Money Management | Vol. 34 No 11 | July 2, 2020

MAGAZINE OF CHOICE FOR AUSTRALIA’S WEALTH INDUSTRY

www.moneymanagement.com.au

Vol. 34 No 11 | July 2, 2020

CONSTRUCTING A PORTFOLIO

Building a durable portfolio

20

EQUITIES

24

Value investing

28

TOOLBOX

EOFY super contributions

ASIC reinforces ‘know your client’ with mortgage broker best interests

ETFs

BY MIKE TAYLOR

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How does the Aussie ETF landscape compare to the US? THE highly-regulated nature of Australia’s exchange traded funds (ETFs) market means it is unlikely to develop into the ‘exotic’ landscape seen in the US. In the US, where ETFs have been available since the 1990s, there are calls for tighter classifications of the wide range of products available to aide transparency.

However, industry experts said the environment in Australia was very different to the US for several factors which meant similar classification would be unnecessary here. This included the range of products available, demands from clients and ease and costs of trading.

While numerous free trading platforms have sprung up in the US such as Robinhood, which has been criticised for encouraging speculative trading, particularly among younger investors, Australian investors tend to go via a financial adviser or pay a fee on a platform such as CommSec. There was also a lack of ‘exotic’ products with most investors tending to invest in Australian or global equities products and the latest growth area being in fixed income ETFs, hardly a niche area. This was exacerbated by the strict regulation by the Australian Securities and Investments Commission (ASIC) with firms saying that any ETF launches were scrutinised and closely-watched by the regulator.

Sam Morris, senior investment specialist at Fidante, said: “We won’t get the same level of speculative ETFs as they have offshore as the regulator is very aware of them and scrutinising them. Any [speculative products] would be heavily scrutinised by the regulator in order to be approved, we have a bias for simple, transparent products”.

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Full feature on page 17

MORTGAGE brokers have been placed on notice by the Australian Securities and Investments Commission (ASIC) that they will need to understand the individual circumstances of clients as part of their new best interest duties, almost in the same sense as the financial adviser ‘know you client’ regime.

ASIC has issued a new regulatory guide covering mortgage broker best interests duty and has made clear that best interests not only applies to the mortgage product itself, but the circumstances of the client.

“The broker’s consideration of the individual circumstances of the consumer and their needs, goals and financial situation is particularly relevant to complying with the obligations,” it said. “The risk of non-compliance is substantially increased if a broker’s processes typically lead to a ‘one-size-fits-all’ outcome for consumers.”

“Brokers will need to exercise their judgment when determining

what is in the consumer’s best interests. In some situations, this will include challenging the consumer’s perception of their best interests,” the regulatory guide said.

“Although it is the consumer’s decision whether to accept or decline the recommendation and proceed with an application, it is the sole responsibility of the broker to ensure the recommendation is in the consumer’s best interests.”

The guide said a variety of factors could be relevant in determining whether recommending a credit product was in the consumer’s best interests.

“In our view, this determination involves considering the product holistically and weighing up the relevant factors based on the value and benefits they offer that consumer. In most instances, you should present consumers with more than one option. Where there are multiple options for a consumer to consider, these are to be presented in a manner consistent with the consumer’s best interests.”

Advisers warned of more market bumps to come FINANCIAL advisers and their clients should brace themselves for an elongated U-shaped recovery from recession and position themselves accordingly.

That is the consensus of a panel of portfolio managers and analysts put together by Money Management in Sydney and Melbourne with financial planners being advised to keep their clients patient, well-diversified and focused on the long game.

The panel was made up Magellan’s head of macro, Arvid Streimann, chief executive of Jamieson Coote Bonds, Charlie Jamieson, Fiducian’s head of investments, Conrad Burge and Continued on page 3

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July 2, 2020 Money Management | 3

News

Corporate super losses weigh on AMP

BY MIKE TAYLOR

AMP Limited has told a Parliamentary committee that it moved early to take defensive investment positions before the full market impact of COVID-19, but it could not forestall the impact of the loss of two corporate superannuation mandates.

Responding to questions from the House of Representatives Standing Committee on Economics, AMP claimed that, early in the quarter, before market movements occurred, “AMP took a series of defensive investment positions to shield the effects of a potential virus-related market disruption which might unfold”.

“As such, the AMP portfolios withstood the market turmoil relatively well,” the firm claimed.

However, the data provided by AMP showed that its Superannuation Savings Trust (SST) had recorded a significant decrease in value not entirely attributable to the market downturn.

It showed total assets down $7,160 million.

AMP said the reduction in the total asset value for the SST between December 2019 and March 2020 was “due to a reduction in investment values attributable to market turmoil (primarily affecting listed assets) as well as the outflows related to superannuation fund transfers (SFTs) for two corporate clients (affecting all asset classes), due to a loss of mandate to another provider”.

While assets were down $7,160 million in the AMP Superannuation Savings Trust, they were shown as being down $2,394 million in the AMP Retirement Trust.

TPB expands super capabilities for BAS agents THE Tax Practitioners Board (TPB) is proposing to expand the role of business activity statement (BAS) agents, allowing them to deal with clients’ superannuation matters.

The TPB’s proposed legislative changes would see BAS agents able to deal with superannuation guarantee liability, advising on the offsetting of late payments of superannuation contributions against the superannuation guarantee charge and representing clients in dealing with the Commissioner for Taxation.

The proposed legislation follows on from the TPB having, in 2010, identified services that were being provided by BAS agents but which did not fall within the definition of a BAS service.

The TPB said it considered it appropriate that these services should be included in the services that BAS agents are permitted to provide.

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Advisers warned of more market bumps to come Continued from page 1 leading analyst and founder of van Eyk Research, Stephen van Eyk. Asked how he would position allocations if he was still helping build approved product lists (APLs) van Eyk said he would probably be underweight shares, with some exposure to alternatives with some exposure to infrastructure funds.

What all the panellists agreed upon was that Australia and the world, in general, was in deep recession and highly reliant on the support of the central banks, with Jamieson stating that the markets had benefited from a liquidity-driven rebound after what had looked like a catastrophic situation in March.

“The problem is that the bazooka of stimulus has now been fired and as we look forward we’re going to see some of those disaster relief programs winding down,” he said noting that the problems had not actually gone away.

Jamieson said that, on this basis, there was likely more pain to come and that investors needed to understand that they had been through a “re-rally” driven by liquidity.

Magellan’s Streimann said that

while there were a range of scenarios with respect to the shape of the market recovery, one of the concerns was that a V-shaped recovery was currently being priced into equity markets.

He said that, for its part, Magellan was more focused on either a U-shaped recovery or a prolonged and deep recession, with the outcome depending in large part on the policies applied by the central banks.

Fiducian’s Burge said the firm took a positive view of the market on the basis that investors in growth assets needed to be there for the longer-term, usually five years.

“We’re not looking at where markets are going to be in two months or three months,” he said.

“We’re looking further afield.”

“We come through a difficult period and there are plenty of reasons to be negative about the outlook,” Burge said noting structural issues in the US, Australia and elsewhere. “There are lots of reasons to be negative but we think we’ve come through the worst of the virus and there is reason to be optimistic.”

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4 | Money Management July 2, 2020

Editorial

mike.taylor@moneymanagement.com.au

TIME TO AUDIT AND CONSOLIDATE FINANCIAL ADVISER REGULATION

FE Money Management Pty Ltd Level 10

Too many Governments have looked for quick fixes where financial adviser regulation is concerned and it is time for an audit and the removal of costly and unnecessary layers.

There are few sectors as closely regulated and levied as financial planning. So much so, that as the Government moves in line with the Royal Commission recommendations to implement a single disciplinary body, it should consider what regulatory requirements have become redundant and should be consolidated or removed.

The Australian Securities and Investments Commission’s (ASIC’s) recent announcement of its expected levy increases in 2020/21 around its industry cost-recovery regime prompted the Financial Planning Association (FPA) to accuse the regulator of price gouging, but the reality is that the ASIC levies are just one line item on the regulatory invoices that advisers are being made to pay.

As well as meeting ASIC’s demands, advisers must also look to the cost of running the Australian Financial Complaints Authority (AFCA) and the Tax Practitioners Board (TPB) and it seems almost inevitable that they will be similarly levied to pay for the cost of running the Financial Adviser Standards and Ethics Authority (FASEA) and in all likelihood the proposed compensation scheme of last resort.

In short, if the Government is serious about having an efficient

and effective regulatory regime to cover a professional financial planning sector then it must consolidate the regulatory regime within which advisers are being asked to operate to make it more affordable and the implementation of a single disciplinary body represents the opportunity for this to occur.

In circumstances where the forward funding arrangements for the FASEA are largely in limbo because of the exit of the four major banks from wealth management, it makes sense for the Government to consider whether it can be justified remaining as a stand-alone body when a single disciplinary body will arguably overlap many of its functions.

What is more, consolidating FASEA’s functions within the structure of a single disciplinary body would allow the Government to move forward with its objective of professionalising the financial planning industry via adviser registrations at the same time as leaving much of FASEA’s chequered history in the past.

Where the issue of a compensation scheme of last resort is concerned, the Government would do well to also conduct a thorough review of the professional indemnity (PI)

insurance regime in circumstances where it has become increasingly expensive and problematic.

Somewhat ironically but hardly surprisingly the layers of regulation imposed on financial planning practices have served to drive significant PI premium increases.

Poorly thought through policy announcements such as allowing AFCA to look back over a decade have only served to drive up PI premiums as insurers, hardly surprisingly, consider the dangers of a external dispute resolution provider seeking to deal in 2020 with complaints relating to events in a pre-Future of Financial Advice (FoFA) world.

The bottom line is that financial advisers, either rightly or wrongly, have been the subject of a patchwork of regulatory efforts driven by Governments looking to impose quick fixes and with little regard to the overall shape and texture of the industry.

That must stop. Thousands of financial advisers are leaving the industry and those that remain must be given a regulatory regime which, while necessarily exacting, is both fair and affordable. The Government must leave quick fixes and sloppy legislative drafting in the past.

Mike Taylor Managing Editor

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 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 laura.dew@moneymanagement.com.au Journalist: Chris Dastoor Tel: 0439 076 518 chris.dastoor@moneymanagement.com.au Events Executive: Candace Qi Tel: 0439 355 561 candace.qi@fefundinfo.com ADVERTISING Sales Director: Craig Pecar Tel: 0438 905 121 craig.pecar@moneymanagement.com.au Account Manager: Amy Barnett Tel: 0438 879 685 amy.barnett@moneymanagement.com.au Account Manager: Amelia King Tel: 0407 702 765 amelia.king@moneymanagement.com.au PRODUCTION Graphic Design: Henry Blazhevskyi

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WHAT’S ON Interview with ASIC Commissioner Danielle Press and member roundtable discussion

Musings of the Money Mind (CPD)

FINSIA Quarterly Economic Update with Paul Bloxham (CPD)

Webinar 6 July fpa.com.au/events

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6 | Money Management July 2, 2020

News

Adviser-sold disability claim pay-outs double

BY MIKE TAYLOR

LIFE insurance firms have paid out double the number of disability claims for policies sold through financial advisers over the past five years, according to new analysis conducted by major consultancy KPMG working with the

Financial Services Council (FSC).

The new analysis shows that over the latest period the life industry paid out benefits of $4.9 billion of disability income claims for policies through financial advisers – double the average annual payment level of the preceding five-year period.

The data analysis showed that the most common cause for people who made a disability income claim were accidents (38%), musculoskeletal (18%), mental disorders (11%) and cancer (10%).

Importantly, it found that much of the increased pay-out levels was due to people remaining on claim for longer, rather than a significant increase in numbers of new claims.

The new disability income claims analysis covered the five-year period from 2014 to 2018 and involved an examination of 71,000 new and closed clams for insurance policies purchased through financial advisers from 10 insurers.

Commenting on the findings, KPMG actuarial partner, Briallen Cummings, said the study had shown a significant rise in pay-outs in all categories of claims over the past five years but the increase in mental health claims was especially notable.

Retirees shun financial advice on misconceptions of access and cost

BY LAURA DEW

NEARLY 80% of current and prospective retirees failed to get any financial advice during the recent market crash, according to Allianz Retire Plus, despite four-in-five feeling their investments are not safe from a downturn.

The firm’s survey of over 1,000 current and prospective retirees found only one-in-five retirees felt they could easily receive access to professional financial advice and a third felt that advice was only ‘for the rich’.

This was concerning as it indicated there were still misconceptions about access to financial advice, although those who did see an adviser said they felt more confident after.

Allianz Retire Plus chief executive, Matt Rady, said: “We have to change perceptions of financial advice among retirees and increase access to affordable advice. The advice proposition is proven to be an integral part of providing individuals with confidence and certainty in retirement. Those who use an adviser told us they feel more confident and secure in their financial position.

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“Some 68% of those who were advised during COVID-19 said they were sticking to their financial plan. That means advice is definitely deterring people from making sub-optimal decisions based on a fear or lack of understanding.”

Three-in-four retirees were not confident about how long their money would last in retirement and 18% felt their investments would be safe in a market downturn. Nearly half of respondents said they had been monitoring their investments during the downturn.

Those approaching retirement were most likely to be affected by the downturn with 40% of prospective retirees said they lost money during the recent downturn.

“There is an enormous sense of uncertainty and clear dissatisfaction that needs to be urgently addressed if the system is to work as intended. We have a huge opportunity to get the Australian system right and while there are pressing matters to attend to post COVID-19, this is one of them. There’s a real danger here if policy change isn’t swift and imminent,” added Rady.

Challenger launches $300m equity raising

BY JASSMYN GOH

CHALLENGER has launched an equity raising of $300 million as a response to the ongoing market uncertainty and to provide flexibility to enhance earnings, it announced to the Australian Securities Exchange (ASX).

The announcement said the equity raising would strengthen Challenger Life Company (CLC’s) capital position and be comprised of: • A fully underwritten institutional placement (Placement) of $270 million; and • A non-underwritten share purchase plan (SPP), targeting to raise up to $30 million (together, the equity raising).

Challenger said the capital raised would primarily back investment grade fixed income opportunities that were expected to be return on equity accretive for shareholders.

The firm’s managing director and chief executive, Richard Howes, said: “Challenger is in a strong capital position with the raising further strengthening CLC’s balance sheet, and providing the opportunity to seek out compelling ROE accretive investment opportunities over time.

“In response to the impact of ongoing market volatility, we have reduced capital intensity and maintained a strong capital position by repositioning the portfolio to more defensive settings. This has increased the cash and liquids we have on CLC’s balance sheet to over $3 billion.”

Howes said following the market sell-off induced by the pandemic, fixed income asset risk premiums had widened significantly that there were opportunities in investment grade.

“We are now seeing opportunities, primarily in investment grade, to selectively invest this cash and liquids balance and generate pre-tax ROEs in excess of 20% on the capital backing these investments,” he said.

“This is well above our pre-tax ROE target of the Reserve Bank of Australia cash rate plus a margin of 14%. Importantly, we can capture these opportunities, while maintaining our current defensive portfolio settings, with a high weighting to investment grade fixed income.”

He noted the equity raising would allow the business to withstand and respond to further market volatility and take advantage of selective investment grade opportunities with “attractive returns”.

“The retirement market in Australia continues to grow and we expect to see an increase in demand for guaranteed income products, including annuities, over the medium term. Our business remains well positioned to capitalise on these opportunities,” he said.

Its funds management business, Howes said, was up 7% in funds under management since March.

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8 | Money Management July 2, 2020

News

Bell AM teams up with Swiss private bank

BY OKSANA PATRON

BELL Asset Management, a global all-cap and small- and mid-cap equity manager, has announced it has entered into a strategic partnership with Swiss private bank, Union Bancaire Privee (UBP), to expand the bank’s offering to investors across Australia, Asia and the Europe, Middle East and Africa (EMEA) region.

Under the terms of the partnership, UBP’s clients would gain access to Bell’s expertise and enable UBP’s asset management flagship strategies to be marketed in Australia by leveraging Bell’s existing network of Australian investors.

The strategies would include, in particular, global absolute return fixed income, high yield and emerging market debt products; alternative solutions such as alternative risk premia, hedge funds, hedging overlays, convertible bonds, catastrophe bonds and private markets; as well as the bank’s environmental, social,

governance (ESG) and impact franchise across traditional assets.

“This is an opportune moment to enter such a prestigious pension market and to offer a wide range of solid solutions to institutional investors in Australia. UBP and Bell AM share many commonalities, not only from a purely investment standpoint but also culturally, as both come from family-owned businesses,” Nicolas Faller, co-CEO asset management and head of institutional clients at UBP said.

“We are very pleased to be entering into this mutually beneficial strategic partnership with UBP. We have no doubt this will enable Bell AM to forge long-term relationships with the very important and growing client base across Asia, Europe and the Middle East. We look forward to working with a like-minded progressive partner like UBP to grow in the years to come,” Ned Bell, chief investment officer at Bell Asset Management, added.

Will lawyers find themselves in the same regulatory boat as financial advisers?

BY MIKE TAYLOR

THE Australian Securities and Investments Commission (ASIC) has signalled that lawyers involved in future class action arrangements may find themselves subject to many of the same rules and obligations as financial planners.

In a submission filed with the Joint Parliamentary Committee on

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Corporations and Financial Services inquiry into litigation funding and the class action industry, ASIC said that lawyers were likely to find themselves in the realm of providing financial product advice if they were “distributing” litigation fund arrangements.

The ASIC submission has looked at the implications of litigation funders being required to hold an

Australian financial services (AFS) license and for class action schemes to be regarded as a managed investment scheme (MIS).

“The advice regime may apply to those ‘distributing’ the litigation fund arrangements, such as lawyers, if they provide advice in relation to the registered scheme,” the submission said.

“A person must hold an AFS licence to provide financial product advice in relation to a registered scheme. Financial product advice is a recommendation or a statement of opinion, or a report of either of those things, that is intended to, or can reasonably be regarded as being intended to, influence a client in making a decision about a particular financial product or class of financial product (or an interest in either of these)”.

The submission said that “financial product advice will generally involve a qualitative judgement, evaluation, assessment or comparison of the features of one or more financial product(s)”.

The submission noted that lawyers might be able to avoid being caught in the advice regime if their advice was deemed to be about matters of law and legal interpretation and the provision of legal services in the ordinary course of their activities.

However it said that if financial services in relation to litigation funding schemes were no longer an exempt financial service, “the role of a lawyer (e.g. advising clients about participation in a specific litigation funding scheme or comparing different schemes) is an issue that requires further consideration having regard to the obligations that lawyers have relating to conflicts of interest (e.g. lawyers are subject to ethical duties to the court, statutory duties under state or territory legal profession acts, and professional codes of conduct and practice rules)”.

“Lawyers are also subject to fiduciary duties to their clients,” it said.

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10 | Money Management July 2, 2020

News

FPA’s half a million reasons to restore licensee relationships

New Cbus ‘opt out’ regime raises eyebrows

BY MIKE TAYLOR

MAJOR building industry fund Cbus has e-mailed building industry workers informing them that unless they specifically opt-out from doing so, then they will have been taken to have consented to the superannuation fund providing their details to union officials and delegates to pursue unpaid superannuation guarantee (SG) contributions.

The Construction, Forestry, Mining and Energy Union (CFMEU) is the dominant union in the sector.

The email, a copy of which has been obtained by Money Management, provides members with an opt-out hot button, but makes clear the superannuation fund is moving to a new system and references Industry Super Australia (ISA) data around unpaid SG contribution amounting to $6 billion a year.

“From 1 July 2020 we are shifting to a new system in which members can opt out if they do not want to participate in this service and we will no longer be asking third parties to gain member consent,” the Cbus e-mail states.

“If you do not want Cbus to provide limited personal information to enable a union delegate or representative to check the status of your super contributions to assist in identifying and recovering unpaid super, then you can simply opt out of this service. Opting out has no impact on other services and options provided to you as a Cbus member.

“If you do not opt out then we will assume that you consent to us providing the below types of information to union officials and delegates. However, if you change your mind you can opt-out later using the options available below,” it said.

“The type of information which we provide is: • Name • Application form has been signed • SG contribution amounts received in last six months • Date SG contributions received and the time periods they are paid for • If salary sacrifice payment received (no amount shown) • Employer name and ABN.” The e-mail has been signed by Cbus group executive, member and employer experience, Marianne Walker.

THE Financial Planning Association (FPA) has more than half a million reasons to restore its good relationship with the licensees which pay for “Professional Partner” status.

Amid declining adviser numbers across the industry which have inevitable flowthrough effects to revenue lines such as the Certified Financial Planning (CFP) designation, the Professional Partner program added $536,000 to the FPA’s balance sheet last financial year.

And even then, the most recent FPA annual report showed that the number of licensees which had paid to be Professional Partners had declined from 83 in 2018 to 70 last year, meaning revenue had dropped by $73,000 in 12 months.

The decline in Professional Partners was attributable, in part, to changes in ownership and the closure of a number of licensees.

The scale of future membership of the Professional Partner program has been put in

question by licensee concern at the FPA’s proposals for an adviser registration regime which would effectively supplant authorised representative status under an Australian financial services license (AFSL).

Six licensees, five of which were Professional Partners, expressed concern in June at the FPA’s proposals and what they saw as a lack of consultation around policy development

impacting AFSL holders.

While the FPA’s Professional Partner program declined in value to $536,000 last financial year, this paled beside the decline in the returns generated by its CFP program from $2,319,000 in 2018 down to $1,269,000 with a further decline expected this year as a result of adviser focus on the Financial Adviser Standards and Ethics Authority regime.

10 super funds still accounting for 60% of early release payments THE Australian Prudential Regulation Authority (APRA) has confirmed that 10 superannuation funds are still doing the bulk of the heavy lifting when it comes to the Federal Government’s hardship early superannuation scheme.

The latest APRA data found that the 10 funds with the highest number of applications received from the Australian Taxation Office (ATO) had made 1.33 million payments worth a total of $9.76 billion with the average payment from these funds being $7,441.

According to the data, the 10 funds are accounting for well over 60% of the early release payments.

Over the week to 7 June, 2020, the data pointed to superannuation funds making

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payments to 1,667,000 members, bringing the total number of payments made to approximately two million since inception.

“The total value of payments during the week was $1.3 billion, with $14.8 billion paid since inception,” it said. “The average payment made over the period since inception is $7,475.”

The 10 funds continue to reflect both their scale and their exposure to hard-pressed sectors of the industry and include AustralianSuper, AMP Limited, Cbus, Hostplus, REST, Suncorp, HESTA, MLC, CFS and ANZ. A number of superannuation fund chief executives have told Money Management that they are surprised by the continuing high levels of use of the early access arrangements.

25/06/2020 9:44:35 AM

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12 | Money Management July 2, 2020

News

NZ unprepared for retirement

BY CHRIS DASTOOR

NEW research from the Financial Services Council (FSC) shows 70% of New Zealanders are unprepared for retirement despite three-quarters investing via KiwiSaver.

The research was from the first in a threepart series, Money and You, which surveyed 2,000 Kiwis to understand how New Zealanders felt about money, their knowledge of it and how it impacted their life.

The survey also found younger New Zealanders were more worried about money, were stressed financially and were least prepared for any loss of income.

Richard Klipin, FSC chief executive, said the research found that it was a mixed bag when it came to New Zealanders’ relationship with money.

“Overall, the research found a strong link between money and well-being with money worries causing stress for most New Zealanders,” Klipin said.

“Given that just 21% of respondents described their financial well-being as better than moderate

this suggests that money has a major impact on our health and well-being.”

The research also painted a challenging picture when it came to the financial stability of New Zealanders.

“70% of us would not be able to meet basic financial commitments such as mortgage/rent and bills beyond a short period of time if we lost our jobs; over a third of us would not be able to last beyond a month,” Klipin said.

“These challenges are particularly acute for younger New Zealanders who overall worry more about money, are more stressed financially, and are least prepared for a loss of income.”

However, the research found New Zealanders generally felt financially confident, as close to 80% of respondents were reasonably confident or higher about making financial decisions.

“This potentially misplaced confidence is likely to be a reason behind New Zealanders generally low use of financial advice and other services,” Klipin said.

“A bright spot though in Money and You is New Zealanders embrace of KiwiSaver with 75% of us now investing via the scheme.

The ‘diabolical’ threat of sequencing risk

BY LAURA DEW

THE threat of sequencing risk is leaving retirees and pre-retirees in danger when there is a market collapse, according to Cor Capital.

This was because, not only did they lose out during the collapse, their age meant there was minimal time for them to regain their losses, known as sequencing risk.

It was particularly in the case in the recent crash as it followed a particularly long bull run for equities and investors had become complacent with receiving high returns.

Tom Rachoff, director at fund management firm Cor Capital, said: “Sequencing risk represents the danger of experiencing poor investment performance at the worst time. While some investors have decades to ride out volatility and heavy capital losses, investors nearing and in retirement are not among them.

“They need to pay greater

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attention to the risk of permanent capital loss and the sequence of returns while still attempting to maximise return.”

With superannuation funds being tilted towards growth assets and unlisted assets such as infrastructure, this sold off in a market downturn. This was the opposite of what investors had expected the funds would do as many believed their focus had been on capital protection.

Rachoff said: “Many of these investors did not realise that they were ‘at risk,’ and were sitting on a rollercoaster ride through the sequencing risk zone, with a betterthan-even chance of succumbing to human behaviour if markets got stressed. And they got very stressed.

“Ideally the pre-retiree and retired investors would have a portfolio that can perform well in a bull market phase, but more importantly, work to protect capital within the extreme ‘risk off’ environments.”

“This level of exposure is set to be a gamechanger in coming years as KiwiSaver acts as a gateway to helping New Zealanders become more financial engaged, aware and resilient.”

The research had been conducted prior to the COVID-19 pandemic, before its full impact was known.

“Nonetheless, as we slowly return to a level of normality we hope that this research will help challenge all New Zealanders to think about how they can understand money better and build their ongoing financial resilience,” Klipin said.

Superannuation members ease off COVID-19 queries

BY JASSMYN GOH

SUPERANNUATION members have diverted their attention to rebuilding their balances from COVID-19 related issues, according to AMP. AMP’s data on its financial adviser clients found that during the month of May, queries on voluntary concessional and nonconcessional super contributions were the most common topic dealt with by advisers. This was compared to April when advice on early access to super was most in demand.

Calls about COVID-19 stood at 9% in May, well down from the 24% in April.

AMP said the top client issues dealt with by advisers in May 2020 were: • Concessional super contributions; • Non-concessional super contributions; • Dealing with a death benefit; • Concession cards; and • Early release of super.

AMP technical strategy manager, John Perri, said: “Not everyone has the funds to contribute more to super at the moment, but it’s encouraging to see more Australians turning their minds to rebuilding their superannuation and retirement balances.

“Recently introduced changes, such as the relaxation of the rules on concessional contributions, are encouraging people to make additional contributions where they can.”

25/06/2020 9:45:03 AM

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14 | Money Management July 2, 2020

News

FPA accuses ASIC of fee gouging

BY MIKE TAYLOR

THE Financial Planning Association (FPA) has accused the Australian Securities and Investments Commission (ASIC) of seeking to “gouge” financial planners via new industry cost recovery mechanisms which would increase the industry funding levy by 38%.

ASIC released the consultation paper around its Cost Recovery Implementation statement in June, and while claiming

the costs were only a guide, immediately elicited an angry response from the FPA. The ASIC document placed cost recovery levies to be raised with respect to financial advice at $29.85 million, alongside statutory levies for the sector of $7.549 million giving a total levy of $37.399 million.

The FPA immediately urged the regulator to reconsider the levy increase pointing out that it represented $1.571 per adviser on the basis of ASIC looking to

recoup $40.17 million from 3,051 AFS licensees with 22,652 advisers.

“While ASIC states that the indicative levies for 2019/20 are an estimate, the FPA believes a 38% cost increase per adviser is excessive and last financial year the final levy amount was even higher than the estimate,” the FPA said.

FPA chief executive, Dante De Gori, said the proposed increased amounted “fee gouging” and represented an unreasonable demand of financial planners given the current economic environment.

“Financial planners were hit with a 22% increase in 2017/18.

Now ASIC estimates the levy will increase by 38% for 2019/20. No matter which way you look at this, it is excessive at a time when financial planning professionals are working hard to help their clients through extraordinary circumstances,” he said.

“Financial planners themselves are already under tremendous pressure to meet new education requirements, await critical outcomes on the FASEA extension from an unpredictable parliament and overhaul their business models to meet regulatory requirements.”

ASIC imposes extra AFSL conditions on Societe Generale

BY JASSMYN GOH

SOCIETE Generale Securities Australia (SGSAPL) has accepted additional conditions on its Australian financial services licence, imposed by the Australian Securities and Investments Commission (ASIC).

The firm must appoint an independent expert to assess and test its controls, systems and processes to ensure compliance with client money requirements of the Corporations Act 2001 and client money regulations.

The conditions were imposed after Societe Generale deposited client money into unauthorised bank accounts between December 2014 and September 2018.

The independent expert must identify any deficiencies and set out any remedial action require in

11MM020720_01-16.indd 14

a report provided to the firm and ASIC. The additional conditions also required Societe Generale to provide ASIC with attestations from a qualified SGSAPL senior executive and a Societe Generale board member that confirm all remedial actions recommended by the independent expert have been adopted and implemented.

If attestations are not provided, SGSAPL must: • Cease on-boarding new customers if the on-boarding involves Societe Generale receiving client money from or for the benefit of the customer; and • Refrain from charging brokerage fees in relation to any futures transactions executed

by SGSAPL to the extent that the transactions involve Societe Generale receiving client money in Australia.

Seven MIS REs cease advertising after ASIC intervention SEVEN responsible entities (REs) for managed investment schemes (MIS) have ceased advertising as the result of a review conducted by the Australian Securities and Investments Commission (ASIC).

The regulator announced it had put the REs of all MISs on notice that they had to ensure that their investment fund advertising provided clear, balanced and accurate information.

The regulator’s action followed a risk-based surveillance of advertising material, website disclosure and product disclosure statement from managed funds during the COVID19 pandemic leading to ASIC saying it was concerned to find some funds were providing inadequate information or were not accurately and clearly presenting key features of their investment products.

Commenting, ASIC deputy chair, Karen Chester said the regulator had directly raised concerns with seven REs about their advertising and disclosure in relation to 13 investment funds.

“Collectively, these funds have approximately $2.5 billion in funds under management,” she said.

Chester said the seven REs had: • Ceased advertising of funds and reviewed advertising content; • Ceased issuing interests in funds until ASIC’s concerns are addressed; • Withdrawn and replaced product disclosure statements; • Provided more balanced and prominent disclosure of investment risks and disclaimers; • Clarified actual withdrawal terms; and • Stopped comparing funds to other (lower risk) products on webpages.

24/06/2020 2:31:30 PM

July 2, 2020 Money Management | 15

News

ASIC to end COVID-19 relief instruments in October

BY OKSANA PATRON

THE Australian Securities and Investments Commission (ASIC) has set a date to end three COVID-19 related instruments which were announced as temporary and, at the time of their implementation, the regulator stated that they would be repealed following the crisis.

Following feedback from the Senate Standing Committee for the Scrutiny of Delegated Legislation, ASIC decided to amend these instruments to include specific end dates in October: 1) The earlier amendment to the ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547 will be repealed on 2 October, 2020 (six months after the amendment commenced).

2) The ASIC Corporations (Trading Suspensions Relief) Instrument 2020/289 will be repealed on 2 October, 2020, (six months after it commenced).

3) The ASIC Corporations (COVID-19 – Advicerelated Relief) Instrument 2020/355 will be repealed on 15 October, 2020 (six months after it commenced).

According to chief executive of the Financial Planning Association (FPA), Dante De Gori, the industry was not consulted on the decision regarding setting an end date of 15 October for the COVID-19 relief measures including: relief

to facilitate advice to individuals financially affected by COVID-19 about early access to superannuation, relief extending the period for giving time-critical statements of advice and relief to allow a record of advice to be given instead of a statement of advice in certain circumstances.

“These relief measures have made advice more affordable for Australians when they need it most by reducing costs among financial planning practices,” he said.

“ASIC had asked us to canvas members on their use of these relief measures and we are still in the process of compiling this feedback.

“It is too early to understand how long these measures will be needed and far too soon to be setting an end date, given that the feedback process is yet to be completed.”

The corporate regulator said it would continue to monitor the appropriateness of these temporary relief measures in light of the uncertain impacts of COVID-19 on capital markets and on the demand for financial advice.

“If ASIC considers it appropriate to end the relief before the six-month period or extend the relief, ASIC will give sufficient notice before any early repeal or extension is implemented,” the regulator said in a press release.

AFSLs and ASIC oversight not for us say litigation funders and lawyers

BY MIKE TAYLOR

IT might be good enough for advisers and financial planning licensees but lawyers and litigation funders are signalling very loudly that they don’t want to be licensed and made answerable to the Australian Securities and Investments Commission (ASIC) via managed investment scheme (MIS) structures.

And, indeed, even the Australian Competition and Consumer Commission (ACCC) is questioning why any significant change is warranted to the current litigation funding regime in circumstances where the competition regulator has perceived it as being overall helpful to consumers in achieving legal redress.

The Joint Parliamentary Committee on Corporations and Financial Services has begun receiving submissions on a legislative proposal to require litigation funders to hold an Australian Financial Services License and to operate on the same basis as a MIS.

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However the early submissions from lawyers and even the ACCC make clear that there is real resistance to the licensing move, with one of the pioneers of the Australian litigation funding industry, John Walker making clear that licensing is one thing, but the imposition of MIS structures is another.

Walker is the chair and co-founder of the Association of Litigation Funders of Australia (ALFA).

“I do not oppose funders being subject to oversight by ASIC through the mechanism of requiring funders to have an Australian Financial Services Licence (AFSL),” he said.

“The further step of requiring each funded class action to be treated as a MIS will, however, have consequences that are likely to not be in ‘the interests of Australians’.”

“Class action members are not ‘investing’ in the ‘scheme’, but rather are pooling their causes of action. The primary policy consideration is whether ASIC can add any meaningful oversight of class actions over that of the

court,” Walker said.

“Open classes clearly enable greater access to justice than claims closed to funded members. Also, common fund orders, whilst recently called into question, enable better court oversight of costs.”

For its part the ACCC has used its submission to urge against significant changes to the litigation funding regime, arguing that recent amendments to the Competition and Consumer ACT (CCA) should be given time to work.

The ACCC said that there were both positives and negatives with respect to how litigation funding impacted the work of the competition regulator but that, on balance, “the current class action regulatory settings appropriately balance these positives and potential negatives”.

“As such, the ACCC recommends the inquiry carefully consider any changes that may make class actions less available as doing so risks preventing access to redress for a wide range of consumers.”

24/06/2020 2:39:48 PM

16 | Money Management July 2, 2020

InFocus

A MAJOR STEP IN PROFESSIONALISING FINANCIAL ADVICE The passage of an extension of time for financial advisers to comply with FASEA education requirements in the Senate was a step towards a more professional advice system, writes Zach Castles.

THE RECENT CHANGES, that received bipartisan support, mean financial advisers registered prior to January last year can now complete the Financial Adviser Standards and Ethics Authority (FASEA) exam by January 2022 and have until 2026 to meet substantially higher qualification requirements.

Advisers haven’t been sitting around and the additional time will be put to good use. By August it is expected 50% of advisers registered on the Financial Advisers Register (FAR) will have sat the exam – around 30% have already sat it. The average pass rate for exams has been tracking at 86%, but this rate dropped to 79% in the April sitting, most likely because advisers had to sit the exam remotely during the COVID-19 pandemic. This demonstrates exactly why an extension was necessary.

Original timelines for sitting the exam would have required compliance in just six months, a deadline that would have ultimately resulted in more advice professionals leaving an already fragile industry. Nearly 1,500 advisers have left the industry since January, due almost certainly to the impact of COVID-19 and the restructuring of advice businesses underway prior to that.

This reform will have considerable influence on the longterm calibre and capacity of the advice profession. It goes to the

KEY ECONOMIC INDICATORS

heart of what we ask of financial advisers to do to be admitted to the profession by way of skills, expertise and standards.

The Financial Services Council (FSC) believes a long-term, holistic approach to how advice professionalises and manifests as a new industry in coming years is still needed. The ongoing practicality of FASEA’s Guidance on the Code of Ethics and the establishment of the disciplinary body in the course of the next year will come into focus.

Critical to this is the shaping of continuing professional development (CPD) requirements for advisers. What will we require advisers to specialise in? How do we align the qualifications and specialisation of planners and standards of products with the needs of consumers? Will it mean more of an emphasis on training in retirement planning as the population ages? Or more sophisticated training in investment advice for changes in personal

wealth? It is an imperfect balance that we must get right to attract tomorrow’s financial advice professionals. Just 53 new entrants have reportedly joined the industry so far this year, an optimistic surge given 54 in total joined in 2019.

A key test of harmonising the levers of adviser competency will be ensuring consistency and quality regulation of the industry.

Part of the complexity is that compliance systems buckle under the weight of a vast web of regulatory guidance, legislative instruments, guidance, codes of ethics, statutes, licensing and rules.

Outside of incoming Royal Commission legislation, financial advice is governed by a range of legislation that includes: • Corporations Act (2001); • Financial Services Reform Act (2002) ; • Future of Financial Advice reforms (2013); • Stronger Super reforms (2013); and

• Financial Adviser Standards and Ethics Authority (FASEA) (2017).

In financial advice, regulators provide guidance on the law, and standard-setters like FASEA will set standards above the law. The results can be inconsistent when organisations – large or small – seek to apply two sets of expectations to one system of compliance. It is ambitious to build consistent industry practice in an environment where public scrutiny and pressure on each and every licensee, and each and every adviser has never been greater.

To do their job properly, to deliver financial advice professionally and in line with strong consumer expectations, not only should a clear set of rules be developed, but the very objectives of what these are meant to achieve, clarified. Clear expectations codified in simple, straightforward rules must be the aspiration and outcome of the post-COVID-19 legislative-compliance net that governs financial advice.

As our economy reopens, ensuring advisers are incentivised to readily upskill, and that consumers are equipped and protected and have the choice of affordable and world-leading financial advice and products, should be the mandate of the regulatory system.

Zach Castles is policy manager (advice) at the FSC.

0.25%

1.4%

2.2%

Cash rate

Economic growth

Inflation

Source: Reserve Bank of Australia, 10 June, 2020.

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24/06/2020 3:06:42 PM

SUPER A NNUATION

P OLICY

IN V E S TMENT S

INSUR A NCE

A DMINIS TR ATION

AUSTR ALIA’S LE ADING SUPER ANNUATION M AGA ZINE

Superannuation guarantee

There is no certainty the Government will deliver on its SG increase timetable

Early release of superannuation

Is the hardship scheme good policy or a ticking time bomb?

Contribution strategies

SMSF trustees need to treat the end of 2019/20 like any other despite the COVID-19 pandemic

Technology

Superannuation funds need to move towards an open digital ecosystem

VOLUME 34 - ISSUE 3, JULY 2020

03SR020720_01-16.indd 1

25/06/2020 1:35:53 PM

CONTENTS

S

JULY 2020 WWW.SUPERREVIEW.COM.AU F IN D U S O N TWITTER @SUPERREVIEW LINKEDIN SUPER-REVIEW FACEBOOK SUPERREVIEW

14

TOP STORIES & FEATURES

4

Funds warned: 5 | Super balances can’t be Don’t overpromise rebuilt if SG remains on targeted returns frozen

Superannuation funds will need to rethink their approach if they are still suggesting they can achieve pre-COVID-19 target returns.

8 | Hardship early release super – good policy or ticking time bomb?

The scheme could have future Governments worried about the cost of funding the Age Pension as nearly $17 billion has been taken out.

The scheduled rise in the superannuation guarantee to 12% would be needed to help workers overcome the retirement income shortfall.

6 | Identification biggest issue for First Nations people Super funds need a process to help identify Aboriginal and Torres Strait Islander members especially if English is their second, third, or fourth language.

12 | Contribution strategies for the end of 2019/20

14 | Opening up the super digital ecosystem

Despite the challenges brought forth by the COVID-19 pandemic and a concerning economic outlook, there is never a bad time to consider contribution strategies for SMSF trustees.

A tech-first operating model, with an open digital ecosystem, is a vital step for super funds serious about data and member relationships.

2 | Super Review

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25/06/2020 1:18:34 PM

EDITORIAL

Make no mistake, super is under attack There appears to be no longer any certainty that the Government will deliver on its superannuation guarantee increase timetable as it looks to implement its own superannuation agenda.

S

Some two months ago, Super Review suggested that the than either the politicians or superannuation fund executives superannuation industry “circle the wagons” because it was facing predicted and that, in many instances, there is clear evidence a significant attack from aggressive and influential sections of the that young superannuation fund members have effectively Morrison Coalition Government. emptied their accounts, or gone very close to doing so.

If the industry had any doubt about that warning, then it should As we report elsewhere in Super Review, the ability of these young members to restore their account balances will have been removed when a group of Coalition back-benchers not be made any easier if the Government decides that the openly and very publicly called for the Government to abandon superannuation guarantee should be frozen at either 9.5% or 10%. the timetable for lifting the superannuation guarantee to 12%.

What needs to be remembered about the superannuation This had been an obvious part of the agenda for some parliamentary guarantee is that, contrary to the views of many small members of the Coalition for months but it had become obscured by the issues generated by the COVID-19 pandemic, not least the Government’s businesses, the money is not theirs. It is foregone wages and belongs to their employees. hardship early release regime and the pressure In the current circumstances where, prior applied to funds to comply rather than criticise.

The negative impacts of the to the massive job losses associated with The backdrop to all discussion around Government’s hardship early the COVID-19 shutdown, Australian wages superannuation has been the Government’s release regime will not be felt growth was already stagnating, placing a Retirement Income Review and the next year or the year after.

They will be felt in around 40 further prolonged halt on increasing the SG superannuation industry should now accept years’ time as the 25-30 year to 12% will only magnify that situation. that this is the conduit via which the Coalition olds who have emptied out What needs to be remembered about will pursue change to some of the most their superannuation accounts the Australian superannuation system and fundamental superannuation policy settings. in 2020 realise how little they prosecuted by the major superannuation It is also the backdrop against which have to retire on 2060. organisations is that it is amongst the best superannuation industry trustees and regimes in the world and, properly managed, executives should examine the long-run will serve to reduce pressure on the Australia’s social welfare implications of the Government’s hardship early access expenditures in the decades head, particularly the Age Pension. regime and the none-too-subtle suggestions by back-benchers The negative impacts of the Government’s hardship early such as NSW’s Senator Andrew Bragg that people should be release regime will not be felt next year or the year after. allowed to utilise their superannuation for a home deposit.

They will be felt in around 40 years’ time as the 25 to 30 year Importantly, the Government-appointed Retirement olds who have emptied out their superannuation accounts Income Review panel began receiving submissions from the in 2020 realise how little they have to retire on 2060. industry and other participants in January, but none have been Few people, if anyone, will remember Prime Minister, Scott received since the start of the COVID-19 lockdown meaning Morrison and the Treasurer, Josh Frydenberg, when that reality occurs that they reflect neither the realities of the pandemic nor the and they are even less likely to remember what they spent the money gravity of the recession in which Australia now finds itself. on unless it was, genuinely and appropriately, on hardship relief.

What we know about the Government’s hardship early release regime is that it has proved much more popular

Mike Taylor, Managing Editor

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3 | Super Review

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25/06/2020 9:45:37 AM

NEWS

Funds warned: Don’t overpromise on target returns

BY MIKE TAYLOR

Superannuation funds which are still suggesting they can achieve pre-COVID-19 target returns probably need to rethink their approach, according to actuarial research and ratings house, Rice Warner.

In an analysis published in late June, Rice Warner noted that all MySuper funds show a target (expected) return which they expect to earn above the consumer price index (CPI), after deducting fees and taxes.

“This comparable metric assumes a 10-year time horizon, which is generally a good proxy for the long-term,” it said.

“In recent times, some superannuation funds have reduced their target returns but most still believe they can achieve similar long-term results (relative to inflation) as they did in the past. However, given the world is in the deepest recession in 90 years, we should challenge whether the future will be as benign as the recent past,” the Rice Warner analysis said.

“Ironically, many consumers are still likely to use past performance as the logical basis for peer comparisons, even though all funds must emphasise that this is no guide to future performance.

While the past can be a poor guide to the future, it has to be said that those funds with a 25 or 30 year history of earning CPI +4% or even 5% must be doing something right, persistently.”

“The only other comparable metric is the target return, so it is important that this be calculated reasonably. If it is not, consumers will chase the highest target without understanding the risk involved (or the basis of calculation),” the Rice Warner analysis said.

“The range in target returns between funds is large and some appear very optimistic. The layperson would not understand the peer differences in asset allocation and risks taken; the information in MySuper disclosure documents necessarily is dumbed down to meet broad community levels of financial illiteracy.”

Super members need awareness of other hardship programs

BY JASSMYN GOH

The Government and superannuation funds need to make clear to super members that there are other hardship programs other than the early access scheme, according to a lawyer.

Berrill and Watson principal, John Berrill, told Super Review that it was clear super members who accessed the first tranche of the government’s scheme for those in financial hardship due to COVID-19 were taking out very specific amounts and were thus clearly paying off debt.

Berrill said there were many other hardship alternatives people could use without tampering with their super.

“All banks have got hardship programs which can get some debts waived, or mortgages deferred, and if people are with an insurance company there are insurance premium deferral payment plans, and tenants can’t be kicked out by a landlord,” he said.

“The National Debt Helpline is also a great resource that people can use to get free financial counselling to help debts get waived and access to discounts.

“A lot of people don’t know about these things and they think they need to get money quick smart and think the only way to do it is the early access scheme.”

Berrill noted that banks and insurance companies had been “falling over each other” to be supportive of customers with problems induced by COVID-19.

“The government and the tax office needs run a campaign to tell people there are alternatives and to steer them in the direction or organisations like the National Debt Helpline as taking down $10,000 in super now could cost $50,000 in retirement,” he said.

Super funds would need to notify members prior to members applying for the hardship scheme as it was applied to the Australian Taxation Office rather than the super fund itself.

Investor confidence reaches two-year high

BY LAURA DEW

The State Street Global Investor Confidence Index (ICI) increased to 94.3 in June, up 21 points from the May reading of 73.

The increase was led by a jump in the North America ICI which rose 18.8 points and Asian ICI which rose 18.6 points. There was a smaller increase in Europe from 108.5 to 119.7 points.

Rajeev Bhargava, head of investor behaviour research at State Street Associates, said: “Risk appetite saw a strong rebound in June. The global ICI rose to 94.3, its highest level in almost two years, buoyed by higher sentiment across all regions.

“Unprecedented action by central banks combined with the re-opening of major economies around the globe likely drove a more optimistic tone of investors,” he said.

An ICI reading of 100 was neutral; the level at which investors were neither increasing or decreasing their long-term allocations to risky assets.

4 | Super Review

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25/06/2020 1:18:45 PM

NEWS

Superannuation balances can’t be rebuilt if SG remains frozen

BY MIKE TAYLOR

A key Parliamentary committee was told weeks ago that the scheduled rise in the superannuation guarantee (SG) to 12% would need to occur to help workers overcome the retirement income shortfall they were facing because they had accessed the Government’s hardship early release regime.

Industry Super Australia (ISA) used answers to questions from the House of Representatives Standing Committee on economics to reinforce that lifting the SG would prove necessary to helping restore superannuation balances.

It said a gradual and manageable increase in the SG had been locked into law for a long time and had “already faced delays and the detrimental impact on workers’ retirement savings due to that has been considerable, it has provided businesses with a longer lead time to adjust and factor the law into their operations”.

“Deepening the importance of this

legislated gradual rise is the need to rebuild member balances particularly those reduced by accessing their super early under the government’s temporary measures,” the ISA told the committee.

It noted that, “significantly in the current context there is evidence that following the 1991 recession the rebound in economic growth and employment coincided with an incremental but steady increase in the SG”.

The message to the Parliamentary committee came as a precursor to ISA claiming some vocal coalition backbenchers were using the COVID-19 downturn as a cover for scrapping the SG timetable – something it said could see a couple on average wages lose between $150,000 and $200,000.

The ISA said the back-benchers were not only out of touch with public sentiment, but out of step with the Prime Minister, Scott Morrison; the Treasurer, Josh Frydenberg; and the Assistant Minister

for Superannuation, Jane Hume, who had “already publicly quashed their ideologically driven plans to cut Australian workers retirement savings”.

“The MPs, who themselves receive more than 15% super, say that 9.5% is enough for the average Australian to fund a dignified retirement,” ISA said. “They use the specious argument that an increase comes at the expense of wages, despite recent historic evidence showing there is no equal drop in wages when the super guarantee increases.

“It was the same argument used to freeze the SG in 2014, but wages have mostly flatlined since then – underlining the falseness of their arguments.

“The claim that because Australia is entering a recession that the SG rate must be cut, doesn’t hold water either, as there is evidence that following the 1991 recession the rebound in economic growth and employment coincided with an incremental but steady increase in the SG – like what is planned now.”

In your members’ moment of need, we’re here.

In 2019 alone, we paid $1.5 billion in claims.

Because we’re here for your members when they need it.

5 | Super Review

03SR020720_01-16.indd 5

25/06/2020 9:46:06 AM

NEWS

Identification biggest issue for First Nations people

Has COVID-19 volatility undermined APRA’s heatmaps?

BY JASSMYN GOH

BY MIKE TAYLOR

Identifying First Nations people should be top priority for superannuation funds when it comes to helping these members, according to Financial Counselling Australia.

Speaking at the Conference of Major Superannuation Funds of Australia (CMSF), Financial Counselling Australia’s coordinator for financial capability, Lynda Edwards, said this would help funds get in touch with Aboriginal and Torres Strait Islander support workers to help translate.

Edwards noted this type of identification was how First Nations people were identified for health and education purposes for a long time, and actually helped those with English as a second, third, or fourth language.

“I would like to see funds being proactive in putting these measures in place because it’s about the individual member and what could possibly work with them,” she said.

“If you’re talking to someone and you know they are from a remote community and not speaking English well ask them if they have a support person you can arrange to speak with to do the translation. That would be helpful.”

Edwards noted that super funds needed to have a standard identification forms for First Nations people across the industry and this would also help financial counsellors and capability workers.

She also said super funds also needed to have an indigenous line that had autonomy.

“The line needs to have people that have the cultural awareness and competency training but also the capacity to make a decision at the first point of call in times of that particular member,” Edwards said.

“I’m sure most funds have reconciliation action plans but they should develop plans that benefit staff by helping them understand how First Nations people work.”

She noted there were financial counsellors that worked in remote communities and super funds could work with the organisation.

“Superannuation cases are very complex and identification is the biggest issue. It takes around six to eight weeks for financial counsellors to assist with super clients. This often takes so much time it takes them away from other opportunities to help people build financial resilience and capabilities,” she said.

“Funds should start to think about registering for the Financial Counselling Register so that when they’re talking with a professional financial counsellor they know it is through an authority that requires them to complete professional development courses to allow them to give advice.”

The Australian Prudential Regulation Authority’s (APRA’s) heatmap process may have been thrown into disarray by the volatility generated by COVID-19 with new analysis showing things have changed dramatically.

The analysis, carried out by Frontier Investment Consulting, raises real questions about APRA’s initial heatmap process and its future relevance.

The Frontier Advisors analysis of superannuation fund performance through the volatility of March and April found the expected relationship between risk and return largely disappeared following recent market turmoil and said this had implications for the assessment of funds using APRA’s heatmaps with the ranking of funds as either over or under performing shifting significantly since the fund performance assessments were published in December.

“The three year performance to 30 June, 2019, of each MySuper fund showed a strong, positive correlation between funds’ growth/defensive ratios and returns. This formed the basis for APRA’s published heatmaps in December with under-performing funds receiving yellow, and more worryingly red, warnings from the regulator,” it said.

“However, when three year performance to 31 March, 2020, is reviewed not only has the risk/return correlation largely disappeared, but funds have scattered around the median with several outperformers having lost their preferred status and now finding themselves in yellow and red territory.”

The analysis said Frontier had found that almost one-in-five funds changed their status as an under or over performer over this brief period and highlighted the difficulty in assessing the merits of a fund based on a single measure of risk.

Commenting on the outcome, Frontier principal consultant, David Carruthers said that attempting to assess performance without a deep understanding of each fund’s approach to risk could lead to the wrong conclusions.

“Being higher or lower risk is neither a sign of a good or bad fund. It may well be an explicit decision taken to suit the demographic profile of the fund’s membership. Of course, there will often be consistent underperformers but it is difficult, and potentially dangerous, to assess funds on single perspectives of risk,” he said.

“Our analysis shows standard deviation was a considerably better predictor of a fund’s outcome in the March quarter than the fund’s growth ratio, which is the metric used in the heatmaps. Superannuation fund members who have been monitoring the heatmap rankings of their fund, especially following the recent volatility, might well be confused to see such a quick change in APRA’s assessment.”

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NEWS

If recession continues illiquidity issues may be exposed

Top balanced super funds make gains

BY JASSMYN GOH

The best-performing balanced superannuation funds over the past year have managed to make gains despite the downturn caused by the COVID-19 pandemic but the funds still have some way to go for a full recovery, according to data.

FE Analytics data, within the Australian Superannuation universe, found that the top-performing fund was AMP Signature MySuper Macquarie Balanced Growth fund at 6.82% over the year to 31 May, 2020.

Over the year, the fund’s highest performing point was at 10.8% in February just before the market sharply fell due to COVID-19 impacts.

AMP SignatureSuper Macquarie Balanced Growth fund followed at 6.4% over the year and its highest point was at 10.5%, AMP FLS and CS Macquarie Balanced Growth fund returned 5.48% from a high of 9.8%, Suncorp Brighter Super Personal Suncorp Multi-Manager Balanced fund returned 5.21% from a high of 10.23%, and Australian Ethical Balanced Accumulation fund returned 3.72% from a high of 12.45%.

The Australian Ethical fund had largest asset allocation towards interest-bearing investments and cash at 30%, followed by Australian and New Zealand shares at 28%, international shares at 22%, and property and alternatives both at 10%.

On the other side of the scale, AMP Flex Lifetime Super and Custom Super Perpetual Ipac Income Generator lost the most at 2.78% over the year to 31 May, 2020.

This was followed by AMP SignatureSuper Ipac Diversified Investment Strategy No 5 at a loss of 2.7%, CFS FC Personal Super First Choice Multi-Index Moderate at a loss of 2.68%, AMP Flexible Super Ipac Income Generator at a loss of 2.32%, and AMP SignatureSuper Ipac Income Generator at a loss of 2.15%.

If volatility continues and a recession persists over the coming year, it would not be surprising if the Government allows superannuation to be accessed a third and fourth time, according to ClearView.

Speaking to Super Review, ClearView chief investment officer, Justin McLaughlin said if the recession were to worsen and continue over the next year it would expose illiquidity issues for industry super funds.

“Let’s say this recession persists, the government is going to be looking at how to fund this. They’ll be asking ‘do we essentially keep borrowing and running balance sheet up? Or and now since we’ve crack the door open on access to super do we do it again for a third or fourth time?’,” he said.

“I would not be shocked to see if the recession is longer lived than people are currently thinking that the government tapped into super again. And if that happens, the illiquid assets will be exposed.

“At the moment they are big enough and the withdrawals are quite small so they shouldn’t have huge problems but if they were to go down the track and the

government says people can withdraw more out of super that could pose some interesting issues.”

McLaughlin said if this were the case, financial planners at a minimum needed to be aware of what proportion of the fund was invested in illiquid assets and to be aware of if other assets were appropriately priced.

“If they are appropriately priced and there is some selling they can be sold at a reasonable price. But if they are not appropriately priced then they’ll need to be marked down financially,” he said.

“If we were to be in this situation planners would need to focus on liquidity and pricing policy. Last thing you want as a financial planner is to find part of fund is frozen.”

McLaughlin noted that pricing of illiquid assets was quite opaque and a lot of industry funds had a large proportion invested in unlisted assets.

“We don’t really know what the pricing is like, yet there are tremendous legal and ethical trustee issues that go to having a large portfolio where the price of an asset is worth whatever a valuer says it is,” he said.

AusSuper reduces fixed income reliance AustralianSuper’s willingness to hold fixed income investments has diminished as a result of low yields and that fact that bonds have not offered the liquidity needed in the current environment.

Speaking on a Bloomberg webinar, AustralianSuper chief investment officer and deputy chief executive, Mark Delaney, said yields at the moment were very low and would stay long for the time being and this did not offer the same diversification benefit as what they would have historically when equity markets fell.

“Investors need to look for other sources of diversification to compensate the portfolio for holding less bonds,” he said.

“In fixed income portfolios, do you want to hold investments which offer a little bit more yield but reduced liquidity even though liquidity is a key aspect in a downturn? Our willingness to hold fixed income investments will diminish because they don’t offer the same liquidity aspects that we need.”

Delaney said other assets that would provide more diversification included foreign exchange, synthetic strategies and unlisted assets.

“You’re just going to have to have a balanced portfolio of diversifiers rather than purely relying on fixed income,” he said.

“The biggest one is FX, the Australian dollar has quite significant diversification characteristics so funds may hold more foreign currency than historically.”

Commenting on unlisted asset valuations, Delaney said valuations tended to lag because the unlisted market did not process new information as quickly as listed markets did.

“We changed our valuations in March because the circumstances of the pandemic had changed quite dramatically airports and property in terms of rental.

We wanted to reflect those changes in the circumstances in the value of those assets,” Delaney said.

“Going forward, valuers will be able to pick that up and it will be part of the valuation process. We make adjustments when there are extraordinary changes in the underlying economics of those assets and we want to make sure fair value to ensure member equity.”

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EARLY RELEASE

Hardship early release super –

good policy or ticking time bomb?

BY MIKE TAYLOR

While well-intentioned, the Government’s COVID-19 hardship early release superannuation scheme may prove to be a ticking time-bomb for future Governments worried about the cost of funding the Age Pension.

I

In the near 30-year history of the superannuation guarantee (SG) in Australia few measures have proved as impactful as the Government’s COVID-19-generated decision to allow people hardship early access to up to $20,000 of their superannuation over the 2020/21 financial year.

The measure was one of the earliest announced by the Prime Minister, Scott Morrison and the Treasurer, Josh Frydenberg, in the face of the COVID-19 pandemic and preceded by almost a week their even more dramatic announcement of the JobKeeper and JobSeeker regimes.

At the time of writing, the latest available Australian Prudential Regulation Authority (APRA) data showed that nearly $17 billion had been withdrawn from superannuation accounts by members who were claiming to be suffering hardship as a result of job losses or reductions in hours resulting from COVID-19.

The question now on the minds of many superannuation fund trustees and

executives is whether the momentum which has been evident in the rate of early release drawdowns will continue beyond 30 June, when superannuation fund members find themselves entering a new financial year and therefore able access a further maximum $10,000.

The question is: have those members who have accessed drawdowns emptied or almost emptied their account balances, or are there more drawdowns to come?

The official announcement released

by Frydenberg in mid-March stated: “The Government will allow individuals in financial stress as a result of the coronavirus to access up to $10,000 of their superannuation in 2019/20 and a further $10,000 in 2020/21”.

“Eligible individuals will be able to apply online through MyGov for access of up to $10,000 of their superannuation before 1 July, 2020. They will also be able to access up to a further $10,000 from 1 July, 2020 for another three months. They will not

need to pay tax on amounts released and the money they withdraw will not affect Centrelink or Veterans’ Affairs payments.”

It was hardly surprising then, that the general view of the scheme was that it would represent access to tax-free money and that it would become the target of a number of scammers and boosters.

What no-one is disputing is that, ultimately, those people who have taken advantage of early access to their superannuation will face an uphill battle seeking to restore their account balances in future years and that, because of this, many will be have to be more reliant on the Age Pension. The relatively young ages of those involved means that the Budget impacts will be in 40 to 45 years’ time when Frydenberg, Morrison and COVID-19 are but dim memories.

The vetting of early release applications was a task handed to the Australian Taxation Office (AT0) with statistical monitoring and oversight

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EARLY RELEASE

of the scheme handed to APRA. And what APRA’s weekly monitoring of the scheme has revealed is that after a somewhat modest start, early release drawdowns have accelerated week on week in terms of the number of members utilising the scheme and the impact on superannuation fund funds under management (FUM).

Just how quickly the number of members seeking early access multiplied is exemplified by the fact that in its first compilation of data dealing with the drawdowns to 4 May, APRA reported that 665,310 superannuation fund members had drawn down $1.3 billion involving an average drawdown amount of $8,002.

A week later this had grown to over one million members drawing down $6.3 billion at an average of $7,629 each and by June it had reached nearly two million members drawing down $13.5 billion at an average of $7,473.

Superannuation fund executives and senior industry consultants have

“The relatively young ages of those involved means that the budget impacts will be in 40 to 45 years’ time when Frydenberg, Morrison and COVID-19 are but dim memories.”

confessed to be surprised at the manner in which the momentum of early release withdrawals had continued even the in face of some of the reopening of the economy in mid-to-late June.

What is more, there has been surprise at the number of early release applications being made by members of superannuation funds covering industries which have been regarded as largely unaffected by the COVID-19 shutdowns.

EISS Super chief executive, Alex Hutchison, whose members are predominantly employed in the NSW electricity supply and distribution sector, confirmed the fund had paid out $8.5 million in early release requests at an average of $7,500.

“There’s nothing wrong with that, but the electricity industry has not been as badly affected as others,” he said.

The APRA data reveals that 10 funds exist which account for more than half of all the drawdowns to date, and the reality for people like Hutchison is that the levels of drawdowns their funds have experienced are a small fraction of what has been encountered by the likes of AustralianSuper, HostPlus, REST, Cbus, Suncorp, HESTA, MLC, CFS and ANZ. To a large extent, these funds are in the top 10 simply by virtue of their large numbers of members, however both HostPlus and REST faced significant exposure because of the large Continued on page 10

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Continued from page 9

numbers of members working in the retail, events and hospitality.

The APRA data found that the 10 funds with the highest number of applications received from the ATO had made 1.3 million payments worth a total of $9.76 billion with the average payment from these funds being $7,441.

According to the data, the 10 funds are accounting for well over 60% of the early release payments.

Over the week to 7 June, 2020, the data pointed to superannuation funds making payments to 167,000 members, bringing the total number of payments made to approximately two million since inception.

“The total value of payments during the week was $1.3 billion, with $14.8 billion paid since inception,” it said.

“The average payment made over the period since inception is $7,475.”

There is a lingering perception among superannuation industry consultants that

“Some people simply did not understand the difference between a 20% reduction in hours and a $20% reduction in income.

It is an easy enough mistake to make.”

– Russell Mason, Deloitte

the rushed implementation of the early release scheme has served to undermine its validity in circumstances where numerous instances of inappropriate drawdown have been identified along with suggestions that the money has been used for drinking and gambling.

Deloitte superannuation partner, Russell Mason, said he was loathe to be totally critical of the early release scheme because its objectives had been honourable, but it was clear that its rushed designed and

implementation had caused some issues.

What is more, he said, was that he believed that any audit of how the scheme had been operating would reveal that while some members had inappropriately accessed their superannuation, this might have been more by mistake than by design.

“I think some people simply did not understand the difference between a 20% reduction in hours and a 20% reduction in income,” Mason said. “It is an easy enough mistake to make.”

However, he said there should be little sympathy offered to those who had deliberately sought to manipulate the system such as by taking early access and then recontributing on behalf of a spouse or a child so as to attract a co-contribution.

Importantly, Industry Super Australia (ISA) welcomed an ATO statement that it would be particularly scrutinising early release superannuation in the context of people seeking to minimise their taxation

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EARLY RELEASE

Chart 1: Total value of early release drawdowns ($m)

position – something which could be achieved through re-contribution strategies spruiked by some financial advisers.

Rice Warner chief executive, Andrew Boal, said there was no question that the rate of drawdown on early release superannuation and the manner in which it had accelerated had surprised many in the industry and probably in Government.

He noted that, to date, it was more than half of what had originally been anticipated.

Boal, like Mason, suggested at least part of the problem with the early release scheme had been the speed with which it had been implemented and the absence of any significant safeguards – even the threat of random audits.

He said he believed some momentum would come out of the early release drawdowns based on the economy restarting, people returning to work and the likelihood that, in many instances, account balances has simply been emptied out.

Chart 2: Number of members accessing early super

SOURCE: AUSTRALIAN CUSTODIAL SERVICES ASSOCIATION

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CONTRIBUTION STRATEGIES

Contribution strategies for the end of 2019/20

BY MEG HEFFRON

Self-managed superannuation funds expert, Meg Heffron argues that irrespective of the pandemic, trustees should treat this 30 June as no different to any other.

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While it may seem odd to look at contribution strategies in the middle of a pandemic, some clients are weathering the storm relatively unscathed. For them, this 30 June is no different to any other and as usual, it will be important to make sure they take advantage of any superannuation contribution strategies before the financial year ends.

Using the rules to ‘catch up’ unused concessional contribution cap amounts from 2018/19 Firstly, those who had less than $500,000 in super at 30 June, 2019 should check whether they used their full $25,000 concessional contributions cap during 2018/19. This year (2019/20) is the first year in which ‘catch up’ concessional contributions can be made – using whatever remains of last year’s cap now. Note that if they intend to use the catch up rules this year, it is their balance at 30 June, 2019 that matters, not what their super is worth today or what they had back on 30 June, 2018.

Those with slightly more than $500,000 at 30 June, 2019 may expect their days of using the catch up rules are over. But if their balance has fallen during 2019/20, they may be back under $500,000 at 30 June 2020. This brings the catch up rules back into focus for 2020/21. If there is a benefit to be had here (e.g.

concessional contributions in 2018/19 fell short of $25,000, the member has spare cash and would value a tax deduction for extra super contributions), two other possibilities leap to mind.

Firstly, anyone very close to $500,000 today could consider steps that will keep them under the threshold, allowing them to use the rules in 2020/21. This could include: • Spouse contribution splitting – effectively transferring concessional contributions made in 2018/19 to their spouse during 2019/20; and • Calculating their total super balance at 30 June, 2020 “off balance sheet”. Remember that the amount used for this purpose is whatever the member would have received if they had left the fund on 30 June 2020. In a self managed super fund (SMSF) this can include allowing for costs to sell assets, depressed asset values that reflect current valuations, capital gains tax, wind up fees etc.

While many of these would not normally be taken into account in preparing the fund’s financial statements, the law allows a special value to be reported for this purpose via extra fields on the SMSF annual return.

Those who are confident they will be well under $500,000 at 30 June, 2020, but would rather make their catch up contribution this year (perhaps they have a greater need for a tax deduction in 2019/20 than they expect for 2020/21) also have an opportunity to think differently.

They could make the extra contribution in June 2020 and, providing

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CONTRIBUTION STRATEGIES

they have an SMSF, ask the trustee to defer allocating that contribution to their account until July 2020. That way the contribution is: • Tax deductible this year (the year in which it is actually made); but • Counted towards their contribution cap next year.

“Despite the unusual challenges of COVID-19, and concerning economic outlook, for many SMSF trustees, there is never a bad time to consider superannuation contribution strategies and 2019/20 is no different.”

In this case, the deferral is useful because it ensures the contribution isn’t checked against the member’s concessional contributions cap until they are back in “catch up contribution” territory.

Broader uses of the ‘deferred allocation’ strategy This concept of deferring the allocation of a contribution to the following year has a few other applications.

It can also be helpful for someone over 65.

One of our clients (let’s call him Jeff) is in exactly this position.

Jeff has $1.2 million in superannuation, is 70 and has been building up his superannuation over the last few years. He was working fulltime until March 2020 when his job became one of the many COVID-19 casualties. He has already made a $100,000 non-concessional contribution during 2019/20. Originally, he planned to contribute

another $100,000 in 2020/21. But now, he won’t meet the work test he needs to meet in order to contribute next year.

He can use the same deferred allocation approach to help maximise the amount he is able to put into superannuation. He will make a $100,000 non-concessional contribution to his SMSF in June 2020 (while he still can) and delay allocating it to his member account until July 2020. Normally, making two $100,000 non-concessional contributions in a single year would mean Jeff had an excess contributions problem. But deferring the allocation until next financial year means it counts towards next year’s cap rather than his 2019/20 limit. Someone younger would simply wait until next year, but that option isn’t available to Jeff – he won’t be able to meet the relevant work test next year. The deferred allocation strategy gives him everything he needs, as long as he thinks about it now.

Despite the unusual challenges of COVID-19 and concerning economic outlook, for many SMSF trustees, there is never a bad time to consider superannuation contribution strategies and 2019/20 is no different.

Meg Heffron is the managing director of Heffron SMSF Solutions.

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TECHNOLOGY

Opening up the super digital ecosystem

BY JEFF HALL

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The tide is turning away from traditional closedtechnology solutions as superannuation funds are taking charge of its data and relationships with members through open digital ecosystems.

More of Australia’s superannuation funds are turning their minds to the need for technology-led, member-centric systems that leverage open APIs. Digital initiatives are supporting a new approach to digital ecosystems, making it a perfect time to investigate how Australia’s super funds fare in a world where digitisation dominates.

“We think about super and member engagement differently.” Have you heard that before? I hear it often. Without a doubt super funds are increasingly looking at how they serve members and carry out administration.

Yes, it might be different, but is it good?

And what does ‘good’ look like and how can super funds embrace new opportunities?

To put it into context, consider your experience with a car insurance claim. I remember, in the not-too-distant past, having a minor accident, obtaining two quotes from panel beaters, posting the quotes to the insurance company to get the green light and receiving a letter saying my car will probably be ready in three weeks’ time.

Compare this with today, where I’d use a smartphone to text a photo of the damage to the insurance company. I’d most likely receive a text later that day advising where to take my car, and with repairs happening within a few days.

Not only is the latter more timeefficient, but it also provides the insurance

company with data they can use in claim-pattern analysis, helps them to manage risk, and provides them with the opportunity to consider how to change their products to meet member needs.

on member engagement and deal directly with members rather than having people tied up with traditional administration duties.

Digital ecosystems go mainstream

As new technology is rapidly introduced and absorbed throughout an entire organisation, technology adoption ramps up from both an internal and external customer perspective – to the point where it becomes a client expectation.

What does this look like for a superannuation fund from our perspective?

• Full access to data without incurring additional costs; • Secure open integration with other software to further enhance the member experience; • Access to content and templates so super funds have full control of their front-office and can create, upload and send their own content and messaging across channels at any time; • Digital-first design operating model that automates the administrative process and allows for both straight-through and exception-based processing – reducing the manual processing risk; and • Open integrated provides the option to access any financial advice, data analytics and content software.

These digital ecosystems are becoming more mainstream across the financial services sector and now Australia’s super funds are well placed to take their turn at the table.

The integration of hardware, software and content in one central platform (or ecosystem), will help super funds rapidly create and distribute new features to their members.

The core benefits delivered by a digital ecosystem can be applied to super funds. A shift in business model structure has the power to disrupt an entire industry and create new opportunities just like Uber and Netflix did.

A digital ecosystem also has the ability to both improve internal business processes while lowering costs. Automation, efficiency and effectiveness are already a focus for the super industry, but there is plenty left to do.

Open systems and capabilities present the opportunity to increase levels of straightthrough-processing, reduce risk from manual handling, and allow super funds to concentrate

Digital-first operating model

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TECHNOLOGY

What could this look like? Imagine a seamless integration between a super fund’s registry, its portal, data analytics, the Australian Taxation Office, insurers, advisers, banks and the latest apps that members use for planning and goal tracking – and that’s it, a digital ecosystem.

So how does this play out in reality?

The fact is, this new world needs much more than just automation of transactions – and those super funds still focusing only on this are behind the game.

For the member, access to wider tech means they can set and track goals, get advice, and have that advice integrated into their transactional member portal. Members can also see the benefit the advice has provided and continue to monitor their position.

For the super fund, the ability to see the type of advice members find most useful, and where they are having any issues accessing it, is simply invaluable. Super funds can use the available data to see how a member has interacted with the portal, what advice they received and where they may have dropped out of a particular process.

This full view of a member’s activity can be used to identify exactly what a member’s needs are, perhaps it’s a call from the fund to explain an investment, or face-to-face tailored financial advice.

JEFF HALL

Harnessing the opportunity There is, however, a challenge for super funds. To harness this opportunity with a focus on which technology will deliver the greatest benefits to members, while also delivering solid business and efficiency benefits for the super fund itself.

Not only is technology delivering solutions to these challenges, but we are also seeing the tide turn away from traditional closed-technology solutions.

Super fund trustees and executives are understanding the transformational power of technology and are more engaged than ever in being part of and representing their business goals as part of the transformation.

They also realise that the business and member outcome is the true measure of success and the best outcome may involve various partners and solutions that are

integrated to deliver the required outcome.

At Iress, we approach digital ecosystems with a focus on being open.

This means providing super funds with more choice and flexibility around the applications they wish to integrate with.

Super funds should be free to research the most appropriate technology, with agile integration, and tailor it to meet their specific business and member needs.

The ecosystem must consider data and enable super funds to connect data silos regardless of whether the data is managed elsewhere.

In the post-Royal Commission landscape – and with the recent and continuing expansion of superannuation reporting obligations – a super fund’s ability to push and pull data across multiple systems has become more important than ever.

The super fund’s data is the property of the super fund and should be readily available in a digital ecosystem, without incurring charges from their third-party provider to access it.

If your super fund is serious about taking charge of both its data and its relationships with members, a tech-first operating model – with an open digital ecosystem – is a vital next step.

Jeff Hall is general manager – superannuation at Iress.

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ROLLOVER THE OTHER SIDE OF SUPERANNUATION

APRA wants to take down your PDC particulars Rollover recalls that old and somewhat insulting maxim that those who can, do, while those who can’t, teach.

In this age of millennials and digital he believes that maxim might be amended to those who can, do, while those who can’t, collect data.

Which probably explains why the Australian Prudential Regulation Authority has actually established a whole COVID-19 data set – the Pandemic Data Collection – which if you work at APRA Central in Sydney’s Martin Place you would be calling the PDC. And Rollover reckons that superannuation fund trustees and executives would be foolish to ignore the PDC, with APRA writing them a letter acknowledging that they are probably busy in these days or early release superannuation and dealing with the Australian Taxation Office (ATO) but that they equally need to find time to contribute to the PDC. What is more, APRA has signalled that the punishment will continue until morale improves, stating “the PDC will continue until issues that are being faced by registrable superannuation entity (RSE) licensees relating to the COVID-19 pandemic have abated”.

In financial services regulation as in politics, it is a numbers game.

DIFFICULT DIAGNOSIS EVEN FOR A DOCTOR Rollover is inclined to doff his cap to Association of Superannuation Funds of Australia chief executive, Dr Martin Fahy, in circumstances where so far as anyone can tell he is the only one in financial services wanting to do a physical annual conference in 2020.

Now, Rollover and the whole crew at Super Review will be the first to admit that ASFA has laid on some of the best and most well-attended financial services conferences in Australia over the past two decades, but in these COVID-19 days and with the Queensland border still closed, Rollover wonders whether the November Brisbane conference is a wise idea.

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What Rollover thinks Dr Fahy needs to take into account is that a high proportion of delegates will originate from the industry superannuation funds in Melbourne and that, at the time of writing, Rollover had noted that even a strong no-borders advocate such as the NSW Premier, Gladys Berejiklian is advising New South Welshmen to give Melbournians a wide birth.

Of course, not unlike the US Presidential election, the November ASFA conference remains a long way off, but Rollover suggests the organisers start canvassing how it can be translated to digital, notwithstanding the likely significant loss in revenue.

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Do Coalition backbenchers know what a tax rort looks like?

Rollover will be very interested to see whether the Australian Taxation Office (ATO) ever actually audits the Government’s hardship early release superannuation regime to see whether, as some claim, it has been the subject of numerous rorts.

Now Rollover is prepared to believe that a significant number of those who applied for early access to up to $10,000 over recent months were facing genuine hardship, but he has seen plenty of evidence that the superannuation money has not always been needed or well-expended.

He notes a recent social media question: “If I withdraw $10,000 from my superannuation (tax free) then salary sacrificed $10,000 (also tax free) to go back into my super. I’d then stand to profit $2,500?

Is that right? Or am I missing something?”

What the questioner is missing is the possibility that such a scheme will be picked up in an ATO audit but, then again, perhaps not.

As a certain cohort of Coalition backbenchers keep saying “its your money” but, on the other hand, it’s the Government’s tax regime and it’s the ATO’s job to ensure it is not rorted.

F IND U S O N

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July 2, 2020 Money Management | 17

ETFs

HOW DOES THE AUSSIE ETF LANDSCAPE COMPARE TO THE US? The ETF market in Australia is unlikely to reach the heights or complexity of the US, writes Laura Dew, but industry experts believe the space is still a fast-growing and secure marketplace.

A MOVE BY firms in the United States to better classify different types of exchange traded products (ETPs) is unlikely to be replicated in Australia as the market is already highly regulated and composed mostly of exchange traded funds (ETFs), say industry experts.

In May, BlackRock, Vanguard, State Street Global Advisors, Invesco, Charles Schwab and Fidelity made a proposal to US stock exchanges for four distinct categories of products.

These were ETFs, exchange traded notes (ETNs), exchange

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traded commodities (ETCs) and exchange traded instruments (ETIs). Currently all these vehicles are classified under the wider ‘exchange traded products’ banner.

Commenting on the proposals, the firms said the broad classification had led to ETFs becoming a catch-all term for a wide variety of different products and a stricter system would offer better transparency. There had also been dangers with a number of esoteric products being forced to close as they were unable to cope with the recent market volatility.

But in Australia, around 90% of

the 249 exchange traded products available are ETFs with the largest providers including Vanguard Australia, BlackRock’s iShares and BetaShares. Most are passively managed and track an index such as ASX 200 but there is a growth in actively-managed ETFs coming to the market.

They can invest in Australian equities, international equities, commodities and there is growing demand for those which invest in fixed income, the fastest-growing ETF asset class as investors seek alternative sources of income in a low interest rate world.

According to latest monthly figures from BetaShares, total ETP assets reached $64 billion in May and the most popular categories were Australian equities at $665 million followed by international equities at $493 million and fixed income at $166 million.

The sector had withstood the volatility of the COVID-19 pandemic, seeing inflows of $1 billion in April and $1.6 billion in May, according to VanEck, as investors sought out ‘bargains’ in the market downturn.

Continued on page 18

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18 | Money Management July 2, 2020

ETFs

Continued from page 17 Arian Neiron, managing director of VanEck, said: “ETFs are more liquid, lower cost and transparent. Investors don’t need thousands of dollars to make an investment and can buy and sell the exact amount they need on the ASX. ETFs are positioned to grab even greater market share through 2020 and well into 2021”.

AUSTRALIAN CLASSIFICATION According to the Australian Securities Exchange (ASX), there are three different types of ETPs available for investors. These were ETFs, exchange traded managed funds (ETMFs) and structured products.

ETFs and ETMFs are both types of managed investment schemes (MIS) and an investor would hold the units in the MIS that operated the fund, with each unit representing a proportionate interest in a portfolio of assets held by the fund.

ETFs are usually passive indextracking investments while ETMFs could be active or passive and sometimes tailored to achieve certain outcomes such as inverse exposure, leveraged exposure or single asset exposure.

Structured products typically do not invest in the underlying asset at all but aim to replicate the performance of the asset

synthetically by holding financial instruments such as a futures contract.

Products described as ‘synthetic’ are those where the firm has chosen to synthetically replicate the performance of assets they sought to track or outcome sought to be achieved, usually because it is difficult to hold the underlying physical asset.

Sam Morris, investment specialist at Fidante, said: “We already have a strict classification system here in Australia, you have to make sure the name accurately reflects the product and have to label it correctly and say whether it is active or passive.

We have these naming conventions and I think it would confuse consumers if we did [what the US is proposing] here”.

The Government’s MoneySmart website already also warned investors that products

Table 1: ETP trading volumes during May 2020

Asset class

Inflows value ($)

Australian equities

665,646,911

International equities

493,338,587

Fixed income

166,011,513

Commodities

142,437,503

Short

129,657,253

Source: BetaShares

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such as ETCs, ETNs, exchange trade certificates, exchange traded securities were not the same as traditional ETFs. “Some products track an index or asset and ‘look’ like an ETF. But they’re not an ETF and can be higher risk,” it said.

“There are also exchange traded managed funds and exchange traded hedge funds.

With these, the investment manager tries to outperform an index and may use high risk trading strategies.”

Firms highlighted the strict level of regulation from the Australian Securities and Investments Commission (ASIC) when it came to launching an ETP meant it was unlikely Australia would see the same level of products as in the US. There were over 5,000 ETFs in the US including many obscure angles such as tracking companies which benefit from the obesity epidemic, companies making video games and ETFs managed by artificial intelligence.

Schroders portfolio manager, Mik Kase said: “The landscape here will be less exotic than in the US. Australia is more closely regulated to make sure products are appropriate and the assets it hold are appropriate. When we bought an ETF to market, the regulator wanted to make sure it was right”.

Morris said: “We won’t get the

same level of speculative ETFs as they have offshore as the regulator is very aware of them and scrutinising them. Any [speculative products] would be heavily scrutinised by the regulator in order to be approved, we have a bias for simple, transparent products”.

Alex Vynokur, chief executive of BetaShares, which had launched 60 ETFs since it was founded in 2009, added: “The barriers to entry when launching an ETF are high, the process is onerous, there is lots of testing to consider factors such as transparency, liquidity, the impact of different timezones, client demand and cost effectiveness. Firms need to have significant testing and processes and economies of scale to launch a product”.

COMPARISON TO THE US While Australia is one of the fastest-growing ETF marketplaces with cumulative annual growth of 45% compared to 23% in the US, its total assets pale into comparison compared to the ETF market which is over US $4.2 trillion and expected to reach $50 trillion by 2030 according to Bank of America.

Industry figures are sceptical if the Australian market would reach the same heights as it is a smaller marketplace, has more regulation, and there are fewer free trading platforms.

Vynokur said: “ETFs are

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July 2, 2020 Money Management | 19

ETFs

catching up to the US in levels of adoption, they have had ETFs in the US since 1993 whereas we have only had them since 2001. We have a lot of catching up to do but it is also a much smaller marketplace.

“The barriers to adoption have been addressed but we are still on a journey.”

People in Australia typically have to pay $5 to $8 per trade or go via a financial adviser whereas the US has various commissionfree platforms for ETFs including TD Ameritrade and Robinhood.

There was also less institutional buying of ETFs here with institutional players currently choosing to invest a small sum and watch performance before investing larger volumes of assets.

“In the US, the cost of brokerage is $0 but here there is still a cost or some charge via basis points. The market is getting cheaper but it still has a long way to go. But we are seeing more adoption by younger investors via platform such as CommSec which enables them to make regular investments and include ETFs as a building block in a portfolio,” Vynokur added.

Morris said: “In the US, there is huge retail participation in short-term products and people trade more frequently whereas in Australia, people pause more and think about their investments. We don’t have the same ecosystem.

“We don’t have the same quantum of highly-leveraged trading here, the products in Australia are all simple and transparent but they could get more sophisticated as the market grows. You’ll see more variety, more active ETFs but will also see products shut down if they fail to achieve scale which is indicative of a maturing market.”

However, all commentators

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agreed that investor education and awareness has improved over the years with investors now discussing different types of ETFs available and how they can use them within a portfolio. This is particularly the case for fixed income ETFs which are a fastgrowing area away from the traditional Aussie investors’ domain of domestic equities.

Fixed income ETPs saw inflows of $166 million in May, according to BetaShares, with the majority going into Australian ones.

Kase said: “There has always been interest in stocks but investor education has improved in other areas. Historically, when I told people about bonds, they were not interested but now we are in a low interest rate world, people are looking for alternative sources of income and arming themselves with information about them”.

Morris said: “Five years ago, we were having to explain to people what an ETF was and we have passed that stage now and investors are investing more as their financial education improves and expands. Companies have put a lot of effort into investor education.

“The benefits of ETFs do not always apply to other ETPs even if the products are all exchange traded and sound fairly similar. It is always wise to read the product disclosure statement or consult a financial adviser before you invest.”

ASIC WARNING However, this inclination to “pause more” before investing was not the case during the market downturn as investors sought out a bargain as the market tanked.

According to ASIC, between 24 February and 3 April, the average daily turnover in ETPs increased from $703 million typically to $1.8

“Using riskier ETPs to capitalise on market volatility or magnify returns may seem tempting but the reality is it could lead to significant losses even if they are not fully understood.”

– Robin Bowerman, Vanguard billion. This was a relative increase of 159% compared to an 89% increase over the same period for broader securities.

The sharp spike in flows caused the regulator to issue a warning against speculative short-term trading including geared or leveraged ETPs. In its report, ASIC said: “Gearing magnifies the risk of these ETPs, by increasing profits from favourable market movements but also increasing losses from unfavourable market movements. Additionally, geared ETPs are complex because they are actively managed to periodically reset the level of gearing, to ensure that it remains within a specified range after large market movements.

“Geared ETPs should not be traded by investors who do not have appetite for this risk or understand the complexity. We saw trading volumes for one geared ETP increase by 16x the normal volume to become the second most-traded ETP. Retail investors were on at least one side of 75% of turnover in this fund during the focus period.”

Robin Bowerman, head of corporate affairs at Vanguard, said: “[Investors should] be careful not to confuse Ps and Fs. Using riskier ETPs to capitalise on market volatility or magnify returns may seem tempting but

the reality is it could lead to significant losses even if they are not fully understood.

“Geared ETPs magnify the potential gains from investing in ETPs if the market moves favourably but also the potential losses if it doesn’t. As such, and especially if the investor is using borrowed funds in the first place, it can be significantly riskier than investing in an ETF and is not suited to investors who do not fully understand its complexity and associated risks of gearing and potentially receiving margin calls if borrowings are involved to make the investment.”

Vynokur said there was a distinct difference between those investors who are using ETPs as a long-term investment and those who are making short-term trades on the exchange.

“The combination of valuations and social isolation during lockdown caused a pick-up in trading but we have to draw a distinction between trading and investing. There is no quick path to riches, if professional investors struggle to time the market then what chance do individual investors have? Unfortunately there is a portion of people who are gamblers and day trading is high risk,” he said.

“We encourage people to be investors, to stay the course and take a long-term time horizon.”

24/06/2020 1:43:13 PM

20 | Money Management July 2, 2020

Building a portfolio

WHAT’S IN A DURABLE PORTFOLIO? The longest bull market has come to an end as a result of a health crisis, Jassmyn Goh finds out what advice has been given to investment committees during this current market downturn.

IT HAS BEEN a trying time to say the least as the COVID-19 pandemic has pummelled markets leading to investors panicking about how hard their portfolios have been hit.

The portfolios that have been able to withstand the blows of pandemic have focused on durability.

While diversification is an obvious feature of any durable portfolio there are a number of other aspects financial advisers should look for when choosing funds from an approved product list (APL) or when building a portfolio.

One of the biggest differences with the current recession and market downturn compared with previous ones is the fact that this stemmed from a health crisis, rather than a financial crisis.

Investment strategies have been challenged and picking the right manager that matches client risk has been a huge factor in durability success.

MANAGER QUALITIES Mercer’s wealth management leader for the Pacific, Luke Fitzgerald, told Money Management that advisers need to look for managers that are able to pull multiple levers in a cycle.

“You’ve got to look at whether the manager’s design or portfolio’s mandate allows them to pull multiple levers through a cycle.

Wealth management clients can’t be swapping and changing managers on a three or six monthly and or even on a yearly basis due to operational constraints so you need

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to let managers have enough breadth of opportunity to make decisions for clients,” he said.

“Advisers also need to look at how they construct their asset classes and types of managers. If you have an unconstrainted type manager in a portfolio who can take bigger bets then you have to mitigate that risk with other managers that may have a bit more static risk analysis. The end game is achieving quality managers for each asset class to beat a particular benchmark whether it is an up or down market.”

Fitzgerald said advisers should look for managers with portfolios that were “suspiciously robust” but that they needed to understand what the robustness meant and what was sacrificed to achieve that.

“They should really be building and looking at portfolios that are appropriate for client’s risk tolerance. The more you constrain the portfolios and managers the more levers you take off the table and that can be an issue,” he said.

“That said, you do want managers and people working with you to have that depth of experience and knowledge to apply those levers appropriately.

“Advisers should not just look at past history, as they must also understand forward-looking views and idea generation. They don’t want to be turning portfolios over during certain times just because they’re not performing as they will miss the upside when it comes around.”

ClearView chief investment officer, Justin McLaughlin, said advisers needed to remember that

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July 2, 2020 Money Management | 21

Building a portfolio Strap fund managers were not asked to manage the adviser’s risk but instead were asked to add value over time and to beat the market by a percent or two.

“You have to be aware of what you’re asking them to do. It’s very much understanding what a manager’s investment mandate permits them to do. If a fund manager does not manage market risk it just might not be a task that they have set or a function they have been asked to perform,” he said.

“If you put together the portfolio, fundamentally you decide what you have in growth assets and this determines the amount of risk you have. You have to work out who is the right fund manager for you and it’s about picking the right style if you want risk managed.”

McLaughlin agreed with Fitzgerald that managers needed to be assessed over a reasonably long period and that it was important they answered whether they performed in line with the style they said they would follow.

On long-term assessments of managers, Zenith chief executive, David Wright, said there was no better time to be assessing managers than in times of stress.

He noted that while advisers needed to focus on the team and personnel through many market cycles, fixed income managers had not experienced a bear market in 20 years.

He warned that managers that were not moving towards greater environmental, social, and governance (ESG) practices would get left behind.

“The ‘G’ aspect is well and truly developed but it’s the environmental and social aspects that are still developing for managers and it’s really becoming mainstream,” he said.

Wright said that while diversification across asset classes and geographies was important, a diversification across manager styles was also needed to make portfolios durable.

However, he said there was a temptation to move out of portfolios when managers underperformed and said there would always be periods where managers in certain styles underperformed.

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INVESTMENT COMMITTEE ADVICE Alternatives Wright said that as active funds historically provided better protection in downward markets over passive and index funds Zenith had encouraged some switching, especially in the Australian real estate investment trust (AREIT) sector.

“AREITs have been hammered recently as a result of some retailers closing, going out of business, and property and office building owners seeking rent, or dealing with rental reductions,” he said.

“A lot of people had said that active ARIET managers had not outperformed in recent years so the exposure they had was through an index and this was quite retail heavy.”

He said active AREIT managers had more flexibility to navigate around the different property sectors and those that had been hardest hit.

“You have managers that are long-short flagship types like Platinum and Antipodes. They’re also going to struggle in a period when markets are rising and their market exposure is lower than 100% because they use shorting,” Wright said.

“Through that late February/ March period where the market tanked those managers performed really well.

“This has highlighted that there is a place for long/short market neutral like alternative strategies that hadn’t enjoyed a period of performance, and never do in raging bull market conditions, but now has provided people returns and protection in downward markets.”

Wright noted that Australian microcaps had been useful during the downturn as medium-sized companies had performed better but that many investors did not hold microcap exposure due to volatility and liquidity concerns.

Alternatives were another asset class that Wright said was not allocated towards as much to as many advisers and investors did not understand alternatives.

“I’d like to see more advisers and portfolios using alternative

strategies like managed futures and global macro. As an industry we are not as exposed to alternative strategies as what we should be and they will be really useful going forward with market volatility and geopolitical uncertainty,” he said.

Hedging For McLaughlin, ClearView had been advising for currency hedging in portfolios as the Australian dollar tended to be quite correlated with risk.

He said the Australian dollar tended to fall when risk rose and tended to rise when risk fell and the falling dollar partially offset the falls in offshore assets.

“Being unhedged is a good risk mitigant for most investment portfolios so the hedging strategy is quite important because most portfolios probably have at least as much offshore as they do onshore at least in terms of equity exposure,” McLaughlin said.

“Another approach would be to try and invest in fund managers who are trying to manage directional risk – long/short managers as they can hedge market risk directly. Some had a tough time in the last few years but they’ve generally outperformed when markets haven fallen so there are a number of well-known managers that fall into that category.

“There are managers that also try to explicitly manage market risk as part in parcel of their core philosophy. So advisers should allocate at least partially to a long/short manager or to a manager that is consciously trying to manage market risk.”

McLaughlin noted that prior to the downturn he was defensively positioned with investments in cash and fixed income and then halved that defensive position during March and April to take advantage of the market dip in equities.

“So far that has worked as markets have rallied,” he said.

“We think there will be further volatility between now and November. So, we think we’ll get further opportunities to take back some of the risk mitigate strategies we have in place.

Value versus growth McLaughlin noted that he would not have too much exposure to American growth companies as while they were good quality they were expensive and their performance might be unsustainable.

“A lot of the time when you go into a big correction and subsequent rallies the stocks that sell off the most are the very expensive tech stocks, which is what happened in 2000, and fall the furthest.

“What we’ve seen in the last little while is the big American tech companies being the best performers on the way up because they were growing but also quite defensive on the downside,” he said.

“Whether that’s sustainable, that’s debateable but that’s an unusual characteristic in the sense that the best growth stocks have been the best defensive stocks as well.”

For Wright, value investment styles still had a place in portfolios despite not performing well for some time.

“Recently, some managers that did best that had a growth investment style and that’s tended to lend itself to large US tech names and that’s still valid and legitimate,” he said.

“But value investment style base in Australian and global equities hasn’t done well for quite a period of time and we’ve had people say ‘in a market correction, isn’t value meant to protect us? Should we get out of value?’ The answer is no.

“Because if you look back over history, when you get over that first market shock and indiscriminate selling no styles work very well when people are try to liquidate holdings.”

He said in the shorter-tomedium term the value investment style had protected and generated better investment returns in market pulldown periods than some of the other investment styles.

“The messaging has been around ensuring you have diversification across not just asset class and geographies but also manager investment styles,” he said.

25/06/2020 11:55:26 AM

22 | Money Management July 2, 2020

Superannuation

TAKING A PERSONAL TOUCH TO SUPERANNUATION

Personalised investing in superannuation is the next step to improving low engagement levels and helping Australians achieve their desired retirement lifestyle, writes Jodie Hampshire.

RETIREMENT INCOME ADEQUACY has been a key topic driving debate within the superannuation industry; however, it appears that everyday Australians are less and less engaged. While we can be certain that the majority, if not all, Australians want a comfortable life in retirement, the majority are not thinking about their retirement until it could be too late.

The outbreak of COVID-19 and its dramatic impact on markets has again thrust Australian super balances into the headlines.

Fear around the erosion of Australia’s retirement savings

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peaked as Chant West figures revealed the average growth (balanced) fund dropped 9% in the month to 31 March, 2020, and 10.1% over the March quarter. The share market has since bounced back however heightened volatility has not alleviated fear altogether.

Prior to the market collapse, Russell Investments commissioned a survey of more than 3,000 working Australians in January 2020 to gauge their perceptions of investment within superannuation.

The research revealed many Australians are in the dark when it comes to the important details of their superannuation. For instance,

most working Australians (67%) believed their superannuation fund would actively protect their retirement savings from a downturn.

Another common misconception among more than a third of working Australians is the belief that their super fund already manages their investments based on their own personal circumstances – even if they do not actively choose how their super is invested within their fund.

In fact, two-thirds of those surveyed did not know how their super was invested or simply left it up to their fund’s default approach.

Perhaps the most concerning

takeout from the research is just how much Australians underestimate the importance of asset allocation in driving retirement outcomes. For working Australians, asset allocation is one of the strongest factors driving retirement income adequacy. Yet, just one in five correctly identified asset allocation as one of the most important determinants in achieving adequate superannuation savings for retirement – alongside contributions.

This statistic is concerning however it can hardly be considered surprising with asset allocation often taking a backseat in industry

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H

July 2, 2020 Money Management | 23

Superannuation discussion around retirement adequacy compared to other factors such as fees, which have a smaller influence over the overall outcomes.

MISCONCEPTIONS AROUND SUPERANNUATION The misconceptions uncovered in the research can for the most part be explained by Australians’ low engagement when it comes to superannuation. It has shed a light on how exposed many Australians remain in today’s modern defined contribution super environment.

Our superannuation system is recognised among the best in the world; however, retirement income adequacy continues to be a real conundrum that affects the majority of working Australia – and lack of engagement is exacerbating the issue.

This is not just a current problem, with the same issues likely to be even more pertinent for younger generations as they experience further flat real-income growth and even volatile income as the movement towards the gig economy gains traction.

According to the World Economic Forum, Australia has a US$1 trillion ($1.4 trillion) retirement savings gap, which is expected to rise to US$9 trillion by 2050. Insufficient savings rates, increased life expectancy and of course, misaligned asset allocations are the biggest drivers of this shortfall.

Having the right asset allocation at the right time is critical as super fund members who don’t take on enough risk when they are able can see their balances stagnate while overly aggressive asset allocation at the wrong time can jeopardise a lifetime of savings.

However, in an age of personalisation and information technology, most individuals saving for their retirement are defaulted into pooled investment strategies that do not take into account important information such as their account balance and their retirement income goal.

Despite investors being able to choose their investments in super, our research shows choosing investments within super remains a

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minefield for many working Australians, leading to misinformed choices, or no choices at all.

In fact, more than one-in-five respondents did not know that choosing investments with superannuation was an option available to them. Furthermore, those who have made active investment choices within their super may be ill-equipped to do so, with only three in 10 members believing they have the right investment experience to pick their own investments.

When making their investment choices, one in four Australians rely on help from a friend or relative with financial knowledge compared to only three in ten who reference information from their super fund.

Meanwhile, 28% of working Australians admit to still choosing their own investments, despite not having much investment experience.

In times of economic crisis such as the current environment, the chances of making an investment mistake are likely to be magnified with strong emotions and behavioural biases present in decision-making.

While professional financial advice can help, it is not realistic that every working Australian can access it. Appropriate asset allocation advice also requires ongoing review and implementation as circumstances change which is heavily reliant on member engagement.

MOVING BEYOND ONE-SIZE-FITS-ALL We believe the industry can, and should, be doing more to not only help investors navigate this climate of increased uncertainty but meet the needs of retirees as we live longer.

We encourage investors to start with a clear set of investment goals and design asset allocation which is specific to achieving those goals, updating them as their needs or circumstances change.

For many working Australians saving for retirement, the approach is starkly different. A key weakness of our current system is its inability to deliver investment strategies that address individual retirement goals.

While super funds want to do the

“Just one-in-five correctly identified asset allocation as one of the most important determinants in achieving adequate superannuation savings for retirement.”

– Jodie Hampshire best for their members, the current approach to investing is still one-size-fits-many. Until now, it has not been viable to tailor investment strategies to each individual.

While MySuper has helped nudge people into higher growth default options, the contributions of a 25-year-old entering the workforce might still be invested in the exact same way as a 62-year-old nearing retirement.

The introduction of lifestyle or target date funds has been a step in the right direction, however age-only strategies are designed for a group of individuals, instead of delivering an optimal outcome for each and every individual.

For instance, a 62-year-old well ahead of their goal can afford to invest more aggressively in contrast to a 62-year-old just on track to reach their goal. With an age-only based approach, these different individuals are invested in the exact same way.

Our next challenge is to efficiently deliver an approach to asset allocation that is more personalised to an individual’s own retirement goal and financial situation.

EMBRACING PERSONALISATION The move towards a more personalised approach to superannuation in Australia would emulate other industries which have harnessed advances in data and technology to offer a more personalised delivery of products and services to meet the unique needs of individuals.

Examples are numerous in our everyday lives – from video streaming services which provide personalised entertainment experiences aligned to their preferences to the rise of fitness smart apps, making it easier to set

health goals and track progress.

These technologies have proved to be hugely beneficial, showing how tracking progress towards a personal goal can improve the chance of achieving that goal.

We believe industry stakeholders can, and should, draw on similar experiences to address well-documented, longer-term challenges in superannuation such as low levels of engagement.

Naturally, a more personalised approach to superannuation would make it easier for Australians to engage, take positive action and improve the likelihood of achieving the retirement lifestyle they choose.

In the next evolution of superannuation, each individual member will understand the retirement income goal they are likely to achieve and receive guidance on how to set a more meaningful goal. Alongside this, super funds will not only make it easier for individuals to measure progress but help them stay on track towards their goal.

Enabling members to adopt more individual, goals-based investment strategies will also help members better manage their investment choices – and thus retirement outcomes – through inevitable market cycles.

While the investment landscape is still uncertain, one certainty that can be relied upon is retirement savers will demand more of their super funds. As has been the experience with many other industries during this crisis, we expect the pace of change to accelerate, with goals-based, mass personalisation in super funds coming sooner than you might think.

Jodie Hampshire is managing director, Australia at Russell Investments.

24/06/2020 4:22:23 PM

24 | Money Management July 2, 2020

Equities

IS THERE STILL A PLACE FOR VALUE INVESTING? The COVID-19 stockmarket crash has brought about the end of the bull market, writes Dougal Maple-Brown, but it has failed to end the dominance of growth managers.

AS THE AUSTRALIAN Securities Exchange (ASX) continued its rise throughout 2019 and into 2020, reaching new heights in February this year, some market commentators started to suggest that the end of the bull market cycle was approaching and with it, the end of the dominance of growth managers.

The COVID-19-induced market collapse in late February and March did indeed trigger the end of the bull market but it did not bring about the expected catalyst for value managers to come to the fore.

Value investing is supposed to perform best during market falls.

But we’ve just seen a downturn – indeed, at time of writing, markets have already bounced back – and value managers have still not outperformed.

Why not? And is there still a place for value investing, or has the world changed too much?

PERFORMANCE OF VALUE The key reason why value has underperformed, both over the last few years and indeed in this recent bear market, is that interest rates have gone only one way – lower!

At the heart of value investing is the concept of mean reversion – the theory that asset prices and historical returns eventually revert to their long-term mean: whether that reversion is impacting economies, industries, individual stocks or fundamental macroeconomic factors such as currencies and interest rates.

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So while all companies benefit from a lower cost of capital as a result of low interest rates, they are not all impacted equally.

Essentially long-duration assets (such as long bonds and growth stocks) have more of their cashflows in the future than shorter-duration assets (such as a value stock). In our view this is essentially why growth has done better than value in recent years.

We also note that interest rates are foreshadowing a very low growth period ahead, yet price earnings (P/E) multiples are still very elevated. At some stage we expect P/E multiples to contract, adversely impacting growth stocks.

Chart 1 highlights the outperformance of growth over value both in Australia and the US over the last decade. Remarkably, the performance in both markets is almost identical and the outperformance of growth has accelerated over the first half of 2020. We have rarely, if ever, seen such a sustained outperformance of any one strategy and would not be surprised that when a reversal occurs the response could be quite dramatic.

Another issue for investors to be aware of is that unusually (possibly uniquely), the stocks that led the market higher over the last few years also did best in the recent downturn. At the early stage of the downturn it was pretty clear that the favoured stocks continued to be favoured. The healthcare sector

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July 2, 2020 Money Management | 25

Equities Strap

Chart 1: The growth/value divergence

generally is a classic example of this. As such, we are even more convinced that these stocks are overvalued and more recently it appears that the market is beginning to come around to this view, with some market analysts predicting a move by markets into a “second phase” which favours value and cyclical stocks.

Investors and their advisers should also keep in mind that the March market fall was probably not the “main event”. The stimulus measures put in place by the government – not just here in Australia but around the world – provided a substantial level of support to the economy and markets.

However, we believe it is still relatively early days in the current market cycle – indeed it would be very unusual if it was all over in three months. It is more likely that the true impact of the lockdown and the subsequent stress on company balance sheets, will not be fully felt until later in the year. Just like the second wave of the virus that health officials are warning about, it is possible there will be a second wave of market turmoil.

A ‘NEW NORMAL’?

A common theme of almost all market crises is that in the months beforehand, people start to believe that “this time, it’s different”. P/E multiples can keep rising; structured financial instruments are indestructible; all internet-related companies will inevitably deliver a huge profit. But the subsequent crisis reveals the reality that anything can come crashing down – there is no “new normal”.

As value managers, we believe

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Source: Factset, Bloomberg

Chart 2: Valuation matters

Source: Maple-Brown Abbott, Value investing theory

that by combining a strong value discipline with a longer-term time horizon than most investors, we can exploit a regular and persistent inefficiency in markets often referred to as time arbitrage, as illustrated in Chart 2.

With most market participants increasingly taking a short-term view, both negative and positive news is compounded in terms of its impact on share prices, leaving opportunities for the patient long term value investor.

We strongly believe that the price you pay for an asset is critical to its success or otherwise as an investment, whereas in our experience most growth investors are less sensitive to price and more concerned with the potential growth on offer.

This doesn’t mean that we are “anti-growth” – in fact, we like growth just as much as the next investor. Where we seek to distinguish ourselves from other investors is what price or what multiples we are prepared to pay for that growth. History is littered with examples of buying stocks at any price (the dot-com bubble for example). We suspect that investors may well look back in years to come and wonder at the multiples paid for many of the favoured stocks today.

It is often said the darkest the hour is just before dawn and value investing has been particularly bleak over the last few years!

Once again we are hearing “this time it is different” usually coupled with a comment along the

lines of “interest rates will be low forever”. Whilst the chances of rising interest rates and inflationary pressures appear low in the short term, they cannot be dismissed. The only way Governments around the globe are ever going to repay the vast debts accumulated through this crisis is likely to involve inflating their way out of it.

It is hard work buying when everyone else is selling (and vice versa) but it is the only way you will outperform over the longer term. In our view “buying straw hats in winter” is still a very prudent philosophy.

Dougal Maple-Brown is head of Australian equities at Maple-Brown Abbott.

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Financial advice

HAS CRISIS DELIVERED A GREAT LEAP FORWARD FOR ADVICE? The recent market volatility has highlighted the benefit of receiving financial advice to clients and demonstrated the value they can add, writes Mike Wright.

WITH THE COVID-19 curve flattened in Australia, the public health recovery from the global pandemic in our country, thankfully, has been relatively swift. The economic recovery is less certain.

What is certain, however, has been the fundamental role of quality financial advice during this period, and the vital role of advice through the nation’s financial and economic revival.

Lockdown has been a time for home-baked bread, home schooling, gratitude for our essential service workers (including teachers!) and the inevitability of remote video conferences.

It has also been a period for some reflection, and perhaps an opportunity to spawn new ways of thinking, and to adapt approaches to

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how business fundamentally operates. This ‘change moment’ is a global phenomenon. From a time of historic uncertainty, we are seeing a worldwide Renaissance or reawakening across an entire spectrum of human activity, societal and business structures.

Could the same be said for quality financial advice? Call it a rebirth, rejuvenation, regeneration – to me the central idea of entering a renewal period for quality financial advice is a useful way to describe how clients have been reassured through quality advice, are trusting the advice they receive, and are seeing the value proposition of advice with fresh eyes.

In other words, it is not necessarily advisers that have suddenly seen the light. Advice practitioners and those who serve

the emerging profession have been on a journey adapting their business around client-centred professionalism for years. It is the awakening of the client, who has had the opportunity to experience deeper value in quality financial advice, that is the most exciting and unexpected outcome for the advice industry from the pandemic.

Further, as the experience of advised consumers in achieving their goals and performance becomes prevalent, we envisage non-advised consumers will seek the same experience and hence see growth in the number of advised Australians.

This catalyst moment represents an opportunity for the emerging advice profession to galvanise, to review accepted business practices and to adapt

and innovate. Here is a great chance to enrich relationships with clients both existing and new.

Hence my expression: “a great leap forward for advice”.

A renewal for accessible and trusted advice The March 2020 decision by Government to close our nation’s borders and effectively ‘shutdown’ the Australian economy resulted in an immediate ‘fight or flight’ investment response.

There are stories of many non-advised Australian investors fleeing to cash during the early days of extreme market volatility. This emotion-driven flight response to build up ‘defensive’ cash reserves (triggering capital value losses in many equity portfolios) was a crisis characteristic we have seen in the

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July 2, 2020 Money Management | 27

Financial advice

past – notably during the 2008 Global Financial Crisis (GFC).

Crystallising a loss at the depths of a crisis is always a difficult and harsh reality for non-advised investors. Also, many Australians simply wanted to take back some control at a time of fear and feeling disempowered. Such decisions and the losses incurred would no doubt have been curbed if more Australians were guided by a trusted adviser.

What is the evidence for advised clients? Several of our licensee clients have said that most clients maintained their long-term investment strategies. By staying the course, they are now starting to see light at the end of the tunnel and some early tangible benefits.

Coached by their adviser, clients have the benefit of professional guidance, often resulting from experience over several investment cycles. Advisers managed downside risks and made asset allocation or strategic investment switches based on unemotive decision-making, quickly, cushioning clients from any irrational behaviour. Clients experienced the comfort zone of being advised.

This begs the question: how can more Australians gain access to the comfort zone of a quality financial advice relationship, especially in a time of crisis? Part of the answer to this is of course technological. The effective deployment of innovation in the technology space in support of quality advice is inevitable. Another part of the answer is the emergence of different, innovative advice models. For both themes there is some precedent for this, as our firm has already seen since it was established in early 2012.

Following the GFC many Australian advisers experienced feeling ‘dis-abled’ to act on behalf of clients quickly. The dominant sense of frustration and client fear took hold as the value of client portfolios fell.

The harsh lessons of those days led to some fundamental changes, a new advice model for some advice businesses who wanted to take back control for their clients. These pioneering businesses sought the

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tools to be enabled and provide investment management services that were nimble, decisive, and swift. In turn, they adopted managed accounts, specifically managed discretionary account (MDA) structures, for their clients and businesses.

According to the 'IMAP Milliman Managed Account Funds Under Management Census’ as of 31 December, 2019 funds under management in managed accounts stood at $79.29 billion, an increase of $7.9 billion on the 30 June, 2019 total of $71.38 billion.

In Australia, the MDA category remains the largest compared to the overall managed accounts flows, with a 6.5% increase in six months.

However, platform based SMAs are growing at a faster rate and closing in on the MDA total.

IMAP predicts managed account growth will continue to outstrip growth in platform funds under advice - which suggests that most growth is coming from advisers who are recommending managed accounts to existing clients.

Leading that growth, I believe, is the clear and noble function of the trusted adviser acting as the guiding hand to make measured, educated decisions for the longer-term benefit of their clients.

The efficient, compliant, successful advice practice In terms of efficiency, we have seen a significant uplift for practices who have embraced an MDA or separately managed account (SMA) structure. Managed accounts save advisers 13 hours a week and allow advisers to focus more time on client relationship management.

There are several other tangible benefits including the reinforcement of trust between adviser and client, a stronger sense of meeting the bespoke needs of the individual client, and a sense of regulatory confidence addressed by the ability and duty of acting in the best interest of each and every client.

The global financial services system may be going through unprecedented stress due to the pandemic crisis but our compliance

“It is the awakening of the client, who has had the opportunity to experience deeper value in quality financial advice, that is the most exciting outcome.”

– Mike Wright and regulatory obligations remain constant. In fact, it could be argued we need more reliance on appropriate checks and balances more than ever when the pressure is on and decisions are being made in the heat of battle.

Making a positive difference to a client’s life in a downturn It has been a positive experience in recent weeks to hear firsthand stories of advisers making a meaningful difference for clients during these volatile times.

With news of COVID-19 impacting global markets, we observed little to no evidence of panic selling.

Rather, those licensees using managed account solutions reported clients understood the unpredictability of COVID-19 and its economic impact. This came in two forms; those clients who had longterm investment strategies were willing to ride out the volatility with their adviser and those who had already positioned for the downside late last year were able to opportunistically deploy available capital.

Those businesses and advisers operating a managed account model, particularly MDA structures, were able to make and implement decisions and adapt to changing market dynamics very quickly.

As managed account investment managers managed the portfolio, this left the adviser available to manage the stress of market gyrations and be highly proactive communicating with clients via video conference or telephone calls. The frequency of these calls was reported to move from quarterly to weekly to daily as the crisis worsened.

The most crucial element that an MDA structure provided

advisers throughout this crisis was control – enabling them to proactively act quickly.

One early benefit in the period was the discipline of stop/loss strategies used to shelter from increasing volatility. The MDA structure also highlighted its ability to efficiently re-allocate investment capital opportunistically into company capital raisings, which were at prices that represented a deep discount. For this advice business they were able to effectively execute for a large number of clients fast and efficiently.

A leap into the future for the advice market There is no question that as we emerge from the pandemic-created period of change, that some form of new normal for advice and advice client relations will emerge.

We believe this will be characterised heavily by the easy wins: new adaptations and clever technology uptake, and the further freeing of time to focus on the humanistic aspects of advice: trusted counsel, stronger relationships and the emotional security of being in the advice comfort zone.

Above all, one thing that will remain steadfast and likely continue to grow, is the need for quality, trusted advice that prepares for the worst but also remains optimistic for the future.

The global COVID-19 pandemic has delivered a historic period of enormous fear, uncertainty and risk, but it has also helped to show new clients the best of the advice profession in being resilient, capable, and client-centric, come what may.

Mike Wright is chief executive of Xplore Wealth.

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Toolbox

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July 2, 2020 Money Management | 29

Toolbox

CONTRIBUTING TO SUPER As financial advisers enter their busiest period of the year, Graeme Colley explains the latest developments surrounding superannuation contributions at the end of the 2019/20 financial year.

THE RECENT CHANGE to change to the work test for making contributions to superannuation to age 67 has certainly raised issues with clients making contributions after 65 and how those changes impact on any contributions that are being made for them. The downside of the Government’s 2018 budget announcements for superannuation contributions is that the opportunity to use the bring forward rule is still restricted to those age 65 or younger.

The changes to the income tax law in the Treasury Laws Amendment (More Flexible Superannuation) Bill 2020, which move the bring forward rule to age 67, remain in the House of Representatives. As parliament does not resume until early August, the bill has a way to go prior to becoming law. So where are we now with contributions for anyone 65 or older with the start of the 2020/21 financial year?

Until 30 June, 2020, personal concessional and non-concessional contributions could be accepted by a fund without any work test being met prior to the member reaching age 65. However, once the person reached the age 65 in the financial year the member was required to meet the work test at some time during that year and in all later financial years prior to the contribution being accepted.

As with personal superannuation contributions, the fund trustee is unable to accept personal concessional or non-concessional contributions any later than 28 days after the month in which the person reaches age 75. There is one

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exception to the age test which is the acceptance of downsizer contributions.

The only exceptions to the work test are where a person wishes to make contributions in the year after ceasing work and downsizer contributions.

Ceasing work contributions are permitted to be made on a once only basis after the member has reached 67, previously age 65, in a year after they have ceased work if they have a total super balance on 30 June in the previous year of less than $300,000. These contributions can be accepted by the fund trustee 28 days after the month in which the person reaches 75.

As far as downsizer contributions are concerned, a person and their spouse are eligible to each make a contribution of up to $300,000 within 90 days of selling their main residence after age 65.

There is no upper age limit applying to downsizer contributions or any work test that needs to be satisfied.

Anyone who is employed after age 65 may be eligible for compulsory employer contributions and if they meet the work test, they may wish to salary sacrifice to super.

Employer-mandated contributions, such as those made for super, guarantee purposes or under an industrial award, are not subject to a work test or age limit. However, other employer contributions, including salary sacrifice, are subject to age limits described above.

The changes to the work test requirements have been extended to include non-concessional contributions

made for an eligible spouse. The age restriction which applied up to 30 June, 2020, permitted spouse contributions to be made between ages 65 and 70 providing the spouse met the work test.

From 1 July, 2020, this is now extended to apply for spouse contributions made between 67 and 28 days in the month after the spouse reaches 75 in line with other personal superannuation contributions.

The work test is required to be met prior to contributions being made to the fund.

In relation to the operation of the bring forward rule for non-concessional contributions, those fund members who are in the 65 to 66 age bracket are in a bit of a dilemma from now until the time when the passage of the legislation is clear. It is only those members who have a total superannuation balance of less than $1.5 million as at 30 June, 2019, or 2020 that should be concerned if they wished to maximise their non-concessional contributions by using the bring forward rule.

The rules for non-concessional contributions allow up to two years standard non-concessional contribution to be brought forward if the total super balance as at 30 June in the previous financial year and up to one year standard non-concessional contribution is between $1.4 and $1.5 million.

Anyone with a total superannuation balance of greater than $1.5 million on those dates does not have access to the bring forward rule for the subsequent financial year.

As an example of the

Continued on page 30

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30 | Money Management July 2, 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.

Continued from page 29 operation of the bring forward rule, a person who is currently 65 would have access to the bring forward rule of at least one year standard non-concessional contribution assuming their total super balance is less than $1.5 million. If they contribute greater than the standard non-concessional contribution, the bring forward rule will be triggered and they will be able to make the relevant contributions over a two or three year period. If they make the contributions prior to reaching age 67 the fund can continue to accept the contributions without requiring the member to meet the work test.

In contrast, a person who is currently 66 or 67 will not be able to trigger the bring forward rule as they were older than 65 on 1 July in the 2020/21 financial year. This will limit the maximum amount of non-concessional contribution they can make without penalty to $100,000 p.a., however, the consolation is that there is no requirement for them to meet the work test unless they wish to make contributions in the financial year after they reach 67.

CASE STUDY Neroli is 67 on 13 July, 2020, and has recently ceased work. In light of the proposed changes to making superannuation contributions and due to the downturn in the investment markets she delayed the sale of her listed shares until the market improved. She planned to make a non-concessional contribution of up to $300,000 from the sale of the shares by accessing the bring forward rule before her 67th birthday. Her total super balance on 30 June, 2020 was $450,000 which meant she could not access the ceasing work contributions. Also, she did not intend to go back to work in the 2020/21 financial year.

This means that Neroli is in a bit of a dilemma as she had to wait until the sale of the shares before she could make a non-concessional contribution to her fund. The contribution would need to be made prior to her reaching age 67 on 13 July, 2020 and she would not have access to the bring forward rule which would allow her to make a non-concessional contribution of up to $300,000.

WHERE TO NOW? Increasing the age at which the work test applies in line with the age pension age is a worthwhile move which starts to align the superannuation system and qualifying for social security benefits.

However, as with all changes, issues have revealed themselves around the margins and these are exacerbated with the current COVID–19 situation.

We now are able to make concessional and non-concessional contributions until we are age 67 without having to meet the work test. But we wait with eagerness to see how the legislation will accommodate the bring forward rule for those intending to make non-concessional contributions but have fallen between the cracks, like Neroli.

Graeme Colley is executive manager, SMSF technical and private wealth at SuperConcepts.

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1. The changes to making contributions to superannuation from 1 July, 2020: a) Will increase the amount of non-concessional contributions that can be made to a fund b) Will extend the age for making personal contributions to superannuation c) Will extend the age at which spouse contributions can be made to superannuation d) Will allow a person who is 66 on 1 July, 2020 to access the three year bring forward rule 2. A person who is 66 and is retired: a) Can claim a tax deduction for concessional contributions from 1 July, 2020 b) Can make an after ceasing work contributions from 1 July, 2020 c) Needs to meet the work test to make contributions to super after 1 July, 2020 d) Can make spouse contributions if their spouse meets the work test 3. A person who is 67 on 20 July, 2020: a) Will have access to the two year bring forward rule if their total super balance on 30 June, 2020 was less than $1.6 million b) Will have access to the two year bring forward rule if their total super balance on 30 June, 2020 was less than $1.5 million c) Will have access to the standard non-concessional contribution of $100,000 if their total super balance on 30 June, 2020 was greater than $1.6 million d) Will not have access to the bring forward rule but be limited to a non-concessional contribution of $100,000 depending on their total super balance 4. Vera was age 67 on 30 June, 2020, has a super balance of $800,000 and wishes to make a non-concessional contribution to super after 1 July, 2020. Which answer is correct? a) Vera cannot make a non-concessional contribution unless she meets the work test prior to making the contribution b) Vera cannot make a non-concessional contribution unless she meets the work test at any time during the financial year c) As Vera is 67 the amendments to the work test will allow her to make a non-concessional contribution during the financial year d) It cannot be determined whether Vera is able to make a non-concessional contribution as it will depend on her transfer balance cap 5. If a contribution is made by a person for their spouse. Which answer is correct? a) Both spouses must meet the work test after 1 July, 2020 b) The contributing spouse can only make non-concessional contributions c) The contributing spouse can make concessional and non-concessional contributions d) The spouse must meet the work test of 40 hours in 30 consecutive days

TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/ features/tools-guides/contributing-super

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

25/06/2020 9:47:05 AM

July 2, 2020 Money Management | 31

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

Appointments

Move of the WEEK Boe Pahari Chief executive AMP Capital

AMP Capital has a new chief executive – Boe Pahari.

AMP announced to the Australian Securities Exchange (ASX) that Pahari, who is currently the company’s global head of infrastructure equity and director of North West region encompassing the UK, Europe and the Americas,

Higher education and research industry superannuation fund UniSuper has appointed Andrew Raftis as chief risk officer (CRO), leading the risk and assurance team.

He had spent 20 years working internationally with AXA, AIG, and Zurich which included roles as CRO, chief auditor and chief compliance officer.

Raftis returned to Melbourne in 2018 and had worked on several boards and advisory committees including the AMP Employer Sponsored Superannuation Plan Committee.

Kevin O’Sullivan, UniSuper chief executive, said: “He brings with him a wealth of international and domestic risk management and assurance experience; and a track record for developing leading edge best practices in risk, compliance and control functions”.

The managing partner of advisory and accounting HLB Mann Judd Brisbane, James Henderson, has been appointed as chair of HLB Asia Pacific.

Henderson would lead HLB Asia Pacific over the next three years and would primarily be

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would be succeeding Adam Tindall.

It said Tindall would be retiring from AMP after almost five years leading AMP Capital.

Pahari joined AMP Capital in 2010 and led the development and global expansion of the infrastructure equity business.

responsible for implementing HLB’s strategy and growth initiatives plan across the region.

He had been with the company since 2005, mostly advising international clients, and throughout his career specialised in industries including property and construction, hospitality, professional services, transport, financial services, and the notfor-profit sector.

Tony Fittler, HLB Mann Judd Australasian association chair, said Henderson was a natural fit for the role, having also served on the National Executive Committee for HLB Mann Judd for the past nine years.

Global investment manager L1 Capital has appointed Chris Clayton as head of distribution and Aman Kashyap as investment specialist.

Clayton would be responsible for managing business development, marketing and client services.

He had over 19 years of financial markets experience primarily focused on funds management distribution.

He had previously worked at Acadian Asset Management,

worked in all parts of the distribution market including as head of sales and marketing at BT Investment Management, and as head of asset management (sales) at the National Australia Bank (NAB).

Kashyap would take over relationships with research houses, asset consultants and private wealth firms.

He had most recently worked at Prodigy Investment Partners, and prior to that held senior distribution roles with Ophir Asset Management, NAB Asset Management and ING Australia.

Vanguard Australia has appointed Balaji Gopal as head of its Personal Investor business and will join the Australian executive team.

Gopal was currently head of product strategy and the appointment followed the return of Lori Mighton to Pennsylvania, US, following the launch of the Personal Investor offering.

Frank Kolimago, Vanguard Australia managing director, said the moves were part of the firm’s commitment to the ongoing development of talent by rotating executives through different

parts of the global organisation.

Mighton would be taking on a newly-created role within Vanguard’s Enterprise Advice business.

Maple-Brown Abbott Global Listed Infrastructure (MBA GLI) has made two new appointments in new roles: Georgia Hall as environmental, social and governance (ESG) analyst and Gitendra Pradhananga as senior research analyst.

Hall had over 10 years’ experience in financial services and was most recently senior manager, ESG and corporate responsibility, at Commonwealth Bank.

She also worked in Australia for AMP Capital and Ironbark Asset Management, and in the UK for Wellington Management and Schroders.

Pradhananga joined from Allan Gray Australia, where he was an investment analyst for over two years and previously had seven years’ experience in engineering.

Andrew Maple-Brown, cofounder and managing director, said the appointments reflected the growth in the business and increased focus on ESG considerations.

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OUTSIDER OUT

ManagementJuly April2,2,2020 2015 32 | Money Management

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

And its gold and gold for Senator Bragg THERE are stories which Outsider would have liked to be the first to tell and then there are stories that Outsider reckons are so good that they need retelling.

And so it goes with a recent news story surrounding NSW Liberal Senator and former Financial Services Council policy apparatchik, Andrew Bragg and how he became the first non-Greek and non-Orthodox person to receive the highest honour that can be bestowed by the Greek Orthodox Church in Australia – Grand Commander and a member of the Order of Christ-loving.

And all this for a politician who supported same-sex marriage. But Outsider digresses. Even better for Senator Bragg in these market-volatile times, he got gold – receiving two 24 carat gold medals – not bad given the current gold price.

Now Outsider has known Bragg off and on for a few years now and did not regard him as a particularly religious type of individual so he is grateful to the reporters at news.com.au for telling the story of how the newlyminted Senator helped a man of God, who has taken a vow of poverty,

obtain a Sydney harbour view.

It seems that Bragg was awarded the Greek Orthodox Church honours because he helped his Eminence Archbishop Markarios of Australia first overcome problems with his tourist visa and then take residence in a luxury Sydney apartment with “stunning views of the Sydney Harbour Bridge, the Opera House, a concierge and a heated pool”.

It seems that the bill for picking up the apartment and making it the new residence of the Greek Orthodox Church in Australia was paid by the Consolidated Trust of the Archdiocese of Australia and has caused a level of disagreement within the Greek Orthodox community who are more used to their Archbishops occupying modest suburban brick veneer dwellings.

But Outsider doffs his cap to Bragg for helping a hapless tourist – something which prompted the Archbishop to describe the Senator as having “the gift to create a new inner world for people”.

Outsider is not sure that industry fund executives would share the same view of Bragg amid his push for changes to superannuation.

Fewer Loitterers for Circular Quay YOU know times are tough when a major consultancy like Deloitte announces the loss of 700 positions in Australia including, apparently, some partners.

Now Outsider is not sure of all the implications of the job losses over at Deloitte given that most of the “Loitterers” have been working from home since March but he does suspect that the next few months might be an opportune time to go shopping for a secondhand European car given that some might find a car lease the least of their worries.

Of course, the Deloitte job losses follow on from those at the other major consultancies such as EY and KPMG and come despite staff having already taken a pay cut, so Outsider reckons it is a measure of just how deep the current recession is likely to get. If consultants can’t make a dollar, who can?

He also hopes that the redundancy payments made by Deloitte and any of the other consultancies reflect their pre-COVID-19 salaries rather than their post-COVID pay cuts.

The question now has to be whether Deloitte’s move to the nearly totally refurbished AMP tower on Sydney’s Circular Quay will be as extensive as might previously have been the case.

After all, how many floors and harbour views do you need when you’ve got 700 fewer desks to accommodate?

Perky heads for the Darling Park revolving door THERE have been lots of personnel changes at the Commonwealth Bank since its former child actor chief executive, Ian Narev, was succeeded by the current chief executive, Matt Comyn not to mention the fact that CBA has now largely exited wealth management.

So Outsider should not have been particularly surprised to have heard the news that among those heading for the revolving exit door at CBA’s Darling Park headquarters is Marianne Perkovic who rose and rose within the bank’s wealth management business under Narev’s reign and has more recently seemed secure enough as executive general manager, Commonwealth Private.

But everything has its season and as summer turned to autumn there was talk that winter was Comyn where the Private Bank hierarchy was concerned. Outsider hears tell that CBA staff were informed of Perkovic’s impending depar-

OUT OF CONTEXT www.moneymanagement.com.au

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ture around a fortnight ago.

Now Outsider has known ‘Perky’ Perkovic for quite a few years and he well remembers her rise and rise through the ranks of Barry Lambert’s Count Financial and her further rise to the top of Commonwealth Financial Planning. Not even childbirth could slow her career progression.

As with any career there have been highlights and low points, but for Perkovic perhaps the lowest point came when she fronted the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services industry and found herself being accused by counsel assisting of “obfuscating” as she sought to explain why certain decisions had been taken at CFP. Apparently it is unwise to bill dead people.

There were those who suggested Perky’s Royal Commission appearance would be career-limiting and two years’ later Perkovic is heading out to pastures new.

"I call on all organisations not to interact with citizens from Melbourne at this stage."

"We will maintain our very strong border policy, in particular with relation to the border with Victoria."

– NSW Premier, Gladys Berejiklian, probably about COVID-19 but it might be good general advice.

– SA Premier, Steven Marshall, although apparently no Victorians want to go there anyway.

Find us here:

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