Financial Standard volume 19 number 03

www.financialstandard.com.au

07

13

22

Iress

Perpetual, BlackRock, Macquarie

Life insurance

Feature:

Profile:

Product showcase:

10

Opinion: Michelle Russell-Dowe Schroders

Proposed super benchmark flawed Annabelle Dickson

he Your Future, Your Super legislation T package, slated to come into effect on July 1, has the industry up in arms over the proposed annual benchmarking test.

Under the reforms, the products that have underperformed APRA’s standards over two consecutive annual tests will be prohibited from receiving new members until a further annual test that shows they are no longer underperforming.

Speaking at the recent Australian Superannuation Fund Association (ASFA) conference, Hostplus deputy chief investment officer Greg Clerk said he is concerned the benchmarking test will detract fund resources to ensure adherence to the benchmark.

“The first and utmost responsibility every trustee will have going forward is to make sure your fund is still in existence in one year but also then in two years’ time when the test hits again,” Clerk said.

“What that means is that we are going to have to spend a potentially disproportionate focus on tracking error of our actual portfolio versus the benchmark.”

Clerk explained that, as of today, 50% of Hostplus’ strategic asset allocation is nonbenchmark positioned.

“The benchmarks fail to understand the investment universe,” he said.

“Now we have a decision framework for an entity like ourselves that says of that 50% of non-benchmark positions ‘how much conviction do you have in each of them?’”

The Australian Institute of Superannuation Trustees (AIST) is concerned that some of the suggested benchmarks in the policy document are inappropriate.

“At a minimum the benchmarks should be made up of assets that are in the asset class being assessed, having regard to the location of assets, and whether the assets are listed or unlisted,” AIST head of advocacy Mel Birks says.

“A fund’s investments should not be assessed against assets that do not reflect the underlying investment.”

Frontier head of consulting Kim Bowater agrees and says the test does not evaluate an underperforming or outperforming fund but instead captures the value generated from implementing the strategy.

“It doesn’t assess whether the fund has a good strategy or link the actual objectives funds have, which are generally ‘CPI plus’ objectives reflecting what members actually achieve,” she says.

“To us it is quite a specific, different test and there is an issue where it could result in different decisions being taken compared to trying to achieve ‘CPI plus’ objectives.”

Birks agrees and believes the proposals around the benchmarking lack any real substantial and important detail.

“Important detail about the methodology used to benchmark and calculate performance should be decided in legislation, not regulation,” she says.

Further, some of the benchmarks indicate a certain risk level or type of exposure that previously funds may not have been taking.

Even then, Clerk said, a fund’s conviction in its strategy needs to be predicated on longterm conviction or short-term conviction; “It will depend on where you are currently tracking versus the seven-year test before it becomes an eight-year test.”

For example, Clerk explained Hostplus’ property portfolio is measured against the REIT benchmark.

“We might be doing an appropriate thing by having a low-risk, low geared property exposure at around 10% gearing, but how is that going to compete long-term against a REIT that is geared at 50%?” he said.

Bowater explains it could be that the test embeds an active decision about the property being unlisted.

“There is an implication that the starting point is a listed exposure and the fund is actively choosing to be unlisted and thus is benchmarked against listed markets,” she says.

The consequence of this is that it could discourage some new investments in unlisted assets, particularly when there are lower risk alternative strategies.

“The listed index is generally higher risk than what is sought in core unlisted portfolios,” Bowater says.

She shares the same sentiments as Clerk in terms of having conviction in a strategy that is not aligned with the benchmark.

However, she says: “The risk is the timeframe.”

“We think those portfolios will outperform over the long term but the question is whether it will over the eight-year benchmark?” fs

22 February 2021 | Volume 19 Number 03 www.financialstandard.com.au 20 January 2020 | Volume 18 Number 01

Executive appts:

Featurette:

14

32

Estate planning

Justin Arter Cbus

Industry mental health improves Eliza Bavin

Kim Bowater

head of consulting Frontier

Despite the trials and tribulations brought on by COVID-19, those working in the financial services industry overall saw an increase in mental health, according to SuperFriend.

The financial and insurance services industries climbed from sixth place in 2019 to second overall in the thriving workplace score in 2020.

The research highlights a large improvement in the mental health of financial and insurance services workers amid the COVID-19 pandemic.

The leap comes after a challenging few years, following the Senate Inquiry into Insurance and the Royal Commission.

The report found that the industry’s overall thriving workplace score leapt to the second highest in 2020, from just sixth in 2019 (up by 3.3 points to 67.6 out of 100).

All five domains of thriving workplaces (connectedness, leadership, policy, culture and capability) showed improvement, with the policy domain recording the strongest improvement.

Continued on page 4

Investors not doing enough Over 70% of companies are not prepared to detect unexpected events like COVID-19, according to a survey of over 400 global risk and compliance decision makers.

The study by Dataminr found that only 29% of firms felt confident they have the technology to accurately obtain an early view of unexpected events.

The study, titled Risk in a Real-Time World and conducted by Forrester Consulting, surveyed 410 global risk and compliance decision-makers across Australia, New Zealand, the US and the UK. It evaluated current risk management priorities and practices, and how real-time information is used in risk management and crisis response.

Dataminr chief executive Ted Bailey said the COVID-19 pandemic has made companies aware of their weak spots.

“At the onset of the COVID-19 pandemic, Continued on page 4

News

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

Maritime Super, Hostplus combine $61bn in assets

Editorial

Karren Vergara

Jamie Williamson

T

Editor

If you were to ask your colleagues and friends in the industry, how many of them would tell you 2020 was a good year?

After the turmoil that it brought, you’d be forgiven for assuming none or very few. But new research from SuperFriend suggests that’s not the case.

Released this past fortnight, SuperFriend’s annual Indicators of a Thriving Workplace report found that despite almost everybody consistently working overtime, the mental health of those working in the financial services industry improved in 2020.

The report is the result of 10,338 Australian workers rating the key factors of connectedness, leadership, policy, culture and capability to calculate a combined total, or thriving workplace score.

In 2019, the financial and insurance services sector received a thriving workplace score of 64.3 out of 100, ranking sixth out of 19 in Australia. Just a year later, that score rose to 67.6 which, while still low, is enough to see the industry rise to second place; information media and telecommunications pipped it at the post.

Overall, Australia’s national workplace mental health and wellbeing index rose 2.4 points.

So, what is it about the global pandemic that had people feeling so positive? Improved work/ life balance was highlighted in the research, with almost half of Australia’s total workforce citing it.

Also, a feeling of greater connectedness in the workplace was also reported – the highest levels recorded in six years.

However, while these headline results sound great, they distract from some of the underlying statistics that really require recognition – and action.

For example, there was an increase in the number of workers scoring their workplace more favourably, but the number of truly thriving workplaces – those that score over 80 – remains incredibly low at just 5%.

Also, while 44.5% of Aussies realised a range of mental and physical health benefits during 2020, more people are experiencing extreme stress at work. The number of people who reported finding their job extremely stressful in 2020 rose 1.4% to 7.8%, while 2.7% more said their job is very stressful – up to 18.2%.

Knowing this, it’s therefore unsurprising that more people experienced a mental health condition in 2020; a whopping 60% of workers, 65% of which were women.

It’s these kinds of figures that should command attention and, while fewer people felt their work was to blame for how they felt than in previous years, it’s in employers’ interests to provide greater support to those who are struggling. As we all know, strong mental health means fewer sick days, greater productivity and improved culture.

At the end of the day, the research does hammer home how well the financial services industry is doing; “rallying and recovering from within”. fs

3

The quote

To be able to leverage the liquidity of Hostplus is going to make a big difference to members in the long term.

wo industry superannuation funds will pool their assets to create a $61 billion trust, in a move that is set to be a better alternative to a merger.

Touted as an industry first, Maritime Super and Hostplus announced an asset-pooling partnership that will take effect 30 April 2021.

Maritime Super’s $6 billion of assets under management will combine with the $55 billion Hostplus via the Hostplus Pooled Superannuation Trust (PST), subject to final board approval.

Maritime Super chief executive Peter Robertson told Financial Standard that the branding, administration services, boards of the two funds, and insurance will remain as is.

Maritime is aligned to Hostplus on many levels, they have the same asset consultant in JANA, and active management investment philosophy, he said, adding that the partnership will provide the smaller fund the benefits of scale, liquidity and access to more investments.

“It is simply changing one investments structure into another and at the end of the day Maritime is still standalone, [the only difference is] we are investing units in Hostplus’ PST,” Robertson added.

This scheme will give Maritime access to Hostplus’ investment options like unlisted assets in infrastructure, property, private equity and venture capital.

Insurance coverage will remain customised for Martime’s 27,000 members.

Maritime members can expect their fees to

come down, Robertson flagged, describing the partnership as a “win-win” all members.

Maritime has kept its doors open to potential mergers in the past. In 2011, it considered a merger with TWUSUPER, but fell through.

Hostplus finalised its latest merger with Club Super in 2019.

“We are a mature fund having been around for 53 years,” Robertson said.

“To be able to leverage the liquidity of Hostplus is going to make a big difference to members in the long term and our aim is to improve outcomes for members and we think this is the best way to do it and [to do so] now.”

Hostplus chief executive David Elia said the fund’s PST structure provides a clear and distinctively viable alternative to mergers and acquisitions, especially for smaller funds that are otherwise well-performing and delivering good and valued member outcomes.

“Hostplus’ PST provides other APRA-regulated funds, and especially smaller funds, a viable and effective alternative to a merger by extending their outsourcing operating model to now include the management of their investments alongside one of Australia’s largest and long-term well-performing profit to member funds, while maintaining full control of their fund’s strategy and member and employer relationships,” Elia said.

In May 2019, Equipsuper and Catholic Super announced a joint venture Eventually, that combined their investments, administration and offices, but retained their separate branding. fs

Australia sweeps global pension market rankings Australia is the most successful pension system among developing countries, according to Wills Towers Watson.

The firm’s Thinking Ahead Institute’s 2021 Global Pension Assets Study said Australia’s thriving pension system boasts an 11.3% per annum growth rate as result of its competitive institutional model and dominance of defined contributions.

Australia’s appetite for private assets such as real estate, private equity, and infrastructure, appear to be contributing to the success, the research found, noting that this asset class over a 20 year-period has grown from about 7% to above 26%.

“Alternatives have been attractive for return reasons, offsetting their governance difficulties,” the report read.

However, one issue that is a missed opportunity for the system is “to influence and mitigate corporate misalignments like executive pay, and other poor leadership and boardroom practices”.

In aggregate, Australia is one of the seven nations that accounted for 92% of pension assets out of 22 countries analysed.

The US holds the largest amount of pension assets at $32.6 billion, followed by Japan ($3.6bn), the UK ($3.56bn), Canada ($3.1bn), Australia ($2.3bn), the Netherlands ($1.9bn) and Switzerland ($1.2bn).

Willis Towers Watson head of strategic advisory for investments Jessica Melville said Australia’s

performance, whereby assets rose to 175% of GDP (up from 151% the year before) was particularly impressive, give over $36 billion in outflows because of the early access to super scheme.

“While early release supported members in their time of need during the pandemic, Australian funds have shown considerable resilience and they will continue to play a significant role in the nation’s recovery,” she said.

One notable trend from the research is that many assets owners are “turbo charging” climate change and accelerating to net-zero initiatives, leading to paradigm shift in extending from the two-dimensional model of risk and return to a three-dimensional one of risk, return and impact.

Melville said 2021 will be an interesting year for funds, following the Australian government becoming a signatory to the Coalition for Climate Resilient Investment.

“One of the main challenges and opportunities for impact among superannuation funds is the effective stewardship of their assets and a turbo-charged approach to ESG considerations led by climate change and the accelerating path to net zero. Funds will continue to draw upon a total portfolio approach to value creation to meet the ever-evolving needs of their stakeholders – members, wider society and the natural environment,” she said. fs

4

News

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

01: Francesco De Ferrari

Industry mental health improves

chief executive AMP

Continued from page 1 The study found that during 2020, financial and insurance services workers were in high demand to respond to government measures designed to ease the financial hardship faced by many Australians.

Helping Australians navigate the early release of super scheme, mortgage deferrals and reductions, and broader legislative changes, saw many in the industry working more hours, often by choice.

Sector workers experienced the largest increases in positive stress compared with workers in other industries (up 3.8 percentage points).

SuperFriend chief executive Margo Lydon said this was a positive change for the financial and insurance services industry from a mental health perspective.

“The industry appears to be rallying and recovering from within, with its people in demand throughout the pandemic and subsequent recession,” she said.

“During the height of the pandemic, the industry embraced the challenge of providing much-needed support to customers facing financial uncertainty, stepping in as one of the many essential services vital to Australia’s support and recovery.” fs

AMP loses Ares interest...

Eliza Bavin

A

The quote

AMP continues to review options for maxi­mizing the ability to grow.

Investors not doing enough Continued from page 1 enterprises all over the world realised their blind spots within risk management and security that ultimately threatened the safety of their people, operations, brand reputation and bottom lines,” Bailey said.

“In an era where organisations and leaders are now defined by how they respond to impactful, disruptive and divisive events, being caught unaware or unprepared can cause lasting damage to a company.”

The study analysed the findings, and identified inflexible tooling, lack of cross-functional collaboration, issues with confidence and company culture as stand-out challenges for global enterprises in their crisis preparedness response and planning.

Two key challenges identified were siloed processes and inflexible technology stacks.

Around 68% of enterprise risk decision-makers find access to real-time information to be siloed.

Over half (52%) of global risk and compliance decision-makers found cross-functional collaboration challenging, and 50% found process efficiency challenging when it comes to operationalising real-time information.

“As risks grow in speed and complexity, it’s evident that enterprises are recognising the need to proactively identify and mitigate risks as they unfold,” said Dataminr chief operating officer Jason Edelboim.

“Business resilience in 2021 means having a holistic view of your unique risk profile. A flexible risk framework, AI technology and real-time information all together offer an advantage for enterprise leaders who need to respond with speed and confidence.” fs

res Management has backed out of its acquisition proposal with AMP sayings its strategy for its Australia and New Zealand wealth management businesses is likely to be the optimal way forward.

The announcement comes as AMP disclosed its full year results with assets under management down 8% and AMP Capital down 7%.

AMP said its business was hurt by COVID-19 but it is experiencing increased momentum on the delivery of its three year transformation strategy.

Ares had made a non-indicative proposal to acquire the entire AMP business for 1.85 per share, totaling around $6.35 billion.

However, AMP said Ares pulled out of the deal the night before the results announcement following detailed discussions. AMP said it remains in discussions with Ares in relation to AMP Capital as part of its portfolio review.

“AMP continues to review options for maximizing the ability to grow and invest in AMP Capital including exploring partnership options,” AMP said.

“The board will provide and update on the outcome of ongoing discussions as soon as possible.”

AMP said it has seen strong progress in reshaping its advice network to a more compliant, professional and productive cohort having a number of practices exit to plan in FY20.

Additionally, it said it has significantly simplified its New Zealand wealth management arm which has laid the foundations for future growth.

AMP chief executive Francesco De Ferrari 01 said 2020 was a tough year across the world and COVID-19 had a huge impact on its clients, workplaces and broader community.

“Volatility in markets and economic downturn impacted the investments and financial security of many Australians and New Zealanders. True to our long-term purpose, AMP stepped up to support our clients navigate the uncertainty, providing early access to their super, pauses on their mortgage repayments, relief on their rent and advice and guidance when needed,” De Ferrari said.

“Within our business, it was also an extraordinary year, with significant internal change and the initiation of a portfolio review in 2H 20.

The review has made good progress, assessing options for the group’s assets businesses, and we are confident of bringing it to a conclusion in the near future.” fs

...as offloading AMP Capital becomes priority Elizabeth McArthur

With the sale of AMP Capital still on the table, AMP chief executive Francesco De Ferrari has addressed the asset management business’ cultural issues and hinted at who would take over its leadership.

De Ferrari assumed direct leadership of AMP Capital in August 2020 after its chief executive Boe Pahari departed amid sexual harassment claims.

In December last year, former Cbus chief executive David Atkin was appointed deputy chief executive of AMP Capital.

During a call to discuss AMP’s full-year results, De Ferrari revealed Atkin will be deputy chief executive until the middle of the year, giving AMP time to conclude the portfolio review and consider the sale of AMP Capital.

AMP Capital’s assets under management were down 7% year on year, performance and transaction fees were down 39% year on year.

“If we don’t make performance, we don’t make fees,” De Ferrari said.

Ares backed out of its non-indicative proposal to acquire 100% of the AMP business for $1.85 per share but the Ares bid or AMP Capital is still very much on the table.

De Ferrari said Ares’ core capability is in the asset management and the private equity giant has “strong compatibility” with AMP Capital’s business.

And, he emphasised that AMP is committed to addressing the cultural issues that were highlighted by Pahari’s departure from his Australian role. De Ferrari said special training had been rolled out to all executives and is now being extended to all employees.

On AMP Capital losing a series of super fund mandates in its Ethical Leaders fund – from QSuper, UniSuper, legalsuper and ESSSuper - De Ferrari said this was not a significant contributor to the to the overall outflows.

“On the outflows from AMP Capital, our institutional client base in real assets has been growing. Those clients are very happy with the products and the delivery and continuing to give us trust,” De Ferrari said.

“As it pertains to the public markets, our core clients in AMP Capital are really the Australian wealth business and Resolution Life.”

With Resolution Life closing to new business, he acknowledged an element of “structural outflows”.

“That’s why in our strategy we said we have great product, but we really need to look for partnership opportunities to bring more distribution to this product,” he said.

De Ferrari acknowledged that cultural issues were having an impact and that AMP is listening to feedback from clients.

“Clearly, on culture, it is my number one priority. We have set out a comprehensive program of work with a whole series of initiatives,” De Ferrari said.

“We spent a lot of time listening to our employees and listening to our clients and engaging them in one-to-one conversations on the actions we are putting on the table to become best in class in the management of conduct in the workplace – making sure that we have a high performing and inclusive culture.

“The work on culture is not complete and will probably never complete in an organisation like ours. It’s going to be always evolving.” fs

News

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

CBA guilty of deceptive conduct The Federal Court has found Commonwealth Bank of Australia made false or misleading statements and engaged in deceptive conduct on over 12,000 occasions.

Justice Lee found that CBA breached financial services law 12,119 times when charging a rate of interest on business overdraft accounts substantially higher than what customers were advised.

The Court also made a declaration that on each of the 12,119 occasions that CBA breached the ASIC Act, it also breached its general obligation as a financial services licensee to comply with financial services laws, in contravention of the Corporations Act. CBA admitted that from 1 December 2014 to 31 March 2018 it provided customers with terms and conditions for certain credit facilities that stated an interest rate to be charged or that had been charged. It also sent periodic account statements to customers referencing the rate at which that interest rate was being charged and, due to a systems error, charged more than 1510 customers a different, higher interest rate on their overdraft accounts.

In most cases the original amount customers were told they would be charged was 16% per annum, but in cases of the breaches in most cases customers were being charged 34% per annum.

ASIC said the total overcharged interest exceeded $2.2 million and that CBA’s conduct in relation to this resulted from inadequate systems and processes.

ASIC said it will seek pecuniary penalties and other orders against CBA at a penalty hearing on 6 April 2021. fs

Netwealth boosts profit, FUA Annabelle Dickson

The platform provider posted a 34.5% increase in statutory profit and a $4.5 billion rise in funds under administration in its half-year results.

Netwealth’s statutory profit reached $27.6 million and funds under administration grew to $38.8 billion while funds under management grew $1.5 billion to $9.3 billion.

Managed account inflows jumped $1.3 billion to $7.6 billion. The average account size increased to $440,000 as at 31 December 2020, with the average annualised platform revenue per account increasing 6.5% to $1666.

“As average account size increases, revenue streams are diversified and ancillary revenues increase,” Netwealth said.

EBITDA rose 30.1% to 40.5 million for the half year with an EBIDA margin of 56%.

The platform provider said its strategic investment in data solutions fintech Xeppo has the potential for third party partnerships and assists in pivoting the business to a multi-disciplinary integrated wealth practice.

Looking forward, Netwealth expects to continue to increase overall market share and forecasts net inflows for the year to reach between $8.5 billion and $9 billion.

In addition, Netwealth noted its new pricing is fully implanted and an FUA administration fee is not expected to increase in the second half of the year. fs

5

01: Sean Hughes

commissioner ASIC

ASIC to take targeted approach with intervention powers Eliza Bavin

A

The quote

You should be well underway in considering how best to approach implementing DDOs for your products and distribution.

SIC commissioner Sean Hughes 01 said the government’s Product Intervention Powers (PIP) will allow the regulator to take a targeted, calibrated and less prescriptive approach to regulation.

Speaking at the Australian Finance Industry Association Risk Summit, Hughes said ASIC will only be calling on its new PIP powers to intervene when absolutely necessary.

“As industry steps up to manage both financial and non-financial risks, ASIC will only need to intervene when early warning signs of harm and misconduct require us to do so,” Hughes said.

“I regard PIP as an extremely important addition to ASIC’s regulatory toolkit. It allows us to intervene where we are satisfied that a product (or class of products) is likely to result in significant consumer detriment.”

Additionally, Hughes said PIP enables ASIC to confront, and respond to, harms in the financial sector in a targeted and timely way.

“But there are important checks and balances – it is a temporary intervention power, and we must consult before each and every use,” he said.

Hughes also reiterated that an affected entity can seek to review any decision made by the regulator.

“Over time, the targeted solving of problems through product intervention may result in less regulation of industry overall,” Hughes said.

“In recommending PIP, the Financial System Inquiry identified the objective of limiting or avoiding the future need for more prescriptive regulation.”

Hughes also spoke about the regulators key priorities for the rollout of the design and distribution obligations (DDOs) scheduled for October this year.

“DDOs are commencing on 5 October 2021 and represent a real step-change in financial services regulation,” Hughes said.

“You should be well underway in considering how best to approach implementing DDOs for your products and distribution.”

Hughes said the two and a half years provided for companies to transition has been ample time for businesses to build their compliance capability for day one delivery.

“As I said earlier, from October 5 onwards ASIC will be expecting you to be ready to meet your obligations,” he said.

“We will also continue providing support to industry as you prepare for commencement.

However, the law is the law, and we will not be shy in enforcing it.” fs

Wage subsidy needed for new entrants: Association Jamie Williamson

The Association of Financial Advisers has called on the government to provide a wage subsidy to financial advice practices to encourage employment of new entrants needing to complete their professional year.

In its pre-Budget submission, the AFA has recommended the government incentivise advice practices with a $10,000 wage subsidy for employing professional year students, citing the significant cost involved in bringing on a new entrant whose contribution to the business will be limited.

Like the government’s JobMaker scheme, the AFA said a subsidy “would make a material difference in encouraging financial advice practices to appoint professional year candidates”.

“The majority of financial advice practices are small businesses who are currently under tremendous financial strain, however with the right incentive, they could grow their businesses and provide valuable employment opportunities to students after many years of study and set them up for a meaningful career,” the submission reads.

Such a scheme would help to offset the ongoing outflow of advisers from the industry, with just 58 provisional advisers currently on the ASIC Financial Adviser Register – no match for the 7600 that have left the industry since December 2018, according to the submission.

“More needs to be done to ensure that they are being replaced by new advisers and to encourage more employment and growth in small business and more jobs for students,” the AFA said.

The association has also asked the government to clarify why the ASIC Funding Levy for financial advisers has jumped 160% in the last two years, with the cost of ASIC oversight of the sector also more than doubling from $26 million in 2017/18 to $56 million in 2019/20.

“We observe that more is spent by ASIC on the oversight of financial advice than any other regulated community that ASIC oversees and question the rationale for this, particularly when the number of financial advisers is declining so rapidly and at the same time the professional standards are being increased,” the AFA said. fs

6

News

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

Wilsons starts Canberra office

01: Kevin O’Sullivan

chief executive UniSuper

Kanika Sood

The 125-year-old advice and stockbroking firm is establishing a Canberra office, as two financial advisers based in the region join from Elston.

Tim Anderson and Richard Taylor have joined Wilsons’ private wealth advisory team, which is headed by Paul Bryant.

“I am thrilled to be establishing an office in Canberra with the calibre and quality of the team we have put together, further expanding our footprint,” Bryant said.

“Tim and Richard will be able to deliver great outcomes for their clients through access to exceptional strategic advice from our Investment Strategy Group led by David Cassidy and our extensive range of investment insights across domestic and global equities, fixed interest and alternative investments.”

Anderson and Taylor have 30 years of combined experience. They join Wilsons from Elston, which offers private wealth services.

Wilsons said the Canberra office marks an important milestone for the firm, which now has offices in all capital cities and regional centres on the east coast of Australia.

“We’re excited to bring our private wealth advisory services to the people of the ACT and with our investment banking capability led by Rob Snow we look forward to adding value to the corporate clients of the region,” Wilsons chief executive Brad Gale said. fs

Magellan results hold surprises Magellan reported a small increase in its net profits, despite a 70% drop in performance fees and a stronger Australian dollar.

Net profit after tax for the six months ending December 2020 was $202 million, up 3% from the same period in 2019.

Total average FUM was $100.9 billion (9% higher), resulting in management fees of $311.4 million (8% higher) and performance fees of $12.4 million (down 70%).

Magellan’s strategies saw $3.7 billion in net inflows in the six months ending December 2020, which is at par with 1H20’s $2.6 million.

However, retail inflows were 40% lower at $1.4 billion, while institutional net flows grew from $1.2 billion to $2.3 billion.

The global equities strategy attracted $1.7 billion in net flows and global listed infrastructure attracted $2.1 billion. Airlie, which manages Australian equities, saw outflows of $100 million.

About 85% of Magellan’s total FUM is exposed to currency movements, of which 61% is exposed to the USD. The Australian dollar’s strength in the period wiped off about $12 million from Magellan’s management fee revenue compared to the previous corresponding period.

On the retirement product, Magellan said, it is still awaiting regulatory approval.

In an update on its newly-launched principal investments business, Magellan said Barrenjoey has now hired about 150 people and has begun onboarding clients. fs

Industry fund chief executive to depart Elizabeth McArthur

T The quote

After almost 40 years in the work force and a very intense last eight years, I’m looking forward to stepping back.

he chief executive of a $90 billion industry superannuation fund will be stepping down after eight years in the role.

UniSuper chief executive Kevin O’Sullivan01 will depart the fund later this year.

“Kevin has led UniSuper with distinction over the last eight years and the board sincerely thanks him for his leadership, contribution and commitment over that period,” UniSuper chair Ian Martin said.

“Under Kevin’s leadership, UniSuper has consistently been recognised as one of Australia’s leading superannuation funds, ranked amongst the top five funds for investment performance, member satisfaction and advice services.”

He added that O’Sullivan has been recognised as an outstanding leader in the industry.

“Kevin is highly respected by UniSuper’s employees, members and university employers as well as by so many people in the superannuation sector.

He has consistently “walked the talk” when it comes to putting members’ interests first,” Martin said.

“His contribution to both to the superannuation sector and to UniSuper’s success was appropriately recognised by the Fund Executives’ Association last November, when he was named FEAL Fund Executive of the Year 2020.”

Commenting on his departure, O’Sullivan said he was looking forward to a different pace of life in retirement.

“I have enjoyed incredibly my time at UniSuper. It’s been a real honour to lead this wonderful organisation and I’m very proud of the many successes achieved over that period, none more so than the way UniSuper navigated the COVID-19 environment in 2020,” O’Sullivan said.

“However, after almost 40 years in the work force and a very intense last eight years, I’m looking forward to stepping back and adding more flexibility to my life, including spending more time with my wife.”

UniSuper has appointed global executive search firm Egon Zehnder to assist with the appointment of a successor. fs

ETF liquidity disappears: Morningstar A new report from Morningstar has explored how ETFs performed in stressed market environments during February and March 2020.

Even ETFs could not escape the market turmoil that occurred at the beginning of the COVID-19 pandemic. Even what is considered the most liquid market, US Treasuries, did not escape the fear impacting investors.

This had a flow on effect, Morningstar found, to all ETF products holding these securities.

“By our calculations, the average increase in spread and spread to $100K for fixed income - Australian dollar ETFs was 571% and 728%, respectively, and the increase in those same metrics for fixed income - global ETFs was 479% and 569%,” Morningstar said.

“Suffice to say the trading environment through this period was inhospitable and a cause of frustration to investors looking to rebalance from bonds to equities as trading became more difficult and costly.”

The report also found that the number of units on-screen fell around 30% across ETFs on both bids and asks, and the value of those units fell more than 40%.

Morningstar measured how often market makers were so uncertain of the NAV of an ETF that they either removed all orders from market or put them so wide that the cost to trade would make it unviable. This was calculated as the percentage of days in the stressed market period

when there was less than $100,000 in total on both the bid and offer for five minutes or more.

For fixed income Australian dollar ETFs, this measurement moved from 2.2% to 10.2% of days in the stressed market environment. For global fixed income ETFs, it moved from 10.8% to 31.6% of days.

“We have often written about the care needed to trade ETFs, particularly in volatile markets, but we continue to observe unusual price spikes of 5% and 10% that indicate some investors are trading when market makers are not providing substantial volume at reasonable spreads,” Morningstar said.

ETFS Physical Palladium was the worst performer for liquidity during the period, Morningstar found, followed by two fixed income products - iShares JPMorgan USD Emerging Markets Bond (AUD Hedged) ETF (IHEB) and iShares Global High Yield Bond (AUD Hedged) ETF (IHHY).

Each had a spread to $100,000 of more than 300 basis points during the stressed market period, more than 10 times what we measured during the normal period.

“The lower-quality and higher-yielding fixedinterest securities did suffer enormous illiquidity, which plainly translated to ETFs that were holding those securities,” the report said.

Another fixed-interest product that felt the pain of illiquidity was VanEck Vectors Australian Subordinated Debt ETF (SUBD). Its spread to $100,000 jumped from eight basis points in the Normal Market Environment to 288 basis points–an increase of 36 times. fs

Product showcase

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

7

01: Glenn Boyes

general manager – wealth and advice, Australia Iress

Super Robo Advice: Made for members The last 12 months have seen Australians more engaged with their superannuation than ever before and super funds would do well to capitalise. ustralia’s financial advice landscape is in A a state of flux; financial adviser numbers are dwindling as the cost of doing business skyrockets and the end consumer, priced out of the market, suffers.

According to Rainmaker analysis of the ASIC Financial Adviser Register, there are now just over 20,700 advisers practicing in Australia and, according to ASIC research, they’re charging between $2600 and $2900 for comprehensive personal advice.

But, the maximum consumers are willing to pay for comprehensive advice is $550; almost a third of what the average adviser charges for limited advice.

At the same time, cost-effective robo-advice solutions have largely struggled to gain meaningful traction in Australia. In fact, in early 2020, Investment Trends found that just 7% of Australian investors were using roboadvice solutions – well behind the United States and United Kingdom at 23% and 13% respectively.

However, the uncertainty of COVID-19 has propelled many Aussies to reevaluate their financial situation and it is against this backdrop that Australians are increasingly turning to their superannuation fund for financial guidance, creating an opportunity too good to ignore.

Unfortunately, there’s one more hurdle; having not traditionally seen the demand they do now, many super fund advice offerings leave a lot to be desired.

“There has been a relatively slow adoption of online advice solutions for super funds but we’ve seen an acceleration of that during 2020 and we’ll continue to see an acceleration in 2021 and beyond,” Iress general manager – wealth and advice, Australia Glenn Boyes says.

An active participant in the superannuation industry for some time now, Iress helps funds create efficiencies via technology, providing back-end services such as registry infrastructure and automated fund administration software and services.

Globally, Iress has over 500,000 users across 9000 businesses.

Known for its Xplan software, widely used by Australia’s financial planning community, Iress also offers online engagement software for super funds. This includes member and digital financial advice portals; the gateway to a members’ advice journey.

With Iress’ software, when a member logs into their super fund portal, the information

available in the existing registry is gleaned and repurposed as the member is taken on an online advice journey. “[We are] targeting a number of different topics and focusing on goals-based advice for the member, and we use the underlying calculation engines within the back-end to produce outcomes that the member can see online and possibly execute themselves,” Boyes says.

But first, the member must get to that point.

So how does a super fund, looking to invest the resources into implementing robo-advice software, ensure members will jump on board?

Knowing where to start is not always easy for super funds, Boyes says, but it okay to start small.

“Often the view of the fund is that they would like to provide all of their advice services via online means, but that doesn’t necessarily need to be the case,” he says.

“Starting small can actually be the catalyst for building a broader and more comprehensive online advice offering.”

Attempting to be all things at once may not be the most sensible move for a fund to make either. A study from the CFA Institute in 2020 found 81% of Aussies would prefer to rely on advice from a human adviser. Acknowledging this, super fund members can seek assistance from a financial adviser at any time throughout the process and can be easily transitioned into a funds’ traditional advice channels, whether that be phone-based, video conferencing-based or face-to-face.

This is because, at its most effective, a super fund’s online advice offering should be a triage service through to the more traditional advice channels, Boyes explains.

“So, if a member goes through the journey online from start to finish, including execution, that’s great but doesn’t necessarily need to be the success measure,” he says.

“Just knowing you’ve got members that need advice and are reaching out for further assistance is also incredibly valuable and the ability to be able to triage that data into your traditional advice model is equally important.”

And there are several key elements that ensure the successful roll out of super robo-advice, Boyes says.

Firstly, Boyes says the tool must be engaging; “the member needs to understand the tool and have a great user experience”.

Engagement is something super funds have struggled with greatly over the years, but the government’s unprecedented early release of

The quote

It’s important for a super fund to have an advice platform that can support the multi-channel advice journey.

superannuation scheme saw millions of Aussies take an active interest in their retirement savings – many for the first time.

A robo-advice tool should ideally help members to better understand superannuation, what it means for them now and in retirement, Iress says.

To that end, education is also key, Boyes adds.

So often when we think about our finances, we think in terms of transactions; money in and money out. And perhaps much of this comes down to the fact that 75% of Aussie households don’t have adequate savings to cover unexpected expenses, Mozo found last year.

“They need to know why they’re using the tool and they need to be informed as to what the better outcome [of using the tool] might actually be,” he says.

Finally, the value of using the online tool must be clear to the member and the tool must be one the member can revisit over time, to refer to for motivation or correct their course at any time of the day.

“It’s important to be able to provide progress reports on how the member is tracking towards meeting goals and revisit which strategies they may need to look at in order to meet those goals over a period of time,” Boyes explains.

And as COVID-19 and the threat of further uncertainty plays on Aussies’ minds, there’s no time like the present for super funds to beef up their capabilities. Not only that, but Boyes expects the role of technology in financial advice is only going to grow.

Boyes expects that, over the next five years, advice will shift into a hybrid model; a combination of a personalised advice service by advisers and a digital advice model.

“It’s important for a super fund to have an advice platform that can support the multichannel advice journey,” he says.

“That means members that start their journey online can triage through the other advice channels and there’s a seamless transition of that member data and information passing through each of those channels each time.” fs

Brought to you by

Watch the video on www.fsitv.com

8

News

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

Lazard undertakes restructure

01: Alex Dunnin

executive director of research Rainmaker Information

Elizabeth McArthur

International financial advisory and asset management firm Lazard has confirmed it is undertaking a restructure of its Australian business.

The reorganisation of the firm in Australia will not change anything for Lazard Asset Management.

However, it is likely to result in a new and different Australian Financial Advisory business model, a spokesperson for Lazard said.

“Lazard is fully committed to servicing its existing clients – a core team will continue to work on all current mandates,” the spokesperson said.

Lazard Australian Financial Advisory is separately managed to Lazard Asset Management.

The spokesperson said the newly reorganised Lazard Australian Financial Advisory will be led

by Andrew Leydon.

Leydon is co-chief executive of Lazard Carnagie Wylie. Australian advisory firm Carnagie Wylie was acquired by Lazard in 2007.

Since then, the corporate advisory firm’s work has focussed on mergers and acquisitions.

Lazard is yet to clarify whether the restructure will mean many job losses at the firm. fs

Aware expands portfolio Karren Vergara

Aware Super continues to build its affordable housing portfolio with the addition of a new development in Greater Western Sydney.

The $135 billion superannuation fund will construct 300 affordable housing units and 8750 square metres of office and retail space close to Liverpool Hospital.

The development, which has an estimated value of $300 million, will cater to housing essential workers in Liverpool, such as teachers, nurses, aged care and disability support workers, law enforcement and emergency services workers, and childcare employees.

Damien Webb, the head of income and real assets at Aware, told Financial Standard that the units will be offered at a 20% discount.

During the pandemic, one area of concern Aware heard from its members was the issue of housing affordability.

“We felt it was important to devise a program where the fund can make good investments and returns, but at the same time do our bit to address the shortage of quality affordable housing,” he said.

Aware’s property investment targets a return of 5% above inflation.

He added that the units will help essential workers reduce their work commute time, and ultimately spend more time with their families.

Aware Super’s pledge to such projects nationally has ticked over $450 million. The project is the fund’s second major essential-worker affordable housing venture.

Some 100 essential-worker affordable housing units, which are part of the Alphington development in Melbourne, are underway. fs

Lifecycle products cost members: Research Eliza Bavin

The quote

While the best lifecycle products perform very well, there is massive disparity between these and low-performing lifecycle products.

N

ew Rainmaker research has found being a member of a typical lifecycle MySuper product could reduce a person’s retirement savings by up to 23% by age 70.

The research found that if a member were to stay in a typical lifecycle MySuper product for their entire working lives, they could lose up to $170,000 in savings.

The Rainmaker Superannuation Benchmarking Report found that single strategy MySuper products at least matched, and often beat, the lifecycle MySuper index across all age groups over the three and five-year performance periods to 30 June 2020.

“While the best lifecycle products perform very well, there is massive disparity between these and low-performing lifecycle products,” Rainmaker Information executive director of research Alex Dunnin01 said.

Additionally, over the three-year performance period to the end of November 2020, there was a 3.3 percentage point gap between the top placed product, and the bottom placed product.

Rainmaker said the COVID-19 crisis has added extra pressure with the difference in returns over the 12 months to 30 November 2020 growing to 5.5 percentage points.

Of the five lowest-performing lifecycle My-

Super products, four were retail and one was a not-for-profit (NFP) fund.

Of the five top performers, four were NFP funds and one was a retail fund.

Despite the current performance figures, Dunnin said that the idea behind lifecycle products remains compelling.

“As you get older your investment risks are dialled down and a greater proportion of your MySuper savings are allocated to more conservative assets like bonds. There is less chance of losing money,” he said.

“But the strategic problem in the lifecycle sector is not the concept behind them, but the huge variation in their outcomes. That is, as a group, they don’t seem to be actually working properly. Their leading products are nevertheless extremely impressive.”

Dunnin said some advocates of lifecycle MySuper have argued that it’s not possible to compare lifecycle investment strategies, and that it’s only when members retire that they’ll know if they’ve achieved their goals.

“But that’s absurd. It will be like telling parents that the first time they will ever see their child’s school report is after their child has left year 12,” Dunnin said.

“If lifecycle products, as a group, don’t improve, there’s real risk that pressure could grow for the regulator to prohibit them from being offered as default MySuper products.” fs

IOOF subsidiary loses appeal Annabelle Dickson

IOOF is set to pay millions in compensation after losing an appeal over its subsidiary Australian Executor Trustees (SA) Limited.

The Court of Appeal dismissed AET’s appeal against a decision made by the Supreme Court of New South Wales in 2019 in the S.E.A.S Sapfor Forests Pty Ltd case.

AET was appointed as the trustee of the S.E.A.S Sapfor Forests Pty Ltd in 1965 and the scheme was to invest in timber on behalf of “covenantholders” who eventually took losses.

One of the covenantholders, David Kerr was backed by litigation funder IMF Bentham and acting on behalf of 4500 investors demanded AET pay $82 million in compensation.

Last year the Supreme Court ruled that Kerr was entitled to receive equitable compensation from AET in the amounts sought by him ($82.46

million) minus the receiver costs of about $1.6 million.

IOOF expects the pre-tax exposure to reach $19 million net of insurance proceeds and excluding costs.

Following the ruling in 2019, IMF Bentham said: “Whilst final orders [from Supreme Court of NSW] are awaited, the Trustee is expected to be awarded compensation of approximately $80 million plus costs, payable by Australian Executor Trustees (SA) Limited.”

IOOF also flagged in September 2019 that it would explore “all legal options” in appealing the case.

IMF is expecting net income of roughly $30.5 million, and a net profit after tax of $28.1 million.

IOOF sold the corporate trust AET corporate trust business to Sargon for $51.6 million in 2018 but retained the private trust business. fs

For more news and events, like us on LinkedIn

Advisers Big Day Out (ABDO) Investment Manager Roadshow 2021 is part of Financial Standard’s professional development series, attended by more than 2000 financial advisers around the country each year.

ABDO will give you the chance to network with your peers and hear from Australia’s leading fund managers in a time effective manner. Gain insight into some of the latest topical issues and be kept up-to-date with the diverse range of investment opportunities, while earning CPD hours.

CAPITAL CITIES Perth Adelaide Melbourne Brisbane Sydney

Tuesday 16 March Wednesday 17 March Thursday 18 March Tuesday 23 March

EARN CPD HOURS

Wednesday 24 March

REGISTER NOW

www.financialstandard.com.au/abdo_capital_cities Financial Standard Financial Standard @FinStd

2021

10

Opinion

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

01: Michelle Russell-Dowe

head of securitised credit Schroders

From #TheZero to hero

Looking across the investment landscape, there is a continuing need to address investment challenges owing to the environment we at Schroders are referring to as #TheZero. ith many economies at the beginning of W what is likely to be a prolonged period of policy-led financial repression, individuals, penisons, insurers, banks, we all have to focus on #TheZero and its impact on investment decision-making and its impact on asset allocation.

Absence of income A key issue for investors at the moment is the absence of income, which manifests when benchmark yields approach zero as a result of the zero interest rate policy (ZIRP) or negative interest rate policy (NIRP) adopted by many larger central banks. With interest rates near or below zero, the efficacy of the standard 60% equities/40% fixed income investment portfolio allocation triggers more questions than answers.

For instance, can we achieve a balance between growth and safety? How do we earn income if the base return is zero, and are we still looking for alpha? Is duration any longer an effective tool to offset equity volatility?

It has become an important exercise to re-examine the risks that we take on in order to earn alpha. Indeed, is now the time to reassess, or revisit, the merits of exposures to certain asset classes as well as their current efficacy as return generators, or as volatility hedges?

As yield metrics and potential returns for traditional asset classes decline, investors are on the search for yield. But, now, more than ever, with the pull forward of returns, investors must consider investment risk premium and the return compensation for exposure to risk factors, as this can range quite dramatically. With very low structural yields and lower expected returns it is important to consider the interplay among types of risks, or to consider more risks, rather than just more risk.

Of course, #TheZero is not new; we have seen near-zero interest rates in Japan as well as in Europe. However, when those local rates declined, the US and also Australia became havens of sorts, as the higher yielding developed economies. This is no longer the case; globally, ZIRP is here to stay, at least for the foreseeable future.

Impact on investors Until recently investing retirement savings usually meant purchasing bonds. An allocation to bonds would generally allow investors to earn income with a relatively lower risk of losing their lump sum investment.

But with the coupon income generated by ‘safe’ government bonds near zero, that means zero income. Zero income isn’t likely a long term strategy for retirees. And with an ageing society, this problem is compounded.

If savings do not generate adequate income, there are only three options: people can spend down their savings, they can try to reduce their expenses, or they can continue working for a longer period prior to retiring.

This is the undisputed impact of “#TheZero”, and these options will garner a lot more attention in the future.

Furthermore, for bond investors there have been four significant sources of return over the past four decades: duration, roll-down, coupon and spread. They are all likely to be far less significant in the years to come. #TheZero has seen to that.

So, with traditional sources of yield and returns declining, where can attractive returns be found?

Today there are more attractive yields coming from more esoteric areas such as Asset Backed Securities (ABS), collateralised loan obligations (CLOs) and commercial mortgage backed securities, than from the more common traditional bonds.

For example, today the European ABS index offers more attractive metrics relative to US investment grade credit than at any point in the last three years, implying that the premium for the complexity is more attractively priced today.

This is the benefit of looking further afield for diversified sources of income.

When looking at yield alone, it is the traditional assets that have seen risk premiums reduced the most in the voracious search for yield.

With very low structural yields and returns it is important to consider more risks, rather than just more risk as the backbone of portfolio construction. It is also important to consider a more diverse basket of less correlated assets to embed resilience.

What’s more, the building blocks of a successful strategy – liquidity, opportunity, recovery and carry - will likely require new thinking about sources for return.

Liquidity A wider range of investment possibility means that assessment of liquidity becomes a more important lever. Managers may need new structures to provide investors with access to some

of the asset classes that have typically been accessible only to larger investors. For some there will be more material changes to create a diverse portfolio by using a range of alternative or private assets, non-traditional asset classes, or structures. For others it may be a first step into considering a non-benchmark sector with a better income or maturity profile.

Opportunity Based on their exposure to certain themes or trends, some products benefit from opportunity, either right now or down the road. Opportunities today are more likely to include those that are housing related, but future opportunities will include real estate-, consumer- and corporate-related.

The quote

Recovery

The building blocks of a suc­cessful strategy – liquidity, opportunity, recov­ery and carry – will likely require new thinking about sources for return.

Other types of opportunity can be driven by mispricing. Recovery opportunities are often the “babies thrown out with the bathwater” in dislocated or uncertain markets. The real estate market facing the impact of change is a good example. In this way, a range of opportunities may be created in both currently favoured subsectors (industrial) and currently loathed subsectors (retail, office or hotel).

Income Assessing the carry of a bond in consideration of its duration and potential volatility should be a key driver. If this is desirable, our view is that the Asset Backed sector affords these characteristics more so than many other sectors.

In an era of #TheZero, we expect that investors will need to look more carefully at the spectrum of risk factors that are tolerable today.

Given today’s level of economic uncertainty, asset owners will need to reconsider how they pursue their required outcomes, and their exposure risk.

To be sure, based on today’s facts and circumstances – policy support, idiosyncratic risk and disruption – there are factors worth emphasising and factors worth de-emphasising. It may be worthwhile taking some risk exposure, specifically exposure that will benefit from accelerating trends. There will also be opportunities created as the world changes post COVID-19.

Access to opportunity has a place in an investment portfolio. But there is merit to diversifying that exposure, given uncertainty. fs

What’s in store for the economy in 2021?

Join the industry’s leading economists and strategists as they share their outlooks for the year ahead, covering:

• • • •

Government stimulus Trade tensions The spread of COVID-19 in Europe US markets under a democratic administration

Book your table now Melbourne

Sydney

Tuesday 2 March 2021 8:00am - 9:30am

Thursday 4 March 2021 8:00am - 9:30am

financialstandard.com.au/chief_economists_forum

12

News

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

Hostplus enhances ESG option Hostplus is changing its sustainable investment option on the back of growing demand from members who want a more sustainable and principled approach to their investments.

The Socially Responsible Investment Balanced option (SRI) now excludes a broader range of industries.

From February 15, the option excludes companies that own reserves, explore, mine, extract, produce, refine or generate energy from fossil fuels.

It also excludes companies that breach human and labour rights; manufacture controversial weapons; operate in gambling; conduct live animal exports; produce tobacco; use uncertified palm oil; and operate for-profit detention centres.

Hostplus sees the option benefiting from its investment in healthcare and medical solutions via its venture capital investments.

SRI will instead invest in companies that contribute to sustainable outcomes in renewable energy, green buildings, clean water, community infrastructure, green bonds and alternative foods.

SRI launched in 2017, implement an investment strategy that aligns to the UN Sustainable Development Goals.

The option was previously managed by AMP Capital, but since the refresh Hostplus has awarded the mandate to external investment managers to oversee the option.

SRI allocates to local and international listed equities, and unlisted assets such as property, bonds, cash, and private equity. It targets a return of 3.5% per annum above inflation.

The $55 billion super fund announced it was actively considering a net-zero emissions target as part of reviewing its approach to climate-related risk management at its December 2020 annual members’ meeting. fs

01: Natalie Cambrell

principal solicitor KQH Lawyers

The trouble with the best financial interests duty Karren Vergara

T

The quote

Both the proposal to add the word ‘financial’ to the existing best interests covenant and the proposal to reverse the evidential burden of proof are not warranted.

he best financial interests duty reform has major loopholes and lacks guidance from regulators, leading to major confusion for superannuation trustees.

The fourth element of the proposed Your Future, Your Super reforms should be abandoned, according to superannuation industry experts who spoke in a webinar, New Draft Legislation, hosted by the Australian Institute of Superannuation Trustees.

The insertion of the word ‘financial’ in ‘best financial interest duty’ appears to be unnecessary, according to Natalie Cambrell01, principal solicitor at KQH Lawyers.

“Both the proposal to add the word ‘financial’ to the existing best interests covenant and the proposal to reverse the evidential burden of proof are not warranted,” she said.

The best interest covenant derived from case law and there is already a financially focussed covenant for trustees that was introduced a few years ago, Cambrell said, adding that she does not see why this latest reform was necessary as it is essentially doubling up.

The panel and the broader industry, since the

package of reforms was introduced in October 2020, concur that guidance and direction for part four was fairly light.

Christian Gergis, the head of policy at the Australian Institute of Company Directors, said the proposal needs better elucidation and the fact that it was introduced implies that trustees are not currently doing the right thing.

AI Group chief policy adviser Peter Burn agreed that the government’s approach to protect member interests has been poorly conceived and designed.

It fails to clarify what is meant by acting in members’ best interests (or best financial interest) and proposes an illogical and unprecedented power for regulators to prohibit actions that are in members’ best financial interest, he said.

The new legislation will also focus on how trustees spend members’ money - justifying what is essential and non-essential expenditure.

Scott Connolly, assistant secretary of the ACTU said that there is a specific exclusion of dividend payments to parent companies from being required to comply with the newly worded best financial interest test - which is “hypocritical and unfair”. fs

Praemium profit, growth up

Super funds bow to divestment pressure: Market Forces

Annabelle Dickson

Elizabeth McArthur

The managed accounts platform has recorded a 113% increase in net profit after tax from the first half of 2020 to $3 million, following the acquisition of Powerwrap.

In its half-year results, Praemium reported a 69% jump in funds under administration (FUA) to $34.3 billion with its Australian platform FUA reaching a 132% increase to $16.4 billion and the international platform up 24% to $3.9 billion.

Praemium chief executive Michael Ohanessian said the first half results have been “truly transformational” with the recent acquisition as the most important in the company’s 20-year history.

“The addition of Powerwrap positions Praemium as a major player in the fast-changing Australian wealth management landscape, and integration is progressing well,” he said.

“2020 was a year of significant disruption and challenges. However, the strength and resilience of our people see us placed in a strong position going into the new calendar year.”

Revenue increased in the Australian business by 28% on the first half of 2020 to $25.4 million, including Powerwrap’s revenue of $6.9 million.

EBITDA declined 1% to $8.4 million. fs

A new report has revealed the number of companies Australia’s largest super funds have rapidly divested amid pressure to invest with climate change in mind.

Nine of the 40 largest super funds in Australia have now announced divestment from some of the worst carbon emitting companies, according to research from Market Forces.

The combined assets under management of the super funds that have started to divest from fossil fuels is now $500 billion, representing almost one quarter of all superannuation assets under management (excluding SMSFs).

Market Forces’ Out of Line Out of Time report highlighted 23 of the ASX-listed companies that it identifies as having a negative impact on the environment and climate change, with the report arguing that all these companies are worthy of divestment.

These companies included the likes of Woodside Petroleum, BHP, Santos, Washington H Soul Pattinson, Whitehaven Coal and Oil Search.

“Despite this recent progress, the majority of Out of Line companies continue to enjoy the financial backing of the majority of our super funds,” Market Forces said.

“With this in mind, Market Forces has worked with shareholders to force super funds to have a difficult conversation with fossil fuel producers, with investors having to vote on formal proposals calling on companies to bring about an end to fossil fuel production.”

For example, Hostplus has a $88.4 million holding in Woodside Petroleum, a $73.5 million holding in Santos and a $539.7 million investment in BHP. These investments prompted Market Forces to create a new campaign specifically calling on Hostplus to divest from fossil fuels.

It comes after their campaign calling on UniSuper to divest proved successful, with the fund announcing in September 2020 that it would divest thermal coal mining companies including Whitehaven Coal, New Hope Group and Washington H Soul Pattinson.

While AustralianSuper, Aware Super, UniSuper, HESTA, Rest and Cbus have all made commitments to divest thermal coal and/or to reach net-zero emissions by 2050, some of Australia’s other largest super funds - Commonwealth Super Corporation, QSuper, Sunsuper and Hostplus - are bucking the trend. fs

News

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

13

Executive appointments 01: Ben Daly

Perpetual bolsters distribution team Perpetual has made three key hires to its distribution team as part of a global strategy across its asset management divisions.

Ben Daly 01 has been appointed director of institutional business for Perpetual Asset Management in Australia.

He joins from T. Rowe Price where he was vice president, institutional sales. Daly was formerly executive director at Goldman Sachs and earlier in has career worked at ClearBridge.

Nicole Aubrey has also been appointed senior manager national accounts for Australia, she previously held roles with HRL Morrison, Pendal Group and Investors Mutual.

Meanwhile, Rob Kenyon will become head of intermediary and business management for the Americas. Kenyon will be based in New York.

“Strengthening our distribution capability in Australia and overseas remains essential as we look to build on our existing presence and extend the reach of Trillium and Barrow Hanley,” Perpetual global head of distribution Adam Quaife said.

“In addition, we are now seeing a rotation to recovery and an uptick in client search activity for our broad capabilities, so the team is now very well placed and well-resourced to further bring our strategies to market going forward.”

He added that the Australian hires are part of Perpetual boosting its capabilities in key markets.

“As Perpetual continues to accelerate its global distribution strategy across different capabilities and geographic markets, these appointments in both Australia and the US, are key in helping us open up new markets and opportunities,” Quaife said.

“With impressive track records and deep expertise across institutional and retail markets, it’s great to have Ben, Nicole and Rob join our distribution team of now more than 70, to further extend our reach in Australia and globally over time.”

Frontier on hiring spree Frontier has flagged hiring appetite for senior consultant and research roles, as it announces eight new additions including a senior consultant from CitiBank.

Jill Guan has joined Frontier as a senior consultant specialising in debt and currency. She has worked at CitiBank, HSBC and ANZ. Two other associate-level additions to the consulting team include: Jenny Li, who has previously worked at UniSuper and Morningstar, and Sorin Zota, who has worked at Mercer and LaSalle Investment Management.

In business development, Frontier has hired Caryn Benness as business development manager. She has 20 years of experience and was most recently worked at Mercer.

On the technology team, Frontier has hired Jane Tran as a business analyst, Nishant Garg as an application developer and Socrates Toussas as IT support engineer. Lastly, Stephanie Hosking has been appointed people and culture adviser.

Schroders appoints new chief executive Schroders has appointed a new chief executive for Australia, who will report to APAC co-chief executive Chris Durack02 .

Sam Hallinan will become chief executive for Australia, focusing exclusively on the region.

He joins Schroders from Nikko Asset Management where he was managing director of its Australian business.

Earlier in his career, Hallinan was managing director at Antares and held general manager roles at both MLC Investment Management and NAB Asset Management.

Co-chief executive Durack welcomed Hallinan to the role.

“We are thrilled to welcome Sam to our team and his appointment highlights our focus and commitment to the ongoing investment in the Australian business,” Durack said.

“Sam’s experience and proven leadership will add further depth to our management capability as we remain focused on delivering great investment outcomes for our Australian clients.”

The hires come as Frontier looks to diversify its business beyond its traditional superannuation clients, who are increasingly building in-house capabilities and facing merger pressures.

More than 50% of its clients (by number) are now businesses other than superannuation funds.

“Our business is growing, both in terms of new clients we have the privilege to work with, but also in terms of the depth and range of services clients are seeking from us, and which we are proactively developing,” Frontier chief executive Andrew Polson said.

“Frontier is at a size now where not only are we adding to our team to maintain a client to consultant ratio that enables us to continue the quality and tailoring of our advice, but we are investing specifically in specialist non-consulting resources, in particular in our market leading technology capability” he said.

The firm said it is currently hiring senior consulting and research roles across investment governance, responsible investing and alternatives and derivatives disciplines.

BlackRock appoints APAC lead BlackRock has named a new chair and head of Asia Pacific, as Geraldine Buckingham moves into an advisory role.

Currently head of Europe, the Middle East and Africa, Rachel Lord will take over from Buckingham in May of this year.

Buckingham, who has held the role since November 2018, will move into a senior advisory role.

Lord has held her current position since 2017 and is a member of the firm’s Global Executive Committee. She previously led the iShares business in the EMEA region and was head of global clients, ETF and index investments.

She has been with BlackRock for about eight years, having first joined in 2013 from Citigroup where was global head of corporate equity derivatives. Prior to that she spent 13 years at Morgan Stanley.

The appointment of one of the firm’s strongest leaders to head the APAC business underscores BlackRock’s commitment to the region as a top strategic priority, BlackRock head of international and of corporate strategy Mark Weidman said.

“Rachel has piloted growth in assets and revenue in a complex EMEA region undergoing economic and regulatory shifts, while taking BlackRock deeper into local markets,” he said.

“I am excited to see Rachel’s experience and expertise and her track record in Asia paired with the strong regional leadership already in place to advance our business.”

Lord, who will be based in Hong Kong, said she cannot wait to start working in “one of the most diverse and dynamic regions in the world”.

BlackRock is rapidly transforming its business to match APAC investors’ aspirations, she added.

“Who we are and what we offer must reflect the region and its needs, so the opportunity to accelerate BlackRock’s APAC business over the

02: Chris Durack

next decade is a game changer. I have seen firsthand how our business really takes flight when we get closer to our clients,” Lord said.

Executive shuffle at Macquarie Group Macquarie Group has announced a new head of its asset management business and bank as longtime executives step down.

Announced as part of Macquarie’s results, Martin Stanley will be stepping down as group head of Macquarie Asset Management (MAM) after 16 years in the role.

Ben Way is set to step into the position of group head of MAM and join the executive committee to fill Stanley’s shoes.

Way currently leads the global alternatives division in MAM and is also Macquarie Group’s Asia chief executive.

Stanley will transition into the role of chair on the executive committee, having served as a member for the past two years.

Additionally, Mary Reemst has decided to retire from her role as managing director and chief executive of Macquarie Bank (MBL) after 22 years with the company.

Reemst has been on the executive committees for MBL for seven years and serves as the chair of the Macquarie Group foundation.

From July 2021, and subject to regulatory approvals, Stuart Green will fill the role as well as join the MBL board and executive committees.

Green has worked with Macquarie for 20 years and has served as the group’s treasurer since 2013.

The Macquarie Group and MBL boards will also undergo a change with Gordon Cairns stepping down on 7 May 2021.

Cbus appoints three investment heads The $55 billion industry fund has named three new investment heads.

John Longo is Cbus’s head of property, starting mid-February.

Longo joins from AustralianSuper where he was a senior investment director for four years. Prior to this, he was a property director at the Future Fund for five years, and has also worked at Challenger and HSBC. The fund has appointed James Crawford its head of equity portfolio construction. Crawford has worked at First Sentier, AllianceBernstein and Wellington.

Crawford was also previously head of investment strategy at IAG Asset Management and a principal/senior consultant at Towers Perrin.

He has also worked at Commonwealth Funds Management including as head of research and manager of trading.

Lastly, Serge Allaire has been appointed Cbus as head of private equity.

In his most recent role, Allaire was a portfolio manager for NAB’s MLC Asset Management’s private equity portfolio for Asia and Australia. Prior to this, he worked as a general manager, business development at nabInvest. fs

14

Feature | Estate planning

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

TRUST THE PROCESS

The Baby Boomer generation is on the cusp of the largest intergenerational transfer of wealth in history. With $68 trillion on the line, how do we ensure a smooth transition? Eliza Bavin writes.

Estate planning | Feature

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

01: Trish Prince

02: Clark Morgan

03: Anna Mirzoyan

senior adviser Fitzpatricks Private Wealth

head of strategy and development Crestone Wealth Management

compliance and technical officer Lifespan Financial Planning

T

he Baby Boomers have meant many things for the world – born from post-World War II optimism and known for everything in modern times from the sexual revolution of the 1960s to the vast amount of wealth they acquired as they reached middle age.

Now, they are about to embark on the largest intergenerational wealth transfer in history, with $68 trillion globally, and $3.5 trillion in Australia (Figure 1), set to be passed on to the next generation.

While most of this money is held in individual retirement accounts, for many it is tied up in investments like equities and property.

The question then becomes, how do we ensure the smooth transition of these assets without losing great chunks through complex legal and tax requirements?

The answer for this is most often in establishing a testamentary trust which allows for any inheritance being passed on to beneficiaries while adding additional protections and helping them achieve certain tax advantages.

However, as many financial advisers are all too aware, there are issues that arise in every family that also need negotiating.

Supporting the bloodline On the surface one might think estate planning is simple; write a Will that leaves everything I own to my children.

But, as Fitzpatricks Private Wealth senior adviser Trish Prince 01 explains, things are rarely that simple when it comes to any family.

“Many people are concerned about the money they have worked hard for their entire life and how they are going to ensure it is passed on safely not just to their children but also to their grandchildren,” she says.

Prince says this concern about ensuring it is only those who are related by blood who will benefit can be tricky to navigate.

Due to this, Prince says she likes to “uncomfortably disturb” her clients, in that she knows the only way to sort through potential issues is to get them all out on the table.

“I like to put up a family tree and say ‘okay, who in the family doesn’t get along’ and cre-

ate a safe space where they start to feel more comfortable and things eventually come out,” Prince says.

“Then I ask them who they actually trust with their money and who they feel they can trust to be in control. There are always issues and family dynamics that have to be navigated.”

For some it may be that while a couple may wish for their daughter to receive inheritance, they may not want her husband to receive any, for example.

Another issue comes into play when you have blended families. Once you start to bring in children from previous relationships the family tree can start to get meddled.

“What we offer, especially in circumstances where things are very fragmented, is to have a meeting with those who will be in control of the money,” Prince says.

“This can help them understand the ‘why’.

So, they know it wasn’t about excluding someone from benefitting but more about including the bloodline in benefitting and not those who may come along later.”

Having a sense of understanding is extremely important, says head of strategy and development at Crestone, Clark Morgan02 .

When establishing a trust it is not just about ensuring everyone understands who the beneficiaries are and why, but also what the purpose of the money is.

“It is important to understand what a client wants to achieve. Is it an understanding of the values that they subscribe to and the ways in which they generated the wealth and then passing that on to the children,” Morgan says.

“Or is it telling the next generation how you want that money spent; is it going into a charitable disposition, are you going to give it to the kids, is it just cash or is it for business?”

Morgan says the best way to deal with conflicts in families is by setting up a dispute resolution.

Morgan says while this may sound very formal it is just a simple way of ensuring there is a clear and agreed upon way to deal with disagreements within the family.

“If you set up a clear dispute resolution oath before any disagreement occurs you have a solid framework to refer back to,” Morgan says.

Not having a complex estate or fancy investments should not be the reason for people to ignore the potential benefits of making a provision for a testamentary trust in their Will.

Anna Mirzoyan

15

“In many cases we have seen families that have set clear guidance that unless you are a direct descendant that is bloodline of the parents you don’t get a seat at the table.”

It may seem harsh, but many financial advisers understand these issues because they have seen it go wrong. Prince and Morgan agree that it is much better to have everything out on the table than to wait for issues to arise later.

Lifespan Financial Planning compliance and technical officer Anna Mirzoyan03 says that because financial advisers are in most cases the first professionals to have these discussions with clients it is important to get the facts straight.

She says in many instances clients simply don’t think that there is any need to go beyond having an up-to-date Will.

“It is great that the client has a current Will that reflects their wishes; however, they may also benefit from adding a provision to their Will to establish a testamentary trust for certain beneficiaries if need be,” Mirzoyan says.

“Not having a complex estate or fancy investments should not be the reason for people to ignore the potential benefits of making a provision for a testamentary trust in their Will.”

As Mirzoyan explains, this will give the executor of their estate flexibility and the ability to exercise discretion at the time and determine if there is a need for establishing a trust.

“Yes, there is a cost involved in seeking professional advice, establishing the trust, and maintaining the trust and that cost is usually weighed against the potential benefits the trust can add to future beneficiaries’ financial circumstances,” she says.

“The establishment of the trust is not limited to family members only. Charitable organisations or even pets may also benefit from the trust.”

Understanding jargon Understanding the legal requirements involved with establishing a trust is one of the most complicated factors after working through family dynamics.

Prince works very closely with lawyers and accountants to ensure everything is prepared by the book.

“We are not lawyers and at the end of the day unless you have studied the law in the way law-

16

Feature | Estate planning

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

04: Erin Brown

05: Robert Hayward

special counsel Australian Business Lawyers and Advisors (ABLA)

financial adviser Crest Accountants

yers have you can’t profess to actually know the ins and outs,” Prince says.

“I actually think it is dangerous if you think you can do it all. It’s not a negative to admit that you need someone else who is an expert to give you support so the client gets the right outcome.”

While Prince is not a legal professional, special counsel at Australian Business Lawyers and Advisors (ABLA) Erin Brown04 certainly is.

Brown is a senior estate planning lawyer who advises privately held businesses, high-net-worth individuals and family groups in relation to both estate and business succession planning matters.

As Brown explains, it is critical for clients to obtain professional advice from experts experienced in establishing and reviewing trusts including financial planners, accountants and lawyers.

“Financial planners normally help map out the goals of the person establishing the trust and create the path for other advisors, like lawyers and accountants, to establish the terms of the trust,” Brown says.

“Probably the most common mistake we see when establishing testamentary trusts is a failure to consider who should act as the trustee of the trust, particularly where beneficiaries are unable to manage the trust themselves due to age, disability or other vulnerability.”

Brown says she has seen a tendency for clients to automatically appoint family members to act as trustee without considering the pressure this may place on the trustee or the detriment that appointment may have for the relationship between the trustee and the beneficiary.

“In some circumstances it may be prudent to consider whether an independent or professional trustee would be more appropriate,” she says.

“Another common mistake is that the provisions of the trust do not adequately define the beneficiaries of the trust.”

Brown says one of the more interesting things she has seen is the establishment of a trust where

the intended beneficiary has inadvertently not been included as a beneficiary.

“More commonly, we see trusts established for vulnerable beneficiaries where the nominated trustee is also a beneficiary of the trust,” she says.

“Without adequate checks and balances in place, this can lead to the potential mismanagement of trust funds to the detriment of the intended beneficiary.”

Finally, Brown says ABLA has also seen several trusts that do not include appropriate provisions for transferring control of the trust on the death of the existing trustee.

“It may not be sufficient to enable the nominated trustee to decide how control is to pass and clients should give some thought to who the successor trustee may be if their first choice is not available for any reason,” Brown says.

“It is important to get the trust right on establishment. It can be difficult and risky at times to amend the terms of a trust, especially after death, and getting it wrong can have serious consequences for beneficiaries.”

Amending a trust can result in a resettlement of the trust with serious taxation consequences, Brown warns.

Crest Accountants partner Wes Bothma knows all too well the ins, outs and complexities of tax consequences.

Bothma says one of the biggest misconceptions clients have is believing a trust is some magical structure that can distribute profits to everyone in the family and not have to pay any tax.

This, Bothma explains, is not the case at all.

“By owning something in a trust they still think it’s their money but is now owned by the trust and would not form part of their normal estate, this is where a new trustee is appointed on death of current trustee and is typically nominated within that existing deed,” he explains.

Figure 1. Proportion of inheritance money received by children of the deceased

30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% <40

40-44

45-49

50-54

55-59

Age of recipient Source: Grattan Institute

60-64

65-69

>70

I actually think it is dangerous if you think you can do it all. It’s not a negative to admit that you need someone else who is an expert to give you support so the client gets the right outcome.

Trish Prince

“People earning income through a trust, such as personal services or professional services, believe income can be transferred out to other beneficiaries but Personal Services Income (PSI) legislation requires that a professional’s income to be taxed in their hand at their marginal rates and ignores the specific entity that it was earned through.”

The Australian Taxation Office (ATO) has established the legislation quite firmly.

“Income is classified as PSI when more than 50% of the amount you received for a contract was for your labour, skills or expertise,” the ATO says.

“The first thing you need to do is work out if any of your income is classified as PSI. If it is, you then need to work out if the PSI rules apply to that income.”

This legislation has been created to improve the integrity and equity in the tax system.

“This is by ensuring you cannot reduce or defer your income tax by diverting income received from your personal services through companies, partnerships or trusts,” the ATO says.

It is important to note that PSI does not affect you if you’re an employee receiving only salaries and wages.

However, if you are operating through an entity, such as a company, partnership or trust, and are an employee of that entity then the PSI rules may apply.

It is legislation like this that makes seeking expert help extremely important.

APRA-regulated versus SMSF Especially so when it comes to the difference in whether the deceased held assets within a superannuation fund or a self-managed superannuation fund (SMSF).

The tax implications are usually applied to the estate of the deceased, not to the newly established trust from the estate, says Mirzoyan.

“For example, when a superannuation death benefit is paid to the deceased’s estate, the super fund does not deduct withholding tax from the taxable component before paying the amount to the estate,” Mirzoyan says.

This is because the trustee of the super fund is unaware of the beneficiary’s circumstances, such is the beneficiary is tax dependent or a non-tax dependent.

“It then becomes the responsibility of the executor to identify the right beneficiary, determine if the beneficiary was a dependent of the deceased for tax purposes at the time of death or not and withhold tax if relevant,” she says.

“This means when the trust is established from the deceased estate, the tax liability has already been met by the executor of estate and the testamentary trust does not have initial tax liabilities.”

Crestone head of wealth planning Maria Paonessa says with an SMSF there will be a binding death nomination benefit in place which will allow for flexibility.

Access up to date information on your clients’ trust portfolios.

18

Feature | Estate planning

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

06: Angelique Faes

07: Grant Hackett

senior analyst Class SME

chief executive Generation Life

“You can either transfer the super fund assets to an individual beneficiary or nominate your estate, your legal personal representative, so that where the assets actually get transferred because a super fund is not an estate asset,” Paonessa says.

“To make it an estate asset you need to nominate your estate, so your legal personal representative.

This means, that it will allow the super fund assets to transfer in accordance with what the Will stipulates.”

If the Will stipulates that the assets are going to a trust structure, that is how you transfer it over to an actual asset of the estate.

So the binding death benefit must designate the assets to either go to an individual or via the Will into a trust structure.

“With an APRA-regulated super fund it can be very similar. It all comes down to how you define, or how you chose to make that nomination as to where your assets are to go,” she says.

Crest Accountants financial adviser Robert Hayward05 says there are some issues that arise with SMSFs especially where property is involved.

“The asset on death can mean the property itself cannot be transferred out and would require the sale of the asset,” he says.

“Whereas most other assets managed funds, cash, shares are liquid and can be moved on easier.”

Hayward says that both SMSFs and APRAregulated structures allow for beneficiary nominations both binding and non-binding.

“Tax issues present when funds are paid to adult children who are not SIS dependent and taxable components of the funds will be taxed at 15% plus Medicare. Compared to transfer to spouse or dependent child where assets will be tax free,” Hayward says.

Keeping track Keeping track of each clients’ assets can prove difficult, especially given the tax implications that could arise depending on individual assets.

For instance, SMSFs follow very strict rules and are regularly audited, but when it comes to transferring those assets over to trust structure, things can become more difficult in relation to the income generated from those assets.

Class has been well established in the SMSF space in providing accountants a streamlined process for keeping track of the back office administration.

As Class SME senior analyst Angelique Faes 06 explains, it was through ongoing conversations with clients, Class realised establishing the same features it had in place in the super space was needed for trusts as well.

By replicating the features of Class Super for SMSF administration, Class Trust was designed to help accountants and advisers deliver the same efficiencies for trust administration.

“One of the things we released early on were additional reserves with automatic journals so

trust accountants can account for types of income that shouldn’t be included and they also have the flexibility to transfer income to a trust income definition reserve,” Faes says.

“We added different options really focusing on the common income determinations that are often seen in a trust deed. So, underordinary concept or income equalisation clause.”

By adding extra options around the treatment, such as for capital works deductions, it has allowed Class to cater for the flexibility that is so often needed.

Faes said Class Trust was born out of indepth discussions with accountants around their current processing of trusts and identifying their real pain points.

“What they were telling us was that it could easily take them a day or two to process a trust that had good portfolio investments with local and international shares,” she explained.

“And all of that work was being done on Excel spreadsheets. It was really complex, and it meant accountants couldn’t pass on the administration side to juniors because it would be too complex for them.”

Everything can now be automated with Class Trust. Bank feeds, income, corporate actions, all the key parts of administering an investment a trust are now taken care of for them.

Faes says that this is vital, because when using spreadsheets, there can be a lack of consistency.

As she points out, many people have their own quirks and way of doing things that made it difficult to pass on the workload to someone else within a firm.

“And the elephant in the room previously was that someone might forget a corporate action, miss a dividend or maybe they forget about a related party transfer,” Faes explains.

“With Class we can keep track of all that information and it makes it much easier to assist our customers and gives them a greater sense of confidence.”

While Class Trust deals with many types of trusts, testamentary trusts can be administered because they’re quite similar to discretionary trusts.

Faes says the system supports testamentary trusts and Class will also soon be releasing support for income streaming.

“You will be able to stream the capital gains and franked income to a beneficiary. So Class will identify the streamable components of the income as well as the attached franking credits and will make it really easy for the user to distribute those components in accordance with what was established in the trustee resolution,” she says.

It is all equal Clearly, the complexities of estate planning require many conversations and thorough planning, but it is vitally important.

Many advisers find themselves needing to explain that trusts are not just a tool for the wealthy, but a good way to protect the assets they are leaving to their family.

The biggest misconception that clients have about trusts is that they are only for families with a high-net worth or the ultra-wealthy.

Erin Brown

Generation Life offers investment bonds as an alternative to trusts. Working in a similar fashion, a person can establish an investment bond to hold their investments or assets and designate a beneficiary.

Generation Life chief executive Grant Hackett 07 says he has heard horror stories of families that have contested a Will over relatively small amounts of money. Had the deceased established a bond, or trust, those family issues could have been avoided along with costly court proceedings.

“This is not just for the wealthy. We see a lot of grandparents whose kids might be divorced, or have a blended family situation, and they want to bypass that generation and leave something for the grandkids,” Hackett says.

“A bond is a great way for them to be able to bypass that generation and leave a set amount of money for the grandchildren to put towards their school fees, for example.”

Hackett has been seeing a lot more use of these kinds of measures across all estates, not just multi-million dollar ones.

“It can help provide some reassurance to the client and we’ve noticed they can be quite chuffed about the fact that they know everything is set up for their grandkids and going to be distributed as per their wishes,” he says.

For Prince, the matter is quite personal. Having lost her husband, and now raising their daughter alone, they were fortunate to have had a trust in place to ensure they were both protected.

“I needed a trust because I am a financial planner, and so from an asset protection point of view, the wealth that my daughter and I inherited is via a trust,” Prince explains.

For Prince, she can rest assured that her daughter will be taken care of and whatever is in that trust cannot be accessed by anyone else.

She even jokes that if anyone were to sue her all they would get is her trusty Toyota RAV4.

Brown agrees that the real value in trusts comes from the asset protection side; beneficiaries do not own the assets.

“In our experience, the biggest misconception that clients have about trusts is that they are only for families with a high-net worth or the ultra-wealthy,” Brown says.

“While trusts are often established to protect wealth, it is common for those with even modest estates to utilise trusts to ensure hard earned assets remain within the family or to protect vulnerable beneficiaries.”

Brown says that while many clients share concerns around the costs associated with establishing and running a cost, at the end of the day it is a worthwhile endeavour.

“While it is true that there are additional costs to establish and maintain a trust, these costs are often insignificant when compared to the year-on-year savings that can be generated by appropriately structured testamentary trusts,” she says. fs

20

News

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

New CommSec trading tool CommSec said it has seen a 200% increase in investors seeking executional information around how trading works as younger people show increased interest in wholesale trading.

CommSec said first time traders contributed to around 10% of total trades since February 2020, compared with 4% prior to COVID-19.

Additionally, the data found the number of firsttime traders more than doubled since February last year, up to 18% from 8% pre-pandemic.

CommSec said most new customers (83%) were under 44 years old, marking a 17% increase compared with pre-COVID trends.

In response to more investors entering the market, CommSec has launched CommSec Learn, a series of free learning topics with videos and exercises designed to help investors expand their knowledge.

CommSec executive general manager Richard Burns said the bank saw an increase in consumption of its educational materials when COVID hit.

“There was a thirst for learning, however, it was interestingly leaning towards more executional topics with fewer clicks on the important basics such as planning or strategizing,” Burns said.

“As such, we felt there was an opportunity to help build those important investment foundations and assist investors in hopefully achieving long term success.”

Burns said CommSec Learn aims to be an easy way for investors to grow their skills and knowledge, at their own pace, to make informed investment decisions.

He added that the tool is not intended to offer personal advice or recommendations, rather it was designed to help investors get a better understanding of their investments and the factors that can affect their performance.

“It’s helpful to think of investing as just the beginning of your share market journey. It’s important to regularly monitor the markets and your portfolio, and understand your risk appetite,” Burns said. fs

Invest Blue offers clients SMAs Cornerstone portfolios will be made available on BT Panorama for Invest Blue clients.

Invest Blue has partnered with BT, in conjunction with Ironbark and Russell Investment Management, to develop a managed account solution for the advice firm’s client base.

The new suite of five managed portfolios, administered on BT Panorama, has been developed exclusively for Invest Blue’s 4000 clients.

The separately managed accounts are issued

by Ironbark as the responsible entity, with Russell Investment Management as investment manager.

BT head of distribution Chris Mather said: “With the Invest Blue investment committee, Russell Investments and Ironbark all working in sync on a contemporary platform, BT Panorama, we’ve been able to deliver a tailored solution for Invest Blue’s advisers and clients.”

“BT’s focus on continually improving the digital features on the platform helps advice businesses realise the full extent of the benefits of managed accounts, in terms of efficiency and ease of use for their advisers and clients.” fs

01: Tom Reiher

managing director MMC

MMC acquires super fund administrator Karren Vergara

A

The quote

We are very positive about the opportunities in the sector and that the IFAA Group is the right vehicle to expand our footprint in Australia.

boutique superannuation administrator has been acquired by Kiwi firm MMC in a move to expand its presence in Australia.

MMC is now the owner of Brisbanebased IFAA Group after it first bought a stake in March 2020 of nearly 50%. The total consideration for both acquisitions were not disclosed.

IFAA owns Superannuation Compliance Services (SCS), a specialist consultancy on superannuation risk management, compliance, audit and training, and Independent Professional Services (IPS), an executive management, admin and company secretarial service provider.

The group has made several senior leadership changes following the transition of ownership.

For IFAA, Andrew Griffioen was promoted to chief executive in May 2020 after serving as head of strategy.

Clinton Nicholas was appointed chief in-

formation officer, while Cathy Connellan was named the general manager of client services.

Adam Somerville recently re-joined IFAA as manager of financial services.

For SCS, Karen Waldon-White was appointed chief executive in mid-2020 after serving as general manager for over six years.

MMC co-founder and managing director Tom Reiher01 said the significant stake made in IFAA last year was intended to be a long-term entry point into Australia.

“We are very positive about the opportunities in the sector and that the IFAA Group is the right vehicle to expand our footprint in Australia,” Reiher said.

IFAA Group co-founder and managing director Neil Harvey said that changes in the superannuation services market over the last few years saw the firm seek out a partner to “ensure that we could demonstrate underlying financial strength to potential clients and a continuation of the high-quality services our group provides”. fs

Banks return $1.2bn for bad advice Eliza Bavin

Six of Australia’s largest banks have paid or offered a total of $1.24 billion in compensation to customers, according to new ASIC figures.

The funds have been returned to customers who suffered loss or detriment due to fees for no service misconduct or non-compliant advice.

AMP, ANZ, Commonwealth Bank, Macquarie, NAB and Westpac undertook the review and remediation programs to compensate affected customers as a result of two major ASIC reviews.

The reviews were launched by the regulator in 2015 to look into the extent of failure by the institutions to deliver ongoing advice services to financial advice customers who were paying fees to receive those services.

Additionally, the reviews looked into how effectively the institutions supervised their financial advisers to identify and deal with non-compliant advice.

NAB leads the ranks in compensation for fee for no service misconduct paying, or offering, $437.5 million to over 636,000 customers.

This is followed by Westpac on close to $200 million, CBA on $168 million, AMP on $153 million, ANZ with $80 million and Macquarie with $4.2 million.

NAB tips the scale again for non-compliant advice, repaying 1956 customers over $66 million.

ANZ follows on $43 million, Westpac on $42 million, AMP on $33 million and CBA on $9 million.

Macquarie was not included.

In October 2016 ASIC released findings describing systemic failures in the advice divisions of AMP, ANZ, CBA and NAB, as well as some of their product issuers.

It said these included the failure to ensure provision of ongoing advice services to customers who paid fees to receive those services (fees for no service), the failure of advisers to provide those services, and the failure of product issuers to switch off advice fees of customers who did not have a financial adviser.

In March 2017 ASIC released finding from its review highlighting how the institutions identified and dealt with non-compliant advice by their advisers between 1 January 2009 and 30 June 2015 and the implementation of a framework for the large-scale review and remediation of customers who received non-compliant advice in the same period.

ASIC said it continues to monitor the ongoing implementation of the institutions’ customer review and remediation programs. fs

For news updates like this, follow us on Twitter: @finstd

News

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

21

Products 01: Angela Ashton

Evergreen launches stress testing tool Evergreen Consultants has launched a portfolio stress-testing tool within GreenVUE, Evergreen’s proprietary portfolio analytics system.

GreenVUE will allow financial advisers to visualise their investment portfolio’s risk and return characteristics, given multi-factor analysis of portfolios in a range of events and market influences.

Evergreen founder and director Angela Ashton 01 said while it is human nature to focus on the expected return, the risk being taken to generate that return does not always get the attention it deserves.

“There is no way to invest without risk, but the best way to guard against risk is constantly to measure it and assess it - and to manage it,” Ashton said.

“One of the most common tools that institutional investment managers use to manage their risk is portfolio stress-testing.”

Evergreen senior analyst David Cohen said financial advisers find it difficult to properly stress test portfolios because they have not had access to the right tools.

“Adequately assessing the range of risks being run by an investment portfolio and estimating outcomes under a range of different scenarios can be a very complex procedure, but it is something that directly benefits the advice process,” he said.

“It is not only an essential part of client reporting, it is a crucial element of managed account compliance. We think this is a unique tool in the adviser marketplace.”

The GreenVUE tool will allow advisers to run portfolios through re-simulations of the global financial crisis, the Euro-debt crisis, the US credit rating downgrade, oil shocks and US recession, rising global interest rates, trade conflict and the COVID-19 pandemic.

“The tool assesses how today’s portfolios would perform if these historical events - and the markets’ reaction to them - were repeated, in terms of the total return, maximum drawdown and volatility that could be expected,” Cohen said.

Cohen added that Evergreen’s adviser clients would typically use the information that GreenVUE gives them in their individual investment committee discussions as part of model portfolio reviews.

“It will act as a risk management tool in the first instance, as we can use it to test where we think Portfolio positioning is in terms of our model portfolios, and what market impacts we could expect on the portfolios in stress environments,” Cohen said.

“These will also play a role in model compliance reporting to platforms who ask for stress testing in their capacity as responsible entity (RE) of the models,” Cohen adds.

Centrepoint to roll out advice tech Centrepoint Alliance has formed an agreement with UK-based financial advice technology provider Intelliflo to distribute the service across the Australian market.

The ASX-listed advice group’s adviser network will be some of the first in Australia to access Intelliflo, which currently supports over 2500 firms

Sydney firm launches new fund Sydney-based firm Healthcare Ventures is raising for a new fund that will invest in innovative Australian companies.

The funds’ partnership and fund manager board includes: healthcare investor and director Roger Allen, Australasian Institute of Digital Health chief executive officer Louise Schaper, Healthcare Ventures managing partner Darren Heathcote and Tobacco Free Portfolios chief executive Bronwyn King.

The new fund will pay close attention to healthcare innovations in fields such as artificial intelligence, augmented reality/virtual reality, large scale data, advanced diagnostics, health IOT and telehealth, the firm said.

The fund’s first close is expected in the first half of 2021.

and over 25,000 users with assets under advice of £444 billion.

Centrepoint Alliance’s advice software provider subsidiary Enzumo will work closely with Intelliflo to roll out the offering.

Intelliflo’s Intelligent Office software platform will come up against IRESS as it offers client relationship management, financial planning, client reporting, portfolio valuation and adviser-led automated advice.

Centrepoint Alliance chief executive Angus Benbow02 said the agreement comes as the firm has been receiving enquiries from advisers who prioritise technology and are looking to join the licence.

“In addition to teaming up with Intelliflo, Centrepoint Alliance has been making significant investments in technology including the acquisition of Enzumo, the introduction of an online adviser portal, Centrepoint Connect, and the development of the Centrepoint Practice Dashboard tool,” he said.

“We believe Intelliflo’s technology will greatly benefit financial advisers, and we are delighted to be working with them so that the Centrepoint Alliance community will be one of the first to access the benefits of Intelliflo’s open architecture.”

Investment manager Invesco acquired Intelliflo in 2018 to build out its presence in the UK. Intelliflo chief executive Nick Eatock said the partnership has been invaluable in formulating its offering in Australia.

“Our engagement with Centrepoint Alliance has been building for some time. We greatly value the opportunity to work together and believe this marks the beginning of a new era of advice tech for Australia.”

Magellan performance fees dip 70% Magellan reported a small increase in its net profits, despite a 70% drop in performance fees and a stronger Australian dollar.

Net profit after tax for the six months ending December 2020 was $202 million, up 3% from the same period in 2019.

Total average FUM was $100.9 billion (9% higher), resulting in management fees of $311.4 million (8% higher) and performance fees of $12.4 million (down 70%).

Magellan’s strategies saw $3.7 billion in net inflows in the six months ending December 2020, which is at par with 1H20’s $3.6 million.

However, retail inflows were about 40% lower at $1.4 billion, while institutional net flows grew from $1.2 billion to $2.4 billion.

The global equities strategy attracted $1.7 billion in net flows and the global listed infrastructure attracted $2.1 billion. Airlie, which manages Australian equities, saw outflows of $100 million.

About 85% of Magellan’s total FUM is exposed to currency movements, of which 61% is exposed to the USD. The Australian dollar’s strength in the period wiped off about $12 million from Magellan’s management fee revenue compared to the previous corresponding period.

02: Angus Benbow

On the retirement product, Magellan said, it is still awaiting regulatory approval.

In an update on its newly-launched principal investments business, Magellan said Barrenjoey has now hired about 150 people and has begun onboarding clients. Barrenjoey recently hired David Gonski as chair and will start to go live with the markets business from the second quarter.

Magellan’s results did not hold any big surprises, primarily as FUM and performance were already disclosed in filings.

However, they were slightly better than sell-side analysts’ expectations.

“MFG 1H21 adjusted profit beat MS by 8% and consensus by 4% on lower costs. Whilst this is positive, we expect a mildly positive neutral share price reaction given revenues and dividend were in line with consensus, and there is no update on the delayed retirement income strategy launch,” Morgan Stanley analysts said in a note.

“Result looks broadly in line with consensus, though 4% miss to UBSe on NPAT largely reflecting volatile items and lower tax rate,” UBS analysts said.

BetaShares to introduce new fund The exchange-traded fund (ETF) provider is set to launch a cloud-computing ETF later this month as it continues to build out its technology offering.

The BetaShares Cloud Computing ETF (CLDD) will invest in companies that have taken advantage of the accelerated shift to flexible working arrangements, video conferencing, online shopping and digital media consumption.

The ETF will track an index of listed cloud computing companies involved in computing services, servers, storage, databases, networking, software and analytics. Such companies include Xero, Shopify, DropBox and Zoom.

BetaShares chief executive Alex Vynokur said CLDD is a pure-play exposure to the theme.

“Its methodology ensures that only companies whose primary focus is on cloud-based services are included in the portfolio, and excludes large, diversified tech companies whose global cloud services represent only a small part of their business,” he said.

The cloud-based computing sector is on a steady growth trajectory with revenues forecast to increase 17.5% to US$832 billion by 2025.

The index that CLDD will track has returned 34.4% since its inception in 2013.

“Thematic ETFs are an appealing vehicle for this, as they allow investors to easily obtain exposure to a theme and invest in a way that can transcend geographic regions and sectors,” Vynokur said.

“We are excited to give Australian investors the ability to access the growth potential of cloud computing in a convenient and cost-effective way.

Even with the significant take-up experienced to date, we believe the megatrend in cloud computing has only just begun.”

CLDD is expected to commence trading on the ASX at the end of February 2021. fs

22

Featurette | Life insurance

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

The digital push Global life insurers are testing the boundaries of underwriting innovation to another level. Karren Vergara reports.

The subject of life insurance does not spark interest for many, typically because it’s perceived as boring, complicated and expensive.

Over the last decade, however, the life insurance industry accelerated its efforts to shed this perception by launching new products, lowering costs, and modernising its processes in the name of innovation. Nowhere is this more evident than underwriting.

With a click of a button, FaceQuote guesstimates a person’s age and then calculates a quote for a premium – based on a selfie.

Zurich UK introduced FaceQuote three years ago hoping to reach the masses. This is a way, Zurich says, to make life insurance “fun” in the hope more people will engage with it.

Lapetus Life Event Solutions takes it one step further, launching CHRONOS, an end-to-end underwriting platform that predicts a person’s life expectancy by scanning their face to extract information like body mass index, physiological age and how fast someone is ageing.

Most Australian life insurers are automating their underwriting capabilities by partnering with established providers.

UnderwriteMe has since become the most popular piece of technology used by major players such as MLC Life, Zurich, while boutiques such as NEOS Life and Integrity Life have also partnered with the UK-based firm. Munich Re’s proprietary technology ALLFINANZ meanwhile has been adopted by TAL and ClearView.

While Australia’s life insurance is facing its own

challenges – consolidation, lower profit margins and higher claims – its global counterparts paint a different story.

Demand for life insurance overseas remains solid, buoyed by a large cohort of the population that is not insured or underinsured. COVID-19 has also helped spur demand.

Life insurance is a large part of the global economy and the interesting thing is that it is a high-growth area, says according to Sunil Rawat 01, the co-founder and chief executive of Omniscience, an artificial intelligence start-up based in Palo Alto, California.

About 200 million new life insurance policies are written every year, he says, with the US market growing about 3% to 4% per year.

Omniscience helps underwriters make complex decisions faster using maths and algorithms that underpins the technology, which according to the firm’s last measure, accelerated life insurance decisions 1000 times or more.

“A blood report would have common things like cholesterol – extra tests like C-reactive protein and other markers and factors that get more and more complex. My BMI could be the same as an obese person’s BMI but could have dropped due to my diet; I could have reduced my medication as a result and be in better health,” he says.

“Where we shine is taking all of these factors that are very complex and make decisions based on those computations.”

Currently, Rawat and his team are looking at 14,000 variables.

Life insurance underwriting has innovative power.

Laila Neuthor

In Germany, the life insurance market is thriving, says Laila Neuthor 02, the chief executive and co-founder of we4 Impact.

She is seeing a spike in demand for life insurance products since COVID-19 hit, not only for personal cover for loved ones, but also products that cover mortality or mobility issues like death, loss of income and loss of ability.

“It is surprising, even with the coronavirus, how many more people seem to be aware that illnesses can prevent them from earning their living. They are buying more of those types of products that can protect their family’s financial situation,” she says, Competition is fierce and innovating across underwriting capabilities can be a differentiator.

“Life insurance underwriting has innovative power and there is the opportunity to reshape the sales process and product development from within the very heart of the life insurance company,” Neuthor says.

One way life insurers can stand out is by having clear lines of communication with their sales force and efficient risk-selection processes. It means not asking unnecessary questions and that medical questions are clear and answerable for non-medical experts, such as brokers and clients, she explains by way of example.

Life insurers that are already digitising their methods are separating from the pack. McKinsey & Company categorise insurers across four phases in their underwriting automation journey (See Figure 1).

Life insurance | Featurette

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

Those in Phase 1 automate the underwriting process to gain efficiencies and reduce inconsistencies. Insurers in Phase 2 have accelerated underwriting methods in which applications are submitted digitally.

Insurers in Phase 3 have a more personalised, accurate and individualised offering, while those in Phase 4 provide personalised products based on consumer data and continuous engagement that can ultimately influence health outcomes.

Neuthor says the sophistication in underwriting technology life insurers adopt vary.

“At one end of the spectrum, there are fully digitised systems that ask reflexive questions and then another question pops up based on the answer that are used on the point-of-sale.

“Then there are some companies that still have underwriting rules on Excel without any point-ofsale systems for their sales forces; some have internal software solutions and point of sales systems; some use independent providers, some are using reinsurers’ solutions. It is a field of evolving technology and expertise,” she says.

Neuthor believes the potential of the underwriting function is undervalued – but by having a “thoughtfully-designed life insurance underwriting strategy in line with their risk philosophy” can give competitive edge because products are becoming more homogeneous.

The policy cost and size also come into play.

The size of the policy is a common metric upon which to segment usage of automated underwriting, Rawat says, as automated underwriting tools seem more effective for lowercost policies.

“The system is able to make an underwriting decision on life insurance policy that is worth

01: Sunil Rawat

02: Laila Neuthor

chief executive and co-founder Omniscience

chief executive and co-founder we4 Impact

US$100,000. As the cost of the cover increases, that is when humans step in,” he says.

Further, Rawat points out that it is not just about having “nice data” and making decisions.

Data must be entered into the system – which can be a challenge.

“We have developed the ability to capture lab reports on mobile phones; waving the phone over the report digitises values on the page and sends them to the insurer.”

Underwriters as a result must stay on top of new developments and how their line of work is evolving.

This means transitioning to paper-based processes to digital processes, Neuthor says, including writing reflexive underwriting questionnaires, talking to IT and UX designers.

“Taking it one step further, life insurance underwriters at times are taken into consideration by the actuaries in designing products.

“In my opinion, this may be a culture clash as actuaries speak a mathematical language based on mathematical models with a clear relation between input and results while underwriters speak more of a medical and experience-driven language. It can be challenging to bring those two worlds together,” she notes.

Speaking from his professional experience, and as a former actuary, Chenthuran Suthersan03 notes that the use of the spreadsheets has improved the efficiency in the work that actuaries do.

But that did not lead to less actuaries, Suthersan says, who is currently the head of protection advice at UK-based life insurance firm Anorak. “[It] freed us to work on more high-value tasks.

I think the same will occur with underwriters and technology. They have a very useful skill set that

Underwriters need to be trained to be more proficient faster or a proportion of the decision-making process needs to be automated.

Sunil Rawat

Figure 1. The future of life insurance underwriting

Underwriting willUnderwriting evolve in four drive increased personalization and willphases evolve into four phases to drive increased personalisation and customer engagement.

Value created across stakeholders

Phase 4b

Phase 4a

Increase in net new value pools including enhanced health and social value

Phase 3 Phase 2

Current Phase 1

Existing value pools Transactional and episodic customer engagement Source: Mckinsey & Company

Personalised and continuous engagement

This is part two of a special investigation into the future of life insurance underwriting.

Read part one in Volume 19, Number 01.

23

03: Chenthuran Suthersan

head of protection advice Anorak

life insurers need; they will just find other areas to apply it,” he says.

Meanwhile, insurers can improve sales by adjusting their underwriting strategy, he advises.

“But that requires work from underwriters to build up the case to change their underwriting strategy and get buy-in from the underwriting reinsurer. That may mean underwriters work more closely with actuaries or develop more data skills to supplement their medical knowledge,” Suthersan says.

These days, more insurance companies seek underwriters who are not only digitally savvy but can decipher complex risks that are not easily automatable.

Rawat says underwriters embrace working alongside artificial intelligence because they get to work on more progressively complex cases and eliminates the mundane.

“From an employee-enrichment standpoint, this has been quite successful as the underwriter sees this as an opportunity to do higher-order work,” he says.

In Europe, Neuthor says demand for underwriters who excel with complex risk – meaning risk with a lot of pre-medical conditions – and can transform this type of knowledge into a digital format is high.

Underwriters are therefore challenged to improve their knowledge and stay up to date not only on medical issues but also on the digital side of things, she says.

“Actually, in our experience, quite a number of underwriters embrace these challenges as a chance to further develop themselves and enjoy the learning opportunities they are given.”

One pressing issue the industry is grappling with is succession planning. Pointing to Japan, Rawat says life insurance underwriters are ageing out of the workforce and there is the need to capture their expertise in a system before they retire.

“In Asia at large, the life insurance industry is growing very fast, depending which country, it is about 9% to 39% per year,” Rawat says.

“Incumbents don’t have 50 years to build human capital in the way the Western countries were able to. Therefore, underwriters need to be trained to be more proficient faster or a proportion of the decision-making process needs to be automated.”

In Germany, Neuthor says the average age for underwriters is about 40-50 years old, and not many younger people are entering the profession.

“In the past, the job was seen as more ‘get the work done’ so to speak. Historically, it did not have any strategic importance and operated based on efficiency - how many cases were completed per day or per week?” Neuthor says.

“This all started to change recently. There is now more of a focus on communicating with colleagues and sales, giving reasons why this decision was made, and improving process and systems.” fs

24

International

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

Members incur post-Brexit fees

01: Robert Downey Jr

founder Footprint Coalition Ventures

Jamie Williamson

The United Nations Joint Staff Pension Fund is investigating why some European banks are now imposing fees on benefit payments in what looks like an unforeseen consequence of Brexit.

Some beneficiaries have seen fees of up to €25 charged on their January 2021 pension payment

by Spain’s BBVA and Austria’s Bank Austria. The pension fund is investigating whether any other banks have also deducted fees.

The UNJSPF has long routed all pension payments to retirees and beneficiaries who receive them into bank accounts in the Eurozone via JP Morgan Chase’s London branch, its own bank.

Despite the UK leaving the EU, no fees were anticipated from Eurozone banks as the UK did not leave the Single Euro Payment Area (SEPA).

The SEPA allows for bank transfers free of charge between member countries. However, since Brexit was finalised on 1 January 2021, some Eurozone banks have instead treated transactions from the UK as international wire transfers and charged applicable fees.

The UNJSPF is now investigating the extent of the new fees and is in the process of having benefit payments routed through a new Eurozone account to ensure no fees are incurred for any payments made to those living outside of the UK. fs

T. Rowe Price makes key hires Karren Vergara

T. Rowe Price has appointed a new president and chief operating officer, promoting an investments veteran and head of finance respectively.

Rob Sharps, the new president who will continue to serve as head of investments and group chief investment officer, has been with the firm for 23 years.

He started out as an analyst before progressing to portfolio manager and co-head of global equities.

His remit as investments lead was broadened in recent years to include corporate strategy, product development and pricing, key client relationships, and other enterprise initiatives.

Sharps is also executive sponsor of the firm’s Black Leadership Council and a director on the T. Rowe Price Funds’ Board.

Céline Dufétel is the new chief operating officer.

She will remain as chief financial officer and treasurer, responsibilities she took on when she joined T. Rowe Price in 2017. Prior to this, she worked at Neuberger Berman and McKinsey & Company.

Dufétel and Sharps remain members of the management committee and continue reporting to Bill Stromberg, who will remain chief executive officer and chair of the board.

Stromberg commented the appointments are in response to the investment management industry undergoing a period of change and disruption.

“Rob and Céline have each expanded their roles and influence in recent years to help us navigate this period of change. Their appointments today reflect the growing breadth of their contributions and our intention to deepen our senior leadership in preparation for additional growth in the future,” he said. fs

Iron Man launches VC funds Karren Vergara

A The quote

This global existential threat is not something that’s going to be solved by a smattering of elite mega-corporations.

ctor Robert Downey Jr01 has launched two venture capital funds that invest in technological solutions that tackle environmental challenges.

FootPrint Coalition Ventures comprises two funds – an early-stage Series A and late-stage Series B – led by Downey Jr and tech investors and entrepreneurs Jonathan Schulhof and Steve Levin.

The funds target six key areas: sustainability-focused consumer products and services; food and agriculture technology; materials and industrial tech; energy and transportation; education and media; and advanced environmental solutions.

The funds have already invested in a handful of companies: Arcadia Earth, Cloud Paper, RWDC Industries and Ynsect.

The latest venture, announced on January 27, invests in Aspiration, a neobank which claims to offer 100% clean, socially conscious and sustainable cash management services and investment products.

The funds hope to leverage Downey Jr’s some 100 million social media followers and use the

power of storytelling to raise awareness and attract talent and investors to help the start-ups succeed.

“I am seeing crazy, amazing new tech products that can restore the environment. And we are at the precipice of a sustainable tech renaissance with AI, robotics, computational biology, creating new amazing materials, foods, products and sources of energy,” Downey Jr said.

The funds work alongside investors as limited partners and charge management fees of 2% and 20% carried interest.

“Having spent the last 18 months in dialogue with scientists, engineers and technologists, I now have a firm grasp of the obvious: this global existential threat is not something that’s going to be solved by a smattering of elite mega-corporations. I think that paradigm must be smashed in favor of innovation by a broad set of new companies,” Downey Jr said.

Also commenting, Schulhof said: “Venture funds traditionally have high minimums that exclude only the wealthiest individuals, or endowments and foundations. With much lower minimums and shorter investment periods, we can now offer access to these same companies to a much broader group.” fs

Billionaires profit from pandemic: Oxfam report The nation’s wealthiest saw their fortunes increase by nearly $85 billion during the COVID-19 pandemic, a global survey highlighting the widening income-inequity gap shows.

Thirty-one Australian billionaires saw their bank balances swell between March and December 2020 in Oxfam’s latest report The Inequality Virus.

The majority of the 295 economists from around the world canvased in the survey predict the pandemic will fuel income inequality in their respective countries.

The four Australian economists who took part in the survey agreed that the coronavirus crisis would lead to an “increase or major increase” in income inequality. They believe the government didn’t have an adequate plan in place to address the issue as the gap is impacting women and ethnic minorities most.

Oxfam Australia chief executive Lyn Morgain said as hundreds of thousands of people were losing their jobs and entering an unstable employment market, a small group of elite Australians saw their incomes recover very quickly.

She described the reduction of JobSeeker payments, a lifeline for millions of Australians thrown into unemployment, as “devastating”.

“While the government should be congratulated for acting quickly to implement wage subsidies and other social protection measures last year, the inappropriate and unfair reversal of the increase to JobSeeker payments is a cruel blow to the poorest Australians and, according to unions, has left 1.4 million people living on as little as $51 a day,” Morgain said.

Forbes names Gina Rinehart as Australia’s richest person. Harry Triguboff, Anthony Pratt, Frank Lowy, Mike Cannon-Brookes and Scott Farquhar are also among the country’s wealthiest.

Overall, Oxfam found 1000 of the world’s richest recouped their COVID-19 losses within nine months. The world’s 10 richest billionaires have collectively seen their wealth increase by US$540 billion over the period.

Tesla’s Elon Musk increased his net wealth by US$128.9 billion, while Amazon’s Jeff Bezos saw his fortune go up US$78.2 billion. fs

For more news and events, like us on Facebook

Between the lines

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

EQT wins NFP mandate

25

01: Stephen Wood

founder Eiger Capital

Annabelle Dickson

Equity Trustees has been appointed as investment manager and philanthropic consultant for a notfor-profit health organisation.

Bendigo Community Health Services (BCHS) provides free or affordable healthcare services to communities in the Bendigo region.

It relies on funding and philanthropic opportunities to offer its services which include specialist needs, such as for those living with chronic conditions including diabetes, respiratory issues, and heart disease.

BCHS chair Vicki Pearce said funding has become more competitive, making the organisation more reliant on investment and philanthropy.

“We were encouraged by the positive and proactive response from Equity Trustees to our tender process. Having an organisation on board that has a Bendigo base and a desire to help regional Victoria grow was very important to us,” Pearce said.

“We now look forward to building a relationship with Equity Trustees and using their expertise to ensure all future investment and philanthropic opportunities are used to their full potential, to ensure our services and care for the community can go to an even greater level.”

Equity Trustees head of asset management Darren Thompson said the group will provide a range of services including investment advice and strategy, investment management and philanthropic services. fs

Industry fund awards $60m small caps mandate Kanika Sood

E The quote

As a smaller investor we can access highly skilled small cap mangers without exhausting their capacity limits.

iger Capital has won a $60 million mandate from a $5.4 billion industry fund.

TWUSUPER selected Eiger Capital for the equities allocation.

“This mandate furthers TWUSUPER’s plan to focus its active management budget on areas where we have a comparative advantage. As a smaller investor we can access highly skilled small cap mangers without exhausting their capacity limits,” TWUSUPER chief investment officer Edward Smith.

Eiger Capital was founded by Stephen Wood01, Victor Gomes and David Haddad in March 2019.

The trio previously worked together for eight years at UBS Asset Management on the $400 million UBS Australian Small Companies Fund.

The team retained its investment process running a small caps fund with 30-35 small caps from the ASX and NZX with a market

Rainmaker Mandate top 20

cap of about $5 billion with the occasional small mid-cap stock.

The Eiger Australian Small Companies Fund returned 20.1% in the year ending January, compared to 5.38% from its benchmark S&P/ ASX Small Ordinaries Accumulation Index over the same period.

Three-year returns for the strategy are 12% p.a. to the benchmark’s 6.69% p.a. over the period.

“Despite a difficult 2020, the robust investment process of our strategy provided investors with a strong active return, and TWUSUPER members will now benefit from the same fundamental, in-depth and comprehensive equity analysis that has consistently produced great results for our investors,” Wood said.

In December 2018, UBS AM said it was transferring some of its investment management functions to external managers under new partnerships. fs

Note: Selected alternative investment mandates appointed last two quarters

Appointed by

Asset consultant

Investment manager

Mandate type

Aware Super

Willis Towers Watson

IFM Investors Pty Ltd

Infrastructure

930

Aware Super

Willis Towers Watson

Other

Infrastructure

373

Aware Super

Willis Towers Watson

PIMCO Australia Pty Ltd

Alternative Investments

271

Aware Super

Willis Towers Watson

HRL Morrison & Co (Australia) Pty Ltd

Infrastructure

252

Aware Super

Willis Towers Watson

Macquarie Investment Management Australia Limited

Infrastructure

219

Aware Super

Willis Towers Watson

Stafford Capital Partners Pty Ltd

Infrastructure

214

Aware Super

Willis Towers Watson

The Campbell Group, LLC

Infrastructure

86

Aware Super

Willis Towers Watson

Palisade Investment Partners

Infrastructure

28

Care Super

JANA Investment Advisers

Antin Infrastructure Partners, S.A.S

Infrastructure

23

Care Super

JANA Investment Advisers

Antin Infrastructure Partners, S.A.S

Infrastructure

10

Care Super

JANA Investment Advisers

LGT Capital Partners

Private Equity

9

Construction & Building Unions Superannuation

Frontier Advisors

Oaktree Capital Management, LLC

Alternative Investments

381

Energy Industries Superannuation Scheme - Pool A

Cambridge Associates Limited; JANA Investment Advisers

IFM Investors Pty Ltd

Alternative Investments

46

Energy Industries Superannuation Scheme - Pool A

Cambridge Associates Limited; JANA Investment Advisers

Other

Private Equity

Energy Industries Superannuation Scheme - Pool A

Cambridge Associates Limited; JANA Investment Advisers

Other

Private Equity

Hostplus Superannuation Fund

JANA Investment Advisers

Other

International Private Equity

Insight Investment Australia Pty Limited

Future Fund Management Agency

Other

Maritime Super

JANA Investment Advisers; Quentin Ayers

LGT Capital Partners

Private Equity

98

Maritime Super

JANA Investment Advisers; Quentin Ayers

HRL Morrison & Co (Australia) Pty Ltd

Infrastructure

71

State Super (NSW)

Frontier Advisors

William Blair & Company, LLC

Alternative Investments

Amount ($m)

7

99 Source: Rainmaker Information

26

Managed funds

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03 PERIOD ENDING – 31 DECEMBER 2020

Size 1 year 3 years 5 years

Size 1 year 3 years 5 years

Fund name

Fund name

Managed Funds

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

GROWTH

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

CAPITAL STABLE

Vanguard Diversified High Growth Index ETF

660

5.5

5

10.8

1

Macquarie Capital Stable Fund

28

11.0

1

7.2

1

6.5

3

Vanguard Diversified Growth Index ETF

344

5.6

3

9.3

2

IOOF MultiMix Moderate Trust

584

4.3

7

6.2

2

6.6

2

MLC Horizon 7 Accelerated Growth

109

3.4

10

8.9

3

11.1

1

Vanguard Diversified Conservative Index ETF

149

5.0

3

5.8

3

Fiducian Ultra Growth Fund

233

10.5

1

8.5

4

9.8

2

Vanguard Conservative Index Fund

2837

5.0

4

5.8

4

5.9

5

3575

5.5

7

8.4

5

9.4

3

Fiducian Capital Stable Fund

352

5.4

2

5.3

5

5.3

9

Fiducian Growth Fund

176

7.6

2

8.3

6

9.2

4

MLC Index Plus Conservative Growth

210

3.5

12

5.3

6

IOOF MultiMix Growth Trust

652

5.5

6

8.2

7

9.0

5

Dimensional World Allocation 50/50 Trust

608

3.7

10

5.2

7

6.7

1

Vanguard Growth Index Fund

6148

5.6

4

7.7

8

8.3

8

IOOF MultiMix Conservative Trust

650

4.5

6

5.1

8

5.5

6

287

2.9

13

7.3

9

8.8

6

UBS Tactical Beta Fund - Conservative

84

4.9

5

5.0

9

5.2

11

10

3.2

12

7.2

10

8.7

7

Perpetual Diversified Growth Fund

103

4.2

8

4.9

10

5.4

7

6.2

7.4

Sector average

390

3.0

4.2

4.8

Vanguard High Growth Index Fund

MLC Wholesale Horizon 6 Share BT Multi-Manager High Growth Fund Sector average

541

2.9

BALANCED

CREDIT

Macquarie Balanced Growth Fund

774

9.8

3

8.4

1

9.0

1

MCP Real Estate Debt Fund

697

7.9

1

8.7

1

BlackRock Global Allocation Fund (Aust)

574

14.6

1

7.9

2

8.3

5

MCP Secured Private Debt Fund II

597

7.8

2

8.6

2

Fiducian Balanced Fund

446

7.3

5

7.8

3

8.5

3

VanEck Vectors Aust. Corp. Bond Plus ETF

258

5.8

3

6.1

3

Ausbil Balanced Fund

127

5.3

10

7.7

4

8.7

2

Pendal Enhanced Credit Fund

169

5.0

6

5.4

4

5.0

5

1841

5.5

9

7.6

5

8.1

6

Vanguard Australian Corp Fixed Interest Index

234

4.8

9

5.3

5

5.0

4

516

6.0

6

7.5

6

7.2

12

Vanguard Aust Corp. Fixed Interest Index ETF

474

4.9

8

5.1

6

88

3.0

24

7.1

7

7.7

9

2498

4.6

11

5.1

7

4.9

6

342

5.6

7

7.0

8

96

1.1

23

4.6

8

5.9

1

6060

5.5

8

6.9

9

7.3

10

PIMCO Global Credit Fund

543

5.4

4

4.5

9

4.8

7

Responsible Investment Leaders Bal

437

4.8

11

6.8

10

8.7

15

Franklin Australian Absolute Return Bond

544

4.4

12

4.3

10

4.2

11

Sector average

704

3.8

5.4

6.7

Sector average

751

3.8

4.2

4.1

IOOF MultiMix Balanced Growth Trust BlackRock Tactical Growth Fund SSGA Passive Balanced Trust Vanguard Diversified Balanced Index ETF Vanguard Balanced Index Fund

Metrics Credit Div. Aust. Sen. Loan Fund Yarra Enhanced Income Fund

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

Source: Rainmaker Information

Let’s talk about Future Super he only thing worse than being talked about T is not being talked about, and people sure like talking about Future Super lately.

Brumbie

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

For all the attention, it’s hard to fathom precisely what the allegation is other than Future Super implements its bespoke investment strategy using a custom-built exchange-traded fund (ETF).

It’s nonetheless pretty easy to see what might be motivating some of the attacks. From a standing start five years ago, by 30 June 2020, its three investment options ranked, after all fees, first, third and fourth over one year. Its flagship Balanced Impact investment option ranked 10th over five years.

Its flagship balanced option is both Australia’s best risk-adjusted balanced fund and best riskadjusted ESG fund. If it was a MySuper product, it would have been number one in that sector too.

Contributions into the fund in 2019-20 were up almost eight-fold in four years to $65 million. In 2019-20 its membership growth rate was Australia’s third fastest of any fund. And even though it’s Australia’s 76th biggest fund, its member growth ranked 10th.

Despite this, its $550 million at June 2020 was only 0.04% of APRA-regulated assets. Nevertheless, its share of all contributions being al-

most three-times its share of all FUM points to where it’s heading.

Future Super is a serious threat to the establishment and it’s naïve to not expect it to be attacked. But if its critics want to land any of their punches, they must learn more about how the fund works.

Future Super uses an ETF to implement its investment strategies for equities and twothirds of its fixed interest because ETFs are highly efficient; hint, that’s the whole point of why ETFs are taking the investment world by storm. Anyway, Future Super’s total investment costs at 0.32% are about average for indexed equities strategies.

But not all ETFs are passive. Someone should tell the critics that to be an ETF is just a statement about how a fund is distributed; it has nothing at all to do with its investment strategy.

Active ETFs now account for 8% of ETF FUM and 18% of the 180 ETFs available in Australia.

There are meanwhile no laws about what ETF fees should be and critics need to stop assuming ETFs are automatically passive and cheap.

Future Super is simply using ETF structures to house 620 of the securities it invests in, which is why its ETFs were built for them. It’s also why the fund has 12 investment professionals to

monitor the portfolio and ensure the stocks and bonds in it satisfy screening criteria.

It’s a fair question why Future Super needs 12, but let’s ask other funds why they need even bigger investment teams.

Standing Committee on Economics chair Tim Wilson challenging Future Super as to why, as an ethical super fund, it invests in the likes of Cleanaway Waste Management is meanwhile not an attack but a compliment. Let’s not forget that we can hurl these questions at the fund because it is one of the few that declares its portfolio holdings.

Future Super does, however, have a weakness: fees. While its Balanced Index investment choice has total fees of 1.1% pa, placing it in the cheapest third of all balanced products, its flagship Balanced Impact investment option has total fees of 1.7% pa, placing it just within the most expensive third.

These fees would make Future Super Balanced Index cheaper than 60% of all MySuper products. And of the 52 MySuper products that would be more expensive, 33 of them are industry funds.

What then is the lesson here? Easy. Super funds need to get better at telling their story. And critics need to do better research. Giddyup. fs

Super funds

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03 PERIOD ENDING – 31 DECEMBER 2020

Workplace Super Products

1 year

3 years

% p.a. Rank

5 years

SS

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

GROWTH INVESTMENT OPTIONS

27

* SelectingSuper [SS] quality assessment

Retirement Products

1 year

3 years

% p.a. Rank

5 years

SS

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

GROWTH INVESTMENT OPTIONS

UniSuper - Sustainable High Growth

10.6

2

11.7

1

10.7

2

AAA

UniSuper Pension - Sustainable High Growth

11.9

1

13.0

1

11.9

2

AAA

UniSuper - High Growth

8.4

4

9.9

2

10.9

1

AAA

UniSuper Pension - High Growth

8.9

8

11.0

2

12.0

1

AAA

HESTA - Sustainable Growth

8.4

3

9.3

3

9.8

6

AAA

Suncorp Brighter Super pension - MM High Growth Fund

10.6

3

10.6

3

AAA

UniSuper - Growth

7.2

6

8.8

4

9.5

8

AAA

HESTA Income Stream - Sustainable Growth

9.5

6

10.2

4

10.7

6

AAA

Equip MyFuture - Growth Plus

6.4

12

8.3

5

9.9

5

AAA

UniSuper Pension - Growth

7.8

10

9.8

5

10.6

7

AAA

Aware Super Employer - High Growth

6.6

11

8.3

6

9.4

9

AAA

Cbus Super Income Stream - High Growth

7.3

12

9.3

6

11.3

3

AAA

PSSap - Aggressive

6.8

7

8.3

7

8.7

17

AAA

Vision Income Streams - Growth

7.5

11

9.2

7

10.3

10

AAA

Cbus Industry Super - High Growth

6.6

10

8.2

8

10.0

4

AAA

Equip Pensions - Growth Plus

6.7

18

9.1

8

10.8

5

AAA

ADF Super - Aggressive

6.7

9

8.2

9

AAA

AustralianSuper Choice Income - High Growth

7.1

13

9.0

9

10.4

8

AAA

AustralianSuper - High Growth

6.3

13

8.2

AAA

HOSTPLUS Pension - Shares Plus

6.8

16

8.8

10

11.1

4

AAA

Rainmaker Growth Index

3.0

Rainmaker Growth Index

3.6

10

6.2

9.4

10

7.6

BALANCED INVESTMENT OPTIONS

6.9

8.4

BALANCED INVESTMENT OPTIONS

UniSuper - Sustainable Balanced

8.6

1

9.5

1

8.6

2

AAA

UniSuper Pension - Sustainable Balanced

9.8

3

10.8

Australian Catholic Super Employer - Socially Responsible

8.0

2

8.1

2

7.2

41

AAA

Suncorp Brighter Super pension - MM Growth Fund

10.0

2

Australian Ethical Super Employer - Balanced (accumulation)

7.8

3

8.1

3

7.7

16

AAA

Future Super - Balanced Growth Pension

10.1

UniSuper - Balanced

5.7

7

8.0

4

8.5

3

AAA

Australian Catholic Super RetireChoice - Socially Responsible

AustralianSuper - Balanced

5.2

10

7.4

5

8.7

1

AAA

CareSuper - Sustainable Balanced

5.2

11

7.4

6

7.6

21

1

9.8

1

AAA

9.6

2

AAA

1

9.3

3

8.0

31

AAA

8.6

4

9.1

4

8.2

23

AAA

UniSuper Pension - Balanced

6.4

10

9.1

5

9.6

2

AAA

AAA

Sunsuper Income Account - Balanced Index

6.5

9

8.2

6

8.5

14

AAA

Sunsuper Super Savings - Balanced Index

5.9

5

7.2

7

7.4

27

AAA

AustralianSuper Choice Income - Balanced

5.8

12

8.1

7

9.5

4

AAA

Aware Super Employer - Growth

5.2

9

7.1

8

8.1

7

AAA

CareSuper Pension - Sustainable Balanced

5.2

20

8.1

8

8.3

21

AAA

Cbus Industry Super - Growth (Cbus MySuper)

4.9

13

7.0

9

8.4

4

AAA

Cbus Super Income Stream - Growth (Cbus Choice)

5.5

15

8.1

9

9.6

3

AAA

Vision Super Saver - Balanced Growth

5.9

6

7.0

10

8.0

10

AAA

ESSSuper Income Streams - Basic Growth

4.7

29

8.0

10

AAA

Rainmaker Balanced Index

3.0

Rainmaker Balanced Index

3.7

5.5

6.5

CAPITAL STABLE INVESTMENT OPTIONS

6.1

7.1

CAPITAL STABLE INVESTMENT OPTIONS

QSuper Accumulation - Lifetime Aspire 2

4.9

3

7.2

1

7.6

2

AAA

Suncorp Brighter Super pension - MM Balanced Fund

8.4

1

7.7

1

AAA

VicSuper FutureSaver - Socially Conscious

6.2

1

6.9

2

7.9

1

AAA

VicSuper Flexible Income - Socially Conscious

5.7

7

7.5

2

8.4

1

AAA

QSuper Accumulation - Lifetime Focus 1

4.6

6

6.7

3

7.3

3

AAA

Cbus Super Income Stream - Conservative Growth

5.5

8

7.2

3

8.1

4

AAA

QSuper Accumulation - Lifetime Focus 2

4.7

4

6.5

4

6.8

7

AAA

Vision Income Streams - Balanced

6.0

5

7.1

4

8.1

2

AAA

Vision Super Saver - Balanced

5.3

2

6.3

5

7.2

5

AAA

AustralianSuper Choice Income - Conservative Balanced

5.3

9

6.9

5

8.0

5

AAA

QSuper Accumulation - Lifetime Focus 3

4.7

5

6.2

6

6.3

11

AAA

QSuper Income - QSuper Balanced

3.2

46

6.7

6

8.1

3

AAA

AustralianSuper - Conservative Balanced

4.5

7

6.1

7

7.0

6

AAA

VicSuper Flexible Income - Balanced

3.5

37

6.2

7

7.6

6

AAA

TASPLAN - OnTrack Control

2.3

53

6.0

8

AAA

LUCRF Pensions - Moderate

5.2

10

6.2

8

6.9

9

AAA

QSuper Accumulation - QSuper Balanced

2.8

43

6.0

9

4

AAA

Suncorp Brighter Super pension - MM Conservative Fund

6.5

4

6.2

9

AAA

Cbus Industry Super - Conservative Growth

4.4

8

5.9

10

AAA

TASPLAN Tasplan Pension - Moderate

2.1

79

6.0

10

AAA

Rainmaker Capital Stable Index

2.3

Rainmaker Capital Stable Index

2.7

4.1

7.2

4.6

Note: All 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 28 years of industry insights and research with SelectingSuper’s performance tables.

Simply visit selectingsuper.com.au/tools/performance_tables

4.4

4.9 Source: Rainmaker Information www.rainmakerlive.com.au

28

Economics

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

The US inflation dilemma Ben Ong

D

id current US Treasury Secretary Janet Yellen (under Biden’s administration) just call former US Secretary Lawrence Summers (under Clinton’s) a coward?

I refer of course to Madame Yellen’s defence of President Biden’s ginormous US$1.9 trillion coronavirus relief package against Summers’ concern over the risk of an inflation outbreak.

He says: “Summer’s admits that the economy still needs support but that Biden’s proposal is excessive.”

“There is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation. I worry that containing an inflationary outbreak without triggering a recession.”

She says: While Yellen acknowledged that higher inflation is a risk that needs to be considered, she believes that: “The most important risk is that we leave workers and communities scarred by the pandemic and the economic toll that it’s taken, that we don’t do enough to address the pandemic and the public health issues, that we don’t get our kids back to school.”

“There remains tremendous slack in the labor market, and it would take unprecedented job growth to return to full employment in the next few years.”

Madam Yellen’s is backed by the latest US non-farm payrolls report that showed the economy added 49,000 jobs in January – lower than market expectations for a 50,000 increase and followed the 227,000 lost in December 2020. …and the clincher: “I’ve spent many years studying inflation and worrying about inflation, and I can tell you, we have the tools to deal with

that risk if it materializes. But we face a huge economic challenge here and tremendous suffering in the country. We’ve got to address that.

That’s the biggest risk.”

Financial markets appear to agree … with both of them. The US equity market continues to rally buoyed the flood of money, money, money and expectations of more money, money, money.

The bond market’s going the other way as the yield on US 10-year Treasuries have been moving on up and is now at par with pre-pandemic levels as inflation expectations – as measured by the differential between the yield on US 10-year bonds and Treasury inflation protected securities (TIPS) – soar to seven year highs and is currently above the Fed’s 2.0% target at 2.2%.

Then again, US inflation stats remain tame however it’s measured. Data at the end of December 2020 shows headline CPI inflation at 1.3%; core CPI inflation at 1.6%; headline PCE price index at 1.3%; and, core PCE price index at 1.5%.

While measured US inflation have certainly firmed from the lows recorded in the middle of last year, they still haven’t reached pre-pandemic levels – at the start of 2020, the headline CPI inflation rate was at 2.5%, the core CPI at 2.3%, the headline PCE inflation at 1.9% and the core PCE at 1.8%.

What we’re seeing now could just be a corrective reversal from the sharp drop in consumer prices at the onset of the pandemic – a return to normality if you will.

If not, I trust the Fed would be quick in implementing a pivot to prevent runaway inflation.

As Yellen says, it has “the tools to deal with that risk if it materialises”. fs

Monthly Indicators

Jan 21

Dec-20

Nov-20

Oct-20

Sep-20

Consumption Retail Sales (%m/m)

-

-4.06

7.11

1.79

Retail Sales (%y/y)

-

9.60

13.33

7.05

5.17

11.06

13.55

12.39

-1.50

-21.77

Sales of New Motor Vehicles (%y/y)

-1.52

Employment Employed, Persons (Chg, 000’s, sa) Job Advertisements (%m/m, sa) Unemployment Rate (sa)

-

50.04

90.00

180.37

-44.15

2.33

8.63

14.26

11.87

7.08

-

6.60

6.83

6.99

6.91

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

-

15.82

6.62

5.08

12.15

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

-

10.92

3.37

4.91

16.82

Survey Data Consumer Sentiment Index

107.00

112.00

107.66

105.02

93.85

AiG Manufacturing PMI Index

55.30

-

52.10

56.30

46.70

NAB Business Conditions Index

7.16

15.79

8.04

3.17

1.15

NAB Business Confidence Index

10.05

4.71

12.55

4.13

-2.38

Trade Trade Balance (Mil. AUD)

-

6785.00

5014.00

6536.00

Exports (%y/y)

-

-7.79

-11.09

-12.78

-20.90

Imports (%y/y)

-

-13.10

-9.84

-20.74

-22.88

Dec-20

Sep-20

Jun-20

Mar-20

Dec-19

Quarterly Indicators

5743.00

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

-

10.02

16.35

7.23

3.45

% of GDP

-

2.06

3.49

1.43

0.68

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

-

3.22

15.84

3.02

-3.71

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

-

0.08

0.08

0.53

0.53

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

-

0.53

-0.08

0.38

0.45

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

-

0.45

0.00

0.45

0.45

Inflation CPI (%y/y) headline

0.86

0.69

-0.35

2.19

CPI (%y/y) trimmed mean

1.20

1.20

1.30

1.70

1.84 1.50

CPI (%y/y) weighted median

1.40

1.20

1.30

1.60

1.20

Output

News bites

Australia trade balance The Australian Bureau of Statistics’ (ABS) reported that the country’s trade surplus increased from A$5.01 billion in November to A$6.79 billion in December 2020 – the biggest surplus in six months and comes despite increasing diplomatic and trade tensions with China, its biggest trading partner. The larger than expected surplus in December was due to a combination of higher exports – up by 3.0% from November to a nine-month high of A$37.27 billion – and a 2.0% fall in imports to A$30,48 billion. The details of the report showed goods exports to China increased by 21% over the month as shipments of iron ore jumped in both volume (16%) and value (25%). Imports of consumption goods increased by 2% over the month (a positive, indicating buoyant consumer spending) but this was offset by the 16% drop in capital goods (a negative, suggesting weak business investment).

US employment Latest US Bureau of Labor Statistics (BLS) data showed the economy added 49,000 heads to nonfarm payrolls in January. This is lower than market expectations for a 50,000 increase and followed the distribution of 227,000 pink slips in December 2020.

What is more, the downward revisions in November and December showed there were less 159,000 less Americans in employment in those two months than previously reported. Moreover, in spite of the January gain, the US economy remains around 10 million jobs short of the peak recorded in February last year. Similarly, while the unemployment rate dropped to 6.3% in January 2021 from 6.7% in the previous month, it’s still far above the 3.5% prepandemic rate.

Indonesia GDP Is Indonesia in recession or not? The latest update showed the country’s GDP declined by 0.4% in the three months to December 2020, but this followed a 5.1% growth in the previous quarter. This doesn’t satisfy the technical definition of a recession. But take the year-on-year measure and Indonesia’s economy had been contracting for three straight quarters – 5.3% in the June quarter; 3.5% in the September quarter; and, 2.2% in the December 2020 quarter. For the full-year 2020, Indonesia’s economy shrank by 2.1% – the first full-year contraction since the 1998 Asian financial crisis.

This time, it’s due to the COVID-19 pandemic. fs

Real GDP Growth (%q/q, sa)

-

3.33

-7.03

-0.28

0.39

Real GDP Growth (%y/y, sa)

-

-3.82

-6.36

1.37

2.16

Industrial Production (%q/q, sa)

-

0.30

-2.91

0.29

0.39

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

- 08-Jan

-3.04

-6.36

-2.04

Mth ago 3 mths ago 1Yr Ago

-3.04 3 Yrs ago

Interest rates RBA Cash Rate

0.10

0.10

0.25

0.75

Australian 10Y Government Bond Yield

1.20

Australian 10Y Corporate Bond Yield

1.30

1.50

0.95

0.74

1.03

2.94

1.27

1.42

1.81

3.26

Stockmarket All Ordinaries Index

7112.9

2.26%

12.12%

0.45%

16.06%

S&P/ASX 300 Index

6828.1

2.36%

11.58%

-1.50%

14.08%

S&P/ASX 200 Index

6840.5

2.37%

11.42%

-1.94%

13.51%

S&P/ASX 100 Index

5642.0

2.44%

11.48%

-2.44%

13.62%

Small Ordinaries

3190.3

1.81%

12.26%

6.28%

17.59%

Exchange rates A$ trade weighted index

63.00

A$/US$

0.7659 0.7729 0.7273 0.6745 0.7938

63.40

59.50

58.10

65.60

A$/Euro

0.6369 0.6296 0.6149 0.6130 0.6391

A$/Yen

80.77 79.45 75.38 74.02 87.40

Commodity Prices S&P GSCI - commodity index

450.61

420.63

354.90

386.28

451.60

Iron ore

153.90

166.08

116.92

79.87

76.00

Gold

1802.95 1940.35 1938.45 1553.30 1333.60

WTI oil

56.85

49.78

38.56

50.87

Source: Rainmaker Information /

64.18

Sector reviews

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

Figure 1. Australian CPI inflation measures

Australian equities

5.0

Headline

4.0

PERCENT

4

Trimmed mean

2

Weighted median

3.0

CPD Program Instructions

Figure 2. Australian real GDP growth 6

ANNUAL CHANGE %

0 RBA target band

-2

2.0

-4

1.0

-6

Prepared by: Rainmaker Information Source:

0.0

-8

-1.0

-10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Quarterly change

Annual change

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Smokes, childcare and new homebuilders lift inflation Ben Ong

ustralia’s consumer prices continue to reA cover from the 1.9% drop in the June 2020 quarter – the largest quarterly fall in the 72 year history of the CPI. However, the Australian Bureau of Statistics reported that the country’s headline inflation growth decelerated from the 1.6% quarterly rate in the September quarter to 0.9% in the three-months to December 2020.

It would have been lower had it not been for smokers with young children building a house contributing to the pick-up in the consumer price index.

To wit: Head of Prices Statistics at the ABS, Michelle Marquardt said: “The December quarter CPI was primarily impacted by an increase in tobacco excise and the introduction,

International equities Prepared by: Rainmaker Information Source: Rainmaker /

continuation and conclusion of a number of government schemes, including childcare fee subsidies and home building grants.”

The most significant price rises in the December quarter were tobacco (+10.9%), following the 12.5% increase in the tobacco excise tax, and child care (+37.7 per cent), after the unwinding of free child care, with out-of-pocket expenses now returning to preCOVID levels.

Other price rises in the December quarter were domestic holiday travel (+6.3%), with state and territory borders reopening in the lead up to the Christmas period, and medical and hospital services (+2.5%) after private health premiums increased on October 1 following a six-month freeze.

Electricity prices dropped by 7.5% over the

Figure 2. US inflation expectations

6

3.00

RATE %

5

2.50

4

2.00

3

1.50

2

1.00

1

0.50

DIFFERENTIAL %

CPD Questions 1–3

10 year 5 year

05

06

07

08

09

10

11

12

13

14

15

16

17

18

19

20

21

2010

US nominal Treasury yield less US Treaury Inflation Protected Securities (TIPS) yield

A

new year, a new administration but its same old, same old for the US Federal Reserve.

As expected and in a unanimous decision: “The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.”

In its statement, the Fed explained that this was because: “The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic.”

True that. The first estimate of US GDP showed an annualised growth rate of 4.0% which is slower than market expectations for a 4.2% gain. In addition, the year-on-year growth rate in the economy continued to contract despite improving from -2.5% in the year to the December quarter from -2.8% in the September quarter and the sharp 9.0% drop in the June 2020 quarter.

The US unemployment rate tells the same narrative. It’s dropped to 6.3% in January 2021 from the record high of 14.8% recorded in April but remains well-below the pre-pandemic level of 3.5%.

More telling, Fed chair Jerome Powell thinks that the real rate of unemployment is closer to

2. Which inflation measure reached the lower band of the RBA’s 2%-3% target band in the September 2020 quarter? a) Headline inflation b) Trimmed mean inflation c) Weighted median inflation d) None of the above 3. Australia’s unemployment rate has dropped to 5.0% after peaking at 7.5% last year. a) True b) False

CPD Questions 4–6

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Tapering talks are premature Ben Ong

1. Which factor contributed to the increase in Australia’s CPI inflation in the September 2020 quarter? a) Tobacco b) Childcare c) Homebuilding d) All of the above

International equities

0.00

0

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

quarter “after the WA Household Electricity Credit provided households with a oneoff $600 credit, resulting in a fall in electricity prices of 66.7 per cent in Perth”. Prices also continued to fall for clothing & footwear (-1.0%); housing (-0.6%); and, communications (-0.4%).

The latest figures take the annual rate of headline inflation up to 0.9% in the quarter ended December 2020 from 0.7% in the previous quarter.

This is well below the low end of the Reserve Bank of Australia’s 2% -3% inflation target band. So are the underlying inflation readings – the trimmed mean measure steadied at 1.2% in the year to the December quarter; the weighted median increased slightly to 1.4% from 1.2% in the September quarter. fs

Figure 1. US fed funds rate

29

10% and that: “The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook.”

A rational enough rationale for Powell to segue into quelling the financial markets’ concern du’ jour – rising inflation expectations – and calm a potential repeat of the “taper tantrum” that sent bond yields up and equity markets down in 2013.

In his post-meeting press conference, Powell intimated his thoughts on inflation: “We’re going to be patient. Expect us to wait and see and not react if we see small, and what we would view as very likely to be transient, effects on inflation.”

Therefore, talks of “tapering” are premature; “The whole focus on exit is premature if I may say. We’re focused on finishing the job we’re doing, which is supporting the economy, giving the economy the support it needs.” fs

4. What was the US Federal Reserve’s decision at its January FOMC meeting? a) It cut interest rates to a fresh all-time low b) It raised interest rates by 10 bps c) It kept interest rates unchanged d) It increased QE 5. What was the annualised growth rate in US GDP in the December 2020 quarter? a) -2.8% b) -2.5% c) 4.0% d) 4.2% 6. Fed chair Powell the real rate of US unemployment is closer to 5%. a) True b) False

30

Sector reviews

Fixed interest CPD Questions 7–9

7. What was the BOE’s policy decision at its February MPC meeting? a) It cut interest rates to a fresh all-time low b) It raised interest rates by 10 bps c) It kept interest rates unchanged d) It reduced QE 8. What is/are the risk/s to the BOE’s optimistic outlook? a) The evolution of the pandemic b) The transition to the Brexit trade arrangements between the UK and the EU c) Household and business response to developments on COVID-19 and Brexit d) All of the above 9. The BOE declared that it would take interest rates below zero at its next meeting. a) True b) False Alternatives

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

Fixed interest

Figure 1: BOE Bank rate target 6.0

Figure 2: UK inflation 6

PERCENT

ANNUAL CHANGE %

Bank Rate

5.0

10Y GILTS

All Items (HICP)

5

Core

4

4.0

3

3.0 2

2.0

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

1

1.0

0

0.0

-1

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Negative interest rates baked in forecasts Ben Ong

“Hoping for the best, prepared for the worst, and unsurprised by anything in between.”

- Maya Angelou he Bank of England (BOE) gave financial T markets what they wanted and kept monetary policy settings unchanged – Bank Rate at a record low 0.1% and QE at £895 billion – at its first MPC meeting on February 4.

It was hoping for the best outcome.

In BOE governor Andrew Bailey’s words: “The monetary policy committee’s central forecast assumes that COVID-related restrictions and people’s health concerns weigh on activity in the near term, but that the vaccination programme leads to those easing, such that gross domestic product is projected to recover strongly from the second quarter of 2021, towards pre-COVID levels.”

The BOE forecasts GDP to contract by

4.2% in the March 2021 quarter before recovering in the following three quarters to end with a 5.0% expansion this year and return to pre-pandemic levels by the first quarter of 2022.

“CPI inflation is currently below the MPC’s 2% target, largely reflecting the direct and indirect effects of COVID-19. As temporary effects fade and the impact of spare capacity diminishes over 2021, inflation rises towards the target,” The BOE said.

However, the “Monetary Policy Report” stressed that: “The outlook for the economy remained unusually uncertain. It depended on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom. It would also depend on the responses of households, businesses and financial markets to these developments.”

Reasons behind the BOE’s preparation for the worst?

“While the Committee was clear that it did not wish to send any signal that it intended to set a negative Bank Rate at some point in the future, on balance, it concluded overall that it would be appropriate to start the preparations to provide the capability to do so if necessary in the future. The MPC therefore agreed to request that the PRA [Prudential Regulation Authority] should engage with PRA-regulated firms to ensure they commence preparations in order to be ready to implement a negative Bank Rate at any point after six months,” it said.

No need to speculate whether the BOE will take the Bank Rate below zero or not, the Monetary Policy Report suggests it will.

“The MPC’s projections are conditioned on the market path for interest rates, which is close to zero over the forecast period.” fs

CPD Questions 10–12

10. What is the International Energy Agency’s 2021 forecast for global oil demand? a) Decrease by 8.8 mbd b) Decrease by 0.6 mbd c) Increase by 5.5 mbd d) Increase by 8.8 mbd 11. What is the International Energy Agency’s 2021 forecast for global oil supply? a) Ddecrease by 6.6 mbd b) Decrease by 1.0 mbd c) Increase by 1.0 mbd d) Increase by 1.2 mbd 12. OPEC+ announced easing of oil production restrictions in January. a) True b) False

Go to our website to

Submit

All answers can be submitted to our website.

Alternatives

Figure 1: Crude oil prices

Figure 2: World oil demand, supply & price

80

30

US$/BARREL

'000 BARRELS PER DAY

US$/BARREL

150

60

20

125

40

10

100

0

75

Brent

20

West Texas Intermediate

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

50

-10

0

-20

-20

Demand less supply (12mth moving average) Sep

IEA forecast

Brent oil price -RHS JAN 19

0

-30

-40 APR 19

JUL 19

OCT 19

JAN 20

APR 20

JUL 20

OCT 20

JAN 21

2011

25

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Demand-supply equation lifts crude oil Ben Ong

C

rude oil prices jumped to one-year highs – WTI oil to US$58.46 per barrel; Brent oil to US$55.73 – this early in the New Year.

Well, they have to bounce some time especially given the battering they received in 2020 as the COVID-19 pandemic grounded planes, trains and automobiles and cruise liners and shuttered most factories and businesses on planet earth, driving down overall global demand and therefore, the price of oil.

Demand for oil had been boosted by the cold weather in the US and in Asia at the start of the year.

But this would go away when winter gives way to spring.

Likewise, demand for oil would be crimped by the renewed lockdowns (in Europe and parts of Asia) in efforts to contain the resurgence of infections and the mutated variant of the virus.

These prompted the International Energy Agency (IEA) to downgrade its global oil demand forecast by 0.6 million barrels per day for the first quarter of this year.

However, the agency expects a 5.5 mb/d increase in oil demand this year overall, a significant turnaround from the 8.8 mb/d drop recorded in 2020.

“This recovery mainly reflects the impact of fiscal and monetary support packages as well as the effectiveness of steps to resolve the pandemic,” IEA said.

The supply side of crude oil’s demand/supply equation is also constructive.

This from the IEA’s January 2021Oil Market Repor: “Anticipating weaker demand, OPEC+ decided in January to delay a further easing of cuts and Saudi Arabia surprised with an additional 1 mb/d supply reduction in February and March.”

The group’s more proactive production re-

straint looks set to hasten a drawdown in the global stock surplus that got underway in earnest during 3Q20.

“Assuming OPEC+ achieves 100% compliance with the latest agreement, global oil stocks could draw by 1.1 mb/d, or 100 mb, in 1Q21, with the potential for much steeper declines during the second half of the year as demand strengthens,” it said.

As such, the IEA expects world oil supply to increase by 1.2 mb/d this year, up from the 6.6mb/d decline recorded in 2020, but that: “Much more oil is likely to be required, given our forecast for a substantial improvement in demand in the second half of the year.”

“Our balances assume that during 2H21, OPEC+ will still withhold 5.8 mb/d of oil from the market as per the group’s April 2020 agreement.”

But 2020’s mantra remains in play, crude oil prices remain hostage to COVID-19. fs

Sector reviews

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

31

Property

Property

CPD Questions 13–15

Prepared by: Rainmaker Information Source: Quarterly Property Sentiment Report, ME Bank

rise in positive sentiment was recorded A across all states and territories of Australia at the beginning of the year on the back of expectations that residential property prices will increase while interest rates stay low.

According to ME Bank’s latest Quarterly Property Sentiment Report, positive sentiment is the highest it has been since 2019 while negative sentiment is the lowest it has been in the same period.

Investors and owner-occupiers were considerably more positive in January 2021 than in October 2020, with positive sentiment among the cohorts increasing by 15 and 17 percentage points, respectively. However, first home buyers were slightly less positive, with sentiment falling four percentage points to 27%.

On a state-by-state basis, Queenslanders are the most positive in the nation, recording 56% positivity for metro areas and 58% for regional property markets (43%).

Overall, of those looking to buy, 72% said stimulus measures such as HomeBuilder, incentives for first-time buyers and stamp duty relief

Housing market sentiment lifts to three-year high Jamie Williamson

in some states made the idea of buying or investing in property more attractive. A further 79% cited the record low interest rate environment as a driver for their interest.

“While there are still many challenges such as unemployment and job insecurity, it’s promising to see how sentiment and market activity have rebounded,” ME Bank head of home loans and personal banking, Claudio Mazzarella said.

“We fully expect to see property investors back in full force this year. Sentiment within this group is bouncing back, with low interest rates make investing in property a more attractive option.”

About 77% of those surveyed by ME Bank said they expect property prices will “bounce back” this year. In line with this, less property owners are worried COVID-19 will impact the value of their property.

Fifty-four percent of those surveyed said property prices will go up over the next 12 months, while only 7% said they think they will go down. Owner-occupiers are the most confident, with 57% expecting them to rise.

www.financialstandard.com.au T: +61 2 8234 7500 F: +61 2 8234 7599 A: Level 7, 55 Clarence Street, Sydney, NSW, 2000, Australia

However, the obvious issue the data presents is that higher house prices exacerbate the housing affordability issue that has plagued Australia for some time. Of those surveyed, 95% said affordability is a “big issue”. “…it will make it harder for first home buyers to get their foot in the door. It will be important for new entrants in the property market to do their research,” Mazzarella said.

ME Bank said the data indicates people are keen to jump into the market after a year of uncertainty, with 78% of respondents saying residential real estate market activity in 2021 will be greater, almost as if to make up for 2020.

For those looking to buy or sell over the coming 12 months, 47% said they are hoping to do so as soon as possible while 53% are in no rush.

“A busy spring property season has overflowed into the start of this year and all signs point to raised levels of activity continuing for the coming months,” Mazzarella said.

“This will be especially beneficial on the supply side, offering prospective buyers more choice, ultimately helping the economy.” fs

15. According to ME Bank’s survey, owneroccupiers were the most confident propertymarket cohort. a) True b) False

Subscribers can read the Financial Standard newspaper on the go, accessing the very latest news and insights in wealth management.

+61 2 8234 7530

michelle.baltazar@financialstandard.com.au

Editorial Jamie Williamson Karren Vergara Kanika Sood Elizabeth McArthur Eliza Bavin Annabelle Dickson

+61 2 8234 7562 +61 2 8234 7541 +61 2 8234 7519 +61 2 8234 7553 +61 2 8234 7516 +61 2 8234 7570

jamie.williamson@financialstandard.com.au karren.vergara@financialstandard.com.au kanika.sood@financialstandard.com.au elizabeth.mcarthur@financialstandard.com.au eliza.bavin@financialstandard.com.au annabelle.dickson@financialstandard.com.au

Research Alex Dunnin John Dyall Benjamin Ong

+61 2 8234 7508 +61 2 8234 7551 +61 2 8234 7563

alex.dunnin@financialstandard.com.au john.dyall@financialstandard.com.au benjamin.ong@financialstandard.com.au

Advertising Stephanie Antonis

+61 2 8234 7547

stephanie.antonis@financialstandard.com.au

Client Services Kayleigh Sotto Corona

+61 2 8234 7524

clientservices@financialstandard.com.au

Design & Production Samantha Sherry Jessica Beaver Shauna Milani

+61 2 8234 7564 +61 2 8234 7536 +61 2 8234 7542

samantha.sherry@financialstandard.com.au jessica.beaver@financialstandard.com.au shauna.milani@financialstandard.com.au

Subscriptions & CPD program Julian Clarkstone Giovanni Munoz

+61 2 8234 7514 +61 2 8234 7537

julian.clarkstone@financialstandard.com.au giovanni.munoz@financialstandard.com.au

THE JOURNAL OF SUPERANNUATION MANAGEMENT

Managing Director Christopher Page

+61 2 8234 7501

christopher.page@financialstandard.com.au

The latest edition of FS Super is out now.

CPD Program Instructions

Search: Financial Standard

FS Super

All editorial is copyright and may not be reproduced without consent. Opinions expressed in the Financial Standard are not necessarily those of Financial Standard or Rainmaker Information. Financial Standard is a Rainmaker Information company. ABN 57 604 552 874.

14. Based on its survey, ME Bank found that: a) Property investors were expected to remain cautious b) Around 50% of participants expected property prices to rebound c) First home buyers remained at a disadvantage d) Around three-quarters of sellers were keen to list their property

Download

Director of Media & Publishing Michelle Baltazar

Financial Standard is proud to work with Pegasus Print Group, an environmentally responsible printing company. Pegasus has Forest Stewardship Council®(FSC®) certification, and Financial Standard is printed on paper from well managed forests and controlled sources.

13. ME Bank reported that positive propertymarket sentiment has: a) Equalled its 2019 highs b) Plateaued since October 2020 c) Decreased slightly since January 2021 d) Eclipsed its 2019 levels

Each fortnight the Financial Standard will provide you with a selection of CPD questions. You do not have to undertake the CPD program each fortnight.

You can do it as often or as infrequently as you require.

A CPD Activity Statement will be generated and is accessible from our website.

Online access Simply log in using your CPD Program username and password. A record of your CPD work history is maintained for instant online access. You need to have a Principal subscription of Financial Standard to access this service.

For more information please go to our website www. financialstandard.com.au or Freecall 1300 884 434.

32

Profile

www.financialstandard.com.au 22 February 2021 | Volume 19 Number 03

A MIND FOR MERGER As chief executive of Cbus, Justin Arter heads a superannuation fund well positioned to survive the current wave of regulatory change. With just over six months under his belt, he shares his plans for the fund with Kanika Sood.

hen Justin Arter left his hometown in W Mornington Peninsula for university in the 1980s, it was a big deal.

Fifty-odd years later, he heads the country’s sixth-largest superannuation fund, overseeing $57 billion in retirement savings.

“It was literally a country town. Of course to an impressionable 17 or 18 year old... to even go to the city of Melbourne was, you know, a big deal,” Arter says.

Arter’s parents worked as teachers but fortunately, not at the school where he studied, he jokes.

When he finished, he signed up for an undergraduate degree in law and commerce at University of Melbourne.

The law part, he loved. The commerce part, not so much.

“That concept of equity and reading and coming to a reasoned conclusion really fascinated me…But as the years have gone on, I found those [commerce degree] skills – understanding monetary policy and so forth – to be of course, very, very helpful to me also, as my career has sort of unfolded,” he says.

As a fresh graduate, Arter went to work at a CBD law firm as a part of his article clerkship.

He loved it and aspired to be a barrister, until he thought of the money he would make.

“The economics of being a ‘baby barrister’, as they were called, were not very good. In fact, it was virtually hand-to-mouth living. So, I thought, ‘Well, this is kind of inefficient in the sense that you have to spend all this time here making no money at all’,” he says.

“And then hopefully, after six or seven years, your reputation’s enhanced and if all goes to plan before we know, you are QC and then you’re making some serious money – by which time you could be 50 years of age, which of course when you’re 24, is an unthinkable age.”

Barrister aspirations abandoned, Arter now pivoted to research analyst roles at stockbroking firms. He found a role at a small Melbourne firm but left after the 1987 crash. He worked at an ANZ-owned brokerage for a few years, before JBWere came calling with an analyst role.

He ended up staying for 18 years, eventually rising to the board and the management committee. During his time, the 164-year-old, home-grown firm decided to merge with Goldman Sachs’ Australian operations.

JBWere had a partnership model at the time.

Arter says, while it was satisfying professionally and culturally, it just wasn’t going to work going forward.

“The age of the major US investment bank was upon us and we had two choices, one was either join up with an entity like that which meant loss of some identity or the second was shrink your way to glory,” he says.

Just as the JBWere merger was done, Arter was approached for the role of chief executive of Victoria Funds Management Corporation when he would serve for three years between 2009 and 2012.

“I thought, ‘Wow this actually looks very interesting to go from investment banking/broking to the world of pensions’…[while]…bypassing the world of funds management, which is usually the intermediary between those two organisations,” Arter says.

At VFMC, he was answerable to the state government and the organisation managed the money of different government bodies. The role added something new to his skill set too: liaising with public servants.

“I had to sort of recalibrate the way I approached this. And in majority of my experience, public servants are intellectually very, very curious. That’s a delight to deal with,” he says.

“But their [variation of good] is purely policy implementation, as opposed to making as much money as you can for shareholders.

Nonetheless, there’s a stakeholder of the end – it’s just a means to an end. And once I kind of read, in my mind around that, it became pretty easy.”

In 2005, Arter studied an advanced management program at the Wharton School of the University of Pennsylvania. Seven years later, and after nearly three years at VFMC, a contact made while studying would offer Arter his next role.

The contact, Mark McCombe, was BlackRock’s chair for Asia and asked Arter if he would be interested in BlackRock’s country head role, as Damien Frawley left for QIC and BlackRock looked to implement its US$13.5 billion acquisition of Barclay’s BGI business.

“While that thematically made great sense and has proved to be a company maker for BlackRock, the merger led to difficulties and morale and culture issues,” he says.

“It was difficult and there were certainly a lot of learnings for me in terms of working on future mergers and avoiding the significant perils and pitfalls that can arise.”

He says he put his JBWere/Goldman merger learnings to work and set about gluing the culture together. Employees were given a straight line to him instead of “pussyfooting around”, the process was quickened and lastly, the business reconciled to the fact that it was best the employees who were more “backward than forward” leave the firm.

When the process was complete, BlackRock asked Arter to go across to the United Kingdom and lead its EMEA group.

“It was fascinating to go from a defined contribution market…back into the heartland of defined benefit, which is kind of like learning the classical piano, if I could call it that, rather than learning the jazz piano,” he says.

“I’ve never been involved in a business ever in my life that has too many clients.

Most of the businesses I’ve been involved in don’t have enough

I think in many ways, many [of those] industry super funds are at that point where they do have to seriously contemplate life going forward.

Justin Arter

clients…There was so much that it’s quite extraordinary.”

BlackRock would later offer him a new role in Hong Kong, but this time he passed, wanting to be close to his family in Australia.

Upon return, he consulted with ANZ on how it could work with industry funds after offloading its wealth business, before the Cbus offer catapulted him back into the world of Australian pensions.

“As I looked around the landscape of industry funds and contemplated this job I am in now, I thought, ‘Gee, I think in many ways, many of those industry super funds are at that point where they do have to seriously contemplate life going forward, because it’s not getting any easier’,” Arter says.

He is keen for the fund to scope out new merger partners, he says, as its merger with Media Super heads for completion later this year. And he wants to retain Cbus’ brand equity and performance; it currently has the thirdbest performing MySuper fund, according to Rainmaker Information.

Arter says he learned to live with a business that is subject to constant regulatory change, while working at BlackRock in the UK. “It’s not something where every six months or every 12 months, we have a little working group and attend to these things and we implement and off we go,” he says.

“No, it’s a constant process…And I think that’s the way we’re going to develop in Australia, it’s going to become a constant process.” fs