Money Management | Vol. 35 No 20 | November 4, 2021

MAGAZINE OF CHOICE FOR AUSTRALIA’S WEALTH INDUSTRY

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Vol. 35 No 20 | November 4, 2021

LONGEVITY RISK

Growing the pie

14

MANAGED ACCOUNTS

22

Meeting client needs

ROBO ADVICE

Advisers and technology

Reputational damage impacting new entrants to advice

BY LAURA DEW

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Robo 2.0: Threat or opportunity?

DURING the pandemic, consumers stuck at home or with increased household savings opted to begin using micro-investing apps or trading for the first time.

The growth of these apps, which include Spaceship, Raiz and Stockspot, are part of a new generation of robo products and allow consumers to invest as little as $50, far smaller than amounts invested by advised clients.

This is not the first time advisers have faced the threat of robo advice but previous iterations struggled to find a footing in the market. On the other hand, these platforms have already accumulated billions of assets from users in a short space of time.

This was combined with people accessing advice via social media or sites like Reddit, a fact that had not gone unnoticed by the regulator.

Commentators agreed they presented an opportunity for advisers to learn and engage with younger clients and they would be wise to explore the technology and consider their own communications with clients.

They were also encouraged to embrace technology within their businesses as they could help to streamline the process for them and reduce the time spent on mundane tasks. This would also allow advisers to focus on the areas where they added the most value to clients.

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Full feature on page 18

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ADVISERS and professional bodies are “doing a good job” at promoting financial advice but need to repair the industry’s reputation if they want to encourage more people to join the profession.

Speaking to Money Management, Kirsten Macdonald, program director for commerce at Griffith Business School, highlighted how people were unaware of the roles or benefits of the financial advice profession.

This was a problem when there were many advisers opting to leave the industry in light of the changing regulatory requirements but few who were joining to replace them.

“It is hard for students or career changers to know about financial advice and they might be getting information from people

like their parents who don’t understand it,” Macdonald said.

“Advisers and professional bodies are doing a good job at getting the message out but the trouble is they are up against all the regulatory reform and the colossal advice failures which were highlighted by the Royal Commission. Every industry will have bad apples but the bad ones in financial advice were on show.

“The industry should demonstrate how it has changed with things such as the code of ethics and start to repair its reputation.”

She said she had seen many people move to financial advice from professions such as teaching or nursing who were good at nurturing relationships and empathy and from engineering as they were Continued on page 3

$450 super threshold removed

BY JASSMYN GOH

AS part of a key commitment in the Budget, the Government has introduced a bill to remove the $450 per month income threshold for superannuation payments.

The Treasury Laws Amendment (Enhancing superannuation outcomes for Australians and helping Australian businesses invest) Bill 2021 also aimed to improve flexibility for those preparing for retirement, support more Australians to own their first home, and help Australian businesses invest.

The bill would also reduce costs and simplify reporting for selfmanaged superannuation funds (SMSF) and small Australian Prudential Regulation Authority (APRA) regulated funds.

The bill’s announcement by the minister for superannuation, financial services, and the digital economy, Jane Hume, said the Continued on page 3

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November 4, 2021 Money Management | 3

News

AFA appoints new national president

BY JASSMYN GOH

THE Association of Financial Advisers (AFA) has appointed vice president Sam Perera as its new national president following Michael Nowak’s resignation as board member and president.

AFA treasurer, Matthew Hawkins, also announced his resignation after seven years on the board.

Michelle Veitch was appointed as the association’s new vice president and Victoria director, Samantha Robinson, was appointed as treasurer.

All appointments were effective immediately.

AFA chief executive, Helen Morgan-Banda, said: “Mike has been an inspirational leader for the AFA, and I want to thank him and Matt for supporting me and my team during a period of challenge and change”.

The AFA board was now: • President – Sam Perera • Vice president – Michelle Veitch • Treasurer – Samantha Robinson • NSW/ACT – Katherine Hayes • VIC – Vacant • QLD – Patricia Garcia • SA/NT – Jawad Ahmad • WA – Stephen Knight • TAS – Vacant • Independent director – Shaun McDonagh

Expect joint ventures as financial advisers embrace technology

BY LAURA DEW

FINANCIAL advisers could form joint ventures with technology firms in the future, according to EY, if they want to service clients of the next generation.

Speaking to Money Management, Rita Da Silva, Oceania wealth and asset management leader at EY, said awareness of financial advice had “escalated” during the pandemic but that there remained a problem regarding people being able to access it.

Referencing the option of robo advice as a solution, she said: “There needs to be an evolution but investment in developing this type of technology is very expensive. Given most of it is focused on exchange traded funds so far, the gap is there for active managers to harness that opportunity.

“To get client-centric solutions, firms will need a joint venture with other firms in that ecology. This could be platforms, it could be technology firms which develop a

Reputational damage impacting new entrants to advice Continued from page 1 analytical and good with numbers.

She commented the recent pandemic led many people to re-seek financial advice again in order to deal with the market volatility which was an encouraging sign. However, there were insufficient advisers to deal with them which led to them being turned away at a critical moment.

“The pandemic was a trigger for a lot of people including those who might have had advice in the past but wanted to return.

Unfortunately, the advisers said they were busy with their existing clients so had to turn them down,” she said.

“It was especially difficult due to the lockdown as advisers said it was hard to onboard a new client over Zoom and build a relationship and those who took on new clients said it was an emotional time.”

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‘white label’ solution to use, we have already seen this happen offshore where firms are partnering with those which have developed a solution.”

She said it would be “highly important” for advisers to embrace technology in order to deal with the next generation of clients as they had been digitally savvy for most of their lives and would expect a similar service from their adviser.

“This year had enhanced the need for digital transformation and

that’s accelerated robo advice being used by the broader population,” Da Silva said.

“Most apps provide only general advice whereas advisers provide personal advice, in an ideal world, we would have a hybrid model as people do generally need access to a person. There needs to be a way for advisers to capitalise on the trend especially as people grow their wealth but it is on the adviser to promote their benefits and capabilities to the consumer.”

$450 super threshold removed Continued from page 1 removal of the $450 threshold improved equity in the super system and increased the economic security of women in retirement.

On the First Home Super Saver Scheme (FHSSS) the bill allowed the maximum voluntary contribution people were allowed to release for a first home deposit to move from $30,000 to $50,000.

The eligibility age to make downsizer contributions into superannuation would reduce from 65 to 60 years of age to allow more older Australians to consider

downsizing to a home that better suited their needs in a bid to free up the stock of larger homes for younger families.

The bill also preserved the work test for personal deductible contributions made by individuals aged between 67 and 75. It would also make amendments necessary to allow eligible individuals to make non concessional superannuation contributions under the bring forward rule. This would improve flexibility for older Australians to contribute to their superannuation.

Trustees would now be able to use their preferred method of calculating exempt current pension income where the fund is fully in the retirement phase for part of the income year but not for the entire income year.

The announcement said the changes would commence from 1 July, 2022.

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4 | Money Management November 4, 2021

Editorial

jassmyn.goh@moneymanagement.com.au

ASSOCIATIONS SHOULD LOOK TO MERGE AS ADVISER EXODUS CONTINUES

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

Financial services associations will all have a new look and leadership in 2022 but is there a need for so many different ones?

It appears to be all change at financial advice professional bodies with a raft of new appointment and departures taking place in recent months.

The Financial Planning Association of Australia (FPA) is currently looking for a new chief executive as current CEO, Dante De Gori, announced in July that he would step down from the role by the end of this year.

Meanwhile, the Association of Financial Advisers (AFA) appointed its new CEO in Helen Morgan-Banda in July, who took over from Phil Anderson who had himself only been doing the role in an interim basis after the departure of Phil Kewin.

Then, at the end of last month, it appointed a new national president in Sam Perera, new vice president Michelle Veitch, and new treasurer, Samantha Robinson.

To round out association changes, at the end of October, Financial Services Council (FSC) CEO Sally Loane also announced she would be stepping down from the role by the end of 2021. The board was currently seeking a replacement for Loane, who had been CEO for seven years.

Associate Editor - Research: Oksana Patron Tel: 0439 137 814 oksana.patron@moneymanagement.com.au Features Editor: Laura Dew Tel: 0438 836 560 laura.dew@moneymanagement.com.au News Editor: Chris Dastoor Tel: 0439 076 518 chris.dastoor@moneymanagement.com.au Journalist: Liam Cormican Tel: 0438 789 214 liam.cormican@moneymanagement.com.au ADVERTISING Account Manager: Damien Quinn Tel: 0416 428 190 damien.quinn@moneymanagement.com.au Account Manager: Amy Barnett Tel: 0438 879 685 amy.barnett@moneymanagement.com.au Junior Account Manager: Karan Bagai Tel: 0438 905 121 karan.bagai@moneymanagement.com.au

The question remains, however, whether there is a need for so many industry associations in the first place at a time when the cost of providing financial advice stretches into thousands of dollars.

It is no secret that advisers face high fees in the face of regulatory levies, compliance costs and exam fees so can they justify paying to be members of multiple organisations as well?

Not only this, but with more financial advisers leaving the industry each week and expectations of a continued

exodus into next year, there may be insufficient advisers to warrant the number of associations.

Over the last few years, there have been talks about a merger between the FPA and the AFA and, with the FPA’s CEO role vacant, there is scope for the two organisations to revisit this idea again.

Mergers and consolidation have been a focal point for the advice and superannuation industry and this can and should be extended to associations.

Jassmyn Goh Editor

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6 | Money Management November 4, 2021

News

Super funds fail to identify conflicts of interest with director switching

BY JASSMYN GOH

THE corporate regulator has found failure in superannuation funds identifying conflicts of interests with superannuation trustee directors and senior executives regarding personal investment switching based on their knowledge of timing of the revaluation of unlisted assets.

An Australian Securities and Investments Commission (ASIC) surveillance looked at 23 trustees from industry and retail funds during the increased market volatility that stemmed from the COVID-19 pandemic.

ASIC said the surveillance revealed conduct fell below its expectations.

ASIC commissioner, Danielle Press, said: “We expected superannuation trustees to have robust conflict of interest policies that dealt adequately with investment switching, including by their directors and executives. What we found instead was often a clear failure to identify investment switching as a source of potential conflict, resulting in a lack of restrictive measures and oversight to adequately counter this risk.

“This is very concerning given the level of sophistication and governance required of trustees when managing millions of dollars in assets on behalf of fund members.”

ASIC said some trustees did not have oversight processes in place for investment switching by their directors and executives at the time of the surveillance but

since indicated that they were looking to implement such processes moving forward.

“Trustees must have effective conflicts management frameworks to prevent the misuse of such information,” Press said.

“Policies should cover the identification, control, management and regular monitoring of conflicts as well as the consequences for non-compliance. Such protections will help trustees manage the risk that their executives’ own interests or those of a related party results in loss of confidence in the fund or in detriment to members.”

ASIC’s key concerns with trustees’ management of conflicts of interest included: • Failure to identify investment switching as a risk: The majority of trustees either did not identify a director or an executive having an interest in the superannuation fund for

which she or he works as a ‘relevant interest’ (for the purposes of their conflicts management policies) or identify investment switching as giving rise to a conflict of interest. This meant there was often a commensurate lack of controls or guidance for how any associated conflicts should be managed.

• Disparity in board-level engagement: There was significant disparity among trustees in the level of engagement by their boards on the issue of conflicted investment switching by directors and executives. This flowed into the prescriptiveness of relevant policies outlining restrictive measures to adequately deal with this issue.

Some boards were proactively engaged, while others were not able to demonstrate that they

had considered the issues at all.

• Lack of restrictive measures: Almost half of the trustees (10 of the 23) did not have preventative controls such as trade pre-approvals or switching blackout periods to limit executives’ ability to switch investment options. Even when trustees had restrictive measures in place that covered investment switching, directors and executives were sometimes given a blanket exclusion from the policies even though the policies applied to all other employees.

• Inadequate oversight of investment switching: Many trustees did not have mechanisms in place to regularly review switching activity by their directors and executives, including checks to ensure compliance with policies. Trustees were instead reliant on directors and executives self-reporting any breaches of the policies.

• Lack of oversight of related parties: A common issue was a failure by trustees to identify switching by related persons (such as a spouse) of directors and executives as giving rise to a perceived or potential conflict of interest. Even where the trustee’s policies might have extended to cover related persons, there was often no or very limited ability for the trustee to identify these individuals or monitor their trading activity.

ASFA welcomes Government’s net-zero by 2050 plan

BY LIAM CORMICAN

THE Association of Superannuation Funds of Australia (ASFA) has welcomed the Government’s ‘Long Term Emissions Reduction Plan’, saying it highlighted the role that patient superannuation capital can play in funding technology required to achieve net-zero emissions by 2050.

ASFA chief executive, Martin Fahy, said: “We welcome this announcement and the further opportunity it provides for superannuation funds to participate in

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Australia’s transition to a low carbon economy.

Superannuation funds have led the charge on renewables and sustainability and the release of the plan provides further impetus to that”.

ASFA brought attention to its recentlyreleased discussion paper which signalled a commitment to net-zero greenhouse emissions for superannuation funds by 2050.

The paper intended to highlight the risks of climate change and the impact it was expected to have on investment portfolio performance of superannuation funds.

“In the absence of a commitment to net-zero greenhouse emissions by 2050, the superannuation industry stood to lose billions of dollars in investment returns on behalf of their members, which ultimately translates to less retirement savings,” Fahy said.

ASFA noted that the Government’s announcement would provide the policy certainty needed for funds to accelerate their investment in renewables and related technologies and it welcomed further discussion and collaboration on this key issue.

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8 | Money Management November 4, 2021

News

Financial advice needs modern definition: TAA

BY LAURA DEW

THE definition of a financial adviser needs to be brought “into the 21st century”, according to The Advisers Association (TAA).

Referencing the Financial Services Council (FSC) white paper, released in October, which was a blueprint for a simplified regulatory framework that could reduce the cost of providing financial advice and allow advisers

to spend more time with new and existing clients.

According to the Australian Securities and Investments Commission (ASIC), a financial adviser was defined as an Australian financial services (AFS) licensee, authorised representative, employee or director of an AFS licensee who was authorised to provide personal advice to retail clients in relation to relevant financial products to retail clients.

However, this definition placed too much emphasis on financial products, Neil Macdonald, chief executive of TAA, said.

“There is a 20-year-old definition of what an adviser does, we need to bring it into the 21st century especially in terms of regulation,” he said.

“There is a lot of focus on products and the DDO [design and distribution obligation] requirements which talk about advisers being ‘distributors’ of products. But, in real life, advisers spend a lot of time talking about a client’s circumstances and various strategies before they get to discussing products.

Sponsorship deals require quantitative data: APRA SUPERANNUATION funds needs to clearly outline the member benefits of sponsorship arrangements, according to the Australian Prudential Regulation Authority (APRA).

The regulator conducted a review of 12 super funds which spent $87 million between 2018 and 2020, focused on advertising, sponsorship and promotions.

In its report, APRA said “there was a basis” for spending that amount but that too much expenditure had been made on qualitative judgement rather than based on quantitative data. It also highlighted ‘additional benefits’ had little impact on member outcomes.

APRA said it expected boards to approve marketing spend, supplemented by regular monitoring and reviews.

Problems identified by the regulator included: • Instances of registrable superannuation entity (RSE) licensees being unable to demonstrate how additional benefits associated with sponsorships, that were provided to directors, executives and staff of the fund resulted in any improved outcomes for members; • Failure to rigorously measure and assess anticipated and achieved benefits to beneficiaries of expenditure on marketing campaigns and related activities; • A lack of evidence of clear metrics to assess the benefits of marketing expenditure to their members; • Limited evidence of ex-post review to demonstrate that the marketing expenditure had achieved its intended outcomes, again including the benefit to members; and • An over-reliance on aggregate, or high level, considerations of marketing expenditure impact (e.g. changes in membership numbers) without demonstration of specific improved outcomes for members.

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“The definition at the moment means you can’t even talk about superannuation.”

Within the FSC paper, it said there were nine different definitions of advice including scaled advice and intra-fund advice.

“The existing framework consists of nine different definitions of advice,40 such as ‘intra-fund advice’, ‘strategic advice’, ‘scaled/ limited advice’, which are confusing regulatory terms that do not resonate with consumers,” the paper said.

“Analogous with other professions, the FSC seeks a regime in which an advice provider either provides financial advice or does not, with all advice considered personal advice except where it is simply general information.”

Macdonald also suggested the levels of professionalism and educational standards now required to be a financial adviser should also be reflected in the industry’s standing.

“If I go to a doctor, they don’t have to give me a disclosure, it’s assumed what they are recommending is the best for me. They don’t have to prove why that is.”

Financial advisers adding value in transition to retirement FINANCIAL planners add the most value to clients during the transition phase to retirement, according to MYMAVINS, by allowing them to envisage a happy and financially-secure retirement.

Speaking on a webinar with the Financial Planning Association of Australia, Jason Andriessen, consulting partner at research house MYMAVINS, discussed a Fidelity report on retirement experiences.

“It takes most retirees two years to feel more in control [in retirement] and if we’re looking at life stages where financial planners can add loads of value from a wellbeing and happiness perspective then it’s clearly in the transition phase and helping people recover a sense of control,” he said.

He said many late retirees had found they had emerging needs which had necessitated themselves making changes to their retirement plan. This included the emotional impact of stopping work, need to find purpose in their life, cost of living outpacing income and health or mobility changes.

This indicated there was a role for advisers to help clients plan ahead and

consider possible unforeseen circumstances which could arise when they entered retirement.

“There’s a clear message that people underestimated the sense of loss they would experience even if they were in control of their retirement,” he said.

“One of the best things that financial planners do is help people envisage the future and bring it to life. That is a key driver of satisfaction if the person can look forward to retirement and are more likely to be happy and feel in control.

“The good news is advisers are already in this space and are already improving their clients’ circumstances.”

While there was most value for those in the pre-retirement stage, there was still opportunity to add value in the late retiree stage.

“We have seen late retirees do benefit from advice, when they have an active relationship with a financial planner then they experience less financial stress,” he said.

“They have more competence in investment matters and more capability which then drives more confidence and the feeling of being in control.”

28/10/2021 10:11:54 AM

November 4, 2021 Money Management | 9

News

Financial advice industry suffers from spike in suicides

BY LIAM CORMICAN

CONSISTENT and continuous regulatory change over the past decade has exacerbated the mental health of advisers to the point that more people in the industry are dying by suicide, according to Infocus chief executive Darren Steinhardt.

With only 61% of advisers passing the September Financial Adviser Standards and Ethics Authority (FASEA) exam, Steinhardt said it was disgraceful that no journalist or politician had brought up the effect low passing rates and rapid regulatory change had on mental health and suicides.

“If you remember when Julia Gillard changed the live cattle exports, there were a handful of suicides of cattle producers and all of a sudden there was uproar around the country and things changed,” he said.

Steinhardt said he knew eight advisers directly who died by suicide linked to quick moving legislation and the disruption it had caused to their lives.

“Some of the change has been good but a lot of it has been well intentioned but absolutely misguided and it’s absolutely hurt many people who have invested heavily in their businesses,” Steinhardt said.

Professor David Crompton, a leading researcher of suicide prevention from Griffith University, said: “It is difficult to determine why people choose to die by suicide and that there are many factors influencing that such as age, family situations, history of mental illness but the fact that people are raising this as a problem means it should be critically evaluated”.

Steinhardt said he knew a couple of “good advisers” with tertiary degrees from 35 years ago that were no longer relevant who were yet to pass the FASEA exam.

“They are very good financial advisers, but they haven’t done an exam like this in a formal setting in a long time,” he said.

“Both have failed a couple of times and so the anxiety that puts on them – they’ve kind of already failed before they start because of the stress and pressures now on them.”

For every one person forced out of the industry, Steinhardt said another half a dozen staff would also no longer be employed.

“They’ve got families, responsibilities for their business and staff – if they fail it’s more than them that’s out of the industry,” he said.

He said the end result in 12 to 18 months from the regulatory changes will make the financial advice profession better off, but that the industry needed to “take a breather” with regulatory change.

For anyone experiencing a personal crisis Lifeline is available 24 hours a day at 13 11 14.

What will APRA find on Cbus’ AFL spend?

BY JASSMYN GOH

THE Australian Prudential Regulation Authority (APRA) is investigating promotional activity by 12 registrable superannuation entities (RSE) and will publish any broad observations in 2022.

In an answer to questions on notice from the Senate Committee on Economics about Cbus Super’s AFL grand final advertisements costs, APRA said it had written to a number of RSE licensee to obtain information on their marketing expenditure and the impact of the best financial interests duty.

“At this time, we are unable to be precise as to the timing, other than to say that we intend to send the information request prior to the end of calendar 2021; and publish any broad observations in 2022,” APRA said.

“We would be happy to provide further information to the committee once we have finalised our work. We also are considering what changes to our ongoing supervisory practices we may introduce to obtain a more contemporary view of RSE licensees’ practices and oversight in relation to expenditure on an ongoing basis. This work is at an early stage and we have not yet determined a finalisation date for this.”

APRA noted it also intended to write to a larger group of RSE licensees to obtain information as to how they had changed their approach in response to the best financial interests’ duty as part of the Your Future, Your Super reforms.

“Finally, APRA’s review of expenditure (which reviewed certain marketing and promotional expenditure by 12 RSE licensees) will be published shortly,” it said.

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Over 20% of FAR yet to pass FASEA exam

BY CHRIS DASTOOR

THERE are still 4,213 advisers currently on Australian Securities and Investments Commission (ASIC) Financial Adviser Register (FAR) yet to pass the Financial Adviser Standards and Ethics Authority (FASEA) exam.

Over 14,630 of advisers on the FAR had passed the exam, as of the results of the September exam which had a pass rate of 61%, while the latest numbers from Wealth Data showed there were 18,843 advisers on the FAR.

Existing advisers who had not sat the exam twice must pass by 1 January, 2022, but advisers who had failed twice were eligible for the extension which was granted to 1 October, 2022, and legislated after the Better Advice bill passed the Senate.

Over 1,500 advisers had booked for the November exam which would be held from 11 to 16 November, 2021.

Registration for the November exam closed on Friday, 29 October and was open to those who did not pass the September exam.

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10 | Money Management November 4, 2021

News

Govt failing to hold exiting institutions to account FSC’s Sally Loane

BY CHRIS DASTOOR

QUESTIONS were asked over how the big financial institutions that triggered the Hayne Royal Commission have been absolved of any liability, during debate on the Better Advice bill late last month in the Senate.

The bill passed which had addressed many of the industry’s biggest issues including the establishment of the single disciplinary body (SDB) and termination of the Financial Adviser Standards and Ethics Authority (FASEA).

Funding of the regulatory bodies of the industry was a sticking point as the Australian Securities and Investments Commission (ASIC) levy would be left to be paid for by the remaining advisers who were deemed fit and proper for the industry.

Labor Senator, Deborah O’Neill, said the retreat of the big four banks out of the industry showed they viewed it as unprofitable without vertical integration. “...this move only reinforces that many financial institutions no longer see the sector as

profitable without a large portion of them selling their in-house product for their profit or without corrupt and exploitative practices that were exposed during the commission,” O’Neill said.

Pauline Hanson, One Nation leader, noted the purpose of the Royal Commission was directed at the banks but the focus instead ended up on the advice sector.

“With this legislation, the government seeks to place more responsibility and liability on financial advisory services, while, under the government’s national consumer credit legislation schedule one, the banks would have absolutely no responsibility if the government amendments

were to proceed,” Hanson said.

“Is it because the banks make large donations to the major political parties that they are being protected? I’m only thinking out loud.”

The minister for financial services, superannuation and the digital economy, Senator Jane Hume, deflected any criticism of the bill.

“The Morrison government is focused on cutting red tape, cutting regulatory alignment, creating regulatory alignment and reducing costs for financial advisers and financial advice businesses, which is exactly what the industry has called for,” Hume said.

Government-run super fund a ‘dud’ idea

BY LIAM CORMICAN

INDUSTRY Super Australia (ISA) thinks a proposed government-run super fund would be rife for porkbarrelling and will “dud” workers out of thousands of dollars.

Its modelling showed that a 30-year-old worker in such a government-run fund would pay exorbitant fees, earn lower investment returns and end up $126,000 worse off at retirement compared with being in a top-performing industry fund.

“This plan would funnel millions of Australian workers into an expensive and poor performing government-controlled super fund – all so politicians can get their hands on people’s money,” ISA chief executive, Bernie Dean, said.

Earlier this year, Liberal senator, Andrew Bragg, reignited the national fund debate when he said the Government should “take its responsibilities more seriously” by making the Future Fund the default fund.

If the government-run fund was to go ahead, new workers would be entered into it by default unless they opted to join a different fund.

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ISA said their modelling reinforced earlier evidence from the Productivity Commission (PC) that a government-run super fund would be prone to political interference and riddled with conflicts of interest.

“With almost unchecked power to spend workers’ savings, [the Government] could find it hard to resist ladling out money for pork barrels in marginal seats, all for the purpose of chasing votes rather than good investment returns,” ISA said.

According to ISA, political ideology could also trump the financial interest of members especially when a government makes itself the investment officer, trustee, owner, regulator and supervisor.

The ISA supported the PC’s earlier research which found internationally government-run super funds invested conservatively as few governments could withstand the political risk of negative returns during market downturns, leading to less money at retirement and more pressure on the Age Pension.

“And if the government-fund delivered lousy investment returns the taxpayer would be expected to bail it out – which combined with the higher pensions costs is a recipe for higher taxes,” ISA said.

steps down

BY JASSMYN GOH

THE Financial Services Council (FSC) chief executive, Sally Loane, will step down from the role at the end of the year after seven years at the helm.

FSC chair, David Bryant, president, Pacific Region and chief executive of Mercer Australia, said Loane had provided strong leadership for the FSC through a period of unprecedented change, driving its contribution to the development of positive policy and industry reform, for the benefit of all Australians.

Bryant said: “Sally strengthened the FSC’s contributions in a range of important policy areas – for our industry and the consumers we serve; supported our members as they sought to undertake an extensive program of regulatory change; and expanded the FSC’s membership and engagement across what is a broad industry.

“We thank Sally for her contribution over the past seven years and wish her every success in the next stages of her career.”

Loane said she was proud to have led a team that proactively developed policy reforms to assist the members; reforms which were beneficial for consumers of financial services, and helped restore trust in the sector.

“Some of the more significant challenges have included initiating life insurance’s Trowbridge Review, developing the life codes, and advocating for a sensible compensation scheme of last resort,” she said.

“I have enjoyed working collaboratively with industry organisations here and overseas, regulators, politicians, Government bodies, and important stakeholders like consumer bodies, mental health leaders and the medical community.

“I am proud of the funds we raised over five years with our members to support First Nations Foundation’s work in Aboriginal communities.

“If one learning stands out, it is how financial independence is a life-changing factor for women, and the role has given me the opportunity to communicate this message.”

The FSC board was undertaking a search for the CEO role.

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News

IOOF to rebrand as Insignia Financial

BY JASSMYN GOH

IOOF will rebrand as Insignia Financial later this year as part of its $2 million to $3 million strategic brand review.

In an announcement to the Australian Securities Exchange (ASX), IOOF chief executive, Renato Mota, said the rebrand was reflective of the significant change the organisation had undergone over two years that culminated in the acquisition of MLC Wealth in May. “We are at an important inflection point in the transformation of IOOF. We are proud of our 175-year heritage as a friendly

BY OKSANA PATRON

society and feel it is time to have our corporate brand reflect who we are today and the opportunities ahead,” he said.

“It felt appropriate to contribute to IOOF’s enduring legacy under a new brand – one that signifies what we stand for.”

IOOF said the company would continue to trade on the ASX as IFL and anticipated the new corporate brand would cost $2 million to $3 million that would be funded from the existing transformation and integration budget.

Lifetime pensions not a silver bullet

BY LIAM CORMICAN

LIFETIME pensions are not “the silver bullet” as advisers also need to address their client’s financial confidence as they approach or continue their retirement.

Speaking at the Post Retirement Australia conference, Generation Life chief executive, Grant Hackett, said financial advisers would need to find products that provide a lot more value to their clients, with the expectation of a rise in interest rates.

Hackett said this would mean financial advisers had a new focus on educating clients and providing rational product solutions to their emotional needs.

“First and foremost, when it comes to a financial adviser, they’re trying to look at ‘how can I actually solve and provide strategy to the individual client and solve the [financial] problem, or the emotional problem?’” Hackett said.

Commenting on a new lifetime pension product provided by QSuper, Hackett said everything around the selling side of the industry was about addressing the emotional need, not the intellectual need.

“This is a very rational product that makes sense to all of us sitting here

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New mortgage income fund sees residential opportunities

today… but to a mum and dad at home, they’re looking at this, and all they want to do is just have fun and enjoy their retirement, enjoy their lifestyle and leave something along to their kids,” he said.

Hackett said there were a number of factors causing these emotional needs and this created a lack of financial confidence in retirement.

This included concerns over how much was in a retiree’s account-based pension, their family and spousal needs, the methods of their wealth transfer and concerns around the Age Pension.

He said it was common for late-stage retirees to have large amounts of capital sitting in their accounts because they did not receive this kind of “emotional” advice at the beginning of their retirement.

“It’s a financial adviser’s role now to guide through all that and look at all the products that are now starting to come to the market and go, ‘hey, we can solve for this a lot more effectively than what we’ve been able to over the last 10 or 15 years’,” Hackett said.

He said it was now the role of product manufacturers like Generation Life to support that conversation advisers would need to have.

NEWLY-LAUNCHED Lark Mortgage Income Fund is looking to capitalise on growing residential housing estates in south east Queensland, a trend underpinned by migration out of Victoria.

The fund was launched in partnership between Ark Asset Management and Lucerne, and aimed to generate returns from real property-based loans secured by first ranking registered mortgages.

The fund, which was launched in September, would target monthly interest in excess of 7% per annum, net of all fees and expenses, and would offer monthly redistributions, with the key investors being high net worth and ultra-high net worth individuals.

With an estimated value of Australia’s private commercial real estate debt sector sitting currently at $290 billion, the non-bank sector was expected to grow from current $15 to $16 billion range, accounting for 6% of the market, to around $40 billion over the next three to four years.

Ark Asset Management’s chief executive, Peri Macdonald, said the reason the fund was launched was because it had a long-standing relationship with our investment partners.

“We saw that there was a growing appetite for investors to invest in a private debt in commercial real estate and at the same time the non-bank sector, or the private commercial real estate debt sector, was expected to continue to grow,” he said.

The growth in the non-bank lending sector was driven by a number of key factors, including the capital constraints imposed by the Australian Prudential Regulation Authority (APRA) on the Australian banks, reducing the banks’ exposure to commercial real estate.

“If you look at the profile of the investors who are coming to the fund at the moment we’ve got quite a high proportion of self-managed super funds [SMSFs], we’ve got a number of family offices and high net worth and ultra-high net worth individuals invested in the fund. We don’t have any institutional investors at the moment but the fund is open to institutional investors as it grows.

“It does have a broader appeal because we are seeing private debt as investments which are becoming more popular, in particular in the current environment where you know there is a lot of talk about inflation becoming something that we need to be more conscious of.”

One of the fund’s initial investments is in a residential land subdivision in the western growth corridor in Brisbane.

“There is a population story in Victoria at the moment as we are seeing a negative population growth over the last 12 months. And it is markets like that in South East Queensland that have benefitted of that. We have identified that market in particular, which is actually one of the highest residential growth market in Australia at the moment and it’s a market we happy to invest in.”

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News

AMP FP regains top spot as largest advice licensee

BY OKSANA PATRON

AMP Financial Planning has regained its top spot as the largest individual licensee with 644 advisers, as the SMSF Advisers Network continued to lose advisers with its overall number falling to 639.

According to the Wealth Data, the SMSF Advisers Network lost 191 advisers year-todate while AMP Financial Planning lost 166 advisers during the same time.

The number of advisers in the week ending 22 October continued to drop with the loss of 29 advisers and the overall number falling to 18,843.

Some 23 licensee owners posted net gains

of 28 advisers while 33 licensee owners reported net losses of 59 advisers.

IOOF disclosed a net loss of eight advisers, the highest single loss that week, despite hiring three new provisional advisers, while AMP Group made a rare appearance on the week-

GQG raise $1.18b in IPO

BY LAURA DEW

GQG Partners has floated on the Australian Securities Exchange (ASX), raising $1.18 billion in an oversubscribed offer.

The initial public offering (IPO) was the largest listing of 2021, beating PEXA which raised $1.17 billion when it listed in July. However, the GQG enterprise value was almost double that of PEXA at $6 billion compared to $3.3 billion.

Some 20.1% of the company was now held by public shareholders while the remainder was held by Pacific Current Group and GQG staff with every employee holding an equity interest.

GQG Partners chief executive, Tim Carver, said: “This is an important step towards the vision we laid out when founding the company, of building an investment-led culture, and an institution that can outlive its founders.

“Since our inception five years ago, this experience has outstripped anything we could have imagined. I am so proud of the efforts of our team, the quality of their work and the support of our clients.”

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on-week growth page gaining net one adviser.

Commenting on the losses, Wealth Data’s director, Colin Williams, said: “Expect a small number of ‘lost’ advisers reappear under their own ‘self-licensed’ arrangements. NTTA also down (-8) all from SMSF Advisers Network. They had nine resignations, none have reappeared as being current elsewhere and gained one adviser from Politis Investment Strategies”.

Looking at the new and closed licensees since the start of the year, new licensees for the financial planning peer group providing holistic advice saw the largest growth of new licensees at 97, despite the number of advisers in this peer group dropping by around 1,000 (or 7.82%), the data found.

Ex-Pengana managers launch Pella Funds Management

BY JASSMYN GOH

THE former-Pengana portfolio managers that left in March this year have launched their own responsible investment funds management business, Pella Funds Management.

Speaking to Money Management the fund’s chair and chief investment officer, Jordan Cvetanovski, said after working for numerous fund managers in the past he wanted to create a business that incorporated all the things he believed worked in a successful fund.

He said culture was one of the most important attributes and that a founder-led, employee-owned fund manager had many advantages.

“We’ve deliberately set up Pella in order to align the employees interest with the client’s interest. When the owners of the company are the employees and investors as is in our case, we have an alignment of interest and we don’t have shortterm commercially minded stakeholders that could govern the way you conduct business or the way you even ultimately manage money,” he said.

“We will act according to what we see in the markets and reflect that exactly in the way we invest.”

Cvetanovski said the business structure also allowed the fund to set its fees in a way that had a long-term

focus and in turn was best for clients.

He said the fund had competitive fees and did not believe that people needed to pay a premium for responsible investment.

The Pella Global Generations Fund had a 0.35% management and costs fee and 20% above benchmark performance fee.

“We feel the only way you can truly deliver on a long-term, responsible investment kind of goal or sustainable investment aim is to have the company reflect the principles and kind of the ethos of the funds and vice versa,” Cvetanovski said.

“You can’t have, in our opinion, a company that has a multitude of funds that do very different things. One does coal mining and the other fund does positive impact investing, and then expect the investor to feel as though they’ve made an impact by investing in the positive impact fund when all those proceeds funnel through all the other kinds of funds.”

Pella head of distribution, Joy Yacoub, said four questions financial advisers should ask a responsible investment manager were: • What was the fund manager’s sustainability rules and processes?

• What were the fund manager’s financial requirements?

• Is the fund manager transparent?

• What were the fees?

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InFocus

KEEPING UP WITH THE REGULATORS’ CHANGING EXPECTATIONS Superannuation funds need to keep up with changing community expectations that can lead to regulatory changes with the latest one regarding sponsorship expenditure, Jassmyn Goh writes.

THE PRUDENTIAL REGULATOR has revealed many superannuation trustees failed to rigorously assess the benefits of sponsorship activity and super funds need to make sure they keep abreast of changing regulatory expectations.

Through its expenditure thematic review, the Australian Prudential Regulation Authority (APRA) found many trustees failed to rigorously measure and assess anticipated and achieved benefits to beneficiaries of expenditure on marketing campaigns and related activities.

It also found instances of trustees being unable to demonstrate how additional benefits associated with sponsorships, that were provided to directors, executives and staff of the fund, resulted in any improved outcomes for members.

The Australian Institute of Superannuation Trustees (AIST) chief executive, Eva Scheerlinck, told Money Management that she was pleased APRA had laid out what they considered to be best practice and not just pointed out where the gaps were.

Scheerlinck noted those expectations were something the association had been lobbying the regulator to do for some time.

APRA found there was a lack of evidence of clear metrics to

HOW AUSTRALIA’S PENSION SYSTEM COMPARES TO THE REST OF THE WORLD

assess the benefits of marketing expenditure, limited evidence of ex-post review to achieve the expenditure had achieved its intended outcomes, and an over reliance on aggregate of high level considerations of marketing expenditure impact without demonstrating specific improved outcomes for members.

“We’re pleased APRA has laid out the level of detail they expect in relation to the benchmarking they will require funds to do and what meets expectations and what doesn’t,” Scheerlinck said.

“It referred to aggregate numbers being insufficient and the ability to link benchmark’s to actual outcomes for members.”

The areas APRA had expectations for RSE licensees to strengthen were: • Setting the marketing strategy and budget at an aggregate level; • Processes for measuring outcomes of marketing campaigns and activities; • Metrics to assess marketing campaign benefits; • Additional benefits; • Expenditure under the best financial interests duty.

Scheerlinck noted that having a strong brand was useful for funds particularly in light of stapling under the Your Future, Your Super regime.

“Those funds that have been investing in building their brands

over the last few years with that understanding of stapling have been able to see the result of their investments through inflows of new members and new contributions,” she said.

However, Scheerlinck said that, despite the new expectations and best financial interests duty attached to marketing and sponsorship, she did not know whether there was ever really a problem.

“I think what happens is that community expectations change over time. We saw in the Royal Commission into financial services there was some investigation about marketing spend and sponsorship,” she said.

“Kenneth Hayne as the royal commissioner didn’t find that there was anything there that needed to be reported or required enforcement action from the regulator. But there was a lot of discussion around that from

policymakers on what they thought was really in the best interests of beneficiaries.

“As a result of that, changes to the law have happened to clarify that members best interest really needs to be focused on best financial interests and in that they have spelt out the inclusion of expenditure on marketing, sponsorship, and the like.”

She said super funds needed to keep abreast of these thematic reviews from the regulator and extend their education on how the regulations were changing, how expectations were changing, and what that meant from a practical implementation perspective.

“Trustees now need to at a board level be asking management teams to explain what changes, if any, needed to be made to existing processes and to make sure they comply with the expectations going forward,” Scheerlinck said.

24.4m

6th place

Iceland

Total number of Australian super accounts

Australia’s pension system rank

World’s best pension system

Source: APRA Statistics - June quarter 2021, Mercer CFA Institute Global Pension Index 2021

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SERVING THE PIE

The Government has long advocated for ‘growing the pie’ but, Chris Dastoor writes, the Retirement Income Review showed insufficient thought has been put into getting the most servings out of it.

WHILE THE GOVERNMENT has focused on ‘growing the pie’ for retirement income savings, it has not yet figured out how to best serve it to retirees.

This has led to an industry filled with accumulation products, while the decumulation side – which will have the final say in how retirees live – has largely been overlooked in the market.

This was the view from the Retirement Income Review, which

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found little attention had been allocated by the industry to the retirement and aged care phase.

The review also found people viewed superannuation as means to accumulate wealth in retirement to live off via capital growth, rather than as an asset they could drawdown. The industry and individuals saw the importance of accumulating income for retirement but had little understanding of what to do

once they got there.

In other words, the industry has learnt how to make good pies, but is yet to master the best way to serve it over as many meals as possible.

Adrian Stewart, Allianz Retire Plus chief executive, said the reason most of the innovation in the industry had been focused on the accumulation phase was because that was where most of the money was held.

“All Australians that are working have access to superannuation in terms of participation but, as Australians are ageing, that weight of money is shifting from accumulation to decumulation. That weight of money is significant, it’s north of $60 billion that’s crossing the line from accumulation to decumulation,” Stewart said.

“That’s going to $200 billion over the next few years. Advisers

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Longevity risk

are really forced to review client portfolios; retirement is always a catalyst for that reflection.

“If clients who are retiring don’t have an adviser, it’s usually at the point of retirement they will seek advice so that’s good.

“There’s all this stimulus that’s kind of forcing the discussion about what their retirement should look like.”

As a result of those discussions, Stewart said advisers and super funds had looked deeply into the risks that retirees faced and those risks were slightly different in retirement than in accumulation.

“When you reflect on product availability for accumulation it’s very broad – if you look at any platform there’s anywhere between 900 to 1,200 investment strategies available to advisers and investors on a platform,” Stewart said.

“But very few of them actually have been specifically designed for retirement and there’s this dearth of options available.”

Angela Murphy, Challenger Life chief executive, similarly said the reason the focus was on accumulation as opposed to decumulation was because of the weight of numbers.

“When you think about how many members a super fund has – they’ve got members right from those just starting work right up to those who near the end of their life,” Murphy said.

“But it would’ve been a smaller proportion of people who are actually in retirement, the vast majority are in the early phase.

“For the funds as well, it’s been a space that’s been changing quite a lot, they’ve been adapting to a lot of new regulations so we can see at the moment there’s

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“In many ways the industry has been so focused on growing the pool of savings for retirees – the bulk of people have been in accumulation and it’s all been about growing that pot.”

– Angela Murphy, Challenger Life consolidation, there is other government regulations… so they’ve just been distracted by other priorities.”

On the advice side, Murphy said a lot of advisers would have been seeing people who would have been primarily focused on building their wealth.

“There is more and more people moving into that retirement phase that is putting a push onto what the options are and how do we manage that,” Murphy said.

“It’s interesting to look at the risk profiling that’s done for advisers, so much of that will be focused on [for example] your tolerance for a year of negative returns, rather than perhaps your tolerance for running out of money before you die.”

HOW THE RIC WILL SHAPE THE INDUSTRY Moving on from its focus on ‘growing the pie’, the Government launched the Retirement Income Covenant, which meant super funds trustees were now obligated to outline how they would help their members in retirement.

“In many ways the industry has been so focused on growing the pool of savings for retirees – the bulk of people have been in accumulation and it’s all been about growing that pot,” Murphy said.

“The Retirement Income

Covenant in many ways is giving a kicker to something that perhaps over time is becoming more important.

“That is helping increase the number of retirees who are moving over into that actual retirement phase into the spending phase and they are retiring with bigger and bigger balances because they have been in the super system for longer.”

However, Murphy said there were a couple of key changes she saw happening around product innovation and the way super funds operated.

“The first is obviously going to be around product innovation to help advisers, help their clients manage the different challenges you face in retirement,” she said.

“The other thing is with superannuation funds – it would’ve been unusual five or 10 years ago to find someone with the word ‘retirement’ in their title – whereas most [super funds] now usually have someone responsible for retirement but typically a team of people working on what is the right retirement solution for their members.

“One of the things we will see with the onset of the Retirement Income Covenant is a lot of innovation in that space as well, the super funds will have specific retirement options and they’ll do

ANGELA MURPHY

that differently, but it will be a big shift from where we’ve been.”

INNOVATION DIFFICULTIES Stewart said it was difficult to innovate in this sector because product manufacturers that could innovate in this area were limited to life companies.

“The traditional investment company isn’t structured to do this so they don’t typically hold capital,” Stewart said.

“They’re not a life company and they’re regulated by ASIC [the Australian Securities and Investments Commission], so there’s only a small cohort of life companies that will innovate in this space and the barrier to entry is high.

“You have these capital charges that are really quite onerous so that increases the intensity of manufacturing these products.”

Stewart said when trying to solve sequencing risk and longevity risk, the solutions essentially provided a guarantee for life.

“In order to provide a guarantee, not only in Australia but most developed markets, you need to be a life company in order to make a promise – whether it’s a promise to protect capital or to protect income or guaranteed income for life,” Stewart said.

Continued on page 16

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Longevity risk

Continued from page 15 “Therefore, to be a life company – obviously life companies and banks are regulated by APRA [the Australian Prudential Regulation Authority] – there are strict capital requirements when you make a promise.

“You cannot make a promise unless you can actually support that promise in terms of capital reserves.”

When it came to potential innovations, Murphy said she expected to see more options to tap into home equity, annuities, and income smoothing (products that help move income and avoid to crystallise losses at poor times in the market).

But ultimately, the big difference in retirement compared to accumulation was the known unknown – not knowing how long a person would live.

“The hard thing with life expectancy is if you’re [for example] a 65-year-old woman, your life expectancy is very much in the late 80s even approaching 90 now, but you still have a reasonable chance of living to 100,” Murphy said.

“One of those big risks is how long am I going to be alive which we refer to as longevity risk, but products that help manage that risk and help retirees think about how they will keep funding their lifestyle if they happen to be in that space.”

ANNUITIES To understand annuities, there is a good example in recent history involving US President Donald Trump and the National Football League (NFL).

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In the 1980s, a rival American Football league called the USFL drafted a quarterback named Steve Young. The league was competing against the better-established NFL, and Young was offered a $40 million contract by the USFL. However, because the league was less financially sound than the NFL, it offered to pay the contract as an annuity over 40 years.

Later, an anti-trust lawsuit against the NFL by the USFL led

by Trump, who was one of its team owners, resulted in the league’s demise and Young was only paid $3 million of the full contract, but he went onto have a Hall of Fame career in the NFL. However, for anyone who held anxieties over taking out an annuity for a potentially similar scenario – former US Presidents and Hall of Fame quarterbacks

aside – Murphy said regulations would prevent that scenario.

“Within Australia, the regulatory environment that we’re in [requires us] to hold a capital buffer,” Murphy said.

“The money we get from the customer, Challenger then has to put in funding of our own to make sure that would never basically.

“APRA come and get us to do modelling that show what would happen basically for a one in 200-year market shock, what would our assets look like and our buffers sufficient.”

Murphy said in the changing retirement income landscape, annuities would continue to be a component but not the whole piece.

“Our experience with our customers has been that one of the real advantages of having something like an annuity is that

allows retirees to feel more comfortable spending the money they have invested in other strategies,” Murphy said.

“It takes away the tendency we have to self-insure, not knowing how long we’ll live, we will put aside a big chunk of money in case we need it.

“What that means is we’re not spending it confidently, so it’s a really important component and, as we’re starting to innovate in the product sector, some of the feedback we have gotten from advisers is they loved the longevity risk protection – which is what the annuity provided – but they disliked being out of market exposure.

“Advisers were telling us ‘we really like that longevity protection but we would there to be an option for us to continue to have market exposure for our clients’.”

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Robo advice

ROBO 2.0: THREAT OR OPPORTUNITY? Advisers would be wise to understand online investing services given they are democratising investment and removing barriers to entry, Laura Dew finds.

TEN YEARS AGO, the advice industry discovered the first iterations of ‘robo advice’ and the potential threat it posed to their livelihood. A decade later, a new generation of robo investing and robo advice services have launched, targeting younger and less-wealthy consumers, although none yet offer full advice.

While the initial threat had dissipated, these new type of ‘Robo 2.0’ services could be beneficial for advisers and present an opportunity for them to engage with clients in a world where consumers prefer to manage their finances digitally.

ONLINE APPS During the recent pandemic, the rise in household savings and consumers having more time on their hands led to growth in usage of online apps such as Raiz, Spaceship, and Stockspot.

Micro-investing platform Spaceship, which launched in 2017, had $1 billion in funds under management at the end of June 2021, up from $415 million in June 2020. Meanwhile, users had almost quadrupled from 50,000 in

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2019 to 190,000.

Spaceship chief executive, Andrew Moore, said: “Rather than taking punts on penny stocks or recommendations from their mates, Spaceship’s customers have taken the route of setting up a regular investment plan in one of our managed funds, offering an ongoing investment opportunity in a variety of domestic and international companies “Micro-investing apps such as Spaceship Voyager give new investors the opportunity to witness firsthand the benefits of time in the market versus timing the market, a crucial component in building wealth.”

Commentators praised the way these types of platforms had encouraged younger people to get engaged with their finances and invest with only a small sum of money. The majority of Spaceship users were investing just $50 a week, an amount seen as much more accessible for younger investors.

Stuart Holdsworth, founder and chief executive at Financial Simplicity, said: “One thing these platforms have done very well is

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RoboStrap advice

create an interactive customer experience which allows people to invest very small amounts of money.

They have compelling interfaces like graphs and bright colours and they do an excellent job”.

However, at Raiz and Stockspot, investment balances were much higher, indicating these platforms were also used by wealthier clients who might also be a viable market for financial advisers.

Savings and investment platform Raiz, which launched in 2016, said it was on track to reach $1 billion by the end of the year as it currently had $970 million, and 533,000 active monthly customers. It was also expanding beyond Australia into Asia with customers in Malaysia and Indonesia.

Raiz founder, George Lucas, said 50,000 of its users were over the age of 50 while others used it for their self-managed superannuation funds (SMSFs).

At Stockspot, which provided personalised portfolios, the average client invested over $50,000, although some balances reached as high as $5 million.

Chris Brycki, founder and chief executive, said the platform had seen new clients with larger balances compared to pre-pandemic as its seven-year track record and positive performance had helped it “build trust” with clients like SMSFs who wanted to be less active in their portfolio management.

He also highlighted low interest rates and higher savings rates meant people had more money to invest as they had been unable to spend on areas like holidays.

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PROBLEMS However, the problem with these types of services was they assumed from the outset that investment was the right option for each user and that the users already had a level of financial literacy.

Holdsworth said: “The robo experience is presuming that investment is the right thing for every user which might not be the case. It narrows the starting point to a utility function rather than starting from a blank slate and considering their overall financial circumstances.

“There is a confusion between robo products and robo advice, there is no solution yet which comes close to a full advice experience, no robo product out there would consider a person’s mortgage or superannuation yet.”

At their worst, these types of services could be considered as a form of gambling which encouraged short-term trading in order to gain maximum investment fees.

Greg Davies, head of behavioural finance at Oxford Risk, said: “Are users viewing this as something for the long-term or are they gambling? Do they understand the distinction between trading and investing for the long-term? A lot of people aren’t that sensible and that’s very dangerous”.

He suggested the platforms should introduce safety checks which would guide the users on sensible investing and introduce measures which would automatically kick-in to prevent panic selling in the event of a market downturn.

“They should show the rules of good investment and be the

equivalent of a financial FitBit for people. There are lots of opportunities for these services to do good but unfortunately firms want users to be doing frequent transactions to maximise fees.”

Meanwhile, finfluencers on TikTok or YouTube who were offering financial tips presented their own problems by making ‘investing look easy’ which would pose problems when the market next went into freefall.

The Advisers Association, chief executive, Neil Macdonald said: “Finfluencers are dangerous, what they are saying makes investing seem easy.

“It is good they are creating awareness but the risk is it might not always lead to a good outcome. It’s all good when markets are going up but what if there is a market crash?”

“If you want to see an adviser then you have to jump through a lot of hoops yet, without any checks at all, they could invest in Bitcoin.”

– Greg Davies, Oxford Risk

REGULATORY FEARS The Australian Securities and Investments Commission (ASIC) stated it was looking into retail trading and was concerned that finfluencers were offering unlicensed advice to retail investors which would be illegal.

Chair, Joe Longo, said the activities of wealth coaches and finfluencers was an “area of big concern” for the regulator.

In October, the regulator noted a “concerning” trend it had observed of social media posts being used to co-ordinate pump and dump activity in listed stocks.

It noted social media was being used to “create a sense of excitement” about a stock or spread fake news.

“ASIC has recently observed blatant attempts to pump share

Continued on page 20

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Robo advice

Continued from page 19 prices, using posts on social media to announce a target stock, a designated time to buy and a target price or percentage gain to be reached before dumping the shares,” it said.

This was illegal market manipulation and could attract a fine of up to $1 million and 15 years imprisonment.

But Senator Jane Hume, minister for superannuation, financial services and the digital economy, had previously stated she was optimistic about the level of engagement these platforms created among young people and that an element of ‘buyer beware’ was at play.

“We don’t believe in establishing unworkable rail guards that inhibit progress and innovation. I have absolutely no interest in perpetuating a nanny state culture where we resort to banning things to save people from their own follies,” Hume said at a conference in September.

“I believe in personal responsibility and common sense.

But for that to work, we must make sure that consumers have access to the information that they need to make informed decisions.”

She also stated financial technology was a “key and growing export for Australia” thanks to its combination of highly-banked population and user base of early adopters.

Commentators agreed anything that encouraged more investment was good, particularly as the cost of advice was rising. The average fee for initial advice often surpassed $3,000 which made it hard for younger investors to access compared to online investment which removed barriers to entry

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and let someone with $100 make similar investments to someone who had $10,000.

With this in mind, many asset managers had started offering versions of their funds as exchange traded managed funds as these had a lower minimum investment than a managed fund and were more attractive to retail consumers.

“If you want to see an adviser then you have to jump through a lot of hoops, yet without any checks at all, they could invest in Bitcoin. There is an imbalance where it is hard to get advice yet it is easy to gamble,” Davies said.

“Should the regulator be more strict or would that discourage people from investing? You don’t want people to be excluded from investing just because they have fewer assets.”

Lucas said: “People do get a lot of information from social media and it is something that regulators are looking into globally, not just in Australia. Most of it is good information but you only need one bad apple and that’s who the regulator will target”.

Joint managing director at Netwealth, Matt Heine, highlighted the prevalence of information on social media and sites like Reddit required a different understanding by the regulator as they had developed their own lexicon. This included words like ‘whale’ [individuals that hold large amounts of cryptocurrency], ‘diamond hand’ [an investor who holds onto shares despite losses] and ‘mooning’ [a coin or stock experiencing a spike].

“People are desperate for information and are getting it from sites like Reddit like we saw

with Gamestop. They are interacting on these discussion boards and have built up this whole new lexicon which the regulator needs to understand.”

WORKING WITH ADVISERS Rather than viewing robo products as a threat in the way they might have done years ago when these products were in their first iteration, advisers were now viewing ‘Robo 2.0’ as something they could work alongside.

Compared to the first types of services which bucketed people into categories, services available now allowed for a more personalised and tailored experience.

This was exacerbated by the emergence of the ‘emerging affluent’ generation, the next wave of clients who were used to doing their banking online and having constant access to their information.

According to Netwealth, some 1.5 million people aged 30 to 45 years old sat in this category which it defined as having higher than average income, strong appetite for investment and

MATT HEINE

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controlling $2.2 trillion in household wealth. Some 79% of people in this category said they were “extremely confident” to use technology with a third managing their investments online every month and 51% managing their superannuation fund online.

Lucas said: “We have advisers who look at [Raiz] and, I wouldn’t say they recommend us, but they suggest us to their younger clients who don’t need full-service advice.

Customers are looking for 24/7 access to information and advisers need to do more online”.

“Advisers need to recognise the way that people are saving and investing is changing and that is being driven by the emerging affluent demographic who are engaging with their finances digitally.

“Clients are demanding a digital experience rather than a face-to-face one. The whole world moved online during the pandemic and that is the same for people’s finances,” Heine said.

Rita Da Silva, Oceania leader of wealth and asset management at EY, said: “It is highly important for advisers to embrace technology to reach the next generation coming through. Millennials and Gen Z have been digitally native for most of their lives and advisers need to engage with them.

“Most apps provide only general advice whereas advisers provide personal advice, in an ideal world, we would have a hybrid model as people do generally need access to a person.

“There needs to be a way for advisers to capitalise on the trend especially as people grow their wealth but it is on the adviser to promote their benefits and capabilities to the consumer.”

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INTEGRATING TECHNOLOGY Ways that digital advice could help businesses was by doing the “heavy lifting” for them such as automating the fact-finding process, providing an audit trail and improving access to third-party data which would allow the adviser to focus more on tasks that added value for the client.

Advisers were also encouraged to have a specific technology and data strategy which would allow them to maximise the volume of data they collected on clients and put it to best use.

Macdonald said: “Advice used to be all face-to-face and paper based but the digitally-enabled idea is how can you use technology to make the user experience great and to automate the low-value parts.”

He said it could take 20 hours for an adviser to bring on a new client once they had completed all the paperwork, research and meetings and this was an area where automation could save time.

Holdsworth said: “Advisers don’t need to be worried about robo but they would benefit from understanding it more as it can help advisers to deliver advice in a more automated way. It won’t be sufficient for them to compete with it.

“The fear is in the name but in reality it’s not much different to a separately managed account in being an automated service that makes investing easier.

“Robo products are already partnering with advisers to help those who don’t need full advice.”

He added many advisers were already proactively producing blogs, videos and were active on social media to reach and engage with a new audience who were seeking information in a different

way to clients of the past.

Da Silva said she could envisage a service in the future where clients were onboarded once onto a portal and from there, were able to access personal advice, roboinvesting and their personal financial goals all in one place.

“They would have all your financial information in one place and be able to provide you with tailored information for your circumstances. You would have to trust the system there and ensure there was a high level of cybersecurity.”

However, while technology could improve the user experience, advisers wanted to avoid encouraging users from having access to too much data.

“There are some ways technology can engage clients but in some cases, there are parts which would benefit from less engagement not more. More is not always good. You don’t want people checking their portfolios every day as if they are checking too frequently then that can be dangerous and encourage kneejerk reactions by them,” Davies said.

Macdonald said: “If you have an educated client, they will know not to look at the share price too often, the reality is people are more interested in what happens quarter by quarter.

“It’s a balancing act between educating the client on their investments and avoiding them becoming a day trader, you don’t want them calling up everyday.”

If advisers were keen to get involved, Holdsworth suggested many apps had the option to invest ‘fantasy money’ which would allow them to test out the interface and establish if it was suitable for their clients.

RITA DA SILVA

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22 | Money Management November 4, 2021

Managed accounts

MANAGED ACCOUNTS GROWTH REFLECTING CHANGING ADVISER NEEDS

Managed accounts have seen incredible growth in their use and popularity with financial advisers over the past 12 to 18 months, writes Steven Tang, and for good reason.

BY THEIR VERY definition, a managed account is an investment account which is owned by an investor – retail or institutional – and managed by a third-party, such as a financial adviser.

The flexibility, transparency and convenience offered by managed accounts for both advisers and their clients has seen an exponential rise in the take up of the product in recent times.

Advisers are increasingly becoming more discerning and nuanced in terms of the products they seek to offer clients, such as a focus on responsible investment and environmental, social and governance (ESG) or other bespoke client needs in portfolio construction. Managed accounts are unique as they can provide investors with this level of flexibility without sacrificing returns.

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Managed accounts have come a long way from those that were on offer in the early days of the industry. These days, managed accounts free up an adviser’s time from the back office administration and compliance, providing them with more time to serve clients and do what they do best – provide financial advice.

Those practices that have adopted managed accounts into their business are not only saving time on compliance and administration – in many instances, they are also more profitable.

Managed accounts provide the reporting to help advisers with the communications piece to their clients, so offer a lot of savings in terms of time. The governance side is also taken care of given a product disclosure statement (PDS) is required for a managed account

– and this is something which the model portfolio managers produce on behalf of the adviser.

MANAGED ACCOUNTS IN A POST COVID-19 WORLD The COVID-19 pandemic was a litmus test for managed accounts and their success during this uncertain period has had a large impact on accelerating their adoption across the industry. As of 30 June, 2021, funds under management (FUM) in managed accounts stood at $111 billion, an increase of $15.8 billion in the last six months.

During the March 2020 market sell-off, a time when there were significant levels of drawdown by investors, advisers working with a managed account structure were able to rebalance all clients seamlessly and efficiently, including all the associated

reporting. This would not have been achievable with a simple model portfolio structure.

Many advice practices with a bespoke or non-discretionary model management process found managing 2020’s challenges particularly daunting.

Day-to-day tasks such as keeping up with markets, ensuring clients were well informed, processing trades and seeking clients’ approval to rebalance their assets became onerous for them.

It is rare for investment portfolios to deviate from their intended risk profile but this is exactly what many portfolios did when markets plunged during March 2020.

While investment portfolios became increasingly distorted by market activity during this time, rebalancing of client portfolios was critical to ensure they

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remained in the risk return profile agreed with their adviser.

Speed of execution was paramount, and the nature of managed accounts enabled investment managers to achieve that. Those advisers using managed accounts during this time were able to call on the execution structures of their managed accounts to rebalance portfolios, en masse, as well as handle all the compliance and reporting associated with that.

Despite many advisers being swamped with rebalancing activity during this period, those who were using managed accounts successfully were also able to manage the client hand-holding and extra communication during this difficult period. This was particularly the case for those advice practices with a large client base and therefore more sizeable rebalancing activity required.

Communication also proved to be key during this period of market volatility, and those that were able to ramp up communications with clients were able to effectively quell their concerns.

For advice groups operating a managed account structure for

client portfolios, it meant no client was left behind with a portfolio change or rebalance; one portfolio change was effective across the entire client base.

ESG AND RESPONSIBLE INVESTING With the world’s focus shifting to the impending United Nations Climate Change Conference (COP26) taking place in Glasgow this month, this will lead to a sharper focus in responsible investing (RI) for local investors.

There is an expectation that managed accounts will attract further attention, given RI continues to draw such a large volume of enquiries. Retail investors in particular are increasingly questioning the carbon footprint of their investments and for institutional investors, they will be beholden to the demands of super fund members who seek greater clarity on how and where their balances are invested.

Going forward, RI is likely to be an increasing consideration for advisers and their clients.

Advisers are having the conversations with their clients about RI considerations that need to be provided for within a

Chart 1: Managed accounts growth by category ($ billions), June 2017 to June 2021

“For advice groups operating a managed account structure for client portfolios, it meant no client was left behind with a portfolio change or rebalance.” managed account structure.

As investor interest in RI and ESG policies grow, those managed account providers that can leverage research in these areas are set to benefit the most.

In Zenith’s case, its RI classification roll out across all its rated products means advisers have an additional tool to differentiate between funds and identify those best suited to clients seeking an ESG overlay on their portfolios.

Momentum has continued to accelerate on both the product manufacturing and client demand side over the past year. Given the complexities involved, clients have welcomed Zenith’s RI classification framework as it provides clear, consistent disclosures that make it easy to understand what investment managers are actually doing when considering RI issues.

Investor interest, client feedback, manager activity and general market momentum is growing significantly in the area of responsible investing and is reflected in the increased demand for ESG insights from financial advisers.

This has important implications for all managed account providers and the advisers who use their services.

Those managed accounts that can meet adviser demand for RI and ESG information will be well placed to benefit from the increased interest in the sector.

THE MANAGED ACCOUNTS DIFFERENCE In recent years, advisers have designed portfolios distinguishing between accumulation and decumulation client needs, with managed accounts playing an important part in this process, by providing transparent and robust investment solutions specifically

designed to meet the challenges to investing during retirement (longevity, income, sequencing, downside protection, contribution, bequests, liquidity etc.).

However, managed account transparency is not the only advantage. While having the flexibility to include exchange traded funds (ETFs) and direct shares alongside traditional managed funds in the structure, investment decisions can be implemented equally across all clients in a timely manner through the advent of centrally managed portfolio decision-making.

In a traditional advice – investment implementation process, advisers would go through an annual review process with each client at different points during the year to implement the same investment decision. Through the application of managed accounts into an advice business, significant efficiency benefits are realised for both the client and advice business alike. This is something our clients appreciated in times of market turmoil, such as during the COVID-19 market ramifications in early 2020.

Managed accounts also have the benefit of client reporting being more transparent and helping managing compliance matters through the equal treatment of all clients.

Leveraging professional managed account providers also enhances the governance framework around investment decisions.

As the investment space evolves over the next 12 months, advisers and their clients are increasingly seeking products that afford characteristics such as flexibility and transparency, with managed accounts offering both.

Steven Tang is head of consulting at Zenith Investment Partners.

Source: IMAP

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Markets

EVERY QUARTER COUNTS In a world where markets are ever-fluctuating and challenges abound, writes Jim Parker, investors should pay less attention to the media and maintain a disciplined investment process.

AN INVESTOR FOLLOWING daily financial headlines in the past quarter might have encountered plenty to worry about – from a resurgent pandemic, to spiking inflation, to worries about Chinese debt, and to speculation about central bank tapering of policy stimulus.

In Australia and New Zealand, renewed lockdowns in the face of the more virulent Delta strain of COVID-19 dented recovery expectations, led economists to warn of a negative gross domestic product (GDP) number for the quarter, and forced some companies to lower earnings expectations.

Yet, equity market returns weren’t that bad. The Australian market, as measured by the S&P/ ASX total return index, rose 1.8% for the quarter and was up nearly 31% for the full 12 months.

Developed markets outside Australia rose nearly 4% in AUD terms in the quarter and 28% for the year. The NZ market rose nearly 5% in the quarter and 13% over the year. Premiums related to small and low relative price stocks were very strong for the past 12 months.

In Australia, the S&P Australia BMI

Value Index rose more than 40%, while the S&P/ASX Small Ordinaries index was up more than 30% in AUD terms.

For the third quarter on its own, premiums were mixed. In Australia, size and value were positive, but profitability was negative. In other developed markets, size was negative, while value and profitability were mixed. In emerging markets, value and profitability were positive.

It was also hard to see a pattern in sector returns. For instance, energy stocks were very strong in developed markets, while materials were weak – reflecting in part a divergence between sharp increases for coal and natural gas prices, and sharp falls for iron ore prices.

Country returns were also hard to pick quarter to quarter. Having been a laggard in the three months to June, New Zealand turned around to be one of the best developed markets in the September quarter.

By contrast, Australia lagged other developed markets this quarter.

There are a number of takeaways for investors from all this. One is that it is tough to chart

your investment course according to daily headlines. Markets are forward-looking and news is quickly built into prices. Even if you could predict the news, you still have to guess how markets will react.

That’s not easy.

A second takeaway is that diversification – across countries, across sectors, across asset

classes and within asset classes – is your friend. For instance, New Zealand was the worst performing developed equity market in 2017. Two years later, it was at number one.

Investment opportunities occur across the globe, and it is impossible to know where the best returns will be year to year or quarter to quarter.

Chart 1: Investment climate global equities

Source: Dimensional Fund Advisors

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JIM PARKER

You are better off holding equities from markets around the world. Some will do better than others quarter to quarter, so, again, stay diversified.

The same lesson applies to the premiums within equities. We know small and value stocks offer higher expected returns than large and growth stocks over the long term.

But those premiums are not there every year or every quarter. They appear in different places at different times.

The only way of capturing them when they do show up is to stay diversified and focused on them and we saw that in the September quarter. While emerging markets were down overall, a strategy that focused on value stocks in emerging markets posted positive returns.

The final lesson relates to discipline. The past 18 months have been a tumultuous time. We saw major equity markets fall by between 30 to 40% in the space of a few weeks in March, 2020, only to rebound in the subsequent months to recover all of their losses. The New Zealand and Australian markets both hit record highs in 2021, in January and August respectively.

Now, of course, the media pundits are out in force again,

speculating about what will happen when central banks begin to pare back the stimulus, what reopening borders will mean should COVID-19 get out of control again, and what spiking energy prices might mean for inflation.

These are interesting questions, of course, but it’s worth reminding yourself that all these opinions and forecasts are already reflected in today’s market prices. All that punditry you see in the media is really just yesterday’s news. And no-one knows what tomorrow’s news will be.

None of this is to deny that the world faces challenges - in overcoming the pandemic, in dealing effectively with climate change, and in building international cooperation. But remember those challenges also hold out the promise of productive solutions that generate long-term wealth.

When you invest for the longterm, you are seeking to be a part of those solutions and to share in the rewards generated by them.

Through embracing market prices, employing diversification and exercising discipline, you increase your chances of doing so. In other words, every quarter counts.

“The world faces challenges such as dealing with climate change and building international co-operation but these also hold out the promise of productive solutions that generate long-term wealth.”

Chart 2: Investment climate Australian equities

Jim Parker is vice president at Dimensional Fund Advisors.

Source: Dimensional Fund Advisors

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Superannuation

USING DATA TO BETTER UNDERSTAND MEMBERS Being able to access the right MyGov information for members is crucial if firms are going to meet the Retirement Income Covenant requirements, writes Fintan Thornton.

BUOYED BY AN ageing demographic and a new trustee duty known as the Retirement Income Covenant, superannuation funds are gearing up to meet a growing need for retirement income products to help members reach their post-working life goals.

However, getting people into a retirement product that is right for them could be a tough ask given the sparse information available on their membership base.

The good news is that Canberra is taking a principlesbased approach to retirement strategies. This allows super funds to tailor retirement products to the characteristics of their members and their families.

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Yet super funds, as it stands today, are facing yet another hurdle.

By virtue of our compulsory system construct, Australian workers have historically been funnelled into a super fund by their employer, with funds operating a very clear mandate in the accumulation years – safely maximising wealth for retirement. In principle, little intervention is required from members in the earlier years. It’s not until it’s nearly time to switch strategies from delivering investment returns to providing sustainable retirement income, that there is a heightened need to innately ‘know your customer’ (KYC) – and have them actively engage.

The concept of ‘KYC’ – takes on a new and critical meaning.

Members will, of course, be required to provide explicit consent prior to commencing any retirement income stream and will not be defaulted into any particular product. They’ll be provided information or indeed tools that can help determine whether a strategy is the right option for them. But without an optimal data set, it’s difficult for trustees to design and deliver products over and above the fund’s broad membership needs.

This is a source of frustration for many super funds, all looking to do a good job for their members. If the onus to design and deliver the right products sits with them, it is essential they can access the key profile information to help them

better understand and design solutions for their members.

As we all know, it is possible to achieve this through member segmentation. Categorising members by demographics, investment understanding, homeownership, non-super assets, marital status and level of engagement helps identify cohorts with similar risk tolerance. Much of this information is needed to help determine if the member is eligible for the means-tested Age Pension, to what extent and how that entitlement might change over time. Its complex for super funds.

The trouble is, it’s difficult for funds to build such meaningful cohorts without access to more information about the member’s

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Superannuation

situation than they can currently have. Unfortunately, in the design of sustainable retirement income solutions, this presents an impediment to segmentation.

There are glaring gaps in the information that super funds have a right to use. Worse, many of the necessary data points change from time to time.

Canberra has an opportunity to address the data vacuum since it acts as an enabler for constructing better-segmented cohorts of members. Critically, if a super fund has all the data it needs, the retirement income strategies being designed and presented to a member have far greater odds of being best suited and meeting the members’ needs over the long term.

TRANSFORMING TIME IN THE DELIVERY OF ADVICE The same can be said for enabling data access for financial advisers.

With pertinent data sharing comes greater efficiencies to the benefit of their clients, and a potential solution to the challenging and hidden ‘cost to serve’ that advisers face.

For many financial advisers conveying the ‘perceived’ cost of advice versus the actual cost of implementing advice can be difficult. Much time and effort is spent collecting and capturing data, often duplicated across multiple systems, to meet onerous yet compulsory compliance. All of which is necessary but at a cost that could be viewed to add little value to the end client outcome.

Harnessing a greater deal of (already available) data – perhaps a push button solution, feeding into planning software – would allow advisers an efficient starting point; speeding up admin processes and winning back time better served in the provision of strategic advice services.

As things stand, getting the

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“Armed with a richer dataset, building suitable products to match member needs to income stream, may get that bit simpler.” right amount of useful data on clients is time consuming, and for super funds members, notoriously difficult. So, getting the Government involved in data that feeds into segmentation is not only smart but brings some distinctive benefits to bear.

In the context of our compulsory super system, it is easy to argue that the optimal policy response from the government is to support the retirement and advice industries by allowing members to benefit from the mass of rich data being collected on them.

In turn, the retirement industry has a responsibility to lobby Canberra to make this a priority at what is a critical juncture in the construction of a decumulation or retirement income system for people in retirement.

Interestingly, the Australian Institute of Superannuation Trustees noted in a submission to Treasury that some super funds are investigating the possibility of obtaining banking data using the consumer data right (CDR), or ‘open banking’ as it is widely known. An opportunity that was identified as a recommendation by the Productivity Commission into Superannuation.

Obtaining data through MyGov is an efficient way to supply super funds with the data they need to build more detailed cohorts. With the Morrison government’s say-so, super fund members could consent to have MyGov data preloaded into their super fund as they approach retirement.

SHARING DATA SAFELY The timing could not be better.

More than ever before, people may be ready to share data.

The CDR or ‘open banking’ law creates a general right for

consumers to control their data, including who can access it and how it can be used. Bank customers understand that they benefit from sharing their data with an accredited third-party knowing that privacy safeguards are in place.

And, it’s not just the banking sector that is sharing data – the energy and telecommunications sectors are next in line.

We should get the most out of our data. So much gets collected, little gets used. Throughout the pandemic, individuals have become accustomed to scanning a QR or quick response code to enter a shop, pub, or other business. As the country continues to open up, data from MyGov acts as a passport to freedom, showing a green light to indicate vaccination status.

If bank consumers are happy to direct the right data, at the right time, into the right hands to obtain better loans, I wouldn’t mind betting that super fund members will also want to benefit from better use of their data in the same way.

There is a real opportunity for policy makers to enhance the retirement of all members and empower super funds by helping to match members with the right products. Another advantage is that the hard part of choosing a product is done for members.

The Government has indicated that it wants ‘informed choice’ as the basis of Australia’s retirement system. But a purely choice-based system may not work well for all people approaching or in retirement.

There is every chance that a greater degree of choice equates to greater complexity for some.

This is where a superior member understanding and engagement framework is going to form a critical component of delivering better retirement

FINTAN THORNTON

outcomes. Member engagement that is tailored to individual profile or matched to needs and circumstance could certainly smooth the critical decisionmaking path enabling greater confidence in ultimate choice.

In many respects, consumer or member expectations will only be on the rise as they engage with products and services outside of their super funds who are harnessing their data, critically at the individual’s say-so, in order to provide personalised and frictionless experiences.

Financial services providers, including super funds, will essentially have the same expectations placed upon them.

Members trust their super fund and many will expect to be guided into an appropriate retirement option. Some will want to have a hand in the decision, depending on how engaged they are. Alternatively, the member could ask their fund to assign them a product. Either way, funds need to be ready and equipped to easily flex to meet member needs and expectations in retirement.

Designing a suitable range of sustainable products for each segment or cohort is essential if super funds are to deliver on their obligations in providing their members with a secure and dignified retirement. Armed with a richer dataset, building suitable product to match member needs to income stream, may get that bit simpler.

Fintan Thornton is actuary and head of institutional solutions at Allianz Retire Plus.

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Toolbox

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Toolbox

HOW DIGITAL ADVICE CAN HELP INCREASE EFFICIENCY Using technology can help financial advisers to cut down on their risk and compliance work, writes Craig Keary, leading to a reduction in consumers’ advice fees in the process.

THE FINANCIAL ADVICE industry is undergoing a major transformation and financial advisers face an increasing number of constraints on their time.

Current risk and compliance requirements are a result of numerous inquiries into the quality of advice provided by the financial planning industry and are designed to protect consumers, something of which the industry as a whole is supportive of.

However, it cannot be denied risk and compliance work now takes up a significant proportion of time for financial advisers, with research from the ‘Australian Financial Advisers Wellbeing Report 2021’ from AIA and the Association of Financial Advisers (AFA) showing it now accounts for nearly 30% of all work tasks.

Unfortunately, for consumers, this has led to advice fees increasing 28% in the past two years.

Not only are more and more financial planners leaving the industry in droves as a result, but advice is also now more expensive and less accessible than ever.

But there is some positive news. Technology around advice is evolving, and it can now offer financial planners valuable support in certain areas, helping reduce these time constraints and costs.

BEYOND ROBO ADVICE Robo advice has been around for more than a decade. When it originally launched, in response to the Global Financial Crisis in 2008, there was much hype and fanfare, along with a concern that it would displace traditional advisers. This has not eventuated.

While robo advice, in the pure sense of the word, provides a

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solution for some clients with simple needs, the margins for operators can be low, and many have closed their doors.

However, this does not mean that the robo advice experiment has failed. New and evolving digital capabilities are today being used to augment a human advice model. Digital advice technology has been reimagined as a helping hand to the traditional adviser, not a replacement.

Digital advice can assist financial advisers across the entire gamut of the advice process – from education and engagement, fact finding and data gathering, to then delivering the advice and the ongoing communication and servicing of clients.

For example, solutions powered by artificial intelligence (AI) now available are sophisticated enough to work out what the effects of increasing mortgage rates would have on a customer saving for a home deposit.

Other digital developments and advancements can also be used in an adviser’s favour. Open banking, which is in its infancy in Australia, provides third-party financial service providers open access to consumers’ financial data using open application programming interfaces (APIs) with the consumer’s permission. This alone can digitally assist financial planners in the initial stages of their fact-finding process.

THE ROLE OF REGULATORS AND GOVERNMENTS One of the many concerns that financial planners have about digital advice is whether or not is supported by regulators and government. It’s all well and good

to be able to use AI-powered solutions to conduct a fact find for a client, but will it stand up to scrutiny by the regulators?

The good news is that the government is recognising the role that digital advice can, and should, play in a rapidly-changing financial advice landscape. Today’s digital advice solutions can do the heavy lifting within the constraints of the regulatory environment and with the support of government.

In her recent address to the AFA conference, the minister for superannuation, financial services and the digital economy, Senator Jane Hume, acknowledged the importance of ‘digital augmented’ advice, where, for example, a customer might input their information into an online tool, and the software behind it creates the basis for a statement of advice, which is then used by a financial planner.

“Digital advice will not replace advisers, it will augment them and enhance their capabilities. Advisers will be able to better serve more clients at lower costs, helping make advice more affordable and accessible than ever,” Senator Hume told the conference.

The regulator – the Australian Securities and Investment Commission (ASIC) – has acknowledged the role that advice can play for consumers in making better financial decisions and the importance of affordable advice.

In ASIC Regulatory Guide 244: ‘Giving information, general advice and scaled advice’, ASIC has also provided considerable guidance on how to provide advice on one or less than a full range of issues and has indicated that guidance is appropriate whether the solution is human or digital.

Continued on page 30

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Toolbox

CPD QUIZ Continued from page 29 ASIC recognises Australians’ need and desire for single issue advice in some circumstances and have provided the relevant guidance to enable institutions and advisers to deliver it regardless of the method of delivery.

HOW CAN IT WORK FOR YOUR PRACTICE? One of the most time consuming and costly tasks for a financial adviser is the initial client fact-finding process. As all advisers know, the more information you have about a client – their financial needs, approach to risk and personal situation – the better the advice you can give.

Digital advice can automate at least part of this process and drastically reduce the time taken by this task for an adviser. As it becomes more accepted in Australia, open banking and open finance should also improve access to data to streamline the advice process – for example, through pre-filled fact finds. Cashflow modellers available through open finance would save advisers time by allowing customers to see, in real time, how altering their financial arrangements could impact them in the future.

Fact-finding questionnaires can also be developed that can send clients down particular paths based on their answers to previous questions and provide the adviser with a much clearer picture of the client’s financial situation and needs.

Advisers do not need to be concerned that digital advice will not help them meet their best interest duty obligations. Technological advances mean that most digital advice solutions now have in-built compliance and safeguards which can identify when customers may not be suited to automated advice – potentially because of cost, suitability or complexity – and triage them out of the advice process to speak with a human adviser.

Digital advice is not limited to investment advice and which investments funds should be allocated to. Algorithms have now evolved to provide consistent, strategic and compliant advice. Old robo advice solutions may have had ten calculations in their algorithms, whereas digital advice algorithms now have hundreds and can assess whether or not someone should even be investing in the first place.

THE BOTTOM LINE Digital advice solutions are not a replacement for human advisers.

They exist alongside a human adviser and are serving a market that may not be ready yet for comprehensive advice and a market which is self-directed and prefers to do things digitally but have the adviser on hand to help when and where required.

Ignition research from the UK highlights that there are two things people will always rely on expert, human reassurance for – health and finances. If COVID-19 has taught us anything, it’s that even for areas such as medical services, technology has a role to play – telehealth is a good example. The use of e-doctors and video consultations has allowed skilled GPs to provide referrals, prescriptions and reassurance to people in a controlled way, avoiding unnecessary risk in the process.

We believe that financial advice will follow a similar path to health and that digital or hybrid financial advice will gain significant traction in the years ahead.

By using technology to do some of the grunt work, advisers can make their advice process more cost efficient, and that in turn frees up time to see additional customers. For the consumer, digital advice can provide a more affordable, flexible and high-quality advice experience – and closing Australia’s advice gap is good for everyone.

Craig Keary is chief executive - Asia Pacific at Ignition.

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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. Compared to old robo advice solutions, how many algorithms can digital advice use to assess a client’s financial situation and readiness to invest? a) 10 b) 50 c) 100 d) Many hundreds 2. How will open-banking help advisers in the future? a) Enable them to switch clients between accounts more easily b) Make the fact-finding process faster and more accurate by allowing third parties to access clients’ financial data c) Reduce the cost of providing advice by reducing third party fees d) Broaden the range of investment options that advisers can offer their clients 3. According to Senator Jane Hume, what role does the government see for digital advice? a) Online tools could assist advisers, for example in creating the basis for a statement of advice b) Digital advice will eventually replace advisers c) As long as it is heavily regulated, digital advice could be an alternative to human advisers d) There is no role in the industry for digital advice 4. Has ASIC provided any guidance on the role of digital advice? a) ASIC’s regulations make it almost impossible for advisers to provide compliant digital advice b) It is developing a specific regulatory guide for providing digital advice c) ASIC has provided considerable guidance on providing advice which includes both human and digital approaches d) To date, ASIC has not provided any information or guidelines on digital advice 5. How does digital advice work within the best interest duty obligations? a) As long as an adviser has a specific certification from ASIC, they can provide digital advice that meets the best interest duty obligations requirements b) Digital advice is exempt from the best interest duty obligations requirements c) It’s impossible for digital advice to satisfy the requirements d) Most digital advice solutions now have in-built compliance and safeguards which can identity when customers may not be suited to automated advice

TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/ features/tools-guides/ how-digital-advice-can-help-increase-efficiency For more information about the CPD Quiz, please email education@moneymanagement.com.au

27/10/2021 4:11:35 PM

November 4, 2021 Money Management | 31

Send your appointments to liam.cormican@moneymanagement.com.au

Appointments

Move of the WEEK Simon New Chief commercial officer Iress

Iress appointed Simon New as chief commercial officer after Michael Blomfield announced his departure from the role because of health reasons.

New joined Iress in 2015 as group executive of strategy and in 2019 was

MyState has appointed Brett Morgan, current chief executive of BNK Banking Corporation, as its new CEO and managing director to succeed Melos Sulicich.

He would begin his new role at the start of the next year, with a fixed remuneration of $625,000 per annum, including superannuation.

Morgan was formerly country head branch banking, marketing and private clients at ING Vysya Bank in India, which was 40% owned

by ING Group.

He returned to Australia in 2014 for family reasons and took up the role of divisional CEO at Inloop, an Australian financial technology before joining BNK as chief executive in October 2020.

Sulicich would leave MyState at the end of the year, having previously agreed to wait a year in order to navigate the firm through the COVID-19 pandemic.

Listed investment firm, Income Asset Management Group (IAM) has appointed former UBS investment specialist, Jonathan Baird, as chief executive.

As part of his role, he would join the board of IAM’s first incubation fund manager, Fortlake Asset Management, as an executive director.

Baird would join another former UBS senior executive, Fortlake’s founder Dr Christian Baylis, in growing the nine-month-old funds

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appointed chief client solutions officer.

He had previously held senior roles at EY and Lloyds.

Iress chief executive, Andrew Walsh, said: “We are fortunate to have an executive of Simon’s calibre to

management business.

Baird was most recently head of client service and marketing – Australia and New Zealand at Western Asset Management and previously held senior roles with Zenith Investment Partners.

Jon Lechte, IAM chief executive, said “Our appointment of Jonathan continues the building of the IAM business with best-in-class people to support our rapid growth in bonds, treasury management and asset management”.

State Street Corporation has appointed Tim Helyar as head of Australia, based in Sydney.

Helyar would be responsible for the enterprise-wide growth strategy, stewarding client engagement, developing talent and maintaining strong regulatory relationships, alongside Kevin Hardy who was appointed as head of Singapore and Southeast Asia.

Heylar had almost two decades of experience at JP Morgan Investor Services to the firm and was most recently head of fund services product development for Asia Pacific at JP Morgan. He also had financial services experience across securities services, superannuation and wealth management.

State Street said the pair would be responsible for the enterprisewide growth strategy, stewarding client engagement, developing

move into the role of chief commercial officer. He has extensive experience in the commercial aspects of financial services and deep knowledge of Iress and our clients, which will be a real asset in his new role”.

talent and maintaining strong regulatory relationships.

BlackRock appointed Guilherme Lima as head of wealth for Asia Pacific, signalling their intent to lead Asia’s fast growing wealth segment.

Working alongside wealth managers, private banks and family offices, Lima would develop strategies that drew from the full spectrum of BlackRock’s offerings to address the needs of wealth clients throughout APAC. Lima joined BlackRock from Westpac, where he led private banking, commercial banking, and small and medium sized enterprise banking as chief executive of the business division from 2019.

UBS Asset Management announced the appointment of Alison Telfer as country head Australia and New Zealand.

She would replace John Mowat who held the role in the interim and would be resuming his previous responsibilities as head of UBS Asset Management’s real estate business.

Alison joined UBS Asset Management from BlackRock, where she worked for the past eight years, most recently as chief operating officer (COO), general counsel and head of public policy for Australasia helping provide global capabilities to the local market and assisting BlackRock and clients to navigate regulatory change.

AMP Limited has appointed Patrick Snowball as chair designate and Andrew Fay as deputy chair designate of the board of AMP Capital’s private markets business.

Both would work with AMP Capital chief executive Shawn Johnson and non-executive director Michael Sammells to continue progress of the operational separation and demerger of the private markets business which the firm said remained on track to be completed in 1H22.

Both appointees had broad international experience of financial services and investment management, which included the real estate and infrastructure sectors.

Digital advice provider, Ignition has announced the appointment of Andrew Baker to the newlycreated role of senior adviser.

He would provide assistance and guidance to Ignition’s senior management and board in developing and executing the business’s strategy in the Asia Pacific region, as well as broader global pension fund strategy.

Baker had over 30 years’ experience in the financial services industry in a range of senior roles in Australia and Europe, including founding industry consulting firm Tria Investment Partners in 2004.

27/10/2021 5:37:40 PM

OUTSIDER OUT

ManagementNovember April 2, 2015 32 | Money Management 4, 2021

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

A zero for Australia’s climate policy

A competitive game

AFTER years discussing the ins and outs of superannuation, Tim Wilson, has been thrown in the deep end with his new Parliamentary role, defending the Government’s controversial climate action plan.

Liberal MP Wilson, who became Assistant Energy Minister in September, was called upon to defend Scott Morrison’s program ahead of the United Nations Climate Change Conference in Glasgow.

The 130-page plan was widely criticised for its lack of specificity, focus on emission offsets and failure to target net zero earlier than 2050.

While Outsider is not a regular listener, his colleagues inform him that Wilson appeared on Triple J’s Hack programme, an ABC radio show aimed at young Australians, to defend the policy. Outsider expects this is a slightly

OUTSIDER gives his congratulations to asset manager GQG which floated on the Australian Securities Exchange last month with a market cap of $5.9 billion.

The firm was the eighth company to float on the ASX this year with a market cap of more than $1 billion.

However, Outsider is amused by the one-upmanship when it comes to the title of ‘Australia’s largest IPO of 2021’ which GQG achieved by beating PEXA. Clearly, stock exchange listing is a very competitive game.

PEXA, the property arm of Link Group, raised $1.174 billion when it listed in July and GQG raised $1.187 billion.

With numerous companies itching to float

by Christmas, perhaps the next IPO will only need to raise $1.188 billion to snatch the title.

However, both firms will have some way to go before they claim the title of largest IPO overall which belongs to Chinese technology firm Alibaba which raised US$21.8 billion ($29 billion) when it floated on the New York Stock Exchange in September 2014.

For Outsider, the only place he will be floating anytime soon is to the side of the pool to pick up a cold beer.

different audience to the ones who had been watching Wilson on Parliament TV. During the show, Wilson spoke on solar energy, coal mining and hydrogen hubs, which Outsider was surprised he had so much information on given he was debating Your Future, Your Super reforms just

a few weeks ago.

Given Australia’s superannuation system is recognised as one of the best in the world, Outsider wonders if Wilson can apply some of what he has learnt to improving its climate change policies, which are... ahem… less lauded by the world.

What is in a name?

OUTSIDER drew a sharp breath while monitoring the Australian Securities Exchange and noticed that IOOF had announced that it would rebrand.

In between clicking the announcement and the NBN doing its best to load the page, Outsider wondered whether it would be some new-age name that he did not understand or could not pronounce.

Outsider chuckled to himself as he thought of the name IOOF would be if it had taken the same route as Aberdeen (now abrdn) and removed most of its vowels – IF. But no, the name IOOF had decided upon was

OUT OF CONTEXT www.moneymanagement.com.au

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Insignia Financial.

Of course, IOOF had originally stood for the Independent Order of Oddfellows – something new journalists always found amusing.

Insignia, IOOF said, represented a distinguishing emblem associated with membership and belonging and would tie in the firm’s multi-brand strategy.

While the new name is still subject to shareholder approval, Outsider is just glad that he is able to understand and pronounce IOOF’s new name given the company will be spending around $2 million to $3 million on the new corporate brand.

"Aside from the Royal Family, the UK's other obsession is football and periodic campaigns to bring it 'home'."

"Many of those opposite have demonstrated... crocodile tears and, within the same breath, a call for even more regulation."

– Margaret Cole, APRA executive board member

– Senator Jane Hume

Find us here:

27/10/2021 5:38:04 PM