take over the baton from central banks and do whatever it takes to support the economic recovery in light of COVID-19.

The growing inequality between financial asset returns and real economy returns (in inflation and real wage growth) since the GFC, coupled with ultra-low interest rates and the unique and global nature of the pandemic, has made the politics of governments intervening more palatable.

The fact debt levels have spiked and money supply exploded so quickly, without any real debate, also speaks volumes to the willingness of central banks to help fund the debt increase, and continue to expand their balance sheets, now the more traditional interest rate tools have been exhausted.

As an investor, the lesson of the last decade has been not to fight the Fed. Quantitative easing was initially intended to be a temporary measure that would be unwound as economies recovered. However, the moral hazard of withdrawing support proved too much. This instilled a ’monetary put’, which the market embraced.

The risk now is there is a ‘fiscal put’, where governments will be prepared to step in and provide support whenever the economy splutters, and current temporary programs are extended or become entrenched in legislative change. The moral hazard for politicians may prove too much, and the words of John Maynard Keynes, that “there is nothing more permanent than a temporary government program” may again ring true.

Risk of rising inflation expectations and market rotation Global debt levels were already high coming into this crisis, but the additional debt load has seen debt to GDP in many countries approach unchartered territory. The result so far has been rampant asset price inflation, most evidenced by the rise in equity markets.

The spike in national debt levels and explosion in money supply also raises the question of rising inflation. Recessions are generally deflationary, hitting demand more than supply as unemployment rises and wage growth falls.

The quote

Investing is always about taking a view while under a cloud of uncertainty. It is about how one deals with it that matters.

In line with this, the initial evidence suggests the COVID-19 crisis has been deflationary, with core inflation in every major economy falling since late 2019. If unemployment rises, it will likely only add to this through lower productivity and wage growth.

However, this is no ordinary recession. The risk is the massive boost in fiscal support, plus the potential for a COVID-19 vaccine could see better growth and lower unemployment resulting in inflation pressures building.

From an investment perspective, whatever the path of inflation from here, it is not just the level of inflation that matters, but rather the outcome relative to expectations.

The risk is the combination of aggressive fiscal stimulus and stronger growth pushes inflation expectations higher. The added risk is after 30-years in a deflationary cycle and interest rates at their lower bounds, even a modest rise in inflation expectations could result in some significant shifts in relative sector performance.

In this respect, the news in August of the US Fed’s new Monetary Policy Framework, which resets its two per cent inflation target to an average level of inflation of two per cent over the course of the business cycle, and allows higher inflation, is an important shift that arguably tips the balance in favour of higher inflation expectations.

In general, low levels of inflation tend to be better for defensive areas of the market, such as healthcare, consumer staples and utilities, and long duration stocks (those with a higher longterm growth outlook and where valuations are more sensitive to shifts in inflation and interest rate expectations).

On the other hand, higher levels of inflation tend to be better for commodities, industrial sectors and selective cyclicals.

A rise in inflation expectations is likely to trigger a reasonable rotation in market leadership towards more cyclical and value-orientated companies, and away from defensive growth stocks.

The reopening of the economy, and any positive news around a vaccine is likely to accentuate this. It is the more cyclical and industrial facing companies that have been most impacted by the fallout from the coronavirus and stay-at-home and social distancing restrictions. They stand to benefit most as things open up.

How long we are going to have live with coronavirus and the shape of the recovery remains highly uncertain. Investing is always about taking a view while under a cloud of uncertainty. It is about how one deals with it that matters. At this time, more than ever, a disciplined and active investment approach is required. fs

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12

News

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

Executive appointments 01: Julie Matheson

IOOF fund operations lead exits IOOF’s head of fund operations has farewelled the group after more than two decades.

A spokesperson for IOOF has confirmed the departure of Steven Sorraghan, head of fund operations.

His leaving marks the end of a lengthy career with the group, as Sorraghan joined in 1995 as a fund accounting officer. He was appointed fund accounting manager in 1999, a role he held for 18 years, before being promoted to senior manager – fund operations.

Sorraghan has served as head of fund operations for just over three years, having taken on the lead role in October 2017.

Announcing his move in a LinkedIn post, Sorraghan described the past 25 years as “an incredible journey” both personally and professionally.

“I have worked on a lot of exciting and challengingprojects, with some very dedicated and talented people, all of whom I will miss,” he said.

While offering no details, Sorraghan said he has taken a new role with Milestone Group.

This is just the latest in a series of changes at IOOF in recent times.

First reported by Financial Standard on September 2, the group confirmed it would be restructuring and consolidating its licensees, creating two distinct businesses.

The new businesses will be led by Millennium3’s Helen Blackford and RI Advice’s Peter Ornsby, while Bridges’ Nathan Stanton and Shadforth’s Terry Dillon will remain in the current roles.

A spokesperson for IOOF could not confirm whether current Consultum chief executive Joe Botte, FSP head Geoff Kellett or Lonsdale chief executive Mark Stephen will remain with the licensees or IOOF. Pendal appoints head of institutional Pendal Group has hired an IFM Investors executive director as its new head of institutional for Australia which has $19.8 billion in assets.

Nicki Ashton will start in the role on November 9 and report to Pendal’s head of Australian wholesale distribution, Financial Standard’s sister publication Industry Moves first reported.

Ashton joins from IFM Investors, where she was the head of Australia, global relationships group for about a year.

“Nicki will be responsible for leading our distribution and client service effort in the Australian institutional market, joining our highly regarded and deeply experienced institutional team,” a Pendal spokesperson said.

Ashton has over two decades of experience, including roles at Deutsche, BNP Paribas and hedge fund sales at CitiGroup. She joined IFM from Russell Investments, where she headed strategic partnerships for about six years.

Pendal had $92.4 billion in total funds under management at September end.

About $19.8 billion of this is Aussie institutional FUM which Ashton will head, and about $7.3 billion is Aussie wholesale FUM which North Ash heads.

Australian Ethical executive departs Australian Ethical’s head of people and culture has left the business after seven years.

A spokesperson for Australian Ethical confirmed Fiona Horan returned to her native Ireland after over 25 years in Australia in October.

“In line with our focus on enhancing an innovation culture, the People & Culture department is now reporting through to the chief strategy & innovation officer Marion Enander,” the spokesperson said.

Australian Ethical chief executive John McMurdo told Financial Standard Horan was an appreciated member of the team.

“Fiona has made a massive contribution to Australian Ethical over the years and will be sorely missed. We wish her all the best,” he said.

Over her time in Australia Horan worked in a number of human resources roles at financial institutions including State Street, Commonwealth Bank and Pioneer Investments.

Bell Direct hires for new service Bell Direct has appointed two former CommSec executives to its new service catering to its increasing number of high value clients.

Ryan Phillips has joined Bell Direct Advantage from his role as executive manager broking and markets at CommSec. As a part of his 20 year tenure at CommSec, Philips was executive manager of the high value client desk, CommSec One and was executive manager, head of retail broking.

Lewis Hsu has over 15 years’ experience and was most recently a senior relationship manager, equities and derivative designated trading representative.

Bell Direct chief executive Arnie Selvarajah welcomed the appointments.

“We are pleased to welcome such a high calibre of talent which adds further bench strength to the premium grade service Bell Direct active investors want and need,” he said.

Both Phillip and Hsu will be based in Sydney and will be responsible for enhancing the trading experience for Bell Direct Advantage clients who are typically sophisticated, self-directed, active investors.

Bell Direct head of distribution and marketing Tim Sparks added: “Ryan and Lewis are both well positioned to service this group of experienced traders wanting the support of a dedicated trading desk. Their specialised knowledge and experience will be invaluable as we continue to respond to evolving client needs in the wake of rapidly changing market dynamics.”

FPA announces three board additions The Financial Planning Association of Australia (FPA) has announced the appointment of three new additions to its board.

Kearsten James, Julie Matheson 01 and Julian Place have been elected to the FPA board. James and Place will serve on the board for the first time while this will be Matheson’s second time after previously serving until 2016.

All three positions are for a term of three years and will commence at the Annual General Meeting on 25 November 2020.

FPA chair Marisa Broome said: “On behalf of the FPA board, I am looking forward to working with Kearsten, Julie and Julian. Each bring important skills and experience which will add to the depth of knowledge on the FPA board.”

James is currently the chair of the FPA’s Gold Coast chapter and has been a FPA award finalist and winner on multiple occasions.

Matheson is a long-standing member of the FPA an FPA Distinguished Service Award recipient and has previously served on the FPA board and many FPA committees.

Place has been the FPA Melbourne chapter chair for the last 10 years and is a member of the Financial Planning Education Council (FPEC). He is a past recipient of the FPA Distinguished Service Award and he is heavily involved with Future2.

The three appointments follow the expiry of terms for board members Marisa Broome, Delma Newton and Michelle Tate-Lovery in November 2020.

02: Gerard Kerr

ClearView adds to leadership The diversified financial services business has made a raft of changes to its leadership team, including a fresh life insurance lead and new general manager of wealth management.

ClearView has today announced a series of key management changes as part of its realignment strategy, namely the appointment of Gerard Kerr 02 as general manager - life insurance from February 2021, accountable for the end-toend life insurance business.

Kerr is currently Zurich’s head of group insurance, a role he shifted into just last month.

Kerr transitioned to Zurich as part of its acquisition of the ANZ OnePath business in the role of head of propositions and group life, OnePath.

At the time, a spokesperson for Zurich confirmed the insurer was restructuring and that Kerr would hold his current role on an interim basis before leaving the business in the New Year.

ClearView has also named a new general manager - wealth management in Deborah Lowe.

Lowe is currently general manager - people and operations.

Meanwhile, Nadine Gooderick will join the business next month as general manager transformation. She was most recently chief operating officer of Reinsurance Group of America’s Australian business. She has also previously held roles with MLC Life Insurance.

Gooderick has been consulting to ClearView since June of this year.

The appointments come as ClearView confirmed the volume and aggregate principal amount of its Subordinated Notes offering at $75 million. Of this, $44 million will be used to repay debt while $30 million will go towards capital requirements.

Powerwrap exec jumps to Insync The head of distribution at Powerwrap has moved into a new executive role at Insync Funds Management.

Following Powerwrap’s acquisition by Praemium, Wes Gillett has been appointed national distribution manager at Insync.

Gillett was head of distribution at Powerwrap for over two years.

Prior to Powerwrap, he was head of marketing and distribution at HUB24 for close to five years and head of strategy and business development at FuturePlus Financial Services.

He has also held senior roles at KPMG, Decimal and Asgard Wealth Solutions.

Insync executive and investment specialist Grant Pearson told Financial Standard the firm was pleased to welcome Gillett to the team.

“It’s enormously pleasing to have Wes Gillett join us at Insync. Sometimes timing is everything,” Pearson said.

Pearson praised Gillett’s many years of experience in the financial services industry and said it will be a asset to the business. fs

50 M O

S ER IS

FI

FLUENTIAL A IN DV ST

N

2020 AN

CIA L

DA STA N

RD

Congratulations to the 2020 FS Power50 The 50 most influential advisers in Australia

FSPOWER 50

Find out who made the list www.financialstandard.com.au/ fspower50

14

Feature | FS Power50

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

THROUGH THE MAZE The FS Power50 was created to recognise the most influential financial advisers and in a year marred by regulatory changes, increased education standards and a global pandemic, adaptability and creativity has never been more important.

Eliza Bavin writes.

FS Power50 | Feature

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

01: Kathy Vincent

02: Bronwyn Yates

03: Clark Morgan

general manager platforms, investments and operations BT

director, head of business solutions Russell Investments

head of strategy and development Crestone Wealth Management

S

elfies, hashtags and Photoshop.

In 2020, when we think of influencers, it’s these concepts that most readily spring to mind.

The word ‘influence’ has been commandeered by marketing teams and the younger generations and twisted in a way that it now more commonly represents something much more hollow, relatively devoid of any true meaning.

But this is not the case for the FS Power50.

This initiative is not about who has the most followers on their social networks or those who are making the most noise.

Now in its seventh year, for the FS Power50, the term “influence” means those who have been and continue to be instrumental in shaping the future of the financial advice industry, in one way or another.

This year, in particular, has thrown everyone for a loop; not in a million years did anyone predict a global pandemic to sweep across the world causing extreme market volatility, the closing of borders and social distancing measures bringing the global economy to a halt.

Businesses closed, some to never open their doors again. Stimulus packages the likes of which the world hadn’t seen since war time were rolled out in almost every country. Central banks hit the brakes on interest rates and went on bond-buying sprees.

At a time when people were in desperate need of financial help, financial advisers were not able to sit down and talk their clients through things; face to face, the way things used to be.

But, while 2020 has caused a lot of harm, it has also provided an opening for innovation and the financial advisers listed in this year’s Power 50 are examples of the positive push towards the financial advice industry of the future in the face of unpredictable headwinds.

Catalyst for change What was an industry heavily reliant on faceto-face relationships between adviser and client was forced very quickly had to pivot to a new way of working.

“It has been an extraordinary year for pretty much every industry, and particularly when you think about financial advisers and what they had to deal with in a very short timeframe was really quite significantly complex,” BT general manager for platforms, investments and operations Kathy Vincent 01 says.

“All of a sudden in addition to thinking about their own businesses and personal circumstances they had to respond to the sudden market volatility and dealing with clients in the context of also changing the whole way they do business.”

Vincent says the challenge was immense for everybody, as BT worked to support advisers as quickly as it could; it was also in the process of

moving the BT employees to work from home arrangements.

“Right across the industry, no matter who you’re working with, we were all in the same boat but our focus was on ensuring that we quickly pivoted and helped adviser move to the new way of working,” she says.

BT quickly launched a dedicated website to focus on getting the right information to advisers so they could help their clients in the immediate moment.

“It was a switch in focus for us to not just be focusing on the market analysis but also the multifaceted components of the government stimulus as well as JobKeeper, JobSeeker and the early release of super (ERS) scheme," Vincent says.

Russell Investments director, head of business solutions, Bronwyn Yates 02 believes the external forces of this year have created a change that was ready to occur.

“I think we saw a lot of advisers needing to adapt, things like virtual engagement with clients, and we have seen a number of businesses viewing that change as a positive,” Yates explains.

“For teams who have had to work remotely for the first time, it’s forced them to be more intentional with the way they communicate and their design processes, and for many businesses that leads to efficiencies.

“So, there have been many hurdles, but they have led to some silver linings in the long term.”

Crestone Wealth Management's head of strategy and development Clark Morgan03 believes these hurdles compressed five years of innovation into just a few months, as advisers made the shift to digital.

“The position we found ourselves in meant that we had to innovate and we had to adapt very quickly,” Morgan says.

“We were very fortunate as we have set up our business in the cloud, so we could work from any location, but then you have things like electronic signatures and ensuring proper cyber security comes into play.”

Morgan says despite the immediate challenges, things like Zoom have now become a major part of the running of the business.

“It’s great because it’s an enabler but the real value of it is that it has given us the opportunity to speak with clients about a much broader range of topics.

“Normally, when you’re speaking to someone on the phone it’s for one specific topic, but now we’ve held webinars with Julie Bishop talking about foreign policy and lifestyle commentators talking about the effects of lockdown.”

A poll of this year’s Power50 advisers reveals all 50 believe technology will be an integral part of their businesses going forward.

Though, the ways in which they believe this will happen differs.

Charlie Viola, partner at Pitcher Partners, believes that while technology is certainly going to become ever-more prevalent, it won’t be in the adoption of robo advice.

31%

The proportion of Power50 advisers that believe face-toface meetings are a thing of the past.

15

“I don’t believe the whole robo-advice piece, especially for high net wealth clients will ever be a major factor,” he says.

“However, technology for compliance is a major requirement for any growing business.

As our client bases become more sophisticated, better client portals, document storage and electronic signature availability will also be required and adopted by the best businesses.”

Troy Theobald04 , director of financial services at Robina Financial Solutions believes the use of artificial intelligence (AI) will need to be embraced by financial services as its prevalence increases in other industries.

“With the increase of AI in our world we need to embrace this as part of our client experience.

Our clients are being and will be influenced further by this and our advice needs to be strategic and outside this world and the influence it is providing,” Theobald says.

“We should use technology as an enabler to enhance the clients experience and better communicate with them.”

The new (digital) normal With almost every business in the world completely adopting Zoom, Skype, Microsoft Teams and the like, it begs the question of whether or not face-to-face advice will exist again as it did pre-pandemic.

On this point, opinions differ.

Of the Power50 advisers polled, only 23% believed face-to-face meetings would continue as part of general business practice.

A further 31% said they think face-to-face will be replaced by video calls and meetings and nearly half (45%) said the way forward will be a mixture of the two.

For an adviser like Caroline Bell05 from Summerhill Financial Services, online has been the only way for some time, having carried on her business in Australia after moving to Germany five years ago.

“I implemented online meetings with clients back in 2013. I started with Skype and have updated the online conferencing tools as the technology developed, and have been using Zoom for about three years now,” Bell explains.

“COVID-19 had no impact on our business as we have been having online meetings for a number of years and our clients were already used to it.”

Bell argues that video chatting is the same as face-to-face, and while sitting in the same room can be nice, people adapt quickly.

“Especially if we want to continue to reduce costs, online meetings can be conducted in a personal manner. I don’t think that the personal touch needs to be lost just because meetings are conducted online,” she says.

Almost everyone agrees technology use is a non-negotiable going forward and it certainly seems as if the Power50 advisers have many plans for how to integrate it into their businesses.

18

Feature | FS Power50

Rising Tide director Matt Hale 06 explains his business set an original goal of having 80% of meetings online by the end of 2022. This goal was accelerated and has now been met, with 100% of meetings being conducted online due to the lockdowns.

“Many of our clients, and team, are spread across Melbourne, Australia and the world, so technology is enormous for Rising Tide,” Hale says.

“The next frontier is enabling technology to help us improve compliance and client engagement outside of meetings and getting documents signed.”

Capital Partners managing director David Andrew agrees and says he expects technology to completely transform the next phase of financial advice.

“As a sector, financial planning is well behind the pack, perhaps because we are a small profession,” he says.

“The big shift will be in the use of technology, in particular AI, to prepare materials and advice for clients. Moving knowledge workers from meeting preparation to thinking and relationship work will elevate the profession and the client experience.”

For many, this focus on technology being used as the next big catalyst to keep up with ongoing regulatory pressures has been a constant theme.

“Along with many business costs, particularly for staff development and training, the pressure to reduce the costs of advice continues. All of this comes at a time when some companies with the deepest pockets are leaving the profession,” Retirement Advice Centre director David Reed says “It’s apparent that there is consumer appetite for advice when ‘money in motion’ events occur, such as starting a new job, marriage or having a child so offering advice for these Figure 1: Future of client meetings

Source: Financial Standard spot poll

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

04: Troy Theobald

05: Caroline Bell

06: Matt Hale

director of financial services Robina Financial Solutions

principal adviser Summerhill Financial Services

director Rising Tide

events with a combination of better fintech plus streamlined regulations to provide cost efficient advice would be beneficial for all stakeholders.”

And, the regulatory pressures are a lot; even when some relief was granted by regulators it was viewed as ‘too little too late’ by many advisers.

“It took them a while to get going, ASIC particularly took a little while to get going, but for the most part I think there were some messaging issues,” Ben Marshan07, head of policy, strategy and innovation at the Financial Planning Association of Australia (FPA) explains.

“Some of the relief was talked about as ‘temporary’ changes to the advice process. Particularly at a time when everybody is struggling to get up and running remotely, struggling to see clients, struggling under workloads, to say something is only a temporary measure I think turned some licensees off.”

Regulators bundling relief measures for advisers in together with other industries like accounting left a bit of a bad taste in some advisers mouths, he adds.

“Unfortunately, it turned a lot of people off some of the opportunities that were there,” Marshan says.

“It should have made a big difference. It should have been very welcome and very useful to our members.”

Another major issue is the number of regulators overseeing the financial services industry.

There is currently eight bodies charged with overseeing the financial advice industry to some extent.

“When one regulator comes out and says ‘you can do it this way’, it doesn’t necessarily mean the other seven are going to support that,” Marshan says.

“They’re all focused on their own little sandpit and financial planners on the whole are a

smaller part of the regulatory environment. So, it can create a level of uncertainty.”

However, one thing the regulators have been clear on is the adoption of technology to streamline advice; it’s not only allowed, but in some circumstances encouraged.

“The regulators have been pretty clear that you can use technology to provide advice and other services, so COVID-19 has been a positive from the fact that licensees and advisers have seen that it’s not that difficult to integrate technology into the advice process,” he says.

“I also think it has opened up people’s eyes to the fact that a lot of the old systems were creating these inefficiencies and there are much better solutions out there when you look at modern technology.”

Still, Marshan does warn advisers against rushing into anything without having done an appropriate level of research beforehand. Advisers need to have a good plan for the technology they want to include to better understand how it will play into the business, he says.

As a sector, financial planning is well behind the pack... Moving knowledge workers from meeting preparation to thinking and rela­tionship work will elevate the profession and the 2025 vision client experience. In the lead up to David Andrew

2020, everyone seemed excited; the feelings of a fresh start that only a nice rounded number can provide and plenty of ‘20/20 vision’ puns ready to go for every dad in the country.

But, with COVID-19 quickly proving a spanner in the works, it wasn’t to be. For many now, their vision has adjusted and they’re now looking to 2025.

There won’t be as many puns associated with it, but many think in five years the global economy will be back to its old self and the memories of 2020 will be but a (socially) distant memory.

So, what will advice look like in five years, and how can advisers new and old prepare for it?

Marshan believes flexibility is the future.

Borders will be knocked down and many other advisers will follow in the footsteps of Bell; servicing clients from all over Australia from anywhere in the world.

Supporting this, in late October the New Zealand government fast-tracked legislation that will allow qualified Australian financial advisers to do business across the ditch from 15 March 2021.

The Financial Markets Authority is proposing to recognise Australian advisers who demonstrate competency under its Code of Professional Conduct for Financial Advice Services and have worked as an adviser for at least 12 months.

Recent education reforms for Aussie advisers sees local requirements now match or, in some cases, exceed the requirements in New Zealand.

Not only could the passing of the legislation afford a change of lifestyle for advisers, it provides an opportunity to grow their business. In terms of new advisers, opportunities such as

FS Power50 | Feature

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

07: Ben Marshan

08: Stevie Jade Turner

09: Jonathan Philpot

head of policy strategy and innovation Financial Planning Association of Australia

senior adviser Tribeca Financial

wealth management partner HLB Mann Judd Sydney

this could prove instrumental in attracting and retaining talent in the industry as well.

Stevie Jade Turner08 , senior adviser at Tribeca Financial, says advisers entering the industry will be better off for all the change the industry is enduring.

“You are entering financial planning at the perfect time, you won’t know of a time of kickbacks and cowboys,” she says.

“I entered financial planning at a time when fee for service was fairly new but I didn’t really know any different, and I’ve never struggled to adapt to that model because it’s all I’ve ever known.”

Turner says she hopes that those entering now will not have to struggle to keep up with the changes or break bad habits because they won’t know any different.

“They’ll be starting at the exact right time to undergo a professional year and get real hands on learning before they give advice in their own right, something I was fortunate enough to experience myself and firmly believe this kind of on the job learning and mentoring helped make me the adviser I am today.”

HLB Mann Judd Sydney wealth management partner Jonathan Philpot09 believes the advice industry has a huge amount of room to grow into.

“This is a great time to be entering the industry. Greater educational and professional requirements is part of the journey for new advisers, however with the banks largely exiting the advice industry, the opportunity to fill this gap will be large over the next few years,” Philpot says.

“The advisory practice of the future is one that is able to provide all the personal financial needs, such as investing, superannuation, insurance, debt, estate planning and holistic advice in an independent manner will be the winners from the myriad of change the industry has gone through in recent times.”

Chief executive of TWD Australia Troy McMillan agrees, saying there has never been a better time to enter the industry.

“This is the best time for new advisers as they will be at the forefront of historical change that will ultimately make financial advice respected and valuable across the country,” McMillan says.

“Young advisers should feel confident that they have an amazing opportunity to embrace this change and be part of a new advice proposition, one that they will be proud to deliver to their future clients.”

He says new advisers should embrace all the new technology available that will only make their delivery to clients more effective.

Figure 2: How to reduce the cost of advice

To be surrounded on this list by others who are champions of loud positivity, is encouragement to continue.

Rebecca Pritchard

Source: Financial Standard spot poll

19

“My advice is that new advisers should focus on their advisory skills around asking the deeper questions about what clients truly value so that they can best align their approach to specific outcomes,” he says.

“These skills combined with technical ability whilst utilising the best and innovative technology will build an incredible proposition for them.”

For Fox and Hare co-founder Glen Hare, advice is not about “reinventing the wheel” but about pivoting the business to align with client and regulatory expectations.

“Don’t come into the industry doing what has always been done. Our industry has seen a significant shift over the course of the last five years and we want to make sure we are engaging our clients in the way they want to be engaged with,” he says.

“That means building a practice of working with our clients in a way that is not necessarily the way it has always been done but the way it should be done moving forward.”

Staying at the forefront when it comes to technology and always being ready to welcome change into the way they do business is top of mind for Power50 advisers.

Not only that, but there is an optimism that shines through; no matter what 2020 has thrown at them, they were ready to take on the challenge and what impact that mentality has on their work and clients.

Remember, being an influential adviser isn’t about how many LinkedIn connections one has, but the lives they have been able to change and will continue to change through good financial advice.

For some, being part of the Power50 serves as a reminder that the hard work and dedication is being recognised.

“It is a salute to the hard and consistent work of being an active participant in an industry that is going through the next (of many) evolution,” says senior financial adviser at Rising Tide Rebecca Pritchard.

“In my time in the industry there have been a lot of loud and negative voices around change, compliance and burdens. To be surrounded on this list by others who are champions of loud positivity, is encouragement to continue.” fs

Award-winning* technology that goes wherever you do.

With BT Panorama you can take your business with you. bt.com.au/panoramamobile * BT Panorama was named Winner of the Investment Trends 2018 & 2019 Platform Competitive Benchmarking and Analysis Report: Best Mobile Platform. © Westpac Banking Corporation.

20

News

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

Link rejects revised offer

01: Bernie Dean

chief executive Industry Super Australia

Karren Vergara

Link Group has rejected another offer made by the consortium which increased its bid to $5.40.

The consortium led by Pacific Equity Partners and Carlyle Group increased its offer price on October 26. After careful consideration, Link rejected the offer two days later.

“The board considers that the Revised Proposal does not represent compelling value for Link Group shareholders on a control basis and further work is required to determine the viability and attractiveness of the separation of the PEXA and Link (ex PEXA) assets envisaged under the revised proposal,” Link wrote in a statement.

Link said it continues to examine alternatives, which includes separating or demerging PEXA. The consortium has upped its bid from $5.20 per share to $5.40 (via a scheme of arrangement), which Link was not satisfied with.

Link said that it will provide the consortium with “due diligence information on a non-exclusive basis so that it can develop a proposal that may be capable of being recommended to shareholders.”

“The due diligence information will be provided subject to entry into an appropriate confidentiality agreement containing suitable protections for Link Group, including a standstill clause,” Link said.

“There can be no certainty that such a proposal will eventuate and shareholders do not need to take any action in relation to the revised proposal and the board will update shareholders as appropriate.”

On October 9, before the proposed takeover was announced to the market, Link shares traded at $3.99 per share. Shares have traded above $4.50 since the announcement. fs

Westpac settles two class actions Westpac has agreed to settle two separate class actions relating to anti-money laundering breaches and rate rigging initiated in the US for undisclosed amounts.

The bank settled the action filed by Rosen Law Firm relating to its failure to monitor financial crime and AUSTRAC scandal on October 29.

The law firm filed the class action in January this year at the US District Court for Oregon on behalf of investors who purchased Westpac shares between 11 November 2015 and 19 November 2019. The law firm named the bank, former chief executive Brian Hartzer and current chief executive Peter King as defendants.

Westpac described the settlement amount as “not material” and “resolves all claims against the defendants without any admission of liability.”

Separately, the bank settled its rate rigging class action, which was filed in August 2016 at the US District Court for the Southern District of New York.

The bank bill swap rate (BBSW) class action claimed that Westpac together with a number of banks like NAB and ANZ conspired to fix the prices of BBSW-based derivatives.

The settlement is subject to negotiation, execution of complete settlement papers and court approval, the bank said, adding that the terms of the settlement agreement are confidential. fs

Wages will not rise from SG cut: Industry super Eliza Bavin

I

The quote

When the super rate was last delayed in 2014 there was no wage rise, and millions of work­ers’ pay packets were cut.

ndustry Super Australia has hit out at arguments that wages will increase if the planned superannuation guarantee rise is delayed.

ISA said the evidence that ditching the SG rise will not help wages can be seen from the last time it was cut in 2014.

In 2014, the coalition dumped the scheduled increase to the SG in the hopes it would help boost wage growth.

ISA said it analysed 8370 enterprise bargaining agreements certified before and after the 2014 freeze and found that no boost to wages occurred, saying workers sacrificed their super for nothing.

Workers never received a promised wage increase when the super guarantee was last cut, a comprehensive analysis of federal workplace agreements revealed.

“When the super rate was last delayed in 2014 there was no wage rise, and millions of workers’ pay packets were cut,” ISA chief executive Bernie Dean01 said.

“Politicians couldn’t wave a magic wand to increase wages then, and they don’t have a wand now.”

The SG was scheduled to rise to 10% on 1 July 2015 and by 0.5% each year thereafter until it reached 12% by 2019.

ISA said the delay could cost the average full-time worker in their 30s about $45,000 at retirement.

ISA claimed many employment contracts were already locked in place when the SG freeze was announced, and most employers saw little need to renegotiate them to pass on the lost super as higher wages.

ISA said in agreements certified after the super rate was cut, wage growth fell from 3.33% before the cut to 3.27%, meaning that employers pocketed the lost super and workers’ total remuneration also went backwards.

The economic downturn caused by the COVID-19 pandemic makes wage rises less likely and given the circumstances workers should not also miss out on preparing for retirement.

“Working families have already taken the biggest hit in the fight against this virus, and they shouldn’t be asked to once again sacrifice their future,” Dean said.

“These small staged increases are affordable for employers and the key to giving people more choice about when they can stop work and control over their life in retirement. The community won’t take kindly to a broken promise that will make millions more Australians dependent on the pension and hike taxes for those still working.” fs

IOOF appoints executive, continues growth push IOOF has announced the creation of a new executive role as it reports funds under management, advice and administration grew by $529 million in Q1 2021.

IOOF chief executive Renato Mota has announced the appointment of a chief transformation officer, promoting general manager, ClientFirst Chris Weldon to the role.

The position is to assist with the integration of the MLC business after IOOF announced it would be acquiring it earlier this year.

“I have appointed a chief transformation officer, Chris Weldon who was most recently leading our transformation of service model for out front-line teams,” Mota said.

“Prior to this Chris worked in senior product roles at both IOOF and MLC. This made him the stand-out candidate for this role.”

Weldon has worked at IOOF for over nine years holding a number of senior positions. Prior to that he was manager, wrap investments at MLC Australia. He has also held positions at Aviva and Challenger.

“The executive team and I are committed to delivering on the value realisation opportunities these transformational acquisitions present, in a prudent and timely manner,” Mota said.

“This has meant ensuring we have the people, capabilities and accountabilities to support the transformation of the business.”

The announcement came as part of IOOF’s quarterly business update, which showed FUMA is now at $202.8 billion as at September 30.

The company said net inflows from its advice business of $110 million, excluding $450 million flow from IOOF aligned licensees to IOOF alliances.

Its portfolio and estate administration saw inflows of $226 million, down from $396 million in the prior corresponding period.

IOOF chief executive Renato Mota said the broad ranging impacts of COVID-19 continued to affect flows, especially with the early release of super (ERS) scheme.

“However, our scale, economic diversity and business strength contributed to the maintenance of a steady FUMA position,” Mota said.

“It has been pleasing to see the business continue to make progress on key transformation deliverable as well as progress in the approvals of and preparation for the acquisition of MLC.” fs

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News

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

21

Products 01: Michael Kelly

QInsure ramps up claims technology QInsure has moved from FINEOS’s Claims system to the Claims SaaS edition on the Dublin-based firm’s platform. The insurance claims management software provides straight-through processing and compliance checks for 50 organisations globally.

QInsure went live with FINEOS Claims in September 2019, which integrated and automated the workflow for claims across life, total and permanent disability (TPD), and income protection.

Some of the functionalities included calculating payments automatically. Another is the Financial Services Council’s Code of Practice functionality that helps case managers deliver on the insurance promise and meet regulatory obligations.

QInsure chief executive Phil Fraser said: “We will be working closely with FINEOS under this heads of agreement to ensure APRA (Australian Prudential Regulation Authority) is supportive of our approach.”

Fraser commented that the partnership continues to grow and that the super fund is “realising benefits from the FINEOS Claims system, including streamlined claims processes which enables our claim managers to focus on providing excellent outcomes to QSuper members”.

FINEOS chief executive Michael Kelly01 said the move to the FINEOS Platform is an exciting opportunity for the firm and its clients in the Australian and New Zealand region.

“Supporting this transition is a key strategic objective for FINEOS. Our North American clients have already adopted our SaaS based FINEOS Platform solutions over the past 3-4 years and we have been a ‘cloud only’ SaaS vendor in the US and Canada for over three years now,” Kelly said.

AMP Life policyholders take premium hit Customers in a legacy product from the life insurer were notified by letter or email that following a review of premiums, they would be paying more from December 18.

One customer’s premiums on an income protection policy increased from $300.02 a month to $520.58 a month – 73%.

Calculated without inflation, the increase was to $505.69 a month – 68%.

This customer had the policy for more than two decades and no noted health issues. He cancelled his policy as a result of the steep increase.

AMP Life began the letter notifying customers of the increase with: “You’ve made a great decision in choosing to protect your future should the unthinkable happen. AMP Life is the insurer of your plan and is now proudly owned and managed by Resolution Life group.”

AMP Life’s $3 billion sale to Resolution Life was completed in July. The lifetime income protection product impacted by these premium increases is a legacy offering.

However, AMP Life is reviewing premiums broadly which means more customers could be affected.

UniSuper revises fees for TTR UniSuper has increased fees between 0.01% and 0.04% for some options after calculating actual costs incurred in FY19 and estimates for FY20.

The updated 1 October 2020 PDS shows costs for TTR members have either higher transaction costs or management fees for the following options: Sustainable Balanced 0.39%; Sustainable High Growth 0.46%; Australian Equity Income 0.44%; Global Environmental Opportunities 0.49%; and Diversified Credit Income 0.39%.

UniSuper wrote to members: “You will see a difference in the description and calculation of fees and costs for the financial year ending 30 June 2019 and 30 June 2020.

“This is because our trustee has elected to opt into a revised fees and costs disclosure regime from 1 October 2020.”

Under the Flexi Pension Balanced option for example, TTR members pay 0.40% per year but do not pay admin fees.

A spokesperson for AMP told Financial Standard that the increase, while significant, was justified.

“To ensure our products are sustainable over the long-term AMP Life is implementing a number of measures, including reviewing premiums,” the spokesperson said.

“We are also investing in tools to improve return to work capacity for our customers and supporting customers through cover options and affordability reviews.”

The spokesperson said AMP Life is committed to aligning itself with APRA’s directive that the life insurance industry should offer more sustainable, financially resilient products.

APRA said in January that the viability of some insurance products were in severe doubt due to risks and challenges hampering profitability.

The regulator said these included the poor product design and aggressive selling methods highlighted during the Royal Commission.

“Our lifetime protection products, a small percentage of our income protection customers, are one of the product groups that require premium increases to remain sustainable,” the spokesperson for AMP said.

Elanor expands healthcare real estate fund Elanor Investors Group announced it has acquired the Woolloongabba Community Health Centre for $37 million.

Elanor said the acquisition was made through its Elanor Healthcare Real Estate Fund reflecting a 6% capitalisation rate.

This marks the third acquisition for the Healthcare Fund, and the property portfolio is now valued at over $161 million.

Elanor said the acquisition continues its aim of reaching $2 billion in funds under management (FUM).

The Woolloongabba Community Health Centre is located within a health precinct in Brisbane close to the Princess Alexandra Hospital.

Elanor said the acquisition enhances the fund’s portfolio with the property being fully leased to the Queensland government's Metro South Health Department.

A 27-chair dental surgery and mental health administration services occupy the 4966 square metres of net lettable area, providing a weighted average lease expiry of 5.4 years.

Elanor co-head of real estate David Burgess02 said: “The Elanor Healthcare Real Estate Fund delivers superior risk-adjusted returns by investing in commercial healthcare properties where tenants provide vital ‘out-of-public hospital’ services.”

“This strategy capitalises on the growing cost pressures on the healthcare system, and combined with advances in health technology, is driving the delivery of healthcare services to lowercost day surgeries and medical centres.”

Burgess added that the resilience of the healthcare real estate sector during COVID-19 saw the fund’s portfolio perform well during the period.

02: David Burgess

Rest increases admin fees Rest has notified members their admin fees will rise from November 28, from $1.30 per week plus 0.10% to $1.50 per week plus 0.12%.

The percentage component is currently capped at $800 per year – this will now be capped at $300 per year.

A member with a balance of $50,000 will pay $78 per annum plus $60 for a total of $138 per year in admin fees. The indirect cost ratio remains the same at 0.06% and investment fee remains at 0.55% of the balance.

Rest will also stop passing on the benefit of the tax deduction it receives on insurance premiums paid. Currently members are credited an adjustment of up to 15% of the premiums they pay, however this will cease from December 1.

Rest said the funds will instead be used to further “support the delivery of insurance products and services to members”.

The fund is also removing the family law split fee and contribution splitting fee, which are currently charged at $50 and $60 per split, respectively.

Having recently revised its investment fee estimates, Rest said estimated investment fees for its Core Strategy, Capital Stable, Balanced, Diversified, High Growth, Basic Cash and Property options have reduced.

The estimated fees for Bonds, Shares, Australian Shares and Overseas Shares have increased, while those for Balanced-indexed, Cash, Australian Shares – Indexed and Overseas Shares – Indexed remain the same.

Perpetual equities fund downgraded The wholesale vehicle of a $3.3 billion concentrated equities strategy managed by Perpetual’s Paul Skamvougeras was downgraded to bronze at Morningstar.

The Perpetual Wholesale Concentrated Growth Equity Fund invests in 20 to 45 Australian stocks, chosen with a value and balance sheet focus – similar to Perpetual’s flagship Australian shares fund.

However, this fund holds a more concentrated portfolio.

In a recent review, Morningstar said the strategy’s investible universe in Australia of quality and value stocks has narrowed over the time, low interests have pushed most high-quality stocks out of the fund’s reach, and the fees are on the expensive side.

“Portfolio manager Paul Skamvougeras has tilted the portfolio towards companies that have attractive underlying asset or book value but have often been beset with operational or management issues,” Morningstar wrote in the review.

“A good example of this is Crown Resorts, the second-largest holding as at September 2020. “ The ratings house noted success in such investments depends on stock rerating on business or management reform, which is not a guarantee despite Skamvougeras’s more activist approach in recent years. fs

22

Roundtable Events | Managed Accounts Forum

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

Financial Standard Managed Accounts Best Practice Forum

COVID-19 unexpectedly dropped many challenges on the financial advice industry, but advisers using managed accounts were not caught off guard.

The COVID-19 pandemic lingers, geopolitical tensions simmer, equity valuations soar and interest rates continue to plunge below sea levels.

With so many forces disrupting the industry at play, one cannot blame financial advisers for just wanting to get on with the job – that is to provide advice.

In observing what makes high-performing practices function in this environment, Macquarie Investment Management Australia associate director Eylem Kamerakkas01 said the purpose of financial advisers has changed.

Advisers are helping clients shift from a “fear state to growth state” and giving them the opportunity to become a “decision shaper not a decision maker.” In this day and age, Kamerakkas noted that being an adviser is no longer about telling clients what to do and expecting them to do it.

More and more, advisers are taking on a behavioral coaching mentality, she said, leaving clients calmer and motivated, which leads to having more faith and trust in them.

This is what many of the presenters observed as the pandemic rattled global economies and equity markets: advised clients using managed accounts were able to navigate through the uncertainty better.

Kamerakkas said that advisers who use managed accounts typically have a strong, differentiated proposition and make better decisions and execute successfully. They also understand the benefits of scale, have a plan for sustainable growth and encourage a culture of ownership.

Firms that provide this premium service are able to charge accordingly and clients are more willing to pay for quality as well as for peace of mind and confidence for having a trusted adviser in their corner, she added.

MLC Asset Management’s senior economist Bob Cunneen 02 and portfolio manager John

Woods03 recapped the impact COVID-19 is having on the global economy.

Cunneen shared some encouraging signals and measures over recent months that suggest a potential recovery is on the horizon, but warned that the virus is still with us and poses as a real threat. Unprecedented levels of uncertainty therefore are affecting the way money managers think about asset allocation.

One interesting observation Cunneen and Woods have made is that the majority of companies are not providing financial guidance – which leaves many fund managers and analysts without an anchor.

Compared to the Global Financial Crisis Woods said, companies were able to articulate a path and strategy. This is not so much the case with this current crisis.

Looking at the disconnect between the bleak economic data and the financial markets raging upwards, equities in China are back to new-time highs while the US markets are almost at their record-breaking levels. Australian and European indices have bounced back, but have not yet reverted to their early 2020 highs, Woods said.

So what is driving the difference? The major difference this time around is the technology companies.

“The S&P500 is dominated heavily by technology companies. It’s been this forced transformation to adopt to technology so quickly [which is driving the differences],” he explained.

During this pandemic, much of the workforce is working from home and forcing many employers to adapt to technology and a new way of doing business quickly. And tech companies have taken advantage of that, Woods said.

Netwealth data shows trade-volume activity in managed accounts structures between March and April reached fever pitch.

In mid-March, trading transactions went as high as 42,600 – a staggering increase compared to

The more you communicate, the more ready they will be for change, the more you will increase their trust.

Martin Morris

historical transactions from January and February for instance, which registered between 1800 and 2000 per day.

Netwealth head of managed investment products James Mantella04 said to be able to manage those trades without a managed accounts structure would have been difficult.

Outside of managed accounts, also keep in mind the time it would have taken advisers to provide advice to clients to adjust investments in portfolios.

It would be almost impossible, Mantella said, to manage clients’ portfolios and minimise downside risks as well as position them for upside benefits.

Highlighting further aberrations in the month of March, Mantella said: “In January and February, we generally saw around 150 model manager changes throughout an entire month.”

“During the period of March, that increased threefold to almost 450. And what it showed is that managers were much more able to make adjustments to portfolios to protect from the downside where possible, but also positon them for upside benefit and upside value.”

Rainmaker executive director of research and compliance Alex Dunnin 05 gave a well-rounded summary of the current state of the managed accounts market.

Dunnin explored the latest trends, insights and concerns within the managed accounts space.

He walked through the different definitions of managed accounts; the speed at which the market is growing and how the biggest players differentiate themselves.

With $70 billion in assets under management and growing, the managed accounts sector has shifted from passing trend to industry norm, essentially going “gangbusters,” said Dunnin.

“Managed accounts are becoming multi-layered, rich and evolving.”

So what exactly are managed accounts?

Managed Accounts Forum | Events

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

23

01: Eylem Kamerakkas

02: Bob Cunneen

03: John Woods

04: James Mantella

05: Alex Dunnin

07: Peter McVeigh

08: Blair Hannon

09: Brett Mennie

10: Wade Matterson

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They give access to professionally managed portfolios; are investment solutions for advisers wanting greater control; provide transparency and efficiencies, he said.

But there is no clean-cut answer. “Not even the brightest and the most innovative in the industry can give a straightforward answer.”

Dunnin warned not to get too caught up in the specifics of the definitions, but to focus on the common threads – technology, flexibility, service and keeping the client at the centre.

Praemium head of distribution Martin Morris 06 did not sugar coat how challenging it is to switch to managed accounts, noting that it’s not as simple as switching from one investment manager to another, or from managed funds to managed accounts.

Morris said transitioning to managed accounts can be difficult and at times a “confronting experience”. Changing the advice model often needs switching technology partners and therefore the client-engagement experience changes. But in doing it right the benefits can be “transformational” to the practice, financial adviser and client, he said.

The success also rests on how advisers approach the change-management process. “It is going to determine the extent practice owners are able to future-proof their business, increase profit and eventually enhance their business valuation,” Morris said.

A Praemium survey showed practices that have 75% or more of clients utilising managed accounts experience 85% more profit than those that do not recommend managed accounts.

Clients are a key stakeholder in the transition and advisers must manage their expectations on the new service model – which is critical, he added.

Advisers should not get caught in the trap of “wishful thinking and very little planning”, he said, rather they must have a clearly defined business model together with the requisite operational systems roadmap.

“Let clients know you are doing it on their behalf. Educate your clients early in the process, utilise surveys, conduct webinars with investment managers and client information sessions, and speak directly to them. The more you communicate, the more ready they will be for change, the more you will increase their trust.”

Elston Private Wealth has been using managed accounts since inception given that its founders and principals had a deep background in investing in direct assets.

“In a volatile market like COVID-19 a lot of our external advisers that we talk to are drowning in a tsunami of paperwork coming though, trying to manage client portfolios and keeping them on track, in particular strategic asset allocation,” said director Peter McVeigh 07.

With a managed accounts solution, rebalancing of portfolios back to a strategic asset allocation happens automatically, he added, as one benefit is the lack of paperwork involved.

Advisers are not portfolio managers on a parttime basis, nor are they portfolio administrators part time, he said, underscoring the point that managed accounts release advisers to do what they do best – which is provide advice.

Blair Hannon 08, vice president of brokers and online brokers, and iShares specialist at BlackRock said the uptake of model portfolios across the spectrum of clients, whether it’s ultra-high-net worths down to the smaller retail clients with $10,000 or $20,000, has been widely reported. What exactly do advisers look for in model portfolios? Among a list of things, he said advisers want a simple solution that does not add complexity. On top of this, adviser training, technology support and analytics are excellent resources to have.

Hannon said many advisers want to be able to monitor managed accounts by way of “keeping a hand on the wheel” and be able to regularly measure success and rebalance with discipline.

42,626

Number of trades in Netwealth managed accounts on March 19.

06: Martin Morris

They also want superior investment performance and at the same time “active for the price of passive” strategies.

Not all great portfolio managers are necessarily great model managers, he warned, adding that in managed accounts there is a need for strong pedigree in asset allocation, portfolio construction, ETF and fund due diligence expertise.

HUB24 head of managed portfolios Brett Mennie 09 and Milliman practice leader Wade Matterson10 discussed the differences between managed funds and managed portfolios, along with the exponential benefits technology has brought to the fore.

The duo used recent research the firms jointly conducted as a point of reference to explain the potential benefits provided by managed portfolios compared to managed funds. The paper also featured case studies on optimising tax and progressive portfolio implementation.

Mennie said: “Managed funds have dominated the wealth management industry for quite some time. However, more recently model portfolios have proven to be very popular with advisers and offer significant flexibility, efficiency and value at a time of considerable change that we are going through in the industry.”

Matterson said advisers are trying to figure out how to run their businesses more efficiently and at the same time bring more value to the table. In this low-return environment, he said clients are also demanding more from their investments.

How technology has been able to fill this gap has made all the difference.

The role tech is playing is equivalent to the way the street directory was used to navigate the streets, Matterson explained. But since the introduction of Google Maps, users are able to use maps in real time and have a much better experience.

“Financial planning is helping clients get from A to B from a financial perspective,” he said.

“It makes sense that platforms are now stepping into that bridge to make that journey much more efficient and enjoyable.” fs

PROUDLY SPONSORED BY

Gold partner:

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24

International

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

AIG restructures names new chief American International Group (AIG) has announced big changes in welcoming a new global chief and flagging its intention to spin off its life and retirement business.

Following a review of the business, senior management and the board have decided to separate the unit in order to operate a “simplified corporate structure” that will “unlock significant value for shareholders and other stakeholders”, the company wrote to investors.

“Although no decisions have been made as to how to achieve a full separation, the board’s intent is to accomplish it in a way that maximises shareholder value and establishes two independent, market leading companies.”

The firm announced that chief executive Brian Perreault will be replaced by global chief operating officer Peter Zaffino from 1 March 2021.

Zaffino commented: “I am honored to succeed Brian as chief executive officer of AIG and want to thank him and the AIG Board of Directors for this opportunity. I look forward to leading AIG’s next phase on our journey to becoming a top performing company.”

In separating the life insurance unit, Perreault said the group has taken significant action to de-risk AIG and position the company for profitable growth over the last three year, including fortifying general insurance, diversifying life and retirement, and strengthening capital and liquidity positions.

“This foundational work has positioned AIG to pursue a separation of life and retirement enabling both companies to prosper as stand-alone entities,” he said AIG’s general Insurance business since late 2017 has been successfully executing foundational work to reposition its portfolio and reduce volatility through disciplined underwriting and expense control within a clearly defined risk appetite and comprehensive reinsurance strategy, he added. fs

Morningstar adds to leadership Morningstar has created a new chief ratings officer position and combined the leadership roles of two research units.

From 1 January 2021, two long-serving employees will take on new titles as the Chicagobased firm restructures its investment coverage and “raises the bar” on research integrity.

Jeffrey Ptak assumes the new chief ratings officer role, responsible for approving new investment ratings methodologies for managedinvestment strategies and equities.

With more than 17 years at Morningstar, Ptak has served in a number of senior roles. He joined as an equity analyst and moved on to become a director of exchange-traded fund analysis, investment manager, and president and investments chief of Morningstar Investment Services.

Ptak’s most recent role was global director of manager research, overseeing the global manager-research team and ratings-setting on funds, ETFs, and other managed investments.

Lee Davidson has been promoted to lead global manager of research and quantitative research, expanding on his existing remit. fs

01: Will Morgan

head of renewables Alpha Real Capital

UK pension funds back renewable energy Jamie Williamson

C

The quote

I want to see our British pension funds invest­ing in new technologies such as wind, solar, and hydrogen.

lose to 70% of UK pension fund investors expect allocations to renewable energy to increase over the next five years.

That’s according to a study by Alpha Real Capital, which found just 10% of investors believe investments in renewable energy sources and technologies will fall.

In the UK, 74% of those surveyed are already investing in the sector, but only 30% describe it as mature. About 52% say it’s developing and 18% say it’s still in its early stages.

The top two areas for investment over the next five years are solar and onshore wind.

In terms of the attributes investors look for, the most important among respondents was the ability to invest in strategic infrastructure.

This was followed by attractive risk adjusted returns, asset diversification, and the ability to deliver stable income returns.

“Our research supports the view that professional pension fund investors see the UK renewables sector as offering attractive investment opportunities, and plan to increase their exposure here,” Alpha Real Capital head of renewables Will Morgan 01 said.

“We are seeing growing interest from a range of pension funds in our renewable energy investments.”

Alpha Real Capital head of client solutions Boris Mikhailov said: “With more pension schemes looking to become carbon-neutral, investment in renewable energy infrastructure has significant ESG benefits and can help schemes on their journey to becoming carbon-neutral.”

The findings come shortly after the UK’s pensions minister Guy Opperman called for pension schemes to increase investment in renewable energy sources to help the UK achieve a net zero economy.

Writing for the Chartered Banker Institute and the Social Market Foundation, Opperman said that if UK pension funds were to unleash their productive powers by financing green tech and energy, they would be at the forefront of sustainable opportunities.

While he doesn’t believe forcing divestment of high-carbon assets is the way forward, he said it is vital the UK become a leader in the promotion of sustainable and ethical investments.

“So we can harness the financial muscle of our massive pension portfolios going forward, I want to see our British pension funds investing in new technologies such as wind, solar, and hydrogen,” Opperman wrote.

“These innovative technologies can turbo charge the way we travel, help us achieve net zero, and provide the long-term return that savers need.” fs

New Zealand looks to recognise qualified Aussie advisers Karren Vergara

Australian financial advisers can potentially work in New Zealand without meeting the country’s qualifications as early as 15 March 2021.

New Zealand’s financial services watchdog the Financial Markets Authority (FMA) is proposing to recognise Australian advisers who demonstrate competence, knowledge and skills according to its Code of Professional Conduct for Financial Advice Services.

Some Australian qualifications are equivalent to, or exceed, the standards of competence, knowledge and skill that will apply in New Zealand under the code, the FMA wrote in its consultation paper.

“There is demand from time to time from individual Australian financial advisers to work in New Zealand,” the FMA said.

“Requiring individual Australian financial

advisers with these qualifications to retrain in New Zealand would be expensive and may impose unnecessary compliance costs.”

In addition to holding the Australian qualifications, the FMA wants advisers to have at least 12 months’ experience working in Australia.

Since Australia introduced financial advice reforms in March 2017 and new qualifications for personal advice on complex products, many areas have shown to be equivalent to New Zealand’s Level 7 diploma or higher.

The FMA also looks highly upon qualified Australian advisers’ relevant bachelor or higher degree, exams undertaken, a year of supervised work and training (for new advisers), continuing professional development and compliance with a code of ethics.

The FMA is holding consultations until November 20. fs

Between the lines

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

Ninety One wins equity mandate

25

01: Andrew Walsh

chief executive Iress

Karren Vergara

State Super has allocated the mandate to Ninety One’s 4Factor All China Equity strategy. Ninety One manages $205 billion with $92 billion in listed equity investments.

It aims to build a high-conviction portfolio of 30-50 Chinese companies that exhibit strong quality, earnings, value and technical characteristics.

State Super has some 30% of its aggregate assets allocated to international equities, while 18% is dedicated to Australian equities.

“In the past, many Australian institutional investors have resisted a discrete allocation to Chinese equities, given China’s close trading links to Australia and the potential double up in exposure through their Australian Equities and Emerging Markets allocations,” said Ninety One head of the institutional business for in Asia Pacific and Middle East Justin Cowper.

State Super has led the way in evolving from this thinking and seeing the potential in the China A shares market, which allows investors access to the true nature of the Chinese market, he said.

“We believe Ninety One’s 4Factor process is well suited for generating alpha in one of the world’s most liquid and inefficient equity markets.

We believe the strategy’s focus on exploiting behavioural biases and disciplined fundamental research are important advantages for this market,” State Super senior investment manager Andrew Huang said. fs

Alex Waislitz fails to block OneVue acquisition Kanika Sood

The quote

We are pleased with the outcome of the OneVue Scheme meeting today and look forward to working with OneVue management to complete the transaction over the coming months.

O

neVue shareholders approved Iress’ takeover offer on October 21. Alex Waislitz will still walk away with $22 million, while Connie McKeage’s family investment vehicle will see a $15 million payday.

The poll was to approve Iress’s revised September 28 offer to acquire OneVue at 43 cents per share – endorsed by the board but considered lowball by its biggest shareholder Waislitz’s Thorney group of companies.

It saw a turnout of 85.34% of the total votes.

About 75% of these were in favour of the acquisition while 24.83% were against it. Four shareholders, representing a small number of votes abstained.

This means at around November 6, after court approval of the scheme, Iress will have bought OneVue for about $115 million in cash.

“We are pleased with the outcome of the One-

Rainmaker Mandate Top 20

Vue Scheme meeting today and look forward to working with OneVue management to complete the transaction over the coming months. We would like to take this opportunity to thank OneVue shareholders, directors and management for their commitment to pursuing this outcome,” Iress chief executive Andrew Walsh01 said.

“This is a strong opportunity to combine OneVue’s strength and position in administration of managed funds, superannuation and investment, with Iress’ strength in software and data, which provides the combined entity with the opportunity to drive innovation through technology.”

It also means Waislitz’s campaign – which included a strongly-worded letter questioning independent expert’s valuation that OVH board used – failed.

As the biggest shareholder with over 19% of total OVH shares, Thorney companies will still make $22 million. fs

Note: Select Australian equities investment mandate appointments

Appointed by

Asset consultant

Investment manager

Mandate type

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Perennial Value Management Limited

Australian Equities

10

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Longreach Alternatives Ltd

Australian Equities

20

AustralianSuper

Frontier Advisors; JANA Investment Advisers

IFM Investors Pty Ltd

Australian Equities

1,091

AvSuper Fund

Frontier Advisors

WaveStone Capital Pty Ltd

Australian Equities

86

Aware Super

Willis Towers Watson

Investors Mutual Limited

Australian Equities

466

Aware Super

Willis Towers Watson

Investors Mutual Limited

Australian Equities

540

Building Unions Superannuation Scheme (Queensland)

Frontier Advisors

First Sentier Investors

Australian Equities

131

Building Unions Superannuation Scheme (Queensland)

Frontier Advisors

Alphinity Investment Management Pty Ltd

Australian Equities

315

Care Super

JANA Investment Advisers

IFM Investors Pty Ltd

Australian Equities

20

Christian Super

JANA Investment Advisers

Alphinity Investment Management Pty Ltd

Australian Equities

76

Construction & Building Unions Superannuation

Frontier Advisors

Other

Australian Equities

2

Energy Industries Superannuation Scheme - Pool A

Cambridge Associates Limited; JANA Investment Advisers

Hyperion Asset Management Limited

Australian Equities

100

Hostplus Superannuation Fund

JANA Investment Advisers

Other

Australian Equities

158

Maritime Super

JANA Investment Advisers; Quentin Ayers

First Sentier Investors

Australian Equities

104

Maritime Super

JANA Investment Advisers; Quentin Ayers

Other

Australian Equities

86

Mirae Asset Global Investments (Australia) Pty Ltd

Other

Australian Equities

446

MTAA Superannuation Fund

Whitehelm Capital

State Street Global Markets

Australian Equities

198

Statewide Superannuation Trust

JANA Investment Advisers

Paradice Investment Management Pty Ltd

Australian Equities

329

Sunsuper Superannuation Fund

Aksia; JANA; Mercer; StepStone

Hermes Fund Managers Limited

Ethical/SRI Australian Equities

Yarra Capital Management

Australian Equities

UBS Asset Management (Australia) Ltd

Amount ($m)

99 495 Source: Rainmaker Information

26

Super funds

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22 PERIOD ENDING – 30 SEPTEMBER 2020

Workplace Super Products

1 year % p.a. Rank

3 years

5 years

SS

% p.a. Rank % p.a. Rank Quality*

GROWTH INVESTMENT OPTIONS

Retirement Products

* SelectingSuper [SS] quality assessment

1 year % p.a. Rank

3 years

5 years

SS

% p.a. Rank % p.a. Rank Quality*

GROWTH INVESTMENT OPTIONS

UniSuper - Sustainable High Growth

6.8

1

11.0

1

10.5

1

AAA

UniSuper Pension - Sustainable High Growth

7.8

1

12.3

1

11.8

1

AAA

UniSuper - High Growth

3.6

3

8.9

2

10.0

2

AAA

Equip Pensions - Growth Plus

0.3

17

8.2

2

9.6

4

AAA

Equip MyFuture - Growth Plus

0.8

15

7.6

3

8.9

6

AAA

Cbus Super Income Stream - High Growth

1.3

10

8.2

3

10.3

2

AAA

HESTA - Sustainable Growth

1.6

10

7.5

4

9.2

4

AAA

AustralianSuper Choice Income - High Growth

1.7

8

8.1

4

9.6

5

AAA

AustralianSuper - High Growth

1.5

12

7.4

5

8.7

7

AAA

WA Super Retirement - Diversified High Growth

2.2

5

7.9

5

8.2

26

AAA

Cbus Industry Super - High Growth

1.5

13

7.2

6

9.1

5

AAA

HOSTPLUS Pension - Shares Plus

1.8

7

7.8

6

10.3

3

AAA

Aware Super Employer - High Growth

2.0

5

7.1

7

8.4

8

AAA

Australian Ethical Super Pension - Growth

-1.2

42

7.6

7

7.5

47

AAA

HOSTPLUS - Shares Plus

1.5

11

7.1

8

9.3

3

AAA

Lutheran Super Pension - High Growth

0.2

20

7.5

8

8.7

13

AAA

WA Super - Diversified High Growth

1.8

6

7.0

9

7.3

33

AAA

PFAP - IOOF MultiMix Growth Trust

0.2

19

7.4

9

7.7

41

AAA

VicSuper FutureSaver - Equity Growth

0.8

16

7.0

10

8.4

9

AAA

TASPLAN Tasplan Pension - Growth

-2.1

56

7.4

10

8.3

24

AAA

Rainmaker Growth Index

-3.0

Rainmaker Growth Index

-3.0

5.3

5.1

BALANCED INVESTMENT OPTIONS

5.9

5.7

BALANCED INVESTMENT OPTIONS

UniSuper - Sustainable Balanced

5.7

2

9.1

1

8.5

2

AAA

UniSuper Pension - Sustainable Balanced

6.7

2

10.4

1

9.8

1

AAA

WA Super - Sustainable Future

7.9

1

8.7

2

9.3

1

AAA

WA Super Retirement - Sustainable Future

8.4

1

8.8

2

9.7

2

AAA

UniSuper - Balanced

1.8

7

7.2

3

7.9

4

AAA

Australian Catholic Super RetireChoice - Socially Responsible

1.9

5

8.0

3

7.2

25

AAA

Australian Ethical Super Employer - Balanced (accumulation)

1.3

12

7.2

4

6.9

20

AAA

Cbus Super Income Stream - Growth (Cbus Choice)

1.5

10

7.3

4

8.9

3

AAA

Australian Catholic Super Employer - Socially Responsible

1.8

6

7.0

5

6.2

44

AAA

AustralianSuper Choice Income - Indexed Diversified

0.9

14

7.2

5

7.8

8

AAA

AustralianSuper - Balanced

1.1

15

6.8

6

8.2

3

AAA

CareSuper Pension - Sustainable Balanced

1.8

7

7.2

6

7.6

14

AAA

FES Super - Smoothed Option (Hybrid)

2.0

5

6.7

7

6.3

43

AAA

Sunsuper Income Account - Balanced Index

0.7

18

7.1

7

7.5

18

AAA

CareSuper - Sustainable Balanced

2.4

4

6.6

8

7.0

18

AAA

Australian Ethical Super Pension - Balanced (pension)

1.9

6

7.1

8

6.9

38

AAA

AustralianSuper - Indexed Diversified

0.7

20

6.3

9

6.8

24

AAA

ESSSuper Income Streams - Basic Growth

0.0

31

7.1

9

AAA

0.4

23

6.2

10

6.5

38

AAA

TASPLAN Tasplan Pension - Balanced

-1.6

70

6.9

Rainmaker Balanced Index

-1.4

Sunsuper Super Savings - Balanced Index Rainmaker Balanced Index

-1.4

4.8

4.7

CAPITAL STABLE INVESTMENT OPTIONS QSuper Accumulation - Lifetime Aspire 2

10

5.4

7.6

17

5.1

AAA

CAPITAL STABLE INVESTMENT OPTIONS -0.2

59

6.8

1

6.8

3

AAA

Suncorp Brighter Super pension - MM Balanced Fund

3.4

2

7.1

1

AAA

VicSuper FutureSaver - Socially Conscious

3.1

1

6.2

2

7.6

1

AAA

VicSuper Flexible Income - Socially Conscious

3.4

1

7.1

2

AAA

Vision Super Saver - Balanced

2.6

2

6.0

3

6.9

2

AAA

Vision Income Streams - Balanced

2.9

5

6.7

3

7.7

2

AAA

AustralianSuper - Conservative Balanced

1.3

11

5.7

4

6.7

4

AAA

Cbus Super Income Stream - Conservative Growth

2.4

8

6.7

4

7.7

3

AAA

-1.0

83

5.5

5

AAA

AustralianSuper Choice Income - Conservative Balanced

1.7

15

6.5

5

7.6

4

AAA

Cbus Industry Super - Conservative Growth

1.7

6

5.5

6

AAA

QSuper Income - QSuper Balanced

-1.5 149

6.2

6

7.4

5

AAA

VicSuper FutureSaver - Balanced

0.8

25

5.3

7

6.4

5

AAA

Suncorp Brighter Super pension - MM Conservative Fund

3.0

4

6.0

7

AAA

-0.7

71

5.1

8

5.5

8

AAA

VicSuper Flexible Income - Balanced

0.7

52

5.9

8

7.1

6

AAA

1.4

10

5.0

9

AAA

Energy Super Income Stream - SRI Balanced

-0.6 117

5.9

9

6.3

10

AAA

TASPLAN - OnTrack Maintain

-0.6

70

4.9

10

AAA

UniSuper Pension - Conservative Balanced

-0.7 122

5.6

10

6.3

11

AAA

Rainmaker Capital Stable Index

-0.1

Rainmaker Capital Stable Index

-0.1

4.1

TASPLAN - OnTrack Control

Energy Super - SRI Balanced Virgin Money SED - Enhanced Indexed Conservative Growth

3.8

3.6

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

8.2

1

3.9

Source: Rainmaker Information www. rainmakerlive.com.au

Managed funds

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

27

PERIOD ENDING – 31 AUGUST 2020

Managed Funds

Size

Fund name

$m

1 year

% p.a. Rank

3 years

% p.a. Rank

5 years

Size 1 year 3 years 5 years

% p.a. Rank

AUSTRALIAN EQUITIES

Fund name

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

COMBINED PROPERTY

Australian Unity Platypus Aust Equities

141

18.4

Bennelong Australian Equities Fund

563

Bennelong Concentrated Aust Equities

902

Greencape Broadcap Fund

756

8.8

5

Alphinity Sustainable Share Fund

167

1.2

15

AMP Sustainable Share Fund Greencape High Conviction Fund Aberdeen Standard Australian Equities Fund Australian Ethical Australian Shares Fund Australian Unity Platypus Systematic Growth Sector average

1

17.3

1

15.2

18.0

2

17.1

3

2

Australian Unity Diversified Property Fund

16.2

2

14.9

3

11.7

4

11.6

5

15.0

3

Investa Commercial Property Fund

5,937

6.2

3

17.4

1

Lend Lease Aust Prime Property Industrial

1,089

12.3

2

12.5

6

Lend Lease Aust Prime Property Commercial

5,154

5.2

4

10.9

7

AMP Listed Property Trusts Fund

129

-9.9

10

Pendal Property Securities Fund

14

2.5

13

10.6

6

8.8

24

424

4.7

9

10.0

7

10.8

9

46

-0.2

17

9.3

8

9.5

19

289

3.4

10

9.3

9

10.9

8

24

-2.8

30

9.1

10

9.8

15

DEXUS Property Fund

282

1

14.6

1

17.1

12.4

2

13.6

2

12.3

3

11.5

4

11.4

4

12.7

3

9.9

5

9.4

7

429

-11.9

14

8.4

6

8.7

10

-0.9

7

7.9

7

10.7

5

159

-14.0

24

7.8

8

8.9

8

16,041

1.3

6

6.9

9

9.6

6

288

-12.0

15

6.6

10

7.5

13

Ironbark Paladin Property Securities Fund

415

-4.2

5.3

7.6

Sector average

1,198

-14.1

3.4

5.7

S&P ASX 200 Accum Index

-5.1

6.1

7.5

S&P ASX200 A-REIT Index

-17.7

4.4

5.8

6.4

INTERNATIONAL EQUITIES

FIXED INTEREST

Loftus Peak Global Disruption Fund

107

37.1

1

24.2

1

Principal Global Credit Opportunities Fund

BetaShares Global Sustainability Leaders ETF

727

27.9

3

23.5

2

Legg Mason Brandywine Global Inc Optimiser Fund

Zurich Concentrated Global Growth

32

15.0

11

23.1

3

3,696

24.6

4

21.5

4

16.4

Franklin Global Growth Fund

295

24.4

5

20.5

5

Nikko AM Global Share Fund

100

13.1

16

18.9

6

T. Rowe Price Global Equity Fund

1

10,284

UBS Property Securities Fund ISPT Core Fund

14.5

Schroder Fixed Income Fund

184

10.1

1

6.6

1

55

9.9

2

6.2

2

1

2,366

2.5

21

6.2

3

4.7

14

1

Macquarie True Index Sovereign Bond Fund

610

0.7

70

6.1

4

4.6

29

16.3

2

Pendal Government Bond Fund

883

1.7

48

5.9

5

4.6

28

13.7

4

Macquarie Australian Fixed Interest Fund

222

2.0

36

5.9

6

4.9

8

14.1

3

QIC Australian Fixed Interest Fund

1,652

2.4

25

5.9

7

4.7

13

994

2.0

40

5.9

8

4.8

11

9

4.8

12

Evans and Partners International Fund

52

1.5

62

18.4

7

Capital Group New Perspective Fund

648

19.4

6

18.4

8

Apostle Dundas Global Equity Fund

994

12.4

17

18.0

9

12.6

6

Nikko AM Australian Bond Fund

188

1.8

47

5.9

Intermede Global Equities Fund

142

15.1

9

17.7

10

13.6

5

Perpetual Wholesale Active Fixed Interest Fund

457

1.5

54

5.8

Sector average

738

4.5

10.7

8.8

Sector average

945

1.8

4.2

4.0

MSCI World ex AU - Index

7.3

13.2

10.2

Bloomberg Barclays Australia Breakeven

0.4

6.2

4.8

Note: The performance figures for diversified funds are net of fees, performance figures for sector specific funds are adjusted for fees.

AMP Capital Wholesale Australian Bond Fund

10

Source: Rainmaker Information

Yeah, yeah, whatever former Commonwealth minister for suA perannuation once told me that you can tell a lot about an industry by the things it com-

Brumbie

By Alex Dunnin alex.dunnin@ financialstandard .com.au www.twitter.com /alexdunnin

plains about.

Industry representatives have as much right as everyone else to advocate for their members, being in the main incumbent industry participants.

Just don’t confuse this advocacy with what will help the end consumer, being fund members.

The latest example of this is the reaction to the Your Future, Your Super package of reforms.

Like all such reform packages, most of the measures make sense and will likely be widely supported. But there’s always a few stings in the tail.

Trouble happens when industry advocates drink their own Kool-Aid criticising the measures without proposing much better. Monday morning quarterbacks.

Stirring the chooks this time is the methodology formula Treasury says APRA will use to benchmark MySuper product performance. It must be said, however, that someone in Treasury thinking it would be a good idea to publish such a formula containing symbols such as ∏, }, ∑ together with super and subs scripts is both absurd and hilarious.

But while the formula looks terrifying, all it’s trying to say is that APRA will compare the

overall performance of each MySuper product against a weighted average of asset class indexes.

These indexes will of course be adjusted for estimates of fees and taxes.

It will no doubt be a massive transition for APRA to go from being an esoteric prudential regulator to soon having to declare who should be kicked off the island. Indeed, the really fascinating part will be how the regulator handles its new role.

This may seem an amazing piece of interventionist financial regulation, but I wager that millions of members would be gobsmacked to learn that super funds have never before had to pass such a test. This makes the real surprise of the reforms, not how the formula works, but that we’ve never had one before.

Which means the more super funds, or more correctly, their advocates, whinge about the specifics of the formula, the more it vindicates why this performance test is long overdue.

So the next time someone complains to me about the formula, my response will be simple: yeah, yeah, whatever.

If you want to know why Rainmaker is taking such a hard line, it’s this. Super fund investment options perform so badly.

Two-thirds of Australian equities investment

options failed to match or beat their asset benchmark over three or five years.

For international equities options the underperformance rate was abysmally worse at 97%.

For property it was thankfully more respectable at 50%. For cash it was only 10%. For fixed interest, you don’t want to know.

Sure Australia’s super funds seem to have strong kung fu when it comes to mixing asset classes, but within the asset classes themselves, all I can say is that while many are called, few are chosen.

And all this brings us back to super fund trustee boards. None of this should surprise any one of them. But if it does then this, again, vindicates why the regulator albeit at the behest of the government and Treasury, needs to finally be much more proactive.

It goes without saying that if super fund investment managers can’t consistently beat their asset class indexes then funds should switch enmasse to indexing perhaps using white-labelled ETFs. Or they should shut down their investment options.

Either that or expect to be hauled before the Federal Court. Rest might have dodged a bullet in their recent ESG case, but the really scary court case that could literally tear apart super fund business models will be one that challenges their investment menus. Giddyup. fs

28

Economics

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

Victorian victory Ben Ong

T

his day belongs to every single Victorian, every single Victorian who has followed the rules, stayed the course, worked with me and my team, to bring this second wave to an end.”

This was what state premier Dan Andrews told all Victorians and the rest of Australia on October 26 as he declared the battle with the second wave of infections “mission accomplished”.

It may not be as tough as the next waves our US (third wave) and European (second wave) brethren currently face, but it was still a threatening challenge.

Data from the Victorian Department of Health and Human Services (DHHS) showed that daily new cases in Victoria jumped from zero on June 8 to 687 on the 4th of August – almost seven times higher than the March peak of 106 new cases.

The restrictions worked and brought daily new cases down to zero.

Freedom! Because of this Andrews announced significant easing of social restrictions and lockdown rules starting at one minute before the stroke of midnight on October 27.

Freedom! From this moment, “Melbourne will move from “stay home” to “stay safe”, with no more restrictions on the reasons to leave home” but the 25-kilometre limit and the hard border between regional Victoria and Melbourne will also remain in place.

“Melbourne’s cafes, restaurants and pubs can reopen. Outdoors with a limit of up to 50, indoors up to 20. Density limits, record keeping and COVIDSafe Plans also apply.

“Remaining retail will also open. Beauty and personal care services can resume …

Outdoor contact sport for those aged 18 and under will also begin again … Libraries and community venues will be able to open for outdoor events. Outdoor entertainment venues can also begin hosting visitors … Workplaces will no longer need to be on the permitted work list to open and the ability to work will change to “if you can work from home you must work from home”.”

Freer still.

“From 8 November, and if we can continue driving case numbers down, the 25km limit will come off and Melbourne will be able to meet regional Victoria at the same level.

That means the same eased restrictions that apply to regional Victoria will also apply to Melbourne. The capacity of pubs and restaurants increased, with up to 40 inside and 70 outside, he said.

“Religious gatherings expanded with up 20 people and a faith leader indoors, and 50 outside.

Gyms and indoor fitness will be able to reopen … accommodation also reopened.

The border between the city and the rest of our state will also fall away.”

Victoria’s good news is good news for Australia as a whole. Victoria accounts for around a quarter of the national economy.

The state’s reopening would unleash Victorian households’ pent-up demand and revive consumer spending that, in turn, lifts business revenues and profits and employment. This virtuous Victorian circle would have positive flow-on effects on the whole entire Australian nation – and just in time for yuletide shopping season at that.

Then again, we, Australians all, should remain vigilant. fs

Monthly Indicators

Sep-20

Aug-20

Jul-20

Jun-20 May-20

Consumption Retail Sales (%m/m)

-

-3.99

3.18

2.72

Retail Sales (%y/y)

-

7.08

12.04

8.52

5.79

-21.77

-28.78

-12.84

-6.44

-35.29

Sales of New Motor Vehicles (%y/y)

16.86

Employment Employed, Persons (Chg, 000’s, sa)

-29.54

129.06

119.15

227.82

-264.17

Job Advertisements (%m/m, sa)

7.76

2.63

18.70

41.27

0.45

Unemployment Rate (sa)

6.94

6.85

7.48

7.44

7.07

Housing & Construction Dwellings approved, Tot, (%m/m, sa)

-

4.81

8.61

-4.96

-3.71

Dwellings approved, Private Sector, (%m/m, sa)

-

-1.60

12.16

-4.76

-15.28

Housing Finance Commitments, Number (%m/m, sa) - Housing Finance Commitments, Value (%m/m, sa)

-

Survey Data Consumer Sentiment Index

93.85

79.53

87.92

93.65

88.10

AiG Manufacturing PMI Index

46.70

49.30

53.50

51.50

41.60

NAB Business Conditions Index

0.36

-6.19

-0.21

-7.68

-24.43

NAB Business Confidence Index

-3.82

-8.24

-14.28

0.50

-21.38

Trade Trade Balance (Mil. AUD)

-

2643.00

4652.00

7551.00

Exports (%y/y)

-

-21.87

-21.27

-17.08

-17.80

Imports (%y/y)

-

-14.57

-16.87

-20.12

-23.59

Sep-20

Jun-20

Mar-20

Quarterly Indicators

7122.00

Dec-19 Sep-19

Balance of Payments Current Account Balance (Bil. AUD, sa)

-

17.74

9.02

2.18

7.53

% of GDP

-

3.79

1.78

0.43

1.49

Corporate Profits Company Gross Operating Profits (%q/q)

-

14.97

1.44

-3.47

-1.15

Employment Average Weekly Earnings (%y/y)

-

-

-

3.24

-

Wages Total All Industries (%q/q, sa)

-

0.08

0.53

0.53

0.53

Wages Total Private Industries (%q/q, sa)

-

-0.08

0.38

0.45

0.92

Wages Total Public Industries (%q/q, sa)

-

0.00

0.45

0.45

0.83

Inflation CPI (%y/y) headline

-

-0.35

2.19

1.84

1.67

CPI (%y/y) trimmed mean

-

1.20

1.80

1.60

1.60

CPI (%y/y) weighted median

-

1.30

1.60

1.20

1.20

Output

News bites

US composite PMI Masked or unmasked, the IHS/Markit flash US composite PMI continues to gather momentum, increasing its rate of expansion to 55.5 in October from 54.3 in the previous month. This is better than market expectations for a decline to a reading of 54.0 points, it’s the fourth straight month of expansion in private sector activity and the highest level since February 2019 – a sharp improvement from the 27.0 reading recorded only six months ago (April). The manufacturing sector activity inched up to 53.3 in October (from 53.2 in September) but it was the highest reading in 21 months. The services PMI advanced to a reading of 56.0 from 54.6 – a 20-month high. Even better, both the manufacturing and services sectors are optimistic over the outlook for business activity in 2021, giving the next occupant of the White House a better starting point.

Eurozone composite PMI The IHS/Markit flash Eurozone PMI for October confirmed current concerns over the second wave in the region and the consequent re-imposition of restrictions to social and business activity. The composite PMI dropped back into contraction territory – to a reading of 49.4 in October of 2020 from 50.4 in September. While slightly better than market expectations for a 49.3 print, the latest reading underscore the impact of renewed restrictions imposed by a number of Eurozone governments in efforts to contain the second wave of infections.

Japan composite PMI Sure, business activity in Japan has bounced back from the record low reading of 25.8 back in April this year, but at 46.7, the au Jibun Bank flash Japan composite PMI continues to bounce around the bottom in October. Though an improvement from September’s reading of 46.6, both manufacturing and services PMI remained at levels signifying contraction (below 50). The manufacturing PMI improved to a reading of 48.0 in October from 47.7 in the previous month but the services PMI deteriorated to 46.6 from 46.9 in September – the weakest in three months. Still growing cases in infections in the country could prevent the L-shaped recovery in Japan from becoming a U. fs

Real GDP Growth (%q/q, sa)

-

-7.00

-0.26

0.55

Real GDP Growth (%y/y, sa)

-

-6.26

1.56

2.28

0.51 1.82

Industrial Production (%q/q, sa)

-

-3.42

0.19

0.48

0.67

Survey Data Private New Capex, Total, Chain, Vol, (%q/q, sa)

Financial Indicators

-

-5.89

-2.06

-2.68

-1.33

23-Oct Mth ago 3 mths ago 1Yr Ago 3 Yrs ago

Interest rates RBA Cash Rate

0.25

0.25

0.25

1.00

1.50

Australian 10Y Government Bond Yield

0.86

0.80

0.86

1.11

2.80

Australian 10Y Corporate Bond Yield

1.50

1.56

1.67

1.92

3.24

Stockmarket All Ordinaries Index

6373.7

4.29%

2.57%

-5.97%

S&P/ASX 300 Index

6146.3

4.10%

1.43%

-7.33%

6.99% 5.11%

S&P/ASX 200 Index

6167.0

4.10%

1.19%

-7.58%

4.63%

S&P/ASX 100 Index

5082.0

4.19%

0.93%

-8.17%

4.45%

Small Ordinaries

2858.5

3.45%

5.35%

-0.35%

10.67%

Exchange rates A$ trade weighted index

60.70

A$/US$

0.7103 0.7105 0.7125 0.6845 0.7805

62.60

60.00

59.20

66.20

A$/Euro

0.6001 0.6087 0.6144 0.6157 0.6646

A$/Yen

74.46 74.81 76.23 74.34 88.75

Commodity Prices S&P GSCI - commodity index

358.77

347.73

341.66

412.75

402.94

Iron ore

121.02

124.79

107.78

90.45

60.30

Gold

1903.65 1873.40 1878.30 1494.45 1274.90

WTI oil

39.88

39.92

40.99

55.90

Source: Rainmaker /

51.91

Sector reviews

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

Australian equities

Figure 1: W estpac-Melbourne Institute Index of Consumer Sentiment

Figure 2: Consumer confidence & unemployment rate

130

130

INDEX

INDEX

120

120

110

110

100

100

90

90

80

80

RATE %

CPD Program Instructions 3

4

5

6

Prepared by: Rainmaker Information Source:

7

Consumer confidence Unemployment rate - INVERTED RHS

70

70

2004

2006

2008

2010

2012

2014

2016

2018

2020

8

2004

2006

2008

2010

2012

2014

2016

2018

2020

Money can buy happiness Ben Ong

T

he result of the latest Westpac-Melbourne Institute consumer sentiment survey disproves the aged-old adage that “money doesn’t buy happiness”.

Australian consumer sentiment surged by 11.9% to a reading of 105 index points – more optimists than pessimists – in the month of October that followed September’s 18% jump.

“This is an extraordinary result. The Index has now lifted by 32% over the last two months to the highest level since July 2018. The Index is now 10% above the average level in the six months prior to the pandemic,” Westpac’s Bill Evans said.

“Such a development must be attributable to the response to the October Federal Budget; ongoing success across the nation in containing the COVID-19 outbreak; and the expectation that the Reserve Bank Board is likely to further cut interest rates at its next meeting on November 3.”

International equities

In three words, that’s money, money, money.

Fiscal money, amounting to “$98 billion in response and recovery support, including $25 billion under the COVID-19 Response Package and $74 billion under the JobMaker plan.

Business revenue money as the “ongoing success across the nation in containing the COVID-19 outbreak” have seen/should see restrictions and border closures reverse allowing shops to re-open and customers to shop.

RBA money. The prospect of even cheaper loans adds money into the pockets of businesses, homeowners and consumers.

Underlying all these are consumers’ job prospects and … they’ve bounced.

“The survey provides us with an insight into confidence in the labour market. There was a stunning lift in confidence around job security.

The Index improved by 14.2% to be back around the levels of early 2019. Despite media warnings about the looming ‘fiscal cliff’, respondents have

Figure 1: US stock market indices

become markedly more confident about job security. In particular, those over 45 saw a 20% lift in confidence – that was despite job-related measures in the Budget only providing specific support for younger employees.”

Have jobs, will spend.

The government and the central bank can flood the system with money – and business operations can resume – but if consumers aren’t confident about employment, handouts and dole-outs and lower interest rates will only be saved as evidenced by the increase in the household savings ratio from 3.6% in the December 2019 quarter (before the pandemic and the lockdown) to 6.0% in the March 2020 quarter and 19.8% in the June quarter – the highest it’s ever been since 46 years.

Household spending accounts for a big chunk – around 60% – of the Australian economy.

The strong recovery in consumer sentiment is a good start. fs

Figure 2: ISM & NFIB

140

115 INDEX (JAN 2020 = 100)

INDEX

INDEX

65

130 120 110

29

110

60

105

55

100

50

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].

Australian equities CPD Questions 1–3

1. What was/were the reason/s given for the surge in Australian consumer sentiment in October? a) October Federal Budget b) RBA rate cut expectations c) Success at containing COVID outbreak d) All of the above 2. How much is the Federal Treasury’s total spending in response and recovery support announced in the October Budget? a) A$25 billion b) A$74 billion c) A$98 billion d) A$1 trillion 3. Household spending accounts for more than 75% of the Australian economy. a) True b) False

100 90

Prepared by: FSIU Sources: Factset Prepared by: Rainmaker Information Source:

80

Nasdaq

70

S&P 500

60

Russell 2000

DJIA

NFIB Small Business optimism ISM manufacturing -RHS

90

ISM non-manufacturing -RHS

85

50 JAN-20

95

FEB-20 MAR-20 APR-20 MAY-20 JUN-20 JUL-20

AUG-20 SEP-20 OCT-20 NOV-20

2015

2017

45 40

International equities

35

CPD Questions 4–6

2019

Good or bad news is good for Wall Street Ben Ong

I

t may have gone up and down and round and round but the US equity market has trended higher and higher and is outperforming its peers.

Despite topping the list of total cases of coronavirus infections (8.6 million), new cases (0.6 million) and deaths (0.2 million) in the world, the S&P 500 index has risen by 6.3% this year to date – miles ahead compared with the sharp losses of 15.1% in the Euro Stoxx-50 index and 23.4% in the FTSE-100, or even the Nikkei-225’s almost flat (-0.1%) performance.

Not to mention, the Nasdaq composite index’s 28.4% surged so far this year goes against all logic considering the state of the US economy which is in deep recession – GDP contracted at an annualised rate of 5.0% in the March 2020 quarter and a record 31.4% in the second quarter – and, although down from the all-time high of 14.7% recorded in April 2020, remains elevated (7.9% in September).

This could be because TINA (there is no alternative) FOMO (fear of missing out) remains in play. Low interest rates sparked the TINA trade with investors seeking better returns in the stockmarket that, in turn, lifted upward momentum and forced even “unbelievers” into the equity market for “fear of missing out”.

But sharemarkets are forward looking and recent indications are that the US economy is recovering.

The Fed’s October Beige Book report showed economic activity and employment continued to improve across all Districts and the outlook mostly optimistic.

This followed reports that retail spending surged by 1.9% in the month of September – more than double market expectations for a 0.7% increase – following a 0.6% gain the previous month.

With consumers back in the shops, business sentiment and activity are lifting. The NFIB business optimism index increased to a seven-

month high reading of 104.0 in September. The ISM manufacturing and non-manufacturing indices have both returned back to readings indicating expansion for four months running after hitting 11-year lows back in April this year.

So why is Wall Street jumping up and down and going round and round on news of progress or otherwise on stimulus talks? More to the point, why the need for more stimulus when the economy – as recent indications show – is on its way to a virtuous circle of confidence, spending and ultimately, stronger growth?

The short answer is the Fed remains unconvinced. Fed chairman Jerome Powell thinks there’s still a long way to go before the economy fully recovers from the pandemic. Fed governor Lael Brainard believes the US recovery remains uncertain and uneven.

Good news or bad news – which would prompt more monetary and fiscal largesse – is good news for Wall Street. fs

4. Which equity market index produced positive returns so far this year? a) S&P 500 index b) Nikkei-225 index c) Euro Stoxx-50 index d) FTSE-100 index 5. Which indicator shows continued improvement in business sentiment and activity? a) ISM manufacturing index b) ISM non-manufacturing index c) NFIB business optimism index d) All of the above 6. Brainard thinks the US recovery remains uneven and uncertain. a) True b) False

30

Sector reviews

Fixed interest

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

Fixed interest

CPD Questions 7–9

7. Which indicator suggests that business activity in Japan is back in expansion? a) Composite PMI b) Manufacturing PMI c) Services PMI d) None of the above

Figure 1: Tankan survey 30

INDEX

9. Japanese GDP contracted at an annualised rate of 28.1% in the June quarter. a) True b) False Alternatives CPD Questions 10–12

10. What was China’s GDP growth in the year to the September 2020 quarter? a) +4.9% b) +3.2% c) -6.8% d) -8.6% 11. Which indicator shows negative year-onyear growth? a) Retail sales b) Industrial production c) Fixed asset investment d) None of the above

THOUSAND PERSONS

20

100

10

80

0 60

-10 40

-20

Prepared by: Rainmaker Information Prepared by: FSIU Source: Sources: Factset

Large non-manufacturers 20

Large manufacturers

-30 -40

0

2011

8. Which Tankan index improved in the third quarter? a) Index for large manufacturers b) Index for large non-manufacturers c) Both a and b d) Neither a nor b

Figure 2: Japan total COVID-19 confirmed cases 120

2012

2013

2014

2015

2016

2017

2018

2019

2020

Ben Ong

I

t’s been just over a month when Yoshihide Suga took over from Shinzo Abe – who resigned for health reasons – as Japan’s prime minister.

It wasn’t a great time for a handover given the significantly weakened state of the global and domestic economies flattened by the coronavirus pandemic but it could have been worse for Suga.

The new Japanese prime minister was off to a relatively better start for around the time of 16 September – when he assumed office – the global economy appears to have seen the worst of the coronavirus pandemic. Many governments have eased/lifted lockdown and social restrictions, re-starting business activity.

Japan, itself, has lifted the “state of emergency” on May 25 – a month and a bit after it was put in place on April 16. This, along

Alternatives

with fiscal and monetary policy support, has allowed the economy to slowly recover.

Japanese economic and survey stats have already been gradually picking up when Abe passed him the baton.

The au Jibun Bank Japan PMI survey underscores the improvement in activity. Although still in contraction territory (below the 50 reading), the composite PMI index has sequentially improved from a record low reading of 25.8 in April this year to a sevenmonth high of 46.6 in September. The manufacturing PMI has risen from an 11-year low of 38.4 in May 47.7 – also the highest in seven months. The services PMI stood at 46.9 in September from a record low reading of 21.5 five months prior (April).

Similarly, the BOJ’s quarterly Tankan survey has also improved. The Tankan index for large manufacturers rose to -27 in the third quarter of 2020 from an eleven-year low of -34

ANNUAL CHANGE %

All answers can be submitted to our website.

JUN20

JUL20

AUG20

SEP20

OCT20

Prepared by: Rainmaker Information Prepared by: FSIU Source: IEA / Sources: Factset

in the previous three-month period. The index for large non-manufacturers increased to a reading of -12 in the September quarter from -17 in the previous one (also an 11-year low).

But with a hole as deep as the 28.1% annualised rate of contraction in GDP in the June quarter – the worst on record – the fresh prime minister of Japan has his work cut out for him.

The severity of the June quarter contraction was such that, according to Reuters, the BOJ would downgrade its fiscal year 2020/21 growth and inflation projections (from -4.7% and -0.5% forecast in July) at its 28-29 monetary policy meeting.

The BOJ may also want to consider the rising prospect that Prime Minister Suga would declare another state of emergency in the country as confirmed cases of infection continue to increase and are now exponentially greater than when it was first declared back in April. fs

20

6.0

10 5

2.0

0

0.0

-5 -10 -15 -20

-6.0

-25

-8.0

-30

2013

ANNUAL CHANGE %

15

-2.0

2014

2015

2016

2017

2018

2019

2020

2014

Fixed asset investment Industrial production Retail sales

2015

2016

2017

2018

2019

2020

Middle Kingdom on top C

Submit

MAY20

Figure 2: Retail sales, FAI & IP

Figure 1: China GDP growth 8.0

4.0

Ben Ong

Go to our website to

APR20

Japan’s improvement at risk

-4.0

12. The IMF predicts Chinese GDP to contract by 1.9% this year. a) True b) False

MAR20

hina’s cruel to be kind policy continues to pay dividends.

Criticised and condemned they may be, but the swift and continued improvement in the economy prove that the Politburo’s draconian restriction and lockdown measures implemented at the onset of the coronavirus pandemic worked.

While every other government around the world remain in the midst of their seemingly Sisyphusian efforts to contain the pandemic, China’s rapid “cruel to be kind” response to the pandemic has allowed central command to redirect its focus and resources on sustaining and strengthening the economic recovery.

It’s on its way. China’s GDP expanded by 4.9% in the year to the September quarter, strengthening from the June quarter’s growth of 3.2% which itself, represented a sharp recovery from the 6.8% contraction recorded in the March 2020 quarter.

Sure, China’s third quarter growth was less than market expectations for a 5.2% print but it affirms the OECD’s statement in its September 2020 Economic Outlook Interim Report that, “All G20 countries with the exception of China will have suffered recession in 2020” and backed by the IMF’s October 2020 “World Economic Outlook” predicting Chinese GDP growth of 1.9% this year and 8.2% in 2021.

The sequential improvement in China’s activity stats indicate sustained upward momentum in the economy.

The annual growth in Chinese retail spending improved to 3.3% in September from 0.5% in the previous month and after the previous five months of contraction.

Industrial production also continued to strengthen – up by6.9% in the year to September from 5.6% in August and 4.8% in July.

Likewise, September figures show the annual growth in fixed asset investment is now back in

the black since the pandemic – up by 0.8% following seven straight months of contraction and a sharp recovery from the 24.5% drop recorded in February this year.

The strengthening in China’s economy is hardly surprising given that social and business activity has returned to normal.

Now less wary of getting infected, Chinese consumers are back shopping at shops that are no longer locked down.

Still, we are all in this together. China, or any other “cleared” country, cannot afford to let its guard down for any nation would never be totally virus-free until all nations are.

A recent poll by Reuters showed China’s economy is expected to grow at its weakest pace in more than 40 years, though output could rebound sharply in 2021.

The analysts surveyed said they anticipate China’s economy to expand by 2.1% next year. In July, the same analysts predicted growth of 2.2%. fs

Sector reviews

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

31

Property

Property

CPD Questions 13–15

Prepared by: Rainmaker Information Source: Cromwell Property Group

he S&P/ASX 300 A-REIT Accumulation T Index continued its recovery from lows in the March quarter, gaining 7.4%. Property stocks outperformed broader Australian equities, with the S&P/ASX 300 Accumulation Index losing 0.1%.

Property fund managers continued their strong performance in the quarter, reporting resilient results during August’s reporting season and continued momentum in raising capital in recent months. Charter Hall Group produced a robust result for the 2020 financial year and continues to be a beneficiary of demand for assets with long weighted average lease expiries (WALEs), gaining 28.3%. Centuria Capital Group also rose strongly, up 24.9%, supported by a capital raise in Centuria Industrial REIT. Goodman Group gained 20.8% as demand for industrial property continues to grow.

Residential property developers were the other key outperformers in the quarter, as stimulus measures had a larger and more immediate impact than initially expected. For example, Peet Limited was supported by both a recover-

A-REITs strong amid broader market headwinds Stuart Cartledge, managing director, Phoenix Portfolios

ing Perth house and land market and aggressive purchases of its stock by a new substantial shareholder, up 26.8%. Queensland exposed Sunland Limited is also gained 21.7%.

After bouncing back from lows in the June quarter, retail property owners underperformed. Unibail-Rodamco-Westfield was a particularly poor performer, falling 40.1% in the quarter. Australian mall owners also underperformed, with the future path of income highly uncertain.

Owners of office properties also underperformed, with workers at home and effective rent growth in key office markets turning negative.

Suburban office owners performed better but were still underperformers.

Since the onset of COVID-19, listed property has been amongst the most volatile core asset classes both domestically and globally.

Such extreme volatility can partly be explained by the uncertain impacts of the crisis. In Phoenix’s view, a lot of earnings deterioration is now priced into listed property stocks providing some downside protection from today’s levels.

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With the Global Financial Crisis (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. Furthermore, in the short term, discretionary retail sales are likely to be driven by government stimulus and may be highly varied across retailers and dependent upon social distancing restrictions.

As COVID-19 passes, 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. This has already been seen with companies that have demonstrated resilient and predictable earnings performing well since March.

While the risk of inflation currently seems remote, the enormous fiscal stimulus and extreme monetary policy setting that we now live with increases the risk of inflation over the medium term. Historically, real assets such as property and infrastructure have performed well during inflationary periods. fs

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13. Which statement reflects the latest property stock trends? a) Residential property developers are the main underperformers b) Property stocks outperformed broader Australian equities c) Property fund managers have continued to underperform d) Australian equities have outperformed property stocks 14. What statement best reflects the commentary? a) Following a bounce back in the June quarter, retail property owners outperformed b) Australian mall owners have bounced back and are now outperforming c) After bouncing back in the June quarter, retail property owners underperformed d) Office property owners are now experiencing a bounce back 15. Property trust managers are seeing the COVID crisis as akin to the GFC. a) True b) False

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32

Profile

www.financialstandard.com.au 9 November 2020 | Volume 18 Number 22

LIFE’S A MARATHON Invest Unlisted founder and chief executive Nicole Connolly loves to run, and when she’s not training for a marathon she is running her own business, the Invest Unlisted Core Infrastructure Fund (formerly IPIF). Eliza Bavin writes.

orn and bred in Melbourne, Invest UnlistB ed’s Nicole Connolly had always dreamed of becoming a teacher, even studying to become one at Melbourne University.

“I initially studied to be a teacher in the economics, politics and accounting fields which was essentially my foundation in business studies,” she explains.

Unfortunately, her timing was off. Completing her degree in the mid-1990’s, then-Victorian Premier Jeff Kennett was cutting funding for public schools, closing 350 of them and “feverishly slashing teaching jobs”.

Unable to secure a role, Connolly went to work for a small superannuation fund, having received strong marks in her business studies.

The fund in question was the Professional Retirement Fund, for those in the medical industry, which later merged with HESTA. “During that time, I really enjoyed the investment side of things and so I decided to go back and study economics and finance,” Connolly says.

“I love the ambiguity in subjects like economics and politics. The answers are so dependent on so many variables.”

After completing her second degree, Connolly joined Telstra Super as an investment analyst, enjoying it so much she stayed for about a decade.

“I went down the path of focusing on alternative investment, which includes private equity hedge funds and unlisted infrastructure,” she says.

“Those were asset classes that hadn’t really emerged at the time, so I was really learning as the industry was learning. It was a great time to be part of something new and be part of that growth.

“To look back and see how well developed those asset classes are now, and how they have emerged, is quite remarkable.”

Connolly worked her way up to become head of alternative investments within the corporate fund, before deciding it was time for a change.

Connolly moved to Russell Investments, where she worked as director of alternative investments for close to three years.

She describes the move, from corporate super fund to global investment firm, as “a bit of a culture shock” - but she was up for the challenge.

Connolly says her time with Russell Investments was filled with a lot of learnings that she is grateful for, but she found herself missing the more customer-centric side of things.

“There’s a lot more practical, hands on involvement when you are working within a super fund,” she explains.

“Working for an asset consultant, you find there is a higher theoretical component to what you’re doing.”

Connolly was working on Russell’s model portfolio committee, helping to establish the strategic asset allocation for the consulting

firm clients, rather than working directly with those clients.

“Having influence in that process is really quite rewarding and I learned so much by having exposure to a number of senior investment professionals,” Connolly says.

“The committee included an economist, the head of risk, the head of research as well as senior portfolio managers, so it was really a fantastic time to learn from experts in the field.”

Having many variables to work through is a good thing when it comes to devising the best investment solutions, she says.

“I guess it’s sort of like problem solving but with a creative element to it. Finance is often seen as something that is very analytical and logical, but there are creative elements that I really enjoy,” she says.

Having studied as a teacher, the desire to educate and inform drives Connolly in everything she does.

She is also a self-confessed performer of sorts, always ready to take to the stage – whether it be with friends or clients – to explain a new concept or idea.

“It comes down to the creative side of me, there is a performance element to it that perhaps drew me to teaching in the first place,” Connolly jokes.

“I had some good advice quite early on in my career that going down the finance path, as opposed to the teaching path, was probably going to be more suited to my personality type, which in hindsight was a very good decision I think.”

Connolly says she has always been more of a risk taker than a safe walker, so when the time came to start her own business she wasn’t afraid to jump in.

The idea for Invest Unlisted – which was founded as Infrastructure Partners Investment Fund in 2014 but rebranded this year – came from a contact in the infrastructure industry who, despite being highly respected in the field, wasn’t able to access investment in it.

“He was complaining that he wasn’t able to put his own money into these funds, despite having worked his entire career in the infrastructure industry,” she says.

“The conversation is what triggered the next step and that person is still invested in the fund to this day, which is amazing.”

Since its launch in 2015, the fund has delivered net annualised returns that exceed those of the Australian government 10-year bond. Connolly’s goal is to consistently outperform that benchmark.

That experience reflects another of Connolly’s greatest lessons: the importance of relationships.

It’s important to put effort into forming sustainable relationships not just with friends and family, but with co-workers, clients and yourself, she says.

“Mental health is not really spoken about enough in our industry and we work in a very high performing field, with many stresses,” she notes.

I love the ambiguity in subjects like economics and politics. The answers are so dependent on so many variables.

Nicole Connolly

Connolly says she understands the many pressures facing those in the industry; which she says is probably internally generated as much as they are externally.

“I think what we’re seeing with the COVID-19 crisis is that it’s triggering for many people. Usually mental health is a very personal issue, so people are reluctant to bring it up, but this shared crisis that we’re all going through has helped bring it more to the fore.”

Having had her own experiences with mental health, Connolly says running provides her with the release she needs to cope with any mounting pressure.

And the longer the distance, the better. Prior to the pandemic, she had planned a trip to run in the Berlin marathon. In previous years she has also participated in the New York City Marathon and Chicago Marathon.

It has never been more important for people to feel comfortable putting their hands up and letting someone know when they’re not coping, she says.

“There are a lot of strengths that come to bear, and certainly those who have been through mental health challenges have a strong sense of purpose with their relationships and activities,” Connolly explains.

“There is also a great deal of flexibility to learn new skills and adapt to change. I’d encourage people to talk more about those experiences and to make it okay to not be okay and share what they’ve learnt.” fs

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