ASSET Spring 2023 by ASSET

GRTV - Making the top table More changes for the better Succession is pressing

SPRING | 2023 | WWW.GOODRETURNS.CO.NZ

Responsible investment looks to the future

Meet three advisers: the RI sceptic, the realistic idealist and the pragmatist

The ‘Magnificent Seven’ and the Rise of Self-Directed Investing: A Q&A with Greg Boland, Chief Strategy Officer, Tiger Brokers Can you tell us a bit about your early career and how you got into financial services? My route to this sector was somewhat indirect in that I started out as an economics teacher in Auckland, having done a BA in history at the University of Auckland. I left teaching in 1988 and aimed straight for financial markets, especially futures and options, which have always fascinated me. I was first the Education Manager of the New Zealand Futures & Options Exchange before becoming its General Manager in 1996, and then worked at the Sydney Futures Exchange to get a direct perspective on the Australian markets. At this point I have specialised in capital markets for more than 35 years and worked in nearly every area, from exchange management to investment advisory management, surveillance and risk and compliance, operations, and governance. What has intrigued me in recent years are trading systems and methodologies, including online, exchange-traded equities and derivatives, equity options, index futures and options, and financial futures. Whether you want to work in the sector or simply invest, nothing is ever static and the learning curve is extraordinary, especially as the intersection between finance and tech has broadened and deepened in the 21st century.

What is Tiger Brokers NZ and what attracted you to the company? Tiger Brokers is a NASDAQ-listed global company which was established in 2014. We’re an online brokerage firm that operates the Tiger Trade share trading 2 | ASSET WINTER | 2023

platform providing people with access to the world’s stock markets. I joined in 2021 because the opportunity to be part of a dynamic company offering information and services to self-directed investors appealed to me. As Chief Strategy Officer I focus on accessing stock exchanges for investors, and on developing resources and educational tools for Kiwi who want to increase their knowledge and grow their wealth through self-directed investing. I like the company’s focus on education. New products and vehicles emerge all the time – such as share trading apps, like that of Tiger Brokers’ Tiger Trade platform – that allow people to self-direct their investing. However, you cannot be a responsible provider if you are not setting people up to succeed by giving them the tools to learn about the services and understand their own risk appetite. You have to help people marry the degree of risk they are taking with the objectives they have for their investment activity. One of my favourite elements of my job is leading the regular seminars we hold for investors and would-be investors because it’s highly current and interactive – you can correct misconceptions and make sure people are fully cognisant of everything new that is happening in the market and what it means for them. Investing is not a space where you want to just learn by doing, so we work hard to help protect people from avoidable mistakes, whichever platform or tool they might be using. As such we are unique in New Zealand, as we offer a demo (or paper) account where clients can learn how to use Tiger Trade and how markets work before investing.

opportunities, and we are highly motivated to open those doors for customers while ensuring they have access to the knowledge they need. I think people are also drawn to our innovation. We have the demo account, an investor community where people share ideas and an AI-powered chatbot TigerGPT, which is available to users in Australia and Singapore as well as New Zealand. Its features allow investors to research stocks, summarise key insights from earnings calls and releases, and extract pertinent company news and sentiment analysis based on the nature of the questions asked, all within seconds. They can access TigerGPT through the Tiger Trade app, so everything is in one place.

The world is in a phase of high risk, high inflation, and low growth. What will happen next, in your view?

Why do you think there has been a rise in interest in self-directed investing in New Zealand? And do you think individual investors are still actively participating in the market despite increasing uncertainties? Yes, investors are still relatively active in this space despite the global economic headwinds. I attribute this rise in interest, and persistent engagement, in selfdirected investing to a few factors: a younger generation of digital natives, who have access to trading apps with low fees, are now able to trade stock as easily as posting on social media. Lockdowns during the pandemic, coupled with rising living costs and property prices, may have also made individuals seek alternative income sources. Traditionally, Wall Street has often characterized retail investors as unsophisticated and prone to making hasty investment decisions. But if we look back at what happened in 2020, it's clear that retail investors can make a big impact, even in an industry that's seen as favoring the super-rich. Many of these individual investors do a lot of research

and share their unique perspectives on market trends through social media to foster open discussions. Market uncertainties can prompt people to temporarily withdraw from the market. Nonetheless, with continued education and improved understanding of financial markets, individual investors can increasingly utilize products such as stocks as an additional means for diversifying their asset portfolios in the long term.

In my view there are several likely factors behind the increased interest in derivatives. With them, investors can lock in future prices, keeping price shocks at bay. Given leverage, they mean investors can potentially profit from smaller investments – but leverage is a doubleedged sword. But as with any asset class, providers have a responsibility to lay out the facts, so investors make choices that align with their objectives and appetite for risk.

Circling back to your experience in futures and options – you were an NZX derivatives advisor for many years. What do you think draws global investors to futures and options today?

There are a lot of share trading apps in the market now. What is it that sets Tiger Trade apart – why do you think your customers are choosing it?

Derivatives aren’t for all investors but may be for those who have the knowledge and confidence to embrace riskier but potentially more profitable trading strategies. The vehicle of choice for many is stock options trading on United States markets, and more savvy or advanced traders are turning to futures. Both are more complex and riskier than stocks due to higher leverage but can be rewarding if invested in correctly.

Our customers tend to be internationally focused in terms of their investment mindset. They are interested in Australia and the United States and they want access to the high-value, high-profile stocks – the so-called ‘Magnificent Seven’, which includes the Apples and Amazons – as well as emerging companies in the tech sector and other sectors where the investor may have specialist knowledge or interest. Offshore financial markets offer many

These factors combined with the wars in Russia-Ukraine and the Middle East signal further price fluctuations in energy and the global supply chain, and likely further contractions to spending. With most central banks at or the near peak of their interest rate hiking cycle, as inflation flattens, we expect investors to again turn to equities, albeit there is still a bearish tone to markets. Interestingly, according to a Vanguard study, millennials are better savers than boomers, so they may be better positioned to tighten their belts in response to rising prices and market uncertainty. In our industry, it is important to keep returning to education as a key pillar in times of uncertainty. When there is as much volatility as we are seeing at the moment, investors need to hew even closer to their own risk tolerance level, not take uninformed leaps of faith, and remind themselves of their long-term investment objectives. A Disclaimer: Investing carries risk. This is not financial advice and should not be regarded as a solicitation or recommendation of acquiring or disposing of financial products. Any content being discussed, shared, and commented on does not consider your own investment objectives or financial needs. Please read our Disclosure Statements and Terms and Conditions available on our website, and consider whether acquiring or continuing to hold financial products is suitable for you before opening an account or making investment decisions.

www.tigerbrokers.nz WWW.GOODRETURNS.CO.NZ | 3

UP FRONT | EDITORIAL

Contents | ASSET Spring

Responsible Investing How advisers thinking about RI. Meet The Realistic Idealist, The Pragmatist and The Sceptic.

Insurance Tim Fairbrother on the cost of living crisis and insurance

UP FRONT

FEATURES

EDITORIAL Responsible investing conversations continue.

MDRT Financial planning the American way; Thoughts from a first-timer.

NEWS Lessons from Kloogh; KiwiSaver fee revenue drops, FSC staying mum.

RESPONSIBLE INVESTING Tackling values-based investing.

RESPONSIBLE INVESTING Shareholders step up as responsible momentum grows values-based investing.

RUSSELL HUTCHINSON The needs of older people are changing, but some in the insurance sector don’t seem to have got the memo.

THE GOOD RETURNS TOP 10

PEOPLE Nikko adds PM; TE chief departs, Chubb’s new underwriting head, JMI additions; Boyle to be minted in new role. GRTV SHARE adviser Aaron Baker shares his experiences of MDRT in Nashville.

REGULARS 26

INVESTMENT COMMENTARY Succession is pressing, David van Schaardenburg says.

Responsible investment conversation continues

esponsible investment has gone mainstream. Data from the Responsible Investment Association of Australasia (RIAA) shows that of the $352 billion in managed funds in New Zealand in 2022, $261b was held by managers who described themselves as practising responsible investment. Of that, $183b was with investment managers that had scored at least 75% on the RIAA’s responsible investment scorecard. For many younger investors in particular, the prospect that any of their investments might be in assets that do not align with their own beliefs can be an unpleasant surprise. But, as Andrea Malcom explains in our lead story this issue, some advisers are still wary about opening the responsible investment “can of worms” with their

the people who are talking a big game are not necessartily backing it up with their own actions. It is just one of the many questions that the financial advice and funds management sector has to grapple with as we enter yet another new era. With the election behind us, it looks likely that there could be more change on the horizon. Some industry sources are understood to be hoping that the influence of ACT in government could lead to a lighter-touch Financial Markets Authority. Others are wary of the prospect of upheaval if National holds true to its promise to repeal CoFI. Throw in the ongoing battle against inflation – and potentially a new government wanting to be seen to take action - and it will be interesting to see what the next year holds.

INSURANCE Tim Fairbrother on the cost of living crisis and insurance. Head office and advertising 1448A Hinemoa Street, Rotorua PO Box 2011, Rotorua P: 07 349 1920 F: 07 349 1926 E: philip@tarawera.co.nz

Publisher

Philip Macalister

Publishing co-ordinator Jing Tao

4 | ASSET SPRING | 2023

clients to work out the best strategy to pursue. She has looked at how to broach the subject in a way that will deliver clarity about client expectations, to ensure that their investments suit their goals as well as their investing beliefs. She’s also delved into questions of how clients and advisers can work out what is really on offer from managers who claim to be following an ethical or resposnible investment strategy. What’s genuinely responsible, and what might have a touch of greenwashing about it? As the profiles in this issue also show, advisers have different perspectives. Some are fierce proponents of the movmement to respponsible inverstment and see it as an important part of growing their businesses into the future. Others are more sceptical, such as John Milner, who cites concenrs that many of

Design

Michelle Veysey

Contributors

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UP FRONT | NEWS

KiwiSaver fee revenue drops KiwiSaver fee revenue dropped for the first time ever in the year to March 31, the Financial Markets Authority says. It released its latest annual report showing that fees declined due to the combined effect of lower default fund fees, reductions in management fees by larger providers, some providers removing fixed membership fees altogether and others not earning the same level of performance fees. Administration fees charged in the year to March were the lowest ever, at $17.3 million – a 65.7% fall from last year’s $50.3m and down 81.2% from their peak in the year to March 2019. John Horner, FMA director markets, investors and reporting, said it was an important milestone.

"We will continue to work with supervisors to ensure managers demonstrate their value-add to members. The value-add should include investment and risk management competence which contributes to members’ balances, and advice which helps members make good decisions. “Fund managers can provide value for investors in many ways, including by spending on systems that reduce the risk of disruptions or pricing errors, by proactively offering investors meaningful on-going financial advice to improve their investment decisions, or by having investment processes that demonstrably add value.” The total funds under management (FUM) was $93.7 billion – a 4.3% rise,

Kloogh investors facing 98% loss Investors who invested in Barry Kloogh’s Ponzi scheme have been told they can expect to only get about 2c in the dollar back. Kloogh was sentenced to eight years and 10 months’ jail in July 2020. He admitted 11 representative charges, including obtaining by deception, forgery, theft by a person in a special relationship and issuing false statements. Investors had about $16 million in the scheme. His firm, Financial Planning Ltd, and Impact Enterprises Ltd, were placed into liquidation in 2019. The latest six-monthly liquidator’s report by the Official Assignee noted that $430,564.50 that had previously been held in trust had been recovered. But it said that was a fraction of what investors were owed. “The amount to distribute after the liquidator costs represents only a small proportion of the total loss to investors, which appears to exceed $1m. Therefore, after costs we anticipate the return to defrauded investors will be around 2.0 cents in the dollar,” the report said. “The vetting of claims will take some time to complete. There are

6 | ASSET SPRING | 2023

over 160 potential claimants of which the liquidators have information from around 100. Much of that information is incomplete as many victims had dealings with Kloogh over a long period of time. "Every claim must be reviewed, vetted and confirmed before a calculation of the amount each will receive, therefore it is not possible to indicate a date of completion at this time.” As the funds received were never assets of the company and were to go to the investors, there was no dividend to unsecured creditors in the liquidation, the report said. “The information already gathered by the interim liquidators regarding victims' losses is being reviewed along with any other investors that we are aware of and a formal vetting and acceptance of those claims in the liquidation is under way.” The report said it could not include a list of defrauded investors because there had been a court order keeping those details confidential. Secured creditors include Prospa NZ, Fuji Xerox Finance and MercedezBenz Financial Services.

year-on-year, and almost double that of 2018. Net investment returns delivered a combined loss of $1.9b. Member contributions ($6.5b) fell 15% on the previous year mainly due to a 63% fall in lump sum payments. The number of members classed as non-contributing rose by 0.5% while the number of members on savings suspensions was up 19.8%. In total members withdrew $4.2b, up 11.7% with the largest category by value being members 65 and older who collectively withdrew more than $2.8b, up 46.3% year-on-year. The FMA suggested that could be due to the higher term deposits available from banks.

KiwiSaver provider calls for changes

FSC staying mum on CoFI plan The Financial Services Council (FSC) is determined to remain apolitical and won't be commenting on any party's proposals. That includes the National Party's proposal to scrap the Financial Markets (Conduct of Institutions) Amendment Act (CoFI), which is set to kick in from March 31, 2025. “The FSC is really interested in good policy outcomes that are beneficial to New Zealanders,” chief executive Richard Klipin said. “In this campaign, all parties are coming to the table with policies that will impact the future of New Zealand, particularly with financial services plans. “We understand there's a concrete debate and contest of ideas going on.”

The FSC and the sector “have worked hard over years to get ready for” both licensing, which came into force earlier this year, and Cofi. It introduces a new regulatory regime to ensure registered banks, licensed insurers and licensed non-bank deposit takers comply with the fair conduct principle when providing relevant services to consumers. “The intention is to do the right thing by consumers and Cofi is the policy process around addressing that,” Klipin says. “It's also the law of the land at the moment and we will continue to work with regulators and agencies as the law currently stands.” A

̒The FSC is really interested in good policy outcomes that are beneficial to New Zealanders’ Richard Klipin

Milford is the latest KiwiSaver provider to call for changes to the $100 billion scheme, saying the current setup won’t support members’ retirement aspirations. Murray Harris, head of KiwiSaver and Distribution at Milford, said although many members were contributing the minimum 3% of their salaries, that was not enough, given the importance of the scheme to Kiwi's financial futures. Harris said the scheme had been very successful in gathering membership, but several changes needed to be made for KiwiSaver to better support New Zealanders in retirement, including a gradual annual increase of 0.5% to contribution rates, reaching a total contribution of at least 10%, tax relief on contributions, and potential decoupling of employee and employer contributions for lower-income workers so they could receive employer contributions, even if not contributing themselves. “People have this mindset that if they are in KiwiSaver, they’re okay,” Harris said. “But really they’re probably only saving about half as much as they need to be. "As an industry, we’re looking at how we can help people understand how much they need to save for a comfortable retirement and then help them achieve that. Advice and education is really important, as well as an upgrade of the KiwiSaver scheme.” WWW.GOODRETURNS.CO.NZ | 7

HELEN ROBINSON

UP FRONT | PEOPLE

Current non-executive director Peter Brook will step into the role as chairman, a position that he has held previously. Meanwhile, the company has appointed Helen Robinson as a nonexecutive director. She has extensive governance experience including within the technology, financial markets and environmental sectors. Robinson has

JMI ADDS INVESTMENT ADVISERS JMI Wealth has added two new senior investment advisers to its team, with the appointments of David Leighton and Greg McGeorge. Leighton has more than 20 years’ experience in the financial services industry in New Zealand, primarily with ASB. Based in the Waikato, he has a strong focus on the farming sector. McGeorge has a wealth of experience from the UK and New Zealand. Most recently he spent 13 years at Westpac

NIKKO ADDS PORTFOLIO MANAGER Nikko AM has appointed Alan Clarke to the role of portfolio manager, diversified funds and external managers. Nikko managing director Stuart William said Clarke had demonstrated expertise in long-term strategy, tactical asset allocation and stakeholder engagement – honed both internationally and through senior roles at ANZ

8 | ASSET SPRING | 2023

know means so much to him.” Weenink said being involved with Generate had been one of the highlights of his career so far. “It’s been a privilege to have had the opportunity to contribute to, and have a close-up view of, a New Zealand success story. The business has grown from a start-up, taking on the established players, to a business with circa 130,000 KiwiSaver members and $4.5 billion in savings.”

Trustees Executors says its chief executive, Ryan Bessemer, has resigned after five-and-a-half years at the helm and will leave in November. “Since joining Trustees Executors in 12018, Ryan has focused the company's

CHUBB APPOINTS NEW UNDERWRITING HEAD Monique Ravening is the new head of underwriting at Chubb Life.

as an adviser. He has also had stints at Infiniti Capital Markets as a relationship manager and at Lehman Brothers in the UK. Since returning to New Zealand, McGeorge has been working with large scale clients within the private bank

market in Christchurch. Leighton will be based in Cambridge, Waikato and McGeorge in Christchurch. JMI Wealth manages more than $2b of financial assets on behalf of clients, ranging from high net worth individuals and family offices to charities, corporate pension funds and iwi. Jason Watson, head of investment advice, said: “We are pleased to be able to grow our team even further, and are thrilled to have secured two individuals of such high standing within the industry. We look forward to having David and Greg on board to continue building our presence throughout New Zealand”.

Investments over 16 years. This would mean he would make a significant contribution for clients. “Within investment circles, Alan’s reputation is well known – and I see his experience, technical ability and communication style as an excellent fit for our clients. "His expertise will allow us to strengthen our relationship with some of the best and most innovative global investment managers, including Nikko AM Europe, Goldman Sachs Asset Management, JP Morgan Alternative Asset Management, ARK Invest and Yarra CM.”

In addition to managing global partner investment relationships and Nikko AM NZ’s diversified funds, Clarke will connect with the Nikko AM Portfolio Solutions Group – a team of 13 highly experienced investment professionals from around the world including Singapore, Tokyo and New York. “We are incredibly fortunate that a portfolio manager of Alan’s calibre has become available to take up this key strategic position with us. With our investment team and innovative product suite, I’m confident we are well positioned to deliver the investment solutions clients demand – and I can’t wait to welcome Alan to the Nikko team when he starts in early October,” Williams said.

GREG MCGEORGE

Scott Weenink has stepped down from his role as Generate chairman to focus on his new role as chief executive of New Zealand Cricket.

held senior executive positions, including as managing director of Microsoft New Zealand and has been a founder of several businesses. Generate said Weenink "has been a significant supporter of Generate right from the start and has made an enormous contribution as a nonexecutive director, and recently as our chairman. He’s been with us as we’ve grown and played a major role as we transitioned from start-up to mature business." Chief executive Henry Tongue said his contribution to the firm’s governance had been “hugely valuable”. “Our loss is New Zealand Cricket’s gain, and whilst we’re sorry to see Scott go, we’re thrilled he has such an incredible new role, and one that we

DAVID LEIGHTON

GENERATE CHAIR TAKES CRICKET ROLE

TRUSTEES EXECUTORS CHIEF EXECUTIVE MOVES ON

She has 20 years' experience as an underwriter, including holding head of underwriting roles at Fidelity Life and Tower Life. Following a time working with advisers

operations to keep pace with the evolving regulatory and technology requirements,” chair Rob Russell said. The company had enhanced its market position, technology and customer service under Bessemer's leadership, Russell said. “Trustees Executors has improved its position as a respected brand supporting New Zealand's funds and wealth management sector.” The most controversial client Trustees Executors has acted as supervisor for during Bessemer's tenure was Vital Healthcare Property Trust at a time when

its manager, Canada-based NorthWest Healthcare Properties Real Estate Investment Trust, several times tried to chart a course Vital's investors didn't want. NorthWest agreed to a change in Vital's fee structure among other measures Vital's investors pushed for. Bessemer says it “has been a privilege to have led Trustees Executors, which is one of NZ's most enduring and capable brands. We have forged strong partnerships with out clients and I think them for their trust and support.”

in a new business role, Ravening has returned to underwriting. “For me, underwriting is fascinating. There are so many aspects to it and you never stop learning. The medical and financial aspects are incredibly important, but it’s the people side I’m constantly inspired by.” She wants to champion the understanding of the underwriting process and promote the function as an enabler, not a barrier. “Our role is to say ‘yes’ as often, as quickly and as easily as we can. Naturally there are times

when we’re required to say ‘yes… but’ or consider the risk in a different way, however I want customers and partners to understand the importance of the process and that we want to get it right every time.” Her move was motivated by Chubb Life’s growth strategy, customer-first values and her previous experience working with chief operating officer Debbie Eyre. She has taken over from Matt Banham who’s taken up an opportunity with Chubb globally to share New Zealand’s best practice underwriting methodologies with the world. A

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FEATURES | GRTV

Joining the top table Good Returns TV recently featured Aaron Baker, from SHARE, who attended this year’s MDRT conference in Nashville.

GRTV: WHAT WAS [THE CONFERENCE] LIKE FOR YOU? Baker: Oh, it was pretty overwhelming, to be honest. GRTV: IS THAT BECAUSE OF THE SIZE? Baker: The biggest conference I'd been to prior to that was probably around 500-ish, is a pretty large conference in New Zealand. And when you get to go there and there's, what, 5000-plus in a room, it was pretty, sort of walking in going, "Man, that's a lot of people." And you realize that we're, in New Zealand, quite small fish in a very large financial services pond, I suppose, worldwide. GRTV: THAT WAS ACTUALLY QUITE A SMALL MDRT ONE. SOME OF THEM GET UP TO 10,000. Baker: Oh, absolutely. [A lot of advisers say] "I used to go, back when it was 20,000 people." That's like a rugby stadium, full of people. GRTV: HOW DIFFERENT ARE WE TO OTHER ADVISERS AROUND THE WORLD? Baker: I think we do pretty well, actually. I think we've got a pretty stable environment. There's a lot of advisers overseas who probably a bit more generalist than what New Zealanders are. There's a lot of advisers there that do a bit more financial planning... Certainly I focus on insurance and now a little bit of mortgage, but we're probably quite more specialized versus overseas, I think a lot of the advisers, they do a broader range of services. Some of the advisers that you talk to, their businesses 10 | ASSET SPRING | 2023

are, well, huge, and you're sitting there, going, "Wow." And it sort of gives you something to aspire to, I suppose… GRTV: AND DID YOU FIND YOU TALKED TO A LOT OF THOSE SORT OF PEOPLE WHILE YOU'RE OVER THERE AND SORT OF HEARD THEIR STORIES? Baker: Oh, absolutely. That was one thing I found is that particularly that probably the lifetime members and the ex-CEOs, the president, a lot of those people are very, very quick to talk to you and to share words of wisdom. And a lot of it was at night, actually. I remember sitting down, having a glass of wine with some American guy who just loved the fact that we were from New Zealand and couldn't stop telling me about himself and his business and wanting to ask more and more questions about New Zealand. So with that, if you're sharing ideas, they're very quick to say, "Hey, have you looked at this? Have you done this?" Because it's global, there's nothing there from any actual insurers. The message is all around sales and understanding people. And that's all about drivers and understanding your own resilience. And there's messages in there that you'd probably get one presenter at a normal conference. There, it was just one after the other. GRTV: AND THEY'RE ALL INCREDIBLY POLISHED, AREN'T THEY? Baker: My favorite one was on Wednesday morning, where the advisers, they were typically advisers from all over the world, have, what, five or six minutes to-

GRTV: THIS WAS MDRT SPEAKS? Baker: I couldn't write notes fast enough GRTV: SO YOU'VE BEEN BACK IN THE ADVICE BUSINESS FOR ONLY A YEAR. HOW HARD WAS IT FOR YOU TO QUALIFY TO GET TO MDRT? Baker: Yeah, I'd heard lots of good things about MDRT and I thought, well, actually, maybe that's something I could aspire to. I think we're a little bit lucky in New Zealand in the sense of how it's measured because you can get through on revenue. So simple answer, not really. I had four months. GRTV: IT WASN'T HARD TO QUALIFY. Baker: No, and that's what I mean. I've got to be careful how I say that because I had a pretty good four months to qualify. So yeah, well, it was one of those things of, okay, if I do that much business, I would go and then I can decide if I want to go, which was pretty much a conversation at home of, "I'm thinking

about doing this," and wife going, "Book your flights." There was never a hesitation to it. She's like, "Off you go." GRTV: SO WHAT ARE A COUPLE OF YOUR KEY TAKEOUTS? I KNOW YOU'VE GOT QUITE A FEW HERE. Baker: I wrote down quite a few notes when I was there and then promptly typed them out. And then I'm just slowly working my way through some of the ideas. And I think a lot of them are around just expanding that customer service offering, thinking a little bit more about how the client views our discussion. And I suppose when you look at legislation and what that's all done to ourselves as an industry, we have become very almost too factual. Even talking to most clients, they don't really understand the nuances of the industry so much. And so I suppose it's just how can we [be more] client-centric, them understanding what I'm trying to describe to them in the way of what would protect in the way of life insurance, income protection and talking to them in

their words. So how do I bring that more into my statement of advice and how I present solutions? There was a session in there around changing your wording so it's not a discovery appointment. It's got a different spin on it. Yeah, I've never really liked the word “fact-find”. To me, it's not a fact-find, it's more a discovery, but even taking it away from being discovery and what's the client's view of what I'm trying to find out from them. There's a few other things around having fun. There's a lot in there around work-life balance. One of those things I wrote down was volunteer day, because I need to do something like that. GRTV: AND SO, IF YOU HAD A MESSAGE FOR OTHER ADVISERS ABOUT GOING TO AN EVENT LIKE THIS, WHAT WOULD IT BE? Baker: I'd just do it. Yeah. I did it initially because I'd heard really good things about MDRT… Since then, I've been invited into the MDRT family, I suppose you'd say.

And we're having monthly calls with some of our peers, which I think that's another valuable thing is trying to find some mentors around you, people that have been there before, people on the same journey, that sort of thing, to keep you on the straight and narrow. Let's face it. It can be quite a, I suppose, lonely occupation if you're not surrounding yourself with good people. So a lot of that came out of that, and that's what MDRT has already done for me is given me some people I can work alongside, learn from, go on that journey with, and still do it. And then aside from that, you've got the goal of how much do I need to write next year? I can't be a first-timer anymore. I've been there, done that. But what's next year's? Is it top of the table? What's next? I think if you come away from the MDRT conference and you've got even three good ideas that you can implement into your business, it's been worth it. But also, just from the interaction I've had with the team that went up there, they've all been very, very good. A WWW.GOODRETURNS.CO.NZ | 11

MDRT Aspirational goal for advisers

Financial advice the American way

Partners Life general manager adviser engagement Gemma Vivian was a special guest at the MDRT annual conference in Nashville earlier this year; and was blown away by the experience.

Philip Macalister sits in on a session with three new advisers who explain how they made MDRT. BY PHILIP MACALISTER

ne is a young investment adviser taking over his father’s firm; another is a former professor now doing risk in rural America and the third is a former tax attorney in Massachusetts who “found” life insurance. Thomas Stephen, CFP, is a young adviser from New Hampshire who joined his father’s business and is now in the process of transitioning it to his ownership. His father was a big MDRT fan. MDRT is probably something he first heard about when he was in his mother’s womb, he jokes. He says MDRT has been a great source of motivation for his father and in the old days he used to bring home recordings and DVDs of presentations which the whole family would watch. One of the things he likes about the annual meetings is that it is noncompetitive. “Everyone is trying to help each other.” One of the challenges for Stephen now is how to get older clients comfortable with a young man being their adviser.

12 | ASSET SPRING | 2023

This is especially so as some of them have been clients with this Dad from before the time he was born. “They could be my grandparents,” he quipped. Stephen says one of the key things has been to develop relationships with clients which are different to his father. People all have commonalities, he says. “Regardless of age we are going to find commonalities.” As a younger person he is trying to “live in the shoes” of the older clients and be “unbiased to everything.” He says clients were excited to work with a young person as they knew Stephen would work on the plan for life. He is not an adviser who is going to retire when they do. Delia Brimmer is a successful financial planner with New York Life in Massachusetts. She came into financial planning as she liked teaching people and giving advice was a kind of teaching. She says building relationships has been a key factor in her success. Corina Wack has a PhD in biology

and was a tenured biology professor. Like Brimmer she uses her skills as an educator to help simplify the complexities of the financial world for her clients. All three of the speakers agreed that social media has become a critical part of their advice businesses and it would grow even more important over time. Stephen said it was hard at first as even as a millennial he does not use social media much personally. Wack had used lots of social media platforms and had avoided LinkedIn as she found it clunky. Now she uses it and it has become a valuable tool for finding new clients. The advisers all used outsourced services which helped them create content and manage their profiles. Stephen said social media is something “you can‘t forgo.” “It’s definitely something you shouldn’t ignore.” Brimmer isn’t a big social media fan but is active as it “keeps me top of mind”. A great example is she posted a picture of her dog, and it triggered someone

getting in touch as it reminded him he needed to talk to her about life insurance. Referrals were also a key source of finding new clients for all three advisers and they offered some interesting ideas to help drive leads. Stephens said one client, an older lady, always came to the office with a certain type of coffee cup. The firm started buying them for her and “she loves it.” “The smallest touches make the difference.” At the end of the day current clients become our advocates, he says. Another thing is, which is very American, they give away pies in the lead up to the Thanksgiving public holiday. This becomes a conversation starter with clients and prospects. Meanwhile, Wack, who operates out of rural Pennsylvania, has accumulated a lot of clients from that visiting local farm show fairs. These are things like pumpkin festivals, not big trade shows. Brimmer says she likes to have two pieces of information in my back pocket they won’t know. Something they don't know about. A

As a first-timer Vivian wasn’t sure what she was in for, but described MDRT afterwards as an “awesome” experience and something advisers should aspire to get too. “I thought it was awesome,” she says. “It’s a whole ‘nother level.” While a little overwhelming because of its size, it was “crazy in a good way." Vivian was impressed with the high calibre of speakers and said she took a lot away from it. One session which really struck a note with her was on Celebrity Service by Geoff Ramm. Ramm is a highly-regarded global speaker who explores how successful businesses service their customers. A related speaker was Stuart Shee who focusses on empathy and emotion with clients. At the end of the presentation Vivian wanted to buy insurance from him because he showed he cared. Another takeaway for Vivian was humour – a few people spoke about how to have humour in the workplace and with clients. “We get so caught up in our work most of the time and if we are stressed, our teams are stressed and that can be seen by our clients. When this happens, you forget life is fun. “People do business with people who they like. If you make someone smile, they want to talk to you.” Also she said it’s very interesting hearing from other advisers around the world.” “Even though things are different there are some many takeaways which haven’t been thought of here.” Vivian notes that New Zealand risk advisers miss the overseas conferences the life companies used to organise. She sees going to MDRT as a good replacement for those trips. It’s in these environments there is plenty of networking with peers and ideas that are shared. Her message to advisers is that if they are interested in investing in themselves and their business then they should consider qualifying for MDRT. Besides that, if an adviser wants “a good rev up, then I think it’s a great reason to go.” She also likes the idea that advisers have to qualify to attend and the qualification process is a good target for their business. “It’s aspirational and a target someone can work towards,” she says. A

Thanks to Partners Life who supported Philip’s conference trip. WWW.GOODRETURNS.CO.NZ | 13

FEATURE

Tackling valuesbased investing There is an increasing number of ways that advisers can cater for growing interest in aligning investments with investor values. BY ANDREA MALCOLM

The advisers’ adviser As head of ESG at Forsyth Barr, Katie Beith provides the firm’s advisers, numbering around 200, with ESG advice and support. “We have a real mix of clients; some aren’t interested in this agenda but there’s a growing swathe that is. Corporate professionals are interested and it’s growing among retail investors slowly but surely, particularly as a new generation comes through. A huge part of it is education and that takes time.” Beith is a shared resource for Forbar advisers, with client and adviser knowledge of ESG varying. “Some are quite happy talking about it without me and some invite me along to talk about it in detail.” She breaks the discussion into two parts. The first is why the agenda is important, an education piece including corporate climate disclosure to give a sense of how seriously companies are taking it, with examples of companies, their drivers and how they’re moving. The second part is about how to reflect that in client portfolios, which comes down to understanding the boundaries of their values. Beith says generally advisers are raising the topic with clients, at least in terms of defining what people don’t want to invest in. “The discussion can be hard because everybody's values are different and they [advisers] are having to navigate that to land in a place where everyone is comfortable. It can be a challenging piece of work, especially if you're working with an investment committee or board, so it’s important that advisers know how to set and define boundaries and know what questions to ask. Knowing what clients want and being crystal clear on how that’s implemented in portfolios are key, says Beith. “You need to set boundaries; greenwashing cases by ASIC highlights the importance of that.”

Marking boundaries

here is a perception in some parts of the industry that starting a discussion about values-based investing risks opening a can of worms. But Matthew Mimms, director of The Investment Store and a board member of the Responsible Investment Association of Australasia, says the key is probably in how the conversation is framed.

14 | ASSET SPRING | 2023

He says advisers probably have an obligation to start the discussion - he argues that the Code of Professional Client standards one and three imply that you should be asking clients questions around values. Standard one requires financial advisers to treat clients fairly, consider their views and respond to their concerns and preferences. This implies that financial advisers should inquire, as part of their fact find process,

about the client’s ethical views and any ethical concerns or preferences, says Mimms. Standard three goes on to say financial advice must be suitable for the client’s circumstances, financial situation, needs, goals, and risk tolerance. “Like code one, this implies that financial advisers should inquire as to any ethical values that need to be incorporated into the advice given,” he says.

She cites the example of the Australian financial regulator taking legal action against Active Super for alleged greenwashing breaches including holding securities for Amcor, a manufacturer of cigarette cartons, while claiming to exclude tobacco manufacturing. “I look at proximity to the issue,” says Beith. “Tobacco manufacturers and growers are at the core so you put a boundary around that. Suppliers are a bit further away. So with a very practical lens - you ask whether the client is comfortable putting a boundary there. That’s the conversation you need to have and then look at what happens to their investable universe and performance implications. “When I have discussions with clients, I say, ‘this is a three-way partnership of weighing these options up to land in the right place. This is what happens to your investment universe

with each, it shrinks by this much, here’s the companies that would be captured, now let’s marry that with your requirements – returns, stable income, operating expenses or how to keep gifting in the case of a charity. How do we marry those together to meet investment needs as well as ESG expectations?” Access to an ESG service is useful, says Beith. “We use Sustainalytics but there’s a whole raft of service providers to help you work through these things. Having access to those resources is important. Having investment options as well that can reflect those values. You have to understand the demand and also the supply.” In July Forsyth Barr launched an ESG investment solution choosing AllianceBernstein and two other external firms to supply global equity exposure. “We had the demand and went on a global search. They have a well diversified listed equities portfolio that only invests in companies that support the UNSDGs. “The other thing we’ve done in creating our ESG solution have put in quite a few rules around individual stock solutions.”

The supervisor David Callanan, general manager of corporate trustee services at Public Trust, encourages advisers to wholly understand the needs of clients, which is more than just the financial outcomes. Public Trust supervises more than a third of all fund managers in New Zealand, and there’s a strong expectation from KiwiSaver customers in particular that they're getting a good product from a responsible investing (RI) perspective, he says. As a supervisor, the Public Trust wants a market where fund managers’ statements can be accepted as true and works with them to ensure purported RI criteria are well described in SIPOs, PDS and marketing material. “They have to consult with us if they're developing those documents, in particular. We look at the context of what they’re saying, and the meaning from the perspective of an everyday investor,” says Callanan. “We take a close look at words and phrases that are just left hanging, such as ‘we are an ethical investor’ full stop. What does that mean? There needs to be disclosure about what is meant in that context, and evidence that it can be backed up in terms of their practice in managing the funds.” Once a product goes live, Public Trust continues to monitor and work with the fund managers to make sure they continue to comply with the SIPO and other product statements they've made.

Complexity It’s a complex area, says Callanan, as things are always changing. “A fund manager might

communicate that they invest in companies with higher ESG scores but need exposure to an industry where on average, ESG scores are really low. So they pick the higher ESG scores in that industry. There we would work with them to ensure they clearly describe that decision making process in their disclosure and that it’s consistent with their practice. “The other thing that's hard, using that ESG score example, is that everybody has different data providers, so you might have a different ESG score from one provider to the next. There the fund manager needs to be clear about where they get their data, how they've gone about preparing the SIPO, and if that investment’s score changes how they will follow through which is to say ‘if this no longer meets our SIPO we will divest that investment’.” The world is changing and fund managers are having to make those decisions every day because scores do change, as more information becomes public about all of these companies, says Callanan. An interesting case was an investment in an overseas company which used child labour. “Immediately, you'd think there shouldn't be any investment there. But in the background, the company was working with an NGO to improve conditions and if that investment had been withdrawn, the NGO could no longer be there having a positive impact. So there are unintentional consequences of decision making sometimes, and that's really hard to communicate in a SIPO or PDS.”

Climate related disclosures Public Trust is also working with fund managers on climate-related disclosure reporting. Callanan says he expects everyone will be able to issue their reports within the timeframe, but it is having an impact. “There's quite a bit of a cost involved; they have to get a huge amount of data for every single fund and every investment within those funds to compile and prepare the reports. They also need to undertake analysis and develop climate outlook scenarios to identify risks and opportunities, and disclose and carry out risk mitigation activities that align with those identified risks and opportunities.” But there’s plenty of upside, he says. “Investors will be more informed of the risks and impacts organisations and their investments are having on climate change, and hopefully the positive future impact those organisations and investments can have. “They can therefore make more informed decisions and invest in organisations that align with their values when it comes to climate change. Which then leads to demand and the fund managers will align their products and their practices to those expectations and it becomes a virtuous positive cycle which is ultimately the intent of the regime.” A

WWW.GOODRETURNS.CO.NZ | 15

FEATURE

Shareholders step up as responsible momentum grows

KiwiSaver playing strong part in NZ responsible investment landscape.

espite 2022 seeing an overall shrinkage in the amount of assets in managed funds, by the end of the year more than half the New Zealand market was invested responsibly, according to the latest benchmark report from the Responsible Investment Association of Australasia (RIAA). While the total market contracted 3.4% on performance, RI funds’ market share gained 2.5% to account for 52.5% ($183 billion AUM). The report says demand from investors and long-term performance benefits are now the key drivers for RI, while lack of awareness and concerns over greenwashing are the largest obstacles. RIAA looked at 70 NZ and overseas-based investment managers claiming to have RI practices past 22 based on its RI scorecard. Sixteen managers scored in the top 20% to gain RI leader status, and six earned a newly minted responsible investor status, despite

RIAA changing the system to make it harder. The fundamentals of the scorecard covered four areas: coverage and commitment to RI and transparency; enhanced risk management by considering ESG factors and other screens; strong stewardship; and capital allocation to benefit stakeholders, as well as measuring and reporting outcomes. As well as benchmarking RI managers, RIAA also runs a certification programme for RI funds, with 176 making the grade in 2022, 116 of which were NZ-only. The number of investment managers and asset owners with certified products in NZ was 16.

KiwiSaver products get RIAAcertified There was a significant growth in KiwiSaver products in 2022, representing 39% of all newly certified products compared to 26% in 2021. This makes a total of 81 KiwiSaver products certified by RIAA, representing

Responsible Investments Leaders

64% of KiwiSaver funds. Separately managed accounts (4%), ETFs (3%) and super funds (3%) rounded out the remaining product types certified in 2022. Strategies representing diversified/multiasset strategies made up the bulk of certified products, as in 2021. However, demand in 2022 eclipsed that of previous years with 52% of newly certified products representing this asset class, compared to only 34% in 2021. International equity strategies were the second most common strategies certified in both. Market volatility meant RIAA-certified funds marginally underperformed industry benchmarks over the period, although over three-, five- and 10-year periods, returns were either on par with or outperformed benchmarks, said RIAA NZ executive manager Dean Hegarty. “So in spite of some really short-term headwinds, medium to long term performance

Responsible Investors

AMP Wealth Management

Milford Asset Management

Accident Compensation Corporation

ANZ New Zealand Investments Ltd

New Forests

BayTrust

BT Funds Management (NZ) Ltd

Pathfinder Asset Management

Medical Assurance Society New Zealand

Devon Funds Management

Purpose Capital Ltd

Mint Asset Management

Harbour Asset Management

Salt Funds Management Ltd

New Zealand Superannuation Fund

Kiwi Wealth

Stewart Investors

Otago Community Trust

Mercer New Zealand

TAHITO Ltd

MFS Investment Management

Trust Waikato

changes remain really positive. “A high quality ESG fund, something that would get RIAA certified, follows a set of processes that as a consequence is likely to supply better outcomes. The fund manager has effective transparency and policies, is doing due diligence, can report on what’s in its funds and has clear communication to investors. “The question for an investor is how do I want to generate my returns? The overwhelming momentum in the market is that people want returns that come without harming society. And more and more, we're seeing people wanting their investments to lead to positive outcomes and drive the positive change that they want to see in the world. “It's not the only investment strategy by any stretch of the imagination. And if you don't care about any of that, and you're totally happy investing your funds and whatever assets you think can make money, there's lots of funds that will get high returns. What is completely definitive, is that you don't have to choose between RI and returns. Lots of people have both and the performance results of RIAA certified funds indicate that you’re going to do at least as well as the market, if not outperform in the medium to long term.”

Stewardship grows, screening gets norms-based Another first, RIAA found, was that corporate engagement and shareholder action became the most popular RI approach for fund managers in 2022. The proportion of investment managers reporting on corporate engagement activities and outcomes increased to 40% of survey respondents. This compares to previous years when engagement was third behind ESG integration and negative screening. “It’s the first time we’ve seen shareholder action as the number one RI strategy and that’s off the back of the introduction of the stewardship code last year,” says Hegarty. RI leaders used multiple layered approaches. The largest shift occurred in norms-based

screening which grew eightfold to $125b from $16b in 2021. According to the report it is now used across three-quarters of the RI market. “This follows legislation, climate-related disclosure, organisations moving towards zero carbon commitments and the stewardship code,” says Hegarty. “Rather than screening things themselves, asset managers are meeting protocols required by either the industry and/or legislation.” Examples include government regulations on KiwiSaver default funds on the level of fossil fuel exposure and RIAA-certification requiring funds to be aligned with the United Nations’ nuclear protocols which screen out nuclear weapons. More than 80% of RI AUM is screened against the UN Global Compact, UN Guiding Principles of Business and Human Rights, the Paris Agreement and Convention on Cluster Munitions. Meanwhile stewardship is on the rise. “We’ve got to the point where we’re saying, ‘OK we’re going to remove the carbon from our portfolio, we’re now going to make a difference.’ But selling shares in Shell doesn’t change the fact that Shell sits on massive amounts of oil and selling them to Aramco removes the responsibility of Shell to make a transition. “That’s something, as an industry that we’re now looking at. What does good look like? How can we use the holdings we have to put climate change pressure on those industries and make them accountable towards the goals we need to reach?” Voting, where asset ownership permits it, is a key element of stewardship for investment managers. By voting directly or through proxy advisers, frequency of voting is another indicator of investor engagement. RIAA’s research found that 68% of investment managers indicated that they voted across all possible holdings, including directly held equities, mandates for fund managers, or through other third parties. Another 4% said they voted only on issues material to the fund. The remainder surveyed did not exercise

voting rights, often because the asset class does not permit voting (typically fixed income and some alternatives). At a recent Mindful Money webinar on stewardship, Mindful Money founder Barry Coates pointed out that so far there has never been a shareholder resolution put up on climate change or social issues. Milford Asset Management’s head of sustainable investment Frances Sweetman said there was almost a first mover reticence but so far Milford had not had to go to shareholder resolutions as matters worked out through engagement with companies. Rowland Jackson, secretariat for the now year-old Stewardship Code said the signatories came together monthly to share candidly what the were doing on engagement. “Often they say they didn’t realise so much was going on because previously there were operating in silos.” Rowland said climate change and social issues had been the top drivers of engagement for the 19 signatories. The latest to join was First Sentier Investors and there was strong interest from others, he says. There had been requests from advisers about becoming signatories too, he says. A precedent for this is the UK Stewardship Code, and when the NZ code is reviewed in another year, it will be something to be considered. Hegarty says the NZ industry is working collectively and collaboratively to drive change. “The Stewardship Code is formalising how fund managers are reporting on things like this. If you're an adviser that's going to make it easy for you to see what the various fund managers are doing when it comes to their engagement.” Hegarty says in November RIAA will launch a working group for asset managers which will supply the opportunity to engage collaboratively and be more cohesive about how they do it. Feedback from asset managers is that demand from investors and long-term performance expectations are the key drivers for RI growth, says Hegarty. A

E+S+G Always part of our equation At Milford, we undertake a detailed analysis of every business we invest in, including their Environmental, Social and Governance credentials. The insights we gain play a fundamental role in making smarter decisions for our clients. Our approach has awarded us RIAA Leader status with the Responsible Investment Association of Australasia. You can find more detail on what our RIAA Leader status means on our website: milfordasset.com/sustainable Want to know more? Scan to visit the Sustainability section of our website. milfordasset.com/sustainable Past performance is not a reliable indicator of future performance. Milford Funds Limited is the issuer of the Milford KiwiSaver Plan and Milford Investment Funds. Please read the relevant Milford Product Disclosure Statement at milfordasset.com

16 | ASSET SPRING | 2023

WWW.GOODRETURNS.CO.NZ | 17

Benefits of ESG and Climate Aligned Index Funds Diversified Portfolio

Align your Values

Enjoy a well-rounded portfolio as you invest in a range of companies with commitments to ESG principles. Spread risk and enhance stability.

Investing becomes more meaningful when it reflects your beliefs. ESG and Climate aligned index funds empower you to more closely align your portfolio with your environmental and ethical values.

Returns Sustainable investing isn’t just altruistic; it’s financially rewarding. Many ESG and Climate aligned index funds deliver competitive returns, proving that you can do well while doing good.

Unlocking Opportunities in a Sustainable World Where Values and Returns Converge R

esponsible investing is not a fleeting trend; it’s an essential commitment for an increasing audience. Today, sustainability and the transition to a low-carbon economy have surged to the forefront as investors grasp the full risks and opportunities shaping our world.

Why ESG and Climate Aligned Index Funds?

Climate Resilience

Overweight and therefore encourage companies committed to reducing carbon emissions, conserving resources and leading the way in sustainable innovation.

Embrace climate change as an investment opportunity. Climate aligned index funds have methodologies to identify companies that are best prepared to thrive in a changing world.

Social Responsibility Increase allocation to businesses that prioritize diversity, equality and social justice. Your investments become a catalyst for positive change in society. 18 | ASSET SPRING | 2023

Strong Governance Screen for confidence in companies with strong leadership and transparent practices.

The world is changing and so is the way we invest. Harness the potential of your investments to not only grow your wealth but drive positive change as well.

Transparency and Accountability Stay informed with comprehensive data on your investments. Track the impact of your portfolio and make informed decisions.

S&P Global Clean Energy Invests in global companies involved in the production or provision of Clean Energy.

Measuring Impact, Making Change At Kernel, our commitment is to offer complete transparency through a rules-based security selection process that applies leading ESG and climate factor integrations. Investors have full insights into the portfolio holdings and fund methodologies so

you can have confidence in your investments. For detailed insights, visit kernelwealth.co.nz/ documents to explore our ESG Policy. The policy features each ESG and Climate fund’s screening process and exposure limit guidelines.

With more investors seeking to align their portfolios with their values, Kernel is leading the charge in innovative product design. We’re providing you with the power to allocate capital strategically across multiple facets via a growing range of ESG and Climate aligned index funds.

Environmental Impact

Explore Kernel’s ESG and Climate aligned index funds.

NZ 50 ESG Tilted A portfolio of ESG screened and tilted NZ equities from the S&P/NZX 50.

Global Green Property Invests in global real estate companies with weighting towards sustainable practices.

Join us in reshaping the future and investing in a world where values meet returns. Learn more at kernelwealth.co.nz or contact us at 0800 537 635. This information is not investment advice. Past performance is no indicator of future returns. Kernel has taken reasonable steps to ensure that the information in this document is accurate and up to date.

Global ESG and Global ESG NZD Hedged

Kernel does not accept responsibility for any error or omission for any loss resulting from the use of this information, except to the extent required by law.

A globally diversified fund that adjusts company weightings based on their S&P Global ESG score and Paris-Alignment.

For more information on the risks and features of the fund, please refer to the Product Disclosure Statement at www.kernelwealth.co.nz

WWW.GOODRETURNS.CO.NZ | 19

PROFILES

The realistic idealist - Peter Lee, Ethical Investing NZ

How do advisers view responsible investing? There is no single perspective on how best to tackle the issue. Here, we talk to three advisers about where they stand.

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PETER LEE

ith a name like Ethical Investing NZ, it’s no surprise that up to 80% of Peter Lee’s Aucklandbased financial advice firm’s FUM are sustainable. The other 20% is down to historical clients, says Lee. “We have introduced the concept to them but some are quite happy not to have their portfolios screened.” He is joint winner of the Mindful Money best ethical adviser 2022 with Moneyworks’ Carey Church. “From our perspective, we've offered the choice. Virtually all new clients in the last two or three years have wanted a screened portfolio.” Sustainability is part of Lee’s worldview. He is a former chief executive of the Institute of Financial Advisers and head of advice support at ANZ Wealth. “It’s essentially about being consistent with my values and wanting to make the world a better place. I guess there’s a strong sense of being idealistic and some of us who refocus in this area are, but you don’t have to be an idealist to be a great ethical adviser. It just happens to be my particular drive.” Neither do advisers have to be ethical investment experts to broach the subject with clients, says Lee. Before changing the name of the company from C2C Partners to Ethical Investing NZ, advisers would ask clients – what’s important to you, who's important to you, is there anything about where your money's invested that's important for us to know? “It was a fairly gentle way in,” says Lee. “But it’s not a binary choice we offer. We don’t have ethical clients or non-ethical clients. They have a range of views and the advice process is exactly the same. You're just asking for a bit more information about their investment choices.” Lee says five years ago it was a struggle to find fit-for-purpose products: now there is more choice. “There's now quite a range of products; you can have an RI [responsible investment] portfolio that is purely index-based, purely active or hybrid. We're starting to see ethical bond funds, which was probably the big gap before, and green property and infrastructure funds. We're also getting a number of Australian-based managers, not just making their products available here but setting them up as PIEs, which to me is the best indication there's a sizeable market in New Zealand. “PIEs are definitely the way to go. The gap in that area would be that some of the highly

rated, boutique Australian-based global share funds, are only available as Australian unit trusts. It means the client will wind up doing a tax return, so it would be good to see more of those active, really deep green ethical funds as New Zealand PIEs.” In building portfolios, Ethical Investing NZ uses research provider My Fiduciary and, like most advisers, works on a core-satellite approach. For the ethical overlay, RIAAcertification is not essential but it provides a safe harbour. “We're also keen to know the fund manager is committed to being sustainable. So rather than having one token fund that happens to be green, we like to see fund managers who have a range of ethical funds or equivalent, and who apply screens to their portfolios, regardless of what name they put on front.” Does the fund manager walk the talk, do they understand the area, are they a member of RIAA or any other sustainability-focused business organisation? “Those are all signs that as a firm, they get the area which reduces the risk of greenwashing because if they say certain things but don't really get it; it’s just tokenism.” Lee says in his experience, it’s a myth that only the younger people want responsible investment. “A lot of our 65-plus clients embrace it and say the only reason they hadn’t done it earlier was because they were never asked. It may not be the top driver – there's not that many ‘deep green clients’ – but a large number want to sleep easy at night and get advice about how to do something better than they're currently doing. “We do get the odd client asking about

ethical funds being more concentrated and whether they will miss out on returns. We tell them there will be times in an economic cycle when responsible funds will outperform or underperform. That’s mostly the biases towards high tech stocks and away from energy resource stocks, as seen through Covid and then the Russian invasion of Ukraine. So for a short period of time returns can diverge by anything up to 3%, 4%, 5% but inevitably as we go through the cycle, they converge.” On the debate over the usefulness of blanket exclusions of certain areas such as fossil fuels, Lee is a realist rather than a purist. “The argument managers like Australian Ethical use is that if a particular area, such as fossil fuels, is not a big part of the company's overall revenues and they're doing their best to change, then they won’t automatically exclude them. “We're comfortable with that. It reflects the fact it will take a long time for the world to go to zero carbon. You can be unnecessarily purist about these things. “We’ll tell clients, XYZ fund is not going to be 100% fossil fuel-free but it might be 80% lower in total carbon intensity than a nonscreened fund equivalent. By and large for most of our clients, that's fine.” Lee’s advice for other advisers wanting to offer ethical solutions is to get started, ask questions and not be afraid to admit they did not know everything. “Clients are always delighted if you ask them something you've not asked before. Then do the research, ask people like ourselves, and look at what RIAA has to offer. We want a lot more advisers focusing on this because there is a need out there.” WWW.GOODRETURNS.CO.NZ | 21

PROFILES

The pragmatist - Nick Stewart, The Stewart Group

The sceptic John Milner, Collaborative Consulting

ith $450 million FUM, about 41% of Stewart Group’s client assets are in sustainable funds. Three years ago it was zero. Stewart Group managing director Nick Stewart thinks every investor has the right to have their ethical preferences expressed in their portfolio. Asking clients about sustainability is part of the process for Stewart Group, a Hastings-based B Corp which generates solar power to share with staff and clients via a peer-to-peer network. “We turn over every stone for clients. I guess we lift the education and give a helicopter view so they can decide. I think it would be quite narrow to have the blinkers on and not to have a wider, more holistic approach.” The firm also looks after iwi capital, where a sustainable lens is “absolutely sacrosanct,” says Stewart. “If, as an advisory business, we did not offer sustainability, it would be the end of the discussion with any iwi. I believe that advisers will need to have sustainability and ESG portfolios in their quiver of arrows, if they wish to engage and assist a broad array of clients.” He doesn’t subscribe to the idea that younger generations are more interested in RI. The Stewart Group’s cohort of sustainable investors is spread across all age groups. Does that sustainable universe provide enough choice? It does now, he says, but that wasn’t the case three years ago. “As part of our portfolio structure we seek the emerging market premium. Getting an ESG sustainability solution in emerging markets, that was of a sound cost structure, was difficult. There were too many carve outs, too many caveats. So we didn’t proceed down that path, but we were eventually able to get a manager to.” Enter the Dimensional Emerging Markets Sustainability portfolio. “From that point, we were able to go all in and we also started the B Corp due diligence process which culminated in Stewart Group becoming B Corp certified 18 months later.” Stewart would still like to see more choice, especially among PIE-wrapped sustainable funds. “If you ignore taxes and costs you could go out and fill your boots with sustainable or ESG funds but bracket creep and higher tax rates means many investors are best placed in a

f you’re a regular on LinkedIn, you may know the name of Aucklandbased financial adviser John Milner. There are his marketing videos vox-popping members of the public along K Road or his interview with a drag queen. You may have come across his forthright views on ESG, online or in person. “I’m sceptical,” says Milner, who started out in 1988 and whose zeal for learning has him lined up for a master's degree in financial planning. He founded Britannia Wealth before leaving and starting Collaborative Consulting. He says his role is to challenge anybody and everything and keep clients out of harm’s way, as he did during the GFC. “I’m not a head-nodder. You won't see me at a conference sitting there nodding my head.” He gives the example of a recent industry gathering. “I was the only person that really stood up to be counted when it came to ESG and to challenge some of those things.” A major irritant for Milner was that the speaker had flown from the UK to talk about reducing carbon and returned after only attending two one-hour sessions during the conference. During a panel discussion, a fund manager raised exclusions for Air New Zealand and Fonterra. “I said to the panel, I assume you all flew on Air New Zealand this morning? ‘Yes, we did.’ I assume you enjoyed some of the products of Fonterra? ‘Yes, we did’.” The irony is obvious but Milner’s dislike of the term ESG and the industry-talk surrounding it goes deeper than that. “Their only saving grace was no damn polar bear pics.” He follows and likes to quote New York University professor Aswath Damodaran on the topic. Damodaran, who teaches finance and valuation, recently spoke on the valuation of Fisher & Paykel at a chartered financial analyst conference via video link. Asked for his perspective on ESG factors when valuing a company, he said people who claimed to measure ESG had no idea what they were measuring. which made it an empty concept. “ESG rolled out of a UN paper as a measure of goodness, it then became a measure of alpha, then risk and in the wake of the Ukraine-Russia war it is now a measure of disclosure.”

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PIE structure.” That’s when the fund universe becomes a fraction of the original data set, he says. “To offer sustainable solutions to clients, it’s not only that they have to be sustainable, in many cases they need to be a PIE as well. The more the merrier, greater freedom of choice to allow investors to embrace their personal preferences as a family or individuals.” Stewart doesn’t expect sustainable investment to deliver better or worse returns than non-sustainable investment. “The way we've built our sustainability portfolio – our expected long-term returns are the same as for our classic portfolio. Our portfolios all use the Farmer French, threefactor model. So they’re the same except in terms of the types of securities. “I hear people talking about getting a better long-term return by having a sustainable or an ESG portfolio. We don't subscribe to that view. We also don't subscribe to the view that the portfolio return will be less, we're able to build a sustainable portfolio on exactly the same underlying cost structure as a wholeof-market portfolio. That's our belief from the research we've completed, both internal research and external.”

For ESG due diligence, the Stewart Group buys research that tracks funds in its approved product list, and funds on the peripheral but not approved for use. “We seek external validation and also subscribe to software research tools that give us a lot of metrics.” Stewart says the firm also engages with the wholesale fund managers seeking an annual stewardship report from each and quarterly engagement on specific securities. “We’ll reach out to the manager and ask for a deep dive and in probably 65% of cases, they will engage with the management team of that company. When we’re commingled with large wholesale funds, and we engage with them through their stewardship programme, they have serious leverage.” He says Dimensional acted swiftly on a number of Russian securities held in its emerging market sustainability fund when Russia invaded Ukraine. “They were listed in the US and they divested relatively quickly. It was really interesting because exposure to Russia, in what we’ll call the classic portfolio, was far higher than the sustainability portfolio.”

JOHN MILNER

NICK STEWART

Milner is a fan and not swayed by arguments that sustainable or ethical funds are now supplying good returns. He puts any success down to good asset allocation rather than the ethical values of the companies they hold. However, he does have a lot of respect for Pathfinder, which he believes is an outlier in a sea of average. “I think I walk the talk when it comes to ESG personally,” says Milner. “I think I'm generous with people, I mentor people for free, I help my fellow man, and recycle at home. “The issue I have is this whole push to make me feel a certain way. And I don't like to be told by anybody what to do with my clients' money. That’s my job.” He describes the ESG movement as relentless and there is a lot of pressure on advisers. “At a recent Consilium conference around half the first day sessions were ESG-related. I don't like this whole push, push, push. I'm a liberal. I'm a firm believer in choice but I’m seeing those choices narrowing and I'm quite dubious about the information at times. “There was a young guy that did a lot of research and he said that over a given period ESG investing has gone up nine-fold. Well, that's fantastic but he didn't compare that to the non-ESG product. Who’s to say the non-ESG didn't go up tenfold? That's the sort of information that really annoys me. I want genuine information to make decisions and I don't get that a lot of the time.”

He wants a framework and more rigour on fund labels. Just as the FMA gives guidance on what constitutes a balanced as opposed conservative fund in percentage ratios, he would like official direction on what makes an ESG fund. “But admittedly, we are at the infancy of ESG. So, we've got a lot to change and learn. But I think there's a lot of skullduggery and attempts to influence, which I get annoyed about.” Milner says he does not see it as a bad thing per se. He says, while he does not put the idea in their heads, he would not hesitate to put a client who asked into ESG funds. He just wants more transparent information, including industry data on ESG-uptake. “I’ve got two clients who are [in ESG funds] and it was nothing to do with ESG, it was the asset allocation that gave them a certain return needed. I’m focused on the client, not the product.” Milner’s clients are usually 60-plus, investing $1 million to $10m, who want their wealth to last. “They won’t spend it unless they’ve got the confidence to do so.” He partners with Consilium and Dimensional for the core of his portfolios but has satellite positions to enhance returns while reducing risk. “They know my views very well in that I constantly lift up the Consilium bonnet and have a good look inside.” A WWW.GOODRETURNS.CO.NZ | 23

SPONSORED

Generate commits NZD55 million to private equity The Generate KiwiSaver Scheme has committed to a USD25 million investment with CIM Group, a Los Angeles-based real estate and infrastructure owner, operator, lender and developer , to invest in midmarket North American infrastructure, in sectors including renewable energy, data centres, waste to renewable energy and social infrastructure, alongside a USD7.5 million investment into Novva Data Centers - a U.S.based data centre company with ambitious growth plans. Generate Chief Investment Officer, Sam Goldwater, said “One of the key attractions of CIM Group is that the firm focuses on sectors that have clear structural tailwinds. For example, investments in solar and waste to renewable natural gas businesses have the potential to materially benefit from the Inflation Reduction Act (IRA) in the US as it provides meaningful tax incentives for renewable energy projects; and investments in data centres are looking to benefit from the digitilisation trend and the huge investment into A.I. occurring in the U.S.” Generate’s members have had a great experience from investments into renewable energy and data centres to date, enjoying strong returns from the likes of Tilt Renewables and seeing meaningful uplifts

in the valuations of Infratil’s investments in (renewable energy company) Long Road Energy and Canberra Data Centres. These investments have contributed to Generate’s market leading returns over the last 10 years*. We believe Generate’s investments with CIM will positively contribute to our members’ returns over the next 10 years.’ This is Generate’s third significant investment into alternative assets in the last 12 months. Late last year the KiwiSaver and wealth provider committed to invest $20 million in the New Zealand based Movac Growth 6 Fund; a later-stage VC fund invested in Kiwi tech companies; and earlier this year Generate committed $20 million into Icehouse Ventures’ Growth Fund II - a VC fund that will support around 20 established New Zealand technology companies win on the global stage. A About Generate: Generate is an awardwinning KiwiSaver and wealth manager with over $4 billion funds under management and a track record of strong long-term performance. In the recent Morningstar KiwiSaver Survey June Quarter End 2023, the Generate Focused Growth Fund returns ranked 1st out of 7 NZ Multi Sector Aggressive

Category Funds, the Generate Growth Fund ranked 2nd out of 13 NZ Multi Sector Growth Category Funds and the Generate Moderate Fund ranked 1st out of 12 NZ Multi Sector Moderate Category Funds, for a period of 10 years as of 30/06/2023*. About CIM Group: CIM is a communityfocused real estate and infrastructure owner, operator, lender and developer. CIM strives to make a meaningful difference in the world by executing key environmental, social and governance (ESG) initiatives and enhancing each community in which it invests. For more information, visit http:// www.cimgroup.com. *© 2023 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution in New Zealand. Past performance does not guarantee future returns. Investment involves risk and returns can be negative as well as positive. The issuer is Generate Investment Management Ltd. A copy of the PDS and advertising disclosures can be found at www.generatewealth.co.nz/ disclosures.

HARBOUR ASSET MANAGEMENT Impact Report 2023 Harbour Asset Management recently released their second Impact Report that shares more details of the impact that Harbour’s Sustainable Impact Fund is having on people and the planet, whilst also generating a market return for investors. Harbour Sustainable Impact Fund – what’s in the PIE? The Fund makes impact investment accessible to all Kiwis who want to ensure their investments are helping to do good for people and planet. • Targeting a return of 4% above the Official Cash Rate (OCR) over rolling 5-year periods • Positively, measurably impacting various environmental and social objectives linked to the United Nations Sustainable Development Goals (SDGs) • Accessing private and public market investments • 60%/40% shares and bonds, New Zealand and global • PIE unit trust with highest tax rate of 28% • Daily pricing and liquidity

Our collective challenge This is a critical moment for our world. As greenhouse gas emissions continue to rise, primarily driven by the burning of fossil fuels and the depletion of the world’s natural resources, our planet faces escalating threats of global warming. Close to home, Cyclone Gabrielle and severe flooding ravaged the North Island this year. The imperative to mitigate climate change is not just an environmental concern but a social, economic, and moral imperative, as vulnerable communities bear the brunt of its impacts. At Harbour, we believe that a solely exclusionary approach, whereby some sectors are barred from investment, is not sufficient. The environmental, health and social

1st for 10 year KiwiSaver returns in both Aggressive and Moderate categories*

Getting Kiwis where they want to be

challenges the world faces cannot be solved by allocating away from companies, but rather by allocating towards change makers. History teaches us that the companies that can contribute solutions will be valued by society and financial markets, therefore providing opportunity to add value to investors.

Demand for investments that do good Research by RIAA (Responsible Investment Association of Australasia) in collaboration with Mindful Money in 2023 showed a sharp increase (up from 69% to 80%) in the proportion of respondents who would be prepared to invest in a KiwiSaver or investment fund that invests only in companies creating positive benefits for society and the environment. According to the survey, about half of Kiwis are concerned about greenwashing. Impact measurement provides a proof-point to combat greenwashing, in that every holding in the Harbour Sustainable Impact Fund has an impact thesis along with metrics by which the actual impact is measured. The Fund has gained early support from Financial Advisors and high net worth individuals. They are drawn to the positive impact along with a market return being accessible at a reasonable cost. The Fund also appeals to charities who want their investments to be aligned with their core purpose of making a difference in the world.

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was designed to target market returns as well as having a positive impact on the collective challenges facing people and the planet. It aims to exceed the OCR by 4% per annum over rolling 5-year periods, investing approximately 20% in domestic impact equities and 40% in domestic impact fixed interest (both managed by Harbour), as well as approximately 35% in global impact equities and 5% in impact private equity (managed by sector specialist managers). The Fund provides exposure to a mix of domestic and global investments with a focus on the positive impact that these will have on various objectives linked to the SDGs. Portfolio holdings contribute to some of the world’s most pressing challenges, including decarbonisation and access to affordable health care. The Fund is designed to have a lower carbon footprint than the market benchmark, and any carbon held in the Fund is offset by Harbour, through investment in projects which actively prevent carbon release and contribute to multiple UN SDGs.

Availability The Harbour Sustainable Impact Fund is available on leading platforms in New Zealand, including Consilium and OneAnswer. It is also available directly to investors on Flint Wealth and InvestNow. A This content is not intended as financial advice. Harbour Asset Management Ltd is the issuer of Harbour Investment Funds. The Product Disclosure Statements are available at www.harbourasset.co.nz.

Source: Morningstar KiwiSaver Survey June Quarter End 2023. The Generate Focused Growth Fund returns ranked 1st out of 7 NZ Multi Sector Aggressive Category Funds and the Moderate Fund returns ranked 1st out of 12 NZ Multi Sector Moderate Category Funds for a period of 10 years as of 30/06/2023. Past performance does not guarantee future returns. Investment involves risk and returns can be negative as well as positive. See PDS and advertising disclosures at generatewealth.co.nz/advertising-disclosures. The issuer is Generate Investment Management Ltd.

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Harbour’s Impact Report 2023 - 1

REGULARS | OPINION

Succession is pressing Having a healthy business is key to broadening your options when it’s time to move on. BY DAVID VAN SCHAARDENBURG

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‘Look around the room at Financial Advice NZ conferences, and you’ll see a rising proportion of grey heads among advice business owners.’

t may not be as entertaining as the tribulations of the television Roy family of Succession fame, but succession for the New Zealand financial advice sector remains a top-of-mind issue for many independent advice business proprietors. When you look at the spate of recent acquisitions of New Zealand based advice businesses, it’s clearly also top of mind for fund distributors. Recent purchases by fund managers include Enable Me by AMP, Consilium buying into Cambridge Partners, and Amplifi purchasing Prosperity Partners. No doubt there are more advice business acquisitions occurring which are below my radar. It’s somewhat ironic to see fund managers weighing in on this topic as the advisers’ advisers while also seeking to also purchase tied distribution by buying independent advice firms, or at least their client bases. Much of the independent NZ financial advice industry can be best described as operating as small businesses. Look around the room at Financial Advice NZ conferences, and you’ll see a rising proportion of grey heads among advice business owners. There are also numerous boutique fund managers or managers without meaningful internal distribution channels looking for investor clients. Succession challenges on one side and distribution protection on the other mean this topic is going to remain a hot issue. Adding to the temperature are the rising challenges of staying on top of ever-climbing advice business compliance demands. It’s not surprising advice business owners are looking forward to getting a “take-out” cheque, with those fundies who have committed to implementing vertical integration strategies having the deepest pockets. In most instances it’s probably likely that acquisition by a fund manager will give the advice business vendor a bigger cheque. But clients may pay the price as they lose access to independent advice on who should manage their savings. An alternative succession option is to hire and develop a younger financial adviser to sell your advice business to. Alas the biggest hirers of financial advisers are none other than the vertically integrated fund managers who have the financial wherewithal to pay the bigger compensation packages. So they’re hard to find and to hire. These same dynamics don’t appear to be occurring in developed markets overseas as financial advice and financial product management and distribution are separated by a mixture of regulations and consumer preference. So what’s the best way to improve your

chances of succession or business sale on terms that work for you as the vendor? And hopefully keep your clients being guided by independent versus tied advisers? Most importantly, have an advice business that most would regard as “healthy” - fully compliant, profitable, growing organically, with a good proportion of working age clients, and with diversity in terms of revenue sources and key suppliers, especially fund managers. I see many advice business proprietors at a certain age go into wind-down mode as they choose to eke out a declining income from their business with minimal effort. The downside of this is the risk of a relatively unhealthy business that is declining in revenues, has a rapidly aging client base and one which is maybe not as rigorous on compliance as it could be. That means that an informed rational buyer is going to pay a whole lot less for that advice business than they would for a healthy one. It also may struggle to attract buyers. The healthy advice business is one that other advice business owners and younger advisers are going to be more keen on buying or buying into. That provides independent advisers the opportunity to pass their clients to a similarminded person with a similar value proposition. It provides you, as vendor, a potentially wider range of succession options. Nice to have but not so easy to create. Ironically the quickest way to get your advice business from average to healthy performance might involve you being the succession solution for other financial advisers where the wind down path is irreversible. It does mean they can transition clients into a quality and independent advice solution. Building your advice business by acquisition may be a faster way to build scale and profitability or improve its metrics like average client age (buying KiwiSaver client bases) or average savings rate (ditto) but clearly there are risks associated with this, especially in the compliance space. An alternative is to become part of an adviser group where your business structure and systems becomes very similar to others. There are economy of scale benefits in the interim but also greater ease of selling your business to one of the other adviser practices in the group given similarities in practice. In short, having a range of quality succession options available is up to you. But it does require proactive investment and possible business changes ahead of time. A David van Schaardenburg is independent of any KiwiSaver/fund provider and is CEO of the Ignite adviser network, which has over 10,000 investing clients.

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REGULARS | OPINION

‘Merely hoping that clients will be able to cope with a 14% ratefor-age increase plus inflation, plus maybe rate increases for trauma or income cover – that’s not a strategy.’

Insurance needs to keep up with New Zealanders working longer The needs of older people are changing, but some in the insurance sector don’t seem to have got the memo. BY RUSSELL HUTCHINSON

ur clients are living longer, working longer, and staying in debt longer. We think that clients should retain cover longer too, yet most insurance coverage – with the exception of health or medical insurance – gets dropped by the time a client hits 60. What’s going on and how could we serve this group better?

make up a greater proportion of the workforce than they did previously, although this is starting to flatten out after a big jump between 2002 and 2012. The 50-to-54-year-old group is on the wane in proportional terms although still increasing in absolute terms. This is the case for all age groups seeing as the population has been increasing year-on-year since 2002.

The increase in the number of 65- to 69-year-olds working is especially noteworthy and perhaps warrants a look at current products on offer and at who they target. Those in work do not yet represent a majority of this age group today. In this sense age 65 can still be considered a reasonable point at which it becomes more probable that a person

If clients live longer, will they work longer? Our definition of ‘working age’ is increasingly looking out-of-date. People live longer, and as a result there is a well-known funding problem when we consider the cost of New Zealand superannuation and widespread interest in extending working lives to reflect both the need for more time to accumulate a meaningful nest egg and the improved health of the population. Like a lot of public policy, the populace is leading the debate with behaviour change. The chart to the right explores the percentage of people in the labour force by various age groups from 50 onwards, and how that has changed from 20 years ago. The increases in work participation are most dramatic in the age 65-69 category and also the broader “70 years and over” group. We can see that there are more people employed in the older age brackets now than both 10 and 20 years ago. In addition, 55- to 64-year-olds now

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will no longer be in paid work, than that they will. But it is very close, so close that the proportion is likely to change to a majority of people between 65 and 70 being in work – and in effect a market-led change to a retirement age of 70 will have occurred.

If you work longer, will you keep your insurance longer? If you are staying in the workforce, will you have to continue to insure yourself? That depends, we think, on whether you have debt and dependents. Many older people have a non-working spouse, but the questions of whether that person is financially dependent is complex. The retirement commission says that about 12% of people over the age of 65 are still paying interest on a mortgage. It seems likely that as more people choose to continue to work past age 65, an increasing number will have households and lifestyles that look like those of people aged five or ten years younger: being at work, they may have more debt, they may have older children still living at home from second families, they may care for grandchildren. These households could choose to insure longer too, although our current approach to premiums and pricing may not support them in holding their insurance longer.

What do we need to do in order to stay relevant to an ageing client?

CAPTION: Data visualisation by Ed Foster, Data Scientist at Quality Product Research Limited. Data from Statistics New Zealand.

Obviously, we are not talking about the clients that genuinely no longer need cover.

For those that do still need us, we think there are two problems with sticking close to them. Obviously, cost is a major driver, but we are not helpless in the face of our own pricing strategy. Merely hoping that clients will be able to cope with a 14% rate-for-age increase plus inflation, plus maybe rate increases for trauma or income cover – that’s not a strategy. We know that past a certain point for most clients, income growth flattens out. While still in the workforce, many choose to ease off a bit, or take less work. They aren’t chasing a promotion so much – and they can see retirement coming.

If all this is so predictable, why don’t we do something about it? Recognising these facts could help us to design a better review process for older clients – focused on retention of some cover, rather than simply hoping the client will retain it all. Customer follow-up from cancellations tells us terminations in this group are often inappropriate replacements. It’s a tragedy when a client cancels $300,000 of underwritten term insurance which has been in force for ten years with a non-underwritten funeral insurance product with $20,000 coverage. Advisers know that there is great flexibility available. Customers, often, do not. Improving our review processes could make a big difference. When I receive review letters – even though I am in the industry – I marvel at the many pages (often duplicated because of separate letters for policies that should be linked). I

wonder how on earth a client is expected to navigate this. A simple, digital, step-bystep guide could help a great deal. Writing properly personalised review processes was difficult. Today, thanks to good tech, it is much easier. That’s just one potential option. Adopting a base layer of level cover at an earlier age may be useful. Insurers have mixed experiences with the persistence of this business, but there are some encouraging signs. Changing cover scope to reflect the changing risks and exposures could also be a valuable tool. We see a lot of this in one limited way: by increasing health insurance excesses. There are other ways that cover scope could be limited to make it more suitable and affordable for an older person. Longer-term benefits can be made more short-term. More used of fixed-sum payments, as with specific injury cover, may be more appropriate for separating what’s insurable from the effects of old age. The role of advisers is probably the leading one. At this point is seems likely that the many ways you help clients through the process will provide the creativity by which insurers learn to change those pesky review letters. Whichever mechanisms we choose, I’ve got to believe there is a better way to serve this important group of clients. A Russell Hutchinson is director of Chatswood Consulting and Quality Product Research, which operates Quotemonster.

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INSURANCE

Advisers can add value in cost-of-living crunch Times are tough for many households but there is an opportunity for the industry.

ew Zealand’s cost-of-living crisis is putting the squeeze on households throughout the country, but there may be opportunities for advisers, one insurer says. Inflation and the rising interest rates the Reserve Bank has been deploying to battle it have put many people’s budgets under pressure in recent years. Wage cost inflation was running at an annual rate of 4.3% in the June quarter, lagging the consumer price index, which lifted 6%. Recent research from insurer Nib highlights how keenly many households are feeling the crunch. The insurer’s survey found that almost all households were reporting facing financial stressors. About half of the parents surveyed said financial uncertainty was the main source of their household stress, up from 35% in 2021. Cost of living was the main concern that parents who participated in the survey had for their children’s future and more than half of the families included in the research were eating less or differently because of the pinch on their wallets. Nib chief executive Rob Hennin said pressure was coming at households from all angles and it was becoming harder for many people to prioritise their family’s health and wellbeing. “Times are tough and many Kiwi households are making changes to their lifestyle and the way they raise their families just to get by,” Hennin said. “For some this has meant making sacrifices so that their kids' health and wellbeing comes before everything else. One thing that comes through loud and clear is that Kiwi parents want the best for their kids and their families, and they are doing the best they can under difficult circumstances,” he said. Financial adviser Tim Fairbrother, of Rival Wealth, said he had noticed more people becoming more focused on price in the last few years. “We are seeing a lot more policy arrears that normal. This has an impact on advisers too, as it means they are still looking for new clients all the while having a higher workload from existing clients too,” he said. He said it changed

the way he talked to clients about insurance. “We want people to be thinking about what plan B looks like. There is no point proposing a large amount of insurance that they need when they can’t afford it, as the client will just say no. So having some cover is better than no cover. We are having different conversations as people don’t have as much in their budget with the cost of everything else going up.” But he said there were opportunities for the business, too. “The phone has been ringing a lot more, both with existing clients wanting to review and people that haven’t completed a review for many years and don’t understand what they have. We are very active in our renewals with phone calls to each client and following up with an email, so that we give each person every opportunity to chat about their situation before they think about making changes or cancelling. Being proactive as an adviser is key in these times.” Data from the Financial Services Council shows that the number of life insurance covers had stayed largely static art 4.1 million yearon-year in the June quarter. But the industry has not avoided the wider price rises. The amount being paid in premiums had lifted from $2.89 billion annually last year and $2.84b in September 2021 to $3.11 billion in June this year. Claims had steadily stepped up from March 2022 through to June, with a sharp increase in September 2022. Nib national manager of group partnerships and strategy Ian Sargeant said the pressure around finances was a chance for advisers to offer something more. He said a lot of households were having to make difficult decisions about what they prioritised, and that was altering some advisers’ work. “The role of an adviser is less of a sales and service function and more about helping those families to establish or retain control of their finances,” he said. “Some advisers will view insurance of various sorts as a means of providing that safety net. It might be an alternative to the larger personal savings or other means that people might have adopted in better times.” He said conversations about the need for insurance could be harder to have in the current environment. “That will play out over time with less people being able to afford, having to make those choices. That’s one lens. “But the other is that when people are faced

with that pressure it’s arguably a catalyst to do something about it. Insurance is a bit of a grudge purchase and you could take a lens to this that it’s making it easier for advisers to connect with their clients, to review their current circumstances to make sure the cover they have is still fit for purpose.” He said he had recently been to a series of seminars run by an adviser group and costof-living pressure was a consistent topic of conversation. “They’re having to think differently around the nature of that engagement. That’s partly where I see this research helping, in some respects it’s nice to have a reference point to reassure clients they are not alone. The challenges they are facing are shared by a large number of other Kiwi households, or parents.” He said advisers should ask insurers for help for their clients before cutting down their insurance cover due to budget pressure. There were tools to make it more affordable, he said, and insurers would be willing to discuss those. “Most insurers and certainly Nib will have financial support options available to members who are finding themselves in a difficult circumstance,” he said. “We encourage advisers and, by extension, their clients to ask that question of their insurer before they decide to give up a policy or a particular type of cover. There are ways they can [adjust their cover] – suspending the cover for a period of time or changing the frequency with which they pay or other tools to make it more affordable. That’s where an adviser can help them and we’d like to support people with that if we can.” Sargeant said advisers could refer to Nib’s research to reassure clients that they were not alone. “In some respect it’s a nice reference point to reassure a client the challenges they’re facing are shared by a large number of other Kiwi households and parents. “It’s obviously a bit of a political football at the moment but there’s an awful lot of commentary around those pressures. When you see some of those statistics the banks publish around the percentage of mortgages that are still yet to roll off from two or three years ago, it’s not about to subside, is it? A

̒There is no point proposing a large amount of insurance that they need when they can’t afford it, as the client will just say no’ Tim Fairbrother

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