Financial Standard Volume 19 Number 08

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Advisers sceptical of levy decrease Karren Vergara

he annual financial adviser levy that continT ues to balloon and leave the industry infuriated could potentially decrease, the corporate watchdog has flagged – but many are not so optimistic and anticipate future hikes.

ASIC calculates the new charges to be $1500 per licensee plus $2426 per adviser for the 201920 financial year.

The fee, which is charged retrospectively based on ASIC’s enforcement activity, is a staggering 160% jump from the time it was introduced in 2017-18, adding more fuel to the fire of overheads eating away at advisers’ bottom line.

ASIC deputy chair and commissioner Karen Chester acknowledged the significant uptick at a Parliamentary Joint Committee on Corporations and Financial Services in March, but ultimately blamed the increases to the “denominator effect” of advisers exiting the industry.

The adviser population stood at 20,667 at March-end, according to ASIC’s Financial Adviser Register, marking an 11% drop year on year.

In keeping the levy down, Chester hopes that adviser numbers will stabilise, but also hints that the “numerator should come down over time [in] several ways”.

The hearing also found that ASIC typically recovers the costs incurred in prosecuting the major financial institutions and offsets these against the levy.

The problem is that a massive lag exists between the time ASIC recoups such costs to the offset trickling down to the smaller players.

“So, when we recover from the big end of town, the small end of town doesn’t see that coming off their bill until a couple of years later,” Chester said.

The Financial Planning Association of Australia head of policy, strategy and innovation

Ben Marshan says there are “fundamental flaws” in the formula.

“What’s disappointing is that over 50% of the costs relate to court action ASIC has taken against super trustees, and Evans Dixon [now E&P Financial Group] for example. These problems arose five-plus years ago. Now, professional financial planners are being asked to pay for ASIC’s legal work,” he says.

The FPA is not opposed to an industry levy as such, as it applies across most professions and helps increase professionalism.

The problem, Marshan says, is the legacy issues ASIC is taking so long to deal with.

“There is a problem in the way the formula works – not that there is a levy in the first place.

We want the levy restructured so that the right fee is charged to the right organisation.”

Centrepoint Alliance group executive, advice Paul Cullen says: “The levy is one more thing that will increase the cost of advice and we are concerned that people who really need it are being marginalised as it is becoming even more expensive for them to obtain.”

The licensee solutions provider, which immediately pays ASIC’s levy on behalf of clients, has given advisers three months to repay Centrepoint, extending the original one-month deadline to an additional two months in a bid to help them manage their cashflow.

Cullen predicts numbers will continue to dwindle as some advisers he engages with have indicated they will not take the exams and are rethinking their future in the industry.

Furthermore, he cannot foresee the levy going down this year.

“Unless someone steps in and says, ‘we can move away from this formula’, we will probably see another increase next year,” he says. fs

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Annabelle Dickson

Karen Chester

deputy chair ASIC

Outstanding performance through the economic cycle Independently rated

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Life industry to launch framework

Market leading investment solutions $12 billion AUM

3 May 2021 | Volume 19 Number 08 www.financialstandard.com.au 20 January 2020 | Volume 18 Number 01

1800 818 818 | latrobefinancial.com

The life insurance industry is developing a Professional Standards Framework for all claims and underwriting professionals, with support from the Australian and New Zealand Institute of Insurance and Finance (ANZIIF).

The framework is being developed in collaboration with AIA Australia, AMP Life, BT Life Insurance, ClearView, MLC Life Insurance, TAL and Zurich, who collectively hold 95% of written premiums, along with ANZIIF and formalises standards by implementing a consistent ‘Foundation’ requirement.

By 2023, all claims professionals are expected to achieve four Certificate IV competencies including ethics; sustainability; products Continued on page 4

Investors rush to equity funds Calastone’s recently launched Fund Flow Index (FFI) for Australian managed funds, recorded $7 billion in flows to equity funds over the last 12 months, leaving equity income funds lagging behind.

Over the first quarter of 2021 the FFI, which covers 95% of fund managers in Australia, recorded $3 billion in flows and half of which was in March.

Investors currently prefer global and Australian equity funds with more capital going towards these in February and March than in all of 2019.

“The preference for global and Australian equity funds reflects investor judgement that this country will join the global economic leaders as the pandemic comes to an end,” Calastone head of Australia and New Zealand Ross Fox said.

Continued on page 4

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News

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

Managed accounts prop up platforms: Research

Editorial

Annabelle Dickson

Jamie Williamson

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Editor

Gen Z. You either love them or you hate them.

For me, my feelings usually err towards the latter. It wasn’t always the case, but somewhere between ‘Tik Tok performer’ becoming a legitimate career path and my childhood wardrobe becoming cool again, I turned.

However, this past fortnight I found my perspective shifting again; Gen Z played a huge role in seeing a near 450% return on my lone cryptocurrency investment. Them and Elon Musk’s Twitter, of course.

Yes, that’s right, I too am on board the Dogecoin train. Back in January when Doge first started to take off, a colleague suggested we chuck $100 on it just to see what would happen.

We weren’t looking to stick it to any man or be part of any wider social commentary; it was part experiment, part laugh.

Unfortunately, paying just shy of 10c per coin, we were a bit late to the party and after climbing to $110 within minutes, our $100 quickly became $50 and then $30 before finally settling around $60.

My colleague sold, I held. Not because of some strongly held belief it would recover, but more because I saw it as no different to the one and only bet I place each year for the Melbourne Cup; no guarantee of a return and I could lose it all in minutes.

And it paid off! Earlier this month I awoke to find my Dogecoin investment climbing. Over the course of about three days my losses had turned to gains – and then some.

At its peak, my investment cracked $520. At the time of writing, I’m sitting on $336; a return of 248%.

For those saying it’s a pump and dump, I would agree that it certainly is for many, particularly given it’s a meme-based currency.

But there are also many others who believe cryptocurrency is the future, or at least that the technology underpinning it is.

We’ve already seen it numerous times with major institutions, particularly in the US, making allocations to Bitcoin in recent months.

For me, I’m still not convinced. Recent announcements by the likes of TIME Magazine to accept subscription payments in crypto and real estate agents allowing tenants to pay their rent in Bitcoin seem more an exercise in public relations than anything else.

Many people who know a lot more about economics and money than me aren’t convinced either. I recently reached out to about 20 super funds asking for their thoughts on cryptocurrency.

Of those, 18 said ‘no comment’ and the other two’s comments explained why they don’t and have no plans to invest in crypto.

It remains to be seen who will end up on the right side of history. Still, I’m not planning on selling any time soon. In fact, I’ve since bought another currency.

I figure I’m not pouring my life savings into it, so there’s no harm in sitting back and seeing what happens – so long as Musk’s bullish tweets don’t change their tune, that is. fs

The quote

If it wasn’t for managed accounts, platforms would be in run-off.

he growth of managed accounts is the only segment of the platform market that has developed and without them platforms would be going backwards, new research shows.

Rainmaker Information’s latest Wholesale Advantage Report for the December 2020 quarter recorded 2.2% platform growth per annum over the last three years while managed accounts have surged 31%.

However, removing the growth of managed accounts, platforms would have shrunk $3 billion over December 2017 and December 2020.

Rainmaker executive director of research Alex Dunnin said managed accounts are the only growth vector in the platform market.

“It shows the managed account share of the wrap platform segment to have ballooned fivefold between December 2017 to December 2020 from 10% to more than 50%,” Dunnin said.

“If it wasn’t for managed accounts, platforms would be in run-off.”

Given this growth, managed accounts are also set to engulf wraps with 23% growth in the last 12 months compared to 6.7% for wraps.

BT remains the largest ownership group in the platform market with $139 billion in funds under administration (FUA), making

up 19% of the platform market at the end of December 2020.

It is followed by AMP and Colonial First State with $126 billion and $104 billion, respectively.

Meanwhile, younger platforms are gaining traction with Netwealth recording $46 billion in FUA, followed by HUB24 at $22 billion and Praemium at $8 billion, prior to any acquisition activity.

The research shows separately managed accounts (SMAs) hold almost half the market followed by managed discretionary accounts (MDAs) at 30%, with the remaining 22% being in the ‘other’ category.

SMAs are expected to continue strong growth at a rate of 10 times faster than MDAs at 38% per annum compared to 4%.

Speaking to Financial Standard recently, AMP director of wrap product Shaune Egan said he saw a drastic increase in the number of active users on MyNorth from 38,000 at the end of 2019 to 50,000 at the end of 2020.

This traction has led to 10 times growth in MyNorth’s managed portfolios FUA in two years.

“It is because of the transparency in a managed account where the client can see what’s driving the performance,” Egan said. fs

Draft regulation on YFYS released Kanika Sood

The government has conceded to industry demands on administration fees and unlisted assets’ treatment in the new APRA performance tests, as it finally releases draft regulation for the Your Future, Your Super reforms.

It has agreed to include administration fees to the new performance testing for funds, an omission that was panned by many participants.

The government has also added Australian unlisted infrastructure and unlisted property as specific asset classes in the performance tests.

“This will improve the accuracy of the performance test; strengthen the focus of the test on investment outcomes delivered to members; and ensure that Australian superannuation funds can invest with confidence in these domestic assets,” federal treasurer Josh Frydenberg, and minister for superannuation and financial services Jane Hume said in a joint statement.

Both changes were welcomed by Industry Super Australia and the Association of Superannuation Funds of Australia (ASFA).

“Both changes in the proposed regulations need to be examined in further detail, but ISA is willing to work with the government on further changes to get the best outcome for members,” Industry Super Australia said.

ASFA chief executive Martin Fahy said: “Australian superannuation funds’ strategic asset allocation, including the significant allocation to unlisted investments, has been an important

element in their outperformance compared to international peers.” “…Including all fees in the proposed benchmark will help align the benchmark to the reality of the returns members see in their superannuation and help address any anomalies that different cost definitions might cause when comparing the performance of different products.”

However, the Australian Institute of Superannuation Trustees was less positive.

Commenting on the stapling measure, chief executive Eva Scheerlinck said the regulations confirm serious concerns that members will be stapled to dud funds.

“While we welcome the shift on more appropriate benchmarks and administration fees in the performance measures, the regulations unfortunately confirm widespread carve-outs to performance testing, including for the worst performing super products,” she said.

“Crucially, some of the worst performing superannuation products have been carved out of performance testing, putting consumers at risk of being stapled to a dud fund for life which will actually reduce retirement outcomes.”

AIST said the draft regulations “have done nothing to change the fact it is a poorly drafted piece of legislation that will deliver more consumer harm than good if passed in its current form”.

The new consultation period is now running until May 25, with plans to implement certain aspects of the reforms on July 1 remaining, Hume’s office confirmed. fs

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www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

ACSA appoints new leaders Australian Custodial Services Australia (ACSA) has appointed a new chair and deputy chair.

Sally Surgeon, head of client services at Northern Trust, has been appointed chair.

State Street chief operating officer Jennifer Saunders will be deputy chair.

The appointments are both effective immediately. Former chair David Knights (of NAB Asset Servicing) will remain as a board director and Daryl Crinch (from BNP Paribas) will remain treasurer.

“I have been honoured to chair the ACSA board for the last six years, successfully implementing significant regulatory and tax reforms, operational enhancements and more recently the industry collaboration through the pandemic,” Knights said.

“ACSA is well positioned for the future with the appointment of Sally Surgeon as chair and Jennifer Saunders as deputy chair. Their significant global industry experience will be instrumental in navigating the rapidly changing investment operations landscape.”

Surgeon added that she looks forward to taking the organisation in a critical direction.

“I would like to thank my fellow directors for their vote of confidence and I look forward to working closely with each of them at such a critical time for our important industry. On behalf of the board, I’d like to pay tribute to David for his many years of service as chair, and look forward to his continued involvement as a director of the organisation,” she said. fs

Queensland firm joins Connectus NASDAQ listed Focus Financial Partners has added a Queensland advice firm to its advice multi-boutique network Connectus.

Aspiri Financial Services Group will join Connectus, which in December 2020 acquired Sydney’s Brady & Associates Group, Melbourne’s Link Financial Services Group and Brisbane’s Westwood Group.

Focus already owns Escala Partners and MEDIQ Financial Services but these are separate from the newer Connectus Wealth Advisers network.

The Aspiri transaction is expected to close in the June quarter and is subject to customary closing conditions.

Aspiri was founded in 2004 by Gavin Kelly in Newstead, Queensland. It advises high-networth clients including discretionary investment management, estate planning, insurance advice and superannuation services.

“In Connectus, we have found a partner that understands our business and is aligned with our customised approach to serving clients,” Kelly said.

“The partnership with Connectus and Focus is the next step in our continued evolution to expand our value proposition. We are excited to join a collaborative community through which we will gain access to additional resources to accelerate growth and support the firm’s longterm succession plan.” fs

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01: George Lucas

chief executive Raiz

Raiz acquires $70m superannuation platform Kanika Sood

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Other acquisitions are on our radar as we actively look for opportunities in Asia Pacific region.

SX-listed Raiz will pay $9.5 million to acquire a firm with a $70 million superannuation fund.

Raiz is set to buy Superestate, whose business includes superannuation, a residential property fund, and a property data platform.

Under the deal, its founder Grant Brits and Superestate’s staff will join Raiz.

Raiz is funding the transaction via 5.3 million new shares at $1.78 per share (10-day VWAP to April 26). It is expected to close in late May subject to conditions including Raiz completing due diligence, continuation of material contracts and Superestate being debt free.

Raiz chief executive George Lucas 01 said the acquisition adds scale, residential property to its asset mix in superannuation and outside it, and operational and growth synergies.

“This acquisition, the first in our five-year history, marks an important milestone for the group by demonstrating organic growth is not our only option to increase funds under management (FUM) and active customers. Other acquisitions are on our radar as we actively look for opportunities in Asia Pacific region,” Lucas said.

Raiz said the two businesses will contin-

ue to operate separately until an integration strategy that is the best outcome for all customers is implemented.

Raiz’s pre-acquisition superannuation assets sat at $92.5 million at March end, growing 14.6% in the quarter. In the March quarter, it also rolled out portfolios for the self-managed superannuation fund sector which has $730 billion in assets.

Superestate’s superannuation fund is a Choice product and a subplan of Tidswell Master Superannuation Plan and had about $80 million in assets at FY20, up from $22 million the year before.

It offers three superannuation multi-asset portfolios: Superestate Balanced Essentials, Superestate Balanced Property and Superestate Growth Property.

Of the $80 million in assets, about 73% was outsourced to Macquarie Investment Management (for indexed international equities, Australian shares and cash) while about 26% was invested in Superestate residential property fund as at June 2020.

The fund uses MetLife for death and terminal illness and YourCover for total and permanent disability and income protection. The custodian is Sandhurst Trustees. fs

Defined benefit fund in merger Elizabeth McArthur

A defined benefit fund with $77 million in funds under management is completing a successor fund transfer to a Mercer subplan.

Factory Mutual Insurance Company Superannuation (FMIC) members and assets will be transferred from the existing fund to a Mercer sub-plan which sits within Mercer’s Corporate Superannuation Division of its Mercer Super Trust.

The new plan will keep the FMIC name. Equity Trustees will cease as trustee as new trustee Mercer Superannuation takes over.

Members were notified by Equity Trustees in March and will be automatically transferred to the new plan on 29 April 2021, unless they choose to exit the fund prior to that date.

Equity Trustees said the successor fund transfer was deemed to be in the best interests of members.

The insurer of the fund will change. Currently, TAL provides group insurance for FMIC. In the new plan, insurance will be provided through AIA Australia.

Members were assured that there would be no changes to their defined benefit arrangements.

“The investment strategy in the new plan will initially match as closely as possible to the current investment strategy,” Equity Trustees said.

“You will be able to elect your own investment strategy for accumulation accounts from the available investment options in the new plan.”

Defined benefit fees and costs, however, will change. This will involve a change from crediting rates to unit pricing.

Currently there is no investment fee in the FMIC fund but following the transfer to Mercer Super Trust the investment fee will be 0.30%.

The estimated indirect cost ratio will decrease from 0.98% to 0.25%.

The activity fee for contribution splitting will be slashed to zero in the new plan, members were previously charged $88.88 for this service.

There will also no longer be fees for processing payment splits, placing a payment flag on a benefit or lifting a payment flag on a benefit. These fees are currently between $157 to $230.

Meanwhile, the fee for processing an application for information will increase from $307.50 to $556.00.

The administrator will also change from OneVue to Mercer Outsourcing.

As of 31 December 2019, FMIC had just 97 members and paid out more than $3.3 million for the year. fs

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News

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

01: Kate Farrar

Life industry to launch framework

chief executive LGIAsuper

Continued from page 1 and services; and law and regulation with all underwriting professionals by 2024.

TAL chief executive Brett Clark said the framework will enhance existing skills in the industry and set a minimum standard.

“This Professional Standards Framework sits alongside the industry commitments set out in the Life Insurance Code of Practice, which together, put in place important long-term commitments by the life insurance industry to delivering for our customers and the community,” Clark said.

ANZIIF chief executive Prue Willsford agreed and said it is a positive step for the life insurance sector.

“Competency Frameworks have been developed for claims, underwriting, product and distribution functions and will provide life insurance companies with a measurement tool for their own existing internal training, while professional development for employees will provide a roadmap for long-term consistency across the industry,” Willsford said.

Minister for superannuation, financial services and the digital economy Jane Hume welcomed the framework.

“I applaud ANZIIF and industry for their hard work putting together these standards and welcome industry taking a proactive approach to create codes and standards enhancing consumer outcomes,” Hume said.

The latest development comes following APRA’s announcement that it has commenced industry consultation on revisions to the prudential standards for life insurers to protect life insurance policy holders against the use of offshore reinsurers. fs

Investors rush to equity funds Continued from page 1 “Booming commodity prices that are especially positive for Australian share prices and the economy here are clear evidence that this judgement is already proving right. The sharp increase in the Australian dollar over the last year is also a vote of confidence in the country’s near-term prospects.”

The FFI also measured investor sentiment with a score that compares net inflow and outflow to total turnover. Australia recorded a score of 60.1 which equates to buys outweighing sells at 1.5:1.

Calastone noted the score as being particularly high, as the UK recorded 53 over the same period and was considered a positive result.

Sell orders for equity income funds have surpassed buy orders 2:1 since April 2019, in the wake of global dividend cuts.

Fox said the rotation in equity markets and lower valuations in tech has led to high volumes of trading.

“All this is driving higher trading volumes in funds as investors switch from one investment style to another, rather than simply adding new cash to their holdings,” Fox said.

Calastone analysed over half a million buy and sell orders every month from January 2019, tracking capital from advisers, platforms and as it flows into and out of managed funds.

To avoid double-counting, the team excluded deals that represent transactions where funds of funds are buying those funds that comprise the portfolio. fs

Suncorp divests wealth unit to industry super fund Karren Vergara

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The values and purpose of LGIAsuper, which is also headquartered in Queensland, align closely with those of Suncorp.

uncorp will divest its wealth division to an industry fund, transferring $6.4 billion in assets under management and 137,000 members.

LGIAsuper will pay $45 million for the acquisition for Suncorp Portfolio Services and will retain about 130 staff that work within the wealth business.

LGIAsuper is in the process of merging with Energy Super, which upon completion and taking into account the Suncorp acquisition, will create a $28 billion fund with some 250,000 members.

“This acquisition, combined with the Energy Super merger, will achieve an ideal, sustainable fund size, while maintaining our status as a boutique and personal superannuation provider,” LGIAsuper chief executive Kate Farrar01 said.

“With the superannuation industry consolidating rapidly, we want to see our Queenslandbased funds thrive in an increasingly complex and competitive national market, and the best way to do that is together.”

The merged entity promises that all members will see fees reduce.

Suncorp banking and wealth chief executive Clive van Horen said: “After extensive engagement with a number of potential acquirers, we

believe that LGIAsuper is best placed to deliver sustainable member outcomes.

“The values and purpose of LGIAsuper, which is also headquartered in Queensland, align closely with those of Suncorp. This transaction will also enable the combined business to take advantage of size and scale benefits,” he said.

Suncorp began scouting for potential buyers in February 2020, joining a herd of large financial institutions abandoning life insurance and superannuation.

Suncorp Portfolio Services landed in hot water at the banking Royal Commission for a number of issues that included withholding tax benefits from members, not being transparent about intra-company payments and dragging its feet in transitioning members to MySuper.

Its lifestage funds copped red ratings in APRA’s 2020 heatmap for charging as much as 1.68% in exorbitant administration fees.

The transaction is due to complete by mid2022. After this, Suncorp will enter into an agreement with LGIAsuper to distribute Suncorp superannuation products to customers for 18 months.

The $45 million consideration includes a fixed amount of $26.6 million plus regulatory capital. fs

Adviser numbers dwindle to pre-Royal Commission levels: Analysis The financial adviser population has reverted to the pre-financial services Royal Commission days, ending at 20,667 in the first quarter of 2021.

Rainmaker analysis of ASIC’s Financial Adviser Register found that the total number of financial advisers have tapered off to levels experienced in 2016.

About five years ago, adviser numbers floated above 20,000 and peaked at nearly 30,000 at the end of 2018 as the Hayne Royal Commission was finalising its verdict.

On a year-on-year comparison, the number of advisers dropped 11% at the end of March 2021.

The SMSF Advisers Network is currently the largest advice licensee, followed by AMP Financial Planning, Morgans, Synchron and Charter.

Over the course of 12 months, GWM Adviser Services welcomed the highest number of advisers of 173 but lost 164. AMP Financial Planning lost a whopping 389 but added 50 new advisers.

Less than a third (30%) of advisers or 14,487 are authorised to provide advice on life risk products.

Aware Financial Services has 204 and Commonwealth Financial Planning with 203 risk advisers have the largest market share in the risk advice segment.

Lifespan Financial, GWM Adviser and Capstone Financial are the fastest-growing licensees, each adding 29, 31 and 56 advisers respectively over the period. Bank-owned AFSLs continue to experience the largest fall in adviser numbers.

The report also found that bank and institutionally aligned platforms are highly favoured among advisers.

Colonial FirstChoice tops the chart, housing 10,072 advisers with an 11% market share.

AMP Flexible Lifetime (6876), Perpetual WealthFocus (5992), Asgard (5477) and BT Wrap (5208) make up the top five most-used platforms.

Outside of the major platforms, Netwealth owns the biggest market share at 2.5% with 2371 advisers, while HUB24 has 1790 advisers and a 1.9% market share.

During the March 2021 quarter, there were 538 adviser registrations with advice licensees while 1017 ceased registrations. fs

News

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

Inflows slow at AMP North AMP’s North platform saw $400 million less in inflows in the three months to March compared to the same time last year, as financial adviser activity fell.

North’s cash inflows for first quarter were $3.6 billion, compared to $4 billion in 2020 March quarter.

The platform ended March with $53.4 billion in platform assets, up $1.7 billion from the December quarter.

“We continue to improve the capabilities of North to support both AMP aligned and external financial advisers in servicing their clients and to ensure it continues to be a leading platform,” AMP’s outgoing chief executive Francesco De Ferrari said.

North sits under AMP Australia business which includes wealth management.

AMP Australia ended March with $125.7 billion in assets under management. This is an $1.6 billion increase and came from stronger investment markets, as the segment was in net cash outflows ($1.5 billion).

It attracted cash inflows of $5.2 billion (of which $3.6 billion was from North), and cash outflows of $6.7 billion which included the exit of a corporate super mandate and $448 million of regular pension payments.

AMP Capital ended the March quarter with $186.5 billion in assets under management, dropping 1.7% from $189.8 billion.

The 1.7% drop primarily reflected net cash outflows in the period of $2.9 billion, AMP said. fs

WTW commits to going net zero Elizabeth McArthur

Willis Towers Watson Investments will target net zero emissions across its fully discretionary delegated investment portfolio by 2050.

WTW said it will target at least a 50% reduction in greenhouse gas emissions across its discretionary delegated investment portfolios by 2030.

“Climate change, and a just transition to net zero greenhouse gas emissions, is a systemic and urgent global challenge,” WTW global chief investment officer Craig Baker said.

“We believe that working to achieve net zero by 2050 in our discretionary portfolios is completely consistent with the financial goals we have been given by our clients as climate change has the potential to impact returns across multiple asset classes. We have already embedded this in our investment process and ultimately in the portfolios we are managing and stewarding.”

Baker added that he believes the move will improve risk-adjusted returns or clients as the mispricing of climate issues is resolved.

“In particular, we think that understanding this transition will be one of the biggest sources of alpha across all asset classes and that this opportunity is likely to be greatest in the next few years,” he said.

“We will therefore target pathways to net zero that seek out pricing opportunities while delivering a reduction in emissions of more than 50% between 2015 and 2030, consistent with the Paris Agreement.” fs

5

01: Sally Loane

chief executive Financial Services Council

FSC proposes new financial advice model Karren Vergara

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The quote

Almost three out of four Australians feel that simpler definitions of advice are easier to understand.

radicating the Statement of Advice and the safe harbour steps are two recommendations that will help reduce red tape and make financial advice more affordable, according to the Financial Services Council.

The peak body has laid out its recommendations in a new green paper, Affordable and accessible advice, underpinned by Rice Warner and a consumer-focus group.

The FSC is calling for a simpler advice model that is consistent with the new Design and Distribution Obligations (DDO), which requires financial product issuers to know whether their consumers fall within the target market of their products.

The alternate model in line with the DDO will categorise advice into general information and personal advice. The latter is split across simple personal advice and complex personal advice. Strategic and intra-fund advice will fall under simple personal advice.

Complex personal advice further breaks down to specialised advice.

Backing this model, the FSC said: “With many consumers receiving financial advice not understanding whether that advice is personal advice or general advice, reform of the model is needed. Almost three out of four Australians feel that simpler definitions of advice are easier to understand and most think a redefined model

would be an improvement on the way the industry currently communicates.”

The FSC suggests abolishing Statements of Advice (SOAs), claiming they are out of date.

In its place is the Letter of Advice, providing a substantially shortened and relevant presentation of strategies and advice to consumers.

In terms of meeting best interests duties, advisers must follow the legal process behind it known as the “safe harbour steps”.

The seven steps should be abolished, the FSC argued. They might be relevant when providing comprehensive advice, but undermines the provision of scaled, simple issue and low risk financial advice.

Instead, the code of ethics should be the primary instrument and single source of truth for determining compliance with the best interests duties.

FSC chief executive Sally Loane 01 said the aim of the proposals is to lower the cost of providing financial advice to make it simpler for consumers to understand and access without undermining the quality of advice or eroding important consumer protections.

“The FSC is seeking industry and public feedback for our proposals in advance of finalising a policy position on a more accessible and affordable financial advice system which we will publish in a white paper later this year,” it reads.

The FSC is holding consultations until July 1. fs

Senate report on Your Future, Your Super reforms delayed Kanika Sood

The senate economic committee’s report on Your Future, Your Super reforms has been delayed by a week, as superannuation funds await specifics ahead of the proposed July 1 start date.

The senate economics legislation committee, chaired by Liberal senator Slade Brockman, was tasked with producing the report on February 18.

The due date was set for April 22.

Senator Brockman said the committee has pushed the report.

“The committee requests an extension of time to report until 29 April 2021 to allow it to consider the evidence received and to conclude its deliberations,” Brockman said in the April 21 note.

A spokesperson for the senator said the delay is “more logistical than technical”.

She said Brockman has hearings for other committees all this week and that Labor has changed its deputy chair on the committee to Anthony Chisholm.

On April 15, the Australian Institute of

Superannuation Trustees, the Association of Superannuation Funds of Australia and Industry Super Australia wrote to the minister for superannuation and financial services Jane Hume, copying in Treasurer Josh Frydenberg, asking for “an urgent update” on the release of the draft regulations for the bill.

“Given that details of the full impact of the YFYS Bill are not yet clear we are concerned there is now insufficient time for considered debate of the YFYS Bill,” the three associations said in the April 15 letter.

“In particular, our understanding is that the commencement date of 1 July 2021 has not changed, and the Senate Economics Legislation Committee (Committee) is still due to report on their inquiry by 22 April 2021.

“We seek your reassurance that while the Committee will not have time to carefully consider the YFYS Bill regulations as part of its inquiry, the Parliament and relevant stakeholders will be provided with adequate time to consider all the regulations.” fs

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News

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

Pandemic boosts engagement Financial services employees have never been more engaged in their roles since the global pandemic disrupted, a new study shows.

The global workplace study by ADP, a provider of human resource solutions, found that the shift from office-based work to flexible work practices has been embraced significantly by the finance sector.

After canvassing 26,600 workers across 25 countries, which included Australia, finance and technology sector workers were deemed to be the most engaged.

More than half (56%) of finance employees, working across banking, insurance, exchanges, brokerage, said they experienced between one or two more major workplace changes in the last year.

One noticeable change is the increased reliance on technology, the report read.

Many also saw their work hours change – some increased while others decreased. The fact that bosses held back promotions was a disappointment for many finance workers.

Across the globe, ADP found that employees from Israel, Netherlands, Sweden, Taiwan and South Korea are the least resilient in facing their new work environment, meaning they had low levels of psychological safety and trust in their manager’s ability to lead and communicate and so forth.

Employees from India, Saudi Arabia, United Arab Emirates, Singapore, South Africa and Mexico are the most resilient workers, recording a score of 17% and above. fs

01: Debra Hazelton

chair AMP Limited

AMP to list Private Markets, Pahari to leave Jamie Williamson

A

The quote

Private Markets will also put in place a new management equity plan, to attract and retain talented investment professionals and management.

HESTA hires GM, defensives Elizabeth McArthur

HESTA, the $60 billion industry fund for the health and community services sector, has made a key appointment within its investments team.

Stephen Howard has been appointed general manager, defensives.

He was the head of fixed income for Asia Pacific at Vanguard from 2010 to 2017.

Since then, Howard has held academic positions at Monash University and the University of Melbourne and has been a portfolio manager for treasury and investments at Medibank Private.

HESTA chief executive Sonya Sawtell-Rickson said Howard’s appointment is part of HESTA’s ongoing internalisation of investments.

The fund will begin to manage fixed income and cash in-house in 2022.

“Stephen will be leading the next phase of our internalisation journey, as we move to internally manage fixed interest and cash instruments,” Sawtell-Rickson said.

“It’s exciting to have Stephen come on board as he has a proven track record of investing significant portfolios, managing highly successful teams and leading strategic thinking.”

HESTA’s internalisation program has already resulted in a revamp of its investment leadership.

Stephanie Watson joined the fund in 2020 as head of portfolio design and Steven Semczyszyn joined to lead the internal Aussie equities team. fs

MP has confirmed Boe Pahari will leave the business as it pursues a demerger of its Private Markets business, after plans to sell to Ares Management fell through.

AMP will demerge its $50 billion Private Markets business from AMP Limited and list it separately on the ASX, confirming discussions with Ares yielded no outcome; “we have not been able to reach an agreement that would deliver appropriate value for our shareholders”.

As part of the demerger, former AMP Capital chief executive Boe Pahari will leave the business. Pahari currently serves as AMP Capital’s global head of infrastructure equity and North West region. AMP said he will work closely with the infrastructure equity team to ensure a smooth transition.

AMP said it will commence the internal separation of Private Markets immediately, including establishing operational independence for management, new branding and a board of directors, to be led in the interim by current AMP Capital chair Michael Sammells. An independent search for a chief executive is underway with David Atkin currently leading the business on an operational basis.

AMP said the demerger will see the creation of “two more focused businesses, better equipped to pursue and allocate capital to distinct growth opportunities, and realise efficiencies”.

Those businesses would be AMP Limited, offering retail-focused wealth management, investment and banking services to the Australian and

New Zealand markets, and Private Markets offering investment services across infrastructure equity, infrastructure debt and real estate. AMP Limited will own a 20% stake in Private Markets.

“The proposed demerger would unlock further value in the Private Markets business by simplifying its structure, providing operational independence and enabling it to establish a new brand. Private Markets will also put in place a new management equity plan, to attract and retain talented investment professionals and management,” AMP said.

Commenting, AMP chair Deborah Hazelton 01 said the portfolio review confirmed AMP had two distinct businesses with different client bases and growth opportunities.

“The Private Markets business operates in growing, global markets in which investment management talent and strong client relationships are critical. While AMP Australia and New Zealand Wealth Management share the same commitment to clients, they are predominantly domestic businesses focused on wealth, banking and investment solutions for retail customers,” she said.

After the discussions with Ares failed, Hazelton said the board concluded a demerger would provide investors with the strongest value outcome.

Under the demerger, AMP Limited will retain AMP Capital’s Global Equity and Fixed Income business for which it continues to explore options, and the Multi-Asset Group which is in the process of being transferred to AMP Australia. fs

Advisers laud Xplan software Karren Vergara

Xplan has emerged as the leading financial planning software among financial advisers, a new Investment Trends survey finds.

Iress’ Xplan took out the nod for its comprehensive functionality, compliance technology and ability to support for advice firms of all sizes, according to the 2020 Advice Technology Benchmark Report.

Morningstar’s AdviserLogic won the best digital advice process, while Advice Intelligence was recognised for its goalsbased advice application.

In other categories, IOOF’s Wealth Central is the best new advice tech application; Astute Wheel won the best client discovery application; and Xeppo was awarded the best business management application.

Investment Trends ranked advice tech providers across four main areas: strategic advice, financial advice, advice on platforms and advice with products.

The inaugural report also revealed foreign firms gaining dominance over the Australian advice tech industry. The acquisition of AdviserLogic, Midwinter and Coin are most recent examples.

“Local advice tech developers are focused on lifting practice efficiency and anticipating future changes to advice delivery models, but over the horizon, there is emerging competition from integrated applications like Salesforce-based Wealth Connect and Intelliflo Intelligent Office from the UK, a trend that is set to grow,” Investment Trends analyst Ian Webster said.

“Now more than ever, advice firms have access to an array of globally available, low-cost digital services to manage their client relationships and augment their advice production applications.”

Increasing regulatory obligations such as best interests duties are prompting advisers to shift away from a product selection or replacement mindset towards a more client-centric view, focused on client discovery, strategic goal-based advice and cashflow modelling.

“The regulator’s expectations that the ‘client voice’ be explicitly present in advice documents has prompted advice tech providers to invest significantly in developing the client discovery process,” he said. fs

Product showcase

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

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01: Sean McCormack

managing director and chief executive Integrity Life

For advisers, by advisers

Ensuring efficiency and sustainability for the future of life insurance May 2019, the prudential regulator Iandnpenned a letter to Australia’s life insurers friendly societies which it followed up with another letter in December 2019. In both letters APRA lamented the significant losses being incurred on individual disability income insurance (IDII), some $3 billion in the preceding five years alone.

As these losses took their toll, insurers were forced to increase premiums, further hindering the viability of IDII products in the Australian market.

Initially delayed by COVID-19, in September 2020 – and a further $1.4 billion in losses later – APRA took action to alleviate what it described as “a significant prudential risk”. This includes bringing an end to agreed value IDII contracts, forcing insurers to manage their exposure to long benefit periods, and implementing a consequence management framework, including increased capital requirements for those providing IDII cover.

Intervention such as this by the regulator is unprecedented but required, according to Integrity Life chief executive and managing director Sean McCormack01.

Integrity Life believes efficiency and sustainability should be at the forefront of all product design.

This should also flow through to the way in which the products are rolled out to financial advisers and their clients, McCormack says.

“There is a lot of change across the industry, and advisers are already grappling with a huge amount of red tape and painful paperwork,” McCormack notes.

And a lot of the turmoil seen now can be tracked back to the introduction of the Life Insurance Framework, he says.

“The elephant in the room here is that the Life Insurance Framework reforms – which were needed – have pushed remuneration levels for advisers to a level where they are simply walking away from protecting everyday mums and dads.”

McCormack also questions whether the 60/20 remuneration basis for advisers is sustainable and whether those rates of remuneration need to increase.

“Advisers are just doing it so tough, especially risk advisers. We’ve seen a significant reduction in advisers as older advisers leave the industry, and then other advisers have formed the view that it’s simply not profitable for them to continue,” McCormack says.

In the 12 months to April 14 alone, 5142 names dropped off the ASIC Financial Adviser

Register, with a net loss of 2386, according to Rainmaker Information analysis.

“So, the role that insurers need to play is making these changes as simple as possible for them and focusing on supporting them with greater efficiency so they can continue to focus on providing advice,” he says.

McCormack believes there’s two ways in which the insurer is helping advisers. The first, he explains, is being as efficient as possible from as soon as the adviser recommends Integrity Life as the insurer for their client.

“That means quickly working through any underwriting issues that may crop up, we quickly obtain any medical evidence, and we get that policy completed, on the books and commission paid to the adviser as quickly as possible,” McCormack says.

This doesn’t just apply to new business either, with McCormack saying there is a focus on being equally efficient when it comes to renewals; “What advisers expect is that an insurer that’s backed by digital technology that can make those interactions as quick as possible.”

For example, Integrity’s Life’s Send App to Client feature which involves the adviser handing over the completion of personal statement to the client in their own time, in the comfort of their own home.

McCormack, who joined the insurer in March, admits to having initially been wary of the feature, concerned advisers would be reluctant to hand over control or worry about losing their client. However, after learning that Integrity Life does all the follow up on the adviser’s behalf, McCormack realised the benefits.

“We’re seeing 55% of our advisers use this feature 40% of the time, and our track record in following up and obtaining all of the necessary answers is 100%,” he says.

And when it comes to turnaround times in the retail business, 90% of pre-assessments done in 24 hours, 96% of new application decisions made in 24 hours, 100% of underwriting decisions made in two days.

Another area in which Integrity Life is working to make an adviser’s job easier is in its product suite. Underpinning this approach is what the insurer refers to as “co-creation”, inviting financial advisers to be a part of the product design process.

For example, APRA’s intervention highlighting the need for an overhaul of IDII products and so as Integrity Life looks to roll out a new offering, advisers are playing a key role in shaping its solutions.

“Our approach to IDII is true to how we approach almost everything we do – we speak to

The quote

I fundamentally believe the Australian life market will be better for having new players enter to bring diversity and choice to a market that has seen incredible consolidation in recent years.

advisers and clients. So, we have several options currently being tested in partnership with advisers to ensure we deliver something that is going to work for them,” McCormack explains.

Ultimately, one of these options currently being taken for a spin may end up being Integrity Life’s next IDII offering. As the new product is still in development, Integrity Life can’t divulge too much of what the new product will look like.

“What I do know is that it will look really different to what we have traditionally expected from an income insurance product,” McCormack says.

“The challenge will be in keeping it simple.”

Part of this, he says, will be streamlining total disability definitions. Insurers will move away from the three-tiered approach and back to a main duties-style definition, he predicts.

In hand with that, the insurer also anticipates products like total and permanent disability and trauma cover will become more important as part of a mix of products, as insurers and advisers seek ways of getting the same coverage that income insurance products once provided.

However, McCormack acknowledges that some may be curious about Integrity given it is a new name, but advisers and clients alike can rest easy knowing Integrity Life is backed by Japan’s ninth-largest insurer, 120-year-old Daido Life.

“The other thing that’s also not well known is that, while we have a new name, we’ve actually been insuring Australians for many years as QBE Life and, before that, CUNA Mutual,” he says.

Looking ahead in a personal manner, McCormack says he has big plans for Integrity Life, saying he was delighted to be offered the opportunity to lead the company.

“I fundamentally believe the Australian life market will be better for having new players enter to bring diversity and choice to a market that has seen incredible consolidation in recent years,” he says.

“What I want to be doing is running a business that is incredibly partner-centric and focused on adviser pain points and how, because we are legacy free, we can use the best of modern technology to serve our clients better and give them an experience that can’t be matched.” fs Brought to you by

Watch the video on www.fsitv.com

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News

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

TPD claim success rates fall

01: Will Burkitt

retirement innovation leader Mercer

Kanika Sood

New data from APRA and ASIC shows 81% of adviser-led TPD claims were admitted in 2020, down from 87% two years ago.

The joint claims data published by APRA and ASIC included death, total and permanent disability (TPD), trauma, and disability income insurance (DII) among others.

It listed their admittance rates and claims paid out ratios for four channels (individual advised, individual non-advised, group super and group ordinary).

For the individual advised channel, admittance rates stood at: death (96%, same as 2018), TPD (81% vs. 87% in 2018), trauma (86% vs. 87% in 2018), and DII (94% vs. 95% in 2018).

Meanwhile claims paid ratio stood increased significantly in advised-individual channel: death (42% vs. 39% two years ago), TPD (56% vs. 45%), trauma (54% vs 62%), and DII (77% vs. 66%).

The claims paid ratio is the dollar amount of claims paid out in the reporting period as a percentage of the annual premiums receivable in the same period.

The admittance rates for advised individual claims continued to be higher than non-advised claims.

In the group super channel, admittance rates remained largely unchanged: death (98% in both years), TPD (89%, lower than 88% in 2018) and DII (95%, lower than 96% in 2018).

Claims paid out ratios for group super showed a sharp increase.

Death and TPD rose from 78% and 71% respectively two years ago to 82% and 97% respectively in 2020.

This means insurers selling TPD via group policies in superannuation funds paid out nearly as much in TPD claims in 2020 as the premiums they collected on TPD policies in the year. fs

Praemium opens Edinburgh office Annabelle Dickson

The platform has recorded increased funds under administration (FUA) of $37.9 billion as it expands its presence in the UK with the opening of an office in Edinburgh, Scotland.

For the March quarter, Praemium recorded an 11% increase in FUA, and a 96% increase compared to March 2020.

The platform recorded $801 million in net platform inflows with $448 in the Australian platform for the quarter, up 149% on the previous corresponding period.

“Praemium has doubled in size over the past year. Despite the pandemic, the past 12 months have been the most transformational in our story thus far,” Praemium chief executive Michael Ohanessian said.

The results follow the opening of a Praemium office in Edinburgh.

The platform already has offices in London and Birmingham and is looking to hire 20 roles in Edinburgh by the end of the year across investment operations, adviser support, IT and administration. fs

Mercer launches aged care support service Karren Vergara

M The quote

Australia needs to be innovative in how it supports people as our society rapidly ages.

ercer has launched a service to assist employees navigate the complex world of aged care.

Care & Living with Mercer aims to be a onestop shop, providing information on aged care and living options across home care, retirement living and residential aged care.

The initiative, which is backed by several of Mercer’s partners such as Commonwealth Superannuation Corporation and Ramsay Health, will be available to their employees.

Mercer retirement innovation leader Will Burkitt 01 said navigating the system and finding a trusted source of reliable, accessible, and independent information is proving more difficult than it should be.

“Australia needs to be innovative in how it supports people as our society rapidly ages,” Burkitt said.

The recent Royal Commission in the aged care

system handed down a whopping 148 recommendations after uncovering systemic problems in the system that puts the most vulnerable at risk.

Such problems include inadequate funding, variable provider governance and behaviour, lack leadership and governance, and poor access to health care. Another is the difficulty of accessing and navigating the system.

Burkitt said about 1.5 million Australians receive ageing care services and more than ever, adult children are acting as carers for the first time.

“One in eight working Australians are currently acting as carers, 27% of whom are primary carers,” he said.

“From our extensive consultation with our clients and key industry experts, it’s clear that caregiving support – particularly for employees with ageing family members – must become a core component of employee benefits programs and workplace wellbeing.” fs

Perennial establishes ESG boutique Rachel Alembakis

Perennial Partners has spun its ESG team and flagship ESG fund into a separate boutique investment business.

Perennial Better Future will include the Perennial Better Future Trust and the associated active ETF, the eInvest Better Future Fund (IMPQ) and will also manage ESG initiatives across the Perennial group.

The new boutique investment firm will be led by portfolio manager Damian Cottier, with Emilie O’Neill as ESG and equities analyst, and George Whiting who will head up the institutional and retail business development for the boutique.

“What it means is that myself, Emilie and George are really aligned in terms of driving the business forward,” Cottier said.

“It’s really a coming of age to see the business investing into this because they believe in it and think it’s a really important thing for us to be doing. We will have a lot more engagement in allocation and resources going forward.”

Perennial Partners’ broader distribution team and 15 investment analysts will provide additional support to Perennial Better Future.

“We’ll still work with the rest of the asset management business and they’ll continue to work closely with us,” Cottier noted.

The intention will be to grow the Better Future business in future, but for the moment, the focus will be on the two products – the Better Future Trust and IMPQ. Perennial Partners executive director Anthony Patterson said the Perennial Better Future business was born out of a passion for sustainable investment.

“The world of sustainable investment has made a 180-degree turn in the last 15 years. Today, an investment in a sustainable business contributing to a better future is far more

likely to lead to better returns than investing in conventional businesses,” he said.

“Perennial Partners has developed a leading-edge capability in sustainable investment and this business has been four years in the making. It launches having proven its investment thesis that benchmark outperformance can be achieved by investing in companies that are contributing to the improvement of society.”

Since its inception in 2018, the Perennial Better Future Trust has returned 13.3% per annum. It has outperformed the S&P/ ASX Small Ordinaries Accumulation Index by 6.2% per annum and the ASX 300 Accumulation Index by 5.6% per annum since inception to the end of March 2021.

O’Neill will remain part of the overall investment team within Perennial, but will focus on the Better Future strategy, she said.

Cottier said the strategy is predicated on finding companies that derive most of their revenue from positive outcomes, with zero revenue from harmful activities.

“We are focused on finding innovative smaller Australian companies. Many of the companies in the portfolio have entered into global markets and have significant growth potential – they are often disruptors in their chosen markets, improving health outcomes, increasing efficiency and reducing costs,” he said.

The Better Future Trust has appeal to both institutional and retail audiences, Whiting said.

“Broadly, people come to a strategy like this for a number of different reasons, and we certainly feel that a strategy can offer different things for different investors,” Whiting said.

“It is an institutional quality product, and we are seeing interest from the institutional landscape, but also very fitting to the retail and wholesale markets.” fs

Opinion

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

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01: Babloo Sarin

head of asset owners, Asia Pacific State Street

Private equity A rising star in the multi-asset universe Fair benchmarking for a multiasset investor performance

or many asset owners, private equity is an F integral part of their portfolio’s asset allocation. With global interest rates at historic lows since 2010, government bonds no longer provided adequate yields to meet asset owners’ return targets.

This forced them to diversify from domestic bonds and allocate more to riskier and less liquid but higher yielding alternative assets.

As super funds gain in size and scale, much greater investment opportunities are opening up to them in the form of direct investment and access to assets that fall outside traditional public markets, such as private equity which requires more robust analytics and reporting than traditional assets.

Asset owners need a multi-asset class platform that equips them with the information and insights they need to track performance for both public and private assets.

A full and accurate picture As institutional investors continue to diversify into multi-assets, measuring and reporting for these portfolios becomes more complex. However, before we discuss specifics of reporting for a multi-asset class portfolio, it is vital to recognise what we are trying to measure. It is important to understand that returns being calculated need to be fit-for-purpose across the fund structure and its component parts.

If an asset owner wants to measure its private equity manager’s performance, internal rate of return (IRR) should be used. However, if they are looking at the performance of the whole portfolio, we would typically use a time-weighted rate of return to measure the asset allocation decisions of the fund.

Most investors apply a time weighted return across every portfolio to provide a consistent methodology rolling up to the total portfolio return.

However, most software products only provide private equity performance updates monthly, and some of the illiquid investments that must be incorporated alongside all others only price quarterly or even annually.

This is simply not suitable for many asset owners as they need to analyse their portfolio and report to outside stakeholders in a timely fashion.

This means published monthly returns will be based on stale private equity valuations that could be materially different from the actual valuations (when they become available), which is particularly the case when markets are more volatile as they have been at times during the COVID-19 pandemic.

One solution to this is to run two separate books. The monthly reported book will tie to the accounting book of record, only reflecting hard close valuations which will be stale for some private equity assets.

The ‘live book’, meanwhile, would always be updated with the best available information. So, if a manager valuation comes in two months after the valuation date, it will update the historical record.

Stale valuations can also be replaced with estimates, proxies or PMEs (public market equivalents) that better reflect the likely value of the asset based on the movement of a correlated index or similar instruments with more readily available valuations.

Returns from a monthly closing process or true lagged returns are useful because many asset owners need to analyse their portfolio and report to outside stakeholders in a timely fashion. However, running your returns on the live book, which has the best available information, including final values from the manager regardless of when they are reported, is also critical, especially when you move from assessing your total portfolio to assessing individual private equity managers and funds.

The quote

Institutional investors need to deliver returns in a world where the illiquid premium is shrinking.

Asset owners need to consider their overall investment objectives and make an asset allocation decision at the total portfolio level. A broad private equity industry benchmark that reflects the true risk and return profile of private equity as an asset class makes sense.

However, when it comes to manager selection and benchmarking each individual investment, investors need an industry-accepted benchmark to measure a specific PE manager’s track record.

Most institutional investors adopt two common approaches.

The first is a relative performance benchmark based on public market indices plus a premium, for example S&P 500 + 300 basis points.

The second approach is to choose a peer group benchmark.

Both of them have their drawbacks. The former creates large tracking error since public and private market returns are not closely correlated and it is difficult to evaluate PE portfolio performance over a shorter time period. The latter is challenged by the lack of transparency and industry consensus in terms of fund classification.

Given the challenges, it is important to have a platform with the flexibility to employ different benchmarks at different times depending upon which has the greatest level of comparability over a particular evaluation period.

Increasingly, investors will also use PMEs to provide a fairer indication of how comparable assets would have performed with the same cash flows as the private equity investment.

It is essential for asset owners to use multiple metrics to analyse a private portfolio. They need to revisit performance and analytical tools, whether they are internal rate of returns (IRRs), investment multiples, PMEs, risk-adjusted returns or benchmarks, and find ways to both refine and fully utilise them.

The medium term outlook for multi-asset strategies We believe the strong demand for alternative assets will be maintained as the low yield environment is likely to continue for a long while yet.

There’ll also be a further increase in the internationalisation of asset allocation by super funds, as well as growth in the size and scale of super funds.

Alongside those factors, US equities are unlikely to perform as well as they did last decade.

Institutional investors need to deliver returns in a world where the illiquid premium is shrinking. They also need to allocate to real assets to diversify their long equity book. fs

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News

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

Mawhinney cops 20-year ban The Federal Court has ruled that Mayfair 101 founder James Mawhinney cannot fundraise for or advertise financial products for 20 years.

The judgement ordered that Mawhinney and any of his employees or any companies he is a part of cannot solicit funds in connection with any financial products for 20 years.

The M Core Fixed Income Notes, M+ Fixed Income Notes and Australian Property Bonds which were advertised to wholesale investors by Mayfair 101 were mentioned specifically in the judgement. Mawhinney will no longer be able to promote these products.

He cannot receive any funds in connection with any financial products or advertise or promote any financial product.

Mawhinney will also need a court order to remove or transfer any assets or funds from Australia in connection with any financial product.

ASIC had sought to permanently restrain Mawhinney from operating in financial services for at least a period of 20 years.

The judge, Justice Anderson, slammed Mawhinney’s conduct as managing director of Mayfair 101.

“Mr Mawhinney’s conduct can accurately be described as reprehensible conduct which demonstrates a complete disregard for financial services laws and, as a consequence, places the public at great risk of financial loss should Mr Mawhinney not be restrained by the form of injunction sought by ASIC,” he said. fs

SSGA dominates insto rankings State Street Global Advisors took out first place in Rainmaker’s latest rankings of local institutional investment managers by total assets to December end.

State Street ended 2020 with $175.3 billion in institutional funds under management sourced through other managers, superannuation funds and non-super investment vehicles in Australia.

The second largest was Vanguard with $165.2 billion.

State Street’s continued dominance in institutional FUM contrasts with its declining market share in $102 billion ETF FUM. Vanguard this year decided to gradually unwind institutional mandates in Australia and New Zealand in lead up to its superannuation offering’s launch.

Both have retained their spots since at least September 2018.

But the third-largest institutional manager changed from Macquarie Investment Management to IFM Investors in the December quarter. IFM Investors ended with $106.8 billion in total assets, while Macquarie slipped to the sixth spot in local institutional FUM. Next on the list after IFM were BlackRock Australia ($77.1 billion), QIC ($74.9 billion), Macquarie ($73.5 billion), AMP Capital Investors ($72.5 billion), Pinnacle Investment Management ($70.2 billion), Victoria Funds Management Corporation ($64.5 billion) and First Sentier ($58.3 billion).

The total local institutional FUM across investment managers was $2.2 trillion at December end. fs

01: John McMurdo

chief executive Australian Ethical

How managers win ESG investment mandates Elizabeth McArthur

N

The quote

Licensees, platforms and product issuers who ignore it do so at their peril.

ew research from Investment Trends has revealed how investors choose ESG product providers, and it’s bad news for some of the big names in funds management.

According to the research, conducted by Investment Trends and Australian Ethical, 87% of investors say the most important factor when choosing an ESG product provider was the provider’s reputation.

Brand name recognition, stated ESG values, distribution network and investment track record were all factors in making a product provider’s reputation.

It could be bad news for some big brands as news about governance, culture, the treatment of staff or the investment choices within other non-ESG products could all tarnish a reputation.

The findings are reflected in recent decisions by numerous superannuation funds to drop AMP Capital as manager of their respective ethical options. So far Mercy Super, Legalsuper, ESSSuper and LGIAsuper have all withdrawn allocations to the AMP Capital Ethical Leaders Balanced Fund.

A total of 2854 Australian investors and 321 financial advisers were surveyed as part of this research.

The survey found that 78% intend to invest based on environmental factors in the next 12 months while 46% will invest specifically with corporate governance in mind, 43% will focus

on ethical beliefs, 43% on social issues and 11% on indigenous issues.

However, financial advisers remain cautious with only 40% discussing ESG investing with their clients in the last 12 months.

This contrasts with the demand from investors and that is being reflected in inflows. A total of 55% of new inflows in ESG-aligned products in the past year were driven by investors rather than advisers.

“At Australian Ethical, we’ve known for many years that climate change would and should become a key driver of private investment decisions,” Australian Ethical chief executive John McMurdo 01 said.

“But not all Australians have the time, energy, or experience to invest in and generate positive sustainable returns from these thematics, which is where Australian Ethical can help. We offer a range of options in our managed funds and superannuation that enable investors to gain exposure to climate-positive investments via one of Australia’s most experienced responsible investment managers.”

Investment Trends chief executive Sarah Brennan added that ESG will only grow as a component of the investing landscape.

“Licensees, platforms and product issuers who ignore it do so at their peril,” she said.

“Our new research shows that not only are investors living their ESG values and partaking in a range of climate-conscious activities, the vast majority want to tackle climate change issues as they build wealth.” fs

Two Aussie CIOs on top 100 list Kanika Sood

Two Australian chief investment officers made the annual Power 100 list published by Chief Investment Officer.

Con Michalakis, who has been Statewide Super’s chief investment officer since 2008, was on the list alongside the $171 billion Future Fund’s Sue Brake.

“Michalakis implemented a nine-point risk management plan to navigate COVID-19 that provided guidance to the trustee board regarding the overall liquidity, member switching, currency hedging, asset allocation, unlisted valuations, and stress tests during the crisis,” Chief Investment Officer said.

“The fund has also maintained conviction in key strategies (e.g., value vs. growth in equities, maintaining currency hedging and adding new credit dislocation strategies). Its returns in credit reflect the opportunity to buy during the crisis.”

Statewide’s MySuper product returned 6.8%

p.a. in the year ending February 28, giving it the 26th spot in return rankings of default products. It is the sixth-best performing MySuper option on a seven-year basis with 8.1% p.a. returns.

Brake was appointed Future Fund’s chief investment officer after then investment lead Raphael Ardnt moved to chief executive role, following David Neal’s departure for IFM Investors.

Future Fund returned 1.7% in 2020, after the September and December quarters lifted it back to positive territory from FY20’s negative returns.

The 1.7% return for 2020 was still below the target return of 4.4%, which is set at CPI plus 4-5% over the long-term. It was also a sharp contrast to 2019’s pre-COVID returns of 14.3%. Longer-term returns (three years and beyond) remained above the target.

In 2018, AustralianSuper’s head of portfolio construction Alistair Barker was named on the Institutional Investor’s Most Wanted Allocators list, the only Australian to get a spot. fs

News

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

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Executive appointments 01: Tricia Nguyen

ClearView adds advice growth role ClearView Wealth has appointed a former Australian Unity Financial Advice executive to the newly created role of head of business growth.

ClearView has welcomed Tony Mantineo to the role, previously general manager of business growth at Australian Unity Financial Advice and head of business growth & strategic alliances at Millennium 3 and Financial Services Partners.

Mantineo has also served as a business growth manager at ANZ Wealth and a senior practice development manager at Financial Wisdom.

In his new role, Mantineo will be responsible for adviser recruitment at Matrix Planning Solutions and LaVista Licensee Solutions. He will report to ClearView general manager, licensee services, Todd Kardash.

Kardash said the appointment reflects the company’s commitment to building a scalable financial advice business.

“We are not seeking thousands of advisers but rather our focus is on creating a select community of quality professional businesses using our services,” he said.

“Over the past few years, ClearView has invested significantly in technology and infrastructure to support advisers to deliver high quality advice, manage mounting compliance and run more efficient practices.”

Mantineo added that the ongoing regulatory change and remediation programs inside institutions is leading advisers to review the suitability and viability of their licensing arrangements.

Citi research head jumps to MST Craig Woolford made the move to MST after 16 years at Citi, most recently head of research for Australia.

At MST he will be partner and senior research analyst. The firm is staff-owned, having a very different operating model to Citi.

MST chief executive Gerard Satur said Woolford will be covering the retail and direct to consumer sector, which makes up about 10% of the ASX 200.

“He is one of the most respected analysts in the whole of the Australian market,” Satur said.

“Clients want him to focus on what he does best.”

MST launched just four years ago and now has 140 clients. Satur said the firm’s strategy is to hire the best analysts to cover each sector.

Meanwhile, a permanent appointment to replace Woolford has not yet been made at Citi.

A spokesperson for Citi confirmed that Paul McTaggart, APAC head of metals and mining research, is currently acting as the interim head of research.

New lead for Mercer Sentinel Tricia Nguyen 01 took on the role of head of Mercer Sentinel in March, replacing Peter Baker who transitioned to working part-time as a partner.

Nguyen joined Mercer in 2015 and has been leading the team in assessing operational risk within investment management operations across

Macquarie head joins platform The former head of research and strategic accounts at Macquarie has joined an alternative investment platform.

Chris Brookman has joined Altive, an alternative investment platform and fund manager which enables high-net-worth individuals to invest in alternative asset classes that are often only available to institutions.

Brookman will set up the Australian business for Altive, which is based in Hong Kong, and will be country head for Australia and managing partner.

He was previously at Macquarie Group for more than 13 years, departing at the end of 2020.

Brookman also spent five years at ING Australia, as a research account manager and investment marketing specialist.

Earlier in his career, he was a credit analyst at American Express and client service officer at MLC Australia.

all asset classes. She previously worked at BNP Paribas as a relationship manager for nine years.

Mercer also appointed Ash Moosa to assume the role of lead consultant, taking over Nguyen’s previous role, heading up Mercer Sentinel’s custody consulting services.

Moosa joined Mercer in 2015 as a transition program manager and went on to become a senior sentinel consultant.

Mercer institutional wealth leader Simon Eagleton said: “We’re delighted to officially appoint Tricia to lead our Mercer Sentinel team, a move that has been more than a year in the making. Tricia has already been taking the lead on Sentinel’s services behind the scenes as part of Peter’s succession planning, and I’m confident this will be a seamless transition.”

Baker joined Mercer Sentinel as the leader for Asia Pacific, and moved on to become the head of governance, legal and risk consulting.

His previous senior roles include the ASX, BNP Paribas and Suncorp.

Eagleton added that Baker remains an integral part of the team and will continue to provide his expertise in a part-time capacity.

Andrew Thorburn joins IIG The former NAB chief executive has joined Melbourne’s Impact Investing Group as a part-time executive, as the latter’s chief executive leaves.

Daniel Madhavan was IIG’s chief executive from November 2017 to April 2021.

Madhavan joined IIG after 12 years at JBWere, where his roles included chief operating officer and acting chief executive.

He informed IIG co-founder Danny Almagor of his intention to leave the role last year.

IIG has appointed Andrew Thorburn02 as a part-time executive and Sayers Group to provide strategic advice during the transition.

“Under Dan’s exceptional leadership, IIG has worked to show how finance can be a force for good. He has led IIG as one of Australia’s most innovative and progressive impact investment businesses, and he’s played a lead role in growing Australia’s impact investment sector,” Almagor said of Madhavan’s departure.

Thorburn and NAB chair Ken Henry resigned in early 2019 after the fallout from Royal Commission hearings.

Five-year-old IIG is owned by Small Giants, the family office of Danny Almagor and Berry Liberman.

Their other investments include Future Super and the magazine Dumbo Feather.

Nuveen APAC lead exits After one year of heading Nuveen’s Australia and Asia Pacific real estate business, managing director Nick Evans has left the firm, Nuveen confirmed in a statement. He first joined the firm in early 2019 as head of Australian real estate.

Before that, Evans was the head of Australia at TIAA Henderson Real Estate for six years and was an executive at Henderson Global Investors.

02: Andrew Thorburn

Nuveen first confirmed to sister publication Industry Moves that several senior roles in the Australia and APAC real estate business have been rejigged.

Simon England-Brammer remains head of Asia Pacific, while Andrew Kleinig sees his responsibilities expand as the head of the Australian office.

Louise Kavanagh has taken on the dual role of head of fundsw management and chief investment officer for Asia Pacific, overseeing the Nuveen real estate business in the region.

Kavanagh joined the firm as managing director in November 2017 based in Hong Kong before her taking on her new role in January this year.

Rick Marston assumed the title of head of Australian transactions in December 2020, taking on an additional regional office sector role and reports to Kavanagh. Before that, he was the head of asset management for Australia.

Nuveen recently appointed Cristina Hastings Newsome as the new head of sustainability for its subsidiary Westchester Group Investment Management.

Based in London, she supports Westchester’s response to rising investor demand for carbon neutral portfolios, providing scalable, natural solutions to counter climate change through farmland investments.

Perks names investment chair Perks Private Wealth has appointed Ellerston Capital’s chief investment officer as the chair of its investment committee.

Christo Hall has been at Ellerston for over two years and was previously managing director – senior portfolio manager in the Asian fundamental equities team at BlackRock in Hong Kong.

Prior to joining BlackRock, Hall was a senior investment officer at Argo Investments where he was involved in managing the Australian equities portfolio.

Hall also worked as a senior portfolio manager at Goldman Sachs JBWere Asset Management and in the same role at National Australia Asset Management.

“Ultimately, my ambition is to help Perks Private Wealth continue to expand its depth and breadth of wealth advice by helping open doors to a wider range of investment opportunities, whether that be in private equity, co-investing or even start-up funding,” Hall said.

Perks Private Wealth director Simon Hele said that the appointment the firm’s commitment to building out its investment research capabilities and investment strategies.

“At Perks Private Wealth, we see strength and depth in these areas as key points of difference that benefit our clients through the level of sophistication in our advice and the diversity of market information that we have access to. As a result, we’ve devoted significant resources to ensure the best investment outcomes for our clients,” Hele said. fs

12

News

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

Former adviser pleads guilty

01: Paul Cullen

group executive, advice Centrepoint Alliance

Annabelle Dickson

Victorian-based Ahmed Saad has pleaded guilty after previously being charged with dishonestly obtaining financial advantage by deception for his role in an illegal retail superannuation scheme.

ASIC alleges that Saad, while working as an authorised representative of Apogee Financial Planning, illegally obtained funds from client super accounts.

As such, Saad pleaded guilty to one count of obtaining financial advantage by deception and one count of attempting to obtain financial advantage by deception.

It is alleged Saad illegally obtained funds between $1000 and $28,000 from 168 client superannuation accounts for a total of $1.4 million from Nulis Nominees Australia, the trustee of the MLC Super Fund, between November 2016 and October 2017.

ASIC also alleges between August 2017 and October 2017, Saad attempted to obtain a further $92,400 on behalf of 10 of his clients.

Saad submitted applications for one-off advice fees to Nulis for providing financial services to his clients.

ASIC said the services were not provided and the fees were instead rebated to his clients facilitating unlawful early release of their superannuation benefits.

The latest development follows ASIC permanently banning Saad from providing financial services in December 2018 after the conduct was reported by Apogee.

Saad was the sole director of Saad Wealth and was an authorised representative of Apogee from 10 April 2012 until 16 October 2017. fs

Queensland bans Dollarmites Karren Vergara

The Sunshine State is joining Victoria and the nation’s capital in banning the Commonwealth Bank’s school-banking program.

Queensland minister for education Grace Grace announced her department will not renew its agreement with CBA when it ends on 31 July 2021.

The moves come off the back of ASIC’s landmark investigation into school-banking programs, which has been dominated by CBA’s Dollarmites, released in late 2020.

The two-year review found that banks are selling such programs as a “community service” when in reality their purpose is for “commercial gain”.

Providers do not effectively disclose that school-banking programs are linked to a broader customer-acquisition strategy, ASIC found, adding that young children are vulnerable consumers and are exposed to sophisticated advertising and marketing tactics by the banks.

In canning the program, Grace said Queensland students already receive extensive financial literacy education and school-banking programs had questionable benefits.

“This decision is in the best interests of our students. Our schools are now giving them skills to help manage their money responsibly while being cybersafe and avoiding the potential pitfalls modern technology can bring,” she said. fs

Dealer group offers flexible fees for part-time advisers Elizabeth McArthur

A

The quote

We believe that offering this new fee arrangement will help to make the financial advice industry more attractive and accessible.

dealer group is offering a new fee structure for financial advisers who choose to work part-time.

Centrepoint Alliance has launched a new flexible fee model, available to financial advice firms with more than one authorised representative.

For advisers working part-time, variable costs including governance and research queries, along with technical and compliance support may be pro-rated according to the number of days worked.

Those advisers who are taking maternity or paternity leave will be able to suspend fees in full for up to 12 months, or pay a reduced fee if they wish to retain access to masterclasses and webinars and complete CPD. The dealer group said its decision was in response to the growing trend of part-time work, with Roy Morgan data showing about 4.3 million Australians are currently employed part-time.

However, Centrepoint Alliance group executive advice Paul Cullen01 said the financial ad-

vice industry has not traditionally been seen as an industry that allows for part-time work.

“There has been a reluctance to offer reductions in fees for advisers whose personal circumstances suit reduced working hours,” Cullen said.

“However, financial advice is no different to any other occupation and advisers should be entitled to be supported by their licensee if they require flexible working arrangements to balance work and family commitments.”

He added that he has observed increased demand for part-time opportunities in financial advice, particularly among working parents.

“We believe that offering this new fee arrangement will help to make the financial advice industry more attractive and accessible for all,” Cullen said.

“We believe that offering flexibility around fees will not only enable greater diversity in the advice industry but will also provide more options for those firms who may require advice support on a part-time basis.” fs

FPA launches file note guidance The Financial Planning Association of Australia (FPA) has released new guidance on best practice for file notes.

File notes are important as a risk management tool, especially in disputes between clients and financial advisers, and the FPA said recent cases have highlighted the need for better record keeping.

Its new guidance is aimed at helping FPA members better manager record keeping in response to consumer complaints which have highlighted gaps in records.

The FPA said its new guidance provides innovative ways for financial planners to create file notes through several apps that can capture client communications using video or audio recording and convert it to text.

“Through our work with AFCA, the importance of keeping meticulous file notes was identified as an area for improvement for financial planners,” FPA chief executive Dante De Gori said.

“In reviewing AFCA reports and case law, detailed file notes were one of the biggest factors which helps in defending financial planners.

Unfortunately, in a dispute, the file is going to be the enduring evidence of the financial advice a

planner has provided. It needs to tell the whole story.”

Cases reviewed by the FPA as it developed this guidance show that the contents of a file note can be more persuasive than a client’s unsupported recollection of a discussion.

It also allows advisers to demonstrate that their conduct was consistent with appropriate professional standards.

“File notes no longer need to be paper-based.

There are new and more efficient ways for financial planners to build a proper audit trail through effective record keeping,” De Gori said.

“This not only gives greater clarity around why decisions are made but could be used when supporting evidence is needed.”

AFCA chief ombudsman David Locke said record keeping and communication are key for advisers to avoid complaints and address them effectively.

“Documents created at the same time as the activity or advice in question are usually given more weight than later recollections of what was said or done,” he said.

“This means contemporaneous file notes of conversations and actions are solid gold when a dispute comes to us.” fs

Keep up to date with Financial Standard’s latest news and events on LinkedIn

News

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

13

Products 01: Damien Hatfield

Latitude IPOs despite spotted past Latitude Financial has listed on the ASX on its third attempt with a market valuation of $2.7 billion, despite its past controversies.

The company successfully listed on April 20, with one billion shares offered at $2.60 at the time of float before the share price rose to $2.77.

Pershing Securities and Hamilton Lane investors were among the 20 largest holders of the Latitude share register prior to the initial public offering.

Latitude Financial has had a series of run-ins with ASIC over recent years.

In 2017, Latitude Insurance (the trading name for Hallmark General Insurance, part of the Latitude Group) had to refund $1.1 million for poor consumer credit insurance sales and claims handling.

Add-on insurance on credit cards and loans has remained an issue for the company.

In 2020 Harvey Norman and Latitude Finance had the inauspicious honour of winning Choice’s Shonky Award for credit cards offered through Harvey Norman.

Consumer advocate group Choice called Latitude “a company that seems to specialise in driving people into the debt”, due to Latitude’s credit cards having interest rates as high as 24.99%.

In 2019, Latitude was one of the companies named by ASIC in a review that found unacceptable sales practices in consumer credit insurance sold by Australian lenders.

Latitude was also one of the companies named in ASIC’s work to remediate consumers for junk consumer credit insurance.

The regulator found widespread failings in consumer credit insurance and secured $160 million in remediation for consumers.

Latitude Group was owned by Kohlberg Kravis Roberts, Varde Partners and Deutsche Bank. The group continues to be majority shareholders with voting power following the IPO. MSCI launches life sciences indices MSCI is launching a set of indices that target megatrends and innovation in the biotechnology and pharmaceutical industries.

The partnership with Nasdaq-listed Royalty Pharma will measure the performance of companies focused on delivering new and innovative therapeutic treatments related to virology and oncology.

Royalty Pharma, which is in the business of acquiring pharmaceutical royalties in the life sciences industry, will provide information on medical conditions, clinical trials, therapies and technologies that may lead to breakthrough medical treatments.

The series is the latest addition to MSCI’s growing portfolio of thematic indices.

It launched the MSCI Climate Paris Aligned Index Suite in October 2020, eight new indices that capture climate data from its Climate Value-at-Risk

Sydney boutique adds crypto fund A Sydney multi-boutique has signed on a passive fund that tracks Bitcoin and will offer it to Australian investors.

The fund is managed by Arrano Capital and is open to institutional investors and will be distributed by Mantis Funds.

Arrano is the blockchain arm of Venture Smart Asia Limited (VSAL), which is licensed by Hong Kong’s Securities and Future Commissions to manage virtual asset funds for professional investors, according to Mantis.

Mantis Funds head of distribution and partner Damien Hatfield01 said the Arrano fund was the only product available to Australian investors that will meet wholesale investors’ due diligence requirements.

“Many Australian investors and their advisers are grappling with how and when to access Bitcoin. With a total capitalisation of more than US$1 trillion, Bitcoin is comparable in size to the ASX50,” Hatfield said.

(Climate VaR) tool, scope 3 emissions (indirect greenhouse gas emissions generated from sources not owned or controlled by a reporting entity) data and green revenue.

The index provider said: “Thematic investing is not a sector, factor or ESG strategy; nor is it bound by conventional geographic or industry classifications, such as style or market capitalisation. Rather, it is an investment approach that takes a long-term view of how trends can change prevailing business models and value chains while facilitating investor access and exposure to growth themes of the future.”

MSCI chair and chief executive Henry Fernandez said since COVID-19, life sciences companies have been pivotal to shaping and advancing the healthcare industry and are critical to developing approaches for preventing and treating diseases.

Royalty Pharma founder and chief executive Pablo Legorreta said: “This collaboration leverages Royalty Pharma’s deep clinical and scientific knowledge built over decades, as well as the unique capabilities of our strategy and analytics team. This venture represents another example of Royalty Pharma’s creative approach to monetising its existing intellectual capital through the creation of indexes that support investment in life sciences.”

Rest launches low-cost SRI option The $59 billion super fund has launched the responsible investment option Financial Standard revealed it was working on late last year, introducing one of the lowest cost SRI vehicles in the market.

Rest’s 1.7 million members will now have access to ‘Sustainable Growth’, the fund’s first socially responsible investment option developed on the back of member feedback.

Rest estimates total investment costs will come in at 0.36% per annum, making it one of the cheapest SRI options on the market.

As reported by Financial Standard, Rest surveyed a random sample of members back in December 2020 to better align the investment option with their values. The survey was sent to 647,218 members, with the fund receiving 7311 responses – over 75% of which expressed a moderate to strong interest in the option.

“We are dedicated to helping our members strive for their personal-best retirement outcome and felt that including their voices in the development of Sustainable Growth was imperative to the process,” Rest chief executive Vicki Doyle 02 said.

“By speaking to our members first, we gauged the importance to them of having an SRI option available, and then gave them an active role in shaping the name, inclusions and exclusions of this new option.”

Among other things, members were asked what industries they would and would not like the option to invest in, what is driving or limiting their interest

02: Vicki Doyle

in responsible investments and how likely they are to invest in such an option.

The final product has an asset allocation mix of 75% growth and 25% defensive assets across Australian and international shares, property, infrastructure, bonds and cash.

When it comes to equities, Rest has excluded companies involved in labour and human rights abuses, unethical supply chains, fossil fuels, animal cruelty, gender discrimination, tobacco, gambling, palm oil, controversial weaponry, or have a recent track record of environmental damage, or excessive executive remuneration.

Elsewhere, the new option will invest in property assets that have an average or above average GRESB Real Estate Assessment score, and in infrastructure assets with integrated ESG factors that work towards a low-carbon economy or have limited exposure to transition risks.

Infrastructure companies that own fossil fuel reserves, derive revenue from oil or gas exploration, production and related activities, have power generated from thermal coal, oil and gas, or lease, mine or process coal and coke are also excluded.

Iress partners with regtech for DDO The financial services software company has announced it is integrating Objective Corporation with its blockchain technology for its design and distribution obligations (DDO) solution.

The integration will allow product issuers to publish Target Market Determinations (TMDs) created through Objective’s Keystone software directly into the blockchain.

ASIC’s RG 274 Product design and distribution obligations aims to help consumers obtain appropriate financial products by requiring issuers and distributors to have a “consumercentric approach” to the design and distribution of products.

Product issuers must design financial products in a targeted manner and financial products must be designed according to the objectives, financial situation and needs of the consumers.

The Keystone TMD solution will assist issuers through the template design process, from authoring to approval and publishing.

“We know that our Keystone solution helps organisations reduce costs while strengthening risk and governance protocols which is why our solution is purpose built to help financial services businesses manage the new TMD obligations,” Objective chief executive Tony Walls said.

As previously announced, Iress’ DDO solution has three key features: TMD storage, a messaging solution to facilitate distributor and issuer contact and information for licensees and advisers by providing TMDs to them and their clients.

“This legislation represents a challenge no traditional system or process in this industry can overcome, or that any one party can solve in isolation,” Iress chief commercial officer Michael Blomfield said. fs

14

Feature | Retirement income

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

OFF BALANCE As the baby boomer generation moves into retirement, the average retiree may not realise the financial services industry is working overtime to manage their money as effectively as possible. A happy retirement requires more than just a healthy superannuation balance. Elizabeth McArthur writes.

Retirement income | Feature

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

01: Ben Marshan

02: Michael Pennisi

03: Roger Cohen

head of policy, strategy and innovation Financial Planning Association of Australia

chief executive QSuper

senior investment specialist BetaShares

A

wave of money is moving from the accumulation phase of superannuation retirement. Some estimate 400,000 Australians will retire this year alone.

Australia has been at the forefront of solving the accumulation phase of retirement since the introduction of compulsory super, but decumulation solutions are somewhat lagging.

Research from Fidelity International shows 55% of people think they’ll have to work past their retirement age to fund a retirement and 53% don’t think they are on track to have enough money in retirement.

The government’s Retirement Income Review found that retirees are so fearful of running out of money that they live more frugally than they have to, failing to enjoy their golden years as much as they could due to financial anxiety.

Longevity risk remains the greatest fear of many retirees, and there is some evidence that they are right to be concerned. Recently, the Association of Superannuation Funds of Australia (ASFA) claimed that most retirees run out of super before the end of their lives.

ASFA argued that ATO, APRA and Household, Income and Labour Dynamics Australia data showed 80% of those aged over 60 who died between 2014 and 2018 had no super at all four years before their death.

More research, this time from Challenger and National Seniors Australia, found that those with a defined benefit had the lowest levels of worry, demonstrating that certainty in retirement is clearly key.

The question now is how the industry and government can work together to provide that certainty to as many people as possible. And the answer may be as easy as rethinking the number that is your superannuation balance all together .

More, more, more

Fund managers, life insurers and super funds have been falling over themselves in recent years to launch retirement income solutions.

In the 2018-2019 budget, Treasurer Josh Frydenberg proposed the retirement income covenant.

At the time, the government said super trustees would have to offer members Comprehensive Income Products for Retirement (CIPRs).

However, the legislation around CIPRS has been delayed significantly and the government has gone noticeably quiet on the topic.

Those in the industry say the retirement income covenant is likely to go ahead in some form. While most seem to agree that it should, there are others that are less convinced.

The Financial Planning Association of Australia’s head of policy, strategy and innovation Ben Marshan01 is not a fan of CIPRs. Marshan doesn’t think forcing super members

to roll lump sums into products is the right solution. He speculates, somewhat hopefully, that maybe the government is going to let the CIPRs proposal “die quietly” in the background.

“It’s a really dumb idea. The people advocating for it were the people who were going to benefit from locking up large sums of superannuation money in retirement, and managing that over long periods of time,” Marshan says.

QSuper was one of the funds to get ahead of the game in this regard. The QSuper Lifetime Pension product launched in March this year and is designed to turn retirement savings into tax-free, fortnightly income no matter how long a retiree lives for.

The product also provides an immediate 40% assets test discount, meaning many members using the product will also be eligible for the Age Pension.

QSuper chief executive Michael Pennisi02 says even while the fund was grappling with the impact of COVID-19 and an imminent merger (with Sunsuper), launching its retirement income product was a priority.

“We have a life insurance company, QInsure, which we 100% own. That guarantee of your original capital, less any drawdowns, is insured by that company. It’s quite a simple insurance product and it works hand in hand with the product design to ensure people can have confidence,” Pennisi says.

Members of the $120 billion public fund do not have to commit their full balance to the product; rather, they simply choose an amount they are comfortable contributing.

Pennisi says key to making the product work for the fund is acknowledging that this is the kind of decision that really requires some form of financial advice.

“There are some members that would really gain from this and the interaction with Centrelink and the income and asset test. We are keen on saying people should get advice and that’s why we’ve put so much time, money and effort into making a good advice model,” he says.

Unfortunately, with so many advisers departing the industry recently, it isn’t going to be easy for everyone to access. Marshan notes that, anecdotally, those advisers who specialise in retirement or aged care are very busy.

“The demand is there,” he says.

Meanwhile, ETF provider BetaShares says retirement income is one of the most critical areas of its research initiative.

It recently partnered with the Monash Centre for Financial Studies and proposed a model for funding a universal pension through super contributions.

The proposal was made in the company’s submission to Treasury as part of its consultation with market participants on the Retirement Income Review.

Through the research, BetaShares senior investment specialist Roger Cohen03 determined

80%

Proportion of those over 60 who died between 2014 and 2018 with no super left.

15

Australians of retirement age with savings between $350,000 and $600,000 risk having lower levels of retirement income due to the means testing of the pension.

BetaShares proposes eliminating the income and asset test and making the pension available to all Australians.

Cohen argues that this policy would encourage Australians to save more, as opposed to the current design where for certain balances additional savings are discouraged as they would lose their pension entitlements.

“BetaShares is looking at potential products and services that seek to address this recommendation more effectively for retirees,” Cohen says.

“The retirement income system needs to be fundamentally redesigned. It is too complex and is not consistent in delivering the best possible outcome for retirees.”

Cohen says we are seeing the wave of new retirement income products now because in a low interest rate environment and with market uncertainties, annuities are not providing adequate returns.

“Product providers and the public have realised that retirees need products which deliver higher returns than annuities, but do not take on too much risk and uncertainty,” he says.

It’s for similar reasons that Allianz Retire+ has been actively seeking super fund partners and has appointed specialists to work with funds on retirement income solutions.

Allianz Retire+ has been in the Australian market for two years. Through its partnership with PIMCO, it aims to offer people the ability to earn more income than in a traditional fixed term annuity while managing downside potential.

“In retirement, confidence is key. We think life insurance companies like ours are in the best place to be able to provide that confidence, that financial confidence and security, to people because it’s our job to take financial risks,” Allianz Retire+ chief executive Matt Rady04 says.

Rady says the problem with Australia’s super system is also the opportunity for the financial services industry. That problem being the fact that, since the introduction of the superannuation guarantee in 1992, the industry has been mainly concerned with accumulation – leaving a dearth of solutions for drawing down on that super in retirement.

“The problem with many annuities is, because they are guaranteed return products and interest rates are so low, the opportunity for people to earn reliable income is there, sure, but that income is potentially not very high in this environment,” Rady says.

“What we enable people to do is have the confidence to know they won’t lose more than they are comfortable with or can tolerate losing if a market falls – and that number might be zero – but we also give them the ability to earn more than they would with a traditional annuity.”

Meanwhile, at the other end of the prod-

16

Feature | Retirement income

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

04: Matt Rady

05: Karyn West

06: Vidya Rajappa

chief executive Allianz Retire+

managing director Apostle Funds Management

head of portfolio management for multi-asset strategies American Century Investment

uct provider spectrum are fund managers like Apostle Funds Management which launched the Apostle Dundas Global Equity Fund for the Australian market eight years ago and earlier this year partnered with K2 Asset Management for an ETF. The fund is designed to deliver sustainable dividends, rather than high dividends, while keeping fees low and investing through a tax-effective trust structure.

Apostle managing director Karyn West 05 says interest in the ETF since it launched and take up among financial advisers has been strong, which she says is indicative of the appetite for more diverse retirement income solutions.

West says equities and active management make sense as a solution to the dilemmas facing retirees now and into the future.

“Previous generations bought higher quantities of bonds and lived off the coupons. You can’t do that now. And now we’ve got not just low interest rates but inflation starting to rear its head… with cash rates so low, you can’t leave money sitting in a bank especially since it could be getting a negative return once inflation returns,” West says.

She says Apostle is currently developing a diversified credit product which invests in US real estate debt, private debt, infrastructure debt and senior bank loans and will target 7% to 10% returns. It is aimed at addressing the reliable income needs of retirees.

“There’s no free lunch though. You’re going to have to give something up to achieve [those returns]. The thing that you have to give up is liquidity; you can’t have immediate access to your money. There will be some liquidity gating with it, but I think those sorts of products are necessary,” West says.

Elsewhere, American Century Investment recently launched a protected income product as

part of a consortium, Income America, comprised of firms across the financial services industry.

“We’re also considering use of deferred income annuities with our target date funds as well as other investment-based income solutions,” American Century Investment head of portfolio management for multi-asset strategies Vidya Rajappa06 says.

Rajappa says internationally there is still a lack of in-plan retirement income solutions being offered (meaning retirement income solutions that are provided by super funds or pension funds).

She has observed a significant increase in innovative in-plan income solutions over the past decade and expects this to continue to gain momentum.

As far as Rajappa is concerned, super funds and retail offerings are both necessary to address the range of needs of retires.

“Given the real need to help individuals convert their savings to income, why not meet the individuals’ need for income solutions regardless of where their assets are located?” she says.

There are several players undertaking extensive research to bed down the perfect product design. For example, Fidelity International recently partnered with CoreData and Marshan at the FPA to find what retirees are most fearful of, what they expect in retirement and what financial advisers can do to help (see Figure 1).

The research found 52% of people don’t think they’ll be able to afford to live where they want to when they retire. To address this issue, and other anxieties about retirement, the research considered what asset mix provides the best management of risk and return for retirees.

It found that a personalised, dynamic allocation and withdrawal approach tailored to retirees’ needs and wants through income layering strategies was the most effective financial plan

Figure 1. Traffic lights: How well are risks addressed by each advice approach

in retirement. The problem is this strategy requires advisers and retirees to understand relatively complex products and concepts.

Fidelity has a low volatility global equities product which is geared towards the retiree market. Like Apostle, Fidelity’s research indicates an equities exposure with managed downside risk increasingly makes sense for retirees.

“What it does is smooth the path of returns you would otherwise get with an equities fund,” Fidelity head of client solutions and retirement Richard Dinham07 says.

He adds that Fidelity is working on an Aussie equities version of the managed volatility fund, which it hopes to launch around July this year.

“In retirement you need to deliver income. Of course, at the moment it is very difficult to find that income because interest rates are low everywhere.

So, we are working on a few income products which will hopefully deliver income that is attractive with an acceptable level of risk,” Dinham says.

Previous generations bought higher quantities of bonds and lived Overcoming fears off the coupons. Wollemi Wealth Management financial adviser You can’t do and aged care specialist Mark Hoy underthat now. stands the very real anxieties that people have as 08

Karyn West

they head into retirement.

He mostly finds his clients just choosing allocated pensions or account-based pensions in retirement. They enjoy that the allocated pension is tax-free, and they can withdraw a monthly pension or lump sums.

Hoy says he has lost count of the number of times he has sat down with a client and explained the benefits of an annuity, only to have them baulk at the complexity.

“I understand annuities but when I start talking about them to my clients, they find it overwhelming in terms of setting it up and understanding it.

They also feel that with an annuity, once you pass away that’s the end of the annuity. There’s nothing coming back to the estate,” Hoy says.

Hoy knows there are options out there that do allow for a binding death benefit, but that hasn’t changed his clients’ minds.

The reality is having a big number in an account that you can access and control is comforting.

Marshan believes there are three key issues when it comes to getting consumers on board with retirement income products.

“First, annuity-type products are so different that for a consumer that doesn’t have much engagement with super, the concept of giving up a lump sum of money to an insurance company is a hard thing to do,” Marshan says.

“The fact that you are giving up a lump sum of money that you will never have access to again, it’s just not the Australian way of doing things. We will buy a house but that’s the only big investment we’ll make.”

The second problem is the commonly observed notion that humans are not particularly good at thinking about and planning for the future – particularly the long-term future.

18

Feature | Retirement income

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

07: Richard Dinham

08: Mark Hoy

09: Angela Murphy

head of client solutions and retirement Fidelity Australia

financial adviser and aged care specialist Wollemi Wealth Management

chief executive, life Challenger

And the third problem, as others have noted, is that returns in traditional annuities are so low right now that it is not as attractive of a proposition as it could be.

Australia’s largest annuity provider, Challenger, has more reason to address these issues head on than most and has been actively participating in research and engaging the government on retirement issues.

Tight yield spreads forced Challenger, in its most recent quarterly results, to warn investors of lower revenue despite record life insurance sales – revising down its FY21 earnings guidance to $390 million from $440 million.

“Earnings reflect the sharp decline in credit spreads over the year, which were not fully reflected in customer pricing. Challenger is responding to the investment conditions by significantly adjusting annuity pricing,” the company said in an ASX announcement.

This revision came despite Challenger selling $1.57 billion of annuities in the first quarter of 2021, which was 165% higher than the previous corresponding period’s $979 million.

This is because record-low interest rates that are unlikely to rise any time soon mean that the very attributes that used to be a selling point for annuities are the same attributes working against them now.

Annuities might still be a safe place to park money, but if returns remain so low it is natural for people to question whether parking that money in the first place was worth it.

Challenger chief executive, life Angela Murphy09 argues annuities effectively manage longevity risk.

“Our main retirement product, which is an annuity, continues to pay you a fixed sum (which you can index to inflation or the RBA interest rate or choose not to index at all) as long as you live,” Murphy says.

“That obviously manages that key risk for retirees if they are in that lucky cohort that are around for a long time. They don’t have to worry about whether their savings will last.”

Annuities have innovated over time, but their reputation hasn’t necessarily caught up. For example, many people choose not to purchase annuities because they think they can never get their money out or that they will not be able to leave an inheritance.

But this simply isn’t true, with annuities now on the market, including from Challenger, that offer a binding death benefit and the flexibility to withdraw money under certain circumstances.

But building the products isn’t enough. The industry will have to win hearts and minds over to new ways of thinking about retirement, one that moves away from a lump sum or thinking of your super as a balance similar to that of your bank account.

As Rady grows the presence and offering of Allianz Retire+, he is keenly aware of this.

“One of the biggest challenges the industry

faces is convincing people that with long-term retirement oriented products, generally, they are able to live more confidently than if they hang onto their allocated pension,” he says.

“People have a natural bias towards being in control of an account balance and having the flexibility associated with that.”

But there is a downside to that flexibility that people don’t fully appreciate: if their accountbased pensions are using the same investment strategies they used during the accumulation phase of their life then they have to worry about short-term market fluctuations.

They also, of course, must worry about running out of money.

“The industry has to acknowledge that problem and you can solve that problem through both education and, in some cases, policy encouragement,” Rady says.

“The retirement income covenant is a really positive step and there are more [policy] opportunities the government could implement to encourage the uptake of innovative retirement income stream products.”

As far as Cohen at BetaShares is concerned, coming up with new financial products doesn’t go nearly far enough to address system-wide issues. It is just one ingredient – along with further education and changes to the system at a federal government level.

“BetaShares continues to advocate for a universal pension and ‘retirement friendly’ products to encourage Australians to save more before retirement and to use their savings efficiently for a better retirement outcome,” Cohen says.

“Removing the (already delayed) increases to the superannuation guarantee will create major challenges downstream as retirees will be faced with lower superannuation balances and less income in retirement. This will put additional stress on both retirees and the government.”

Meanwhile, Murphy suggests that a lot of the confusion around retirement income might simply be growing pains.

Since compulsory super has only been around since the 1990s, she explains, the generation retiring now is the first with significant savings in the system; they can’t look to their parents for simple guidance on what the best retirement income solution is.

Reviewing the evidence The 648-page Retirement Income Review was hotly anticipated by the industry, but it didn’t provide all the answers. It took a bird’s eye view of the retirement experience in Australia and what the industry was doing, rather than getting specific on recommendations.

Rady is clear on what he thinks was the most important lesson from the review.

“The number one take away from the Retirement Income Review is that people feel attached to their balance,” he says.

“What we need to do as an industry is make

What we need to do as an industry is make people reimagine their super as the future retirement income stream it was intended to be.

Matt Rady

people reimagine their super as the future retirement income stream it was intended to be. We need to give them confidence to spend that money, but at the moment there is a complete lack of confidence in spending.”

The review found that many retirees try to live on the growth on their super balance, rather than confidently drawing down on it.

“The other element of the Retirement Income Review that’s positive is that [financial] advice received recognition as a very important component of helping people through this period,” Rady says.

“The challenge is that advice is presently unaffordable for a lot of people. We really need to find a way of helping people through this with a degree of urgency.”

Moving forward, Cohen predicts there will be clear winners and losers in terms of products.

“Products which focus on using both income and capital to provide for retirees will deliver better outcomes,” he says.

“This aligns with the finding from the review that there is a lack of focus on using capital to support income in retirement. Generating higher returns is usually associated with being exposed to growth, such as through investments in equity markets.”

So, expect to see income products which provide some exposure to growth while mitigating sequencing risk with minimum levels of income risk or capital risk, he says.

Rajappa agrees, saying the current low interest rate environment combined with the near-term prospect of higher inflation and rates coming out of the pandemic-induced recession presents a significant challenge for retirement investing. And its one that can only be addressed with new thinking.

“Participant education on retirement income products and broadly improving participant financial literacy will be required to enable a smooth transition to retirement. Retirement has moved from being a ‘specific date’ to a phased retirement over several years,” she says.

“Improving (or universal) coverage of workers will be important to make improvements in overall standard of living. We expect continued enhancements in the retirement system over the coming years to accommodate some of the uncertainties highlighted by the pandemic.”

For those that have already responded to the proposed legislation like QSuper, the challenge now is in evolving that solution.

“What does the world look like in 20 or 30 years?

The product development will be driven by where the industry goes, what legislation looks like and what restrictions are put in place,” Pennisi says.

“There is a wave coming and there’s going to be a shift in focus from accumulation to – I hate saying it – decumulation, or the retirement phase. We’ll see a lot more innovation and a lot more working with government, I hope, to enable innovation in the retirement space – because it is going to be needed.” fs

20

News

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

Super top ups increase: Survey

01: David Elia

chief executive Hostplus

Karren Vergara

While only one in five (20%) Australians make extra contributions to their superannuation per month, it marks a growing number of members who are thinking more about their retirement balances, a new survey found.

Finder’s March 2021 survey of 1015 consumers (717 of them were superannuation members), also found that only 14% of members make extra payments sporadically.

Finder conducted the same survey in late 2020 and found that only 8% of members made additional contributions to their superannuation – which is a two-and-a-half times increase in engagement.

Finder banking and investment editor Alison Banney said Australians should not be under the impression that an unsupplemented super balance alone will be enough for a comfortable retirement.

“Women (25%) are less likely than men (43%) to make additional contributions,” she said.

The findings coincide with the Association of Superannuation Funds of Australia’s (ASFA) research, which shows the median super balances of men aged 60-64 is $154,453 and $122,848 for women.

A Finder analysis of ASFA’s data reveals that on average men can only live off their super for 3.5 years, while women’s funds would only last 2.8 years.

“Women have saved only 79% of the amount of their male counterparts by the time they reach retirement – often feeling the effects of the gender pay gap and time out of the workforce to perform caregiver duties.

“Without other assets like shares or investment properties to supplement their income, they may be looking to the pension within a decade,” Banney said.

Members can contribute up to $25,000 in concessional contributions and up to $100,000 a year in non-concessional contributions. fs

FASEA offers exam feedback Unsuccessful FASEA exam candidates can now access feedback about their areas of underperformance.

FASEA has made this available online for unsuccessful candidates who sat for any exam since June 2019.

The Association of Financial Advisers said that it understands advisers’ frustration regarding the lack of tailored feedback provided after an unsuccessful exam attempt and has lobbied FASEA on their behalf.

The latest FASEA exam had the lowest pass rate yet.

Some 1079 advisers sat the exam, compared to an average of 1323 across all exams only 73% of those that sat the January exam passed.

The overall pass rate across all sittings of the exam is 89%. The latest results show the lowest pass rate yet.

This exam also saw less advisers having their second attempt be successful. FASEA reported that 46% of those having their second attempt at the exam in January passed, compared to an overall 55% pass rate for second attempts overall. fs

Hostplus, HNW investors back new CSIRO fund Annabelle Dickson

M

The quote

CSIRO collaborates across the entire innovation system, investing significantly in commercialising great science from all Australian universities.

ain Sequence, a deep tech investment fund founded by CSIRO, has raised $250 million from investors such as Hostplus and Temasek to solve the world’s problems in health, food, space and industrial productivity.

Main Sequence’s second fund aims to solve six challenges which include feeding 10 billion people, decarbonising the planet, reaching humanity scale healthcare, supercharging industrial potential, enabling the next intelligence leap and bridging the gap to space.

The raise was made up of investments from Horizons Ventures, Hostplus, Lockheed Martin and Temasek, as well as family offices and private investors from Morgan Stanley Wealth Management and Mutual Trust.

The first fund helped develop 26 companies including v2food, Myrotia, Coviu, Kasada, Gilmour Space, Q-CTRL and Baraja and raised $600 million and created over 500 jobs.

“This new fund will help us continue this pivotal work to solve the world’s biggest challenges through investment in science-powered companies,” Main Sequence partner Mike Zimmerman said.

Main Sequence uses a venture science model which identifies a challenge and the brings together science, people and investment to solve it through company creation.

“CSIRO collaborates across the entire inno-

vation system, investing significantly in commercialising great science from all Australian universities. We see this commitment continue through Main Sequence’s investments in great companies that have spun out of CSIRO and disrupted markets […],” CSIRO chief executive Larry Marshall said.

Hostplus chief executive David Elia 01 said the super fund is proud to participate in Main Sequence’s second fund as the companies and technologies it backs addresses complex societal problems.

“The fund’s priorities align strongly with our commitment to investing in nation-building projects and life-changing technologies,” Elia said.

“This is not just important to us for the societal benefits that will be realised, but also the sustainable and long-term returns that will be generated and which are in the best financial interests of our members.”

Mutual Trust head of wealth Jono Gourlay also added that many of the firm’s wealth clients are looking for investments with positive returns and a positive impact.

“Main Sequence’s model in creating a collaborative and investible fund has given these clients an exciting opportunity to support ground breaking research and emerging technology, in areas that are important to them,” Gourlay said. fs

Granny flat capital gains tax exemption to become law The government has commenced consultation on exposure draft legislation that will reduce the tax burden on granny flats in a move to prevent elder financial abuse.

The legislation follows the budget announcement that the government would provide a targeted capital gains tax (CGT) exemption for formal granny flat arrangements.

Assistant Treasurer Michael Sukkar under the measure CGT will not apply to the creation, variation or termination of a formal written granny flat arrangement providing accommodation for older Australians or people with disabilities.

Prior to the exemption, families faced a significant CGT liability in creating a formal or legally enforceable granny flat arrangement. This may have led them to opt for informal arrangements, which can leave families open to financial risk and exploitation.

The tax implications of granny flats were first flagged by the government in 2018 when

it requested the Board of Taxation conduct a review and outline potential reforms to assist the prevention of elder abuse.

The Board of Taxation commenced the review in 2019 and consulted with stakeholders including Department of Social Services, Department of Human Services and the Attorney-General’s Department.

Formal and legally enforceable family agreements were identified as a measure to prevent elder abuse in the 2017 Australian Law Reform Commission’s report Elder Abuse – A National Legal Response.

The report found that current tax arrangements have been a deterrent, in some cases, to families establishing a formal and legally enforceable agreement and that failure to establish such an agreement leaves the elderly person without rights to their home.

Stakeholders and interested parties can submit responses to the consultation until 29 April 2021. fs

News

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

ASIC extends advice relief ASIC is extending the relief measure that allows financial advisers to provide a Record of Advice (ROA) rather than a statement of advice (SOA) until October 15.

The decision to extend the relief measure came after consulting with industry, the corporate regulator said, which found that some practices have found the measure helpful.

The temporary measure was introduced in April 2020. ROAs can replace SOAs for existing clients whose personal situations have changed due to COVID-19, and if the client sees advisers from the same licensee or practice, but not their usual adviser.

The present advice must be in relation to existing financial products that the client received advice on.

The client must also be informed about any conflicts of interest, remuneration or benefits that the adviser might receive.

ASIC’s two other measures, which were introduced at the same time, will not be extended.

Relief to facilitate advice about the federal government’s early access to superannuation initiative has ended as the scheme was finalised on 31 December 2020. Advisers did not need to provide an SOA when providing advice about the scheme.

The relief to extend the timeframe for providing time critical SOAs has also ended. This helped advisers provide advice up to 30 business days instead of five business days to supply an SOA. Following industry feedback, this relief was no longer necessary. fs

Citi to exit consumer banking Elizabeth McArthur

Citigroup’s quarterly results included news the banking giant is undertaking a strategic overhaul of its global consumer banking division.

This will mean Citi is exiting consumer banking entirely in several markets including Australia.

China, India, Indonesia, Korea, Malaysia, the Philippines, Poland, Russia, Taiwan, Thailand, Vietnam and Bahrain’s Citi consumer franchises will also be impacted.

However, Citi will continue to serve institutional clients across all those markets.

Citi said the move is a result of a strategic review, with the company now focusing its consumer banking business on four “wealth centres” – Singapore, Hong Kong, United Arab Emirates and London.

“As a result of the ongoing refresh of our strategy, we have decided that we are going to double down on wealth,” Citi chief executive Jane Fraser said.

“We will operate our consumer banking franchise in Asia and EMEA solely from four wealth centres, Singapore, Hong Kong, UAE and London. This positions us to capture the strong growth and attractive returns the wealth management business offers through these important hubs.

“While the other 13 markets have excellent businesses, we don’t have the scale we need to compete.” fs

21

01: Ronan McCabe

head of portfolio management, Pacific Mercer

Value managers fight back: Mercer survey Karren Vergara

V

The quote

Australia is witnessing the strong performance of value factors seen elsewhere in the world.

alue fund managers made a highly anticipated comeback in the first quarter of 2021, Mercer’s latest analysis of Australian equities performance shows.

In the year to March 2021, the Australian Shares Investment Manager Performance Survey revealed the top five funds that delivered above-median returns are Allan Gray Australian Equity, Ausbil Australian Active Equity, ECP AM All Cap, Martin Currie Australia Value Equity and Perennial Concentrated Australian Shares.

Three out of the five, Allan Gray, Martin Currie and Perennial, are value strategies invested across the energy, financial and materials sectors, helping drive the index upwards.

Head of portfolio management for Mercer in the Pacific Ronan McCabe 01 e commented the latest findings show the recovery in value stocks.

“While we don’t know whether the current outperformance of value will be sustained, we do believe this approach has the potential to offer diversification of excess returns and enhance expected outcomes. Without exposure to value, investors may risk missing out on the benefits of that diversification,” he said.

Value-style investing has suffered a prolong period of underperformance, with many critics predicting its days are numbered.

“Our surveys have shown us over the years that value as a style has faced many challenges over the past decade, and these difficult market conditions in Australia may continue for some time,” he said.

“After a protracted period of underperformance spanning over a decade, Australia is witnessing the strong performance of value factors seen elsewhere in the world.”

The Lazard Australian Equity and Martin Currie Australia Real Income funds were two value strategies that fell below median returns for the period.

“Value, along with other return-enhancing factors such as quality, momentum, size and low volatility, is one of five key ‘factors’ that can be used when diversifying to ensure portfolios have exposure to a range of systematic return drivers,” McCabe said.

Overall, Westpac, ANZ and NAB were the three largest contributors to index’s performance. Financials were the standout contributor, delivering 12.1% over the quarter, followed next by communication services and consumer discretionary. fs

Delay breach reporting law: AFA The Association of Financial Advisers wants to defer the proposed self-reporting of breaches regime amid concerns it will be impossible for small financial advice firms to comply with.

The AFA outlined its concerns about Commissioner Kenneth Hayne’s recommendation that in order to help protect consumers, AFSL holders must follow breach reporting regulations when representatives engage in misconduct.

Hayne recommended that significant breaches and investigations relating to suspected breaches must be reported within 30 days, and that criminal penalties should be increased for failure to report as and when required.

ASIC should publish breach report data annually not only aggregated by breach type but also by individual licensee, Hayne suggested.

One main issue the AFA highlighted is that the law deviates from the concept of significant breach reporting and will involve “an exponential increase in the number of breaches that need to be reported and many of these will be of a largely administrative nature”.

One AFA licensee partner, which reported four breaches in 2020, would equate to 198 reports under the new regime.

“Their feedback suggests that the exclusion of civil penalty matters for the failure to deliver an FSG and a PDS would only

marginally decrease the number of breaches that would need to be reported,” the AFA wrote in its submission.

Another concern is the new law states that record-keeping breaches are subject to maximum jail term of five years, and would therefore be automatically caught, despite being largely administrative in nature.

Gadens chair Paul Spiro said with the introduction of at least seven overlapping and time-sensitive mandatory reporting regimes by 5 October 2021, organisations need to seriously consider how they will prepare for and respond to the impending changes.

The regtech has identified the serious need for financial institutions to evaluate their reporting preparedness and risk position with the new regulation.

“While there was a myriad of developments to come out of the Hayne Royal Commission, new oversight regimes and more stringent regulatory breach reporting are some of the key areas affecting the financial services sector, exposing institutions and their senior executives personally to the prospect of liability for non-adherence,” he said.

Hayne’s recommendation comes off the back of a 2017 ASIC Enforcement Review Taskforce, which pushed for selfreporting of contraventions by financial services and credit licensees should be carried into effect. fs

22

Featurette | Superannuation

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

ANNUAL STATEMENT

The stapling sprint From July 1 the government wants to staple Australians to their existing super accounts if they don’t actively select another upon taking a new role. For something so simple, it’s a long road to implementation. Kanika Sood writes.

Late last year, the government revived plans to staple Australian workers to existing superannuation accounts as they progress with their career if they don’t choose a new fund.

The intention was novel. To get rid of six million unintended multiple accounts held by 4.4 million people, who together paid $450 million a year in unnecessary fees, according to Treasury’s estimates.

The concept of stapling is nothing new.

It was recommended by the final reports of both the Productivity Commission and the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services.

But this time, the government has a start date: 1 July 2021.

Less than two months out, there is consensus among the industry on stapling’s objective to clean out fee-eroding accounts. But views differ when it comes to how it should be implemented.

Industry Super Australia (ISA), a lobby group for industry superannuation funds, summarised the 41 submissions made to the Senate on stapling and other reforms in the Your Future, Your Super Bill.

ISA says, of the 41 submissions, 26 took a position on stapling as a policy while 24 commented on the proposed model for stapling.

The support among these 26 stakeholders for stapling as a policy goal was 100%. However, when it came to the stapling model as proposed by the government, only 25% or six stakeholders agreed with the government’s description.

Many have questioned why the stapling reforms pre-date APRA’s new performance benchmarking which wants to stop inflows to underperforming funds.

One of the dissidents on stapling is the $60 billion industry fund Cbus.

“We think that elimination of duplication is a good thing. But the means by which the government wants to do it does not work for our members,” Cbus chief executive Justin Arter01 said in an interview earlier this year.

“About 80% of our members are not what you’d call first timers. That is, we are not the first place they worked, and we are often not the first [super] fund they’ve joined.”

Arter says a Cbus member may have worked in hospitality or retail before they switch to construction jobs, which are deemed hazardous occupations. If the member is stapled to their old fund and doesn’t make a deliberate choice to join Cbus when they switch to a construction job, they will lose out on insurance cover.

“The primary idea we’ve got on this is [that]

We think that elimination of duplication is a good thing.

But the means by which the government wants to do it does not work for our members.

Justin Arter

there should be an exclusion as it was in 2019, under the Putting Member’s Interests First (PMIF) legislation, to have an exclusion here for workers in hazardous industries,” Arter says.

Cbus says 93,000 existing members who were under 25 years of age and working in dangerous occupations were able to retain their insurance via the fund from the PMIF carve out. About 115,800 construction workers retained or got insurance.

In the year to March 31, Cbus paid 58 claims totaling $7.3 million on such policies, which would otherwise have been excluded.

Australian Council of Trade Unions (ACTU) assistant secretary Scott Connolly used his appearance before the Senate Economics Legislation Committee to warn of the perils of members being stapled to underperforming funds. He also echoed Cbus’s comments on risks of stapling members out of insurance protections for dangerous occupations.

“While the ACTU is not supportive of the recommendations in the Productivity Commission report, even it recommended that stapling should only occur after all underperforming funds have been removed from the system,” Connolly said.

The ACTU’s alternative to stapling is to have a worker’s money follow them through their working life, instead of pinning non-choosing members

Superannuation | Featurette

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

to one fund. It also wants the default fund system currently used by employers to be maintained.

Meanwhile, Rainmaker Information executive director of research and compliance Alex Dunnin questions if stapling will reduce competition among superannuation funds.

He says superannuation members below the age of 25 hold 2.7 million superannuation accounts (12%) of the total.

Of those 2.7 million, about 60% are already with just five superannuation funds: Rest, AustralianSuper, Sunsuper, Hostplus and Cbus [Table 1].

“If the intention of the stapling proposal is to break open the market and introduce more competition between super funds, [our] view is that this stapling proposal may unintentionally have the opposite effect,” Dunnin says.

“While stapling may make it easier for young people to deal with superannuation, this same stapling policy could unintentionally concrete-in this market dominance of the leading super funds.”

The government took nearly six months to release the draft regulation for the bill, triggering urgent letters from the three industry bodies, Australian Institute of Superannuation Trustees, the Association of Superannuation Funds of Australia and Industry Super Australia.

“Given that details of the full impact of the YFYS Bill are not yet clear we are concerned there is now insufficient time for considered debate of the YFYS Bill,” the three associations said in the April 15 letter.

“We seek your reassurance that while the Committee will not have time to carefully consider the YFYS Bill regulations as part of its inquiry, the Parliament and relevant stakeholders will be provided with adequate time to consider all the regulations.”

On April 27 just as this edition went to print, Treasury finally released the draft legislation.

Key points revealed were the inclusion of administration fees and unlisted local assets in the performance test. On stapling, it clarified members can’t be stapled to funds that are not

01: Justin Arter

02: Eddie Megas

03: Larissa Evans

chief executive Cbus

managing director Australia and New Zealand ADP

assistant commissioner Australian Taxation Office

accepting contributions (such as defined benefit funds) and added a tie-breaker rule for stapling members with multiple accounts.

However, it was quiet on PMIF-style exclusions, and the industry’s hope for stapling to come into effect after the APRA test stops inflows to dud funds. This round of consultation runs until May 28, which is past the May 11 budget and just over a month from the July 1 start date - which is still the government’s plan.

Even before the regulation, industry stakeholders had to ready their systems to implement the stapling reforms.

Key among them is the Australian Taxation Office, which has to deliver a portal for employers to be able to check existing superannuation accounts for non-choosing new hires from July 1; payroll systems providers who have to implement the task for employers from 1 July 2022; and employers.

Most payroll providers calculate the SG entitlements for an employee every time a pay run is processed through them.

These SG contributions are then paid via a clearing house like SuperChoice.

Payroll giant ADP’s managing director for Australia and New Zealand Eddie Megas02 talking in mid-April said, the company, like others, wanted to see the regulation as soon as is possible.

“We want to implement before the 1 July 2022 start date but there are many unknowns and many moving parts,” he said, adding he awaits the senate’s findings and federal budget as well.

“We will do what we can to work with the ATO and try to make this feature available as early as possible… ADP will continue to connect with the ATO to understand the technical requirements for the backlinking to occur.”

Megas says the firm doesn’t know yet how backlinking its systems with the ATO’s systems will work. Meanwhile, it has been working on factsheets and other material relating to stapling for its employers.

Megas acknowledged the manual ATO checks may be onerous for large employers with new joiners running into the thousands each year.

Table 1. Most commonly used funds for people aged under 25, 2020

Accounts

1 Rest

627,425

34.0%

23.4%

23.4%

2 AustralianSuper

318,073

13.0%

11.8%

35.2%

3 Sunsuper

274,901

18.0%

10.2%

45.4%

4 Hostplus

271,657

21.0%

10.1%

55.6%

5 Cbus

118,017

15.0%

4.4%

59.9%

6 BT

98,024

11.0%

3.6%

63.6%

Share of fund

Market share

Cumulative share

7

ANZ Wealth

91,686

11.0%

3.4%

67.0%

8

MLC Super

78,633

7.0%

2.9%

69.9%

9 HESTA

78,225

9.0%

2.9%

72.9%

10

69,046

8.0%

2.6%

75.4%

2,025,687

na

75.4%

na

660,162

na

24.6%

na

2,685,849

15%

100%

100%

AMP Super

Subtotal biggest-10 The rest Total all funds

23

We are concerned there is now insufficient time for considered debate of the YFYS Bill.

AIST, ASFA and ISA.

Another payroll provider, Xero declined to comment on the changes it would have to make to its systems after stapling.

“Consultation on this matter is still taking place between the ATO and digital service providers. At this time, we cannot comment on what Xero may have to do,” a spokesperson for Xero on April 9.

As of February 2021, there were 288,700 job vacancies in Australia, according to the Australian Bureau of Statistics. While the number does not say how many jobs may be filled internally versus externally, and what share of external candidates would choose a fund – it may indicate manual stapling checks could run into thousands in its first year of implementation.

Dominos Pizza Enterprises Ltd, which has more than 840 stores in Australia and New Zealand, uses Sunsuper as its default fund. Nearly 90% of employees’ SG contributions go into Sunsuper, a spokesperson for Dominos said.

However, what the company was unable to comment on is if manual stapling checks for a year would be administratively onerous. “[It is] difficult to answer something that hasn’t come into practice yet. We would need to review our processes and resource[s] accordingly,” the Dominos spokesperson said. Woolworths was also contacted but declined to comment.

And the taxation office was no better enlightened than industry stakeholders.

ATO assistant commissioner superannuation and employer obligations Larissa Evans03, appearing before the Senate Economics Legislation Committee hearings on April 8, said the ATO was using website traffic of five million visitors to its lost super functionality in FY20 as a guide for stapling’s demands from 1 July 2021 to 1 July 2022.

“We don’t have an estimate in terms of volume but there are a number of factors that contribute to the volume of the users. Obviously the first is that – as my Treasury colleagues have explained – not all new employees will be subject to the request from their employer because they may make the choice when they are offered that by the employer when they commence their employment,” she said.

“Also, there will be a period of transition when the employers are becoming familiar with the obligations and requirements [in] utilising the service. So, we don’t have an anticipated volume because there are variables in [how] the service might be used.”

Evans maintained the ATO is ready to implement from July 1, and that it will take employers only a few minutes to perform a stapling check if they have the required information for the non-choosing employee.

So, when it is all done and dusted, what can the superannuation system expect?

The Financial Services Council estimates stapling will save customers $1.8 billion in fees in the first three years after implementation.

But for now, superannuation funds and service providers can only wait. fs

24

International

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

Kiwis keen on insurance advice An overwhelming 70% of products that New Zealand financial advisers recommend are life insurance products, according to the country’s financial markets regulator.

New statistics released by the Financial Markets Authority (FMA) reveals that risk products are the most popular topic among advisers, followed by advice provided on KiwiSaver (48%), mortgage products and consumer credit contracts (37%), and general insurance and managed funds, which drew 32% respectively.

New Zealand has 10,736 financial advisers in total and 12,287 nominated representatives.

There are 3004 advice practices, of which 1807 are approved licensees and 1197 authorised bodies.

Over half of advice providers are based in Auckland, followed by Canterbury.

FMA director of market engagement John Botica said: “These statistics provide a snapshot of the financial advice sector and highlight the continuing presence of small advice businesses, with 82% of financial advice providers being businesses with fewer than 10 financial advisers spread right across New Zealand.”

The regulator introduced a new advice regime on March 15, requiring advisers to hold a transitional licence and comply with its standard conditions.

They must also comply with new duties under Part 6 of the Financial Markets Conduct Act 2013, and the new Code of Professional Conduct for Financial Advice Services.

Advisers must formally record their details on the Financial Services Providers Register (FSPR).

Botica said those who miss the 16 June 2021 deadline may face deregistration. fs

01: Sean Hagerty

managing director, Europe Vanguard

Vanguard UK upends cost of financial advice Karren Vergara

V The quote

With people living longer and working longer, these costs have the potential tomake a considerable dent in their hard-earned retirement savings.

Guardians appoint NZ equities lead The Guardians of the NZ Super Fund appointed a lead to oversee the New Zealand equities team and its external fund managers.

Joe Halapua has been promoted to the role of manager of NZ equities. He will report to head of direct investment Will Goodwin.

The team allocates capital primarily to listed investments across the NZX50. It also employs external fund managers: Mint Asset Management and Devon Funds Management.

Halapua joined the fund in 2011 as a portfolio manager for direct investments, a role he held of eight years. In 2019, he was appointed as a portfolio manager of external investments and partnerships.

Before this, he was an investment banker at Goldman Sachs JBWere, where he was involved in mergers and acquisitions and capital market activity across New Zealand and Australia.

He currently serves on the board of Australian retirement village operator RetireAustralia and is chair of its audit committee.

Halapua looks said he looks forward to working with the team to continue to add value to the NZ Super Fund, and to cultivate quality relationships with listed corporates and market participants in New Zealand. fs

anguard has launched a financial advice offering in the UK that will charge a flat rate of 0.79%, a whopping three times less than what the industry charges on average.

Vanguard Personal Financial Planning promises to provide high-quality, low cost, retirementsaving advice based on a tiered approach. Support-service levels increase in line with investors’ portfolios and as financial needs evolve.

The all-in cost of 0.79% comprises an advice fee (0.50%) that includes value-added tax (VAT) where applicable; ongoing fund charges (0.12%); transaction costs (0.02%); and a platform fee (0.15%, capped at a maximum of £375 or $672 per year). Clients do not pay entry or exit fees.

Vanguard’s fee sits well below the industry average. UK regulator the Financial Conduct Authority calculated that advisers charge 2.4% on average on investible amounts for the initial advice and 0.8% per year for ongoing advice.

Clients need a minimum of £50,000 ($90,000). This cohort receives digital advice that is implemented and managed by Vanguard and reviewed annually.

Those with larger balances of over £100,000 ($179,000) will receive more support via a team of financial planners available over the telephone or video, as well as an annual review.

Clients with over £750,000 ($1.3m) have a dedicated financial planner.

Head of Vanguard Europe Sean Hagerty 01 commented that for some investors, the cost of advice is a barrier.

“The data indicates people can pay more than 1.5% for advice, platform, and fund management charges. It’s not uncommon to see fees north of 2%. With people living longer and working longer, these costs have the potential to make a considerable dent in their hard-earned retirement savings,” he said.

Asked if Australia can expect this offering soon, the fund manager said that its current focus on the local market remains on supporting third-party advisers, launching Vanguard Super offer and continuing to evolve the Personal Investor service.

“Vanguard Australia has long advocated for the value of financial advice, and the critical role that advisers play in helping investors achieve better investment outcomes. We have invested significant time and resources to support the delivery of high quality, affordable advice, working with like-minded advisers to assist them in scaling their businesses and allowing them to deliver their advice services in an efficient and accessible way. Our recently launched Retirement Income Builder tool is one such example,” a spokesperson said. fs

Bernie Madoff dies in prison Elizabeth McArthur

The architect of the largest Ponzi scheme the world has ever seen has died in prison aged 82.

Bernie Madoff had been serving his sentence at FMC Butner, an administrative security federal medical centre for male offenders located in North Carolina, at the time of his death.

Madoff would not have been eligible for release until the year 2137. He admitted to perpetrating a massive Ponzi scheme in 2008 and was subsequently sentenced to 150 years in prison.

His passing was confirmed by his attorney, Brandon Sample, who had been petitioning for Madoff’s release on compassionate grounds due to his terminal kidney failure. In May 2020, Madoff’s life expectancy was 18 months.

The US Securities and Exchange Commission (SEC) had conducted five major investigations into Madoff, dating back to 1992, but had failed to find evidence of his fraud for over a decade.

Madoff was at one point the chair of the NASDAQ stock exchange.

He ran a brokerage, Bernard L. Madoff Investment Securities, which was one of the largest market maker businesses on Wall Street – claiming to execute over the counter orders.

The asset management division of the company was nothing but a Ponzi scheme. It used investor money to pay other investors.

The amount of money lost by the 38,000 investors in the Ponzi scheme is estimated at between US$18 billion and US$65

billion. Reports conflict on how long Madoff was perpetuating the fraud, the SEC had cause to look into his business in the early 1990s but some believe the Ponzi scheme began as early as the 1970s.

He is survived by his wife Ruth Madoff. She attempted suicide with her husband after his arrest for fraud in 2008.

Madoff’s sons, Mark Madoff and Andrew Madoff, who were instrumental in exposing their father’s fraud both passed away in the years following his arrest.

Mark Madoff committed suicide on the second anniversary of his father’s arrest. Andrew Madoff died while undergoing treatment for cancer in 2014.

The unravelling of Madoff’s Ponzi scheme also revealed several significant failures by regulators to identify the fraud and protect investors. In the aftermath, the SEC made several reforms to prevent such a fraud occurring again.

These reforms included encouraging insider cooperation, conducting risk-based examinations, recruiting staff with specialist skills to identify fraud, advocating for whistleblowers and seeking more resources to fight fraud.

The US Department of Justice’s Madoff Victim Fund has distributed more than $2.7 billion to the 38,000 victims worldwide. Work is still being done to return more money to victims of Madoff’s fraud. fs

Between the lines

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

FTI awards custody mandates

01: John McBain

joint chief executive Centuria Capital Group

Elizabeth McArthur

J.P. Morgan will act as custodian for a further 26 funds as part of its custodial relationship with asset manager Franklin Templeton.

The custody partnership between Franklin Templeton and J.P. Morgan in Australia now encompasses $8.5 billion in assets under management.

The 26 funds have been onboarded onto J.P. Morgan’s global fund accounting platform InvestOne providing Franklin Templeton with access to J.P. Morgan’s workflow technology.

“Our global platform and industry leading capabilities are underpinned by support teams in multiple jurisdictions, ensuring our clients receive a comprehensive service offering,” J.P. Morgan head of platform sales Nick Paparo said.

“J.P. Morgan is uniquely positioned to support global asset managers in the Australian market, and we are delighted to expand our partnership with Franklin Templeton.”

J.P. Morgan is rolling out InvestOne through a multi-year program designed to provide enhanced, globally consistent technology and reporting capabilities. It has migrated nine Australian clients onto the platform since May 2020.

“Given the strong strategic agenda we have set for our business in Australia, we saw significant opportunity by leveraging our existing partnership with J.P. Morgan to onboard 26 additional funds,” Franklin Templeton managing director, Australia and New Zealand Matthew Harrison said. fs

25

Centuria, Primewest in $15.5bn merger Annabelle Dickson

C The quote

The merger represents an exciting opportunity to combine two highly complementary real estate platforms that share similar philosophies.

enturia Capital Group has entered a bid implementation deed to merge with Primewest, creating one of the largest real estate managers on the ASX with $15.5 billion in assets.

Under the deal, Primewest shareholders will receive $1.51 per security made up of $0.20 in cash and $0.473 Centuria securities.

The merged group will have $15.5 billion in assets under management (AUM) with a market cap of $2.2 billion, representing at 52% increase in AUM for Centuria and 209% increase for Primewest.

The group will also benefit from new distributions channels, enhanced geographic and sector diversification resulting in improved synergies to support the growth of assets under management and expansion of property services.

Centuria chair Garry Charny said the merger

Rainmaker Mandate Top 20

is consistent with Centuria’s dual strategy of asset acquisitions and corporate M&A. “Primewest is a high quality, well established fund manager and the Centuria board looks forward to the successful completion of the merger and building on Centuria’s position as a leading Australasian property fund manager,” Charny said.

As a part of the transaction, Primewest founders John Bond, David Schwartz and Jim Litis will enter two-year contracts as senior executives of Centuria. In addition, Centuria intends on retaining Primewest’s employees.

“The merger represents an exciting opportunity to combine two highly complementary real estate platforms that share similar philosophies and strong track records,” Centuria joint chief executive John McBain01 said.

The proposal comes after Centuria announced three acquisitions for the Centuria Industrial Income Fund in January. fs

Latest equities investment mandate appointments

Appointed by

Asset consultant

Investment manager

Mandate type

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Other

International Small Cap Equities

69

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

ClariVest Asset Management LLC

Emerging Markets Equities

51

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

ClariVest Asset Management LLC

Global Small Cap Equities

73

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Challenger Limited

Australian Equities

AvSuper Fund

Frontier Advisors

Hyperion Asset Management Limited

Australian Equities

Citibank Australia Staff Superannuation Fund

Willis Towers Watson

Other

Global Equities (Hedged)

20

Citibank Australia Staff Superannuation Fund

Willis Towers Watson

Vinva Investment Management Limited

Australian Equities

12

Citibank Australia Staff Superannuation Fund

Willis Towers Watson

Ardevora Asset Management LLP

Global Equities (Unhedged)

6

Citibank Australia Staff Superannuation Fund

Willis Towers Watson

Other

Global Equities (Unhedged)

6

Construction & Building Unions Superannuation

Frontier Advisors

Mesirow Financial

Emerging Markets Equities

1

Construction & Building Unions Superannuation

Frontier Advisors

Mondrian Investment Partners Limited

Global Equities

Energy Super

JANA Investment Advisers

DNR Capital Pty Ltd

Ethical/SRI Australian Equities

Local Government Super

Cambridge Associates; JANA Investment Advisers

Challenger Limited

International Equities

202

Prime Super

Whitehelm Capital

State Street Global Advisors Australia Limited

International Equities

168

Retail Employees Superannuation Trust

JANA Investment Advisers

First Sentier Investors

Australian Equities

879

Retail Employees Superannuation Trust

JANA Investment Advisers

Paradice Investment Management Pty Ltd

Australian Equities

26

Retail Employees Superannuation Trust

JANA Investment Advisers

Macquarie Investment Management Australia Limited

Australian Equities

1,199

Retail Employees Superannuation Trust

JANA Investment Advisers

Artisan Partners Australia Pty Ltd

International Equities

260

Sunsuper Superannuation Fund

Aksia; JANA Investment Advisers; Mercer Investment Consulting; StepStone Group

BlackRock Investment Management (Australia) Limited

Emerging Markets Equities

151

Sunsuper Superannuation Fund

Aksia; JANA Investment Advisers; Mercer Investment Consulting; StepStone Group

Platypus Asset Management Holdings Pty Ltd

Australian Equities

Amount ($m)

118

1,260 20

698 Source: Rainmaker Information

26

Managed funds

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08 PERIOD ENDING – 28 FEBRUARY 2021

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

AUSTRALIAN EQUITIES

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

COMBINED PROPERTY

Bennelong Australian Equities Fund

788

27.6

2

17.4

1

17.3

1

Australian Unity Diversified Property Fund

312

21.3

1

15.5

1

17.9

1

Australian Unity Platypus Aust Equities

222

14.0

13

14.5

2

15.6

3

Lend Lease Aust Prime Property Industrial

1,107

9.9

2

12.1

2

11.2

3

Australian Ethical Australian Shares Fund

451

24.2

5

14.5

3

15.0

4

Investa Commercial Property Fund

6,019

3.9

3

11.2

3

12.2

2

Bennelong Concentrated Aust Equities

1,477

22.3

6

13.6

4

17.1

2

Quay Global Real Estate Fund

275

-7.4

23

10.1

4

7.4

12

PM Capital Australian Companies Fund

31

28.7

1

12.0

5

13.7

9

Pendal Property Securities Fund

469

-7.6

26

9.5

5

7.8

8

Alphinity Sustainable Share Fund Greencape Broadcap Fund Ausbil Active Sustainable Equity Fund

301

10.5

23

11.9

6

14.3

6

SGH LaSalle Conc. Global Property Fund

20

-0.5

9

9.2

6

6.2

20

1,081

15.3

10

11.5

7

14.7

5

Resolution Capital Real Assets Fund

18

-5.1

20

8.6

7

7.7

9

8

48

18.2

8

11.1

5,666

2.5

5

8.2

8

11.2

4

1,593

14.2

11

9.8

9

13.3

12

Australian Unity Property Income Fund

276

-3.2

16

7.9

9

8.5

6

Greencape High Conviction Fund

617

8.8

30

9.6

10

13.5

11

Freehold Australian Property Fund

485

-0.2

8

7.4

10

6.8

14

Sector average

434

7.9

6.8

10.6

Sector average

1,380

-6.1

5.2

5.8

S&P ASX 200 Accum Index

6.5

7.4

10.7

S&P ASX200 A-REIT Index

-12.0

5.4

4.7

Ausbil Australian Active Equity

Lend Lease Aust Prime Property Commercial

INTERNATIONAL EQUITIES

FIXED INTEREST

Loftus Peak Global Disruption Fund

171

37.1

2

23.0

1

Zurich Concentrated Global Growth

63

17.6

16

22.6

2

BetaShares Global Sustainability Leaders ETF

1,181

21.2

9

21.1

3

T. Rowe Price Global Equity Fund

20.8

2

Macquarie Dynamic Bond Fund

704

1.3

7

5.3

1

4.6

3

Dimensional Global Bond Trust

1,813

-0.4

20

5.1

2

4.4

6

64

1.6

6

4.9

3

4.3

7

BlackRock Wholesale International Bond Fund

5,246

28.2

4

20.9

4

21.2

1

Legg Mason Western Global Bond Fund

391

2.0

4

4.9

4

Forager International Shares Fund

234

54.5

1

19.9

5

18.3

4

iShares Core Global Corporate Bond (AUD Hedged) ETF

313

0.7

11

4.7

5

Franklin Global Growth Fund

528

26.8

5

19.8

6

20.1

3

Perpetual Wholesale Active Fixed Interest Fund

197

-1.9

35

4.7

6

Nikko AM Global Share Fund

156

17.5

17

17.8

7

17.2

6

AMP Capital Wholesale Australian Bond Fund

931

-2.0

36

4.7

7

4.0

10

Evans and Partners International Fund

53

2.5

72

17.6

8

14.8

16

QIC Diversified Fixed Interest Fund

592

1.3

8

4.7

8

4.0

12

Capital Group New Perspective Fund

953

21.8

8

17.5

9

17.5

5

Pendal Sustainable Aust. Fixed Interest Fund

347

-1.2

25

4.6

Zurich Unhedged Global Growth Share Fund

427

15.4

20

17.1

10

16.5

9

QIC Australian Fixed Interest Fund

1,419

-1.6

32

4.6

Sector average

875

10.6

11.1

12.8

MSCI World ex AU - Index

8.2

11.6

12.9

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

Sector average

4.7

9 10

3.9

943

-1.7

3.8

3.3

Bloomberg Barclays Australia (5-7 Y) Index

-1.4

4.5

3.4

1

15

Source: Rainmaker Information

En garde, Vanguard o, Vanguard is launching a retail super fund.

S Again. Frenzied super commentators convinced this new super fund is going to sweep all

Brumbie

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

before it need to calm down and read some history.

Early last year it was reported that Vanguard HQ had announced the manager would no longer offer low-fee, high-profile institutional mandates across Asia Pacific, shifting focus to expanding its retail business.

About the same time, Vanguard Australia announced that they’re going to have another go running a Down Under super fund. They last tried this in 2001, though by 2012, triggered by the hassles of the Super Stream reforms, closed out and transferred the funds into MLC Wrap Super.

But the institutional mandate decision, if that’s what it was, was a company-wide multi-country move. Reports said Vanguard would consequentially be closing its Hong Kong and Tokyo offices.

Any case, the statement attributed to Vanguard at the time said they’d no longer be offering, not necessarily cancelling, institutional mandates.

Sure, Vanguard’s Melbourne office may, according to insiders, play a disproportionately influential role in Vanguard’s global business. But a global money manager as big as Vanguard is hardly going to pivot the whole company to be-

come a big tadpole in the small pond that is Australia’s super market.

If Vanguard has about $60 billion in institutional super fund mandates, they’ll need to build a near-$40 billion super fund to replace the revenue.

This is based on Rainmaker’s prophecy they’ll charge total fees at a market leading and vapourthin 0.5% pa, split, say, 0.3% pa to investment management and 0.2% pa or about $2 per week to administration.

From a standing start they’ll have become Australia’s 12th biggest super fund and attract more contributions than AustralianSuper, Aware Super, Sunsuper, Rest and QSuper combined. This is equivalent to the entirety of contributions paid last year into all retail super funds.

And unless Vanguard wants to enter the MySuper default fund market, all this will have to be done voluntarily by members. That is, through active opt-ins.

Showing how tough this job will be, Vanguard will have to become more than 15-times bigger than the entire disruptor super fund sector.

The disruptor super product space comprises only $2.5 billion.

And while Vanguard as an investment manager plays way above its weight among SMSFs, given contributions into SMSFs have dropped like a

stone by 60% in the past three years, it’s unlikely to get much comfort from them.

Where Vanguard Super could shine, however, is if it attracts hordes of fund members disaffected by super funds likely to fail the looming APRA investment performance test.

Last financial year, while their growth ETF ranked only 20th among super funds, their balanced ETF would have easily ranked number one; and this is after Rainmaker made allowances for super taxes and administration fees.

Putting all this together, blind Freddy can tell you Vanguard Super will likely become Australia’s biggest super disruptor product. But creating enough momentum to make up for foregone institutional mandate business will take longer - much longer.

But where Vanguard Super could really wreak market havoc is if it changes expectations about what a post-modern super fund should look like.

Imagine a retail Australian version of the $850 billion US Thrift Savings Plan. Thrift serves six million US government employees and military personnel, built on lifestage products underpinned

by ETFs managed by BlackRock and State Street.

It charges total fees of less than 10 basis points and in 2019-20 earned 2.5%, compared to the -0.9% earned by the Australian Rainmaker MySuper Index. Giddyup. fs

Super funds

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08 PERIOD ENDING – 28 FEBRUARY 2021

Workplace Super Products

1 year

3 years

% p.a. Rank

5 years

SS

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

MYSUPER / DEFAULT INVESTMENT OPTIONS

27

* SelectingSuper [SS] quality assessment

1 year

3 years

% p.a. Rank

5 years

SS

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

PROPERTY INVESTMENT OPTIONS

UniSuper - Balanced

8.4

4

8.3

1

9.2

5

AAA

Prime Super (Prime Division) - Property

-4.7

18

9.2

1

15.1

1

AAA

Australian Ethical Super Employer - Balanced (accumulation)

7.0

17

8.0

2

8.3

24

AAA

AMG Corporate Super - AMG Listed Property

-5.2

20

7.1

2

5.7

14

AAA

TASPLAN - OnTrack Build

7.4

10

7.9

3

AAA

Telstra Super Corporate Plus - Property

2.1

3

7.0

3

8.4

2

AAA

Virgin Money SED - LifeStage Tracker 1979-1983

7.5

9

7.7

4

AAA

Aware Super Employer - Property

-1.4

9

6.6

4

7.2

4

AAA

AustralianSuper - Balanced

7.2

13

7.4

5

9.5

2

AAA

TASPLAN - Property

2.8

2

6.0

5

AAA

SA Metropolitan Fire Service Super Scheme - Growth

9.2

1

7.3

6

8.9

9

AAA

Sunsuper Super Savings - Property

2.8

1

5.8

6

7.1

6

AAA

LGS Accumulation Scheme - High Growth

8.9

2

7.3

7

9.8

1

AAA

FirstChoice Employer - First Sentier Global Prop Securities

-0.5

8

5.8

7

5.7

13

AAA

QSuper Accumulation - Lifetime Aspire 1

4.0

48

7.2

8

8.0

29

AAA

CareSuper - Direct Property

-0.4

7

5.6

8

7.9

3

AAA

Vision Super Saver - Balanced Growth

8.0

5

7.2

9

8.9

10

AAA

Media Super - Global Listed Property

-2.0

10

5.5

9

5.4

15

AAA

Cbus Industry Super - Growth (Cbus MySuper)

7.5

8

7.1

10

9.0

7

AAA

Mine Super - Property

-8.0

25

5.5

10

4.8

19

AAA

Rainmaker MySuper/Default Option Index

6.1

Rainmaker Property Index

-5.6

4.1

5.1

6.3

8.0

AUSTRALIAN EQUITIES INVESTMENT OPTIONS

FIXED INTEREST INVESTMENT OPTIONS

UniSuper - Australian Shares

13.4

3

10.1

1

11.9

2

AAA

Australian Catholic Super Employer - Bonds

0.3

10

4.9

1

4.0

1

AAA

Vision Super Saver - Just Shares

17.0

1

9.8

2

13.0

1

AAA

GESB West State Super - Mix Your Plan Fixed Interest

-1.1

28

4.2

2

3.4

6

AAA

1.0

57

8.9

3

1.5

52

AAA

AMG Corporate Super - AMG Australian Fixed Interest

0.1

15

3.9

3

3.4

7

AAA

Prime Super (Prime Division) - Australian Shares

14.0

2

8.7

4

11.6

3

AAA

Intrust Core Super - Bonds (Fixed Interest)

0.3

11

3.8

4

3.5

4

AAA

ESSSuper Beneficiary Account - Shares Only

10.7

5

8.6

5

10.7

9

AAA

AMG Corporate Super - AMG International Fixed Interest

2.3

2

3.7

5

3.3

10

AAA

9.9

10

8.2

6

10.2

27

AAA

QSuper Accumulation - Diversified Bonds

1.0

9

3.7

6

3.1

14

AAA

Lutheran Super - High Growth All Australian Shares SRI

CBA Group Super Accumulate Plus - Australian Shares Maritime Super - Australian Shares

12.9

4

8.0

7

10.5

14

AAA

Mine Super - Bonds

-1.8

38

3.6

7

3.4

8

AAA

Media Super - Australian Shares

7.2

32

7.9

8

10.2

26

AAA

StatewideSuper - Diversified Bonds

2.0

4

3.4

8

3.7

3

AAA

TASPLAN - Australian Shares

9.5

13

7.7

9

AAA

GESB Super - Mix Your Plan Fixed Interest

-1.2

29

3.4

9

2.6

24

AAA

Aware Super Employer - Australian Equities

7.2

30

7.7

AAA

HESTA - Diversified Bonds

-0.2

18

3.4

10

3.1

13

AAA

Rainmaker Australian Equities Index

7.6

Rainmaker Australian Fixed Interest Index

-1.5

10

6.7

10.5

13

9.8

INTERNATIONAL EQUITIES INVESTMENT OPTIONS

2.7

1.9

AUSTRALIAN CASH INVESTMENT OPTIONS

Vision Super Saver - Innovation and Disruption

62.1

1

30.4

1

AAA

Lutheran Super - Cash and Term Deposits

0.3

23

1.9

1

0.1

57

AAA

UniSuper - Global Environmental Opportunities

43.8

2

21.6

2

19.7

1

AAA

AMG Corporate Super - Vanguard Cash Plus Fund

0.5

6

1.4

2

1.7

1

AAA

UniSuper - Global Companies in Asia

15.2

26

13.4

3

15.1

2

AAA

GESB West State Super - Cash

0.3

17

1.3

3

1.6

2

AAA

UniSuper - International Shares

23.0

4

13.1

4

14.5

5

AAA

GESB West State Super - Mix Your Plan Cash

0.3

17

1.3

3

1.6

2

AAA

AustralianSuper - International Shares

16.0

24

12.7

5

13.8

8

AAA

AMG Corporate Super - AMG Cash

0.7

2

1.3

5

1.6

4

AAA

LUCRF Super - International Shares (Active)

16.9

21

12.5

6

12.7

13

AAA

Intrust Core Super - Cash

0.4

9

1.3

6

1.6

5

AAA

Equip MyFuture - Overseas Shares

20.4

9

12.1

7

14.2

6

AAA

NGS Super - Cash & Term Deposits

0.5

7

1.3

7

1.5

6

AAA

Intrust Core Super - International Shares

18.4

14

11.5

8

13.9

7

AAA

Rest Super - Cash

0.7

3

1.2

8

1.4

11

AAA

Vision Super Saver - International Equities

23.0

3

11.3

9

14.5

4

AAA

ANZ Staff Super Employee Section - Cash

0.8

1

1.2

9

1.3

15

AAA

HOSTPLUS - International Shares

17.1

19

10.9

10

14.7

3

AAA

Media Super - Cash

0.3

20

1.2

10

1.3

17

AAA

Rainmaker International Equities Index

12.6

Rainmaker Cash Index

0.1

0.9

1.1

8.8

11.1

Source: Rainmaker Information www.rainmakerlive.com.au

Note: Please note that all figures reflect net investment performance, i.e. net of investment tax, investment management fees and the maximum applicable ongoing management and membership fees.

2021 Rainmaker Information AAA Quality Ratings announced View the full list of AAA rated superannuation products at www.rainmaker.com.au

28

Economics

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

Bubble, bubble, flying out of economic trouble Ben Ong

happen overnight, but it’s happening IAftert…didn’t now. The Trans-Tasman bubble is here! more than a year – I recall watching the Qantas chief executive saying it’s been 400 days – have been allowed to fly into New Zealand quarantine-free from April 19.

As an aside, our Kiwi brethren have been allowed into our domicile without quarantining since October 2020 – a testament to New Zealand’s early win against the coronavirus and Australians’ understanding and acceptance that it couldn’t be a two-way street … until now.

The Trans-Tasman bubble marks a fresh step into normalising life after the COVID-19 pandemic.

Both economies stand to gain. Not only would the re-opening of borders sans quarantine restart postponed reunions and visits t families and friends on both sides of the pond, it would, as the Reserve Bank of New Zealand (RBNZ) declared recently, “support incomes and employment in the tourism sector both in New Zealand and Australia”.

True that. According to Budget Direct: “Tourists from New Zealand spent $2.6 billion in Australia in 2019. The main purpose for travelling to Australia was for holidays. 505,000 tourists came to Australia for holiday purposes.

The most popular destinations were Sydney with 32%, Melbourne with 27%, and Brisbane with 19% of visitors. New Zealand visitors spent an average of 10 nights in Australia. New Zealand has a population of 4.69 million people meaning that around 29% of the population visited Australia in 2019.”

It’s a two-way street, with Tourism New Zealand noting: “Australian visitors contributed 1.5M (40%) arrivals annually and spent $2.7b in 2019” and “Australian holiday arrivals … made up 27% of holiday arrivals - but over winter this jumped to 43%.”

Air New Zealand chief executive Greg Foran is happy. He should be. He expects the bubble to raise the airline’s capacity to around 50% preCOVID-19 and thereafter, “…give it some time, we could easily see ourselves running maybe 80% or so, 90%”.

For its part, Qantas and Jetstar are looking at 122 return flights per week across the Tasman on 15 routes that would see the Qantas flights across the Tasman return to 83% of capacity.

Just think of all the good and gracious things these do for both economies.

More flights to and fro equals greater demand for staff, not only for the airlines industry but for tourism and ancillary products and services for both Australia and New Zealand.

All fine and dandy, Andy but flyers and skiers beware. This is because given the uncertain nature of the coronavirus, conditions could change at a moment’s notice – i.e. lockdowns reimposed.

New Zealand Prime Minister Jacinda Ardern said it best: “People will need to plan for the possibility of travel being disrupted if there is an outbreak … We may have scenarios where travel will shut down one way. It may therefore leave travellers – for a period of time – stranded on either side of the Tasman.”

The Trans-Tasman bubble would put more planes in the air (boats on the sea, if you prefer sailing) and more jobs on the ground. fs

Monthly Indicators

Mar-21

Feb-21

Jan-21

Dec-20

Nov-20

Consumption Retail Sales (%m/m)

-

-0.78

0.29

-3.55

6.65

Retail Sales (%y/y)

-

9.09

10.61

9.74

13.18

22.42

5.05

11.06

13.55

12.39

Sales of New Motor Vehicles (%y/y)

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

70.71

88.67

29.47

46.35

86.20

Job Advertisements (%m/m, sa)

7.40

8.80

2.98

8.82

14.28

Unemployment Rate (sa)

5.62

5.83

6.34

6.59

6.82

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

-

15.09

-11.77

16.44

6.15

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

-

21.65

-19.37

12.17

2.23

Survey data Consumer Sentiment Index

111.80

109.06

107.00

112.00

107.66

AiG Manufacturing PMI Index

59.90

58.80

55.30

-

52.10

NAB Business Conditions Index

25.23

17.00

10.44

14.67

9.46

NAB Business Confidence Index

15.47

17.82

12.97

6.50

11.38

Trade Trade Balance (Mil. AUD)

-

7529.00

9616.00

7577.00

Exports (%y/y)

-

9.10

1.64

-6.49

-9.96

Imports (%y/y)

-

-3.64

-12.23

-14.03

-11.04

Mar-21

Dec-20

Sep-20

Jun-20

Mar-20

Quarterly Indicators

5849.00

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

-

14.52

10.71

16.38

7.48

% of GDP

-

2.86

2.20

3.50

1.48

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

-

-6.55

3.22

15.84

3.02

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

-

0.67

0.08

0.08

0.53

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

-

0.52

0.53

-0.08

0.38

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

-

0.52

0.45

0.00

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

CPI (%y/y) weighted median

-

1.40

1.20

1.30

1.60

Output

News bites

Business confidence Australia’s economic recovery should get extra impetus if the latest update from the NAB business survey is anything to go by. The survey shows that business conditions in Australia jumped from a reading of +17 in February to +25 in March.

This is the highest reading on record boosted by equally record high scores in its sub-components – trading up 12 points to +35 in March); profitability (up eight points to +26); employment (up seven points to +16). “The strength in conditions is evident across all states and industries,” the survey reads. Although business confidence slipped by three points to a reading of +15 in March from the previous month, it remains at elevated levels and way above its long-run average of +6. The jump in forward orders to an all-time high of +17 in March from 10 in February signals continued strength in conditions and confidence going forward.

Real GDP Growth (%q/q, sa)

-

3.13

3.40

-7.00

-0.30

Employment According to the Australian Bureau of Statistics, the nation’s unemployment rate dropped from 5.8% in February to 5.6% in March. This is lower than market expectations for a 5.7% print and is the lowest rate of joblessness among Australians since March 2020. Even better, the drop in the unemployment rate comes amid the increase in the participation rate – indicating optimism among jobseekers over their chances of finding employment – to an historic high of 66.3%. Total employment increased 70,700 – more than double market expectations for a 35,000 gain – to 13,077,600, above its previous peak of 13,008,670 before the pandemic.

Real GDP Growth (%y/y, sa) Industrial Production (%q/q, sa)

-

-1.12

-3.70

-6.31

1.40

-

-0.30

0.20

-3.01

0.10

Consumer sentiment The Westpac-Melbourne Institute index of consumer confidence rose by 6.2% to a reading of 118.8 in March – the highest level since August 2010 “when Australia’s post-GFC rebound and mining boom were in full swing”, according to Westpac.

The survey was conducted from April 5-10 which means that respondents would have been aware of the delays from the vaccine roll-out and after the JobKeeper scheme has ended. Confident consumers are spending consumers especially (as shown in the survey) when they’re expecting improvement in their family finances over the next 12 months and their outlook on economic conditions over the next one and five years are brighter. fs

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

- 16-Apr

3.03

-3.08

-5.51

-1.91

Mth ago 3mths ago 1yr ago 3yrs ago

Interest rates RBA Cash Rate

0.10

0.10

0.10

0.25

1.50

Australian 10Y Government Bond Yield

1.68

1.70

1.04

0.84

2.61

Australian 10Y Corporate Bond Yield

1.96

1.54

1.27

2.19

3.35

Stockmarket All Ordinaries Index

7325.8

3.49%

4.85%

33.99%

S&P/ASX 300 Index

7057.3

3.48%

5.30%

31.39%

23.48% 21.66%

S&P/ASX 200 Index

7063.5

3.46%

5.18%

30.41%

20.92%

S&P/ASX 100 Index

5823.2

3.56%

4.94%

29.82%

21.19%

Small Ordinaries

3331.6

3.03%

7.92%

44.36%

25.02%

Exchange rates A$ trade weighted index

63.90

A$/US$

0.7737 0.7748 0.7702 0.6311 0.7777

64.50

63.40

54.70

62.50

A$/Euro

0.6458 0.6514 0.6369 0.5816 0.6288

A$/Yen

84.18 84.47 80.00 67.88 83.41

Commodity prices S&P GSCI - commodity index

488.72

490.18

431.74

270.66

464.51

Iron ore

163.68

168.26

163.93

84.04

64.10

Gold

1774.45 1735.00 1839.00 1729.50 1349.35

WTI oil

63.13

64.82

52.25

19.82

Source: Rainmaker Information /

66.23

Sector reviews

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

Australian equities

Figure 1. Employment growth

Figure 2. Business & consumer confidence

6

130

2 0

CPD Program Instructions 75

INDEX

ANNUAL CHANGE %

4

NET BALANCE %

120

50

110

25

100

0

-2 -4 -6

Part-time

-8

Prepared by: Rainmaker Information Source:

90

Total

-10

-25 Consumer confidence

Full-time

80

-50

Business confidence -RHS

-12

70

-14 2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2004

2021

-75 2006

2008

2010

2012

2014

2016

2018

2020

Australia’s virtuous cycle rolls on Ben Ong

T

his space has been ranting about the virtuous cycle that had been circling around the nation since activity and business and consumer sentiment indicators began to turn for the better … even before the first Australian arm was inoculated with the vaccine.

The Australian Bureau of Statistics’ (ABS) latest ‘Labour Force’ survey indicate that this circle of virtue is gaining momentum.

The unemployment rate decreased to 5.6% – the lowest level since March 2020 – from 5.8% in February.

The participation rate increased to 66.3% – a historic high – indicating optimism among jobseekers over the likelihood of getting hired.

Employment increased to 13,077,600 – and now has overtaken its previous peak of 13,008,670 before the pandemic and the social restrictions and lockdowns.

Monthly hours worked increased by 38 mil-

International equities

lion hours to a record 1,800 million in March.

To be sure, and according to Bjorn Jarvis, head of labour statistics at the ABS: “The data was collected during the first half of March, prior to the end of JobKeeper on March 28.”

“The April Labour Force release, along with weekly payroll jobs data, will show the state of the labour market after the end of JobKeeper.”

Perhaps the report for April will show some weakening in the domestic labour market but it would be slight given the elevated levels of business confidence and conditions.

Business conditions in Australia jumped from a reading of +17 in February to +25 in March.

This is the highest reading on record boosted by equally record high scores in its sub-components – trading up 12 points to +35 in March); profitability (up eight points to +26); employment (up seven points to +16).

Business confidence slipped by three points to a reading of +15 in March from the previous

Figure 1. Euro Stoxx-50 and VStoxx index INDEX

1500

8.00

2000

7.00

2500

6.00

INDEX

80

Vstoxx

70

Stoxx-50 index -RHS

60

EURO TRILLIONS

GFC ECB total assets

Grexit

3000

5.00

40

3500

4.00

4000

3.00

4500

2.00

5000

1.00 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20 10 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

J

ust like the myth of Europa, Eurozone equities are riding on the back of a bull.

Eurozone equities soared to their highest levels in 13 years. The VStoxx index – the Eurozone’s fear gauge dropped to 13-month lows.

The Euro Stoxx-50 index broke above the 4,000-point mark in mid-April to 4,032.99 points – up 13.5% year-to-date – and the VStoxx index dropped to a reading of 15.7 points – down 36.8% year-to-date – just as the European Central Bank (ECB) released the minutes of its March of meeting detailing the Governing Council’s concern over the regions’ growth outlook due to coronavirus mutations and the slow pace vaccinations in the continent.

To wit: “…the ongoing pandemic – including the spread of virus mutations – and its implications for economic and financial conditions continued to be sources of downside risk.”

But have no fear, ECB president Christine

Lagarde is here, whispering hope that “although downside risks associated with the pandemic remain in the near term” the “…risks surrounding the euro area growth outlook have become more balanced”.

The ‘minutes’ “re-emphasised the dichotomy between continued elevated risks to the outlook in the short term and more positive developments in the medium term. While the degree of uncertainty was still high, it was seen to have lessened compared with at the time of the December projections. It was noted that financial market dynamics suggested a rather positive outlook”.

This is backed up by recent upgrades to the Eurozone’s economic growth outlook by both the OECD and the IMF. The OECD’s March 2021 outlook has Eurozone GDP growing by 3.9% this year – up from 3.6% it forecast it December – and 3.8% in 2022 – up from 3.3%. Similarly, the IMF’s April 2021 report sees the region’s economy growing

Australian equities CPD Questions 1–3

1. Which Australian indicator showed continued improvement? a) Employment b) Business conditions c) Consumer confidence d) All of the above 2. What were the findings of the NAB business survey for March? a) Business conditions and business confidence improved b) Business conditions and confidence deteriorated c) Business conditions improved but confidence dipped d) Business conditions dipped but confidence improved

COVID-19

Eurozone rides on a bull Ben Ong

The Financial Standard CPD Program has been developed for professionals governed by the Corporations Act 2001 and hold an AFS Licence which provides an obligation to undertake continuous professional development (CPD). Test your knowledge with the following questions.

[See next page for instructions on how to submit your answers].

3. Consumer confidence dropped in April due to the withdrawal of JobKeeper. a) True b) False

50

30

Prepared by: Rainmaker Information Source: Rainmaker /

month but remains at elevated levels and way above its long-run average of +6.

Similarly, the Westpac-Melbourne Institute index of consumer confidence rose by 6.2% to a reading of 118.8 in March – the highest level since August 2010 “when Australia’s post-GFC rebound and mining boom were in full swing”, according to Westpac.

Australia’s virtuous cycle continues to roll. Confident consumers beget confident businesses – household spending rises, lifting sales and profits and ultimately investment in buildings and structures, machinery and equipment and staffing, increasing employment, raising consumer confidence...

To be sure, Australia remains at risk until the coronavirus and its mutations are completely vapourised in every economy around the world.

However, given the country’s improved and improving fundamentals, Australia would be in better shape than most to withstand another bite from the bug. fs

Figure 2. ECB balance sheet

90

29

stronger – 4.4% in 2021 and 3.8% in 2022— compared with the 4.2% and 3.6% it projected three months earlier.

Then again, if all else fails, “we will continue to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1.850 trillion until at least the end of March 2022” and “stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry”.

Former ECB president Mario Draghi was dubbed ‘Super Mario’ for doing “whatever it takes” to revive the Eurozone economy from the Global Financial Crisis and Grexit but as the ECB’s balance sheet shows, Madam Lagarde has supersized this.

Just as we were advised not to fight the Fed, I wouldn’t be standing in the way of the ECB either and … that’s no myth. fs

International equities CPD Questions 4–6

4. Which international institution lifted the Eurozone’s GDP growth outlook for 2021 and 2022? a) IMF b) OECD c) Both a and b d) Neither a nor b 5. How does the ECB president view the risks to the growth outlook? a) Severely elevated b) Slightly elevated c) More balanced d) Drastically reduced 6. At its March 2021 meeting, the ECB hinted at reducing QE before the end of the year. a) True b) False

30

Sector reviews

Fixed interest CPD Questions 7–9

7. What is the IMF’s 2021 GDP growth forecast for Japan? a) 2.3% b) 2.7% c) 3.1% d) 3.3% 8. What is the OECD’s 2021 GDP growth forecast for Japan? a) 2.3% b) 2.7% c) 3.1% d) 3.3% 9. Japanese wages continue to fall. a) True b) False Alternatives CPD Questions 10–12

10. What accounted for the rise in China’s official manufacturing PMI in March? a) Increase in output b) Increase in new orders c) Return to expansion of export orders d) All of the above 11. Which Caixin China PMI dipped into contraction in March? a) Composite PMI b) Services PMI c) Manufacturing PMI d) None of the above

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

Fixed interest

Figure 1: au Jibun Bank Japan PMI

Figure 2: Japanese wages & retail spending 12

55

INDEX

50 45 40

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

4 ANNUAL CHANGE %

9

Services

2

3

1

0

0

-3

-1 -2

Composite

-6

30

Manufacturing

-9

-3

-12

-4

Retail sales

-15

20

-5

Average monthly cash earnings -RHS

-18

2018

2019

2020

2021

3

6

35

25

ANNUAL CHANGE %

-6

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Fourth wave poses many risks Ben Ong

T

he way it’s (not) going for Japan, recent upgrades to its 2021 economic growth made by the OECD and the IMF might need to be toned down or even reversed to a downgrade at their next outing.

The OECD’s March 2021 ‘Interim Outlook Forecasts’ has Japan’s GDP growing by 2.7% this year – up from 2.3% it forecast it December – and 1.3% in 2022 – up from 1.0%. Similarly, the IMF’s April 2021 ‘World Economic Outlook’ report sees Japan’s economy growing stronger – 3.3% in 2021 and 2.5% in 2022 – compared with the 3.1% and 2.4% it projected three months earlier.

To be sure, recent improvements in the au Jibun Bank Japan PMI readings back up both institutions’ optimism. But improving as they are, the latest survey showed that overall private sector activity – as measured by the composite PMI – remains in contraction (for the 14th

Alternatives

straight month) and at 49.9 in March, only marginally improved from February’s 48.2.

The emerging fourth wave of coronavirus infections in Japan is to blame. After dropping to a daily average of about 1000 new cases in early March, this increased to about 2500 in April.

The fourth wave of infections has prompted Prime Minister Suga announce “quasi-emergency” restrictions in parts of Tokyo, Kyoto and Okinawa – in addition to Osaka, Hyogo and Miyagi – in the middle of April this year.

This also threatens another cancellation of the Tokyo Olympics – cancelled in 2020 and expected to proceed in less than three months (23 July 2021).

Although transient, Olympics country hosts benefit from increased travel and tourism and broadcast rights to events. These are magnified through the “feel good factor” and sense of pride that accrues in the domestic economy.

But even if the 2020 (now 2021) Olympics proceed as scheduled, caution over contracting COVID-19 would limit international and domestic attendance. Osaka has already cancelled the torch relay because of rising infections there.

The Olympics aside, Japan remains in dire straits. Household spending dropped by 6.6% in the year to February, accelerating from the 6.1% fall recorded in the previous month with reduced spending on food (-4.2% in February from -2.2 percent in January), transport and communication (-13.0% from -3.5%) and medical care (-6.7% from -5.7%).

And, while they’ve improved over the past three months, Japan’s average monthly cash earnings remained down 0.3% in the year to February.

The Bank of Japan (BOJ) kept monetary policy settings unchanged in March and declared that “the current monetary easing should be continued for a long time”.

Or it could be eased even more. fs

Figure 2: Caixin China PMI

Figure 1: China Official PMI 60

60

INDEX

INDEX

55 50

12. China’s COVID-19 fiscal stimulus package is lower than those spent in the US, Japan or the UK. a) True b) False

50 45

40

40 Manufacturing

Manufacturing

30

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

35

Non-manufacturing

30 20 2018

Services Composite

25 2019

2020

2021

2018

2019

2020

2021

No Lunar New Year hangover Ben Ong

A

Go to our website to

Submit

All answers can be submitted to our website.

ctivity in China’s manufacturing and non-manufacturing sectors returned with a vengeance after a brief pause during the country’s Lunar New Year holidays.

National Bureau of Statistics (NBS) data show that China’s manufacturing PMI rebounded to a three-month high of reading 51.9 in March from 50.6 in February. This marks the 13th straight month of expansion in factory activity with output, new orders and buying orders rising to three-month peaks and export sales returning to expansion.

Likewise, the NBS reports that China’s non-manufacturing PMI increased to a reading of 56.3 in March – the highest in four months – from 51.4 in February. This marks a full year of expansion in the country’s services sector, underpinned by the return to growth in new orders and new export orders.

Most of the commentaries on China’s official PMI survey revolved around the lift in “export orders” due to the improvement in the global economy on the back of widening rollout of the coronavirus vaccine.

Then again, China’s trade account also benefitted even when COVID-19 was eating through the economies of other countries, exporting masks and personal protective equipment (PPE) to them.

China’s official PMI readings are consistent with findings of the Caixin China PMI survey for March – composite PMI rose to a three-month high reading of 53.1 (from 51.7 in February); the services PMI increased also to a three-month high of 54.3 (from 51.5); the manufacturing PMI dipped slightly to 50.6 (from 50.9) but remained in expansion.

These recent data confirm expectations for strong growth in the Chinese economy this year.

The OECD’s March 2021 ‘Interim Economic Outlook’ report pencilled in a 7.8% expansion this year. In January this year, the World Bank forecast China’s GDP to grow by 7.9% in 2021 predicated on “the release of pent-up demand and a quicker-than-expected resumption of production and exports”. In the same month, the IMF predicted China’s economy to expand by 8.1% this year due to “effective containment measures, a forceful public investment response, and central bank liquidity support.

China’s reaping the fruits of its early containment of the coronavirus – draconian as they were – and with lesser government spending.

Statista.com figures reveal that as at March 2021, the value of China’s COVID-19 stimulus package amounted to 4.7% of GDP. This compares with 54.5% for Japan, 35.9% for Germany, 26.5% for the US (excluding Biden’s new stimulus proposals worth around US$4 trillion) and 17.8% for the UK. fs

Sector reviews

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

31

Property

Property

CPD Questions 13–15

Prepared by: Rainmaker Information Source: VanEck

n what now seems distant memory, Australian Irallying real estate investment trusts (A-REITs) were at the start of 2020 reaching a peak on 20 February 2020, up by 9.1% from the beginning of 2020. These gains quickly turned to large losses as COVID-19 spread around the world. Markets hit a low in mid to late March, with A-REITs down 50% from their February peak.

During the subsequent recovery A-REITs did not rebound as quickly as the rest of the equities market. A-REITs as measured by the MVIS Australia A-REITs Index were down 13.36% for the period 20 February 2020 to 15 April 2021. In comparison the total return for the S&P/ASX 200 was relatively flat with a 2.27% return for the period.

Within A-REITs there is a wide variance between the performances of different A-REIT sub-sectors. This has also played during the market’s reaction to the announcement of COVID-19 vaccines. Retail REITs, including Scentre Group (SCG) rebounded 31.52% since the announcement of the vaccine to 15 April 2021. This was after a fall of 41.0% from

A-REIT recovery stalls Russel Chesler, head of investment and capital markets, VanEck

20 February 2020 to 30 September 2020.

Out of the 15 REITs in the MVIS Australia A-REIT Index the only one to achieve a positive return (+15.25%) for the entire period was Goodman Group (GMG), which has a large exposure to industrial properties. These performed well over the past year due to the growth of e-commerce.

Moving into 2021 the recovery in A-REITs has stalled due to increasing bond rates. The Australian government 10-year bond yield has increased approximately 1% to 1.72% from the beginning of the year 15 April 2021. This is bad for A-REITs as it suggests that borrowing costs will rise however A-REITs have survived crises many times in the past. A-REITs are still paying a yield that is more attractive than other income assets, they have less debt than in previous recoveries and many A-REITs are yet to recover back to their pre-COVID-19 highs.

Sub-sector outlook The retail REIT sector, including shopping malls, currently has occupancy percentage rates

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in the high 90s. Their performance going forward will depend on the number of retail bankruptcies and the extent to which e-commerce rates are retained or increase post the pandemic.

Overall we do not expect rents to return to their pre pandemic levels.

On the other hand the continued strong performance of industrial companies will be dependent on the continued strong growth of ecommerce.

Companies that occupy premises in the CBD are re-evaluating their real estate needs too. Although many workers are returning to their offices we expect there will be a shift in which a portion of the workforce will continue to work from home on a part-time basis. As a result, we expect office rents to remain subdued for some time.

On the residential front the unprecedented stimulus including the HomeBuilder grant is driving the market. With no planned changes to lending criteria and/or the capital requirements on banks’ lending it is expected that residential property will continue to grow. fs

13: Retail REITs, including Scentre Group (SCG), rebounded 31.52% due to: a) increasing bond rates b) declining bond rates c) the announcement of the COVID-19 vaccine d) the end of the JobKeeper wage subsidy 14: CBD office rents are expected to remain subdued due to: a) an increase in labour force participation b) a portion of the workforce continuing to work from home c) lower growth in e-commerce d) higher rental costs in capital cities 15: In 2021, the recovery in A-RIETs has been boosted by increasing bond rates. a) True b) False

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32

Profile

www.financialstandard.com.au 3 May 2021 | Volume 19 Number 08

OPPORTUNITY THROUGH CRISIS Growing up on a dairy farm was the impetus for Spirit Super chief investment officer Ross Barry to learn more about economics and investing.

Annabelle Dickson writes.

ife on the farm wasn’t easy throughout the L 1980s as a young Ross Barry and his family experienced one of the worst droughts Australia has lived through.

It was a dry decade and the family business also had to weather the storm of the deregulation of the dairy industry in New South Wales.

“We slowly went to the wall through that period,” Barry says.

It might not seem like a logical connection to make, but at the same time as Barry was watching a once prosperous farming business teeter on the edge, he also started to learn about markets.

“It led me to taking a great interest in economics and finance from a very young age.

Starting with the local cattle sales and seeing how markets worked,” he says.

In his youth Barry would attend the local cattle auctions. This was his introduction to the chaos and excitement of trading and markets.

Barry went on to complete a Bachelor of Economics at the University of Newcastle and later, a doctorate in finance theory.

In fact, his doctorate led Barry to write a book, Crisis and Complexity, on complexity theory.

He researched for four years after the Global Financial Crisis as he felt the industry was failing to understand the true nature of financial crises.

“I went back and researched the last 200 years of financial markets, particularly share mrkets and economic crashes, and tried to draw some inference from that,” he says.

Barry concluded that crises are not possible under the normal framework of modern finance theory.

“The ‘black swan theory’ suggests crises are some kind of anomaly, something that can’t be explained,” he says.

Black swan theory, popularly known through Nassim Taleb’s book, is the theory of the true impact of highly improbable, impossible to time events. In this case, the impact on financial markets.

“Whereas complexity theory shows they are simply emergent outcomes, the product of a highly connected system that can be explained, even if they are still very hard to predict,” Barry explains.

Barry’s first foray into financial services was working on a proprietary trading desk and led him to realise he wanted to work with longer-term investments, eventually turning to superannuation.

Barry would go on to spend just shy of a decade at First State Super, firstly as an advisor while working at Watson Wyatt (now Willis Towers Watson) advising the fund on its merger with Health Super in 2011.

He then went on to become First State Super’s head of research and was responsible for building a lot of the fund’s internal portfolio

management capability, including an internal share portfolio platform.

“Developing that capability was a key goal of mine and to be able to do that and launch them in Australia and globally was a highlight,” Barry says.

It was here that he met chief investment officer Damien Graham, who Barry says taught him invaluable lessons and turned him into the chief investment officer he would later become.

“I felt very fortunate to work with Damien and I learnt a lot from him about how to be a chief investment officer. It’s a major task to manage such a large investment operation and he did it extremely well,” Barry says.

Graham and Barry would go on to each be the investment leaders of two of Australia’s newest merged funds, as the industry goes through unprecedented consolidation.

Barry left First State last year as it merged with VicSuper and later WA Super, creating the $125 billion Aware Super. He became chief investment officer of MTAA Super as it prepared to merge with Tasplan to create Spirit Super.

Now leading the investment strategy at the newly merged fund, Barry is focusing on a ‘go forward’ strategy for its now $23 billion in funds under management.

“There has been an evolution in the investment strategy. We are looking selectively at areas that we can internalise where it makes sense for us to do that,” he says.

“The principle I use for that is: we would only do it if we were convinced we could do it better than we could buy in the market.”

However, Barry says the overarching principle is to ensure the fund has a governance model where there is clear accountability for member outcomes.

“That is something that I have always been very, very strong on to ensure a clear picture of what success looks like and who’s responsible for delivering it,” he says.

“Our job is trying to deliver a much better outcome for those members over time, and I find that a very motivating factor.”

While it’s the community of Spirit Super’s membership that he spends most of his time looking out for, Barry is also looking out for his local community by way of a personal investment.

In 2019 Barry saved the Central Coast’s primary news publication from collapse, taking over as owner and publisher of Coast Community News. The online news platform also comprises three print publications that service the Central Coast – Coast Community News, the (Wyong) Chronicle and the Pelican Post.

“Like a lot of regional papers, it was at risk of folding a couple of years ago and so I bailed it out and give it a fresh life,” he says.

“It’s a really important community service and I’ve committed to keeping all the papers free so that everyone can get a copy.”

While this investment is not one that is returning as much as

Our job is trying to deliver a much better outcome for those members over time, and I find that a very motivating factor.

Ross Barry

what Barry is used to, he has always valued local news publications and recognises how difficult it would be to access real community news without such publications.

“In regional areas, everyone reads the newspaper, and they still love print,” he says.

“I have no involvement in the day-to-day but it’s wonderful to watch because it’s a really important asset for the community.”

Despite not having an operational role in the publications, Barry has written several stories for the titles and recently launched another, NovoNews in Newcastle specifically targeting young readers.

“I have an aspiration that we can get young people to read the newspaper again,” Barry says.

When it comes to his investment philosophy, Barry takes a page from Paulo Coelho’s famous novel, The Alchemist, with the parable of the oil and the spoon.

“It is about being able to look out and see the big picture and appreciate all the wonders of the world but at the same time maintaining a very high level of attention to the very fine details and operational aspects of what you’re doing,” he explains.

“Investing to me, is really about not taking my eye off the ball on the day-to-day operations and the finer details but keeping a weather eye to the big picture in the future and how the world is changing.” fs