Money Management | Vol. 33 No 16 | September 26, 2019

www.moneymanagement.com.au

MAGAZINE OF CHOICE FOR AUSTRALIA’S WEALTH INDUSTRY

Vol. 33 No 16 | September 26, 2019 PRINT POST APPROVED PP100008686

A blue whale’s heart

is as big as a car.

Curious? So are we.

At First Sentier Investors – the new name for Colonial First State Global Asset Management – curiosity is at the heart of all that we do.

Visit curiousfirst.com.au

_FP ad Test.indd 1

18/09/2019 2:41:31 PM

BUILD, COMPARE & ANALYSE YOUR MANAGED ACCOUNTS Find out why Australia’s leading Financial Advisers use FE Analytics to: • Access the leading source of SMA & fund data • Build, compare & monitor managed accounts • Track ASX equities, ETFs & managed funds • Conduct full portfolio performance reporting • Conduct multi-asset benchmarking & objective comparisons

FE Analytics is the leading model portfolio research, performance and analytics software.

Discover how it can help your business with a limited 14 day FREE trial.

Contact Bruce Jenner: bruce.jenner@financialexpress.net or 0425 234 275 For more information about FE Analytics, visit www.financialexpress.net

5258_FE_print5.indd 3

18/09/2019 1:04:48 PM

www.moneymanagement.com.au

MAGAZINE OF CHOICE FOR AUSTRALIA’S WEALTH INDUSTRY

Vol. 33 No 16 | September 26, 2019

17

INFOCUS

Asset-based fees

CLIENT RETENTION

30

Demonstrating value in your work

32

EQUITIES

An alternative to P/E ratios

ASIC/APRA/ATO need to be audited on value for money

BY MIKE TAYLOR

TOP FINANCIAL PLANNING GROUPS

PRINT POST APPROVED PP100008686

The rules have changed THE findings from this year’s Money Management survey on TOP Financial Planning Groups have confirmed what was broadly anticipated, with the new post-Royal Commission environment seeing the financial planning industry in the middle of an almost unprecedented change and planners struggling to figure out how to adjust to new rules and a changed environment.

With the ongoing exit of the major banks from wealth management, 2019 saw a significant change in the planning landscape with bank advisers heading to new homes, some licenses slated for closure while others faced forced consolidation. The net result, to date, has been a drop in the number of advisers employed by the Big Four and AMP of around 2,900 planners compared to last year.

Despite this, the survey found that AMP managed to retain its top spot as the largest player in the space, notwithstanding a drop in planner numbers of around 8.8% year-on-year. By comparison, IOOF significantly grew its ranks, helped by the completion of the acquisition of ANZ’s four aligned groups to become the secondlargest advice business in the sector by planner number.

IOOF saw a year-on-year increase to 1,600 planners across all its groups from less than 940 a year ago.

However, the fallout from the Royal Commission also provided a fresh boost for mid-tier groups which managed to climb up the rankings as they continued to successfully lure advisers. At the same time, a number of planning groups were busy shifting focus away from planner numbers to the quality of their client base. Due to still-evolving future business models, a high number of advisers were forced to seek new homes with some opting for self-licensing while others, confronted by the Financial Adviser Standards and Ethics Authority requirements, opting to head for the exit.

16MM2609_01-17.indd 1

Full feature on page 18

THE Australian Securities and Investments Commission (ASIC), the Australian Prudential Regulation Authority (APRA) and the Australian Taxation Office (ATO) should be the subject of a comprehensive audit to ensure they are doing their jobs properly and efficiently.

That is the assessment of the Association of Superannuation Funds of Australia (ASFA) which has called for the audit task to be referred to the Australian National Audit Office (ANAO) arguing that there is a form of moral hazard in the current arrangements with the regulators having a vested interest in increasing industry levies to increase their discretionary coffers.

What is more the superannuation funds do not want to pay levies which effectively cross-subsidise ASIC’s handling of financial advisers and self-managed superannuation

funds (SMSFs) which are not directly subjected to levies.

In a submission to Treasury dealing with the Financial Institutions Supervisory Levies being used to fund the regulators, the ASFA has pointed out that superannuation funds will pay over $89.1 million this year in supervisory levies, up from $6.8 million and it wants to know whether the industry is getting value for money.

“Given that this is money which could otherwise have been attributed to member accounts, it is critical that all of the agencies who receive the levy are accountable for the costs and expenditure they incur,” it said.

On the question of moral hazard, the submission said levies represented “a form of moral hazard, in that the agencies have a vested Continued on page 3

ASIC looks at reasonableness of superannuation advice fees THE Australian Securities and Investments Commission (ASIC) has detailed the manner in which it is looking at financial advice provided within superannuation funds, including whether the fees charged are reasonable.

The regulator has signalled that it is looking at the fees deducted from superannuation fund member balances and whether they are actually fair.

Under questioning by the Parliamentary Joint Committee on Corporations and Financial Services, the regulator has made clear that it is looking to impose a consistent approach to advice fees across the superannuation industry.

ASIC commissioner, Danielle Press, told the committee that the regulator was looking at the fees issue alongside insurance inside superannuation, including claims handling.

“We’re looking at advice in superannuation, in particular around Continued on page 3

19/09/2019 3:18:57 PM

_FP ad Test.indd 2

24/07/2019 4:42:12 PM

September 26, 2019 Money Management | 3

News

Clients still struggling to Consumers cooling on life/risk understand value of advice

BY MIKE TAYLOR

CLIENTS obtaining life/risk advice are still struggling to come to terms with the cost of obtaining advice, according to new research released by MetLife.

The research found that a disconnect exists between the perceptions of cost and value when it comes to insurance and financial advice.

The findings are contained in the MetLife AdviserClient Relationship Report 2019 – a quantitative study which covers both consumers and small to medium enterprises.

One of the positives to emerge from the study was that advised Australians were more informed about their insurance than this time last year but, despite this, confusion around the value of expert advice remained.

It said this suggested there was an ongoing need for financial advisers to demonstrate their value by properly educating clients of the benefits and service.

The report said that awareness of what advisers do and what those services should cost was low and that part of the battle for financial advisers was how to make the long term gains to be had from seeking expert advice more tangible in the short term.

“Advisers who are successfully bridging this gap appear to be setting and agreeing on realistic expectations for both clients and advisers in initial meetings,” it said. “Further, they are working closely with their client like a partnership and demonstrating ongoing care and value through simple measures such as annual reviews and contacting clients at important times in their lives, such as buying a house and having a baby.”

Commenting on the report MetLife Australia head of retail sales, Matt Lippiatt said the recent spotlight on the financial services industry had caused clients to take a more active interest in the financial products and services they hold and question the value they were getting from these relationships.

He said this might explain why Australians know more about their insurance cover this year.

AT the same time as advisers worry about the future of life/risk beyond the Life Insurance Framework (LIF), the latest research from Roy Morgan has revealed that consumer satisfaction with life/risk insurance has also declined.

The latest Roy Morgan research has revealed that customer satisfaction with risk and life insurance fell to 64.6% in July, down from 65.6% a year earlier and 68.4% in 2018.

Roy Morgan’s analysis said that, at these levels life/risk insurance continued to have the lowest satisfaction of all major household and personal insurance types including general and health insurance.

According to the survey, Insuranceline emerged best in terms of consumer satisfaction with a rating of 78.9%, ahead of second placed Allianz (74.1%) and Zurich (71.8%).

“The three largest players in the industry experienced contrasting fortunes with both MLC and CommInsure scoring above average with MLC increasing their satisfaction rating by a significant 4.3% points to 67% and CommInsure up slightly by 0.5% points to 67.3%.”

“In contrast the AMP, which has seen a sharp decline in the number of policies over the last year since several scandals involving AMP were uncovered, scored 64.6% – exactly at the market average and barely changed on a year ago,” the Roy Morgan analysis said.

Commenting on the survey results, Roy Morgan chief executive, Michele Levine said they showed that although 86% or risk and life insurance policies were renewed automatically without shopping around, there was a risk associated with having below average satisfaction as this had the potential to discourage renewal and new clients.

She said the biggest increase in the

ASIC/APRA/ATO need to be audited on value for money Continued from page 1 interest in increasing the levies with relatively little accountability while the parties providing the funding (industry) have no control over the resourcing decisions made by the agencies”.

“This extends to the type, and in particular the scope, of activities engaged in by the agency and the quantum, and nature, of the resources used,” it said.

Elsewhere in its submission, the ASFA argued that because,

16MM2609_01-17.indd 3

functionally, superannuation was a part of wealth management it was “critical to ensure that superannuation funds only pay levies with respect to consumer protection within superannuation and not with respect to other wealth management sectors, such as managed investments and financial advisers”.

It said this was because neither SMSFs nor financial advisers paid levies.

purchasing channel used to purchase risk and life insurance over the last three years had been from an employer as part of superannuation, which had increased from 16.6% to 28%, while purchasing risk and life insurance online was another growing channel although it remained relatively small at 9% of purchases, showing only gradual growth from 7%.

“In addition, the use of insurance brokers and financial planners remains an important channel to purchase risk and life insurance which now accounts for around 17% of the market, but this is down from 21.3% three years ago,” Levine said.

“The use of these third parties to purchase risk and life insurance has the potential to take the customer relationship away from insurance companies and as a result they are likely to have less control over satisfaction and retention levels.

“These results also indicate that fewer Australians are taking out risk and life insurance, 199,000 in the past year down from 236,000 three years ago. This is likely to lead to a smaller market over time if this trend continues.”

ASIC looks at reasonableness of super advice fees Continued from page 1 where fees are deducted from superannuation funds and whether or not they are reasonable, and whether or not the services are actually being delivered for those fees,” she said.

“We’re also looking at the disclosure of costs and fees, and trying to get some form of consistency across the industry around what is actually taking out of these funds appropriately or inappropriately,” Press said.

Press said that ASIC did not mandate fee levels and she did not believe it should, but that the regulator wanted to make sure that fees that were being withdrawn from funds were reasonable and fair. “…but we are not setting a limit on the fee level as such; it’s more about ensuring that the deduction of the fee is a reasonable fee to deduct,” she said.

19/09/2019 3:25:57 PM

4 | Money Management September 26, 2019

Editorial

mike.taylor@moneymanagement.com.au

ENDING GRANDFATHERING – ADVISERS DESERVE THE FACTS

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

It appears that the Government moved to end grandfathering from the beginning of 2021 without knowing the precise dimensions of the issue and without taking into consideration the impact the change might have on both advisers and clients.

Managing Director: Mika-John Southworth Tel: 0455 553 775 mika-john.southworth@moneymanagement.com.au Managing Editor/Editorial Director: Mike Taylor Tel: 0438 789 214 mike.taylor@moneymanagement.com.au Associate Editor - Research: Oksana Patron

IT is always a worry when Governments implement legislative change at the same time as tacitly admitting that they do not entirely understand the consequences of that change.

Such is the case with the Government’s legislation, the Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019, which will bring an end to grandfathered commission-based remuneration from the beginning of 2021, although the Australian Securities and Investments Commission (ASIC) may or may not be able to provide some sort of detail some time later next year.

What Money Management research and that of a number of other organisations can tell us about grandfathered commissions is that, in this day and age, they represent between about 8% and 15% of adviser income depending on the shape of the financial advice practice concerned and the age of the planners involved.

In other words, the loss of grandfathered commissions was always going to be a bigger problem for older advisers than it was for younger entrants to the industry and this is something

which has been reflected in research about adviser attitudes to the changes.

But what needs to be understood about the end to grandfathering is that it is not all about the advisers, it is also all about their clients and the nature of the products which were sold to those clients.

Will all clients currently involved in products generating commissions for advisers be the ultimate beneficiaries of switching off those commissions or will some of those savings simply end up back in the coffers of the product manufacturers? Questions also need to be asked about whether clients risk being placed at a tax or Centrelink disadvantage by being switched out of those products.

No one really knows with certainty how many clients will be affected and to what degree.

However, the Government’s legislative package does provide that, where possible, product providers should ensure that adviser commissions should be rebated to the client.

Little wonder then, that advisers are asking why the Government did not go to the trouble of commissioning a Regulatory Impact Statement

(RIS) before presenting the legislation for passage through the House of Representatives and Senate.

The complaints of these advisers appeared to be made even more valid when ASIC told the Parliamentary Joint Committee on Corporations and Financial Services that it had only begun doing a deep dive on grandfathering following an ASIC Act referral from the Treasurer, Josh Frydenberg, last month.

It appears that prior to Frydenberg’s referral, ASIC had been basing its views about grandfathering on some sample research undertaken in about 2017 and, to some extent, on research undertaken by the Productivity Commission (PC).

Putting aside whether there exists a moral justification for extending the phase-out of grandfathered commissions, it seems that the Government has moved to end the regime without any seriously confirmed data and without going to too much trouble to determine whether there might be unintended consequences.

Mike Taylor Managing Editor

Tel: 0439 137 814 oksana.patron@moneymanagement.com.au News Editor: Jassmyn Goh Tel: 0438 957 266 jassmyn.goh@moneymanagement.com.au Senior Journalist: Laura Dew Tel: 0438 836 560 laura.dew@moneymanagement.com.au Journalist: Chris Dastoor Tel: 0439 076 518 chris.dastoor@moneymanagement.com.au Events Executive: Candace Qi Tel: 0439 355 561 candace.qi@financialexpress.net ADVERTISING Sales Director: Craig Pecar Tel: 0438 905 121 craig.pecar@moneymanagement.com.au Account Manager: Amy Barnett Tel: 0438 879 685 amy.barnett@financialexpress.net Account Manager: Amelia King Tel: 0407 702 765 amelia.king@financialexpress.net PRODUCTION Graphic Design: Henry Blazhevskyi

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

Money Management is printed by Bluestar Print, Silverwater NSW. Published fortnightly.

Subscription rates: 1 year A$244 plus GST. Overseas prices apply. All Money Management material is copyright. Reproduction in whole or in part is not allowed without written permission from the editor. © 2019. Supplied images © 2019 iStock by Getty Images. Opinions expressed in Money Management are not necessarily those of Money Management or FE Money Management Pty Ltd.

WHAT’S ON VIC Fund Taxation WA Risk & Compliance YFP: Leadership in Future Banking Discussion Group Discussion Group Financial Services industry Forum 2019 Melbourne, Vic Perth, WA Sydney, NSW with Simon McKeon 1 October superannuation.asn. au/events

16MM2609_01-17.indd 4

1 October superannuation.asn.au/ events

Melbourne, Vic 3 October finsia.com/events

ACN 618 558 295 www.financialexpress.net © Copyright FE Money Management Pty Ltd, 2019

9 October apra.gov.au/newsmedia/events

17/09/2019 3:58:33 PM

Compare 900 retirement strategies to find the sweetest outcome for your client.

MyNorth® provides you with access to AMP’s innovative Retirement Modelling Tool, which runs up to 750,000 calculations and compares up to 900 allocated pensions, Centrelink and other retirement strategies. You can then bring your wealth expertise to life by creating your client a MyNorth Pension from over 440 managed funds, shares, managed portfolios and cash options. All of which is why MyNorth is much more than just a platform.

Find out more at amp.com.au/mynorth

© NMMT Limited ABN 42 058 835 573, AFSL 234653 (NMMT). This advertisement, provided by NMMT, is for adviser use only and must not be made available to retail clients. It contains general advice only and hasn’t taken any person’s personal circumstances into account. You should consider the appropriateness of this advice for you or your clients. Visit northonline.com.au to obtain the relevant disclosure documents before deciding whether to acquire or vary these products for any person. NMMT is part of the AMP group and can be contacted on 1800 667 841 or north@amp.com.au. If a person decides to acquire or vary a financial product or service, companies within the AMP group will receive fees and other benefits, which will be a dollar amount or a percentage of either the premium they pay or the value of their investments. Contact AMP for more details. MyNorth is a registered trademark to NMMT. The issuer of MyNorth Super and Pension is N.M. Superannuation Pty Limited ABN 31 008 428 322, AFSL 234654 and the issuer of MyNorth Investment and MyNorth Managed Portfolio is NMMT.

_FP ad Test.indd 5

13/09/2019 12:42:26 PM

6 | Money Management September 26, 2019

News

How ASIC ran out of pages to explain grandfathering fall-out

Grandfathering – ASIC relied on sample-based data

BY MIKE TAYLOR

THE Australian Securities and Investments Commission (ASIC) has admitted that it only had samplesized data when it made some of its initial pronouncements on the negative impacts of grandfathered commission arrangements for financial advisers.

In evidence to the Parliamentary Joint Committee on Corporations and Financial Services, ASIC executive, Joanna Bird sought to defend the regulator against suggestions from Queensland Liberal back-bencher, Bert Van Manen that the regulator had no comprehensive idea about the situation before it had begun collecting data as a result of an instruction from the Treasurer, Josh Frydenberg.

Bird said that ASIC had done earlier work where it had looked at grandfathering but that there had been huge variations because the exercises had been “just samples”.

“We thought grandfathered commissions were having a negative impact,” she said.

She said it was therefore wrong to suggest that ASIC had not done any work, but it was now doing that work in an extremely comprehensive manner because the regulator had received a direction under the ASIC Act from the Treasurer.

“But that is not to suggest we had no data prior to that,” Bird said.

Van Manen placed a number of questions on notice to ASIC on the issue of grandfathering including the total amount invested in grandfathered funds, how many advisers would be impacted, the total amount of grandfathered commissions, the total amount of volume bonuses and shelf spaced fees and what consideration had been given to clients who couldn’t be moved because of factors such as exit fees, Capital Gains Tax, insurance etc.

Former Productivity Commission (PC) deputy chair and newly-appointed ASIC deputy chair, Karen Chester, told the committee that much more work had been done by the PC which had identified the extent of grandfathered commissions and which had then been used as a resource by the Royal Commissioner, Kenneth Hayne.

THE Australian Securities and Investments Commission (ASIC) has claimed it was aware of the complexities around potential client disadvantage stemming from an end to grandfathering but did not inform the Royal Commission because it ran out of submission pages to do so.

The chairman of ASIC, James Shipton, told the Parliamentary Joint Committee on Corporations and Financial Services that the regulator’s submission to the Royal Commission dealing with grandfathering had “hit the page limit”.

Shipton had been asked by Queensland Liberal backbencher, Bert Van Manen, whether knowing there were issues around client disadvantage it would have been prudent for ASIC to have recommended a longer transition period for the ending of grandfathering rather than the “short transition period” it did actually recommend.

After acknowledging that ASIC had not fully apprised the Royal Commission of all of the issues around ending grandfathering, senior ASIC executive, Joanna

Bird, acknowledged that the issues were significant and were being discussed with Treasury.

Van Manen said that, while he was not opposed in general terms to the ending of grandfathering, he was concerned that the totality of the risk and consequence on clients involved had not been fully thought through.

“The fact that that work hasn’t been done prior to you making the comments in your submission to the royal commission, which has subsequently informed legislative decisions made in this place, I find disappointing and frustrating in the least,” he said.

Bird acknowledged that the complexities existed and that they had been raised with ASIC

by both product issuers and advisers, adding that “we have been discussing them with the Treasury as they settled the legislation and the regulations that will be made under them”.

“It is for that reason also that our review has a qualitative part, where we intend to speak to the product issuers about all those sorts of practical difficulties and try and help them solve them and report those to the government as well, because you are right; it is a complex situation,” Bird said.

“While the principle is right, as you say, there will be complexities around the edges as we try to implement it, and we want to work with industry to make that work.”

ClearView pays over $730k in compensation

BY JASSMYN GOH

CLEARVIEW Financial Advice has paid $730,000 in compensation to 215 clients who received poor life insurance advice due to ‘needs analysis’ failings, the corporate watchdog has announced.

In an announcement, the Australian Securities and Investments Commission (ASIC) said another 21 clients received non-financial remediation through reissued advice documents and fee disclosure.

ASIC said it received 4,269 advice files which highlighted areas of concern such as inadequate needs analysis for clients, insufficient explanation about the pros and cons of using superannuation to fund insurance premiums, inadequate consideration of premium affordability issues and poor disclosure about replacement products.

The watchdog also raised concerns related to the conduct of ClearView adviser Jason Churchill

16MM2609_01-17.indd 6

who accepted an enforceable undertaking in 2016.

Churchill agreed to undergo additional training, adhere to strict supervision requirements and had each piece of his advice audited by his authorising licensee before it was provided to clients.

ClearView also reviewed previous advice given

by Churchill and remediated clients who received inappropriate advice.

The firm also reviewed personal insurance advice to determine if there was a systemic issue related to the concern areas identified by ASIC. Deloitte was used to provide oversight on the review and found a number of ClearView advisers did not undertake adequate ‘needs analysis’ for clients “The needs analysis is a critical part of the financial advice process. It enables advisers to understand their clients’ financial situation, needs and objectives, and provides the basis for the financial advice,” ASIC said.

19/09/2019 12:40:55 PM

ONEPATH IS MOVING FORWARD WITH AN EVEN BRIGHTER FUTURE...

140 years on and we’re still here for our advisers and customers, continuing to invest in the OnePath service solution. It’s a new era for OnePath – join us!

FIND OUT MORE AT ONEPATH.COM.AU/PATHWAYS

© OnePath Life Limited (OnePath Life) ABN 33 009 657 176 AFSL 238341

_FP ad Test.indd 7 WTM-ANW0353_330x240_FP_MM.indd 1

13/09/2019 1:01:05 PM 29/5/19 10:18 am

8 | Money Management September 26, 2019

News

Don’t turn off grandfathered commissions early, says AFA

BY MIKE TAYLOR

AMID signals by a number of financial services companies that they intend moving sooner, the Association of Financial Advisers (AFA) has called on them to work to the Government’s legislated timeframe for ending grandfathered commissions – 1 January, 2021.

The Government’s Ending Grandfathered Conflicted Remuneration Bill 2019 passed the House of Representatives and was expected to encounter little resistance in the Senate.

AFA chief executive, Phil Kewin, said that in the absence of the three-year transition period which had been sought by advisers, the AFA was calling on the Government and the Australian

Securities and Investments Commision (ASIC) to provide guidance and assistance so advisers knew what they should do to help their impacted clients.

“We particularly call on ASIC to consider all options to simplify the advice requirements for advisers, so that they can help as many of these clients as possible before the deadline,” he said noting that the AFA was also calling on product providers to work to the legislated timeframe of 1 January, 2021.

“In many cases, turning off grandfathering before the legislated date will only serve to stop advisers being paid, the benefit may not be passed onto the client and the ongoing servicing will be left to the institution providing the product,” he said.

Govt canvasses giving ASIC search warrant and phone tapping powers THE Federal Government has released draft legislation which will deliver the Australian Securities and Investments Commission (ASIC) search warrant powers equivalent to those enjoyed by the Federal Police under the Crimes Act. The exposure draft of the legislation was released by the Treasurer, Josh Frydenberg, and the Assistant Minister for Superannuation, Financial Services and Financial Services Technology, Senator Jane Hume.

The proposed legislation: • Strengthens ASIC’s licensing powers by replacing the Australian Financial Services (AFS) Licence requirement that a person be of ‘good fame and character’ with an on-going requirement that they be a ‘fit and proper person’; • Aligns the penalties for false and misleading statements in AFS and Australian Credit Licence applications; • Extends ASIC’s powers so that they may ban a person from performing functions in a financial services or credit business. The legislation also expands the grounds on which ASIC can issue banning orders; • Harmonises ASIC’s Search Warrant powers across different Acts and brings them into line with the search warrant powers in the Crimes Act; and • Allows interception agencies to provide lawfully intercepted information to ASIC for serious offences that ASIC can investigate or prosecute.

Frydenberg said the exposure draft legislation was further evidence of the Government’s commitment to strengthening financial regulators such as ASIC.

16MM2609_01-17.indd 8

Asset-based fees – what would advisers do without them?

NEW research has confirmed the continuing centrality of asset-based fees for financial advisers, particularly with respect to mid-tier clients.

The research, presented to Money Management's Future of Wealth Management Conference in Sydney revealed the challenges advisers would face if they were forced to totally abandon asset-based fees and adopt an hourly fee model.

The research, conducted through August, showed that while advisers have comfortably reached hourly and sometimes yearly fee models with their high net worth clients, asset-based fees are the preferred method with respect to mid-tier or low balance clients.

The survey showed that an annual fee was the dominant choice with respect to high net worth clients, with around 60% of respondents choosing this

method, while asset-based fees dominated with respect to clients who were described as “medium-value” or “low-value”.

Importantly, the survey revealed that hourly fees appeared to be the least favoured option for advisers across all client types, albeit that around 12% of advisers used hourly fees when dealing with low value clients.

The Money Management research has also revealed that advisers expect to be servicing fewer but high value clients in the post-Royal Commission environment.

The future of asset-based fees remain under a cloud with the Royal Commissioner, Kenneth Hayne, suggesting that they appeared to have been an attempt to replicate the revenue stream that flowed from a combination of upfront and trailing commissions.

17/09/2019 1:30:32 PM

Great investments are found in the

GYM

Invest in your world – and access global companies like adidas.

The Intermede Global Equities Fund makes it easy for your clients to access global opportunities.

Intermede’s investment experts use intelligent active management grounded in fundamental research to bring some of their best investment ideas to your clients’ portfolios.

We are global equities.

To find out more about the Intermede Global Equities Fund, call 1300 738 355 or email info@nabam.com.au

This information is provided by Antares Capital Partners Limited (ABN 85 066 081 114, AFSL 234483) (ACP), as the Responsible Entity of the Intermede Global Equities Fund (Fund). ACP has appointed Intermede Investment Partners Limited (‘Intermede’) as investment manager of the Fund. The Fund is a managed investment scheme through which an investor’s money is pooled together with other investors’ monies to buy investments which are managed on behalf of all investors. The Fund invests in an actively managed portfolio of equities listed on share markets around the world. When you invest in the Fund you acquire an ‘interest’ in the form of units of the Fund rather than ownership of the underlying assets of the Fund including securities issued by companies. Any references to specific companies are for illustrative purposes only and should not be taken as a recommendation to buy, sell or hold securities in these companies. Whilst it is consistent with the Fund’s current investment strategy to invest in global companies, there is no guarantee that the Fund will continue to hold securities of, or any other investment in, any company mentioned herein after the time of publication.

The companies named herein have provided necessary consents, however they do not constitute or imply any association or business relationship including but not limited to partnership, sponsorship with or endorsement of the information provider or information provided herein. ACP is a member of the group of companies comprised of National Australia Bank Limited (ABN 12 004 044 937, AFSL 230686), its related companies, associated entities and any officer, employee, agent, adviser or contractor therefore (‘NAB Group’). An investment in any product or service referred to in this advertisement does not represent a deposit or liability of, and is not guaranteed by, NAB or any other member of the NAB Group. This information may constitute general advice. It has been prepared without taking into account your objectives, financial situation or needs and because of that you should, before acting on the advice, consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs. You should obtain a Product Disclosure Statement (PDS) relating to the financial product mentioned in this communication issued by ACP, and consider it before making any decision about whether to acquire or continue to hold the product. A copy of the PDS is available upon request by phoning 1300 738 355 or on our website at nabam.com.au.

_FP ad Test.indd 9

16/09/2019 12:45:40 PM

10 | Money Management September 26, 2019

News

Big fund manager names do not assure outperformance

BY JASSMYN GOH

PICKING funds based on the big asset management players and their reputations does not equate to beating a fund’s benchmark or sector peers, according to FE Analytics.

Using FE/Fundinfo data, Money Management looked at three global equity funds that either had a star manager or a big asset manager name.

The funds in question were Magellan Global fund, Perpetual Global Share A fund, and Platinum International C fund.

Over the three years to 31 August, 2019, the top-performing fund was star manager Hamish Douglass’ Magellan Global fund that returned 64.7%, and 121.3% over five years.

This was followed by longstanding asset manager Perpetual Global Share A at 43.2%, and Kerr Neilson’s Platinum International C at 31.9%.

However, both the Perpetual and Platinum funds did not beat their respective benchmarks – MSCI World (47%), and MSCI All Country World (45.1%).

The Platinum fund was also unable to beat its average sector peers in performance over one, three, five, and 10-year time periods and was placed in the bottom quartile except over the five-year period where it was placed in the third quartile.

The average global equity sector returned 39.2% over the three years to 31 August, 2019.

Star manager and recipient of Money Management's Lifetime Achievement Award in 2014, Kerr Neilson, stepped down as chief executive of Platinum last year but has remained a full-time executive director of Platinum Group and as a member of the investment team.

The International C fund is run by the firm’s chief executive and chief investment officer, Andrew Clifford and portfolio manager Clay Smolinski.

The fund’s latest factsheet noted the extended US-led bull market had impacted the fund’s relative returns and that it was the last 16 months that had been the main cause of apparent longer-term underperformance.

“Over the last two years, the fund has delivered 6% per annum, however, we are a cumulative 19% behind the index. This is the biggest negative gap in relative performance since 1999,” it said.

The fund currently holds a quantitative risk adjusted FE/Fundinfo Crown Fund Rating of One

16MM2609_01-17.indd 10

Grandfathering end hurts advisers not product providers

BY MIKE TAYLOR

Crown (out of five).

The fund’s largest sector weighting was financials at 14.7%, followed by communication services (13.1%), industrials (11.2%), information technology (9.7%), and materials (9.4%).

While Perpetual Global Share A fund did not outperform its benchmark, it managed to beat the sector average and was placed in the third quartile over the three years to 31 August, 2019.

The fund’s latest factsheet noted its overweight to electronics payments company Euronet Worldwide detracted relative performance as the stock fell following the release of its June-quarter financial results. However, the fund noted that it would continue to hold the stock “on its robust earnings outlook and its relatively long runway for market share gains”.

The fund currently holds a Three Crown rating and has the largest sector allocation towards consumer discretionary (19.1%), followed by communications services (18.7%), cash and other (16.9%), financials ex property (13.6%), and consumer staples (11.7%).

Douglass’ global fund has been placed in the first quartile in terms of performance over both short and long-term time horizons, and has received a Five Crown rating.

According to its factsheet, the fund has outperformed its benchmark 94% of the time over five years.

The fund’s latest sector allocation was internet and eCommerce at 17%, followed by informational technology (16%), consumer defensive (13%), and payments and restaurants (both at 12%).

JUST days before the Government moved to pass the Ending Grandfathered Conflicted Remuneration Bill through the Parliament, the Association of Financial Advisers (AFA) lamented the manner in which advisers had been inadequately consulted and stood to be disproportionately disadvantaged.

The AFA also complained that product providers had been placed at an advantage to advisers amid an “underlying assumption that financial advisers can either convert clients within their existing products to Adviser Service Fee arrangements, or can move them to alternative products”.

It said the Bill provided no flexibility for financial advisers, “however it is apparent that there have been some material changes that have been made since the draft, which will presumably serve to benefit product providers”.

“We are very concerned about the lack of explanation of these changes,” it said.

In a letter to members, AFA general manager, policy and professionalism, Phil Anderson, expressed concern that the Government had moved ahead with the legislation without listening to the arguments of planners and without taking account of likely significant client disruption and detriment.

Further, the letter makes the point that the legislation has sought to remove key adviser protections contained in Section 1350 of the Corporations Act which provides for compensation to be paid to small business financial advisers where product providers unilaterally vary the terms of existing agreements in a manner that is in breach of contract.

“The fact that the Government is choosing to remove the applicability of this section, is in our view, an acknowledgement there is the potential for constitutional issues with respect to the acquisition of property on other than just terms,” it said.

“For us, the biggest issue with respect to the removal of the applicability of Section 1350, is that the Government is removing the rights of small business financial advice firms in order to protect the interests of predominantly large business financial product providers.

“The AFA accepts that all sides of politics are determined to see an end to grandfathered commissions, however it is important that this process is pursued on the basis of detailed consideration of the evidence and the consequences for clients and the financial advice sector.”

18/09/2019 4:22:15 PM

GUIDED PORTFOLIO SERVICE

_FP ad Test.indd 11

13/09/2019 2:48:26 PM

12 | Money Management September 26, 2019

News

Are bonds in a bubble?

BY OKSANA PATRON

THE rise of negative bonds yields starts with how central banks set interest rates, according to a recent study from Quay Global Investors “Investment Perspectives” which looks at whether bonds are in a bubble and the shift from monetary policy to fiscal policy.

“Holding a negative yielding bond to maturity means certain economic loss. The only potential gain is to on-sell the bond for an even lower yield (i.e. finding a greater fool) before maturity, passing the certain loss to the buyer. This is not a bad definition of a bubble,” Chris Bedingfield, portfolio manager at Quay Global Investors, said.

“However, we believe the rise of negative bonds yields is more complex. It begins with how central banks set interest rates.”

He went on to explain that while central banks controlled the cash rate directly, their actions and price-signalling indirectly controlled long-term rates.

But it did not mean that sovereign bond yields were in a bubble, he said.

“That doesn’t mean buyers of negative-yielding bonds will not lose money. They certainly will, if held to maturity. However, if expectations are correct, they will lose the same amount of money as if they were holding cash over the same timeframe. Choose your poison: a certain loss (bonds) or an uncertain loss (cash),” he said.

At the same time, the 2017 Trump tax cuts changed everything as it created a very different scenario, given that there was no immediate threat of terrorism or war to justify increased spending and the economy was in good shape.

“What has happened is a substantial increase in government debt, for little or no real change in momentum in either the labour market or the economy. Despite the massive increase in government debt, the yield on the US 10-year Treasury (at the time of writing) is near all-time lows,” Bedingfield said.

However, the moment the voting public understood the government was not a household, there would be a seismic shift in markets, he warned.

“By increasing the deficit in favour of households (who are most likely to spend incremental

Law must change to make super payable on payday

BY JASSMYN GOH

money they receive) rather than the wealthy (who are most likely to save incremental money they receive), there is, for the first time in a generation, the real possibility that modern Western economies can achieve near full employment, improving wage gains and a corresponding return of inflation.”

So how did this scenario affect Quay’s investment process?

Bedingfield explained that the potential for increases in interest rates was not a worry and in fact, a return of inflation would be an overwhelming positive for long-term real estate investors.

Although he admitted that part of themes and investment positioning was based on the shrinking middle class and low wages growth, a shrinking home affordability was positive for affordable apartment real estate investment trusts (REITs), single-family homes and re-urbanisation of major cities.

12-monthly opt-in back on the legislative agenda

BY MIKE TAYLOR

ONLY 1% of employees currently missing out on their superannuation are being helped by the Australian Taxation Office (ATO), according to Industry Super Australia (ISA).

The super body said one-in-three workers (2.85 million people) were being “ripped off close to $6 billion in super by unscrupulous employers”.

ISA said super payments often fell through the payment crack as there was no legal requirement for super to be paid at the same time as salary payments.

While ISA welcomed an increase in compliance activity by the tax office the law needed to be changed and need to be back up by penalties that reflected the full weight of the law.

Over the past five years, the ATO had not issued a single maximum 200% penalty, according to Senate Estimates.

“To date, the ATO’s track record when it comes to handing down maximum penalties to those employers caught stealing their employees’ super has been negligible at best,” ISA said.

ISA chief executive, Bernie Dean, said: “Australians rightly expect to be paid their legal super entitlement.

The fact that one-in-three workers are being robbed of their super each year in this day and age is extraordinary and must be fixed.

“Federal politicians have their super paid on pay day – it’s time that same protection was extended to all Australians,” Dean said.

16MM2609_01-17.indd 12

FINANCIAL advisers fought hard against the notion of annual opt-in within the Future of Financial Advice (FOFA) legislation but an adviser group is now pointing to the Treasurer, Josh Frydenberg, having moved to institute the arrangement out of the Government’s Royal Commission response.

The Profession of Independent Financial Advisers Group (PIFA) president, Daniel Brammall, said the Treasurer had announced last month that legislation would be introduced before 30 June next year “that will effectively illegalise the current opt-in and fee disclosure statement (FDS) arrangements”.

He said that, as well, the Treasurer had signalled the Government would be tabling legislation which would mean that financial advisers were not permitted to provide advice to a new client without first declaring whether they are independent and, if not, why not.

“These reforms add to the complexity that is already facing advisers, burdened by the FASEA [The Financial Adviser Standards and Ethics Authority] education requirements, the loss of legacy commissions that were supposed to be grandfathered, and then there’s the looming membership of an as yet unapproved Code Monitoring body (it’s just six weeks away, folks),” Brammall has told PIFA members.

The Association of Financial Advisers (AFA) has similarly drawn the yearly opt-in move to the attention of members.

The concern on the part of the PIFA and AFA relate to the Treasurer’s Royal Commission roadmap implementation document which, under the heading of legislation to be consulted on and introduced by 30 June, next year, cites “Recommendation 2.1 – annual renewal and payment for financial advice” and “Recommendation 2.2 – disclosure of lack of independence of financial advisers”.

17/09/2019 1:34:18 PM

September 26, 2019 Money Management | 13

News

ASIC launches Federal Court action on life telephone sales

BY MIKE TAYLOR

THE Australian Securities and Investments Commission (ASIC) has initiated civil penal proceedings against Select AFSL Pty Ltd and associated companies alleging breaches around the telephone sale of life insurance.

The regulator’s action follows on from the issue being raised during Royal Commission.

ASIC said it had commenced civil penalty proceedings in the Federal Court against Select AFSL Pty Ltd (Select), BlueInc Services Pty Ltd (BlueInc), Insurance Marketing Services Pty Ltd (IMS) and director Russell Howden alleging breaches of the law arising from telephone sales of life and accidental injury insurance issued by St Andrew’s Life Insurance Pty Ltd under the brand names ‘Let’s Insure’ and ‘FlexiSure’ during the period 1 February 2015 to 19 March 2018.

ASIC said it was being alleged that Select, BlueInc and/or IMS, in their dealing with 14 consumers, engaged in conduct in breach of the ASIC Act including for some or all of the

consumers: • Unconscionable conduct when selling insurance and/or taking payment details over the phone, and when consumers attempted to cancel their insurance policies; • Undue harassment; • Coercion; and/or • Making false and/or misleading representations.

Of the 14 consumers, ASIC said nine lived in remote communities, and many faced barriers in understanding what was being sold to them because English was not their first language.

ASIC’s proceedings also include claims that Select, BlueInc and Howden breached provisions of the Corporations Act 2001 in relation to the provision of conflicted remuneration to sales agents, including a cruise to the Gold Coast, a Vespa scooter and trips to Las Vegas and Hawaii.

Against the companies, ASIC is seeking declarations, civil penalties, injunctions, advertising orders, probation orders requiring the implementation of a compliance program

Ampfpa tells members it can’t deal with individual circumstances THE AMP Financial Planners Association (ampfpa) has told its members that it is not in a position to provide legal or commercial advice on members’ individual circumstances and that they will need to obtain their own independent legal and commercial advice.

The ampfpa has made its position clear in the same letter which asks member advisers to signal their willingness to be part of a class action against AMP. The ampfpa’s position has been made clear at the same time as advisers have informed Money Management of approaches made by senior executives of AMP Limited aimed at dealing with the individual circumstances of affected advisers and their practices.

The ampfpa’s letter to members signals that the organisation is not a position to deal directly with those individual cases.

“We appreciate that members will have many questions, including as to how they should respond to approaches from AMP,” the letter said. “Whilst ampfpa is keen to assist members, we are unfortunately not in a position to provide legal or commercial advice on members’ individual circumstances and you should obtain independent legal and commercial advice as required.”

“However, ampfpa welcomes your feedback, and if we are in a position to do so we will endeavour to provide our views on particular frequently asked questions that emerge from such feedback.”

Elsewhere in the letter, the ampfpa said that it was aware that members were “being approached by AMP with various options, and some options may operate such that members give up their rights to pursue AMP in respect of their BOLR [buyers of last resort] rights, including in a potential class action”.

“As noted above, you should obtain independent legal advice and carefully consider your legal and commercial position before agreeing to give up the rights you may have in respect of potential claims against AMP.”

16MM2609_01-17.indd 13

and consumer redress. Against Howden, ASIC is seeking declarations, civil penalties, injunctions and disqualification orders.

The proceedings are to be listed for case management on a date to be determined by the Court.

Can ASFs be salvaged from end of grandfathering?

THE Association of Financial Advisers (AFA) has sought to give its members a guide to whether they can convert at least some elements of grandfathered commissions into to adviser service fees, provided it is in the best interests of their clients.

The AFA has published what it has labelled a “Grandfathered Commission Decision Tree” and has stated, using the flow-chart, financial advisers who have grandfathered commission clients will need to undertake a detailed assessment and then carefully consider what action is in the best interest of their clients.

The flow chart/decision tree then asks key questions about the products from which grandfathered commissions have been derived to determine whether an arrangement needs to be cancelled either now or in the future or whether it can be negotiated into an adviser service fee (ASF).

In a number of scenarios within the decision tree, advisers appear to have the option of turn off trailing commissions and discussing with clients the possibility of moving to an ASF. The starting point for the decision tree is whether a product is broadly competitive and a key element appears to be whether, in any case, “is the client viable for an ASF”.

17/09/2019 1:35:01 PM

14 | Money Management September 26, 2019

News

World economy less resilient than pre-GFC

BY LAURA DEW

Timing important for super members relying on interest

BY JASSMYN GOH

THE global economy has less capacity to absorb a shock than it did in 2007, according to a study by insurer Swiss Re and the London School of Economics, with the Euro area seeing the biggest decline in economic resilience.

Having surveyed 31 countries, 80% of these had lower resilience than they did in 2007, at the onset of the global financial crisis.

This was caused by exhaustion of monetary policy options and a challenging operating environment for the banking sector.

The study found Switzerland, Canada and the US had the highest economic resilience while the Euro area had the worst.

The downturn for Europe reflected the fragile fiscal position of some European countries, labour market inefficiencies and underdeveloped financial markets.

Latin America was the only region to report consistently improving resilience, although this started from a lower base than other regions as its capital markets were less developed and it had low productivity.

Jerome Jean Haegeli, group chief economist at Swiss Re, said: “Considering the 35% probability of recession in the US next year and the global ramifications thereof, it

is more important than ever to assess the underlying resilience of our economies and look beyond the traditional GDP [gross domestic product] measures.

“In aggregate, policy buffers against economic shocks today are thinner than in 2007. Ultra-accommodative monetary policy over the past years leaves limited future room to manoeuvre for central banks, while increasing their dependency on financial markets. Coupled with insufficient progress on structural reforms, this is likely to result in more protracted recessions in the future.”

One year jail term for tax agent

BY OKSANA PATRON

REGISTERED tax agent, Nigel Bradshaw, who had been previously investigated by the Tax Practitioners Board (TBP) and had his registration terminated in 2015, has been sentenced to a one-year jail term by the Parramatta Court for lodging fraudulent income tax returns on behalf of clients and stealing refunds.

The court found that Bradshaw, in his role as a registered agent from 2011 to 2015, lodged a number of income tax agents in which he under reported his clients’ income in order to gain larger refunds. Following this, he was said to have pocketed the inflated difference.

His activities resulted in a loss to the Commonwealth of over $80,000 and a loss to eight individual taxpayers of over $10,000.

Bradshaw was ordered by the court to pay full repatriations to the Commonwealth.

Australian Taxation Office acting assistant commissioner David Mendoza, said: “Taxpayers should be able to trust their registered tax professional to do the right thing when handling their tax affairs. Lodging fraudulent tax returns on behalf of clients and then stealing the tax refunds is not only a clear breach of trust, but also serious fraud”.

16MM2609_01-17.indd 14

WHILE defensive superannuation funds made a return in August, compared to growth and balanced funds, income generated for retirees and savers is decreasing as a result of lower interest rates, according to SuperRatings.

The research house’s data found during the month of August, the median growth fund had a loss of 0.9%, and balanced funds lost 0.5%, compared to capital stable funds that returned 0.3%.

Pension products experienced similar results over the same period as balanced pension options lost 0.6%, growth pension options lost 1%, and capital stable pension options returned 0.3%.

However, over the seven years to 30 August, 2019 all pension funds made a return with growth at 11.5%, balanced at 10.2%, and capital stable at 6.3%.

SuperRatings said, while capital stable options were not expected to perform as well over longer periods, it would provide a smoother ride and might be an appropriate choice for those nearing retirement.

SuperRatings executive director, Kirby Rappell, said: “Super fund returns have generally held up well under challenging conditions, but there’s no doubt this has been a challenging year for those entering retirement.

“Under these market conditions, timing plays a bigger role in determining your retirement outcome. At the same time interest rates are at record lows and moving lower, so the income generated for retirees and savers is less, particularly if someone is relying on interest from a bank account. In the current low rate and low return environment, it’s harder for retirees to generate capital growth and income.”

Noting funds experiencing the sixth month of negative monthly returns over the past year, SuperRatings said funds were hit by the US/China trade war, geopolitical and market risks, a slowing global economy, and a disappointing Australian gross domestic product (GDP) result during the June quarter.

“There will always be negative months for super members, but the timing of negative returns can have a real impact on those entering the retirement phase,” Rappell said.

“For members shifting their super savings to a pension product, a number of down months in relatively quick succession will mean they begin drawing down on a smaller pool of savings than they might have anticipated.

“As members get closer to retirement, it’s important that they review their risk tolerance to make sure they can retire even if the market takes a turn for the worse.”

17/09/2019 1:35:27 PM

September 26, 2019 Money Management | 15

News

Should superannuation targets be reset lower?

BY JASSMYN GOH

INVESTMENT experts, including superannuation funds, are not considering the impact of the mounting global economic crisis when creating investment targets and forecasts, Rice Warner believes.

In an analysis, the research house questioned whether the last 10 years of positive returns for mainstream funds had made funds complacent even though the risk of a downturn was now much higher.

“The median estimates for Australian equities have varied from 7.6% to 8.2% a year over the next decade, which is a narrow range. Hedged international equities have been slightly lower (higher taxes and no franking credits), with a similar narrow range of 7.0% to 7.7%,” it said.

“Surprisingly, government bonds have also been in a narrow range (2.75% increasing to 3.5% in 2019 survey) and cash is flat at 3% to 3.3%, even though interest rates have moved considerably down over the last four years.”

It said these narrow ranges showed that investment experts were sticking to conventional forecasts of future performance and not building in global economic crises impact.

“Should funds be telling members that they are likely to average returns of 5% over the next decade, rather than the 7% to which members have become accustomed?” it said.

“Should the targets be reset lower in an environment of extremely high real asset prices and a decline in world growth (and future profitability)?

Should we consider whether 10 years of ‘lower-for-longer’ has expanded to permanently lower interest rates, and a different normal state?”

Rice Warner said baby-boomers who were gradually transitioning into retirement would be the most affected. While retirees now were drawing the minimum pension of 5% up to age 75 when their fund was earning 7%, this would not be the case for those retiring now.

“Fund communications, including retirement calculators, need to show the impact of potentially worse outcomes relative to the past. Consequently, more members will need to draw down their capital earlier,” it said.

Rice Warner noted that super funds needed to prepare members for much lower nominal returns in a low interest rate and inflation environment and tolerating higher levels of volatility if they were to have a reasonable chance of achieving adequate long-term returns.

DII products do not work well for chronic conditions: Gen Re

BY OKSANA PATRON

DISABILITY income insurance (DII) products and the way they have been designed do not work well for prolonged periods of disability or chronic conditions, according to the analysis by major reinsurer Gen Re. On top of that, the study said that there was no financial incentive to minimise the loss of income. Also, the past losses were not caused solely by mental health claims nor economic factors such as lower interest rates or low wages increases.

16MM2609_01-17.indd 15

The analysis also found that the way DII was being sold, via independent advisers and how they renumerated, was not the key problem.

However, the main contributors to the DII misery included the generosity of the products which delayed early return to work, a claims handling approach and the “eternal hope that a worsening trend will ultimately plateau and rate increases will restore profitability”.

Therefore, in order to improve the situation, DII required a concerted effort from multiple parties, which would include the Actuaries Institute to provide more robust advice on valuating DII business and the Australian Taxation Office (ATO) to review taxation of DII premiums and benefits.

Additionally, the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) should further supervise the ratings houses and how their ratings and scores were used while insurers would be required to radically re-design their products.

Other steps were:

• A claims handling process that sets clear expectations even before a claim is submitted; • A claims team that is continually trained on medical, financial, occupational and rehabilitation matters; • A government that promotes rehabilitation and gives life insurers the opportunity to reimburse costs associated with rehabilitation; • The reinsurers to offer capacity for DII without the need for cross-subsidisation; and • A media that focusses on premium sustainability and processes instead of hand-outs.

“But most of all, it requires the insurers to fundamentally re-design the current DII product, to align the claims management capabilities with the new product and to fine-tune the underwriting. It can be more generous in parts but overall must adhere to simple insurance principles,” the analysis concluded.

“With few large players in the market, the myth of first mover disadvantage disappears. It is time to lead the change and benefit from it.”

17/09/2019 3:24:35 PM

16 | Money Management September 26, 2019

News

Investors should keep an eye on commercial property

BY OKSANA PATRON

OFFICE markets in Sydney and Melbourne and industrial property sectors still look attractive for investors, according to head of research, Per Amundsen, at the specialist commercial property lender Thinktank which has recently upgraded industrial property ratings to ‘strong and improving’ for both cities.

By contrast, Perth still had four-out-of-five property sectors (residential housing, units, office and industrial) rated as weak while Adelaide saw only two (retail and industrial) rated as weak, and its office and residential markets were described as ‘improving’.

Following this, Brisbane’s markets were all rated ‘fair’ with office and industrial offering some upside with an ‘improving’ tag.

“But for investors, and especially SMSF trustees wanting income, the outlook is more optimistic. Although income returns hit 5.4% at 30 June, 2019, they have traded in a fairly narrow band since peaking at 7.5% in June

2010,” Amundsen said.

“Capital returns have been far more volatile over this period, peaking at 6.8% in March 2016 and then falling gradually to 3.4% in June 2019. This excludes the negative returns of June 2009 to June 2010.”

According to Thinktank it was still the retail sector that was proving a real drag on the property markets, with total returns falling to 3.7% from 8.4% a year ago as retail capital growth went into negative territory.

“With the Australian Bureau of Statistics showing a July retail sales slump of 0.1%, as well as plans by major retailers such as David Jones to substantially cut back on the number of stores they operate and the space they rent, is clearly having an impact on investor sentiment,” he said.

“But the office and industrial sectors continue to bubble along, especially in Sydney and Melbourne, with the latter showing a 13% return and the former an 11.6% return in the year to June 2019.

Unlisted property funds up THE unlisted retail property funds sector delivered strong performance of 13.7% return over 12 months to 30 June, 2019, according to data from Zenith Investment Partners, MSCI, The Property Funds Association, and the Property Council of Australia.

According to the report, Australian equities returned 11.9% for the 12 months to 30 June, 2019 while the Australian real estate investment trusts (AREITs) produced a 14.9% return.

At the same time, direct property returned 8.3%, cash remained stable at 1.9% and fixed income returned 16.1%.

According to Mark Lumby, head of commercial property at Australian Unity, the capital rate compression was very unlikely to go much further and rental growth should be the focus of future returns instead.

“Strong demand continues to drive capitalisation rates to historic lows, and we are seeing investors move to unlisted property funds across a range of sectors,” he added.

“Over the last five years unlisted property has delivered outstanding returns for investors, with annualised returns of 21.6% per annum, nearly three times global equities and more than ten times stronger than the cash rate (2.2%).”

However, the overall momentum across property had generally slowed even though the low cash rate environment continued to underpin momentum for capital seeking assets, according to Zenith’s head of property and listed strategies at Zenith, Douglas Higgins.

“Across all sectors results are increasingly mixed,” he said. “While industrial property had the greatest capital growth on the previous year, retail’s negative capital growth increased.”

16MM2609_01-17.indd 16

“Although Sydney and Melbourne are the strongest markets for both these sectors, it’s worth noting all capitals show a fairly even and steady income return.”

Vanguard introduces new series of funds

BY CHRIS DASTOOR

VANGUARD has announced its new Manager Select Series, a range of low-cost actively managed funds.

The new funds included the Active Global Growth Fund managed by Baillie Gifford, Active Emerging Markets Equity Fund managed by Wellington Management, and Active Global Credit Bond Fund managed by Vanguard’s fixed income group.

The two equity funds were currently available, with the bond fund to be available in the coming weeks.

All funds would be wholesale offerings available directly from Vanguard subject to investment minimums and in time through adviser distribution platforms.

Evan Reedman, head of product and marketing at Vanguard Australia, said despite being known for their index management they have a history of active fund management.

“This new series of funds follow our introduction of a range of active factor fund and ETF offerings over the past couple of years, with Vanguard broadening low-cost choice across a range of investment styles to suit investors’ individual needs and objectives,” Reedman said.

The base fee of the Global Growth Fund would be 0.6% p.a., 0.88% p.a. for the Emerging Markets Equity Fund, and 0.4% p.a. for the Global Credit Bond Fund.

17/09/2019 3:24:16 PM

September 26, 2019 Money Management | 17

InFocus

ASSET-BASED FEES – UTILITARIAN OR INAPPROPRIATE? Mike Taylor writes that while the critics of asset-based fees paint them as being as inappropriate as commissions, the commercial evidence suggests their use fills an important gap.

SURVEY DATA PRESENTED to this month’s Money Management Future of Wealth Management – Advice Conference served to confirm that, notwithstanding the critics, asset-based fees continue to represent a crucial revenue option for financial planning practices, particularly where mid-tier and low-value clients are concerned.

What the survey revealed is that, nearly a half-decade after the changes wrought by the Future of Financial Advice (FoFA) changes, advisers are continuing to struggle to find billing methodologies which meet both their needs and the needs of their clients.

Importantly, the Money Management research came just ahead of research conducted by MetLife which confirmed the continuation of the age-old dilemma for financial advisers – convincing clients of the value of advice and justifying what they should be prepared to pay for that advice.

In fact, the Money Management research revealed just how convenient asset-based fees were in the minds of advisers as a mid-point between the kinds of arrangements they

APRA QUARTERLY AUTHORISED DEPOSIT-TAKING INSTITUTION (ADI) PERFORMANCE (JUNE 2019)

could negotiate with high net worth clients and what could be managed with respect to relatively low value clients.

What the survey revealed was that advisers were comfortable with imposing an annual fee on high value clients and some mid-tier clients but were far more inclined to use assetbased fees for lower net worth clients.

The problem, of course, is that a question mark continues to hang over the future of assetbased fees, notwithstanding the fact that the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry stopped short of recommending their total elimination.

Perhaps unsurprisingly, much of the criticism of asset-based fees has come from the home of fee for service – the accounting profession. But that criticism inevitably overlooks the reality that financial advice is much more of an ongoing relationship between adviser and client than the tax-time relationship which often exists between an accountant and a client.

Then, too, there is the reality which has been reinforced by the most recent MetLife research

– that financial advice clients continue to struggle with what financial advice should cost and how they should pay for it.

What the Money Management research also confirmed is that advice really is becoming too expensive for many consumers, if only because advisers are now making some rather brutal and pragmatic decisions about which clients they actually want to service. Clearly not those with low balances and a reluctance to pay fees.

The survey revealed that in the months following the Royal Commission there had been a 12% reduction in the number of clients being serviced by advisers and it was clear that it was lower value clients who advisers had chosen to drop from their lists.

This then raises the question about how these lower-value clients will actually gain advice with the answer appearing to be greater use of robo-advice and, if the Australian Securities and Investments Commission (ASIC) is right, the provision of advice via superannuation funds.

Asked by a Parliamentary Committee about whether advice was becoming less affordable in the wake of the Royal

Commission and other regulatory changes, ASIC pointed to advice inside superannuation.

Giving evidence before the Parliamentary Joint Committee on Corporations and Financial Services, ASIC commissioner, Danielle Press pointed to superannuation funds as being the likely conduit for advice delivery.

Under questioning from former financial adviser and Queensland Liberal backbencher, Bert Van Manen, Press said the regulator was aware of unfilled advice needs and the changes to the system.

“Advice in superannuation as well, and I believe that much of advice that lower income Australians will receive is through their superannuation fund,” she said.

“Super funds both industry and retail have been providing advice for a long time,” Press said.

However, during the same committee hearing, ASIC acknowledged that it was still seeking to come to terms about how superannuation fund members were charged for that advice and whether it was appropriate.

$4.86t

$3.37t

3.8%

in total assets for all ADIs

in total gross loans and advances for all ADIs

increase in total gross loans since June 2018

Source: APRA

16MM2609_01-17.indd 17

19/09/2019 12:39:16 PM

18 | Money Management September 26, 2019

TOP financial planning groups

THE RULES HAVE CHANGED

The last 12 months caught the financial planning industry in the middle of a transition and struggling to figure out what the new rules of the game will be in a still-evolving post-Royal Commission environment, Oksana Patron writes.

THIS YEAR’S MONEY Management’s survey on TOP Financial Planning Groups has found that one of the key issues occupying financial planners’ minds in recent months has been the change of rules being driven by the Royal Commission and how to navigate them.

16MM2609_18-39.indd 18

With the upcoming end of grandfathered commissions, financial planning groups have realised they will need to shift their focus from planner numbers to the quality of their client base.

This means the groups will also need to put more effort into reconsidering their business

models particularly the development of a sustainable strategy on how to charge clients.

Moving forward, financial planners will need to become more pragmatic about the clients they choose to service and how they will build the commercial relationships with those clients in the future.

The speakers at the recent Money Management Future of Wealth Management — Advice conference said that the real problem for advisers is not how they currently charge their high net worth clients but how they are going to charge mid-tier ones and what role the asset-based fees

19/09/2019 11:10:12 AM

September 26, 2019 Money Management | 19

TOP financial planning groups

have played in it so far.

This will lead planners to re-evaluate their relationships with licensees and, as a consequence, the industry will continue to see the commercial foundations of dealer groups evolve.

WHAT’S NEW? With the ongoing departure of banks from wealth management, adviser movements between licenses, a growing trend towards self-licensing and a further push from the Financial Adviser Standards and Ethics Authority (FASEA) towards higher educational standards for both current and new financial planners, the general consensus is that it is just a matter of time before the industry sees a massive decrease in the number of advisers.

But what are the numbers actually telling us this year?

Unsurprisingly, the results from Money Management 2019 TOP Financial Planning Groups survey confirmed that the aligned groups, owned jointly by the Big Four and AMP, suffered the most.

The last couple of months saw a growing number of reports from institutions on acquisitions or divestments of part of their businesses as well as announcements regarding shutdowns instead of sales.

Altogether, the aligned groups which were traditionally owned by the Big Four and AMP saw a departure of close to 3,000 planners (2,896), well up on the combined loss of 800 planners

16MM2609_18-39.indd 19

reported last year. According to the survey, Westpac and Commonwealth Bank (CBA) let go of 930 and slightly over 800 planners, respectively, this year.

And perhaps defying the publicity, the survey confirmed that AMP continued to be the largest player in the space, despite a drop in its overall number of planners by around 220 professionals to 2,320.

AMP had quite a busy period over the last months during which the firm was not only recovering from the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, but also using that time to reassess its strategy with an overarching outcome to have “fewer but more productive” advisers in its ranks.

Its largest financial planning group, AMP Financial Planning, managed once again to be the single-biggest financial planning group across the industry, even though it posted an 11.4% yearon-year drop in planner numbers.

All the remaining groups operating under AMP’s umbrella continued to trim planner numbers, with Charter Financial Planning, Hillross Financial Services and Ipac Securities reporting a joint drop of 5.5%, counting year-on-year.

While AMP was recovering and focusing on the quality planners, its rival IOOF, managed to significantly grow its ranks, with a big help coming from completion of the acquisition of Australia and New Zealand

Banking Group’s (ANZ) four aligned groups: RI Advice, Millennium3, Financial Services Partners (FSP) and Elders Financial Planners, known together as ANZ Wealth Management (ANZWM).

The addition of the acquired companies made IOOF the secondlargest player in the sector by financial planner numbers as the transaction represented the intake of close to 650 new planners. As a result, IOOF saw a year-on-year increase in its total number of planners to 1,600 planners across all its groups from less than 940 a year ago.

This was in line with plans announced by the firm in 2018, according to which the $975 million acquisition which was first announced in October, 2017 was expected to enable the new owner to become the second-largest advice business by both adviser numbers and funds under advice.

At the same time, the move saw the overall number of financial planners operating under the auspices of ANZ to plummet from close to 900 advisers in 2018 to less than 200 in 2019.

“AMP Financial Planning managed, once again, to be the single-biggest financial planning group across the industry, even though it posted an 11.4% year-onyear drop in planner numbers.”

THE BIG FOUR While AMP and IOOF are still in the game, the post-Royal Commission environment saw increased movement from the banks which continued their exit by either announcing demergers, with a growing number of firms changing hands, or plans to close Continued on page 20

18/09/2019 5:21:10 PM

20 | Money Management September 26, 2019

TOP financial planning groups

Continued from page 19 down some of their groups.

One of the most significant changes was the arrival of Viridian Advisory, a company which described itself as a selflicensed, national advice business offering wealth and retirement planning, and its acquisition of a significant element of Westpac’s BT Financial Advice business.

Following this, in April Viridian confirmed that it was seeking to lure advisers from the aligned Securitor and Magnitude dealer groups with further “opportunity to keep the BTGL community together in an increasingly fractured industry.”

According to previous editions of Money Management TOP 100 Financial Planning Groups Survey and data from the Australian Securities and Investments Commission’s (ASIC) Financial Adviser Register (FAR), BT Advice had close to 550 planners in 2017 and slightly over 460 in 2018.

Earlier this year Westpac announced its exit from the financial advice business and further plans to reset its wealth strategy and, as a result of this, Westpac Banking Corporation exited the provision of financial advice by Westpac salaried financial planners in June while authorised representatives currently authorised under the Securitor Financial Group and Magnitude Group license will be expected to transition off those licenses by 30 September, the bank said.

However, this year’s Money Management survey showed that both groups, Securitor and Magnitude, posted substantial drops in terms of the financial planners. Securitor witnessed a

16MM2609_18-39.indd 20

drop from 293 planners a year ago to 113 this year while Magnitude saw a number of its planners to plummet from 171 in 2018 to 60 this year.

But Westpac was not the only bank which went through a complex de-merger process this year. In June, CBA announced the sale of one of its key wealth management assets, Count Financial to CountPlus for $2.5 million. As of last year, Count Financial had over 420 planners according to FAR. Although the move did not come as a surprise since the bank had previously announced its intention to demerge its wealth management and mortgage brokering businesses, it is worth stressing that the transaction happened almost a decade after the Count business was first sold to the CBA by its founder, Barry Lambert, for a much higher consideration of $343 million.

Following this, the bank provided a further update in August regarding its aligned advice businesses confirming that it would ‘commence the assisted closure of Financial Wisdom’, a group with slightly over 330 planners according to the Money Management 2018 survey.

The bank said it intended to

cease providing licensee services through Financial Wisdom by June, 2020 and will then proceed with an assisted closure. At the same time, advisers will be supported by CBA through an ‘orderly transition to alternative arrangements, including selflicensing or joining another licensee. The sale of Count Financial to CountPlus is expected to close in October.

The decision to sell Count Financial to CountPlus followed the bank’s earlier exit from its remaining advice businesses as in response to changes to the regulatory environment for financial advice following the Royal Commission and structural changes in the advice sector.

As a result of these changes, CBA which had three main financial planning groups operating under its auspices (Commonwealth Financial Planning, Count Financial and Financial Wisdom) in 2018 with a combined number of financial planners of close to 1,300 saw this year the number to fall sharply to less than 500.

And the last of the Big Four, National Australia Bank (NAB) followed the suit with its biggest group, NAB Financial Planning shedding its number of planners

to 276. By comparison in 2017 the group had 498 planners which translated into an overall drop of 45% within only two years.

At the same time Godfrey Pembroke and Apogee Financial Planning both posted declines in total number of financial planners from 160 and 155, respectively in 2017 to 112 and 115 in 2019 while Meritum Financial Group saw a drop around 19% within the last two years.

GWM Adviser Services was no different from the rest of NAB-owned dealer groups and also reported a considerable drop in number of advisers from 467 a year ago to 396 this year.

According to Money Management’s survey, a combined 338 planners departed the aligned groups owned by NAB compared year-on-year.

TOP10 The previous editions of the surveys showed that the mix of the top 10 largest groups has been pretty steady for a number of years and dominated by aligned groups owned by institutions. However, 2018 saw a pretty dramatic shift with a departure of one of the biggest independent groups, Dover Continued on page 24

18/09/2019 5:21:19 PM

September 26, 2019 Money Management | 21

TOP financial planning groups

THE END OF THE ‘GREAT BANKING ADVENTURE INTO WEALTH MANAGEMENT’ Westpac Millennium3 FS

Securitor and Magnitude: to join a Viridian-owned licensee advice model

RI Advice Financial Services Partners

ANZ Financial Planning

ELDERS EP

ANZ

Westpac Banking Group: exited from financial personal advice on 30 June 2019

IOOF

IOOF – Y/Y CHANGE IN A NUMBER OF FINANCIAL PLANNERS Group name

Number of advisers (July, 2018)

Number of advisers (July, 2019)

Consultum Financial Advisers

209

214

Lonsdale Financial Group

198

196

Shadforth Financial Group

154

158

Bridges Financial Services

171

195

Ord Minnett

207

228

IOOF

939

991

Millennium3 Financial Services

256

RI Advice

179

FSP (Financial Services Partners)

144

Elders Financial Planning

68

EX-ANZ groups

-

647

Total

939

1,638

CBA Commonwealth FP

Count Finacial: acquired by CountPlus

Financial Wisdom: to be shutdown

Big Four + AMP + IOOF

Year-on-year change in a number of financial planners 2018

16MM2609_18-39.indd 21

2019

AMP – Y/Y CHANGE IN A NUMBER OF PLANNERS Group name

Number of advisers (July, 2018)

Number of advisers (July, 2019)

AMP Financial Planning

1,417

1,255

Charter Financial Planning 684

643

Hillross Financial Services 304

297

Ipac Securities

139

125

Total

2,544

2,320

19/09/2019 10:23:01 AM

22 | Money Management September 26, 2019

TOP financial planning groups Planners 2019 Rank 2019

AFSL Licence No

Financial planning group name

1

232706

AMP Financial Planning

Total (14,489)

1,255

Major shareholders

YearHead of Financial on-year Planning Group change (%)

Name

%

Name

%

Total FUA ($m)

↓11

Brian George

AMP

100

$55,861

NTAA

100

n/a $24,836

2

430062

SMSF Advisers Network

991

↑21

Geoff Boxer/ Seamus Fennelly/ John Hondros

3

234665

Charter Financial Planning

643

↓6

Chris Digby

AMP

100

Don F Trapnell

45

4

243313

Synchronised Business Services

507

↑3

Don F Trapnell/ John Prossor

5

231139

Commonwealth Financial Planning

494

↓8

Michaela McGlinn

Capital 121 Pty Ltd

100

n/a

6

409361

Merit Wealth

400

↑54

Grahame Evans

Easton Investments Limited

100

$3.8bn (Easton)

7

230692

GWM Adviser Services

396

↓15

Brendan Johnson/ Jasia Fabig

MLC Ltd

100

8

243480

Bell Potter Securities

348

↑28

Dean Surkitt

Bell Financial Group

100

$47,000

100

$8,300

John Prossor

45

$4,200

9

227232

Count Financial Limited

330

↓23

Michael Spurr

Countplus Limited (as of October, 2019)

10

232705

Hillross Financial Services

297

↓2

Chris Digby

AMP

100

$15,419

11

254544

GPS Wealth Ltd

285

↓8

Grahame Evans

Easton Investments Limited

100

$3.8bn (Easton)

12

230686

NAB Financial Planning

276

↓39

Tim Steele

NAB

100

13

246638

InterPrac Financial Planning

260

↓13

Garry Crole

Sequoia Financial Group

100

$1,300

14

244252

Millennium3 Financial Services

256

↓3

Helen Blackford

IOOF Holdings

100

$5,100

15

341162

JBWERE LTD

240

↑24

Justin Greiner

NAB Group

16

237121

Ord Minnett

228

↑10

Tim Gunning

IOOF HOLDINGS

70

17

238430

StatePlus

218

↑32

Graeme Arnott

First State Super

100

18

223135

Capstone Financial Planning

218

↑11

Grant O'Riley

Grant O'Riley

19

230323

Consultum Financial Advisers

214

↑9

Joe Botte

IOOF Holdings Ltd

100

$10,200

20

246934

Lonsdale Financial Group Limited

196

↓1

Mark Stephen

IOOF Holdings Ltd

100

n/a

21

240837

Bridges Financial Services

195

↑14

Nathan Stanton

IOOF Holdings Ltd

100

$8,000

22

236048

Shaw and Partners Limted

193

n/a

Charles Stewart

EFG International

─

─

23

234459

Australian Unity Personal Financial Services

185

↓7

Matt Brown

Australian Unity Limited

100

$6,200

24

238429

RI Advice Group

179

↓3

Peter Ornsby

IOOF Holdings

100

$7,500

25

229892

Lifespan Financial Planning

178

↑4

Eugene Ardino

Ardino Family

100

Not disclosed

26

234527

ANZ Financial Planning

174

↓19.1

Mike Norfolk

ANZ PTY LTD

100

27

234951

Professional Investments Services

171

↓25

Angus Benbow

UBS Nominees

28

318613

Shadforth Financial Group Limited

158

↑3

Terry Dillon

IOOF Holdings

100

29

236523

Infocus Securities Australia

154

↑6

Darren Steinhardt

Steinhardt Holdings

50.2

30

237504

Macquarie Private Wealth

154

↓31

─

Macquarie Group

100

31

237857

Affinia Financial Advisers Limited

150

↑19

Marcus O'Sullivan

TAL

100

$3,000

32

243253

Findex Advice Services

146

↑24

Spiro Paule

Staff

─

$17,000

33

237590

Financial Services Partners

144

↑5

Geoff Kellett

IOOF Holdings Ltd

100

$4,200

34

331367

ClearView Financial Advice

127

↓7

Allison Dummett

ClearView Wealth Limited

100

35

357306

Fortnum Private Wealth Ltd

127

↑31

Neil Younger

Advisers

50

36

234655

ipac financial planning

125

↓10

Cassandra Hinze

AMP

100

37

239052

Patersons Securities Limited

123

↓8

Simon Goyder

Canaccord Genuity Australia

38

449221

Alliance Wealth

118

↑6

Angus Benbow

UBS Nominees

39

476223

Viridian Advisory

117

n/a

Glenn Calder

Not disclosed

─

40

230689 240687

Apogee Financial Planning Securitor Financial Group

115 113

↓13 ↓61

Brendan Johnson Mario Modica

MLC

100

41 42

-

Warwick Hawkesworth

Godfrey Pembroke Limted

112

↓22.2

Alan Logan

MLC Limited

100

340289

Wealth Today Pty Ltd

105

↑144

Keith Cullen

Spring FG Limited

100

44

246679

Madison Financial Group

105

↑3

Jaime Johns

Pharos Financial Group

100

45

238256

Matrix Planning Solutions

101

↑3

Allison Dummett

ClearView Wealth Limited

100

46

253125

Politis Investment Strategies

101

↑11

Gregory Politis

The Politis Family

100

47

363407

Craigs Investment Partners

99

n/a

─

Craigs shareholders

50.1

48

231143

Dixon Advisory & Superannuation Services

95

↑14.9

Chris Brown

─

-

49

238375

Wilson HTM

89

↑34

Brad Gale

Craigs Investment Partners

-

50

322056

Akambo Financial Group

89

↑19

Anthony Kapetanovic

Anthony Kapetanovic

28

$9,410

-

$5,000

10.07 $2,542 Not disclosed

Salo Holdings Pty Ltd atf 11.6 the Hasib Family Trust

$5,902

$6,087 Directors

50 $7,281

Custody 22.63 HSBC Nominees

230690

30

$15,400

Custody 22.63 HSBC Nominees

43

16MM2609_18-39.indd 22

JP MORGAN

10.07 $636 $7,000

$1,200 $4,322 Deutsche Bank Group

49.9

Wilsons Staff Company Limited Chris Willaton

15

24/09/2019 9:04:38 AM

September 26, 2019 Money Management | 23

TOP financial planning groups Planners 2019 Rank 2019

AFSL Licence No

Financial planning group name

51

227748

Sentry Advice

86

n/a

52

425542

MyPlanner Professional Services

84

53

286786

Sentry Financial Services

84

54

385845

Neo Financial Solutions

55

232514

Industry Fund Services

56

238478

57

Total (14,489)

Major shareholders

YearHead of Financial on-year Planning Group change (%)

Name

%

Total FUA ($m)

Name

%

David Newman

Privately held

-

$3b (Sentry Group)

↓26

Matthew Farley

Anvia Holdings

95

$2,317

↑52

David Newman

Privately held

-

$3b (Sentry Group)

84

↑2

Mark Edman

-

80

↓18

Chris Joiner

Industry Super Holdings

Futuro Financial Services

80

↑19

Paul Kelly

Dennis Bashford

224543

FYG Planners

80

↑4

Peter Mancell

Mancell Holdings Pty Ltd

58

224954

Total Financial Solutions Australia

79

0

Andrew Kennedy

Countplus Limited

100

$2,500

59

247429

Fitzpatricks Private Wealth

74

↓4

Matthew Fogarty

Privately Owned

100

n/a

60

245569

Meritum Financial Planning

68

↓8

Stephen Poole

MLC Ltd

100

61

224645

Elders Financial Planning

68

↑8

Tony Beaven

Millennium3 Financial Services Group Pty Ltd

51

62

231103

Fiducian Financial Services

66

↑14

Robby Southall

Fiducian Group Limited

100

$3,240

63

258145

Link Advice

65

n/a

Duncan McPherson

Link Group

100

n/a

64

227867

Sunsuper Financial Services

61

↑27

Michael Mulholland

Sunsuper Pty Ltd

100

65

221557

Magnitude Financial Group

60

↓65

Mario Modica

66

236643

Perpetual Trustee Company

59

↑16

Andrew Baker

ASX listed

$15,000

67

326450

WealthSure Financial Services

59

↑55

David Newman

Privately owned

$3bn (Sentry Group)

68

323825

Yellow Brick Road

59

↓26

Glenn Gibson

YBR Holdings

100

69

297276

Paragem

58

↓23

Ian Knox

HUB24

100

70

445113

The SMSF Expert

57

↓22

Grahame Evans

Elston Investment Limited

100

71

439065

Bombora Advice

55

↑34

Wayne Handley

Private Ownership 100

Not disclosed $1,000

100 -

n/a Paul Kelly/Manoj Pillai

48.65 Bob Fowler Pty Ltd

Elders Rural Services Australia Ltd

-

Over $2bn

22.08 $3,400

49

$1,465

$3.8bn (Easton) $300m

72

411766

Mercer Financial Advice (Australia)

55

↑22

Richard Ebbs

Marsh and McLennan Companies

73

429718

Libertas Financial

54

↓10

Mark Euvrard

Libertas Solutions

100

74

318075

Evans and Partners

54

n/a

Lyle Meaney

75

238274

Qinvest Limited

53

0

Qsuper Fund

100

76

422409

Shartru Wealth Management

53

n/a

77

384713

PGW Financial Services

52

n/a

Kym Peters

78

235907

UniSuper

52

↓7

Jack McCartney

79

237333

VicSuper

51

↑11

Josh Parisotto

80

411846

Bluewater Financial Advisors

48

n/a

81

238433

Ausure

47

↑4

82

278937

The Advice Exchange

46

n/a

83

437518

AvalonFS

45

n/a

84

420367

Guideway Financial Services

45

↓33

Alexander Aracas

Privately held

85

230052

Hartleys

43

↓8

Andrew Gribble

Employees

100

$2,500

86

247083

Taylor Collison Limited

43

↓7.7

87

225216

HNW Planning Pty Ltd

42

↓22

Robert Cumming

HNW Group Holdings

100

$618

88

414256

AIW Dealer Services

42

n/a

89

380552

Aura Wealth

40

↓15

Andrew Coloretti

Aura Group Holdings

100

n/a

90

225962

Hunter Green

34

↑6

Greg Hunter

Hunter Family Trust

100

$840

91

325252

EP Financial Services

30

↓32

Darren Withers

Privately held

16MM2609_18-39.indd 23

Jeff Haydn

Privately owned

Steadfast Privately owned Not disclosed

$1,700

24/09/2019 9:04:51 AM

24 | Money Management September 26, 2019

TOP financial planning groups

Continued from page 20 Financial Planning which left around of 400 financial planners in limbo after ASIC announced a civil penalty action in the Federal Court against the company and its sole director, Terry McMaster.

This left Synchron, which currently has over 500 planners, as one of the largest independent groups in the TOP10 table last year.

At the same time, the fallout from the Royal Commission has seen BT Financial Advice and Financial Wisdom exit the ranking, making room for other mid-tier groups which successfully managed to entice advisers and move up in the ranking over the recent months.

One such examples is Merit Wealth, the group which is owned

by Easton Wealth and which managed to grow its number of planners to 400, securing sixth place in the overall ranking.

Similarly, Bell Potter Securities with close to 350 planners on board and $46.8 billion in funds under management, moved up the ranking from last year and landed at number eight across the board.

On top of that, SMSF Advisers Network – a group owned by the National Tax and Accountants’ Association (NTAA) – which had a relatively small number of advisers only three years ago is currently one of the biggest groups across the ranking. In 2018, the firm reported that it had over 800 advisers, who were all accountants, and this year that number has further grown to almost 1,000 (991 as of July).

OUTSIDE THE INSTOS Although it was the banks and bigger institutional players who found themselves under the Royal Commission microscope and

16MM2609_18-39.indd 24

therefore generated the highest number planner departures, there were still a number of smaller players which also signalled the changes in their wealth management exposure.

In April, Aon made a decision to exit the financial advice business and divest of its financial advice arm, Aon Hewitt Financial Advice, a group which had around 180 advisers on board in 2018.

This decision was followed by the announcement that general manager, Jayson Walker, would be executing a management buy-out of the Aon-owned business. The firm said it reassessed its strategy back in 2017 and chose to focus more on its superannuation and investment product offering, as a result of its alliance with Equity Trustees.

In July, ASIC advised that Spectrum Wealth Advisers, which had 87 advisers as of 2018, had sought cancellation of its licence which would mean any remaining advisers will need to seek

authorisation elsewhere.

Although the company said it was voluntarily seeking to cancel its Australian Financial Services (AFS) licence due to the departure of some key responsible mangers, the regulator revealed that it had considered suspending Spectrum’ license before the company’s application was received.

SO, WHAT’S NEXT? Although no one knows for sure what the future holds for the industry and what the new advice business models will look like, one thing is certain – the rules have definitely changed and there is no way back.

Last month saw the industry struggling more than ever, with banks delivering on what they had announced months ago and ending their ‘great adventure into wealth management’ while leaving a high number of planners forced to look for their new home, whether it will be with other licenses, through self-licensing model or by exiting the industry for good.

18/09/2019 5:22:14 PM

investmentcentre.moneymanagement.com.au

INVESTMENT CENTRE a part of

FACT CHECK:

VERDICT: PASS

PENDAL AMERICAN SHARE Laura Dew writes the Pendal American Share Fund is managing to retain double-digit returns in the face of US political turmoil.

AMID ALL THE chaos of the US/ China trade war and the questionable actions of US President Donald Trump, one US actively-managed fund is still achieving annual doubledigit returns.

The fund aims to provide a return that exceeds the S&P 500 over the medium to long-term.

The firm said its bottom-up fundamental analysis allowed it to identify high-quality businesses with above average sustainable earnings growth.

The target investor, according to the firm’s Product Disclosure Statement (PDS) was someone who wanted long-term capital growth, diversification across a range of North American companies and industries and who was prepared to accept a ‘high variability of returns’, as the risk level was ‘very high’.

One of only four active funds in the ACS Equity-North America sector, the Pendal American Share fund has returned 13.7% over one year to 31 August, 2019, according to FE Analytics, compared to

returns of 5.1% by the ACS EquityNorth America sector. This followed double-digit returns of 23% in the previous year.

Over the one-year period, the only fund that performed better was the VanEck Vectors Morningstar Wide Moat ETF which returned 13.8%.

Founded in 1999, formerly as the BT Wholesale American Share Fund, the $37 million fund has been running for more than a decade longer than its rivals and returned 208% over the period.

Since 2006, it has been managed

by MFS, an alliance formed with Pendal to manage its core international shares.

Despite the ‘very high’ risk label in its PDS, only one out of the last 10 years have seen negative returns. However, they have indeed been variable with annual returns ranging from 51% in 2013 to losses of 1% in 2011.

Looking at its portfolio construction, the fund has 21% invested in technology which is unsurprising for a US fund as technology firms such as Alphabet,

Chart 1: Performance of Pendal American Share fund versus ACS EquityNorth America sector over three years to 31 August, 2019

Source: FE Analytics

16MM2609_18-39.indd 25

Netflix and Apple are large megacap constituents of the US stockmarket. This was followed by 14.5% in healthcare and 13% in consumer discretionary stocks, according to its factsheet.

It may also use derivatives within its asset allocation as a way to reduce risk and act as a hedge against adverse movements in a particular market or underlying asset.

PERFORMANCE CONTRIBUTORS Looking at the fund’s most recent performance update as of 30 June, 2019, the manager said the fund’s preference for high quality companies had been a tailwind for the fund as the market was favouring these type of asset over cyclical ones which had underperformed over the period.

“If you look at the market performance over the last 18 months, which coincides with the global economy deteriorating, the S&P 500 is essentially flat, with several corrections and recoveries mixed in. Over this period, bond proxies, growth and defensive sectors have outperformed while cyclical sectors have underperformed. This has likely provided a tailwind to our relative performance, as we favour higher quality companies that often have attributes that are more stable.”

Nevertheless, the bulk of performance contributor came from individual security selection and those which had been avoided rather than a broader quality versus cyclical argument.

Strong contributors came from healthcare, industrials and information technology, all large sector weightings for the fund. It

LAURA DEW

also benefited from avoiding semiconductor company Intel, which lowered its guidance, and resources company Exxon Mobil.

However, management said the fund was hindered by not owning bank JP Morgan Chase and entertainment company Walt Disney which beat its earnings expectations thanks to strong demand for its theme parks. It was also hurt by holding oil firm BP which saw its share price fall after weaker prices and refining margins.

In the future, the management team said it would remain focused on stock selection and seek out opportunities to drive long-term performance. These included those companies with healthy balance sheets, pricing power, higher return on equity and less volatile earnings.

However, they admitted they are worried about margins which could be less favourable going forward.

“Margins are at risk due to a cost structure that is rising faster than revenues. Sales growth remains below average, and pricing power is fading due to technology.

We are starting to see some signs of this as the number of companies with increasing gross margins is declining,” the team said.

“As a result, when looking at or owning companies that have benefitted from margin improvement, we are now taking a closer look at the key drivers of margin improvement and trying to determine how sustainable it is going forward.”

17/09/2019 1:37:58 PM

INVESTMENT CENTRE

a part of

ACS CASH - AUSTRALIAN DOLLAR

ACS EQUITY - AUSTRALIA EQUITY INCOME

Fund name

1m

1y

3y

Macquarie Australian Diversified Income ATR in AU

0.08

3.01

3.06

2

UBS IQ Morningstar Australia Dividend Yield ETF ATR in AU

-0.92 12.59

9.67

116

Macquarie Diversified Treasury AA ATR in AU

0.09

3.01

3.00

2

Plato Australian Shares Income A ATR in AU

-2.16

6.91

9.08

103

Mutual Cash Term Deposits and Bank Bills B ATR in AU

0.13

2.18

2.21

0

Lincoln Australian Income Wholesale ATR in AU

-1.25

8.95

8.87

95

Pendal Stable Cash Plus ATR in AU

0.13

2.22

2.19

5

Armytage Australian Equity Income ATR in AU

-3.72

3.89

8.75

106

Mutual Cash Term Deposits and Bank Bills A ATR in AU

0.14

2.18

2.19

0

Lincoln Australian Income Retail ATR in AU

-1.31

8.39

8.11

95

Australian Ethical Income Wholesale ATR in AU

-1.53

8.41

7.99

103

0.07

2.14

2.11

1

Legg Mason Martin Currie Equity Income X ATR in AU

Macquarie Treasury ATR in AU

0.12

2.27

2.04

3

Nikko AM Australian Share Income ATR in AU

-3.09

3.37

7.85

111

Mercer Cash Term Deposit Units ATR in AU

0.13

2.00

2.00

2

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

-2.13 11.38

7.27

89

CFS Colonial First State Wholesale Strategic Cash ATR in AU

0.08

1.92

1.97

1

Legg Mason Martin Currie Equity Income A ATR in AU

-1.59

7.58

7.22

103

IOOF Cash Management Trust ATR in AU

0.08

1

MLC Wholesale IncomeBuilderTM ATR in AU

-1.66

6.68

7.00

102

1.90

Crown Rating

1.95

Risk Score

Fund name

1m

1y

3y

Crown Rating

Risk Score

ACS EQUITY - AUSTRALIA SMALL/MID CAP

ACS EQUITY - ASIA PACIFIC EX JAPAN

Fund name

Crown Rating

Risk Score

1m

1y

3y

Macquarie Small Companies ATR in AU

-0.07

6.64

15.84

130

Fidelity Future Leaders ATR in AU

-1.19 13.71

15.50

122

Macquarie Australian Small Companies ATR in AU

-0.24

6.67

15.30

130

Ophir Opportunities Ordinary ATR in AU

-0.13 13.47

14.88

151

OC Micro-Cap ATR in AU

-0.06 11.73

14.72

110

Cromwell Phoenix Opportunities ATR in AU

0.05

5.12

13.78

129

131

SGH Emerging Companies Professional Investors ATR in AU

-2.06 27.66

13.77

126

11.35

114

Australian Ethical Emerging Companies Wholesale ATR in AU

1.19

20.44

13.30

88

7.24

11.09

125

Allan Gray Australia Equity A ATR in AU

-2.48

7.96

12.61

114

9.33

10.05

85

Ausbil MicroCap ATR in AU

1.04

12.28

12.61

134

1y

3y

Fund name

1m

1y

3y

Fidelity Asia ATR in AU

0.52

14.11

15.29

127

Schroder Asia Pacific Wholesale ATR in AU

-2.60

3.94

13.86

131

Advance Asian Equity Wholesale ATR in AU

-1.98

5.22

13.32

128

CI Cooper Investors Asian Equities -0.38 12.29 ATR in AU

13.09

102

Premium Asia ATR in AU

-1.18

7.87

12.41

139

Advance Asian Equity ATR in AU

-2.06

4.21

12.25

128

SGH Tiger ATR in AU

-0.78 12.93

12.00

Maple-Brown Abbott Asia Pacific Trust ATR in AU

-2.48

-1.34

T. Rowe Price Asia Ex Japan ATR in AU

-0.76

CFS Asian Growth A ATR in AU

-1.04

Crown Rating

Risk Score

ACS EQUITY - EMERGING MARKETS

ACS EQUITY - AUSTRALIA

1m

Crown Rating

Risk Score

1m

1y

3y

DDH Selector Australian Equities ATR in AU

0.94

11.69

14.90

143

Fidelity Global Emerging Markets ATR in AU

-0.10 17.58

15.25

104

Macquarie Australian Shares ATR in AU

-2.47

8.53

14.32

101

JPMorgan Emerging Markets Opportunities ATR in AU

-2.90

8.20

13.72

115

Alphinity Sustainable Share ATR in AU

-2.88

9.19

13.87

101

Legg Mason Martin Currie Emerging Markets ATR in AU

-2.06

3.69

12.71

127

Solaris High Alpha Australian Equity Inst ATR in AU

-1.43

7.93

13.33

108

MFS Emerging Markets Equity Trust ATR in AU

-3.12

1.26

11.58

110

Macquarie Wholesale Australian Equities ATR in AU

-2.50

8.20

13.24

102

Schroder Global Emerging Markets Wholesale ATR in AU

-2.24

5.35

11.43

112

Alphinity Sustainable Share B ATR in AU

-2.88

9.05

13.23

101

OnePath Wholesale Global -2.92 Emerging Markets Share ATR in AU

1.86

11.41

110

Solaris Core Australian Equity I ATR in AU

-2.09

8.99

13.18

102

CFS Wholesale Global Emerging Markets Sustainability ATR in AU

0.93

9.16

11.12

73

Macquarie Australian Equities ATR in AU

-2.50

8.22

13.11

102

Northcape Capital Global Emerging Markets ATR in AU

0.17

5.78

10.82

89

Pendal Focus Australian Share ATR in AU

-2.25

7.12

12.92

104

CFS Realindex Emerging Markets A ATR in AU

-3.94

2.53

9.92

113

Mercer Australian Shares for Tax Exempt Investors ATR in AU

-1.95

11.94

12.79

100

CFS FirstChoice Wholesale Emerging Markets ATR in AU

-1.91

4.62

9.81

116

16MM2609_18-39.indd 26

Crown Rating

Risk Score

Fund name

Fund name

18/09/2019 5:25:24 PM

INVESTMENT CENTRE

a part of

ACS EQUITY - GLOBAL

ACS EQUITY - SPECIALIST

Fund name

1m

1y

3y

Hyperion Global Growth Companies B ATR in AU

0.71

12.26

22.79

125

Zurich Investments Concentrated Global Growth ATR in AU

1.33

22.50

21.64

129

CC Marsico Global Institutional ATR in AU

-0.23

2.61

19.69

136

CC Marsico Global B ATR in AU

-0.22

3.00

19.28

136

CFS FirstChoice Acadian Wholesale Geared Global Equity ATR in AU

-4.52

-10.18

18.86

CFS Generation WS Global Share ATR in AU

-0.56

12.17

18.56

Zurich Investments Unhedged Global Growth Share Scheme ATR in AU

1.05

16.85

18.46

118

Zurich Investments Global Growth Share Scheme ATR in AU

1.05

16.74

18.39

117

Magellan Global ATR in AU

2.29

17.62

18.10

Loftus Peak Global Disruption ATR in AU

-0.66

5.86

18.01

Crown Rating

Risk Score

Fund name

Crown Rating

Risk Score

1m

1y

3y

BT Technology Retail ATR in AU

-0.97

9.13

24.17

158

CFS Wholesale Global Technology & Communications ATR in AU

-0.34 13.60

20.61

149

Fiducian Technology ATR in AU

-0.84

5.54

19.05

166

Platinum International Health Care C ATR in AU

0.30

-3.01

13.48

117

253

Platinum International Technology C ATR in AU

0.26

5.23

13.26

112

121

CFS Wholesale Global Health & Biotechnology ATR in AU

0.64

2.79

12.88

143

Platinum International Brands C ATR in AU

0.74

0.93

12.34

125

Barwon Global Listed Private Equity ATR in AU

-1.17

3.55

11.21

112

113

CFS Colonial First State Australian -2.25 Share Growth ATR in AU

6.46

9.91

106

153

BlackRock Concentrated Industrial Share D ATR in AU

-6.66

9.12

131

-0.36

ACS EQUITY - GLOBAL SMALL/MID CAP Fund name

Crown Rating

Risk Score

1m

1y

3y

Yarra Global Small Companies ATR in AU

-1.03

0.26

13.53

120

Bell Global Emerging Companies ATR in AU

-0.15

10.09

13.46

103

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

-0.90

-2.92

11.07

108

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

-0.93

-3.06

10.89

Mercer Global Small Companies Shares ATR in AU

-1.47

-3.74

Ellerston Global Mid Small Unhedged ATR in AU

1.44

Dimensional Global Small Company Trust ATR in AU

ACS FIXED INT - AUSTRALIA / GLOBAL Fund name

1m

1y

3y

IOOF MultiMix Diversified Fixed Interest ATR in AU

1.49

8.49

4.47

17

PIMCO Diversified Fixed Interest ATR in AU

1.43

9.47

4.30

21

PIMCO Diversified Fixed Interest Wholesale ATR in AU

1.44

9.40

4.26

21

108

CFS FirstChoice Wholesale Fixed Interest ATR in AU

1.74

10.81

4.24

23

10.63

121

UBS Diversified Fixed Income Fund ATR in AU

1.96

9.19

4.16

23

6.67

10.60

118

Onepath Wholesale Diversified Fixed Interest Trust ATR in AU

1.44

8.90

4.14

20

-2.28

-4.53

10.23

123

BT Wholesale Multi-manager Fixed Interest ATR in AU

1.65

9.97

4.09

23

Pengana Global Small Companies ATR in AU

-1.93

-4.27

9.36

97

AMP Experts' Choice Diversified Interest Income ATR in AU

1.27

9.16

3.95

21

Lazard Global Small Caps I ATR in AU

-0.78

-5.39

8.83

118

1.36

10.50

3.93

26

Microequities Global Value Microcap Ordinary ATR in AU

-3.79

-7.52

8.07

105

CFS Colonial First State Wholesale Diversified Fixed Interest ATR in AU AMP Capital Specialist Diversified Fixed Income A ATR in AU

1.26

9.12

3.91

21

Crown Rating

Risk Score

ACS EQUITY - INFRASTRUCTURE Fund name

1m

1y

3y

Crown Rating

Risk Score

Macquarie Global Infrastructure Trust II A ATR in AU

18.27

22.15

711

Macquarie Global Infrastructure Trust II B ATR in AU

18.17

22.10

704

ACS FIXED INT - AUSTRALIAN BOND Fund name

1m

1y

3y

Elstree Enhanced Income ATR in AU

0.11

6.15

7.26

18

DDH Preferred Income ATR in AU

0.81

6.04

6.00

16

Legg Mason Western Asset Australian Bond X ATR in AU

1.53

11.59

5.24

27

BlackRock Enhanced Australian Bond ATR in AU

1.47

11.37

5.02

28

QIC Australian Fixed Interest ATR in AU

1.60

11.29

4.96

28

Crown Rating

Risk Score

BlackRock Global Listed Infrastructure ATR in AU

4.26

26.20

16.42

95

Magellan Infrastructure Unhedged ATR in AU

3.32

23.12

14.04

89

Macquarie True Index Global Infrastructure Securities ATR in AU

3.34

22.70

13.74

93

ClearView CFML Colonial Infrastructure ATR in AU

3.17

22.52

13.40

93

Macquarie Core Australian Fixed Interest ATR in AU

1.55

11.37

4.89

27

Lazard Global Listed Infrastructure ATR in AU

0.01

11.92

13.32

90

Legg Mason Western Asset Australian Bond A ATR in AU

1.50

11.17

4.88

27

4D Global Infrastructure A ATR in AU

1.26

23.25

13.00

74

2.06

13.37

4.86

34

AMP Capital Global Infrastructure Securities Unhedged Wholesale ATR in AU

Mercer Australian Sovereign Bond ATR in AU

2.68

21.90

12.75

99

Schroder Fixed Income Standard ATR in AU

1.74

11.41

4.86

28

AMP Capital Global Infrastructure Securities Unhedged R ATR in AU

2.67

21.58

12.49

99

Macquarie True Index Sovereign Bond ATR in AU

1.95

13.02

4.86

35

16MM2609_18-39.indd 27

18/09/2019 5:25:37 PM

INVESTMENT CENTRE

a part of

ACS FIXED INT - INFLATION LINKED BOND

ACS FIXED INT - DIVERSIFIED CREDIT

1m

1y

3y

Ardea Real Outcome ATR in AU

1.19

9.26

5.87

17

18

Ardea Premier Australian Inflation Linked Bond ATR in AU

0.77

12.01

5.09

43

6.53

28

Ardea Australian Inflation Linked Bond ATR in AU

0.84

11.84

4.89

43

6.15

6.35

16

PIMCO Global RealReturn Wholesale ATR in AU

2.14

10.75

4.66

48

1m

1y

3y

Premium Asia Income ATR in AU

0.56

12.28

8.24

50

DirectMoney Personal Loan ATR in AU

0.65

8.22

7.71

Bentham High Yield ATR in AU

0.66

6.69

MANNING PRIVATE DEBT ATR IN AU

Crown Rating

Fund name

Crown Rating

Fund name

Risk Score

Risk Score

Pimco Capital Securities Wholesale ATR in AU

0.66

7.69

6.18

40

Mercer Australian Inflation Plus ATR in AU

1.10

6.02

3.97

14

Macquarie Core Plus Australian Fixed Interest ATR in AU

1.99

14.29

5.57

34

Macquarie Inflation Linked Bond ATR in AU

0.42

10.58

3.95

42

Bentham Global Income ATR in AU

-0.10

0.38

5.28

18

CFS Wholesale Global Credit ATR in AU

0.73

6.51

3.10

22

0.49

8.12

5.17

18

Morningstar Global Inflation Linked Securities Hedged Z ATR in AU

Firstmac High Livez Wholesale ATR in AU

0.18

4.94

2.71

20

0.31

5.30

5.05

13

Aberdeen Standard Inflation Linked Bond ATR in AU

Bentham Syndicated Loan ATR in AU

-0.23

1.44

5.03

18

QIC GFI Inflation Plus ATR in AU

-0.71

-0.60

1.65

11

ACS PROPERTY - AUSTRALIA LISTED

ACS FIXED INT - GLOBAL BOND Fund name

1m

GCI DIVERSIFIED INCOME WHOLESALE UNHEDGED USD ATR IN AU

1y

3y

Crown Rating

Risk Score

Crown Rating

Fund name

1m

1y

3y

Risk Score

Macquarie Property Securities ATR in AU

0.92

23.16

10.93

150

10.72

6.08

72

Macquarie Wholesale Property Securities ATR in AU

0.90

22.88

10.79

150

Mercer Emerging Markets Debt ATR in AU

-1.02

18.21

5.34

66

UBS Property Securities Fund ATR in AU

1.58

25.33

10.62

136

Mercer Global Sovereign Bond ATR in AU

2.70

12.62

4.88

29

AMP Capital Listed Property Trusts ATR in AU

1.76

25.37

10.43

142

PIMCO Income Wholesale ATR in AU

-1.02

5.79

4.85

17

Resolution Capital Core Plus Property Securities A PF ATR in AU

1.52

20.30

10.37

133

SPW Global Income ATR in AU

0.20

2.31

4.69

37

AMP Capital Property Securities ATR in AU

1.78

25.35

10.32

142

IPAC SIS International Fixed Interest Strategy No 2 ATR in AU

1.54

11.36

4.49

31

The Trust Company Diversified Property ATR in AU

1.11

18.43

10.22

134

Invesco Wholesale Senior Secured Income ATR in AU

23.08

10.06

134

1.98

4.39

21

Pendal Property Securities ATR in AU

1.96

-0.23

23.00

10.05

132

1.74

8.67

4.34

23

Pendal Property Investment ATR in AU

1.98

PIMCO Global Bond ATR in AU Janus Henderson Global Fixed Interest Total Return ATR in AU

AMP Capital Listed Property Trusts A ATR in AU

1.72

24.72

9.86

142

2.20

7.81

4.31

22

Invesco Senior Secured Loans ATR in AU

-0.23

2.00

4.30

22

Fund name

1m

1y

3y

APN Asian REIT ATR in AU

3.11

28.42

13.11

71

Quay Global Real Estate A ATR in AU

4.68

18.15

12.21

100

Quay Global Real Estate C ATR in AU

4.71

18.39

12.13

100

ACS FIXED INT - GLOBAL STRATEGIC BOND Crown Rating

Risk Score

ACS PROPERTY - GLOBAL Crown Rating

Risk Score

Fund name

1m

1y

3y

Dimensional Global Bond Trust AUD ATR in AU

1.95

11.46

4.40

30

PIMCO Dynamic Bond C ATR in AU

-1.15

2.01

3.64

12

Resolution Capital Global Property Securities Unhedged II ATR in AU

5.18

18.49

10.78

104

Dimensional Global Bond Trust NZD ATR in AU

-0.28

13.78

3.56

30

IOOF Specialist Property ATR in AU

3.95

15.04

9.92

92

PIMCO Dynamic Bond Wholesale ATR in AU

-1.15

1.92

3.54

12

6.59

14.55

9.85

206

MacKay Shields Unconstrained Bond ATR in AU

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

0.36

3.15

3.23

12 Premium Asia Property ATR in AU

-4.63

8.18

9.59

151

JPMorgan Global Strategic Bond ATR in AU

0.34

3.42

2.74

16

Dimensional Global Real Estate Trust Inc AUD ATR in AU

4.98

21.52

9.46

100

IOOF Strategic Fixed Interest ATR in AU

0.22

3.58

2.30

6

T. Rowe Price Dynamic Global Bond ATR in AU

3.22

17.01

9.35

100

-1.87

0.17

0.07

27

Perpetual Private Real Estate Implemented Portfolio ATR in AU

T. Rowe Price Dynamic Global Bond C3 ATR in AU

-1.88

BetaShares AMP Capital Global Property Securities Unhedged ATR in AU

4.50

17.70

8.99

100

27

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

16MM2609_18-39.indd 28

18/09/2019 5:25:51 PM

September 26, 2019 Money Management | 29

WIFS

FINDING YOUR OWN PATH From Model UN to First Sentier Investors business development manager, a passion for the international stage has guided Jeannene O’Day into global finance, Chris Dastoor writes.

A LOVE OF foreign affairs and international relations from a young age has led Jeannene O’Day’s path into global financial services.

O’Day is First Sentier Investors’ (FSI) – formerly Colonial First State Global Asset Management – business development manager (BDM), responsible for Australian Institutional Clients, and previous winner of the BDM of the Year Category in Money Management’s 2018 Women in Financial Services Awards.

“When I was a young girl, I did a lot of Model UN-type things in high school, and I really loved doing it,” O’Day said.

“I grew up in France and went to a French international school, so I got to meet a lot of people from different places.”

After high school, she went to university at the London School of Economics, where she studied International Relations and Economics.

“We studied things like international economic institutions and foreign policy analysis, so we were looking at international relations with an economics perspective,”O’Day said.

“When I graduated university, I did postgrad in public and private international law, because I thought that was where I needed to continue my studies, if I wanted to work in the Foreign Service.”

Although it was that Model UN experience that led her ambition to being in the Foreign Service, she later felt it wasn’t the exact direction for her.

“I still wanted to work in a crossborder role and the financial markets seemed the most obvious choice,” O’Day said.

As time went on, she realised she had made the right choice and it was the dynamism of markets she enjoyed.

16MM2609_18-39.indd 29

“Having had that sort of international relations focus, you start to realise how important geopolitics is in the context of financial markets, particularly now more than ever,” O’Day said.

She said she sees her role as developing a deep understanding of clients’ needs and requirements, while building awareness of what they do.

“I think because FSI has capabilities across equities both global and Australian, global fixed income and cash, multi-asset strategies and direct infrastructure as a business development team we tend not to be product focused,” O’Day said.

“When we are speaking with clients there is a much broader conversation about what are the big issues they are focused on.

“That broader conversation means that as an organisation we have a good idea of and empathy for client needs, I think that is a critical ingredient for success.”

O’Day said there’s a whole range of skillsets required for organisations to succeed in the industry, so there are many options for women to take part even if they’re not “numbers” people.

“There’s always a role for you in financial services, whether you're a creative person, a numbers person, a great writer, or you have a passion for managing or interacting with people,” O’Day said.

“There is always a role for you and don't feel like you necessarily have to be hugely financially literate.”

Over the last couple of years, she had been on the Women in Super NSW committee, helping organise events to promote women with their mandate being gender equity across the industry.

In her time in the organisation, she had established the first-ever Women in Super Melbourne Cup, which had since turned into a

“Having had that sort of international relations focus, you start to realize how important geopolitics is in the context of financial markets, particularly now more than ever.”

- Jeannene O’Day, First Sentier Investors significant industry event.

“The great thing about that event was the objective of raising money for a women’s charitable interest, which the last few years has been Women’s Legal Services Queensland,” O’Day said.

FSI had been an employer of choice for her and she had found no reason to move.

“If you talk to anybody who

works here, you'll know we have very low turnover, I've been here five and a half years, and I'm probably one of the people that have been here the shortest amount of time,” O’Day said.

“Culturally, people are generally very nice, it’s a social place, people enjoy working together and for the most part it’s a great place to work.”

18/09/2019 5:26:15 PM

30 | Money Management September 26, 2019

Client retention

WHY ADVISERS NEED TO STRENGTHEN CONNECTIONS WITH THEIR CLIENTS MetLife’s Michael Mulholland on how firms ensure clients want to stay with their adviser and how they can demonstrate value in their work.

UNTIL RECENTLY, THE financial advisory sector enjoyed client retention levels unmatched by any other professional group.

However, long periods of client loyalty and low attrition are being disrupted by the unprecedented level of change we’ve seen in financial services in recent years.

Clients are really starting to take a hard look at what they want from their advisers.

This is supported by findings from a recent survey of consumers and SME owners who had purchased life insurance through a financial adviser. Consumers and SMEs en masse appear to be seriously contemplating the value they derive from seeing a financial adviser.

The recent MetLife Adviser – ‘Client Relationship Report’ revealed that three-in-10 consumers and five-in-10 SMEs are considering either changing their current adviser or ceasing to use an adviser at all.

While some attrition is inevitable in any client services profession, these numbers suggest that loyalty is in no way a given, so financial advisers need to take a far more proactive role when it comes to generating and demonstrating value for their existing clients.

While the intense scrutiny of the Royal Commission has shaken the financial services sector to its core, it has also opened up opportunities for competitive advantage and

16MM2609_18-39.indd 30

differentiation for those who look at enhancing customer focus across the board.

The value of high client retention extends beyond the obvious financial benefits that come with having long-term customers. The positive word of mouth that comes with a strong and loyal client base is an essential driver of customer referrals needed to generate growth. With long-term clients there is also an increased opportunity to deliver greater value over time. When you factor in the cost of marketing to attract new clients on top of this, the case for investing in client retention is clear.

Many advisers have been working on their retention strategies and commuting through these changes with their clients. Those who don’t act on this now, risk seeing clients move to competitors or worse, look to exit the advice industry entirely.

The right advice is more important than ever While the data suggests consumers and SMEs are seeking greener pastures, financial advice is unquestionably becoming more valuable than ever. Australians are navigating a complex financial system with serious implications for their long-term financial health and a glance at the news headlines will tell you that it’s a tough environment.

19/09/2019 10:15:06 AM

September 26, 2019 Money Management | 31

Client retention Strap

Australians are struggling with falling levels of financial literacy, with OECD research suggesting we lag behind other developed countries when it comes to understanding financial concepts and staying on top of personal finances. Soaring household debt and the fact that millions of Australians are struggling to meet their monthly credit card repayments has many believing we have officially reached a crisis point.

We are also dealing with the rising cost of living and some of the highest energy prices of any country across the globe.

Add to that Australia is in the lowest interest rate environment in its history which is particularly problematic for retirees and those planning for retirement. Our current low growth climate means many Australians may consider dipping into their retirement savings in order to maintain their lifestyles.

This should be the time for the industry to shine. But the spotlight of the Royal Commission is yet to fade. Reforms designed to increase openness and transparency across the industry have raised client expectations around the transparency of advice they receive. Our research shows trust is one of the key attributes consumers and SME owners sought out in their advisers.

With people feeling less secure about their finances, it continues to be important that they are equipped to make informed decisions that impact their future, and our research suggests advised clients are more confident in their understanding of, and ability to explain products.

Financial advisers have a critical role to play in connecting these dots to help people to understand and participate in the financial system. If there was ever a time for Australians to be engaging with financial advice, it is now. And it’s important that they feel they can trust that advice.

16MM2609_18-39.indd 31

So if financial advice is so valuable, why are clients considering turning away?

To stem potential client losses, financial advisers need to understand the pain points which may potentially be turning loyal clients away in the first place.

Concerns around high fees, a lack of affordability or a lack of contact were the top reasons consumers and SME-owners indicated they were looking to move on. When we delved deeper into these findings, there appeared to be a real disconnect between perceptions of cost and value when it comes to insurance and financial advice.

As with any product or service, if you can’t demonstrate value or return on investment (ROI) to your client, you don’t have a strong business model. The challenge for advisers has always been measuring and communicating ROI in the short term when the foundations of the business are built on delivering long-term gain.

We live in a world where we expect and receive instant gratification, from the emails in their inbox, to the likes on their Instagram, to the purchases in their online shopping cart. So in the absence of any immediate gain or reward advisers do risk their clients turning away. That is unless the benefits of seeing an adviser are communicated simply, honestly and regularly.

From the outset of a new client relationship, advisers need to be forming a connection and focused on explaining the value of their advice, the benefits of specific products and being open about fees and commissions. For existing clients, regular reviews are becoming increasingly important and can be viewed as a value-add to strengthen the relationship.

While there’s no simple answer when it comes to client retention, there are some simple measures advisers can take: 1) Build genuine connections and foster a relationship based on trust:

Adviser-client relationships need to work like partnerships, where both sides work in tandem toward a common goal.

Often the most successful advisers are those that work to set realistic expectations around value right from the outset of a relationship. By setting and agreeing on expectations, clients are likely to develop trust early on, which will be continuously reinforced as certain milestones are met.

2) Demonstrate value through regular communication: Clients need to understand what they’re paying for and why. The importance of regular check-ins and routine annual reviews which give clients the opportunity to ask question cannot be overlooked.

This also provides insight into clients’ changing circumstances and needs, such as at important times in their lives such as buying a house and having a baby.

Regular communications and deep understand of clients also means that they are more likely to recommend their adviser.

3) Make it personal: In a world where increasing digitisation means consumers are used to a customer experience designed just for them, everyone wants to feel special. So it’s important to invest in providing personalised touches and experiences tailored to their individual needs. That way clients are more likely to derive value and remain sticky.

If there’s a key takeaway from our research it should be that there needs to be an ongoing focus on clients over time. Client engagement should be the number one priority on every adviser’s business plan for 2020.

Those that can successfully do this will be able to capture a competitive advantage in a challenging market.

“The positive word of mouth that comes with a strong and loyal client base is an essential driver of customer referrals needed to generate growth.”

– Michael Mulholland, MetLife

Michael Mulholland is chief distribution officer at MetLife Australia.

19/09/2019 10:15:10 AM

32 | Money Management September 26, 2019

Equities

O N O I T A R E P/ R I X I L E C I G A M L A B O TO GL PRICING Y T I U Q E

Investors have been erroneously led to believe that the price to earnings ratio is the exclusive barometer to apply in determining the market price of particular stocks. Damien McIntyre looks at other factors that need to be taken into consideration.

IN A RECENT white paper, Epoch’s chief executive and chief investment officer, Bill Priest, explored this very theme of price to earnings (P/E) ratios.

The job of an active global equities manager is to identify alpha opportunities — situations where the market price of a stock is incorrect. But it’s not enough to simply decide what an investor believes a stock is worth and then compare it to the market price.

Part of the process of deciding that the market price is incorrect has to involve figuring out what

16MM2609_18-39.indd 32

assumptions the market is making about the three key variables — the company’s free cashflow, its growth rate and its cost of capital — that drive the fundamental value of the business. Without that analysis, investors are not making an informed assessment.

Too often, argued Priest, investors do not perform this kind of analysis. Rather, they rely on valuation metrics like the P/E ratio or the price to earnings to growth (PEG) ratio, treating them as if they are fundamental characteristics of

a stock in their own right.

But, without an understanding of how a company’s return on invested capital (ROIC) is driving the trade-off between its free cashflow and its growth rate, those ratios can be worse than useless. They are simply not a reliable guide to valuation on their own. In many situations, investors use P/E or PEG ratios in a way that implicitly assumes a static world. But the world is dynamic; relationships change constantly.

P/E ratios can herald that change, but only if investors are alert to

the information they carry.

Rather than making assumptions about how the P/E will change based on historical averages, the job of an investor is to figure out what assumptions the current P/E is signalling, and then to make a judgement about whether those assumptions are likely to prove true.

The more convincing investment thesis is not “Company X is attractive because its P/E is below its long-term average,” but rather “Company X is attractive because the current

17/09/2019 1:39:47 PM

September 26, 2019 Money Management | 33

Equities

P/E underestimates the improvement in ROIC that the company will achieve.”

APPLICATION OF P/E In his white paper, Priest argued that P/E ratios are the most widely used valuation metric in the investment world, but that they are also the most widely misused. Most people use them in a way that renders them meaningless. Properly understood and properly used, though, the P/E ratio can be a valuable tool for deciphering the coded information that every stock price contains.

In any market system, prices contain information. The problem is, it’s not always easy to figure out what that information is.

When the price of a stock goes up, it is rarely easy to draw an obvious connection between a specific piece of information and the change in price. Investors are left to fall back on models about which kinds of information matter to market participants, who ultimately determine the price of a stock through their trading with one another.

The most sensible way to determine what a business is worth is to perform some variation of a discounted cashflow (DCF) analysis: estimate what cashflows a company will throw off to its owners over time, and then discount those cashflows back to their present value. This is the best model to apply. Similar to if you were going to put up the money to buy a business in full, the DCF approach captures how you would put a price on the business and, indeed, this is how private equity firms generally value businesses.

Also, for publicly traded businesses, there is an arbitrage opportunity if the stock price deviates too far from what a DCF

16MM2609_18-39.indd 33

analysis says the company is worth.

If the price is well below what the DCF model says it should be, an investor (such as a private equity firm) could buy the entire business and capture that undervaluation. If a stock appears to be well above its DCF price, an investor could sell that stock short and take a long position in the stock of a similar business that is trading closer to its fair value. Theoretically, this arbitrage opportunity should act to keep stock prices from straying too far from their fair value for too long, making the DCF analysis a good way to estimate the fair price of a stock.

The most well-known DCF model is the dividend discount model, which uses dividends as the cashflows to be discounted. At a public company, this cashflow can be distributed to shareholders either in the form of cash dividends, stock repurchases or debt reduction, all of which are functionally equivalent.

Following the relevant analysis and on the hypothetical basis that two companies with the same amount of revenue and net income could pay out very different dividends, investors need to be asking how and why that is the case.

An important part of the answer is that different companies require different amounts of reinvestment in their business in order to make it grow.

The more you need to reinvest to achieve growth, the less you have left to pay out to shareholders, and vice versa. And that variation is driven primarily by differences in ROIC that companies earn.

THE NEED FOR ROIC Take ABC Corporation and XYZ Industries, for example, with both having earnings of $1 per share.

Both companies would like to grow their earnings by 6% over the next year. What would it take

for each company to do that?

Earnings growth requires investment of some capital to expand the business. How much capital would each company have to invest in order to achieve a 6% increase in earnings?

The answer clearly depends on what kind of return each company can earn when it invests capital in its business, and how much additional profit is created for each dollar of capital it invests.

And much of this is dependent on the reinvestment rate.

When one company has an ROIC that is twice as high as another’s, in order to achieve equal rates of profit growth, the one with the lower ROIC will have to reinvest twice the proportion of its profit as the company with the higher ROIC. But that means that the company with the lower ROIC also has less money left to distribute to shareholders.

GROWTH AND FREE CASHFLOW Every company faces the same dilemma – the faster you want to grow, the more of this year’s earnings you need to reinvest. But the more you reinvest, the less free cashflow that leaves for you to distribute to shareholders.

Conversely, a higher distribution to shareholders will, on its own, tend to raise the price, but it means sacrificing some reinvestment and settling for a lower growth rate.

Typically, as ROIC increases, the reinvestment rate needed to achieve any given growth rate declines, and the distribution rate rises. The fact that two companies have the same growth rate does not mean they should sell at the same P/E multiple.

Higher ROIC is always better than lower ROIC, even for companies with the same growth rate.

Strangely, Priest’s analysis found that when a company’s ROIC

is exactly equal to its cost of capital, it doesn’t matter how fast or slow the company tries to grow, the value of the business doesn’t change at all even as growth increases. This conclusion is indicative of the difference between earnings and free cashflow; what drives the value of a business is not its earnings, but how much of those earnings end up in the hands of the shareholders (versus how much has to be reinvested in the business).

If a company can earn more on its investments than the cost of the capital invested, it’s creating value, so the more invested, the greater the value created. If a company earns less on its investments than the cost of the capital, it loses money on every dollar invested. The more you invest, the more you lose. And if investments earn just enough to pay off the cost of the capital, it’s a wash. You don’t make any money, but you don’t lose any money. You could invest more, but it won’t make any difference; you’ll still just come out even.

Current free cashflow and future growth both drive the value of a business. But there is an inherent trade-off between the two, and the variable that ultimately triangulates the outcome of that trade-off is ROIC. Epoch’s global equity investment approach is designed to uncover opportunities that others may miss. In its view, growth of free cashflow, and the intelligent use of that cashflow, represents the best predictor of long-term shareholder return. It looks for strong company management with a commitment to financial transparency and a track record of delivering returns to shareholders.

Damien McIntyre is chief executive of GFSM.

17/09/2019 1:39:57 PM

34 | Money Management September 26, 2019

Portfolio construction

THE PERILS OF WORRYING ABOUT THE FUTURE Bennelong’s Julian Beaumont explains why it is futile to worry about the future of the economy and that a downturn is not on the horizon yet.

INVESTORS, ADVISERS AND their clients should be wary of worrying too much about the future when it comes to their investment strategies.

After all, does worrying about such things make them better investors? I’d argue no. Having some defensive strategies in place in case of a downturn is one thing but continually anticipating the worst is quite another.

IS A CRASH INEVITABLE? At the moment, it seems talk of a recession or stockmarket crash never goes away. This reflects human nature – we focus more on what might go wrong rather than what might go right.

For example, predictions of a market crash are far more prevalent than those of a boom, yet usually you cannot have one without the other.

Type ‘market crash’ and ‘market boom’ into Google Trends and you’ll see the number of searches of the former far outweighs the latter.

Similarly, bad things from the past stick in the mind far more than good. Relevantly for investors, studies into the psychology of ‘loss aversion’ show we feel losses twice as much as we do gains.

The global financial crisis (GFC) in particular seems to have left us with deep psychological scars that are yet to fully heal.

You can see this in the elevated levels of investors’ risk aversion. By and large, since the GFC, investors have mostly targeted low-risk and low-volatility investments. The most obvious example of this is their preference for bonds and real estate. And when it comes to equities, investors have sought out the safety of defensives, yield and the momentum of whatever has

16MM2609_18-39.indd 34

most recently been working. More recently, real estate investment trusts (REITs), gold stocks and “expensive defensives” such as Woolworths have outperformed, even though they are not necessarily justified by the fundamentals.

Only in very recent times have fears of a repeat of the GFC calmed down. Predicting a repeat, however, is to imply it is a naturally recurring event. If so, what was the precedent for predicting the last GFC? Or the dot-com boom and bust? Or, for that matter, the 1987 stockmarket crash?

HISTORY DOESN’T ALWAYS REPEAT We have a tendency to fight the last war over again, making it unlikely something like the GFC repeats soon thereafter. Central banks have literally done ‘whatever it takes’ to avoid a relapse, to take the words of Mario Draghi, president of the European Central Bank during the euro crises in 2011. Likewise, regulators have lifted banks’ prudential capital, liquidity and lending standards worldwide. In Australia, banks’ capital positions are now about twice as strong as they were in 2007.

Market pundits are fond of quoting Mark Twain, that “history doesn’t repeat, but it does rhyme”.

But depression rhymes with recession, and there is a big difference between the two. Each event is different in how we got there, and this means each is unique in how it unfolds.

BAD VS GOOD NEWS What’s been interesting since the GFC is that bad economic news has often been taken as good news for markets. Any worrisome economic data point came with a

17/09/2019 1:40:36 PM

September 26, 2019 Money Management | 35

Portfolio construction Strap

greater probability that central banks would come to the rescue with further monetary stimulus.

Thus, signs of a weakening economy have actually been good for both bonds and equities. So then why should we have feared what didn’t bring us harm? Indeed, research shows there is little correlation between economic growth – specifically GDP – and equity market returns. And to the extent there is any correlation at all, it is actually slightly negative.

Today, fears of another GFC seem to have given way to other fears, all while the scars of the GFC remain. These new fears reflect the unprecedented times in which we now live: disinflation and stunted wage growth; overbearing central banks and low/negative interest rates; de-globalisation and nerverattling trade wars; class wars and social inequality and disunity; populism and challenges to democracy itself. Of course, all these fears come with some sort of analogy to help us more easily consume the narrative, whether it’s Japan’s secular stagnation, Thucydides Trap, or otherwise.

But investors should remember the future has never been clear cut. It is always the case that the circumstances of the day are somewhat unique, and unprecedented times are the norm.

Since Federation in 1900, Australia has seen two world wars, recessions, mortgage rates as high as 20%, the sacking of Prime Ministers – the list goes on.

Over that time, however, Australian equities have returned over 10% per annum (to quote the Reserve Bank of Australia’s paper The Long View on Australian Equities). It has actually been less in the quarter century since 1993 – slightly less than 9% – which was a period without war or recession, and with an economic and credit boom.

Yes, these higher returns from equities come at a cost. This cost is higher volatility, which is really just a euphemism for price falls every

16MM2609_18-39.indd 35

now and again. However, while volatility presents risk of loss in the short term, the risk reduces the further one looks out, and becomes almost irrelevant over the long term, as any long-term performance chart will attest.

In contrast to the negative news, the positive news has all but been taken for granted.

Few can remember the fiveyear bull market that delivered us to the GFC. Over those five years, the market tripled investors’ money, adding far more wealth than was subsequently taken away by the GFC itself.

The market has doubled in the 10 or so years since the bottom of the GFC, reached in March 2009.

And someone unlucky enough to have invested the day before the top of the last market high, in November 2007, has received a return of about 65% when dividends are included. Amidst all the doom and gloom, we’ve actually had it pretty good.

RISK DU JOUR The copious flow of media, expert commentary and other ‘information’ is unhelpful in all this.

For a start, it focuses our attention on the risk du jour. Over the years, this has included taper tantrums, Brexit and North Korean nuclear tensions, to name just a few. These got us all excited and speculating on imminent chaos.

But just as importantly, most of the media and expert commentary tends to focus on the negatives.

For the media, it sells more newspapers. And for the experts, it looks considered and prudent.

As Steven Pinker, a professor in psychology at Harvard University, points out, the psychology of moralisation is such that people compete for moral authority, and critics are seen as more morally engaged than those who are apathetic. Those perceived as the most analytical and concerned about the risks are also perceived as the smartest.

However, being overly focused on the risks can mean you miss

out on the opportunity.

Capitalism works its magic over time. People will be encouraged to work hard, to improve the way things are done, and to have more and seek a better life. This ‘invisible hand’ of capitalism is a positive driver that is difficult to see. And in part, this is why it doesn’t fill up newspapers.

Meanwhile, the businesses that stand behind equities will earn, invest and grow for the future benefit of shareholders.

We cannot know for sure what the future holds. What we can do, however, is understand the present.

ORDERLY MARKETS In contrast to what one might think by reading the media, markets are actually quite orderly and reasonable most of the time.

This is not to say they won’t have their ups and downs, as unpredictable as they are. Indeed, the Australian market has had a number of ‘corrections’ over the time it has doubled investors’ money since the bottom of the GFC. These included falls of 21 %(April – September 2011), 20% (March 2015 – January 2016) and 14% (August – December 2018).

It is to say, however, that stocks will recover from such falls and chart back up with the market’s natural long-term march higher.

In rare instances markets can stretch to their extremes, when excessive euphoria or despair takes hold. Unfortunately, most of us will have been too caught up in the boom or doom to be aware at the time.

In a boom, it is generally when the conversation at BBQs or with Uber drivers always comes back to stocks; our friends’ big win triggers too much envy not to partake; we are investing on margin; and ultimately, valuations detach from fundamentals. In the end, booms and busts require a group effort.

Thus, literally only a handful of unique individuals depicted in The Big Short movie truly saw and positioned for the GFC. In our view, the Australian market is at its normal orderly

“Studies into the psychology of ‘loss aversion’ show we feel losses twice as much as we do gains” – Julian Beaumont, Bennelong self. The best evidence of this is that we continue to climb a wall of worry. Investors are talking about recessions, corrections and the like, and this sentiment invariably makes its way into share prices.

Ironically, where there seems to be the most risk is where it is perceived to be the least. The rush into safety – bond proxies like REITs and ‘expensive defensives’ like Woolworths – might not prove so defensive given their popularity and stretched valuations.

At the very least, the current uncertainty in markets – and there is a lot – is good reason for investors to ensure they are genuinely diversified. Right now, bonds, property and term deposits are offering returns – whether interest rates, cap rates or deposit rates – that are far beyond historic norms. In contrast, Australian equities trade not far above historical averages.

So why worry about the future, and the apparent inevitability of a recession and market crash?

As veteran Fidelity manager Peter Lynch once said: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves”.

As the old adage goes, it is time in the market rather than timing the market that works.

Julian Beaumont is investment director at Bennelong Australian Equity Partners.

17/09/2019 1:40:46 PM

36 | Money Management September 26, 2019

Toolbox

WHEN SUPER’S NOT SO SUPER Centuria Life’s Michael Blake looks at investment bonds, compares their features and benefits to super, and explains why they can be an excellent parallel strategy to super, as well as an effective estate planning tool.

AUSTRALIA’S MANDATORY SUPERANNUATION system is among the best in the world – and the most tax-effective longterm savings plan for most Australians. But that doesn’t mean it’s the most flexible investment for all Australians. In fact, the rules governing tax, contributions, and thresholds change over time – and rarely become more generous to contributors.

The 2019 Federal Budget may

have left superannuation largely unchanged (compared to previous years in any case), however it is likely that super rules will continue to change. Having said that, super is still the most tax-effective way of planning for retirement for most Australians. But for those affected by the caps and limits or would like to access long term savings before they are 60 years of age there are other alternatives.

I recently attended an industry conference where the speaker

challenged the industry to develop a fund that can travel through life with an investor and meet their changing needs in a tax-effective manner.

Such a structure already exists and has done so for over 50 years.

Unfortunately, it needed to be repackaged in a way that meets today’s standards. This structure is commonly referred to as an investment bond and this triggers thoughts such as a limited investment menu, high fees and the one that is most common is that

Chart 1: Investment Bonds: Best of two worlds

Source: Centuria Life

16MM2609_40-44.indd 36

investors think it is a fixed interest investment.

The below benefits of investment bonds have appealed to a number of investors and advisers, particularly those investors on the highest marginal tax rate.

• You can accumulate wealth at a maximum tax rate of 30% rather than your marginal tax rate; • You can choose from a range of high-quality index and complimentary active specialist low-cost index funds and high quality active investment managers across all major asset classes; • You can switch between these funds at any time with no capital gains tax consequences; • You don’t have to worry about the tax paperwork as managers like Centuria Life pays tax on the investment earnings attributable to the fund rather than the underlying investor; • After 10 years you can withdraw a monthly tax paid income stream, subject to the 125% contribution rule; and • You can access your funds at any time.

17/09/2019 3:38:53 PM

September 26, 2019 Money Management | 37

Toolbox Table 1: Caps to superannuation contributions

Tax-effective wealth building

Clear and robust estate planning

Investment alternative to superannuation People with a taxable income including super of less than $250,000 a year pay 15% tax on contributions.

Before-tax (concessional) contributions, including employer contributions

$25,000 p.a.

After-tax contributions

$100,000 p.a. $300,000 over three years

No tax payable on contributions.

Your total super balance must be $1.6 million before transfer into pension phase

What happens if I was over my transfer balance cap on 1 July 2017? You will be liable to pay excess transfer balance tax on excess transfer balance earnings. The excess transfer balance tax rate is set at 15% for breaches in the 2017–18 financial year. From the 2018–19 financial year, the tax rate is also 15% for a first breach and increases to 30% for second and subsequent breaches.

All contributions

People with a taxable income including super of more than $250,000 pay 30% tax on contributions.

Source: ATO

At Centuria Life we were challenged with how to deliver a product that can travel with an investor through life but overcomes traditional preconceptions. With feedback from investors and financial advisers we came up with three over-arching mantras which we keep coming back to in everything we do: 1) Investment choice – provide who we believe are a ‘best of breed’ investment menu; 2) Transparent fee structure – unbundled pricing structure with no hidden fees and any fund manager rebates are passed back to investors; and 3) Ease of use and education.

The result is a modern product that can travel with an investor through life.

RESTRICTIONS ON SUPER From a tax perspective: • When your employer makes a super contribution, you pay 15% tax on the contribution. If your

taxable income including super is more than $250,000 per annum there is an additional 15% tax on contributions; • You pay 15% tax on the earnings of your super; and • Voluntary contributions from your after-tax money or savings are not taxed.

There are caps on these contributions however, after which additional tax is payable.

COMPANY AND FAMILY TRUST STRUCTURES Another alternative is to create a family trust or company structures in which to hold investments.

There are no limits to the amount of money that can be held in these structures. Companies are taxed at 30%. Family trusts distribute earnings and these become taxable at the beneficiaries marginal tax rate.

However, there are downsides to these strategies which some

people may be unaware of: 1) The first and most significant downside is that company and family trust structures are only ever tax-deferral strategies.

When distributions occur earnings will be taxed at the personal marginal tax rate of the person receiving it; 2) In a family trust structure, all income must be distributed – and once it is distributed it will be taxed at the person’s marginal rate. If this income is distributed to a minor (under 18), then there is no real benefit – as shown in table 2; and 3) Both company and family trust structures can be costly to set up and maintain.

A MORE FLEXIBLE ALTERNATIVE Investment bonds, are life insurance policies in structure with a life insured and a nominated beneficiary but have many attributes of a managed fund. The

Table 2: Tax rates for Australian residents under 18

Income

Tax rates for 2018-2019

$0-$416

Nil

$417 - $1,307

66% of excess over $416

Over $1,307

45% of the entire amount of eligible income

Source: ATO

16MM2609_40-44.indd 37

diagram on page 36 summarises the benefits of such a unique structure.

You can access a range of investment options across asset classes. Most providers will offer cash, fixed interest, equities, property, and infrastructure, as well as a range of diversified investment options with a range of risk profiles.

The value of the investment rises and falls with the performance of the underlying investments.

There is a myth that investment bonds need to be held for 10 years.

However, if you withdraw money before 10 years you will normally only pay tax on the difference between 30% and any higher marginal tax rate applicable to you in the financial year on your earnings. In years nine and 10 this difference is discounted by one-third and two-thirds respectively.

There is no limit to the amount you can invest and you can make additional contributions every year, to the value of 125% of the previous year’s contribution.

If however you do hold it for 10 years, any earnings from the underlying investments as well as the principal will be distributed to you as tax paid.

The annual earnings of the underlying investment fund pays tax at a maximum rate of 30% – less any applicable tax offsets, such as franking credits from shares and allowable deductions.

Earnings are then re-invested in the bond structure and not distributed to investors. For this reason, investors do not need to declare earnings in their personal tax returns while they remain invested. And unlike shares, term deposits, or managed funds, performance returns for investment bonds are quoted after the payment of taxes and fees by the Centuria Life.

ESTATE PLANNING BENEFITS The investor can also nominate a life insured (usually the investor, but not required to be) and a beneficiary (can be multiple beneficiaries). The investment Continued on page 38

17/09/2019 3:39:03 PM

38 | Money Management September 26, 2019

Toolbox

CPD QUIZ This activity has been pre-accredited by the Financial Planning Association for 0.25 CPD credit, which may be used by financial planners as supporting evidence of ongoing professional development.

Continued from page 37 will mature (become payable) on the death of the life insured or on a nominated date (up to 40 years).

The investor can nominate one or more persons (nominated beneficiaries) to whom proceeds from the investment are to be paid in the event of the death of the life insured.

This payment does not form part of the investor’s estate and is paid directly to the beneficiary – by-passing the often complicated and timeconsuming probate process.

It gives an investor control over where his/her money goes.

In addition, there is no tax on death benefit payments. This effectively brings forward the 10-year rule in the event of death of the life insured.

Inherited superannuation can be taxed, but investment bonds are not.

Investment bonds compare favourably with superannuation from a tax perspective with respect to estate planning. If superannuation is left to an adult non-dependent child by a single parent, it may incur tax as follows: • A superannuation and taxation dependant will not pay tax on the inherited sum. This includes a spouse (married or de-facto), children under 18, someone financially dependent and/or someone with whom you have an interdependency relationship.

• A superannuation dependent, but not a tax dependent, will pay 15% on the taxable component of the super. This includes adult children.

• If you are not a superannuation dependent, then you cannot directly inherit super and it must be paid into the estate first.

Michael Blake is head of Centuria Life.

Table 3: Estate planning and accessibility benefits

Tax-effective wealth building

Clear and robust estate planning

Investment alternative to superannuation

30% maximum tax paid on earnings

Proceeds can be paid directly to your nominated beneficiary/ies

Able to access funds at any time

No tax on withdrawals made after 10 years from initial investment

Proceeds do not form part of your estate

No limit on initial year’s contribution

Can contribute up to 125% of the previous year’s total contributions without resetting the 10-year period

No tax on death benefit payments

No investment balance cap

If tax applies on withdrawals made within 10 years, a tax offset operates for the amount already paid by the bond issuer.

Can nominate multiple beneficiaries.

Via the child plan the owner can nominate a date at which a child can receive the funds between the ages of 10 and 25 years of age.

Can contribute up to 125% of previous year’s total contributions

Source: Centuria Life

16MM2609_40-44.indd 38

1. There are limits on before-tax (concessional) contributions to super (including employer contribution) - above which the tax payable doubles. This works as follows: a) Concessional contributions up to $20,000 are taxed at 10% going into super, additional contributions are taxed at 20%. b) Concessional contributions up to $30,000 are taxed at 15% going into super, additional contributions are taxed at 25%. c) Concessional contributions up to $25,000 are taxed at 15% going into super, additional contributions are taxed at 30%. d) Concessional contributions up to $25,000 are taxed at 15% going into super, additional contributions are taxed at 25%.

2. What is an investment bond? a) A fixed interest investment product. b) A life insurance policy which operates like a tax-paid managed fund with a range of investment options. c) A managed fund with a range of investment options, which do not pay tax. d) A diversified portfolio of fixed interest investments.

3. Investment bonds are considered to be tax-paid because: a) Earnings from the underlying investments in the bond are taxed within the bond structure at the company rate of 30%. b) The investor does not receive distributions from the underlying investments in the bond and therefore does not pay personal tax on these earnings. c) If the investment bond is held for 10 years or more, all proceeds from the underlying investments (principal, and compounded earnings) are distributed to the investor tax free. d) All of the above 4. Investment bonds make good estate planning tools because: a) They are in structure an insurance policy with a life insured and a nominated beneficiary – the investment matures on the death of the life insured and is distributed tax free. b) An investment bond does not form part of the investor’s estate and does not need to go through probate in the way a Will does – the investor has full control over where the proceeds go. c) No tax is payable on proceeds of the investment bond on the death of the life insured, whereas superannuation can be taxed at 15% in a number of instances. d) All of the above.

5. Investment bonds are considered to be a good way of supplementing super because: a) There is no limit on the amount invested initially and additional contributions can be made (up to 125% of the previous year’s contribution) over the life of the bond. b) No tax is payable on any withdrawals from the investment bond. c) Earnings from the underlying investments are taxed at a maximum of 15% and are then re-invested in the bond, which makes it a tax-effective investment option for higher-income earners, because 15% is significantly lower than the highest personal tax rate. d) You can (ask your employer to) contribute to investment bonds from your pre-tax income.

TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/ features/tools-guides/when-super’s-not-so-super

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

19/09/2019 3:42:25 PM

September 26, 2019 Money Management | 39

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

Appointments

Move of the WEEK Nick Hamilton Chief executive, funds management Challenger

Challenger has internally appointed Nick Hamilton as chief executive, funds management, effective from 23 September.

Hamilton replaced Ian Saines who had announced his retirement from the role in June.

Suncorp has appointed the longserving Steve Johnston as its group chief executive, effectively immediately.

Johnston had spent nearly 14 years with the company, having joined in 2006.

He was most recently acting group chief executive, prior to which he was group chief financial officer.

Prior to joining Suncorp he was general manager, corporate and government relations at Telstra.

Centuria Property Funds, the responsible entity of Centuria Industrial REIT has appointed Jesse Curtis as fund manager, commencing 14 October.

His appointment followed the recent promotion of current fund manager Ross Lees to head of funds management for the wider Centuria real estate platform.

Curtis had experience in industrial real estate having held roles across asset management, portfolio management and capital transactions with large sale industrial real estate owners.

Lees said Curtis was a well-

16MM2609_40-44.indd 39

Hamilton had served as general manager for Fidante Partners for the past three years after having joined the firm as head of product and marketing in 2015.

Before he joined Fidante, he had senior leadership roles at Colonial First State and Invesco.

regarded industrial real estate executive with experience across a number of real estate disciplines.

Pinnacle Investment Management has added Wes Campbell to expand its institutional distribution team as director, distribution, based in Melbourne.

Campbell had over 20 years of investment management experience and was most recently executive director and head of business development at JCP Investment Partners and was also a senior portfolio manager with the firm.

Before JCP, Campbell had spent 10 years as portfolio manager and senior dealer at Jardine Fleming Capital Partners, part of JP Morgan Asset Management, and before that worked for Macquarie Group.

Yarra Capital Management has appointed Tim Toohey as head of macro and strategy, where he will work with the fixed income and equities team.

His role would include advis-

ing the fixed income and equities team on the outlook for financial markets and asset allocation.

“I’m excited to have joined the Yarra team to add a macro lens to the firm’s already strong integrated credit and equity research function, in what is a fascinating time to be working in investment markets,” Toohey said.

Toohey joined from Ellerston Capital where he was chief economist of Ellerston’s global macro team.

Janus Henderson Investors has appointed Donna Crawford as head of operations for Australia, based in Melbourne.

Crawford would oversee the day-to-day operational aspects of the investment teams with responsibility for investment and operational due diligence, product governance, and regulatory change initiatives.

She joined from Vanguard Investments Australia, where she managed the new business and performance analysis teams for the past three years.

Before that she was joint head of operations for Perennial Investment Partners up until it was acquired by Henderson Global Investors, now Janus Henderson, in 2016.

ClearView Wealth has appointed Orla Cowan from ANZ Global Wealth as its chief risk officer.

The firm said the appointment came as the business was trying to increase its investment in risk management and compliance, as well as strengthening its leadership team.

Prior to joining ClearView, she was head of CIO governance at ANZ Global Wealth and was also head of compliance at BlackRock Australia from 2010 to 2014.

Following the change, Greg Martin, who was currently chief actuary and risk officer, was appointed to the newly-created role of general manager, strategy. The new role would involve responsibility for overseeing the group’s strategy and execution as well as management of the actuarial and product management functions.

19/09/2019 10:14:23 AM

OUTSIDER

ManagementSeptember April 2, 2015 40 | Money Management 26, 2019

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

‘Philante’ – a robust fusion or delicate hybrid?

LET it be said that nobody is happier than Outsider to see the Financial Planning Association and the Association of Financial Advisers working together to generate a united voice on the issues that matter to the financial planning industry, particularly in Canberra.

Why, Outsider even noted that the FPA’s chief executive, Dante

De Gori, and the AFA’s chief executive, Phil Kewin, appeared on the front cover of the August edition of the FPA’s monthly member magazine under the banner – “towards a common goal”.

So, Outsider accepts that Phil and Dante are getting on with working together to achieve the outcomes their members want, notwithstanding the occasional barb from some other industry players who might best be described as less collegiate.

However, the question needs to be asked – how close is too close when it comes to CEOs working in a common cause?

Outsider would suggest it is when this dynamic duo are described as “Philante”, prompting memories of the Clinton White House and “Billary” Playing with the notion of combining Christian names, Outsider shudders at the thought of what might be made of Albo and Scomo.

You work it out.

Horsing around or a timely shot in the arm OUTSIDER was excited when he found out Thai cave rescue diver Dr Craig Challen was to speak at Money Management's Future of Wealth Management – Advice conference as he, in his far-distant youth, dreamt of such underwater adventures.

Breaking up the industry focused panels and networking opportunities at the conference, Challen regaled the delegates about rescuing the young Thai soccer team from the Luang Tham Nang Non cave.

Sitting at the front with a straight back and eyes wide, Outsider broke into a chuckle when the veterinarian claimed that “anaesthetising dogs and anaesthetising children is about the same”.

Outsider looked around and saw a number of delegates laughing a little too hard at the joke regarding ‘Special K’.

When Outsider went home to regale his family with the same story he reflected upon whether, perhaps, the Australian Securities and Investments Commission, along with the likes of AMP, were also anaesthetised with the horse tranquiliser over the years during which bad advisers eroded confidence in the financial services industry.

Forgetting such a thought quickly, Outside went back to his own cave diving, in his man cave of course.

When events overtake outcomes OUTSIDER has been wondering how his old mate and erstwhile IOOF managing director, Chris Kelaher, has been getting on after standing aside in the wake of Australian Prudential Regulation Authority legal action which might see him and former IOOF chairman, George Venardos, disqualified from working in the superannuation sector.

Outsider was prompted to think about Kelaher only because the question of how superannuation funds should use the member’s reserve was raised during questioning of the

OUT OF CONTEXT www.moneymanagement.com.au

16MM2609_40-44.indd 40

Australian Securities and Investments Commission in a recent sitting of the Parliamentary Joint Committee on Corporations and Financial Services.

And, if Outsider was reading the committee transcript correctly, then the senior executive team at ASIC seem to think that the use of the member reserve is the traditional go-to strategy for superannuation funds which find themselves in challenging situations where members have been left unexpectedly out of pocket.

Then, just a day or two later, news of an

"Anaesthetising dogs and anaesthetising children is about the same."

- Veterinarian Dr Craig Challen speaking at Money Management's Future of Wealth Management conference on using ketamine during the Thai cave rescue

international cyber-scam broke involving the alleged siphoning of funds from members accounts and, again, it was being suggested by the Association of Superannuation Funds of Australia that use of the member reserves would be an appropriate mechanism for providing restitution.

Outsider feels sure that the Federal Court will ultimately decide the issue impacting Kelaher and Venardos on the facts and evidence presented, but perhaps current events might have coloured those facts and evidence if they had occurred earlier.

"Hulk always escaped, no matter how tightly bound in he seemed to be - and that is the case for this country. We will come out on October 31."

- UK Prime Minister Boris Johnson comparing himself to The Hulk over his Brexit negotiation strategy.

Find us here:

19/09/2019 3:07:38 PM

FOUR SEASONS, SYDNEY WEDNESDAY, 23RD OCTOBER Wednesday 23rd October

Recognise those who inspire

FINALISTS ANNOUNCED SOON! Money Management and Super Review will recognise the determination, commitment and amazing achievements of women in financial services with its 7th Annual Women in Financial Services Awards. Our goal is to raise the profile of women within the industry, and recognise the people that helped made that happen, regardless of their gender.

Learn more about the Awards dinner at www.wifsawards.com.au Alternatively, scan the QR code below with your tablet/phone camera to visit our event page.

CATEGORIES Achievement Awards • BDM of the Year • Financial Planner of the Year • Innovator of the Year • Investment Professional of the Year • Marketing and Communications Professional of the Year

• Funds Management

Executive of the Year • Life Insurance Executive of the Year • Superannuation Executive of the Year

Advocacy Awards • Pro-bono Contributor of the Year • Mentor of the Year • Employer of the Year • Advocate of the Year Overall awards • Rising Star • Woman of the Year *

GOLD SPONSOR

*WINNER WILL BE PICKED BY MONEY MANAGEMENT AND SUPER REVIEW AND ANNOUNCED AT THE WOMEN IN FINANCIAL SERVICES AWARDS NIGHT 2019 ON 23RD OCTOBER

5177_WIFS_PrintAd_2019.indd 2

18/09/2019 1:04:02 PM

There are more iterations of a chess game

than atoms in the known universe.

First Sentier Investors

Our name has changed.

Our curiosity remains.

At First Sentier Investors – the new name for Colonial First State Global Asset Management – curiosity is at the heart of all that we do.

It’s what shapes our investment philosophy, guides our investment process and drives our active approach to investment management. By digging deeper and going further, we explore the paths less travelled to uncover sustainable opportunities to create and protect wealth.

Visit curiousfirst.com.au This material contains general information only. First Sentier Investors is a business name of First Sentier Investors (Australia) Services Pty Limited ACN 624 305 595. © First Sentier Investors (Australia) Services Pty Limited, 2019

_FP ad Test.indd 4

18/09/2019 2:42:12 PM