Financial Standard vol19 n12

www.financialstandard.com.au

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Aware Super, SSGA

Financial advice

MAX Awards

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Andrew Russell Class

Custody

Phil Anderson AFA

News:

Opinion:

Advice reforms to avail wealthy clients Karren Vergara

he barrage of financial advice industry reT forms is working in favour of the rich and driving an even bigger inequality gap that is making it difficult for everyday Australians to access advice.

The exodus of financial advisers is forging an even bigger divide. The total number of authorised financial advisers has declined to 19,922 as at June 3, according to ASIC’s Financial Adviser Register, marking about a 30% slump since 2018.

All these factors will come to a head at the end of 2021, as the total number of advisers is tipped to fall to 15,000, according to Colin Williams, a consultant to advice practices and director of Wealth Data.

Even the major banks’ withdrawal from advice will potentially cause bigger issues down the track, Williams says; “In 2017, the banks had 2500 financial advisers. There are now less than 500.”

The big banks’ vertically integrated networks were able to reach many mums and dads, whose first exposure to advice was via financial planners embedded in branches.

The banks were once the “nursery” for financial advisers, who have now either left the industry or set up their own practices, he says, adding that no other organisations have stepped in to take the mantle from the banks.

Many predicted that the superannuation funds will fill that hole.

“But they are losing advisers as well. In 2017, super funds had 1260 advisers, but there are now 890,” Williams says.

Modelling by the University of New South Wales using ATO FY2017-18 data reveals Australians’ wealth is distributed “extremely unequally”.

Average wealth stood at $1.026 million. The top 20% meanwhile have $3.26 million on average – 90 times more wealth than the bottom 20% with $36,000.

Some advisers are turning away clients with assets less than $300,000, choosing instead to service the high end of town, not only because they bring in more revenue, but they require less pen pushing.

Lime Actuarial founder Greg Einfeld knows many advisers whose threshold is between $500,000 to $1 million. Some will only talk to clients with either $2.5 million of assets or earn $250,000 in income.

This is because the rules for advising sophisticated investors are more relaxed and make it

easier for advisers to meet their compliance obligations, he says.

By way of example, advisers do not need to complete a Statement of Advice or meet their best interest obligations.

“They still need to do the right thing by the client, but the regulatory obligations [in terms of] dotting the Is and crossing the Ts falls away,” he says.

“When the regulators swing the pendulum too far, it is not that simple to undo the harm that is being done.”

Credit Suisse estimates that Australia’s median wealth per adult is $315,000 in 2020.

“There is still considerable wealth and income inequality in Australia despite us having one of the highest levels of median wealth in the world,” Lifespan Financial Planning chair and founder John Ardino says.

Ardino suggests several ways advice can be made more affordable. One recommendation is for the government to provide a tax incentive for for the cost of the initial advice.

“If we assume that the numerous superannuation, tax, investment and insurance options, not to mention aged care and estate planning rules, require advice, then the government should support those who may be challenged paying for the requisite financial counselling,” he says.

Another suggestion is reforming pro-bono advice. While some advisers already provide this, Ardino says it can be made widely available if the government relaxes some of the onerous requirements.

The industry had high hopes in making roboadvice a silver bullet for clients with less assets.

But the regulatory landscape is making it challenging for robo-advisers to flourish.

Einfeld, who co-founded the now-defunct robo-adviser Plenty, knows too well the difficulty in making holistic digital advice attainable after ASIC determined it did not meet sections of the Corporations Act despite receiving guidance on several occasions that it was compliant.

Australians, particularly Millennials, are now turning to ‘finfluencers’, an unregulated channel in which social media influencers dish out financial management and share trading tips on TikTok and Instagram.

Self-education is the way to go for those who cannot afford a qualified financial adviser, Willaims says; “But ultimately, you want someone to tell you that what you are doing is correct.” fs

28 June 2021 | Volume 19 Number 12 www.financialstandard.com.au 20 January 2020 | Volume 18 Number 01

Featurette:

Feature:

Events:

Profile:

Your Future, Your Super passes Elizabeth McArthur

Greg Einfeld

founder Lime Actuarial

The Your Future, Your Super reforms were passed in the Senate on June 17.

One Nation and Jackie Lambie voted with the government in favour of the bill, while Labor and the Greens objected to it.

However, an amendment was passed which will delay benchmarking and stapling until November.

Independent Senator Rex Patrick failed to find support for his proposed amendment, which would have extended performance tests to more choice products in the retail super sector.

Labor Senator Deborah O’Neill passionately opposed the reforms.

“How could it be that someone who calls themselves a Liberal could vote for this bill, could bring into this chamber a bill, which contains in it a provision to enable the Australian Treasurer to take control of Australian people’s savings and to give that Treasurer the power to direct the way their savings are invested?” she said.

The reforms will see members stapled to the first Continued on page 4

AFA calls out Labor attack Karren Vergara

The Association of Financial Advisers has slammed the Labor Party’s attack on financial advisers, which paints the profession as dodgy and continuing to rip-off consumers.

AFA acting chief executive Phil Anderson is calling for an end to the “persecution” of financial advisers, after hearing shadow cabinet secretary Jenny McAllister’s comments on June 17 in debating the Treasury Laws Amendment (SelfManaged Superannuation Funds) Bill 2020 that is proposing the maximum number of SMSF members is increased from four to six.

McAllister said that Labor does not support the bill, arguing that having six members will not make a meaningful contribution to delivering better member outcomes in an environment where barriers to accessing un-conflicted financial advice persist.

“That’s at the heart of our concerns about this bill, because the risk is that the people who Continued on page 4

News

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

LGIAsuper to rebrand

Editorial

Elizabeth McArthur

s LGIAsuper completes its merger with Energy Super and starts the process of A integrating Suncorp’s super business into the

Jamie Williamson

Editor

When deciding on what to write for these editorials, the thing I most often find myself asking is ‘what got the newsroom talking this fortnight?’

Sometimes it isn’t the most productive process as oftentimes the things we’ve talked most about have absolutely nothing to do with the industry or our work, like what TV show we’re watching at the moment or how Mercury being in retrograde has personally victimised us all for the 87th time this year.

However, this fortnight the process bore fruit, as I realised the thing that got us talking the most was the reports from The Age about the magistrate who was awarded the superannuation death benefit of his much younger fiancée.

In case you’re not familiar, the magistrate – who is now in his 70s – was in a relationship with a 23-year-old law clerk for about seven months.

Of those, about four were spent living together.

The couple became engaged about six weeks or so before she was sadly killed in a road accident.

Its voyeuristic qualities aside, most of our discussion of the matter focused on how strange the decision by the super fund really is.

According to The Age, the magistrate was able to successfully claim her $180,000 death benefit – despite it having been bequeathed to her mother – as he was her de facto and therefore a dependant.

This, despite the Family Law Act 1975 stating that a couple must have been together for at least two years to be considered de facto. Perhaps I should have, but I didn’t realise that this wouldn’t matter when it comes to super funds paying a death benefit.

While her lawyer has argued she was receiving regular payments from her daughter, it’s been determined that her mother was not a dependant and therefore not entitled to the benefit.

But does that really mean that someone she was briefly engaged to, and clearly earned a significant amount more than his partner, should be entitled to the money? The same someone who, according to The Age, moved back in with his former partner of 18 years within months of the fiancée’s death?

I would think that in a sticky situation such as this, deferring to the letter of the law would be the safest option for a super fund; seven months does not a de facto relationship make. Case closed, right?

The fight isn’t over though. The payout has been delayed with the super fund in question’s decision has been referred to the Australian Financial Complaints Authority.

While we may never know all the juicy details of the claims and the case’s outcome, it certainly serves as a reminder to us all to ensure our beneficiaries are updated and locked in. And if the story motivated even just one person to do this, then at least there’s been a good outcome for someone. fs

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The quote

We want something that reflects the Queensland focus that we have, the community feel, the corporate feel.

fund, chief executive Kate Farrar tells Financial Standard there are some big changes ahead.

From 1 July 2021, the successor fund transfer of $9 billion Energy Super into $13 billion LGIAsuper will be complete but the fund’s three-way merger with the $6.4 billion Suncorp Portfolio Services will be just getting started.

Farrar said as the fund transforms, it will also rebrand and have a new name.

“We’re starting a process to test brand names and brand values across the three funds now,” Farrar said.

“We want something that reflects the Queensland focus that we have, the community feel, the corporate feel.”

Recently, First State Super rebranded to Aware Super after merging with VicSuper, and MTAA Super and Tasplan merged to become the newly named Spirit Super. Just last month, Local Government Super also rebranded to become Active Super. Farrar did not reveal any of the names LGIAsuper is tossing around, but said she’s leaving it to the marketing experts.

Farrar will lead the merged fund, staying on as chief executive and LGIAsuper’s chief investment officer Troy Rieck is also staying on, as is chief risk officer Shawn Chan and chief financial officer Garnett Hollier.

Where roles were doubled-up among the funds, senior leaders were offered to take redundancies on 30 June 2022, which is when LGIAsuper has committed to maintaining full employment. So far, Farrar said there have been no contested processes.

Moving into LGIAsuper’s leadership team soon will be a chief operating officer for Suncorp Portfolio Services (yet to be announced) whose role will be to integrate the Suncorp operations into the merged LGIA fund.

“We have been working very closely with the wealth leadership team to ensure we have appropriate representation from Suncorp in the executive leadership team and in senior leadership,” Farrar said.

“It’s very important that we retain the identity of Suncorp Portfolio Services and their corporate knowledge.”

In April, LGIAsuper acquired Suncorp Portfolio Services for $45 million (fixed amount of $26.6 million plus regulatory capital). fs

Court orders new group definition in CBA advice class action Kanika Sood

Clients who claimed Commonwealth Bank financial advisers put them in expensive CMLA life insurance policies instead of cheaper alternatives have been asked to work to a new group definition.

The group proceedings were filed by Diana Tyrrell and Edward Thomas.

They claim that financial advisers working for Commonwealth Financial Planning and Financial Wisdom recommended their clients take out life insurance policies through former CBA subsidiary Commonwealth Mutual Life Assurance (now owned by AIA), when cheaper premiums for similar policies were available.

The group wants to be paid the losses they incurred as a result of the higher CMLA premiums, dating back to August 2014.

The two advice businesses, which are the named respondents in the case, are arguing the trustees should be the applicants as they paid the premiums out of superannuation trusts. They also claim the beneficiaries suffered no actionable loss.

On June 18, orders made by Justice Beach ordered the applicants to add a third applicant to the case, flesh out the applicants’ fiduciary claims, and change the group definition.

The judge wants the third applicant to be someone who paid the extra premiums personally rather than via their superannuation.

“Second, I will not require the named applicants to join the trustees of their superannuation funds. But instead, I will require them to undertake that if they receive any money award referable to the excess premiums paid by their trustees that they will disgorge any such amount to their trustees to restore the fund(s). Of course, I could achieve this by a more direct order after trial in any event,” the orders said.

The judge also changed the definition of the group for the proceedings, to include advice via a superannuation fund and to better qualify inclusion of advice clients who suffered a loss.

The applicants wanted everyone who was advised by CFP or FWL on CommInsure products since 21 August 2014, regardless of whether or not they paid excess premiums or the way they received the advice (within super or outside of it).

The respondents wanted the “excess premium” requirement to be included in the group definition.

The judge went one step further, adding the excess premiums should have caused a loss for the applicant and adding that clients may have received the advice via their superannuation fund or outside it.

The applicants were given seven days from June 18 to serve proposed orders and submissions, including on costs.

The action was first filed in August 2020, with Shine Lawyers class actions practice leader Craig Allsopp saying group members were entitled to compensation because they incurred financial losses as a result of conflicted or incorrect advice from financial planners affiliated with or directly employed by CommInsure’s parent company.

“We allege the Commonwealth Bank’s licensed financial planners failed to inform their clients they could obtain substantially similar or better insurance policies with lower premiums from alternative insurers,” Allsopp said.

It’s just one of several class actions CBA faces at the moment, with the banking group also embroiled in an action involving commissions paid to financial advisers between 2014 and 2020. fs

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News

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

01: Shawn Johnson

Your Future, Your Super passes

incoming chief executive AMP Capital

Continued from page 1 fund they are in, rather than automatically opening up new accounts with different super funds when they get new jobs.

It will also see poorly performing funds unable to accept any new members.

Cbus was one of the super funds to voice its concerns about the reforms, saying its memberbase in dangerous professions could have the wrong insurance if they are stapled to another fund.

Treasury proposed a review of exclusions in superannuation group insurance, but Cbus said this doesn’t go far enough.

“A Treasury review of unspecified outcome or timing will do nothing to mitigate the immediate impacts for workers in hazardous sectors. Within months workers in hazardous occupations are at risk of being stapled to a fund containing exclusions or unfavourable terms and conditions because their existing insurance cover has not been tailored to their new job,” Cbus chief executive Justin Arter said.

“Despite paying insurance premiums, stapled members in heavy blue-collar occupations or people working at heights may not be covered.

Members and their families will likely only discover these exclusions when tragedy has struck – and they try and fail to make a claim against cover they believed they had.” fs

AMP Capital announces new chief executive Elizabeth McArthur

A The quote

Our focus will be to harness these strengths as we set up as a new, independent organisation following separation from AMP.

AFA calls out Labor attack Continued from page 1 will benefit most from these arrangements are financial advisers giving shonky advice – the kind of advice we’ve seen again and again and again, the kind of advice exposed in the Hayne Royal Commission,” she went on to say.

“There are inadequate protections for consumers, and this bill further exposes people to these risks. It’s on that basis that I have moved this amendment, which simply does this: it seeks to have a review of the operation of this bill.”

Anderson said her comments are “unfair and unreasonable and is doing too much damage to the financial advice profession. Enough is enough. It must stop.”

“The vast majority of financial advisers always work in the best interests of their clients. The entire profession should not be judged based on what a very small minority have done in the past.

Other professions are not judged because of what their worst do,” he said.

Since the Hayne Royal Commission, the number of financial advisers in Australia has fallen by more than 30% to 19,992. Not only is financial advice less accessible, advisers must also contend with a slew of reforms and regulations.

“Additional measures to supposedly increase consumer protections will only increase the cost of financial advice and deliver little or no benefit to the many Australians who value their financial adviser relationship,” he said.

“For too long they have been forced to feel uncomfortable talking publicly about what they do. This is not right. No professional should be made to feel this way, and particularly not by elected members of their own Parliament.” fs

MP Capital has announced a new chief executive, replacing Boe Pahari who stepped down in August last year.

Shawn Johnson 01 has landed the top job. He was previously senior managing director and chair of the investment committee of State Street Global Advisors for almost a decade.

That role would have seen him have oversight of approximately US$2.1 trillion in client assets.

More recently, Johnson led his own alternative investments business.

David Atkin, AMP Capital deputy chief executive and former chief executive of Cbus, had been acting in the chief executive job since Pahari’s departure.

As AMP Capital chief executive, Johnson will lead its strategy and the proposed demerger of the private markets businesses which is expected to complete in the first half of next year.

Johnson will begin his role on 28 June 2021.

He will be based initially in Sydney, Australia but will work on a global basis across the key international offices of the private markets business.

“As AMP Capital separates from AMP and establishes a new culture and brand, Shawn has clearly demonstrated his capability to lead and in-

spire teams of highly capable investment professionals,” AMP chair Debra Hazelton commented.

At the same time AMP announced Johnson’s appointment, it also confirmed the institution will be without a chief executive for a short period. Outgoing chief executive Francesco De Ferrari will depart on 30 June 2021 but Alexis George will not take up the position until 2 August 2021.

“We would like to thank both Francesco De Ferrari and David Atkin for their leadership of AMP Capital and are delighted that David has agreed to extend his period as deputy chief executive to ensure a smooth handover to Shawn throughout July,” Hazelton said.

Commenting on his appointment, Johnson said: “AMP Capital is a globally-respected investment manager, and I’m excited by the significant potential for international growth but also in Australia. I’m confident of its underlying strength and the depth of its investment, distribution, and operational talent. Our focus will be to harness these strengths as we set up as a new, independent organisation following separation from AMP.” AMP chief financial officer James Georgeson will serve as acting chief executive for the period. fs

ASIC takes on major bank over “systemic” fee-for-no service misconduct Karren Vergara

The corporate regulator is fighting tooth and nail to make National Australia Bank pay a hefty penalty for charging customers fees in return for no service.

In the Federal Court, ASIC representative Christopher Archibald QC recalled the bank’s “prolonged underinvestment” in its systems, compliance and controls as first exposed by the financial services Royal Commission, which enabled customers to be charged millions of dollars in fees unbeknownst to them.

ASIC alleges that the contraventions were not the result of negligence or carelessness.

NAB’s conduct was “systemic, avoidable not merely mistaken and it persisted after May 2018”, when the bank and its senior management were made aware of the serious risks of non-compliance and committing the contraventions. NAB went on to continue charging customers after May 2018.

Archibald criticised NAB’s two remediation programs.

“Money is not necessarily enough to make good or whole the harm to the customers,” he said.

He argued that NAB’s remediation programs are limited and not comprehensive and do not cover all of the clients affected.

In 2018, the Hayne Royal Commission heard NAB and its two trustees, NULIS Nominees and MLC Nominees, breached

the Corporations Act and Superannuation Industry Act with respect to plan service fees (PSF) and adviser service fees charged that rendered no services in return.

Both failed to have controls and risk management systems in place to turn off ongoing fees for members who may have left the funds and were no longer receiving services.

The fallout saw the exit of NAB chief customer officer of consumer banking and wealth Andrew Hagger and general manager of advice partnerships Ross Barnwell.

In response to Archibald’s testimony, NAB’s legal defence said the bank accepts that it must pay a “substantial pecuniary penalty”.

“The bank recognises that each of the penalty provisions that it has contravened are important elements of the consumer protection framework established by parliament in relation to ongoing fee arrangements. And we recognise that our clients were entitled to expect that they would be given on every occasion timely and accurate fee disclosure statement in accordance with our obligations at law,” the bank’s lawyers said.

“We and the bank deeply regret that the contraventions that have occurred and we accept that the conduct has fallen short of what the broader commuting expects of it.”

The hearing continues. fs

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News

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

Cashwerkz takes stake in boutique

01: Damien Graham

chief investment officer Aware Super

Kanika Sood

ASX-listed Cashwerkz will pay about $8 million subject to performance hurdles to buy a 25% stake in a boutique, as it also looks to rename the entire group.

Tactical Global Management has been running since 1997 and provides tailored overlay solutions for single and multi-asset class investments.

It has $29 billion in funds under management, 33 client portfolios and positive earnings (with current NPAT below $2 billion).

One of Tactical’s clients is fixed income boutique Fortlake Asset Management started by ex-UBS manager Chris Bayliss in which Cashwerkz is an equity investor.

Cashwerkz is looking to pay TGM $3 million in cash, plus 16.5 million CWZ performance rights subject to hurdles.

The first of these hurdles is a successful capital raise, when TGM becomes eligible for up to 1.5 million rights.

The next two are pegged to TGM hitting $2 million and $4 million in NPAT, which will make it eligible for five million rights each.

Lastly, TGM will get another five million rights, when its FUM crosses $50 billion and CWZ’s share price hits $0.50 per share.

Cashwerkz is funding the purchase via a $14 million equity raise.

It will spend the remaining on strengthening its trustee business’s NTA reserves, hiring about three distribution staff and for its balance sheet.

Lastly, Cashwerkz will also seek shareholder approval at its annual general meeting to rebrand to Income Asset Management Group. fs

Employers should pay SG rise: ASFA Annabelle Dickson

The Association of Superannuation Funds of Australia (ASFA) showed businesses can afford to pay the increase of the Superannuation Guarantee without cutting the wages of employees.

As of July 1, the SG rate will rise from 9.5% to 10% and ASFA argued the Australian economic recovery is fuelling business profits that its staff have been missing out on.

“The average Australian worker has not shared in ballooning business profits over the last twenty years,” ASFA chief executive Martin Fahy said.

“The long-overdue increase in the Super Guarantee will go some way to address the structural imbalances that continue to occur between fat profits and flat wages.”

The Fair Work Commission recently increased the minimum wage across all awards which was due to the economic recovery from COVID-19 and high business profits.

“The Fair Work Commission considered the July increase in the SG and concluded that Australian employers can afford to pay workers the SG rise in full and increase their take-home pay,” Fahy said.

The government previously hinted that increase to the SG would be delayed as Australians require more capital throughout their working life. fs

Aware Super awards $30bn passive mandate Elizabeth McArthur

A

The quote

Their proposal offered compelling value for money for our members and the ability to leverage scale.

ware Super has appointed an index solutions provider to take care of its passive equity and fixed income mandates.

State Street Global Advisers will now manage about $30 billion in passive strategies for the $145 billion fund.

The appointment follows a comprehensive tender process and extends Aware Super’s longstanding relationship with SSGA’s parent company, State Street Corporation. State Street Australia is Aware Super’s custodian.

“State Street Global Advisors will help us deliver value for our members and leverage the benefits of scale as we build on our position as one of Australia’s largest and top-performing super funds,” Aware Super chief investment officer Damien Graham01 said.

“SSGA is a world-class investment company with strong environmental, social and governance (ESG) credentials that are very aligned to our own. Their proposal offered compelling

value for money for our members and the ability to leverage scale to support our aim to provide our members with strong, sustainable, longterm returns today and for decades to come.”

“We pride ourselves on doing well for our members in terms of performance while doing good in the communities where they live, work and retire. This relationship with SSGA will help us to deliver on that commitment.”

SSGA head of Asia Pacific James MacNevin added: “SSGA is proud to be expanding our relationship with Aware Super in providing a broad array of index solutions to their members.”

“We also have a long history of developing innovative ESG solutions, and our team are looking forward to partnering with Aware Super to help accomplish their ESG goals today and in the future.”

Previously, Vanguard managed indexed investments in equities and fixed interest for Aware. Ahead of launching its own super product, Vanguard has ceased managing passive strategies on behalf of other institutions. fs

Regulator releases ongoing fee obligations guidance Karren Vergarar

The corporate regulator is providing more guidance to financial advisers to help them prepare for their upcoming ongoing fee obligations, due to take effect in less than two weeks.

ASIC’s Information Sheet (INFO 256) outlines the burning questions advisers are asking about their annual fee renewal obligations and obtaining written consents about fee deductions.

From July 1, these two obligations will take effect. These are new obligations that must be carried out on top of providing clients a fee disclosure statement (FDS), which has been in place since 1 July 2012.

The information sheet covers three areas: ongoing fee arrangements (OFA), FDSs and ongoing fee consents.

If a client does not renew an OFA during the renewal period, the OFA will terminate 30 days after the end of the renewal period.

As an example, if the anniversary day is 1 July 2023, the client will need to respond in writing by 28 October 2023 to renew the arrangement.

If they do not respond by this date, the ongoing fee arrangement will terminate on 27 November

2023 – that is, 30 days after the end of the renewal period on 28 October 2023.

Advisers must keep records of an FDS for at least five years. Written consents, which include emails, SMS and letters, must also be kept for this period.

ASIC said that in developing INFO 256, it has taken into account the financial advice industry’s response to recent its consultations, including Consultation Paper 332 Promoting access to affordable advice for consumers (CP 332).

“Industry has asked for shorter, simpler, and more user-friendly regulatory guidance from ASIC. As a result, INFO 256 will replace Regulatory Guide 245 Fee disclosure statements, which will be withdrawn,” ASIC said.

Senator Jane Hume recently announced that advisers will have 60 days to provide clients an estimate of fees they will pay prior to issuing an annual advice agreement.

The estimate will be reported alongside the actual fees charged for the remainder of the previous 12 months.

The relief is applicable only for the transition period of 1 July 2021 to 30 June 2022. fs

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Opinion

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

7

01: Andrew Russell

chief executive Class

The greatest (tech) fear is fear itself

There is no better time for leaders to assess business operations and make better use of technology and automation to create and drive efficiency improvements. he ‘new way of working, post-COVID19’ theme is now a very common business topic T for leaders and boardrooms. Most businesses have already executed plans to transition their pre-COVID 19 business model into one that enables effective customer service delivery within the bounds of the defined “hybrid working model”. The challenge for business owners is to think deeply on how they can actually transform their business to deliver an ongoing and sustainable environment for their current – and future – staff and clients.

As we take learnings from 2021 and contemplate how to operate with efficiency in 2022 and beyond, thoughtful leaders are considering these two key factors: 1. Breaking through the fear and inertia of change, and 2. Combating the war for acquisition and retention of talent to help achieve the business’ goals.

Breaking through The past year has had the profound effect of encouraging businesses to adopt technology and trust their remote workforce to deliver the same level of required performance and customer service.

An outcome of the the COVID 19 impacts of business has been to advance the adoption of cloud-based technology and processes,in tandem with acceptance and confidence in remote or hybrid working, the adoption rate has been fast-tracked businesses by 10 years.

There is a fundamental shift in the operating rhythm for businesses.

The expected attendance of employees at the office has reduced to a standard of two days per week on average. The optimum size of office space to drive culture and collaboration has reduced.

The expectations of staff travel and compulsory attendance for company events has reduced or migrated to hybrid collaboration and culture build activities. Sick leave and annual leave applications have materially reduced creating both accounting provision as well as employee fatigue.

Businesses are now required to quickly respond to the ever-changing conditions of living with COVID 19, which further perpetuates the pressing requirement for operating confidence using cloud-based technology.

This is all broadly accepted, as is commonly now referred to as “the new way of working” for FY22 and beyond.

Building a business of the future The adoption of technology driven by COVID

can be transformational for a firm’s long term advancement. However, considering a significant technology change within a business – and the change process – can create fear and that can defer the necessary decision to implement.

The first thing is recognising and acknowledging that there may be an innate fear of making a decision – and that reluctance can derail the process of technology analysis at the outset. Does the investment in year one deliver? What if the investment doesn’t provide the expected outcome? What if it doesn’t integrate with other systems? Will we lose business while going through the change process? Do we have the time and resources to allocate to manage the change process?

The fear of change must be assessed against the benefits of building an operating model enabled by technology, that is designed to reduce operating costs, improve efficiency and allow a business to focus on delivering a superior customer-focused offering.

It is important to understand that these concerns are valid – but anxiety tends to overestimate the likelihood of a negative event, and the severity of its impact. A piece of technology might need some time to become integrated, but the likelihood of it failing your business is low if its suitability is reviewed comprehensively in advance, and when referenced by your competitors who may have already adopted it.

Leading software suppliers will work with you in the following ways to help break through the adoption barrier. Their teams will: 1. Provide bespoke customer management and engagement, as every business is different 2. Demonstrate efficiency gains compared to your current operations 3. Analyse any gaps and assess that to the product feature roadmaps coming following implementation.

Integrating with other professionals Wealth and accounting professionals in particular are seeking ways to use technology to streamline their processes which can change their business, reduce operating costs, improve margins and rebalance focus to their clients.

At Class, we are focused on automation of the complex rules-based administration at scale. We focus on simplifying, automating and connecting.

When Class launched Class Trust, it was designed to help finance professionals move away from Excel – still the most popular tool for trust accounting – and harness the power of

The quote

The smart deploying of technology... can help progressive firms stand apart from the rest of the industry.

automation to solve some of the complex issues around trust management. Our data shows that accounting firms using Trust can process their workloads in half the time. For businesses with a significant trust accounting arm, or for other professionals that work with clients that have complicated trust accounting needs, this is a significant change for them. It enables faster work, fewer compliance risks, and the knowledge that data that is pulled through feeds is accurate.

As platform developers continue to focus on designing solutions that bring efficiencies to a business, the financial services industry will have more and more tools available to them. Being able to analyse and deploy solutions that create efficiencies, and an integrated environment, will be an ongoing opportunity. The businesses that grasp this – and build in ongoing technology review – will be the ones that succeed on multiple levels.

The smart deploying of technology does more than just enable faster, more efficient businesses – it can help progressive firms stand apart from the rest of the industry.

The war for talent An important consideration for business leaders is about how a business can create an environment that meets the expectations of a next generation – the talented people who are providing critical service functions in your operations, as well as those that will be leading organisations in 10 years. In an ever-changing environment, attracting and retaining the best talent will be vitally important for the longevity of any business. In the short term with international travel shut down, competing for business and competing for talent will happen in tandem.

Onboarding technology that integrates across a practice and its other systems not only allows for efficiencies for the practice but delivers an environment that is seamless, well designed and effective. For younger talent entering a business, cloud-based applications are standard. These new professionals expect strong technology architecture and pleasing user interface. For businesses looking across a longer time horizon and focused on bringing in the future leaders, providing the tools to make the candidate feel like the business embraces suitable technology will be important.

Businesses with the courage to meet these challenges will be the ones that will win over the longer term. Talented, productive and motivated employees driving better outcomes for both you, and your client. fs

8

News

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

01: Andrew Fairley

outgoing chair Equipsuper & Catholic Super

Catholic Super, Equipsuper merger to see Fairley exit, new chair named Jamie Williamson

W

ith Catholic Super and Equipsuper set to officially merge on June 30, chair Andrew Fairley01 will hand over the reins – but he has “no interest in going home to mow the lawns”.

After more than 12 years at the helm of Equip, two of which included its joint venture with Catholic Super, Fairley will depart at the close of the financial year. In doing so, he makes way for deputy chair Danny Casey – Catholic Super’s chair prior to the JV – to take over.

Reflecting on his decision to step down, Fairley told Financial Standard he has always agreed with APRA’s view that 12 years is the maximum amount of time one should remain on a super fund’s board.

It’s also good timing as the successor fund transfer that Catholic Super and Equip have been working towards since 2019 is set to complete at the end of the month, perfectly bookending the Equip chapter of Fairley’s career.

“I had always envisaged I’d be leaving around this time. I possibly could have left a year or two ago because I felt the fund was in good shape, but the opportunity to bring Catholic Super in and, at the same time, have an opportunity to bring a skilled chair on to follow me was pretty compelling,” he said.

The joint venture model which created Togethr Trustees was made possible by the fund’s extended public offer (EPO) licence, which enabled Catholic and Equip members to reap the benefits of scale long before they would have with a traditional SFT; almost 50% of the estimated benefits have already been delivered.

“We think this model [the joint venture] will be very attractive for other super funds who want to preserve their branding instead of [the brand] being hoovered up by a large fund,” Fairley said when announcing the JV. At the time, Fairley also predicted the funds would reach between $40-$50 billion by 2025.

And now he says he wouldn’t have done it any other way, saying: “SFTs are very expensive and, by doing it this way, we’ve been able to pay quite a lot of the expenses using the savings that we’ve achieved through the joint venture.”

Uniquely, even after the formal merger, the fund plans to retain the separate brands with which those members identify will remain.

“That’s a well-trodden path in commerce; you can run a business that sells multiple different products under different brands

and we’re working through how we do that,” Fairley said.

“The Catholic Super brand means a great deal to the members of that fund. It’s been a distinguished fund over many years, and it has a strong following, so I think it would be folly for us not to want to retain that.”

In his time, Fairley has overseen his fair share of mergers that have contributed to the growth of both Equip and the joint venture, including those with Rio Tinto Superannuation Fund, the Pitcher Retirement Plan, the Dow Australia Superannuation Fund and, most recently, Toyota Super and BOC Super.

Fairley was first appointed chair of Equip in 2009 when the fund had less than $4 billion in funds under management. Under his stewardship, the fund has now grown to about $30 billion, including Catholic’s FUM. Despite the regulator saying $30 billion is the threshold for a super fund’s survival, Fairley believes Equip and Catholic Super still have a way to go, adding that while the fund has its hands full for the next six to 12 months, there are plans for more mergers thereafter.

“I find myself very attracted to the views of Helen Rowell and her encouragement of industry rationalisation, but $30 billion is not enough… You can’t achieve the real benefits of scale and be able to compete until you’re over $50 billion,” he said.

“There are a lot of underperforming funds, no question… I think with the Your Super, Your Future legislation passing, there’s going to be a much greater focus on this. The letter you have to write to members after two years of underperformance is pretty condemnatory of your stewardship of the fund.

“If I got that letter, I’d be moving my money the next day. In fact, I probably wouldn’t leave it until the next day – I’d be moving it that day.”

While he’s confident Equip and Catholic will have no trouble in meeting the obligations of Your Future, Your Super, something that will help is the skills matrix it uses to appoint select its board directors.

Seven years ago, Fairley led the Equip board in determining what skills existing directors had and what skills were required to ensure the sustainability of the fund. The board was then refreshed in line with those findings.

“I think it was one of the most important things that we have done in the development of the sophistication of our trustee. Clearly, it is essential to have investment skills, legal, accounting and governance capabilities. Of

The quote

There is a minimum efficient frontier and that is at least $50 billion, and if you’re not $50 billion then you’re not in the game and you better start having conversations.

course, knowledge of the industries you represent is vital too,” he said.

“But an increasingly important skill to have on your board is an understanding of technology and how you can disrupt the existing communication models to access members across old and new media, as well as general sales and marketing skill.”

Flagging that he plans to maintain an active role in the super sector, Fairley is looking forward to navigating an industry “driven by scale”, with the largest industry funds already commanding more than 40% of new member accounts.

“There is a challenge for smaller funds, including Equip and Catholic, where there are rollouts. Those rollouts are making a number of funds – mercifully, not ours – cash-flow negative. That is a major concern for them and an imperative to have conversations with larger funds to merge,” Fairley said.

“The larger industry funds outperform smaller ones by 70 basis points… It is a consolidating environment at every level… There is a minimum efficient frontier and that is at least $50 billion, and if you’re not $50 billion then you’re not in the game and you better start having conversations.”

He will also maintain his existing directorships, including that of super industry representative on the board of the Australian Financial Complaints Authority.

Outside of super, Fairley plans to spend more time on the Yarra Valley cherry farm he bought seven years ago. The grandson of one of the founders of SPC, Fairley’s orchard produces about 100 tonnes of fruit per year and is now a boutique premium producer.

“I’m not short of things to do and I have no interest in going home to mow the lawns,” he said.

But for any super fund chiefs or chairs finding themselves reaching for the phone, think again.

“I would not take on a chair of a fund that was going to be in competition with the fund that I’ve been at for more than 12 years,” Fairley said.

“But I’m certainly open to discussions with anyone who thinks they can use my experience and expertise to their benefit and isn’t going to be anything other than complementary to the work I’ve done in building Equip and Catholic up to where it is now.

“I’m not about to do anything that would prevent that fund from going on to become the logically scaled fund that it should be.” fs

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10

Featurette | Financial advice

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

The cost of regulation The ballooning ASIC levy, borne by advisers, begs the question: How do you put a price tag on regulation? Karren Vergara writes. he corporate regulator justified the stagT gering 160% jump in the adviser levy, from the time it was introduced in 2017-18, as a consequence of advisers abandoning the industry.

The levy for the 2019-20 financial year, which is charged retrospectively based on ASIC’s enforcement activity, amounts to $1500 per licensee plus $2426 per adviser (see Table 1).

Ross Smith, the director of advice firm Shenton, operates two AFSLs, one of which is based in Hong Kong and the other in Brisbane.

ASIC is billing Smith for two sets of levies for each AFSL: $24,534 and $14,288.

Smith, who is fighting the government tirelessly to have the levy removed, says one unintended consequence of the legislation will force advisers to increase their fees and pass this on to clients, which was not the intent of the legislation.

“We are not the guilty party,” he says, pointing out that it feels as though the good advisers are paying for the sins of bad advisers of the past.

Smith has made several complaints to ASIC about the levy, but only receives a “standard generic, bureaucratic reply”. He has also submitted complaints to the Commonwealth Ombudsman, but also receives the same reply.

Smith has even applied for a waiver based on economic grounds.

“I’ve had to stop contributing to superannuation and I cannot afford to retire,” he says.

“I owe $273,000 on my home loan in Australia and at the end of March, working capital for one practices had increased from $11,000 to $18,000 which was still not enough to pay ASIC.” Other advisers, like PCH Financial principal and business owner Paul Herring, do not understand why advisers have to pay a levy in the first place, which is making it more challenging for advisers to stay in business.

“It adds to the challenges of being in business. I am the only adviser in my business and I have to pay that levy, which is a solid slug,” Herring says.

ASIC deputy chair and commissioner Karen Chester 01 acknowledged the significant uptick

We are not the guilty party.

Ross Smith

at a Parliamentary Joint Committee on Corporation and Financial Services in March.

While Chester lent a sympathetic ear to advisers needing to fork out an unprecedented amount of money, she ultimately blamed the increases to the “denominator effect” of advisers exiting the industry.

“Indeed, when we look at the numbers, it has gone from $276 million, which is the total amount recovered, to $320 million. It is important to look at the drivers of that increase. The lion’s share of the increase were the costs related to the Royal Commission, and a large part of that is enforcement,” she says.

There were 19,992 ASIC-registered financial advisers as at June 3, which according to Rainmaker analysis is a five-year low not seen since the pre-financial services Royal Commission days.

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

Financial advice | Featurette

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

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 Global Financial Planning Institute cofounder Ashley Murphy02 says the regulation of financial advisers in Australia has gone too far.

“While the regulations are consumer friendly and have raised the standards in the industry, the fact that financial advice is becoming out of reach for many is unfortunately the sad side effect of over-regulation,” he says.

In the US, there are tiers of advisers overseen by different jurisdictions and regulators.

They are regulated based on the size of their book of business and which particular financial products they offer, Murphy says, who has practised as an adviser for many years in the state of California.

“If the advised amount is less than US$100 million, the adviser is regulated by their state of residence. If the amount is over US $100 million, the adviser is regulated by the Securities and Exchange Commission (SEC).”

Financial products are also defined differently.

“In the US, a financial product can be thought of as a product that is financial in nature where capital is invested, and the possibility of a capital loss exists,” he adds.

Interestingly, the SEC does not regulate financial products per se, that is done by the Financial Industry Regulatory Authority (FINRA), a self-governing organisation that oversees brokerage firms and exchange markets.

There are also different types of financial

01: Karen Chester

02: Ashley Murphy

03: Paul Cullen

deputy chair ASIC

co-founder The Global Financial Planning Institute

advice group executive Centrepoint Alliance

advisers – fiduciary advisers which are mostly fee-only and advisers who accept commissions for the sale of financial products.

The latter ‘advisers’ are also known as product salespeople, Murphy says, and are not regulated as fiduciaries.

So, how much fees does Murphy pay to the US regulator that is equivalent to ASIC’s levy?

It is about US$300 per year.

US researchers found that porous boundaries dividing regulatory regimes are conducive to bad advisers to “wandering”.

Academics Colleen Honigsberg, Edwin Hu and Robert Jackson, Jr. analysed 1.2 million advisers across four major regulatory regimes and found wandering advisers with a prior record of misconduct have a “heightened” tendency to commit future wrongdoing.

Such advisers are more than 40% more likely to re-offend compared to other advisers with misconduct who do not change regulatory regimes.

“Most Americans experience financial advice as an undifferentiated product, making no distinction among the individuals who execute their stock trades, advise them on their 401(k) investments, and sell them life insurance linked to the performance of a stock-market index indeed - even though each of these three individuals is subject to a different legal regime,” the authors found.

The financial services Royal Commission unearthed the ineffectiveness of ASIC and APRA as regulators, failing to escalate matters to the courts and instead relying on enforceable undertakings by negotiating fines with perpetrators, which in some instances, took place over long lunches.

After the Royal Commission, both regulators received a funding boost worth hundreds of millions of dollars to carry out their func-

Table 1: ASIC industry funding for some sectors Subsector

11

Actual levies No. of entities FY 2019-20 (m)

Levy metric

Financial advice Retail advice on financial products $56.19 2991 Adjusted number of advisers on the

adviser register and number of days authorised Retail advice on non-financial products $1.26 625 Number of days authorised General advice only $2.09 1004 Flat levy Wholesale clients only $0.05 1624 Flat levy Insurance Product providers $18.13 91 Gross premium and net policy revenue Product distributors $3.88 3242 Flat levy Risk management product providers $0.28 64 Number of days authorised Listed corporations

$51.02

2112

Market capitlisation and number of days authorised

Superannuation trustees

$23.82

114

Adjusted total assets and number of days authorised

Custodians

$0.56

1126

Flat levy

IDPS operators Source: ASIC

$0.71

86

Revenue from IDPS activity

Why is ASIC charging financial advisers when it was a super trustee that broke the law?

Ben Marshan

tions effectively. The 2019-20 budget allocated to them $606.7 million over the next five years.

On top of this, ASIC’s industry funding levy charged to super trustees, custodians, market intermediaries, listed companies and a slew of others operating in the financial services and insurance subsectors amounted to $320.33 million for the same period.

Given the cash injection ASIC received right after the Royal Commission, it leaves many scratching their heads and asking why this was not enough to help it carry out its enforcement duties.

The Financial Planning Association of Australia is not opposed to an industry levy because it believes it helps drive better behaviour and increased professionalism.

The problem, FPA head of policy, strategy and innovation Ben Marshan says, is the legacy issues ASIC is taking so long to deal with.

“What’s disappointing is that over 50% of the costs relate to court action ASIC is taking 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.

“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.”

Another example is ASIC’s court action against BT. “Why is ASIC charging financial advisers when it was a super trustee that broke the law?” he asks.

Centrepoint Alliance advice group executive Paul Cullen 03 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 with an additional two months in a bid to help them manage their cashflow.

Cullen predicts adviser numbers will continue to dwindle as some advisers he engages with 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.

Shenton’s Smith has to fork out $39,000 for running two AFSLs. His PI insurance premiums cost another $19,738 on top of other overheads.

He describes the levy as a “wholly non-productive loss in national wealth to Australia”.

“I am 68 years of age and I would love to put that money into my superannuation account.

But I can’t. I have to pay it to ASIC to pay for its bank-fix-up job,” he says. fs

12

News

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

Fidante readies new boutique

01: Christina Hobbs

chief executive Verve Super

Kanika Sood

Challenger’s multi-boutique business has signed a new emerging markets manager, Financial Standard understands.

Ox Capital Management will invest in emerging markets securities, with Fidante as a shareholder and distribution and infrastructure provider.

It will launch two funds: Ox Capital Emerging Markets Fund and Ox Capital Dynamic Emerging Markets Fund.

It is understood to be set up Doug Huey, who has about 24 years of experience covering Asia and technology stocks.

Huey was most recently a portfolio manager at PM Capital, which he joined in 2018 after working as an analyst at Platinum Asset Management.

Fidante’s current global equities partners include Aphinity Investment Management, Avenir Capital and recent addition Impax Management which has an ESG focus.

Fidante had $71.8 billion in asset under management at December end ($91.2 billion if CIP Asset Management is included), after the second half of the year delivered highest-ever inflows of $5.8 billion. fs

Verve Super launches gender diversity index Karren Vergara

V The quote

For decades research has shown that companies that promote gender equality and inclusion perform better.

AAT dismisses adviser appeal A former RI Advice Group financial adviser’s appeal to overturn his permanent banning order has been dismissed by the appeals tribunal.

Robert Hutchison was permanently banned from the industry in 2017 after an ASIC investigation found that he funneled clients’ advice fees into his personal bank account and then deducted platform and financial product fess to repay RI Advice.

The Administrative Appeals Tribunal (AAT) dismissed his application to review of ASIC’s decision to permanently ban him from providing financial services.

On June 9, Hutchison failed to appear at an AAT directions hearing dealing with the review application after remittal from the Federal Court.

The AAT dismissed the matter for non-appearance.

Between January 2011 and November 2012, ASIC found Hutchison misled or deceived his clients by failing to disclose that they were charged advice fees twice.

He also misled and deceived RI Advice by failing to disclose that he had deposited the advice fees into his own account.

On 18 September 2018, Hutchison asked the AAT to review ASIC’s banning order. The AAT found Hutchison did not engage in dishonest conduct or misleading or deceptive conduct based on its interpretations of the Corporations Act. ASIC then appealed the AAT’s decision to the Federal Court on 13 July 2020. The Federal Court upheld ASIC’s appeal and set aside the AAT’s decision.

The Federal Court found the AAT interpreted the Corporations Act too narrowly.

The matter was then remitted back to the AAT to be re-determined. These were the proceedings to which Hutchison did not appear and led to the dismissal for non-appearance. fs

erve Super has launched a gender diversity index and will subsequently change how it allocates members’ funds based on how Australian companies perform against the index.

The Verve Gender Equality Index selects public Australian companies that meet ethical screens based on gender diversity metrics, using data from the Workplace Gender Equality Agency (WGEA).

The screening process is based on five areas: gender pay parity; anti-sexual harassment and workplace safety policies and practices; formal commitments to drive change inclusivity and flexible workplace practices; promotion of women into leadership; and paid parental leave.

Chief executive and co-founder Christina Hobbs 01 said Verve’s new investment approach will likely see hundreds of millions of dollars shifted away from Australian companies performing poorly on gender equality over the coming years towards those with better practices.

“For decades research has shown that companies that promote gender equality and inclusion perform better, yet no Australian super fund has previously taken that information

seriously in terms of how they invest. That’s a major missed opportunity,” she said.

Verve launched in 2019 as a super fund that targets women. It appointed Future Super as its fund manager, while Diversa acts as trustee.

Hobbs said that Verve designs its own investment strategy and approach.

The help of Future Super and Diversa oversee investment decisions in line with their duties under the legislation, Hobbs said.

“We therefore worked closely with the team at Future Super to bring the index to life and to ensure it met appropriate legislative standards to be in the best financial interests of our members as part of our overall portfolio,” she said.

The process looks at a starting universe of 309 firms on the ASX, which are then screened to ensure that the industries the companies are involved in do not harm women and society or the environment broadly.

Each pillar is given a similar weighting in scoring; companies must perform well within the five pillars to score highly. From there, companies are ranked and the top five securities from each Industry Classification Benchmark (ICB) based on their gender equity score are included in the index. fs

Plenary hires team of seven from AMP Capital Elizabeth McArthur

Plenary Group has bolstered its funds management business, nabbing the whole team from AMP Capital’s Community Infrastructure Fund.

Plenary had already announced that Julie-Anne Mizzi, who had spent 17 years at AMP Capital and led its $1.24 billion Community Infrastructure Fund, will lead Plenary’s funds management business in Australia and New Zealand.

Now, more talent from AMP Capital is joining.

Jiren Zhou, who was previously principal – infrastructure equity at AMP Capital and also worked on the Community Infrastructure Fund, has joined Plenary as partner and head of origination.

The head of asset management for the AMP Capital Community Infrastructure Fund has also jumped ship. Simon Hunter will now be head of asset management for Plenary.

Rounding out the team, Kathlyn Crafford has been appointed director, asset management; Kareen Livingstone as director; Liam Brosnan as associate and Ser Hui Lee as finance manager.

All of them are AMP Capital talent. Crafford is currently senior associate – infrastructure for the Community Infrastructure Fund, Livingstone is part of the investment team, Brosnan is an analyst and Lee is a fund accountant.

Financial Standard understands most of the team is still serving out their notice period at AMP Capital. Crafford, Brosnan and Lee will start at Plenary in July.

Zhou though has already taken gardening leave, according to his LinkedIn. He will join Mizzi, Hunter and Livingstone in starting with Plenary in September.

AMP Capital has promoted from within the team to fill the roles.

“Following recent departures in our Community Infrastructure Fund, AMP Capital is pleased to announce changes from within the team,” a spokesperson for AMP Capital said.

“Trent Mikkonen has been promoted to principal, head of social asset management, Andrew Jones has been promoted to investment director. Chris Iemma, an existing associate director in the infrastructure team will move to focus on Community Infrastructure Fund, and another team member will take on an expanded role providing support to [portfolio manager] Charles Savage.”

AMP Capital has communicated to clients that more than 90 people work on the fund, assuring them that a smooth transition will be possible, especially with Savage remaining as portfolio manager.

“As we reminded clients of in recent weeks, the success of the fund has been due to the contribution of more than 90 people across our organisation that directly and indirectly support the fund,” the AMP Capital spokesperson said.

“The core management of the fund remains unchanged; portfolio manager Charles Savage, continues to manage the fund, supported by the co-heads of Australia and New Zealand, Michael Bessell and Michael Cummings.”

“We are excited to be welcoming such a talented, experienced group of funds management professionals to Plenary,” Plenary chief executive David Lamming said. fs

News

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

13

Executive appointments 01: Chris Inifer

Boutique hires from Allan Gray A Melbourne credit boutique hired Allan Gray’s head of retail strategy, as it looks to fill capacity and launch new strategies.

Alexander Funds Management appointed Chris Inifer01 as its head of distribution in a newly created role.

Inifer is tasked with distribution for Alexander’s two credit strategies: the $250 million credit opportunities fund and the $100 million credit income fund.

The combined capacity for Alexander’s two strategies is about $1.6 billion.

“We are very pleased to have such a wellregarded and established investment professional join Alexander Funds – he will be an asset to the firm,” Alexander Funds Management managing director Chris Black said.

“Chris understands the advice landscape and has a proven track record in building relationships at all levels of the distribution chain.”

Black said the business will look to add new strategies in the future, including an Australian highyield fund.

Inifer’s role is a new addition for the business, where the portfolio managers primarily looked about the fund raising.

He was a part of Allan Gray’s Australian executive team as the head of retail strategy. He spent nearly 10 years at the firm.

“This role provides me with a great opportunity to draw on both my banking and asset management background, as well as allowing me to continue working closely with financial advisers and their clients. Alexander Funds is uniquely placed to assist in accessing opportunities within the credit markets and meeting investors’ income requirements,” Inifer said of his appointment.

JANA hires from Mercer The $850 billion asset consultant appointed a co-head of the not-for-profit client sector, nabbing Mercer’s Pacific client segment leader for endowments and foundations.

Michael Maher joined Mercer in 2007 as an associate before working his way up to his most recent role.

He was previously a senior investment analyst at ClearView Retirement Solutions and worked in financial planning at Commonwealth Bank.

Maher will work closely with fellow co-head of not-for-profit Michael Karagianis who was appointed to the position in December last year.

Commenting on the role, Maher said the unique characteristics of the not-for-profit sector makes it an exciting space.

“I’m looking forward to joining JANA, whose extensive investment capabilities, dynamic client base and powerful commitment to clients offer an exciting opportunity to work for not-for-profit clients and enable them to deliver unique benefits to their beneficiaries,” he said.

JANA principal consultant Duncan Smith added: “JANA has seen increasing demand from various

MLC Life appoints claims chief MLC Life Insurance has appointed its new chief claims officer, who left QBE after more than 16 years with the insurer.

On August 16, Andrew Beevors will take on the role of chief claims officer, reporting directly to chief executive Rodney Cook.

Beevors will lead a team of 300, responsible for all aspects of claims handling and management.

He will replace Jane Dorter, who has been on secondment since April 2020 from her role as director of advisory for KPMG’s insurance, superannuation and workplace health division.

Between 2005 and this year, Beevors worked in the areas of workers compensation and claims.

He helped modernise QBE’s workers compensation claims model and more recently oversaw general insurance claims as the general manager.

Cook said the appointment will be important to help fulfil the insurer’s ambition to build the industry’s leading claims function.

non-super clients, including not-for-profits, wanting to access our extensive investment advisory expertise. This has been driven, in part, by the need to maintain returns and distributions in a low interest rate environment.”

“In Michael Maher, we saw an opportunity to address this heightened demand with an outstanding individual that brings the right experience, capability and culture to our fastgrowing not-for-profit team.”

JANA’s NFP division is one of the firm’s fastestgrowing client groups, comprising close to half of its clients by number.

Rest appoints head of operations Industry superannuation fund Rest hired AMP Capital’s former head of global client services and enablement to lead its operations function.

As head of operations Corrine Henville will oversee the provision of services to Rest members and the management of key organisational partnerships.

Henville spent over seven years at AMP Capital and in her most recent role led the Australian retail, institutional and international institutional serving teams and sales support functions.

She was previously acting head of retail business and strategic account manager for advice and platforms.

Henville joined AMP Capital from Colonial First State where she worked in executive management roles across client operations and corporate superannuation administration and wealth administration.

She also held roles at CFS in leadership development and change management.

“It’s imperative that we navigate complex environmental factors and operational requirements to continuously improve the services we provide to members,” Rest group executive, product & operations Brendan Daly said.

“Corrine brings both a breadth and depth of experience to this new role, as well as particularly strong client and team focus. She is welcome addition to the deep talent pool we have at Rest.”

Henville was due to commence in the role in June and will be based in the Sydney office, reporting to general manager, administration solutions and governance David Madden.

Charter Hall adds ESG head Charter Hall Group appointed a group head of ESG as it continues to build out its sustainability team and ESG offering.

Andrew Cole joins from Lendlease Funds Management where he was general manager, sustainability for five years.

Cole was responsible for developing and integrating the sustainability strategy for $27 billion in funds under management and created effective ESG strategies for funds to measure and report performance to investors.

He is currently the chair of the Property Council of Australia’s National Sustainability Roundtable

02: Caroline Gurney

and the chair of Green Building Council of Australia’s industry advisory group.

“I look forward to joining the team at Charter Hall, which has made measurable progress in the ESG space in recent years, underpinned by its commitment to climate resilience, responsible business, and strong communities,” Cole said.

“Over the past 20 years, I have experienced the changing landscape of ESG and sustainability in the property sector and there has never been a stronger emphasis on ESG than we are seeing now from tenant and investor customers.”

Cole will commence the role on July 12 and will be responsible for the group’s sustainability strategy and reporting, community partnerships and will assist the executive committee to integrate ESG outcomes across the business.

He will report directly to chief experience officer Natalie Devlin.

“We are pleased to welcome Andrew to Charter Hall and look forward to him working with the team to continue enhancing our 30-year history of embedding ESG into our platform as a strategic priority,” Charter Hall Group chief executive David Harrison said.

Future Generation names chief executive Geoff Wilson’s Future Generation companies, the social conscious listed investment companies, has announced its first chief executive – hiring from UBS. Caroline Gurney02 , former managing director of marketing and communications for UBS, has stepped into the role.

She replaces Louise Walsh, who departed as chief executive after six years in April.

Future Generation will also be losing its chair Belinda Hutchinson, who will resign at its annual general meeting tomorrow after spending almost six years in the role.

Wilson will assume the role of acting chair for Future Generation Global while a new permanent chair is recruited.

Gurney has spent more than 17 years at UBS and was also involved with the charitable UBS Australia Foundation.

She has been on the Future Generation board since 2019.

Gurney’s charitable work includes being a member of the Ascham School Council and the Centennial Park and Moore Park Foundation, an ambassador for the Australian Indigenous Education Foundation, a director of anti-domestic violence organisation Our Watch and a former council member for Chief Executive Women.

“Caroline will lead the Future generation companies in an exciting new phase of growth and will continue to focus on promoting the unique Future Generation investment model of dual investment and social returns, working to return the companies’ share prices to net tangible asset value,” acting chief executive Kate Thorley said.

“I look forward to continuing to work with Caroline in her new role when she commences in September 2021.” fs

14

Feature | Custody

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

MUSICAL CHAIRS There are many flow-on impacts from the rapid consolidation of Australia’s $3.1 trillion superannuation system. Custodians are just one of the service providers feeling the mandate crunch. So, how does one succeed in this competitive environment? Elizabeth McArthur writes.

Custody | Feature

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

L

01: Helen Rowell

02: Garnett Hollier

03: Robert Brown

deputy chair APRA

chief financial officer LGIAsuper

chief executive Australian Custodial Services Association

GIAsuper, the Queensland government fund originally for local government workers, is at the forefront of the new frontier superannuation funds face.

The $12.7 billion fund is in the late stages of completing a three-way merger – undertaking a successor fund transfer with the $8.4 billion industry fund Energy Super and integrating Suncorp’s retail superannuation business following its April acquisition.

Combining the three funds will mean LGIAsuper has created a fund looking after approximately $33 billion of retirement savings for more than 250,000 members.

The merger will put LGIAsuper at just over the $30 billion threshold that APRA deputy chair Helen Rowell01 said funds need to achieve scale benefits. At this year’s Conference of Major Superannuation Funds, Rowell stated in no uncertain terms that super funds with less than $30 billion in funds under management should seriously consider merging.

As part of the process, LGIAsuper is switching custodians - moving to NAB Asset Servicing, which was already the custodian for Suncorp and Energy Super.

It will see the new merged fund move away from LGIAsuper’s previous custodian, which also happens to be the biggest custodian in Australia, J.P. Morgan.

J.P. Morgan’s custody business in Australia is very close to hitting the $1 trillion mark, with $973 billion in assets under custody. Super makes up approximately 50% of that business, with J.P. Morgan servicing around 15 super funds.

LGIAsuper chief financial officer Garnett Hollier02 couldn’t comment on the specifics of the fund’s decision, but says the fund’s custodian is one of its most important outsourced providers.

“What we are looking for is a key partnership approach. That sense of partnership is what we want to build at multiple levels with our custodians, right down to the accessibility of our technical teams who understand our business model and what drives us,” Hollier says.

“In terms of complementary services, things that are important to LGIAsuper include sup-

porting our CPM (Centralised Portfolio Management) model. This is implemented by Parametric and has demonstrated improved after-tax outcomes for our members, and a reduction of transaction costs within our equities portfolio.”

As the fund experiences increased scale, Hollier expects several things to change as the investment operating model necessarily shifts to harness the full benefits of scale.

“As we scale up, our sophistication and strategy around data will likely evolve,” he says.

More for less The Australian Custodial Services Association (ACSA) chief executive Robert Brown03 says there are some clear themes that are shifting the landscape for custodians. These include consolidation and the future of the industry under regulatory change including the Your Future, Your Super reforms.

The consolidation and regulatory pressure has one key outcome – fee pressure.

But, Brown says fee pressure isn’t a bad thing and it doesn’t need to be something that keeps people in custody services up at night.

“It is top of mind for super fund trustees that they want better value. It’s not an endless cycle of fee pressure though, when we ask our members about themes in the industry and what is concerning them, fee pressure is not actually at the top of that list,” he says.

“I think there is a more mature attitude to value for money, more of appreciation across the service chain of what entities are bringing to the table.”

J.P. Morgan head of platform sales - security services for Australia and New Zealand Nick Paparo04 has seen the other side of the fee pressure.

But, like Brown, he doesn’t think it’s a negative.

“In the ever-evolving regulatory and governance landscape, superannuation funds are dealing with increased pressures in response to rising member expectations and operational requirements,” Paparo says.

Like many in the industry, Paparo thinks the consolidation of funds is just getting started.

“It’s quite clear that there are going to be several mega funds, in addition to a group of submega funds. There’s also a threshold of that $30 billion number, which has become the scale that all funds are recommended to achieve,” he says.

It is top of mind for super fund trustees that they want better value.

Robert Brown

15

It’s a tough time to be in the custody business and looking to win new mandates, he admits, as any fund currently considering a merger will likely want at least some continuity.

“It would be very difficult for a custodian that is not involved in a merger transaction to try and win the business while the funds are going through that transaction,” Paparo says.

Mercer Sentinel senior consultant Ash Moosa has a front row seat to exactly how super funds allocate these much-fought for custody mandates. He says it generally comes down to what he calls the “three C’s” – credibility, capability and capacity.

“We can, at any point in time, issue a tender document with in excess of 400 very detailed questions and then have to assess that and provide recommendations to super fund trustees in terms of who they might want to short list,” Moosa says.

“The sort of criteria we look at includes the custodian’s own corporate compliance and risk management frameworks, the products and depth of their network management and sub-custody functions to meet the exposures the super fund might currently have. We look at their capabilities around more strategic requirements.”

It’s clear to Moosa that super funds aren’t just looking for the best deal - they care about the new technology and data analysing capabilities that a custodian can bring to the table.

BNP Paribas securities services Australia and New Zealand chief executive David Braga05 agrees.

“A custodian is like a smartphone, there is all this complexity in building the smartphone, but it’s also about the applications people can access through the phone,” he says.

“We all have our own proprietary set up and our own proprietary apps. It’s our job to make it as easy as possible to get across those and use them to support the strategic outcomes of the fund.”

He says the competitive part of the Australian market is about product, service and innovation – not just price.

“This market has always been intensely competitive, and I think it always will be,” Braga says.

“And that’s a good thing for everyone, it’s a good thing for our clients. Because they have choice and it is a good thing for us as a provider,

16

Feature | Custody

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

04: Nick Paparo

05: David Braga

06: Daniel Cheever

head of platform sales – security services, Australia and New Zealand J.P. Morgan

chief executive, securities services, Australia and New Zealand BNP Paribas

head of global services State Street Australia

because it forces us to keep inventing and finding the right ways to support clients. There’s no sense of complacency about it at all.”

Like J.P. Morgan, State Street sees about 50% of its $460 billion custody business in Australia come from super funds.

State Street Australia head of global services Daniel Cheever06 says it’s important to remember the role of the custodian in the merger process itself.

When dealing with a successor fund transfer, he says, custodians have to go through an involved process of project planning and executing the transition of assets, working through any implications of blending assets.

“Where we see the biggest challenges and where we have to support our super clients is in the taxation space, calculating accurate tax liabilities, and dealing with the transition and re-registration of unlisted assets,” Cheever explains.

It’s here that custodians prove their worth in a consolidating market.

The secret to winning mandates, he says, is not just price.

“Organisational fit, product and technology capability, cultural fit and risk culture are all factors,” he says.

“Price is a factor, but the range of products and services is a key part.”

This is a point of view that Brown agrees with.

Surveying the custodians that are members of ACSA, Brown says he is certain that super funds understand the value of their custody partners.

“Super funds get support from the custody community around preparing for regulatory change and investing in new technologies,” he says.

“There’s an acceptance that if [funds] have a sole focus on costs then the response of the [custody] provider will basically be to slim down the service as opposed to maximising the value.”

The new normal With $660 billion in assets under custody, Northern Trust is the second largest custody player in the Australian market. Northern Trust head of client services Sally Surgeon07 has seen the cost pressure coming from all sides of the super sector, but she says as long as funds see this value in the services their custodian is offering, custody banks have no reason to fear change.

For example, as funds get bigger, they are increasingly moving investment management inhouse. This is a scary prospect for fund managers who have relied on big super mandates for years, but it doesn’t have to be a concern for securities services providers.

“The key thing when asset management is brought in-house is that it opens up opportunities about the other capabilities that are needed.

It might be that outsourcing of middle office is of interest, or outsourcing trade execution in the front office space of capital markets capabilities,” Surgeon says.

In her opinion, the same can be said for super funds making bigger private markets plays.

“In terms of what Northern Trust does for clients in the unlisted space, it’s about recording accurately, updating values accurately, making sure payments are made. We do the administration of the asset, the recordkeeping and measuring of performance,” she says.

All custodians have had to bolster their efforts in this regard. As unlisted assets play a bigger part in the asset allocation of super funds, custody providers have had to innovate.

The third biggest custodian in Australia, Citi with $589 billion in assets under custody, is also focused on expanding its offering to compete in the new normal for custodians, super funds and fund managers operating in Australia.

Unlike some custodians, which see about half of their funds under custody contributed by super funds, Citi has a smaller portion of super money - about $100 billion. Its biggest super clients are Hostplus (with more than $60 billion) and Colonial First State.

Hostplus has recently entered into a partnership to manage money for Maritime Super and swallowed up $600 million Club Super in 2019.

Citi Australia head of securities services Martin Carpenter explains there are key areas of planning and accounting changes custodians must take care of during a merger.

“Where it gets really interesting is where funds of a similar size merge. You have to make a lot of decisions about which custodian you move to, how you carry over the transactional history of positions, preserve the tax positions it’s a complicated merger,” he says.

That’s where Citi APAC’s head of data, investment analytics and ESG for the Securities Services business, Swaminath Nagarajan08 comes in.

“The platform we have available to service them becomes key when you are moving large volumes. In our business, it’s all about scale, when a client has billions in assets and invests in 23 markets in the world and they want market specific nuances that’s where the experience of a custodian becomes critical,” Nagarajan says.

Moosa points out that there’s also an opportunity for custodians in solving for the new problems that bigger funds with evolving investment styles face.

For example, he’s seen custodians shift their focus from listed market assets to unlisted markets as super funds make bigger plays in this space.

It might have once been thought that with this change in investment style, custodians have to give up some custody fees, but he explains it hasn’t actually been that simple.

“Instead, they’ve built their sophistication up in the alternative asset space by expanding their service offerings to include things like lookthrough capabilities on the investments private capital funds own, cashflows and performance forecasts or risk analysis, stress testing, workflow and document management that is a re-

This market has always been intensely competitive, and I think it always will be.

David Braga

quirement for those asset classes,” Moosa says.

Funds, in turn, see the value in this level of service and are willing to pay.

Braga and his team have also been focused on solving the complexities around the unlisted space for clients.

BNP Paribas has invested heavily on the private markets side of its custody business, building out a specialist team and systems to support it.

Internationally, BNP Paribas recently took a strategic equity stake in a fintech provider called AssetMetrix. It is an innovative asset servicing technology which BNP Paribas plans to roll out to Australian clients later this year and into next year.

“That will include tools for our clients to monitor unlisted investments, look through the characteristics of those investments, do cash flow and performance forecasts, as well as risk analysis, stress testing and benchmarking,” Braga says.

“That’s the type of role that BNP Paribas sees itself needing to take and make for Australian super funds.”

According to BNP Paribas’ own data investigation, total investment in private capital, private market-style assets, among super funds was estimated at being just under $40 billion in 2015.

At the end of 2020 it was over $80 billion.

“That sort of growth rate we anticipate will continue,” Braga says.

Data demands The other area where Braga predicts growth will continue is environmental, social and governance (ESG) investing. In this area too, BNP Paribas has invested in a new solution - one that takes data the custodian has around an institutions’ investments and measures the outcomes against the UN Sustainable Development Goals.

Another part of the tool lets clients evaluate their investments against things like air pollution, water scarcity and gender inequality to assess whether their investments are having a positive impact.

Citi offers clients a similar tool. Its interface lets clients visualise data from a portfolio level down to a company level.

For a super fund which might use a combination of outsourced investment managers, in-house investment managers and buying unlisted assets like property or infrastructure directly, understanding supply chains and what is actually owned can become a complex problem.

Nagarajan uses COVID-19 as an example, saying investment teams at large funds might want to understand their true exposure to something that is impacted by the crisis - like airports. This is not necessarily a simple thing to work out, as airports can be owned across all these investment strategies.

That’s where the high-level data that a custodian has access to becomes exceptionally useful.

“Our service is pretty much like being the eyes and ears. We can basically extract all that, put it all together in a coherent manner and then

18

Feature | Custody 07: Sally Surgeon

head of client services Northern Trust

provide multiple lenses for funds to look at this information,” Nagarajan says.

“It might not sound exciting, but this is basically the nerve centre of how everything is pulled together.”

J.P. Morgan’s Paparo acknowledges that in the new operating environment there will be fewer but bigger super funds, and custodians will need to differentiate themselves outside of settling trades and providing pricing and analytics reporting.

“We recognise we need to strategically partner and evolve with our clients to support their growth agenda and identify ways that we can add value to their business and their members,” he says.

“Data is the key deliverable now and as a fund’s custodian, it is important that we demonstrate our ability to connect with a client’s broader data and technology ecosystem. Ultimately, data is the backbone of everything we do.”

Since J.P. Morgan has so many super fund clients, it has to build solutions that cater to the entire segment and focus on the commonalities that all funds have.

As the biggest player in the market, Paparo says super funds can be assured that J.P. Morgan’s solutions already cater to the whole super segment.

“It is our job to demonstrate the benefits of having a provider who’s investing and building for a much broader client community,” he explains.

Surgeon’s colleague at Northern Trust, Danielle Gerace, has had the job of looking at the impact of blockchain technology on capital markets and asset lifecycle management.

“When you look at alternative asset classes like private equity of infrastructure, they have some traits unlike public markets in terms of longer lead times, including investment into the asset lifecycle, manual processes and non-standardisation of data and reporting,” she says.

“That’s our job – to bring that up to standard and accurate reporting. We launched a private equity ecosystem on blockchain technology, where we essentially digitised the general partner agreements of these funds, and built the investment lifecycle for asset owners.”

Gerace says that has led to significant upside for Northern Trust clients and has given asset owners the ability to share data with legal teams and to integrate data on unlisted assets into their mandate compliance programs - ensuring ESG screens are appropriately adhered to.

“All this leads to a more efficient process that supports private equity,” she says.

“The beauty of blockchain is you create a source of data and that data can be available to all parties, if permissioned to do so… If a regulator was only required to see subsets of information we could put certain controls around that data, but instead of having to provide that data as a separate source of record, the regulators are tapping into an immutable source of that information.”

While these kinds of solutions are good news for super funds, they are also good news for custodians and their business.

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

08: Swaminath Nagarajan

09: Matt Heine

joint managing director Netwealth

head of data, investment analytics and ESG, APAC Citi Securities Services

Nagarajan explains that offering clients a bespoke service that truly caters to all their individual needs has traditionally been expensive.

But, with new ways of accessing and visualising data, clients actually are receiving more for less from their custody service providers.

“With this, we are pretty much expanding the scope of what is standard,” he says.

“From the same data source, clients can drill down from portfolio level to a sector to a single security, or to a carbon score. Instead of running through pages of data, they point and click.”

The long days in front of spreadsheets producing bespoke reports for clients stand to be a thing of the past.

Platforms, advisers and ETFs While super funds and fund managers are the obvious focus for a lot of custodians, making up a bulk of funds under custody, there are shifting market dynamics that are creating new client segments.

Towards the top of that list are platforms.

Rainmaker data shows platforms have grown steadily, demonstrating 2.2% growth last year.

Australia’s largest platform, BT Panorama, has $139 billion in funds under administration.

When Citi acquired RBC’s Australian custody business, it also gained one such client with a rapidly expanding set of needs – Netwealth, with about $46 billion in FUA. Netwealth joint managing director Matt Heine09 explains the platform’s attitude to custody is all about finding the right solution for each asset type.

Netwealth works with Citi for custody services for international equities. But Netwealth is its own custodian for Aussie equities.

“Over the years as we’ve added more complex assets and different asset types, we’ve ended up with a couple of providers… We use Citi for international custody, they hold our international equities across 16 different global exchanges as well as international bonds. Locally, we use AustraClear for local bonds and then Netwealth as a custodian holds local equities and managed funds,” he says.

“We use Citi for our global specialist funds where we have partnered with the likes of Magellan. That’s because they are specialists in fund administration and fund custody, which is different from what we do.”

Heine notes that with scale, custody costs are likely to come down. But he’s also aware that Netwealth’s needs are likely to become more complex as it expands and its clients, and the assets they are investing in, demand more sophistication.

“One of the key reasons for doing custody ourselves is that we can provide access for emerging institutions and large clients, whether they be ultra-high-net-worth individuals or families or charitable trusts,” he says.

Braga agrees with Heine that as platforms grow their needs will become more complex, and they will therefore require more from custodians.

“They will come under the same kind of in-

Instead of running through pages of data, they point and click.

Swaminath Nagarajan

vestment dynamic as super funds. They will be looking for growth and for access to underlying investments and assets,” Braga says.

“There’s probably a sense that what is currently for professional institutional investors could be ‘retail-ised’ and blend into what platforms are looking to provide. Over a five-to-10-year time period, access into private markets could be something that you end up seeing through platforms.”

HSBC head of security services (Australia and New Zealand) Enzo Cotroneo says the platform market’s role in servicing the other part of the super sector – self-managed superannuation – needs to be remembered.

“The platform market, which has observed strong growth over the years, is certainly an important sector in Australia servicing SMSF and retail investors,” he says.

“Platforms require efficient, robust and easily accessible infrastructure support from custodians. It is important that systems link easily to their internal administration platforms to allow timely and accurate data for instructions and reporting.”

Speed and accuracy in service is key, he explains.

Another segment of the market that requires similar agility is the booming exchange-traded fund (ETF) sector.

While in Australia half of J.P. Morgan’s custody business is devoted to super funds, overseas ETFs are making up a more important segment of its asset servicing clients.

Globally, J.P. Morgan has surpassed $1 trillion in assets under administration from ETFs. “Locally, a number of fund managers who provided traditional unit trust products are looking at making them available to ETF investors or what is known as dual access. This is in response to investor’s increasing use of ETF’s and capitalise on this additional distribution channel,” Paparo explains.

“Custodians have also invested in developing capabilities required to support ETF’s. We have integrated all Authorised Participant (AP) services onto one platform, including basket creation and trade/order capture from the primary market and AP workflows.”

What is required of custodians is constantly changing, along with the shifting world of investments and institutions.

For example, Brown questions how custodians will handle cryptocurrency if it continues its move towards becoming a mainstream investment.

“Are you custodying anything? Are you custodying encryption keys? There are some assets that lend themselves to having an electronic record, other things you still have to put in a box,” he says.

“There are securities out there that are still a piece of paper.”

It’s the ultimate catch 22: custodians have no choice but to continuously evolve and be more than they ever have been, but they can also never lose sight of their traditional and trusted role as a provider of security. fs

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www.financialstandard.com.au 28 31 June May 2021 2021 || Volume Volume 19 19 Number Number 10 12

19

01: Name Hazell Cleyde

regional job title head of private capital, Asia Company Pacific BNP Paribas Securities Services

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Please visitatibus www.securities.cib.bnppardoluptae none vid que occusant. ibas to find out more information or contact Tessum hari dolenimuscia aliquae. cleyde.hazell@au.bnpparibas.com. fsNam ipiet qui ducil maionse nulpari ut explandit endisse 1. Australian Private Capital Market Overview: A Preqin and Australian Investment rsperna tquam, nimusam il et ea dem fugit am, Council Yearbook 2021 2. https://thenewdaily.com.au/finance/superannuation/2021/05/26/privatequid quiam as repratum fugia qui nonsequas capital-investment-super-funds natiorae quam volo cupta nis et od qui intium fugiat.

Disclaimer Estotat emporro es velecto dellignati culparBNP Paribas Securities Services is incorporated in France as a partnership um coriore sequis maionsedi dest, mos limited by shares and is authorised and supervised by thetem ACPRatio (Autorité de Contrôle Prudentiel de Résolution) the AMFalitibearume (Autorité des Marchés quuntiist autet quae et il and modis pre, Financiers). BNP Paribas Securities Services ARBN 149 440 291 (AFSL in 402467) nonsequid ut qui dolupit, sinullu No: has been ut registered in Australia as a foreign companyptatinc under the Corporations Act 2001(Cth) and is a foreign ADI within the meaning of s iendio berorrum ex et od ut eraerum res molen5(1) of the Banking Act 1959. This document is not intended as an offer or solicitation the purchase or sale service outside tiis aut for percipsam, sitisof any sedfinancial et etproduct odis orseque quiof Australia and is intended for ‘wholesale clients’ only (as such term is bus, sequi idus sit omnimo modi volecte velene defined in the Corporations Act 2001 (Cth)). alique dolut aut ad este porerescias ullabor ionThe New Zealand securities services business operates through BNP sequamus.

Paribas Fund Services Australasia Pty Ltd. BNP Paribas Fund Services Australasia Pty Ltd isoreped a wholly owned subsidiary ofMustis BNP Paribasmolupta Securities Temporp magnatem.

Services. BNP Paribas Fund Services Australasia Pty Ltd ABN 71 002 655 voluptas eiur incorporated accusandi nis sint ut aut 674 (‘BPFSA’)unt is an lat Australian company which eos is registered with the New Zealand Companies Office under registration number quam dolum ipsum facerfe reperatem voloreh 1010736. BPFSA is also registered under the Financial Service Providers (Registration and reheni Dispute Resolution) Act 2008.

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Financial Markets Conduct Act 2013). dem dolendi gendae odiorae voluptatur, sima The information contained sin withincoria this document to pligeni demque volut(‘information’) officabo.is believed Pellenbe reliable but neither BNP Paribas Securities Services nor any of its related tinis warrant eos ut qui del estisqu dicimus mo entities its completeness or accuracyodipsan nor accept any responsibility to the extent that such information is relied upon by any party BNP Paribas vellam dus quam andellat.

Securities Services shall not be liable for any errors, omissions or opinions contained within thisapellupta document. Opinions estimates contained herein Omnihit doloand ellaut dolupta tatius constitute BNP Paribas Securities Services’ or its related entities’ judgment at con culparibus ratisnotice. num alibus, the timepedipsuntin of printing and are subject to change without This document is not intended an offer or solicitation for the or sale ofquunto any nos iusci ascus earum fuga.

Atpurchase aut erem financial product or service. The information contained in this document does eatur as ius, adignat ommoluptatum hil ides not constitute financial advice, is general in nature and does not take into account your individual objectives, financial situation or needs.

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The information this document is not intended for retail investors. Any information contained within this docuPudita net, ilis asped maximus volor milit, ment will not form an agreement between parties. volupta non nusciatis adia sum quiantorum arumque. fs Brought to you by

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20

News

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

ASX invests in GROW Inc

01: Liza McDonald

head of responsible investment Aware Super

Kanika Sood

ASX has acquired a minority stake in fast-growing superannuation administrator GROW Inc. In a statement, the exchange said the investment aligns closely with ASX’s strategy to drive efficiency in financial services using distributed ledger technology (DLT).

“Grow’s platform uses DLT and they have recently signed with some important new customers who can also see the benefits of this technology,” the ASX said.

“We are impressed by GROW and they have an excellent management team. ASX continues to work with various fintechs across several sectors where we believe DLT can bring efficiency and cost savings to the industry.”

The ASX did not disclose the amount it paid for the investment or its percentage holding.

GROW started out as a superannuation fund but pivoted to providing infrastructure to other superannuation funds.

In April, it was appointed as the fund administrator for Vanguard’s foray into superannuation in Australia.

ASX is currently replacing legacy CHESS systems with a blockchain solution slated for a go live of April 2023, after a two-year delay. fs

Super funds back carbon data startup Elizabeth McArthur

A

The quote

Having a tool like Emmi gives us valuable insights into our carbon exposure and climate risks.

James Mawhinney files appeal Embattled Mayfair 101 founder James Mawhinney is maintaining his innocence, fighting his 20-year ban from soliciting and receiving funds in relation to financial products.

Mawhinney has retained Roberts Gray Lawyers and has lodged an appeal with the Federal Court of Australia, claiming that he was denied procedural fairness as ASIC took action against Mayfair.

“The Federal Court made decisions within the context of an ill-advised, deficient campaign by ASIC in an environment of political, commercial and media influence. These decisions were not right,” Mawhinney said.

“There has been an indiscreet campaign against Mayfair 101 by commercial competitors. The actions of ASIC have been misguided because of that commercial pressure. We also note that some media activity has been in breach of the ACCC Media Code of Conduct.”

Mawhinney maintains that he is working “around the clock” to get investors in Mayfair products their money back.

“Our team has identified substantial material errors in legal judgment of the order of the Federal Court made on 19 April 2021 at Melbourne. Our application is to have the matter dismissed with costs,” Roberts Gray Lawyers managing director Rhys Roberts said.

The filing for the appeal states that solicitors and counsel acting for Mawhinney initially failed to object to the admission into evidence of reports that Roberts claims are incomplete, failed to cross-examine at trial the investors to test whether they were retail clients or unsophisticated investors and failed to demonstrate the true nature of the investment schemes operated by Mawhinney.

The Roberts Gray Lawyers appeals team has had some success in the past. fs

new carbon risk management startup backed by Aware Super, Energy Super and Future Super has launched with former AMP chair Catherine Brenner on the board.

Emmi will collect and analyse data on carbon emissions to assess businesses’ financial risks, comparing this to carbon budgets created by climate scientists it will assess how business might perform in a carbon constrained world.

As well as the super funds backing Emmi, Melior, Hyperion and Perennial have thrown their weight behind the new platform.

Hyperion Asset Management chair Tim Samway has taken up the chair position at Emmi. Joining Samway on the board is Brenner and Starmate mentor and investor Patrick Sieb. All board members have also invested in Emmi.

“Shareholders are increasingly realising carbon emissions carry added financial risk and want to support businesses that are making a measurable commitment to carbon

emission reductions. At the same time, regulators are placing closer scrutiny on businesses’ efforts in this respect,” Emmi founder and chief executive Michael Lebbon said.

“However, before now, there was no credible or independent way to easily reconcile these concerns with an accurate assessment of businesses’ exposure or strategies. This left a big gaping hole in the analytical toolkit.”

Aware Super head of responsible investment Liza McDonald 01 added: “At Aware Super we view climate change as the most significant financial risk to our portfolio and to our members’ long-term financial future. We have been responding to these risks in an active and coordinated way since 2015 and have set ambitious targets and goals for how we will achieve net zero by 2050.”

“Having a tool like Emmi gives us valuable insights into our carbon exposure and climate risks to ensure our investments are sustainable and continue to deliver for our members in not just years to come, but decades to come.” fs

Super leaders recognised Annabelle Dickson

This year saw 1190 Australians recognised in the Queen’s Birthday honours and includes the highest ever percentage of women recognised at 44%.

The financial services industry was well represented on the list, including the former chair of QSuper Gerard Bradley made the list for his distinguished service to public administration, to economic policy, and to the community of Queensland.

Bradley is currently the chair of Queensland Treasury Corporation capital markets board and is a non-executive director of Pinnacle Investment Management.

Angela Emslie was recognised for her significant service to the finance and superannuation sectors, and to suicide prevention.

Emslie has spent nearly 30 years at HESTA as a trustee director, independent chair and more recently an independent member of the impact committee. She is currently also a non-executive director at the United Nations Principles for Responsible Investment.

She has also served as a non-executive director at Frontier since 2011 and is a non-executive director of and chair of the investment committee at State Trustees.

Emslie was previously president of the Australian Institute of Superannuation Trustees (AIST) and a director at CareSuper, VicSuper and Vision Super.

The former chair of AustralianSuper and CareSuper Barry Watchorn was also honoured for significant service to the superannuation sector through a range of roles.

Watchorn spent 16 years at CareSuper, starting as a board member before spending six years as chair and four years as

deputy chair. He has been a member of AIST since 2004 and was named Trustee of the Year in 2003.

Former Catholic Super fund secretary Joseph Farrugia has also been recognised for his service to the superannuation sector. He is the founding director of Fund Executives Association and served as deputy chair for the majority of his 20-year tenure.

Farrugia held the Catholic Super role for 30 years and is a fellow of both the Association of Superannuation Funds of Australia and AIST. Meanwhile, Nancy Fox received a member of the order of Australia for significant service to the financial and banking sector, and to women in business.

Fox is a non-executive director Lawcover Insurance, Perpetual, ING Australia and a member of Chief Executive Women.

Elsewhere, the former chief executive of the Myer Family Company Graeme Sinclair’sservice to accountancy, business, and to the not-for-profit sector was highlighted.

Sinclair was chief executive from 1973 to 2009 and is an independent director of Mirrabooka Investments and a director of Habitat for Humanity.

He was previously the executive officer of MCG Trust and trustee of The William Buckland Foundation.

Also making the list, Brookvine chief operating officer and executive director Robert Estcourt was recognised for his significant service to the financial management sector.

Estcourt has also been a consultant of at AA Solutions since 2012 and is the chair of the Woolcock Institute of Medical Research. fs

News

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

21

Products 01: Brendan Lyons

LIC restructures to ETMF The Monash Absolute Investment Company (MA1) has been restructured to become the Monash Absolute Active Trust (MAAT (Hedge Fund) and has commenced trading.

This is Australia’s first restructure of a LIC into an ETMF (although seven years ago an Aurora fund converted from a LIC to an ETF), and Monash co-founder and portfolio manager Simon Shields said it has been in the works for a long time.

The LIC listed in 2016, and Shields said within six months the portfolio managers regretted their decision. This was because by 22 March 2017 the LIC was trading at a 13% discount.

After a series of buybacks and options and a merger proposal from Sandon which suggested MA1 be liquidated to cash and taken over at 8% below net-tangible assets in 2018, Shields and co-founder Shane Fitzgerald began the journey to try and transform the LIC into an ETMF. Unfortunately, their timing was in-line with ASIC’s review of the ETMF sector and admission of new active ETFs and ETMFs was paused while ASIC completed its work.

The regulator finished its review in December 2019 but didn’t publish new guidelines until April 2020.

Monash received all relevant approvals by February 2021 after working with the ASX and ASIC. Shareholder approval was the next step and 99.98% of shareholders voted in favour of the proposal in May 2021 with the board, including chair Paul Clitheroe, also voting themselves out of jobs.

Clitheroe is still a substantial investor in the fund, with approximately half a million dollars in it.

The long/short actively managed ETMF has a management fee of 1.38% per annum, a performance fee of RBA cash rate plus 5% with high water mark and a minimum 6% per annum yield paid quarterly.

Three-year returns after fees were 17.6% per annum as of 31 May 2021, five-year returns of 9.7% after fees and nine-year returns of 12.2%.

Shields was blunt in his assessment of the problems with LICs as structures and the issue of LICs trading at discount.

He even went as far as to say it was “besmirching” the name of good managers to manage a LIC trading at a discount.

L1 Capital launches activist fund L1 Capital is launching a new Australian equities fund that seeks to unlock company value via shareholder activism.

The Catalyst Fund, which launches on July 1, will be led by James Hawkins, who joined L1 Capital as a partner in March.

The high-conviction equity fund invests longonly in the top 200 Australian public companies, using shareholder activism to enhance corporate governance and protect the interests of shareholders.

Hawkins will work alongside L1 Capital managing directors and co-chief investment officers Rafi Lamm and Mark Landau.

Centuria launches unlisted fund Centuria Capital Group has launched a new fund that invests solely in a $224 million building in Victoria.

The Centuria Government Income Property Fund (CGIPF) will become the new owner of 1 McNab Avenue, a 14-storey building located in Footscray. CGIPF will raise $133 million to fund the transaction.

State Trustees, City West Water and the Victorian government’s Treasury and Finance Department are some of the current tenants.

Centuria joint chief executive Jason Huljich said: “In this low interest rate environment, there is a strong appetite from retail investors who are searching for investments with compelling yields.

We continue to witness this strong appetite with the oversubscription of our recent unlisted fundraisings.”

Lamm said activist strategies have become wellestablished and successful in offshore markets, with the bulk of activism in the US and Europe.

“L1 Capital believes that there is a huge opportunity in Australia for investor-led stewardship in equity markets, particularly given that more corporate ownership has shifted to passive index funds,” he said.

Hawkins is a former solicitor at Clayton Utz and moved to investment banking at Macquarie Capital in the US. He went on to become the managing director of Flagstaff Partners, a corporate advisory firm based in Melbourne, for over nine years.

At Flagstaff, Hawkins helped advise the $9.7 billion Port of Melbourne lease and PointsBet’s US media partnership with NBC Universal.

“The L1 Capital Australian Equities team has identified more opportunities than we have had the capacity to realise without dedicated resourcing and focus. The time is therefore right for L1 Capital to launch the Catalyst Fund and with James Hawkins, we believe we have the ideal combination of investment skills, experience and relationships to succeed,” Landau said.

Perennial launches fund, hires Perennial will launch its third private company investment fund for wholesale investors on July 14 and has hired an investment head from Investec.

The Perennial Private to Public Opportunities Fund No. 3 has a minimum raising target of $50 million, up to a maximum of $200 million.

Perennial head of private investments Brendan Lyons 01 said the firm has had increasing enquiries from sophisticated investors in regard to this asset class.

“We are seeing the unlisted space continue to grow as emerging businesses opt to stay private for longer and engage with institutional investors before they transition to a public listing.

This is helping to expand the opportunity set for investors in our funds,” he said.

The third iteration of Perennial’s private companies fund will use the same strategy as the first two - looking to take active positions in 30-45 private companies, pre-IPOs, direct IPOs and discounted placements over a five-year period.

As at 31 May 2021, the first fund had generated a cumulative return of 77.1% inclusive of distributions and net of fees since inception in August 2019.

Lyons said the capital raised for fund two last year is now fully deployed, and he expects performance to be in line with fund one.

“The returns generated by our first fund highlight the value upside that is available to investors in this exciting and growing space,” Lyons said.

Perennial is also welcoming a new hire. Former head of emerging companies at Investec Karen Chan will join as senior investment director.

The portfolio management team for the new fund comprises Lyons, along with Perennial head

02: Ying Yi Ann Cheng

of smaller companies and microcaps Andrew Smith and portfolio manager Ryan Sohn.

“Karen brings significant experience in deal flow origination, investment and portfolio management as well as equity capital markets and M&A solutions for our high growth private companies. We are delighted to welcome her to the Perennial team,” Smith said.

Franklin Templeton shuts fund Franklin Templeton Investments is winding up its retail Australian Equity Fund, as asset growth lags.

The fund was terminated on June 16, with returns of money to investors expected by July 31.

“FTIA have determined that based on the current low level of funds under management and the improbability of growing the fund’s FUM in the near term that it is in the best interests of all unitholders to wind up the fund,” said Morningstar in a research note.

The fund was offered in two share classes which together had about $77 million in assets.

It was managed by Alastair Hunter, Andrew McGann and Joseph Livermore.

Hunter took over from Andrew Sisson in January 2019. Sisson designed the strategy at Balanced Equity Management, which became a wholly owned subsidiary of FTIA in 2011.

Its biggest sectoral holdings were in financials (32.8% of the fund), materials (21.27%) and industrials (8.79%). Individual top shareholdings were Westpac, BHP, Telstra and ANZ. It fell behind the ASX 200 and ASX 300 since 2011 inception, after underperforming in the first nine months of 2020, according to Morningstar.

Coolabah lists fund on Chi-X Coolabah Capital Investments has launched a fixed income fund on Chi-X as a quoted managed fund.

The Coolabah Active Composite Bond Fund targets after-fee returns of 1% to 2% per year over the Bloomberg Ausbond Composite Bond 0+ Yr Index.

It invests in bonds issued by governments, banks, corporates, and asset-backed securities and residential mortgage-backed securities with an average target credit rating of A. Coolabah has priced the Chi-X fund at 30bps per year.

“We are pleased to be able to grow our relationship with Chi-X by partnering to bring FIXD to market. This was previously an institutional strategy for super funds that was not available to the public,” Coolabah portfolio management director and market technicals analyst Ying Yi Ann Cheng 02 said.

The unlisted strategy has returned it has returned 5.35% per annum after retail fees, since March 2017 inception.

“That’s 1.37% above the Composite Bond Index’s 3.98% per annum return. It ranks in the top two strategies in Mercer’s Australian fixedincome (active) universe over the last three years to 30 April 2021,” Cheng said. fs

22

Events | MAX Awards

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

Jean Kittson, Master of Ceremonies

Frederic Chanut (L), Paul Hewett (R)

Christopher Page

Merrick Watts

Michelle Baltazar, Karlee Samuels, Stephanie Antonis (L to R)

Celebrating excellence in marketing, advertising and sales The Financial Standard MAX Awards returned to a live format this year, with 22 awards highlighting the evolving financial services landscape and its brightest talents.

Now in their 26th year, the Financial Standard MAX Awards for 2021 were presented at an event at Luna Park, Sydney on June 10, recognising the exceptional efforts of marketing, advertising and distribution teams in financial services.

Close to 300 of the industry’s brightest marketing, advertising and sales talents turned out for the annual awards, some of which went to Aware Super, BetaShares, Fidelity Investments and Link Group.

The coveted Executive of the Year - Distribution award went to BT head of distribution Chris Mather, while the Executive of the Year - Marketing title was taken by Praemium’s Adele Welsh.

QSuper’s Lifetime Pension took home the award for Product Launch of the Year.

Zurich’s Goals for Good was named Community Initiative of the Year, while Social Media Campaign of the Year was awarded to Australian Ethical and Integrated Campaign of the Year was awarded to Aware Super for its rebrand.

Rainmaker Group managing director Christopher Page said the MAX Awards are becoming more and more competitive, with more than 110 finalists across the 22 categories this year.

“It is exciting to celebrate the successes of financial services’ leading marketers, advertisers and sales professionals, especially in a time where a lot more time, effort and creativity needs to be put through to not just thrive but excel,” Page said.

Also commenting, Financial Standard’s

The numbers

17,000 Number of votes received in the 2021 MAX Awards.

executive director - media, Michelle Baltazar said: “The past 12 months has been exceptionally challenging for sales and marketing teams, as they needed to re-evaluate their strategies and find new ways to best meet the needs of their clients.”

“We believe our award winners and finalists rose to the challenge and are deserving of the recognition at our MAX awards this year.”

This year’s awards attracted more votes than any year previous, coming in at a record 17,000.

Financial services sales and marketing professionals have an important role to play as the industry continues its growth trajectory, estimated to hit the $11 trillion mark by 2038. fs

MAX Awards | Events

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

Andrea Roberts, Alex Page, Giada Dorgia, Breanne Roberts, Nicola Ryan, Katelyn Hynes (L to R)

Australian Ethical investment team

23

Jan Beeston, Cortney Glass, Emma Milsted (L to R)

The full list of winners and finalists are as follows: Distribution Team of the Year Bennelong Funds Management BT Franklin Templeton Praemium Zurich OnePath

Agency Campaign of the Year

ClearBridge Investments & Fundamental Media First Sentier Investors & Ptarmigan Media Franklin Templeton & Ptarmigan Media Hyperion Asset Management & BlueChip Communications Macquarie Walter Scott & IFP Global Equities & Fundamental Media

Agency Executive of the Year

Karlee Samuels – Fundamental Media Haissam Aoun - Marketing Pulse Laura Cremona - Benedictus Media Michelle Reed - Ptarmigan Media Nicole Smith - Socialisd

Agency of the Year In Marketing We Trust Fundamental Media Marketing Pulse Ptarmigan Media Socialisd

Community Initiative of the Year Zurich Bendigo Bank ClearBridge Investments La Trobe Financial LUCRF

Creative Agency of the Year OMG! Creative Ascender Design Leo Burnett Radar Sydney Webqem

Digital Campaign of the Year Praemium Allianz Retire+ Colonial First State Franklin Templeton Schroder Investment Management

Digital Platform of the Year Link Group Aware Super BT CommSec Frontier Advisors

Executive of the Year - Distribution Chris Mather - BT Damien Otto - Futurity Investment Group James Martin - Hamilton Lane Stuart Devlin - Warakirri Asset Management Vinnie Wadhera - BetaShares

Executive of the Year - Marketing Adele Welsh - Praemium Andrea Roberts - ClearBridge Investments Cathy McLennan - Suncorp Danielle Felix - Vanguard Wayne Sullivan - Frontier Advisors

Financial Education Campaign of the Year Allianz Retire+ BMO BT HUB24 TAL

Integrated Campaign of the Year Aware Super Colonial First State Fidelity International Franklin Templeton Suncorp

Marketing Campaign of the Year Consumer Budget Direct ANZ Financial Advice Fidelity International La Trobe Financial NGS Super

Marketing Campaign of the Year Industry Robeco BT ClearBridge Investments First Sentier Investors Franklin Templeton

Marketing Team of the Year Budget Direct Allianz Retire+ Fidante Partners First Sentier Investors Suncorp

Print Campaign of the Year - Consumer BetaShares Budget Direct Hostplus La Trobe Financial Suncorp

Print Campaign of the Year Industry Fidelity International Allianz Retire+ Capital Group Colonial First State Praemium

Product Launch of the Year

QSuper - QSuper Lifetime Pension AIA Australia - Crisis extension cover Charter Hall - Charter Hall Wholesale Property Series No.1 ClearBridge RARE Infrastructure Income Fund Fidante Partners - Ares Global Credit Income Fund

Public Relations Agency of the Year Mountain Media BlueChip Communication Honner PritchittBland Communications Reverb Media

Social Media Campaign of the Year Australian Ethical BT Future Super Rest Zurich

Video Campaign of the Year Vanguard BT Financial Hostplus PIMCO Praemium

Website of the Year Mason Stevens Aware Super ClearBridge Investments Frontier Advisors LUCRF Super

24

International

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

HSBC makes alternatives push HSBC Asset Management announced it will combine its existing capabilities in the alternatives space as part of a broader strategy to reposition itself as a core solutions provider and specialist alternatives manager.

To be known as HSBC Alternatives, the new division will comprise HSBC Alternatives Investments (HAIL), including the hedge fund, private markets, private debt, venture capital and direct real estate teams.

The unit will be led by current global chief investment officer Joanna Munro, and Munro will be replaced by Xavier Baraton who currently oversees investments for fixed income, private debt and alternatives.

“I’m looking forward to leading the growth of HSBC Alternatives and bringing the benefits of alternatives asset classes to new and existing clients. Alongside sustainable and impact strategies, such as Climatech, we will also look to grow our capabilities in Asia,” she said.

The decision follows the firm’s alternatives assets doubling over the last four years, HSBC said.

“We have been very successful in delivering innovative capabilities to our institutional and wealth clients, with the recent success of our infrastructure debt teams, the rapid growth of our indirect private equity business, the launch of a direct lending investment capability with HSBC UK and the establishment of our Climatech venture capital team,” HSBC chief executive Nicolas Moreau said. fs

Schroders Capital adds new unit Karren Vergara

Schroders has moved its private assets business under the newly launched Schroders Capital.

Schroders Capital comprises the existing range of private equity, securitised products and asset-based finance, private debt, real estate, infrastructure, insurance-linked securities and impact investment manager BlueOrchard, which the firm has a majority stake in.

In Australia, the local private debt and private equity teams will move under the Schroders Capital umbrella.

Schroders Capital manages about $85 billion of assets based on December 2020 figures.

The fund manager’s group chief executive Peter Harrison commented: “Schroders is further delivering on its growth strategy with the launch of Schroders Capital, a new brand for all our private assets businesses. It will continue to provide clients with a local approach to investing across a diversified range of private asset strategies, supported by a global perspective and the longestablished Schroders business.”

London-based Harrison added that private assets continue to be a key strategic focus for the business.

Global head of Schroders Capital Georg Wunderlin said the unification will promote knowledge sharing and innovation across Schroders’ private assets businesses and showcase a diversified range of investment strategies for investors. fs

01: Nadine Chakar

executive, vice president State Street

State Street launches dedicated digital unit Jamie Williamson

A The quote

As digital currencies and tokenisation not only gain momentum... we can help our clients bridge the gap between the industry of today and the one of tomorrow.

s an increasing number of institutions allocate to cryptocurrency and explore blockchain solutions, State Street is launching a dedicated digital finance division, appointing the current head of global markets to lead it.

State Street Digital builds on State Street’s existing digital capabilities, expanded to include cryptocurrency, central bank digital currency, blockchain and tokenisation.

The new business will be led by Nadine Chakar01, currently head of global markets.

As such, global head of portfolio solutions, FX sales and trading, and research for State Street Global Markets Tony Bisegna will step into the lead global markets role from September.

Commenting, Chakar said: “State Street has a major role to play in the evolution of digital market infrastructure and this new division will help us bring our expertise and resources to the conversation.”

“As digital currencies and tokenisation not only gain momentum, but transform financial infrastructure and operating models, we can help our clients bridge the gap between the industry of today and the one of tomorrow.”

State Street’s GlobalLink technology platform will be a central component of State Street Digital and will also be enhanced into a digital multi-asset platform, with the aim to support crypto assets among other asset classes.

“The financial industry is transforming to a digital economy, and we see digital assets as one of the most significant forces impacting our industry over the next five years,” State Street Corporation chair and chief executive Ron O’Hanley said.

“Digital assets are quickly becoming integrated into the existing framework of financial services, and it is critical we have the tools in place to provide our clients with solutions for both their traditional investment needs as well as their increased digital needs.”

State Street has been building its credentials in the digital finance space in recent years. In 2019, State Street AlphaSM, the industry’s first front-to-back offering based on the principles of openness and interoperability, was launched.

And, so far this year, the company has been appointed as administrator of a planned bitcoin backed exchange traded note and as the fund administrator and transfer agent of the VanEck Bitcoin Trust, a new bitcoin ETF that is currently awaiting US regulatory approval.

The announcement was interesting timing, coming as Bitcoin and Ethereum both declined in the face of China’s clampdown on the bitcoin mining industry.

Bitcoin dropped 8% as a result while Ethereum fell 9.2%. fs

Maine forces pension funds to dump fossil fuel investments The state of Maine has become the first in the United States to pass legislation forcing its pension fund to divest fossil fuels.

Maine passed bill LD99; an act to require the state to divest itself of assets invested in the fossil fuel industry. Needing 17 votes to pass, it succeeded with 18 in favour while 15 voted against the bill and two were excused.

Under the law, the Maine Public Employees Retirement System “may not invest the assets of any state pension or annuity fund in any stocks or other securities of any corporation or company within the fossil fuel industry or any subsidiary, affiliate or parent of any corporation or company among the 200 largest publicly traded fossil fuel companies”.

The fund must also divest any such holdings by 1 January 2026.

However, short-term investment funds that blend commercial paper or futures are exempt from the restrictions.

The bill, which was supported by Maine state treasurer Henry Beck, also directs the state Treasury to do the same across all state funds.

“If Maine can divest responsibly and thoughtfully, there are no more excuses for any other pension fund and legislature in the USA. It is past time for every other public pension to address the mounting climate risk in their portfolios by holding onto fossil fuel investments. These are a ticking time bomb and fiduciaries must act,” according to Richard Brooks, climate finance director at Stand.earth, which is coordinating the national Climate Safe Pensions Network.

In May, a bill was introduced by New York state legislators to force the New York State Teachers’ Retirement System to divest from fossil fuels.

According to a report from Divest NY, the fund has been increasing its investments in coal in recent years, with analysis of its holdings showing acquisitions of coal outpaced its coal stock sales two to one in Q4 of the 2020 calendar year. fs

Between the lines

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

Advice group acquires Sentry

25

01: David Ferrall

An ASX-listed financial services firm will acquire Sentry Group for $7 million and add 155 authorised representatives to its books.

WT Financial Group (WTL) announced that upon completing the takeover, it will have some 275 financial advisers across 200 practices.

WTL will pay $3.5 million in cash to fund the transaction and another $3.5 million is payable in WTL shares.

“Purchase price is in line with industry multiples of two-times recurring (net) dealer group revenue, presenting significant accretive value to WTL,” WTL said.

The Sentry acquisition is expected to help push revenues to over $70 million in FY22, while net profit after tax is slated to be more than $2 million.

WTL was founded by managing director Keith Cullen, who will lead the new firm.

He is joined by Sentry shareholder and director Michael Harrison as a non-executive director.

WTL operates Wealth Today, which provides dealer group services and Spring Financial Group, which operates SFG Private Wealth, Spring FG Funds Management and Spring Realty.

Sentry managing director and shareholder David Newman will assume the role of joint chief operating officer and remains as managing director of Sentry. He will focus on the business development and management of west coast operations, while Sentry chief operating officer Frank Paul will focus on east coast operations and group risk management processes. fs

managing director & chief executive FinClear

FinClear to acquire BNY Mellon subsidiary Karren Vergara

B The quote

We have the capital, the systems, technology and the expertise to integrate Pershing Australia clients into FinClear’s operations.

NY Mellon is offloading its local execution and settlements business to FinClear for an undisclosed amount.

FinClear is set to takeover Pershing Securities Australia in a bid to scale and enhance Holder Identification Number (HIN)-based platform services.

FinClear chief executive David Ferrall01 said FinClear’s capital position following the acquisition is strong, supported by the $20 million raised from the Magellan Financial Group when it joined the share register as a strategic investor last October.

“We have the capital, the systems, technology and the expertise to integrate Pershing Australia clients into FinClear’s operations – a process that will be managed in a staged, incremental, highly secure manner over an appropriate period of time,” he said.

Rainmaker Mandate Top 20

The acquisition will enable FinClear to expand its services to larger stockbrokers. FinClear provides trades, clearing and settlement services, as well as technology solutions to wholesale intermediaries seeking access to the ASX. “As an existing client of FinClear we are familiar with Pershing Australia and enjoy a strong relationship,” Ferrall said. “We are confident that combining Pershing Australia with our vertically integrated service and technology capability will provide Pershing Australia’s clients with an enhanced service offering and provide a platform for future growth.”

FinClear intends to fund the purchase via a share purchase agreement, subject to customary conditions. It is expected to finalise the transaction by the end of 2021.

At the end of 2020, FinClear secured $20 million in funding, including from Magellan Financial Group. fs

Latest investment mandate appointments in Q1 2021

Appointed by

Asset consultant

Investment manager

Mandate type

AvSuper Fund

Frontier Advisors

Flexstone Partners

International Private Equity

10

Aware Super

Willis Towers Watson

BlackRock Investment Management (Australia) Limited

International Fixed Interest

1,197

Aware Super

Willis Towers Watson

Goodman Limited

Property

15

Aware Super

Willis Towers Watson

Lendlease Investment Management (Australia) Pty Limited

Property

463

Aware Super

Willis Towers Watson

Vanguard Investments Australia Ltd

International Fixed Interest

758

Care Super

JANA Investment Advisers

Alphinity Investment Management Pty Ltd

Australian Equities

460

Christian Super

JANA Investment Advisers

Macquarie Investment Management Australia Limited

Australian Equities

Commonwealth Bank Group Super

Willis Towers Watson

Other

Alternative Investments

349

Energy Industries Superannuation Scheme - Pool A

Cambridge Associates; JANA Investment Advisers

Resolution Capital Limited

Global Property Listed

86

Energy Industries Superannuation Scheme - Pool A

Cambridge Associates; JANA Investment Advisers

BlackRock Investment Management (Australia) Limited

International Equities

228

Energy Industries Superannuation Scheme - Pool A

Cambridge Associates; JANA Investment Advisers

Muzinich & Co. Inc.

Alternative Investments

45

Hostplus Superannuation Fund

JANA Investment Advisers

IFM Investors Pty Ltd

Ethical/SRI Australian Equities

51

Hostplus Superannuation Fund

JANA Investment Advisers

IFM Investors Pty Ltd

Ethical/SRI International Equities

Montgomery Investment Management Pty Limited

Other

Other

MyLifeMyMoney Superannuation Fund

JANA Investment Advisers

BlackRock Investment Management (Australia) Limited

International Equities

Retail Employees Superannuation Trust

JANA Investment Advisers

Other

Ethical/SRI Australian Equities

23

Retail Employees Superannuation Trust

JANA Investment Advisers

Other

Ethical/SRI International Equities

28

Retail Employees Superannuation Trust

JANA Investment Advisers

Macquarie Investment Management Australia Limited

Ethical/SRI Fixed Interest

15

Spirit Super

Whitehelm Capital

National Australia Bank Limited

Cash

50

State Super (NSW)

Frontier Advisors

New South Wales Treasury Corporation

Private Equity

Amount ($m)

101 9 255

Source: Rainmaker Information

26

Managed funds

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12 PERIOD ENDING – 30 APRIL 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

Hyperion Australian Growth Companies Fund Bennelong Australian Equities Fund

2,250

46.1

7

22.6

1

15.5

4

Australian Unity Diversified Property Fund

324

18.7

40

14.4

1

16.1

1

851

50.2

3

19.2

2

18.0

1

UBS Property Securities Fund

266

35.9

2

12.2

2

9.6

2

483

33.5

7

11.4

3

8.7

5

21

35.5

3

11.0

4

7.0

14

415

34.7

4

10.5

5

7.2

11

Australian Ethical Australian Shares Fund

514

53.0

2

16.9

3

14.4

6

Pendal Property Securities Fund

Australian Unity Platypus Australian Eq. Fund

241

36.2

25

16.6

4

16.3

3

SGH LaSalle Conc. Global Property Fund

1,583

44.0

9

15.4

5

17.5

2

UBS Clarion Global Property Securities Fund

354

35.7

27

14.5

6

14.6

5

Resolution Capital Real Assets Fund

63

43.8

10

14.1

7

Bennelong Concentrated Aust Equities Alphinity Sustainable Share Fund Ausbil Active Sustainable Equity Fund PM Capital Australian Companies Fund

19

30.7

20

10.2

6

8.4

7

Charter Hall Maxim Property Securities Fund

197

35.9

1

9.4

7

8.8

4

Quay Global Real Estate Fund

303

15.3

41

9.2

8

8.6

6

Dimensional Global Real Estate Trust

618

13.7

44

8.8

9

6.4

21

Australian Unity Property Income Fund

278

14.7

43

8.8

10

9.0

3

32

41.1

15

13.8

8

12.7

13

1,223

32.5

48

13.5

9

14.1

8

Australian Ethical Diversified Shares Fund

247

32.4

50

12.3

10

11.5

28

Sector average

551

33.0

8.9

10.4

Sector average

669

26.3

6.5

6.2

S&P ASX 200 Accum Index

30.8

9.5

10.3

S&P ASX200 A-REIT Index

30.9

7.1

5.6

Greencape Broadcap Fund

INTERNATIONAL EQUITIES

FIXED INTEREST

Loftus Peak Global Disruption Fund BetaShares Global Sustainability Leaders ETF Zurich Inv Conc. Global Growth Fund Forager International Shares Fund Evans and Partners International Fund T. Rowe Price Global Equity Fund

180

34.8

10

25.2

1

Schroder Fixed Income Fund

2,076

2.0

21

5.4

1

4.4

3

1,356

31.2

26

23.7

2

Macquarie Dynamic Bond Fund

712

3.2

14

5.4

2

4.7

1

74

28.0

35

23.2

3

22.0

1

iShares Government Inflation ETF

253

6.7

3

5.1

3

3.9

17

256

84.0

1

22.5

4

19.7

4

AMP Capital Wholesale Australian Bond Fund

957

0.7

32

5.1

4

4.2

5

61

24.0

56

21.6

5

17.5

10

Pendal Sustainable Aust. Fixed Interest Fund

397

0.6

33

5.0

5

5,836

36.3

8

21.6

6

21.5

2

Perpetual Wholesale Active Fixed Interest Fund

195

1.1

28

5.0

6

Franklin Global Growth Fund

586

32.3

20

20.4

7

20.5

3

iShares Core Global Corp. Bond (AUD H) ETF

317

3.5

12

5.0

7

4.0

11

Intermede Global Equities Fund

280

25.2

48

19.1

8

17.7

7

Dimensional Global Bond Trust

1,949

1.4

23

5.0

8

4.1

10

9

4.1

8

Capital Group New Perspective Fund

1,040

32.2

21

19.0

9

18.7

6

QIC Australian Fixed Interest Fund

1,436

0.5

35

4.9

Nikko AM Global Share Fund

167

30.9

27

18.8

10

19.2

5

Legg Mason Western Global Bond Fund

397

4.3

10

4.9

Sector average

881

26.5

12.7

14.1

Sector average

944

0.6

3.9

3.4

MSCI World ex AU Index

23.7

13.8

14.4

Bloomberg Barclays Australia (5-7 Y) Index

-0.9

4.8

3.6

10

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

Source: Rainmaker Information

Active performance and the style effect nderstanding active performance, particuU larly in equities, is darn hard. At its most simple you have a product, which makes a return,

Dial tones

By John Dyall john.dyall@ financialstandard .com.au www.twitter.com /JohnDyall

and you compare that return with a benchmark index. What is left over you call alpha.

After that, it gets complicated. The fact that returns are so aligned with a benchmark means there is a systemic relationship between the returns of the product and the returns of the benchmark.

This relationship is called beta. Now the interesting thing about that benchmark index is that it is based on the returns of all the stocks that make it up. For the S&P/ASX 200 Index, for example, this is the largest 200 companies in the ASX. This means that the largest companies, like CSL and the big banks, make up more of the index (and contribute more to the returns) than smaller companies. This is a market cap weighted index and is the basis for the largest of the index funds.

Indexes have evolved over time. The marketcap weight that we are all familiar with started in the 1950s when computers became powerful enough to make the complex calculations. As computing power has grown, more complex indexes have been produced.

All these indexes are measures of market beta. Now the golden rule of investing is that you should not pay (much) for beta. It is, es-

sentially, free. Alpha, however, is expensive. Say you have a fund that consistently outperforms its benchmark by three percentage points a year and you pay 1% of assets every year to the fund manager. That means one-third of your alpha is paid in fees. The investor gets two percentage points, and the manager gets one. If you look at it this way, the active management fee is actually 33.3% pa, not 1% pa. Yet most investors (including me) would be happy to pay this if they were two percentage points better off every year.

Then style beta complicates things.Most investment managers have an investment style based on things like value, growth, quality, and momentum. There are indexes for each. In the Australian market there are products that replicate them for fees much lower than active fees.

Take for example the VanEck Vectors MSCI World ex Australia Quality ETF, which recently won the Financial Standard Investment Leadership Award in the international equities active core category. These are for products that demonstrate moderate levels of active risk (as measured by tracking error) against a market-cap weighted index (the MSCI World Index). The award looks at overall performance, the amount of active risk taken to achieve that, different types of volatility and ratios that integrate returns with risk.

The VanEck product is not really an active product since all it does is follow a quality index. And it certainly does not charge active fees; 0.4% pa (and there’s no performance fee!). It’s what is called a “smart beta” strategy.

Meanwhile, over the measurement period the quality index returned 16.8% pa compared with the benchmark index return of 14.2% pa. If it was an active product there’s an “alpha” of 2.6% pa before fees.

The question is how much of an effect these easily replicable styles have on the performance of active products.

Testing 63 active international equities products for the five years to March 2021, I found statistically significant relationships between active returns and value indexes (negative relationship), growth indexes (positive) and quality indexes (positive).

These three style indexes together explained around two-thirds of the “active” returns of products, which leaves one third not explained.

So, whatproportion of your active return comes from easy to replicate style factors and how much from hard-to-get alpha? How can you separate style factor returns from alpha, and can you pay for them separately?

You see, it’s darn hard. fs

Super funds

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12 PERIOD ENDING – 30 APRIL 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

Virgin Money SED - LifeStage Tracker 1979-1983

22.1

8

9.5

1

AAA

AMG Corporate Super - AMG Listed Property

33.1

1

9.5

1

7.2

5

AAA

Australian Ethical Super Employer - Balanced (accumulation)

18.5

19

9.5

2

8.6

20

AAA

Prime Super (Prime Division) - Property

4.8

30

8.8

2

15.9

1

AAA

UniSuper - Balanced

18.5

20

9.2

3

9.3

7

AAA

Aware Super Employer - Property

19.1

18

7.1

3

7.7

4

AAA

Mine Super - High Growth

25.7

2

8.9

4

9.3

6

AAA

Mine Super - Property

26.8

6

6.9

4

6.2

13

AAA

Active Super Accumulation Scheme - High Growth

23.7

4

8.9

5

10.1

1

AAA

Telstra Super Corporate Plus - Property

9.5

24

6.9

5

8.2

2

AAA

smartMonday PRIME - MySuper Age 40

22.1

9

8.8

6

9.5

4

AAA

FirstChoice Employer - FS Global Prop. Securities Select

23.1

15

6.8

6

6.1

14

AAA

AustralianSuper - Balanced

20.4

10

8.7

7

9.7

2

AAA

Sunsuper Super Savings - Australian Property Index

27.8

2

6.7

7

5.3

18

AAA

Telstra Super Corporate Plus - MySuper Growth

23.6

5

8.4

8

9.5

5

AAA

FirstChoice Employer - FC Property Securities Select

27.8

4

6.6

8

5.4

17

AAA

ANZ SCSE - ANZ Smart Choice 1980s

22.4

6

8.3

9

9.0

12

AAA

Sunsuper Super Savings - Property

14.1

20

6.5

9

6.8

8

AAA

Vision Super Saver - Balanced Growth

19.4

14

8.2

10

9.0

11

AAA

UniSuper - Listed Property

22.5

16

6.5

10

5.2

20

AAA

Rainmaker MySuper/Default Option Index

18.7

Rainmaker Property Index

18.6

7.4

8.3

AUSTRALIAN EQUITIES INVESTMENT OPTIONSy

4.9

5.5

FIXED INTEREST INVESTMENT OPTIONS

Vision Super Saver - Just Shares

35.7

2

11.8

1

12.9

1

AAA

Australian Catholic Super Employer - Bonds

1.6

18

5.1

1

4.2

1

AAA

UniSuper - Australian Shares

33.1

6

11.7

2

11.6

3

AAA

GESB West State Super - Mix Your Plan Fixed Interest

0.6

24

4.4

2

3.5

3

AAA

Prime Super (Prime Division) - Australian Shares

36.3

1

11.0

3

11.9

2

AAA

AMG Corporate Super - AMG Australian Fixed Interest

2.2

11

4.3

3

3.6

2

AAA

ESSSuper Beneficiary Account - Shares Only

26.9

46

10.4

4

11.1

4

AAA

AMG Corporate Super - AMG International Fixed Interest

3.8

5

3.9

4

3.1

12

AAA

CBA Group Super Accumulate Plus - Australian Shares

31.8

12

10.1

5

9.9

22

AAA

QSuper Accumulation - Diversified Bonds

2.0

14

3.9

5

3.1

10

AAA

Vision Super Saver - Australian Equities

30.6

16

9.7

6

10.0

17

AAA

Intrust Core Super - Bonds (Fixed Interest)

3.2

7

3.8

6

3.4

5

AAA

Aware Super Employer - Australian Equities

28.6

31

9.7

7

10.2

8

AAA

Mine Super - Bonds

-0.4

36

3.7

7

3.3

6

AAA

AustralianSuper - Australian Shares

28.4

32

9.5

8

10.1

14

AAA

UniSuper - Australian Bond

-1.7

43

3.6

8

2.7

22

AAA

Sunsuper Super Savings - Australian Shares Index

27.8

39

9.5

9

10.1

13

AAA

GESB Super - Mix Your Plan Fixed Interest

0.2

29

3.6

9

2.8

21

AAA

Virgin Money SED - Indexed Australian Shares

27.7

41

9.4

10

AAA

StatewideSuper - Diversified Bonds

4.6

3

3.6

10

3.4

4

AAA

Rainmaker Australian Equities Index

30.1

Rainmaker Australian Fixed Interest Index

0.3

8.6

9.6

INTERNATIONAL EQUITIES INVESTMENT OPTIONS

3.0

2.4

AUSTRALIAN CASH INVESTMENT OPTIONS

Vision Super Saver - Innovation and Disruption

57.1

1

29.6

1

AAA

AMG Corporate Super - Vanguard Cash Plus Fund

0.9

1

1.4

1

1.6

1

AAA

UniSuper - Global Environmental Opportunities

50.8

2

21.4

2

18.9

1

AAA

AMG Corporate Super - AMG Cash

0.6

5

1.2

2

1.5

5

AAA

UniSuper - Global Companies in Asia

26.6

40

16.0

3

16.6

2

AAA

GESB West State Super - Cash

0.2

22

1.2

3

1.5

3

AAA

AustralianSuper - International Shares

26.1

42

14.7

4

14.7

6

AAA

Intrust Core Super - Cash

0.3

15

1.2

4

1.5

4

AAA

LUCRF Super - International Shares (Active)

29.4

25

14.6

5

13.8

9

AAA

NGS Super - Cash & Term Deposits

0.4

10

1.2

5

1.5

6

AAA

UniSuper - International Shares

33.8

13

14.6

6

15.1

3

AAA

Rest Super - Cash

0.6

3

1.2

6

1.4

9

AAA

Equip MyFuture - Overseas Shares

33.4

14

13.4

7

14.8

5

AAA

Prime Super (Prime Division) - Cash

0.4

9

1.2

7

1.6

2

AAA

Vision Super Saver - International Equities

37.9

4

13.2

8

15.0

4

AAA

ANZ Staff Super Employee Section - Cash

0.8

2

1.2

8

1.3

16

AAA

Intrust Core Super - International Shares

30.2

22

12.6

9

14.1

8

AAA

LUCRF Super - Cash

0.5

6

1.1

9

1.2

21

AAA

QSuper Accumulation - International Shares

36.8

6

12.4

10

13.0

15

AAA

Media Super - Cash

0.2

21

1.1

10

1.3

18

AAA

Rainmaker International Equities Index

27.3

Rainmaker Cash Index

0.0

0.8

1.1

10.6

11.9

Note: Tables include Australia’s top performing superannuation products that also have a AAA SelectingSuper Quality Assessment rating.

Investment options are sorted by their three year net performance results. All performance figures are net of maximum fees.

Source: Rainmaker Information www.rainmakerlive.com.au

28

Economics

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

Australia on top

Monthly Indicators

Ben Ong

Retail Sales (%m/m)

-

1.07

1.32

-0.78

0.29

Retail Sales (%y/y)

-

25.03

2.22

9.09

10.61

68.31

137.24

22.42

5.05

11.06

he Australian Bureau of Statistics’ (ABS) ‘National Accounts’ show the AustralT ian economy expanded by 1.8% in the March 2021 quarter – the third consecutive quarter of growth since the pandemic-induced recession in the March and June quarters of 2020 – taking the annual growth in GDP up to 1.1% and national output above the level it was before the coronavirus struck.

Using the same measure, this beats America’s 0.4% GDP expansion over the same oneyear period, and far and away from economic contractions in the Eurozone (-1.8%), Japan (-1.8), and the United Kingdom (-6.1%).

There’ll always be dissenters but, for me, the Morrison government has spent its money wisely. The government’s tax incentives have driven business confidence and conditions to record highs. The latest NAB business survey showed business conditions jumped to a new all-time high reading of 32 in April, bettering what was then the record high score of 24 in the previous month. Business confidence surged to a record high reading of 26 in April from the already above long-term average readings of 17 in March and 19 in February (long-term average is 6).

This surge in business confidence translated into increased private investment with the National Accounts tracking a 5.3% increase in the March 2021 quarter and 3.6% higher from a year before – the first year-on-year increase sine the June quarter of 2018 and the fastest since the September quarter of 2017.

The Westpac-Melbourne Institute index of consumer confidence remained elevated at a reading of 113.1 in May the second high-

est print for the Index since April 2010.

One that augurs well for the continued acceleration in household spending going forward, not to mention, the improvement in the country’s labour market.

Household consumption grew by 1.2% in the March 2021 quarter, contributing 0.7 percentage points to growth and driven by a 2.4% increase in spending on services as mobility increased on the back of eased social and trading restrictions. Spending on services would have grown by more had it not been for the continued closure of Australia’s international borders. While spending on goods declined by 0.5% over the quarter, it remains above prepandemic levels.

With Australia’s household savings ratio remaining elevated at 11.6% in the March 2021 quarter, there’ll be more spending going forward to satisfy pent-up demand. The savings ratio was recorded at 5.4% in the December 2020 quarter and has dropped by as much as -1.7% in the December 2002 quarter. That’s a lotta savings that’ll go towards the purchase of goods and services when (not if) Australians decide to run down their savings.

The renewed outbreak of coronavirus infections in Victoria – and the consequent lockdown in the state and the threat of the infection seeping into other states – underscores the risk to Australia’s rosy outlook.

Then again, this has encouraged us, Australians all (well, most) to get vaccinated.

In the words of the RBA: “An important ongoing source of uncertainty is the possibility of significant outbreaks of the virus, although this should diminish as more of the population is vaccinated.” fs

May-21

Apr-21

Mar-21

Feb-21

Jan-21

Consumption

Sales of New Motor Vehicles (%y/y)

Employment Employed, Persons (Chg, 000’s, sa) Job Advertisements (%m/m, sa) Unemployment Rate (sa)

-

-30.59

77.01

84.08

33.41

7.92

4.88

8.02

7.68

3.31

-

5.48

5.70

5.87

6.41

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

-

4.57

1.96

15.02

-10.64

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

-

-8.61

18.86

20.13

-17.06

Survey Data Consumer Sentiment Index

113.13

118.78

111.80

109.06

107.00

AiG Manufacturing PMI Index

61.80

61.70

59.90

58.80

55.30

NAB Business Conditions Index

37.15

31.92

25.49

19.19

11.47

NAB Business Confidence Index

19.80

23.45

17.46

19.58

14.33

Trade Trade Balance (Mil. AUD)

-

8028.00

5794.00

7712.00

Exports (%y/y)

-

9.28

-5.32

8.66

1.74

Imports (%y/y)

-

8.22

5.68

-4.14

-12.02

Mar-21

Dec-20

Sep-20

Jun-20

Mar-20

Quarterly Indicators

9589.00

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

18.28

16.01

10.57

16.48

6.92

% of GDP

3.48

3.15

2.17

3.52

1.37

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

-0.33

-4.78

4.01

13.40

2.58

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

0.60

0.67

0.08

0.08

0.53

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

0.52

0.52

0.53

-0.08

0.38

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

0.52

0.52

0.45

0.00

0.45

Inflation CPI (%y/y) headline

1.11

0.86

0.69

-0.35

2.19

CPI (%y/y) trimmed mean

1.10

1.20

1.20

1.30

1.70

CPI (%y/y) weighted median

1.30

1.30

1.20

1.20

1.40

Output Real GDP Growth (%q/q, sa)

News bites

Australia housing loan commitments ABS statistics indicate that the country’s property remains hot. Total new housing loan commitments surged to a record high $31.1 billion in April – up 3.7% over the month and 68.2% from the same month last year, with both owner-occupiers and investors ramping up purchases. Owner-occupied housing loan commitments increased by 4.3% to a record high $31.1 billion in the month of April – up 70.1% from a year ago – while loan commitments from investors went up by 3.7% month-on-month and surged by 63.0% from April 2020. So far, the RBA has only acknowledged the rise in house prices and housing credit growth but assured that it is monitoring lending standards.

UK flash PMI Preliminary estimates reveal that the IHS Markit/ CIPS UK composite PMI jumped from April’s

final reading of 60.7 to 62.0 in May – the highest reading since records began in January 1998.

According to Markit: “Survey respondents widely commented on a post-lockdown bounce in business and consumer confidence, alongside higher output levels due to the phased reopening of customer-facing areas of the UK economy.” The flash UK manufacturing PMI soared to 66.1 in May – the highest since 1992 – from the final reading of 60.9 in the previous month. The flash UK services PMI went up from 61.0 in April (final reading) to 61.8 in May – a 91-month high (October 2013).

Australia GDP ABS data shows the Australian economy expanded by 1.8% in the March 2021 quarter – the third consecutive quarter of growth since the pandemic-induced recession in the March and June quarters of 2020 – taking the annual growth in GDP up to 1.1% and the national output above the level it was before the coronavirus struck. Using the same measure, this beats America’s 0.4% GDP expansion over the same one-year period, and far and away from economic contractions in the Eurozone (-1.8%), Japan (-1.8), and the United Kingdom (-6.1%). Household consumption grew by 1.2% in the March 2021 quarter, contributing 0.7 percentage points to growth and driven by a 2.4% increase in spending on services as mobility increased on the back of eased social and trading restrictions. fs

1.79

3.21

3.46

-6.97

-0.29

Real GDP Growth (%y/y, sa)

1.11

-0.95

-3.66

-6.24

1.44

Industrial Production (%q/q, sa)

1.20

-0.10

0.10

-2.73

-0.10

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

6.27

4.23

-2.87

-6.32

-1.94

11-Jun 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

1.44

1.67

1.65

0.92

2.61

Australian 10Y Corporate Bond Yield

1.96

1.58

1.27

1.87

3.39

Stockmarket All Ordinaries Index

7424.0

1.42%

6.96%

24.61%

21.43%

S&P/ASX 300 Index

7173.6

1.65%

7.65%

23.29%

20.22%

S&P/ASX 200 Index

7179.5

1.63%

7.59%

22.70%

19.58%

S&P/ASX 100 Index

5942.9

1.82%

7.98%

23.18%

20.56%

Small Ordinaries

3293.4

0.45%

5.43%

24.37%

17.59%

Exchange rates A$ trade weighted index

63.50

A$/US$

0.7702 0.7833 0.7768 0.6901 0.7612

64.40

64.50

58.80

62.50

A$/Euro

0.6359 0.6440 0.6494 0.6064 0.6447

A$/Yen

84.54 84.97 84.27 73.60 83.65

Commodity Prices S&P GSCI - commodity index

532.03

524.41

493.41

314.79

475.35

Iron ore

163.68

178.80

163.93

92.05

66.27

Gold

1881.05 1829.10 1724.25 1738.25 1299.60

WTI oil

70.91

65.31

66.02

36.43

Source: Rainmaker Information /

66.10

Sector reviews

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

Figure 1. RBA cash rate target & 10Y bonds

Australian equities

7.0

6.0 PERCENT

4.0

Cash rate target

6.0

10Y bonds

2.0

5.0

0.0

4.0

Prepared by: Rainmaker Information Source:

CPD Program Instructions

Figure 2. Australia real GDP growth

PERCENT

3.0

-2.0

2.0

-4.0

1.0

-6.0

0.0

-8.0

Quarterly change

2012

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

2013

2014

2015

Annual change

2016

2017

2018

2019

2020

2021

RBA rates on ice until 2024 Ben Ong

E

xcept to reinforce its message that interest rates will remain at record lows “until 2024 at the earliest”, the Reserve Bank of Australia’s (RBA) June meeting was largely a ho-hum affair.

As expected, the RBA left monetary policy settings unchanged – “including: the targets of 10 basis points for the cash rate and the yield on the 3-year Australian government bond; the parameters of the government bond purchase program; and the rate of 0% on Exchange Settlement balances”.

Financial markets expected as much. This is because the Australian central bank has already provided forward guidance at its May meeting that July is the month to watch out for.

“At its July meeting, the board will consider whether to retain the April 2024 bond as the target bond for the 3-year yield target or to shift to the next maturity, the November 2024 bond.

International equities

The board is not considering a change to the target of 10 basis points. At the July meeting, the Board will also consider future bond purchases following the completion of the second $100 billion of purchases under the government bond purchase program in September,” it said.

Then again, it doesn’t hurt to replay the RBA’s rosy narrative that Australia’s economic recovery has been stronger than expected and would continue to do so. The RBA revised up its 2021 GDP growth forecast to 4.75% (from 3.5% predicted in its February statement). Only a day before, the OECD’s ‘Economic Outlook’ report upgraded Australian GDP growth to 5.1% this year (from 4.75% it forecast in March and 3.2% in December 2020.

This stronger economic growth would boost the labour market with the RBA expecting the jobless rate to continue to fall “to be around 5% at the end of this year and 2-3% at the end of 2022”.

As for inflation, it’s expected to rise tempo-

Figure 1. IHS/CIPS UK PMI 70

INDEX

ANNUAL CHANGE %

All Items (HICP)

5

60 55

Core

4

50 3

40 35

2

Manufacturing

30

1

Composite

25

Services

20

0

15 -1

10 JAN19

MAY19

SEP19

JAN20

MAY20

SEP20

JAN21

MAY21

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

The UK’s going OK Ben Ong

T

he country hasn’t fully opened yet but easing restrictions, increased rate of vaccinations and stronger consumer and business spending combined to speed up the recovery in the UK’s economy.

This is underscored by the latest IHS Markit/ CIPS PMI survey. Preliminary estimates reveal that the UK composite PMI jumped from April’s final reading of 60.7 to 62.0 in May – the highest reading since records began in January 1998. According to Markit: “Survey respondents widely commented on a post-lockdown bounce in business and consumer confidence, alongside higher output levels due to the phased reopening of customer-facing areas of the UK economy”.

The flash UK manufacturing PMI soared to 66.1 in May – the highest since 1992 – from the final reading of 60.9 in the previous month.

The flash UK services PMI went up from

61.0 in April (final reading) to 61.8 in May – a 91-month high (October 2013).

These justify the Bank of England’s (BOE) decision at its May 5 monetary policy committee meeting to slow bond purchases to £3.4 billion a week between May and August, from £4.4 billion based on revised estimates for GDP growth to expand by 7.25% the fastest rate since World War II – this year from the February 2021 estimate of 5.0% and for the unemployment rate to peak at 5.5% later this year – as significant drop from the 7.75% it predicted three months earlier.

But with indications of stronger growth also comes rising inflation pressures.

Measured inflation in the UK has sequentially accelerated over the past three months – the annual rate of headline inflation rose to 1.5% in April (from 0.7% in the previous month); core inflation quickened to 1.3% from 1.1% in March.

The IHS Markit/CIPS PMI survey found that: “May data pointed to the fastest increase

The Financial Standard CPD Program has been developed for professionals governed by the Corporations Act 2001 and hold an AFS Licence which provides an obligation to undertake continuous professional development (CPD). Test your knowledge with the following questions.

[See next page for instructions on how to submit your answers].

Australian equities CPD Questions 1–3

1. What is the RBA’s current cash rate target? a) -0.10% b) 0.00% c) 0.10% d) 0.15% 2. What is the RBA’s current 3-year bond yield target? a) -0.10% b) 0.00% c) 0.10% d) 0.15% 3. The RBA raised the official cash rate target by 10 basis points at its June meeting. a) True b) False

International equities

Figure 2. UK inflation

45

Prepared by: Rainmaker Information Source: Rainmaker /

rarily “above 3% in the June quarter because of the reversal of some COVID-19-related price reductions” but largely, the RBA expects only a “gradual and modest” rise in inflation and wages. “In the central scenario, inflation in underlying terms is expected to be 1.5% in 2021 and 2% in mid 2023,” the RBA said.

“This outlook is supported by fiscal measures and very accommodative financial conditions.

An important ongoing source of uncertainty is the possibility of significant outbreaks of the virus [alluding to the renewed coronavirus outbreak in Victoria], although this should diminish as more of the population is vaccinated.”

The RBA’s overriding assurance: “The board is committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia and inflation consistent with the target. It will not increase the cash rate until actual inflation is sustainably within the 2-3% target range.” fs

6

65

29

in average cost burdens across the UK private sector since August 2008. Manufacturers mostly commented on price pressures due to shortages of raw materials and high shipping costs, while service providers often noted increased staff salaries. Strong customer demand helped to confer a greater degree of pricing power to private sector businesses in May, as signalled by the strongest rate of output charge inflation since this index began nearly 22 years ago.”

This supports expectations that the BOE could lift interest rates by the middle next year, recently given prominence by BOE policymaker Gertjan Vlieghe’s remarks that the British central bank could lift rates as soon as the first half of 2022 but only if the unemployment rate doesn’t pick up after the government’s furlough scheme ends on the 30th of September this year.

But as the BOE warned at its May meeting, the economic outlook remains uncertain and depends on the “evolution of the pandemic”. fs

CPD Questions 4–6

4. IHS Markit/CIPS UK PMI indicated expansion in May? a) Composite PMI b) Manufacturing PMI c) Services PMI d) All of the above 5. What is the BOE’s revised UK GDP growth forecast for this year? a) 5.0% b) 5.5% c) 7.25% d) 7.75% 6. UK headline and core inflation reached the BOE’s target in April. a) True b) False

30

Sector reviews

Fixed interest CPD Questions 7–9

7. Which indicator shows that Japan remains in deflation? a) Headline CPI b) Core CPI c) Both a and b d) Neither a nor b 8. What was Japan’s GDP growth in the year to the March quarter? a) -5.1% b) -3.9% c) 0.0% d) +3.9% 9. The BOJ believes that the economy will remain in deflation for the time being. a) True b) False Alternatives CPD Questions 10–12

10. By how much did OPEC+ agree to raise oil production in July? a) 400,000 bpd b) 441,000 bpd c) 500,000 bpd d) 541,000 bpd 11. What is the OECD’s revised global GDP growth forecast for 2021? a) 4.0% b) 4.4% c) 5.6% d) 5.8%

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

Fixed interest

Figure 1: Japanese CPI inflation

Figure 2: Japanese real GDP growth 25

4 ANNUAL RATE %

20

3

PERCENT

15 10

2

5 1

0 -5

0

-10

-1

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

-2

-15

Annualised quarterly growth rate

Headline inflation

-20

Quarterly

Core inflation (ex-food)

-25

Annual

-30

-3

2012

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

2013

2014

2015

2016

2017

2018

2019

2020

2021

Japan’s deflation expectations Ben Ong

W

hile many, if not most, of its central bank peers – led by the Fed – are pushing back against inflation concerns, the Bank of Japan (BOJ) cannot seem to drive growth in the country’s consumer prices significantly beyond zero.

In his press conference after the 27-28 April FOMC meeting, Fed chair Jerome Powell stated that: “Readings on inflation have increased and are likely to rise somewhat further before moderating. In the near term, 12-month measures of PCE inflation are expected to move above 2 percent … we are also likely to see upward pressure on prices from the rebound in spending as the economy continues to reopen, particularly if supply bottlenecks limit how quickly production can respond in the near term. However, these one-time increases in prices are likely to have only transitory effects on inflation.”

This is the complete opposite of the BOJ’s assessment revealed in the “Summary of Opin-

Alternatives

ions at the Monetary Policy Meeting on April 26 and 27, 2021”, where it revealed that: “The year-on-year rate of change in the consumer price index (CPI) is likely to be slightly negative for the time being. Thereafter, it is expected to turn positive and then increase gradually…”

To be sure, latest data show that Japanese annual headline inflation remains in deflation (-0.4% in April from -0.2% in March) – the seventh straight month of falling prices. So does core inflation. Its annual growth rate has remained negative for the nine months running to -0.1% in the year to April.

Certainly, the upward revision in Japan’s March 2021 quarter GDP contraction to an annualised rate of 3.9% (from the preliminary estimate of minus 5.1%) is cause for optimism.

Then again, the economy shifting back into reverse, following two straight quarters of expansion, presents bad tidings for inflation and overall growth – a catch-22 situation, if you will.

Japan needs inflation to ignite consumer spending and business spending that would lift economic activity but with the economy a quarter away from another technical recession, rational expectations theory dictates that both consumers and businesses will defer expenditures, slowing overall economic growth.

More so, given recent news that wage negotiations have settled on the low side.

As per Factset: “Kyodo cited Japan Business Federation figures showing major companies have agreed on an average pay hike of 1.82% in this year’s annual spring wage negotiations, falling below 2% for the time since 2013 and the slowest pace since the aftermath of the 2008 financial crisis.”

Not only that, Japan’s fourth coronavirus wave has prompted mister and missus Miyagi to be more frugal the Bank of Japan estimated pandemic has led to JPY20T in additional savings last year. fs

Figure 2: US oil rig count

Figure 1: Crude oil prices 120

140 US$/BARREL

NO. OF RIGS

120

80

12. The Baker and Hughes rotary oil rig count reached a 13-month high as at the end of May. a) True b) False

1800 US$ PER BARREL

100

100

60

WTI oil

1600

Brent oil

1400

Oil rig count -RHS

1200

80

1000

60

800

40 20

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

-20

400

Brent

20

200

West Texas Intermediate

-40 2014

600

40

0

0

0 2015

2016

2017

2018

2019

2020

2021

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

OPEC’s delicate balancing act Ben Ong

T

Go to our website to

Submit

All answers can be submitted to our website.

he demand picture has shown clear signs of improvement.”

So declared Saudi Arabia’s oil minister, Prince Abdulaziz bin Salman as the OPEC+ group of oil producing nations met and decided to gradually increase oil production in July.

The OPEC+’s online meeting on 1 June 2021 saw oil ministers from member nations agree to raise oil production by 441,000 barrels per day (bpd) in July, with Saudi Arabia –the swing producer – adding 400,000 bpd more.

The consequent jump in crude oil prices justify the Saudi oil minister’s declaration and, at the same time, the oil market’s belief that the supply increase remains insufficient to meet growing demand – recently reinforced by the OECD’s upgrade to global growth.

In its ‘Economic Outlook, May 2021’ report, the OECD upgraded its global GDP growth forecast to by 5.8% this year and by 4.4% in

2022. This compares with the 5.6% and 4.0%, respectively, it forecast in March and a sharp upgrade from the 4.2% (for 2021) and 3.7% (for 2022) predicted in its December 2020 report.

The price of Brent oil rallied to US$71.20/ barrel and WTI oil soared to US$68.83 a barrel. This year to date, the price of Brent oil has surged by 41.4 and that of the WTI has risen by 45.0%.

Not promising anything, OPEC+ will review its production policy again on the 1st of July.

They’re right to do so.

This is because the outlook remains fluid and uncertain. Despite increased coronavirus vaccinations and reduced cases in the advanced economies, the resurgence of infections (currently doing its rounds in Asia, Latin America and including Australia’s state of Victoria) could restrain the global recovery and weaken overall demand for oil.

Already, the small increase in oil output

has put further upward pressure on prices (as we’ve seen) – one, that’s bound to act as an impediment to continued improvement in global growth. Rising oil prices, after all, are a tax on consumption.

OPEC+ is also balancing its output decision on whether or not Iranian production would come on stream if or when the US eases its sanctions which, according to the New York Times, “could increase its crude production to four million barrels a day from 2.4 million over the next year”.

There’s also the not so small issue with US oil producers. Rising oil prices make their investments more feasible and cost effective which, overall, increases the oil supply.

The Baker and Hughes rotary oil rig count has reached a 13-month high of 359 rigs as at the end of May – up by 30.5% so far this year and by a whopping 109% since it dropped to a 15-year low of 172 rigs in August 2020. fs

Sector reviews

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

31

Property

Property

CPD Questions 13–15

Prepared by: Rainmaker Information Source: CoreLogic and the RBA

he state of the Australian property market was perhaps best summed up by the Daily T Telegraph recently: “A mouldy 1970s house with a leaky roof and rooms cordoned off with danger tape has sold for $1.68 million at a frantic auction attended by 16 bidders.” And the buyers reportedly planning to spend another $300,000 to restore the three-bedroom house in the northern beaches suburb of Frenchs Forest, New South Wales.

Homebuyers want to get in before house prices get higher and property investors are revving up purchases in anticipation of booms to come.

With interest rates at record lows and the Reserve Bank of Australia (RBA) pledging that they will remain at current levels until 2024, those who can afford to borrow are borrowing … to the hilt before rising house prices priced them out of the market.

CoreLogic’s home value index shows that the “5 city capital aggregate” index increased by another 2.3% in the month of May (from April’s 1.8%) to be 9.1% higher from a year earlier.

Not only that:“CoreLogic’s research director, Tim Lawless, observes that growth conditions

Home sweet home Ben Ong

remained broad based both geographically and across the housing types and valuation segments.”

Home values for “all dwellings” in Australia increased in all of the country’s six states and two territories in May. The Australian Bureau of Statistics’ (ABS) Lending Indicators report indicates that the country’s property will get even more hot, hot, hot.

Total new housing loan commitments surged to a record high $31.1 billion in April – up 3.7% over the month and 68.2% from the same month last year, with both owner-occupiers and investors ramping up purchases.

Owner-occupied housing loan commitments increased by 4.3% to a record high $31.1 billion in April – up 70.1% from a year ago – while loan commitments from investors went up by 3.7% month-on-month and surged by 63.0% from April 2020.

So far, the RBA has only acknowledged the rise and rise in house prices and assured that it is monitoring lending standards.

According to the RBA: “Markets have strengthened further, with prices rising in all ma-

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jor markets. Housing credit growth has picked up, with strong demand from owner-occupiers, especially first-home buyers. There has also been increased borrowing by investors. Given the environment of rising housing prices and low interest rates, the Bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained.”

This is a green signal for continued appreciation in house prices.

This will be partially mitigated by the 11.4% drop in loan commitments for new dwellings in the month of April (following a 14.8% decline in the previous month) because “the HomeBuilder grant was reduced from $25,000 to $15,000 effective from 1 January 2021 and was closed to new applications from 14 April 2021”.

But as the ABS clarified, “…the value of construction commitments remained at a high level.”

The balance of supply and demand – plus the RBA’s forward-guidance for another three years of low interest rates and speculation for further gains in house prices – suggest home is where the money is. fs

13. What was the increase in CoreLogic‘s “Five city capital aggregate” index in the month of May? a) 1.0% b) 1.8% c) 2.3% d) 2.9% 14. What was the increase in total new housing loan commitments in the month of April? a) 3.4% b) 3.7% c) 4.3% d) 7.3% 15. Owner-occupied and investor loan commitments both increased in April. a) True b) False

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32

Profile

www.financialstandard.com.au 28 June 2021 | Volume 19 Number 12

A BALANCE OF PRIORITIES The Association of Financial Advisers general manager policy and professionalism Phil Anderson has a disciplined value system. Now, he is on a mission to make the advice industry flourish again. Annabelle Dickson writes.

oining the defence forces fresh out of uniJsystem versity equipped Phil Anderson with a value that has stuck with him for life, no matter the path his career took.

His six-year tenure as a supply officer in the Royal Australian Navy taught him how to focus on the objective, lead people and meet personal commitments, all with a layer of discipline.

“You learn to manage people earlier than you might in other contexts because as an officer in the Navy you have a division of sailors that you are responsible for and some of them can be quite a lot older than you are,” he says.

Anderson’s role at HMAS Kuttabul, a naval base above Garden Island in Sydney, was to manage a team. This included paying the crew and also saw Anderson and his crew responsible for the officers’ mess.

“It is a great space to learn about how you seek to lead people, how bureaucracy works, how to treat people and the respect of being on time,” he says.

The Royal Australian Naval College also taught Anderson to ensure he is always five minutes early to any appointment in his diary.

“It is one of those values that you carry with you for life and there is a layer of discipline that you don’t see in other fields,” he says.

It’s these values, instilled in Anderson early on, that have carried through his career from a management consultant through to time at AMP in corporate superannuation and onto MLC to lead the financial advice risk and compliance function before moving onto the Association of Financial Advisers (AFA).

Having worked in the advice sector for over 16 years, Anderson, like among many others, has endured a great deal of change – particularly over the last 11 years.

Reflecting on the Ripoll Inquiry into financial products and services in Australia and the introduction of the Future of Financial Advice reforms, Anderson says these were the catalyst for the vast change that has reverberated throughout the industry.

“Ever since then change has been constant and very challenging. The pace and the demands have only grown, and it has made it a very challenged sector and large chunks of the advice market have been struggling for a long period of time,” he says.

Currently tasked with the additional responsibilities as acting chief executive, Anderson says his workdays are a balancing of priorities.

The biggest challenge, he believes, is the speed at which the reforms coming off the back of the Hayne Royal Commission are being legislated.

“It’s just being pushed through without regulation impact statements and without sufficient process in parliament,” he says.

Anderson has been fielding questions

from AFA members and consequently going through the legislation, trying to make sense of particular measures.

“I was reading through it and thought ‘hang on, this doesn’t make sense’,” he says.

Most recently, the AFA identified practicality issues with the annual renewal law which requires advisers to provide a fee disclosure statement (FDS) during the transition year that covers a 12-month period up to the day immediately before the day the FDS is provided.

The AFA realised that financial advisers would have only one day to issue an FDS. The government responded to the issue and is allowing advisers 60 days to provide clients with an estimate of fees.

“The trouble with the rushed reforms is that things get missed and you have to then work through these issues with Treasury and ASIC and try and find a solution. One of the things that I worry about is how some of these initial legislative decisions are made,” he says.

One of the reforms Anderson is most worried about is the new breach reporting regime.

“It will lead to an exponential increase in what needs to be reported to ASIC and then that flows through to where the single disciplinary body goes,” he says.

“We need to make sure that is a sensible, pragmatic outcome. Not something that is going to add more bureaucracy and more to the cost of advice.”

Another prominent issue that Anderson and the AFA are campaigning to address is the advisers who are unlikely to pass the FASEA exam by the end of the year.

While 65% of the adviser population has passed the exam, it is those who are left that the AFA is advocating for and are concerned about.

“We’ve seen some interesting developments over the last couple of weeks that flowed from the senate estimate hearing that has painted the picture of there being an alternative pathway for those advisers,” he says.

The government is unlikely to further extend the exam, leading the AFA to push for a grace period for advisers who haven’t passed to have the time to sell their businesses or make restructuring arrangements.

Anderson says now the primary focus is to assist as many AFA members pass this year by providing as much feedback as possible as to why they haven’t passed.

“We’re quite concerned about advisers feeling reluctant to reach out for help when they’re struggling with the exam because it’s quite a challenging, emotional thing to feel that you have been doing something for a long period but can’t pass the exam,” he says.

Moving forward, Anderson believes the future of financial advice sits in two key areas.

“There is the professionalising and all the reforms that come with that but ultimately what is also critical is that we maintain a sustainable number of advisers in the Australian market,” he says.

The reality is, we’re fighting for something that we believe in... We’re working for our members and for their future.

Phil Anderson

“We’ve got to hold onto as many existing advisers as possible and have a pathway for new advisers to come in.”

The way to do this, Anderson says, is to make financial advice an attractive profession to work in by connecting incoming advisers with the opportunities in advice. Currently, only half the students that study approved courses go into advice.

“There has to be more of a positive and supportive environment. We need to continue with the message about the value of financial advice and its capacity to change the lives of everyday Australians to make their lives so much better,” he says.

“It is a profession that is deeply valued by the clients, where you have a chance to make a real difference.”

Unfortunately, the never-ending regulatory change has Anderson feeling like he is in a continuous battle. To overcome those feelings, Anderson shifts his mindset to wake up each day and think of the next thing the AFA can do to influence a better outcome for its members.

“It’s pretty tough to keep fighting these battles – there always seems to be one more thing after the other. But the reality is, we’re fighting for something that we believe in,” he says.

“We’re working for our members and for their futures.” fs