Money Management | Vol. 34 No 17 | September 24, 2020

MAGAZINE OF CHOICE FOR AUSTRALIA’S WEALTH INDUSTRY

www.moneymanagement.com.au

Vol. 34 No 17 | September 24, 2020

16

MULTI-ASSET

Meeting outcomes

EDUCATION

30

Debunking FASEA myths

PRACTICE MANAGEMENT

34

TOOLBOX

SMSFs and property

How spooked super fund members crystallised their losses

BY MIKE TAYLOR

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Good practice management is no longer ‘one size fits all’ ALTHOUGH there is no right or wrong way when it comes to practice management, advisers need to be clear of what they want to achieve for their business and how they want to prioritise time and define growth.

In order to do that, practices need to ensure they have the most suitable structure in place which reflects their market position and aspirations. They also need to make sure they have made the right strategic decisions around their partnerships and have chosen the most accurate metrics to track their operational performance.

But most of all, good practice management comes down to understanding every business is different. They will all have different needs and different things that they are good at so it is a matter of asking the right questions and finding the most suitable solutions.

On top of that, technology is a key ingredient for smoothly running financial planning practices and helping free up advisers’ time by allowing them to focus on their core business. However, planners say, it is still hard for some to find full end-to-end technology solutions which can offer assistance from the very first inquiry that clients make all the way through to advice delivery and ongoing service. At the same time, there are still a number of practices that struggle with systems that require configuration, training and upfront investments.

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Full feature on page 20

THOUSANDS of superannuation fund members who reacted to the early market volatility generated by the COVID-19 pandemic by switching their superannuation investment options simply crystallised their losses.

Superannuation funds have revealed to Federal Parliament that in the space of less than a month they lost billions of dollars in value, a good deal of which has since been regained.

An examination of evidence produced for the House of Representatives Standing Committee on Economics showed that the critical period during which superannuation fund members were most exposed to crystallising their losses was between the last week of February and the third week of March.

It shows that superannuation

funds lost as much as 20% of their value in that one-month period, with thousands of members making the unwise and dangerous decision to switch their investment options, thereby often crystallising their losses.

What is more, the data provided to the Parliament shows that many of those who rushed to switch during this multi-billion downturn missed out on the opportunity to ride the recovery in the market which saw funds return a positive 2.7% in the first two months of the new financial year.

In the case of Australia’s largest superannuation fund, AustralianSuper, 76,042 members opted to switch in a 21-day period during which the fund acknowledged that $34.2 billion had been stripped from the value of the fund.

AustralianSuper also reported Continued on page 3

ASX highlights benefits of financial advice

BY LAURA DEW

OVER 68% of advised investors made changes to the portfolio in light of the COVID-19 pandemic, compared to just over half of other investors, according to the Australian Securities Exchange (ASX).

In a report into Australian investors conducted in January and then again in May 2020, the ASX said advised investors had been “particularly active” during the period.

They were more likely than other investors to invest spare cash in the three months to May 2020 and increase their allocation to Australian direct shares. In contrast, non-advised clients were more likely than advised ones to have switched their investments to cash or increased cash weightings and to have increased allocations to international shares.

“Advised investors have been particularly active in responding to the pandemic, with 68% making changes to their portfolios, Continued on page 3

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September 24, 2020 Money Management | 3

News

Don’t just take a manager’s word on ESG: panel

BY JASSMYN GOH

GREENWASHING arose from ‘woeful’ disclosure and investors need to look under the bonnet and not just take the word of the product or fund manager about their environmental, social, and governance (ESG) work, according to a panel.

Speaking at the Australian Institute of Superannuation Trustees (AIST) Superannuation Investment Week virtual conference, Aware Super head of responsible investments, Liza McDonald, said her advice to trustees and investors was to do their due diligence.

“Lift the bonnet and don’t just take the word

of the product or manager that are telling you they’re doing it. If funds say they are contributing to SDGs [UN Sustainable Development Goals] but can’t give you reporting or metrics of they say they are solving then that’s a huge red flag,” she said.

Also on the panel, DWS (US) global head systematic investment solutions, Fiona Bassett, said greenwashing was a huge problem that rose from woeful levels of disclosure but that there were a number of disclosure initiatives, especially in the EU, that were a huge step forward.

“One of the things to look at is the KPIs – it’s something we are focused on to measure our own progress with third party auditors,” she said.

How spooked super fund members crystallised their losses Continued from page 1 that six trustees had opted to switch their investment options along with one executive, noting that a switching ban was “communicated to all access persons two weeks before quarter-end”.

It said ‘access persons’ were “persons responsible for investment decisions or who may potentially have access to, or oversight of, investment portfolio and security selection”.

AustralianSuper reported that its highest valuation was on 20 February when it stood at $194.9 billion and that by 23 March this had dropped to $160.7 billion.

AustralianSuper said that the percentage value between the highest and lowest valuation for the fund during the period was 17%.

A similar story has been portrayed by AMP Limited with respect to its superannuation funds which variously declined between 13% and 17% over the period with its AMP Superannuation Savings Trust declining by nearly $7.9 billion between 31 January and 31 March from a high of $54,879,532,585 to $47,001,911,089 or 14%.

The AMP Retirement Trust declined by 17% from $16,199,468,289 to $13,525,073,540 over the same period.

The numbers of members switching for AMP was significantly lower than for AustralianSuper, with the firm reporting 91 member switching decisions in February, rising to 233 in March.

For AON, the situation was similar with the company reporting that funds under management in its superannuation fund were highest on 20 February when they stood at $5,662,429,609.55 before falling to their lowest on 23 March when it fell to $4,275,354,200.56.

It said the volume of switching of investments between funds between the highest and lowest valuations was $104,686,453.40 representing 924 switch instructions over 786 members.

The switching at the height of the market volatility occurred despite widespread warnings from financial advisers urging clients to avoid being spooked and to regard superannuation as a long-term investment.

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“And if you want to understand who is greenwashing and who is not you should look at a fund’s stewardship. Go look at their proxy voting records because this will tell you everything.”

Bassett said DWS also used multiple sources of data sets to help cross reference and validate the ESG data they were looking at.

“If you had 100 of my peers in a room, the majority would be using only one data source,” she said.

After using multiple data sets, Bassett said her firm would then rank companies based on whether people were leaders or laggards and would integrate ESG into the portfolio around those metrics.

ASX highlights benefits of financial advice Continued from page 1 compared to 52% of other investors.

They have also been more likely to invest all their spare cash (26% versus 16%) and increase their allocation to Australian direct shares (23% versus 16%),” it said.

Investors also highlighted the benefits of their adviser with 84% saying their adviser had been ‘helpful’ in managing the impact of COVID-19. Some 41% went further and said they were ‘extremely’ or ‘very’ helpful during the period.

In light of this, there was interest from those who were not currently receiving advice with 17% of non-advised investors saying they would be more likely to consult an adviser in the future and 63% were ‘open’ to receiving advice.

“There is still scope for professional advisers and investment educators to help investors further improve their skills. While a growing number have come to appreciate the benefits of diversification, many still have portfolios concentrated in a few asset types,” the report said.

“A significant number of investors have also become more likely to seek advice after COVID-19. And while many still believe advice is only for those with large amount to invest, 63% of Australians remain open to receiving advice in the future.”

Younger investors The ASX also found younger ‘next generation’ investors, those aged 18 to 24, were keen to use a financial adviser.

Despite their low investment volume, 36% said they would use a financial

adviser to access a wider range of investments and 37% saying they would use one as they lacked confidence.

“Hungry for knowledge and aware of their relative lack of investing experience, members of the next generation show a relatively high degree of willingness to seek advice, with 36% saying that they would use an adviser to access a wider range of investments, while 37% say they would use an adviser because they don’t feel comfortable making investment decisions on their own,” the ASX said.

“However, many are held back by a lack of knowledge about how to find a suitable adviser, together with the perception that they don’t yet have enough capital to justify seeking advice.”

More than 5,000 people were surveyed by the ASX in January while a further 500 investors and self-managed superannuation fund (SMSF) trustees were surveyed in May to assess their activity during the pandemic.

Earlier this year, a survey by Fidelity found receiving financial advice had reduced investors’ money worries with some 52% of unadvised people worrying about money on a daily or weekly basis versus just 36% of those who received advice.

17/09/2020 11:12:44 AM

4 | Money Management September 24, 2020

Editorial

mike.taylor@moneymanagement.com.au

TIME TO CLEAR THE AIR ON ADVICE WITHIN SUPERANNUATION

FE Money Management Pty Ltd Level 10

As more advisers leave the industry and the cost of financial advice delivery rises, superannuation funds are destined to play a greater role. These circumstances make it incumbent on the Australian Securities and Investments Commission to take a closer look at advice within super.

OVER the next decade and in the wake of the current significant exodus of financial advisers, increasing numbers of people will access financial advice via their superannuation funds.

What is more, anyone reading the answers provided by superannuation funds to questions on notice from the House of Representatives Standing Committee on Economics will observe that superannuation funds of all stripes – industry and retail – are gearing up to meet that demand.

And that is why the Australian Securities and Investments Commission (ASIC) needs to gear itself up to properly examine the quality of advice being delivered by superannuation funds, including the quality of and appropriateness of intrafund advice.

This is not to suggest that there is anything wrong with the quality of financial advice being delivered by superannuation funds but is, rather, a plea to the regulator to clear the air by ensuring that the advice delivered by salaried advisers working within superannuation funds is subjected to the same

level of scrutiny as that delivered by independent financial advisers (IFAs) or, indeed, those working for AMP and IOOF. Has ASIC conducted a shadow-shop of industry fund financial advice? Not to our knowledge. Has ASIC scrutinised the quality of intrafund advice and whether it leaves individual clients generally better off? Not to our knowledge.

Closer ASIC scrutiny is warranted not only because superannuation funds are going to be playing a greater role in the delivery of affordable financial advice into the future but because it will help clear the air and remove some of the politics. Because politics are, indeed, being played with respect intrafund advice – something which was obvious in questions directed towards ASIC by members of the House of Representatives Standing Committee on Economics around intrafund advice and scaled personal advice.

What is more, some of the members of that committee made clear that their questioning had been prompted by financial advisers who believe

that some industry superannuation funds are pushing the edge of the envelope in terms of how far they can go within the delivery of intrafund advice and, to be fair, some industry fund executives have canvassed expanding the intrafund boundaries.

ASIC has already signalled that it is looking at advice delivery and the cost of advice in the context of advisers leaving the industry and has engaged external consultants to undertake research to help it understand the issues. The regulator said it wanted Australian consumers to have access to affordable, quality personal advice that meets their needs.

Industry superannuation funds can, unquestionably, afford to deliver advice at scale and at a reasonable price and it is for this very reason that ASIC would be serving the industry and the broader community by closely examining how well superannuation fund advisers have performed to date and, in doing so, clarify the status of intrafund advice.

Mike Taylor Managing Editor

4 Martin Place, Sydney, 2000 Managing Director: Mika-John Southworth Tel: 0455 553 775 mika-john.southworth@moneymanagement.com.au Managing Editor/Editorial Director: Mike Taylor Tel: 0438 789 214 mike.taylor@moneymanagement.com.au Associate Editor - Research: Oksana Patron Tel: 0439 137 814 oksana.patron@moneymanagement.com.au News Editor: Jassmyn Goh Tel: 0438 957 266 jassmyn.goh@moneymanagement.com.au Senior Journalist: Laura Dew Tel: 0438 836 560 laura.dew@moneymanagement.com.au Journalist: Chris Dastoor Tel: 0439 076 518 chris.dastoor@moneymanagement.com.au Events Executive: Candace Qi Tel: 0439 355 561 candace.qi@fefundinfo.com ADVERTISING Sales Director: Craig Pecar Tel: 0438 905 121 craig.pecar@moneymanagement.com.au Account Manager: Amy Barnett Tel: 0438 879 685 amy.barnett@moneymanagement.com.au PRODUCTION Graphic Design: Henry Blazhevskyi

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WHAT’S ON FPA South East Melbourne Chapter Virtual Lunch

The creative edge – how to redefine your value, reimagine your client experience and reinvent your practice for relevance

AIST 2020 Trustee Forum – APRA/ASIC Update

Webinar 25 September fpa.com.au/events

Webinar 28 September fpa.com.au/events

Webinar 30 September apra.gov.au/events

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

16/09/2020 12:15:48 PM

September 24, 2020 Money Management | 5

News

How trying to change the past has snookered financial advice

BY MIKE TAYLOR

The future viability of the financial advice sector is literally at the precipice meaning that politicians and stakeholders will need to be careful not to compound or repeat the decisions of the past, according to a financial planning practice broker.

Connect Financial Services Brokers chief executive, Paul Tynan, said practitioner numbers were at an all-time low, exits and premature retirements continued to mount and the industry’s reputation and obsession with overregulation was dissuading new advice entrants.

“It’s for this reason, that politicians and stakeholders must ensure that the decisions of the past that has brought about this scenario are not repeated or compounded going forward,” he said.

Tynan claimed the biggest mistake had been efforts by Governments and regulators to change the past retrospectively and he said this applied to education, remuneration and so-called “lookbacks” applied by the Australian Securities and Investments Commission (ASIC).

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“In all seriousness, no industry should be required to operate under a lookback regime of ten years or more. Imagine if politicians or the legal profession was required to adhere to the same requirements,” he said.

Tynan suggested that a combined effort and joint approach by Government could halt the demise of the financial service and advice sector but that a united effort was needed.

“A good start would be a bipartisan working group not comprised of the usual retired judges, lawyers, vocal interest groups and individuals

who have no practical experience running an advice business or face-to-face interaction with clients,” he said. “It’s for this reason that Australia has a track record of royal commissions and industry reviews failure.”

“There are many quality advisers who genuinely care about the industry and ensuring consumers receive quality advice and service that would gladly participate in a genuine and inclusive bipartisan review,” he said.

Tynan also suggested giving national priority to financial literacy among Australians.

17/09/2020 10:47:29 AM

6 | Money Management September 24, 2020

News

Fixed income offers ‘absolutely zero protection’

BY CHRIS DASTOOR

FIXED income offers “absolutely zero protection” as a hedge to equities, as the COVID-19 pandemic showed it is no longer negatively correlated, according to Saxo Markets.

Speaking at Saxo’s Annual Fintech Unfiltered Conference, Steen Jakobsen, Saxo Bank chief economist and chief investment officer, said the 60/40 portfolio split would be under attack as equities and fixed income were no longer negatively correlated.

“It is 100% correlated as we saw back in February and March but it also doesn’t give you any carry, that has been a huge part of

the return you’ve seen from the 40% fixed income,” Jakobsen said.

“Those 40%, to some extent, will probably remain in place because a number of asset managers in the world are under a regulatory burden to maintain a very high proportion of fixed income.

“But family offices, hedge funds and banks will increasingly move, in my opinion, to two new asset classes that offers huge protection against the volatility in the new environment.”

Jakobsen said those two asset classes would be real estate and inflation-linked bonds, but also anything in between.

“The interesting thing is, you don’t even

need to be right about inflation, you just to be right about reflation and the re-allocation of assets out of fixed income to a much smaller pool of assets called inflation linked,” Jakobsen said.

“In a world where we are giving up on the fiat system, where we are monetising debt directly, where we are seeing an increase in deglobalisation and other factors like the youth being priced out of real estate, the overall risk here is we will have a reflationary environment – it’s very likely with the monetisation of debt directly from central banks that we’ve seen a game changer.”

NAB super entities hit by $57.5 million court penalties

BY MIKE TAYLOR

NATIONAL Australia Bank’s (NAB’s) NULIS Nominees and MLC Nominees have been ordered to pay a total of $57.5 million in penalties for having made false and misleading representations to superannuation fund members.

The Australian Securities and Investments Commission (ASIC) said the Federal Court of Australia had ordered the two entities (MLC Nominees) to pay the monies for having made false and misleading representations to superannuation members about their entitlement to charge plan service fees and members’ obligations to pay the fees.

It said the court also made declarations that MLC Nominees and NULIS failed to ensure that their financial services were provided efficiently, honestly and fairly.

MLC Nominees will pay a total penalty of $49.5 million for its contraventions, while NULIS will pay a penalty of $8 million for its contraventions.

ASIC said the court found that between 8 September, 2012, and 30 June, 2016, MLC Nominees misled members in the MasterKey Product and deducted approximately $33.6 million in Plan Service fees from approximately 220,000 members of MasterKey Business Super (MKBS) and MasterKey Personal Super (MKPS), divisions of the MasterKey Product, who did not have a Plan Adviser.

Between 8 September, 2012, and 30 September, 2018, MLC Nominees and NULIS misled members and deducted approximately $71.9 million Plan Service fees from approximately 457,000 members

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of MasterKey Personal Super linked to Plan Advisers where Plan Advisers were not required to provide services and members did not receive services or any services they could not otherwise obtain for free.

The Federal Court made declarations to the effect that NULIS and MLC Nominees breached the ASIC Act for misleading and deceptive conduct and by making false or misleading representations, for which the civil penalties have been ordered.

The court also made declarations that NULIS and MLC Nominees breached the Corporations Act by failing to ensure that the financial services were provided efficiently, honestly and fairly, whereby Justice Yates said the contravening conduct was represented by MLC Nominees’ and NULIS’ failure to inform members that, when they transferred from MKBS to MKPS, they could “turn off” their plan service fee; its failure to exercise its own right, as trustee, to terminate the plan service fee of members

who had transferred from MKBS to MKPS; and the fact that it made or authorised the making of monthly deductions from the accounts . Other declarations related to failing to comply with the financial services laws, for misleading and deceptive conduct and for issuing a defective Product Disclosure Statement. The court also ordered that the defendants’ pay ASIC’s costs of the proceedings.

In his decision, Justice Yates described NULIS and MLC Nominees’ contraventions of s12DB of the ASIC Act as “very serious” and, in determining the amount of penalties to impose, found it was appropriate to consider the very large scale of the business within the MLC Wealth segment of the NAB Group in which NULIS and MLC Nominees operated.

ASIC acknowledged that MLC Nominees and NULIS made admissions of liability during the proceedings and notes that this cooperation was taken into account by Justice Yates in determining the penalty.

16/09/2020 11:56:17 AM

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16/09/2020 10:09:38 AMpm 31/08/2020 11:59:33 17/8/20 4:45

8 | Money Management September 24, 2020

News

ETF investors favouring international equities

BY LAURA DEW

INVESTORS in exchange traded funds (ETFs) have been seeking exposure to international equities with the sector seeing the highest flows of $722 million during August.

In the latest monthly BetaShares ETF Review, international equities saw the highest volume of flows at $722 million compared to just $181 million for Australian equities.

Popular international equity ETFs included Vanguard MSCI Index International Shares

ETF, which saw inflows of $59 million during August, VanEck Vectors MSCI World Ex-Australia Quality ETF and BetaShares Global Sustainability Leaders ETF – Currency Hedged.

All three of these ETFs were among the top 10 funds to report to highest inflows during August.

The highest overall inflows were seen in the BetaShares Australian High Interest Cash ETF which saw inflows of over $200 million, almost double the second fund, ETFS Physical Gold, which saw inflows of $111 million.

Super withdrawal boosts shares of consumer stocks CONSUMER discretionary stocks are among share market winners this year as consumers “splurged” out with their superannuation withdrawals.

In an investor video, Daniel Moore, manager of the $2 billion IML Australian Share fund, said the consumer discretionary sector had been a “real winner” from the COVID-19 pandemic and consumers spending their Government stimulus payments.

There have been over 3.1 million applications to withdraw super with funds having paid out more than $32.2 billion.

The ASX 200 Consumer Discretionary sector returned 9.3% during August, second only to the Information Technology sector, and had returned 34% since the start of 2020.

Moore said: “There were some real winners and some real losers from COVID19. Winners were supermarkets and consumer discretionary and, on the losing side, are those sectors which were effectively shut down by the Government such as travel, hospitality, casinos and shopping centres.

“The strong performance by the consumer discretionary sector was a bit of surprise as consumers really splurged out with the super money they withdrew and from JobKeeper payments. We saw incredible results from stocks like JB Hi-Fi, Nick Scali and Harvey Norman, people bought a lot of flat screen TVs and sofas so it will be interesting to see how that goes in the future.”

Technology retailer JB

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Hi-Fi shares had risen 38% since the start of the year to 31 August, 2020, while Nick Scali rose 30% and Harvey Norman rose 15% over the same period.

In its full-year results to 30 June, 2020, JB Hi-Fi said sales were up 11.6% to $7.9 billion, led by the Australian market, while online sales were up 134% in the three months to 30 June.

“Sales were up 11.6% to $7.9 billion with Australian sales accelerating from March as consumers spent more time working, learning and seeking entertainment at home.

“Total online sales across the group grew by 48.8% to $59 million, representing 7.5% of total sales, with Q4 sales up 134%.”

According to FE Analytics, within the Australian Core Strategies universe, the IML Australian Share fund lost 11% over one year to 31 August, 2020, versus losses of 2.3% by the Australian equity sector.

While there was less interest in Australian equity ETFs, two still managed to make the top 10 which were VanEck Vectors Australian Shares Index ETF and Vanguard Australian Shares Index ETF. Across the other asset classes, investors poured $367 million into fixed income ETFs, $308 million into cash and $187 million into commodities as they sought out defensive assets.

Assets in the total ETF industry reached $70.7 billion, a 5.3% increase on July.

Financials and insurers hit by growth in ‘zombie’ firms

BY OKSANA PATRON

FINANCIAL and insurances services have been among the worst-affected sectors in terms of zombie businesses in August, with an average number of 53 days of payments overdue compared to 43 days nationally, according to digital credit agency CreditorWatch.

The change represented a 657.1% growth from August 2019 and meant payment times grew by 11 days compared to July 2020.

CreditorWatch’s data revealed the biggest rise in ‘zombie’ companies since the Government extended its Safe Harbour measures in December, which prevented businesses insolvencies. Business administrations fell 37.1% from July to August which meant that a higher number of Australian business were currently relying on Government support to operate.

Victoria saw the biggest fall in business administrations in August (49.3%) and was followed by New South Wales which recorded a 34.3% decrease and Queensland which saw a 25.4% decrease in external administrations.

CreditorWatch’s chief executive, Patrick Coghlan, said that whilst safe harbour legislation was critical in stabilising the Australian economy as it went into recession, the measures were now becoming counterproductive because they were propping up companies that should be allowed to fail.

“By extending the moratorium to December, the Government is wasting taxpayer money by kicking the can down the road.

“It means that solvent businesses are having to trade with otherwise insolvent debtors, risking their own health, whilst doomed businesses are able to put off paying creditors or even the ATO,” he said.

16/09/2020 11:56:36 AM

September 24, 2020 Money Management | 9

News

IOOF denies dealer groups can influence platform inclusions

BY MIKE TAYLOR

AT the same time as making its acquisition move on MLC Wealth, IOOF has denied to a Parliamentary Committee that dealer groups can influence either its approved product lists (APLs) or what goes on its platforms.

Answering questions on notice from the House of Representatives Standing Committee on Economics, IOOF denied that either it or any entities it controlled allowed financial advice dealer groups to add managed investment schemes (MISs) to its platforms or recommended product lists.

Instead, it claimed that while a dealer group or a financial adviser could request that a particular MIS be added to an investment menu on an IOOF platform, whether it was included or not was a matter for independent assessment and oversight.

“This will be subject to the applicable criteria and ongoing oversight in accordance with the Investment Governance Framework,” IOOF said.

“Financial advice dealer groups cannot influence the addition of managed investment schemes to platforms or recommended product lists.”

Ignition Advice partners with Avaloq

FASEA approves two former FINSIA grad diploma electives

BY JASSMYN GOH

BY CHRIS DASTOOR

IGNITION Advice has partnered with Avaloq to help scale its client base and bring its solutions to a network of global clients.

Through the partnership Avaloq would offer its banking solution software solution to over 150 target institutions.

Ignition Advice chief executive, Manish Prasad, said strong distribution partnerships would allow the firm to quickly scale its enterprise client base.

Also commenting, Ignition Advice chief operating officer, Terry Donohoe, said “The Avaloq credo of complex problems, simple solutions and delivering live customer benefits in months not years is a perfect fit for Ignition.

“Our proven bank grade solutions are ready to implement, allowing clients to provide better service to their customers with go live in as little as 90 days.”

THE Financial Adviser Standards and Ethics Authority (FASEA) has approved two additional financial planning electives from the Securities Institute Graduate Diploma of Applied Finance and Investment (GDAFI).

The Securities Institute was a predecessor of the Financial Services Institute of Australasia (FINSIA).

The two approved courses, from 1991 until 2007, were: • E114 Technical Analysis; and • E171 Specialised Techniques in Technical Analysis.

Advisers who had completed the GDAFI with an investment management stream major or GDAFI with three core units and three financial planning related activities were only required to complete a FASEA Ethics for Professional Advisers bridging course to meet the education standard.

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16/09/2020 11:57:08 AM

10 | Money Management September 24, 2020

News

How Australian super funds shone before COVID-19 and early release

BY MIKE TAYLOR

NEW global survey data has revealed just how healthy the Australian superannuation funds sector was before the onset of the COVID-19 pandemic, with Australian pension funds significantly outstripping the growth of their international peers.

The global survey, conducted by the Willis Towers Watson Thinking Ahead Institute, showed that assets under management (AUM) within the world’s 300 largest pension funds increased by 8% while those of the Australian funds covered in the exercise increased by 19.2%.

Just as importantly, one of the fastest-movers among the Australian funds identified by the research was HostPlus which has been one of the funds hardest hit by the COVID-19 pandemic and the Government’s hardship superannuation early release regime.

The data revealed that AUM at the world’s 300 largest pension funds increased in value by 8% to a total of US$19.5 trillion ($26.7 trillion) in 2019, in contrast to the 0.4% decline the year before.

According to the research, the compound annual growth rate of the top 20 funds during the past five years was 5.5%, compared to 4.9% for the top 300 funds during the same period.

Commenting on the findings, Willis Towers Watson Australia director, investments, Martin

Goss said the report showed while total assets globally grew by 8.1%, the Australian funds in the survey grew at 19.2% for the year, with funds rising an average of 13 places.

He said this performance had been aided by relatively high allocations to growth assets and net positive cashflow, as many funds remained in a growth phase.

The biggest Australian movers in the top 300 list were HostPlus, rising 46 places and recording 40% growth, AustralianSuper, which was the highest Australian fund on the list gaining 10 places and growing by 29% and Sunsuper which also recorded 29% growth, rising 12 spots.

Co-founder of the Thinking Ahead Institute, Roger Urwin said: “Overall, the world’s

largest pension funds staged a strong rebound in growth in 2019, following a tough market environment the year before.

“However, this positive result does not detract from the multiple pressures currently facing pension funds, from concerns around solvency levels to rising expectations with regards to ESG [environmental, social and governance] considerations, particularly concerning climate and social issues.

“Perhaps most notably of course, we are still witnessing ramifications from the COVID-19 crisis and, as we anticipate further economic uncertainty in the months ahead, these challenges make pension fund boards’ agendas more complex and stressed than at any previous time.”

Former retail fund staffers more dominant within APRA WHILE many financial advisers have indicated they believe the financial services regulators have been too much favourably influenced by industry superannuation funds, the Australian Prudential Regulation Authority (APRA) has revealed it is more likely to be influenced by retail funds experience.

Answering questions on notice from the House of Representatives Standing Committee on Economics, APRA revealed it had employed significantly more former retail fund employees than those who had worked for an industry fund.

17MM240920_01-15.indd 10

The regulator said that it had 87 staff who could boast having worked in the superannuation fund sector, which it had come to this conclusion as a result of having to survey staff after having been asked the question by the Parliamentary Committee.

Of those 87 staff members, it said 55 had worked for a retail fund, eight had worked for an industry fund and five had worked for both retail and industry funds.

It said that 19 staffers had worked for more than one type of fund.

TPB extends CPE and renewal concessions THE Tax Practitioners Board (TPB) has delivered tax practitioners three and six month extensions to concessions granted around continued professional education (CPE) requirements, relevant experience, renewals and their annual declaration.

A three-month extension has been granted with respect to CPE and six months with respect to renewals and declarations.

In announcing the extensions, TPB chair, Ian Klug, said they reflected the board’s commitment to assisting tax practitioners who were experiencing a range of changed business circumstances during this time.

“Given the COVID-19 related challenges during the year, we have been swift to relax regulatory requirements, including annual declarations, registrations and CPE requirements,” Klug said. “The TPB is committed to continuing to provide support and to be pragmatic in recognition of the broad range of impacts of the pandemic on tax practitioners and their clients.”

“While some are experiencing increased demand for their services, others may have less work and therefore, less relevant experience, and may need to access both selfcare resources by the way of the CPE concession, and possibly fee deferrals.

“These extensions to the original concessions announced by the TPB in March are intended to provide tax practitioners with additional reassurance that their health and well-being is our number one priority,” he said.

“We encourage tax practitioners to contact the TPB if they are encountering difficulties in meeting their TPB obligations so that we can consider their individual circumstances and work with them to find an appropriate outcome.”

Klug said the concessional arrangements are in line with a whole-of-government approach to managing the pandemic and its broad impacts on the community.

16/09/2020 11:57:50 AM

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8/09/2020 1:27:19 PM

12 | Money Management September 24, 2020

News

ANZ ‘off track’ on diversity and recruitment

BY JASSMYN GOH

ANZ has labelled itself as ‘off track’ when it comes to increasing women in leadership and recruiting over 1,000 people from underrepresented groups.

In its environmental, social and governance

(ESG) report, the bank said it aimed to have women make up at least 34.1% of its leadership by 2020 but was only at 33.1%.

The bank had increased its female representation every year since 2015 where it stood at 29.5%.

The bank currently employed around

Pace has slowed for passive sustainable fund launches

BY LAURA DEW

THE pace of passive sustainable fund launches in Australia has slowed with no launches so far this year and only two last year, compared to more than 50 in Europe.

A global report on the passive sustainable landscape by Morningstar found there were 17 passive sustainable funds in Australia with $3.6 billion in assets under management.

The largest provider was Vanguard with nine offerings which represented 65% of the market.

The remaining offerings came from VanEck, BetaShares, BlackRock iShares, Russell Investments, and State Street.

Morningstar said there had been four launches in 2018 but this halved to two the following year and none so far in 2020.

This was significantly below the figures in Europe which saw more than 50 funds launched in 2018, 2019 and 2020. Globally, there were 98 launches in 2019 and 84 in the first six months of 2020.

“Examining the most recent entrants to the list, Vanguard launched an ETF [exchange traded fund] and an unlisted fund each in the equity (tracking the FTSE Developed ex

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Australia Choice Index) and fixed-income (tracking the Bloomberg Barclays MSCI Global Aggregate SRI Exclusion Float Adjusted Index) segments during 2018, while VanEck came out with a sustainable equity ETF (tracking the MSCI World ex Australia ex Fossil Fuel Select SRI and Low Carbon Capped Index) in the same year,” it said.

“However, after the hype of launches in passive sustainable funds in 2018, 2019 was a quieter year, with only two launches, followed by no launches so far in the first six months of 2020.”

Despite the low number of launches, Morningstar said Australia was one of the largest markets outside of Europe and US. “Outside of Europe and the US, the speed and enthusiasm with which investors have embraced sustainable investing has varied, and this is reflected in the low uptake of passively managed sustainable funds,” it said.

“As of June 30, 2020, assets in passive sustainable funds domiciled outside of Europe and the US totalled $10.5 billion. The growth in the past three years has been driven mainly by net inflows into new product launches, especially in Australia, Canada, and China.”

39,000 people but had failed to meet its target of recruiting over 1,000 people from underrepresented groups by 2020 with only 829 hired.

The under-represented groups included refugees, people with a disability, and indigenous Australians.

However, the ESG report noted that the bank was ‘on track’ for six out of its eight targets.

These included: • Improve reputation and community trust; • Fund and facilitate at least $50 billion by 2025 in sustainable solutions (currently at $4.1 billion); • Reduce scope one and two emissions by 24% by 2025 and 35% by 2030 (currently at 29%); • Help enable social and economic participation of one million people by 2020 (currently greater than 998,000); • Fund and facilitate $1 billion of investment by 2023 (currently at $315 million); and • NZ $100 million ($92.1 million) of interest fee loans to insulate homes (currently at NZ$7.4 million).

Iress clears regulatory hurdle on OneVue acquisition

BY MIKE TAYLOR

IRESS has received the competition authority’s green light for the acquisition of OneVue. Iress announced to the Australian Securities Exchange (ASX) that it had been informed by the Australian Competition and Consumer Commission (ACCC) that the competition regulator would not be opposing the acquisition.

Confirmation of the ACCC’s position followed distribution of the scheme booklet for the acquisition.

The board of OneVue is recommending acceptance of the Iress offer by shareholders.

16/09/2020 11:58:05 AM

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8/09/2020 9:21:29 AM

14 | Money Management September 24, 2020

News

Reduce SG amnesty penalty from 200% to nil: The Tax Institute

BY JASSMYN GOH

THE Tax Institute has used its Budget submission to call on the Government to reduce the penalty rate for historical superannuation guarantee (SG) non-compliance from 200% to nil after the current amnesty deadline.

The SG amnesty expired on 7 September and the institute called on the Government to extend the amnesty to 7 March, 2021.

It said disruptions caused by the COVID-19 pandemic had affected a large number of employers, many of whom might wish to make disclosures under the amnesty but had redirected their resources to other priorities such as keeping their businesses afloat through the pandemic.

“Further, financial strain and cashflow issues caused by such disruptions mean that businesses may not have immediately available funds to pay superannuation guarantee shortfalls, and the Victorian Stage 4 restrictions are preventing access to vital payroll records and documents which are necessary to determine the amount

of any SG shortfalls,” it said.

The institute noted that once the amnesty expired, the repercussions for failing to come forward could be severe.

“The current rules discourage employers who are trying to do the right thing from admitting honest mistakes. Even minor errors, such as paying superannuation just one day late, are met with disproportionately onerous and draconian penalties,” the submission said.

“The severity of the Part 7 penalty alone has the capacity to

drive businesses to insolvency, and directors’ personal liability is a further risk.

“The Tax Institute again calls on the Government to grant the Commissioner the discretion to reduce the Part 7 penalty imposed at the rate of 200% to nil after the current amnesty deadline. The current law restricts the Commissioner from remitting penalties below 100% of the amount of the SG charge payable for employers who fail to disclose shortfalls during the amnesty period.”

Industry funds place $33b investment pipeline in play

BY MIKE TAYLOR

GOVERNMENT backbenchers attacking industry superannuation funds have been sent a message by Industry Super Australia (ISA) – they are undermining the ability of the funds to invest to help Australian businesses emerge from the recession.

ISA has published a new report pointing to a $33 billion industry superannuation fund investment pipeline slated to stimulate business activity and create thousands of jobs.

The report, 'Super in the Economy 2020’, was conducted by IFM Investors and ISPT and includes forecasts based on the present legislated scenario of small, incremental increases in the super guarantee (SG) and calls for a more efficient super system and stable policy settings, including sticking to the rate rises, to unlock additional investment.

It also argues for improving Government procurement processes to save taxpayers money and get major public projects going quicker.

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Other major findings include: • Industry funds’ outperformance has added an estimated $151 billion in total to national superannuation savings over the past 23 years; • A member is estimated to be $30,250 better off on average with an industry super fund account; • A survey of nine industry funds suggests forward CAPEX spending totalling $33 billion; • Of which, $19.5 billion in CAPEX will create over 200,000 jobs between 2020 and 2023; • Investments save the Federal budget $2.7 billion through higher tax receipts, lower pension payments and lower interest costs alone; and • Spending in 2018-19 alone generated at least 111,257 jobs (last full financial year with available data).

Commenting on the report, ISA chief economist, Stephen Anthony, said everyone benefited from a strong industry superannuation system.

“It is proven to strengthen the economy, crate jobs and grow workers retirement savings.”

How CBA closing FinWis cost one advice practice $33,000 AS IOOF goes about the task of implementing its acquisition of MLC Wealth, financial advisers have raised issues about the distribution of revenue resulting from other events and license closures impacting financial advisers and financial advice practices.

An advice practice which was part of the Commonwealth Bank’s (CBA) Financial Wisdom license is claiming to have been disadvantaged with respect to the distribution of revenues it was owed.

The practice, Lifestyle Financial Services, is claiming that the three months allowed by the CBA for the distribution of monies after the termination of the adviser agreement was simply not long enough.

Lifestyle chief executive, Gareth Hall, said the issue was that after the three-month period, the CBA retained such revenue.

“We went to great efforts to ensure we had transferred all of our revenue accounts before the threemonth cut-off,” Hall said.

“Unfortunately, we missed one, which contained a large group salary continuance policy with a revenue payment to us of $33,071.23.”

“Once we became aware of this payment, we contacted Financial Wisdom but were told nothing could be done,” he said.

“The policy issuer was contacted and asked to claw back the commission payment however Financial Wisdom closed their bank account on 30 June.”

“Subsequent conversations with remaining Financial Wisdom staff, now employed by the CBA, have been fruitless, with no solution apparently available.

“We have had a difficult year with all the additional work in transitioning to a new AFSL [Australian financial services licence] and the reduction in revenues we have experienced.” Hall said.

“I cannot understand why the CBA can’t pass on this revenue, which rightly belongs to us. How can they justify this decision, it just seems unethical.”

16/09/2020 11:58:21 AM

September 24, 2020 Money Management | 15

InFocus

THERE IS NO SUPER ANSWER TO AUSTRALIA’S HOUSING PROBLEM The Financial Services Council’s Jane Macnamara argues that the use of superannuation is not the answer to Australia’s housing affordability problem.

INEVITABLY, THE BROADENING of superannuation early release rules as part of the COVID-19 response has led us back to debating whether we should allow young Australians to access their compulsory super savings to buy their first home.

On the face of it, you can see why this idea appeals – there’s a reason it comes back around so often. And full disclosure, I have a horse in this race, as a still young-ish Australian who has yet to make it onto the property ladder.

The pitch? Trading what seems like a small amount of retirement savings for the security of not having to pay for housing in retirement. It’s your own money after all, and young Australians are finding it harder than ever to scrape together the deposit for a first home.

When you look more closely, though, it just doesn’t stack up.

First, there’s the mountain of research demonstrating that giving first home buyers more money simply increases house prices.

We’ve seen this in action with first home buyers’ grants. So topping up your deposit out of super savings is going to put you more or less back where you started, only with a bigger loan that takes longer to pay off with a lower super balance.

Artificially inflating prices could even lead to scenarios where individuals end up in a worse financial situation. Say you’ve taken

KEY ECONOMIC INDICATORS

money from your super and purchased property with a small deposit. If the property’s value declines then you end up in negative equity – owing more than your home is worth. All it takes is one financial shock like a job loss or a relationship breakdown that means you can no longer maintain your home. You’re forced to sell and potentially you’re still in debt and with less super than before.

So, we’ve established you’re not guaranteed to be in a better position for having used your super to buy a home.

Accessing your super is also not necessarily going to make it easier to get a home loan either. Using money you have been forced to save doesn’t make you a better risk for a bank to take on and it doesn’t show that you can make repayments, so your income and savings behaviour will still be a key factor.

And finally, you’re entrenching inequality. Those who can afford a deposit without dipping into their super will probably be on higher incomes with higher superannuation balances.

We’re likely to see a widening of the retirement savings gap as people take money from their superannuation at the exact time as they should be accumulating savings to take advantage of the benefits of long-term investing.

At the end of the day, this is just another attempt to use the superannuation system to solve an unrelated problem. Australia has some of the least-affordable property markets in the world and it is not the role of the superannuation system to fix that.

Home ownership is currently the key to a comfortable retirement – but why do we need to accept that as the only option, and doom those

who don’t own their own home to worse outcomes?

Other housing policies that make home ownership more affordable, and renting less precarious, should also be considered – for their own merits as much as for their impact on retirement savings.

As noted by the Grattan Institute, one of the best ways to break the link between home ownership and retirement outcomes is to directly address the cost of renting by providing a higher level of rental assistance.

This would help not just those who may never have bought a home, but those who have left the housing market for other reasons.

This could include older people who have separated from partners and cannot afford to get back on the property ladder – the kind of situation that leads to a disproportionate number of older women living homeless or in poverty.

Changing the long-term promise of super by allowing savings to be withdrawn almost as soon as they are accumulated would undermine the purpose and the promise of the system. Not only would it set up the super system to fail but it would also undermine retirement savings for Australian workers.

Jane Macnamara is the senior policy manager for superannuation at the Financial Services Council.

0.25%

-6.3%

-0.3%

Cash rate

Economic growth

Inflation

Source: Reserve Bank of Australia, 4 September, 2020.

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16/09/2020 11:28:38 AM

16 | Money Management September 24, 2020

Multi-asset

MULTI-ASSET, MULTI-POSSIBILITIES Multi-asset funds can take the work out of choosing your asset allocation, but Chris Dastoor writes, that advantage can be best used to focus on specific outcomes rather than returns.

PORTFOLIO CONSTRUCTION FOR planners and investors is always a challenge, which is why multi-asset funds have become an attractive option to address allocation and diversification needs.

Multi-asset funds invest in a broad universe of asset classes, offering a significantly greater degree of diversification within a single fund, as opposed to only focusing on equities or bonds.

It’s not exactly a unique niche for investors – it’s a common strategy used by superannuation fund

managers – but it can be applied outside of that for similar outcomes.

Those outcomes include investing for maximum growth during the accumulation phase or for capital preservation, as well as aiming for a certain sweet spot within that spectrum, or objectivebased funds that focused solely on a specific return.

However, the COVID-19 pandemic has shaken up everything and that has meant both bonds and equities have taken a hit, which has affected the

prospects for multi-asset funds.

Investing in a multi-asset strategy would not be a miracle cure to avoid the economic impacts of the COVID-19 pandemic, but it has offered advantages regardless of whether the focus is on the accumulation or preservation stages.

Al Clark, MLC Asset Management head of investments, said the benefits of multi-asset investing in this environment were profound.

“In the sense that there’s a lot

of uncertainty at the moment and you don’t know what’s going to happen,” Clark said. “Spreading your bets makes a lot of sense, it’s making sure that you have exposure to a range of different risk premium.”

Clark said it was important to consider the nature of the multiasset fund as investors often thought of it as a being a niche way of doing asset allocation.

“You want to be careful that you’re absolutely sure the type of fund you’re investing in is

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17MM240920_16-33.indd 16

16/09/2020 10:51:55 AM

September 24, 2020 Money Management | 17

Multi-asset

appropriate for the investment outcomes that you want,” Clark said.

“Multi-asset can fulfil the whole gamut of potential outcomes; we’re just used to looking at multi-asset in a narrower lens.”

The first thing to consider is whether it is the right product as you can either select accumulation funds or risk-aware funds.

“They’re both multi-asset, but the difference is the accumulation funds are run specifically with a really long-term objective in mind,” Clark said.

“The [risk-aware] funds are run specifically to control risk, and to try and make sure we do a better job with compounding the returns we get and control the downside.”

Nick Schoenmaker, Aberdeen Standard Investments senior investment specialist, said multiasset strategies were good for protecting capital in an environment where all forms of risk-taking were being punished.

“Spreading investment risk across many different markets and being able to have the flexibility to adjust your portfolio based on a continuous assessment of markets can help preserve capital,” Schoenmaker said.

“Through the first quarter, all forms of risk-taking were punished whether that was corporate bonds, equities… really any asset class.”

Multi-asset funds that planned around strategic asset allocations

essentially ignore market cycles as they focus on long-term horizons.

“That only suits investors in the accumulation phase who have time to withstand market fluctuations,” Schoenmaker said.

“The average balanced fund tends to be about 75% correlated with the equity market, therefore you’re very reliant on the performance of two groups of equities [Australian and global].”

Simon Doyle, Schroders head of fixed income and multi-asset, said it was important to ask what sort of role the multi-asset manager should apply.

“It depends on the type of investor, the perspective of the client and what were they looking to achieve in their portfolio,” Doyle said.

“It’s quite an important question because multi-asset strategies are very broad and range from high growth with return characteristics similar to equity markets with a bit less volatility, to more objective-based strategies that will be targeting particular outcomes, through to conservative/defensive strategies.

“What you’re trying to achieve will depend on what manager you choose or what strategy you choose.”

Doyle said over the last decade multi-asset strategies had evolved significantly and shifted away from the typical balanced 60/40-type model to a whole spectrum of different outcomes.

“Multi-asset can fulfil the whole gamut of potential outcomes; we’re just used to looking at multi-asset in a narrower lens.”

– Al Clark, MLC Asset Management

“For example, if you’re an individual investor who wants to build your return, has low tolerance to drawdowns etc., then you might go with an objectivebased strategy where it’s targeting a specific rate of return and it’s managing volatility and drawdown risk,” Doyle said.

“If you’re a younger investor with a very long-term investment horizon, you might choose a more balanced portfolio which is going to be more equity-centric and have its return profile driven off the equity cycle.”

COVID-19 Doyle said the COVID-19 pandemic was an argument for having multi-asset strategies as part of a portfolio.

“Firstly, because multi-asset portfolios generally performed relatively well through that crisis as they typically have a relatively disciplined investment process and they can help insulate the investor from the downside, but also help position to take advantage of the upside,” Doyle said.

“One of the other advantages that multi-asset strategies had through the COVID-19 crisis was liquidity and most multi-asset strategies, certainly ours, holds generally pretty liquid assets.”

Doyle said multi-asset funds lacked the same degree of volatility as equity markets and had more liquidity than many of the private market investments commonly held in portfolios.

“The general principle is that a good multi-asset strategy should be fit for purpose through the [economic] cycle and able to manage all sorts of environments, whether it’s a COVID shock, an inflation shock or some other issue,” Doyle said.

“The benefit of multi-asset portfolios is they have different levers that can be pulled to help manage through and take advantage of different types of environments.”

Clark said because of the COVID-19 pandemic, the range of potential outcomes within the multiasset space had broadened out.

Continued on page 18

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17MM240920_16-33.indd 17

16/09/2020 10:52:02 AM

18 | Money Management September 24, 2020

Multi-asset

Continued from page 17 “There’s a lot of things going on where the range of outcomes could be deflation or inflation… you might see growth in certain areas and none in other areas,” Clark said. “There will be changes in behaviours as the virus accelerated some trends and created some new issues.”

ASSET CLASSES Thomas Poullaouec, T. Rowe Price head of multi-asset solutions APAC, said not only was the recovery uneven for equities, the credit sector also suffered the same uneven recovery with different parts being affected in different ways.

“We have seen some industries were at the mercy of facing existential risks: i.e. airlines, cruise lines, some energy companies,” Poullaouec said.

“Then there is a second group that has been able to raise capital and work on improving their balance sheet to make a bridge to the other side of this crisis, I’d put the automakers and home builders in that category.

“Within high yield, you have the beneficiaries of change: supermarkets, some healthcare companies, some media companies – these tend to have a low credit rating but they are beneficiaries from the crisis.”

Clark said the outcomes with different asset classes had been broad with real estate investments trusts (REITs) being one of the best examples – industrials REITs performed well, but retail struggled.

“People are willing to pay extremely high price-to-earnings for what they see as observable growth… you’ve seen it in the information technology and

17MM240920_16-33.indd 18

healthcare sectors,” Clark said.

“Anything where it’s seen as a cyclical cashflow where it may come and go, so financials, some industrials and materials, and to a degree energy – those have done poorly.

“But there’s this conclusion that the environment we’re in that has been exacerbated by the virus, will continue for a very long period of time and that’s generally not the case as you generally see things change.”

Doyle said equity markets, particularly the US equity market, had recovered quite strongly from the COVID-19 lows.

“That’s partly because of the response of policymakers, but there’s a few companies in the US equity market that have done quite well like the FAANG stocks,” Doyle said.

“Countries and economies have shut down and people have utilised technology to work through it.

“Certain assets have really struggled because of the nature of the growth shock that’s come from COVID-19.”

ETFs Superannuation and managed funds were not the only way to invest to gain the advantages of multi-asset allocation as exchange traded funds (ETFs) also provided the opportunity.

Alex Vynokur, founder and chief executive of BetaShares, said ETFs served as an effective, low cost and diversified way of building an investment portfolio.

“For the adviser market in particular, advisers are able to assist their clients by using those diversified ETFs as a core of a portfolio and then be able to add a number of satellite exposures,” Vynokur said.

“For some of the smaller balance clients, for example younger clients, those diversified ETFs can actually comprise the entire investment portfolio for that particular client.

“The benefits of those ETFs are that they are very highly diversified, they have an allocation to equities and fixed income.”

ETFs could be the easiest way to get into multi-asset investing, other than with your superannuation fund, as they have the added advantage of liquidity.

“In one trade you can get exposure to over 10,000 securities in one ETF, as easily as buying a share on the ASX [Australian Securities Exchange],” Vynokur said.

“What we’ve seen is some advisers using that for younger clients, all the rebalances take place inside the portfolio which follow a long-term strategic allocation approach.

“For the more sophisticated, larger balance clients, we have seen advisers use that as a foundation as a core allocation then build exposures around that.

“For example, that might include a tilt towards ethical investing, technology or even income as some clients may need an income stream – it’s a really handy way of building a portfolio.”

16/09/2020 10:52:14 AM

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Important Information The information on this page is provided by MLC Investments Limited (ABN 30 002 641 661, AFSL 230705) (‘MLCI’), Responsible Entity of the MLC Wholesale Inflation Plus – Conservative Portfolio, MLC Wholesale Inflation Plus – Moderate Portfolio and MLC Wholesale Inflation Plus – Assertive Portfolio, a member of the National Australia Bank Limited (ABN 12 004 044 937, AFSL 230686) (NAB) group of companies (NAB Group). An investment with MLCI does not represent a deposit or liability of, and is not guaranteed by, the NAB Group. The information provided is general information only and does not take into account your personal financial situation or needs. We recommend you obtain financial advice for your personal circumstances before making any investment decisions. You should obtain a Product Disclosure Statement (PDS) relating to the MLC Inflation Plus portfolios issued by MLCI and consider it before making any decision about whether to acquire or continue to hold those products. A copy of the PDS is available upon request by phoning 1300 738 355 or on our website at mlcam.com.au/MLCWholesale. A157381-0920

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14/09/2020 9:00:23 AM

20 | Money Management September 24, 2020

Practice management

UNDERSTANDING THE PRACTICE IN FRONT OF YOU Although there is no set structure when it comes to practice management, advisers need to know what they want to achieve and how to best communicate their needs, Oksana Patron writes.

ALTHOUGH THERE IS no ‘right’ or ‘wrong’ way when it comes to practice management, advisers need to know what they want to achieve for their practices and how they define growth. But before they choose the right metrics to measure whether they have the right practice management in place, there are a number of important structural, strategic and operational decisions to be made, experts say.

The recent changes across the industry have created the new reality where a growing number of financial advisers can no longer look at running a small financial practice, but instead have to adopt a business owner’s perspective and think about running an effective and efficient small business.

In fact, planners running their own practice need to learn to think in holistic terms and how they can best utilise their time from a business perspective. And choosing the most suitable business structure might be crucial for their future success or failure.

Centrepoint Alliance chief executive, Angus Benbow, said: “Initial beginnings of practice management is what type of business or practice do you want to run, how is it structured, what amount of revenue and expenses are you going to generate and also spend in terms of running the

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business that you want, and can you afford to be self-licensed or are you better suited to be on the license?

“The bread and butter of practice management is around operational targets and how efficient you are and that is where you come to those metrics around number of advisers, number of clients, average fee charged per client, your turnover of clients, new clients etc. They are all key practice management numbers that you look at in terms of how the business is tracking.

“And then there are really important structural questions outside of the practice management in terms of setting up your business in the right and sustainable way in the longer term.”

For Michael Gershkov, national practice manager at Lifespan Financial Planning, practice management is a process which is about understanding the business owner (and their staff) as people first by appreciating what they want, need, love, fear and helping them on their terms to achieve more.

He said it was also about asking the right questions, challenging the responses and inviting the person in front of you to take risks, take initiative and step outside of their comfort zone through action rather than meaningless theory which is often designed to make the person

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September 24, 2020 Money Management | 21

Practice management Strap

delivering the content feel good about themselves.

“Practice management is what I do. It’s at the core of everything I provide for advisers in order to help them grow their business and the key ingredient in practice management is to understand the person in front of you,” he said.

“When you understand what it is what they want, ask them the right questions, you can absolutely help them on their terms to have an impact in their business. But the number one secret to my success is not walking in with a script or agenda [which says] this is how you have to do it. Because there is no right way.”

Another important factor to remember is that not all businesses have the same objectives in terms of their own growth or are looking for the same solutions. For some practitioners, the main goal is not necessarily growing their businesses but rather simplifying their lives which can be done by introducing the right technology and better processes, Eugene Ardino, chief executive of Lifespan Financial Planning, added.

“It really comes down to the fact that every business is different, has different needs and different things that they are good at, things that they could improve, and it is really a question of understanding that and looking for good solutions.”

HOW CAN TECHNOLOGY HELP ADVISERS? Advisers need technology as a key component of operating their businesses smoothly as it helps to free up their time and allows

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them to focus on their core business. But at the same time, planners said that although there was ‘a lot of great software out there’, they often struggled to find the right technology that would offer more holistic and complex solutions, that ‘one software that does all’.

According to Ardino, there is plenty of technology that can help remove some of the most repetitive processes and improve client engagement experience but what remains harder to find are the full end-to-end solutions.

“At the moment, you are often stitching different bits of technology together, if you want that end-to-end solution,” he noted.

“You have got good pieces of technology that help you with the client interface and data collection process. Then you have other good bits of technology that do financial modelling and that can put together an SOA [statement of advice] and perhaps manage the client relationship.

And you have also got great pieces of technology that are a bit more DIY [do it yourself] so they enable the clients to enter their data and keep track of things and advisers will have access to that data but it is not necessarily two-way in terms of inputting.

“So you have got lots of good technology out there that do parts of the process, but what I do not see yet is something that could do all of that from the very first inquiry that clients make all the way through to advice delivery and ongoing service.”

Benbow stressed that the

“It’s about understanding and appreciating what advisers want, what they love, what they fear and helping them on their terms.”

– Michael Gershkov, Lifespan Financial Planning majority of advice businesses are generally fairly small businesses which have a lot of costs so in order to add value it is essential for them that their technology could help them create more time.

“Moving everything online from database to digital record keeping, simple things like all your files, in one place so if you get a query from the license and you get a query from the client it is all in one place, you have got a really good system to record things, that is all there when you need it. That way it saves you a huge amount of time.”

According to him, it is also about the consistency in how financial planning businesses are utilising technology to make the most of it as many struggle with systems that require configuration, training and upfront investments.

“Once you configure it and do your training and start using it in a consistent way, it can be a fantastic tool. I think there is a lot to be said about good technology but we as an industry are not getting the most from utilisation because people have a habit of doing things in certain way. They use the Xplan for some parts of their business, they use hardcopy for some things and for others, they use something else.

“So you need to step back and say if I want more real-time information data, if I want to have a better understanding with what

Continued on page 22

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Practice management

Continued from page 21 is going on then I will have to change some of the behaviour I had in the past, and adopt certain different ways of doing things to that benefit.”

So, what is one part of running an efficient business that technology cannot do?

“The relationships,” Advice Evolution’s chief executive, David Harris, said.

“The biggest problems that smaller practices have, or the least-sophisticated practices have, is that relationships rely on an adviser and the client and that is not where the relationship should be, it should be between the practice and the client. And when I say the practice, I mean it should be a practice manager or a client services manager.”

According to Lifespan FP, advisers also need to know what their top skills are and how to find a way for technology to complement those skills.

“If you look at technology that can improve something that potentially you are weak at, if you can find a technology that can complement your skills then that is great but I would also say one of the most important things an adviser can do is listen to their clients and try to understand what they are telling them and what they need. The technology can help you to do that,” Ardino added.

COMMON MISTAKES According to Benbow, the most important question for advisers and practice managers is to figure out what drives all their decisions and what actually matters for their clients?

By a way of example, he said,

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many advisers have defined themselves around a particular proposition, such as stocks or managed funds, but forget why their clients came to them in the first place. At the same time, clients are often looking for the holistic sort of advice and need to learn about cashflow management and understand the movements between different superannuation, retirement and pension.

“The investment is an outcome that you can outsource to a professional investment manager where all they do is to look at managed funds and stocks, they are not doing the life coaching or cash management or keeping me up to date with the latest superannuation changes or taxes – all they are doing is looking at the managed funds,” he said.

COVID-19 IMPACT During the global pandemic, triggered by COVID-19 and the subsequent lockdown, most businesses were thrown into a new world of entirely technologybased communication. So, what has it meant for some of financial planning firms in Australia?

Harris, who runs a highlydigitalised business that had hugely relied on technology for communications from the start, said the pandemic time was nothing new for his adviser network and the business was actually quite profitable during the pandemic as advisers came to the realisation that they could service their clients much better thanks to technology.

“What it has done is it actually freed up so much more time for my advisers, they are having more online meetings, starting to do more

online reviews, videoconferencing reviews, and the advisers are realising that they can actually service their clients so much better because they can see them at much more specific times,” he said.

Speaking of transition to the entirely technology-based communications, Harris said: “From my licensee’s perspective, because I have been in that space for 10 years and now everybody else is moving into that space where we have been, I am thinking where to go next? And that is the difficult question for me know what is going to be the next big game”.

According to Ardino, while the COVID-19 crisis and the lockdown has caused many businesses to re-evaluate how they do things, financial planners are generally

accustomed to an ever-changing environment. They also acknowledge that whenever there is a big market downturn it always generates and creates a lot more work for them.

“Our profession has gone through so many changes over the last 10 years that I think it has proved financial advisers work well with change. Otherwise you would not be in the business,” he said.

“The sheer volume of reforms and regulatory changes [made] to our industry and you have also got to combine that with how often the superannuation rules change and with other things like how quickly managed accounts space has evolved means that our industry is constantly changing in every way you can imagine so.”

16/09/2020 12:32:20 PM

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24 | Money Management September 24, 2020

Emerging markets

HARNESSING CHINA’S GROWTH ENGINE

There are numerous factors which are making China an attractive option for future growth, writes Wenchang Ma, as it outpaces its emerging market rivals.

AS FIRST IN and out of the crisis, China has led the way in the recovery from the COVID-19 pandemic and its resilience is reflected in the outperformance of its equity markets versus other markets globally. In the year to date, the MSCI China All Shares (+22.1%) has outperformed the MSCI ACWI (+4.7%), as well as its peers in Asia (+9.2%). Despite this outperformance, valuations remain at a discount to other major equity markets (Chart 1), with stronger support relative to global peers in the recovery of corporate earnings and economic growth.

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THE CHANGING FACE OF THE CHINA OPPORTUNITY One of the drivers behind China’s resilience is its transition to a new normal where domestic growth and self-reliance is now a focus.

Long underway is the rebalancing of its economy away from exports to consumption, helped by the rising wealth and sophistication of Chinese consumers, alongside the transformation of its vast rural economy. Reflecting this progress, Chinese exports as a proportion of gross domestic product (GDP) are below 20% today, about half the level of 15 years ago. For investors, this

presents an opportunity to get involved in the take-off of Chinese consumption growth, particularly as the economy recovers from the impact of COVID-19.

Despite an ageing population, there are many tailwinds for the consumption-led opportunity across multiple sectors in China.

Rising affluence coupled with the propensity to upgrade purchases are supported by growing evidence of strong underlying growth in sectors such as healthcare and protection insurance. It is also reflected in the propensity of an increasingly wealthy population to upgrade

their purchases to products perceived as higher quality, namely ‘premiumisation’. One example is in the high-end baijiu liquor market where inventory levels have normalised post the pandemic and the wholesale price is showing some strength, which suggests solid demand.

China’s pivot from industrial to innovation-led services means the levers of growth are driven more by technology than labour.

This mitigates the potential demographic burden as the working age population peaks.

This trend has been accelerated

by COVID-19, as China has

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September 24, 2020 Money Management | 25

Emerging markets increased “new infrastructure” investments to boost long-term productivity by leveraging nextgeneration technologies, such as 5G base stations, artificial intelligence (AI) and datacentres, intercity high-speed railways, industrial IoT, ultra-high voltage grids and electric vehicle charging stations.

Chart 1: Chinese equities are attractively valued versus the rest of the world

BUILDING TECHNOLOGICAL SUPREMACY Being at the forefront of technological innovation and achieving self-reliance in technology is a key priority for China. The importance of which has recently been validated and accelerated by the rising tensions with the US, as President Trump has placed punitive actions on tech giants such as Huawei and TikTok. One clear example of such technological supremacy is the accelerated build out of 5G, in which China is arguably the global leader. Another example is the launch of its own Nasdaq-style ‘STAR’ board, a facility that encourages technology companies to list in their homeland.

The scale of the opportunity in China is reflected in the increasing initial public offerings (IPOs) on both its onshore and offshore markets. On the former, the number of A-share IPOs has almost doubled over the past year.

Source: Bloomberg, 31 July 2020. We have used MSCI China rather than MSCI China All Shares as it has a longer history than the MSCI China All Shares index.

Chart 2: China’ s consumer product penetration significantly lags the US and South Korea

CHINA’S TRANSITION FROM RURAL TO URBAN China is by far the biggest e-commerce market in the world, yet its internet penetration rate is just 58%. We believe a significant proportion of this penetration gap could be accounted for by rural dwellers– about 40% of the overall population. Disposable income and e-commerce growth in rural areas is now outstripping that in urban areas, allowing rural dwellers greater access to products and services without having to move to a city. China’s transition to a consumer-led economy will be a key driver of domestic growth in the coming decades.

This should create opportunities for investors in

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Source: UNWTO, CEIC, Euromonitor, IWSR, Canadean, UBS, Goldman Sachs, Bernstein, Data rebased: USA = 100%, as at December 31, 2018.

‘new’ economy sectors, such as consumer discretionary, technology and healthcare, which are still relatively underpenetrated compared to developed markets (Chart 2).

Alongside the growth of this burgeoning middle class has been an increasing focus on such areas as healthcare and insurance, driven by the country’s unique demographics and technological advances. With greater assets comes the need for insurance to provide cover in the event of losses. Innovative companies that

provide solutions – often through the application of technology – to these relatively nascent industries are likely to be longterm beneficiaries of markets that are clearly here to stay.

Case study: Hangzhou Tigermed This clinical research service provider stands to benefit from two key factors: the increase in R&D spending by domestic Chinese pharmaceutical companies, and the greater level of clinical trial outsourcing by multinational firms. This market

has high barriers to entry, and Tigermed has built a strong reputation since inception in 2004.

This long-term experience ensures that the company has an excellent network, which will help facilitate further clinical trial development opportunities despite the short-term disruption from COVID-19. With a business model that is asset light, the company generated attractive returns on investment, in addition to healthy cashflows that can be Continued on page 26

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Emerging markets

Continued from page 25 used to invest in organic growth or fund acquisitions. We believe Tigermed is well positioned to capitalise on the continuing advances in healthcare in China.

WHAT COULD STALL CHINA’S ENGINE? China’s pathway back to growth is set against a backdrop of a challenging global economy. Debt levels will inevitably increase amid expansionary policies, but the systematic risk affecting the overall market is still manageable.

The prolonged pandemic and its impact on global trade could linger and hinder the curve of recovery.

However, re-opening of major economies from the lockdown and co-ordinated policy responses could still help to ease the pain.

China’s adoption of a more inward-looking approach, focusing on domestic investment and boosting domestic demand, and achieving self-reliance in strategic industries is also key to building some relative insulation from external factors.

Geopolitics also remains a source of risk for China, such as further escalation of trade tensions with the US. Further tensions could result in rising supply chain dislocation, restriction on access to top technology, and other pressures on Chinese companies, tariffinduced growth weakness, restrictions on the flow of investor funds from the US into Chinese markets, and potential delisting of Chinese firms from US exchanges.

Despite these risks, it is notable that earnings revisions for Chinese companies are faring better than both emerging and developed markets.

GROWTH LOOKS SET TO STAY So why do we believe that China’s growth engine won’t stall? The

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Government has stressed its commitment to pro-growth policies. We have seen broadbased monetary and fiscal support so far, including liquidity injections as well as tax cuts.

Going forward, infrastructure investments via an acceleration of local government bond issuance and support for private companies have been part of China’s toolkit.

Apart from shifting the growth focus onto domestic investment and consumption growth (or ‘the inner-cycle’ as the officials put it), China remains committed to deepening the structural reform and opening its domestic economy to foreign investment.

At the beginning of 2020, the foreign investment law, which the National People’s Congress approved last March, took effect.

The legislation aims to give foreign businesses equivalent rights to those enjoyed by domestic firms, ranging from intellectual property rights to the overseas remittance of profits.

Another example is the opening up of China’s capital markets to international investors.

China scrapped investment quota limits for Qualified Foreign Institutional Investors (QFII) and Renminbi Qualified Foreign

“The scale of the opportunity in China is reflected in the increasing IPOs on both its onshore and offshore markets.”

Institutional Investors (RQFII) in September last year. This year it has lifted the foreign ownership limit on securities and fund management firms. Historically, international equity investors have tended to focus on the offshore market given its more open access and transparency.

Another avenue to consider– especially now it is becoming more open – is the onshore A-share market, which offers direct access to China’s vast and vibrant domestic equity market. It is characterised by market inefficiency due to dominating retail participation, which provides good opportunity for long-term fundamental investors such as ourselves.

Uncovering the most attractive opportunities in China, we believe, requires specific expertise, and a strategic, active approach to generate alpha.

Wenchang Ma is co-portfolio manager at Ninety One.

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September 24, 2020 Money Management | 27

Alternatives

ALTERNATIVES FOR AIDING PORTFOLIO OBJECTIVES Kerry Craig explores how AID – alpha, income and diversification – can help advisers with construction of their clients’ investment portfolios.

INVESTORS ARE INCREASINGLY turning to alternatives to meet their objectives as they hunt for alpha in a low rate environment.

We see an expanding allocation to alternatives in the coming years by institutions, advisers and individuals. While each investor has distinct investment needs and constraints, they all face the same challenge: how to allocate capital to achieve their desired outcome.

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Lower interest rates over the past decade have prompted an avid search for income. The ability of bonds to provide portfolio protection by rallying in a market downturn has been diminished as policy rates are at, or close to, zero in many developed markets, creating a need for new sources of diversification and portfolio protection. Meanwhile, long-term expectations for public market equity returns are below historic averages. And, should inflation

risks tick up then the need for assets that can serve as an inflation cushion could increase.

WHAT MAKES THEM ‘ALTERNATIVE’?

‘Alternatives’ is an oft-used, catch-all phrase for all types of non-traditional assets (private equity, alternative credit, real assets including real estate and infrastructure, etc.) and investment strategies – hedging, short-selling, leverage and

others. But that does not mean alternatives are just a hodgepodge of assets. They are all alternative sources of one or more outcomes that investors seek from traditional stocks and bonds – alpha, income and diversification – and can, with trade-offs, potentially help investors achieve their outcomes.

Alternatives also share characteristics that distinguish Continued on page 28

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Continued from page 27 them from traditional stocks and bonds. They are all, to different degrees, less liquid, have longer investment horizons and operate in less efficient (private, less regulated) markets. They have less transparency and information that isn’t always equally available to all market participants. For all these reasons, alternative investments generally exhibit low correlations with traditional assets – which can make them good diversifiers of traditional portfolios. They can also deliver returns that are driven by both income and alpha – making them potentially good return enhancers and stabilisers.

Finally, alternative managers’ returns exhibit significantly higher dispersion than those of traditional managers. This underscores the importance of manager selection: skillful managers are able to exploit market inefficiencies, bring about operational improvements and deliver enhanced returns.

COMING TO THE AID OF PORTFOLIOS Three categories of alternatives can be used to support the main criteria of portfolio allocation across assets and strategies: those which are return enhancers (alpha); yield generators or safe havens (income); and diversifiers (diversification). In this sense, alternatives can AID in delivering on today’s investment challenges and portfolio objectives: Alpha is commonly defined as the return from skilful active management or value creation that lifts portfolio returns.

Traditional active stock selection, cycle-aware asset allocation as well as private equity,

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opportunistic alternative credit and higher risk real assets can all be attractive alpha sources.

Income generation is a primary objective for many investors. Income provides a source of liquidity and stability.

High quality government and corporate bonds often fill this role but if there is a need for an asset that can provide a stable income stream in downturns, then core alternative credit and real assets including core real estate and infrastructure may offer some appealing safe haven characteristics, with potentially higher yield, albeit at the cost of some liquidity.

Diversification is a critical risk management tool. Holding assets, both traditional and non-traditional, with low or uncorrelated sources of return, can reduce volatility. Hedge fund betas are often used as effective risk diversifiers, although they do come with lock-ups, leverage and relatively large left tail risks.

As alternatives increasingly become a mainstay in supporting these functions, the boundaries between what is traditional and what is alternative will become

blurred further. The industrydefined labels of hedge funds, private equity, alternative credit and real assets will become less meaningful as investors and asset allocators start to think in terms of fixed-income-like, equity-like and hybrid style assets. We predict a trend towards focusing on outcomes, rather than labels when it comes to assets.

TRADE-OFFS An allocation to alternative assets can increase the risk-adjusted return that a well-managed portfolio may be expected to return, but careful consideration needs to be given to the full set of risks and trade-offs inherent in alternative investing. Alternative investing comes with additional challenges not faced to the same degree in traditional investing, namely: illiquidity, manager return dispersion, tail risk and a lack of transparency.

Consider the trade-offs in two alternative asset classes, private equity and core real estate. Private equity is a highly illiquid investment that involves a longterm commitment to a strategy, and importantly to a particular

manager, often through an entire economic or market cycle. The returns, which stem largely from capital appreciation, have the potential to be large, but are highly correlated to public equity market returns and will vary significantly across managers. At the other end of the spectrum is core real assets, which have the potential to provide returns driven by stable cashflows. Return in core real assets are typically lower than those of private equity, but come with greater liquidity, lower dispersion of manager returns and can offer strong diversification to public market equities.

While liquidity and dispersion of return may dominate investors’ decision-making processes, other challenges, such as tail risk, lack of transparency and fee structures, should also be considered in a holistic assessment of alternative investing. While these factors may play a role in portfolios today, they are likely to be a lower hurdle in the future.

The chance an alternative investment generates a larger than expected loss, known as a left tail risk, is a valid concern in

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Alternatives

private markets, but a scan through the financial history books highlights the many company collapses in public markets that have inflicted equally painful losses on investors. Certainly it’s true that a lack of transparency can shield a true understanding of potential downside, and also that illiquidity reduces investors’ optionality when it comes to getting out.

However, these are not new concerns and have not been restricted to private markets.

The rise of emerging markets in the 1990s offered higher returns than could be found in industrialised countries, but many public exchanges were in their infancy, liquidity was limited and information sharing in the market and between investors and companies was far less efficient that it is today. However, over time emerging market equities have become deeper and more liquid, transparency has increased and fees for international investors declined.

Could alternatives follow a similar path?

BROADER ACCESS, INCREASED FLOWS As investors turn more to the alternative world in search of alpha, income and diversification that is becoming harder to find in public markets, accessibility for small to midsized institutions and retail investors is likely to improve.

The increase in flows could mean deeper, more liquid markets and more pressure from investors for greater transparency. Mature and core-like categories of alternatives (such as real assets) are generally more scalable and have the ability to absorb increased flows. Increasing

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allocations will impact each segment of the alternative asset class differently when it comes to the potential impact on fees, transparency and alpha, given each has unique characteristics and may only eventuate over the medium to long-term.

However, the premium over public markets for both income and capital appreciation is currently greater than it has been for a number of years; the nearterm potential for alternatives to deliver on alpha, income and diversification appears unchanged.

SUMMARY Smartphones, online streaming, and indoor plumbing were once things that were limited to small groups or considered as wants rather than needs.

For decades, institutional investors have enjoyed the option of adding alternative investments to their portfolios. Their evergrowing allocations, despite higher fees, liquidity constraints and manager performance dispersion, hinted that they were getting something in alternatives that wasn’t readily available in the public markets. Whether in search of alpha, income or diversification, these investors now find themselves facing ever fewer opportunities for these pursuits in the traditional asset classes.

Stretched valuations in traditional markets, limited correlation benefits between fixed income and equities, and the likelihood of persistently low bond yields create an increasing urgency to add alternatives.

Consequently, we expect rising alternative allocations over the next decade for investors of all

“The premium over public markets for both income and capital appreciation is currently greater than it has been for a number of years.” stripes. Larger institutional investors will need to make way for mid- to small size institutions and a fresh crop of retail investors as the new alternative asset management industry invents new means for smaller sized entities and more individuals to access the benefits of these asset classes.

The challenge for investors then is to ensure they are getting what they ‘pay’ for when spending their precious fee, liquidity and risk budgets, and not paying for what can be had elsewhere with less sacrifice. The operational intensity and complexity of many of these asset classes is substantially higher than for traditional investments. Manager skill, experience and track records, and use of an alternatives asset allocation framework are rarer commodities, but also vital for success. In spite of the challenges, the alpha available from higher risk real assets and private equity, the income from core real assets or alternative credit and the diversification from less macroeconomic-sensitive asset classes such as hedge funds have convinced investors resoundingly that the trade-offs inherent in alternative investing are worth it, particularly when the investment universe offers few compelling alternatives.

Kerry Craig is global market strategist at J.P. Morgan Asset Management.

16/09/2020 12:31:32 PM

30 | Money Management September 24, 2020

Education

DEBUNKING FASEA STUDY MYTHS The FASEA exam can seem like a daunting prospect but, Brian Knight writes, the facts of the task are less scary than the myths.

AT KAPLAN PROFESSIONAL, we hear a diverse range of thoughts and theories about education and, in particular, the Financial Adviser Standards and Ethics Authority (FASEA) exam. At the time of writing, there were six exams scheduled for 2021 in 31 different locations and advisers could also elect to sit the exam remotely online at their preferred time during the exam windows. The exam deadline for current advisers is 1 January, 2022, while the education standard deadline is 1 January, 2026. These were one and two-year extensions respectively in order to allow advisers to focus on the needs of their clients amid the COVID-19 pandemic.

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Often some of the commentary we hear around learning and exam study is simply incorrect and requires clarification so this article will hopefully debunk some of these myths.

These answers are based on our experience of supporting our corporate clients and thousands of financial advisers around the country with the FASEA education requirements. This has helped us to develop a thorough understanding of what it takes to help advisers manage and succeed with their studies. I hope this will provide advisers who are apprehensive or anxious with the confidence they need to make the decisions right for them.

Myth one: I haven’t started studying because the extensions mean I have plenty of time.

What must be remembered is many advisers have to complete a Graduate Diploma, which encompasses eight subjects at the postgraduate level. Many others have five or six subjects to do.

This is a significant commitment that requires dedication, time and effort to succeed. On average, it takes working advisers undertaking a Graduate Diploma with us approximately three years to complete with a moderate study workload.

It’s in your best interests to make this workload as manageable as you can. The

earlier you get started, the more flexibility you have to balance your study with your other commitments. It also provides you more control over your pathway – you can adapt your study to suit your schedule and spread it out over a longer period.

Work and family pressures are factors that will always need to be considered. What happens if something arises and you don’t have the capacity to study for a significant amount of time? You don’t want the weight of the requirements hanging over you for another four years or so.

This is well summed up by one adviser who expressed, “there’s always a reason to delay until the

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Education

“The earlier you get started, the more flexibility you have to balance your study with your other commitments.” next study period. Unfortunately, this can lead to further stress down the track or even a reason to give up. Being proactive and starting early means you can spread the time, commitment and energy over years, rather than months”.

Myth two: I’ve seen reports about it costing over $3,000 for a subject and that these costs will only increase as a result of Government policy.

Advisers are only required to pay for the subjects they’ve enrolled into each study period. As you can pay on a subject-to-subject basis, you don’t have to worry about committing to the cost of a whole qualification in one go.

Many eligible advisers choose to use HECS-HELP or FEE-HELP, which are Commonwealth Government loan schemes that help pay for part or all of tuition fees. This means you don’t have to pay upfront to study. HECS-HELP supports students studying at public universities – and some private institutions – subsidised by the Government, while FEE-HELP supports providers not subsidised by the Government.

Myth three: I’d never be able to go back and study now. It’s been too long, or I haven’t been to university before.

There’s no avoiding the fact that, yes, it will be a challenge. But it’s one we’ve always believed advisers could meet if we really worked

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hard to support them. Having now had thousands of advisers who hadn’t studied at this level or for a long time, this is being proved correct. Advisers generally have an inherently strong understanding of the subject content. If we can work with them on the requirements needed to effectively study at this level, they succeed.

Three elements we have found are crucial to an adviser’s success are proactive planning, personalised support and flexible learning.

As well as the financial modules, consider a course that can teach you strategies to build your confidence with assessment preparation, motivation, technology and time management as these are necessary skills if you are new or returning to study.

There are also forums and discussion groups where advisers and tutors share tips on study scheduling and assessment tasks.

Myth four: I’m worried about online study but don’t have the time to go to lectures.

Online education is new for many and it takes some getting used to.

Once you get into your groove, you’ll realise how convenient and flexible it is. You don’t have to worry about travel or scheduling your day around attending lectures and classes at a campus. You study how and when you want. You have access to recorded lectures, course materials and support resources at your fingertips. An example would be parents who

use online learning during evenings and weekends to fit their study around work and childcare.

Some people think online learning lacks interaction because there’s no face-to-face component but enhancements have enabled providers to hold online classes in real time. This has significantly increased a sense of belonging, connection and engagement among advisers You can even sit your exams from home. There’s a lot of debate about online proctored exams, but the reality is they provide you with a familiar and comfortable environment to perform at your best, while eliminating factors that heighten anxiety and nervousness such as travel and crowded exam centres.

Myth five: I’ve heard there are shortcuts or easier ways to do this.

We always advise caution with offerings such as challenge tests or intensives. While these might appear to be an ideal option for a time-poor adviser who wants to complete a subject quickly, there’s a lot more to these once you begin to scratch below the surface. You really need to investigate what you’re getting out of it and how much it costs – both time wise and financially. The amount of days advertised is just the length of the in-class activities. You’re expected to complete significant readings and multiple assessments. This is a heavy workload for an incredibly short period of time.

With a robust plan, dedicated support, complete flexibility and comprehensive content, you’ll realise there’s no real need for these gimmicks. You’ll actually want to put in the work over a whole study period because it will be much more valuable and rewarding. Taking the

BRIAN KNIGHT

time to complete the readings, activities and assessments in detail can help you gain substantial understanding and knowledge.

Myth six: You don’t need to study to pass the exam.

That may be the case for some advisers, but everyone’s different.

Almost half of advisers resitting the FASEA exam fail a second time too.

Advisers who haven’t studied or sat a lengthy exam in a while often complete one or more of the bridging courses before they attempt the FASEA exam. These subjects cover core content assessed in the FASEA exam, so it helps advisers reinforce knowledge and build their confidence.

Completing a practice exam or an ethics course beforehand, for example, can help you be in a confident state of mind.

Final thoughts Don’t listen to everything you hear. Take the time to ask the questions you need to. Join a return to study information session and look at the subject matter and the assessments.

Don’t leave it to the last minute; you’ll benefit if you start sooner rather than later.

Brian Knight is chief executive of Kaplan Professional.

16/09/2020 10:00:17 AM

32 | Money Management September 24, 2020

Portfolio construction

BUILDING A PORTFOLIO AROUND FAITH Jason Hazell provides insights on how Islamic investing meets the needs and requirements of Muslim Australians who want to invest according to their faith.

THE WORLD OF investing was changing rapidly before the impact of COVID-19 distorted global and Australian markets.

Increasingly, Australian investors and their global counterparts have been demanding their retirement savings be invested according to their values and beliefs.

For many Australians this has meant investing their super in environmental, social and governance (ESG) driven responsible investment funds, or ethical options within super funds that invest in ways that seek to reduce the impact of climate change or environmental damage.

According to the Responsible Investment Association Australasia (RIAA), more than 44% of totally professionallymanaged funds in Australia have been placed with responsible investment managers and this is expected to increase significantly.

Research commissioned by RIAA earlier this year shows 86% of Australians now expect their savings and superannuation to be invested responsibly and ethically.

Fortunately, the superannuation system – the use of which is mandatory for all workers – offers Australians an array of options to invest for their future. For faithbased investors, there is a number of super funds available.

Crescent Wealth is the only

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Australian Prudential Regulation Authority (APRA) regulated Islamic super fund and a pioneer of Islamic investing in Australia since 2013.

For financial advisers, the implication of this trend is that clients will seek education and explanation of the myriad options available to accommodate their beliefs and values. For some advisers, questions about Islamic investing will be their first.

Put simply, Islamic investing is the practice of investing in alignment with Islamic finance principles and values.

From an investment governance perspective, there are a few core principles which must be followed in order for a fund to be considered Shariah-compliant, and these principles are set and maintained by the Dubai-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).

1. AVOIDING THE PAYMENT AND RECEIPT OF INTEREST The prohibition of interest arises from the Islamic view that money should be used only as a medium of exchange, a store of value and a unit of measurement. Money itself possesses no intrinsic value. You cannot use money to make more money, there must be an underlying asset or production of some sort to produce an increase in wealth.

16/09/2020 10:49:58 AM

September 24, 2020 Money Management | 33

Portfolio construction Strap

Thus, when it comes to investments and wealth being ‘halal’ – the Islamic word for permitted – the yardstick of judgement is what results in the increase of one’s wealth. Is the target invested into an activity or asset one that Islam allows? If not, the resulting increase in wealth is deemed ‘haram’, or forbidden.

The charging or receipt of interest – or ‘riba’ – is therefore prohibited. Any return on money invested should be linked to the profits of an enterprise.

We hold no exposure to banks and insurance companies and do not invest into traditional fixed income markets due to the charging or receipt of interest – or ‘riba’ – being prohibited.

According to the Association of Superannuation Funds of Australia (ASFA) as at March 2020, more than 40% of conventional super funds are invested in interest or riba through cash, and both Australian and international fixed income.

To offset this, we hold higher levels of Islamic cash and Sukuk bonds in our portfolios. Sukuk bonds are Islamic-compliant bonds which are designed to provide the fund with the same protection afforded by standard fixed income instruments.

2. I NVESTING ETHICALLY AND MORALLY Consistent with socially responsible investing, Islamic investment principles specifically screen out socially detrimental activities. Islamic investing is consistent with positive social values and good governance and

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expressly prohibits investment in non-permissible activities.

In line with this, we do not invest in any companies that sell or profit from the sale of alcohol, gambling, tobacco, weapon manufacturing, pornography and pork products.

Our focus is to invest in assets which benefit the community, including healthcare, property and infrastructure, natural resources and innovative industries.

3. AVOIDING UNCERTAINTY The existence of uncertainty in a contract is prohibited. Everyone participating in a financial transaction must be adequately informed and all fundamental terms such as price or quantity must be clearly determined at the outset.

4. AVOIDING SPECULATION Investments that rely on chance or speculation, rather than the efforts of the investor to produce a return are also prohibited.

Normal commercial risk-taking and related speculation is otherwise permitted.

Additionally, under Islamic investment principles, we screen out companies with more than 33.3% leverage, because of the risk of investing into highly indebted companies.

As a result of complying with these principles, investment strategies of Islamic investment funds are inherently conservative, have high cash holdings and are designed to withstand the market volatility that comes with high levels of equity holdings, investment in non-sustainable industries and debt. Our fund has a bias towards conservative

businesses and tangible assets that have clear community benefits.

For clients, investing in accordance with Islamic investment principles means a narrower choice of investment options and more conservative and stable investment returns, but it does deliver 100% compliance with what is most important to them – their faith.

Beyond this, we aim to do good for all Australians, not just Muslim ones. Though it serves the specific requirements of Muslim Australians saving for their retirement, the fund is open to anyone who wishes to join, regardless of their faith.

As community leader Sheikh Alaa Elzokm said in a recent member webinar, the fund works to benefit all people.

“Islam cares about achieving the benefit. Everything that is beneficial for the people, all the human beings in general,” he said.

“Islam does not distinguish between a Muslim or non-Muslim for achieving the benefit.”

By investing in assets which are designed to make the world a better place, we meet this important Islamic principal by making a positive impact on all Australians, particularly by screening out asset classes such as alcohol, tobacco, pornography and the production of weapons of mass destruction.

Many Australians may not be aware, but Islamic finance is rapidly growing around the world.

Over the last 10 years Islamic finance has grown at a rate of around 10% every 12 months, with Thomson Reuters predicting the

“Investments that rely on chance or speculation, rather than the efforts of the investor to produce a return are prohibited.” sector to reach USD$3.8 trillion ($5.21 trillion) in value by 2022.

Further to this, Islamic finance is becoming increasingly important in our part of the world, the Asia Pacific region.

Particularly as Muslim populations expand in Southeast Asian countries such as Indonesia and Malaysia. Currently, the region is estimated to account for almost 25% of the international Islamic finance market, as Sukuk issuance has boomed in nations such as Malaysia over recent years.

This growth coincides with the increased desire of investors to invest in financial products which are in line with their beliefs. In light of these trends, we have grown to serve more than 9,000 Australians since our launch in 2013, managing around $270 million in retirement savings.

We believe that faith-based investing will continue to grow among Islamic communities, and we will continue to work to ensure Crescent Wealth serves this increasingly important community need.

Jason Hazell is chief investment officer at Crescent Wealth.

16/09/2020 10:50:04 AM

34 | Money Management September 24, 2020

Toolbox

HOLDING PROPERTY IN SMSFs

Graeme Colley explores the different factors that auditors are looking for when residential or commercial property is held in a self-managed super fund.

AUDITORS ARE THE mid-point between a self-managed super fund (SMSF) and the Australian Taxation Office (ATO) and therefore have a statutory responsibility to determine whether the fund has met the superannuation standards in the Superannuation Industry (Supervision) Act 1993 (SIS Act).

A fund that owns residential or commercial property should put in place procedures and supporting

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documents that the fund complies with the legislation.

Here are some things auditors may be interested in:

1. W HO OWNS THE PROPERTY? An auditor will review who actually owns the property and usually undertake a real property search.

Property owned by an SMSF is registered in the name(s) of the individual trustee(s) or corporate

trustee but not in the name of the fund. When the property is settled, a declaration of trust should be made that the trustees are the legal owners of the property and hold it on trust for the SMSF. If a portion of the property is owned with another party, the auditor will take an interest in the part owned by the fund, the capacity in which it is owned and whether the property has been mortgaged or encumbered.

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September 24, 2020 Money Management | 35

Toolbox

If the property has been mortgaged, the fund may breach the rule which prevents the trustee placing a charge over a fund asset. However, the property can be mortgaged where the fund has a limited recourse borrowing in place.

2. A RE PROPERTY LEASE DOCUMENTS UP TO DATE? If the property is leased, the auditor will be looking for current leases and property valuations.

This applies especially with related party leases so they are made on an arm’s length basis. Otherwise, the income can be taxed at 45% as non-arm’s length income.

Rent adjustments must be up to date and consistent with market rentals. Where the rent is in arrears the fund should seek recovery of outstanding amounts.

A number of legal cases have required the trustee to act in accordance with the lease agreement and take action to recover outstanding payments, irrespective of whether the tenant is a related party or at arm’s length.

For the 2019/20 and 2020/21 financial years, the auditor may also consider any concessions offered to tenants such as rent waivers or relief due to the economic impact of COVID-19.

3. WHAT ARE THE IMPACTS OF RENT RELIEF? Due to the COVID-19 pandemic, many related and unrelated tenants have sought rental relief from the fund as landlord. The ATO is taking a reasonable approach to the SMSF’s compliance, but in support of the SMSF offering rent relief the auditor will be looking out for: • How the tenant is affected – did the business close its doors by direction/lack of business/loss of revenue/lack of supplies etc?

• Financial implication to the business – such as cashflow implications;

17MM240920_34-40.indd 35

• The type of relief offered discounts/rent-free period/ deferrals that were considered by the trustee; • The agreed review period – for example, two or three months or longer providing it is not a blanket rent-free period; and • Impact period – leases were not impacted by COVID-19 until late February/March 2020, the auditor will consider whether rent has been paid under the lease from July 2019 – February 2020.

4. LOAN PAYMENT RELIEF TERMS? An SMSF may also offer loan repayment relief for a loan made to a related or unrelated party who has been financially impacted

by COVID-19. This may also apply where the fund has borrowed from a bank, other financial institution or related party for purposes of a limited recourse borrowing arrangement (LRBA).

The auditor could be expected to review the loan documents to see that the terms can be varied as agreed between the SMSF as lender and the borrower. The agreement may allow a reduction in the interest rate or repayments or a deferral of the repayments including the accrual of interest.

If the fund has borrowed from a bank or other financial institution, the auditor may review the terms of any loan repayment relief being offered to the SMSF. As a general rule, any relief should be consistent with equivalent arm’s length arrangements, especially those being offered by the big banks.

If the relief is on an arm’s length basis, the auditor may comment on the possible breach of Section 109.

In some situations the fund may then face issues with the non-arm’s length income rules.

As a guide for loan relief, the Australian Banking Association (ABA) recommends that commercial lenders may provide loan repayment relief where:

• Interest and principal repayments on the loan can be suspended for up to six months; • Interest continues to accrue on the loan during the deferral period; • Accrued interest is to be capitalised and form part of the amount to be repaid over the term of the loan; • The borrower must have been financially impacted by COVID19; and • The borrower must not terminate a lease or evict a tenant for rent in arrears during the loan deferral period.

The fund’s auditor, as well as the ATO, would usually accept a loan repayment relief arrangement where the trustee can provide evidence the relief is similar or identical to what is offered by for real estate investment loans at the time. The relief should be documented, accepted by the parties and prove the terms are on an arm’s length basis.

If an auditor considers loan relief has not been provided on an arm’s length basis, any material breach may be reported to the ATO by lodging an Audit Contravention Report. The report will explain why the loan does not meet the arm’s length requirements in the current economic circumstances.

5. DOES THE PROPERTY REQUIRE A FORMAL VALUATION? Real estate investments are not easy to value as there is no true market value until the property is actually bought and sold. But when the accounts of the fund are being prepared or benefits are paid from the fund, a reasonably accurate value of the property is required. Property valuations may be required for SIS Act for in-house asset purposes and to establish the transaction is made on an arm’s length basis.

The ATO says it does not require an external valuation each and every year. A recent valuation is

Continued on page 36

16/09/2020 10:48:51 AM

36 | Money Management September 24, 2020

Toolbox

CPD QUIZ Continued from page 35 prudent if the previous value is considered to be materially inaccurate or the value has changed due to changes in market conditions, a natural disaster or capital improvements. The current economic situation with COVID-19 is certainly one of those situations.

The valuation of a property, for SMSF purposes, does not require a formal assessment which can turn out to be expensive. Anyone may undertake the valuation as long as it is based on objective and supportable data. This can include a valuation from a property or online real estate valuation service or real estate agent. These valuations are usually provided at a minimal cost or free of charge.

A formal assessment by a qualified valuer may be required where the property is a significant proportion of the fund, has special features or the valuation is complex.

When valuing real estate, the assessment should consider: • The value of similar properties in the area; • The amount that was paid for the property in an arm's length market; • Independent appraisals; • Whether the property has undergone improvements since it was last valued; and • For commercial properties, net income yields especially in the current economic situation are important as rent reductions for significant periods could impact the value of the property.

In contrast to the ATO guidelines, auditors are seeking greater confidence that the property value in the fund’s accounts satisfies the accounting standards. An auditor may require the trustee to obtain a more recent valuation rather than one that merely satisfies the ATO requirements.

6. PRIVATE COMPANY AND UNIT TRUST INVESTMENTS HOLDING PROPERTY? The valuation of the private company shares or units in a private unit trust that have invested in property will vary depending on the underlying assets. A company or unit trust that owns commercial or residential property would have shares or units based on the value of the underlying property and potential income. In contrast, if the company or trust operated a business, the value would take any mid- to long-term change in turnover and profit.

The value of an investment may be difficult to determine based on asset values and turnover. The auditor is usually after a reasonable value based on recent sales of shares or units if they are available. This may require contacting the company secretary or trustee of the SMSF to obtain an indicative valuation or copies of financial statements. If this is not available or unable to be determined, the accounts may be qualified and send an audit contravention report to the ATO if breaches of the SIS legislation have taken place.

LESSONS TO BE LEARNT The lessons for a fund that owns property is to make sure the trustees and the tenants: • Comply with any lease documents including rent increases; • Keep documents of any transactions or changes to agreements; and • Can show that any transactions are made on an arm’s length basis.

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

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

1. Property that is owned by a SMSF is registered in the name of the: a) Superannuation fund b) Trustee and the superannuation fund c) Name of the members d) Individual or corporate trustee 2. In relation to rent relief offered by a fund trustee, the auditor will be interested in any rent relief granted to the fund: a) For the whole financial year b) From July 2019 until March 2020 c) From March 2020 until June 2020 d) From January 2020 until June 2020 3. If a fund has been granted loan payment relief for a related party limited recourse borrowing arrangement it should be equivalent to arm’s length arrangements recommended by the: a) Australian Banking Association b) Australian Taxation Office c) Australian Securities and Investments Commission d) Australian Shareholders Association 4. A formal assessment by a qualified valuer may be required: a) On a year-to-year basis b) Where the property is a significant proportion of the fund c) Where rent relief has been granted for the property d) In all cases where the fund owns commercial property 5. In valuing units that an SMSF owns in a unit trust which has a property investment, the trustee would value the units based on: a) The original cost of the property purchased by the trust b) The market value of the property for CGT purposes c) A value that is based on a recent sale of units d) The cost base of the units purchased by the SMSF

TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/ features/tools-guides/holding-property-smsfs

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

16/09/2020 10:49:02 AM

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16/09/2020 10:13:02 AM

38 | Money Management September 24, 2020

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

Appointments

Move of the WEEK Fintan Thornton Head of institutional solutions Allianz Retire Plus

Allianz Retire Plus has appointed Colonial First State head of superannuation, Fintan Thornton, in the newly-created role of head of institutional solutions.

Thornton would be responsible for developing the firm’s partnerships and solution design for the institutional segment of the Australian investment market.

Thornton had over 20 years’ experience working across Australian and international financial services and was a non-executive director on the board of CBHS Health Fund.

MTAA Super chief executive, Leeanne Turner, has been appointed to lead the newly-merged MTAA Super and Tasplan fund next year.

MTAA and Tasplan had also confirmed its executive team that would lead the combined fund from 31 March, 2021.

The team included: • Leeanne Turner, CEO; • Kathleen Crawford, chief operations officer; • Dr Ross Barry, chief investment officer; • Ningning Lyons, chief strategy officer; • Robyn Judd, chief of people and culture; • Amy Ward, chief of governance, risk and compliance; and • Grace Angeles, chief finance officer.

Barry would join MTAA Super on 28 September, 2020, and was recently senior investment leader for First State Super.

Departing from MTAA Super would be deputy CEO Michael Sykes; executive manager, operations Chris Porter; and Michael Irving, executive manager of marketing, communications, education and advice.

Departing from Tasplan would be CEO Wayne Davy; chief operations officer and deputy

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His other executive roles included head of employee superannuation at Commonwealth Bank of Australia, director of actuarial for Russell Investments, and retirement practice actuarial consultant for Willis Towers Watson in the UK. Matt Rady, Allianz Retire Plus chief executive, said the company’s extensive global capabilities and expertise in investment innovation could play an important role in helping superannuation trustees at a time of industry transformation.

CEO, Nick Connor; executive manager, strategy Keryn Welch; chief risk officer Greg Hanigan; and acting chief investment officer Dave Stuart.

Centrepoint Alliance has appointed Daniel Stojanovski as head of research, commencing from 13 October, 2020.

Stojanovski was previously a portfolio manager at IOOF Holdings, responsible for the management of IOOF’s model portfolios, managed accounts, investment strategy and asset allocation.

Prior to IOOF, he spent two and a half years with Challenger working across numerous funds in the Fidante Partners division and in the investment management division at Morgan Stanley.

The CFA Institute has appointed Daniel Gamba as chair of the board of governors and Maria Wilton as vice chair.

Gamba was managing director and co-head of fundamental equities at BlackRock.

Melbourne-based Wilton had a 30-year career in investment management and currently served as director at Victorian Funds Management Corporation,

“We are entering a new era in the delivery of a more robust retirement income system,” Rady said.

“With the upcoming retirement income covenant, there is finally a sharper focus on the development of a more sustainable framework.

“Fintan’s appointment underpins a growing interest in our capabilities, and his wealth of relevant experience means he is extremely well placed to deliver for our partners.”

Worksafe, Infrastructure Victoria and the Australia Post Superannuation Scheme.

First Sentier Investors-owned systemic equities manager Realindex Investments has appointed Dr Joanna Nash to the newly-created role of senior quantitative portfolio manager.

Nash has 13 years’ experience in quantitative investment, including senior roles at Acadian where she was a senior portfolio manager.

She was also a portfolio manager within scientific equities for BlackRock where she ran index portfolios and was head of sustainable investment in Australia.

Financial services technology provider Iress has appointed Joydip Das as chief product officer (CPO), commencing from September 14, 2020 in Melbourne.

Das would be a member of the product leadership team, reporting to chief executive Andrew Walsh.

Prior to Iress, Das was head of product at US start-up Socrates AI and before that he was vice president of product at marketing data management platform Krux Digital, which was acquired by Salesforce in 2016.

Investment consulting firm JANA has promoted Greg Wilkinson to head of insurance, to lead the expanded insurance advisory services across the sector.

Wilkinson joined JANA in 2014 and was currently a senior consultant and a member of the global equities research team.

He had over 25 years’ experience in the financial services industry, which included 16 years as a consulting actuary in the UK and Australia, prior to joining JANA. Australian Unity’s property business has appointed James Goodwin as general manager – investment and origination.

In the newly-created role, Goodwin would be responsible for supporting the equity and growth agendas of Australian Unity’s $4.5 billion portfolio of mortgages, commercial property, healthcare and social infrastructure.

Goodwin had almost two decades of experience in the property sector, including previous roles as executive director at consulting firm Ocean St Capital Advisers, joint managing director at Arena Investment Management and chief executive at Becton Property Group.

16/09/2020 4:08:51 PM

BE BETTER INFORMED:

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16/09/2020 10:12:13 AM

OUTSIDER OUT

ManagementSeptember April 2, 2015 40 | Money Management 24, 2020

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

Bubbling along, making sacrifices for and on behalf of members WHEN Outsider watched Hostplus boss, David Elia, exchanging banter with parliamentarians as he Skyped into a hearing of the House of Representatives Standing Committee on Economics in early September, he imagined that the Melbourne-based Elia was, with thousands of his members, enduring the Stage 4 lockdown in the Victorian capital.

But if what Outsider reads in the Sydney Morning Herald is correct, then Elia was not enduring the Victorian Government’s interminable COVID-19 lockdown and the daily updates provided by Premier Daniel Andrews. No, far from it. It is reported that Elia had managed to escape the ring of steel around bleak city to be part of the AFL bubble on the Gold Coast.

Now Outsider will be the first to admit that he views Queensland’s border closure and its approach to quarantine – mugs step to the left to two weeks confinement in a small hotel room while AFL bubble boys

and movie stars can step to their luxury poolside accommodations on the right – with deep cynicism and he really does wonder what Elia’s Hostplus membership makes of his peregrinations and, indeed, the cost.

But you see, Hostplus is a major sponsor of the Australian Football League, and David is simply keeping an eye on things for and behalf of the members whose balances have contributed to the sponsorship monies. It’s a fiduciary duty, really.

Still, if Outsider was reading the Sydney Morning Herald's coverage correctly, then Elia has been accompanied on this arduous mission by members of his family so credit to them too for helping keep an eye on Hostplus members’ funds.

And it all has the blessing of Queensland’s chief health officer – someone happy to explain the underlying economics of separating the well-heeled wheat from the chaff but whose CV seems light on specific epidemiological expertise.

Campervans, trail bikes and boats and Christmas hasn’t even arrived yet AMID the reality of a recession, Outsider continues to be surprised by which segments of the economy are doing well and which are not.

For instance, he has seen data showing that campervan verification requests grew by a third, with motorcycle and trailer verifications also showing growth and even sales of those money pits better known as boats apparently on the increase again.

Now in these recessionary times, with zombie companies quietly lurching out into the open and with more jobs likely to go as Government support mechanisms such as JobKeeper are removed, Outsider is loathe to suggest that any of the market action around campervans, motorcycles or boats has anything to do with early release superannuation.

And he does note that the latest Australian Prudential Regulation Authority data suggests that the level of demand for superannuation early release is beginning to taper off.

But perhaps the real measure will be a little closer to Christmas.

Outsider and a few superannuation fund executives of his acquaintance are predicting a spike in early release requests leading up to Christmas.

Why? Because you’ve got to pay for the gifts and the holiday accommodation somehow.

Recreational activities of Wall Street traders during a pandemic OUTSIDER is all for keeping citizens inside when it comes to curbing a virus from spreading and was wary when he heard that US J.P. Morgan chief executive, Jamie Dimon, had been going to the Wall Street office for the last three months.

Outsider is sure that three months ago New York City still had a huge tally of daily COVID-19 cases, and just the other day the bank had sent some of its traders home after an employee in equities trading tested positive for the virus.

The bank’s executives had also previously told managing directors and some executive directors in its sales and trading teams that they needed to return to the office by 21 September making Outsider curious as to why the bank was so adamant their employees should return to their offices during a pandemic as the world had

OUT OF CONTEXT www.moneymanagement.com.au

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proved that it was quite good at adapting in recent months.

However, working from home it seemed was difficult for traders due to some heavily regulated or technology-intensive functions.

"To be fair, whether or not a particular coal mine will be profitable in 2035, takes a pretty good crystal ball to see what the future is going to be."

– Liberal Federal MP Craig Kelly

Outsider dug a little deeper and found that, actually, Dimon believed that WFH had negative effects, including drug overdoses.

Now, Outsider isn’t naïve and has always known about some of the recreational activities dabbled in by bankers but was sure that these were not solo activities, but rather group bonding experiences.

Dimon dismissed concerns over asking staff to return and simply said “everything we do is good”.

Another story came out that found that psychedelic drugs were emerging as a “legitimate new global market for investment”.

Perhaps, Dimon meant to say was that his traders were simply conducting too many quality control tests on the products they were investing in.

"I'm not a big fan of the WTO - that I can tell you right now.

Maybe they did us a big favour."

– US President Donald Trump on the World Trade Organisation’s ruling that the US started an illegal trade war Find us here:

17/09/2020 10:45:13 AM