Money Management | Vol. 35 No 14 | August 12, 2021

MAGAZINE OF CHOICE FOR AUSTRALIA’S WEALTH INDUSTRY

www.moneymanagement.com.au

Vol. 35 No 14 | August 12, 2021

20

REITS

Property alternatives

EQUITIES

24

Utilising excess cash

28

TOOLBOX

ESG and performance

FASEA contender for policy failure: Labor

BY LAURA DEW

PRACTICE MANAGEMENT

PRINT POST APPROVED PP100008686

When practice management gets tough RUNNING a financial advice practice has never been harder with the barrage of compliance requirements and the cost of advice rising, not to mention the raft of uncertainty that has come with COVID-19.

While advisers and their support staff have had to ramp up the amount of paperwork to remain compliant, all advisers really want is to sit in front of their clients and deliver quality service.

Sofcorp Wealth partner and financial adviser, Tracey Sofra, said all the extra time spent on administration and compliance tasks had taken the satisfaction away from being an adviser.

To deal with the extra load, Sofra had added more support staff and turned to technology.

“Making sure we’re compliant has been a huge task and has created a massive amount of stress and takes away from the advice piece,” she said.

Lifespan Partnership chief executive, Eugene Ardino, said it was heartbreaking that, as a result of a lot of the reforms, many clients that could have accessed advice in the past were now unable to do so as the amount of compliance had increased the cost.

“I’m tired of Government saying they want to make advice more accessible and doing things that achieve the exact opposite,” he said.

This increase in cost has also left advisers having to have hard conversations with long-term clients about raising their fee as those clients generated insufficient revenue to justify an ongoing service arrangement.

Despite all the raft of obstacles that have been thrown at advisers and their practices, Sofra said it was very hard to walk away from being an adviser.

“I’ve had clients that I’ve been advising for 28 years and if you can imagine that relationship – you’re heavily involved in every aspect of their lives so you can’t just walk away from that,” she said.

“When you have that relationship and you know that you can make a difference and help people you just keep going – why wouldn’t you?”

14MM120821_01-12.indd 1

Full feature on page 16

THE winding up of the Financial Adviser Standards and Ethics Authority (FASEA) represents a “stunning admission of failure” by the Government towards the financial advice sector.

Speaking in the House of Representatives on the Better Advice Bill, Labor’s Julian Hill, highlighted the failures in the implementation of the FASEA regime. FASEA was due to be wound up and responsibility would be transferred to the Australian Securities and Investments Commission (ASIC) at the end of 2021.

“FASEA is being wound up and will be taken over by ASIC and that is a stunning admission of failure, it was set up only three years ago and has had a litany of stuff-ups. It has had three chief executives in 18 months which is a clear sign it is not going well,” Hill said.

“Standards were only released a few days before they were due

to come into effect, causing adviser chaos.

“If there was an Olympics Games for implementation failure, this would certainly make the final.”

The only reason, he said, that it would not win a medal was because other failing measures such as the vaccine roll-out had cost people’s lives.

Hill added Government legislation over the years had led to advice being only available for the wealthy and called on politicians to find a way to close the advice gap which had opened up.

“Everyday Australians can’t afford financial advice, it has become something only for the wealthy but yet there has never been more need for it,” Hill said.

“More than 4,000 advisers have left the industry in the last three years and more are set to leave in the future so there is a smaller pool and higher demand. The Government needs to work out how to close this advice gap.”

Once-off financial advice will not bridge advice gap

BY JASSMYN GOH

DESPITE some industry experts believing that once-off advice would increase given the rising cost of advice, industry experts do not believe it will bridge the unmet advice gap.

Speaking to Money Management, Centrepoint Alliance advice group executive, Paul Cullen, said the reality was that there were less advisers around and once-off advice was still costly to advisers to provide.

“The number of people are looking for advice is only going to increase and there’s a demographic sort of tidal wave washing over Continued on page 3

5/08/2021 11:24:21 AM

_FP ad Test.indd 2

26/04/2021 1:33:32 PM

August 12, 2021 Money Management | 3

News

Labor backs two-year review for Better Advice Bill

BY CHRIS DASTOOR

LABOR has backed the bipartisan recommendation to ensure there is a proper review of the Better Advice Bill in two years’ time as the legislation should not be treated as “set and forget”.

The bill did have bipartisan support, but Stephen Jones, the Shadow Assistant Treasurer and Shadow Minister for Financial Services, said the Government’s management of financial standards reform had been “a slow and painful train wreck”.

“This bill has been examined by the Senate Economics Committee and has received bipartisan endorsement, that’s a good sign, that means Labor supports the bill,” Jones said.

“We also support the bipartisan recommendation by Coalition Senator [Slade] Brockman and his committee to ensure there’s a proper review of this legislation in two years’ time – there can be no set and forget.

“No one can see any of these changes and what has emanated over the 12 years since the Ripoll Report as anything more than a public policy failure and an enormous admission of failure by the Coalition Government.”

However, Jones said Labor would call for greater recognition for specialisations in the financial advice industry.

Despite the bipartisan support, Labor MP Dr Andrew Leigh questioned the urgency the

Coalition had given the Royal Commission recommendations.

“The Royal Commission was opposed by the Liberals for 18 months and they voted against it 26 times,” Leigh said.

“The Deputy Prime Minister Barnaby Joyce has apologised, but Prime Minister Scott Morrison never apologised for delaying a

Royal Commission into Financial Services.

“When the report was finally handed down, you had that awkward photo op between the Treasurer and Kenneth Hayne.

“The Treasurer looked for all the world like a naughty kid cosying up to Santa, hoping Santa will smile at him when he knows deepdown he spent a year being very, very bad.”

Once-off financial advice will not bridge advice gap Continued from page 1 with many people hitting those retirement ages,” he said.

“If you look at the natural providers of some of that advice, they’re no longer there such as banks. While superannuation funds do intrafund advice it is not comprehensive.

“So, there’s more people around and less people to do it. I think there’s more of a fundamental reason for that advice gap.”

Cullen said while a scoped adviser could do a piece of advice in 90 minutes and see more clients, the adviser would still have a pricing issue. Not only this, advisers would still have to abide by regulation, legislation, and the systems and processes that went into providing advice.

“You’re not paying ongoing service fees but if it’s fairly substantial piece of advice it is still going to be quite costly,” he said.

“It’s going to involve a lot of hours and all

14MM120821_01-12.indd 3

those sorts of inefficiencies and red tape that go with advice. It will continue contribute to the cost of providing advice.”

Lifespan Partnership chief executive, Eugene Ardino, said the most expensive part of providing advice was the first piece of advice regardless of whether it was once-off or ongoing advice.

“The thing about best interest duty and safe harbour and other requirements is while they can cater for scaled advice you still have to meet requirements which are quite comprehensive within that limited scope advice framework. It’s still a very big job” he said.

“The reason advisers will do a piece of advice for $3,500 when it should be $7,000 to $10,000 is because, in my view, if the client becomes an ongoing fee-paying client they’ll be a client for the next 20 to 30 years.

“So, the mindset is ‘I’m prepared to do the

onboarding at a discount or at a loss so long as I can recoup some of that cost because I’m going to have that client for a long time’.”

Ardino said if a client wanted one piece of advice without a guarantee of being an ongoing client, advisers were likely to charge a higher fee as there was no commercial reason to do that at a discount.

“The way you could have more ad-hoc advice is for there to be relief around some of the compliance requirements,” he said.

“Whether the client becomes an ongoing client or not, the amount of work involved in presenting the best advice to the client is the same. All that is different is the adviser looking at a one-off project rather than something that leads to more work so I’m not sure if we’d see more in that space.

“There would need to be relief in limited or scope advice.”

5/08/2021 11:24:17 AM

4 | Money Management August 12, 2021

Editorial

jassmyn.goh@moneymanagement.com.au

BODIES BEHIND EXORBITANT ADVICE COSTS NEED TO BE HELD ACCOUNTABLE

FE Money Management Pty Ltd Level 10 4 Martin Place, Sydney, 2000

Compliance and regulation have been touted as the biggest reasons for the increase in advice costs and the Government needs to hold the bodies responsible accountable for their actions.

IF THE GOVERNMENT truly wants to make financial advice more affordable to Australians, it needs to hold the parties that are exponentially increasing the cost of advice accountable.

While its Better Advice Bill aims to streamline the number of bodies overseeing the financial advice industry, advisers have been crying out for just one.

Even without increasing levies and fees to various bodies and licensees, the cost to practice is already close to $100,000 for businesses with just a few staff members.

This brings us to looking at the Australian Securities and Investments Commission (ASIC) adviser levy that has increased 340% over the last four years.

The price of any product or fee increasing 340% in four years would rightly incite outrage from those impacted by the rise.

While a Senate committee has called this kind of exponential increase “unsustainable”, it needs to hold the regulator accountable.

While ASIC has said the fee increase had to do with advisers

Tel: 0438 957 266 jassmyn.goh@moneymanagement.com.au Associate Editor - Research: Oksana Patron Tel: 0439 137 814 oksana.patron@moneymanagement.com.au Features Editor: Laura Dew Tel: 0438 836 560 laura.dew@moneymanagement.com.au News Editor: Chris Dastoor Tel: 0439 076 518 chris.dastoor@moneymanagement.com.au ADVERTISING Account Manager: Damien Quinn Tel: 0416 428 190 damien.quinn@moneymanagement.com.au Account Manager: Amelia King Tel: 0438 879 685

leaving the industry, the fact that it now needs to regulate fewer advisers does not make sense.

The expected increase from the year before is an extra $712 but the estimate is based on 21,308 advisers and latest figures show that the number of advisers is 19,079. The industry is expecting the levy to be much higher than the estimated $3,138 for every adviser.

Not only this, much of the levy is expected to be used on enforcement costs that advisers feel they should not be paying.

Those costs were tied to Royal Commission actions that were mainly to do with large institutions that had since left the industry.

Despite paying such a high fee, one of the areas ASIC looked to fund using the levy was the Life Insurance Framework review but while the findings would be sent to Treasury, it would not release a public report.

Transparency is important and if ASIC is continuously charging such high levies, it is unreasonable that they would not release the findings.

The Government needs the regulator to answer questions on what exactly the levy is funding and hold them accountable if they do not find their explanations reasonable.

Jassmyn Goh Editor

WHAT’S ON Super Industry Update Virtual Workshop

Policy Briefing: Climate Change Risk with APRA

Creative Thinking Part 2 – Tools for developing ideas

SMSF Discussion Group

Online 17 August superannuation.asn.au

Online 19 August fsc.org.au/events

Online 19 August finsia.com/events

Online 24 August superannuation.asn.au

14MM120821_01-12.indd 4

Editor: Jassmyn Goh

amelia.king@moneymanagement.com.au PRODUCTION Graphic Design: Henry Blazhevskyi

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

Money Management is printed by IVE, Silverwater NSW. Published fortnightly.

Subscription rates: 1 year A$244 plus GST. Overseas prices apply. All Money Management material is copyright.

Reproduction in whole or in part is not allowed without written permission from the editor. © 2021. Supplied images © 2021 iStock by Getty Images. Opinions expressed in Money Management are not necessarily those of Money Management or FE Money Management Pty Ltd.

ACN 618 558 295 fefundinfo.com © Copyright FE Money Management Pty Ltd, 2021

5/08/2021 1:18:34 PM

Invest with intent.

We do.

We believe investments should be made with purpose.

Our team of specialists focus on growth and quality to target the best global companies.

Intermede Global Equities Fund To find out more, visit mlcam.com.au/intermede

This publication is provided by Antares Capital Partners Limited (ABN 85 066 081 114, AFSL 234483) (‘ACP’), responsible entity of the Intermede Global Equities Fund (ARSN 602 927 739, APIR code PPL0036AU, ASX mFund code INT01) (‘Fund’). ACP has appointed Intermede Investment Partners Limited (‘Intermede’) as investment manager of the Fund. Before making any decision about investment in the Fund, you should consider the product disclosure statement (‘PDS’) of the Fund available from mlcam.com.au/igef or by calling 1300 738 355. ACP is part of the IOOF group of companies (comprising IOOF Holdings Ltd ABN 49 100 103 722 and its related bodies corporate) (‘IOOF Group’). Any references to “we” include members of the IOOF Group and any officer, employee, agent, adviser or contractor. An investment in any such financial product referred to in this communication is subject to investment risk, including possible delays in repayment of capital and loss of income and principal invested. The information in this communication is general in nature. It has been prepared without taking account of any individual investor’s objectives, financial situation or needs and because of that investors should, before acting on the advice, consider the appropriateness of the advice having regard to their personal objectives, financial situation and needs. Some information in this communication has been provided to us by Intermede, it comprises their opinion and judgment at the time of issue and are subject to change. We believe that the information herein is correct and reasonably held at the time of compilation. Neither ACP nor any member of the IOOF Group, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this publication. Any projection or other forward looking statement in this publication is provided for information purposes only. Though reasonably formed, no representation is made as to the accuracy of any such projection or that it will be met. Actual events may vary materially.

_FP ad Test.indd 5

A partner of

15/07/2021 10:17:26 AM

6 | Money Management August 12, 2021

News

FASEA believes exam is ‘fair’

BY CHRIS DASTOOR

THE Financial Adviser Standards and Ethics Authority (FASEA) has defended the fairness of the eponymous exam and says the high pass rate shows it is an achievable exam for “competent” advisers.

At the conclusion of the May 2021 exam, 16,700 advisers had sat the exam with 14,850 advisers passing, which FASEA said represented 70% of the Australian Securities and Investments Commission (ASIC) Financial Adviser Register (FAR).

So far, 89% of exam takers had passed and FASEA said the pass mark of the exam was aligned to a typical university credit range.

“The credit-level standard required to pass the exam reflects the minimum level of competency required for professional practice and that all questions are set at a difficulty level that a competent adviser should know,” FASEA said.

“The high pass rate reflects that the exam is an achievable exam for competent relevant providers regardless of their area of specialisation.”

FASEA said the 89% pass rate was a boost for consumer confidence and a milestone for the industry.

“These advisers have demonstrated they have the knowledge and competencies to understand and meet their requirements when providing personal advice to retail customers,” FASEA said.

BY LAURA DEW

Data from FASEA showed that experienced advisers with a bachelor’s degree or higher have a pass rate of 92% compared to an 80% pass rate for advisers without formal education.

“This outcome is consistent with parliament’s view that all relevant providers should hold a bachelor’s degree or higher qualification and supports the vision of the impact of lifting education standards,” FASEA said.

Its data also showed that specialisations could not be argued as a factor for pass rates.

“Stockbrokers have been particularly vocal that the exam is not fit for purpose, FASEA analysis indicated that the pass rate for relevant providers who work for stockbroking Australian financial service licensees (AFSL’s) is 84% and that 14 of the 20 stockbroking on the FAR have pass rates above 84%,” FASEA said.

Despite FASEA’s praise of stockbroker pass rates, Colin Williams, Wealth Data director, said his data showed there was cause to be worried.

“I believe the reference to 84% are the pass rates for the advisers who have attempted it,” Williams said.

“I think the problem with the stockbrokers is that quite a few are not going to be bothered to take the exam.”

Williams previously said he believed 71% of current advisers had passed the exam, as FASEA’s numbers included advisers who were new to the industry and yet to be added to the FAR. His data also showed that 70% of advisers that were classed as ‘investment advisers’, which included stockbrokers, had completed the exam versus 78% of the holistic financial planning peer group.

Centrepoint Alliance appoints CEO

BY JASSMYN GOH

CENTREPOINT Alliance has appointed John Shuttleworth as its chief executive, after its former CEO Angus Benbow left the firm at the end of May. Shuttleworth started in the role on 4 August and was expected to join the board as managing director.

Centrepoint chair, Alan Fisher, said: “Over the last three years Centrepoint Alliance has focused on building and strengthening out licensee services through a period of significant industry change.

14MM120821_01-12.indd 6

Industry exit no excuse to avoid regulatory costs

John will lead the company through our next phase of growth as we focus on expanding our service offering and digitising key services”.

Shuttleworth was most recently BT Financial Group’s general manager of platforms and investments, and had led the development of BT Super for Life.

“Over the last few months, I have had an opportunity to consult with the board and senior executive team. I have been impressed by the calibre and professionalism of Centrepoint Alliance executives and their passion for advice,” Shuttleworth said.

THOSE institutions which have left financial advice should still be forced to pay their share of regulatory costs, according to The Advisers Association (TAA).

As the Australian Securities and Investments Commission (ASIC) regulatory levy was increased significantly for another year, the organisation felt major banks and institutions should pay their share. The levy had increased by $712 from the previous financial year.

Neil Macdonald, TAA chief executive, said that in leaving the industry, the major banks had left smaller advisers to foot the bill for their mistakes.

“We understand that ASIC’s hands are tied in relation to cost recovery, and we are not opposed to a user-pays model, however the users who caused the current regulatory cost burden are not being made to pay for it,” Macdonald said.

“By exiting advice the big banks, despite being largely responsible for some of the poorest behaviours, are able to avoid paying.”

As firms were being asked to pay $3,138 per adviser, Macdonald suggested imposing an exit fee for the major banks that had exited advice networks or were in the process of doing so. This would be a fee calculated as a three-year multiple of the adviser levy per adviser based on their adviser numbers at the time of the Hayne Royal Commission.

This would be around $10,000 per adviser, he said.

“As we said earlier this year, expecting small business advisers and ultimately their clients to keep paying everincreasing costs for the sins of the past, largely committed by the big end of town, is unconscionable,” Macdonald said.

4/08/2021 1:38:41 PM

August 12, 2021 Money Management | 7

News

Existing clients the missing voice in advice regulation

BY JASSMYN GOH

THE regulators need to hear from existing clients rather than those who speak on behalf of those who do not receive advice on whether they see value in financial advice reforms, according to the Association of Financial Advisers (AFA).

Speaking at a Parliamentary hearing, the AFA said the “missing voice” was from existing clients and they provided insight into the ongoing advice relationship and were needed to be heard to balance out discussions regarding reforms that focused on the “bad news”.

AFA acting chief executive, Phil Anderson, said: “We had a conversation before with [Labor’s] Dr [Andrew] Leigh about commissions for life insurance. Clients are choosing to pay commissions rather than fees for life insurance yet the activist consumer groups are demanding the end of commissions.

“We also see it in the very high levels of

criticism of financial advisers about the way they run their businesses. Those complaints are not coming from existing advisers. In fact, Michael [Nowak, AFA president] spoke earlier on about the number of complaints against financial advisers that end up at AFCA [Australian Financial Complaints Authority]. It was 900 in the last 12 months. They are not expressing the same level of concern through those processes that the activist consumer groups make.

“So, we are emphasising the fact that there needs to be a better way to hear from existing clients, not those people who tend to speak more on behalf of those who don’t get advice.

“That feedback will highlight whether they see value in some of the reforms, the additional bureaucracy and complexity that have been put into the process, whether they are happy to be paying more for those protections than they did before.

“So, we think it’s really important that existing clients get a voice in the debates that are going on at the moment.”

WHO SEES WHAT OTHERS DON’T? BAILLIE GIFFORD Short-term success can be exciting. Global investment manager Baillie Gifford knows this better than most, after some impressive performance saw their Long Term Global Growth Fund win Money Management’s 2021 global equities Fund Manager of the Year award.

But Baillie Gifford knows that real investment success comes over many years – even decades. Having been around since 1908, they’re better placed than most fund managers to understand this. And with a partnership structure unencumbered by short-term targets and shareholder demands, they’re uniquely able to take a more patient approach to investing.

Although they’re invested in what are now some of the world’s most innovative companies, Baillie Gifford focuses on finding the disruptors of the future. They know that enduring rewards come from holding a small number of very successful companies for long periods.

We are proud to offer your clients the opportunity to invest in the Baillie Gifford Long Term Global Growth Fund and the Baillie Gifford Global Stewardship Fund.

For more information, visit cfs.com.au/adviserbailliegifford

ADVISER USE ONLY. Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (CFSIL) is the issuer of Baillie Gifford Long Term Global Growth Fund and the Baillie Gifford Global Stewardship Fund (‘the Funds’). CFSIL have appointed Baillie Gifford as the investment manager for the Funds. The Funds are offered by CFSIL through an alliance partnership with Baillie Gifford. CFSIL is a wholly owned subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124 (CBA). CBA and its subsidiaries do not guarantee the performance of CFSIL products or the repayment of capital from any investments. Past performance is no indication of future performance.

While all care has been taken in the preparation of this information (using sources believed to be reliable and accurate), to the maximum extent permitted by law, no person including CFSIL or any member of the Commonwealth Bank Group of companies, accepts responsibility for any loss suffered by any person arising from reliance on this information. This information is for the adviser only and should not be handed on to any investor. It does not take into account any person’s individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) and Financial Services Guide (FSG) before making any recommendations to a client. Clients should read the PDS and FSG before making an investment decision and consider talking to a financial adviser. The PDS and FSG can be obtained from cfs.com.au or by calling 13 18 36.

Fund Manager of the Year award does not constitute investment advice offered by FE Money Management and should not be used as the sole basis for making any investment decision.

All rights reserved. © 2021 FE Money Management.

27893-B/0721

14MM120821_01-12.indd 7

3/08/2021 5:11:16 PM

8 | Money Management August 12, 2021

News

FASEA a barrier for women staying in the industry

BY CHRIS DASTOOR

CONTINUING education requirements from the Financial Adviser Standards and Ethics Authority (FASEA) will make it difficult for women who want to stay in the industry while starting a family, according to Synchron.

Speaking at the House of Representatives Standing Committee for Economics, Synchron independent chair, Michael Harrison, said continuing education and professional development requirements would make it difficult for women to stay up-to-date if they had taken time out of the industry.

“A lady usually will at some point in time look to get married and have children but to stay in the industry she needs to maintain her continuing education,” Harrison said.

“She needs to stay current with everything that is going on. Just looking at the situation at

Synchron, every four months we run a professional development day that runs a full day to bring people up to date.

“We also run a fortnightly Zoom catch-up, which includes a compliance section, so they know what’s going on – it’s very hard for a woman staying home who is raising kids to stay current with all these things.”

Harrison said Synchron had a “reasonable” percentage of women who were advisers and at one point almost 40% of its Queensland advisers were women.

“That might have dropped off a bit since the FASEA recommendations,” Harrison said.

“Personally, I’d like to see more women [in the industry] because I find they have more empathy, and especially because we have more and more single females, for whatever reason, who are in that 50-plus section looking to retirement.”

RI Advice found liable for Royal Commission ‘case study’ adviser RI Advice has been found liable by the Federal Court for failing to supervise Royal Commission case study John Doyle.

The firm was found to have failed to take reasonable steps to ensure that its former financial adviser had provided appropriate advice to clients, acted in the clients’ best interests, and put the clients’ interests ahead of his own.

The court found RI Advice, an Australian financial services licensee, did not have any adequate processes to identify when advisers were avoiding advice quality checks or recommending non-approved financial products.

The court said these were serious flaws which should have been apparent to RI Advice and found RI Advice failed in their obligations as a financial services licensee.

The conduct of both RI Advice and Doyle was examined in a case study on ‘Bad Advice’ as part of the Royal Commission.

The Australian Securities and Investments Commission (ASIC) commenced proceedings against RI Advice and Doyle in October 2019, and sought declarations of contravention, compliance orders and penalties.

14MM120821_01-12.indd 8

The court had previously made declarations that Doyle had breached his best interests’ obligations by giving inappropriate advice and failing to put his clients’ interests first when he was an authorised representative (AR) of RI Advice.

Doyle was an AR of RI Advice between May 2013 and June 2016 when RI Advice was owned by ANZ Banking Group, which was now owned by IOOF Holdings.

Sarah Court, ASIC deputy chair, said financial advice licensees needed to understand that they could be liable if their advisers did not act in the best interests of their clients.

“ASIC commenced this proceeding because of the harm caused to investors when advice is not appropriate.

“In some cases, Mr Doyle’s clients were retired, or approaching retirement.

Licensees need to have proper systems and processes in place to monitor the advice given by advisers to make sure consumers are protected.”

The penalty hearing for RI Advice and Doyle had not been set and a case management hearing would be listed for a later date.

Performance fees spike at Janus Henderson

BY LAURA DEW

PERFORMANCE fees have increased by more than 350% at Janus Henderson Group in the past quarter to 30 June.

In its quarterly results reported to the Australian Securities Exchange (ASX), the firm said performance fees were US$77.4 million ($104 million) compared to US$17 million in the first quarter of the year and US$17.2 million a year ago.

Janus Henderson said 45 funds, which represented US$88 billion in assets under management (AUM), had generated performance fees in the second quarter while 66% of funds had outperformed over one and three years.

AUM rose 6% to US$427 billion although the firm said strength in global markets was offset by net outflows of US$2.5 billion. However, this was smaller than the US$3.3 billion outflows seen in the first quarter. Almost half of total assets under management were in the intermediary space at US$206.7 billion while US$133.1 billion was in institutional and US$87.8 billion was in self-directed investors.

Equities remained the dominant capability at US$240 billion followed by fixed income at US$80.5 billion while its largest singlestrategy was the Multi-Asset Balanced fund at US$46.5 billion.

Quarterly operating income was US$225 million, a 17% increase from the previous quarter of US$192.5 million, and the firm announced a US$200 million buyback from April 2022.

Dick Weil, chief executive, said: “Second quarter financial results were extremely strong, reflecting growth in assets due to positive markets and good investment performance which translated into significant performance fees, adjusted operating income and earnings per share (EPS). Our strong balance sheet, cashflow generation and financial discipline allow us to increase the return of excess cash to shareholders with the US$200 million accretive buyback announced.

“While we continue to make progress towards sustained organic growth, we are winning high-quality new business which is driving our net management fee rate higher during a period of fee compression in the industry.”

3/08/2021 5:24:42 PM

FUTURE

OF

WEALTH MANAGEMENT

WEBINARS

ASSET ALLOCATION WEBINAR 11AM, 16TH SEPTEMBER 2021

Which sectors are driving investment returns in 2021 and what are the key factors in play?

Join Money Management and industry experts as they discuss building client portfolios under continued uncertainty.

Hear about US equities vs emerging markets, China equity allocation in emerging market portfolios, the focus on Aussie equities, whether active management will trump chasing the index, and more.

FIND OUT MORE!

fowmwebinars.moneymanagement.com.au/home SPONSORED BY

5220_FOWM21 FP AA.indd 9

3/08/2021 12:49:58 PM

10 | Money Management August 12, 2021

News

Are the regulator and industry superannuation funds to blame for financial advice accessibility?

BY CHRIS DASTOOR

FORGETTING which party brought in the Royal Commission, the Financial Adviser Standards and Ethics Authority (FASEA) and has oversight of the corporate regulator, Liberal members Jason Falinski and Tim Wilson have concluded the corporate regulator and industry super funds are to blame for Australians being unable to access affordable advice.

At the House of Representatives Standing Committee for Economics, Synchron independent chair, Michael Harrison, was asked by Falinski what the purpose of policy was to force experienced advisers with a clean record to commence education requirements.

Harrison noted the accounting degree he did in the 1960s was not recognised by FASEA. Falinski asked how many complaints had been brought against Harrison in his career, to which he said none.

“So here is someone who has been in the sector for almost 50 years, never had a complaint against them in their lifetime and we’re forcing you to go back and get re-educated,” Falinski said.

“We’re going to lose you from the industry, even though in reality you wanted to [continue].

“For no good reason, no consumer outcome or to broader society, we are forcing you to get re-educated… What is the matter of public policy that we are achieving here?”

Harrison said he did not think the outcomes that were desired were being achieved.

“The outcome we should be looking for is to help as many people as possible get financial advice, I don’t think we’re doing that in any way shape or form,” Harrison said.

Falinski asked who benefitted from Australians not having advice.

Harrison said the biggest beneficiary seemed to be the Australian Securities and Investments Commission (ASIC) because they kept on “finding new ways to make money”.

“Having said that slightly facetiously, it’s hard

to see who the beneficiaries are except for high wealth individuals as they’re the only ones that can get advice,” Harrison said.

Falinski said if an ordinary Australian earning between $50,000 to $200,000 a year couldn’t afford advice and it had been made unlawful for banks to give advice, then superannuation funds must be the only alternative.

“Super funds… are they offering a form of advice that looks like advice but isn’t? So you think… just from looking at it, that some of beneficiaries might be ASIC and some super funds?” Falinski said.

“We have a situation where we’re introducing public policy out of a Royal Commission – which by the way was a bunch of a lawyers saying ASIC should use more lawyers to sue people, I found that most amusing – and we get to the point where ASIC is charging the industry they’re seeking to sue more of.

“And the biggest beneficiary are industry super [funds] who are offering intrafund advice that ASIC and APRA refuse to regulate.

“Maybe we should ask a few super funds to come in front of us and explain how this is benefitting ordinary Australians.”

Wilson said: “It’s funny how a lot of these things end up with the regulators and super funds always winning, isn’t it, Mr Falinski?

“What point, Mr Falinski, does it become corruption where people use public policy to remunerate their own benefit?”

Corporate watchdog sues AMP firms for fees-for-no-service

BY JASSMYN GOH

THE corporate regulator has taken six companies that are, or were, part of AMP Limited to the Federal Court after charging $600,000 in fees-for-no-service on corporate superannuation accounts.

The Australian Securities and Investments Commission (ASIC) alleged that the companies charged advice fees to over 1,500 customers despite knowing the customers were no longer able to access the relevant advice.

ASIC said it sought declarations, pecuniary penalties and adverse publicity orders to be made by the Federal Court.

ASIC further alleged that from

14MM120821_01-12.indd 10

July, 2015, to April, 2019, the AMP companies: • Deducted financial advice fees from 1,540 customers’ superannuation accounts despite being aware that the customer had left their employer-sponsored superannuation account and therefore could not access the advice for which those fees were paid; • Failed to ensure that a system was in place that did not charge customers who had left their employer-sponsored account; and • Contravened their obligations as Australian financial services licensees to act efficiently,

honestly and fairly.

The six AMP companies were: • AMP Superannuation Limited; • AMP Life Limited, which is now owned by Resolution Life NZ, but was part of AMP when the conduct occurred; • AMP Financial Planning Proprietary Limited; • AMP Services Limited; • Charter Financial Planning Limited; and • Hillross Financial Services Limited.

ASIC noted this followed proceedings by ASIC against AMP companies that allegedly charged life insurance premiums and advice fees to over 2,000 customers despite being notified of their death.

In an announcement to the

Australian Securities Exchange (ASX), AMP said it acknowledged the civil proceedings by ASIC concerning the “historic charging of Plan Service Fees”.

“In 2018, AMP became aware that some AMP Flexible Super members continued to be charged a Plan Service Fee after delinking from their corporate super plan into a retail account. Amp took action to rectify the issue, self-reported it to ASIC, and commenced a remediation process,” it said.

“The remediation was completed in November 2019, with approximately 2,500 customers being remediated a total sum of approximately $900,000 covering fees charged and lost earnings.”

5/08/2021 10:22:05 AM

August 12, 2021 Money Management | 11

News

Rise in financial advice costs ‘distressing’: Parliamentary committee chair

BY JASSMYN GOH

THE corporate regulator’s financial adviser levy has been called an “extraordinary sum” by a Parliamentary committee.

The Association of Financial Advisers (AFA) told the committee about the impact of the Australian Securities and Investments Commission (ASIC) levy, including the increase from around $930 during the 2017/18 financial year to the projected $3,138 for the 2020-21 financial year.

Committee chair, Liberal backbencher, Tim Wilson, stated that it was an “extraordinary sum”.

The AFA said the costs flowed onto running the business and sat alongside other cost increases.

AFA acting chief executive, Phil Anderson, said: “Ultimately advisers need to recover costs and no doubt margins have been very much strained in recent times. Ultimately, cost to individual clients have gone up and advisers need to make decision on which clients they focus on. So, they’ve needed to push up their minimum fee to make

sufficient revenue out of each client to cover their costs.

“The minimum fee you can take from a client each year has necessarily had to go up significantly and those clients either needed to accept increase in their fee or have chosen to leave their relationship with their adviser.”

Wilson replied and said: “One of the most distressing things that has happened as a consequence, not just the ASIC fee but the rise.

“The only people that can afford financial advice are frankly those who are already established, well off and the rich, and those who desperately need financial advice won’t be able to get it while the rich and the powerful will be able to get it and take advantage of it and only entrenches their position.”

AFA president, Michael Nowak, said greater scrutiny of reforms and legislation was needed along with engagement with the sector so that

more costs were not driven up.

Liberal Jason Falinski questioned why the ASIC levy had increased due to increased enforcement action when there had been less financial advice going on and breaches of the law were “massively down”.

Anderson explained that the enforcement costs were carried over from the Royal Commission investigations and court actions taken on mostly large institutions that were not in the industry anymore.

“Well chair, I think it is clear that this committee needs to recommend to the parliament that many of the remaining Hayne Royal Commission recommendations will do nothing more than harm and damage ordinary Australian consumers,” Falinski said.

Also speaking to the committee, the AFA’s vice president, Sam Perera said small business advisers with a handful of staff were paying around $100,000 in regulation and compliance costs to ASIC, the Tax Practitioners Board, their licensee, and professional indemnity.

Super fund planners have highest FASEA exam pass rate

BY OKSANA PATRON

FINANCIAL planners at superannuation funds have seen the highest pass rate of the Financial Adviser Standards and Ethics Authority (FASEA) exam passes up to May, which stood close to

14MM120821_01-12.indd 11

80%, according to Wealth Data.

This compared to accountants with a limited advice peer group that struggled the most, with only around of 22% FASEA exam passes.

The analysis was based on 11,005 known results, defined as FASEA passes published to the public, while at the same time the FASEA said that over 14,850 had passed.

“The first number you may note is that the number of passes after being grossed up is only 13,538, well short of the FASEA amount of 14,850,” Wealth Data director, Colin Williams, said.

He further explained the variance was down to a known 972 advisers who passed the exam but were not listed as ‘current’ advisers as per the Australian Securities and Investments Commission (ASIC) Financial Advisers Register (FAR).

“If we gross this amount up it becomes 1,311 and when added back in, it gets much closer to

the 14,850 as stated by FASEA,” Williams added.

“FASEA claim that 74% of advisers have now passed the exam, we believe it is 71% of current practicing advisers that have passed the exam.”

According to Wealth Data, year-to-date movement was again little changed at the end of July with Oreana dropping one adviser role but posted a growth of 19. Following this, Centrepoint and Count posted a growth of 16 new roles each.

At the same time, year-to-date losses were still dominated by the larger groups with IOOF down 377 roles, followed by AMP Group at (-251) and NTAA down (-161).

Williams said that the financial year to date was looking positive with +96 roles.

“We are still seeing a small amount of resignations posted into June which elevates the positive for July,” he said.

Weekly analysis of the ASIC’s FAR showed a further decrease of (-16) adviser roles moving from 19,368 to 19,352 while the number of actual advisers dropped by 18 from to 19,079.

3/08/2021 1:15:49 PM

12 | Money Management August 12, 2021

News

Funds to be probed on ASX ownership

BY JASSMYN GOH

INSTITUTIONAL funds will be put under the spotlight by a parliamentary committee on the risks of their high ownership of the Australian Securities Exchange (ASX).

The House of Representatives Standing Committee on Economics inquiry into the implications of capital concentration and common ownership in Australia would look to investigate banks, superannuation funds, investments funds, and hedge funds.

Committee chair, Tim Wilson, said the inquiry would “shine a bright light under the hood” of the ASX ownership and would ensure the law, regulations, and regulators would address challenges of the future so it could empower citizens, not “organised capital”.

“This inquiry is urgent – there is already high concentration of ownership of ASX listed companies by an increasingly small number of ‘mega funds’ and that trajectory will

increase,” he said.

“The House Economics Committee has been asking regulators about these risks for nearly a year. Recently the chair of the ACCC [Australian Competition and Consumer Commission] informed the committee common ownership posed threats to competition when it hits 10%, yet some have already hit 30%.

“We don’t want a stock exchange where a handful of ‘mega funds’ make all the decisions, and ordinary investors are locked out and higher costs are paid by Australians. Some ‘mega funds’ have already said that as their ownership increases they’d de-list public companies.

“Common ownership’s flow-on risks higher prices and collusion, corporates imposing public policy agendas while bypassing democracy, and disempowering ordinary investors. The law shouldn’t empower capital over citizens and that’s what we’ll be inquiring into.”

The inquiry was open to submissions until 13 September, 2021.

Which funds will benefit from Square’s acquisition of Afterpay?

BY CHRIS DASTOOR

HYPERION’S belief in buy now pay later (BNPL) Afterpay has paid off, as the much-maligned stock is to be acquired by Square for US$29 billion ($39.5 billion) – the largest corporate acquisition in Australian history.

It was announced on the Australian Securities Exchange (ASX) that Afterpay would be acquired by Square, a Silicon Valley digital payment platform launched in 2009 by Twitter founder and chief executive, Jack Dorsey.

“Square and Afterpay have a shared purpose. We built our business to make the financial system more fair, accessible, and inclusive, and Afterpay has built a trusted brand aligned with those principles,” Dorsey said.

“Together, we can better connect our Cash App and Seller ecosystems to deliver even more compelling products and services for merchants and consumers, putting the power back in their hands.”

According to data from the ASX, Afterpay jumped 18.77% to finish the day at $114.80.

14MM120821_01-12.indd 12

Other BNPL pay later stocks also saw a boost from the news, as LayBuy gained 10.47%, Zip gained 9.04%, Splitit gained 8.7%, IOU gained 7.5%, Openpay gained 3.98% and Sezzle gained 3.74% Afterpay was one of the biggest success stories over the last few years with shares returning over 3,000% since it listed on 29 June, 2017.

According to FE Analytics, the fund with the highest percentage allocated was the Hyperion Australian Growth Companies fund which held an 11.85% weighting.

Jason Orthman, Hyperion deputy chief investment officer, said Afterpay was a misunderstood and undervalued structural growth stock – a view which was validated by the acquisition.

“We estimate that 65% to 70% of those under the age of 30 across Australia, UK and the US do not have a credit card,” Orthman said.

“Further, we estimate over 50 million people do not have a credit rating in the US. This means a large part of the

population, particularly Gen Z, are operating out of the traditional financial system.

“High interest rates and revolving debt traps do not appeal to this generation as a result of having observed their parents suffer during the Global Financial Crisis (GFC).

“Apps such as what Square provides and BNPL that Afterpay leads in, have become essential in allowing them to consume and transact outside the traditional finance system.”

Square had also consistently been a top five holding for the Global Growth Companies fund over the past 12 months and had a current weighting of around 7.5%.

“We believe Square is also a misunderstood stock that Hyperion understands well and is what Afterpay was aspiring to evolve into over the next five years,” Orthman said.

“More recently the BNPL industry has also been validated by the entrance of large players such as PayPal and Apple Pay. “In contrast, Square offers consumer products across P2P, banking, stocks, Bitcoin, and

taxes. Square’s product set is broader and significantly more comprehensive when compared with Afterpay’s. The Cash App was launched in 2013.”

Other funds with significant allocations included First Sentier Wholesale Australian Share with 5.29%, Bennelong Kardinia Absolute Return (4.55%), Ausbil Active Sustainable Equity (3.04%), VanEck MSCI Australian Sustainable Equity ETF (2.82%), CFS MIF Future Leaders (2.47%) and First Sentier Wholesale High Growth (1.48%).

Afterpay had also been added to the ASX 20 on 21 December, 2020, and had been in the ASX 200 for several years, so it was held by the relevant exchange traded funds (ETFs).

The BNPL had been criticised for being overvalued, particularly as it reached a high of $160.05 in February this year, with no competitive moat to block competition which came from the banks, similar up-start companies and PayPal. It had dropped to under $10 during the COVID-19 pandemic market crash last February/ March.

4/08/2021 1:46:53 PM

August 12, 2021 Money Management | 13

News

IOOF sees $2.2 billion in advice-related outflows

BY JASSMYN GOH

IOOF’S Advice 2.0 programme has seen an outflow of $1.8 billion while the firm posted an increase of $9.4 billion in funds under management, advice and administration (FUMA) to $213.3 billion during the last quarter of the 2021 financial year.

In an announcement, IOOF said its financial advice FUMA saw an outflow of $1.8 billion after outflows of $2.2 billion from 33 advisers departing its self-employed advice businesses, and inflows of $0.4 billion from new selfemployed advisers joining IOOF licensees and organic inflows.

“This was due to reasons including practices which IOOF believe were not suited to the economic or governance requirements of a professional advice model,” it said.

“On 1 June, 2021, 406 MLC advisers joined with IOOF advice licensees and as at the end of June, IOOF maintained active advice services relationships with almost 2,000 advisers.”

IOOF’s Q4 results also said its newly-acquired MLC assets under management and funds under

administration were $301.2 billion, up $11.4 billion. It noted that currently IOOF and MLC used different reporting methodology. An aligned approach would be used for their full year results.

On the investment management side, FUM increased by $1.4 billion, up 6.2% to $23.5 billion, including $90 million in organic positive flows and market movements.

“These robust organic net inflows reflect the strong support from advisers for the IOOF MultiSeries funds, which offer competitive pricing, strong investment returns, and

increasing client engagement through investment central,” it said.

IOOF’s pensions and investments (P&I) FUMA posted outflows of $895 million, which the firm said was consistent with the outflow profile in previous quarters.

It said the P&I integration program had an expected annualised cost synergies of $43.6 million and an additional $8.7 million realised by 30 June, 2021.

Its portfolio and estate administration FUMA saw $606 million in net inflows, and market movements FUMA saw an uplift of $5.3 billion.

IOOF chief executive, Renato Mota, said: “The ‘new IOOF’ has over $200 billion of funds under administration across its platforms, in excess of $200 billion of investment funds across its multimanager and direct investment portfolios, and relationships with more than 9,000 financial advisers, supporting more than two million Australians with their retirement and investment decisions.

“This gives us a strong platform for future growth, including the enhanced ability to attract new FUMA though our extended scale and reach.”

Japan offers ‘hidden value’ Fixed-term fees not a way

BY OKSANA PATRON to evade ongoing fee consent THE broader market has seemed to overlook a large number of companies in Japan that offer opportunities for value investing and are independent of interest rates, inflation or other macroeconomic expectations.

According to Schroders fund manager, Liam Nunn, one of the reasons why investors disregarded the potential opportunities in this part of the word was Japan’s slow economic growth and sometimes poor record on shareholder returns.

During a webinar, Nunn said that, in particular, his team was looking at the companies with strong balance sheets and those with management teams undertaking action against market mispricing and undervaluation.

Speaking of his fund’s strategy, the Schroders Global Recovery Fund, he said that most investment cases had little to do with inflation or interest rates but it was about hunting the mispriced assets.

“Japan as a region was an area that stood out and we saw a lot of markets performing strongly while Japan was a bit of lag on and there were still some opportunities there that we were trying to take advantage of,” he said.

Nunn referred to a number of Japanese companies, which were still battling with declining legacies but, at the same time, were in the process of turnarounds of their business models.

These included Nikon, global advertising agency Dentsu, specialist in manufacturing seat belts and electronic displays for cars Tokai Rika or operator of mobile and online services including games and e-commerce DeNA, among others.

14MM120821_01-12.indd 13

BY CHRIS DASTOOR

ADVISERS should be wary of using fixed-term arrangements to avoid ongoing fee consent renewals, as the former will likely end up creating the same amount of work, if not breaching the code of ethics.

Bryan Ashenden, BT head of financial literacy and advocacy, said some advisers talked about the requirements being less under a fixedterm arrangement than they were under the new ongoing fee arrangements.

“Technically, that’s correct but I’d also ask the question whether they are actually saving anything,” Ashenden said.

“If you have a fixed-term arrangement in place and you want to renew it when you start that process about entering another fixed-term agreement… it sounds like you’re going through the same process that you would under the new ongoing fee arrangements and annual consent requirements anyway.”

Ashenden said a fixed-term arrangement was typically one that did not go beyond 12 months but could go longer.

“That could be up to in theory 365 days or a period of up to 12 months, just as long as it doesn’t exceed it,” Ashenden said.

“What’s important to remember here is under definition of the law, you can’t have a fixed-term arrangement that goes for two years that gets you out of annual consent or in any way around these requirements.

“A fixed-term contract for two years is technically a fixed-term contract, because it has a start date and end date. But in terms of annual consent requirements, as soon as it goes for more than 12 months, it will [be counted] as an ongoing fee arrangement and the annual consent requirements come into play.

“There will be questions for you as an adviser whether you want arrangements to be an ongoing basis or whether you prefer the fixed-term approach, you may even have a hybrid.”

3/08/2021 5:23:27 PM

14 | Money Management August 12, 2021

InFocus

BRIDGING THE MILLENNIAL DIVIDE With a significant generational wealth transfer on the horizon, wealth managers and financial advisers will have to adapt their business models to take advantage, writes Laura Dew. AS COSTS RISE for financial advice and more advisers choose to exit the industry, this is leaving the millennial generation without a viable option for advice.

This is despite the generation being likely to receive the largest intergenerational wealth transfer in history from baby boomers in the future.

Speaking to a Senate committee last month, Nathan Jacobsen, managing director of Easton Investments, said he could foresee a market of three million households seeking advice in the next five years.

However, the number of advisers would have fallen to 15,000 over the same period.

This would leave consumers at the mercy of general advice or robo-advice as they were unable to afford the $3,000 or $5,000 advice fee nor meet the required level of assets for a percentage fee.

While this would surely present an opportunity for advisers, research by Capgemini found the majority of wealth managers reported they felt uncomfortable working with the younger generation.

“It is essential for wealth management firms to train and re-skill current staff to service new client profiles and adapt to new service delivery channels,” its 2021 World Wealth Report stated.

“Only 38% of wealth managers say they are confident in their

TOP ETFs

BY YTD FLOWS

ability to understand the unique needs of millennials and engage with them effectively.”

So, what do millennials want from an adviser?

With established advisers used to having a sit-down chat in their office with their clients, it would require a substantial change of practice for them to meet millennial’s technologyfocused demands.

A wealth management study by EY found 78% of millennial clients planned to use more digital tools as a result of COVID-19 and 78% said the use of them had improved their decision-making.

Some 43% wanted to use a digital platform and an adviser equally, compared to 29% of respondents in the ‘boomer’ category and 33% wanted to ‘mainly’ use a digital platform.

They were also more willing to pay for ‘experience features’ such as reliable digital services, more contact with the adviser, financial education and a consolidated view of all their financial products.

David Currie, financial adviser at Wealthy Self, who had set up a business aimed at offering advice to millennials said he was “not surprised” that traditional advisers found it difficult to work with younger generations, mainly because of costs.

In order to make his business cost-effective, Currie offered a flat fee based on an hourly rate rather than a percentage fee and a remote service over Zoom rather than face-to-face.

“There is a significant transfer of wealth between the generations but then young people don’t necessarily want to use their

parents’ adviser as they don’t relate to them so it is a challenge.”

Jes Wilkinson, wealth manager at Ulton, said: “Older advisers need to connect with millennials with enhanced technology and take care not to come across as ‘parental’.

“Millennials have grown up in an environment of 24/7 access to information and, as a result, a service offering access to topical information through an ‘on-demand system’ can be an attractive option.

“Consider stepping stone advice by starting with insurance advice to protect their wealth accumulation, general education with wills and estate planning then move to budgeting via a techsavvy application and lead into more comprehensive advice as affordability is more apparent.”

$764.2m

$400.1m

$381.5m

Vanguard Australia Shares Index

Vanguard MSCI Index International Series

iShares Core S&P 500

Source: ETF Securities; Bloomberg. As of 30 July 2021

14MM120821_01-12.indd 14

3/08/2021 5:07:25 PM

BE BETTER INFORMED:

FE fundinfo Crown Fund Ratings are highly respected and widely recognised across the UK, European, and Asian markets.

Now, available in Australia in partnership with Money Management, FE fundinfo’s quantitative ratings are designed to help advisers identify funds which have displayed superior performance in terms of stockpicking, consistency and risk control.

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

Two Crowns demonstrates funds that place in the third quartile

Three Crowns demonstrates funds that sit in the second quartile

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

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

WHERE CAN YOU VIEW CROWN RATINGS? a part of

Powered by

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

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

www.fe-fundinfo.com

www.moneymanagement.com.au/crowns

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

5264_CrownsPrintUpdate MM FP.indd 15

a part of

in partnership with

3/08/2021 12:48:06 PM

16 | Money Management August 12, 2021

Practice management

WHEN PRACTICE MANAGEMENT GETS TOUGH Running a financial advice practice has never been harder, Jassmyn Goh writes, and advisers must find efficiencies and restructure their revenue sources to deliver their desired service.

WHILE FINANCIAL ADVICE practice management has been turned on its head since the Royal Commission with the raft of compliance and education requirements along with rising costs, advisers say the shift has already been in progress ever since the 2018 hearings.

Not only this, while the average practice manager and adviser has been dealing with issues that predate the Royal

14MM120821_14-27.indd 16

Commission, the COVID-19 pandemic has created a further burden.

What is clear is that despite all the barriers that have been put up, all financial advisers and practice managers want is to be able to help their clients in a way that is personal, valuable, and simple.

However, simple is currently not on the cards given the industry is overseen by eight

different regulators, each requiring them to fulfil a mound of compliance that is taking time away from clients.

REGULATORY IMPACT Focus Wealth Advisers principal and financial adviser, Eleanor Dartnall, said the “bald facts” recited in the Royal Commission hearings “did not resonate in the hearts and minds of the ethical adviser” which made up the

5/08/2021 11:21:49 AM

August 12, 2021 Money Management | 17

Practice management

greater number of all advisers.

“The outcome however, impacted every one of us. The heavy compliance regimes updated constantly to meet the concerns of licensees and the Australian Securities and Investments Commission [ASIC] have created a work burden that is hard to manage. It also brings with it a level of stress that has to be managed,” she said.

“The stress for the practice manager is that, meeting the demands of increased reporting and a vastly-increased level of documentation for each and every client, must not overshadow the focus on the clients themselves, their concerns and goals.

“This is particularly difficult under the additional burden that COVID-19 brings to the practice as we are forced, in many cases, to move from face-to-face meetings to the offering of Zoom meetings or phone calls.”

Dartnall noted that the lack of face-to-face meetings depleted the opportunity to be empathetic with clients and meant advisers appeared more “businesslike” to reach a resolution more quickly.

“What is left unsaid lingers and arises in the next face-toface catch up and carefully nurtured relationships can become eroded,” she said.

Similarly, Sofcorp Wealth partner and financial adviser, Tracey Sofra, said the recent regulatory changes had an “absolutely horrendous” impact given all the compliance requirements.

“Making sure we’re compliant has been a huge task and has created a massive amount of stress and takes away from the advice piece,” she said.

14MM120821_14-27.indd 17

“We’d like to change people’s lives and do financial planning and not just do a continuing tick list. In order to do all of those things – we’ve turned to technology.”

Sofra said she wanted the regulators to come to their senses and to only be regulated by one entity.

She noted that all the time spent on administration and compliance tasks had also taken away the satisfaction of being a planner.

Sofra said her firm ramped up their support systems by outsourcing a lot of the admin work. It had two overseas staff members that did all the basic non-client facing administration and in-house staff members too.

Lifespan Partnership chief executive, Eugene Ardino, said he was a huge believer that advice should be made accessible to everyone.

“It breaks my heart to see as a result of a lot of reforms over the last 10 years many clients that in the past could access an adviser won’t be able to. I’m tired of Government saying they want to make advice more accessible and doing things that achieve the exact opposite,” he said.

“The service advisers deliver need to be recognised as important and risky. When events happen, advisers have to explain why to clients on topics such as market downturns, the Global Financial Crisis, pandemics, etc.

It’s an incredibly rewarding thing but is incredibly difficult and stressful and really requires you to stick your neck out.

“The role requires you to give opinions on things that are uncertain rather than interpreting laws and rules.”

RISING COSTS OF GIVING ADVICE Ardino noted that advisers should not be ashamed of having to raise fees to reflect the costs of giving advice as it was a difficult but important profession.

Centrepoint Alliance advice group executive, Paul Cullen, said one of the biggest issues practices were currently facing was repricing and reviewing the services advisers were providing.

He said the whole economics of practices had changed in terms of revenue sources and costs.

“There are advisers looking at clients who don’t generate the revenue that they need to justify an ongoing service arrangement and they’re either changing that towards a transaction-based relationship and with no recurring fee, or they’re increasing the cost or the price of that service,” Cullen said.

“People have got out of the doom and gloom of the last few years and the practices that are left, I think they can see pretty exciting opportunities in the future for themselves. For them, it’s around ‘well I’ve got to change the business so I can actually capture the opportunity that I see’.”

Not only have licensee fees risen over the past few years, the ASIC levy has risen over 340% in the last four years largely to cover the regulator’s enforcement activity. The activity is often against large institutions who have exited the industry rather than small advice practices. However, the small practices are bearing the brunt of the costs.

The conversations around fee changes, Cullen said, were challenging.

TRACEY SOFRA

Continued on page 18

5/08/2021 11:21:53 AM

18 | Money Management August 12, 2021

Practice management

Continued from page 17 “Many advisers are having to make calls around clients that they’ve dealt with for a long time, it’s difficult for them to do, you know, as they are used to looking after people but the revenue profiles have changed,” he said.

“Both advisers and clients are really not enjoying the conversation when a client slips into the zone where they just don’t generate enough revenue to justify the service package.

“Practices are also downsizing their client base in this way but at the same time many practices are super busy with new clients so they have the opportunity to replenish their ongoing service client base.”

Sofra said her practice increased client fees for a variety of reasons including the fact that their fees had not risen over the past six to seven years and that they had recently changed dealer groups which gave an opportunity to review the entire business.

“It really is a matter of reviewing our existing client base – what does that look like? What should it be moving forward? And how are we going to price it due to the fact that the cost of advice has gone up, and because we’ve had to employ more people just to keep up with the admin side of things,” she said.

“So there has to be an element of the price increase to reflect that but that isn’t the only reason.”

14MM120821_14-27.indd 18

Sofra said while there were extraordinarily frustrating days given all the barriers, it was very hard to walk away from being an adviser.

“I’ve had clients that I’ve been advising for 28 years and if you can imagine that relationship – you’re heavily involved in every aspect of their lives so you can’t just walk away from that,” she said.

“When you have that relationship and you know that you can make a difference and help people you just keep going – why wouldn’t you?”

JUSTIFYING FEE INCREASES Ardino said the advisers who were not charging enough were those that had been in the industry for a long time and found it difficult to raise the fees of long-term clients. However,

younger advisers had more confidence to charge what was fair to their business.

He said advisers needed to convince themselves what they were charging was fair, worthwhile, and reasonable.

“You’ll get a mixed reaction and I wouldn’t just write out to everybody. I would have a conversation with impacted clients and listen to feedback. If you lose a few clients but your fees increase then it’s still a positive outcome as it is potentially the same or similar revenue but across less clients,” he said.

Ardino said given advisers had to make sure clients were signed up to fees every year now, it was more work as they had to prepare, send them a fee disclosure statement, and follow up. Here, he said, advisers need

5/08/2021 11:22:07 AM

August 12, 2021 Money Management | 19

Practice management

“We’d like to change people’s lives and do financial planning and not just do a continuing tick list.”

– Tracey Sofra to ensure all the extra work was factored into their fees.

“You have to sign up clients every year and you have to make sure you can deliver enough service over the 12-month period to get them to engage and sign up easily. If it takes a million follow ups to get a client to sign up then it’s probably not going to be worthwhile. Generally, this is a challenge for lower fee-paying clients,” he said.

“If it takes $3,000 a year or more then it shouldn’t be too difficult to deliver that level of service and engagement from a commercial point of view to get them to sign up to fees every year.

“You need to look at your service proposition to make sure it is still viable to have smaller clients where you’re going to have to go through this process each year.

“One should be factoring in how much time they’ve spent when determining how much a client should pay and in some cases you may need to restructure the volume of service that you provide to those clients.

But advisers need to ensure to take into account the value clients get from those services as well.”

Ardino said if an adviser thought the value they brought to particular clients was more than others then it was appropriate to charge more even if the time taken might not reflect that.

14MM120821_14-27.indd 19

EFFICIENCIES To find efficiencies and lower costs, Sofra said advice practices should “automate, automate, automate”.

Sofra said technology was a game changer for any business and just because people did not accept or understand that the technology they were looking for existed, it did not mean that it did not exist.

“Your job is to find whatever exists to make your business better, brighter and to provide the best service possible. Once you’ve found that and you don’t get complacent, you’ll be continuously improving or looking for better options.

Definitely automate and outsource,” she said.

Dartnall said that while her practice used technology to create efficiencies, it was important not to take away the personal side of things as one size did not fit all.

Recently, during a Senate committee hearing, a parliamentarian called the generation of a 100-page statement of advice (SoA) as an ‘absurd’ way to satisfy lawyers after it was explained that compliance was a huge time consuming burden for advisers.

However, Dartnall said there were many solutions being found around digital documents.

Dartnall’s approach has been the development of a 'Guide to the

statement of advice' booklet which removed all important generic material from the SoA. The result had been an SoA of around 12 to 16 pages with the client able to focus on the facts that related to them personally and a greater ability to provide informed consent to the advice given.

Ardino said advisers need to look for efficiencies in every part of the advice process such as SoA generation, research, file keeping and portfolio management.

He noted managed accounts dramatically reduced the cost to fee paying clients but warned advisers not to cut corners as the industry was very unforgiving when mistakes were made.

“Advisers don’t make the rules but they have to work with the framework they are given which is something the government has to take accountability for. Until they change the framework to accommodate that, advisers have to work with what they’re given,” he said.

Despite all the hard yards, Sofra said advisers needed to keep going and not to give up.

“If we lose all the good ones out there the industry that will be really sad,” she said.

“It will be such a loss to the industry and Australia if we lose all the planners that have had all those years of knowledge and expertise.

It will be a massive loss.”

5/08/2021 11:22:12 AM

20 | Money Management August 12, 2021

REITS

TAKING AN ALTERNATIVE LOOK AT PROPERTY With the outlook still uncertain for retail and office sectors, Oksana Patron explores where fund managers are finding their alternative property exposure.

AFTER A YEAR and a half into a pandemic, COVID-19 has accelerated the pre-existing trends across the real estate assets, delivering headwinds for some sectors and tailwinds for others, fund managers say.

With global on-and-off lockdowns and ongoing behavioural changes such as working from home and online shopping, the office and retail sectors seem to have absorbed the heaviest impact. However, the industrial, fuelled by e-commerce growth, and alternative real estate sector are definitely getting more investor attention.

According to Zenith’s ‘Sector Report – Property’, the news of a COVID-19 vaccine in November last year pushed equity markets higher and brought about a large rotation into value stocks. At the same time, the report found that despite the strong absolute performance of 25.2% and 30.7% for the 12 months to 31 May, 2021, both the S&P/ASX 300 AREIT index and the FTSE EPRA/NAREIT Developed Index $A Hedged index failed to recover from their 2020 drawdowns and lagged the fastrecovering equity markets.

The retail sector, which has already been problematic for several years, saw its performance punctuated by the market turmoil, however, there are definitely “nuances to the story”.

Chris Bedingfield, co-founder, principal and portfolio manager at Quay Global Investors, said that in those markets which had got past COVID-19 and were fully reopened, physical retail was actually doing

14MM120821_14-27.indd 20

better than it was in 2019, however, the large-format shopping centres needed to offer more than just shopping in order to survive.

“Retail is going to survive this as retail does not just offer you an opportunity to go shopping, it is going to offer you the opportunity to be entertained and this is where I think Australian shopping centres are much better than their US or European counterparts because they do have a very heavy bias towards services” he said.

“I am more fearful about the smaller, mid-market shopping centres.”

Stuart Cartledge, managing director at Phoenix Portfolios, pointed out there were three main categories across the retail sector and their performance had been affected very differently throughout the pandemic.

These three categories included large-cap mega shopping malls, such as the Scentre Group portfolio, mid-cap or the mid-size regional malls, a predominantly Stockland-type portfolio, and the convenience centres largely anchored by supermarkets such as Woolworths and Coles as well as some speciality shops.

“Retail has been hit hard by COVID-19 in the top-end of the spectrum, most hard. And the other thing that’s been bubbling in the background for several years has been the switch to online and COVID-19 came along and actually accelerated that process. It remains to be seen to what extent that change will last post-COVID,” he noted.

5/08/2021 9:24:13 AM

August 12, 2021 Money Management | 21

Strap REITS “If you’d asked me this kind of question pre COVID-19, I would have said that we have a preference for the bifurcated approach of large-cap, mid-cap regional malls at one end of the spectrum and the convenience retail at the other.

“But what has happened through COVID-19 has been the mid-tier assets have done very well, because people have not been going to work and they’ve been shopping more in their local areas, but the super centres, particularly the CBD type, have really suffered.”

Shares in Scentre Group rose 23% over one year to 30 June, 2021, according to FE Analytics, while those in mid-size focused Stockland had risen near double that at 42%.

Cartledge said his fund had a small exposure to Scentre Group and overweight positioning in Vicinity Centres.

“Our positioning shifted out of Scentre Group and into the Vicinity to reflect the lower risk.”

He said his concern was that Scentre Group was taking the higher risk approach of having a far more geared balance sheet.

“That may turn into the right decision but we think it’s a risky position particularly for an asset class that is under pressure from online as well as COVID-19.”

INDUSTRIALS ON FIRE Managers were in agreement that there was undoubtedly a growing demand for industrial space, as a combined result of COVID-19, which had provided some tailwinds for the sector, and an accelerated switch to online shopping and growth of e-commerce.

According to them, there was still a huge amount of unmet demand for high quality, industrial assets and that was expected to continue to keep pressure on the pricing of these assets.

Steven Bennett, chief executive at Charter Hall Direct, commenting on the Australian real estate investment trust (AREIT) sector, said the demand for REITs was still very strong given the distribution yields from

14MM120821_14-27.indd 21

diversified AREITs were quite high, averaging about 4.6%, and the index was still below where it was pre-COVID-19.

Having said that, Bennett pointed out that the standout sector within AREITs was fund managers such as Goodman Group, Charter Hall or Centuria.

“A part of the reason why they have performed so well and why most people, including ourselves, think that they will continue to perform, is because the way the co-investments take in third party capital has really leveraged them to the growth side. And you can grow the fund management business, and the profitability, a lot quicker than you can if you are a pure rent collecting REIT,” he explained.

“That is also part of the reason why Goodman is often quite favoured because it combines the fund manager with the tailwinds of that industrial logistics sector,” Bennett said.

On top of that, Australia’s penetration rates and e-commerce was still well behind countries like China and the UK and US and approximately lagged about five years, compared to the US, which also provided some room for growth.

“The second key trend is around onshoring. The Government realised throughout the pandemic that they needed to have national resilience across things such as pharmaceuticals, vaccines and food logistics so we are going to see a continued push for certain things to be onshore. It is the exact opposite trend to what has been happening for multiple decades of offshoring.”

Commenting on Goodman, Cartledge added: “When we model something like Goodman Group, which has an industrial portfolio around the world, we certainly are willing to buy the argument that they are going to have very strong earnings growth for a number of years because the market they are operating in is very strong, making big development profits, generating performance fees.

“So, we believe that this will translate into good things in

terms of earnings growth for that stock but then we have to marry that up against what are we paying for that.”

However, Bedingfield said, at the same time, the industrial or logistics assets were currently quite expensive which made the sector probably one of the most challenging to find value.

“This area as challenging to find good opportunities, we are finding some opportunities but this is probably the most challenging part of the market, to be honest,” he said.

“It’s not just a question of demand, it’s a question of supply, and how easy it is to deliver that supply. It [industrial assets] feels good at the moment, but at some stage supply will catch up and the overall returns will be pretty average.

“Industrial is on fire and there’s no question about that.

But I guess my concern would be over the more medium-term, as supply catches up with demand that you’ll get a normalisation effect,” Cartledge added.

“I would definitely argue that what we are seeing at the moment are certainly heated conditions, whether it’s peak, who knows, but it’s certainly not the trough.”

ALTERNATIVES As the traditional sectors are still struggling to determine what the post-COVID reality would look like for them, investors are beginning to shift their focus away from those assets and towards the alternative real estate. While there are varying definitions of what classed as ‘alternatives’, the most common examples would be childcare, residential and data centres and it had profoundly grown in the US-listed market over the last couple of years.

Following this, there is a strong conviction that Australia would follow this trend, with the alternative sector described as a ‘dormant giant’ and expected to attract more institutional capital in the coming years.

Patrick Barrett, Charter Hall’s portfolio manager, listed securities, confirmed that the alternative asset

class is now becoming in Australia what a “more institutionalised asset class” as opposed to being held by more individual operators in the past.

“There’s institutional capital behind it and sophisticated investors behind it now. And there is a changing acceptance of those asset classes in Australia which has changed dramatically in the past five to 10 years,” he said.

According to Bedingfield, the residential sector was currently overall one of the most exciting sectors across alternatives to watch.

“We tend to have a lot of residential across our portfolio, particularly in the US, and within residential we really like coastal apartments and we also like single-family housing as housing everywhere is going crazy.

“We think post-COVID-19 everyone will sort of reassess their lives’ priorities a little bit and part of that has been to invest more in their home.

He said that another area which would be interesting to watch is also manufactured housing, where Stockland is currently getting into, as it offers a much more investor-friendly model and is expected to have more of a future than apartments or multi-family properties.

SG Hiscock director and portfolio manager, Grant Berry, said that the lifestyle and holiday communities sector was particularly attractive for REITs investors as the investments were being made in land, with the opportunity to expand through development. This sub-sector is becoming more mainstream as larger players move into this space.

Additionally, rent in the lifestyle sector were relatively secure because the residents were often supported through the Government pension system and rental assistance supplement.

“Having said that, some of the stocks in this space have had a tremendous run and they are looking relatively expensive so we have reduced our exposure. But it is regarded as a good sector and pricing recognises that.”

5/08/2021 11:20:30 AM

22 | Money Management August 12, 2021

Small caps

GOOD THINGS COME IN SMALL CAPS

After one of the strongest quarters on record for global small caps, writes Trevor Gurwich, what does the new financial year hold for the sector?

GLOBAL SMALL CAPS typically outperform during economic recoveries – and the past several months have been no exception, with the sector delivering strong returns as earnings recovered sharply. For investors, the question is whether this momentum is likely to continue now the global vaccine rollout and economic recovery are well underway?

It is no secret that small caps behave differently to their largecap peers at different stages of the market cycle. While small caps tend to sell off more heading into a recession, they historically, have led the market during recovery periods supported by faster earnings growth.

As well, small caps generally have greater exposure to cyclical recovery than large caps

14MM120821_14-27.indd 22

although it is worth noting they also tend to be more impacted by stock-specific factors compared to large caps.

Recently, we have seen strong performance from the small-cap sector. Measured by the MSCI ACWI Small Cap Index, it delivered strong absolute returns over the past 12 months and solidly outperformed its mid and largecap peers – outperforming both by approximately 15%. A mixture of Government stimulus measures and investor optimism saw Q2 2020 become one of the strongest quarters for small caps on record, despite a continued uncertainty related to COVID-19.

While all small-cap sectors have delivered strong performance over the past year, the markets were led by the more cyclically-exposed areas of the

market, including the energy, consumer discretionary, industrials, and materials sectors. Value began to significantly outperform growth at the end of 2020 as investors’ risk appetite increased with the release of positive vaccine news.

RISE AND… FALL? NOT NECESSARILY While small caps are unlikely to deliver the same level of returns over the next 12 months, there is nevertheless a favourable backdrop for small-cap equities going forward, for a number of reasons.

Expectations for small-cap earnings growth is healthy and small caps continue to trade at a valuation discount to their large-cap peers.

A healthy outlook for mergers and acquisitions (M&A) is also supportive of small caps, as the

asset class is historically a beneficiary of M&A activity.

Certain geographies are also just starting to see the economic benefits of vaccine rollouts, including Japan and select emerging markets. This should support both improving economic growth and small-cap earnings growth.

While the outperformance of certain cyclically-exposed industries in the past 12 months is not surprising given the improved global economic outlook, the magnitude of performance exceeded many investors’ expectations.

For example, energy companies, led by oil and gas exploration and production companies, outperformed the broader small-cap index by close to 35%.

3/08/2021 1:14:27 PM

August 12, 2021 Money Management | 23

Small Strap caps As investors, it can be difficult to identify suitable oil and gas exploration and production companies due to ESG and climate-related risks.

Nonetheless, there have been attractive investment opportunities in the metals and mining industry that delivered robust returns in the past 12 months and also met key environmental, social and governance (ESG) criteria.

One example is Capstone Mining, a Canadian copper miner listed on the Toronto Stock Exchange. Capstone capitalised on a combination of robust production, healthy pricing and reduced costs.

Additionally, following a period of company engagement on ESG issues, the company is working to improve energy and water efficiencies in its operations, acquiring innovative technology and equipment, and working to improve transparency, which could collectively improve the company’s fundamental outlook. Executive compensation is also linked to ESG metrics, including health and safety and talent management.

THE FUTURE IS GREEN Responsible investing remains a key theme in small caps as investors and other stakeholders pay increasing attention to ESG issues. However, investors often overlook bottom-up investment opportunities within the smallcap space and the positive environmental impact certain small companies are having.

Indeed, by the very nature of their more manageable size, small caps can be well-positioned

to benefit from environmental and social trends. They often are more nimble than larger companies and adjust to changing market conditions more efficiently.

Corbion is one such firm in the small-cap universe. Its innovation in biotechnology is translating to more sustainable products used in degradable food packaging, touch screen computers and durable automotive components.

Corbion’s bioplastic partnership with France-based Total also highlights the differing impact product innovation can have on small versus large companies.

While bioplastics may meaningfully affect Corbion’s earnings growth prospects, it will not move the dial for its much larger partner, Total.

Investors are also increasingly attuned to the fact that what is good for the long-term viability of our economic system and society may also lead to positive investment outcomes. Companies focused on managing risks associated with ESG and capitalising on opportunities tied to ESG may be better positioned to deliver sustainable growth.

Engagement around ESG issues is a key part of the investment process, and is especially important in the small cap space as disclosure and transparency around ESG is often less robust compared to their large-cap peers.

Ultimately, integrating ESG into the investment process is a critical aspect of understanding risks and opportunities at the company level.

In addition to implementing a disciplined integrated ESG approach to our investment process, this excludes any and all

“While the outperformance of certain cyclically-exposed industries in the past 12 months is not surprising, the magnitude of performance exceeded many investors’ expectations.”

– Trevor Gurwich names that violate the UN Global Compact (UNGC) and that are on the Norges Bank exclusion list.

SEEKING ACCELERATING AND SUSTAINABLE GROWTH For asset managers like American Century, the remainder of the calendar year and into 2022 should see a continued focus on companies that have accelerating and sustainable earnings growth.

We believe in having an increased exposure to ‘dooropeners’, companies that are likely beneficiaries of economies reopening and recovering. An example of this is meal delivery company, HelloFresh. We believe the company benefitted from lockdown and stay at home measures.

The stock was a strong performer at the height of the pandemic and lockdown period of last year but, at the time of sale, no longer offered a compelling risk reward trade-off. We also think limiting exposure in some IT stocks should be considered.

Conversely, we believe there are opportunities in consumer discretionary companies benefitting from a pickup in mobility and consumer spending

Chart 1: Calendar Year earnings per share (EPS) Growth: 2022

including travel-related companies, retailers, and auto components makers. Interestingly, we are finding bottom-up opportunities in travel and leisure companies that are benefitting from pent-up demand from consumers, and earnings are recovering strongly off a low base.

The world’s largest hotel franchisor, Wyndham Hotels and Resorts, is one such example, and is reporting high occupancy rates and revenues per room. The company has also reinvested in the business, which we think may support a sustainable improvement in earnings growth.

Another consumer discretionary name that we believe may continue to deliver sustainable and accelerating earnings growth is footwear retailer, Crocs. The company spent years cleaning up its sales channels and excess costs in its business and has successfully reinvested in its brand, including strengthening its digital presence.

The company’s growth outlook is also supported by new products, and it recently reported better than expected revenues and profits and significantly raised its guidance for the full year as its Americas business delivered robust results.

While we believe we are unlikely to see a repeat of 2020 performance for the global smallcap market, there nevertheless remains real opportunities for investors to capitalise on the reopening of economies globally, as well as to invest in stocks that offer sustainable and accelerating earnings potential.

Trevor Gurwich is senior portfolio manager at American Century Investments.

Source: FactSet

14MM120821_14-27.indd 23

3/08/2021 1:14:37 PM

24 | Money Management August 12, 2021

Equities

WHERE WILL COMPANIES SPEND THEIR CASH?

Companies are sitting with excess cash on their balance sheets following the pandemic, writes Catherine Allfrey, so they will have to work out how best to put this to use in FY 2022.

BY AND LARGE, the balance sheets of corporate Australia are in great shape, and for shareholders this means a bonanza with either higher dividends, buybacks, or mergers and acquisitions (M&A) in the second half of 2021.

At WaveStone, we rate companies on their Sustainable Competitive Advantage (SCA) score, and we also expect our companies to allocate capital to maximise returns over the long term.

In order to provide some insight into what companies are doing with our capital, we’ve broken the Top 100 companies up into four sections – resources, financials, domestic industrials and international industrials.

RESOURCES With double-digit yields, the iron ore miners BHP, Rio and Fortescue look very enticing!

However, the share prices will move in line with the near-record iron ore prices. Unlike in the last iron ore boom, mining companies are far more disciplined with their capital which should see the iron price stay elevated above US$100 ($136 million) until further supply comes in a few years.

The miners have strong balance sheets and fixed capex plans so will pay special dividends and consider buybacks on-top of what’s delivered via their payout ratio-based guidance. In simplistic terms, we expect 90% of net profit to be distributed. For Fortescue and Rio, these returns are likely to be via fully franked dividends, whilst for BHP we expect a combination of a special dividend and off-market

Australian buyback and on-market English buyback with the final form determined by the prevailing PLC/LTD discount and size of the program.

Outside of this, we do not expect significant capital returns for the energy sector and metals stocks given their growth aspirations.

Table 1 looks at the potential dividends the miners could pay over the next two halves to utilise some of their substantial franking credits:

Table 1: Potential dividends for miners over next two halves

Net Debt, $m

Surplus Franking Balance, $m

Base Dividend Payout 50%

Special Dividend/ Buyback, $

12 month forecast yield at current prices

BHP

17,500

15,268

$3.47

$2.78

12.7%

Fortescue

143

2,250

$3.73

$0.46

17.5%

RIO

1,016

6,294

$11.64

$9.30

16.4%

Source: Company Reports / WaveStone forecasts

14MM120821_14-27.indd 24

3/08/2021 5:15:19 PM

August 12, 2021 Money Management | 25

Equities FINANCIALS In FY20, the major banks increased provisions, expecting the $240 billion of deferred loans (as at June 2020) across the sector to result in a bad debt cycle, as the economy went into a COVID- induced recession.

At the height of the crisis Westpac and NAB issued equity, however due to the easing of interest rates and the large Government stimulus programmes, bad debts have been substantially lower than expected.

Banks have also been selling non-core assets like wealth management and insurance which we liken to ‘shrinking to the core’ as they become more focused on Australian banking. Hence all four major banks are sitting on surplus capital above the regulatory minimum plus a buffer.

Therefore, we expect the banks will start to increase dividends and launch ongoing buybacks. Of course, banks will continue to support the economy during lockdowns and the size of the capital returns will depend on the rate of loan growth, but this is the potential: As bank share prices have bounced, we think they will opt for off-market buybacks at a discount to the prevailing share price, to utilise surplus franking credits. A potential scenario for each bank could look like this, but we do note that ANZ is more likely to pursue an on-market buyback (due to its low franking credit balance) whilst the Commonwealth Bank and NAB should do both.

On the M&A front, Citibank Australia’s retail assets are for sale and we expect one of the major banks to buy. This follows Bank of Queensland purchase of ME Bank and NAB’s of neobank 86400. The insurers are still recovering from elevated claims in 2020 and low

interest rates which are affecting investment returns. The fund managers are in growth mode preferring to expand offshore with Macquarie, Perpetual and Pendal buying US-based asset managers in the last 12 months. Yields remain healthy for the financial sector and we would expect growth in dividends for FY22.

DOMESTIC INDUSTRIALS Purely domestic-focused companies (excluding the financials) include infrastructure, telecommunications, utilities, property and supermarkets. The infrastructure sector has been hit harder than most by COVID-19. We would normally consider this sector as a defensive asset class, however it looked anything but as the pandemic unfolded, as movement restrictions reduced the utilisation of toll roads and airports, significantly impacting their cashflows.

As vaccines roll out, movement restrictions are reduced and borders gradually reopen, 2022 should see the beginning of a cashflow recovery for these assets.

Transurban (TCL) distributions reflect changes in traffic flow but are amplified by operational and financial leverage. The market is expecting a proportionate increase in traffic of a little over 10% across their portfolio in FY22, bringing traffic back to 5% below where it was in FY19. This should result in a 57¢ distribution or 4.2% yield at current prices. TCL has a surplus capital position having recently sold 50% of its US roads for $2.8 billion and regeared some of its Australian assets. However, the upcoming sale of the remaining 49% of WestConnex by the NSW Government, means this capital is likely earmarked for this $5 billion transaction, as opposed to being returned to investors.

Woolworths has recently demerged its liquor and gaming operations, Endeavour, and has been a beneficiary of COVID-related online and at home food consumption which sees its balance sheet able to entertain a $2 billion buyback. Telstra is cashed up after selling a 49% interest in its towers business and is also promising buyback of $1.3 billion on top of its 4% yield.

INTERNATIONAL INDUSTRIALS At WaveStone, we prefer to see Australian companies that have substantial operations offshore predominantly utilising capital to grow their business organically or via bolt-on acquisitions. In the last six months, there has been a number of these.

Healthcare companies focused on a strategy of organic growth including spending on research and development as well as expanding capacity include CSL, on flu vaccines and plasma processing. Resmed, Cochlear, Fisher and Paykel, and CSL spend between 7% to 11% of sales each year on research and development (R&D). CSL also invests heavily with $1 billion per annum on manufacturing capacity, to allow capacity growth to drive sales higher in future years.

Interestingly we are seeing ‘shrinking to the core’ from Boral as it has sold its share of the USG Boral JV to Knauf for $1.3 billion. They have bought back 7% of a total 10% of its equity whilst Seven Group grows on its register to >30%. Boral has also sold its US Building products for $2.9 billion, which will be largely returned to shareholders via a buyback or capital return. With a current market capitalisation of $8.5 billion – that will be 30% of its equity back via buyback or some

CATHERINE ALLFREY

form of capital returns.

Another company that has continued to invest in R&D and boltons is Aristocrat. Despite operating in an industry hit by hard by the pandemic, they are now in a stronger market position than pre-COVID, given management continued to invest heavily in design and development (11% to 12% of sales). This is well ahead of their competitors, and we believe this sets up Aristocrat for long term sustainable organic growth. M&A remains a real option for the company. With low gearing, Aristocrat can leverage its expertise as a content and distribution company into iGaming which is now legal in several US states.

WaveStone continues to focus on companies that allocate capital appropriately to generate long-term returns for shareholders. We regularly meet with board and management teams to ensure that they are focused on growth and if not, are returning capital to shareholders. We believe Australian companies, with a few exceptions, are allocating capital wisely.

Catherine Allfrey is principal and portfolio manager at WaveStone Capital.

Table 2: Potential performance by big four banks over next two halves

Capital Raised in CY20, $m

Proforma Surplus Capital above 10.75%, $m

Surplus Capital Per Share

Off-Market Buyback, $m

Surplus Franking Balance, $m

Potential OnMarket Buyback, $m

ANZ

61

7,300

$2.57

1,000

300

6,300

Commonwealth Bank

264

10,800

$6.09

5,300

2,300

5,500

NAB

4,400

8,400

$2.55

2,300

1,300

6,100

Westpac

1,100

8,000

$2.18

8,000

3,600

unlikely

Source: Company Reports / WaveStone forecasts

14MM120821_14-27.indd 25

3/08/2021 5:15:22 PM

26 | Money Management August 12, 2021

Fixed income

AN EVOLUTION TO FACILITATE A REVOLUTION With climate change coming to the forefront, writes Katherine Neiss, there can be a role for central banks to utilise it in their monetary policy.

IN THE DECADES leading up to the Global Financial Crisis (GFC), a consensus emerged around central banking best practice: an independent monetary policy authority tasked with delivering price stability to optimise savings, investment, and production decisions while encouraging the labour market towards full employment.

Calls in the post-GFC period for central banks to take action against the climate challenge were met with the traditional central banking view that doing so would be a distraction from core principles, dilute the focus on price stability, and ultimately erode hard-won independence.

These arguments weakened in the aftermath of the GFC and in response to the COVID-19 pandemic, as it emerged that central banks’ “market-neutral” asset purchase programmes resulted in an unintended bias towards carbon-intensive industries. For example, slightly more than 60% of the European Central Bank’s corporate bond purchases were in sectors responsible for approximately 60% of Euro area greenhouse gas emissions, but only contributed slightly more than 20% of the euro area economy’s gross value added.

The unintended consequences of asset purchase schemes demonstrated that monetary policy was not just ignoring climate change, but running counter to Government objectives for net-zero emissions by underwriting securities from carbon-intensive issuers.

As such, it underscored the need for the policies of these technocratic institutions to be

14MM120821_14-27.indd 26

coherent and consistent with medium-term government objectives. Moreover, it highlighted the risk that ignoring reasonable public expectations threatened the independence of central banks through government intervention.

CENTRAL BANKS AND CLIMATE CHANGE A body of frontier research indicates that climate change threatens the core functions of central banks, including price stability, financial stability as well as the safety and soundness of financial institutions.

For example, rising agriculture and food prices could lift headline inflation rates, while climate vulnerability could affect asset valuations with implications for institution-specific and systemwide risks. Therefore, central banks need to monitor and understand the implications of climate change in the same way they approach other slow-burn issues outside of their normal purview, such as demographics, globalisation, and technological innovation.

More importantly, institutions’ market pricing needs to reflect the risk of climate change in order to optimise their capital allocation decisions, and many significant global institutions have yet to price in these risks. For example, a recent European Central Bank (ECB) analysis finds that almost none of the institutions that it supervises meet the climate disclosure requirements set out by the Taskforce on Climate-related Financial Disclosures (TCFD).

Efficient allocation of capital is of the utmost importance given the sheer amount of investment needed to achieve net zero emissions. The International Energy Agency (IEA)

3/08/2021 1:12:45 PM

August 12, 2021 Money Management | 27

Fixed income Strap estimates that nearly US$150 trillion ($204 trillion) in cumulative investment is needed over the next 30 years to meet the Paris Agreement’s climate goals. And much of that investment needs to be frontloaded over the next decade.

Not surprisingly, the woefully large ‘investment gap’ in the trillions of dollars indicates that capital is not flowing quickly enough to where it is needed the most.

Given the scale of the climate challenge, alongside central banks’ primary objective of optimising the allocation of scarce resources, it seems difficult to argue that central banks have no role in addressing climate change.

When put another way, in a free society, it would be considered intolerable for a respective central bank to remain unresponsive in the face of mass unemployment.

Likewise, a view is coming into focus that it is similarly unacceptable for central banks to ignore the observation that capital is currently mispriced and, as a result, is not flowing to where it is needed most to meet societal objectives.

This does not suggest a promotional role for central banks in the sphere of climate change.

However, it highlights that central banks have a duty to ensure that their policy actions are aligned with medium-term Government objectives as they seek to maintain their legitimacy and independence.

THE CHALLENGE FOR MODERN CENTRAL BANKING Among developed market central banks, a consensus has emerged that climate change poses risks to the macro financial system. Yet, in order for central banks to conduct monitoring and risk assessment and to ensure financial sector resilience (through stress testing, for example) a disclosure framework is required. The TCFD provides such a framework, but the UK is the only country to make the standard mandatory thus far.

The topic of whether central banks should take an active role, particularly with the use of monetary instruments, to fight climate change is more

14MM120821_14-27.indd 27

controversial. For those central banks with secondary mandates to support government economic objectives and sustainable growth, such as the ECB and the Bank of England, many now agree that a change in mandate is neither desirable nor needed.

In general, central banks requiring legislative measures to adjust their mandates face steeper hurdles in proactively addressing climate change, and those without legislative legitimacy risk their credibility if they appear to be freelancing on the issue.

In instances where central bank mandates support addressing climate change, the subsequent challenge is to ensure that policy action is fit for purpose and not cycle dependent. For example, it would be counterproductive for central banks to limit themselves to climate change support when in an easing cycle. Moreover, studies have shown that skewing central bank purchases towards green assets would likely be too small to make a meaningful difference.

More generally, central banks should avoid picking “winners and losers” in the green transition and instead ensure that market functioning delivers the desired outcome. Similarly, it would be an inappropriate use of macroprudential policy, which is aimed at building balance sheet resilience, to actively direct financing towards sustainable investments. But there is a case to be made for central banks to “walk the talk” on managing and disclosing the climate change risks on their own balance sheets, as required by other financial institutions.

AN UPDATED APPROACH This essay argues that central bank action on climate change is wholly consistent with the traditional view that central banks should facilitate the efficient allocation of resources and are most effective when free from short-sighted political influence in an effort to achieve longer-term societal objectives. Moreover, those central banks with secondary objectives to support Government policy do not need a

change in mandate to incorporate climate change, it simply requires a shift in policy emphasis.

Central banks have historically taken a leading role in setting financial regulation, such that prices reflect complete information to incentivise desired investment behaviour. Disclosure of climate-related risks will similarly enable prices to drive investment behaviour towards a green transition. Central banks need to work together to develop and implement best practice as we have seen from the Financial Stability Board and the Network for the Greening of the Financial System. Further co-operation will help mitigate regulatory arbitrage, complexity, and greenwashing.

Climate-related disclosures will subsequently enable central banks to effectively conduct surveillance of institution-specific and systemic risks. It would allow for scenario analysis and stress testing, such that capital buffers can be adjusted accordingly to ensure financial system resiliency across a breadth of scenarios.

Central bank monitoring should also include the impact of climate change on the macroeconomic outlook, much in the way that central banks monitor employment trends relative to full employment, but leave the role of labour market policies to governments. Central banks can use their in-house expertise to incorporate climate change into macro models and develop scenario analysis to shed light on questions such as: is the economy on track to build a capital stock that will achieve its climate goals?

Other issues of exploration could include conducting surveys to judge whether firms have sufficient access to financing avenues needed to support their green transition.

A NEW PHASE The evolution in central banking that occurred over the course of two crises appears to be on the cusp of a new phase to address the existing crisis of climate change. For many institutions, the changes may be subtle at first.

“Central banks should avoid picking ‘winners and losers’ in the green transition and instead ensure that market functioning delivers the desired outcome.”

– Katherine Neiss

Rather than mandate changes, these central banks may shift policy emphasis to better align with medium-term government objectives. However, over time, the changes could become more pronounced as central banks’ core function of efficiently funnelling capital to where it is needed most requires greatly improved climate-risk disclosures—particularly as it pertains to their own policies and balance sheets.

Central banks can act as role models in their own portfolio management by ensuring that their balance sheets account for climate change risks and are consistent with government targets. Moreover, central banks’ recognition of their unique position to influence capital formation can further enhance their legitimacy and protect their independence.

Yet, mission creep will be a risk. Central banks will need to draw a clear distinction between their unique – but ultimately limited – role in facilitating the efficient flow of capital and proactive government climate policies. Institutions that are able to successfully navigate the fine line between core functions and activist policies may provide economies with much-needed support in their revolution to fight climate change.

Katharine Neiss is chief European economist at PGIM Fixed Income.

3/08/2021 1:13:02 PM

28 | Money Management August 12, 2021

Toolbox

ESG CREDENTIALS AND STRONG RETURNS

Investing with an ESG focus in mind, writes David Smith, is no longer a ‘nice to have’ for investors and can lead to better performance over the long-term.

FOR SOME TIME now, strong credentials in environmental, social and governance – ‘ESG’ to use the shorthand – have been the buzzwords on every investor’s lips.

It would seem that everyone now wants to make investments in companies with strong ESG scores, with asset managers wanting to offer investments that stand up to ESG scrutiny. But there can be no denying the suspicion that ESG investments may not be able to keep pace with ‘traditional’ investments.

Many investors still believe that adhering to strong ESG principles inevitably means sacrificing returns. We disagree, and so to challenge this belief

14MM120821_28-32.indd 28

we’ve taken a detailed and objective look at the research evidence to see how, especially over the longer term, ESG factors truly affect the performance of both companies and portfolios.

The very good news is, taking ESG seriously is even better for companies, employees, consumers, the environment, the future and investors’ returns than current opinion may suggest.

RESEARCHING THE RESEARCH Our aim with the research was to give investors solid evidence of how ESG considerations could affect their investments. We’ve focused on rigorous, peer-reviewed academic research – we’ve carried

out research into the research, you could say. We hope that our findings will go some way to convincing investors and asset managers who are still skeptical.

One substantial piece of research we looked at was analysis by MSCI of over 1,600 companies from the MSCI World Index universe, between January 2007 and May 2017. This analysis divided companies into five ESG score quintiles, with Q1 indicating the lowest ESG rating and Q5 the highest. Highly-rated (Q5) firms were more profitable and paid higher dividends than lowly-rated firms (those in Q1). Highly-rated firms also demonstrated lower earnings volatility and lower systematic volatility.

STRONG ESG AND LOWER RISK We also found that there is correlation between a strong ESG score and the following attributes: profitability, share price growth, and a lowering of risk, at both the portfolio and the stock level. Another benefit for higher-scoring companies is that the cost of obtaining both debt and equity capital (known as the cost of capital) becomes lower.

Further proof of the benefits of a strong ESG scorecard comes from research which demonstrates that highly rated ESG companies perform better in times of volatility. This is borne out not just in the data from the COVID-19 crisis of 2020, when

3/08/2021 5:14:22 PM

August 12, 2021 Money Management | 29

Toolbox

Chart 1: Relationship between ESG and corporate financial performance

companies with higher ESG scores were more resilient during the volatility, but across 2004 to 2018. In short, research suggested that strong ESG credentials significantly improve a company and a portfolio’s riskadjusted return.

We also looked at research which concluded that lower ESG-scoring stocks tended to have 10% to 15% higher total volatility and stock-specific volatility than higher ESG-scoring stocks. This means that assessing a company’s ESG ratings and exposures may inform investors about the riskiness of securities in a way that is complementary to traditional statistical risk models.

Other research found that ESG integration reduces portfolio risk across the full spectrum of markets and investment styles.

We also noted findings elsewhere which suggested that, although the performance of ESG-focused mutual funds and ETFs was similar to non-ESG focused funds, there was 20% less downside deviation, making the funds ‘less risky’ overall. So, a firm’s environmental performance is inversely related to its systematic financial risk. In addition, this positive ESG effect increases over longer time horizons.

The evidence suggests that higher-quality companies, ones concerned about their environmental impact, their ‘footprint’, their workforce, the sustainability of their products and their impact on the planet, tend to make better profits, and see share price performance that is better than those of their less ESG-oriented peers.

14MM120821_28-32.indd 29

Source: Journal of Sustainable Finance & Investment, 2015

EMERGING MARKETS Positive ESG has a particularly significant beneficial effect when it comes to emerging market investments; here, the relationship between strong ESG credentials and better corporate performance is very high. A recent and comprehensive metaanalysis of over 2,200 unique research papers on ESG integration found that a large majority revealed a positive relationship between ESG and corporate financial performance.

The sample from emerging markets was particularly interesting, revealing a 65% to 71% higher share of positive outcomes over developed markets.

Investing in emerging markets is inherently more difficult; there is far less available information around the companies, and often less sophisticated regulation. So for emerging market investors, the importance of strong ESG being displayed by a potential investment becomes quite material. ESG principles give us a framework to investigate an emerging market company. If a company is well run – it is not treating its employees badly, not polluting the area with chemicals, and it is managing its energy use and waste creation well, it will tend to have better results, both

in the long and short-term. The evidence we have gathered allows us to conclude that strong ESG performance can lead to strong returns.

To cite two leading examples: for many years now, we’ve invested in Taiwan Semiconductor Manufacturing Company (TSMC) in Taiwan and Housing Development Finance Corporation (HDFC) in India. Both have strong ESG credentials, both in terms of their business and strategy, and the way they operate.

TSMC is focused on improving the energy efficiency of its chips, with the company’s innovations helping make end products more energy efficient, driving the development and expansion of industries like renewable technology and green transport.

The company’s commitment to ESG is strong; green energy is used wherever possible at all of the company’s factories and offices, and TSMC is the first semiconductor manufacturer globally to join RE100, a global initiative bringing together the world’s most influential businesses committed to 100% renewable power.

There is currently a 95% waste recycling rate at the company’s operations, and air pollution has been reduced by 46% since 2015.

The company is building the

Continued on page 30

3/08/2021 5:14:28 PM

30 | Money Management August 12, 2021

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 world’s first advanced water reclamation plant for industrial wastewater from chip manufacturing, a critical capability given Taiwan is a water-stressed country. In the case of any water shortage, the company is obliged to ferry in water at extra cost, and so lowering water usage whilst driving water re-use every year is an important aim for the firm, with both environmental and business benefits.

Housing Development Finance Corporation (HDFC) in India is focused on improving access to housing finance, with a particular focus on improving access in the Economically Weaker Section and Low Income Group segments of the country, and has financed 8.4 million homes since the company was founded in 1977. The company is equally focused on ESG in its operations. It sets strong annual targets for emissions reduction, energy usage, water consumption and waste recycling and disposal. Solar energy is used in the company offices and buildings. Small changes, such as phasing out single-use water bottles, have been adopted. Corporate governance is strong and social welfare aims are high.

Both TSMC and HDFC have been major success stories and are perfect examples of the findings of our extensive research – that standout performance can be generated not just by doing good business, but by also placing a strong emphasis on doing business for the good of the people who work at a company, for the good of the company’s customers and to improve every aspect of the environment that is affected by the company.

ACTIVE MANAGERS AND ESG RESEARCH Our findings have reinforced our belief that taking an active approach to equity investing can make a critical difference. Investors need to conduct their own thorough research into a company’s ESG qualities and not just rely on data from third parties. We try to use our local presence around the world to find companies with high ESG credentials that are not yet fully appreciated by the market.

In addition, we believe asset managers have a responsibility to help companies improve their ESG standards by actively engaging with them. We are not ‘activist’ investors, but we do aim to draw on our experiences across industries and regions to constructively challenge managements to do better.

It is now an outdated and incorrect view that ESG is ‘nice to have’, ‘an added extra’, or an ‘additional expense’ that brings nothing in return. In fact, one could argue that the very opposite is true: companies that don’t care about their people, their customers, or the effect their business is having on the air, climate, water and natural habitat, are unsustainable business models, and are businesses that increasingly investors don’t want to risk investing in.

David Smith is senior investment director – Asian equities at Aberdeen Standard Investments.

14MM120821_28-32.indd 30

1. One substantial piece of research Aberdeen Standard Investments looked at was MSCI analysis of over 1,600 companies from the MSCI World Index universe, between January 2007 to May 2017. This analysis divided companies into five ESG score quintiles, with Q1 indicating the lowest ESG rating and Q5 the highest. It found that highly rated (Q5) firms were: a) More profitable than lowly-rated firms (those in Q1) b) Paid higher dividends than lowly-rated firms (those in Q1) c) Demonstrated lower earnings volatility and lower systematic volatility than lowly-rated firms (those in Q1) d) More profitable, paid higher dividends and demonstrated lower earnings volatility and lower systematic volatility than lowly-rated firms (those in Q1) 2. Research concluded that lower ESG-scoring stocks tended to have higher total volatility and stock-specific volatility than higher ESG-scoring stocks. How much higher was this volatility? a) 5% to 10% b) 10% to 15% c) 15% to 20% d) 20% to 25% 3. There is a correlation between a strong ESG score and which of the following attributes? a) Profitability b) Share price growth c) Profitability, share price growth, and a lowering of risk, at the portfolio level d) Profitability, share price growth, and a lowering of risk, at both the portfolio and the stock level 4. A firm’s environmental performance is related to its systematic financial risk. What word best describes this relationship? a) Directly (related) b) Inversely (related) c) Mathematically (related) d) Linear (relationship) 5. Positive ESG has a particularly significant beneficial effect when it comes to which of these market investments? a) Asian market investments b) Developed market investments c) Emerging markets investments d) All market investments

TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/ features/tools-guides/ esg-credentials-and-strong-returns For more information about the CPD Quiz, please email education@moneymanagement.com.au

3/08/2021 5:14:40 PM

August 12, 2021 Money Management | 31

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

Appointments

Move of the WEEK Helen Morgan-Banda Chief executive Association of Financial Advisers

The Association of Financial Advisers (AFA) has appointed Helen Morgan-Banda as AFA chief executive.

Morgan-Banda had over a decade of experience as CEO of two major professional membership bodies, the Law Society of New Zealand and the Royal New Zealand College of General Practitioners.

Morgan-Banda previously held corporate affairs positions with ANZ and AMP, both in New Zealand.

Clime Investment Management, which owns Madison Financial Group, has appointed Jason Gapps as national practice manager.

The appointment followed broader organisational change at Madison and Clime, which included the appointment of Annick Donat as chief executive of Clime and Jaime Johns as general manager of Madison.

Gapps has more than 15 years’ experience in financial services and held a number of leadership positions across major institutions, such as ANZ, Colonial First State and BT. Frontier has appointed Meirine Giggins as a senior consultant on the ‘non-super’ side of the business.

Giggins joined from a South African family office as chief executive and chief investment officer and had previously worked at Allan Gray and HSBC Asset Management and had over 20 years of experience.

Frontier said her family office background would be useful as the firm looked to expand into other areas

14MM120821_28-32.indd 31

She would relocate from Wellington, New Zealand, to Sydney as soon as practicable, given COVID-19 restrictions.

Michael Nowak, AFA national president, said Morgan-Banda’s background and experience was a strong strategic fit with the highly experienced financial services professionals in the AFA’s senior leadership team, AFA board, and AFA communities of practice.

“Over the course of her career, Helen

such as endowment, wealth management and family office.

After 35 years of service, T. Rowe Price Group has announced that chief executive Bill Stromberg will retire at the end of the year, with Rob Sharps to takeover.

Stromberg would also step down as his roles as chair of the board and chair of the firm’s management committee but would serve on the board as a non-executive chair.

Sharps was currently T. Rowe Price president, head of investments, group chief investment officer (CIO), and a member of the firm’s management committee.

DNR Capital has appointed Natasha McKean as specialist environmental, social and governance (ESG) investment analyst.

McKean had over 19 years of investment experience and joined from Maple-Brown Abbott and J.P. Morgan where she held senior positions including ESG analysis, equity strategy, portfolio management, and mergers and acquisitions.

has managed significant disruption, akin to that currently being experienced by financial advisers,” Nowak said.

“She has demonstrated a deep understanding of the issues being faced by our members and the broader industry and we believe she is the right person to lead us into the future.”

Nowak thanked Phil Anderson, AFA’s general manager policy and professionalism, for leading the AFA over the past six months.

She would be the dedicated ESG investment analyst across all the DNR Capital Australian equity investment strategies, working directly with portfolio managers and analysts throughout the investment process.

Boutique asset manager MapleBrown Abbott (MBA) has appointed Emma Pringle as head of environmental, social and governance (ESG).

Pringle’s appointment followed the departure of Natasha McKean as ESG investment analyst after she decided to take up a position in Brisbane, where she lived, following her maternity leave.

Over the past 12 months, while in a maternity cover role, MBA said Pringle had built on the firm’s long-established ESG program which included joining Climate Action 100+ and Investors Against Slavery and Trafficking Asia-Pacific.

MBA also became signatory to the Transition Pathway Initiative and the Taskforce on ClimateRelated Financial Disclosures.

In her new role, Pringle would have oversight of the ESG process for all MBA’s Australian and

Asian equity strategies and at the corporate level.

With the acquisition of ME Bank completed, former bank director Deborah Kiers will join the Bank of Queensland’s (BOQ’s) board of directors.

The acquisition led to a rotation of directors for BOQ Group and Kathleen Bailey-Lord would retire from her role as nonexecutive director.

Kiers had over 26 years’ board experience including as nonexecutive director at IFM Investors.

The number of non-executive directors would remain at seven.

Fund administration services firm Ascent Fund Services has appointed Eric Koolen from Apex Group Australia to lead its Australian expansion.

Koolen was formerly Apex’s managing director, which recently won a bidding war against SS&C to acquire Mainstream Group.

Singapore-based Ascent was looking to expand in Australia as it felt this consolidation and takeover activity among funds services groups presented the “perfect opportunity”.

3/08/2021 1:10:41 PM

OUTSIDER OUT

ManagementAugust April 2,12, 2015 32 | Money Management 2021

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

Different but same numbers

Gold medal for advertising IF there was a gold medal for advertising in the Olympics, Outsider believes Aware Super would take out the gold medal spot.

Outsider is of course referring to the superannuation fund’s television ad that refers to investing as “a marathon, not a sprint”. However, it is important to mention that Outsider spent two weeks feeling exhausted

just from viewing such events.

Despite the Olympics now completed, Outsider suspects this won’t be the last he hears about Aware’s advertisements, given the scrutiny over what member money is spent on, it would be likely that this advertising spend will called into question over whether it is in “members best interests”.

But industry super is no debutante when it comes to sports advertising, the largely Melbourne-based industry invests heavily in multiple Australian Football League teams, as well as the NRL’s Melbourne Storm. Purely only for promotional purposes, I’m sure.

Outsider spoke to the vast Money Management marketing division as to whether our humble publication would be advertising during Olympics, only to be told our budget may not be sufficient to cover such an expense.

Such a shame too, just as Ariarne Titmus became a brand ambassador for Harvey Norman, Outsider feels her coach Dean Boxall exemplifies the spirit Money Management contributes towards journalism.

WHILE Outsider has been closely watching the daily numbers of COVID-19 cases spreading across the east coast, he finds it very confusing and struggles to figure out what those numbers really mean.

So far, he has concluded all the attention goes to monitoring rises and drops in daily cases per given cities, towns, and regions.

However, there are more nuances to it, such as how to tell the difference between cases that were “in the community while infectious” and those that were “partially in the community while infectious”.

On top of that comes daily figures which are still under investigation and no one really knows how many of those were in the community during their infectious period.

It all reminds Outsider of how ASIC counts its advisers who are divided into two main categories: current and ceased.

While it sounds simple, the number of adviser roles rarely matches the number of actual practicing advisers.

On top of that, he often hears that, despite planning groups reducing adviser numbers, their headcount remains intact.

Outsider wonders why inactive advisers bother with FASEA requirements, sit their test, and add to the number of passes, as they choose to unnecessarily share that information with ASIC .

It looks like it all comes down to statistics and maths which only makes Outsider’s head spin.

It’s a shame the Olympics are over as Outsider quite fancies himself a good armchair judge especially with diving and gymnastics which only require a difficulty score plus an execution score. Alas, golf scoring will have to do the next time Outsider hits the green.

Taking a break for a swim WITH several states back in lockdown, it was unsurprising that Parliamentary sessions were back to Zoom and Outsider is amused to see Parliament House is not immune from lost connections.

At a Parliamentary committee hearing on financial advice, both Synchron’s Don Trapnell and Easton’s Nathan Jacobsen fell foul of intermittent internet connections.

With no witnesses to question for the day, this left the Parliamentarians to chat amongst themselves and watch the Tokyo 2020 Olympic women’s swimming relay.

Tim Wilson, Jason Falinski,

OUT OF CONTEXT www.moneymanagement.com.au

14MM120821_28-32.indd 32

Andrew Leigh, and Celia Hammond could all be heard discussing their lockdown situations before switching over to watch Australia take a silver medal.

However, it looked like the speakers had varying internet speeds as there was disagreement over which country was winning at any point while Wilson complained about having to watch a 15-second advert while the page loaded.

Outsider is pleased to see our Parliamentarians supporting their fellow Australians in Tokyo and is sure they are not the only ones taking a break from work.

"Death, it really does complicate things."

– John Maroney, SMSF Association CEO

Outsider did also enjoy the Parliamentarian commentary and perhaps rather than holding their elected seats, they could take over from Bruce McAvaney, Johanna Griggs, Luke Darcy, and Basil Zempilas – the latter of which having already forayed into politics himself.

Every time Zempilas commentates another successful

Australian swimming win, Outsider is left to wonder how he manages to do that and have the time to simultaneously be Lord Mayor of Perth.

Outsider is also sure there were far more people were watching the Olympics than the committee hearing, which even Wilson admitted would be a “delusional idea”.

"I really wish I did have a crystal ball, because if I did, there's heaps of stuff I'd love to know."

– Meg Heffron, Heffron managing director Find us here:

5/08/2021 9:23:49 AM