Money Management | Vol. 35 No 15 | August 26, 2021

MAGAZINE OF CHOICE FOR AUSTRALIA’S WEALTH INDUSTRY

www.moneymanagement.com.au

Vol. 35 No 15 | August 26, 2021

20

LICs

End of closed-ended structure?

24

INSURANCE

The case for remutualisation

The protection equation

Retail clients ‘risky’ to service

AGED CARE

BY OKSANA PATRON

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Not another Royal Commission IN the financial services industry, the words ‘Royal Commission’ are synonymous with the review led by Kenneth Hayne.

It was a review that changed the landscape of the advice industry forever, but it isn’t the only one that will affect advice.

In 2018, the Royal Commission into Aged Care was launched by Prime Minister Scott Morrison after systemic abuses were revealed in the aged care system.

The final report was delivered in March this year and highlighted patient abuse, poor working conditions and gaps in the system where care was unavailable.

Unlike the Hayne Royal Commission, there wasn’t a direct outcome that affected the careers and livelihoods of those in the advice industry.

But as is the case with all Royal Commissions, the public was watching and listening.

Aged care is an important part of the retirement planning process and advisers now must deal with another industry having its perception shaped by media reporting.

The one thing that wasn’t addressed by the Royal Commission was financing and - although the Government has backed more public funding into the system – there is likely another day of reckoning to come that will shape how the industry is funded.

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28

TOOLBOX

Full feature on page 16

SERVICING retail clients has become too hard and costly even for larger advice groups due to complex and challenging compliance requirements, according to Lifespan Financial Planning.

Commenting on a significant drop in adviser numbers over the last two and a half years, Lifespan chief executive, Eugene Ardino, pointed out that the regulatory framework had become too difficult for many advisers.

Along with the educational requirements, it was one of the key factors driving them away from the industry.

He said that several large advice groups and institutions were often choosing not to service retail clients and those groups were shifting their focus on wholesale clients instead.

“I do see some large licensee groups and small advice groups

saying that all this retail stuff is just too hard,” Ardino said.

“There are too many minefields and there are too many risks involved so they are only going to deal with clients who meet the wholesale test where they don’t need to worry that much about most of the compliance and consumer protection requirements.

“What I am saying is that a lot of the compliance requirements that are in place are just really difficult and costly and often most retail clients don’t have the capacity to pay the level of fee that advisers would have to charge.”

On the other hand, clients who had met the test for the wholesale category were less protected by the range of consumer protections laws, such as best interest duty, conflicted renumeration or the statement of advice (SoA), among others, when Continued on page 3

Less than one-in-three chance of defending ‘know your client’ complaint

BY LAURA DEW

FAILURE to ensure clients understand risk profile questionnaires can mean advisers fail the ‘know the client’ obligation and leave them open to a complaint, according to a report.

Risk management firm, Fourth Line, conducted a survey of 1,100 complaints to the Australian Financial Complaints Authority (AFCA) between 2012 and 2020, around 12% of total complaints.

Total complaints paid rose to $14.6 million in 2020, up from $8.6 million in the previous year.

One such complaint pertained to a complainant describing how they were advised to change super fund to a higher-cost fund but the risk profile questionnaire used was deemed too complicated by the complainants, who lacked the necessary financial literacy to understand certain questions.

Continued on page 3

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News

Under 10% of failed FASEA exams see successful re-mark

BY CHRIS DASTOOR

ONLY 28 (8.4%) unsuccessful candidates in the Financial Adviser Standards and Ethics Authority (FASEA) exam have seen their result change from a fail to a pass.

Answering a question on notice to the Senate Economics Committee, FASEA said there had been 333 unsuccessful candidates who requested a remark.

“These candidates were borderline fails in the original round of marking who on average mark [is] changed by one,” FASEA said.

As of the May 2021 exam, there were 4,449 advisers on the Australian Securities and Investments Commission (ASIC) Financial Advisers Register (FAR) that had not yet attempted the exam.

There were 1,510 of the 14,854 advisers who had passed the exam that were recorded as ceased on the FAR. The highest number of exam attempts was

Retail clients ‘risky’ to service Continued from page 1 they dealt with advisers or licensees.

Ardino stressed that one of the fundamental problems was also the cost of compliance, which combined with educational requirements, was driving up the total cost of advice.

He said that advisers were seeing the costs of almost everything rising at exponential rates, including the Australian Securities and Investments Commission (ASIC’s) levies and other licensee fees, so it came down to end user clients having to pay for all that.

“I genuinely am thinking what is keeping a lot of advisers up at night is having to tell a lot of their clients that they either have to raise fees or they can’t service them anymore and that is a really difficult conversation to have, particularly with mum and dad clients,” he said.

“It’s kind of perfect storm of factors that is leading advisers to exit and that’s also raising the cost of advice which is essentially moving financial advice into the role of being largely for the wealthy.”

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five which had been attempted eight times with only four of those passed.

“The relevant providers exam is a high stakes exam, the average number of attempts needed by a candidate to pass was 1.08,” FASEA said.

“This illustrates that the vast majority of candidates who pass the exam do so on their first attempt, but that a smaller proportion do require additional attempts to pass.

“The cost of each exam is $540 (ex. GST).

To date, the maximum number of attempts eight candidates have had is five, at a total cost of $2700 (ex. GST).

“FASEA provides resources to assist adviser in preparing for the exam at no cost, this includes the FG003 Exam Preparation Guide, FG004 Exam Practice Questions including over 100 question some of which are retired exam questions and exam webinars pre and post-exam sittings for all sittings in 2021.”

Less than one-in-three chance of defending ‘know your client’ complaint Continued from page 1 The firm argued that the tool had taken their investment experience into consideration and had categorised them as balanced investors, therefore it allocated them 50% exposure to growth assets.

Upon examination of the questions, AFCA found the answers were an unreliable indicator of the complainants’ risk tolerance, particularly as they had answered having ‘limited knowledge’ of investing.

It said: “Given the inadequacies of the risk profile questionnaire, it is up to a prudent adviser to assist the complainants understand and comprehend the questions to identify and understand their relevant circumstances. In this instance, the adviser has not discharged his ‘know their client’ obligation”.

The complaint was found in favour of the complainants who received $13,734.

AFCA recommended advisers considered previous investment experience, capacity and tolerance for risk, time horizon for investing, age and personal objectives and had a legal obligation to identify clients’

objectives as part of their duty to act in a client’s best interest.

In total, 18% of complaints related to ‘know your client’ but this was down from 70% in 2017 and total complaint claims paid totalled $23,315,121. There was a 32% chance of an adviser successfully defending a claim in this space, which included incomplete fact finds, incomplete risk profiles or failure to investigate clients’ circumstances.

For incomplete fact finds, there was a 0% chance of an adviser defending this type of complaint.

“There has been a reduction in complaints determined related to ‘know your client’ issues in recent years suggesting advisers have improved their investigations into their client’s relevant circumstances,” the report said.

“It is worth noting that most of the highrisk and illiquid product [Global Financial Crisis] GFC-related complaints were determined or closed by 2017, when the majority of investment-related complaints related to failure in the adequacy of risk profiling and the fact-finding processes.”

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4 | Money Management August 26, 2021

Editorial

jassmyn.goh@moneymanagement.com.au

TRANSPARENCY NEEDED ON ASIC UNMET NEEDS PROJECT

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

The decision to withhold submissions from its consultation into affordable advice is a contrary move by the corporate regulator when the advice industry has funded the $386,000 project.

QUESTIONS need to be asked regarding why the corporate regulator sees it unnecessary to publish the 433 submissions it received for its consultation paper on access to affordable financial advice.

The reason why the Australian Securities and Investment Commission (ASIC) needs to be asked this is given the already negative views of its exponentially increasing levy for financial advisers, it needs to explain why it is not releasing information that has been paid for by advisers.

ASIC revealed to a Parliamentary committee that it had spent $386,480 on its unmet advice needs project, which went towards staffing and three pieces of commissioned research.

Given the regulator employed external consultants, it is only fair advisers should be able to access the submissions made as the ASIC levy is paid for by advisers and covers all sorts of expenditure including enforcement activity that does not involve most advisers.

The justifications ASIC has used to not publish the submissions include the fact that it will soon publish a document that captures a

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 amelia.king@moneymanagement.com.au

“high-level summary of key issues raised in the submissions and provides public transparency of the issues raised”, some submissions were provided in confidence, and that individuals might not welcome publication of their submissions.

However, opting not to publish submissions seems contrary to the regulator claiming their soonto-be published document is transparent given nobody will be able to cross check what has been said in submissions and what had been published in the document.

Not only this, ASIC could redact personal information from the submissions to get

around confidentiality issues.

It would be wise for ASIC to be more transparent about the work they do on advice, especially when it is funded by the advice industry, as its levy has been under scrutiny by not only the industry but by parliamentarians who have called the levy unsustainable.

Transparency would be welcomed by the industry to know what they are actually funding and it is likely ASIC will continue to be questioned on its levy justification.

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Jassmyn Goh Editor

WHAT’S ON AIST Superannuation Investment Conference 2021

ESG & sustainability – Myths and misunderstandings

Regulatory update from Phil Anderson

Factual information vs financial product advice

Online 31 August aist.asn.au/events

Online 31 August fpa.com.au/events

Online 1 September afa.asn.au/events

Online 2 September superannuation.asn.au

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Editor: Jassmyn Goh

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19/08/2021 3:01:05 PM

August 26, 2021 Money Management | 5

News

Class sees NPAT fall and acquires Topdocs

BY JASSMYN GOH

CLASS has announced a 25% increase in its operating revenue of $54.9 million for financial year 2021, a decrease in its net profit after tax (NPAT), and its acquisition of legal documentation software provider, Topdocs.

In announcements to the Australian Securities Exchange (ASX), the self-managed superannuation fund (SMSF) solutions software provider said its roll forward revenue as at 30 June, 2021, was $59.8 million, up 21.5%, and its underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) was $21.9 million, up 15%.

However, Class’ NPAT was down 46% to $3.7 million. This included the one-off net loss of $3.2 million for Philo Capital, the managed account service.

Last month, Class concluded that its investment in Philo by way of a convertible

note prior to 2019 was “not on strategy” and that continuing to invest in Philo was not in the best interests of Class shareholders. Class would either convert or redeem the note on 31 August, 2021 and expected a material shortfall of around $3 million in value.

Class said it acquired Topdocs for $13 million, which comprised $11.7 million in cash, and $1.3 million in Class shares escrowed for 18 months.

The transaction had a target completion date of 1 September and had an estimated revenue contribution of $3 million this financial year. Topdocs customers would transition onto the NowInfinity platform.

The acquisition followed Class’ acquisition of ReckonDocs in March, 2021, Smartcorp in August 2020, and NowInfinity in February 2020. Class noted that it had identified a number of further opportunities to grow through acquisition.

Class also announced a fully franked dividend for 2H FY21 of 2.5 cents.

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18/08/2021 3:07:17 PM

6 | Money Management August 26, 2021

News

Magellan moves focus away from global equity dominance

BY LAURA DEW

MAGELLAN Financial Group is actively trying to reduce the dominance of its global equities business as it makes investments in external businesses via its Magellan Capital Partners division.

In a webcast related to its full-year results, the firm said, while it understood investors’ focus on the performance of the Magellan Global fund, this was a key focus of the “current” business and it wanted to avoid being “solely a global equities business”.

Hamish Douglass, Magellan chair, said: “We don’t want to be solely a global equities business, we have an infrastructure business and are on our way to having the best Australian equities business in the country [in Airlie].

“We also have the Core series, our sustainable funds – where we are expecting to have institutional mandates in the next few months – and FuturePay which has the potential to be a meaningful part of the business.”

The other major part of the business was its investment via its Magellan Capital Partners division in Barrenjoey, FinClear and restaurant Guzman y Gomez, which was separate from its fund management business. It was “early days” for these investments as they were currently incurring startup costs but Douglass said the firm was backing them for the long-term.

“In three to five years time, these companies will look like smart investments and people will be asking ‘how did they get

them?’, they are performing ahead of our expectations, it’s about the value creation,” Douglass said.

Meanwhile, the firm said performance fees had fallen significantly from $81 million to $30.1 million due to fund underperformance.

Some 65% of its total expenses related to expenses for its 135 employees ($70.4 million), although this had fallen from $73.8 million in 2020 as a result of the lack of the travel caused by the pandemic plus salary reviews.

Advised client portfolios gain 5.2% in returns over non-advised peers: report INVESTORS who received financial advice during the pandemic market volatility have seen an extra 5.2% per annum in returns as a result of that advice.

The fourth Russell Investments 'Value of an adviser’ report said preventing behavioural mistakes, advising on asset allocation, optimising cash holdings, tax-effective investing and planning and expert knowledge were benefits of using an adviser.

It was important that advisers clearly stated the benefits of these intangible qualities to clients as well as their ability to put their money into products as factors such as the correct asset allocation was worth 1.1% to a client’s portfolio.

From the start of 2020 to the 31 May, 2021, investors who had a portfolio with a value of $250,000 gained as much as $40,000 by staying in the market instead of switching to cash.

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Exiting investments was cited as the most critical mistake made by non-advised investors as they later found it difficult to re-enter the market.

Bronwyn Yates, director and head of business solutions at Russell Investments, said: “Investors that have been educated by a financial adviser understand there will be ups and downs along their financial journey, so they feel comfortable in staying the course.

“However, non-advised investors struggle to make the correct decision when markets are volatile, and often attempt to time the market. This is an issue which plagues both those with loss aversion, and those convinced they can beat the market. It’s also a timely consideration for the growing ranks of millennials and Gen Z turning to fin-fluencers as their source for financial advice.”

Praemium platform inflows up while EBITDA, profit down

BY JASSMYN GOH

WHILE Praemium experienced a record net platform inflow of $3.8 billion, up 111%, its profit after tax decreased 68% to $1.5 million during FY21, compared to $4.9 million the year before.

In its annual results announcement to the Australian Securities Exchange (ASX), Praemium said Australian platform inflows accounted for $2.6 billion, up 149%, and international platform inflows for $1.2 billion, up 59% .

It said its global funds under administration (FUA) was up 105% to $41.7 billion thanks to the acquisition of Powerwarp early in the financial year.

Its Australian revenue was up 37% to $53.1 million, while its international revenue was up 6% to $12.5 million. However, its underlying earnings, before interest, taxes, depreciation and amortisation (EBITDA) of $14 million was down 1%.

Praemium said its EBITDA decline on the Australian side was 2% to $19 million and was a result of the transition of the Powerwrap cost base and some cost expansion to support growth and service across sales, marketing, and operations.

EBITDA margins were 36% of revenue, down from the prior year’s 50%.

Praemium chief executive, Anthony Wamsteker, said: “The highlights included the successful acquisition of Powerwrap and the outstanding growth achieved in each of our major operating segments.

“I am confident that the need for the expense base to grow as fast as revenue was a one-off in this year of transition and that underlying EBITDA will resume growing at a rate that is well above the rate of revenue growth.

“Pleasingly, the growth has continued into FY22 with net platform flows of $634 million in July (Australia $471 million, international $613 million) setting a new monthly record.”

Praemium’s international arm is up for sale as it looked to focus its financial and leadership resources on its growth trajectory in the Australian platform market.

Praemium noted that it had not recommended, declared, or paid a dividend with respect to the full-year result.

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August 26, 2021 Money Management | 7

News

ASIC needs to demonstrate levy appropriateness

BY JASSMYN GOH

THE corporate regulator needs to demonstrate that its levies are set and spent appropriately and that it is improving the efficiency of its regulatory effort, according to the Association of Superannuation Funds of Australia (ASFA).

ASFA said in its submission to the Australian Securities and Investments Commission’s (ASIC’s) industry funding for 2020/21 that it would be appropriate to apply a high level of scrutiny to the cost recovered from the Australian Securities and Investment Commission (ASIC) levies.

“ASFA considers that it is incumbent on ASIC to demonstrate transparency and accountability regarding its regulation of the superannuation industry (and the broader financial system),” it said.

“To this end, ASIC needs to demonstrate that the levies are set and spent appropriately and it is improving the efficiency of its regulatory effort – including by minimising the impact of

regulation on the regulated population.”

In terms of superannuation trustees, ASIC estimated its levies would total $29.2 million for 2020/21, up from $23.8 million for 2019/20 – a 23% increase.

ASFA noted that super funds paid additional ASIC Industry Funding Model (IFM) levies related to the provision of advice services and insurance, and the operation of investment platforms. ASFA said it estimated the additional ASIC IFM levies would total $5 million for 2021 and thus the total ASIC IFM levies on super funds would be around $35 million for 2020/21.

Ultimately the increased levies, it said, would be borne by super fund members though administration fees and would be reflected in members’ future retirement incomes.

“As such, ASFA considers it appropriate that a high level of scrutiny should apply to the costs recovered from industry via the ASIC IFM levies. In this regard, it is incumbent on

MEETS

ASIC to demonstrate transparency and accountability regarding its regulation of the superannuation industry (and the broader financial system),” ASFA said.

“In addition to demonstrating that levies are set and spent appropriately, ASIC needs to demonstrate that its mix of regulatory tools is appropriate – particularly given its relatively heavy reliance on enforcement as a regulatory tool.

“ASIC also needs to demonstrate that it is working to improve its regulatory efficiency – by cooperating with other regulators to exploit regulatory synergies and minimise the impact of regulation on the regulated population.”

ASFA noted the ASIC Capability Review said ASIC should consider whether regulatory outcomes could be achieved by using existing regulation administered by another regulator, or other collaborative arrangements, to ensure an integrated regulatory framework and to reduce costs for regulated entities.

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5.80%

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18/08/2021 4:50:09 PM

8 | Money Management August 26, 2021

News

People will not flock to become financial advisers

BY JASSMYN GOH

PEOPLE are not going to be flocking to enter the financial advice industry as there are too many roadblocks and what will be left are advisers only advising the big end of town that can afford it, according to Connect Financial Service Brokers.

Connect chief executive, Paul Tynan, said the industry was too hard to enter for graduates and the only way to succeed in financial planning was to be self-employed but those salaries would be low.

“Some of the big salaries in the past have been paid by institutions, and they’ve forced up those salaries but they’re not around anymore,” he said.

“I’ve got people coming out of banks and they come to me and say ‘Oh, Paul can we buy a business?’

‘No, there’s no stock.’ ‘Oh, are there a lot of jobs going around?’ ‘What are you on?’ ‘300,000’ ‘No one’s

paying $300,000 in the real world’.

“There’s a real big reality check for everyone in the industry, right from the politicians down. All the politicians know they’ve stuffed up.”

He said there were a lot of buyers who came from the institutional side looking for smaller advice firms but that there was a lack of stock.

However, Tynan noted that there were not many professions that could earn a lot of money like in financial planning.

“I can’t tell you about any other profession that can actually earn a lot of money. For example, I sold a business this year for say, seven times EBIT [earnings before interest and taxes] for over $10 million with 93 clients because the adviser said ‘stuff the industry’,” he said.

“No other business makes that kind of money. That’s the other side of the business and these people are not affected because the people they give advice to can afford advice.

“That’s why advice now is elitist

Has enough been done to slow adviser exits for 2022?

BY CHRIS DASTOOR

OPENING the November Financial Adviser Standards and Ethics Authority (FASEA) exam to all advisers and the conditional September 2022 extension could be enough to drastically slow the pace of industry exits.

Over 14,850 advisers had passed the exam so far, but as previously pointed out by Wealth Data director, Colin Williams, this included new entrants into the industry not just experienced advisers on the Australian Securities and Investments Commission (ASIC) Financial Adviser Register (FAR).

Overall, 89% of advisers who sat the exam had passed, but this year saw the lowest exam pass rate with 67% in the January/ February sitting, but the March and May sittings had seen pass rates of 69%.

FASEA confirmed to Money Management that over 1,500 advisers had booked for the September exam.

With at least two-thirds passing the July (which had over 2,700 sit), September and November exams, the number of those that passed the exam should surpass 18,000.

Williams said changes to the exam process had altered earlier projections for how many advisers would remain in the industry at the start of 2022.

“The pass rate has been hovering around

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69% for a while so I don’t think that’s going to change too much, but it’s complicated as they’ve now said everyone can sit the November exam,” Williams said.

“Initially, I was predicting around 15,000 that have passed by the end of the year and then as the new data comes out from January next year anyone who hasn’t passed the exam would fall off.

“I’m not convinced that’s going to happen now because of the extension which will allow a certain number.

“My rough numbers were probably around 16,000, as a result of this change in November it may be higher than anticipated.”

Williams said he still expected the number of advisers on the FAR to reach 15,000 but it would take longer.

“I still think the end result will be in time during the course of next year is what we’ll get down to around 15,000, that’s just the way the trend is going whether you pass the exam or not,” Williams said.

“But we’re not going to fall of this proverbial cliff which we were set to do at the end of December.

“There will be a cliff there, but it won’t be a sharp one as a result of the extension and as a result of a larger number of people being allowed to pass this exam in November.”

and it hasn’t affected all people with money. It’s only affected people who haven’t got money – the ones that really need advice.”

Tynan said experienced financial planners could really help the system but a lot of them just “shook their heads” and said it was too hard to give advice as it was too bureaucratic, too much paperwork, and there was too much red tape.

“What economics 101 says is that if you’re going to have less advisers and there is a need for advice, it’s the place to be,” he said.

“You can make a fortune in the next 10 years and some people will if they’ve got the right business model.”

When asked what the right business model was, Tynan said it was to “forget about trying to look after mom and dad, and the majority of Australians who need advice the most – forget them. I’m sorry, the big end of town will pay for advice”.

CBA required to publish misconduct notices THE Federal Court has ordered the Commonwealth Bank of Australia (CBA) to publish notices on its website and its newsroom acknowledging the bank’s false or misleading conduct when it overcharged interest on business overdraft accounts.

The Australian Securities and Investments Commissions commenced proceedings against the CBA and the court found it breached the law on 12,119 occasions when it charged higher-thanadvised interest rates on business overdraft accounts and was required to pay a $7 million penalty.

CBA was required to ensure that each notice appeared immediately upon access to the landing page as a picture tile on the websites under the heading “Notification of Misconduct by CBA” and is maintained on the websites for 90 days.

CBA must comply with these adverse publicity orders within 30 days and had been ordered to provide a proposed version of the audio-visual notice to the court by 27 August, 2021.

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12/08/2021 4:59:46 PM

10 | Money Management August 26, 2021

News

Economics will solve adviser supply issue Industry bodies

BY JASSMYN GOH

ECONOMICS will eventually solve the adviser supply issue, but the issue will not solve itself quickly, according to Centrepoint Alliance.

Centrepoint Alliance advice group executive, Paul Cullen, said the adviser supply issue would take time until financial advice became a profession as that would attract people who wanted to make a career out of it.

“The economics will be there so ultimately the market will respond to that. There will be more people that at advice as being a profession and see it as a career that to aspire to,” he said.

“But in the short run, it is difficult because there aren’t that many graduates coming out who think that financial advice is the career for them.”

Cullen said there were still advisers “spilling” out of superannuation funds, and banks

who were looking for roles and that his firm tried to place those people in their practices.

“That’s still a source but once that dries up it will be incumbent on everybody that’s left to try and attract, and promote advice as a career,” he said.

“Because in the absence of that is just not going to be that many entering. The UK went through that

cycle and that cycle is playing out here now.

“But economics has got a great way of solving things – a free market where people can make a good living, and make a big difference to clients. It’s a profession and eventually the economics will solve the supplies issue.”

Cullen noted that there would be a lag as even if people today were interested in getting into the industry they would need to complete a relevant degree, sit the Financial Adviser Standards and Ethics Authority (FASEA) exam, and then go through the professional year.

“You’ve got to get the EQ stuff right, as well as the IQ stuff. And that’s just working in a practice and being coached and mentored by a good adviser to be able to deal with clients and do all sorts of work that goes around an office. And so, there’s a lag,” he said.

Advisers need sufficient understanding of Oct reforms SMALL licensees and self-licensed advisers need to have a sufficient level of understanding about the five reforms coming into play at the start of October, according to the Association of Financial Advisers (AFA).

AFA general manager for policy and professionalism, Phil Anderson, said the association was appreciative of the fact that the corporate regulator came out to say it would take a “reasonable approach” in the early stages of the reforms provided participants were using their best efforts to comply.

“I think they [The Australian Securities and Investments Commission (ASIC)] are quite aware of how challenging the October launches are going to be. We’ve had conversations with them about that and we’ve also expressed our anxiety about it with the Minister [for Financial Services, Senator Jane Hume],” he said. “…I think we’re not yet at the point where people have really wrapped their minds around everything that has to change in October.”

From 1 October to 5 October, 2021, the reforms to commence included the new breach reporting regime, reference checking changes, design and distribution obligations (DDO), new internal dispute requirements, and the Australian Prudential Regulation Authority (APRA) intervention into the income protection market.

“All of those things are happening within five days, it is going to be a nightmare,” Anderson said.

“We would not be surprised to see some fairly

15MM260821_01-14.indd 10

broad issues with lack of awareness, lack of preparedness. I think what ASIC have said is that if people are making an effort, then they will, in effect, take a facilitative compliance approach. And we would certainly welcome that.

“You’ve got to put this into context – people are still coming to terms with the annual renewal requirements, some of them still have to do the exam so they could be studying as well, and then you’ve got the overlay of COVID-19.”

While smaller licensees could have access to compliance consulting resources, Anderson said there was only so much they could implement at one point in time along with their primary focus of helping clients.

“The first thing advisers need to have is a sufficient level of understanding of what is changing and they need to be able to prioritise,” he said.

“With DDO, you’d probably start to pay attention to what the product providers are saying and whether they require you to update the distribution agreements.

Otherwise, you need to think about it.

“If it’s reference checking, for example, then you might respond if you get a request for a reference. But if you’re a sole practitioner, and you’ve been a sole practitioner for years, then you can put that to one side as reference checking is not going to be important.

With the income protection, it’s about paying attention to the new products as they’re released over the course of the next month or so.”

unite against CSLR draft

BY CHRIS DASTOOR

EIGHT of Australia’s largest financial advice industry associations have united to oppose the design of the compensation scheme of last resort (CSLR).

The Government released for consultation draft legislation for the CSLR and Financial Accountability Regime in July.

Chartered Accountants Australia and New Zealand (Chartered Accountants ANZ), CPA Australia, Financial Planning Association of Australia (FPA), Institute of Public Accountants (IPA), SMSF Association (SMSFA), Association of Financial Advisers (AFA), Stockbrokers and Financial Advisers Association (SAFAA) and the Boutique Financial Planning Principals Association said the proposed scheme would make financial advice less affordable and accessible.

The Royal Commission recommended the establishment of a CSLR to compensate consumers once all other avenues had been exhausted.

All eight associations said they supported CSLR, but did not support the way the scheme was structured to include Australian Financial Complaints Authority’s (AFCA) outstanding expenses in addition to failing to address the causes of unpaid consumer compensation.

In a joint statement, the associations said they were concerned the scheme may not be used purely as a last resort, which would be a major and unwarranted departure from the Royal Commission’s intent.

“The Federal Government made a commitment to reducing red tape to cut the cost of doing business,” the statement said.

“The draft legislation establishes a CSLR operator as a subsidiary of AFCA. This adds unnecessary red tape by requiring the Australian Securities and Investments Commission (ASIC) to administer invoices and payments and significantly increases the Governments administration costs of the financial advice sector with little benefit to consumers.”

18/08/2021 11:50:22 AM

August 26, 2021 Money Management | 11

News

Small is the new big for financial planner growth CBA announces

$6b buyback

BY OKSANA PATRON

NEW licensees that offer holistic advice have seen the highest growth out of all peer groups since the start of the year, producing a net growth of 124 adviser roles, according to Wealth Data.

Across the board, the industry saw 100 new licensees and 77 of these were in the holistic advice space. This accounted for a net change in adviser roles of 250, including 175 adviser roles in the holistic space.

Looking at closures, only 25 holistic advice licensees closed during the period, representing a total loss of 51 adviser roles, out of a total of 142 closures.

By contrast, the 142 closed licensees accounted for a total loss of -258 adviser roles, with closer analysis showing that the largest peer group in terms of adviser losses was across accounting – limited advice peer group which saw 94 closures and a departure of 156 roles.

Commenting on the growth of adviser roles within the financial planning peer groups sector, Wealth Data’s director, Colin Williams, said if the 77 new

licensees, defined as licensees with less than 20 advisers and not associated with any larger groups, were looked at as one group they would make the 32nd largest licensee.

“To put the 124 roles into perspective, combined they would be the 32nd largest licensee.

Compared to larger licensee owners with more than 50 advisers, only 14 in this cohort have had growth for a total of 86 roles.

So, for 2021, small is the new big for financial planner growth,” Williams said.

As far as the overall year-todate adviser numbers were concerned, the week ending 12 August saw Centrepoint move further ahead of Oreana in terms of

growth for licensee owners with more than 50 advisers.

Centrepoint saw growth of 21 advisers, followed by Oreana and Count Financial which posted a growth of 19 and 12 advisers, respectively, and were the only three groups to report double-digit growth.

At the other end of the table, IOOF Group (- 377), followed by AMP (-256) and NTAA (-119) saw the largest losses in adviser roles.

This week’s analysis of the Australian Securities and Investments Commission (ASIC) Financial Adviser Register (FAR) also showed a decrease in adviser roles to 19, 346, while the number of actual advisers decreased to 19,065.

Duplicate tech systems costly to advice firms

BY LAURA DEW

FIRMS should create a “roadmap” for their technology to reduce buying products which duplicate existing systems.

Firms were using an average of 13 different tools but 38% were using over 15 which included planning software, the investment management platform, mailing system, client portals and a customer relationship management (CRM) system.

However, there were ways for this to be streamlined and consolidated to reduce costs as firms were often unclear on the usage of the various different products.

Speaking to Money Management, Matt Heine, joint managing director at Netwealth, said: “The average number is about the same as previous years but we are seeing firms buying lots of one-off products as there is so much being developed.

“A lot of products are niche or only solve one part of a problem. Advisers are buying more and more but lack a clear idea of how they are going to use it.

“These often have overlapping features or don’t

15MM260821_01-14.indd 11

integrate with their existing products so this is increasing costs and complicating their systems. The average technology cost at firms is $10,000 per employee.”

He said it was important that firms had a “roadmap” before they bought any new technology as to how it was going to be used and what they wanted it to achieve. They should also utilise a client portal to have a digital presence with clients “Firms should consolidate and reduce the number of tech products they have into those which are ‘best of breed’ for them,” Heine said.

The level of technology also increased during the lockdown as firms were forced to rely on digital communication to speak with clients.

“Young clients have always wanted to strong digital environment but now we are seeing it become the norm for pre-retirees as well,” Heine said.

“There was a real reluctance prior to the pandemic to adopt virtual meetings but they were left with no choice and the client uptake was higher than expected.

It won’t replace face-to-face but it will augment it.”

COMMONWEALTH Bank of Australia (CBA) has announced a $6 billion buyback, the largest of the big four banks so far, as it releases its fullyear results.

In a statement to the Australian Securities Exchange (ASX), the firm said the off-market buyback had been decided on based on the capital generated by strategic divestments, level of future organic capital generation, expected divestment proceeds and the size of the franking credit surplus.

These divestments, which included BoCommLife and CommInsure Life, had generated $6.2 billion since 2018, the firm said. Additional proceeds were expected from the majority sale of Colonial First State and divestment of CommInsurance General Insurance later this year.

It also noted CBA was able to adequately absorb any potential stress and had a strong capital and balance sheet position.

The buyback would be conducted by an off-market tender process which would begin for eligible shareholders on 30 August and close on 1 October.

The buyback compared to one of $2.5 billion by NAB and $1.5 billion

by ANZ. There would also be a dividend of $2.00 per share, fully franked, which brought the full-year dividend to $3.50 which the bank said represented 71% of its cash earnings.

Net profit after tax (NPAT) was $8.8 billion, up 19.7%, while operating income was $24.1 billion, up 1.7%.

Cash NPAT in the retail banking space rose 16% from $2.6 billion in the end of June 2020 to $4.8 billion.

Chief executive, Matt Comyn, said: “Looking ahead, we anticipate ongoing economic impacts and earnings pressure from lower interest rates. We will continue to invest in the business to reinforce our product offering to our retail and business customers and extend our digital leadership”.

Meanwhile, the partnership with AIA Australia for partial transfer of Commonwealth Financial Planning, which was announced at the end of July, was likely to mean a $52 million post-tax loss. This was the result of the write-down of assets to fair value less cost to sell.

18/08/2021 11:02:52 AM

12 | Money Management August 26, 2021

News

Alexis George looks to restore faith in AMP brand

BY JASSMYN GOH

AMP chief executive, Alexis George, is looking to focus on restoring faith in the AMP brand but will be prioritising the de-merger with AMP Capital first and expects 2022 to be the year of net inflows.

George said as the critical file reviews of AMP’s customer remediation program had been completed, payments to customers would accelerate during the third quarter and would largely be completed by the end of the year.

“Another key focus for me will be continuing the work on rebuilding confidence and trust in our brand, and in the culture of the organisation so all of our stakeholders, people, customers, shareholders will be proud to be associated with this iconic brand,” she said.

“There’s been a lot of important work done to reinvigorate this culture like improving our systems and reporting and putting in place a clearer performance framework.

“I want to shape and be part of a purpose led culture that’s dynamic, inclusive, accountable and customer centric. I know it’s a work in progress and it’s something that I certainly intend to lead from the front.”

George said continuing the de-merger

Antipodes seeks to exit LIC structure

BY LAURA DEW

THE Antipodes Global Investment Company (APL) has entered into a scheme of arrangement to merge with the Antipodes Global Shares fund.

In a statement to the Australian Securities Exchange (ASX), the firm said it had considered the decision for the last two years as the LIC was trading at a discount to its net tangible assets (NTA).

To avoid taking this step, it had enhanced shareholder communication, made a conditional tender offer and had an on-market buyback program but the discount had persisted.

This was the latest in a series of listed investment companies looking to exit the structure following Monash Investors moving its Monash Investors moving its Absolute Investment Company and Magellan moving its High Conviction trust.

Shareholders would be able to exchange their LIC shares for one in the Global Share fund which was an open-ended active exchange traded fund (ETF). The two funds were both global equities vehicles and had similar investment objectives.

The APL board said: “APL’s independent board committee unanimously considers the scheme to be in the best interests of APL shareholders and considers the proposal to be a straightforward and very low cost means of enabling shareholders to exit APL at close to NTA and to access the manager’s investment strategy via an ETF”.

It was expected to be implemented in early to mid-December 2021.

15MM260821_01-14.indd 12

with AMP capital was another “must-do” priority and that clarity needed to be given to clients, customers, and employees.

On its outflows within its wealth management business, AMP chief financial officer, James Georgeson, said it mainly came from the retail and corporate superannuation businesses.

“It’s really the competitiveness of those products which has been driving the outflows,” Georgeson said.

“Overall, it’s mainly in our retail super business which is the higher margin and higher priced businesses, which is why we take on tackling the big price reductions in the third quarter.

“We would be hoping for 2022 to be a year of net inflow. I think Francesco [De Ferrari; previous CEO] and I have always said over the last couple of years is that it was going to take a couple of years for the brand and sentiment teams and the transformation strategy, and that we always sort of targeted 2022 to get back to a neutral position.”

Iress acquisition inches closer IRESS has received a third non-binding and indicative (NBOI) proposal from Luxembourg-based EQT Fund Management to acquire 100% of Iress’ shares and the board intends to recommend shareholders to vote in favour of the proposal subject to due diligence.

The latest proposal was to acquire the shares via a scheme of arrangement at a revised implied value of $15.91 cash per share before franking credits, comprising cash consideration of $15.75 to be paid by EQT plus a permitted FY21 interim dividend for eligible shareholders up to $0.16 per Iress share.

The previous two proposals assumed there would be no further dividends paid by Iress or capital management prior to completion of any transaction.

Under the proposal, eligible shareholders would be entitled to receive Iress’ proposed interim FY21 dividend up to $0.16 per share, franked to the fullest extent possible.

The Iress board said it considered the proposal in the best interest of shareholders to engage further with EQT in relation to the proposal.

Iress said it agreed to grant EQT a period of 30 days to undertake its due diligence and agreed to certain exclusivity

provisions during this period.

“Iress’ directors intend, subject to the entry into a scheme implementation deed on acceptable terms, to unanimously recommend that Iress shareholders vote in favour of the proposal in the absence of a superior proposal and subject to an independent expert concluding that the proposed transaction is in the best interests of Iress shareholders,” Iress said.

The proposal was subject to a number of conditions and assumptions, including: • Due diligence, with exclusivity during the 30-day due diligence period; • No dividends or capital returns being paid by Iress prior to completion of the proposed transaction other than the proposed FY21 interim dividend; • Negotiation and execution of a scheme implementation agreement and associated board and investment committee approvals; and • Receipt of necessary regulatory approvals, including foreign investment review board approval.

“The board recommends that Iress shareholders take no action in relation to the proposal by EQT,” Iress said.

“There is no certainty that the proposal will result in an offer capable of acceptance for Iress shareholders.”

19/08/2021 9:40:36 AM

August 26, 2021 Money Management | 13

News

Lockdown lowers adviser business valuation

BY LAURA DEW

AUSTRALIAN lockdowns are likely to send a recovering financial adviser mergers and acquisition (M&A) market into reverse as owners realise the lockdown will negatively impact their business’ valuation.

The average value of a small privately-owned business was $605,079 while the number of businesses for sale had increased from 51,516 in March to 54,536 in June, according to Succession Plus. However, this was likely to have fallen since as lockdowns came into force several weeks later.

Advisers had previously complained about the lack of viable businesses for sale despite the large numbers of advisers exiting the industry in light of increased regulation and compliance as well as educational requirements.

Craig West, chief executive of Succession Plus, said: “There was more activity in June but the

likelihood of firms being able to transact in lockdown is low as banks are not lending.

“There is a risk of people being stuck, they might have put their business up for sale but, in lockdown, that’s been postponed and cancelled now or they are finding the sale price is lower than they expected.

“They might have wanted that money to fund their retirement but now they are finding they have to work longer for an indefinite amount of time.”

Some business owners were opting to retain their businesses but to cease giving advice until the economic environment was more stable but they would likely have to pay the remaining advisers extra for the work in their absence.

“Often the owner will keep the business but stop giving advice but then the other advisers want equity in the business and need to be paid differently,” West said.

“They don’t want to see the owner not giving advice and just reaping the profits.”

CBA advice remediation costs pass $1 billion COMMONWEALTH Bank of Australia (CBA) increased costs related to remediation to aligned advice by $273 million during the 2020/21 financial year.

In a statement to the Australian Securities Exchange (ASX), the bank said provisions for aligned advice remediation issues and costs increased by $273 million, including ongoing service fees charged where no service was provided.

As of 30 June, 2021, provisions had increased from $804 million at the end of June 2020 to $1 billion which included $468 million for customer fee refunds, $423 million for interest on fees subject to refunds and $127 million in costs to implement the remediation programme.

“Aligned advisers” were those who were authorised representatives at the Financial Wisdom, Count Financial and Commonwealth Financial Planning-Pathways.

These figures assumed an average refund rate across licensees of 39%, up from 37% in June 2020, and compared to a refund rate of 22% for the firm’s paid salaried advisers.

Provisions for banking and other wealth customer remediation fell from $227 million at the end of June 2020 to $159 million.

It had also made a smaller provision related to Count Financial where provisions had been increased from $252 million to $260 million. It currently had indemnity for up to $300 million to cover remediation of historical conduct and had previously been increased in May 2021.

CBA said there had also been an increase in litigation and regulation proceedings against the group with two class actions commenced during the period, bringing the total of ongoing actions to 11. This included two class actions related to financial advice, one regarding life insurance sales and one against Count Financial.

However, CBA said it was “not possible to determine the ultimate impact” or cost to the group.

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AMP Australia and AMP Capital NPAT down during 1H21

BY JASSMYN GOH

BOTH AMP’s wealth management arm and AMP Capital’s net profit after tax (NPAT) were down during the first half of the 2021 financial year compared to 1H20.

In its half-yearly results announced to the Australia Securities Exchange (ASX), AMP Australia posted an NPAT of $48 million during 1H21, down 17.2% from the previous corresponding period. Similarly, AMP Capital’s NPAT decreased 18.7% to $61 million during the same period.

The firm also confirmed the board had decided not to declare an interim 2021 dividend, and that the capital management strategy and payment of dividends would be reviewed after the completion of the demerger with AMP Capital.

On AMP Australia, the wealth management arm, AMP said its NPAT was down due to the impact of pricing, legislative changes and advice practice impairments, but partially offset by lower variable and controllable costs form cost reduction initiatives.

Assets under management

(AUM) increased 6% to $131.2 billion as it was driven by strong investment markets though earnings were impacted by pricing and legislative changes.

Its North platform AUM was up 10% to $57 billion from $51.6 billion during FY20 following a reduction in fees and ongoing expansion of managed portfolio offers.

On the AMP Capital side, its NPAT decrease was primarily from the absence of performance and transaction fees which it said varied period to period.

The announcement noted its total cost of its client remediation program for those under the inappropriate advice program would cost a total of $823 million, with $596 million representing payments to customers. This was up from the original estimate of $778 million.

It said to date, $35 million had been paid to customers, with a further $5 million offered but not yet paid. Customers had so far received $175 million in remediation under the fee-for-noservice program.

18/08/2021 11:01:05 AM

14 | Money Management August 26, 2021

InFocus

THE FUTURE OF A CONCENTRATED LIFE INSURANCE MARKET As TAL acquires Westpac Life Insurance, experts believe international ownership of life insurers is no bad thing as it will bring expertise and specialisation but a smaller market could cause innovation to wither, writes Jassmyn Goh. THE LIFE INSURANCE industry has shrunk further with TAL’s acquisition of Westpac Life Insurance and this will reduce competitive pressure and innovation, according to DEXX&R. DEXX&R managing director, Mark Kachor, said the industry had slimmed down to the big players and that incumbents would each get a larger share of the market and new business.

However, Kachor said the shrinking market was less favourable as a more concentrated market would lead to a reduction in competitive pressure and cause innovation to wither.

“Everything has shrunk down to similar underwriting engines and the underwriting process and there is no competitive pressure in the margins,” he said.

“While there used to be opportunities for advisers to arrange more favourable terms for clients with say special needs or special circumstances, a lot of that is not going to happen now because insurers know their competitors are not going to move on pricing so nor will they. That’s what happens when competition evaporates.”

Kachor also said there would not be the same amount of pressure for insurers to innovate as well.

However, TAL chief executive, Brett Clark, disagreed as he believed the retail market had a “very competitive landscape”.

WAGE GROWTH OVER THE LAST YEAR

“The sales outcomes for retail life are really dispersed across a wide range of life insurers – TAL, AIA, Zurich, OnePath, MetLife, Neos Life, PPS, and Clearview. You know, that’s a very wide selection of life insurers that advisers and customers can choose from, and I think the market will still be very competitive,” he said.

“While some traditional names are no longer there, you’ve got a whole bunch of new players entering the retail market, which I still think is giving advisers an customers a lot of choice. So, I don’t see any issues around the future competitive landscape of the retail life insurance market.

“We’ve got the changes in disability income insurance products coming up as well which is going to create more options for advisers, not less options.”

Clark said the next two months would see Westpac and TAL agree on pre-completion plans and that ownership of the business was not anticipated until the middle of 2022.

Kachor said it was likely TAL would adopt the same approach as they did with its acquisition of Asteron in 2018 which was to close new business and put it in run-off to shrink the administration and cost structure of the company.

With this latest acquisition, ClearView and NobleOak would be left as the only Australian-owned life insurers but both Kachor and

Clark viewed this in a positive light.

“Life insurers at times have been owned by larger wealth management, superannuation, and banking organisations. Now, all the key life insurers are life insurance specialists and that goes to the level of expertise and capability you need to manage a life insurance business well,” Clark said.

“Alongside that, we’ve also seen foreign capital come into the Australian market and ultimately that’s a good thing as well because there’s a real commitment to the value of life insurance for the community, and that’s well understood by specialist global life insurers.

“So, yes, they may be less Australian but there’s more specialisation expertise and depth of understanding of life insurance and I think that’s a good thing.”

Kachor agreed and said in the past when insurers were owned by banks, the businesses were always starved of capital to modernise IT and back-office operations.

“The reason being that the banks were getting a return on equity on their core retail banking activities of 15%. Now, a life company has never ever lived up to those sort of returns on equity – it might have been churning out 8%,” he said.

“So, when the life company says ‘we need to modernise our back office systems, they’re old, they’re

clunky, we want to achieve the savings that a modern system can provide’, the board’s looking at it and saying ‘why are we investing $300 million over here for a potential return of 10% when we can smarten up our banking app, and get a return in a business that’s returning 15%’.”

Kachor noted that with TAL’s Westpac acquisition, the industry would likely see fewer many mergers or acquisitions in the near future.

“I think this about cleans it up.

The other side of it is, of course, we do have some very small new entrants, like Integrity Life. I would expect they would have expectations of rapidly growing through the market share from advisers who may not be enamoured with the level of service that they’re getting out of the incumbents,” he said.

“It’s an ideal time almost as all the big competitors evaporate for small new entrants to get a foothold.

But at the end of the day, the adviser has a best interest to take into account so your product has to be equal to what they could have written somewhere else.”

1.7%

1.9%

1.3%

Australian wages

Private sector wages

Public sector wages

Source: RBA, as of June 2021

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18/08/2021 11:57:29 AM

16 | Money Management August 26, 2021

Aged care

NOT ANOTHER COMMISSION The Royal Commission into Aged Care was not directed at advisers but, Chris Dastoor writes, the outcomes have implicated how clients perceive the industry.

IN SEPTEMBER 2018, after a report from South Australia’s Independent Commissioner Against Corruption (ICAC) uncovered abuse in the aged care system, Prime Minister Scott Morrison launched the Royal Commission into Aged Care.

At the beginning of March this year, some two and a half years later, the final report of the Royal Commission was released with recommendations to improve wait times for care, as well as to improve governance and regulations.

The report was damning – it highlighted the abuse vulnerable patients suffered from staff, poor

15MM260821_16-27.indd 16

working conditions for staff and gaps in the system where care was unavailable.

However, what it failed to do was put a significant focus on the personal financial and funding aspects of the service.

AGED CARE RC OUTCOMES FOR PLANNERS Fortunately for advisers, they were less in the crosshairs than with the Hayne Royal Commission, but the media coverage of the Aged Care Royal Commission still shaped the public’s perception of aged care.

This meant advisers have had to deal with clients who might now be

having second thoughts about entering the system.

Melinda Measday, HLB Mann Judd wealth management director, said there was now more awareness of what went into aged care and this affected how clients perceived it as an option for them.

“It’s more of a considered approach to what someone’s options might be, before the Royal Commission the family may have thought an aged care facility was the best place for their relative,” Measday said.

“Now there’s just a few more conversations before that determination is reached, because

DREW MEREDITH

19/08/2021 9:42:13 AM

August 26, 2021 Money Management | 17

Aged care

perhaps we’re a little less trusting of that aged care option.”

For example, an adviser might have a client and it might be time to put her in an aged care facility, but she’s feeling hesitant and uncomfortable by the idea.

“It’s always part of the conversation: ‘oh, they don’t seem like very nice places, but what do we have?’,” Measday said.

“Every family is different and every person is different but you’re weighing up whether they are safe, comfortable and happy at home or whether they would be more safe and comfortable in aged care facility.

“It all comes down to how good the home care package is, depending on what they can afford, as well as their own state of mind and level of anxiety – it’s a very personal thing.”

However, director and adviser at Wattle Partners, Drew Meredith, said he felt the Royal Commission had little impact on the advice that financial planners were giving when it came to considering client aged care options.

“What is clear, however, is that significant change is ahead and there will be further questions about the funding and means testing of care,” Meredith said.

“It is likely this will result in greater complexity and a broader range of options being available to consumers, which ultimately will be an opportunity for financial advisers.

“Similarly, this added complexity will increase the importance of actually specialising in the sector, not just dabbling in aged care when clients need advice on it, as without this it will be difficult to add value.

“It is probably a growing

15MM260821_16-27.indd 17

“Now there’s just a few more conversations before that determination is reached, because perhaps we’re a little less trusting of that aged care option.”

– Melinda Measday, HLB Mann Judd. opportunity for specialist advisers depending on what recommendations are put into action.”

Louise Biti, Aged Care Steps director, said even though the Royal Commission had a broadranging remit, it was largely focused on people’s experiences within residential care.

“That was where it focused on and it ran out of time at the end to unpack the financial aspects in detail,” Biti said.

“The Government gave its budget update in May and that includes a significant reform agenda for aged care.

“The Government announced a five-year programme to reform the aged care system but, at this stage, there aren’t real financial planning outcomes coming from that, everything that is going to be an expenditure is being funded by the Government.”

There were no changes to consumer contributions or costs at this stage but Biti said that would only be a short-term measure.

“What the Government really needs to do is to get the system on a better legislative platform around what is the purpose and role of aged care, what service needs to be provided,” Biti said.

“They need to work with the aged care industry to address

some workforce issues, service delivery issues, and the design and structure of what is residential aged care.

“Once they have a system that people are recognising as delivering to expectations and delivering quality care, then they are going to have to address the cost issues.”

Biti said there would be a budget reform and it was her expectation that aged care would become more expensive for consumers.

“In a couple of years’ time, a budget will have a reform for what it costs consumers and that’s going to be more expensive – and it has to be more expensive – and people will be asked to contribute more,” Biti said.

“From a financial planning implication today, it’s something that we as consumers also need to take responsibility for.

“It seems to be such an attitude at the moment that it’s up to Government to fix, fund and solve, but we as consumers need to take more responsibility for our lives.”

In the meantime, however, there were still ways advisers could make their clients aware of the Government services, said Samantha Geelan, Empower Aged Care senior financial adviser/aged care specialist.

MELINDA MEASDAY

Continued on page 18

19/08/2021 9:42:18 AM

18 | Money Management August 26, 2021

Aged care

Continued from page 17 “At least it should be the case that financial advisers are letting their clients know there is Government support to keep you at home and they can get access to it a lot of quicker.”

This includes more funding for 10,000 home care packages, which the Government increased by just under $500 million in this year’s Budget. Since the 2018/19 Budget, the Government had invested $2.7 billion in 44,000 new home care packages.

“This was one of the outcomes that came from the Royal Commission, they acknowledged with home care that most of the time people reach out to get it they don’t receive it in time,” Geelan added.

FASEA REQUIREMENTS Although the Royal Commission into Aged Care had no direct impact on advice, all advisers needed to deal with the requirements from the Financial Advisers Standards and Ethics Authority (FASEA) and aged care was no exception.

Aged Care Steps released a whitepaper ‘FASEA requirements for aged care advice’ on how the new standards applied to aged care advice.

Biti said FASEA just bedded down into a codified structure what were already expected requirements.

“Even without FASEA, you’re a financial planner and you’re talking to a client about retirement and planning ahead and what does that look like, how you make your financial resources last throughout retirement and what are your expenditure needs through retirement – that’s just what

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financial planning is about,” Biti said.

“Standard six says you must consider the long-term broader interests of the client, which means if you are giving retirement advice and you don’t consider the frailty period, then you are not meeting your code of ethics requirements.”

Biti said advisers had the responsibility to upskill to the level that was required for the level of advice they were giving.

“This doesn’t mean every single adviser needs to become an expert, but every single adviser needs to have a reasonable level of understanding and awareness.

“They need to make a decision about whether they want to go beyond that and start to build up the competency to give the advice and what level of education they need.

“Or whether they’re going to create a partnership with somebody else who is the expert that you refer to them to.”

Measday said her firm had opted to enter into an arrangement with an estate planner several years ago who was able to handle those specialist responsibilities for their clients.

“Bringing him into our team enable us to open the conversation about whether a client has enduring power of attorney (EPOA) set up and medical guardianship.

“A lot of clients took up the offer

of meeting them and updating their wills and EPOA – that has remained a big part of the conversation and has opened up conversations about the frailty years.”

Under FASEA, Meredith added, financial advisers were also required to consider the broader interests of their clients which meant identifying the risks and potential for aged care needs well ahead of when they may be required.

“It means advisers can’t really just ignore this as a potential issue going forward and need to either educate themselves or find specialists they can refer to.”

However, while the FASEA requirements had led to more interest in providing aged care advice, it could still prove problematic as many advisers lacked suitable expertise or appropriate training in the subject.

“Standard six says you need to put your clients’ best interest first, but one of the unfortunate aspects of it not acknowledging that is an area of expertise outside the standard scope of financial planning,” said Geelan.

“They need to get that additional training and treat it in the same sort of area of speciality like with UK pension transfers.

“It isn’t for the faint-hearted, there’s a whole area of expertise and emotional component you need to understand as well.”

LOUISE BITI

19/08/2021 9:42:32 AM

August 26, 2021 Money Management | 19

Aged care

THREE STAGES OF RETIREMENT ACTIVE PHASE – No aged care needs • You are in retirement ticking off your bucket list • Socialising/travel and hanging out with the grandkids • The period where there are no disabilities holding back what you choose to do • Roughly about half of retirement

QUIET YEARS – Starting to slow down • A disability of physical or mental frailty emerges • Quality of lifestyle still important, even though not as active • Activities done at a slower pace • Some support required for day to day living to continue to maintain independence • Around 25% to 30% of retirement

In the pre-retirement, active and quiet years, it was important that clients and their advisers started planning. This meant planning for three stages: the active phase, the quiet years and the frailty years.

Aged care was primarily needed for the frailty years – when people needed the most support – but it was important to have these conversations with clients as early as possible in the advice process.

“It’s a normal financial planning concept – having conversations with clients to collect facts, both financial and personal facts,” Biti said.

“Understanding the person and then helping them understand what their choices are going to be when the transition points come.

“Financial planners should be starting to have those conversations and mapping retirement out – not as one homogenous period – but as three phases.

“They need to have conversations with the client about what is most important to them to be able maintain throughout that period – what would and wouldn’t they sacrifice?

“Then it’s about the decisions about where they live.

The house needs to come into the conversation as a resource.”

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FRAILTY PHASE – Aged care needs emerge • A disability (either physical or cognitive) prevents complete independence without support • Around 15% to 25% of retirement

Even from the early stages, Measday stressed the important of having an enduring power of attorney (EPOA) and medical guardian set up.

“That way there is someone that can step in and make decisions if they can no longer make decisions themselves,” Measday said.

“It’s never nice to think about when you get to the stage where you are unable to make complex financial decisions or simple ones, so it’s important to have someone set up that’s trustworthy that can step in for you at some point.

“In my experience, it’s more successful when a parent can start handing over financial reins to one of their children while they’re still able and capable of doing that.

“It’s an easier transition for us as financial planners to get know and deal with the next generation, rather than doing that after there’s some health crisis.”

Measday said, in her experience, she had mostly been helping older generations not with losing capacity but more of a “twilight period”.

“In the morning, they might be okay, but in the afternoon they might not be –it’s not so black and white,” Measday said.

19/08/2021 9:42:39 AM

20 | Money Management August 26, 2021

Investment

IS THERE STILL A PLACE FOR LICS? Last year’s volatility has prompted several listed investment vehicles to move away from the structure but firms operating them say there are still benefits, writes Laura Dew. WHEN IT COMES to launching an investment vehicle, the closedended structure of listed investment companies and trusts (LIC/LITs) has a storied history of over 100 years.

Offering firms the option to list their vehicle as a company or a trust on the stockmarket, they are a way for them to raise money via an initial public offering (IPO) and then trade on the public market like a stock.

For decades, this has allowed firms to run strategies with a longer time period, to trade at a premium or discount and pay dividends to shareholders.

But it seems like the tide is turning for these strategies as, in the past six months, Magellan, Antipodes and Monash have all opted to exit the closed-ended structure in favour of an openended option.

Magellan is seeking to transition its Magellan High Conviction trust to an active exchange traded fund (ETF), Antipodes is looking to merge its Global Investment Company (APL) into its open-ended Global fund, and Monash moved its Absolute Investment Company into an exchange traded managed fund (ETMF) earlier this year.

For all three vehicles, they said the decision had been taken as it had been a struggle to close the discount that developed on the products despite repeated efforts and that a move was in the interest of the clients.

PROBLEMS WITH LIC/LITS The main problems cited by the firms were the inability to close the discount and the liquidity.

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Unlike open-ended vehicles, liquidity in LIC/LITs is fuelled by existing shareholders buying and selling shares and it dried up during the market volatility surrounding COVID-19 last year. Smaller LIC/LITs or those in a niche area would likely have less liquidity and this meant investors could be unable to sell at the price they would like.

Meanwhile, trading at a discount to net tangible assets (NTA) occurred when the trust or company was unable to raise capital and growth was stunted. This could be caused by a variety of factors such as poor performance, lack of dividends or insufficient communication with shareholders.

A persistent discount indicated the strategy was out of favour with investors and, again, made it difficult for investors to sell at their desired price.

Craig Wright, head of governance and advisory at Magellan, said people had been selling units in its High Conviction Trust in light of last year’s market volatility which meant there was more supply available than demand.

“Because of COVID-19, people were selling because of the volatility and there was more demand than supply so the discount never bounced back,” Wright said.

“We listed in 2019 and then it suffered issues because of COVID19 which knocked confidence and it went to a large discount. We were worried about this perpetuating and investors thinking the discount would never go away.”

Monash director, Simon Shields, said the firm had realised it was a mistake to opt for the LIC structure

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August 26, 2021 Money Management | 21

Investment Strap

two years after it listed in 2016 as the vehicle was trading at a discount.

“Within two years after listing, we felt it reflected badly on us as portfolio managers,” Shields said.

“We had come from established fund managers and we felt it was besmirching to be running an LIC that was trading at a discount.”

Other risks of LIC/LITs, according to the Australian Securities Exchange (ASX), included manager risks, regulatory or tax risks which might affect its tax treatment or share value, foreign investment risk, derivatives risk or fund-specific risk if the LIC/ LIT used borrowing or leverage.

Angus Gluskie, chair of the Listed Investment Company and Trusts Association (LICAT) said there were numerous options available for companies and trusts trying to close the discount.

Reasons, he said, for firms encountering problems with a persistent discount included the general ebb and flow of the market, if an asset class was out of favour, if the management costs were too high or if it was unable to attract new investors.

“If the discount is due to cyclical factors or market movement then investors need to be able to digest that and it can present opportunities for investors to buy shares cheaply,” Gluskie said.

“But if there is a large discount then it is important to resolve that.

They need to work out why there is this mismatch, look at the cause of that and how they can remediate it.

This could be to buyback stock, provide capital returns or improve their shareholder communication.”

But firms say they tried multiple options to no avail.

For Antipodes, an ASX statement said the company tried an on-market buyback offer, among various options.

“APL’s board has over the past

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two plus years been actively considering a range of options to address the unacceptable position of the APL share price trading at a discount to its NTA,” it said.

“Initiatives undertaken included an accelerated on-market buyback programme, enhanced shareholder communication and a conditional tender offer approved by shareholders in November 2020 Nevertheless, the discount has persisted.”

This was echoed by Wright who said Magellan had enacted regular shareholder communication, more frequently than was required by the ASX, to help them understand its value as well give them certainty about distributions.

Gluskie said: “If it is a permanent mismatch then they will need a permanent solution where another company takes it over, they merge with another or they wind it up or return the capital to shareholders”.

However, even once the decision had been taken to change the structure, this was not necessarily easy to action for a company as Monash said it took the firm three years to change its structure, although this was partly delayed due to a regulatory review by the Australian Securities and Investments Commission (ASIC).

For trusts, as in the Magellan High Conviction Trust, Wright said the process was simpler and expected to take around two months.

“The board took the view that it was in the interest of shareholders to transition the trust to an openended vehicle which would reduce the discount. Moving from a LIT to an ETF was easy as we just delist the LIT and re-list it as an ETF.” Since transitioning, Shields said Monash felt it had been a good move which had contributed positively to its clients.

“It has been a really good move, we had various aims which was to remove the discount, solve the liquidity issue and pay a quarterly distribution of 1.5%,” Shields said.

“The big problem we wanted to solve was the discount relative to the NTA and the challenge of liquidity which was putting people off and these have been fixed. The distribution was something we were thinking about doing but it wasn’t the main reason.”

“We were worried about this perpetuating and investors thinking the discount would never go away.”

IS LIC/LIT STILL A VIABLE STRUCTURE?

Wright said he still thought LIC/LITs were a good vehicle as they provided access to strategies that would not normally be accessible but firms needed to consider if they were appropriate for their chosen strategy.

Gluskie acknowledged there had been a downturn in the number of LIC/LITs launched in the last three years but attributed this to the unusual COVID-19 market conditions and the political debate about franking credits which occurred in the last Federal election.

The sector was $58 billion in size at the end of June 2021, and $36 billion of this was invested in Australian equities and $16.5 billion in global equities. The remainder was held in fixed income LIC/LITs. But, according to BetaShares, since the abolition of commission paid to brokers by LIC sponsors in May 2020, there had been a net reduction of 10 LICs a year later and the firm said this was indicative of growth being tied to broker remuneration.

Shields said: “LICs were the old way of doing things, they tended to be pushed by stockbrokers who would get fees from the IPOs. “I don’t think we will see the market go back to them, I wonder why people would run funds in any other way [to open-ended].”

Having been around since the 1900s, LIC/LITs had an esteemed history and the largest one, The Australian Foundation Investment Company, had been around since 1928 and had over $9 billion in assets under management.

Gluskie said LIC/LITs had their benefits but were unsuitable for investors with short-term time horizons, firms operating niche strategies or unstable investment strategies as this could result in dramatic shifts in buying or selling.

“Firms have to assess if a LIC/ LIT is appropriate for that asset or the investor they are targeting, it is important to choose the right structure and maybe it was the wrong one for those which have now converted,” he said.

“If you have a long-term mindset then it can create opportunities for investors.

“Companies should have that longevity to be able to understand the liquidity mismatch and need to be prepared to run with that.”

Adam Myers, head of distribution at Pengana, said the firm was happy with its International Equities LIC. “We are very satisfied with the structure and have not had any unhappiness, it has been good for our investors.”

– Craig Wright, Magellan

18/08/2021 10:56:37 AM

22 | Money Management August 26, 2021

Financial planning

ENRICHING THE ENRICHER

The biggest concern from advisers is that they are no longer able to do what they love but there is still room in the industry for innovation and renewed purpose, Jodie Blackledge writes.

DAY IN AND day out, Australian advisers enrich the lives of their clients. But who is enriching the enricher?

We live in a time of enormous industry flux: heightened regulation, increased consumer expectations and the exit of institutional owners of advice brands has created a moment in history to pause and reflect on the future for quality financial advice in Australia.

The complex array of issues facing advisers has taken a toll. In 2021, we see fewer adviser numbers, greater compliance, more headaches, stress and difficult decisions about the purpose and

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future for those who strive to add value to the experience and wellbeing of their clients.

The challenges facing advisers are obvious in the daily headlines of industry media, describing the difficulties facing today’s adviser, much of it a compliance burden.

In conjunction with the stress and practical impacts of meeting the requirements of a professional exam testing higher education and ethical standards, there are additional pressures.

Do I still love what I do? If not, what is my go-forward operating model? Do I have a succession plan? Is self-licensing the right

choice for me? Do I have the right technology in place? Choosing to enter the profession as a young adviser, am I sustainably equipped and well-supported to continue my quality advice proposition well into the future?

It is incumbent upon advice leaders to think about these issues, resolve them for our own network and clients, but also to consider how the broader advice sector is faring in these days of flux and stress.

Life enrichment is part of our DNA, so the following is offered to encourage all advisers, so they in turn can continue enriching the lives of their clients.

LET’S GET BACK TO OUR WHY? Do advisers today still love what they do? Are they living their best life doing it?

While the source of current stress derives largely from increased regulation, the challenge ahead for sustainable quality advice in Australia is not about being a compliance factory. Nor is it just about deploying the smartest customer relationship management (CRM) technology or the best paraplanning solution.

The greatest challenge is finding the most sustainable way for genuine advisers to ‘self-help’. In

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August 26, 2021 Money Management | 23

Financial planning other words, chart a course back to the motivations that made them become an adviser in the first place.

Client care, quality advice, being the central influencer in the wellbeing of families and businesspeople who come to you for wise life counsel, goal setting and financial acumen.

Call it a mindset shift, but we need to offset the ‘compliancefactory’ thinking in order to re-charge how we feel about advice and the advisers that have toughed out the ever-expanding trials of regulation. To move from an introspective point of view to an outward perspective is needed to imagine how our vital profession will thrive.

It’s not all negative.

Opportunity is abundant, brought about by the industry’s current challenges, and the impressive examples of innovation and ‘thinking outside the square’ that prevail. I believe we should remind ourselves about the power of the alignment of core values, directed by the purpose of advice and reconnecting with the essential driver of why I am here serving the client and loving what I do.

Speaking recently with practitioners from the wider financial advice profession, the biggest concern I hear is that advisers are simply no longer able to do what they love.

This is a circumstance we hear all too often speaking with advisers looking to make a change, seek some clarity and find their ‘tribe’. I am privileged to have detailed conversations with advisers who approach our firm as they vet their licensing and commercial model options. Usually, the conversation is not about hard economics. It is almost always about reconnecting with the core of why it is he or she chose to become a trusted financial adviser in the first place.

For example, an adviser who recently partnered with Fitzpatricks decided to come on board from an institutional license as this allowed him the opportunity for renewal. It has helped him bring to life a business that is run the way he wants it to, setting his own fee-for-service basis and deciding exactly the type of higher net wealth clients he will serve.

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Our job as partner to advisers is to facilitate the alignment of his purpose with the appropriate support structures. Providing the technological tools, allowing for compliant advice to clients, enabling his participation as part of a community of like-minded professionals who collaborate and share intellectual property. True enrichment and sustainable practice are the goals here and identifying that vision does not always start with a conversation about commercial terms.

INNOVATION AND CLEAR AIR Adding to the greater regulatory imposts in our sector are the practical issues experienced across the industry. These include the cessation of product rebates and commissions, unbundling of pre-existing distribution business models, and the last resort succession models… the list of structural industry issues goes on.

The result is that many advisers find themselves at a practical stalemate.

Surely these practical constraints provide a golden opportunity for genuine innovation and better technology solutions to rise? Australians seek more quality financial advice, not less.

But with less advisers to serve, the opportunities for the advice sector currently are profound.

However, to slip back into the ‘compliance factory’ mindset would be an opportunity lost.

With a newfound professional landscape opening, the opportunity for innovative thinking and digital technology to act as an enabler, not a rigid internal compliance or commission tracker, is ahead of us.

For advisers to get back to the heart of what they do, to enrich the lives of their clients, it is crucial they are equipped with the required tools. Employing business models in the backend that engage with this purpose-led value proposition, smartly facilitated by technology mechanisms to deliver great outcomes.

This comes to life by harnessing technology through partnerships that support the

enrichment of client’s lives through clarity and efficiency.

Seeing the advice (not product) process streamlined, removing complexity to deliver a compliant client experience, not a compliance experience imposed on a client.

We are seeing positive movement towards this goal in the broader financial services sector.

Bigger industry players who traditionally employed a one-sizefits-all, tied-agency approach to advice delivery to its customers, now unveiling a re-jigged ‘back to the future’ business model allowing advisers the opportunity to be self-licensed and to own the client relationship.

It may have taken decades to catch up, but these shifts are a welcome development to refocus on the client at the forefront of their activities and best interest duty.

CHOICE AND DIVERSITY ARE OUR STRENGTHS Placing choice back into the hands of the adviser through the provision of flexible business models is an integral part of the re-think required. Attracting those who value the role of being a family chief financial officer – what our firm calls the lead-adviser role – is about offering the choice for an adviser to take on that clientcentric place of trust.

We talk often of examples where advisers ‘conduct the orchestra’ on behalf of clients, engaging other specialists and services with a best of breed ethos to get the job of enrichment done well.

Diversity is vital. It is not just a question of gender diversity, it spans a wide spectrum of human experience, ethnicity, religion, and other life factors. But I want to pause on this point and discuss the importance of gender representation in our profession.

This discussion is perhaps overdue, and, whilst I see some promising green shoots, I believe it is vital that our re-imagined profession has a healthy perspective on the value that a more balanced gender representation brings.

I get asked often: How do we attract more women to advice? It is an excellent question, and the truth

JODIE BLACKLEDGE

is I can already see in our network the emergence of a strong female adviser cohort, offering specialised advice to clients who seek a female adviser from a profession where women are traditionally underrepresented.

A wonderful example is a fabulous cohort of women within Fitzpatricks’ – they fondly refer to themselves as the “Fitzpatricia’s”.

This is an organic alignment from a group of professional females – supporting each other as they strive to provide specialised advice and client enrichment. It is also another fine example of advisers getting back to what they love. Encouraging purpose, growth, and collaboration through the sharing of ideas and inspiration.

THE CHALLENGE FOR US ALL The opportunity today is to look within and define what the future looks like for quality advice in Australia. The mindshift we encourage is akin to self-care. How do I get back to being the adviser I want to be, doing what I love and living my best life?

The entire sector operates within a framework of imposed controls, standards, and regulatory obligations.

But it does not mean there is no room for innovation, renewed purpose, greater choice, and diversity to help our sector to selfdirect what the future profession of financial advice looks like and is valued by clients.

Above all, to create a profession that acts to truly enrich those who do the work of life enrichment every day.

Jodie Blackledge is chief executive of Fitzpatricks' Financial Group.

18/08/2021 10:54:46 AM

24 | Money Management August 26, 2021

Insurance

THE ARGUMENT FOR REMUTUALISING AUSTRALIA Demutualisation of insurers has led to a destruction of value, writes Michael Pillemer, so remutualising could be a valid idea to rebuild consumer trust.

AS THE LAST of the big four banks to offload its underperforming life insurance operations, the recent Westpac sale to TAL follows NAB (sold to Nippon Life), Commonwealth Bank (sold to AIA), and ANZ (sold to Zurich) in learning some hard lessons about the inverse nature of Milton Friedman’s ‘shareholder theory’ economic orthodoxy.

As a 20-year-old economics major, I was captivated by the simplicity of Friedman’s thinking which held that a company’s sole responsibility was to increase profits for shareholders.

Friedman contended that in a free market, pursuing shareholder outcomes would optimise goods and services, maximise employment and create wealth for deployment back into the economy. His theory gained widespread support in the 1980s and 1990s as it was adopted by

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business schools and management consultants alike.

The problem for banks and their shareholder models is that they are not natural owners of life insurance companies.

Even before the reputational fallout from the Adele Fergusoninspired Four Corners programme ‘Money for Nothing’ in 2016 and the Hayne Royal Commission in 2019, the banks were looking to offload their life operations. This was because they required huge amounts of capital and were also dragging down the banks’ ability to meet their return on equity hurdles.

Perhaps the banks’ directors might have considered alternative economic theories. Not long after Friedman’s shareholder primacy model, American philosopher Edward Freeman put forward his ‘stakeholder’ approach. This model promoted the idea that a company’s

responsibilities were to society and should be driven by purpose, values, and ethics – rather than just profits.

WHAT WENT WRONG? In the 2000s Friedman’s shareholder primacy theory started to face criticism. The final recommendations of the Hayne Royal Commission criticised many financial services companies for elevating the desire to make profits as their primary goal.

In the words of Kenneth Hayne’s Interim Report: “Financial Services entities recognised that they sold services and products.

Selling became their focus of attention. Too often it [profit maximisation and sales] became the sole focus of attention.”

In a Forbes magazine article this year, former director of the World Bank, Steve Denning, argues that requiring companies to satisfy the needs of all stakeholders is

doomed to failure because of the lack of clarity of purpose and conflicting stakeholder goals.

According to Denning, there was always a better alternative to Friedman’s shareholder primacy theory – and it was not stakeholder theory or environmental, social or governance (ESG) – but rather Peter Drucker’s dictum of ‘customer primacy’.

Drucker, who is considered to be the father of modern management, contended the purpose of a company is to serve its customers.

Denning argues that this is even more relevant today with a strenuously competitive marketplace and new technologies.

Can you imagine a world where companies operate within the context of a capitalist/free market economy but where their primary purpose is to serve the customer?

How novel would that be?

Not so novel, it already exists.

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August 26, 2021 Money Management | 25

Insurance THE MUTUAL MODEL Mutual and co-operative companies are owned by their customers with ‘customer primacy’ built into their constitutions. These companies do not have shareholders, so the many conflicts of interest that pervade shareholder-owned companies do not exist.

Some of the world’s oldest insurance companies are mutuals and this longevity has helped to build the reputation of the mutual model for being both sustainable and reliable. This is because mutuals look after policyholder interests first by providing products which cater to their needs, rather than selling products solely with profit in mind.

Profits earned by a mutual insurance company are distributed back to policyholders in the form of lower premiums or profit distributions. This mutual ownership structure, rather than public ownership, encourages mutuals to make decisions that deliver longterm benefits to their members.

Mutuality delivers a strong foundation on which to offer life insurance products because of the long-term nature of policy coverage.

In contrast, shareholder companies encourage decision-making that delivers short-term benefits to shareholders over the longer-term needs of policyholders.

In the 10-year period following the Global Financial Crisis (GFC), global mutual life businesses performed strongly growing by 23% compared to 7% for the total life insurance industry. As a result, mutual life companies account for 22.5% of the total global life insurance market.

Until they demutualised in the 1990s, almost all the large life insurers in Australia were mutuals.

Today, PPS Mutual is the only life insurance provider left in Australia who offer life insurance products with a profit share and distribute the profits to its members.

DEMUTUALISATION AND THE DESTRUCTION OF VALUE Demutualising had negative consequences for the life insurance ‘ecosystem’ in Australia. Most of the scandals involving life insurance in

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the Hayne Royal Commission can be traced back to two key developments: the demutualisation of life insurers in the 1990s and the introduction of the verticallyintegrated bancassurance model around the same time.

The banks failed to understand the long-term nature of profit emergence or life insurance distribution. People need banks and banks become used to being in a power relationship with their customers.

Prominent examples of the banks’ lack of understanding and complacency in relation to the distribution of life insurance products include the limited approved product list’s (APL’s), volume bonuses to win business from non-aligned advisers and offering high front-loaded discounts.

AMP, which celebrated another new chief executive recently, is another example. The experience of AMP (once the mighty Australian Mutual Provident Society) highlights that public listing and demutualising results in the customer’s best interests no longer being the key focus.

Demutualisation involves the interests of ‘members’ as owners being separated from their contractual interests as policyholders.

When AMP demutualised in 1998, its shares were listed on the Australian and New Zealand stock exchanges at $36 and in the excitement of the day, spiked at $45.

Today they are trading at $1.08.

Even though AMP has returned capital and paid dividends along the way, the destruction of value has been enormous.

Fortunately, we have come full circle with the ill-conceived bancassurance model. The big four banks have all but divested their life insurance and financial advice operations, with the Australian Securities and Investments Commission (ASIC) remediation process for customers attesting to the misalignment of shareholder and customer interests and the poor outcomes for customers.

It is a positive development that the life operations of the big banks (including BT Life which will soon

“There has never been a more important time to work towards building a strong and sustainable life insurance industry for all Australians.”

– Michael Pillemer be in the hands of TAL) are now owned by other insurers.

Consumers, advisers, the new insurer owners, the banks themselves and the financial services industry should benefit.

2021 – WHAT STILL NEEDS TO BE ADDRESSED? Firstly, insurers need to start treating their existing loyal clients as well as their new clients. They should start by passing back premium reductions to existing customers not just new customers. If the industry can become more customer-centric, there is the opportunity for sustainable growth.

Secondly, insurers also need to ensure that they develop products which are both affordable and sustainable. It is an indictment on the industry that the Australian Prudential Regulation Authority (APRA) had to intervene in the design and pricing of individual disability income insurance (IDII) products due to first-mover reluctance on the part of insurers.

Let’s not allow a similar situation to develop because insurers continue to chase market share by taking short-cuts in managing the quality of their risk pools.

Thirdly, insurers should look to improve customer retention by increasing premiums in smaller increments across a longer span of time. Short-sighted insurer practices like front-loaded discounts in conjunction with dramatic one-off premium increases are contributing to high lapse rates and unsustainability.

Lastly, the industry needs to build confidence, trust, and a viable adviser network.

Advisers are under significant margin pressure with reductions to commissions and huge red tape and compliance obligations. The way

advisers have adjusted their businesses to these industry challenges and COVID-19 is a testament to their resilience.

While I have no doubt that most professional advisers will ‘stand the test of time’, insurers must throw their full support behind the advice community (as they have done in supporting the ability for clients to choose how they pay for their life insurance advice as part of the 2022 Treasury ‘Quality of Advice’ Review).

At the end of the day, advisers are the bedrock of the life insurance industry.

WINDING THE CLOCK BACK TO THE FUTURE I believe there is an opportunity for shareholder life insurers to learn from the ‘customer primacy’ model of mutuals. The industry needs to eschew those dubious practices that are leading to high lapse rates and unsustainable pricing. There has never been a more important time to work towards building a strong and sustainable life insurance industry for all Australians.

Taking this one step further, it’s by no means unprecedented or impractical for insurers to consider going ‘back to the future’ and re-mutualising. Most changes in structure of this kind require the support of an existing mutual organisation but this would not necessarily be out of reach, with both MLC Life Insurance parent company Nippon Life and TAL owner Dai-Ichi Life operating as mutuals in their home of Japan.

Remutualisation may be a long shot worth considering for many of Australia’s largest financial institutions that are facing a crossroads in their business model and a deficit of public trust.

Michael Pillemer is chief executive of PPS Mutual.

19/08/2021 9:43:22 AM

26 | Money Management August 26, 2021

Equities

THE DANGER OF ‘THIS TIME IT’S DIFFERENT’ Investors may be using the pandemic to find the next FAANG, writes James Williamson, but history shows this period is only the latest cycle.

AT A 1998 Federal Reserve board of governors meeting held to post-mortem the corpse of Long Term Capital Management, a trader in attendance commented that “more money has been lost because of four words than at the point of a gun. Those words are ‘this time is different’“.

These words seem very apt in the current environment.

Australian investors are looking at stockmarkets at extremely elevated levels that have provided investors with years of historically aboveaverage returns. There has also been a long period where, unusually from a historical perspective, growth stocks have outperformed value stocks.

Perhaps unsurprisingly, investors – particularly those who have only been investing for a decade or so – feel pretty much invincible after so many years of outstanding returns. There is a strong sense that this time, it is different – that markets will continue to perform well from their current elevated levels, and

growth stocks will continue to outperform value stocks.

As value investors we know that straying from the fundamentals of sensible valuation rarely ends well and that eventually, inevitably, this time will not be different.

WHAT DOES PAST PERFORMANCE TELL US? We are all very familiar with those disclaimers advising that past performance should not be relied on as an indicator of future performance. However, what they should really say is that past performance over long periods is in fact a great indicator of future performance, while performance over the short-term is not.

Just because markets have been on a growth tear for the past 10 years, this doesn’t mean that it won’t come to an end. Despite the best efforts of those who try to convince investors that “this time it is different”, or that “markets have fundamentally changed” – a glance at history will show this is not the case.

The truth is, there has always

Chart 1: Value investing outperformance over time (US)

Source: Kenneth R. French

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Equities Strap

been significant reward for those who had luck or skill and got in early with the gamechangers of any generation (think Nifty 50, Bell or the Argentinian railroads).

Likewise, anyone who says that value investing is dead, and long live growth investing, needs to look further back than the last 10 or so years of history.

Fortunately, there is a century of stockmarket data to study.

Over very long periods of time, research suggests value investing strategies outperform growth strategies by a substantial margin.

As can be seen from Chart 1, a balanced value strategy in the United States, defined as 50% small and 50% large-cap equities, would have made your investment 50 times more valuable than a balanced growth strategy since 1926. Intuitively this makes sense – if you maintain the discipline of buying low and selling high, you should be rewarded handsomely over the long-term.

However, the past 12 years have been very different. Growth strategies have outperformed value by some margin across global markets, boosted by the low interest rate environment and trillions of dollars in government stimulus packages that have helped balloon valuations of growth and loss-making companies.

HISTORY OF VALUE Value investing to us means investing in companies that we believe are trading below their intrinsic value – our assessment of what the company is worth.

Our valuations focus on the present value of the cashflows we expect from a stock after capital expenditure and working capital requirements. It is important to a value investor that a target company can grow its cashflows over time. We also consider the support tangible assets provide to our valuation and ensure we are satisfied with the quality of management and the durability of the intangible assets such as brands. A tangible asset backing may also provide a level of downside protection, which is also important to a value investor.

As value investors, we attempt to buy stocks with growth potential at a reasonable price.

Growth is an essential requirement for us, we just won’t overpay for it.

It’s also important to note that a particular stock does not stay a ‘value’ or ‘growth’ stock forever, and sometimes stocks are held by both value and growth investors at the same time. A stock may also be a value or a growth stock at different times in its lifecycle.

As an example, in Chart 2, between 2013 and 2017, Apple was

Chart 2: P/E ratio of Apple Inc

held in both value and growth fund portfolios. However, from 2019, and particularly since the onset of COVID-19 in 2020, Apple has posted solid earnings growth and, importantly, investor expectations for future strong growth have increased considerably. Although the base business of Apple is still very similar to pre-COVID days, those strong investor expectations have resulted in Apple trading on a significantly higher price earning multiple and therefore most value funds would no longer be investors in the stock.

“We know that straying from the fundamentals of sensible valuation rarely ends well and that eventually, inevitably, this time will not be different.”

INTEREST RATE IMPACT

A lot of investors are trying to find the next Tesla or FAANG stock as they read and hear of stories of people making vast fortunes in a short amount of time. In this context, the salesdriven stories of brokers and market commentators sound very convincing when seemingly everybody is making easy money.

Some companies are tapping into this sentiment and selling investors stories that are too good to be true and may even ultimately lead to a permanent loss of capital.

Investors should be aware that historically, each time the anomaly of growth outperforming value strategies has occurred, it has been followed by a market crash. The only thing unique about the situation we are in now is the length of time that growth investing has outperformed.

We are already seeing some ominous signs of a top-heavy market. When some form of reversal happens, portfolios with allocations to value, and particularly small-cap value, will most likely outperform again and growth stocks will come crashing back to reality.

A glance back at history provides some context - that growth strategies tend to outperform in a decreasing interest rate environment. So, while the environment of low interest rates may be good for growth and lossmaking companies for now, this will likely change once interest rates rise.

It is uncertain how long interest rates will remain low, but rates will rise at some point and many growth companies will be caught out, particularly if they are loss-making with already meaningful debt levels that will necessitate continually tapping the public markets for further capital to survive. On the other side of the spectrum, the stock prices of popular defensive stocks, so-called blue chips, trading on all-time high margins and earnings multiples, are also at risk from rising rates as investors are likely to demand higher earnings and dividend yields.

SO IS THIS TIME DIFFERENT?

Source: Factset

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Most concerningly to us, we believe that investors have become complacent and are taking on more and more risks by investing in loss-making entities with popular growth narratives.

– James Williamson

James Williamson is co-founder of Wentworth Williamson Management.

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28 | Money Management August 26, 2021

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THE PROTECTION EQUATION

Traditional sources of safety and protection for capital have been turned on their heads and Tim Dowling finds how advisers can help safeguard retirement portfolios in a low-yield world.

AS THE MEMORY of a retirement funded by a 'risk-free' investment in bank term deposits fades into history, the current generation of retirees must come to grips with the challenge of maintaining income over a much longer retirement period than the generations before them.

And as advisers know all too well, in the context of delivering sound (and safe) retirement outcomes, with interest rates close to zero, traditional sources of safety and protection for capital have been turned on their heads.

INVESTMENT OF FIRST OR LAST RESORT? It's no secret that since the Global Financial Crisis (GFC) – and in a trend accelerated by COVID-19 economic policies – returns on the once income-investment-offirst-resort, term deposits have fallen by 96% (Chart 1).

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In practical terms, that has seen annual term deposit income on a capital base of, say, $1.25 million fall from over $100,000 down to just $3,750 at current rates.

There is no doubt that advisers have been forced to seek income from riskier assets such as equities and bonds – asset classes that have both benefited in the era of falling discount rates.

But as well as taking on greater drawdown danger (sequencing risk) from an increased weighting to equities, retiree portfolios balanced with higher passive bond exposures are worth looking into, having accrued the less wellappreciated interest rate risk.

DURATION (PASSIVELY) CREEPING Fixed income indices, which many investors have exposure to, have seen average duration – the sensitivity of a bond to a change in

interest rates – spike since the GFC while yields have plummeted.

For example, the Australian Composite Bond Index (Chart 2) saw average yields fall 86% post the GFC, while duration roughly doubled from three years in the pre-crisis period to six years today.

The incremental rise in bond index duration since 2009, sparked by a mix of macro- and microeconomic factors, has effectively doubled the risk of capital loss from interest rate rises.

In this scenario, those with active fixed income exposure, will be benefitting from adjusted risk factor exposures. But for the ~$10 billion sitting in traditional passive bond exposures, the picture is likely one of high-duration interest rate risks and paltry yields.

Before the GFC when duration in the average fixed income benchmark stood at three years, a 1% increase in interest rates would

create a capital loss of 3% in a bond portfolio.

Now, under the current average bond index duration of six years, the same 1% rate rise would lead to a capital loss of 6%.

Clearly, an outcome that could surprise many retirees.

HIGH STAKES HUNT FOR YIELD This conundrum of low-interest rates means retirement portfolios could benefit from a higher portfolio allocation to shares and other risk assets.

Theoretically, advisers could simply up weight portfolio exposure to higher-yielding defensive assets in the hunt for more attractive returns. Or, to equities, to capture the well-demonstrated superior long-term returns available from the asset class.

But the reality is the defensive qualities of these higher-yielding

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Chart 1: One year term deposit rates before inflation

Source: Reserve Bank of Australia 'Retail deposit and investment rates; Banks term deposits ($10,000)'

'defensive assets' can often be questioned in times of market correction.

And the downside of an equities-heavy retirement portfolio, of course, is the higher drawdown risk that can decimate retiree funds while leaving them little time to recover (sequencing risk). Many retirees may also lack the risk tolerance (extreme loss aversion) or time required to ride out market downtimes.

In practical terms, we know that when retirees are faced with riskier assets, they'll adjust their spending or downgrade their living standards, unnecessarily preserving too much of their capital.

BUCKETING DOWN: TRADITIONAL RETIREE INCOME STRATEGY Many financial advisers have adopted the ‘bucketing’ strategy to manage financial risks in retirement – namely sequencing and longevity – in a portfolio design that essentially allocates funds to three separate asset classes usually designated as

cash, defensive (bonds) and growth (equities).

Depending on the risk profile and goals of the retiree client, advisers would allocate more or less to each ‘bucket’ (Chart 3).

The cash bucket, for instance, can help offset sequencing risk by covering a few years of anticipated retiree spending requirements, reducing the need to sell down growth assets in the event of a market slump. Cash buckets typically centre on a portfolio of term deposits and at-call money in a 'liquidity ladder' designed to ratchet the most income from the asset class.

Meanwhile, advisers would put the remaining retirement portfolio in a mixture of bonds (for the defensive component) and equities (to drive the growth necessary to fund a retirement period of 30 years or more).

In the case of, for example, a new retiree client with a ‘balanced’ risk profile and $1 million of superannuation savings to invest, the standard bucket investment strategy would go something like:

Chart 3: Standard bucketing approach

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Chart 2: Duration risk has doubled

Source: Bloomberg AusBond Composite 0+ Yr Index. Yield is the mid yield to maturity.

Duration is modified duration. Modified duration increased 94% between July 2008 and November 2020

Table 1: Bucketing approach – defensive allocation

Bucket

Allocation

Assets

Expected return

Earnings

Cash

3 years of income in liquidity ladder

$180,000

0.30%

$540

Defensive

Remainder of defensive budget

$220,000

1.50%

$3,300

$400,000

0.96%

$3,840

Total

Source: Defensive return as per Blackrock Capital Market Assumptions December 2020. Cash return as per Reserve Bank of Australia 'Retail deposit and investment rates; Banks' term deposits ($10,000)'; one year, as at 2 March 2021.

• $180,000 in cash supporting a ‘comfortable’ living standard for three years requiring $60,000 or so each year; • $220,000 in defensive bonds for diversification benefits and stable income; and • The remaining $600,000 in growth (equities / alts) for longterm growth.

Effectively, the above allocation works out as a 40% split between ‘safe’ assets (cash plus bonds); and 60% growth component.

If we hone in on the defensive allocation (Table 1), based on current rates, the combined cash and bond buckets would deliver

annual returns of 0.96% (comprising about 0.3% from cash and 1.5% from traditional defensive assets).

Obviously, the portfolio's cash/ defensive buckets are grappling to keep up with inflation in the current low yield environment. Not ideal for clients keeping up with mandated minimum drawdown requirements.

Despite offering a simple solution to the retirement income problem of balancing sequencing and longevity risks against market volatility, the bucketing strategy – as it stands today – might benefit from an enhancement.

Continued on page 30

Chart 4: Enhancing the bucketing approach

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30 | Money Management August 26, 2021

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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

1. What annual return does the average term deposit now deliver on an investment of $1.25 million?

THE PROTECTION EQUATION

a) $100,000

It does not have to be a binary choice for retirees between a defensive portfolio (of lower-yielding assets subject to interest rate rises) and volatile share markets that are currently priced high based on many metrics. They can actually achieve both – safely.

A number of new products are now available that fill the growing need for 'defensive alternative' strategies to sit alongside traditional defensive assets. The overall aim is to build defensive portfolios that provide retirees with returns from another protection building block, independent of the bond market.

This is where the power of the bucketing strategy – with its wonderful simplicity – can be enhanced even further by adding a fourth protection bucket. By allocating a portion to a purpose-built protected retirement product, advisers can provide retirees with exposure to growth assets essential to securing long-term returns while including a mechanism to limit losses from equity market drawdowns. Thus, addressing the 'protection equation' for retirement portfolios (Chart 4).

This ‘protection bucket’ has the ability to efficiently mitigating sequencing and behavioural risks, and allows cash to provide liquidity (what it does best). It can also generate potentially higher levels of return in a constrained low yield environment.

b) $50,000

WHERE DO PROTECTION STRATEGIES BELONG IN RETIREE PLANS? While annuities (which exchange capital for an agreed lifetime income) are generally well understood, protected retirement income strategies are relatively new in the Australian market.

Yet, the Government’s impending Retirement Income Covenant should broaden the appeal of such strategies, as it looks to “improve retirement outcomes for individuals, while enabling choice and competition in the retirement phase”.

Typical protection products offer investors a choice of ‘cap’ and ‘floor’ return levels that provide a respective upper limit on market returns and a minimum capital protection.

For example, retirees could opt for a protection level that allows for losses of between 0% to 10% of the original investment in exchange for lower levels of protection investors will receive increasingly higher return potential up to a cap.

Protected retirement products that allow access to a number of ‘protection floors’ are usually backed by the safety and security of a life company regulated by the Australian Prudential Regulation Authority (APRA).

Institutional-scale derivative investment strategies use ‘put’ and ‘call’ options to manage market exposures – and enable retirees to access the returns of growth assets without fear of losing the capital which underpins their lifetime income aspirations.

Fortunately, these new protection products are now opening up as a building block for those looking to defend long-term retirement income at sustainable levels.

Tim Dowling is an investment specialist at Allianz Retire Plus.

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c) $10,000 d) $3,750 2. What was the average duration of the Australian Composite Bond Index in 2021? a) 10 years b) Three years c) Six years d) One year 3. How much capital loss would a bond portfolio of six years average duration suffer if interest rates rise 1%? a) 50% b) 6% c) 1% d) 3% 4. A fourth (protection) bucket is designed to: a) Complement traditional defensive asset allocation; providing returns independent of cash/bond market b) Provide exposure to growth assets, while also including a mechanism to limit losses to a chosen level of market exposure c) Mitigate sequencing risk d) All of the above 5. In this case, a protected retirement product is: a) Issued by the safety and security of a life company, regulated by APRA b) A passive exchange traded fund c) A managed fund d) A term deposit

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

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

19/08/2021 9:45:06 AM

August 26, 2021 Money Management | 31

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

Appointments

Move of the WEEK John Shuttleworth Chief executive Centrepoint Alliance

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 earlier this month and was expected to join the board as the managing director.

Centrepoint chair, Alan Fisher, said: “Over the last three years Centrepoint

Mercer’s Jo-Anne Bloch has been appointed to Colonial First State Investments Limited (CFSIL) and Avanteos Investments Limited (AIL) boards as an independent nonexecutive director.

Bloch was most recently executive director of Mercer Australia and Mercer Financial Advice. She was also a director of the Association of Superannuation Funds of Australia (ASFA).

CFSIL and AIL acting chair, Greg Cooper, said: “Jo-Anne brings a wealth of experience to CFS. She is a results-orientated senior executive and director who has successfully led cross-functional, highperformance teams across a broad range of businesses in Australia, the United Kingdom, and the United States of America.

“Her appointment also reflects our commitment to diversity on our boards, something that we are continually striving to improve at all levels throughout the organisation.”

CFS noted that chief executive of CFS Superannuation, Kelly Power, would also join the boards which would bring a majority of female directors to the boards.

Praemium has permanently appointed executive director and interim CEO Anthony Wamsteker

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Alliance has focused on building and strengthening out licensee services through a period of significant industry change. 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

to the CEO role, effective from 16 August.

He had previously worked as chair of Powerwrap which was acquired by Praemium in October 2020.

Wamsteker took over from Michael Ohanessian who left the firm in May 2021 after almost a decade at the helm.

AMP Australia has appointed Ben Hillier as general manager – retirement solutions, leading the development of financial solutions across the AMP Australia business.

Hillier joined from QSuper, where he designed and launched QSuper’s lifetime pension product, and before that spent six years at Sunsuper as its senior manager of super and retirement products.

ANZ has appointed Farhan Faruqui as chief financial officer (CFO), responsible for all aspects of finance, treasury, mergers and acquisitions, and investor relations.

He would report to chief executive, Shayne Elliott, and remain a member of group executive committee.

Faruqui would be based in Melbourne and commence the role from October, subject to meeting regulatory requirements.

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.

He would succeed Shane Buggle who would retire from the role after 25 years with the big four bank.

Faruqui was currently group executive international, where he was responsible for ANZ’s institutional business in 19 markets across Asia, Europe, Middle East and America.

Before ANZ, he worked for Citigroup where he held senior roles which included Citi’s corporate and investment bank in Asia Pacific as well as its global loans and capital markets business in the region.

J.P. Morgan Asset Management (JPMAM) has appointed Andrew Creber as Australia and New Zealand chief executive, replacing Rachel Farrell who left the firm in July.

Creber would be responsible for driving the strategic direction and accelerating the growth of the Australian and New Zealand business, which covered both institutional and retail clients.

Creber was most recently based in Singapore for JPMAM, where he served as Asia Pacific deputy chief administrative officer, responsible for the firm’s operations and business execution across the region, having first joined in 1998.

Based in Australia for several years, he previously served as chief operating officer for the Australian asset management business.

He was a long-established advocate of company-wide diversity and inclusion initiatives, which included the firm’s inaugural male allies program to support J.P. Morgan’s Women on the Move.

Creber would be based in Sydney and reporting to Dan Watkins, JPMAM Asia Pacific chief executive.

Shannon Bernasconi, co-founder and managing director of WealthO2, has left the firm with her role being taken over by chief distribution officer Andrew Whelan.

Bernasconi had worked at the firm for the past four years, having joined from Calastone.

Whelan had assumed the role in an acting capacity since 4 August.

The firm also appointed two board members in Class Super founder, Richard Barber, and managing partner of Nimit Capital, John Griffiths.

The pair were already existing shareholders and brought over 50 years combined experience in the fields of financial planning technology, platform and investment banking.

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OUTSIDER OUT

ManagementAugust April 2,26, 2015 32 | Money Management 2021

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

The ‘essential’ role of offices

Do dreams ever come true?

THE Sydney-based Money Management team may be in week nine (and counting) of a hard lockdown but not every firm is suffering work from home problems.

On several work calls, Outsider has been surprised to hear from interviewees who are calling or presenting from their offices.

The reason, he has been told, is they have noisy home environments unsuitable for giving Zoom presentations, are doing ‘essential work’, or are unable to access certain technology from home.

Others are using it as an excuse to get work done without colleagues around to distract them and point out, the empty offices mean they are staying “pretty well isolated”.

Now Outsider is not one to name and shame and he is sure they all have valid reasons to leave their work from home environs that would satisfy Gladys, nor have they been forced to return, so they shall remain nameless.

Unfortunately for Outsider, all he needs for his work is a laptop and a notebook so he has had no excuse to return to Money

OUTSIDER does not have many, or any, big dreams. All Outsider ever needs to feel content is a single malt, regular golf sessions, and Mrs O not yelling at him. Though, it would be weird if Mrs O was not yelling at Outsider.

However, it came to Outsider’s attention that perhaps he did have a dream that had not been yet fulfilled.

This realisation came about during a Parliamentary session on financial advice that Outsider was covering for this very publication.

You see, it all happened when the Financial Planning Association of Australia’s CEO Dante De Gori was being grilled

by Liberal backbencher, Tim Wilson, who noticed some framed images behind De Gori as he appeared via video link.

As Wilson finished up his line of questioning, he asked De Gori: “Final question from me. Michela and Lucas: are they your kids?”

De Gori: “Yes, they are”.

Wilson: “There you go. Michela and Lucas De Gori, you’ve just been mentioned in Hansard”.

Labor’s Andrew Leigh said: “I’m sure they’ve now realised their dreams!”

For you see dear reader, Outsider has been diligently reporting on Parliament for over 40 years and never had such a mention in Hansard!

Now all Outsider can think about is if or when he will ever be mentioned in Hansard. Alas, being yelled at from another room will have to do for now.

Management Central in the CBD yet.

Though, Outsider thinks about this with a sigh as he looks at the number of pages left in his notebook – three!

But, when lockdown eventually lifts, he will be the first on the train and looks forward to visiting a coffee shop that is more than five kilometres from his home, and perhaps he can pick up a free notebook at what are now rare in person media briefings.

Aligning net zero views EVERY once in a while, Outsider gets a wake-up call that leads to some self-reflection and is hoping National Senator, Matthew Canavan, will do the same. For Outsider is referring to the senator’s view on climate change.

Canavan sensitively asked on Twitter: “Does anyone know whether the Taliban will set up to net zero?”

Outsider is not in the business of making light of the suffering the people of Afghanistan are going through, but even as a purveyor of the crudest humour, Outsider was disturbed that a sitting member of Parliament’s only justification for the tweet was that it was “meant to provoke”.

Given how hard Conservative parties have been in

OUT OF CONTEXT www.moneymanagement.com.au

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opposition to climate change policies, Outsider does not believe anyone is naïve enough to think the Taliban are thinking about environmental, social and governance factors.

But if being told by Deputy Prime Minister, Barnaby Joyce, to “focus on empathy” was not enough to selfreflect – and Outsider doesn’t see why it would be – then perhaps having aligned views with the Taliban on climate change should be a wake-up call for the Conservative parties of the world.

Outsider is more than tired of seeing insensitive posts from politicians and encourages them to get off social media and help not only Australians in Afghanistan, but Afghans in Australia, and Afghans seeking asylum.

"We may be generous but we're not stupid, we might as well throw the money off the top of MLC Centre."

"For those of you in lockdown...

I hope you have your Netflix up to date."

- Hamish Douglass, Magellan chair

- Angela Ashton, Evergreen Consultants founder

Find us here:

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