Financial Standard vol19 i13

www.financialstandard.com.au

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AustralianSuper, IFM

Financial crime

FSU, Hostplus

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Anthony Doyle Fidelity

Fixed income

Neil Younger Fortnum Private Wealth

News:

Opinion:

ASIC plays catch-up on crypto investing Elizabeth McArthur

SIC consulting on crypto-asset based exA change traded products is a move that could see Australians access a whole new world of cryptocurrency investments, but some stakeholders are concerned it could be too little, too late.

The regulator is grappling with the same questions facing jurisdictions all over the world.

Recently, the US Securities and Exchange Commission hit pause on a VanEck Bitcoin ETF being able to list on the Cboe BZX Exchange.

And, in the UK, the Financial Conduct Authority banned the world’s largest crypto exchange, Binance, because it was not satisfied it was doing enough to comply with anti-money laundering laws.

RMIT senior research fellow Chris Berg explains Australia is “in the middle of the pack” when it comes to regulating crypto - not hostile to crypto like China, but not as open as parts of the US or Singapore, where the Monetary Authority of Singapore regulates the crypto industry, ensuring safekeeping of assets.

As it stands, ASIC only regulates cryptocurrency to the extent it crosses over with financial products. Outside of that, regulation is up to the government.

BetaShares’ chief executive Alex Vynokur was quick to welcome news of ASIC’s consultation.

“We agree with ASIC’s view that there is real risk of harm to consumers if these products are not developed and operated properly,” he says.

“We also believe there is a significant risk of harm to Australian consumers who may be obtaining access to crypto-assets directly through exchanges that are not a licensed market operator.”

MH Carnegie & Co founder Mark Carnegie agrees these are the consumers who face the most risk. The two crypto managed funds launched by his firm are regulated by ASIC, but only open to sophisticated investors.

“What you’re creating is two classes of investors. Sophisticated investors who should know what they’re doing can get access to sophisticated investing crypto funds. By contrast, all these individuals who should have regulatory protections are pushed into investing in crypto native coins without regulatory constraints on them,” he says.

“It’s an absolute catastrophe, because the people who need the most consumer protection are the ones that are getting the least.”

Berg points out that to protect those consumers currently buying through unregulated exchanges, the government would have to bring cryptocurrencies under the remit of financial regulators by altering the Corporations Act. “ASIC is a conservative Australian regulator… but the problem is not an ASIC problem, it’s a Parliamentary problem. Much of what we need in the blockchain and cryptocurrency space is legislative change, rather than just regulatory allowances,” Berg says.

Carnegie has little hope this change will happen quickly though.

“My concern [with the consultation] is whether this is actually going to be something that affects me, my children or my grandchildren. That is the speed with which they seem to be regulating an industry which is moving at the speed that crypto is. It feels to me they will always be regulating the last wave of crypto,” Carnegie says.

Carnegie is concerned that, on a global scale, the market will evolve in a way that makes Australia irrelevant, and Berg agrees.

“This is an incredibly innovative area. We have lots of young startups, looking for places to base themselves, looking for where they can develop exciting products, and give their staff high quality lifestyles, and Australia can and should be one of those places,” Berg says.

“I know a number of firms and individual high quality blockchain developers who have moved out of Australia, predominantly because the regulatory environment isn’t that desirable, but I think we’ve got the opportunity to capture a lot of that back.”

As for ETPs, Vynokur says ASIC is on the right track in setting the bar high for custodians. He wants to see Australian crypto ETPs only include a small subset of crypto assets that have liquidity, transparency and accurate price discovery.

“In our view, only those with demonstrable global, institutional-grade capability in cryptoasset custody should be permitted to act as independent custodians of crypto-asset investment products,” he says.

“Similarly, we believe that fund managers who seek to offer such investment products should be required to demonstrate a track record of risk management and organisational competency in managing retail investment products.” fs

12 July 2021 | Volume 19 Number 13 www.financialstandard.com.au 20 January 2020 | Volume 18 Number 01

Featurette:

Feature:

News:

Profile:

More advisers exit at FY end Karren Vergara

Chris Berg

senior research fellow RMIT

Some 450 financial advisers left the industry in the last month of the financial year, taking the total population to 19,544, latest ASIC data shows.

As at July 1, AMP Financial Planning finished the financial year with 690 advisers, while The SMSF Advisers Network (SAN) had 669 representatives at the end of the period, Rainmaker modelling of ASIC’s Financial Adviser Register shows.

Morgans Financial (470), Synchronised Business Services (434), Charter Financial Planning (421) and Consultum Financial Planning (383) were included in the top 10 largest licensees.

Consultum is part of the newly merged IOOF group. It comprises brands like TenFifty (previously Meritum Financial Group, GWM Adviser Services and Apogee Financial Planning) and Godfrey Pembroke, which were part of MLC. Other IOOF-owned licences ended the period with the following figures: RI Advice (264), Millennium3 (242), Lonsdale (119) and Shadforth Financial Group (137) and Bridges Financial Continued on page 4

Trustees warned over advice fees The regulators issued a firm reminder to trustees and financial advisers to heed the new law that limits the charges on superannuation advice.

From July 1, trustees and financial advisers must have the proper processes and systems in place to meet the new regulation.

On 2 March 2021, the Advice Fees and Independence Act received Royal Assent, limiting the advice fee deductions from superannuation accounts as recommended by the Hayne Royal Commission.

Recommendation 3.3 sought to prohibit the deduction of advice fees (other than for intrafund advice) from superannuation accounts in an effort to provide better protections for members against paying fees for no service.

In recommendation 3.2, Commissioner Hayne suggested removing the ability for superannuation trustees to deduct advice fees (other than for intra-fund advice) from a MySuper product because it is a simple product with basic Continued on page 4

News

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

AustralianSuper, LUCRF Super explore merger

Editorial

Jamie Williamson

A

Jamie Williamson

Editor

The new financial year brought the new YourSuper comparison tool, largely aimed at helping everyday Australians better understand what they’re paying for when it comes to their super.

It’s also intended to arm them with the knowledge they need to make an informed decision around what fund they want to be a part of.

You simply select four different products or options to compare and collated in front of you is their returns over a three, five and six-year period and the total annual fees, in addition to investment strategy type and whether the fund is restricted.

Now, there’s a lot to unpack here.

From the outset, the very presentation of the information seems to undermine the “past performance is not a guarantee of future performance” disclaimer you hear and see every day.

On the screen, in black and white, is how much you’re paying in fees and for what return versus what you could be paying elsewhere and the past returns of that fund.

Let’s say you’ve never taken much notice of your super. You see that of the four funds you’ve compared – your fund and likely the three you’ve seen advertised on TV the most – yours isn’t the cheapest, nor are the returns the best. What to do?

Roll all your super over into the fund whose costs and returns looked the best, of course.

Faced with that information and that information alone, isn’t that the logical course of action?

There’s also the obvious concern around insurance, which has been flagged by numerous super funds, not least of all Cbus. The only mention of insurance on the YourSuper tool that I could see comes in the ‘Help’ sidebar, offering a link to the MoneySmart site.

Then there’s the option to personalise the results via MyGov. For me, my super fund only reports my account balance to the ATO once a year, so the results were based on a significantly lower balance than I actually have. You can edit your balance, sure – if you know what it should be. But wouldn’t it have made sense to increase and/or standardise the frequency with which funds report to the ATO to support the user experience? This just increases the risk of those who don’t check their super balance often making a poor decision.

If that’s all too confusing, for those in need of more guidance, the ATO states: “Everyone’s situation is different – we recommend you seek independent financial advice about super matters specific to your circumstances.”

Is this the ATO demonstrating a lack of trust in super trustees’ ability to provide conflictfree advice? Or is it the government endorsing independent advice? Isn’t there still a discussion being had on the use of the word ‘independent’?

Somany questions, so little column space.

The tool is a step forward in helping those less financially literate or unengaged with their super to better understand their situation, but the execution just isn’t there. But it’s early days yet and hey, it’s better than the heatmaps – but just about anything would be, right? fs

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The quote

This is a great opportunity for the two funds to get to know each other better.

ustralianSuper is working on its next merger, this time with a 43-year-old industry fund.

The nation’s largest super fund has signed a Memorandum of Understanding to merge with LUCRF Super, the Labor Union Cooperative Retirement Fund.

Established in 1978, LUCRF is the nation’s oldest industry super funds and home to more than 132,000 members. It has about $7.4 billion in funds under management.

The board of LUCRF selected AustralianSuper as it sees it as the best option to ensure the fund can continue its “proud and long-standing record of acting in members’ best financial interests”.

LUCRF chief executive Charlie Donnelly said AustralianSuper is also best placed to continue the fund’s record of delivering value and returns for members.

“As Australia’s first modern industry superannuation fund, we are thrilled to choose AustralianSuper as a potential merger partner,” he said.

“LUCRF Super has specialised in taking care of the retirement savings of a large pro-

portion of the lowest paid workers in Australia for more than four decades and we are certain that a merger with AustralianSuper will continue to provide the best value and benefits to members.

“LUCRF Super will ensure that this merger will provide a model for how best to put members interests first during mergers of this kind.”

AustralianSuper currently has more than $225 billion in funds under management and more than 2.4 million members.

AustralianSuper chief executive Ian Silk01 said there is a great alignment of values in bringing together the oldest industry fund and the biggest.

“AustralianSuper and LUCRF Super have great traditions and similar values that will make the combined entity stronger and ensure that members’ best financial interests will continue to be at the centre of all decision making,” Silk said.

“This is a great opportunity for the two funds to get to know each other better and a great example of how funds should think about mergers to maximise the benefits of scale and deliver the best possible outcome for members in retirement.” fs

Westpac to remediate 32k advice clients to tune of $87m Karren Vergara

Clients who claimed Commonwealth Bank finanThe failure of Westpac’s former advisers to pass on corporate actions to clients for more than a decade will see the big bank pay a hefty bill.

The $87 million that will be remediated to advisers affects 32,000 customer accounts, ASIC announced this morning, noting that as much as 328,000 potential corporate action notifications fell through the cracks between 2005 and 2019.

The Westpac subsidiaries affected are Securitor Financial Group, Magnitude Group and Westpac Banking Corporation (known as BT Financial Advice). These businesses ceased providing personal financial advice in 2019.

Westpac only notified ASIC about its former advisers’ bungle in July 2019 and provided more information about the severity in April 2020.

Corporate actions cover a range of activities by publicly listed companies, including buy backs, renounceable and non-renounceable rights issues, share purchase plans and takeovers.

These include purchasing additional shares often at a discount to the market price, the creation of temporary rights or options that can be sold for a profit, and the ability to sell shares and receive a benefit that can be tax advantageous depending on the shareholder’s circumstances.

ASIC commissioner Danielle Press said Westpac’s failure to notify customers of corporate actions means customers may have missed out on various opportunities.

“Compensating customers affected by misconduct is a very important part of licensees’ obligations to act fairly, honestly and efficiently. We are pleased to see that Westpac has taken action to remediate affected customers regardless of how much time has passed,” she said.

“We encourage affected customers to engage with the communications from Westpac to understand how they were impacted and to seek further information from Westpac if required.”

Westpac set up a dedicated complaints website and aims to compensate affected customers by the end of 2021.

ASIC urged customers who are not satisfied with their outcome to reach out to the Australian Financial Complaints Authority.

There’s been a lot going on at Westpac lately, with the institution most recently announcing the sale of its New Zealand life insurance unit.

Fidelity Life Assurance, New Zealand’s largest locally owned insurer, is the buyer.

The news came shortly after Westpac confirmed it would no longer pursue plans to demerge its New Zealand business.

According to the bank, a review determined it wouldn’t be in the best interests of shareholders.

And in other legal troubles, Westpac is currently facing civil proceeedings brought by ASIC over alleged insider trading on a $12 billion deal involving AustralianSuper and IFM Investors.

The allegations relate to the consortium’s majority stake in Ausgrid, which it purchased from the NSW government in 2016. The consortium signed the deal on 20 October 2016, taking control of 50.4% of the electricity provider. fs

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www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

01: Kelly Power

More advisers exit in June

chief executive, superannuation Colonial First State

Continued from page 1 Services (193). This makes IOOF the largest licensee after it finalised its acquisition of MLC Wealth in early June 2021.

Interprac Financial Planning netted a loss of 22 advisers with 279 at the end of the period.

Lifespan Financial Planning experienced similar movements, netting a loss of 18 advisers to take its total number of representatives to 252.

About 13 advisers left Capstone Financial Planning to bring its representatives to 256.

On a year-on-year comparison, the total number of active advisers stood at 21,913, representing a near 11% decline.

Adviser numbers officially fell under 20,000 in early June - the first time in many years.

Also losing a considerable number of advisers in the month to July 1 was AMP which lost 44 advisers in the month, SAN lost about 100, Synchron lost close to 40, and Morgans lost 17.

Adviser numbers haven’t been this low since before 2016.

At the end of 2018, they peaked at over 30,000 but the fallout of the Royal Commission took effect.

And now, the number of advisers entering the industry isn’t near enough to offset the number exiting.

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

Some stakeholders have posited that adviser numbers will fall to just 13,000 in four years. fs

Colonial First State unveils new leadership team Karren Vergara

C The quote

The appointments will strengthen capability and capacity as the business continues to prepare for sale completion.

Trustees warned over advice fees Continued from page 1 features. His view was that members who wish to obtain financial advice about their superannuation should pay for that advice directly.

The regulators reminded trustees about their new obligations on 10 April 2019 and are reinforcing their expectations again.

The latest letter expressed that APRA and ASIC expects trustees to have the processes; requisite information, systems and qualified people, as well as controls such as annual audit programs.

Two other laws came into effect on July 1. The disclosure of lack of independence sees advisers providing a written statement of their lack of independence to a retail client.

The ongoing fee arrangements, requiring advisers to obtain written consent before deducting fees, also kicked into gear.

Under the new disclosure rules, advisers must provide every retail client a written statement explaining “simply and concisely” why they are not independent, impartial and unbiased.

The purpose, ASIC said, is to ensure financial advisers’ lack of independence is brought to the clients attention through a prominent disclosure.

On fees, if a client does not renew an ongoing fee arrangement (OFA) within the renewal period, the OFA will lapse after 30 days.

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. fs

olonial First State unveiled a new leadership team to help transform the business, which includes the appointment of a chief executive for CFS Superannuation.

General manager of product Kelly Power01 has been promoted to chief executive for CFS Superannuation, which also takes responsibility for CFS Investments. General manager of investments Scott Tully is unaffected by the change.

Power will also retain responsibility for product and strategy and will join the board of the trustee. Prior to CFS, where she has been for three years, Power worked at BT as its head of platforms.

The group has hired three from MLC to lead operations, human resources and finance.

Darren McKenzie has been appointed to the role of chief operating officer to oversee technology, operations and program management with a focus on digitisation of the business. He came from MLC leading the technology and operations team.

Prior to joining MLC in February 2020, he was based in the UK and Europe. McKenzie was chief operating officer of RSA Insurance based in the UK; chief information officer at Banco Santander and was chief information officer for financial services firm Alliance & Leicester.

Shenaz Waples will join CFS in the newly created chief people officer role towards the end of July. She brings experience in superannuation and investments having worked at MLC, Westpac, ING and BT.

Andrew Morgan will join CFS as chief financial officer from MLC where he held the same role.

Morgan spent nine years working at CBA, including working as chief financial officer of the Wealth management business before his move to MLC. In his new and expanded position, he will have responsibility for the end-to-end finance function and also oversee fund services.

In other internal promotions, Todd Stevenson has been appointed to a broader role of chief customer officer and will have accountability for direct client acquisition and retention, and assume responsibility for marketing and corporate affairs. He will also lead CFS’s work on digital advice.

Bryce Quirk has been appointed as chief distribution officer to help the firm focus responding to the evolving needs of licensees and advisers.

CFS is currently recruiting for a newly created CFS group chief risk officer position to bring risk and compliance expertise as it separates from CBA. CFS executive chair-elect Rob Coombe said the appointments will strengthen capability and capacity as the business continues to prepare for sale completion and accelerates the transformation of the business.

CBA’s divestment is still subject to finalisation and regulatory approvals, but is anticipated to complete in the second half of 2021.

“Kelly has shown outstanding capability and capacity to lead in the four years she has been with the business. I have been particularly impressed with Kelly’s ability to tackle tough and complex issues and oversee the refresh of the business strategy,” he said. fs

Government to create ASIC, APRA regulator Annabelle Dickson

The government has passed legislation that will see the establishment of an independent body charged with reviewing the effectiveness of both the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).

Under the Financial Regulator Assessment Authority Bill 2021, based off the Hayne Royal Commission recommendations 6.13 and 6.14, the Financial Regulator Assessment Authority (FRAA) will be established.

Recommendation 6.13 is to subject APRA and ASIC to a capability review every four years while 6.14 is to establish a new authority to assess the effectiveness and capability of each regulator.

The FRAA will consist of three independent statutory appointees, to be named by the government shortly.

The FRAA will produce biennial reports on the regulators, which will be tabled in parliament.

The legislation noted: “While both regulators are accountable

to the parliament, the Financial Services Royal Commission noted that parliamentary committees, including Senate Estimates, have some limitations in assessing the effectiveness of the regulators (for example, the fields of expertise required to assess the regulators).”

Treasurer Josh Frydenberg added that the reports will “complement the existing accountability mechanisms that apply to the regulators”.

For one of FRAA’s inaugural tasks, it will assist newly appointed ASIC chair Joseph Longo in ensuring the corporate regulator’s compliance with the government’s Statement of Expectation.

Taking to Twitter, Senator Andrew Bragg said the FRAA’s oversight of the regulators coupled with parliamentary scrutiny is most welcome.

“While the FRAA won’t review individual enforcement cases, it will provide systematic scrutiny over regulatory enforcement.

For example, we expect the new super laws and Hayne Royal Commission reforms will be strongly enforced,” he said. fs

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www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

Sequoia launches family office

01: Bevan Towning

head of property AustralianSuper

Elizabeth McArthur

In its latest move to expand its wealth business, Sequoia Financial Group has launched the Sequoia Family Office.

The new business will target local ultra-high and high-net-worth investors with between $5 million and $100 million in investable funds.

The family office service will include corporate advisory, compliance, business planning and bespoke project management.

Sequoia acquired Macro Investment Advisory’s client book as part of its move into this market, targeting $2 billion in funds under advice in the next five years.

The Macro Investment Advisory book $0.2 million to Sequoia’s EBITDA in the first year.

The purchase cost Sequoia $0.6 million in two payments of $0.15 million and shares.

Sophie Chen will be heading up the new business. Chen had been director at Macro for three years and has a financial advice background, having worked as an adviser with Commonwealth Bank. fs

ASIC consults on crypto ETPs Jamie Williamson

ASIC is consulting on how exchange-traded products investing in cryptoassets can meet existing regulatory expectations, with the regulator particularly interested in identifying suitable cryptoassets for such products and ensuring good practice in terms of pricing and risk management.

Consultation Paper 343 also covers listed investment companies, listed investment trusts and unlisted registered managed investment schemes.

“We consider that crypto-asset ETPs have unique features and risks which need to be recognised by market operators and product issuers in performing their functions and meeting existing regulatory obligations,” the regulator said.

“We also consider that there needs to be consistency in how these existing regulatory obligations are met by ETPs and other investment vehicles regulated by ASIC that may also invest in, or provide exposure to, cryptoassets.”

ASIC is particularly interested in identifying cryptoassets that are appropriate underlying assets and establishing good practice in respect of pricing, custody, risk management and disclosure.

For example, ASIC is proposing the basis of a pricing mechanism should be an index published by a widely regarded provider that reflects a substantial proportion of trading activity in the relevant pair, is resistant to manipulation and complies with recognised index selection principles.

When it comes to custody, among other things, the chosen custodian must have specialist expertise and infrastructure for cryptoasset custody and assets are segregated on the blockchain, and an appropriate compensation scheme is in place in the event things go awry.

In terms of disclosure, ASIC is proposing responsible entities disclose market risk, pricing risk, immutability, increased regulation risk, custody risk, cyber risk and environmental risk. fs

AustralianSuper consortium buys logistics facility Kanika Sood

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The quote

The logistics sector is a vital and growing part of the Australian economy and one that AustralianSuper sees significant opportunities in.

ustralianSuper is taking a $774 million or 40% stake in Sydney’s Moorebank Logistics Park, as a part of a consortium.

APAC logistics specialist LOGOS partnered with AustralianSuper, Ivanhoe Cambridge, TCorp and AXA IM Alts to buy Moorebank Logistics Park from ASX-listed Qube for $1.67 billion.

Moorebank is Australia’s largest internodal freight facility, with 243ha of developable land for industrial property and infrastructure, two intermodal terminals facilitating interstate freight and import-export freight, and 850,000sqm of warehouse opportunities directly adjacent to Australia’s largest rail intermodal facilities.

LOGOS will deliver more than $11 billion in economic benefits through MLP, including $120 million for south-western Sydney. By 2030 the site will deliver carbon emission savings equivalent to removing 11,000 vehicles from the road for a full year.

Qube will continue to operate the IMEX and Interstate rail terminals on-site.

AustralianSuper has over $10 billion in property, of which 42% is managed internally. In 2019, it partnered with LOGOS to acquire and develop the Wiri Logistics Estate in New Zealand.

The Moorebank investment is AustralianSuper’s largest direct property investment yet, the fund said.

AustralianSuper head of property Bevan Towning01 said Moorebank has the potential to

be the leading logistics site in Australia, noting that it plays a major role in servicing Port Botany, in which the fund has a 20% stake.

“The logistics sector is a vital and growing part of the Australian economy and one that AustralianSuper sees significant opportunities in,” Towning said.

“Moorebank Logistics Park is a high-quality asset with great potential that fits in with the fund’s long-term property strategy.”

News of the investment was swiftly followed by the announcement that AustralianSuper achieved its best year yet in the 12 months to June 30.

The super fund posted a 20.43% return for the period, the highest since its establishment in 2006. It also makes the 12th consecutive year of positive returns for the fund.

“Yet again we have seen that markets recover after downturns, which reinforces the fact that maintaining long-term discipline increases the potential for long-term investment success,” AustralianSuper chief investment officer Mark Delaney said.

“We believe that most members are better off when they stay invested in a diversified portfolio throughout the market ups and downs.”

He flagged an expected improvement in growth assets’ returns as low rates, government stimulus and pent-up consumer demand continue to support the economic recovery.

“AustralianSuper is a long-term investor, and we have a pro-growth stance in allocating assets in the balanced option,” he said. fs

QSuper, IFM bid for Sydney Airport Annabelle Dickson

A consortium made up of QSuper, IFM Investors and Global Infrastructure Management has announced a takeover bid for Sydney Airport.

The unsolicited, indicative, conditional and non-binding proposal is offering $8.25 per share which equates to a 42% premium on the July 2 closing price.

The conditions include UniSuper, which holds 15% of Sydney Airport’s securities, agreeing to reinvest its equity interest in the consortium’s holding vehicle.

“The indicative proposal has been made during a global pandemic which has deeply affected the aviation industry and the Sydney Airport security price. The indicative price is below where Sydney Airport’s security price traded before the pandemic,” the Sydney Airport board said in a statement.

“The boards are undertaking detailed analysis of, amongst other things, whether the

proposal is reflective of the underlying value of the airport given its long-term remaining concession and the expected short-term impact of the pandemic. The boards will update securityholders accordingly.”

The Sydney Airport board has commenced an assessment of the proposed offer and has appointed Barrenjoey and UBS as its financial advisers.

The announcement comes ahead of the merger between QSuper and Sunsuper which is expected to be finalised in September, creating a $200 billion mega-fund.

Current Sunsuper chief executive Bernard Reilly will become chief executive of the merged fund, and current QSuper chair Don Luke will serve as chair.

Meanwhile, QSuper has made changes to its investments including increasing the number of ETFs available in the Self Invest menu, which will also widen the fee range for ETFs. fs

News

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

Adviser platform satisfaction slips The level of satisfaction financial advisers have with their main platform has dropped as the pandemic puts pressure on platform providers to increase capabilities, new research shows.

Investment Trends’ latest Adviser Technology Needs Report showed only 28% of advisers rated their overall satisfaction with their main platform as ‘very good’, down 2% on 2020 and maintaining the downward trend from a 40% high in 2014.

Netwealth took out the top-rated platform by overall satisfaction at 80% followed by HUB24 (78%).

Rounding out the top five are BT Panorama (75%), CFS FirstChoice (73%), Macquarie Wrap (73%).

“The challenging business conditions brought by the pandemic has undoubtedly put pressure on platforms to maintain high service levels to advisers and their clients,” Investment Trends senior analyst Bailey Hao said.

Despite the decrease in overall platform satisfaction, advisers remain highly satisfied with their main platforms’ online transaction capabilities, with 49% rating it as ‘very good’, ease of use (44%) and level of fees (42%).

“While platforms serve advisers well in many areas, there is still significant room for improvement. Our satisfaction gap analysis highlights that adviser-facing support services should be a focus area – especially the call centre,” Hao said.

“Since advisers most prefer to turn to their platform’s call centre for their support needs, platforms must devote more attention to improving their contact centre experience given its integral role in lifting overall satisfaction ratings.” fs

Former AFA chief in new role The former chief executive of the Association of Financial Advisers announced his next move, which involves leading another industry body.

Phil Kewin will become the president of the National Insurance Brokers Association (NIBA) from August 16.

Kewin served as the AFA chief executive between March 2017 and April 2021. Prior to that, he was responsible for Zurich Australia’s life, advice and investment business; his seven years there included serving as the general manager of life and investments for five years.

Prior to Zurich, Kewin ran a financial planning business and worked at ING and the Associated Planners Management.

At the AFA, general manager of policy and professionalism Phil Anderson serves as acting chief executive while the AFA board searches for a permanent replacement.

Kewin takes over from Dallas Booth, who will retire from the role on October 31.

NIBA is the peak representative body for the intermediated insurance industry. It represents about 450 member firms and 15,000 individual brokers.

Kewin commented: “I look forward to working with the NIBA board, the members and the team at NIBA...They certainly are big shoes to fill. There will be much work to be done leading into 2022 and beyond, and I look forward to meeting the challenges.” fs

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01: Kevin O’Sullivan

outgoing chief executive UniSuper

UniSuper opens its doors, hits $100bn FUM Karren Vergara

A

The quote

Opening the fund more broadly signifies an exciting new chapter for UniSuper, and this is just the beginning.

s UniSuper membership officially opened to the public on July 1, the fund also reached a milestone, hitting $100 billion in funds under management.

The super fund has opened to workers outside of the higher education and research sector, a move that was flagged in early May. In the same month, chief executive Kevin O’Sullivan01 announced that Peter Chun will take the reins, exiting the top job which he served in for eight years.

O’Sullivan said: “Opening the fund more broadly signifies an exciting new chapter for UniSuper, and this is just the beginning. I’m extremely confident UniSuper will continue to go from strength to strength while staying true to its purpose of delivering greater retirement outcomes for all members.”

About $12 billion of FUM is invested in sustainable options.

Its Global Environmental Opportunities and Sustainable High Growth topped Rainmaker’s league tables for personal super at the end of May 2021, returning 19.9% per annum and 12.8% p.a. respectively over a three-year period.

Global Environmental Opportunities, over a

year-on-year comparison, returned over 40% p.a. The fund also tops the charts over a fiveyear period with 17.4% p.a.

O’Sullivan said. “It’s been a real honour to lead this wonderful organisation over the last eight years and I’m very proud of the many successes achieved. Opening the fund more broadly signifies an exciting new chapter for UniSuper, and this is just the beginning.”

In explaining the decision to go public offer, O’Sullivan said that the pressure being felt in the super industry and that in the higher education sector both played a role.

Rainmaker superannuation analysis recorded UniSuper’s balanced option returning 22.6% per annum over one year, 9.1% over three years, 9.2% over five years and 8.7% over 10 years.

The fund also recently took out the Industry Super Fund of the Year awards at Roy Morgan’s annual Customer Satisfaction Awards.

The awards tracked the customer satisfaction, engagement and loyalty of over 50,000 respondents.

As the largest shareholder of Sydney Airport, UniSuper is currently weighing a bid from QSuper and others to buy it. It is conditional on UniSuper retaining its holding. fs

Life insurance drives global economic growth: Research Annabelle Dickson

The life insurance industry has emerged as a key driver of global economic growth, new research shows.

The latest MetLife Value of Insurance report aims to increase customer engagement and noted life insurance provides stable, long-term investment and injects significant funds into the economy.

Life insurance channels household savings into productive investment, enables risk to be managed efficiently, complements social insurance and fosters more efficient capital allocation.

Further to this, life insurance has broader benefits to society, particularly taxpayers. The latest budget showed the government’s largest budget item was social security and welfare at 33.9%.

Rice Warner research also showed that underinsurance costs the government $57 million for life insurance and $1.26 billion for TPD;people without life cover or who are underinsured are more likely to draw on welfare.

The report said life insurance provides an alternative, self-funded source of support for

people and therefore can have a direct impact by reducing welfare costs.

“Life insurance serves a noble purpose by providing a vital safety net should the worst happen, but we need to make its value easier for people to understand. The industry is under the microscope, facing significant regulatory change and shifting consumer expectations. Now is the time to work together to adapt, educate and remain relevant,” MetLife Australia chief executive Richard Nunn said.

“It is the responsibility of all industry participants to play a positive role in helping stakeholders understand the value of life insurance and to promote this message to a wider audience.”

The research comes as risk inflows remain stagnant with total flows increasing by 0.5% and a 0.9% increase in inflows to individual lump sum premiums.

“It is imperative we continue to build awareness of the advantages of life insurance, not just to the individual consumer but to the economy and the community,” Nunn said. fs

8

News

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

Connectus makes fifth acquisition Global financial advice firm Connectus Wealth Advisers continues its Australian expansion strategy, announcing it will acquire its fifth wealth management firm in less than a year.

Connectus has entered into a definitive agreement to acquire New South Wales-based self-licensed firm George Ferizis Group.

Since 1979 the group has advised small businesses on financial planning, investment management and lending solutions, as well as accounting and tax compliance services.

Founder and director George Ferizis said joining a highly collaborative consortium is an exciting new phase for the firm.

“We look forward to leveraging Connectus’ value-added resources to drive growth and achieve enhanced outcomes for our clients,” he said.

Connectus is the subsidiary of NASDAQ-listed Focus Financial Partners.

The Focus family now comprises: Aspiri Financial Services Group, Brady & Associates Group, Link Financial Services Group and Westwood Group.

The latest acquisition, which is due to finalise in September, takes the total number of firms to five nationwide.

Focus co-founder and chief operating officer Rajini Kodialam said Ferizis is highly respected for its specialised expertise and has a strong track record of growth and client service.

“It will offer Connectus meaningful depth in its tax and accounting capabilities, while expanding its presence in the Sydney metropolitan area,” Kodialam said. fs

Super funds back space travel Several industry superannuation funds are helping fuel the mission of a spacecraft technology start-up that is due to orbit into space in 2022.

HESTA, Hostplus and NGS Super are part of a consortium backing Queensland-based Gilmour Space Technologies.

US-based Fine Structure Ventures, Australian venture capital firms Blackbird and Main Sequence are among the co-investors with the super funds in the latest round of capital raising.

Series C funding has raised $61 million. The super funds did not disclose how much they each contributed.

Three years ago, the start-up raised $19 million during the Series B round of funding from Sequence Ventures, which manages the Commonwealth Scientific and Industrial Research Organisation (CSIRO) innovation fund and Blackbird Ventures.

Gilmour Space has raised $87 million to date.

HESTA chief investment officer Sonya SawtellRickson: “This is a great example of how we’re investing to support visionary businesses take that next step in their growth and development.”

Gilmour Space is going where no Australian business has gone before, which can open up exciting new opportunities for high-tech industries and jobs in Australia, while helping to grow members’ retirement savings,” she said. fs

01: Jane Hume

minister for superannuation and financial services

Advisers who failed FASEA exam granted extension Karren Vergara

S

The quote

There will be at least one further opportunity to pass the exam offered in 2022 for those who qualify for the exemption.

enator Jane Hume 01 is allowing candidates who have failed the Financial Adviser Standards and Ethics Authority (FASEA) exam twice to re-sit it in 2022.

Hume took to LinkedIn to make the announcement ahead of registrations closing for the July exam.

In acknowledging the effects of the COVID-19 pandemic and the disruption it has caused, the Morrison government has introduced “very limited changes to FASEA exam requirements”, she said.

“For those who have made two genuine attempts to pass the FASEA exam, and were un-

able, there will be a one-time, limited extension into next year. There will be at least one further opportunity to pass the exam offered in 2022 for those who qualify for the exemption. Costs, and timings for the 2022 period have yet to be confirmed.”

Advisers who have not sat the exam twice prior to the end of this year will not be granted the extension.

“Please do not delay- these exemptions will be very limited. Sit the exam as soon possible.

And thank you to the thousands of advisers who have successfully sat the exam – you are part of a high quality, professional industry of which we can all be proud,” she said. fs

Aussie investors optimistic about returns despite pandemic Australians hope that their diversified portfolios will continue to achieve double-digit returns as the pandemic shifts the economy to recovery phase, a new survey finds.

Aussie participants in the 2021 Natixis global survey said COVID-19 has not dampened their returns expectations, despite lowering this figure to 13.5% compared to the 13.8% they reported last year.

Some 62% of participants were not impacted by the fallout from the pandemic in terms of job loss, illness or financial setback. As a result, many reported feeling positive and confident about their financial security and the performance of their investments.

About 81% said they felt financially secure.

Attitudes toward retirement were also positive, with 73% reporting they are confident they will be financially secure in their later years, despite 61% stating that they will need to work longer to do this.

Conversely, a separate study in the US found Americans are more pessimistic about financial security in retirement as over one third will have to delay retiring as a result of the pandemic.

Natixis managing director and head of distribution Louise Watson said while 81% of Australian are generally satisfied with their investment performance, many will need to generate higher returns to achieve their retirement outcomes and potentially look to asset classes such as alternatives and real assets to generate higher returns in a low-yield environment.

Some major concerns for Australian investors as they look to the future are slow economic recovery (44%), low interest rates (42%) and market volatility (40%). However, one of the biggest unforeseen challenges is managing the gap between their desire for safety and investment performance.

Natixis Australia chief executive Damon Hambly said it is evident that Australian investors trust their financial advisers (89%) and will need to work with them in this recovery phase of the market to ensure their investment portfolio has the right mix of actively managed funds to achieve the desired result.

The 2021 Natixis Global Survey canvassed 8500 global investors with $131,700 (US$1000,000) investable assets. About 400 participants were from Australia.

These latest findings differ from those of a Natixis study conducted at the end of 2020.

At the time, two-thirds of respondents expressed a more pessimistic outlook, believing that the global economy will not recover from COVID-19 in 2021.

A majority (60%) said policy makers in their home country have been ineffective in their response to the pandemic. However, investors in Asia (66%) buck the trend, saying that policy makers’ response was effective.

Other top areas of concern that may affect investment decisions for investors in the Asia region include negative interest rates, volatility, and deflation.

The surge in the number of retail investors using apps like Robinhood that allow for low- or no-cost trading was evident during the pandemic.

“With markets delivering strong performance throughout the pandemic, 80% say retail investors have been taking on risk more carelessly than before COVID-19. As a result, almost eight in 10 (78%) worry that the increased volatility will lead individuals to liquidate their investment prematurely,” the report read. fs

Opinion

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

9

01: Anthony Doyle

cross asset investment specialist Fidelity International

Household wealth nears $14tn This is what it looks like ne of the most important channels that O lower interest rates works through is via higher asset prices, leading to increased levels of household wealth. Theoretically, households should consume more as wealth rises. Changes in the “wealth effect” are a key factor in assessing the outlook for the Australian economy, because a large share of the economy in household consumption.

Household wealth is measured as the household sector’s assets minus its liabilities. Household assets comprise financial assets, which include bank deposits, direct equity holdings and superannuation balances, and non-financial assets, which include housing and durable items such as motor vehicles. The household sector’s liabilities are largely made up of residential mortgages, but also include items such as credit card debt and personal loans.

As at the end of 2020, Australian households had amassed around $14 trillion in wealth while liabilities stood at close to $2.5 trillion - resulting in a net worth position of $11.3 trillion.

The composition of Australia’s household wealth has remained relatively consistent over time. The value of household dwellings - at almost $7 trillion - make up the bulk of household wealth, followed by superannuation assets at $2.8 trillion and deposits at $1.3 trillion. Super has grown from 11% of household wealth in 1989 to 21% today, reflecting an environment of asset price inflation over the time period, fueled by ever lower interest rates.

The rate of growth of household wealth varies greatly from year to year and on several occasions, such as during the Global Financial Crisis and during the COVID pandemic, the value of household wealth has declined. These

declines in wealth have been relatively shortlived, as the Reserve Bank of Australia (RBA) has inevitably responded to these economic shocks by cutting interest rates to a point that the cash rate has hit the effective lower bound and quantitative easing has been implemented.

Remember, the RBA wants higher house prices. It would be worried if house prices weren’t rising given the impact this would have on consumer confidence. Indeed, house prices are now rising materially in many parts of the world including the US, Canada, New Zealand, the UK and Germany.

Central banks think that higher house prices should spur greater consumption, which is generally the largest contributor to economic growth of a developed economy. For example, an increase in household wealth may make it easier for households to borrow in order to smooth cyclical variations in their income. Expectations of improved economic conditions could lead to a rise in the value of shares and other financial assets, while at the same time encouraging households to consume more in anticipation of higher income in the future. In addition, rising housing prices are often associated with a larger number of housing transactions. Because households typically purchase housing-related goods and services in the months before and after a home purchase, an increase in housing transactions is likely to be associated with increased consumption.

Economists at the RBA have attempted to quantify the impact on consumption from rising wealth. In a paper released in March 2019, RBA analysis suggests that a 1% increase in the value of housing wealth will lead to a 0.16% increase in the long-run level of consumption,

Figure 1. Inflation in the fastest rising categories reflects increased demand and supply disruptions

Source: Fidelity International, ABS, RBA June 2021

The quote

The value of household dwellings - at almost $7 trillion - make up the bulk of household wealth, followed by superannuation assets at $2.8 trillion.

while a 1%increase in stock market wealth will raise consumption by 0.12%. Since December 2019, housing wealth has grown by 7.7% suggesting an uplift in household consumption of 1.1% or around $3 billion in nominal terms.

The RBA economists also estimate that almost half of this spending occurs in the first two quarters after the uplift in housing wealth.

The rise in equity wealth since 2019, at 3%, represents around $1 billion of additional consumption over the long run for the Australian economy.

Helpfully for investors, economists at the RBA also estimated wealth effects by consumption category. The components of consumption that respond most to changes in wealth are typically durable goods, such as motor vehicles and household furnishings. The responsiveness of motor vehicles is particularly large – a one per cent increase in housing wealth raises expenditure on motor vehicles by 0.6%.

Many of the other expenditure categories that show a large response are discretionary items, such as recreation, furnishing and clothing. In contrast, expenditure on less discretionary items – such as food, rent and education – appears to be insensitive to changes in housing wealth. Several of these components account for a large share of aggregate consumption expenditure.

The RBA concluded in its research that when wealth increases, Australian households consume more. Spending on durable goods, like motor vehicles, and discretionary goods, such as recreation, appears to be most responsive to changes in household wealth, although many categories of consumption expenditure appear to grow more quickly when wealth increases.

The positive relationship between consumption and wealth is particularly robust for housing wealth and has been stable over time.

Interestingly, these results have been reflected in inflation over the past 12 months. Major household appliances are up 7.4%, furniture is up 5.9%, motor vehicle prices are up 5.7%, and domestic holidays and accommodation prices are up 3.9%.

Low interest rates are designed to spur borrowing, fuelling higher house prices. The RBA wants higher house prices as it assists it in meeting its goals in terms of employment and inflation. For investors, understanding the impacts of higher house prices on wealth, and which companies and sectors stand to benefit most from increased consumption that will likely follow, could help them in their pursuit of long-term share market gains. fs

10

Featurette | Financial crime

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

Why financial fraudsters can fool anyone In recent times, the likes of Melissa Caddick and Mayfair 101 have dominated headlines; sophisticated investment scams that cost everyday Aussies millions. So, what drives a fraudster, and how do they pull off the con?

Elizabeth McArthur writes.

I

n a courtroom in Sydney on June 29, a judge heard that Melissa Caddick’s fraud cost 72 investors approximately $23 million, maybe even more.

Caddick wasn’t there to defend herself. She has been missing since November 2020, when she left her house in Sydney’s affluent eastern suburbs in exercise clothes not long after ASIC had raided the premises.

By March 2021, she was presumed dead. And,

by April, ASIC had to drop the 38 criminal charges it was pursuing against her. The regulator had to accept that Caddick wasn’t turning up for court any time soon, and by withdrawing the criminal case her victims could start civil proceedings and attempt to claw back some of what they had lost.

Not long after that, in April, Bernie Madoff died in a prison hospital at the age of 82. He had been serving a 150-year sentence for what is said to have been the largest Ponzi scheme in history, in which approximately 38,000 investors lost an estimated US$65 billion in principal and fake returns.

His fraud makes Caddick look like a simple shoplifter by comparison, but Caddick’s victims

lost their entire retirement savings in many cases.

And she had more in common with Maddoff than most might think.

Like Madoff, Caddick presented herself as a highly educated, trustworthy financial professional.

She let those who handed over their money to her believe that she was an investing expert, that she could manage their money in ways others could not.

Caddick and Madoff both played a game of keeping up appearances. Madoff had his penthouse apartment in New York, the façade of a genuine Wall Street company and tickets to blacktie galas with the city’s elite. Caddick had some of the most expensive real estate in Sydney, designer clothes and extravagant overseas holidays.

They are just two high profile examples of the kind of investment fraud that’s been around for as long as the stock market.

Forensic psychologist Kim Dilati 01 says it’s easy to think that only the less financially literate would get caught up in fraud, that is simply not the case – anyone can fall for an investment scam.

In fact, perpetrators of investment fraud are likely to see the wealthy, and their financial

The numbers

$23m

The estimated amount Melissa Caddick defrauded her clients out of.

advisers, as big targets and that’s when they will deploy their best tactics.

“They’ve got the dispositions to be able to pull these scams off. A lot of these scammers have developed techniques to force compliance with their victims. It could be flattery, they could pretend to be friends with them over the course of many months, they try and build trust. A lot of them are quite deviant but you don’t get to see the precursors before the scam,” Dilati explains.

“The scammers are often quite self-confident in the way they manage the scam. Everything may appear to be compliant from the outside and the scammers exploit that, they exploit their position of authority.”

Professor of psychology at Wake Forest University John Petrocelli02 agrees. He has devoted much of his academic research career to studying “the art of bullshitting”, which in his opinion is a pervasive social behaviour.

“Most successful Ponzi scheme operators take advantage of two things: one, credibility, and two, the failures of critical thinking and questioning by their victims/investors,” he says.

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

“As long as the Ponzi scheme operator appears to have credibility and a line of prior success, people will invest in their hedge funds or whatever scheme they are promoting. People want to make money on their investments, and they often treat the appearance of legitimacy and success as ipso facto highways to more money in their pockets.”

Last year was a record year for Australians falling prey to investment scams. According to the Australian Competition and Consumer Commission, $328 million was reported lost in investment schemes last year. It is the largest amount on record, but the real number is probably higher as a feeling of embarrassment at having “gambled and lost” keeps many from reporting the fraud they are victim to. According to ACCC ScamWatch research, only an average of 13% of the money lost in scams is actually reported.

“It appears to be increasingly difficult for people to identify legitimate investment opportunities from scams. Scammers no longer just rely on professional looking websites,” ACCC deputy chair Delia Rickard said.

“They now have the ability to contact people through phone, apps, social media and other means. We saw more fraudulent celebrity endorsements of investment opportunities advertised across digital platforms as well as scammers posing as romance interests to ‘bait’ people into scam investments.”

It’s no coincidence that the investment scam record was broken in a year which was incredibly difficult and unsettling for many. As Dilati points out, the type of cunning fraudsters who pull off elaborate investment scams also know how to prey on vulnerability.

They find victims who are at a vulnerable point and are cash rich - the government’s stimulus package and early access to superannuation were likely accidental fuel on the fire during the COVID-19 pandemic, making many even more attractive to scammers.

Dilati’s research has led her to believe that many perpetrators of investment fraud have personality disorders like narcissism. Due to these disorders, when their vulnerable victims fall for their manipulation, the scammer experiences an ego boost and a feeling of accomplishment. Healthy individuals in the same scenario, who are perhaps manipulating due to sheer desperate need for money, will feel guilt about their actions. Disorders like narcissism mean the individual does not experience shame, remorse or guilt in a healthy way.

Petrocelli points to Madoff as a prime example of a scammer having it made in the credibility department. Wall Street knew Maddoff Securities as a legitimate brokerage firm that the likes of Charles Schwab and Fidelity Investments would send trades through. And Madoff himself was known as the former chair of NASDAQ – it doesn’t appear to get more legitimate than that.

Caddick’s victims, too, could be forgiven for falling for her schtick. She styled herself as

Financial crime | Featurette

a successful financial adviser and Financial Planning Association of Australia member, though that was not true. She even appeared on the cover of a trade magazine.

Dilati says if you are the victim of financial fraud, don’t hold your breath for an apology from whoever took your money. Try to keep in mind that the perpetrator is likely to have a disorder like narcissism that would allow them to commit an immoral act of fraud in the first place.

“The victims are never recognised by them as victims. They never acknowledge what they have done. There is no accountability,” Dilati said.

She explains that for someone to commit fraud in the first place, certain conditions need to exist.

These conditions are referred to as the fraud triangle: opportunity, incentive and the ability to rationalise their behaviour.

Once those conditions are in place, she says fraudsters can “rationalise the morals out of a scenario so they don’t have guilt”.

This is why fraudsters are so dangerous, she says. They become very good at manipulating people to get what they want and, according to Dilati, some fraudsters might even get a selfesteem boost from having victims fall for their manipulation tactics.

The largest asset most Australians have outside their home is superannuation. And for this reason, super has become a lucrative target for scammers. The government’s early release of super scheme unwittingly created a boom for fraud in response to the pandemic unwittingly created a boom for fraud, according to the ACCC. The ACCC found a total of $6.4 million reported lost from super to scams in 2020. The majority of these losses occurred when scammers impersonated government agencies such as Services Australia with phishing emails designed to capture personal information and super details.

Once they had the information they needed, these scammers could take $10,000 out of their victims’ super accounts - and if it went unnoticed, they could go back for a second helping of $10,000 in the next round of early release payments.

Luckily, the ATO was able to observe much of the unscrupulous behaviour as it happened and reunite some with their lost retirement savings.

This is one of the easier types of scams to identify and prosecute. The kind of elaborate investment fraud that actors like Maddoff played out is much more complex.

The ACCC has acknowledged that investment scams are among the most difficult to investigate and prosecute. The agency is working hard to get more people to report investment scams to ScamWatch.

In 2020, it surveyed those who did fall victim to an investment scam and on what drove them to report. The ACCC found that most victims were driven by trying to make sure it didn’t happen to anyone else (90%) and far fewer (60%) wanted help and support for themselves.

01: Kim Dilati

02: John Petrocelli

forensic psychologist Sydney Clinical & Forensic Psychology

professor of psychology Wake Forest University

The victims are never recognised by them as victims.

They never acknowledge what they have done.There is no accountability.

Kim Dilati

11

Petrocelli and Dilati acknowledge that media can play its role in lending undeserved legitimacy to individuals who people then trust with their hard-earned savings.

While not in the realm of Madoff, former financial adviser Sam Henderson graced the pages of Financial Standard prior to his appearance at the Royal Commission – where it was revealed he lied about having a Master’s degree and had employees impersonate clients to super funds.

Henderson’s business Henderson Maxwell was named Practice of the Year by the Association of Financial Advisers in 2016 and was even included in a list of the 50 most influential financial advisers in Australia, which Financial Standard publishes every year.

Speaking to him after the Royal Commission, Henderson made it clear that he sees himself as an easy scapegoat for a regulator desperate to appear to be doing something but too weak to take on the big banks (who Henderson claimed are the real villains).

More recently, ASIC has been chasing Mayfair 101, its confusing web of shell companies and its founder James Mawhinney through the courts.

In court documents, ASIC said it has evidence that Mayfair companies were trading insolvent, and that money raised from new investors in some products was used to pay earlier investors – in a Ponzi scheme fashion.

One investor Financial Standard spoke to lost $1 million in a Mayfair 101 product after seeing it advertised in a respected national newspaper. He assumed the product was safe because of the context of the advertisement and when speaking with sales representatives at Mayfair everything seemed legitimate.

Mawhinney has since copped a 20-year ban from ASIC. But he maintains that he is being prosecuted by a rogue regulator and that it is ASIC that has stopped investors from seeing the returns he promised. Through legal loopholes, he and his team are currently spruiking a new investment opportunity. Whether this is a legitimate venture or not remains to be seen.

But, Petrocelli says investors can take their power back.

“So, you say that you are inviting me to make a significant investment in an exclusive investment opportunity. What do you mean by that? What does that look like? How would it work? Tell me the logistics. How would I know it’s working?

Treat claims and ideas as claims and ideas and not as facts – and investigate if the claims and ideas are justified given any readily, available data,” he says.

When asked how to spot a fraudster in financial services before it goes too far, Petrocelli offers: “Although I have no data on this, and know of no data suggesting it, I suspect that diagnostic warning signs include one’s general willingness and propensity to bullshit others as well as their belief that people accept bullshit as truth.” fs

12

News

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

Mainstream bidding war over

01: David Elmslie

chair Hostplus

Annabelle Dickson

The intense bidding war for Mainstream appears to have ended after the administrator entered into a scheme implementation deed with Apex Group.

Apex has made an offer for 100% of Mainstream shares for $2.80 per share, valuing the company at $400 million, up from SS&C’s latest offer of $2.76 and Vistra’s original offer of $1.20.

SS&C did not exercise its matching right by the deadline therefore Mainstream terminated the scheme implementation deed.

The directors of Mainstream unanimously recommended shareholders vote in favour of the Apex offer.

Apex’s offer includes an enterprise value for Mainstream of around $415 million, including transactions costs and net debt and is equivalent to 36x EBITDA guidance.

The offer follows an intense bidding war set off by Apex making a superior offer to SS&C’s original bid of $2 per share, coming in at $2.55 per share.

SS&C exercised its matching right and increased its bid to $2.56 per share for 100% of Mainstream shares.

From there, Apex offered $2.65 per share and SS&C matched its exercising right and increased its bid to $2.66 per share.

At the time, Mainstream supported the further revised SS&C scheme and terminated discussions with Apex. fs

Homebuyers save five years: Data As values soar, Australians are entering the property market up to five years sooner due to government homebuyer schemes, research shows.

Commonwealth Bank data shows customers have bought property on an average of 4.78 years faster using the First Home Loan Deposit Scheme (FHLDS) or New Home Guarantee (NHG).

CBA customers in NSW saved an average of 5.05 years followed Victoria (4.99 years), ACT (4.53 years), WA (4.50 years), SA (4.42 years) and Queensland (4.20 years).

“We know that saving for a deposit is one of single biggest challenges facing first homebuyers and those re-entering the property market,” CBA executive general manager of home buying Michael Baumann said.

“Our data shows CBA customers who have used one of these home buyer initiatives have been able to enter the property market nearly five years earlier on average than they would if they saved for the standard 20% deposit.”

Home values rose 1.9% in June, up 13.5% in annual growth for the financial year.

Over the financial year, Darwin saw the highest annual rate of growth at 21% followed by Hobart (19.6), Canberra (18.1), Sydney (15%) and Adelaide (13.9%).

“This is the highest annual rate of growth seen across the Australian residential property market since April 2004, when the early 2000’s housing boom was winding down after a period of exceptional growth. However, there are some markets where performance is starting to ease more notably,” CoreLogic head of research for Australia Eliza Owen said. fs

Hostplus announces board shakeup amid scrutiny Karren Vergara

T The quote

They have directly contributed to the exceptional long-term performance and member outcomes Hostplus has achieved.

hree board members of the industry superannuation fund have been replaced after one director faced mounting pressure to step down due to his links to the coal industry.

Independent director Peter Collins, employer directors Mark Robertson and Mark Vaile, and alternative employer director Neil Randall have exited the board of the $66 billion super fund.

The announcement comes after Vaile stepped down from his post as the chancellor of University of Newcastle in late June, a position he was only appointed to on June 4. He is also the chair of Whitehaven Coal.

Environmental activist group Market Forces turned up the heat on the super fund to oust Vaile, making him the target of an online campaign.

“Mark Vaile is the chairman of Whitehaven coal—the biggest pure play coal miner on the Australian share market. Whitehaven has a long history of trashing local communities and the environment. The company’s Maules Creek coal mine, for example, is one of Aus-

tralia’s most controversial mining projects,” the online petition read.

From today, the board has added David Attenborough and Craig Laundy as employer directors, Janet Whiting as an independent director and Brian Kearney as an alternate employer director.

Attenborough is the chief executive of Tabcorp and Laundy manages the Laundy Hotels.

Whiting is a partner at Gilbert + Tobin Lawyers and Kearney is the former chief executive of the Australian Hotel Association.

Hostplus chair David Elmslie 01 thanked the exiting members for their services.

“They have directly contributed to the exceptional long-term performance and member outcomes Hostplus has achieved, which has positioned us as the superannuation fund of choice for a growing number of Australians. We thank them sincerely for their great service and support and wish them every success in the future,” Elmslie said.

Hostplus is currently exploring a merger with Statewide Super and recently confirmed that it will go ahead with merging with Intrust Super. fs

Stop abusers hiding super: AIST Elizabeth McArthur

The Australian Institute of Superannuation Trustees (AIST) is calling on Parliament to ensure abusive partners cannot hide their super from domestic violence victims.

In a submission, AIST supported the proposed Treasury Laws Amendment (Measures for Consultation) Bill 2021: Superannuation information, along with Women’s Legal Service Victoria (WLSV), Women in Super, Economic Abuse Reference Group, Financial Counselling Australia and HESTA. The proposed package of changes would allow the ATO to share information about superannuation assets directly with the Family Court.

AIST and the group of organisations want to see these changes pushed through Parliament swiftly.

By allowing the ATO to share information about super with the Family Court, this will remove the cost, administration and time barriers which currently make it difficult for those in Family Court proceedings to gain full visibility of super assets.

Under the reforms, an individual would be able to apply to the court to request their former partner’s superannuation information.

According to the submission, currently many victims of domestic violence walk away from

their entitlement to their share of superannuation assets due to these barriers.

AIST chief executive Eva Scheerlinck said the measure would improve economic security for women across Australia, who overwhelmingly have lower superannuation balances than their former spouses.

“Superannuation is often the biggest asset in a relationship. This new measure will speed up what can be a very difficult process and make a significant difference to the financial wellbeing of women going through difficult separations, or escaping abusive relationships,” Scheerlinck said.

This new information-sharing process was first recommended by WLSV in their Small Claims Large Battles report in 2018. The government originally announced that it would progress this measure in 2018.

AIST’s position on the proposed law change is also backed up by the Retirement Income Review.

The submission quotes the Retirement Income Review, saying: “The process of discovering a former partner’s superannuation assets can be costly and time consuming. Simplifying this process would deliver better superannuation splitting outcomes, particularly for vulnerable women.” fs

News

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

13

Executive appointments 01: Gai McGrath

Tribeca hires chief executive from Citi Tribeca Investment Partners has appointed the former head of equities in Australia and New Zealand for Citi as chief executive, as David Aylward moves into a new role.

Adam Lavis joined Citi in 2011 as managing director - head of Pan Asian equities trading before moving onto the head of equities role.

Lavis was previously based in Hong Kong and was a trader at Barclays Capital and chief investment officer at DragonBack Capital.

Prior to this he was portfolio manager at Merrill Lynch’s Strategic Risk Group and director of emerging markets derivatives trading.

Meanwhile, current managing director Aylward has assumed the role of executive chair to focus more on the investment team.

“My personal commitment does not alter in quantum, but I will re-direct focus back to deeper focus with the investment team and also more time to focus on explaining and expanding the broader Tribeca strategy,” Aylward told Financial Standard.

Aylward said Lavis’ appointment is “a great development for Tribeca”.

“After 23 years since the founding of Tribeca, it will be liberating having someone with Adam’s experience to help develop Tribeca into the future,” he said.

“Over time, I was slowly being dragged away from what I love most, investing in businesses.

This allows me to strengthen my focus there with confidence that all the things that need to grow alongside our investment processes are in good hands. Adam and I have known each other for a long time and have been planning this for almost as long.”

AIA appoints partnerships lead The life insurer has hired a head of strategic partnerships, who will be responsible for its master trust clients.

Harumi Hancox has worked in group insurance for 25 years, most recently as the head of group life consulting services at IFS Insurance Services.

She has also worked as a product manager at AXA/National Mutual.

In her new role at AIA, Hancox will be a part of the group distribution team. AIA said it has recently done a strategic review of the group insurance distribution team.

“Harumi is experienced, progressive and passionate about group insurance and ensuring the long-term sustainability of the industry,” AIA Australia general manager for group distribution, corporate and master trusts Anthony Clough said.

“We are incredibly fortunate to have Harumi join the team as we look to further evolve our market leading value proposition.”

Hancox started in the role on June 21.

“I’ve been fortunate to work with AIA in the past, so I was eager for the opportunity to join the AIA family and work with the team to help to make a difference in the lives of Australians,” she said of the appointment.

Mary Manning exits Ellerston Capital Ellerston Capital’s portfolio manager for Asia strategies Mary Manning 02 has resigned.

Manning was the portfolio manager of the Ellerston Asia Growth Fund, which invested in Asia ex-Japan stocks and returned 1.3% over the benchmark’s 7.19% in the three years ending May. The fund was behind the benchmark by 7bps since 2017 inception and for the year to May end.

Manning spent nearly nine years at the firm. She has worked on emerging markets since at least 2003, first at Oaktree Capital Management and then at Ellerston.

With her departure, Ellerston has appointed the Asia fund’s former deputy portfolio manager Fredy Hoh as the portfolio manager. He is supported by Asia analysts Eric Fong and Vinay Chhoda.

Hoh has been with Ellerston since 2017 and prior to that, worked at Macquarie Capital and Bank of America Merrill Lynch.

Saxo Markets names head of AM As it prepares to bring new solutions to the region, Saxo Markets has named a head of asset management for Asia Pacific.

Former Ignition Advice chief executive Manish Prasad has taken on the role, working closely with teams across the region and also in Copenhagen to launch Saxo’s upcoming asset management offering.

Prasad led Ignition Advice for two years, prior to which he was a director of wealth management at KPMG Australia.

‘Saxo Markets has established itself in the APAC region as a trusted and well-regulated online trading and investment specialist,” Saxo said.

“In line with Saxo’s vision to enable people to fulfil their financial aspirations and make an impact, asset management will be a space in which the firm will look to offer its leading digital services.”

Saxo Markets Australia chief executive Adam Smith said Prasad’s ample experience in wealth management will be an asset for the company and its clients.

Also commenting, Prasad said he is excited to be leading Saxo’s asset management offering in the region.

“With more people looking to get more out of their money through exposure to international markets and the rapid emergence of new asset classes, I’m looking forward to championing Saxo’s digital investment platform across the region,” he said.

New chair of BT Super trustee board BT Super trustee board chair David Plumb has retired after more than a decade, with a replacement appointed.

Gai McGrath 01 commenced as non-executive director and chair of the BT Super trustee board from July 1.

Westpac chief executive, specialist businesses and group strategy Jason Yetton thanked Plumb for his service to the board.

“Under David’s stewardship BT members were supported with more than 230,000 applications for early release super payments through COVID-19 totalling around $1.9 billion,” he said.

“Members have also been migrated from legacy super products into one contemporary offering while fees were maintained or lowered for most, and our leadership in ESG and sustainable investing has continued with BT achieving an A+ rating for its sustainable investment strategy and governance - the highest possible rating for the fourth year in a row.”

McGrath currently sits on several boards including Toyota Finance Corporation, Genworth and IMB Bank.

She has history with Westpac and BT, having previously been general manager of retail banking for Westpac from 2012 to 2015 and general manager of customer service at BT from 2008 to 2010.

“Gai is a respected director and executive and will bring to our trustee board more than 34 years’ experience across retail banking,

02: Mary Manning

superannuation, wealth management and insurance sectors,” Yetton said.

Schroders head of distribution exits Schroders’ local head of distribution Graeme Mather has departed, with the business understood to not be seeking a replacement.

Mather spent nearly five years at Schroders and finished up mid-June, Financial Standard’s sister publication Industry Moves first reported.

Prior to this, he was a partner at Mercer, leading its 160-strong team that worked with Australia and New Zealand institutional investors on investment, actuarial and governance issues.

Schroders is understood to have no plans to replace Mather.

The head of distribution responsibilities will go to the new Schroders Australia chief executive Sam Hallinan, who was appointed in February after incumbent chief executive Chris Durack moved up to Schroders APAC co- chief executive.

Hallinan was previously the managing director of Nikko Asset Management’s Australian business and left as the business was acquired

by Yarra Capital Management, which is backed by American private equity investor TA Associates.

Schroders is best known locally for its fixed income and multi-asset business led by Simon Doyle. It also offers Australian equities and has recently made a foray into unlisted asset strategies, as first reported by Financial Standard last year.

Capital Group adds new role Capital Group has hired from T.Rowe Price for the newly created role of head of Australia client group.

Murray Brewer joins from T.Rowe Price where he was director, country head of distribution, Australia and New Zealand. He will be based in Sydney, reporting to head of client group for Europe and Asia Guy Henriques.

Brewer was previously director and head of distribution at Schroders Australia and senior manager investment distribution at AMP Capital.

Brewer started his career in financial services at Lloyds Bank then moved to Westpac working as a business development manager.

“Murray has an outstanding track record in identifying and developing products and services that give Australians the best investment and savings outcomes over the long term,” Henriques said.

“We are truly delighted to welcome him on board during Capital Group’s 90th year of successful, active investing for clients. His vision and passion will be invaluable in leading the team, as we help our clients ride the wake of global economic recovery, post-pandemic.”

Brewer added: “I have admired Capital Group’s long-term approach for some time, from the multi-decade, repeatable investing success of the firm’s Capital System℠ investment approach to the company culture where the focus is firmly on the client.” fs

14

Feature | Fixed income

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

In March 2020, the government gave banks a cheap source of borrowing in the Term Funding Facility. As the Reserve Bank of Australia turns off the TFF tap, fixed income investors are bracing for change. Kanika Sood writes.

Fixed income | Feature

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

01: Rob Hogg

02: Vivek Prabhu

03: Phil Miall

head of fixed interest and macro research UniSuper

head of fixed income Perpetual

director, credit QIC

I

n 2020, as the Australian government announced its response to the COVID-induced slowdown in the economy, grabbing headlines were the fiscal measures totaling $291 billion and the official cash rate falling to 10bps.

One measure that failed to make the front pages was the Term Funding Facility (TFF), announced on 19 March 2020 and later expanded to $200 billion.

But it didn’t go unnoticed by fixed income investors, because it quietened new debt issuance from the banks.

The TFF served two purposes for the government: it supported the Reserve Bank of Australia’s official cash rate of 10bps and ensured the banks were willing to lend to businesses during the slowdown.

“ADIs will have access to additional low-cost funding if they expand their lending to businesses over the period ahead. The scheme encourages lending to all businesses, although the incentives are stronger for small and mediumsized enterprises (SMEs),” the RBA said.

For banks, the TFF meant three-year loans from the RBA, priced at a fixed-rate of first 50bps and then as the cash rate fell, at 10bps – on the cheaper end of their funding mix [Figure 1].

Banks had drawn down about $188 billion of the $200 billion available via the facility at its end on 30 June 2021, after May 4 confirmation from the RBA board that it would not extend the TFF further.

All eyes now are on what pace of issuance fixed income investors can expect from the banks going forward and the relative value in different parts of the fixed income universe.

Unprecedented action Banks and other financials are the largest issuers in Australian fixed income markets outside of government bonds.

Before COVID hit, they had about $600 billion in outstanding debt, which fell to $450 billion this year after the TFF came into effect, according to the RBA. The last time that the banks stayed away from new issues for so long was during the Global Financial Crisis, when the government stepped in to guarantee bank debt.

This time, the quiet comes off the back of RBA stepping in as a lender to the banks via the TFF. UniSuper’s head of fixed interest and macro research Rob Hogg01 says TFF has certainly been successful in giving banks a cheaper source of lending and thereby encouraging lending to businesses.

But what happens from July 1 when TFF is turned off is full of uncertainty.

“We are very likely to see the banks moving ahead of those expiry dates [of the three-year TFF loans] to smooth out the nature of their funding,” he says.

But he doesn’t expect banks to move from July 1, as it is yet to be seen how deposits (the cheapest source of funding for banks) and loans grow.

“If we assume that we continue to see loan growth and we see a slowing pace of deposit growth, most funding conditions will from there on begin to normalise. Banks will be made to look increasingly to the wholesale markets for funding, and relative to the rates available at the TFF, [that] will be higher – so we’ll say at the margin, banks may see an increase in funding costs,” he says.

Hogg says loan growth has picked up during the TFF, including on the business loans side.

Meanwhile, new housing loans have moved from the traditional variable rate structures to fixed-rate structures quite significantly during the last six to 12 months.

Banks have already been responding to TFF’s end on their loan book side. For example, NAB increased its rates for fixed-rate home loans in May and then in June.

He points to the fact that TFF is only one of the many monetary measures deployed by governments around the world in their response to COVID-triggered economic slowdowns.

“As we exit these sort of emergency facilities – and the TFF is one of those but also the broader quantitative easing program and the official cash rate – we don’t really have a script for how this all sort of works because we haven’t done it before,” he says.

In its broader portfolio, UniSuper has been reducing its exposure to lower-rated offshore credit as their spreads have declined. It has increased its exposure to areas of private credit domestically with a focus on sustainability and renewables.

It has also opportunistically reduced dura-

15

tion from time to time, and made changes to its shorter-dated securities as interest rates have come down.

Senior bank debt on watch

The numbers

$200bn The total size of the Term Fund Facility.

Perpetual’s head of fixed income Vivek Prabhu02 expects senior domestic bank credit spreads to come under pressure, as banks wean themselves off the deposit growth and TFF which banks benefited from in the aftermath of COVID-19.

“One reason why the term funding facility was introduced, [is that] the senior unsecured credit spreads [for banks] rose quite significantly in response to COVID. After the TFF was introduced, senior bank credit spreads started contracting, to the point where towards the end of 2020, they were converging much more closely [with TFF funding costs],” Prabhu says [Figure 2].

As investors stayed away from bank debt and sought returns in other parts of the fixed income universe, the credit spreads in other parts of the markets benefited. He points in particular to asset-backed securities.

“In terms of valuation, prior to COVID major bank RMBS at the senior AAA level traded at around 0.7 to 1.3 times the credit spread of senior unsecured major bank bonds. The compression in the senior bank paper [has] made asset-backed securities much more attractive [for investors] in a relative value sense,” he says.

Perpetual’s Diversified Income Fund (DIF) increased its weighting to AAA rated debt to over 50% while reducing the exposure to BBB rated debt to 20% in the lead up to COVID, as valuations on BBB credit spreads began looking rich. After the onset of COVID, Perpetual took advantage of this defensive positioning, cutting its AAA exposure in half and doubling its exposure to BBB rated debt as risk was repriced, making BBB valuations more attractive.

Following some recent profit taking on BBB exposures, DIF has since re-increased its weighting to AAA to above 40%, which Prabhu says is mostly RMBS whose relative valuations benefitted in the aftermath of COVID. The investor sentiment was noted in a June 9 speech from RBA assistant governor (financial markets) Christopher Kent.

“With fewer bank bonds on offer, investors have switched into other securities, including asset-

16

Feature | Fixed income

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

04: Kelli Wood

05: Rob Mead

06: Hakan Ozyon

portfolio manager, fixed income Schroders

head of Australia and co-head of Asia Pacific portfolio management PIMCO

chief executive Hejaz Financial Services

backed securities and non-bank corporate bonds.

This has contributed to a noticeable decline in spreads on these securities,” Kent said , adding as an example new RMBS issues whose spreads had declined to their lowest levels since 2007.

Prabhu says banks will have to come back to the debt markets following the closure of the TFF to new drawdowns, and at least three banks (Westpac, Bank of Queensland, and Bendigo and Adelaide Bank) have already returned with new issuances before the TFF’s end – earlier than expected.

“What this might mean going forward is [that] it will put a widening pressure on senior bank debt credit spreads. They’ve benefited from a lack of supply but now that they’re going into public debt markets to meet their funding requirements again, senior bank debt credit spreads will likely increase,” he says.

QIC’s Phil Miall03 expects senior unsecured debt from domestic banks to underperform the broader market.

“And that’s likely to be gradual, it’s not going to be a big bang that the term funding facility ends and their senior unsecured spreads are going to gap immediately wider,” Miall says.

“The term funding facility has been a significant positive for the domestic banks. As well as supporting their net interest margins through the provision of an abundant amount of very cheap funding, it also reduced their need to issue senior unsecured debt, leaving a vacuum in the supply of domestic bank AUD bonds since the onset of COVID.” This drove senior unsecured credit spreads of domestic banks to the tightest levels that QIC has seen since the GFC. For example, the credit spread of domestic major bank senior unsecured five-year bonds rallied in the secondary market to almost +30bps over swap by late last year, which is well inside the mid-2019 level of close to +60bps

that was previously the narrowest since the GFC. He says the normalisation of valuations for domestic banks’ senior unsecured debt has been underway in a relative sense since October 2020.

“In October 2020, the spread differential between the banks’ senior unsecured and the broader market was about 80bps. Since then, the market has rallied 50-55bps while senior unsecured bank spreads have essentially only rallied about 10bps or so. So, the normalisation has already started,” he says.

“However, some further underperformance is likely over the remainder of 2021 as primary market issuance of AUD bank senior unsecured bonds recommences now that the term funding facility has ended.”

Miall says the gradual widening in senior unsecured spreads could be followed by similar moves in RMBS, and debt from other financials which tend to price off the major banks.

QIC has been underweight senior unsecured debt from the major banks on the back of their valuations.

Instead, it has preferred to move down the capital structure, with a strong preference for bank subordinated debt and additional tier 1 hybrids, which it expects to re-rate tighter.

The case for a gradual return Banks’ return to fixed income markets may be slower after the TFF, according to Schroders portfolio manager Kelli Wood04 , who thinks the banks will have pre-funded the majority of their needs for 2021.

“That being said, the banks generally like to pre-fund obligations (net loan growth and refinance maturing debt) some six to nine months in advance in case markets dislocate,” Wood says.

Wood says while the growth on the deposits side has been strong during COVID, loan

Figure 1: Major banks’ 3-year funding costs

*R ecent estimates are uncertain due to low trading volumes and a lack of issuance ** Simple average of advertised rates on $10,000 deposits

Sources: Bloomberg, CANSTAR, RBA

The term funding facility has been a significant positive for the domestic banks.

Phil Miall

growth has been more modest – meaning banks’ need for additional wholesale funding will be lower than the pre-COVID periods.

“The banks have indicated to us that new issuance levels post the TFF window closing will all depend on deposit and loan growth demand.

Given the material lift in system deposits, the overall net funding demand from the banks from the wholesale market may be structurally lower going forward,” she said.

Meanwhile, banks have continued to issue tier 2 subordinated debt, after APRA asked them to expand their capital reserves by 2024.

“This has really been the only net new issuance over the last 12 months,” Wood says.

“Given almost no senior, covered or RMBS debt issuance since March 2020, we’ve seen five-year indicative FRN spreads compress into around 27bps, [when] prior to COVID [January 2020], they traded at around 70bps.”

Wood also points to the fact that TFF loans were three-year issuances, which will need to be refinanced starting March 2023. “...We expect the banks will look to get ahead of the curve to refinance these maturities. The banks have already indicated that APRA has been talking to them about this fall of maturities to ensure the broader industry will deal with these issues appropriately,” she says.

But until banks start issuing again at a reasonable level, Schroder expect spreads to remain relatively tight. It sees value in both tier 2 and tier 1 debt.

She says tier 2 debt from domestic banks remains attractive at 120bps for a 10-year note, non callable until five years compared to the 170bps it traded at in January 2020 before COVID. “T1 was offered at around 280bps for major bank paper with five years to the first call date, its currently trading at around 275bps. However, these coupons are usually fully franked so the cash pay can be closer to the spread offered

by T2 notes.”

Global fixed income giant PIMCO shares Schroders’ views, that the pressure on credit spreads for bank debt will be minimal in the near term.

PIMCO’s head of Australia and co-head of Asia Pacific portfolio management Rob Mead05 says the markets have known about TFF’s end [at least since the May 4 confirmation of no extension] and hence, are well-prepared in terms of the supply implications.

“For supply to become more problematic it would require asset/loan growth to accelerate from current levels, so unless that happens whatever modest supply that returns should be manageable for markets and only place very modest pressure on spreads,” Mead says.

“In this regard, a major bank has recently tested the market for depth and was able to raise multiple billions of five and 10-year senior debt at close to all time tight credit spreads,” he says.

Mead expects, after TFF’s end there will be

18

Feature | Fixed income

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

07: Scott Solomon

08: Chamath De Silva

associate portfolio manager T. Rowe Price

portfolio manager BetaShares

more supply in RMBS and tier 2 bank debt, and still prefers high quality RMBS and tier 2 over senior debt.

Quicker returns from banks?

Hejaz Financial Services chief executive Hakan Ozyon06 says TFF’s end and associated normalisation in senior spreads could roll around faster.

He expects banks’ home loan growth will remain at its current elevated levels, while business loans could see a recovery in coming months. As a result, he is expecting a quicker return from banks to issuing new debt.

“As business sentiment returns to normal and the property market remains red hot, the banks will most likely issue senior three-to-five yearbonds and longer 25-year bonds, as they seek to raise additional funding, whilst also gradually repaying the money borrowed from the RBA,” he says.

Ozyon expects ADI’s to quickly issue these bonds in Q3 of this calendar year to capitalise on the high demand for positive yields from the international markets for high quality bank bonds, particularly from Australia.

Ozyon says the TFF has distorted the threeto-five years bank bond yield curve, and it will normalise by 50bps to 70bps eventually.

“How long this normalisation takes will depend on the supply of bonds and the performance of the market,” he says.

“However, I would expect this to occur relatively quickly as the markets are in a historically enviable position where there is high demand for money, and at the same time, high supply of money, keeping the cost of money low.”

He also foreshadows a spike in government bond yields if banks start to sell their reserves.

This in turn, would trigger spikes in yields of corporate bonds, and eventually interest rates, he says.

“Given the fact that banks have used a lot of TFF funding to buy government and semi-gov-

ernment bonds, banks might sell these government bond holdings which will result in government bond yields spiking,” he says.

“If government bond yields do rise, all financial market participates will face higher borrowing costs, which will cause rates to increase to maintain margins.”

When banks do return, Solomon expects both onshore and offshore markets to absorb the new issuance without overwhelming the credit markets. He says many other industries will have lower needs to issue new debt over the next several years after refinancing and liability management exercises in the pandemic.

“Thus, credit investors will happily fill the void with high quality Australian banks. So, while participants may demand a bit of extra compensation, we are talking in basis points, not percentage points,” he says.

The view from the other side Investors of Australian banks’ debt include not just local fixed income managers but also the managers of global bond funds. When banks do start issuing debt at pre-COVID levels, will both cohorts of investors be interested?

Scott Solomon07, who is the associate portfolio manager of the T. Rowe Price Dynamic Global Bond Fund based in United States, shares the sentiment of a measured return from banks instead of a flood of new issuance.

“There are many things that keep me up at night – Aussie bank issuance isn’t one of them,” Solomon says.

“Obviously this is very important for the banks to get right as funding costs will be somewhat higher, but they have a lot of experience, and they will manage it well. As an investor I’d happily accept a few extra basis points. But given the spread compression we’ve seen over the past couple of months, I’m not counting on it.”

The bigger thing to watch for, T. Rowe Price says, is how Australian banks refinance their TFF debt that matures in 2023 and 2023 and the mix between offshore and onshore issuance.

“Market participants understand there’s over US$150 billion that will need to be refinanced but there’s a generous two-year window to get it done and a variety of maturities. Much of the debt will be pre-funded via senior bonds and parked in high quality assets – it’s not something that has to be done simultaneously as the TFF loans mature,” he says.

Figure 2: Major banks’ funding composition*

Enter other industries

With the TFF’s end, we could see more blue chip non-financial corporates return to the public debt markets.

Chamath De Silva

While banks retreated from primary debt markets during COVID, non-financial’s issuance remained above average since mid-2020, particularly in the domestic market, according to the RBA. Non-bank lenders took advantage of the favourable spreads on RMBS by issuing in large volumes.

BetaShares fixed income portfolio manager Chamath De Silva08 says it won’t just be the major Australian banks but also companies in other sectors, from which investors can expect increased issuance in the coming months.

“We feel that a lot of blue chip corporates have been able to access favourable loan financing from the banks [during COVID] which reduced their need to issue bonds directly. With the TFF’s end, we could see more blue chip non-financial corporates return to the public debt markets,” De Silva says.

As examples, he points to supermarket chains.. He also expects foreign issuers who borrowed in AUD to return to the primary market.

Eventually, the appetite from investors for new bank debt will depend on the credit spreads of the issuance.

“What we have seen is on some of the recent regional bank issuances, the take up wasn’t that good. That’s largely a function of credit spreads being extremely tight because of both the global credit spreads being tight and the TFF,” he says.

“It’s probably not going to take much of a widening to see some of these new deals being oversubscribed, because at the end of the day, Australian senior bank debt is sought after globally.”

In summary

*A djusted for movements in foreign exchange rates ** Includes deposits and intragroup funding from nonresidents Sources: ABS; APRA; Bloomberg; RBA; Refinitiv

This is the first time that the world has been forced to wean itself off of unprecedented central bank policy measures, of which the TFF was one.

Fixed income investors saw RMBS and assetbacked securities as attractive during COVID. They now expect a slow return from banks to the primary debt markets, as they remain flush with funding from the TFF. They expect a widening of senior bank debt credit spreads, and an eventual return to normality in the bank bond yield curve.

In flow-on impacts, the fixed income markets may see the return of non-financial issuers who may have relied on banks during COVID-19 for their funding needs. fs

FSPOWER 50 The 50 most influential financial advisers in Australia.

Financial Standard is conducting the search for the FS Power50 once again in 2021, revealing the 50 most influential financial advisers.

Nominate now to help us identify the individuals who are instrumental in shaping the future of financial advice.

Nominations close August 6 Visit www.financialstandard.com.au/fspower50 or scan the code.

20

News

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

Adviser slapped with four-year ban Another former Meritum Financial Group and InterPrac Financial Planning adviser has copped a ban from the corporate regulator.

From 1 April 2021, ASIC banned Hobart-based Hannah Jennings from providing financial services for four years for failing to act in the best interests of clients.

ASIC found Jennings failed to consider clients’ relevant personal circumstances, recommending strategies like double gearing despite knowing that they struggled to service the loans.

Jennings had “no regard to the clients’ relevant personal circumstances, their cash flow position or their ability to cover margin calls,” ASIC said, adding that she failed to consider an exit strategy for her clients.

She also did not provide appropriate personal insurance cover or keep proper records.

ASIC deemed that she lacked the competence to provide financial services and her “understanding about her legal and professional obligations as a financial adviser created additional risks to her current and future clients”.

This is despite the fact that Jennings has been working as an adviser since 2009, representing sev-eral AFS licensees.

The misconduct occurred during the time she was an authorised representative of Meritum (Febru-ary 2012 to February 2017) and InterPrac.

Jennings was the sole director and financial adviser of FF Planning Solutions, previously known as Fort Financial Group, an authorised representative of InterPrac Financial Planning since March 2017. fs

Cbus invests in NHFIC issues Kanika Sood

Cbus has invested $51 million in two recent funding rounds from the National Housing Finance and Investment Corporation (NHFIC), taking the fund’s total allocation to social and affordable housing to about $140 million.

Cbus invested $10 million in NHFIC’s first sustainable bond issue of $343 million, and $41 million in two latest social bond issues of $462 million.

NHFIC’s sustainable bond issue is targeting delivery of around 600 social homes, 450 affordable and private rental homes and 50 supported disability accommodation across sites in Melbourne.

The raise, which closed on May 28, closed at $343 million and was two times oversubscribed, according to NHFIC. The sustainability bond is AAA-rated, government-guaranteed and offered investors like Cbus fixed rate of 2.335% for 15-year interest only loans.

NHFIC two recent social bond issuances are targeting 1000 new and over 2800 existing homes in five states: New South Wales, Victoria, Tasmania, Western Australia and South Australia.

The new 10-year social bonds include a fixedrate note of $362 million and NHFIC’s first floatingrate note of $100 million.

Cbus chief executive Justin Arter said the latest investments show the strength of the NHFIC model. fs

01: Tony D’Alessandro

chief executive Statewide Super

Statewide Super, Hostplus flag $77bn merger Karren Vergara

T

The quote

We are genuinely excited about the prospect of a strong, positive and collegiate union of our funds.

wo industry superannuation funds are exploring a potential merger to create a $77 billion fund with 1.4 million members.

Hostplus and Statewide Super said formal discussions are in the works and that they intend to shortly sign an exclusive Heads of Agreement.

This marks the third time Hostplus has joined forces with other industry funds to either merge or pool the assets of members in recent times.

On June 25, Hostplus signed a successor fund transfer (SFT) agreement with the $3 billion Intrust Super. In February, it combined its assets with the $6 billion Maritime Super. In late 2019, Club Super folded into Hostplus, growing the latter to $45 billion at the time.

In the latest merger, Adelaide-based Statewide Super will bring $10.8 billion in funds under management, over 142,000 members and 24,000 employers.

Hostplus, with more than 1.25 million members and 233,000 employers, manages some $66 billion in retirement savings.

The funds expect to undertake due diligence over the coming months ahead of executing an SFT deed after the Heads of Agreement is signed.

Statewide chief executive Tony D’Alessandro01 said: “After undertaking an extensive and robust process we identified Hostplus as our preferred merger partner.”

“The engagement and discussions between the funds to date have been most encouraging and I’m very optimistic that the common ground, strengths and synergies we’ve already identified suggest that pursuing a merger of our funds will realise and deliver significant benefits for both funds’ members,” he said.

Hostplus chief executive David Elia said early discussions have highlighted a fundamentally strong alignment between the two funds that similar industry fund ethos and beliefs, and dedication and passion for members.

“We are genuinely excited about the prospect of a strong, positive and collegiate union of our funds. We are confident that our collective members, contributing employers and associated communities would strongly endorse our merger and immediately benefit from the resulting economies of scale,” said Elia.

D’Alessandro added that Statewide remains committed to South Australia and the Northern Territory, where it will continue to provide local member services, including the Statewide Super Hub in Victoria Square and the office in Darwin, and preserve local jobs.

Statewide has been on the hunt for a merger partner for some time. In early 2019, the fund attempted a merger with Tasplan and WA Super but later scrapped the idea, saying the execution risk involved in a three-way merger was too great. fs

Regulators urge wider DDO adoption Jamie Williamson

Superannuation trustee chief executives have been advised to operate under the assumption that all their offerings must meet the requirements of the Product Design and Distribution Obligations (DDO) legislation.

Releasing notes from the inaugural Superannuation CEO Roundtable that took place on April 30, ASIC and APRA said chief executives in attendance noted there is ongoing industry discussion as to what defines a product versus an investment option in relation to the DDOs. In responding, ASIC told trustees to take a holistic approach to the DDOs, saying “there can be benefits in applying this thinking across all their products” and said this is particularly true where products share key features, such as insurance.

According to the notes, there is also confusion around whether the requirements apply to clearing houses.

ASIC confirmed clearing houses are caught by the DDOs, but said it welcomes industry views on

this and will continue to consult with the industry on the various challenges in implementing.

The regulators said a common theme of the roundtable, which also discussed SPS 515 Strategic Planning and Member Outcomes, was the use of data and data governance.

Executives expressed a desire for more consistent and richer data to be supplied by APRA more often, the regulators said. They also questioned whether risk adjusted returns could be used to account for different investments in future when measuring member outcomes.

The regulators said there will be “an evolution in sophistication” over time for both instruments.

This first roundtable was hosted by ASIC commissioner Danielle Press and APRA deputy chair Helen Rowell. The chief executives in attendance included Aware Super’s Deanne Stewart, Hostplus’ David Elia, IOOF’s Renato Mota and Rest’s Vicki Doyle.

A second roundtable will be held later this year with a different mix of attendees and range of topics. fs

News

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

21

Products 01: Kristine Brooks

Milford lowers fees Milford has lowered fees for its Milford Australian Absolute Growth Fund - W Class.

Fees will drop from 1.13% per annum to 0.9% per annum.

Milford has also elected to cap the performance fee for its W Class at 0.95% per annum and increase the distribution frequency of this fund to bi-annual.

“Since joining Milford I want to ensure that our offer reflects our commitment to support financial advisers and their clients, as well as our desire to expand our adviser client base. Advisers will now have access to the same performance and team, at a fee that is more accessible,” Milford head of Australian business Kristine Brooks01 said.

The Milford Australian Absolute Growth Fund is an Australian equities fund that aims to generate investment returns 5% higher than the RBA cash rate per annum over rolling three-year periods by investing in a portfolio of predominately Australian equities, complemented by some exposure to international equities and cash.

It is available on BT Panorama, BT Wrap, HUB24, IOOF, Macquarie Wrap, mFund, Netwealth, PowerWrap and Praemium.

In May, Milford bolstered its distribution team hiring a head of wholesale distribution - Murray Pell - from Macquarie.

Regan van Berlo, who had been head of distribution, Australia since November 2018, was shuffled to head of retail distribution.

Catholic Super members pay less The investment fees paid by Catholic Super members have dropped by up to 20% as its joint venture with Equipsuper becomes a legal successor fund transfer.

With the SFT finalising on June 30 and all Catholic Super members to transfer from the MyLifeMyMoney Superannuation Fund to Equip, their fees have decreased as a result of aligning the funds’ investments.

According to Rainmaker data, Catholic Super’s default lifecycle strategy investment fees currently range from 0.73% per annum on its balanced option to 0.83% per annum for its aggressive option.

Equip’s MySuper option charges 0.32% per annum.

Catholic and Equip chief executive Scott Cameron said the immediate reduction is a demonstration of the benefits of the joint venture structure implemented at the outset.

“These changes will have significant and positive implications over the long term for members’ retirement savings,” he said.

“From day one of the joint venture we were able to leverage the scale of the investment pool, even though they were technically two separate pools.”

Completion of the SFT will unlock further opportunities for efficiencies and scale in the funds’ investment activities, he added.

Daily unit pricing will also be made available to Catholic Super members for the first time and

Cbus expects 19% returns The industry fund is expecting to cap off the financial year with 19% returns, on the back of strong markets and a 1.5% to 2% contribution alpha contribution.

Cbus chief investment officer Kristian Fok 02 said the 19% expected return was a “remarkable turnaround” from the FY20 when Cbus’s MySuper delivered 0.75% for the 12 months.

Of the 1.5% to 2% portfolio-wide alpha, nearly 1% came from active management in the equities allocation.

During the year, Cbus invested about $700 million in capital raisings from ASX-listed companies affected by lockdowns. It also expanded its direct lending to construction companies and maintained an overweight to equities.

This is an unusual year in superannuation funds’ returns, in that the average fund is expected to return 20% versus the historic returns of 8.5% p.a. for 10 years, according to the Association of Superannuation Funds of Australia.

will be able to switch investment options day to day. So far, they have only been able to do so on a weekly basis.

SG Hiscock introduces medical tech fund The boutique fund manager is launching a new social impact fund that will invest in Australian and New Zealand medical technology companies.

The SG Hiscock Medical Technology Fund aims to provide long-term capital growth via a portfolio of innovative companies and start-ups focused on improving global health. It will typically hold between 40 and 60 investments, both listed and unlisted, from across Australia and New Zealand.

The SGH Emerging Companies Team will run the fund, guided by the SGH Medical Technology Advisory Board; a board that comprises the likes of St Vincent’s Medical Research Institute former chair Brenda Shanahan and Planet Innovation co-founder Sam Lanyon.

With Australian medical technology among the best in the world, portfolio manager Rory Hunter said the fund offers exposure to high quality growth companies.

“Australia’s history of medical breakthroughs includes penicillin, the bionic ear, ultrasounds, spray-on skin, and the cervical cancer vaccine.

In addition, there are many research facilities in Australia which are recognised as medical centres of excellence at a global level,” he said.

“Investors will also benefit from several tailwinds that are driving innovation and growth in medical research and technology.”

And with populations in developed markets ageing, there is mounting pressure on healthcare institutions to invest in early intervention and prevention, he added, saying COVID-19 has exacerbated this.

“We are seeing greater demand for diagnostic testing and healthcare services, and significant government spending to support the industry,” he said, noting the patent box tax break announced in the recent federal budget.

SG Hiscock also plans to establish a registered charitable foundation that will be funded by 10% of the fund’s net revenue, including performance fees.

Qantas Super introduces passive option The $9 billion corporate superannuation fund launched a passive investment option to members tomorrow, while also reducing administration fees and the amount it contributes to its defined benefit pool.

Qantas Super members can nowinvest their retirement savings in a new indexed option, Thrifty.

The new option is in response to member feedback for a lower cost option, according to the fund; “At Qantas Super we wanted to cater for our fee-conscious members that wanted a low-cost option to help them reach their retirement goals.

We wanted a name for the option that embodied this thrifty mindset, which means to be careful with how you use your money and resources.”

It will track the S&P/ASX300, MSCI All Countries World ex-Australia Index, S&P Global REIT Index,

02: Kristian Fok

Bloomberg AusBond Government All Maturities Index and Bloomberg AusBond Bank Bill Index.

With a target return of CPI plus 3.5% over seven years, after tax and fees, members will pay an investment fee of 0.16%. For comparison, Rest’s indexed options don’t charge an investment fee, while LUCRF Super’s passive options charge just 0.06%.

In addition to the new option, Qantas Super also reduced administration fees for members in the Gateway Division. The fund last did so in October 2018.

From July 1, the fixed fee paid by members dropped from $98 plus 0.23% of the balance to $70 plus 0.23%. The annual admin fee cap also reduced from $1200 to $1050.

Members with a $50,000 balance will see savings of 13.1% or $28, while a member with $500,000 in super would save $150 or 12.5%.

Finally, following a review by Willis Towers Watson as part of the airline’s pandemic recovery plan, Qantas has opted to temporarily reduce the contributions it makes into the fund’s defined benefit pool.

As at March 31, the pool had a surplus of $234 million – about 11% more than what is needed to meet member benefits.

Qantas will resume normal funding arrangements from 1 January 2022, with a review of the reduced contributions planned for November GBST improves compliance checks GBST has upgraded its solution to make it easier for superannuation funds to identify members and meet Australian Tax Office tax obligations.

GBST Digital now allows super funds to integrate ID verification in their systems without compromising the user experience during the sign-up process. Members can also sign up and consolidate their super in less than 60 seconds.

GBST digital manager Brianna Dobing said: “GBST’s expertise in integrating with ID verification APIs such as RapidID, has enabled it to deliver a solution that supports super funds in meeting the new, stricter ATO obligations.”

“By allowing users to verify themselves online, this new functionality removes the accidental human error that can occur when scanning or faxing ID verification documents,” she said.

On 31 July 2020, the ATO required super funds to complete the ID verification of a user prior to utilising SuperMatch, an ATO service that obtains details for active superannuation fund accounts.

In the new process, the user’s name, address, and date of birth must be verified against two reliable documents, including one primary government ID, such as a driver’s licence or Australian passport.

GBST chief executive Rob DeDominicis said: “Verifying member identity is not only critical, but a regulatory requirement. Helping our clients to be legally compliant and highly efficient at the same time using technology, is a key part of what we do every day.” fs

22

News

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

Hostplus, Intrust merger official

01: Julia Angrisano

national secretary Finance Sector Union

Kanika Sood

The two funds have confirmed they have signed a successor fund transfer deed to chase a merger, as first revealed by Financial Standard on May 21.

Hostplus and Intrust Super are targeting a completion of the merger by November 26.

It is understood that all Intrust employees will be offered roles at Hostplus but exact new roles were to be decided this month.

Hostplus is much larger at $66 billion in assets and 1.25 million members. The smaller Intrust has about $3 billion in assets and 90,000 members.

“A significant amount of work has preceded today’s announcement. Both funds continue to approach this merger with enthusiasm and pride; and both funds have a deep respect for each other’s distinctive achievements, performance track-record and for-member profit ethos and values,” Hostplus chief executive David Elia said.

Intrust chief executive Brendan O’Farrell said in executing the SFT deed with Hostplus, Intrust is actively working to bring enhanced services and benefits to our members and employers.

“At the same time, we recognise and respect the core sectors that many of our combined members passionately and tirelessly work within.

The merged entity will enable a strong, continued focus on those sectors,” O’Farrell said.

With Intrust having found a merger partner, all eyes will now be on Mercy Super which also has under $3 billion in total assets.

Queensland funds have seen heightened merger activity in recent months, including the $200 billion plus merger between QSuper and Sunsuper, and the $28 billion LGIAsuper-SuncorpEnergy Super. fs

Lazard advisory unit rebrands Karren Vergara

The financial advisory business of Lazard officially launched as Lazard Australia on July 1.

The US financial services firm flagged the restructure of its Australian advisory unit in early February, which is separate from Lazard Asset Management.

Andrew Leyden was appointed to lead Lazard Australia, which is now owned by staff.

Lazard Australia will continue to use the Lazard brand and have access to the global network, a spokesperson said.

Leydon was the co-chief executive of Lazard Carnegie Wylie, which was acquired by Lazard in 2007.

Lazard’s Select Australian Equity Fund recently hired an investment analyst, while the co-portfolio manager transitioned away from the role.

The $125 million fund has been co-managed

by Rob Osborne, Phillip Hofflin, Warryn Robertson and Aaron Binsted, who joined Lazard between 1999 and 2001. Osborne and Hofflin previously worked at Tyndall Investment Management.

Robertson has transitioned away from portfolio manager responsibilities, but continues as an analyst for infrastructure and utilities sectors.

Lazard Asset Management manages $308.8 billion of assets globally. fs

Industry split on paid vaccine leave Jamie Williamson

T

The quote

We already provide generous leave entitlements to our employees and any additional leave we may introduce is funded by our members through their fees.

he Finance Sector Union is petitioning for paid vaccination leave, saying employers can help ensure the community is safe from COVID-19. So, who is and who isn’t on board?

The union has so far written to 71 employers in the financial services sector, including banks, insurers and superannuation funds.

As it stands, the FSU has received just 24 responses. Of those, just one has agreed to what the union is specifically asking for; Australian Mutual Bank is providing employees with two days of paid leave when they receive a vaccine, allowing one day off for each shot.

Some employers have made four hours of paid leave available to staff, including AMP, Beyond Bank, ClearView Wealth, Hume Bank, IAG and Westpac.

Bendigo and Adelaide Bank is also taking the same four hours-only approach, though notes that staff were provided an additional 10 days’ personal leave last year for COVID-19-related matters.

Others have said paid vaccination leave is available via informal agreement. However, some specify that if employees feel unwell or experience side effects and require time off work following the vaccine, they will need to use personal leave.

AustralianSuper and Commonwealth Bank are among these organisations.

Of the 24 that have responded, there are 10 employers that the FSU lists as having declined to provide additional leave to staff receiving the jab.

For example, insurer HBF has said staff can use the three days’ paid wellness leave they receive every year and Cbus said staff can use their existing personal leave balance if they need to travel to a vaccine centre or experience long wait times. Meanwhile, Auto & General said that because it has few employees in front-facing customer roles and vaccination is not mandated, it will not provide paid leave unless directed

by state and/or federal governments to do so.

However, many of those that the FSU said declined made additional leave available to staff in the face of the pandemic, just like Bendigo and Adelaide Bank. In fact, in some cases, their entitlements are more generous.

“While we acknowledge that some employers have provided additional entitlements to help people manage during the COVID pandemic, these entitlements are designed for situations including additional caring responsibilities,” FSU national secretary Julia Angrisano 01 said in a statement to Financial Standard.

However, given the nuances of individual employers’ policies, that’s not entirely accurate. For example, HESTA provides its staff with 15 days of personal leave – five more than is legally required.

In addition to that, those working at HESTA were also given a further five days paid COVID leave.

The fund also said it is happy for employees to get vaccinated during work hours, as the flexible work arrangements currently in place make this possible.

Similarly, Aware Super provided its employees with up to 20 days of additional discretionary leave for the purposes of responding to the pressures of COVID-19. This includes receiving the vaccine, group executive, people and workplace Steve Hill told Financial Standard.

“We considered the most appropriate approach to support the vaccination efforts for our team. We already provide generous leave entitlements to our employees and any additional leave we may introduce is funded by our members through their fees,” he said.

“Decisions to introduce leave entitlements are therefore not made lightly.

Likewise, last year UniSuper began providing its employees with two personal leave days in addition to the standard 10, which the fund expects to be accessed if required for or following vaccination. fs

Millennials to reap super reform rewards Planned superannuation reforms could net millennials $650,000 extra in retire-ment, according to Colonial First State.

Analysis from the institution shows increases to the superannuation guarantee will boost a 35-year-old’s super balance by $86,000. If they were to also take full ad-vantage of July 1 changes to the concessional contributions cap, they would retire with an additional $650,000.

For a 45-year-old, the SG rise would add just over $51,000 while also salary sacri-ficing to the maximum limit would see them accrue an extra $400,000 by age 67.

Meanwhile, a 50-year-old doing the same would see $296,000 more in their ac-count upon retirement, or $36,000

from the SG rise alone. And a 60-year-old would gain an additional $100,000, the research shows.

Colonial First State general manager Kelly Power said the boost to retirement bal-ances is greatest for younger workers due to the power of compounded returns.

“This is particularly true for those who withdrew their super early last year to deal with the pandemic and cover basic expenses, now is the time to start making up some lost ground by using these contributions to replenish their super and rebuild their nest eggs,” she said.

The analysis looked at the difference the increase of the voluntary contributions cap to $27,500 would make, if maximised, coupled with the planned increase of SG to 12%. fs

News

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

AFA slams new SOA measures

01: Louise Walsh

chief executive Walsh Capital

Karren Vergara

The Association of Financial Advisers has hit back at ASIC and APRA for causing “confusion” and “interfering” with financial advice as they look to introduce new changes to Statements of Advice.

The association points to the regulators’ joint letter dated June 30, which advised trustees to review SOAs with respect to new advice fees charged to members’ superannuation accounts.

AFA acting chief executive Phil Anderson argued that SOAs are an agreement between a client and their adviser and contains personal information that should not be shared with trustees. He fears the review may breach the Privacy Act and adds another layer of administration.

For the regulators to make trustees review client SOAs is “confusing, and a matter of great concern”, he said.

Of particular concern in this section in the letter: “Reliance on attestations by financial advisers or advice licensees that services have been provided has limitations due to the potential for conflicts of interest, so cannot in all circumstances be relied upon.”

Further, the regulators want trustees and advisers to have arrangements to facilitate any appropriate reviews, including communicating to clients that these reviews may occur and address any privacy concerns they may have.

“The AFA is calling for financial advisers and superannuation funds to argue against this excessive, unnecessary, and costly interference by the regulators,” Anderson said. fs

23

Louise Walsh launches Walsh Capital Elizabeth McArthur

F

The quote

I’m trying to design a portfolio of clients that appeals to a multigenerational family office.

ormer Future Generation chief executive Louise Walsh 01 is branching out independently, launching Walsh Capital.

Walsh Capital will provide bespoke capital raising for a select group of boutique investment managers.

Walsh told Financial Standard she’ll be likely starting out with three or four clients - with a new private equity firm, an impact manager, an activist manager and a global equities manager likely to be announced.

Walsh Capital will then connect these clients with sophisticated investors including family offices and high-net worth individuals.

“I’m trying to design a portfolio of clients that appeals to a multi-generational family office,” Walsh said.

Walsh will be leading Walsh Capital as chief executive, supported by an advisory group that includes Paradice Investment Management founder David Paradice and Family Office

Research and Management founder Thomas T Murphy.

UBS head of global family offices for Australia and New Zealand Michael Walsh (no relation) is also supporting the new venture and likely to join the advisory group.

Investors will not be charged a fee by Walsh Capital; the investment managers will be the clients and will pay the firm a success fee for money raised and an annual fee to retain services.

“I’m also going to deliver an investor engagement program over time for the clients, and it won’t be a normal investor relations function,” Walsh said.

“I will ring my investor base twice a year to update them on the clients and get any feedback and pass that on. I’ll also have face to face meetings with investors each year, I’ll do webinars where I’ll feature the client and the audience will be the investors and the advisers and I’ll start podcasting again - featuring clients or an interesting investor.” fs

Cbus hires from super regulator

How likely is a super fund to fail the YFYS performance test?

The head of investment risk at APRA is taking on a newly created role at the $63 billion industry fund.

Mark Ferguson joined Cbus as its head of total portfolio management; a new role in support of the fund’s efforts to internalise investments. About 35% of the fund’s investments are managed in-house currently.

Ferguson was with the regulator for just shy of two years, having been appointed in September 2019. Prior to that, he served more than five years at AustralianSuper as a portfolio manager.

At Cbus, Ferguson will have responsibility for asset allocation, capital markets and portfolio execution, and its quantitative solutions teams.

“Mark brings particularly strong expertise in currency, asset allocation process design, risk management, and overlay management.

Alongside extensive experience in investments strategy, superannuation and with regulation, providing a unique perspective for Cbus,” Cbus chief investment officer Kristian Fok said.

“This appointment further strengthens Cbus’ overall investment capability and continues our strategy to build our level of expertise in-house.

This enables Cbus to respond quickly to opportunities and negotiate directly for the best investment outcomes for our members.”

Ferguson, who has also held roles with Qantas Super, QIC and Perpetual, brings more than 25 years’ experience in financial services. fs

Jamie Williamson

The average super fund has a 10-15% chance of failing the Your Future, Your Super performance test in any given eight-year period, but some may need to dive a little deeper to determine how atrisk they are, Willis Towers Watson says.

Following analysis, WTW senior director of investments Tim Unger said a product with a 10% probability of underperformance in any eight-year period has a cumulative probability of underperformance over a 17-year period of about 35%.

Unger looked at two hypothetical super products which performed broadly in line with the YFYS benchmark in a cumulative sense in the seven years to 2021 but had different pathways of returns.

If Fund A outperformed in 2015 and 2016 but had poor performance in more recent years, come 2023 and 2024 it will have a heightened risk of failure as those strong returns drop out of the rolling eight-year period.

Likewise, if Fund B did well in 2016 and 2018 but poorly in 2017 and 2019, its risk of failure spikes in 2024 and 2026 when the positive impact of those earlier years is lost.

“If we look at 10 consecutive performance tests, which cover a total of 17 years of fund performance (i.e. the first test covers years one to eight, the second covers years two to 9, while the 10th test covers years 10-17), a product with a 10% probability of underperformance in any given

eight-year period has a cumulative probability of underperformance over the 17 years of around 35%,” Unger’s note reads.

“If we extend this to 20 measurement periods, then the cumulative probability increases to a little over 50%.”

This shows that a fund with a 10% chance of failure over an eight-year period is more likely than not to fail when extended to 20 measurement periods, he said.

“We estimate that a product with a 10% probability of failing the test over a single eight-year period has around a 7% probability of failing it over any two consecutive such periods,” Unger said.

“However, once again if we extend the assessment period to include 25 measurement periods, the likelihood of failing the test in two consecutive years is over 40%, which is clearly a very significant risk for a fund.”

Even a fund with a 5% chance of failure over eight years has a 40% chance of underperformance over 25 periods, and around a one in four chance of consecutive failures.

“All of this suggests that funds will need to pay a lot of attention to how much risk they are taking relative to the YFYS benchmark,” Unger said.

The initial findings over an eight-year period looked at current strategic asset allocations and assumed administration and advice fees in line with the MySuper median fee. fs

24

International

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

UK bans crypto exchange Binance The UK Financial Conduct Authority has banned well-known and popular crypto exchange Binance from operating in its jurisdiction.

Binance, which is Cayman Islands domiciled, claims to be the biggest Bitcoin exchange and alt-coin cryptocurrency exchange in the world by volumes traded.

However, the FCA has warned consumers to stay away.

The regulator said it was aware that the company is offering UK consumers a range of products and services via its website.

The FCA did not say why it banned Binance but said it has imposed requirements on the company which means it is “not currently permitted to undertake any regulated activities without the prior written consent of the FCA”.

Binance Markers is part of the wider Binance Group, no other entity in the group holds UK authorisation, registration or licence to conduct regulated activity in financial services in the UK either.

In curious timing, two days before the FCA’s announcement Binance put out a statement saying it had received a “letter of commendation” from the UK South East Regional Organised Crime Unit.

The investigation in question related to the supply of Class A drugs via the dark web.

“At Binance, we are proud to have a strong track record of assisting law enforcement agencies around the world. We appreciate this cooperation to make the industry safer which also allow us to focus on providing a superior product for our users,” Binance said. fs

Pension funds pushed to merge The UK pension sector is experiencing similar pressure to that being felt by Australia’s super funds, with the pensions regulator asking defined contribution (DC) funds with less than £5 billion in assets being urged to merge.

In September last year, the UK pensions regulator opened consultation on plans to force sub-£100 million workplace pension schemes to justify their existence. From October this year, these plans must pass a series of value-formember tests. If they fail the tests and fail to take immediate action, they will be forced to wind up and merge with a larger scheme.

While they won’t be subjected to the same tests, pressure to consolidate is set to be expanded to schemes of up to £5 billion in assets.

Opperman has called her evidence on the barriers and opportunities for greater consolidation of funds with between £100 million and £5 billion.

He has also flagged that schemes with more than £5 billion will eventually be scrutinised.

“It is not my intention to stop at £5 billion but given the present size of the UK market, this is the appropriate cut off- for now. I strongly encourage views for this call for evidence to help shape further policy on consolidation in the DC market,” he said.

There is now about 1560 workplace pension schemes active in the UK, according to data from the regulator. Based on current trends, the regulator expects this to drop to about 1000 in five years’ time. average of 8-10% per annum. fs

01: Marlene Timberlake D’Adamo

chief diversity, equity and inclusion officer CalPERS

CalPERS adds chief diversity, equity officer Jamie Williamson

T The numbers

$615bn

CalPERS total market value as at June end.

he California Public Employees’ Retirement System is boosting its ESG capabilities with the appointment of its first chief diversity, equity and inclusion officer.

Marlene Timberlake D’Adamo has been appointed to the role effective immediately. She was previously chief compliance officer, a role the pension fund is actively recruiting for.

Timberlake D’Adamo will be responsible for fostering a culture of equality, respect and inclusiveness across the investment office and broader organisation. She will work with the ESG investment team to identify emerging diversity, equity and inclusion issues and opportunities that have the potential to impact the CalPERS portfolio.

She will also guide the fund’s framework on such matters, its employee Diversity Advisory

Council, and work with the CalPERS Health Program and contracting health plans to survey member satisfaction using race, ethnicity, and gender identity data.

Timberlake D’Adamo first joined CalPERS in 2016 as chief compliance officer, bringing more than 25 years’ experience in financial services.

Prior to the pension fund, she held roles such as managing director, senior vice president, portfolio & risk management at PNC Bank in Philadelphia; chief compliance officer of Glenmede Investment Management; and vice president of the Glenmede Trust Company.

CalPERS currently oversees the retirement savings of about two billion members. It is the largest defined benefit scheme in the US and its total market value currently sits at about $615 billion. fs

MSCI reviews emerging market classifications, nations bumped Elizabeth McArthur

MSCI has published its latest market classification review, with Argentina and Pakistan no longer considered emerging markets.

The MSCI Argentina Index has been moved from ‘emerging’ to ‘standalone’ market status.

A reclassification to ‘standalone’ means these markets will not be capturing funds from investors who seek exposure to emerging markets indexes through various instruments like ETFs. “Since September 2019, international institutional investors have been subject to the imposition of capital controls in the Argentina equity market,” MSCI global head of index management research Craig Feldman said.

“Despite the fact that the MSCI Argentina Index remains replicable given that only foreign listings are eligible for inclusion to the index, the prolonged severity of capital controls with no resolution is not in line with the market accessibility criteria of the MSCI Emerging Markets Index.

“This has led to the reclassification of the MSCI Argentina Index from ‘emerging markets’ to ‘standalone markets’ status.”

In other changes, the MSCI Pakistan Index has been moved from ‘emerging’ to ‘frontier’ market status.

This was due to the size of the Pakistani equity market no longer meeting the standard size and liquidity of an emerging market, in line with MSCI’s framework. MSCI said that since November 2019 no securities in the MSCI Pakistan equity universe have met the emerging markets size and liquidity

criteria within the MSCI market classification framework.

The index provider also released information on some of the markets where it has concerns about deterioration in the availability of investment instruments - including Brazil, China (A shares), India, Korea and Turkey.

Some of the exchanges in these regions restrict access to data, in turn restricting the creation of investment derivatives including ETFs, futures and options contracts.

“As a reminder, any anti-competitive policy put forth by any exchange in any market in the world that restricts the availability of investment Instruments and results in deterioration of the accessibility of an equity market could potentially lead to a downgrade in market classification,” MSCI said.

“Exchanges and regulators should note that anti-competitive policies or practices that restrict the availability of indexed investment instruments have become increasingly problematic to global investors.”

Finally, the market classifications review found particular market accessibility issues in Nigeria.

The repatriation of funds from investments in Nigerian equities remains extremely difficult for foreign investors due to low liquidity in the Nigerian foreign exchange market, MSCI found.

Like Argentina, the MSCI Nigeria Index could be moved to ‘standalone market’ status if there is no improvement in accessibility and liquidity of this market. fs

Between the lines

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

WAM Global to acquire LIC

25

01: Matt Leibowitz

chief executive Stake

Kanika Sood

WAM Global Limited has entered a scheme of implementation arrangement with the discounted LIC Templeton Global Growth Fund to acquire 100% of TGG shares.

WGB is already a shareholder in TGG and wants to acquire the shares it does not hold.

TGG investors have two options: either take WGB’s share and options offer or exit at TGG’s NTA (which is higher than current trading price) in a buy-back that Templeton has agreed to do.

TGG directors, who have been considering the discounted LIC’s options since October 2020, are endorsing WGB’s offer.

On completion, TGG chair Chris Freeman will join the WGB board and WAM will manage the TGG assets.

Net assets will go up to $765 million across 17600 shareholders, according to WGB. TGG shareholders are expected to vote on the SIA and the buy-back in September.

Washington H.Soul Pattinson (SOL) made a similar move in looking to acquire LIC Milton Corporation, where SOL already had a shareholding. However, both those LICs trade at a premium to the underlying value of their assets.

Washington H Soul Pattinson will pay about $4 billion for a scrip merger with LIC Milton Corporation, as it chases liquidity for new acquisitions and better index participation.

Milton is an Aussie equities listed investment company (LIC) with about $3.7 billion in assets. fs

Stake taps FinClear for ASX offering Elizabeth McArthur

M The quote

We’re really excited to bring a more seamless and transparent way for investors to access the Australian equities market.

agellan-backed FinClear has been selected

by Stake for trading, execution and clearing services as it moves into Aussie equities.

Commission-free digital brokerage platform Stake recently announced it will add Australian equities to its platform, after launching with a promise to break down barriers to investing in US companies for Australians.

Now, FinClear has announced that it will provide trading, execution and clearing services via its API broking platform to Stake.

“We’re delighted that Stake has chosen the FinClear platform,” FinClear chief executive David Ferrall said.

“Because we’re the only company in our space to own the complete infrastructure highway – from the retail interface through to the exchange and clearing house – we’re able to really streamline the trading process and make

Rainmaker Mandate Top 20

it much more efficient than anyone else can.”

Stake chief executive Matt Leibowitz01 said FinClear will provide Stake’s Australian customers with the most efficient trading experience.

“We’re really excited to bring a more seamless and transparent way for investors to access the Australian equities market. FinClear shares our vision for where the local market can go and what is possible when you combine that with technology,” he said.

“FinClear is progressive, innovative, and completely committed to giving their clients the highest quality access to markets. That aligns perfectly with what we do, so it’s an ideal partnership for us.”

Stake has almost 300,000 registered Australian users. In June, FinClear announced it would acquire BNY Mellon’s Pershing Securities Australia in a bid to scale and enhance its HINbased platform services. fs

Latest property & alternatives investment mandate appointments

Appointed by

Asset consultant

Investment manager

Mandate type

AvSuper Fund

Frontier Advisors

Flexstone Partners

International Private Equity

10

Aware Super

Willis Towers Watson

Goodman Limited

Property

15

Aware Super

Willis Towers Watson

Lendlease Investment Management (Australia) Pty Limited

Property

463

Christian Super

JANA Investment Advisers

First Sentier Investors

Infrastructure

7

Christian Super

JANA Investment Advisers

LGT Capital Partners

Alternative Investments

4

Christian Super

JANA Investment Advisers

Other

Other

Christian Super

JANA Investment Advisers

Siguler Guff & Company, LP

Alternative Investments

3

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

Muzinich & Co. Inc.

Alternative Investments

45

Energy Industries Superannuation Scheme - Pool A

Cambridge Associates; JANA Investment Advisers

PGIM Fixed Income

Alternative Investments

100

Energy Super

JANA Investment Advisers

HarbourVest Partners, LLC

Private Equity

Hostplus Superannuation Fund

JANA Investment Advisers

Other

Australian Private Equity

1

Hostplus Superannuation Fund

JANA Investment Advisers

Other

International Private Equity

4

Labour Union Co-operative Retirement Fund

Frontier Advisors

The Sentient Group

Private Equity

Labour Union Co-operative Retirement Fund

Frontier Advisors

ISPT Pty Limited

Infrastructure

Local Government Super

Cambridge Associates; JANA Investment Advisers

Marathon Asset Management (Australia) Limited

Other

Local Government Super

Cambridge Associates; JANA Investment Advisers

PGIM, Inc.

Hedge Fund

Montgomery Investment Management Pty Limited

Other

Other

State Super (NSW)

New South Wales Treasury Corporation

Private Equity

Frontier Advisors

Amount ($m)

17

59

6 100 9 1 Source: Rainmaker Information

26

Managed funds

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13 PERIOD ENDING – 31 MAY 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

GROWTH

Perpetual Split Growth Fund

% p.a. Rank

% p.a. Rank

% p.a. Rank

CAPITAL STABLE

First Sentier Wholesale High Growth Fund Vanguard High Growth Index Fund

$m

407

29.5

1

11.1

1

11.0

1

Macquarie Capital Stable Fund

26

7.4

19

7.4

1

6.5

3

4093

24.8

7

11.0

2

10.5

3

IOOF MultiMix Moderate Trust

596

12.3

7

7.2

2

7.1

1

43

26.5

5

10.9

3

10.3

5

Dimensional World Allocation 50/50 Trust

671

15.6

2

6.9

3

7.1

2

MLC Wholesale Horizon 6 Share

356

27.8

3

10.6

4

10.8

2

MLC Index Plus Conservative Growth

282

13.2

5

6.5

4

IOOF MultiMix Growth Trust

704

19.9

15

10.0

5

10.1

6

MLC Horizon 3 Conservative Growth

1188

14.6

3

6.2

5

6.2

4

10

27.1

4

9.8

6

10.4

4

Vanguard Conservative Index Fund

2921

7.4

20

6.1

6

5.4

6

Fiducian Growth Fund

212

23.1

12

9.7

7

9.9

7

Perpetual Conservative Growth Fund

325

8.9

14

5.9

7

5.0

14

MLC Wholesale Index Plus Growth

183

22.4

14

9.5

8

1455

13.2

6

5.8

8

5.4

9

6903

18.7

16

9.5

9

8.9

12

UBS Tactical Beta Fund - Conservative

80

9.2

11

5.6

9

5.2

12

MLC Wholesale Horizon 5 Growth

663

24.1

9

9.3

10

9.3

11

IOOF MultiMix Conservative Trust

647

7.7

17

5.5

10

5.4

8

Sector average

744

22.8

8.6

8.9

Sector average

470

9.9

5.3

5.1

Legg Mason Brandywine Global Inc. Opt. Fund

156

10.1

2

8.0

1

Principal Global Credit Opportunities Fund

272

2.1

27

7.1

2

5.6

3

First Sentier Global Corporate Bond Fund

49

2.4

25

6.3

3

5.4

4

BT Multi-Manager High Growth Fund

Vanguard Growth Index Fund

AMP Capital Income Generator

BALANCED

CREDIT

BlackRock Global Allocation Fund (Aust)

602

24.2

3

10.5

1

Australian Ethical Balanced Fund

175

16.0

26

10.3

2

Ausbil Balanced Fund

139

26.9

1

10.0

3

9.9

1

BlackRock Tactical Growth Fund

511

19.1

16

9.6

4

8.2

12

Aquasia Enhanced Credit Fund

169

6.0

13

6.2

4

6.7

1

Macquarie Balanced Growth Fund

816

14.1

33

9.5

5

9.4

3

Yarra Enhanced Income Fund

112

9.7

4

5.8

5

6.3

2

1931

16.3

24

9.0

6

8.9

6

Janus Henderson Diversified Credit Fund

648

8.7

5

5.1

6

4.9

7

Fiducian Balanced Fund

512

19.7

13

8.9

7

8.9

4

JPMorgan Global Bond Opportunities Fund

1

8.7

6

5.0

7

4.9

8

Responsible Investment Leaders Bal

126

21.3

5

8.9

8

8.3

10

1212

11.0

1

4.8

8

5.3

5

State Street Passive Balanced Trust

97

17.1

20

8.9

9

8.3

9

Vanguard International Credit Securities Index

543

2.6

24

4.8

9

4.1

16

Perpetual Balanced Growth Fund

567

20.3

10

8.8

10

9.3

17

Pendal Enhanced Credit Fund

544

2.2

26

4.7

10

4.2

15

Sector average

747

17.4

7.5

7.5

Sector average

666

5.0

4.0

4.0

IOOF MultiMix Balanced Growth Trust

9.6

2

PIMCO Income Fund

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

Source: Rainmaker Information

OPINION

Forcing advisers to use wrong light bulb f you’re a financial adviser, you already Iis quickly know everything is evolving. The industry moving towards the desired profes-

Melanie Drago

founder Tanngo

sional status; with laws changing, education standards lifting and major players in the game leaving, merging or shifting.

Advisers are fully aware that their environment has changed. They are starting self-licensed businesses or shifting to smaller boutique licensees, whether self-selected or forced by circumstance.

To allow Australians to receive quality, affordable advice, these adviser practices need to keep their operating costs low and be accessible to meet client demand – which has not waned despite the reduction of adviser numbers.

It’s no wonder we are seeing a strong demand for outsourcing services such as paraplanning and administrative work from these practices. And it’s safe to assume this demand will only grow stronger.

With large institutional licensees no longer providing business support – advisers need to seek critical back-office support elsewhere.

Rather than fund an in-house resource that may be utilised only some of the time, it makes sense that outsourcing is the answer.

But, has this realisation light been turned on for our major financial software providers?

Nope. They are still pitching the incandescent lightbulb while the industry is looking for LEDs. The software licence model where a large institution (or licensee) manages a software site that their advisers and staff log into is simply archaic and losing appeal. This model serves a diminishing market.

Boutique advisers I speak to haven’t got the financial capacity to pay for their licence as well as funding additional paraplanning licenses which may be used sporadically throughout the year. Sharing their own licence is a definite no-no, especially when the licence exposes their entire client base.

So, they rely on paraplanners to have software to generate projections, product research reports for consideration, and SOAs as part of a complete advice production support service.

By relying on a paraplanner to have financial planning software, the adviser needs to provide all information manually by sharing documents and information, and acknowledge that any work conducted by the paraplanner will not be saved in their software instance.

Is there a viable cost-effective solution that

will allow outsourced paraplanners to access data, and the tools they need to service the boutique adviser market? Not really.

The reality is that only larger contract paraplanning businesses will be able to serve the market effectively, leaving a large future resourcing problem.

Our industry software partners need to realise that the future is flexible and modular.

It’s time we all accepted that there’s a growing practice model that is being supported exclusively by outsourced parties, so let’s support them and the businesses that serve them.

There are some new notable fintech businesses making some movements towards a more viable “modular” operating model.

However, without making some legwork towards a truly comprehensive future-looking solution, advisers will continue to find it cumbersome to work with their preferred partners or struggle to find suitable outsourced services, therefore severely impacting the cost of advice for Australians.

Without foresight, innovation and conscious evolution from the entire industry, including software and support services, we will be stuck with those wretched incandescent light bulbs, until the lights go out. fs

Super funds

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13 PERIOD ENDING – 31 MAY 2021

Workplace Super Products

1 year

3 years

% p.a. Rank

5 years

SS

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

GROWTH INVESTMENT OPTIONS

27

* SelectingSuper [SS] quality assessment

Retirement Products

1 year

3 years

% p.a. Rank

5 years

SS

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

GROWTH INVESTMENT OPTIONS

UniSuper - Sustainable High Growth

21.2

45

12.8

1

11.4

2

AAA

UniSuper Pension - Sustainable High Growth

23.4

37

14.3

1

12.7

2

AAA

HESTA - Sustainable Growth

20.8

50

11.7

2

10.8

6

AAA

UniSuper Pension - High Growth

28.7

5

13.0

2

13.5

1

AAA

UniSuper - High Growth

26.6

4

11.6

3

12.2

1

AAA

HESTA Income Stream - Sustainable Growth

23.2

38

12.8

3

11.8

7

AAA

Catholic Super - PositiveIMPACT

17.4

96

10.9

4

AAA

MyLife MyPension - PositiveIMPACT

19.9

65

12.6

4

AAA

AustralianSuper - High Growth

23.1

23

10.2

5

10.5

9

AAA

Suncorp Brighter Super pension - MM High Growth Fund

23.0

40

12.4

5

11.4

12

AAA

Cbus Industry Super - High Growth

25.2

6

10.2

6

11.0

5

AAA

smartMonday PENSION - High Growth Index

27.4

9

11.6

6

11.2

15

AAA

Equip MyFuture - Growth Plus

22.9

24

10.1

7

11.2

4

AAA

Vision Income Streams - Growth

26.6

13

11.6

7

11.7

8

AAA

Vision Super Saver - Growth

24.0

18

10.1

8

10.5

10

AAA

Cbus Super Income Stream - High Growth

28.2

6

11.5

8

12.3

5

AAA

HOSTPLUS - Shares Plus

27.1

2

10.1

9

11.4

3

AAA

UniSuper Pension - Growth

23.7

36

11.4

9

11.6

9

AAA

UniSuper - Growth

21.6

36

10.1

10

10.4

13

AAA

AustralianSuper Choice Income - High Growth

25.5

21

11.3

10

11.6

10

AAA

Rainmaker Growth Index

21.1

Rainmaker Growth Index

23.2

8.5

8.8

BALANCED INVESTMENT OPTIONS

9.4

9.7

BALANCED INVESTMENT OPTIONS

UniSuper - Sustainable Balanced

14.3

82

10.1

1

8.9

8

AAA

UniSuper Pension - Sustainable Balanced

16.2

69

11.5

1

10.2

4

AAA

Australian Ethical Super Employer - Balanced (accumulation)

15.7

58

9.5

2

8.1

28

AAA

Suncorp Brighter Super pension - MM Growth Fund

18.9

29

10.9

2

10.2

3

AAA

Australian Catholic Super Employer - Socially Responsible

14.8

74

9.4

3

7.9

37

AAA

Australian Catholic Super RetireChoice - Socially Responsible

16.7

60

10.6

3

8.9

24

AAA

AustralianSuper - Balanced

19.5

6

9.0

4

9.5

2

AAA

Future Super - Balanced Growth Pension

14.2

83

10.3

4

7.9

59

AAA

SA Metropolitan Fire Service Super Scheme - Growth

21.3

2

9.0

5

9.0

3

AAA

UniSuper Pension - Balanced

18.2

38

10.1

5

10.0

6

AAA

CareSuper - Sustainable Balanced

15.6

59

8.9

6

8.3

18

AAA

Sunsuper Income Account - Balanced Index

19.9

12

10.0

6

9.1

16

AAA

Sunsuper Super Savings - Balanced Index

18.0

15

8.8

7

8.0

29

AAA

AustralianSuper Choice Income - Balanced

21.4

3

9.9

7

10.3

1

AAA

UniSuper - Balanced

16.3

45

8.8

8

8.7

10

AAA

CareSuper Pension - Sustainable Balanced

18.4

33

9.8

8

9.1

15

AAA

Vision Super Saver - Balanced Growth

18.8

8

8.7

9

9.0

4

AAA

ESSSuper Income Streams - Basic Growth

19.1

23

9.7

9

AAA

VicSuper FutureSaver - Socially Conscious

13.0

93

8.6

10

8.7

11

AAA

AustralianSuper Choice Income - Indexed Diversified

17.9

41

9.7

Rainmaker Balanced Index

15.4

Rainmaker Balanced Index

16.9

7.0

7.2

CAPITAL STABLE INVESTMENT OPTIONS

10

7.7

9.3

13

AAA

7.8

CAPITAL STABLE INVESTMENT OPTIONS

QSuper Accumulation - Lifetime Aspire 2

14.2

3

8.3

1

7.7

1

AAA

Suncorp Brighter Super pension - MM Balanced Fund

13.5

10

8.5

1

7.9

4

AAA

QSuper Accumulation - Lifetime Focus 1

14.8

1

8.0

2

7.6

3

AAA

Vision Income Streams - Balanced

15.6

2

8.2

2

8.6

1

AAA

QSuper Accumulation - Lifetime Focus 2

13.1

8

7.5

3

6.9

7

AAA

AustralianSuper Choice Income - Conservative Balanced

15.2

3

8.0

3

8.3

2

AAA

Spirit Super - Sustainable

12.5

9

7.3

4

7.5

4

AAA

Cbus Super Income Stream - Conservative Growth

13.3

12

7.9

4

8.1

3

AAA

Vision Super Saver - Balanced

14.0

4

7.2

5

7.6

2

AAA

LUCRF Pensions - Moderate

14.2

6

7.6

5

7.4

6

AAA

AustralianSuper - Conservative Balanced

13.6

5

7.1

6

7.4

5

AAA

Suncorp Brighter Super pension - Lifestage 1955-1959

14.0

7

7.0

6

6.2

23

AAA

QSuper Accumulation - Lifetime Focus 3

11.2

17

6.9

7

6.2

13

AAA

Suncorp Brighter Super pension - Universal Balanced Fund

13.5

9

7.0

7

6.1

25

AAA

Cbus Industry Super - Conservative Growth

11.8

12

6.6

8

AAA

Super SA Income Stream - Moderate

14.3

5

6.9

8

7.2

9

AAA

VicSuper FutureSaver - Balanced

11.0

18

6.6

9

7.0

6

AAA

Spirit Super Pension - Moderate

9.8

45

6.9

9

6.6

17

AAA

LUCRF Super - Moderate

12.3

11

6.5

10

6.4

12

AAA

Suncorp ESP - Suncorp Lifestage Fund 1955-59

13.8

8

6.8

10

AAA

Rainmaker Capital Stable Index

8.5

4.7

4.7

Note: Please note that all figures reflect net investment performance, i.e. net of investment tax, investment management fees and the maximum applicable ongoing management and membership fees.

Rainmaker Capital Stable Index

9.1

5.1

5.1 Source: Rainmaker Information www.rainmakerlive.com.au

28

Economics

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

The (dot) plot thickens

Monthly Indicators

Ben Ong

Retail Sales (%m/m)

0.13

1.07

1.32

-0.78

0.29

Retail Sales (%y/y)

7.36

25.03

2.22

9.09

10.61

Sales of New Motor Vehicles (%y/y)

68.31

137.24

22.42

5.05

11.06

T

he Fed has spoken and Wall Street didn’t like what it heard and saw (in the dot plots).

US equities painted the board red, with all benchmark indices closing on the down low, while yields on 10-year US Treasuries went on the up and up.

This is because while the much-anticipated 15-16 June FOMC meeting produced no change in the prevailing monetary policy setting the dot plots contained in the ‘Statement of Economic Projections’ (SEP) imply that something sinister is coming to a theatre near us … and soon.

The plot of the dots reveals that there are now more Federal Reserve Board members and Federal Reserve Bank presidents thinking that there would be a rate rise next year increased to seven at the June meeting (from four three months earlier) and those predicting higher interest rates by 2023 rising from seven out of 18 in March to 13 at the recently-concluded meeting – with 11 officials expecting not one, but two, hikes.

To be sure, Wall Street’s reaction was mild compared with previous “tantrum” episodes. The S&P 500 index eased by only half a percent on the day and this, from the record high it set the day before. The index is still up 12.4% this year to date and by a whopping 35.2% from a year ago.

More, despite the VIX index’s – the ‘fear gauge’ – 6.6% jump on the day, at a reading of 18.15, it’s still lower than the most recent peak of 27.59 it hit on May 12 and this year’s high of 37.21 recorded in late January.

Financial market participants, it seems, paid closer attention to chair Jerome Powell’s words this time.

In his press conference, the Fed chief elaborated that: “As is evident in the SEP, many par-

ticipants forecast that these favorable economic conditions will be met somewhat sooner than previously projected; the median projection for the appropriate level of the federal funds rate now lies above the effective lower bound in 2023. Of course, these projections do not represent a Committee decision or plan, and no one knows with any certainty where the economy will be a couple of years from now. More important than any forecast is the fact that, whenever liftoff comes, policy will remain highly accommodative. Reaching the conditions for liftoff will mainly signal that the recovery is strong and no longer requires holding rates near zero.”

True that. The Fed’s latest economic projections bear this out, upgrading this year’s GDP growth to 7.0% from the 6.5% rate forecast in March, with the unemployment rate steadily improving from 4.5% this year to 3.8% in 2022 and 3.5% in 2023.

The Fed’s PCE price inflation – its favoured measure – forecast that while “Inflation has increased notably in recent months … and will likely remain elevated in coming months,” it’s largely “transitory” and should “drop back toward our longer-run goal, and the median inflation projection falls from 3.4% this year to 2.1% next year and 2.2% in 2023”.

“Of course, these projections do not represent a Committee decision or plan, and no one knows with any certainty where the economy will be a couple of years from now.” Of course.

“The path of the economy will depend significantly on the course of the virus. Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.” fs

May-21

Apr-21

Mar-21

Feb-21

Jan-21

Consumption

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

115.19

-30.70

69.33

76.56

Job Advertisements (%m/m, sa)

7.92

4.88

8.02

7.68

25.65 3.31

Unemployment Rate (sa)

5.07

5.48

5.70

5.87

6.40

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

9589.00

Exports (%y/y)

-

9.28

-5.32

8.66

1.74

-

8.22

5.68

-4.14

-12.02

Imports (%y/y) Quarterly Indicators

Mar-21 Dec-20 Sep-20 Jun-20 Mar-20

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

News bites

US CPI inflation America’s annual headline inflation rate accelerated from 4.2% in April to 5.0% in May – the fastest since August 2008. Core inflation increased by 3.8% in the year to May – the most since June 1992 – from 3.0% in the previous month. While part of the increase in inflation – headline and core – was due to base effects, it also underscores supply and production constraints as Americans bought more pre-loved vehicles. The BLS reports that: “The index for used cars and trucks continued to rise sharply, increasing 7.3% in May.” China economic activity The National Bureau of Statistics (NBS) released retail sales, industrial production and fixed asset investment that were still stronger than usual -- as they continue to come off the low

base comparisons of the previous year when the coronavirus pandemic hit. Chinese retail sales grew by 12.4% in the year to May down from 17.7% April, March’s year-on-year rate of 34.2% and lower than market expectations for a 17.0% print.

The annual growth in industrial production slowed to 8.8% in May from 9.8% in the previous month, 14.1% in March and 35.1% in February. Again, this is less than market expectations for a gentle slowing to a 9.2% year-on-year rate. China’s fixed asset investment also disappointed expectations for a 17.0% gain as its annual growth rate sequentially slowed to 15.4% in May from 19.9% in April, 25.6% in March and 35.0% in February.

Australia employment According to the Australian Bureau of Statistics’ (ABS) ‘Labour Force’ report: “Employment increased by 115,000 people in May, following the 31,000 fall in April, around the Easter holiday period. This is more than three times market expectations for a still not insignificant addition of 30,000 and disproved earlier apprehensions that around 100,000-150,000 Australians would lose employment after the government’s JobKeeper scheme ended in March. “The unemployment rate fell to 5.1%, which was below March 2020 (5.3% and back to the level in February 2020 (5.1%)” – lower than expectations for an unchanged print at 5.5% and the seventh straight month of decline in the jobless rate.” fs

Real GDP Growth (%q/q, sa)

1.79

3.21

3.46

-6.97

Real GDP Growth (%y/y, sa)

1.11

-0.95

-3.66

-6.24

-0.29 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

25-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

1.57

1.63

1.68

0.88

2.63

Australian 10Y Corporate Bond Yield

1.60

1.55

1.51

1.80

3.32

Stockmarket All Ordinaries Index

7578.6

3.12%

7.92%

27.84%

20.13%

S&P/ASX 300 Index

7301.5

2.74%

7.76%

26.25%

18.38%

S&P/ASX 200 Index

7308.0

2.71%

7.62%

25.62%

17.67%

S&P/ASX 100 Index

6035.8

2.45%

7.74%

25.61%

18.46%

Small Ordinaries

3403.4

4.82%

7.90%

31.40%

17.51%

Exchange rates A$ trade weighted index

63.50

A$/US$

0.7604 0.7755 0.7571 0.6860 0.7400

64.40

64.50

58.80

62.80

A$/Euro

0.6362 0.6333 0.6429 0.6117 0.6332

A$/Yen

84.23 84.47 82.62 73.52 81.16

Commodity Prices S&P GSCI - commodity index

529.97

512.51

462.30

320.22

466.27

Iron ore

214.17

207.01

167.05

103.08

64.88

Gold

1786.65 1887.00 1737.30 1756.55 1268.70

WTI oil

74.00

66.27

58.47

38.66

Source: Rainmaker Information /

69.91

Sector reviews

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

Figure 1. Unemployment Rate & Participation Rate

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CPD Program Instructions

Figure 2. Business & consumer confidence 62.5

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It’s raining jobs Ben Ong

A

ccording to the Australian Bureau of Statistics’ (ABS) ‘Labour Force’ media release: “Employment increased by 115,000 people in May, following the 31,000 fall in April, around the Easter holiday period. Over the past two months, employment increased by around 84,000 people, and was 1% higher in May 2021 than at the start of the pandemic.”

This is more than three times market expectations for a still not insignificant addition of 30,000 and disproved earlier apprehensions that around 100,000-150,000 Australians would lose employment after the government’s JobKeeper scheme ended in March.

My back of the envelope calculations shows that a total of 256,000 jobs have been created in the first five months of this year alone, more than making up for the 96,400 positions lost in 2020.

“The unemployment rate fell to 5.1%, which

International equities

was below March 2020 (5.3%) and back to the level in February 2020 (5.1%)” – lower than expectations for an unchanged print at 5.5% and the seventh straight month of decline in the jobless rate.

Even better, this comes amid the rise in the participation rate from 65.9% in April to 66.2% in May – a whispering distance from the historic high of 66.3% recorded in March this year – itself, a positive indicator, as more jobseekers re-enter the labour force amid optimism in finding employment.

And why the heck wouldn’t Australians see the glass more than half-full? Not when the NAB business survey found that business conditions rose to a fresh record high reading of +37 in May, from what were then all-time highs of +32 in April and +24 in March. More to the point, the latest NAB survey shows the “employment index” rising from 20 in April to a record high reading of 25 in May.

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Anchoring the recovery Ben Ong

W

e have to take the economy through the pandemic and into a recovery phase, which has now started. We need to really anchor the recovery. We always talk about inflation anchoring and we are not oblivious to that. But the recovery needs to be firm, solid and sustainable.”

These were ECB president Christine Lagarde’s answers to an interview with Politico asking how long the single-currency region’s fiscal and monetary policy support would remain in place.

This also comes four days after the European Central Bank convened on the 10th of June and decided to maintain the status quo – keeping the interest rates unchanged on its main refinancing operation, the marginal lending facility and the deposit facility at 0.00%, 0.25% and -0.50%, respectively.

Further:“The Governing Council will continue to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,850 billion until at least

the end of March 2022 and, in any case, until it judges that the coronavirus crisis phase is over.”

Sure, activity and leading economic indicators in the region had significantly improved. So much so, that in its May Economic Outlook report, the OECD upgraded the Eurozone’s GDP growth forecasts to 4.3% this year (from 3.6% its predicted in December 2020) and 4.4% in 2022 (from 3.3%).

Although still in contraction, Eurozone GDP growth has improved to negative 1.3% in the year to the March 2021 quarter from negative 4.7% in the previous quarter. The lead from the latest IHS Markit Eurozone PMI survey foretells continued improvement.

The IHS Markit Eurozone PMI composite index increased to a reading of 57.1 in May from 53.8 in April – the highest since February 2018 and the third straight month indicating expansion. The PMI for the manufacturing sector recorded its highest level on record with a reading of 63.1 in May while the PMI for the services sector

Australian equities CPD Questions 1–3

1. What was Australia’s employment report in May? a) Less than expected b) As expected c) More than expected d) Lower than RBA forecast 2. What was Australia’s unemployment rate in May? a) 5.0% b) 5.1% c) 5.3% d) 5.5% 3. An increase in the participation rate is a positive for the labour market. a) True b) False

CPD Questions 4–6

55

5

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].

International equities

INDEX

60

0

Prepared by: Rainmaker Information Source: Rainmaker /

Not only that, despite the recent lockdown in Melbourne denting consumer confidence in June, the reading of 107.2 remains well-above its long-term average of 101.4 and is 14.5% higher than it was a year earlier. As per Westpac: “Jobs confidence’ is still positive, the index was coming off its best read in a decade in May.” But, as Ella Fitzgerald sings, “into each life some rain must fall”. Australia’s “jobs full” recovery brings with it that “horrible” thought that the Reserve Bank of Australia (RBA) and/ or the federal government withdrawing their policy largesse.

Que horror! Monetary and fiscal accommodation no more!

Not only us, Australians all, wish and hope and pray that everything returns to pre-pandemic normal. So why are financial markets throwing a tantrum at mounting indications that we are on our way there? fs

Figure 1. Eurozone GDP growth PERCENT

29

rose to its highest level in nearly three years to 55.2.

Onwards and upwards the Eurozone’s heading. According to Markit: “The service sector revival accompanies a booming manufacturing sector, meaning GDP should rise strongly in the second quarter. With a survey record build-up of work-in-hand to be followed by the further loosening of covid restrictions in the coming months, growth is likely to be even more impressive in the third quarter”.

Not surprising, the Euro Stoxx-50 index has rallied by 16.3% this year to date and by a whopping 73.2% since the pandemic low it plumbed back in March 2020.

Then again, as Madame Lagarde pointed out, while the Eurozone’s economic outlook is heading in the right direction, she’s “not suggesting that the pandemic emergency purchase program (PEPP) is going to stop on March 31 [2022]”.

Lagarde has improved on Draghi’s “whatever it takes” to “however long it takes”. fs

4. What was the ECB’s decision at its June meeting? a) It kept the interest rate on its main refinancing operation unchanged. b) It kept the interest rate on its marginal lending facility unchanged. c) It kept the interest rate on its deposit facility unchanged. d) All of the above 5. Which Eurozone PMI indicated expansion in private sector activity in May? a) Composite PMI b) Manufacturing PMI c) Services PMI d) All of the above 6. ECB president Lagarde wants the PEPP to end before March 2022. a) True b) False

30

Sector reviews

Fixed interest CPD Questions 7–9

7. How many jobs were created in the US in May? a) 266,000 b) 559,000 c) 650,000 d) 978,000 8. What was the US headline inflation in May? a) 3.0% b) 3.8% c) 0.0% d) 5.0% 9. Low interest rates and generous fiscal spending in the US will keep upward pressure on inflation. a) True b) False Alternatives CPD Questions 10–12

10. By how much has China’s retail sales grown in the year to May? a) 12.4% b) 17.0% c) 17.7% d) 34.2% 11. What is the annual growth in Chinese industrial production in May? a) 8.8% b) 9.8% c) 14.1% d) 35.1%

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

Fixed interest

Figure 1: US employment and unemployment rate 10000

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US inflation may not be transitory Ben Ong

W

e really do see what we want to see and hear what we want to hear … and rationalise accordingly.

How else does one explain the US equity market’s opposing reaction to the two most important indicators the Fed watches in determining its next policy move only a month apart?

Wall Street rallied last month when the US Bureau of Labor Statistics (BLS) reported that the US economy added 266,000 jobs in April, well-below market expectations for a nearly one million gain (978,000 to be exact), but sold off three days later when the same agency revealed that headline inflation rose by 0.8% over the month of April – the biggest increase since June 2009 and four times above market expectations for a 0.2% gain – taking the annual headline inflation rate to 4.2% (the fastest rate since September 2008) from 2.6% in the previous month.

It was the same in June, US employment dis-

Alternatives

appointed. Only 559,000 jobs were generated in May, missing consensus expectations for the creation of 650,000 to the employment heap, reinforcing views that inflation concerns are misplaced.

Same as last month the BLS released figures showing that headline and core inflation grew by more than expected but the financial markets’ reaction was different – US equities fell in May, they advanced this month around.

America’s annual headline inflation rate accelerated from 4.2% in April to 5.0% in May – the fastest since August 2008. Core inflation increased by 3.8% in the year to May – the most since June 1992 – from 3.0% in the previous month.

While part of the increase in inflation was due to base effects, it also underscores supply and production constraints as Americans bought more pre-loved vehicles. The BLS reports that: “The index for used cars and trucks continued to rise sharply, increasing 7.3% in May. This increase accounted for about one-third

Figure 2: China GDP growth

Figure 1: China retail sales, FAI & IP 40

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12. The annual growth rate in China’s fixed asset investment had been slowing since February this year. a) True b) False

of the seasonally adjusted all items increase.”

Unable to buy brand new vehicles because of production and supply constraints, the Joneses are purchasing used cars. They have the wherewithal to do so – compliments of the Federal Reserve’s low interest rates and the Biden administration’s generous fiscal spending.

Would inflation turned out to be transitory as the Fed assures? Or would inflation continue to accelerate even after the base effects are washed out of the stats?

Recent indications are that continued monetary and fiscal policy largesse would put a lotta money in Americans’ pockets, in addition to the higher wages they’ll get to get from the higher pay offered by Uncle Sam (if they’re unemployed) relative to what they’ll be receiving compared to flipping burgers.

Bottomline, preserving the monetary and fiscal status quo would keep upward pressure on US inflation. fs

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China: Activity disappoints, growth intact Ben Ong

D

Go to our website to

Submit

All answers can be submitted to our website.

isappointing. This is the one word that describes the latest batch of activity indicators out of China.

The National Bureau of Statistics (NBS) released retail sales, industrial production and fixed asset investment that were still stronger than usual -- as they continue to come off the low base comparisons of the previous year when the coronavirus pandemic hit, prompting the government to impose draconian lockdown measures that virtually froze social and business activity – but all the same, less than market consensus expectations.

The NBS reported that Chinese retail sales grew by 12.4% in the year to May down from 17.7% April, March’s year-on-year rate of 34.2% and lower than market expectations for a 17.0% print.

The annual growth in industrial production slowed to 8.8% in May from 9.8% in the previ-

ous month, 14.1% in March and 35.1% in February. Again, this is less than market expectations for a gentle slowing to a 9.2% year-on-year rate.

Three for three. China’s fixed asset investment also disappointed expectations for a 17.0% gain as its annual growth rate sequentially slowed to 15.4% in May from 19.9% in April, 25.6% in March and 35.0% in February.

But no problemo amigo. If it were, the People’s Bank of China (PBOC) would have sprung into action. But nah, it left its benchmark interest rates unchanged – one-year loan prime rate at 3.85% and the five-year at 4.65% – for the 13th straight month at its May fixing.

In addition, this is what the doctor (er, central command) ordered. At the opening of the fourth session of the 13th National People’s Congress (NPC) in Beijing on March 5, Chinese premier Li Kequiang 2021’s GDP growth target of over 6%.

This compares with consensus expectations – market, the IMF and the OECD – for China’s economy to grow by 8.0% this year.

The distortions wrought by the coronavirus pandemic to consumer and business behaviours and central bank and government policies make it especially difficult to assess the trend in forthcoming stats. Not to mention, the fact that the virus still lingers and the race between increased vaccinations and the virus turning into a more infectious variant.

Sure, these indicators can continue to weaken as 2021 progresses. Then again, retail sales growth has averaged 14.7% in the first five months of this year; industrial production at 15.0%; and fixed asset investment at 19.8%.

This compares with 2019’s (pre-pandemic) averages of 8.1% for retail sales; 5.7% for industrial production; and 5.7% for fixed asset investment. That year, China’s GDP growth expanded by 6.1%. fs

Sector reviews

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

31

Property

Property

CPD Questions 13–15

Prepared by: Rainmaker Information Source: CoreLogic and the RBA

ell us something we, Australians all, don’t TThose already know. who have (at least one) are salivating, wringing their hands and thanking their lucky stars. Those who don’t are still pounding the pavement and praying it’ll happen for them too. can call home.

It’s a dollar short (several millions, in fact) and a day late but the Australian Bureau of Statistics’ (ABS) recently released ‘Residential Property Price Indexes: Eight Capital Cities’ told us what we already know.

The key stats from the ABS’ March quarter report tell the story. Weighted average of the eight capital cities Residential Property Price Index rose 5.4% this quarter, rose 7.5% over the preceding 12 months to the March quarter, and the total value of residential dwellings in Australia rose $449.9 billion to $8,293.2 billion this quarter.

This, according to the national statistician, is “the largest rise on record for this series. The mean price of residential dwellings in Australia was $779,000 up from $739,900 in the December quarter 2020”. Duh!

How do you solve a problem like Australian housing?

Ben Ong

Head of prices statistics at the ABS, Michelle Marquardt, said: “The total value of residential dwellings in Australia surpassed $8 trillion for the first time. NSW accounted for approximately 40% or $3.3 trillion of Australia’s total value of dwellings. The average price of residential dwellings in NSW rose to $1.01 million. This was the first time any state or territory had seen the average price of dwellings rise above $1 million.” … and as per the ABS: “All capital cities recorded a rise in residential property prices in the March quarter 2021, led by Sydney (+6.1% and Melbourne (+5.1%). Property prices also rose in Perth (+5.2%), Brisbane (+4.0%), Adelaide (+4.0%), Canberra (+5.6%), Hobart (+6.1%), and Darwin (+4.7%)”.

That was the March 2021 quarter. We already know from the timelier stats – courtesy of CoreLogic – that home values continued to go on the up and up, months after the March quarter. Double duh!

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

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1.8%) to be 9.1% higher from a year earlier.

Not only that, “CoreLogic’s research director, Tim Lawless, observes that growth conditions 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, ranging from a 3.2% month-over-month surge in Hobart to a 1.1% appreciation in Perth.

Guess my children would have to wait until my number’s up to get their hands on their inheritance and use it as deposits for a piece of Australian soil.

The problem is government initiatives to tame residential housing price growth are the same ones boosting housing price growth.

Then again, putting an end to rising house prices – with all the multiplier effect that goes with it – could also get the general economy undone.

If the RBA and APRA huff and puff, they could blow the house down and the economy with it. fs

13. According to the ABS, by how much has Australian residential property increased in the March 2021 quarter? a) 5.0% b) 5.4% c) 7.0% d) 7.5% 14. According to the ABS, by how much has Australian residential property increased in the 12months to the March 2021 quarter? a) 5.0% b) 5.4% c) 7.0% d) 7.5% 15. The ABS residential property index report showed that all capital cities recorded increases in residential property prices in the March quarter. a) True b) False

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Profile

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 13

THE POINT FORWARD The new frontier for financial advisers requires leadership, cultural alignment and commitment. Fortnum Private Wealth managing director and chief executive Neil Younger tells Karren Vergara how he’s leading those efforts.

any sports analysts consider Golden State M Warriors’ point guard Stephen Curry as the best shooter of all time.

Early this year, he scored 62 points in one game, making him one of only a handful of players to accomplish such a feat.

An avid basketball fan and player, Younger says Curry’s incredible level of commitment sets him apart from others. During training sessions, Curry would make 100 three-point shots and refuse to leave the court until he got all of the baskets in a row.

“People look at the success but don’t realise the input and dedication behind that,” Younger says.

It is an adage that cannot be more applicable to the financial advice industry. Amid the challenges the industry is facing, advisers carrying on the important work are nothing short of dedicated, hardworking and genuinely caring for their clients.

ASIC’s Financial Adviser Register shows that there are 19,544 practising advisers left as at July 1. The population has declined by more than 30% since 2018. One industry consultant predicts that the total adviser pool could drop to as low as 15,000 by the end of the year.

Adding to what seems like unending regulatory and educational reforms are the major banks’ exodus from the industry, leaving a gaping imbalance between demand and supply.

“As a business with a full-service proposition for advisers, we benefited from the banks exiting the sector. We provided a viable alternative,” he says.

“We have an opportunity to make a difference by helping consumers understand advice and benefit from obtaining advice.”

Younger’s first exposure to the financial advice industry came when he worked at AMP after studying economics at Brisbane’s Griffith University.

He then spent a large part of his career working in executive roles at Australia’s major financial institutions, becoming the head of Securitor at Asgard in mid-2006 before moving onto BT Financial Group, Commonwealth Bank and ANZ. He joined ANZ’s wealth business in November 2011 as the head of aligned dealer groups and was promoted to managing director for the advice and open market channels.

Younger oversaw the bank’s wealth and advice offering, which included ANZ Financial Planning, as well as aligned dealer groups like Retire Invest, Financial Services Partners and Millennium3.

“I always joke that in a large organisation you have access to more resources but less control.

In a smaller organisation, you have more control and less resources,” he laughs.

“I enjoy the latter because critical to the success of a business is alignment - the alignment of consumers and intermediaries, for example. At

Fortnum, we get that alignment because we are close to all the component parts.”

Younger’s ties with Fortnum trace back to his time at ANZ. The bank at one point held a stake in the firm.

When he made the decision to exit the bank and thought about what was next, Younger sought to find the right business that would thrive in the industry in the future, and one where his skills and experience would shine.

“I believed Fortnum had the right mindset and potential to make a real difference in terms of how advice businesses would operate in the future. I was happy to lead that and use my corporate experience to help Fortnum achieve what I knew it could,” he says.

In the nearly five years he has been with Fortnum, Younger has helped the group expand to about 240 financial advisers who work across 96 practices, growing significantly in a short period of time.

Executive chair Ray Miles founded the firm in 2010; it now boasts funds under advice in excess of $16 billion; its licensee services include research, governance, advice and technology support, and education and training.

While the typical client profile is affluent, Younger says Fortnum does not operate exclusively in that segment.

When discussing the potential difference advice can make, Younger cannot quantify how many times he has seen how life insurance advice has made a difference in clients’ lives who have found themselves in unfortunate circumstances.

“Our practices are the ones delivering the day-to-day advice. Fortnum is the enabler for them to do that profitably and sustainably. It’s a privilege and a necessary function that we perform,” he explains.

He makes an interesting point in that the work advisers do for their clients is not well understood by those that don’t get advice. Advice is somewhat intangible, he says.

“What is the value of peace of mind and having confidence in your future?” he asks.

“Financial advisers help clients everyday by giving them a plan that gives them comfort. You cannot put a price on that, and it makes it hard to translate for people who don’t receive advice.”

Over the years, Younger has seen the ups and downs of the industry.

“The reality is most of the advisers that I work with get up every morning and do a good job for their clients,” he says.

Many would agree that clients who are using the services of a financial adviser now are perhaps receiving the best quality advice the industry has ever had to offer.

Younger’s extensive experience has led to him contributing advice expertise on the board of the Financial Services Council and engaging with the regulators and government on important reforms. As for the educational qualifications that are driving some out of the profession, Younger sees this pathway as the right one.

“As painful as it is, it

We have an opportunity to make a difference by helping consumers understand advice and benefit from obtaining advice.

Neil Younger

is necessary and equips advisers with the right skills and tools with their job,” he says.

To Younger, having the opportunity to work in a small-to-medium-sized business and understanding the pressure points that come with it makes for a better executive.

A good leader, he says, has three key attributes - the ability to communicate and empathise, and show commitment.

Commitment is one attribute that threads many successful people he’s worked with and those he looks up to.

“I am a curious person, and I am intrigued by what makes successful people like Michael Jordan and Elon Musk different,” he says.

At AMP, a career psychologist helping staff develop professionally urged Younger to do something that he would never do if things like saving up for a house didn’t hold him back.

Those conversations led to flying to the US and spending thousands of dollars in the hopes of seeing Jordan play. When he got there, Jordan announced that he was retiring.

Eighteen months later, when Jordan flagged his comeback, Younger booked another flight to the US and scored seats at the LA Clippers and Chicago Bulls game.

The game went into triple overtime and Jordan scored a total of 47 points.

Younger has no regrets about spending a large sum of money to see the greatest of all time and the embodiment of excellence by seizing a once-in-a-lifetime opportunity; something few others can say. fs