Money Management | Vol. 34 No 5 | April 9, 2020 by FE Money Management

MAGAZINE OF CHOICE FOR AUSTRALIA’S WEALTH INDUSTRY

www.moneymanagement.com.au

Vol. 34 No 5 | April 9, 2020

RETIREMENT

Retirement Income Review

FRAUD

Protecting your digital data

TECHNOLOGY

Retail v wholesale clients

AMP makes Anglican Super unhappy by stalling successor fund transfer BY MIKE TAYLOR

PRINT POST APPROVED PP100008686

Providing advice from home WORKING from home has been one of the biggest global shifts since the COVID-19 pandemic but what does that mean for financial advisers whose role is based on building relationships face-to-face with clients? By now, Zoom has become a household name and some advisers are also using the video conferencing platform along with Google Hangouts and FaceTime to meet with clients and build strategies. Over 87% of advice practices were dealing with the pandemic via phone consultations, according to a survey run by Money Management, followed by 80% using emails/chats, 53% were conducting video consultations, and 20% were still meeting clients face-to-face if required. While global markets ride through the volatility brought by the virus, client enquiries have shot up and advisers will need efficient and integrated technology to manage faster trades for their clients, according to WealthO2 managing director, Shannon Bernasconi. “It’s about the end-to-end workflow efficiency, the intraday aspect, and the bulk aspect across many lines,” she said. However, one of the biggest barriers advisers are facing is that some forms such as opt-in fees and binding death benefit nominations require a wet signature. Centrepoint Alliance group executive for advice services and solutions, Kate Anderson, said there were not many advisers that had an approved digital signature method. She hoped that Treasury and the corporate regulator would relax client consent rules over the coming weeks to allow for verbal or email consent. While the topic of advice fee consent is set to be tabled in Parliament under one of the Royal Commission’s recommendation, COVID-19 has ultimately pushed any sittings until August adding to more uncertainty and the need for relief measures.

05MM090420_01-15.indd 1

Full feature on page 16

TOOLBOX

AMP Limited has applied the brakes to corporate superannuation fund successor fund transfers claiming it is hamstrung by market volatility but at least one of the fund involved, Anglican Super, strongly disagrees. After deciding more than 18 months’ ago to part company with AMP and move to Mercer in the wake of the Royal Commission, Anglican Super has found what it thought might be a six-month or 12 month process having blown out to 18 months with AMP signalling further COVID-19 volatility-related delays. The situation has been confirmed by Anglican Super chairman, James Flavin who has told Money Management and Super Review that the fund has found dealing with AMP Limited on the successor fund transfer issue exasperating. “Moving up to Easter I can only cite the biblical quote from Moses – ‘Let my people go’,” he said. Flavin claims that, without prior notice to him or other members of the Anglican Super board of trustees, AMP had written to members of the fund and employers stating that the

successor fund transfer which was scheduled to be completed on 27 March had been “suspended”. The letter stated: “The trustee has a duty to act in the best interest of members and to promote their financial interests. Since the end of February 2020 financial markets have experienced extreme volatility, in relation to the development and spread of the COVID-19 Coronavirus. Given unprecedented market fluctuations, AMP Superannuation Limited (ASL) as trustee of the Anglican National Superannuation Plan (ANS Plan), has made the decision to suspend the scheduled SFT due to concerns in the current stressed market environment”. Employers also received an e-mail from AMP claiming “There has been a decision by the trustees of Anglicare National Super Plan to suspend the termination until further notice” and stating: “Owing this change, you can resume using the AMP clearing house eSuper for the interim to remit superannuation contributions, and generate new membership in the plan”. The Anglican Super board responded immediately that “Firstly, we continue to voice our protest to the unilateral decision of AMP to Continued on page 3

King conﬁrmed as Westpac CEO WESTPAC has named its new chief executive – elevating acting chief executive, Peter King. Announcing the move, Westpac chair, John McFarlane said it was a case of wanting a chief executive in place now, and not later. He said King’s appointment was for a period of two years. King has been a long-term executive of Westpac having spent 25 years with the banking group.

2/04/2020 12:01:36 PM

FUND MANAGER

OF THE YEAR 2020 AUSTRALIAâ&#x20AC;&#x2122;S FIRST INDEPENDENT AND WHOLE OF MARKET AWARDS

SHORTLISTED FUNDS ANNOUNCED! Congratulations to all the shortlisted funds! For the past 32 years, we have seen Fund Manager of the Year Awards improve year after year, with more categories being introduced reflecting the efforts and evolution of Asset Management in Australia. One element which has not changed is that the awards are the hallmark for excellence in our industry. In 2020, we would like to continue breaking new ground, and rather than limit participation to subscribers of any single research house, our plan is to bring together the best and most influential voices in our industry to act as a judging panel. Our intention is that all funds on sale in Australia should be eligible to win.

Visit our website for the latest updates www.fundmanagerawards.com.au

5240_FMOTY2020 house print postponed.indd 2

27/03/2020 10:20:39 AM

April 9, 2020 Money Management | 3

News

APRA and ASIC tell superannuation funds to prioritise liquidity for early release BY MIKE TAYLOR

SUPERANNUATION fund trustees have been told that they need to give top priority to having sufficient liquid funds available to make early release superannuation payments. Superannuation funds have received a joint letter from the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) which has reinforced the liquidity issue. “One of the primary areas of regulatory focus over recent weeks has been monitoring liquidity to ensure funds retain the means to fulfil their payment obligations, including the early release of superannuation payments recently announced by the Government,” the letter said. “This must necessarily also be a top priority for trustees, who bear ultimate responsibility for maintaining sufficient levels of liquidity to sustain the operation of their funds. “Trustees should be: • Undertaking regular and detailed liquidity stress testing, ensuring that scenarios reflect changes in future net cash flows of the RSE, member behaviour and market conditions; • Identifying specific areas for heightened attention with respect to liquidity, such as increased member switching activity or deterioration in the liquidity profile of their investments, and taking appropriate action; and • Assessing the impact on liquidity of their liabilities and contractual commitments, such as currency hedging programs, and reviewing their securities lending arrangements. Trustees should also ensure that the valuation of unlisted and illiquid assets remains appropriate and consider whether any assets need to be revalued.”

The letter then goes on to confirm the two regulators have taken a different regulatory approach. “In order to help trustees focus their resources and attention on responding to the impact of COVID-19, both ASIC and APRA are postponing a range of new and planned regulatory initiatives. While the priorities of both regulators and trustees must inevitably shift during this period, unless ASIC or APRA has granted specific relief, trustees’ legal, regulatory and reporting obligations remain unchanged,” it said. “Trustees must therefore ensure key business activities, such as administration, are operationally resilient to ensure ongoing processing of member benefits. Trustees should be scenario testing their critical functions and determining (in conjunction with outsourced providers) essential staffing levels and contingency plans to ensure essential member transactions proceed in a timely manner, particularly where such activities are undertaken offshore.”

Early release super – speak to a planner ﬁrst says FPA SUPERANNUATION fund members need to seek financial advice before withdrawing up to $20,000 from their accounts, according to the Financial Planning Association (FPA). In a statement, the FPA said that while it supported the Government’s hardship early access measure, members needed to follow the strict conditions imposed by the Government. FPA chief executive, Dante De Gori, said superannuation access should be used as a last resort. “It is to be used to fund retirement and its primary purpose must be respected, even in these increasingly uncertain times,” he said. “The access is only available for people who are unemployed, have had their working hours/ business income reduced by 20% or are on Centrelink payments.” He said the FPA recommended that any individual who met the requirements consider whether using retirement savings was the best option for them and to consider all alternate options before they do use their super. “If you have a financial planner you should speak to them first about how to manage your financial situation at this time. If you do not have a financial planner then you should consider contacting an FPA member to assist you,” De Gori said.

AMP makes Anglican Super unhappy by stalling successor fund transfer Continued from page 1 withhold the transition. Secondly, we are embarrassed by the communications that AMP has so shoddily put together to communicate with our employers”. Flavin said his fund had become increasingly disillusioned in its dealings with AMP on the successor fund transfer and in circumstances where he believed AMP, by delaying the process, was simply making things worse for members many of

05MM090420_01-15.indd 3

whom were women working in lower-paid occupations. Asked to comment on the situation, AMP issued the following statement: “AMP’s superannuation trustees have the obligation and fiduciary responsibility to ensure the interests of all superannuation members are protected, including members who are transitioning to another superannuation provider. “Given the unprecedented

market volatility and uncertainty caused by the coronavirus, and the potential impacts to members during a fund transfer, the trustees have decide to temporarily postpone the Anglican National Super plan transfer. “The postponement is line with actions of others in the industry to ensure members are not exposed to the risk of heightened transaction costs, and the costs of being out of market while a transfer is being

undertaken. “AMP has engaged extensively with ANS to explain the rationale for the postponement. We have also explained the situation to the regulator. “AMP is continuing to closely monitor conditions and is committed to completing the transfer of funds as soon as there is a sustained stabilisation in markets and at a time that is more beneficial to members.”

2/04/2020 12:01:42 PM

4 | Money Management April 9, 2020

Editorial

mike.taylor@moneymanagement.com.au

FE Money Management Pty Ltd Level 10 4 Martin Place, Sydney, 2000 Managing Director: Mika-John Southworth 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

DON’T LET EARLY ACCESS TO SUPER BECOME THE NEXT PINK BATTS

Associate Editor - Research: Oksana Patron Tel: 0439 137 814 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

It is probably inevitable that some people will try to rort or manipulate hardship early access to superannuation and the Government will need to be vigilant to ensure it does not become a re-run of the Rudd Government’s pink batts fiasco. THE FEDERAL GOVERNMENT has moved rapidly to roll-out the economic stimulus and income support measures it believes are necessary to ease Australia’s passage through the COVID-19 pandemic with its measures, particularly hardship early access to superannuation, creating plenty of explanatory work for financial advisers. What was already known about the Government’s early access superannuation move was it generated a rush of inquiries to superannuation fund call centres and gave rise to reports of people receiving unsolicited phone calls offering to help them facilitate early access to their superannuation. Then, too, there have been those who have suggested that people might look to draw down their $10,000 in superannuation and recontribute under concessional tax arrangements. Experienced public policy professionals will recognise that these are all signs that some unscrupulous individuals are looking to rort a mostly well-intentioned policy initiative. Indeed, those same experienced public policy professionals might ask whether the Morrison Government’s early access to super regime risks becoming the 2020 version of the Rudd Labor

05MM090420_01-15.indd 4

Government’s pink batts. So the question is, has the Government put in place the necessary safeguards in circumstances where the Australian Taxation Office (ATO) rather than superannuation funds will be doing the identity and eligibility checks and the Australian Transaction Reports and Analysis Centre (AUSTRAC) will not be riding shotgun? The ATO does a lot of work in the superannuation sphere in terms of helping resolve duplicate accounts and keeping a watch on contributions limits, but does it have the capacity and technology sufficient to deal with matching perhaps hundreds of thousands of applications for early release against the real status of superannuation fund members? In short, in seeking to deal with a heavy workload of inquiries and applications, can the ATO be confident that when it tells a superannuation fund to pay $10,000 to a particular person, the individual concerned is actually who they say they are? And what happens if the ATO gets it wrong? Who is liable? Little wonder, then, that at least some superannuation funds have signalled that they intend backchecking with members to ensure their intentions are clear.

While it is hardly surprising that superannuation funds have urged members to seek early access only as a last resort, it is notable that a survey conducted by Money Management revealed that most financial advisers were also urging caution on the part of their clients. The common theme of responses to the survey was that advisers were urging their clients not to crystallise losses – something that was inevitable if they withdrew $10,000 from superannuation at or close to the bottom of the market. While the Government is right in suggesting that superannuation balances belong to fund members and that they should be allowed to access them at times of extreme financial difficulty, it is also worth reflecting that the early access arrangements fit neatly with arguments put by some Government backbenchers about the future of superannuation and how it should be treated. The Government’s announcement refers to the possibility of people being able to obtain early access over two years - 2020 and 2021. Importantly, the back half of 2021 will see Australia fully in election mode.

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

Subscription enquiries: www.moneymanagement.com.au/subscriptions customerservice@moneymanagement.com.au

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.

ACN 618 558 295 www.fe-fundinfo.com © Copyright FE Money Management Pty Ltd, 2020

Mike Taylor Managing Editor

1/04/2020 3:04:11 PM

Supporting advisers in these challenging times The spread of COVID-19 is first and foremost a health crisis and our thoughts are with all those dealing with the direct impacts. The virus, and the world’s reaction, have also destabilised financial markets causing concern to investors. We’re here to support financial advisers and the critical work you’re doing right now, providing: •

Financial hardship assistance for clients

•

Expert market and investment insights

•

Communications and tools to help you support clients

•

Updates on regulatory changes and how they impact clients

•

Broad investment choices including capital guarantees, and

•

Access to our proprietary Retirement Modelling Tool.

To find out more, visit amp.com.au/advisercovid

© 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. MyNorth Investment Guarantee is issued by National Mutual Funds Management Limited ABN 32 006 787 720, AFS Licence No. 234652.

_FP ad Test.indd 5

30/03/2020 9:04:56 AM

6 | Money Management April 9, 2020

News

Are superannuation funds dropping the ball on switching advice? BY MIKE TAYLOR

FINANCIAL advisers have used responses to a Money Management survey to accuse industry funds of failing to do enough to stop members making inappropriate investment switching decisions amidst the current market volatility. Asked what they believed was the worst thing clients could possibly do amid the current market volatility, a number of respondents pointed to client confusion around industry

superannuation funds which were labelled ‘balanced’ but were, in reality aggressive. They claimed that, on top of this, members were switching to cash on the basis of intra-fund advice and effectively crystallising their losses. One adviser said that selling and moving funds to cash or defensive assets in the current environment represented a serious mistake. “They are crystallising losses, whereby, if invested correctly they will still get good

dividends, that are much better than interest rates, from shares,” he said. In fact, the overwhelming sentiment from advisers was that the last thing clients and superannuation fund members should be doing was switching to cash. The comments from survey respondents came against the background of confirmation by industry fund UniSuper that more than $2 billion had been the subject of member switching the face of the current market volatility.

Technology focused funds see recovery from global sell-off BY JASSMYN GOH

WHILE equity markets have crashed thanks to the ongoing COVID-19 pandemic, technology funds have managed to see inflows and have already started to recover losses since the global sell-off, according to data. Bank of America’s latest research found tech funds continued to see inflows (annualising US$58 billion ($94.4 billion) year to date) throughout the recent equity crash. Over the last four weeks, it also placed sixth in largest exchange traded fund flows for the bank’s private clients at US$0.2 billion. Bank of America said it was “fascinating to note inflows to tech funds every week thus far in 2020”. Looking at Australian-based technology funds, FE Analytics found that while tech funds could not avoid the global sell-off that started mid-February 2020 they started to recover from 16 March, 2020. Since 16 March, all funds have returned between 9.2% and 22.4%. Since the COVID-19 pandemic’s infancy at the beginning of the year, BT Technology Retail fund was the best performing at 6%. This was followed by Perpetual Global Innovation Share A (4.2%), Fiducian Technology (3.74%), BetaShares Asia Technology ETF (3.5%), and BetaShares Global Cyber Security ETF (2.86%). The Perpetual fund’s latest factsheet dated 29 February, 2020 said its overweight position in

05MM090420_01-15.indd 6

Chart 1: Technology fund performance from 1 January 2020 to 30 March 2020

Source: FE Analytics

communications platform provider, Zoom Video Communications (up 42.9%) contributed to its relative performance. Zoom has been in high demand since the COVID-19 pandemic has forced workers into working from home and using video conferencing platforms. “Improved investor sentiment driven by stronger demand for video conferencing usage on the back of heightened quarantine measures and work-from-home initiatives implemented by corporations led to a rally in Zoom’s share price over the month as coronavirus infections rates continued to

rise in the US and across the globe,” the factsheet said. It noted the extent to which the virus would impact global economic activity had yet to be realised but would be significant over the coming months. “The flow-on effect for corporations may lead to further earningdowngrades which will present additional challenges for markets over the near term. These headwinds and potential risks have been very well telegraphed by the investment community and the media. “The timing and severity of any potential economic downturn, if there is in fact one, is difficult to

predict. We continue to find opportunities in quality companies with robust balance sheets, strong management and industry positions that trade at reasonable market multiples.” Over the three years to 31 March, 2020, the tech funds returned between 86.6% and 32.2%. The top performing fund during this time period was BT Technology Retail fund at 86.6%, followed by CFS Wholesale Global Technology and Communications (62.6%), Fiducian Technology fund (58.2%), BetaShares Global CyberSecurity (51.6%), and Platinum International Technology C (32.3%).

1/04/2020 3:08:52 PM

You’re transforming your business. We’ve got a transformational business model.

Praemium’s award-winning Integrated Managed Accounts Platform has been built with client’s best interests in mind. We offer the ultimate flexibility to customise your clients’ portfolios and innovative functionality and tools to deliver a first-class wealth management experience. We tick all the boxes for advisers looking to make the transition to a more successful business model with: • Innovative portfolio solutions to support the transition from wrap to managed accounts • Tailored client solutions - SMA, IMA, MDA, VMA, UMA

Let’s talk.

• Broad investment choice - domestic & international equities, ETFs, managed funds, term deposits & cash So if you are serious about transforming your business then you need to talk to Praemium. praemium.com/transform

Welcome to the upgrade

This document has been prepared by Praemium Australia Limited (ABN 92 117 611 784, AFS Licence No. 297956) (‘Praemium’, ‘we’, ‘our’, ‘us’) and is for general information purposes only. Praemium offers a range of services and products. individuals should consider the relevant disclosure documents before choosing any Praemium products or services. Please refer to our website www.praemium.com.au for further information. Whilst reasonable care has been taken in preparing this document, Praemium will not be liable for any loss, harm or damage suffered by any person arising out of or related to its content, except to the extent of any liability implied by law.

_FP ad Test.indd 75

24/03/2020 11:05:52 2:30:03 AM PM 12/03/2020

8 | Money Management April 9, 2020

News

Is the Govt’s hardship access to super regime open to rorting? BY MIKE TAYLOR

THERE is potential for rorting in the Government’s plans to allow hardship early access to up to $20,000 in superannuation and only limited time to fix the regime, according to the founder and chair of superannuation research and ratings house SuperRatings, Jeff Bresnahan. In a statement issued last month, Bresnahan claimed the current potential for rorting the system is significant and there needs to be a winding back of the eligibility criteria. “If, as a result of unnecessary claiming, some funds are forced to consider freezing withdrawals to protect their remaining members, what will the Government do then? This is not new. Every financial crisis has resulted in a small number of investment funds being frozen, although this might be a first for super funds,” he said. Looking at the Government’s plan, Bresnahan said that for some of the most vulnerable people in society the Government’s message was effectively saying, “use your own super to tide yourselves over and by the way, you’ll need to take it out at a massive loss, which you can never recoup”. He said that under the current proposal, tens of billions of dollars of assets could need to be dumped into declining markets, meaning

that some Australians seeking their $10,000 “tax free” super payment in mid-April, could inadvertently get as little as 70 cents in the dollar against what they would have got just two months ago. Bresnahan said that nearly all of the problems would arise because the eligibility criteria to access super were way too generous. “This shotgun approach has the potential to come back and bite the Government, hard. The focus absolutely needs to be on those who truly do need access to cash, and fast. Quite simply, those displaced from their jobs due to this horrific COVID-19 virus. In reality, those in hardship. This shouldn’t be a self-assessment process for all Australians,” he said. Bresnahan said SuperRatings was urging the Government to rethink its approach so that money could be delivered to those in need while protecting their retirement nest eggs. The company has thrown up three proposals: 1) Allow funds to take a loan out from the Reserve Bank of Australia, to meet all claims. This loan would be secured against members’ benefits and repayable after say five years. This would then allow members to recoup lost investment earnings. The Government is protected, the member gets emergency funding, and the funds don’t have to dump assets into a declining market.

2) A variation on (1) but with the Australian Taxation Office handling all claims, making all payments and retaining the loan register. This is a cleaner payment portal and still protects the Government, the member and the fund. 3) Protect funds against having to sell into declining markets by ensuring that payments are only made to those in genuine hardship (e.g. those who have registered as unemployed, have been stood down, etc. and remain so after four weeks). At present, on a self-assessment basis, virtually all Australians, employed or not, could potentially make a claim.

COVID-19 pandemic highlights advice industry burden BY CHRIS DASTOOR

ADVISERS are already overburdened during the economic crisis from the COVID-19 pandemic, further proving stress on the industry will be an issue in a future crisis, if advisers continue to depart the industry. With advisers already leaving the industry and more expected when deadlines from exam and education requirements come into effect, the COVID-19 situation had shown the financial advice industry may not be able to deal with a future crisis. Ben Marshan, head of policy and standards at the Financial Planning Association of Australia (FPA), said it was lucky that it had happened now since a lot of planners who might still be looking to leave the system

05MM090420_01-15.indd 8

haven’t done so yet. “We haven’t got to the exam deadlines yet, but that looks like it would be the first big drop off,” Marshan said. The Federal Government had

put up several initiatives, including early access to superannuation and wait-time waivers for Centrelink, but these options had been overwhelming to navigate and advice was needed.

“Our members are telling us they’re being inundated from their clients, asking about markets, how to take advantage of the stimulus package the government has put out, and all these issues around applying for Centrelink,” Marshan said. “Our members are inundated; they’re really struggling to help their clients properly… It takes up to 26 hours to provide a piece of advice that costs about six and half thousand dollars. “In an environment where people need quick straight answers to make really important decisions about their financial position when they’re losing their jobs, when markets are crashing, our members are struggling to keep up with workloads to help their clients at the moment.”

31/03/2020 1:27:21 PM

April 9, 2020 Money Management | 9

News

ASIC bans WA adviser for four years BY LAURA DEW

THE Australian Securities and Investments Commission (ASIC) has banned adviser Anthony Hilsley from providing financial services for four years after failing to comply with financial services law, including failing to provide financial advice in the best interest of his clients. Hilsley, from Kelmscott in Western Australia, was most recently an authorised representative of Fiducian Financial Services but the ASIC surveillance covered his time when he worked at RI Advice Group which was owned by ANZ. During the time in question, he did not identify or make sufficient enquiries into his

clients’ personal circumstances, properly consider their objectives or, on occasion, consider their existing products when providing advice. In one case, he recommended replacing superannuation and insurance products without taking the clients’ pre-existing medical condition into consideration. As a result, a loading was added to the premium, which could have been avoided if Hilsley had considered the suitability of the client’s existing products to meet their ongoing insurance needs. He has the right to appeal to the Administrative Appeals Tribunal for a review of the ASIC decision.

Finance sector crucial for environmental outcomes BY OKSANA PATRON

DESPITE the pandemic caused by COVID-19 and its devastating impact on the country’s economy and healthcare system, research by the Responsible Investment Association Australasia (RIAA) has revealed that 90% of Australians believe the finance sector plays a key role in generating positive environmental and economic outcomes. Additionally, 50% was of the view that healthcare and medical products were an important theme when it came to investing their money as well as supporting the environment. On top of that, 86% of Australians admitted they preferred their saving and superannuation to be invested responsibly and ethically, the report found.

05MM090420_01-15.indd 9

As far as willingness to move money was concerned 74% of Australians said that they would consider shifting their banking and superannuation to an alternative provider that invests responsibly and ethically. Among millennials the percentage of those who were likely to shift their money was even higher and stood at 82%. This meant that financial advisers still had a huge role to help their clients align their investments with their beliefs, given that nine-in-10 Australians said it was important to them that their financial adviser provided responsible or ethical options. At the same time, 86% of respondents believed that financial advisers should ask them about their interests and values in relation to their investments and another 87% felt comfortable discussing their interests and values

in relation to their investments with their financial adviser, the research found. Also, younger generations were leading the way for ethical investing, with in particular generation Z (73%) and millennials (71%) wanting to make a positive difference through their investment decisions as opposed to only 31% of baby boomers. “People are seeing strong performance of responsible and ethical investment funds and products. Australians’ trust that ethical investments lead to better performance outcomes has skyrocketed with 67% of Australians believing ethical or responsible banks perform better in the long term and 62% for super funds. This is a very significant 33% rise since our 2017 research was conducted,” RIAA’s chief executive Simon O’Connor said. Following this, the research found that 82% of the nation believed it was the lack of independent information regarding ethical or responsible savings and superannuation which was impacting the Australians decision to change. “The report shows that Australians’ concern for climate action has reached a tipping point and they’re now focusing on solutions such as responsible investing. We hope these results serve as a call to arms for the entire industry to deliver on Australia’s demands and utilise capital for a sustainable future for everyone” said Allyson Lowbridge, chief customer officer for Australian Ethical, sponsor of the research. “Globally, more than US$30.7 trillion ($49.8 trillion) of assets are being professionally managed under responsible investment strategies, so this is not just a feel-good option but one that can lead to better financial outcomes alongside better outcomes for people and the planet.”

31/03/2020 1:27:09 PM

10 | Money Management April 9, 2020

News

AFCA to fast track COVID-19 related complaints BY JASSMYN GOH

THE Australian Financial Complaints Authority (AFCA) is prioritising complaints regarding COVID-19 to ensure those impacted have their issues resolved as quickly as possible. In an announcement, AFCA said it would fast-track COVID-19 related complaints and would establish a support hotline to ensure a priority service was provided for those impacted. “AFCA will take into account the circumstances and context in which lenders and other financial firms are currently operating when considering complaints,” it said. “AFCA understands that firms may be putting in place alternate staffing

arrangements and may not be in a position to quickly act on requests for information.” The authority also said it supported the Government and banking sector initiatives to assist small businesses and consumers to withstand challenges posed by the virus. “AFCA supports the changes to responsible lending obligations proposed by the government and the initiatives designed to assist small businesses that encounter financial difficulty or require additional access to credit due to the impact of the COVID-19 pandemic,” it said. AFCA encouraged financial firms to continue to: • Work constructively and reasonably with affected consumers and small businesses

during any period of disruption, particularly consumers and small businesses in hardship, or who may be experiencing difficulty repaying debt; and • Openly and transparently communicate with consumers and small businesses about any delays they may experience in decision making, claims or complaints handling caused by the impact of COVID-19 on their business. AFCA noted its staff were transitioning to work from home and that some staff might only be available via email. However, its main phone number and new hotline would operate with staff working from home. AFCA’s new support hotline number is 1800 337 444.

Assets performance mirrors global financial crisis WITH the current global sell-off figures unseen since the global financial crisis (GFC), assets performing the best and worst are mirroring those during 2008, according to data. Bank of America’s data on latest asset total returns found the top five best-performing assets – US Treasuries, cash, gold, global investment grade bonds, and global high yield

bonds – remained the same except for a swap between second and third place. The best-performing asset in 2008 was US Treasuries at 14% and this was the same for 2020 so far at 4.4% While gold was second best in 2008 at 4.3%, it was cash that had been second place for 2020 at 0.5%. Cash was third in 2008, while

gold for 2020 so far at a loss of 1.5%. The data noted there were US$20.7 billion ($35.9 billion) in equity outflows last week, and “gigantic, record outflows” for bonds at US$108.9 billion. Precious metals, it said, had its fifth-biggest ever gold redemptions at US$2.5 billion. The bottom five performers were a mix of S&P 500 equities,

Chart 1: Sector performance year to 23 March 2020

Source: FE Analytics

05MM090420_01-15.indd 10

real estate investment trusts, MSCI Emerging Market equities, MSCI Europe, Australasia and Far East (EAFE) equities, and commodities. The worst-performing asset in 2008 was emerging markets at a loss of 53.2% compared with commodities in 2020 so far at a loss of 41.1%.

CASH AT THE TOP According to FE Analytics, within the Australian Core Strategies universe, the top-performing sector so far this year has been cash at 18.86%. This was followed by Australian bonds (-0.3%), Australian dollar (0.7%), global bonds (-1.46%), global equities (-14.11%), emerging markets (-18.36%), commodity and energy (-18.54%), global property (-21.15%) , Australian equities (-26.21%), and Australian listed property (-36.44%). The data found the topperforming cash funds were US dollar based. BetaShares Strong US Dollar ETF Hedge came first at 48%, followed by BetaShares US dollar ETF (20.57%), ETFS Enhanced US Cash ETF (20.23%), and Invesco Wholesale USD Cash W (20.07%). The bottom performer was IPAC – SIS – Australian Cash Strategy No 1 at 0.22%.

31/03/2020 1:26:34 PM

MAKE YOUR TEAM BETTER. MAKE YOUR FIRM BETTER. MAKE THE INVESTMENT WORLD BETTER. HIRE A CFA CHARTERHOLDER. ®

By passing one of the most rigorous series of exams in the investment management industry, CFA charterholders have proven they have the skills and commitment to measure up to the needs of their clients and the demands of a changing world. Charterholders also have the ethical foundation to put their clients first and make the right decisions for the long term, not just today. When choosing the right person for your team, you want the best. You want a CFA charterholder. Get started at letsmeasureup.org © 2020 CFA Institute. All rights reserved.

_FP ad Test.indd 11

26/03/2020 3:32:44 PM

12 | Money Management April 9, 2020

News

ASIC to recalibrate regulatory priorities

BY OKSANA PATRON

THE Australian Securities and Investments Commission (ASIC) has announced it will recalibrate its regulatory priorities to focus on COVID-19 challenges, suspending all not time-critical matters such as the consultation paper on managed discretionary accounts (MDAs), among others. The regulator said it would afford priority to

Blue-chips might be your best bet INVESTORS should not panic and focus on the best opportunities which can still be found in blue-chip companies with a long history of paying dividends, according to Franklin Templeton. Franklin Templeton’s head of equities, Stephen Dover, said that under current circumstances many investors were acting out of fear and missing out on the market opportunities, instead of staying invested in the market and using the time to assess where the opportunities still existed. “We believe some of the best opportunities may be in blue-chip companies that have a long history of paying dividends,” he said. “Dividend yields may decrease as dividends could be reduced, but we are not seeing a massive shrinking in dividends at this time.” According to Dover, high correlations between equities continued as investors were selling their holdings in passive vehicles, which in turn, resulted in selling of all stocks proportionately. “It’s too late to panic-sell. In our view, it’s better now to consider re-allocating within equities and to potentially rebalance asset allocations in balanced portfolios. We believe the current market should provide long-term opportunities for investors who stay the course or take opportunities as they arise.”

05MM090420_01-15.indd 12

‘other matters’ with regards to where there would be the risk of significant consumer harm, serious breaches of the law and risk to both market integrity and time-critical matters. This means it would suspend a number of not time-critical near-term activities such as consultation, regulatory reports and reviews, including executive remuneration, updated internal dispute resolution guidance and a consultation paper on managed discretionary

accounts (MDAs), among others. “ASIC is committed to working constructively and pragmatically with the firms we regulate, mindful they may encounter difficulties in complying with their regulatory obligations due to the impact of COVID-19,” the regulator said in the announcement. ASIC would also suspend its enhanced onsite supervisory work such as the Close and Continuous Monitoring Program but it would work with financial institutions to further accelerate the payment of outstanding remediation to customers and would take account of the circumstances in which lenders, acting reasonably, are currently operating when administering the law. “ASIC will maintain its enforcement activities and continue to investigate and take action where the public interest warrants us to do so against any person or entity that breaks the law,” the regulator said. “However, it will focus on action necessary to prevent immediate consumer harm, egregious illegal conduct and other time critical matters.”

Union poll canvasses nationalisation of Qantas BY MIKE TAYLOR

A major union has commissioned a public opinion poll which it claims shows strong public support for the Government taking a stake on Qantas on the basis of the current bail-out arrangements. The poll, commissioned by the Transport Workers Union (TWU) found a majority of people – 62% – wanted the Government to take a stake in private companies which require bailouts, with 50% stating Qantas should be nationalised if the current situation gets worse and only 20% opposed. It said the YouGov poll also showed the public was very supportive of the Federal Government’s relief to airlines, with 68% saying they agreed with the $715 million assistance package. Commenting on the poll, TWU national secretary, Michael Kaine said the public was clearly in favour of helping out a critical industry like aviation. “People are supportive of measures to assist companies like Qantas when times are tough and they don’t believe that support should end there,” he said.

“Aviation is critical to a country like Australia and hundreds of thousands of workers, companies and other industries depend on it, both directly and indirectly. What isn’t in the country’s interest is having airlines on this erratic trajectory where every few years they are requiring public assistance. We need a new type of management.” Kaine also noted that the opinion poll had also shown 80% of people believed executive bonuses and shareholder dividends should not be paid until Qantas workers were paid back the accrued and future leave the company was forcing them to take. Almost two-thirds said Qantas should ensure its workers did not have to take unpaid leave. “The poll shows the public are acutely aware of the dynamics at play and that assistance for the airlines and other private companies should go hand-in-hand with fairness for those expected to bear the brunt of the hardships, namely workers. People know that this crisis will abate and that when it does those badly affected should be compensated,” Kaine said.

31/03/2020 1:26:15 PM

April 9, 2020 Money Management | 13

News

APRA changes supervisory focus in face of COVID-19 BY MIKE TAYLOR

THE Australian Prudential Regulation Authority (APRA) has announced it is putting aside much of its supervisory activity to concentrate on the liquidity and other implications of COVID-19. In announcement issued last month, the regulator said it would be refocusing supervision effort to involve frequent communication with entities, monitoring key financial settings such as capital and liquidity and responding accordingly. “Over the period ahead, APRA’s primary supervision focus will be on monitoring the impact of COVID-19 on the financial and operational capacity of regulated institutions,” it said. “As a result, APRA’s supervision priorities outlined in January 2020 will be largely suspended until at least 30 September, particularly where they involve intensive engagement with regulated entities. “APRA’s refocused supervision effort will involve frequent communication with entities, monitoring key financial settings, such as capital and liquidity, and responding accordingly. These engagements will be conducted virtually, unless absolutely necessary, and will continue as long as necessary.” The regulator said it was also reconsidering the implementation dates and transition timeframes for prudential and reporting standards that had been recently finalised but not yet implemented.

GROWTH FOR THE LONG TERM. INCOME BY THE MONTH. The Ausbil Active Dividend Income Fund combines a core and tactical allocation approach to generating consistent dividend income−paid to investors in monthly distributions.

Strength. Wisdom. Agility. 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 Dividend Income Fund (ARSN 621 670 120) (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.

05MM090420_01-15.indd 13

1/04/2020 12:53:53 PM

14 | Money Management April 9, 2020

Financial Planning Group overview

THE IMPORTANCE OF BEING ‘ON THE FRONT FOOT’ As a part of its new series, Money Management speaks to financial planning groups and asks them to share their views on the industry in a new environment. This month, MM interviewed Keith Cullen, managing director of Wealth Today. MM: How is the current situation affecting financial planners? The move to working from home has been pretty seamless for a lot of them as most have had years of working at least a part of their time, if not most of it, from home or on the road in other cases. However, the greatest impact we are seeing is massively increased workload due to the emotional and financial stresses that their clients are under. We have financial advisers all over the country who have all been put under enormous pressure over the past few weeks. And it’s increasing every day – for them personally in their own businesses and lives – but also they each have around 150 clients/families whose financial affairs they manage, many of whom have lost their jobs; or seen their self-funded retirement plans they have been working towards derailed; or if they are retired, seen their capital disappearing. We are very close with our advisers and we are here to support them – so we are acutely aware of the strain this is placing on them – it’s a stressful time for all.

MM: Does that mean that you see an increased demand from clients wanting to re-evaluate their portfolios? This really depends on the types of client our individual advisers have, in terms of life stage in particular. There is a natural reaction from many to want to rotate to cash and how the adviser deals with that is very specific. Similarly, we had a number of advisers talking about clients wanting to try to “pick the bottom of the market”. Regardless of what the advisers ultimate

05MM090420_01-15.indd 14

counsel is, which again is very client specific, the workload in communicating and counselling is significant in these times. We have been helping our advisers with video link updates and workshops and publishing lots of material, factsheets and tip sheets for them to share with their clients. Regular communication and being on the front foot to contact clients is key in times like this.

MM: Is your business tech-ready for an event like that? Our advisers are all tech-ready as they are already used to working remotely. It has been a little more challenging from a process perspective to bring it together as we are a tight group of 25 people who are used to working very quickly with a very flat management structure. But so far it has been working well, with about half the staff working from home now.

MM: How do you think the business model across the industry will evolve and which ones will struggle? I think any adviser that does not recognise the need to constantly upskill and broaden their knowledge base and really engage with their clients regardless of how they are charging or where their fees are coming from will struggle. From my observations, the industry has really struggled with charging clients and I guess that was borne out of history as a lot of the fees previously coming off what I call the sell-side, coming from the product manufacturer rather than from the client, so there was no need to really focus on what their time was worth and

how they should be charging their clients. My general observation in the industry is that most advisers are short-selling themselves on the professional fee basis and the ones who will succeed are the ones that continually upskill and make sure they price their services appropriately. Advisers need to get more comfortable with it and not be afraid to ask for a reasonable reward for their time. I think those ones who are now focused on low-value clients who are unwilling to pay fees are the ones that will struggle in the future. On the other hand, the ones that are focused on the right level of engagement with the clients, who deal with clients who understand the value they add and who are prepared to pay for it will be the ones who will succeed.

MM: What are your views on self-licensing? I understand the attraction of it but I think any advisers looking at self-licensing need to ask themselves an important set of questions. The number one question is what is the best value you can get out of dealer group? When you recognise what you don’t know and when you are engaged with a dealer group this means you are engaged with the most professionally-experienced people, which includes both the

other advisers in the group and the management within the group. Then you can constantly improve your skills and upskill your broader knowledge base. I understand the appeal of that, particularly for people who have had a hard time at the dealer group they have been with, and I can understand that then [advisers] have been passionate about wanting the independence of the self-licensing but I think when you stand back and look at the value you can get out of right sort of dealer group it’s probably not the best approach.

MM: What is your business' strength? We are growing at what we think is a measured pace to make sure that we are on-boarding the right types of advisers and that we have the right cultural fit with our business. When we are looking at the services we offer, we want to make sure we are not growing too quickly because we are really focused on the level of service that we provide to advisers. What is more important to us is we are looking at the attitude of the adviser and for those advisers who understand that it’s a new world we are living in and want to be really engaged with their licensees and get the real value out of the relationship with their licensee.

2/04/2020 9:06:55 AM

April 9, 2020 Money Management | 15

InFocus

WHY EARLY ACCESS WILL MAKE SENSE FOR SOME Self-managed superannuation funds specialist, Meg Heffron, explains why the Government’s COVID-19 measures providing hardship early access to superannuation represent a solid option for some SMSF trustees. THE TWO BIG superannuation measures in one of the Government’s latest stimulus packages will be a boon to those who manage their own superannuation – as they should be. The dreaded COVID-19 virus plays no favourites in who it affects, whether it’s battlers or SMSF trustees, and so the Government’s response should recognise the right of all of us to as much financial stability as is realistic given the economic dark times ahead. Consider the first measure: the special, temporary access to pull money out of your superannuation savings. It’s true that SMSF members typically have higher balances than other super funds’ members and are quite often wealthier overall. Yet it’s also true that in these unusual times, many of them are directly and enormously affected by the financial fallout of COVID-19. Those SMSF trustees still in the accumulation phase of their super include small business owners whose revenue has dropped to zero. They might be IT professionals who have been stood down, general managers at airports, senior flight crew who have vastly reduced hours or consultants whose previously vibrant practices have been decimated. People who may seem financially comfortable can suddenly become financially insecure too. An SMSF trustee’s pre-crisis lifestyle and expenses are usually carefully built around a level of income they had come to count on. They cannot immediately reduce their expenses, such as mortgage repayments, to match their new circumstances

05MM090420_01-15.indd 15

– which can include a plummet in their income. This is where allowing everyone – including SMSF members – to access a relatively small part of their superannuation savings ($20,000 over two years) makes perfect sense. There is absolutely no logic in forcing people to protect their retirement savings at all cost if it means losing their home today. Allowing Australians, including the wealthy, to tap into their own money can help keep the wheels of the economy turning during this anxious COVID-19 era, and keep people in jobs and in their homes. And it does so without costing other taxpayers. Take this family of five. The father has been an IT executive with a travel company, his wife runs a successful restaurant and their three children are in high school and university. Normally they have no trouble meeting their regular expenses, including mortgage payments on their

Sydney home. They have been carefully building their SMSF balance over the last few years. Then COVID-19 struck – fast. The father was made redundant in early March and the mother has been forced to close her restaurant. While her business is adapting by providing takeaway in place of restaurant service, her turnover and hours are way down. Her husband’s employer may be able to lean on the Government’s newlyannounced JobKeeper scheme but his income is still likely to be well below normal levels and quite possibly too low to pay locked-in living costs such as their mortgage. In due course, Australians will be allowed out of their homes for the pleasure of a night out, and the mother’s restaurant will hopefully open its doors once more. Her husband’s skills will also eventually be in demand again as society and the economy recovers from COVID-19. Until

then, the ability to tap into their combined superannuation to the tune of $40,000 over the next few months might just be enough to see them through. The second measure (halving minimum pension payments) will also help many Australians. It lets them continue to receive the great benefits of a superannuation pension because their fund no longer pays income tax on some or all of its investment income. It also takes some pressure off in finding the cashflow to make those pension payments. Many retirees have watched anxiously as markets fall and were (until 29 March) faced with selling assets at the worst possible time, just to make sure they were able to meet minimum legal pension payments. In effect, they wouldn’t have been able to tighten their belts as almost all of us will need to in the months ahead. Even if they chose not to spend the money, they still had to take it out of the fund that would provide for their retirement years. This measure is perfect for them. They can pull back on their pension payments, leave more in their retirement savings pool and hope to ride out the current wild ride with a brighter old age ahead of them (as long as they can stay healthy through social distancing, of course). Any relief measure that touches superannuation savings always risks being portrayed as ‘benefiting the rich’ or ‘robbing workers’. If the current COVID-19 crisis teaches us anything, it should be that many of life’s greatest existential threats do not discriminate.

1/04/2020 2:47:27 PM

16 | Money Management April 9, 2020

Technology

PROVIDING ADVICE FROM HOME Working from home is one of the biggest shifts globally to have come as a result of the COVID-19 pandemic. While a financial adviser’s work is centred around physical face-to-face client meetings, Jassmyn Goh finds out what kind of technology they need to move forward. THE COVID-19 PANDEMIC is impacting almost every aspect of our lives with one of the biggest being our workplace situations. Governments globally have ordered citizens to work from home if possible to help slow the spread of the virus. While financial advisers fundamentally rely on personal relationships and face-to-face meetings with clients, they too have had to start working remotely. A recent Money Management

05MM090420_16-35.indd 16

survey found that, since the virus was declared a pandemic in early March 2020, 53% of advisers said client enquiries were higher than expected. When asked what support they required to carry on businesses for another six months an overwhelming 93% said a ‘more facilitative approach from regulators’, followed by ‘more support from dealer groups’ (27.6%), ‘better technology’ (24%), and ‘better communication’ (17%).

The survey also found that 87% of advice practices were dealing with the pandemic by phone consultations. This was followed by online contact through emails/chats (80%), video consultation (53%), and 20% were carrying on with face-to-face meetings if clients required them. Advice Regtech chief executive and co-founder, Samantha Clarke, said the more contemporary advisers had already shifted over the last year to more remote and

video meetings, and that this would only increase due to the COVID-19 situation. Around a quarter of advisers, Clarke said, had already set up to transition to a more remote environment with their customers.

COMMUNICATION TOOLS In line with the survey, Clarke said there was a lot of demand for advisers as clients were worried about their portfolios, given the ongoing market volatility.

1/04/2020 3:47:16 PM

April 9, 2020 Money Management | 17

Technology

“Advisers need to overcommunicate with clients even if it’s just to listen to client concerns,” she said. “They also need to remain accessible and available in a remote way to their clients and do whatever they can to make it as efficient as possible so that they can get advice out faster.” Clarke said there were a myriad of video conferencing tools advisers could try if they had not already such as Zoom, Google Hangouts, and WebEx. Getting back to the basics was also a way to continue communications with clients such as a letter in the mail. Agreeing, founder and chief executive of Advice Intelligence, Jacqui Henderson, said cloudbased platforms such as Zoom would be needed to help with faceto-face meetings with clients, and Slack for collaboration. Henderson noted that the limitations of the ‘old world of advice’ was having to model strategies on a whiteboard physically face-to-face. “There’s no digital tools that advisers have that enable them to have really constructive conversations to explain strategy,” she said. “We have digital tools that advisers can use with clients to co-create plans and it gets used along with Zoom.” Henderson said there were not many clients these days that did not have video capabilities and for those that didn’t it would be a struggle. Centrepoint Alliance group executive for advice services and solutions, Kate Anderson, said her organisation was recommending Microsoft Teams for collaboration, live chat, and meetings then Skype and FaceTime for client meetings, and

05MM090420_16-35.indd 17

Microsoft Sharepoint for files. Anderson noted that advisers needed to make sure the hardware or software they were using ensured client confidentiality with a secure cloud-based storage platform. She also stressed that overcommunication was key during these uncertain times. WealthO2 managing director, Shannon Bernasconi, said while the new working from home environment was disruptive to all business models, advisers who had not used any Microsoft or Google cloud-based products previously would find it even more difficult. Bernasconi said advisers needed to identify the critical applications they needed to continue their service and if those applications were inaccessible via a cloud platform they needed to work with their tech provider them to access those programs remotely.

able to efficiently and compliantly make that change,” she said. Bernasconi said advisers needed to use technology that was efficient, able to implement change on a bulk level, automated bulk records of advice (ROAs), and implementation needed to be intraday not end of day. “It’s about the end-to-end workflow efficiency, the intraday aspect, and the bulk aspect across many lines,” she said. “Ultimately it’s about ensuring the ability to bulk communicate to clients about those changes and what’s going on and the ability to customise changes to their narrative and to customise specific client needs within that bulk group. “In this environment you have to take into account specific circumstances more than in the past given the current market volatility and many clients are concerned about their pensions and so forth.”

QUICK PORTFOLIO CHANGES

COMPLIANCE

Many advisers would likely struggle with the volume of client concerns, Bernasconi noted, and advisers needed to make sure they were getting communications out to all of their clients to help calm the process, as well as then managing one-on-ones effectively to avoid panic and financial detriment. Bernasconi added advisers needed to keep in mind the pace they could make to change a client’s portfolio. “Where technology in some legacy architecture will fail an adviser right now is when you have to go to each individual client to affect the same change and you can’t efficiently make that change for today’s market. Everyday is a different market and it’s about being

Bernasconi noted that the technology advisers would be using at home needed to be compliant and that the provider of the portfolio management should be enabling that compliance automatically and be integrated with trading platforms. She said some advisers used a customer relationship management (CRM) type tool to generate records of advice for changes and portfolios but also keyed trades clients had agreed to onto a separate platform for execution. “That would be a situation where the technology they are using is not integrated or, not a workflow that helps the speed of the change,” she said.

“It would be the onus of the adviser to generate something in one place to keep files, and then separately trade on a second application. Those kinds of models are ones that, in the past, may have been seen as satisfactory. “But when you’re trying to make changes to all clients and reduce implementation drag and maintain compliance, those bespoke, separate, and staggered processes can cause risk, slowness in implementation in client portfolios, and in this market volatility that’s certainly not a good outcome for clients or advisers.” Clarke said that licensees that had moved quickly to introduce efficient compliance practices and audits were in a good position. “These compliance reviewers already work either from home or in a flexible way. The ability to use compliance software enables advisers to be more efficient and will allow them to get their advice out faster,” she said.

DIGITAL SIGNATURES IRESS chief executive, Andrew Walsh, said it was important to have digital data or records and give a holistic view of the advice business, where it was sitting and how files were checked as advisers would not be able to rely on manual files. Walsh noted digital signatures would also be an important tool to push through advice files. Pointing to the Royal Commission recommendation on advice fee consents and independence disclosure, Walsh said it was an important piece of workflow that needed to be Continued on page 18

1/04/2020 3:47:06 PM

18 | Money Management April 9, 2020

Technology

Continued from page 17 end-to-end, starting from clients approving a fee authorisation, then to advisers and licensees, and then through to third parties. “We have been tying together the functionality through digital signatures through trusted assisted blockchain that will allow platforms to confidently rely on that information on fees or to refute fees,” he said. However, with Parliament now not sitting until August due to the COVID-19 pandemic, implementation dates are uncertain but IRESS is pushing ahead on implementing its digital signature strategy. “We acquired a blockchain platform in January and we already have a client portal, and fee consent documents for clients,” Walsh said. “The client will provide a digital signature that will flow into the blockchain and platform providers can pull off from that blockchain as evidence that has been signed by the client, track that to the client and confirm that hasn’t been tampered with in the transmission. “So that model across lots of different parties is unique and a great use for blockchain and needs to be delivered in a way that doesn’t require licensees to have different implementations and providers. Separate workflows will be the killer as there is already going to be a lot of work for advisers to be chasing along with getting client authorisation. “If they have to implement it in different ways or have to scan documents then that’s going to be very problematic, costly and inefficient. It’s important to pull all parties together so there’s an end-to-end single unified solution.”

05MM090420_16-35.indd 18

A respondent to the Money Management survey said: “If a facilitative approach is too hard for the Government to absorb, here is one simple thing they could do – allow encrypted digital signatures from software such as DocuSign and ban some companies’ unrealistic policies that every document should be wet signed and/or physically posted”. Anderson agreed and hoped Treasury or the Australian Securities and Investments Commission (ASIC) would provide some relief or relaxation methods around client consent in the coming weeks. She noted some advisers were asking clients to print out documents, signing them, scanning them, and emailing it back, or via emailed consent. Anderson said not many advisers had an approved digital signature method. She said advisers needed to keep file notes that specifically detailed what consent was provided, how it was provided, and when it was obtained.

However, Anderson stressed that some forms only allowed for wet signatures such as opt-in fees, renewal advice arrangements, and binding death benefit nominations. “The Association of Financial Advisers and the Financial Planning Association are trying to work with Treasury and ASIC around how to obtain client consent for say annual renewals without a physical signature and hopefully some relief around that over the coming weeks will come through to make it easier for advisers that don’t have tech capability to do digital signatures. “We’re trying to push for clients to do opt-in renewal of their advice arrangements verbally rather than having to do written consent. “Some of the ongoing fee arrangements that was meant to be effective 1 July are not going to happen given Parliament does not sit until August as some are still in draft.”

1/04/2020 3:46:57 PM

investmentcentre.moneymanagement.com.au

a part of

FACT CHECK: BETASHARES AUSTRALIAN EQUITIES BEAR HEDGE

VERDICT: PASS

a part of

Laura Dew writes the BetaShares Australian Equities Bear Hedge fund is one of the few Australian equity funds outperforming the market in these turbulent times. HAVING LAUNCHED BACK in July 2012, this ETF provides investors with a way to profit from or protect against a decline in the Australian stockmarket, making it ideal for uncertain and volatile times like this. It seeks to generate returns that are negatively correlated to the returns of the Australian stockmarket. The fund was one of the few in the Australian equity sector that was managing to achieve positive returns year to date at a time when most others were reporting falls of around 20%-30%. Out of the 289 funds in FE Analytics Australian Core Strategies Australian equities sector, 32 funds lost 30% or more over the last three months. For reference, the ASX 200 index had lost 26% since the start of 2020 as global stockmarkets tumbled in light of the economic shutdown caused by COVID-19. Since the start of the year to 27 March, the $104 million BetaShares BEAR fund has returned 20% versus losses by the

ASX 200 of 26% over the same period, according to FE Analytics. It invests in cash and cash equivalents and sells equity index futures contracts in order to generate a positive return when the ASX 200 index declines. Conversely, it will produce a negative return when the index increases. Looking over the longer term, it had returned 7.7% versus losses by the ASX 200 of 17% over one year but over three years, it had returned in line with the index with losses of 4.2%. Alex Vynokur, chief executive of BetaShares, said the fund was built to return a gain of 0.9%-1.1% for every 1% fall by the index. In its product disclosure document (PDS), it said the benefits of using this type of fund, unlike other typical managed funds, were it gave simple access to short exposure, had no margin calls for investors, was liquid and transparent. Vynokur said: “Advisers see this as a form of insurance policy, a

Chart 1: Performance of BEAR fund versus ASX 200 over one year to 27 March 2020

Source: FE Analytics

05MM090420_16-35.indd 19

way they can protect against equity losses. The fund allows them to maintain equity exposure but hedge the risk of fall in value in a time of significant market volatility. “The clients most vulnerable to this volatility are retirees and pre-retirees because they are reliant on their portfolio to provide them income in retirement. If the market falls significantly then they will likely need to sell part of their portfolio which creates a permanent loss of capital.” As well as this, BetaShares runs an Australian Equities Strong Bear Hedge fund, which sat in the ACS Australian geared equity sector, and was positioned to return 2.1%-2.7% for every 1% fall by the index.

HOW TO USE IT IN A PORTFOLIO Vynokur said the amount allocated to this fund would depend on investors’ existing portfolio as it was important, particularly in times of market stress, to make sure portfolios were sufficiently diverse. “Some people have already been diversifying their portfolios so they would need less whereas others might want to have a more meaningful hedge in place,” he said. According to its PDS, the ETF could be used to: • Hedge portfolios against falling markets; • Seek profits when markets decline; • As an alternative to using futures, swaps or derivatives; • Obtain short exposure instead of selling equities; and • Pairs trading (going long the

LAURA DEW

fund and long an individual stock to seek to reduce the impact of market movement on stock’s performance.) BetaShares said it was particularly popular at the moment, reporting inflows that were 25-30 times higher than usual volumes in the same period last year. However, it was not without risk, with the biggest being associated with negatively correlated returns as, given the historically strong returns by the ASX 200, investors would typically experience a loss rather than a gain. Over five years to the end of 2019, the ASX 200 had returned 62%. The PDS said: “This result is the opposite of most other managed funds. Investors should note in the past that the broader Australian share market, as measured by the ASX 200, has generally tended to increase over the long term. This would mean had the fund been in existence over that period, the value of the units may have tended to fall. “The responsible entity will seek to achieve the fund’s investment objective, of seeking to provide returns that are negatively correlated to the returns of the broad Australian share market in all market conditions. This means, that, in a rising share market, investors should not expected the fund’s investments to be repositioned in positivelycorrelated assets to attempt to profit from a rising share market.”

1/04/2020 12:09:19 PM

a part of

ACS CASH - AUSTRALIAN DOLLAR

ACS EQUITY - AUSTRALIA EQUITY INCOME

Fund name

Crown Rating

Risk Score

Macquarie Australian Diversified Income ATR in AU

0.23

2.98

2.86

Macquarie Diversified Treasury AA ATR in AU

0.22

2.93

2.83

Mutual Cash Term Deposits and Bank Bills B ATR in AU

0.09

1.73

Mutual Cash Term Deposits and Bank Bills A ATR in AU

0.1

Pendal Stable Cash Plus ATR in AU

0.1

Australian Ethical Income Wholesale ATR in AU

0.07

1.59

1.91

Macquarie Treasury ATR in AU

0.08

1.97

1.89

Mercer Cash Term Deposit Units ATR in AU

0.08

1.61

IOOF Cash Management Trust ATR in AU

0.07

1.53

CFS Colonial First State Wholesale Strategic Cash ATR in AU

0.09

Lakehouse Small Companies ATR in AU Mirae Asset Asia Great Consumer Equity A ATR in AU

2.56

Risk Score

UBS IQ Morningstar Australia Dividend Yield ETF ATR in AU

-8.63

8.79

Lincoln Australian Income Wholesale ATR in AU

-7.12

5.27

7.54

2.07

Armytage Australian Equity Income ATR in AU

-7.57

4.54

7.17

104

1.72

2.04

Lincoln Australian Income Retail ATR in AU

-7.18

4.44

6.8

1.74

2.02

Plato Australian Shares Income A ATR in AU

-7.7

5.15

5.98

CFS Acadian Australian Equity High Yield-Class A ATR in AU

-7.67

5.87

4.93

103

Legg Mason Martin Currie Equity Income X ATR in AU

-8.01

7.1

4.83

1.88

Legg Mason Martin Currie Equity Income M ATR in AU

-8.04

6.45

4.45

1.84

Legg Mason Martin Currie Equity Income A ATR in AU

-8.06

6.28

4.05

Microequities High Income Value Microcap Ordinary ATR in AU

-9.41 10.39

3.99

1.42

1.79

ACS EQUITY - AUSTRALIA SMALL/MID CAP Crown Rating

Risk Score

16.9

25.2

142

32.87

21.58

Fidelity Asia ATR in AU

1.9

16.26

18.89

Schroder Asia Pacific Wholesale ATR in AU

0.23

12.34

17.27

CI Cooper Investors Asian Equities ATR in AU

0.05

15.83

16.07

T. Rowe Price Asia Ex Japan ATR in AU

2.06

18.82

15.87

Nikko AM TAAM New Asia ATR in AU

0.13

16.56

14.56

Premium Asia ATR in AU

0.03

11.06

13.62

Aberdeen Standard Asian Opportunities ATR in AU

0.07

14.09

12.4

Platinum Asia C ATR in AU

0.51

10.15

11.89

Fund name

Ophir Opportunities Ordinary ATR in AU

-9.8

19.95

18.72

111

Fidelity Future Leaders ATR in AU

-7.45 11.11

16.05

100

Australian Ethical Emerging Companies Wholesale ATR in AU

-8.73 29.08

16.04

Macquarie Small Companies ATR in AU

-8.9

9.61

15.5

107

Australian Ethical Emerging Companies ATR in AU

-8.77 28.63

15.22

Fairview Equity Partners Emerging Companies ATR in AU

-8.55 15.01

15.05

112

Macquarie Australian Small Companies ATR in AU

-8.86

9.26

14.87

107

OC Micro-Cap ATR in AU

-9.19

22.1

14.68

118

Ausbil MicroCap ATR in AU

-14.89 12.18

14.1

134

UBS Australian Small Companies Fund ATR in AU

-4.17

16.36

13.97

116

Crown Rating

Risk Score

ACS EQUITY - EMERGING MARKETS

ACS EQUITY - AUSTRALIA Fund name

Crown Rating

ACS EQUITY - ASIA PACIFIC EX JAPAN Fund name

Fund name

Crown Rating

Risk Score

Fund name

Crown Rating

Risk Score

Fidelity Global Emerging Markets ATR in AU

-2.31 20.05

16.85

110

Legg Mason Martin Currie Emerging Markets ATR in AU

-0.82 17.28

16.51

DDH Selector Australian Equities ATR in AU

-10.11 13.37

18.8

107

DDH Selector High Conviction Equity A ATR in AU

-10.19 11.58

16.31

Platypus Australian Equities Trust Wholesale ATR in AU

-6.3

17.88

15.77

104

Northcape Capital Global Emerging Markets ATR in AU

-2.26 15.65

15.59

Lincoln Australian Growth Wholesale ATR in AU

-6.09

1.39

14.62

Schroder Global Emerging Markets Wholesale ATR in AU

-1.68 11.16

12.8

Bennelong Australian Equities ATR in AU

-5.94 16.01

14.28

115

CFS FirstChoice Wholesale Emerging Markets ATR in AU

-1.14 13.02

12.54

Lincoln Australian Growth Retail ATR in AU

-6.14

0.78

13.83

OnePath Wholesale Global -2.66 Emerging Markets Share ATR in AU

7.59

12.51

Bennelong Concentrated Australian Equities ATR in AU

-2.54

7.19

12.47

-5.87

18.63

13.31

118

MFS Emerging Markets Equity Trust ATR in AU

Hyperion Australian Growth Companies ATR in AU

-7.86 18.99

13.06

LGM Investments Limited BMO LGM Global Emerging Markets ATR in AU

-2.68 11.56

11.76

Alphinity Sustainable Share ATR in AU

-6.78 11.87

12.35

Macquarie True Index Emerging Markets ATR in AU

-1.59

8.44

11.28

CI Brunswick ATR in AU

-6.53

11.89

CFS Wholesale Global Emerging Markets Sustainability ATR in AU

-3.66

9.63

11.25

05MM090420_16-35.indd 20

18.24

2/04/2020 12:24:20 PM

a part of

ACS EQUITY - GLOBAL

ACS EQUITY - SPECIALIST

Fund name

Hyperion Global Growth Companies B ATR in AU

-3.25

21.26

24.51

Hyperion Global Growth Companies A in AU

-3.29

20.02

Zurich Investments Concentrated Global Growth ATR in AU

-2.63

CC Marsico Global Institutional ATR in AU CC Marsico Global B ATR in AU

Crown Rating

Risk Score

Fund name

BT Technology Retail ATR in AU

-1.4

27.53

26.39

23.15

CFS Wholesale Global Technology & Communications ATR in AU

-1.65

25.1

21.36

28.16

23.03

Fiducian Technology ATR in AU

-0.37 23.54

19.62

1.37

18.83

16.05

-2.15

20.69

23.02

Platinum International Health Care C ATR in AU

-2.2

20.81

22.58

CFS Wholesale Global Health & Biotechnology ATR in AU

-3.07 13.83

13.35

Loftus Peak Global Disruption ATR in AU

-1.05

23.08

22.4

16.1

13.21

Findex Advice Services Pty Ltd Custom Portfolio Solutions Global Growth ATR in AU

Platinum International Technology -1.84 C ATR in AU

-1.4

20.48

21.37

Platinum International Brands C ATR in AU

11.39

CFS FC Baillie Gifford W LT Global Growth ATR in AU

2.62

30.85

20.74

CFS Colonial First State Australian -7.96 10.01 Share Growth ATR in AU

9.82

T. Rowe Price Global Equity ATR in AU

-2.35

19.68

20.21

-8.71 10.57

7.83

141

Evans And Partners International B ATR in AU

Barwon Global Listed Private Equity ATR in AU

-3.56

28.31

19.96

BlackRock Concentrated Industrial Share D ATR in AU

-8.96

4.75

6.93

108

-2.91

Crown Rating

Risk Score

ACS EQUITY - GLOBAL SMALL/MID CAP Fund name

Crown Rating

Risk Score

Bell Global Emerging Companies ATR in AU

-3.2

17.26

15.85

Fund name

Ellerston Global Mid Small Unhedged ATR in AU

-4.33

24.5

14.45

CFS FirstChoice Wholesale Fixed Interest ATR in AU

0.5

8.92

5.42

Prime Value Emerging Opportunities ATR in AU

-5.82

17.77

11.73

Macquarie Dynamic Bond ATR in AU

1.13

8.6

5.35

Mercer Global Small Companies Shares ATR in AU

-6.29

6.31

10.42

107

UBS Diversified Fixed Income Fund ATR in AU

0.9

8.31

5.3

Pengana Global Small Companies ATR in AU

-3.19

11.29

10.1

0.81

8.62

5.25

Yarra Global Small Companies ATR in AU

-5.86

7.26

9.98

113

CFS Colonial First State Wholesale Diversified Fixed Interest ATR in AU

Lazard Global Small Caps I ATR in AU

0.6

8.48

5.21

-5.57

9.89

9.71

105

PIMCO Diversified Fixed Interest ATR in AU BT Wholesale Multi-manager Fixed Interest ATR in AU

0.75

8.68

5.17

OnePath Optimix Wholesale Global Smaller Companies Share Trust B ATR in AU

-6.75

5.01

8.96

105

PIMCO Diversified Fixed Interest Wholesale ATR in AU

0.59

8.43

5.16

OnePath Optimix Wholesale Global Smaller Companies Share Trust A ATR in AU

-6.78

4.86

8.78

105

IOOF MultiMix Diversified Fixed Interest ATR in AU

1.13

8.52

5.14

Dimensional Global Small Company Trust ATR in AU

-6.23

4.91

8.51

Aberdeen Standard Diversified Fixed Income Hedged ATR in AU

0.49

8.03

5.04

Onepath Wholesale Diversified Fixed Interest Trust ATR in AU

0.61

8.14

4.99

ACS FIXED INT - AUSTRALIA / GLOBAL Crown Rating

Risk Score

ACS EQUITY - INFRASTRUCTURE Fund name

Crown Rating

Risk Score

ACS FIXED INT - AUSTRALIAN BOND

4D Global Infrastructure A ATR in AU

-2.94 19.39

16.9

Fund name

BlackRock Global Listed Infrastructure ATR in AU

-4.96 21.47

16.7

Mercer Australian Sovereign Bond ATR in AU

1.03

10.49

6.56

AMP Capital Global Infrastructure Securities Unhedged Wholesale ATR in AU

1.03

10.04

6.54

-3.85 22.37

Macquarie True Index Sovereign Bond ATR in AU Legg Mason Western Asset Australian Bond X ATR in AU

0.86

9.58

6.48

Jamieson Coote Bonds Active B ATR in AU

1.05

10.33

6.39

Jamieson CC JCB Active Bond ATR in AU

1.04

10.27

6.31

15.92

Crown Rating

Risk Score

AMP Capital Global Infrastructure Securities Unhedged A ATR in AU

-3.86 22.13

15.65

AMP Capital Global Infrastructure Securities Unhedged R ATR in AU

-3.86 21.99

15.6

AMP Capital Global Infrastructure Securities Unhedged H ATR in AU

-3.88 21.76

15.3

0.94

9.5

6.28

Magellan Infrastructure Unhedged ATR in AU

QIC Australian Fixed Interest ATR in AU

-6.47 14.36

14.51

1.04

9.85

6.26

Macquarie True Index Global Infrastructure Securities ATR in AU

Pendal Government Bond ATR in AU

-5.56 16.44

14.34

OnePath ANZ Fixed Income ATR in AU

0.86

9.44

6.25

ClearView CFML Colonial Infrastructure ATR in AU

-5.98

13.21

BlackRock Enhanced Australian Bond ATR in AU

0.84

9.29

6.24

RARE Infrastructure Value Unhedged ATR in AU

-5.12 17.01

13.01

Macquarie Core Australian Fixed Interest ATR in AU

0.87

9.48

6.19

05MM090420_16-35.indd 21

2/04/2020 12:24:33 PM

a part of

22 | Money Management April 9, 2020 a part of

ACS FIXED INT - INFLATION LINKED BOND

ACS FIXED INT - DIVERSIFIED CREDIT

Fund name

Ardea Australian Inflation Linked Bond ATR in AU

-0.28

11.89

6.63

Macquarie Inflation Linked Bond ATR in AU

-0.03

10.36

6.1

Ardea Real Outcome ATR in AU

1.26

9.09

5.95

Ardea Australian Inflation Linked Bond I ATR in AU

-0.25

9.08

5.89

Mercer Australian Inflation Plus ATR in AU

0.42

5.48

3.96

Morningstar Global Inflation Linked Securities Hedged Z ATR in AU

0.27

6.15

3.91

5.47

Aberdeen Standard Inflation Linked Bond ATR in AU

-0.15

5.71

3.89

5.32

Fund name

Premium Asia Income ATR in AU

1.02

14.04

7.9

DirectMoney Personal Loan ATR in AU

0.61

7.71

7.75

Macquarie Core Plus Australian Fixed Interest ATR in AU

1.17

12.4

7.37

PIMCO CAPITAL SECURITIES WHOLESALE ATR IN AU

-1.75

10.32

6.12

Manning Private Debt ATR in AU

0.46

5.92

6.09

Principal Global Credit Opportunities ATR in AU

1.91

13.41

UBS Global Credit Fund ATR in AU

0.78

12.24

5.79

Standard Life Inv Global Corporate Bond Trust Wholesale ATR in AU

0.46

11.75

5.7

CFS Wholesale Global Corporate Bond ATR in AU

0.93

11.95

CFS Wholesale Global Credit ATR in AU

-0.09

7.16

Crown Rating

Risk Score

Crown Rating

Risk Score

ACS PROPERTY - AUSTRALIA LISTED ACS FIXED INT - GLOBAL BOND Fund name

GCI DIVERSIFIED INCOME WHOLESALE UNHEDGED USD ATR IN AU

Crown Rating

Risk Score

13.44

9.44

Fund name

Crown Rating

Risk Score

CF Property Capital Pty Ltd Chiodo Diversified Property Development Strategy Class in AU

0.5

10.74

19.42

AMP Capital Property Securities ATR in AU

-3.18

17.32

13.03

145

AMP Capital Listed Property Trusts ATR in AU

-3.2

16.82

12.95

142

AMP Capital Listed Property Trusts A ATR in AU

-3.23

16.21

12.37

142

UBS Property Securities Fund ATR in AU

-3.54

17.65

12.31

153

Pendal Property Securities ATR in AU

-3.31

15.69

11.82

138

Pendal Property Investment ATR in AU

-3.31

15.6

11.81

138

Mercer Emerging Markets Debt ATR in AU

0.02

12.94

Schroder Global Corporate Bond Inst ATR in AU

0.8

13.45

6.35

Challenger Guaranteed Income 400 cents pa 30/09/22 ATR in AU

0.5

7.2

6.28

Mercer Global Sovereign Bond ATR in AU

0.49

10.31

6.15

Colchester Global Government Bond N ATR in AU

0.95

10.15

6.05

Charter Hall Maxim Property Securities ATR in AU

-3.28

13.52

11.73

141

IPAC SIS International Fixed Interest Strategy No 2 ATR in AU

0.8

9.85

6.01

Crescent Wealth Property Wholesale ATR in AU

-2.46

8.22

11.68

Russell Global Bond AUD ATR in AU

0.84

10.25

5.93

AMP FLI AMP Property Securities ATR in AU

-3.29

15.27

11.3

144

Russell Global Bond NZD ATR in AU

0.83

10.25

5.83

Franklin Global Aggregate Bond I ATR in AU

0.64

10.67

5.33

Fund name

APN Asian REIT ATR in AU

-4.22

18.4

16.6

114

Premium Asia Property ATR in AU

3.16

9.42

14.15

Quay Global Real Estate A ATR in AU

-3.88

13.41

13.79

100

Quay Global Real Estate C ATR in AU

-3.86

13.51

13.7

100

ACS PROPERTY - GLOBAL

ACS FIXED INT - GLOBAL STRATEGIC BOND Crown Rating

Risk Score

Crown Rating

Risk Score

Fund name

Dimensional Global Bond Trust NZD ATR in AU

0.51

11.37

6.42

Dimensional Global Bond Trust AUD ATR in AU

0.99

10.72

5.44

Resolution Capital Global Property Securities Unhedged II ATR in AU

-4.65

15.49

13.03

103

MacKay Shields Unconstrained Bond ATR in AU

-0.36

3.45

2.76

-4.35

16.47

11.97

115

Pimco Dynamic Bond C ATR in AU

-0.36

2.09

2.75

BetaShares AMP Capital Global Property Securities Unhedged ATR in AU

JPMorgan Global Strategic Bond ATR in AU

-4.02

16.58

11.92

125

-0.09

4.31

2.71

Dimensional Global Real Estate Trust Inc AUD ATR in AU

Pimco Dynamic Bond Wholesale ATR in AU

-14.26 21.11

11.3

328

-0.37

1.99

2.64

CFS Colonial First State Wholesale Geared Global Property Securities ATR in AU

IOOF Strategic Fixed Interest ATR in AU

0.07

2.41

2.22

Macquarie True Index Global Real Estate Securities ATR in AU

-4.73

12.4

10.56

123

T. Rowe Price Dynamic Global Bond ATR in AU

2.05

1.01

0.4

Reitway Global Property Portfolio ATR in AU

-1.02

22.32

10.26

The tables and data contained in the Investment Centre are intended for use by professional investors and advisers only and are not to be relied upon by any other persons.

05MM090420_16-35.indd 22

2/04/2020 12:26:14 PM

BE BETTER INFORMED:

FE fundinfo Crown Fund Ratings are highly respected and widely recognised across the UK, European, and Asian markets. Now, available in Australia in partnership with Money Management, FE fundinfoâ&#x20AC;&#x2122;s quantitative ratings are designed to help advisers identify funds which have displayed superior performance in terms of stockpicking, consistency and risk control.

A one Crown rating represents a fund that falls into the fourth/ bottom quartile

Two Crowns demonstrates funds that place in the third quartile

Three Crowns demonstrates funds that sit in the second quartile

Four Crowns are given to funds that have placed between 75-90% of their sector peers

Five Crowns are awarded to funds that place in the top 10%

WHERE CAN YOU VIEW CROWN RATINGS? a part of

The multi-award winning research, due diligence and portfolio construction tool.

A part of the Money Management website, the investment centre gives you access to fund performance data and much more.

www.fe-fundinfo.com

www.moneymanagement.com.au/crowns

For more information on the methodology please visit: www.moneymanagement.com.au/aboutcrowns

5264_CrownsPrintUpdate MM FP.indd 23

a part of

in partnership with

30/03/2020 9:40:00 AM

24 | Money Management April 9, 2020

Retirement income review

REVIEWING RETIREMENT INCOME The Retirement Income Review has been welcomed by many in the industry, but Chris Dastoor writes, it is still uncertain what it will mean for the industry in the long-term. AS SOCIETY CONTINUES to progress and evolve, it is necessary to review the structural systems in place – if they are prepared to deal with current needs – and to establish what potential issues there might be in the future that can be dealt with now. As observed by AMP in their submission to the Review: “when AMP was founded [in 1849] life expectancy was around 30 years of age. Average life expectancy now is 80.76 for males and 84.85 for females and is expected to continue to increase.” We’re in a time where people are living longer and their

05MM090420_16-35.indd 24

retirements are being extended; although some situations can allow longer working careers, this is not going to be the case for all. On 27 September, 2019, Federal Treasurer, Josh Frydenberg, announced a review into the retirement income system, based on a recommendation from the Productivity Commission in the report Superannuation: Assessing Efficiency and Competitiveness. The stated intention of the review was to cover the current state of the system and its future performance as Australians live longer and the population ages. There are plenty of issues

needing to be addressed including if people were retiring with enough money, if the system was working efficiently enough, and whether regulation was holding back the industry. Current COVID-19 issues notwithstanding, the system was already due for an overhaul.

IS THIS REVIEW WORTH IT? Matt Rady, chief executive of Allianz Retire Plus, said, despite the abundance of reviews that had already taken place in the industry, the review was warranted. “The fact this one is specifically focused on the retirement

component of superannuation is well overdue,” Rady said. “When you look at the submissions, there are some recommendations that are valuable, whether it be [about] the gender bias in the system, taper rates or that people are not being incentivised to contribute to their super.” “The issue I have is there’s a degree of urgency to this I hope the Government really focuses on, because the reality is retirees need a much greater degree of certainty around their financial wealth in retirement.” Continued on page 26

31/03/2020 1:31:36 PM

_FP ad Test.indd 25 2

30/03/2020 11:01:54 9:38:33 AM 12/03/2020

26 | Money Management April 9, 2020

Retirement income review

Continued from page 24 Rady said vulnerable people in the community – from a health and financial perspective – are suffering a “double whammy”. “Their priority right now might be health, but when you see volatility in markets like right now, you can see the need to insulate people from market downturns and having their retirement savings withered away by market disruption,” Rady said. Rady said the benefit of this review was that it differed from the Productivity Commission, which was focused on assessing the performance of funds in accumulation. “If you look at [other] previous reviews, it’s focused on either the efficiency of participants in the system or whether the super guarantee is enough,” Rady said. “That’s a great debate, but at the end of the day, the purpose of superannuation is to look after people in retirement and there hasn’t been a specific review focused on the retirement part of superannuation, at least not to my knowledge.” Brett Jollie, Aberdeen Standard Investments (ASI) managing director in Australia, said even though it’s another review of the income system, it was still good to get a factual base for policy making which was the objective of the review. “However, I would say it further defers any concrete policy implementation around retirement,” Jollie said. “But we’ve now being looking at retirement policy for quite a number of years, including the financial system inquiry in 2014, and we haven’t seen any concrete developments since then.”

05MM090420_16-35.indd 26

FINDING THE FOCUS Jollie said there needed to be a comprehensive end-to-end solution that’s not just about investment products or product solutions. “It’s about a full end-to-end solution which focuses on the framework, financial education, advice and guidance,” Jollie said. “How do we satisfy individual wants, needs goals, risk profiles and provide flexibility, clarity and certainty in retirement?” Jason Nyilas, ASI head of retirement and product strategy Australia, said there needs to be work done on personalising the whole experience for members and individuals coming into retirement. “We need to drill down more clearly on what the retirement needs are, which in today’s landscape people don’t do,” Nyilas said. “Super funds do provide retirement solutions, but the personalisation level isn’t there, so we need to bring that aspect through digital and adviser solutions in order to join that up and have a direct line of sight with investment solutions that fulfil those personal needs.” Nyilas said one of the things he hoped for was more clarity over Pillar One and Two: the

“The issue I have is there’s a degree of urgency to this I hope the Government really focuses on, because the reality is retirees need a much greater degree of certainty around their financial wealth in retirement.” – Matt Rady, Allianz Retire Plus chief executive relationship between age pension and superannuation (Pillar Three covers voluntary savings). “I’m keen to understand what the income review thinks about that and what direction we think we should take as a country,” Nyilas said. “Do we follow the New Zealand system, do we do more of the UK or US systems, or do we stay in our existing system and stop tweaking it?” Raewyn Williams, Parametric’s managing director of research Australia, said people were still advocating for an articulation of the purpose of superannuation, what the objectives were and what does a good retirement look like.

“While there are different views about how we might frame that, the one takeaway from all the submissions [to the review] is everyone would like to see policy that starts with the ‘why’,” Williams said. “Why are we doing this and why should we believe in what the purpose is, and then good policy will come off the back of that ends up being framed.” John Maroney, Self-Managed Superannuation Fund (SMSF) Association chief executive, said making advice more efficient and available needed to be addressed. “One of the main concerns I think a lot of people have is it’s a Continued on page 28

31/03/2020 1:31:50 PM

_FP ad Test.indd 27 4

30/03/2020 11:01:02 9:39:04 AM 12/03/2020

28 | Money Management April 9, 2020

Retirement income review

Continued from page 26 very complex system, it’s very difficult for people to understand and engage,” Maroney said. “That leads to a very high need for financial advice for people particularly approaching or in retirement. “That’s becoming more difficult to receive because there’s a lot of advisers leaving the system and the cost of regulation is going up steadily.” Maroney said there was plenty to learn from the SMSF sector as it was more mature, in terms of the amount of retirement income coming out of their sector as a proportion of members in their sector. “A lot of the issues our sector has been dealing with for the past five or 10 years are issues other sectors will need to deal with over the next 10-20 years,” Maroney said. “There are a lot of lessons about how to manage retirement income drawdown in our sector that will be very important for the whole system.” Ranjit Thambyrajah, managing director of Acuity Funding, said there wasn’t enough of a focus for people to invest globally to generate better returns. “The problem with the super fund industry at the moment, is that the returns are nowhere near enough to actually cover the costs incurred as people get older,” Thambyrajah said. “The cost of care in the retirement industry is very expensive, and the Government tries to move away from it, expecting people to take care of their own. “One of the best ways to give the best care is to actually tie it in with your retirement fund and that hasn’t happened.

05MM090420_16-35.indd 28

“But you can’t achieve that if you have such low gains, because there isn’t sufficient money being gathered for the fund.” Rady said innovation in the retirement income sector was not easy, which was unfortunate given the weight of money and opportunity in the area. “There are just very few organisations globally that are prepared to have the appetite or patience to use their capital to support these types of initiatives,” Rady said. “Ultimately you have to provide value to retirees in this space and you can’t make extraordinary profits in this game. “From a policy perspective, we need to find a way to reduce the barriers of entry because at the moment the more people playing in this space, the better.”

THE COST OF ADVICE For advisers, the cost of advice was the biggest issue for the future of retirement income, and future retirees might struggle to deal with costs. Ben Marshan, head of policy and standards at the Financial Planning Association of Australia (FPA), said the review needed to address the cost of advice.

“Financial advice is of critical importance to retirees, and for Australians preparing for their retirement, the regulatory costs to provide advice are escalating dramatically,” Marshan said. “As well as this, there are restrictions on how you provide advice and what advice you can provide to retirees who want simple answers to questions.” Marshan said the FPA had asked the Retirement Income Review to highlight the challenges members faced in helping Australian consumers when it came to how much it cost to provide advice and the restrictions around doing so in a cheap and efficient way. “We would like to see an acknowledgement that the way regulation has been developed around financial advice has been very ad hoc and led to these costs and regulatory inefficiency issues,” Marshan said. “Secondly, there’s a drive through the Royal Commission recommendations to limit the flexibility consumers have to pay for financial advice. “We’d like the review to respond to that and highlight that consumers, particularly around retirement, need flexibility in how they pay for advice to ensure they have access to it.”

1/04/2020 2:48:34 PM

WEDNESDAY 10TH JUNE 2020, 11:00AM

Join us for an opportunity to ask the experts and earn CPD points! Content discussed on the day is driven by you, so include your question when you register or send it through on the day and have your question answered live!

Zac Leman

Head of Managed Accounts, BT

Shaune Egan

Head of Product Management Wrap Platforms, AMP MyNorth

Martin Morris

Head of Distribution, Praemium

Matt Heine

Joint Managing Director, Netwealth

0012_MA2020 FP.indd 29

31/03/2020 5:25:07 PM

30 | Money Management April 9, 2020

Financial advice

EASING THE REGULATORY BURDEN DURING A PANDEMIC As Australia moves under lockdown, ASIC needs to ease the regulatory burden for advisers unable to meet face-to-face with clients, writes Shannon Bernasconi. WE HAVE HEARD from the Australian Securities and Investments Commission (ASIC) that it is recalibrating its regulatory priorities to focus on COVID-19 challenges and in light of this it’s worth considering what the focus should really be. Back in mid-March, ASIC’s Consultation Paper 329 'Implementing the Royal Commission recommendations: Advice fee consents and independence disclosure’, outlined the corporate regulator’s proposed approach to implementing the recommendations. In terms of the new fee permissions from clients, the corporate regulator is reported to have said it would be consulting on whether written consent forms would need to include information about the services to be received by the fund member or client under the ongoing fee arrangement, given this could be unnecessary duplication as the consent would often be sought at the same time as an ongoing fee arrangement was being entered into. Importantly, the consultation paper was released on 10 March 2020 – before a pandemic was declared and the full extent of the health crisis was revealed. Perhaps a consideration now should be, whether written consent forms – and paper copies signed in pen – should be considered at all. Advice is personal. To date, advisers have for the most part

05MM090420_16-35.indd 30

delivered this personal advice in person, at which time clients agree to the fee for the service provided. During the process, paperwork (and lots of it) is touched and pens are provided for signatures. There is no doubt that this ‘old school’ measure of compliance was always going to come under scrutiny – given the technological advances of the 21st century and the different electronic options that are available already in many industries and government departments. However, the question of whether ASIC’s consultation should be broadened to more virtual consent measures, becomes even more pertinent under pandemic conditions. The COVID-19 pandemic has brought forward the move to online/virtual contact across Australia and the world. When it comes to adviser meetings with clients – it was eventually going to become more widely used anyway. However, the coronavirus has sped up the need for it, and ASIC needs to take that into account now not later. For a retiree in lockdown in an aged care facility, or even simply choosing not to leave their home and have visitors – a visit from their financial adviser in person is not recommended. At the same time – market volatility and a myriad of regulatory changes during this period means good financial advice

1/04/2020 3:45:49 PM

April 9, 2020 Money Management | 31

FinancialStrap advice

is more important than ever. In this environment, will postal wet signature documents be insisted upon? Or will a verbal confirmation, and subsequent written confirmation correspondence, to the client be considered by ASIC? For those vulnerable clients who have access to email, will ASIC encourage electronic signatures and online conferencing? Considering it is already possible to sign a tax return electronically, encouraging the electronic signing for consent to advice and fees should not be much of a leap. There are exceptions however where the regulation prevents the use of these tools. An example of this is Beneficiary Nomination forms which have to be witnessed. According to the Law Society of NSW, to use electronic signatures and comply with the law for witnessing you need to be physically present at the time the document is signed by the signatory; you need to sign (and know that you are signing) the same document, not a separate copy of it; and you need to sign at the time you witness the document being signed by the signatory. Hence to update the binding death nomination only paper and wet signatures are considered. Ironically, this is a form that is important to keep up to date amongst the aged care community especially in these times of concern regarding the virus. We have seen first-hand over the past few weeks, the pace of business’ take up of Zoom and Google Hangouts and other virtual meeting options. Schools are communicating with students via virtual classrooms – and extended families and friends are catching up together by the same means. It would seem obvious that financial advice should be allowed to be delivered in the

05MM090420_16-35.indd 31

same manner. Retirees, in particular, need advice more than ever before to manage their asset values and manage the changes the Government is implementing (such as halving drawdown minimums), not to mention the benefit of the calming assurance provided by advisers in times of financial anxiety. Seeing a friendly face over an iPad or computer, or hearing a trusted voice, is an important contact point, especially when in isolation. ASIC may need to consider how to support these retirees, and their advisers, in the role of technical support to assist those in lockdown as to how to access and use these electronic tools. However, while the elderly should be a focus, there is no reason why a more technological form of advice and consents by way of online communications and virtual meetings, shouldn’t be adopted across the board. Ultimately, whether it be for retirees or accumulators, advisers will need to embrace technology to keep the communications and connections open. And regulators will need to follow suit. Electronic signature services, electronic client communications, and online visual call applications are all part of the tools we are embracing in order to comply with social distancing and protecting the vulnerable. The fees clients pay for personal advice, platforms and investment will also be under even more heightened scrutiny when asset levels are dropping. Investment managers of managed accounts and advisers managing clients’ portfolios, more than ever, need to reduce implementation drag in order to affect asset protection strategies. Technology that allows for bulk

transacting intra-day, bulk electronic record of advice for client authority and intra-day execution are critical in volatile times. If you have to amend each client portfolio one by one, produce Records of Advice (ROAs) for each client or wait for 30 minutes for them to produce, if you mail or email them to each client, you are not equitable in your treatment of all clients and can provide advice based on many days old prices. The cost of implementation drag in these volatile markets can be significant. Technology now offers the ability for same day and intra-day rebalance of all client’s portfolios. For those with discretion, those same bulk orders can be placed, filled and rebooked to client accounts same day. For those without discretion, all clients can receive electronic ROA for authorisation and same-day execution. The workflow integration means advisers and investment managers can focus on the advice, while the technology and service provide compliance (such as ROA authorisation connectivity to trade execution or managed discretionary accountprovider), and intra-day trade execution and liquidity management, plus up to date portfolio holdings, performance and reporting. As the Dalai Lama said “When you can’t control what’s happening, challenge yourself to control the way your respond to what is happening. That’s where the power is”. We need ASIC, advisers and all who provide services in the value chain to collaborate for the better and best interests of all Australians.

SHANNON BERNASCONI.

Shannon Bernasconi is managing director at WealthO2.

31/03/2020 3:15:12 PM

32 | Money Management April 9, 2020

Fraud

INOCULATING AGAINST A POTENTIAL FRAUD PANDEMIC We all need to keep our vigilance high during these extraordinary times, but perhaps nowhere is our attention more warranted than over money and data, writes Dean Martin. SO MUCH HAS been said about the global pandemic and the massive impact of the COVID-19 virus on our physical and financial wellbeing, that I don’t want to add to the weight of collective worry. It is timely, though, to remind ourselves of other present dangers. As those working in the frontline of the health sector are battling to save lives, so too are professionals in the financial advice and financial services sector battling to protect and preserve the future monetary wellbeing of our citizens. I want to make a plea that, while the whole world is fighting a health crisis, we as individuals should also

05MM090420_16-35.indd 32

take steps to avoid a pandemic of data fraud also taking root. Anyone now working from home will understand that data protection and security is ever more vital. As the world is focused on keeping the wheels of commerce and the wellbeing of our families, work colleagues and communities going, it is also important to be vigilant of growing cybersecurity risks, identity fraud and the importance of a few simple and effective process improvements. As we navigate this terrible COVID-19 pandemic, a few minor changes are all that may be required to be better custodians of

working Australians’ sensitive data and their money. Many financial advisers have small business clients that are an important part of the future recovery effort of the Australian economy. The measures described here will also assist those Australians, and the last thing they need is a data theft or fraud incident at this time. In the superannuation space, recent experience has shown us how intimate the relationship is between a members’ identity data and their superannuation savings and contributions. That intimacy has to be a focus for protection.

Australia’s cyber spy agency has already warned of scams and phishing attempts. Scamwatch has received 94 reports of scams related to the coronavirus since January, with numbers climbing. It should also be noted that identity fraud is one of the most common crimes in Australia today. This is well-illustrated with the recent reporting of theft from members’ superannuation savings. For example, during February this year a South Australian man was charged over an $11 million cyber hit on super funds. This is the second recently reported incident where $10 million or more has been

1/04/2020 12:43:43 PM

April 9, 2020 Money Management | 33

Fraud

stolen from super savings, in this case via payroll identity fraud. The increase in cybercrime is compounded by employees working from home and accessing company data remotely. Devices like laptops and personal handheld devices significantly increase risks for data breaches from both cyberattack and diminished user vigilance. It is also important to note that at this time the general focus and awareness on cybersecurity issues and threats is reduced. For example, home-based workers may slip up or avoid their internal systems and processes as many Australians at home are juggling workloads, caring for children and possibly looking after isolated family members. In the area of superannuation and payroll fraud, we recommend a series of steps to reduce the risks. These extend largely to superannuation funds and payroll service providers offering alternatives to the antiquated export and upload process used to pay employee super contributions. This literally means avoiding unnecessary contact with the real world. In other words, keeping data and the money in a secure ‘pipe’ that is immune from external attack or of being corrupted by an outside attack. Most commonly, we see outdated processes that compel employers to unnecessarily expose members’ identity and financial data outside of secure payroll systems. This means unnecessarily by-passing access control, password-protection and audit-log functionality to appropriately protect employees’ information. To further explain the process (and potential gaps) for a typical payroll manager or small business employer today when paying employee contributions, a SuperStream file is most often exported outside of their secure

05MM090420_16-35.indd 33

payroll system – the file contains employees’ name, date of birth, address, contact information, tax file number and income details – essentially a rich laundry list of identity information. The same data targeted for identity fraud and subsequently theft from members’ superannuation savings. Once a payroll manager or business owner exports a SuperStream or single touch payroll (STP) file outside of their payroll system, they are exposing employees’ and members’ identity and financial data to unnecessary risks. To complete a SuperStream disbursement, the payroll manager subsequently navigates to a fund portal to upload the file or files to finalise the transaction. In addition to unnecessarily exposing employee data, this process can lead to issues for employers with the notifiable data breach (NDB) scheme. By removing the additional security inherent in payroll systems, employers introduce easily avoidable risks. If they are breached with their employees’ personal and private information exposed on a desktop or shared drive, they have added complexity in their reporting of the breach to the Office of the Australian Information Commissioner (OAIC) and also need to inform their employees that their identity and financial data is likely to have been compromised. It is therefore evident that an integrated payroll network is even more essential now and should become the ‘new normal’ to help combat the increased risks of cyber threats. Having such a system in place removes the need to export and expose employees’ or members’ identity and financial data outside of secure payroll systems. The integration with payrolls via an Application Programming Interface (API) facilitates highly secure transfers for employees’

data by keeping all their information behind the additional security provided by the payroll software. API transfers effectively enable more secure computer to computer transfer for data and removes the requirement to export personal and private information to a desktop or shared drive. When cyberbreaches occur, personal and private information on a desktop or shared drive is readily accessed by cybercriminals. Even the identity and financial data that sits on desktop or shared drive can be unintentionally exposed by simple human error, simply via an erroneous email or erroneous email recipient. Indeed, human error currently accounts for close to a third of all notifiable data breaches. With the announced COVID-19 stimulus measures to include early access to superannuation savings, there is likely to be a significant increase in the movement of money being redeemed out of the superannuation system. This further raises the importance of protecting identity data and superannuation money. The good news is this can be done simply and quickly. Removing the weakest link in the end-to-end security chain from employers to funds, namely desktops and shared drives, significantly improves the contributions payment process for all working Australians who depend on a secure superannuation system. During the challenging times ahead, people’s health and financial wellbeing is of course paramount. Simple changes to common processes can have a lasting and meaningful impact. To help increasingly challenged employers and employees, advisers, superannuation funds and payroll professionals can make some minor changes to ensure their contributions process protects members’ data end to end.

The whole world is massively challenged right now, demanding us to solve the medium-and longerterm implications of significant disruptions from COVID-19. If there is a so-called ‘silver lining’ from this situation it might be that increased requirements for remote working will accelerate automation, end-to-end security thinking, and process re-engineering. A disbursed online workforce presents a clear necessity and opportunity for a permanent move away from paper, e-mail or manual based data transfer, and approval processes which circumvent the security and control procedures built into business management systems like payroll. The most progressive of Australia’s super funds and payroll service providers are already making these types of changes to be good custodians of working Australian’s identity, financial data and money. Organisations who don’t effectively implement these changes will face increasing challenges from their customers, government and regulators as the cost of complacency will ultimately undermine them. Is it not better to boost our collective ability to inoculate the money and data on behalf of our clients and hardworking Australians? One consequence of the COVID-19 crisis is the opportunity to look beyond the immediate challenges and focus on innovation to bring the right contribution and tools to market to not only be prepared to face new challenges, but encourage Australians to be better off for the experience of battling this dreadful virus together. Dean Martin is chief executive of InPayTech.

1/04/2020 1:18:34 PM

34 | Money Management April 9, 2020

Estate planning

HELPING YOUR CLIENTS UNDERSTAND ESTATE PLANNING It is critical that people understand what happens in that often-unknown process of passing away and are prepared with a will, writes Anna Hacker. KNOWLEDGE BRINGS POWER and to many people it brings comfort. But the reality is, half of all Australian adults do not have a will and 34% want one but just “haven’t got around to it”. We get regular health checks, save for our next family holiday and even plan our next career move but what happens to our loved ones when we die is not always at the forefront of our mind. For many of our clients, this is changing as they grapple with the uncertainty of the COVID-19 crisis. We’re navigating extraordinary times and whether you are a financial planner, accountant or lawyer, we all play an important role in supporting our clients. It is common for people to be scared, hesitant and confused by the process involved with estate planning. However, planning and preparing early for the practicalities of death is the most important advice we can give. To help in conversations with clients on all things estate planning, below are some common questions I receive. My client has a will, they are covered, I don’t think they need to review? Wills need to be regularly reviewed to ensure they have been kept up to date with a client’s current circumstances and asset structure. Also, the will may be homemade – a will without advice is just like insurance without a proper understanding of a client’s needs – the advice is the critical part and unless a client had a thorough estate plan when their will was signed, it is unlikely to take into account their specific needs. My client doesn’t have a complicated estate, why do they need a will? There are rarely ‘simple’ or ‘standard’ estate plans. When it comes to modern families with

05MM090420_16-35.indd 34

different children and spouses, even if their assets are not significant, their circumstances make proper estate planning important. You have to think a few steps ahead with estate planning. Almost every client I see has some aspect of a blended family that they need to look at, whether it's for themselves or their children. You can't have a one-size solution, especially with blended families. My client is young, shouldn’t we only worry about our transition to retirement clients for wills and powers of attorney? You are (almost) never too young to need a will! Unfortunately, we never know when we will pass away and so it is important for clients to protect their wealth and their beneficiaries regardless of their age. The worst outcome for a client is to have structured their wealth appropriately in their lifetime only to have it be distributed in a way that they would not have wanted when they pass away. Having a will is not about clients being near death, it is about empowering all people with choice and control. My client has a will, how can they minimise the chance of it being challenged? By seeking professional advice. Problems can arise when people don’t have a conversation with someone like a lawyer on where possible objections could come from. Most legislation in Australia, although it does vary from state-tostate, will allow a will to be challenged by a deceased person’s spouse, de facto spouse, and a child. In some states, people who are dependent can also make challenges as well as people who are part of the same household. There are many ways a will can be contested but if you’ve had professional advice it is much more likely to achieve what you are setting out to achieve.

Should my client put reasons in their will to justify their decisions? A one-line explanation in a will can make it easier for a potential challenger to undermine the intention of your client. While there’s no right or wrong way, calling out a specific reason in the will does still mean it can be refuted. For example, if a person outlines that the reason they’ve chosen not to include someone in their will is because “he hasn’t contacted me for 20 years”, could result in phone records being used to challenge this point. It becomes a complicated process. What can help is a letter to accompany the will, allowing a person to express why they’ve made certain decisions. How can my client protect their will from family feuds? One of the most important decisions in estate planning is choosing an executor. Acting as executor is a hugely important role, one that can profoundly affect the lives of those named in a will, and it is important the right person is appointed to the job. Deciding who will take on this responsibility when drafting an estate plan is extremely important. While most people tend to choose a family member or close friend, another option is a professional executor. An independent executor will not ‘choose sides’ in a conflict and will act in the best interests of the will-maker – and carry out the wishes expressed in a will – and not of themselves. In what instance should my client consider a testamentary trust? A testamentary trust is a trust that is set up by a will. It appeals to those looking for asset protection, consideration of complexities of blended families, potentially protection in the case of a relationship breakdown and to assist minimising tax. It's for someone who wants to protect the

estate for future generations. Around 80% of my clients have wills incorporating testamentary trusts, because people's lives are becoming more complicated and they're wanting to cover all those different scenarios. Essentially, the testamentary trust is more for the beneficiaries than the testators as they won't be around when it's being administered. How can a superannuation beneﬁt trusts help my client? With all the uncertainty around regulatory changes in the super system, super death benefits trusts can provide flexibility in the estate planning process for self-managed superannuation fund (SMSF) trustees and advisers. We often see SMSF professionals consider trusts as a way to work around the impact of the transfer balance cap rules on death benefits. Setting up a death benefit trust as part of the client’s will also gives estate executors more options to deal with future changes to super rules. SMSF professionals do need to be aware though of the limitations of such a trust, which is of benefit to the deceased’s dependents and can’t be created after the client’s death. Preparing for the practicalities of death Now is the time to be having these important conversations with clients as many put estate planning at the top of their to-do list during the COVID-19 pandemic. Crucially, it will empower your clients with the knowledge to make informed and confident decisions around their estate and end of life. It’s imperative everyone understands they can do simple things now to make sure their wishes are fulfilled, and loved ones are looked after. Anna Hacker is principal of Australian Unity Trustees Legal Services.

2/04/2020 9:06:20 AM

Money Management Magazine Now available online! Stay up to date with the latest industry news, earn CPD points and share the magazine with colleagues or friends. Visit www.moneymanagement.com.au/e-magazine Want to find out about advertising in our Digital Magazine? Contact: craig.pecar@moneymanagement.com.au

5295_Emag FP.indd 35

1/04/2020 4:21:42 PM

36 | Money Management April 9, 2020

Toolbox

ESTABLISHING CLIENT TYPE There are subjective trends in the distinction between retail and wholesale clients, writes David Barrett, and it is important advisers get it right to avoid costly mistakes. A NUMBER OF developments in the financial advice industry have caused many financial services professionals (advisers) to consider a shift in focus towards the â&#x20AC;&#x2DC;wholesaleâ&#x20AC;&#x2122; end of the client spectrum. These developments largely stem from the Hayne Royal Commission recommendations and the Financial Adviser Standards and Ethics Authority (FASEA) professional standards for financial advisers. But there has been, for many years, a natural bias towards wholesale client advice due to the larger amounts of funds typically involved, different compliance

05MM090420_36-40.indd 36

obligations and the wider range of financial products available to wholesale investors. So, the distinction between retail and wholesale is crucial. This article, for the benefit of advisers, explores the issues and recent (and not-so-recent developments) in the distinction between retail and wholesale investors.

RECAP OF THE STATUTORY TESTS Legislative reform in 2001 established a distinction between retail and wholesale clients, for the purpose that:

'The consumer protection provisions will apply only to retail clients, as it is recognised that wholesale clients do not require the same level of protection, as they are better informed and better able to assess the risks involved in financial transactions.' The starting position is that all clients are, by default, retail clients. A client will only be treated as wholesale if they meet certain criteria, described below. Most financial advice clients will be retail clients.

The wholesale client exception To determine if a client can qualify as a wholesale client, firstly consider the type of financial product or service being provided. For general insurance, the specific rules that apply are beyond the scope of this article. If the financial product or service relates to superannuation, the client is always treated as a retail client unless the product or service is provided to the trustee of a superannuation fund with net assets of at least $10 million. Note that the Australian

1/04/2020 12:58:49 PM

April 9, 2020 Money Management | 37

Toolbox

Securities and Investments Commission (ASIC) has the view that a non-superannuation product or service (such as investment advice) provided to a self managed superannuation fund (SMSF) trustee is not in regard to a superannuation product, so the tests for other financial products (see below) would apply, rather than the $10 million threshold. So when providing financial advice to an SMSF trustee, the trustee may be treated as both a wholesale and retail client, depending on the type of advice being provided. Generally, for other financial products and services, there are five tests. Satisfying any one of these indicates that a client may be treated as a wholesale client. 1) Product value: the financial product to which the advice relates is at least $500,000. Products of the same class from the same issuer can be aggregated for the purposes of this test; 2) Business test: the product or service is provided in connection with a business that is not a small business; 3) Individual wealth: net assets of $2.5 million or gross annual income of $250,000 for the last two years, demonstrated by a qualified accountant’s certificate, valid for up to two years; 4) Professional investor: includes financial services licensees, bodies regulated by Australian Prudential and Regulation Authority (APRA) other than superannuation trustees acting for a trust holding less than $10 million in net assets, persons controlling $10 million or a corporate body or unincorporated body that carries on a business of investment in financial products, interests in land or other investments following

05MM090420_36-40.indd 37

an offer or invitation to the public; or 5) Sophisticated investor: the financial services licensee is satisfied that the client has previous experience in using financial services and investing in financial products that allows them to assess the merits of the product or service, the value of the product or service, the risks associated with holding the product, the client’s own information needs, and the adequacy of the information given by the licensee and product issuer. The product value and individual wealth tests have been criticised for the lack of indexation of the thresholds since inception, resulting in an increasing number of Australians meeting the thresholds over time. Back in January 2011, the Department of Treasury suggested increasing the product value test threshold from $500,000 (a threshold which in effect dates back to 1991) to $1 million. But there has been no increase. The sophisticated investor test was introduced in 2007 as a solution for those investors who can’t otherwise qualify as a wholesale client but have sufficient investment experience such that they don’t require the consumer protections generally offered to retail clients. The law places a heavy onus on the financial services licensee to certify that a client meets the required standard to be a sophisticated investor.

A MORE SUBJECTIVE ASSESSMENT The introduction of the sophisticated investor test in 2007 added a more subjective assessment criteria to the existing four tests, which are generally

more quantitative and administratively easier to apply. In theory, the sophisticated investor test allowed more investors to be treated as wholesale clients, although anecdotally its practical use is limited. Since 2007, there has been a more general trend towards overlaying the four original tests with a qualitative assessment of the financial sophistication of the investor. In particular, two Federal Court of Australia decisions handed down in 2012 provide a lucid warning to advisers against treating clients as wholesale investors when in practice they are not financially sophisticated enough to understand the financial products recommended. Three local councils commenced a class action against Lehman Brothers Australia. Despite being recommending financial products described as suitable for sophisticated investors, the councils were found to lack the sophistication to understand a number of financial products recommended, including synthetic collateralised debt obligations (SCDOs). The financial products subsequently failed during the global financial crisis, and many millions were lost by the councils and their investors. The court ordered compensation for the losses. Another Federal Court of Australia decision in 2012 formed a similar conclusion: the fact that an entity qualified as a wholesale investor for the purposes of the act did not necessarily indicate that it would have the capacity to understand very complex financial products.

THE CODE OF ETHICS The policy intention behind legislation is more relevant than

Continued on page 38

1/04/2020 12:42:56 PM

38 | Money Management April 9, 2020

Toolbox

CPD QUIZ 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. What was the original reason in 2001 for the distinction between wholesale and retail clients? a) The consumer protection provisions should only apply to wholesale clients Continued from page 37 ever for those financial advisers who are required to abide by the FASEA Code of Ethics from 1 January, 2020. The code is relevant when financial advisers are providing personal advice to retail clients. Standard 1 of the code states: 'You must act in accordance with all applicable laws, including this code, and not try to avoid or circumvent their intent.' In relation to the distinction between retail and wholesale clients, example two from FASEA’s Code of Ethics Guidance provides an example which is consistent with the subjective trend mentioned above. In that example, a couple have previously used the services of an adviser, who is authorised to provide personal advice to retail clients. The adviser holds a current accountant’s certificate indicating that they meet the individual wealth test. One of the partners (Donna) later approaches the adviser independently, seeking advice on investing an inheritance without the other partner’s knowledge. Donna has no previous investment experience. The adviser treats Donna as a wholesale investor and provides a financial product recommendation and placement service without the protections usually provided to retail clients. This is a breach of Standard 1, as it circumvents the intention of laws designed to protect inexperienced investors like Donna.

CONCLUSION Assessing a client as either retail or wholesale is not as straightforward as applying the statutory threshold tests. Consideration begins with the type of financial product being considered. If the product is superannuation related, then generally the client must be treated as a retail client (unless they are a trustee of superannuation fund with at least $10 million of net assets). If other financial products are in consideration (excluding general insurance), the original statutory tests in the Corporations Act (product value test, business test, individual wealth test and professional investor test) are generally quite definitive and straightforward to apply to a client’s circumstances. However, the addition of the sophisticated investor test in 2007 introduced more subjective considerations – if a client, who would otherwise be treated as a retail client, meets the experience threshold, they may be treated as a wholesale client. More recently, the industry (supported by case law developments and the FASEA Code of Ethics) applies a more subjective test of the level of financial experience, requiring that a client with little investment experience is treated as a retail client, despite having met the requirements of one or more of the statutory threshold tests. David Barrett is head of Macquarie Technical Advice Services.

05MM090420_36-40.indd 38

b) The consumer protection provisions should only apply to retail clients c) Wholesale clients need more financial advice than retail clients d) Retail clients have access to a greater range of financial products e) None of the above 2. How many wholesale client tests are currently set out in the Corporations Act 2001: a) Two b) Three c) Four d) Five 3. In example two of the FASEA Guidance to the Code of Ethics, why should Donna not be treated as a wholesale client? a) The Qualified Accountants Certificate has lapsed b) She didn’t have enough money to invest c) She has no previous financial experience d) The adviser was authorised to provide personal advice to retail clients e) None of the above, Donna can be treated as a wholesale client 4. What did the Department of Treasury recommend increasing the $500,000 product value test threshold to? a) $600,000 b) $750,000 c) $1 million d) $1.5 million e) $2 million 5. The sophisticated investor test is easy to implement in practice, and hence often used. True / False

TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/ features/tools-guides/establishing-client-type

For more information about the CPD Quiz, please email education@moneymanagement.com.au

1/04/2020 12:43:07 PM

April 9, 2020 Money Management | 39

Send your appointments to chris.dastoor@moneymanagement.com.au

Appointments

Move of the WEEK Rimmo Jolly Head of iShares Asia Pacific BlackRock

BlackRock has appointed Rimmo Jolly as head of iShares Asia Pacific, which will be effective from 4 May, 2020. He will be based in Hong Kong, responsible for growing iShares’ exchange traded fund (ETF) market share and driving ETF adoptions amongst investors in the region.

He would work closely with their regional and global iShares network to create innovative local product offerings. Jolly would report to Susan Chan, head of iShares and index investing Asia Pacific. Jolly was currently Citi’s regional head of ETF and

Australian Unity chief investment officer and chief executive of wealth and capital markets, David Bryant, is to be the new Pacific Zone leader and Australian chief executive of Mercer. Mercer stated a start date is being negotiated with Australian Unity. It said that Bryant would report to David Anderson, president of Mercer’s international region. Bryant has been with Australian Unity since 2004 before which he was general manager, superannuation and private clients, at Perpetual. Schroders has promoted Chris Durack, country head of Australia, to co-head of Asia Pacific, as the firm recognises the ‘rapid growth’ it has seen in Asia Pacific. He will share the responsibility with Susan Soh, country head of Singapore, from Q2 2020 and they will both retain their existing country roles. Durack had worked as head of

05MM090420_36-40.indd 39

index sales and business development for Asia Pacific and Japan. He previously held senior positions in Citi’s prime finance group in Hong Kong and San Francisco, and prior to that worked for Deutsche Bank’s equity structured products group.

Australia since 2018 and joined Schroders from NSW State Super Corporation in 2011 as head of distribution. The pair succeed Lievan Debruyne who was appointed to global head of distribution earlier this year. Yarra Capital Management has appointed Rommel Hacopian as distribution manager, servicing national dealer groups, platforms retail investments and independent financial advisers (IFAs). Hacopian had over 25 years’ industry, including almost 20 years with Challenger, where he was most recently general manager of national accounts, research and platforms. During his time at Challenger, he helped develop, manage and implement the retail distribution strategy for more than 20 institutional groups and 200 IFAs for Challenger Life and Fidante Boutiques. Before Challenger, he held

roles with Citi, Associated Planners and National Mutual. Maple-Brown Abbott has appointed Duncan Hodnett to the newly-created position of head of global distribution, responsible for activities in both Australian and overseas. He would be responsible for business development, client service, marketing and product strategy activities across its institutional, wholesale and retail markets. Commencing in Sydney from 30 March, 2020, he would report to Sophia Rahmani, chief executive and managing director. He had over 17 years’ experience in financial services in Australian, European and US markets, and joined from Pinnacle Investment Management where he was director of institutional sales for Australia and the US. First Sentier Investors has made two appointments to its global

product division, one in Sydney and one in London. Hendrie Koster will join as head of investment product research and assurance, and Kerry Baronet will become head of pooled fund management. The global product division was launched last November, led by Clare Wood, and would work to better identify product development opportunities for the company. Koster, who joined First Sentier from his role as head of product and strategy at Nikko AM, would focus on building a global product research function to identify long-term commercial opportunities. Baronet was previously head of product, EMEA for First Sentier in the UK (where it is known as First State Investments) and was promoted to lead the pooled fund management team. This was responsible for developing a strategically-targeted product suite across global markets.

1/04/2020 4:43:54 PM

OUTSIDER OUT

ManagementApril April9,2,2020 2015 40 | Money Management

A light-hearted look at the other side of making money

No fun unless you name names

Outsider, like Banjo, is yearning for the wide, open spaces I am sitting in my dingy little office, where a stingy Ray of sunlight struggles feebly down between the houses tall, And the foetid air and gritty of the dusty, dirty city Through the open window floating, spreads its foulness over all Well, apologies to Banjo Paterson because Outsider’s working from home arrangements are not quite that bad, although Outsider notes that Banjo, writing Clancy of the Overflow in 1897, probably did not have to maintain delicate diplomatic relations with Mrs O. But yes, now that Outsider’s golf course has been closed and he is not allowed to venture out except for the necessities (which must surely include single malt) he has found himself, like Paterson, yearning to head for the wide open spaces except that he is being discouraged from doing so and he knows there aren’t a lot of ventilators or respiratory specialists around Clancy’s overflow.

On the upside, however, Outsider has realised he can sneak a post-prandial nap without being spotted by those annoying millennials with whom he works.

NOTHING annoys Outsider more than fellow hacks failing to point fingers and name names and so he wants to know the identity of the senior financial services type who, with a lady friend, is alleged to have partied hard in Aspen, caught COVID-19 and then returned to Australia to ignore self-isolation and go shopping and playing golf. The problem for Outsider is that he knows too many people against whom such an accusation could be made – deeper than average pockets, time on their hands, habitues of Toorak and the Mornington Peninsula and regular visitors to the Colorado piste. At least eight people come to mind, but some seem more likely than others. Now Outsider, never wishing to give offence, has been reluctant to reach out to those who he thinks might be the prime suspects but in any case he is told that in Melbourne financial services circles the name of the culprit is common knowledge with some being unkind enough to suggest that they expected little more from the character involved. Outsider, of course, is not one to judge and he feels sure that any breaches of quarantine and transmission of infection were unintentional and, anyway, what’s a little virus between friends when each year you party hard in Aspen?

Achieving social distancing by leveraging holiday geography HATS off to a certain life insurance sector identity who knows how to leverage both time and space. The identity, and he knows who he is, was sitting on a partly-filled aircraft at Singapore airport waiting for the departure of his flight to Australia when, notwithstanding the many empty rows and seats around, a gentleman sat beside him in the third seat in the row – the aisle. Our insurance industry identity politely suggested that there were lots of empty rows

OUT OF CONTEXT www.moneymanagement.com.au

05MM090420_36-40.indd 40

close by and that perhaps the gentleman would be able to spread out and be more comfortable if he took one of those rows. The man demurred but said that perhaps he might do so after take-off. Our insurance industry identity then revealed that he and his partner were returning after a fortnight in Italy. The gentleman left. Choosing a row far distant from our insurance industry identity who, for the record is now in glorious isolation.

"Working from home is the new black."

"I've lost all sense of time over March. March went for a year."

– Grant Nichols, Centuria manager

– NT Chief Minister Michael Gunner

Find us here:

2/04/2020 9:10:11 AM