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Vol. 34 No 4 | March 26, 2020
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Vol. 34 No 4 | March 26, 2020
MANAGED ACCOUNTS
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FASEA cancels face-toface April exam sittings BY JASSMYN GOH
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Keep calm and carry on It is a worrying time at the moment as investors watch their investments and superannuation plummet through the floor from the chaos caused by COVID-19, leaving thoughts of retirement firmly on the backburner. As well as fears over health and quarantine, the stockmarket has been significantly hit with double-digit falls reported all around the world and there is a strong chance that this could lead to a recession, Australia’s first since 1990. To sort the facts from the rumours, Money Management spoke to multiple Australian equity fund managers on which stocks were worst-affected and which could potentially be a winner. The situation is rapidly developing but, at the time of writing, the biggest hit was seen to be to the travel industry with stocks such as Webjet, Qantas and Flight Centre reporting falls of more than 40%. This is likely to worsen if plans go ahead to lock down borders and restrict travel. However, there is the option to view this as an opportunity to pick up blue-chip stocks which are attractively priced and should prove strong over the next five to 10 years. Other managers advised investors to stay strong in the face of crisis and avoid making panicked decisions which could see them crystallise losses in their portfolios.
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Full feature on page 20
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ASIA PACIFIC
THE Financial Adviser Standards and Ethics Authority (FASEA) has cancelled its face-to-face April exam sittings and will offer advisers a remote online option for the exam due to the evolving COVID-19 pandemic. The announcement came five days after the authority assured advisers that the April exam would proceed in all locations. FASEA said it recognised the “challenges presented by the virus on the delivery of face-toface exams” and that the exam provider, the Australia Council for Education Research (ACER), would make the April exam available to registered candidates as a remote online option or they could defer the exam
until a later sitting. “This measure is being taken in light of the evolving COVID-19 pandemic and in the best interest of all people involved with the exam,” FASEA said. FASEA noted it was conscious of the need to continue to offer exams through the remainder of 2020 to enable existing advisers to meet the legislated timeframe. “ACER will directly advise candidates registered for the April exam of details regarding registration and sittings, including details of the remote online option available for registered candidates,” FASEA said. “ACER requests candidates to ensure their email addresses are up to date in the registration system.”
FASEA embraced remote meeting ahead of exam decision BY MIKE TAYLOR
PRIOR to announcing the cancellation of the face-to-face adviser exam sittings, the Financial Adviser Standards and Ethics Authority (FASEA) opted for a remote meeting of its so-called “Contributors Forum” involving the major banks. Money Management had been told that FASEA had decided to hold the upcoming 26 March meeting utilising web meeting application ZOOM. It is understood that the ‘Contributors Forum’ involves around 16 people. A number of the banks have imposed policies which discourage personnel from attending face-to-face meetings.
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Unrestrained regulation and costs driving advisers out of business BY MIKE TAYLOR
UNRESTRAINED cost increases will force the closure of financial planning businesses, reduce employment in the sector and set back the development of the financial planning professional. That is the bottom line assessment of the Financial Planning Association (FPA) contained in a supplementary submission to the Government’s Retirement Income Review with the planning organisation arguing that the Government must investigate recent increases to regulatory costs and carefully consider its reform agenda. The submission said that financial planning in Australia was going through an unprecedented period of change and that the totality of these changes was affecting the long-term viability of the financial planning profession. “Addressing misconduct and creating industry-wide ethical and educational standards is a necessary part of professionalisation and we support the regulators’ work to achieve this. The Financial Services Royal Commission revealed practices which are
inconsistent with a modern profession and must change to restore trust in Australia’s financial services sector,” it said. “However, new standards are applying on top of an already complex regulatory framework that has evolved over several decades. While the FPA supports the introduction of many of these reforms, the rapid increases to the cost to practitioners of additional regulation are a serious risk for small and medium-sized financial planning businesses. “Major financial institutions, including Australia’s big banks, are leaving the financial advice business or reducing their presence. Many practitioners are sole traders or work in small and medium-sized practices and their ability to absorb additional regulatory costs is extremely limited. Escalating regulatory costs will result in financial advice becoming more unaffordable and unavailable for many Australians.” The FPA has recommended that the Government establish the scale of the challenge facing Australians in affording personal financial advice, particularly due to escalating regulatory costs.
La Trobe offers support for COVID-19 affected businesses BY LAURA DEW
LA Trobe Financial will offer hardship assistance for small business customers whose livelihood has been affected by COVID-19. The company said it recognised that these were ‘unprecedented economic times’ for businesses and encouraged firms to contact them regardless of their circumstances. Assistance offered by La Trobe included: • Deferral of scheduled loan repayments; • Waiving fees and charges; • Temporary interest-only periods to assist with cashflow; and • Debt consolidation to make repayments more manageable. Cory Bannister, chief lending officer at La Trobe, said: “We are looking out for our customers who have been impacted by the spread of COVID-19. As always, we remain committed to helping our customers through these challenging times.” This followed a $1 million assistance package earlier this year for those affected by the summer’s bushfires. Affected customers were urged to call the hardship assistance team on 1800 620 639.
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“The FPA recommends that the Government, through ASIC, monitors the increasing cost to practice as a financial planner, including through government fees and charges, cost-recovery levies and increases to professional indemnity insurance premiums, and the impact this is having on the affordability of financial advice,” it said.
J.P. Morgan AM prepares to further de-risk its bond portfolio J.P. Morgan Asset Management is concentrating its bond portfolio primarily in government bonds and is willing to further de-risk if there was a rebound in risk assets. In an update, the firm said its portfolios were mainly concentrated in developed and emerging government bonds, US agency mortgages and European corporate debt. Meanwhile, it felt it was ‘too soon’ to add any US corporate credit as it was hard to tell if the Federal Reserve would seek to purchase corporate debt. Bob Michele, global head of fixed income, said: “It is too soon to add US corporate credit. Without knowing whether we will see a fiscal package aimed at companies, or broader industries, and whether or not the Federal Reserve will seek to purchase corporate debt – it is just an educated guess as to what the market has priced in. “What is different this time is the size of the private equity and credit markets and it is unknown what the
knock-on effect to the public credit markets could be in crisis.” Looking ahead, Michele said the team would be willing to further de-risk its portfolios if there was rebound in risk assets. “We are expecting a rebound in risk assets as we hit a bottom and the aggregate policy response starts to gain credibility. We would de-risk further on that bounce in expectation of a return to the lows as the economic reality of a global economic shutdown becomes evident.” The Reserve Bank of Australia has cut rates to 0.5% and a further rate cut is likely before the central bank embarks on a policy of quantitative easing. In the US, the Federal Reserve made an emergency cut to bring rates down to 0%-0.25%. The JPMAM Global Strategic Bond fund has lost 2.3% since the start of the year to 17 March, according to FE Analytics, versus returns of 0.2% by its benchmark of the Bloomberg AusBond Bank Bill.
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4 | Money Management March 26, 2020
Editorial
mike.taylor@moneymanagement.com.au
ADVISERS SHINE AMID COVID-19 BUT IS FRYDENBERG AWARE OF THE GLOW?
FE Money Management Pty Ltd Level 10 4 Martin Place, Sydney, 2000 Managing Director: Mika-John Southworth
Financial advisers have been the subject of some highly negative publicity over the past decade but their good works have been seen to shine as they help clients navigate the uncertainties generated by coronavirus COVID-19.
Tel: 0455 553 775 mika-john.southworth@moneymanagement.com.au Managing Editor/Editorial Director: Mike Taylor Tel: 0438 789 214 mike.taylor@moneymanagement.com.au Associate Editor - Research: Oksana Patron Tel: 0439 137 814
As we have written elsewhere in this edition of Money Management there has rarely existed a time when good, professional financial advice has been needed more than now. And as the Government grapples to get the right policy settings in place, the Treasurer, Josh Frydenberg, might pause to consider the reality that the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry reflected only one side of the story – the misconduct. The Royal Commissioner, Kenneth Hayne, was tasked with finding misconduct and that is what he found. Thus, there was never likely to be any extensive reference to the good works that financial advisers do, particularly at times such as now, amid the crisis of COVID-19 and, prior to that, during the global financial crisis (GFC). Financial advisers did much good work in helping clients navigate the GFC. Sadly, that good work was overshadowed by factors such as the collapse of Storm Financial with all its attendant negative publicity. It has been a fact over recent
weeks that financial advisers have rarely been busier as they seek to help clients deal with and understand the highly volatile markets which are being driven by COVID-19. It is most often not the sort of counsel that can be delivered via intra-fund advice or general advice. And that is why Frydenberg and his advisers within Treasury should closely read the submissions responding to the legislation premised on the recommendations of the Royal Commission and ponder the impact the Government’s past and proposed actions will have both on the numbers of advisers and the cost of advice. The reality is that when the Government’s Royal Commission response is put together with other initiatives such as the Financial Adviser Standards and Ethics Authority (FASEA) regime and increasing regulatory structures, upwards of 30% of advisers are likely to exit the industry with the consequence being significantly higher costs. Indeed, there is already plenty of evidence that many of those advisers who intend remaining in the advice sector are culling their
client lists to eliminate anyone they believe will prove unprofitable to service – particularly so-called mum and dad investors. The Treasurer needs to consider these facts in the context of the Government’s intentions towards banning the payment of advice from MySuper accounts and, indeed, the processes around ongoing fee arrangements. At the same time, the Government needs to ensure that the regulators, particularly the Australian Securities and Investments Commission (ASIC) are suitably facilitative in an environment where most sensible advisers have moved from face-toface client meetings to screenbased and telephone consultations. Economic stimulus and flattening the curve of the COVID-19 pandemic are likely to be the central focus of the Government and the Parliament for many weeks to come. However, the circumstances also offer the Treasurer an opportunity to reflect on broader financial services policy decisions, including the value delivered by advisers.
Mike Taylor Managing Editor
oksana.patron@moneymanagement.com.au News Editor: Jassmyn Goh Tel: 0438 957 266 jassmyn.goh@moneymanagement.com.au Senior Journalist: Laura Dew Tel: 0438 836 560 laura.dew@moneymanagement.com.au Journalist: Chris Dastoor Tel: 0439 076 518 chris.dastoor@moneymanagement.com.au Events Executive: Candace Qi Tel: 0439 355 561 candace.qi@fefundinfo.com ADVERTISING Sales Director: Craig Pecar Tel: 0438 905 121 craig.pecar@moneymanagement.com.au Account Manager: Amy Barnett Tel: 0438 879 685 amy.barnett@moneymanagement.com.au Account Manager: Amelia King Tel: 0407 702 765 amelia.king@moneymanagement.com.au PRODUCTION Graphic Design: Henry Blazhevskyi
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Money Management is printed by Bluestar Print, Silverwater NSW. Published fortnightly. Subscription rates: 1 year A$244 plus GST. Overseas prices apply. All Money Management material is copyright. Reproduction in whole or in part is not allowed without written permission from the editor. © 2020. Supplied images © 2020 iStock by Getty Images. Opinions expressed in Money Management are not necessarily those of Money Management or FE Money Management Pty Ltd.
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6 | Money Management March 26, 2020
News
COVID-19 sees financial advisers reduce face-time with clients
Amid COVID-19 FASEA urged to deliver CPD relief
BY MIKE TAYLOR
AT least one adviser has written to the Financial Adviser Standards and Ethics Authority (FASEA) asking the authority to adopt a facilitative to continuing professional development (CPD) points because of the number of seminars and conferences cancelled due to COVID-19. Adrian Hanrahan has taken to social media to share an e-mail he has sent to FASEA chief executive, Stephen Glenfield, pointing out the widespread cancellation of CPD seminars and asking whether the authority would be prepared to take the situation into account. “I was wondering if FASEA intends to take a ‘facilitative approach’ to CPD requirements for the current CPD year,” Hanrahan’s e-mail said. “For example, a temporary reduction in the required CPD hours or a temporary relaxation of the requirement for a CPD activity to be ‘led or conducted by one or more persons’ to better facilitate self-directed learning.” Hanrahan said he believed a temporary change in the prescriptive CPD framework would represent welcome relief to the profession.
FINANCIAL advisers are reducing face-to-face time with their clients and resorting to telephone and screen-based consultations as they seek to deal with the implications of COVID-19. Association of Financial Advisers (AFA) general manager, policy and professionalism, Phil Anderson, said that advisers were facing one of their busiest periods as they sought to assist clients through a period of extreme market volatility linked to the coronavirus but were in many instances doing so remotely. This was confirmed by former dealer group head and AdviceIQ director, Paul Harding-Davis, who said that in many instances the decision not to initiate faceto-face contact was being made by the client, rather than the adviser. Harding-Davis said that, in the circumstances, telephone or screen-based contact with clients was recognised as serving the interests of both. Anderson said that in
circumstances where many advisers were operating in a small business environment, it was inevitable that some would choose to work from home rather than risk travelling on public transport. “But the reality is that
advisers are finding themselves very busy at the moment reassuring clients and helping them navigate the current period of volatility,” he said. “In the circumstances, a lot of that work is being conducted at a distance.”
ASIC hits CFS on MySuper charges BY JASSMYN GOH
THE corporate watchdog has commenced civil penalty proceedings against Colonial First State Investments Limited (CFSIL), and as a trustee for the Colonial First State FirstChoice Superannuation Trust for breaches of the ASIC Act and the Corporations Act. The Australian Securities and Investments Commission (ASIC) allege CFSIL sent misleading or deceptive communications to members of the FirstChoice Fund. This was regarding the provision of investment directions to stay within CSIL’s FirstChoice Fund rather than transitioning to CFSIL’s MySuper product. “ASIC’s case focuses on template letters sent to members, as well as, 46 telephone calls made in
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accordance with scripts. ASIC also alleges that CFSIL failed to provide a ‘general advice warning’ during the telephone calls in breach of s949A of the Corporations Act,” an ASIC announcement said. “It is notable that a total of 8,605 members provided an investment direction keeping them in the existing product.” ASIC contended that the communications also amounted to breaches of CFSIL’s obligations: To do all things necessary to ensure that the financial services covered by its financial services licence were provided efficiently, honestly and fairly, as required by s912A(1)(a) of the Corporations Act; and As a financial service licensee to comply with financial services laws, as required by s912A(1)(c) of the Corporations Act.
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8 | Money Management March 26, 2020
News
AMP downplays Moody’s downgrade BY MIKE TAYLOR
AMP Limited has sought to downplay a ratings downgrade from research and ratings house Moody’s. In an announcement released to the Australian Securities Exchange (ASX), AMP noted that Moody’s had lowered its ratings on AMP Group Holdings, AMP Group Finance Services Limited, AMP Bank and AMP Life. The company said the changes did not relate to current volatility in capital markets and were not material to the operations of
AMP Limited. “AMP continues to have a strong balance sheet and capital position, with its Level 3 eligible capital above minimum regulatory requirements of $2.5 billion at 31 December, 2019,” the ASX statement said. It noted that all credit ratings assigned to AMP by other ratings agencies remained unchanged. In doing so, AMP compared the A3 and A32 ratings handed to it by Moody’s to the BBB+ and A- ratings handed to it by Standard & Poor’s.
Biotech and healthcare funds unable to escape global sell-off BY JASSMYN GOH
WHILE biotech and pharmaceutical firms rush to find a vaccine to curb epidemic COVID-19, healthcare and biotech funds have been unable to escape the global sell-off, according to data. Data from FE Analytics found that despite strong returns over the three years to 28 February, 2020, healthcare and biotech funds had lost substantial ground since the virus’ spread started rapidly increasing in mid-February. Since COVID-19 was first identified in December, 2019, healthcare and biotech funds, within the Australian Core Strategies universe, have mostly still made gains with Platinum International Health Care fund returning 6.1%, L&G Healthcare Breakthrough Ucits ETF at 5.14%, ETFS S&P Biotech ETF at 1.68%. However, BetaShares Global Healthcare ETF Currency Hedged lost 8.9% and CFS Wholesale Global Health and Biotechnology lost 0.09% However, over the three years to 28 February, 2020 the funds had experienced steady growth and strong returns with a sharp increasing trajectory since December 2018. The best performing fund during this period was also the Platinum fund with a return of 56.8%. Speaking to Money Management, Platinum’s healthcare portfolio manager, Dr Bianca Ogden, said while inflows had been steady over the last 18 to 24 months, biotech funds were often seen as risky and expensive. “The interesting part is we’ve been here before and usually these are the best
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opportunities for companies that do make the products that we require for the things like the COVID-19 outbreak,” she said. “While I’m not happy that things go down, it makes me quite excited because the market has been quite expensive and we can finally get companies that we wanted to own before that were too expensive to buy previously. These companies are producing new technologies and new ways of coming up with new drugs for new diseases.” Ogden noted that while healthcare and biotech funds did cost a lot of money, in the end investors needed to think about the longer-term application. “We have a lot of immuno-oncology firms and new drugs for neurological diseases and we look at the pipeline of what is coming through and that’s what is important to us,” she said.
MYTHS Failure, Ogden said, was normal in the biotech industry and often investors were put off when biotech companies failed. However, she said that these companies were often quite good at pivoting. She said often biotech firms listed too early and investors were lured by a story rather than facts and when the firm “exploded” they would get put off by the entire sector. “The funny thing is as soon as there is a success story like CSL – great company, very well run but from a valuation point of view and a global perspective its expensive but locals believe they can never fall but never say never,” Ogden said. “Failure in this industry is normal and it is celebrated but you have to go in and
understand which is the good one to buy. Look at the returns of the moment. If I look at annual returns, my fund has performed better than international funds and so I don’t understand why people believe biotech is volatile.” Advisers and investors looking to invest in a biotech or healthcare firm should look for people running the organisations that understood science and how to terminate projects, Ogden said. “They need to have a strong personality, know their science, and be motivators. When things fall over they need to be able to motivate their people, stay ahead, and understand what the competition does,” she said. For the moment, Ogden said she was not changing her portfolio too much, off the back of the global sell-off, as overreacting could “destroy your long-term”.
18/03/2020 1:56:27 PM
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10 | Money Management March 26, 2020
News
SMSFA endorses Govt super flexibility proposal BY CHRIS DASTOOR
THE Self-Managed Superannuation Fund (SMSF) Association has supported the Government’s decision to draft laws to assist Australians aged 65 years and over to boost their retirement savings. The legislation would amend the Superannuation Industry (Supervision) Regulations 1994, to allow people aged 65-66 to make voluntary contributions without meeting a work test, and for those aged 70-74 to receive spousal contributions by increasing the maximum age from 69 to 74. The bring-forward arrangements, to make up to three years of non-concessional contributions, would extend to people aged 65-66, which would take place from 1 July, 2020.
John Maroney, SMSF Association chief executive, said the changes recognised they are needed for Australians to have greater flexibility as they transition into retirement. “Work patterns are constantly changing, so it is essential the legislation underpinning superannuation changes too to help ensure Australians can accumulate sufficient savings to have a secure and dignified retirement,” Maroney said. “It has long been the Association’s policy position to support greater flexibility for making contributions to superannuation. “Although our preference is to remove the work test altogether, this measure is a step in the right direction, and the Government is to be commended for implementing this election promise.”
ASIC examining wholesale/ retail client definitions BY MIKE TAYLOR
THE Australian Securities and Investments Commission (ASIC) has confirmed it is continuing to examine the misclassification of wholesale and retail clients. ASIC chair, James Shipton, has confirmed to a Parliamentary committee that the regulator is looking at the issue but stopped short of suggesting that there was systemic misclassification of wholesale and retail clients. However, he said that at the very least ASIC was concerned about potential misclassifications in circumstances where the ‘wholesale investor’ definition was a broad one. “There are many different facets to it,” Shipton said. “There may be misclassification in a general sense, which may be different from a legal sense, because technically it may fall within the definition of a ‘wholesale client’.” “What we’re looking out for, I sense is probably best expressed as an overly technical application of a person as a wholesale client that may not be in the greater scheme of things in their best interest. This is something we’re actively monitoring,” the ASIC chair said.
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ASIC delivers regulatory roadmap on advice within super FINANCIAL planning organisations have just four weeks to respond to the Australian Securities and Investments Commission’s (ASIC’s) proposals to impose strong regulations around the provision of advice within superannuation including an assumption that advice within MySuper will be banned. The regulator has released Consultation Paper 329 which is based on the Government’s exposure draft legislation and deals with the implementation of the Royal Commission recommendations on advice fee consents and independence disclosure. The discussion paper makes clear the almost unfettered primacy of intra-fund advice in terms of superannuation citing the fact that the Royal Commission had detected no wrong-doing where intra-fund advice was concerned. But, on the plus side for advisers, ASIC has signalled an element of flexibility around gaining fee consents from their clients including allowing advisers to seek a client’s consent for deducting ongoing fees in the same document as the renewal notice. “Alternatively, a fee recipient may seek a client’s written consent in a separate consent form—for example, when an ongoing fee arrangement is set up for the first time or when a client decides to pay ongoing fees from a new account,” the ASIC discussion paper said.
Equally importantly, where it comes to advisers dealing with superannuation funds, ASIC has signalled that it will be sufficient for superannuation fund trustees to sight consent forms from third parties such as financial advisers. However, the ASIC discussion paper carries with it the warning that receipt of a copy of a consent does not automatically entitle a trustee to pass on the cost of providing financial product advice to the member and exhorts them to observe their convents and duties especially with respect to consent to deduct ongoing fees. While ASIC’s consultation paper reflects the direction of the Government’s exposure draft legislation on the question of virtually eliminating the payment of advice fees from MySuper accounts, it stands in stark contrast to the views of the major financial planning organisations and the major superannuation fund organisations. Groups such as the Financial Planning Association (FPA), the Association of Financial Advisers (AFA) and the Association of Superannuation Funds of Australia have all warned that denying MySuper fund members the ability to access advice within super risks forcing them into choice products. ASIC has acknowledged the possibility that the Government’s legislation will change and has signalled that its regulatory response will also change accordingly.
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Advice fee bill will incentivise super switching Most insurers BY JASSMYN GOH
THE advice fee bill will incentivise financial advisers to switch members out of MySuper products and into Choice products to allow advisers to enter into ongoing fee arrangements with superannuation members, according to the Australian Institute of Superannuation Trustees (AIST). In its submission to the Treasury consultation on enhancing consumer protections and strengthening regulators, the AIST said it did not support the proposed advice fee bill. It said there was a material risk that a large number of Australians would no longer seek advice relating to their retirement if their access to affordable payment for advice was restricted. AIST said a practical reality for many Australians was that there was often limited capacity to fund financial advice from take-home pay. “Banning the deduction of advice fees from MySuper accounts will exacerbate existing
difficulties members face accessing high quality, reasonably priced advice that is in their best interests,” AIST said. “Advice needs to be affordable for both MySuper and Choice members, and the deductibility of super advice fees encourages members to seek advice they might not otherwise obtain.” AIST said regardless of which category members fell into – MySuper or Choice – members should be able to access advice on the same basis. “As the advice fee bill currently stands, financial advisers will be incentivised to switch members out of MySuper products and into Choice products, so advisers can enter into ongoing fee arrangements with members,” it said. “At a practical level, the parameters of what constitutes superannuation advice can be unclear and should be clarified in additional ASIC guidance.” On intra-fund advice, AIST said clarifying the provision of intra-fund advice on how the member might best provide for
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their retirement might provide a model for accessible advice that was not prone to misconduct. “Such a model should also reflect that people commonly seek pre-retirement advice as couples/household, and that this (including consideration of a spouse’s super) should be allowable within an intra-fund advice topic on retirement and paid for via existing intra-fund advice models,” it said.
IFM maintains silence on remuneration BY MIKE TAYLOR
THE chair of the Parliamentary Joint Committee on Corporations and Financial Services, Tim Wilson, has made another attempt to extract information from industry funds-linked investment manager, IFM Investors, but has had no better success. IFM Investors made headlines late last year by declining to answer a range of questions asked by Wilson and some other members of the committee, but an IFM Investors document filed with the committee on 28 February, suggests little further progress has been made. The IFM Investors letter responded to an earlier letter from the committee received on 31 January requesting responses to additional questions. Those additional questions covered governance, clients and commercial relationships, investments, valuations and performance and remuneration. However, in almost all cases, IFM Investors held the line on what it had told the committee last year, and noting that in “answering the Committee’s questions IFM
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does not prejudice the interests of the approximately seven million Australian industry super fund members, and the beneficiaries or our investors in other countries, who ultimately benefit from IFM’s investments”. The IFM response said it managed funds on behalf of 443 institutional investors globally, including superannuation and pension funds, sovereign wealth funds, insurers, endowment, foundations and universities. “IFM does not have any retail clients or clients who are individuals,” it said. “IFM’s clients are large sophisticated institutional investors, with all or substantially all having funds under management in excess of $100 million,” it said. On the key question of remuneration, the IFM maintained its relative silence, arguing that the information being sought by the committee “departs from market practice and regulatory requirements in major financial services hubs including London and New York”. “Public authorities in Europe, the US and the UK do not require private fund managers like IFM to disclose the remuneration information being sought by the committee.”
OVER 80% of insurance executives believe their firms are struggling to manage social capital, according to a Finity survey. The survey found 62% believed their organisations were “a long way behind” best practice and a further 21% said they were “doing nothing effective in this area”. Social capital, Finity said, was the state of a company’s relationships with shareholders, customers, staff, and other stakeholders. Finity principal, Hadyn Bernau, said: “The organisations I’m talking with are increasingly dissatisfied with their current approaches and measurement tools, and are looking for new frameworks that better identify relationship weaknesses and blind spots, and provide leading indicators”. Finity said it was introducing a methodology called Relational Analytics to help companies build a clearer picture of their social conditions through the lens of stakeholder relationships. Bernau said this methodology could have predicted and potentially prevented much of the recent public loss of trust in the financial sector. “Communication is increasingly mediated by technology, relationships are more transactional and lack continuity with specific company representatives, leaving customers feeling unheard and less connected to the typical large organisation,” he said. Bernau noted that failure to address weaknesses in governance and culture could result in major financial losses through reputational damage, fines, and expensive remediation programs.
17/03/2020 2:31:34 PM
12 | Money Management March 26, 2020
News
CBA facing $5m penalty as ASIC initiates RC action
BY MIKE TAYLOR
EXECUTING on yet another Royal Commission legal referral the Australian Securities and Investments Commission (ASIC) has initiated Federal Court proceedings against the Commonwealth Bank (CBA) for failures around its so-called AgriAdvance Plus Package (AA+). The proceedings allege breaches of the ASIC Act and the Corporations Act on the part of CBA with the regulator allegiance that from May 2005 to December 2015, CBA sold customers the AA+ Package, which entitled customers, in exchange for the payment of package fees, to benefits in the form of fee waivers and interest rate discounts, and bonus interest on savings, on 22 CBA products. ASIC said it would be alleging that, contrary to the terms of the AA+ Package, CBA harmed customers by not providing certain benefits to customers and, as a result, customers were overcharged fees and interest on loans and fees, and underpaid interest on savings. CBA also overcharged AA+ Package
fees to certain customers. ASIC’s case is that the causes of CBA’s failures included the highly manual nature of CBA’s systems by which the AA+ Package benefits were applied, as well as, CBA having no systems or processes in place to check whether customers were receiving benefits. Announcing the legal action, ASIC said it would be contending in court that a total of 8,659 customers were harmed by CBA’s conduct on 131,542 occasions, in circumstances where CBA benefited from a total of $8,087,276 in incorrectly charged fees and interest on loans, and underpaid interest on savings. The ASIC announcement said the regulator would be alleging that from May 2005 to 31 December 2015 (Relevant Period): • On 7,077 occasions, CBA represented to 13,063 customers that it had adequate systems and processes in place to ensure customers received, and would continue to receive, the benefits in accordance with the terms and conditions; and on 18,679 occasions, CBA accepted payments for the provision of the AA+ Package Benefits
when there were reasonable grounds for believing CBA would not be able to supply the AA+ Package Benefits within a reasonable time. ASIC alleges that from 16 March 2014 to 31 December 2015 (Penalty Period) being conduct within the six-year limitation period, CBA engaged in conduct that contravened provisions of the ASIC Act and Corporations Act. Specifically: • On 123 occasions, CBA contravened s12DB(1)(e) and (g) of the ASIC Act, by making misleading representations, and s12DA(1) of the ASIC Act by engaging in misleading or deceptive conduct by representing to each customer that it had adequate systems and processes in place to ensure customers received, and would continue to receive, the benefits in accordance with the terms and conditions. • On 3,905 occasions, CBA accepted payments for the provision of the AA+ Package Benefits when there were reasonable grounds for believing that CBA would not be able to supply the AA+ Package Benefits, in contravention of s12DI(3) of the ASIC Act. • CBA breached its obligation to do all things necessary to ensure that the financial services covered by its financial services licence were provided efficiently, honestly and fairly, in contravention of s912A(1)(a) of the Corporations Act. CBA also breached its general obligation as a financial service licensee to comply with financial services laws pursuant to s912A(1)(c) of the Corporations Act on 4,028 occasions within the limitation period, being each occasion that it contravened ss12DA(1), 12DB(1)(e) and (g) and 12DI(3). ASIC said it would be seeking a total civil penalty up to $5 million subject to the conduct as alleged being found or admitted.
How many banned advisers have moved into advice management? THE Financial Planning Association (FPA) has asserted it has clear evidence of financial advisers who have been banned by the Australian Securities and Investments Commission (ASIC) but who have moved into management overseeing the provision of advice. The FPA’s assertion has been made in its submission to the Treasury dealing with the implementation of the Hayne Royal Commission recommendations and has resulted in it recommending
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that managers should also be the subject of reference checking and information sharing protocols. It said that, as things currently stood, the protocol will only apply to financial advisers who will potentially be providing personal advice to retail clients under the new licensee. “Evidence provided at the Royal Commission and discussed by commissioner Hayne in his final report included potential misconduct in
relation to representatives providing general advice, directors, management and other employees of AFS licensees,” the FPA submission said. “The FPA has clear examples of financial advisers who have been banned from providing financial advice by ASIC who move into management overseeing the provision of financial advice by employed or authorised financial advisers of the licensee.
“The FPA recommends the Reference Checking and Information Sharing Protocol should therefore be extended to include individuals: 1) Employed or authorised by AFSLs to provide general advice; and 2) With the responsibility or ability to influence the advice process; and 3) In management and directorships, including responsible managers.”
17/03/2020 2:31:09 PM
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10/03/2020 9:46:13 AM
14 | Money Management March 26, 2020
News
FASEA’s Professional Year requirement ‘unworkable’ BY OKSANA PATRON
ONE of the requirements created by the Financial Adviser Standards and Ethics Authority’s (FASEA), the Professional Year, has turned out to be ‘completely unworkable’ and become one of the main roadblocks for young financial advisers attempting to get their foot into the industry, according to Wealth Today’s managing director Keith Cullen. Speaking to Money Management, Cullen said that the new requirement, which mandated all new industry entrants from 1 January , 2019 to undertake the Professional Year before they are qualified as a financial adviser, was created in an environment where there were still high numbers of advisers operating under institutional ownership which could provide corporate support to people in their professional years. However, with a rapid change
in business models and a growing number of one to seven employee firms which operate under larger licenses but as individual businesses, this requirement has become more of an obstacle for many young graduates. “What is happening is that the disintegration of those institutional-owned advice models has pushed the industry back into where it was 10 years ago which is really what I would call politely the Australia’s biggest college industry,” he said. “I think it’s like a massive blind spot for the industry too and we are not maybe seeing it today but we are certainly going to see it from a succession planning perspective.” According to Cullen, the industry as a whole should pay a closer attention to where the ‘new blood’ was coming from in order to avoid further problems around the business succession planning.
“I think we’ve put up a brick wall for all these kids who are doing relevant degrees in the industry, in terms of their ability to enter the industry and what we have left them with is a $25,000 HECS-HELP bill and no way of getting a start in the in the industry,” he added. The FASEA’s Professional Year standard, which commenced on 1 January, 2019, is a requirement of the Corporations Act 2001 that all new industry entrants are required to undertake before they are qualified as a financial adviser to provide personal financial advice to retail clients in respect of retail financial products. Under the Professional Year’s requirement, every new entrant is required to undertake a Professional Year of one year full-time equivalent comprising 1,600 hours, of which at least 100 hours is to be structured training.
Future of group purchasing bodies unclear BY JASSMYN GOH
ORGANISATIONS considering the use of a group purchasing body (GPB) could look to alternatives given the corporate watchdog has signalled the end of the GPB relief. The Fold Legal said the current GPB relief might be replaced soon as the Australian Securities and Investments Commission (ASIC) had indicated that it would consult with the industry and other stakeholders in 2019 to decide what changes were required by the end of 2020, but this had not happened yet. “ASIC also hasn’t updated or replaced Regulatory Guide 195 (group purchasing bodies for insurance and risk products) since 2010, so it can’t be relied on. In other words, things could change,” it said. A GPB arranges or holds insurance or risk cover for its members but do not have to meet some legal requirements, such as holding an Australian Financial Services Licence (AFSL). However, there are constraints such as GPBs cannot earn a profit and can only receive some specific financial benefits for arranging the protection, and they are only able to recover their legitimate administrative costs and this means they are unable to average out their costs.
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The Fold Legal noted that because of the restrictions, GPBs might be better placed to partner with an AFSL holder as an authorised representative or general insurance distributor. The Fold Legal said: “As an authorised representative or general insurance distributor the GPB may be able to: • Agree a more flexible or lucrative commercial relationship with the AFSL holder; • ‘White-label’ the insurance if they’re an authorised representative. This means they can offer the product under their own branding; and • Earn profits or benefit financially from providing these services as long as they tell their members” The firm said if insurance was mandatory then there could be another option. “Soon a deferred sales model will apply for add-on insurance products that are sold to retail clients. This means that a GPB will have to wait four days before offering a member an insurance product that is usually sold alongside another good or service,” it said. “A GPB may avoid this if the insurance is not offered separately (by opting in) but is instead bundled as part of the benefits of membership.”
Boutique dealer groups to merge TWO boutique dealer groups, Spark Financial Group and Aura Wealth Australia, have announced they have entered into binding agreements to merge, with the new combined group to service more than 80 authorised representatives across Australia. The new entity would be led by Arthur Kallos, founder and chief executive of Spark and Andrew Coloretti, Aura’s head of wealth management. “The appeal of bringing Spark and Aura together is driven in a large part by our shared vision for creating a transformative and innovative approach to the wealth management space,” the company said. Coloretti said it would bring together the best of two boutique businesses, to the benefit of the financial advisers we collectively serve. “We believe that the investments necessary for competitively differentiated technology, practice management and service excellence require a greater level of scale than either of our companies can achieve on a stand-alone basis,” he added. “In fact, as our two organisations learned more about each other’s platforms, it became obvious that our strengths rounded out each other’s offerings. Combined, we will have one of the most comprehensive and superior platforms for authorised representatives in the industry.”
18/03/2020 9:21:48 AM
March 26, 2020 Money Management | 15
News
Super funds back MySuper deductibility of advice fees
AMP Life and AMP Capital fined BY OKSANA PATRON
AMP Life and AMP Capital have been fined $275,500 and $250,500 respectively, in relation to trade reporting rules regarding derivative transaction and position information to derivative trade repositories. The Australian Securities and Investments Commission (ASIC) said it believed that both AMP Life and AMP Capital breached the ASIC Derivative Transactions (Reporting) Rules 2013 between August, 2015 and February, 2018 and between March, 2016 and September, 2018, respectively. According to the regulator, AMP Life failed to: • Report information about 940 transactions on 113 separate business days; • Correctly report collateral information about 9,224 transactions on 388 separate business days; and • Take all reasonable steps to ensure that BNP Paribas Fund Services Australasia Pty Ltd (BNP), on behalf of AMP Life, was reporting information that was complete, accurate and current. ASIC also believed there were reasonable grounds to believe that AMP Capital: • Report information about 140
transactions on 34 separate business days; • Correctly report collateral information about 9,999 transactions on 417 separate business days; and • Take all reasonable steps to ensure that BNP, on behalf of AMP Capital, was reporting information that was complete, accurate and current. ASIC also said that breaches arose out of administrative failings. “However, the duration of each of the reporting failures was significant and the time taken to identify them shows serious inadequacies in AMP Life’s and AMP Capital’s processes and procedures for monitoring the accuracy of their reporting,” the regulator said. “AMP Life and AMP Capital have taken, and are continuing to take, actions to remedy their reporting failures and are implementing systems and processes aimed at preventing future failures of this kind.” ASIC rules required counterparties to report derivative transaction and position information to derivative trade repositories as this reporting was necessary to enhance the transparency of transaction information available to regulators, promote financial stability and support the detection and prevention of market abuse.
THE Government may drive people out of MySuper products if it completely removes the ability to deduct advice fees. That is the warning issued by major superannuation industry organisation, the Association of Superannuation Funds of Australia (ASFA) in a submission filed with the Treasury. In similar fashion to both the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA), the ASFA has warned that by closing off the ability to deduct advice fees, members of MySuper products will be forced to move to choice products from which advice fees can still be deducted. “There is a risk of inadvertently incentivising movement away from MySuper with the complete removal of the ability to deduct advice fees, as members will be required to move in order to receive advice, in circumstances where they do not have the means or inclination to pay for the advice out of pocket,” the ASFA submission said. “It would also be inequitable to determine whether advice can be accessed based on the type of account or investment option a member has their superannuation invested in. Many consumers are likely to view MySuper as an investment option within their total superannuation account,” it said. “Practically speaking, from a consumer’s perspective, the effect of the bill is to hinder access to advice and the retirement outcomes they aspire to.” “As the ASIC [Australian Securities and Investments Commission] report on what consumers really think about advice noted, two of the three most common topics that survey participants said they had either received, or were interested in receiving, financial advice on were retirement income planning and growing their superannuation,” it said. “One of the key barriers to getting financial advice identified in the report was cost. If cost continues to be a significant barrier to getting financial advice, prohibiting the deduction of advice fees from MySuper may result in poor consumer outcomes. A growing number of consumers will not receive advice at all or will move to other investment options or products in order to fund the financial advice.”
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18/03/2020 12:10:43 PM
16 | Money Management March 26, 2020
News
Managed accounts finished 2019 strong at $79 billion BY MIKE TAYLOR
MANAGED accounts were continuing their rise and rise in Australia late last year and before the current market volatility, with the latest Institute of Managed Accounts Professionals (IMAP) and Milliman showing they grew by $7.9 billion in the last six months of 2019. The IMAP census of managed accounts showed that as of 31 December, last year, funds under management (FUM) in managed accounts stood at $79.29 billion – an increase of $7.9 billion over the figure for 30 June, last year, when FUM stood at $71.38 billion. Commenting on the latest data, IMAP chairman, Toby Potter said the census suggested that investors were working closely with and
had confidence in their financial advisers, evidenced by the steady inflows of new funds into managed account arrangement. Milliman head of capital markets – Australia, Victor Huang, said the main features of investment markets for the second half of 2019 were growth and continued volatility. Potter said that a continuing trend was that platform-based separately managed accounts (SMAs) were growing at a faster rate and closing in on the numbers of managed discretionary accounts (MDAs). “Managed account growth continues to outstrip growth in platform FUA which suggests that most growth is coming from advisers recommending managed accounts to existing clients,” he said.
Blockchain needed for advice fees: IRESS BY JASSMYN GOH
BLOCKCHAIN could be used as a solution to ongoing adviser fee arrangements, IRESS believes. The financial technology provider’s chief executive, Andrew Walsh, said there was a need for a standardised automated way for new obligations to be met by all parties. “The challenge is ensuring client consent information and its transmission is accurate, timely and efficient for all parties. No-one can solve this problem in isolation,” he said.
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The new legislation would require platform operators and superannuation trustees to satisfy themselves that consent for ongoing service had been given tot the adviser before deducting advice fees via a platform. “Blockchain will provide a single source of truth to allow all parties to be confident in the accuracy, timeliness and currency of data,” Walsh said. “This will include leveraging IRESS’ recently-acquired blockchain platform. A single approach will also ensure greater efficiency for industry parties.”
Societe Generale charged by ASIC BY CHRIS DASTOOR
Societe Generale Securities Australia (SGSA) has been charged with breaching client money obligations by the Australian Securities and Investments Commission (ASIC). On 17 March, SGSA appeared in the Downing Centre Local Court in Sydney on criminal charges, which included two counts of failing to pay client money into segregated authorised bank accounts and two counts of failing to comply with requirements relating to a client money bank account. ASIC alleged between December, 2014 and September, 2018, SGSA failed to comply with client money obligations, in contravention of criminal offence provisions under sections 993B(1) and 993C(1) of the Corporations Act 2001. Client money provisions protected the interests of clients of Australian financial services licensees (AFSL) by separating client money from money belonging to licensees. ASIC said breaching this provision was serious misconduct that risked undermining investor confidence. The maximum penalty for each charge was 250 penalty units, which would be approximately $45,000. The Commonwealth Director of Public Prosecutions was prosecuting the matter, which had been adjourned for a Case Management Hearing on 12 May, 2020.
19/03/2020 9:52:23 AM
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9/03/2020 11:53:18 AM
18 | Money Management March 26, 2020
InFocus
IF EVER THERE WAS A NEED FOR GOOD ADVICE THEN IT’S NOW Mike Taylor writes that the services of experienced financial advisers have never been in greater demand as clients attempt to come to terms with the market volatility being driven by COVID-19. IF EVER THERE was a time when investors needed sound financial advice it is now. At the time of writing, the Australian Securities Exchange (ASX) had declined to levels not seen since 2016 with the Australian Securities and Investments Commission (ASIC) in the middle of March taking the unusual step of issuing a direction under its Market Integrity Rules requiring major market participants to cut trades by up to 25%. On top of those factors, investors have been the subject of daily television reports detailing what appears to be a continuing downward spiral on the major share indices – spooking investors and prompting them to begin earnest conversations with their financial advisers. CountPlus chief executive, Matthew Rowe, said the reality for many advisers was they had never before encountered the very real prospect of a recession and what that was likely to entail for their clients. “When you consider the average age of financial advisers, not many of them would have experienced what happened in 1987 and so they are entering new territory,” he said.
The common message from advisers to clients so far has been to not over-react to the extreme market volatility and therefore risk crystallising losses. The message being conveyed is that investment timeframes should be viewed in terms of years, rather than months or weeks. “In the short-term markets are driven by sentiment (or emotion) rather than fundamentals,” one adviser said. “As a result, financial markets typically overreact on both the upside and the downside. At some point markets will settle and then recover – although that point might be some way down the
Chart 1: Qantas
track as the world tackles COVID-19.” However, that same adviser was sending cautionary messages to those clients who believed it might be opportune to try to pick up a bargain amid generally falling share prices. “Share markets definitely look better value than a few weeks ago. However, there is a saying in investment markets – ‘don’t try to catch a falling knife’ – which means don’t try to buy when the market is in free fall,” he said. The question for both advisers and their clients as they approach investment strategies in the midst
of the COVID-19 volatility is how far the market will fall and the length and depth of any recession. In that sense, the COVID-19 experience is likely to be very different to what occurred during the global financial crisis (GFC) simply because the current situation is about more than just markets and liquidity and entails Government-imposed closures of borders with all the followthrough impacts on industries, particularly travel, events and hospitality. The reality for advisers is that while, predictably, some significant stocks such as Qantas (QAN) and Virgin Australia Holdings (VAH) have headed south off the back of successive rounds of bad news after hitting some significant peaks not less than a few months ago, portfolio staples such as the Commonwealth Bank (CBA) and Westpac (WBC) have exhibited similar downward trajectories since the worst of the COVID-19 news began hitting in late February. While advisers will be judging significant portfolio staples as a “hold” they may have much explaining to do around why other exposures should be held and for how long.
Chart 2: Virgin Australia Holdings
Source: ASX
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18/03/2020 11:11:44 AM
March 26, 2020 Money Management | 19
News
Licensees earn their stamping fees and should keep them: Investment Collective BY MIKE TAYLOR
“NOT a day goes by without the Australian Securities and Investments Commission (ASIC) and other regulators making some halfbaked announcement, designed to drive a wedge between consumers and service providers” and seeking to abolish stamping fees is one such example. That is the analysis of managing director of the Investment Collective, David French, who has used a submission to Treasury on the Stamping Fees Exemption to argue that current arrangements should be maintained and simply reflect the consider work put in by financial services licensees. “Let’s be clear from the start – stamping fees are a fee,” his submission said. “They are paid by product issuers, and they compensate for significant effort on the part of the Australian Financial Services Licence (AFSL) holder. Assuming a desirable investment opportunity, these fees are earned in a very competitive environment, where a number of AFSL holders are vying for a limited amount of stock on offer.” It said that while the new Financial Adviser Standards and Ethics Authority
04MM260320_01-19.indd 19
(FASEA) code of ethics precluded advisers from receiving stamping fees, the same did not apply to licensees.
“There is however no rule preventing a Financial Services Licensee from receiving stamping fees, and
neither should there be. Stamping fees are intended to offset the administrative burden of taking on a new
issue,” it said. French released his submission to Money Management in the context of the
Financial Planning Association’s (FPA’s) submission having backed the banning of stamping fees.
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17/03/2020 2:29:33 PM
20 | Money Management March 26, 2020
Australian equities
KEEP CALM AND CARRY ON The chaos caused by COVID-19 is likely to be the final straw to tip Australia into its first recession in 30 years, with managers saying it could be ‘hard to escape’, Laura Dew finds. IT HAS BEEN a rocky start to the year for stockmarkets this year as the threat of COVID-19 first announced in December 2019, became an official pandemic and caused chaos to stockmarkets, the worst since the Global Financial Crisis. Coming off the devastation caused by the bushfires over the summer which dented Australia’s economy and led to a dearth of tourists in the peak summer season, the combination could tip Australia into a recession. At the time of writing (19 March), there had been 568 cases of coronavirus confirmed in Australia and six deaths. However, Australia was far less affected than other countries such as China and Italy where cases and deaths were well into four figures and global cases reached 214,000. The panic caused by the virus was hitting stockmarkets, commodity prices, the oil market and investors’ portfolios. The ASX 200 had fallen 25% since the start of the year, compared to returns of 11% for the same time last year. Meanwhile, US and UK markets were reporting some of their biggest falls since 2008 with one-day falls of 10%-12%. The ASX 200 reached a record high of 7,784 in mid-February and has been falling ever since but managers pointed out there were several causes that had been hindering the market’s progress. These included falling retail sales, soft underlying growth and the bushfires over the summer. They also pointed out the market was overdue for a correction given how quickly it had risen and how long Australia had escaped a recession.
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The last time Australia had a recession was in September 1990 and it lasted for a year. Shane Oliver, chief economist at AMP, said: “Underlying growth was soft even before the coronavirus came along and our assessment remains that the hit from the bushfires and virus – mainly to tourism, education and commodity exports – will see the economy contract in the current quarter. “While our base case has been that growth will bounce back in the June quarter, it’s now looking like it will be negative too as the spread of coronavirus drags on global growth and economic activity in Australia. Particularly if the onset of winter sees coronavirus take longer to stamp out in Australia than in the northern hemisphere. As such we are now forecasting two negative quarters in a row in Australia. Unfortunately, this would mark the first recession since the early 1990s.” A recession is officially defined as two consecutive quarters of negative growth as measured by a country’s gross domestic product (GDP). Anton Tagliaferro, investment director at IML Investors, said: “The Australian stockmarket is correcting but then it was due a correction anyway as it rose very quickly in a few months. A few negative quarters would put us into a recession but if it is only a shallow one caused by one-off factors then that isn’t too bad, it is when it becomes a deep recession that it is a problem”. “The situation is not over yet by a shadow of a doubt, the economic impact will take three to six months to unfold but there is a wide divergence between sectors.
19/03/2020 12:50:44 PM
March 26, 2020 Money Management | 21
Australian equities Australia is likely to fall into a recession, it is hard to see how we can escape it,” said Eiger portfolio manager Stephen Wood.
ARE ANY SECTORS A WINNER? There was doubt among managers whether there would be any winners from the COVID-19 and Lazard Australian equities portfolio manager, Aaron Binsted, said: “There won’t be any real winners, the only winners would be those companies that fell less than the others”. He suggested these included retailers such as Coles and Woolworths which could benefit from people who were quarantined, Coles is up 17% and Woolworths is up 10%, as well as online delivery services like Dominos. Paul Taylor, manager of the $4.9 billion Fidelity Australian Equities fund, held both Coles and Woolworths in his portfolio but had
a preference for Coles which was a 4% position. “Consumer staples are wellpositioned especially supermarkets, Coles is running flat out to keep up with demand and is in a strong position. [Rival supermarket] Kaufland has pulled out of Australia which is a positive for Coles as it is no longer a threat, nor is Aldi. We hold both, and Woolworths is still in a good spot and is due to demerge from Endeavour, but we prefer Coles.” Tagliaferro, who runs the $2.7 billion IML Australian Share fund, said: “There are sectors such as education and tourism which are directly impacted and have been heavily sold down and there are sectors such as luxury goods like LVMH which are feeling the spillover effect. “Then there are those like Coles and Telstra which have seen less effect from coronavirus and it’s worth looking at the valuations and
earnings of those. These companies aren’t going to disappear overnight, they have good balance sheets, are competitively positioned and have very long licences.” Wood, manager of the $5.6 million Eiger Australian Small Companies fund, said healthcare firms were attractive as was IT firm NextDC, they were among a few stocks which had seen an uplift in share price. New Zealand firm Fisher & Paykel Healthcare, which produces respiratory equipment and listed on the ASX, is up 23% year to date and Wood also namechecked Capital Health Group and Integral Diagnostics which specialised in CT scans. Wood said: “Fisher & Paykel produces respiratory equipment and consumables which can only be used once. The boost to the business will be more than shortlived and it could give the business a big step-up.
“Healthcare firms will do well and see increased activity, they are defensive stocks so are less reliant on consumer spending.” In a report from UBS COVID-19 - Analysing the market sell-off, it said: “We think the declines [in growth stocks] could present opportunities for growth as lower bond yields are more positive for growth and if COVID-19 effects are only temporary, the impact of lower near-term earnings on valuations should be lower for growth than for value. “We continue to prefer growth over value stocks as the spike in VIX means a cyclical recovery appears to be on hold. Furthermore, if COVID-19 effects are only temporary, the impact on valuations for growth stocks should be lower than for value stocks as less of their valuation is based on near-term earnings.” Continued on page 22
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2
1. Inception Date: 31 January 2018 2. Benchmark: S&P/ASX 200 Accumulation Index
This information has been prepared by Ausbil Investment Management Limited (ABN 26 076 316 473 AFSL 229722) (Ausbil) the issuer and responsible entity of the Ausbil Active Sustainable (ARSN 623 141 784) (Fund). This is general information only and does not take account of investment objectives, financial situation or needs of any person. It should not be relied upon in determining whether to invest in the Fund. In deciding whether to acquire or continue to hold an investment in the Fund, an investor should consider the Fund’s product disclosure statement, available at www.ausbil. com.au. Past performance is not a reliable indicator of future performance. Performance figures are calculated to 29 February 2020 and are net of fees and assume distributions are reinvested.
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22 | Money Management March 26, 2020
Australian equities Continued from page 21
THE BIGGEST LOSERS On the other hand, there were innumerable stocks which had seen their earnings dented by COVID-19 and more expected as companies begin to launch their full-year results. Stocks which have suffered range from travel firms and airlines to wine retailers and technology firms. Since the start of the year to 19 March, Webjet is down 71%, Corporate Travel Management has fallen 67%, Flight Centre has fallen 66% and WiseTech is down 49%. While technology firms were not an obvious target for COVID-19 unlike other sectors like travel, the companies were being hit as many of their components were manufactured in China. WiseTech warned the outbreak would have a ‘profound impact’ on its performance. In a stock exchange announcement, the cargo software firm said: “The unexpected outbreak of coronavirus and the effective shutdown of China, a critical driver of the global manufacturing supply chain and a -16% contributor to global GDP is creating negative flowon effects to the manufacturing, slowing supply chains and an economic trade across the world. “While we have a diversified array of revenue drivers that provide resilient organic growth across our global platform, we do anticipate the manufacturing slowdown will delay execution of logistics activities by logistic services providers.” Other affected technology firms included editing software company Atomos down 74%, Kogan down 43% and health informatics firm Alcidion down 37%. For some firms, the impact had been so bad that they were forced to take emergency measures to mitigate the effect. Qantas, which has seen its share price fall by 63% since the start of the year, suspended all international flights from the end of March and reduced domestic flights by 60%. This meant around two-thirds of its 30,000 employees would be ‘temporarily stood down’ from work. It also triggered cost measure actions such as cancelling annual management bonuses for the full year 2020 and no salary for the
group chief executive Alan Joyce. Travel agent Flight Centre was to close 100 stores due to a downturn in sales with managing director Graham Turner saying reducing costs was a priority for the business.
BUYING OPPORTUNITY For some fund managers, the sell-off presented opportunities for picking up stocks at attractive prices. Randal Jenneke, head of Australian equities at T. Rowe Price, said: “We have been taking advantage of the sell-off particularly in the high growth quality part of the market. We entered the correction with a higher than normal cash level which we have been deploying particularly in the beaten-up technology sector. “As a result, we have increased our exposure to this part of the market. We continue to maintain our overweight position in consumer discretionary and consumer staples and remain overweight high-quality, structural growers and companies that have direct exposure to stronger overseas economic environments, particularly the US.” Referencing its Australian Share Income fund, Merlon said: “We are looking to add exposure to companies whose share prices are weak due to current fears and where we have confidence balance sheets and business models are sufficiently strong to trade through the turbulence.”
Hamish Douglass, manager of the Magellan Global fund, said he would even be “excited” by the buying opportunities presented by COVID-19. “We are not changing our portfolio, if it gets worse then I’ll get excited because it will present interesting valuations, but things are not at these mouthwatering valuations yet. It will be very volatile. “It will have a short-term economic impact but it is very hard to know, I don’t regard it as the next Global Financial Crisis.”
WHAT SHOULD INVESTORS DO? For the casual investors, the doom and gloom of the stockmarket combined with health and Government warnings on keeping safe can make it easy to panic. But investors should try to resist the tendency to sell at a low and maintain their exposure, or even buy on the dips. Tagliaferro said: “It depends on whether they are in a highly-geared company like WiseTech, in which case they should be worried, or if they are in good quality companies like Crown Resorts and Sydney Airport then they don’t need to worry so much.” John Birkhold, partner at Origin Asset Management, said: “For Australians, who’ve gone over 20 years without a recession, it’s easy to forget what can happen when
things go bad. Long-term investors need to remember that in turbulent waters, it’s usually best to stay in the boat rather than trying to change strategies. However, investors need to be able to withstand another drop, particularly given that markets typically fall 30%-40% during recessions. “On a positive note, this will be transitory and we will eventually come out the other side once science is able to mitigate nature’s damage. Well-managed companies with low financial leverage and reasonable market expectations should be in a position to benefit and increase their market share.” This was echoed by Fidelity’s Taylor who said it could be a good opportunity to pick up cheap stocks in the resources, travel or technology sectors. “This is an opportunity to upgrade and pick up those stocks you have always wanted to own.” Oliver said: “Selling shares or switching to a more conservative investment strategy after a major fall just locks in the loss. When shares fall, they are cheaper and offer higher long-term return prospects. So they key is to look for opportunities the pullback provides. “The best way to stick to an appropriate long-term investment strategy, let alone see the opportunities that are thrown up in rough times, is to turn down the noise.”
Chart 1: Share price performance of Flight Centre, Corporate Travel Management and Webjet v ASX 200 from 1 January 2020 to 19 March 2020
Source: FE Analytics
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19/03/2020 1:12:08 PM
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24 | Money Management March 26, 2020
Managed Accounts
ARE MANAGED ACCOUNTS SUITABLE FOR ALL? While managed accounts have been steadily growing in Australia, there are still a number of advisers who have doubts when it comes to outsourcing their investment process capability, Oksana Patron writes. THE POPULARITY OF managed accounts does not mean advisers are unquestioningly optimistic about them with many worried about their value proposition for clients and the possibility that the market is not yet ready for all types of investors. The recent Census conducted by the Institute of Managed Account Professionals (IMAP) with Milliman found funds under
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management (FUM) in managed accounts in Australia stood at $79.29 billion, as at the end of 2019. This represented an increase of $7.9 billion compared to the first half of the year. According to IMAP’s chair, Toby Potter, the increase proved investors’ confidence in their financial advisers had grown. “Advisers are investing more clients’ money in assets through managed accounts. They provide
efficiency for advisers and they really allow clients to get that multi-asset or multi-managed portfolio in a pretty convenient package that is already rebalanced periodically,” AMP’s head of platform development, Shaune Egan, said. According to 'A Guide to Managed Portfolios’ published last year by AMP’s MyNorth Managed Portfolios and IMAP, the growth in managed accounts was
expected to accelerate over the next three years as managed portfolios addressed key business challenges such as practice efficiency, optimising client outcomes, service differentiation and reducing operational risk. However, managed accounts, despite all the benefits they offer, were still not suitable for all advisers and all clients. Continued on page 26
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© NMMT Limited ABN 42 058 835 573, AFSL 234653 (NMMT). This advertisement, provided by NMMT, is for adviser use only and must not be made available to retail clients. It contains general advice only and hasn’t taken any person’s personal circumstances into account. You should consider the appropriateness of this advice for you or your clients. Visit northonline.com.au to obtain the relevant disclosure documents before deciding whether to acquire or vary these products for any person. NMMT is part of the AMP group and can be contacted on 1800 667 841 or north@amp.com.au. If a person decides to acquire or vary a financial product or service, companies within the AMP group will receive fees and other benefits, which will be a dollar amount or a percentage of either the premium they pay or the value of their investments. Contact AMP for more details. MyNorth is a registered trademark to NMMT. The issuer of MyNorth Super and Pension is N.M. Superannuation Pty Limited ABN 31 008 428 322, AFSL 234654 and the issuer of MyNorth Investment and MyNorth Managed Portfolio is NMMT.
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26 | Money Management March 26, 2020
Managed Accounts
Continued from page 26 “If you look at the sort of adviser market more broadly, there are probably advisers who do not necessarily have the time or skills or the expertise allowing them to create their own multimanaged portfolio,” Egan stressed. Meaghan Victor, managing director – head of SPDR ETF Asia and Pacific at State Street Global Advisors (SSGA), said there were three very distinctive points of managed accounts where planners struggled the most. “Firstly, if we look at financial advisers and the adoption of the use of managed accounts, then for some people it’s about educational point. And 80% of potential users [of managed accounts] have said they would have basic understanding of the solution but they also need to understand how they can educate their clients. That’s probably one of the main barriers to entry that we see,” she said. Secondly, advisers also need to understand how managed accounts or model portfolios could actually help them improve their value proposition for clients and, for that reason, advisers needed a better grasp on the broad range of benefits that managed accounts can offer by themselves to their practice, Victor said. The third area was the ‘fear factor’ which represented the fact that many advisers were concerned around the possibility of losing control over their investment capabilities by hiring the third party. “Outsourcing their investment management capabilities to the third-party provider is actually going to impact their value proposition but what we need to understand is that by outsourcing
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it is actually going to increase their [planners’] operational efficiency in their practices. It will allow them to have more time with their clients and therefore a change of the relationship and the focus they have from the value proposition from being investment driven to being client relationship driven. “There’s a benefit for clients and there is a benefit for the financial advisers and we’ve done some research here in Australia, and financial advisers told us, that one of the key benefits for themselves is that it gives them an ability to focus on their business goals and spend more time developing that relationship with their clients,” Victor said. SSGA’s study, which surveyed more than 1,600 financial advisers and investors in Australia, Japan, the US and the UK last year and looked at the alternative ways for Australian financial advisers to grow their practice in 2020, found
that one of the top priorities for planners was deepening their client relationships. However, according to SSGA’s 'Model Portfolio Solutions and the Client Experience Report‘ and associated research, for advisers around the world, earning and maintaining client trust was the biggest challenge to growing their practices. While in Australia, 34% of advisers admitted that winning their clients’ trust was their greatest concern. “What that means is that outsourcing those investment management to the third party to be able to allow to spend more time with their clients would increase the efficiencies and would allow to build stronger relationships with their clients by sitting down and spending time to understand what their clients’ needs are,” Victor said. The same study confirmed that despite advisers stating that their primary goals were to
deepen relationships and acquire more clients, they currently spend more time on portfolio management (23%) than on either client-facing activity (15%) or prospecting new clients (11%). Also, day-to-day pressures which included time management were identified as one of the key challenges for one-in-five Australian advisers. AllianceBernstein’s managing director of Australia client group, Ben Moore, said once again that managed accounts did not necessarily work for each and every investor and were of most interest for those who remained open to a conversation around their portfolios. At the same time, there would be investors and advisers who would continue to choose managed funds, he said. “I think we are seeing managed accounts are not for everybody or for every client. Continued on page 28
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© NMMT Limited ABN 42 058 835 573, AFSL 234653 (NMMT). This advertisement, provided by NMMT, is for adviser use only and must not be made available to retail clients. It contains general advice only and hasn’t taken any person’s personal circumstances into account. You should consider the appropriateness of this advice for you or your clients. Visit northonline.com.au to obtain the relevant disclosure documents before deciding whether to acquire or vary these products for any person. NMMT is part of the AMP group and can be contacted on 1800 667 841 or north@amp.com.au. If a person decides to acquire or vary a financial product or service, companies within the AMP group will receive fees and other benefits, which will be a dollar amount or a percentage of either the premium they pay or the value of their investments. Contact AMP for more details. MyNorth is a registered trademark to NMMT. The issuer of MyNorth Super and Pension is N.M. Superannuation Pty Limited ABN 31 008 428 322, AFSL 234654 and the issuer of MyNorth Investment and MyNorth Managed Portfolio is NMMT.
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28 | Money Management March 26, 2020
Managed Accounts
Continued from page 26 “There is no doubt that managed funds are more popular in the global equity space. And I think that’s for two reasons: one is more platform availability of the managed funds and number two is – there’s not as many advisers who are investment focused,” Moore said. According to Moore, one of the key issues was a very limited number of platforms which offered the functionality to hold global separately managed accounts. “Netwealth, Hub24, and Praemium are the three that we do the most with,” he said. As far as platform funds under advice (FUA) were concerned, managed account growth continued to outstrip of that in platforms’ FUA which suggested most growth was still coming from advisers who were recommending managed accounts to existing clients. At the same time, there was a continuing trend from the last FUM census as at June, 2019 which showed that platform based separately managed accounts (SMAs) were growing at a faster rate and closing in on the managed discretionary accounts (MDAs) total , with the MDA category remaining the largest growing group after reporting a 6.5% increase in six months.
SO, WHAT’S NEW? Speaking of the new trends, Moore said that a growing number of advisers have begun to look at external consultants, in particular the independent research consultants. “We’ve definitely seen a bigger uptick in people wanting to use independent managed accounts – multi-asset managed accounts
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and we see the rise of the independent research consultants which can help understand asset allocation. “When managed accounts first happened they were usually large licensees setting them up and collecting a fee from those managed accounts, whereas now we are seeing a lot more advisers prefer to get an independent research team to build those managed accounts and an adviser or the owner of the practice doesn’t want to take a fee from them, they want it to be separate from investments fees.” SSGA’s Victor was of a similar opinion: “If you look at the US there’s been a very big support of the model portfolio for a long time, and particularly the third-party model portfolio. “We are starting to see more advisers in Australia who look at open architecture construct of model portfolios. So what I mean by that is when you look at the
model portfolio – in the US it’s very open to the fact that the model portfolio is not made up of one asset manager but of multiple asset managers, and that’s where the open architecture comes from,” she said. “If you look at it in Australia, that actual feature of the model portfolios is heavily resonating with financial advisers because there is a diversification.” According to Victor, the two markets were also very different in terms of how they approached the high net worth (HNW) clients cohort. “When we look at financial advisers in Australia – only 43% of financial advisers actually thought managed accounts were appropriate for high net worth clients, compared with the US where more than half of financial advisers work with managed accounts for their HNW clients – so there is an opportunity for the Australian advisers to look to the US to see how that has been adopted.”
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30 | Money Management March 26, 2020
ESG investing
NAVIGATING THE ESG LABYRINTH There is no one-size-fits-all approach to ESG investing but integrating it into your investment process can lead to better-informed investment decisions, writes Masja Zandbergen. A FIDUCIARY DUTY to make money for stakeholders now means that ignoring environment, social, and governance (ESG) factors is more likely to cost you performance than enhance it. Integrating ESG will also lead to better-informed investment decisions and reduce the overall risk of a portfolio. Trends such as climate change, resource scarcity and greater regulation affect companies more than ever before, but they also provide opportunities for new markets in areas such as renewable energy or cybersecurity. So, it pays to be well informed about how sustainable investing works, and what it can do for clients. There are many ways to approach the incorporation of sustainability into investment portfolios. Increasingly, this means more than just offering sustainable investment funds. Integrated sustainability also means using a position as a shareholder (or bondholder) to effect change at companies through active ownership, typically through voting
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and engagement. It also includes impact investing, where an investment is aimed at achieving a social purpose such as meeting one of the UN’s Sustainable Development Goals (SDGs) as well as earning a financial return. Of course, it still means adopting key exclusions, such as refusing to buy shares in controversial weapons makers or tobacco producers. All of these approaches should be considered as building blocks to be configured appropriately to suit each asset class, strategy or client. As the world moves on, sustainable investing now means combining both healthy returns and a positive effect on the world around us; to create wealth and wellbeing that meets the needs of the present generation without compromising those of generations to come.
THREE ESG APPROACHES There is no one-size-fits-all approach to sustainable investing. When considering different asset classes, different methods are better suited than others. But there are three approaches the asset
management industry broadly uses for sustainable investing and for addressing ESG issues in portfolios. The most common is the use of exclusions – avoiding investments in companies that produce controversial products such as weapons or thermal coal, or are involved in practices such as the production of unsustainable palm oil. For some investors, this is their only form of practicing sustainable investing, which means they may miss out on the benefits of using the other styles. At Robeco, we prefer the less common but more comprehensive approach of systematically integrating ESG factors into portfolio construction. This means analysing financially material information to take better-informed investment decisions and thereby improve the risk/return profile of a portfolio. This method ensures the thorough absorption of sustainability factors in portfolio construction from both the top-down and bottom-up perspectives. The third approach used by the
industry is impact investing, where an investor wants to make a socioeconomic impact as well as enjoy the financial returns. This is often done by targeting themes or initiatives such as the UN SDGs. While exclusions are the most widely-used means of negative screening, impact investing is a form of positive screening, where the focus is on deciding what to put in instead of what to leave out. The three common approaches of sustainable investing – exclusion, integration and impact – come together when ESG criteria are thoughtfully built into the investment process and tailored according to the specificities of each asset class and portfolio objective. Most of the underlying building blocks can be used as an input or guide across all asset classes. In general, ESG analysis in equities seeks to identify an upside that is not necessarily reflected in the share price, while analysis in bonds seeks to expose any downside that may not show up in its credit rating. However the big advantage of ESG integration is that it works
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March 26, 2020 Money Management | 31
ESG investing across all asset classes – and it has been proven to work just as well in fixed income markets as in equities. It can also be applied to commodity or real estate portfolios or private equity.
EQUITIES AND ESG FACTORS Using equities as an example, it is clear that integrating ESG factors into the investment process leads to better-informed investment decisions. ESG integration in fundamental equity investments can be seen as a three-step process. The first step is to identify and focus on the most financially material ESG issues affecting the company. The second is to analyse the impact of these material factors on the company’s business model. Thirdly, the challenge is to incorporate these factors into the valuation analysis and/or the fundamental view of the company in order to decide whether to buy the stock. Identify material ESG factors Focusing on the most material factors is key, and this will vary by company or industry. Analysts should plot the highest likelihood of an issue making an impact against the degree of this potential impact. A huge number of data sources are used in order to gain the information needed to assess the likely impact of all these factors. With IT services, for example, innovation management is the most material issue, followed by human capital management and corporate governance. Environmental management, however, is a relatively low risk, since IT companies generally have a low carbon footprint and generate little pollution. Other industries are of course different, and separate analysis is required for each one: for the pharmaceutical industry, for instance, the ESG issue of paramount importance is product quality and safety. Impact of material factors on business model In the second step, analysts look at how the business model of a company is exposed to the material ESG factors identified in step one. Here, in-depth analysis should
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fair value and the decision whether to buy a stock – or not to buy it.
KEY ESG QUESTIONS TO ASK 1. Governance and support for ESG • How is sustainable investing incorporated in the asset manager’s overall strategy? • Who has ultimate responsibility for this? • What are the asset manager’s SI targets/KPIs? • Do the investment teams have SI targets and, if so, what are they? • Has the asset manager signed up to any stewardship codes, UN Principles of Responsible Investment (PRI) etc.? And, if so, since when? • How is knowledge shared within the company? Are there any ESG training opportunities for senior management, or the investment teams? • What is the PRI assessment score for strategy and governance? 2. Team and experience • How long has the company/team/portfolio manager been involved in SI? • What resources are dedicated to sustainability research? • What data/research is used? • How is the quality of the data/research assessed? • How is this shared with the investment teams? • How do the investment teams work with sustainability experts? • How does the asset manager approach active ownership? • How is this organised? How many people are involved? What is the track record (experience and clear engagement successes)? • What are the UN PRI scores for active ownership and ESG integration across the specific asset classes? 3. Process • How are sustainability factors integrated into the investment process? • How is the quality of the integration monitored and evaluated? • How does sustainability information affect investment analysis/decisionmaking? • For fundamental strategies: Can you give some examples of investment cases for which an integrated ESG approach has been used? • For quantitative strategies: What research has been done on the effectiveness of ESG integration? 4. Outcomes • Please show how sustainability factors/data have influenced your investment research/decision making across the research universe. • Show how they have affected the portfolio and/or performance of the fund. • Show how they have affected the sustainability or social/environmental footprint of the portfolio. • Provide evidence of the effectiveness and results of your active ownership approach.
be conducted, including delving deeply into a company’s value drivers, such as sustainability of growth in an industry; a company’s competitive advantage; and market share. Analysts can then benchmark a company’s financial and ESG performance against its peers and industry-best practices, and also assess the impact this may have on valuations.
ESG CRITERIA: QUANTIFY IMPACT ON VALUE DRIVERS In the third step, the impact of the ESG analysis is integrated into the valuation assessment. If the ESG impact is substantial, for example,
traditional value drivers such as sales growth and margins or the weighted average cost of capital are adjusted. The ESG analysis may also result in altering a company’s competitive advantage period: the period over which it can generate excess economic returns. The resulting impact of material ESG factors can be positive or negative, reflecting risks or opportunities that ensue from a company’s ESG analysis. Of course, ESG performance isn’t the only reason to buy or sell a stock. However, if ESG risks and opportunities are significant, the ESG analysis will impact a stock’s
ESG CRITERIA: SDG RESEARCH More recently, there has been a sharp increase in support for and interest in the UN SDGs in the sustainable investing landscape. Many sustainability frameworks focus mainly on how companies operate, but our SDG rating framework looks at both how they behave and what they produce. The SDGs offer a comprehensive framework that is broad enough to cover the full range of causes (e.g. humanitarian, ecological and economic) yet specific enough to guide companies on the exact criteria needed to achieve each goal.
ESG CRITERIA: VOTING & ENGAGEMENT Asset managers may actively engage with a portfolio holding on ESG matters for different reasons. An example is if the company in question were to breach the UN Global Compact. In such a serious case, an ‘enhanced engagement process’ would be initiated, and Robeco’s approach here is that part of the portfolio’s exposure to the stock would be reduced by half. In extreme cases when enhanced engagement does not prove to be successful, the company is added to the exclusion list. Exclusions are considered as a last resort, as the preferred approach is engagement.
THE BEST APPROACH There is no one-size-fits-all approach to sustainable investing. However, over the course of time, consensus has grown on what approach fits various types of investors best. Investors at one end of the spectrum only consider financial criteria, while those at the other only consider social criteria, including philanthropy. Institutional investors generally have a focus on strategies in which sustainability is considered to mitigate risks, enhance value or create impact, alongside achieving competitive returns. Masja Zandbergen is head of sustainability integration at Robeco.
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Retirement
ALLAYING CLIENTS’ BIGGEST FINANCIAL FEAR: RUNNING OUT OF MONEY One of the biggest worries for people entering retirement is sequencing risk so financial advisers can add value to their clients by addressing this risk, Miriam Herold writes.
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MOST OF US dream of living to a ripe old age but with life expectancies continuing to rise, this is also affecting many clients’ confidence about how well they will fare financially in retirement. One of the biggest worries for people after they retire is running out of money. In fact, a recent study undertaken by Challenger and National Seniors Australia has found that 53% of Australians over the age of 50 are worried about outliving their savings. A key reason for this fear is the increase we are seeing in life expectancies, which have risen by around two years over the past two decades. Once Australian women have reached the age of 65, they can now expect to live for another 22.3 years (to the age of 87.3) while the current life expectancy for Australian men at age 65 is currently 19.7 years (to the age of 84.7). As Australians are living longer, they are now spending a longer amount of time in retirement compared to previous generations. However, the size of nest eggs that retirees have to fund this period in retirement has not increased proportionately.
risk of an individual running out of money before they die. These strategies range from behaviours which can be adjusted in the lead up to retirement through to investment strategies which can be incorporated within portfolios post retirement. Advisers can work with their clients on a range of behaviours that can be adjusted in the lead up to and following retirement. This can include a focus on reducing spending habits in order to save more, working for a longer period of time or continuing to work, perhaps on a casual or consulting basis after retiring from full-time work. Many retirees who own their family home are asset rich as a result of the phenomenal growth in Australian residential property prices over the past decade. At the same time, these investors may have insufficient capital accumulated in their superannuation funds to meet their income requirements through retirement. One option which may be appropriate for these clients could be to sell the family home and contribute up to $300,000 of unlocked equity value to their superannuation.
HELPING CLIENTS TO PREPARE
STRATEGIES IN RETIREMENT
One of the key values that a financial adviser brings to a client is the intimate knowledge of a client’s circumstances and situation, along with insights into their preferences and tolerances. There are a number of ways that an adviser can work with their clients to best address the
When considering a client’s investment portfolio in the period following retirement, a financial adviser may wish to consider whether an allocation to a guaranteed annuity product is appropriate for a client in order to help address longevity risk.
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Retirement Lifetime annuity products provide a guaranteed level of income for a client, backed by the issuing life insurance company. Those offered today offer far greater flexibility than those historically available with clients having the ability to access capital, if required, with lower penalties and flexible deferral periods available before the commencement of income payments, which can help in meeting an individual’s bespoke circumstances. In order to make their nest egg last as long as possible, retirees need to ensure that they have enough of their portfolio invested in growth assets. Many investors increase their exposure to conservative asset classes such as bonds and cash as they approach retirement, however there is a fine balance between the need to protect the asset base and ensuring that the portfolio can generate adequate returns. By maintaining a healthy exposure to riskier assets with larger expected returns, the accumulated savings will likely last for a longer period of time as returns continue to compound, even as the retiree starts to draw down an income stream. Longer lifespans mean today’s retirees need sound strategies in place to mitigate the risk of outliving their savings. However, with the right financial plan in place, clients can enjoy their retirement years with the knowledge that their finances are secure for the next 20, 30 or even 40 years.
WHAT IS SEQUENCING RISK? One of the biggest worries for people as they enter the retirement phase of their lives is sequencing risk. Sequencing risk is the risk to the capital value of a client’s accumulated superannuation savings resulting from a sharp fall in the value of their portfolio early in retirement. As clients move towards the end of their working life and in the early years of retirement, their accumulated superannuation account balance is at its largest and as a result is more exposed to the risk of capital loss due to negative market movements. This risk is
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magnified in retirement as investors withdraw money as a pension to fund their living expenses, which may result in them locking in losses as they sell out of assets following a price decline. As retirees are no longer making contributions to their accumulated savings, they will find it very difficult to recover the decline in capital. The order and timing of investment returns is critical and two portfolios earning the same average return over a period, with differing levels of volatility can result in vastly different outcomes for an investor. The chart below illustrates how sequencing risk can affect a portfolio in retirement. A starting balance of $545,000 at age 67 has been assumed, with annual withdrawals of $27,646 made. The outcomes of two investment portfolios have been modelled: both have returned an average of 6% p.a. over the period, Portfolio A has a higher level of volatility than Portfolio B. The sequence of returns was very different for the two portfolios, Portfolio A suffered severe drawdowns in years 1-3, which Portfolio B avoided. By year 13, Portfolio B had an account balance of $366,295, which was $295,043 higher than Portfolio A.
HOW CAN SEQUENCING RISK BE ADDRESSED? It was easy for investors to be complacent about portfolio construction when the Australian stockmarket was into its second decade of a bull run as we rang in the new year just a few short months ago. However, now that we’ve officially plunged into bear market territory at the fastest
pace in history, (a bear market is defined as a 20% decline from the recent high) the importance of constructing well diversified portfolios appropriate for clients’ requirements, life stages and preferences has been brought to light. The importance of diversification across asset classes cannot be emphasised enough. The low correlation between different asset classes and the expected deviation in their performance under different market conditions and economic scenarios is one of the most effective strategies to managing the volatility of portfolios and creating a smoother ride for clients. Alternative assets typically have a very low correlation to traditional asset classes such as equities and bonds and the inclusion of alternatives in clients’ portfolios is always recommended. Despite the recent volatility and correction in equity markets, we do not recommend allocating capital away from growth assets and into cash. It is extremely difficult to time the market and taking this type of action may cost portfolios dearly over the long run. Instead of attempting to make tactical changes to asset allocation, we recommend including allocations in clients’ portfolios to strategies with a specific focus on downside protection and capital preservation in order to address sequencing risk. Equity investment strategies with a distinct focus on providing downside protection can be incorporated into a portfolio in order to reduce the sequencing risk facing those approaching or entering retirement. Investment managers
for these strategies can generate a favourable upside downside capture ratio through the implementation of a number of investment philosophies and process including: seeking to invest in securities with low volatility and/or high quality characteristics or through managing portfolios with less than 100% net exposure to the equity market. A reduction is net exposure can be achieved through active allocation between cash and equities or through shorting securities as well as holding long equity positions. When equity markets tumble, as we’ve experienced in recent weeks, strategies providing “hard protection” can be utilised in order to provide greater certainty around clients’ portfolio outcomes. These types of strategies offer guaranteed maximum losses (known as ‘floors’) when markets fall, with the guarantee backed by the balance sheet of the issuing life insurance company. In order to provide the guaranteed certainty to investors on the downside, participation in the upside of a rising market may be capped at a pre-determined level. Historically, these types of capital guaranteed products have been expensive and inflexible for clients, however recently more contemporary products have been launched at an attractive price point. An allocation to these products, alongside traditional multi-manager portfolios, should be considered for clients with a heightened sensitivity to drawdown risk as a result of their life stage or level of loss aversion. Miriam Herold is head of research at Centrepoint Alliance.
Chart 1: Portfolio Balance - Post Retirement with Withdrawals
Source: ASFA aand Centrepoint Alliance
18/03/2020 10:43:52 AM
34 | Money Management March 26, 2020
Asia Pacific
HOW TO GET COMFORTABLE WITH CHINESE EQUITIES COVID-19 may be damaging people’s views on China but the country is a global force and will likely become part of people’s future investment portfolios, writes Jonathan Wu. AT THE TIME of writing, the World Health Organisation had just declared COVID-19 a global pandemic with US equities having entered a bear market. While we understand the concerns around the economic fallout post this health crisis, markets will eventually return to normal and cooler heads will prevail. When that happens, we need to consider the longer-term investment trends as opposed to events. Investing in China directly is no longer a choice of whether one wants to invest in the market or not, it is a matter of how you position it, which will impact longer-term investor outcomes. Over the last five years, the Chinese capital market regulator
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CSRC has been continually improving its dialogue with the world and finding new methods to open up the market. In 2018, the Hong Kong Shanghai and Shenzhen Stock Connect programs were opened which allowed another pipeline of foreign money to enter into the China A-share market. The majority of growth in overseas participation in the A-share market has been via the Stock Connect program as seen below. Given this development, MSCI made the decision to include the China A-share market as part of its indices with an initial weighting of 0.1% and 0.8% in the MSCI All Country World and Emerging Markets indices respectively. By
the end of the year, these weightings increased to 0.4% and 3.3% respectively. The approach MSCI have taken in addition has been very measured and has utilised the “factor weighting” theory. What this effectively means is that most indices weight their constituents based upon market capitalisation. With some concern around being able to get into the positions, given the A-share market is not fully open as compared to say Hong Kong, MSCI had to discount the company’s underlying market cap to ensure investors would be able to get the allocation they needed to match the benchmark. This factor weight grew from 5% to 20% over the course of 2019.
The consequences of this have been two-fold. Firstly, lets address the passive flow positives and negatives. There is a now a default position where funds which are either 100% passive or are benchmark relative have been over the course of 2019 building up positions in the A-share market. The positive news is that this then dilutes retail investor participation in the market, and these are the ones who drive up volatility and are known as the ‘traders’. Foreign investors on the other hand especially institutions are longer-term investors which will assist in driving down overall volatility. Why is this important? Because volatility in investing in China has been one
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March 26, 2020 Money Management | 35
Asia Pacific
of the biggest bugbears of foreign investors over history. Now the negative – as we have monitored the flows into the market, it is very interesting to see where they have landed. The focus seems to be in mega-cap stocks which has led to overcrowded trades. This reflects the immediate reflex of keeping up with the indices. From our perspective, we believe many of these companies are overvalued and leading up to the end of 2019 provided us the opportunity to rotate out of these into better value options. This leads to the key question – how are managers doing their research in China and how does that feed through to their idea generation and execution strategy? Traditionally, investment managers have arrangements with their brokers where, given a level of support for their services, they would receive sell side research to assist their own research efforts. While fundamentally there is nothing wrong with this approach, investors must understand that sell side research is driven by its own motivations and need to view it from that lens. These types of arrangements have now effectively ended with the advent of MIFID II. What most financial advisers don’t realise is that these changes started in January 2018. So, what is MIFID II? MIFID stands for Markets in Financial Instruments Directive which is a framework set out by the EU. MIFID II fundamentally changes the interactions between investment managers and their execution partners whereby prior to January 2018, research and execution were bundled up into one package (without an explicit charge for research), but now it needs to be unbundled. Why is this important and what does it have to do with investing in China?
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To reduce the need for on the ground coverage, some investment managers use third party sources (usually their execution partners) for sell side research on both company and macro views. This has meant that for global equity managers, you could base your entire investment team in one location, fly them in and out to do research and then fill in the gaps from your execution partners research database. Some surveys by global consulting firms of global fund managers have shown a forecast decrease in research spend from 10%-30% and in some cases up to 50%. But if the total cost hasn’t changed, why decrease the research spend? Note that by having research and execution bundled, this total execution cost is passed onto investors. Once unbundled, the research cost element needs to be either absorbed by the investment manager or recovered by increasing management fees to underlying investors. Which will they choose? This leads to the China investment discussion. There is a lack of on the ground teams in China to provide deep insights into opportunities. Therefore, the only way you can invest is to allocate to
blue chips and/or index constituents with little to no proper insight and visibility. This can be dangerous as changes in fundamentals and the macro environment can lead to unintended consequences for investment managers and their clients. Within the context of Chinese companies, given lower levels of transparency and visibility it is critical to have an on the ground presence. Even if you start building out a team on the ground, it takes time to build relationships (which we all accept to be critical in succeeding in China) and coverage across all industries. This then creates a lag on your ability to invest effectively in China. We already have this as key criterion for Australian equities yes? I always use the example, regardless of the quality of manager, that if I were to propose that there was an excellent value based Australian equities manager based in Hong Kong, the first question everyone would ask and rightly so is, “what genuine on the ground insights do you have if you aren’t based here?” In recent years, there have been studies done on active developed
Chart 1: Accessibility of Chinese equities to foreign investors
Source: CEIC, Gavekal Data/Macrobond
JONATHAN WU
market equity managers and their ability to outperform their respective benchmarks. Most of these studies have shown that the average manager has not been able to. In our opinion, one reason for this is not for a lack of trying on behalf of managers, but more so of a reflection of the level of efficiency in developed markets. It’s simply harder to uncover gems when information is so readily available and transparent. In China, on the other hand, the market has shown that over the last decade the average return of active A-share managers have outperformed the benchmark vis a vis CSI300 (90 managers in total). Why? The exact opposite to developed markets where information is harder to come by and market inefficiency reigns. Going forward, you will have China in your portfolio whether you like it or not, but you should be asking the manager: • What is your approach to investing in China? • How does this approach differ from how you handle developed markets? • What on the ground presence do you have to navigate inefficient markets? Jonathan Wu is executive director and chief investment specialist at Premium China Funds Management.
16/03/2020 4:17:57 PM
36 | Money Management March 26, 2020
Toolbox
MAXIMISING CASHFLOW FOR AGED CARE CLIENTS A key concern with the move to an aged care home is having enough money to fund costs, writes Minh Ly, but strategies can be used to help clients maximise their cashflow. THE MOVE TO an aged care home is often an emotional and stressful one. This is where appropriate advice can give clients the confidence and peace of mind that the right decisions are being made. One of the key financial concerns with the move to an aged care home is often around having enough cashflow to fund costs but
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there are fundamental strategies advisers can use with their clients to maximise cashflow.
STRATEGY ONE: PAY A REFUNDABLE ACCOMMODATION DEPOSIT (RAD) In many cases, the largest cost with moving into an aged care home is the accommodation payment, frequently requiring the
sale of assets including the family home. Although there are mechanisms in place for those with little means to have their accommodation subsidised by the Government, there are many who will need to pay the accommodation payment published by their chosen aged care home (or a lower amount
agreed with the home). The resident has a number of options to pay their accommodation payment amount. They can pay the amount as: • A refundable lump sum (known as a RAD); • Ongoing payments (known as Daily Accommodation Payments or DAPs); or • Combination of both.
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March 26, 2020 Money Management | 37
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Where there are sufficient assets to do so, choosing to pay the accommodation payment in part, or in full, as a RAD can provide significant cashflow benefits. This is due to three main reasons: 1) Payment of a RAD will reduce the amount of ongoing payments the resident will need to pay. Ongoing payments are simply interest on the amount of the accommodation payment that is not paid as a lump sum. The interest rate (known as the Maximum Permissible Interest Rate or MPIR) for ongoing payments is set by the Government and is currently 4.91% . Unless alternative investments can provide a better low risk return than the resident’s MPIR, choosing to pay a RAD compared to DAPs can improve a resident’s cashflow significantly. 2) Payment of a RAD provides the resident with the option to have their DAPs on any outstanding accommodation payment (where a part RAD is paid) and other aged care fees deducted from the balance of their RAD. This can reduce pressure on their cashflows. However, it is important to note that while the law requires aged care homes to deduct DAPs from a resident’s RAD (where it is requested by the resident in writing), the law does not require them to do so with other fees. i.e. payment of other aged care fees, such as the basic daily care fee and means-tested care fee, from RADs is at the aged care home’s discretion. 3) RADs are exempt from the Centrelink/DVA pension assets and income tests. This can help reduce assessable assets
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Table 1: Comparison of Barry’s cashflow Year 1
$300,000 Cash and TDs $400,000 DAP
$50,000 Cash and TDs $250,000 RAD $150,000 DAP
$50,000 Cash and TDs $250,000 RAD $150,000 DAP from RAD
Age Pension
$21,402
$24,268
$24,268
Interest income
$4,500
$750
$750
Misc. expenses
($2,600)
($2,600)
($2,600)
Cash flow before aged care fees
$23,302
$22,418
$22,418
Basic daily care fee
$18,845
$18,845
$18,845
Means-tested care fee
$1,599
$1,314
$1,314
DAP
Antares Income
$7,365
$0
Total aged care fees
$40,084
$27,524
$20,159
Estimated tax
$0
$0
$0
Net cash flow (surplus/shortfall)
($16,782)
($5,106)
$2,259
and income and increase a resident’s Age Pension entitlements, improving their cashflow. From an aged care means testing perspective, while RADs are assessed as an asset, there is no income assessment which can help reduce the means-tested care fee.
CASE STUDY: BARRY Barry aged 87, single, has recently entered an aged care home with an agreed accommodation payment of $400,000. He has $300,000 in cash and term deposits and has retained his former principal home worth $600,000 so that his son, Tom, can continue to live there rent-free. Tom is receiving the Disability Support Pension from Centrelink due to a disability since birth and has lived there for over 20 years. Table 1 compares Barry’s cashflow outcomes if he: 1) Pays all of his accommodation payment as DAPs; 2) Pays $250,000 as a part RAD with $150,000 outstanding paid as DAPs; and 3) Pays $250,000 as a part RAD with DAPs on the $150,000 outstanding deducted from his part RAD.
Table 2: Comparison of Pam’s cashflow Year 1
$100,000 Cash and TDs $400,000 DAP
$100,000 Cash and TDs $400,000 DAP $600/week rent
Age Pension
$24,268
$9,948
Rent income
n/a
$31,200
Interest income
$1,500
$1,500
Misc. expenses
($2,600)
($2,600)
Cash flow before aged care fees
$23,168
$40,048
Basic daily care fee
$18,845
$18,845
Means-tested care fee
$1,004
$8,183
DAP
$19,640
$19,640
Total aged care fees
$39,489
$46,668
Estimated tax
$0
($3,405)
Net cash flow (surplus/shortfall)
($16,321)
($10,025)
Source: Challenger
By paying a part RAD of $250,000 compared to paying all his accommodation as DAPs, Barry has increased his net cashflow by $11,676 in the first year. The reduced interest income from his term deposits was more than offset by the increase in his Age Pension and reduction in his ongoing DAPs. Barry can further improve his cashflow by having his remaining DAPs deducted from the part RAD.
STRATEGY TWO: RENT THE FORMER HOME Alternatively, renting the home can help to increase cashflow. Whilst renting the home can
improve cashflow outcomes for residents, there are some important considerations that they need to be mindful of: • Net rent income will be assessed under both the Centrelink/DVA income test and the aged care means test. This will likely reduce Centrelink/DVA pension entitlements and increase aged care fees (means-tested care fee), reducing the overall cashflow benefits from receiving rent income. • After two years, the former home will generally be Continued on page 38
18/03/2020 3:44:55 PM
38 | Money Management March 26, 2020
Toolbox
CPD QUIZ Continued from page 38
• • •
•
assessed as an asset under the Centrelink/DVA pension assets test and can further impact pension entitlements; There may be significant refurbishments required before the home can be rented out; Potential periods during the year that the property may not be rented out; Rent income can increase the resident’s taxable income above relevant tax-free thresholds and require them to lodge annual tax returns; and Land tax may become payable.
CASE STUDY: PAM Pam, aged 87 and widowed, has recently entered an aged care home with an agreed accommodation payment of $400,000. Pam and her family want to retain the former home of over 30 years that is now worth $1,000,000. Pam also has $100,000 in the bank. Table 2 compares Pam’s cashflow outcomes if she: 1) Pays all her accommodation payment as DAPs, retaining a cash reserve of $100,000 and does not rent out the former home; and 2) Pays all her accommodation payment as DAPs, retaining a cash reserve of $100,000 and rents out the former home and receives $600 per week net rent. If Pam rents out her former home, her net cashflow position in the first year improves by $6,296. This is despite her having a tax liability from higher taxable income, a reduction in her Age Pension entitlement and a higher means-tested care fee.
STRATEGY THREE: CHOOSE A HIGHER PRICED ACCOMMODATION Whilst it is not possible under current rules to negotiate a payment of a RAD amount higher than that published by the aged care home, clients can choose an accommodation arrangement with a higher published price (where available). Where a client has the choice, their overall cashflow position can improve by choosing the higher priced accommodation. This is because the reduction in assessable assets and income (for Centrelink/DVA pension purposes) from the payment of a higher RAD can result in an increased Age Pension entitlement, above that of any income that could be earned from the investment of those funds. In these cases, the client can experience higher overall cashflow as well as benefiting from what could be better accommodation. Ideally this strategy can be considered where a decision to sell the former home has been made prior to entering an aged care home.
STRATEGY FOUR: INVEST IN AN AGED CARE ANNUITY Aged care residents can also maximise their cashflow using certain investments such as an aged care annuity. In addition to providing a competitive income rate compared to investments in cash and term deposits, an aged care annuity may help increase a resident’s cashflow by potentially increasing their Age Pension entitlement and reducing their aged care fees. This is because part of the investment into the aged care annuity is not assessed under the Centrelink/DVA pension assets test and aged care means test and part of the income received is also not assessed. Minh Ly is technical services manager at Challenger.
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This activity has been pre-accredited by the Financial Planning Association for 0.25 CPD credit, which may be used by financial planners as supporting evidence of ongoing professional development. 1. Paying a lump sum RAD can help increase a resident’s cashflow because: a) The RAD amount is not assessed for age pension and aged care purposes b) The resident’s Age Pension could increase and their DAP increases c) The resident’s Age Pension could increase, their DAP decreases, and they could have outstanding DAPs deduced from the RAD. d) None of the above 2. Which of the following is not a consideration for aged care residents who rent out their former home? a) The former home is immediately assessable for Age Pension purposes b) Rent income is assessable income c) Periods where the home is vacant d) Land tax may become payable 3. Choosing a higher priced aged care accommodation may improve cashflow. a) True b) False 4. Investing in the aged care annuity can help improve cashflow because: a) The entire investment is exempt from aged care means testing b) It provides superior returns to any other alternative investment c) The investment can help increase the resident’s Age Pension and reduce their means tested care fee. d) All of the above 5. In Pam’s case study, which strategy provided her with the highest cashflow outcome? a) Renting her former home b) Sell her home and pay a RAD of $400,000 c) Sell her home and pay a RAD of $600,000 d) Sell her home, pay a RAD of $600,000 and invest in the aged care annuity
TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/ features/tools-guides/ maximising-cash-flow-aged-care-clients For more information about the CPD Quiz, please email education@moneymanagement.com.au
18/03/2020 3:44:30 PM
March 26, 2020 Money Management | 39
Send your appointments to chris.dastoor@moneymanagement.com.au
Appointments
Move of the WEEK Hoa Bui President Actuaries Institute
KPMG actuarial and financial risk planner, Hoa Bui, has been appointed president of the Actuaries Institute for 2020 and would focus on giving young actuaries a voice in the profession. In her presidential address, Bui said more than half the institute’s members are under 35 years old. “Engaging young members of the Institute, harnessing their energy and their knowledge, will help bring about faster
Westpac has confirmed chair, Lindsay Maxsted, and board member, Anita Fung, will retire from the board, while John McFarlane would become chair of the Westpac board and the board nominations committee. Both retirements would be effective from March 31, 2020, while McFarlane’s start would be effective 1 April, 2020, representing the start of Westpac’s 2H 2020. Maxsted had previously announced he would bring forward his retirement into H1 2020, and McFarlane was appointed as non-executive director and chair-elect, joining on 17 February, 2020. Fung joined the board and Westpac’s Asia advisory board
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change to benefit society and the profession,” Bui said. The environment, climate change, digital and data sectors would also be growth areas for the actuaries in the coming year. Almost a third of the institute’s members worked in analytics, which played a role in businesses and governments when it came to formulating public policy. “The institute’s expertise is routinely sought by policymakers, both here and
in October 2018 and was also a member of the board’s risk and compliance committee. Due to her commitments in Asia increasing in 2020, Fung had chosen to retire from the board, but would remain on the Asia advisory board. McFarlane said Maxsted’s wealth of experience and leadership as chair had been invaluable to Westpac during periods of significant change in the operating environment. Integrity Life chief executive, Chris Powell, has announced his retirement after 40 years working in financial services. Powell would transition to a capital markets role to lead the current capital raising and relin-
overseas,” Bui said. “As a profession we have a role to help our society deal with emerging risks such as climate change and mental health. “Actuaries have tremendous skill in the design, explanation and interpretation of data and can harness its power.” Bui emigrated from Vietnam with her family when she was 18 and was the first Asian-born and seventh female president of the Actuaries Institute.
quish day to day leadership duties. Current, chief financial officer, Lesley Mamelok, will step into the role while the board undertakes an executive search for Powell’s successor. Chair Eric Dodd said: “On behalf of the board, I would like to wish Chris well in his forthcoming retirement. Chris retires knowing that he has made an exceptional contribution to Integrity, having successfully driven the launch of one of Australia’s newest insurance companies”. Powell was the founding chief executive for five years and is a significant shareholder. First Sentier Investors has announced two global leadership roles with the appointments
of Bachar Beaini as managing director, Americas, and Amanda Tibbett as chief marketing and communications officer. Beaini, based in New York, has been at the former Colonial First State Global Asset Management since 2004. In July, 2019 he was appointed to the regional managing director role in an acting capacity, and was responsible for management and co-ordination of the business in North America as it transitioned in ownership. First Sentier chief executive, Mark Steinberg said: “Bachar’s appointment reflects his strong internal relationships and extensive experience in business development, investments, strategy, and finance”.
18/03/2020 3:46:14 PM
OUTSIDER OUT
ManagementMarch April 2,26, 2015 40 | Money Management 2020
A light-hearted look at the other side of making money
COVID-19 is something to Bragg about Self-isolation, single malts and AS Outsider sits in his big red leather chair enduring what some are now choosing to call self-isolation, he has been given to reflect that in these days of social media ‘self-isolation’ doesn’t necessarily mean that you’re actually isolated. Take for instance, NSW Liberal Party Senate tyro, Andrew Bragg, who not only announced his COVID-19 positive status but then proceeded to use social media to deliver chapter and verse on how it happened and what his intentions were and then followed through with up to the minute commentary on issues such as Treasurer, Josh Frydenberg’s constitutional right to sit in the Parliament. Similarly, US actor and apparent all-round good guy in terms of providing selfies, Tom Hanks, was not silent while confined in hospital isolation on the Gold Coast (how else would Outsider know about the vegemite toast?) while Australia’s ever-lovable Home Affairs Minister, Peter Dutton, confirmed after leaving hospital and via social media that, yes, he gets along with his dog even if the rest of the family sensibly left the house. But Outsider digresses. What he is really concerned about is whether Senator Bragg’s presence in Senate Estimates last week might have compromised the health of some of Australia’s most senior financial services regulators given the presence of the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) management teams. But, of course, public servants appearing before Senate Estimates sit some significant distance away from their Senate inquisitors and are only likely to have been compromised if they saw fit to shake Bragg’s hand or indulged in an intimate chat which, given his line of questioning, seems most unlikely. That said, Outsider will be closely monitoring the health of the ASIC and APRA executives on the basis that actions sometimes speak louder than words.
damn the virtual chit chat IT’S hard to break the habits of a lifetime but even Outsider is putting aside some of his less attractive attributes to meet with company policy during these difficult COVID-19 times. For instance, your venerable correspondent has had to embrace ‘social distancing’ (not easy given his girth) and hand-sanitising (a terrible waste of an alcoholic substance). On top of that it was recommended to Outsider that he work from home which means he now practices self-isolation (have you ever met Mrs O?). And amid all this change, Outsider read a note from the HR department
which he found just a bit too much. These HR people suggested some ideas for Outsider to improve his home work environment and, sadly, none of them involved the use of single malt. Among other things, Outsider was told he should learn how to ‘mentally switch off in the evening’ while during the day he was encouraged to set up ‘virtual coffee breaks’ with his colleagues and carry on the same way as if he was in the office, except that all coffee chit-chat would be now done online instead of face-to-face. It’s enough to dive a chap to drink. Now there’s an idea.
You know things are bad when the free tucker dries up OUTSIDER felt a pang of disappointment when the CMSF conference in Adelaide was called off due to the ever evolving COVID-19 pandemic. While Outsider thought this was the responsible decision by the AIST to not go ahead as practicing social distancing was important, he lamented on all the free food he was going to miss out on. With stock flying off the shelves as senseless people panic buy and hoard, Outsider thought he could at least bank on a couple days of not worrying about his meals. Anyone who knows Outsider will know that he will turn up to the opening of an envelope if it is accompanied by a cupcake.
OUT OF CONTEXT www.moneymanagement.com.au
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"It takes a lot of Starbucks to be a spy." - Former CIA director Michael Morrell at the Magellan conference [on the CIA having the world's busiest Starbucks]
Now that events are being cancelled left, right, and centre, and working from home means no office groceries, Outsider wondered when his next free meal would be, even if it was just a muesli bar. Outsider knows he is lamenting on first world problems and there are people in very dire situations at the moment, so he hopes readers of Money Management are practicing social distancing and are not hoarding for these are times for everyone to work together (at a distance) to get through the pandemic. The worst will be over when Outsider can be seen grazing at the industry’s expense.
"Tencent is largely a video games company and people will have a lot of time to play video games now." - Hamish Douglass at the Magellan conference
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