Money Management | Vol. 34 No 21 | November 19, 2020

MAGAZINE OF CHOICE FOR AUSTRALIA’S WEALTH INDUSTRY

www.moneymanagement.com.au

Vol. 34 No 21 | November 19, 2020

20

ETFS

Using ETFs in retirement

EQUITIES

26

Opportunities for income

Small business taxes

ASIC claims its tough adviser enforcement builds consumer confidence

YEAR WRAP

BY MIKE TAYLOR

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2020 – a year of incidents and challenges IF 2020 is to be remembered for anything in the financial planning industry then it will be as the year in which a global pandemic hastened inevitable change including the increased adoption of technology and the continuing exit of financial advisers.

What it also revealed, however, was the reality that the industry had become mired in regulatory red tape which was capable of being pulled aside by a Government and financial services regulators keen to ensure that the clients of financial advisers were not needlessly inconvenienced and disadvantaged as a result of lockdowns, particularly in Victoria.

But, beyond the COVID-19 pandemic, what are the events which will be seen as having marked 2020?

• IOOF acquired the MLC Wealth business; • AMP Limited was the subject of an adviser class action, the controversial exit of its wealth chief executive, Alex Wade, the consequent exit of its chair, David Murray, a sexual harassment scandal around its chosen chief executive for AMP Capital, Boe Pahari, and then a takeover bid; • Iress acquired OneVue; • More than $35 billion was withdrawn from superannuation under early release arrangements; • The chair of the Australian Securities and Investments Commission (ASIC), James Shipton, stood aside amid an expenses scandal. His deputy, Daniel Crennan, first stood aside and then announced his resignation; • The Financial Adviser Standards and Ethics Authority (FASEA) financial planning exam continued to generate 79% to 88% pass rates but dissent continued around its code of ethics; and • The Australian Securities and Investments Commission (ASIC) started its review of the Life Insurance Framework.

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TOOLBOX

Full feature on page 14

CONSUMERS are more likely to trust financial advisers if they know that the regulator is ready to enforce the law and hold those advisers to account, according to the Australian Securities and Investments Commission (ASIC).

Asked whether its approach was too punitive and whether the regulatory framework was focused on prosecuting wrongdoers rather than encouraging and supporting good outcomes for consumers, ASIC chose to defend its approach even though it acknowledged there was a concerning lack of access to affordable quality advice.

Answering questions on notice from NSW Liberal backbencher, Jason Falinski, ASIC claimed it was working constructively with

Government and the advice industry to enable access to affordable quality advice for Australian consumers.

“We recognise that a lack of access to affordable, quality financial advice is a concern,” it said.

“This is why we are currently undertaking a project on unmet advice needs, which will look at what impediments industry is facing in providing affordable and limited advice to consumers.”

“The project aims to identify what steps industry and/or ASIC can take to overcome these impediments. We also believe that consumers are better able to rely on and trust the financial advice industry if they see a regulator that consistently enforces the law and Continued on page 3

ASIC’s consumer panel advised on FASEA code submission FINANCIAL advisers are pointing to the involvement of members of the Australian Securities and Investments Commission’s (ASIC’s) Consumer Advisory Panel in the formulation of a code of ethics submission to the Financial Adviser Standards and Ethics Authority (FASEA) as highly concerning.

The concern of the financial advisers has been driven by the fact that the ASIC Consumer Advisory Panel includes representatives from consumer groups CHOICE and the Consumer Action Law Centre (CALC), both of which also had representation on the board of FASEA. A submission developed by two Griffith University academics, Dr Hugh Breakey and Professor Charles Sampford notes on the bottom of page one that “this submission was developed with input from members of ASIC’s Consumer Advisory Panel. It also Continued on page 3

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12/10/2020 28/09/2020 9:49:53 AM 28/07/2020 3:43:56 5:05:53 PM

November 19, 2020 Money Management | 3

News

Who are stock losers from the COVID-19 vaccine?

BY LAURA DEW

A return to normality thanks to a COVID-19 vaccine will highlight those stocks where valuations have been overdone in recent months and could see them struggle.

These would be healthcare stocks which had been providing PPE equipment and ventilators for the outbreak and online shopping, which would lose out as people returned to bricks-and-mortar retail.

Tech disrupters which been rising in share price in expectation of future profits from a digital and contactless COVID-19 world would also be hindered.

AMP Capital Australian equities portfolio manager, Dermot Ryan, said: “With the shift of earnings growth back into real businesses, some of these growth valuations are hard to justify and may push valuation multiples lower as the rate of change of customer adoption turns negative.

“The run up in valuations in tech has been overdone and there are real risks to their stock prices here if revenue trends moderate.”

A vaccine would also inoculate inflation and

boost growth which would prompt a rotation of investment out of bonds and into equities that were reasonably valued.

Winners from the vaccine would be travel, energy and banking as they had struggled during the pandemic from factors such as border restrictions, lack of energy demand

ASIC claims its tough adviser enforcement builds consumer confidence Continued from page 1 ensures that advisers are held accountable for their obligations and uphold their professional standards,” ASIC said.

It said the Financial Services Royal Commission had “highlighted the substantial harms that misconduct in the financial services sector can inflict on consumers and investors”.

“Such harms can have the effect of depressing consumer confidence and undermine trust in the sector. ASIC recognises our role in driving behaviours that will restore trust and confidence,” the regulator said.

“We remain committed to our ‘Why not litigate?’ approach.

This means that in considering whether enforcement action is appropriate, we will actively ask ourselves why we would not progress a given matter through to court-based enforcement action.

“It does not mean that we will seek to litigate every matter as a default option. When considering enforcement action, including administrative action, we will continue to consider a range of public interest factors, including our strategic priorities and whether the conduct is egregious or harms vulnerable consumers.”

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and weak commodity prices.

“These three poster child value sectors are now so cheap that they might offer high earnings per share growth, as much lower valuations than you can get in the growth side of the market and that is why they can make sustained gains as the virus is forced to retreat.”

ASIC’s consumer panel advised on FASEA code submission Continued from page 1 incorporates issues raised in the FASEA Consumer Forum of June 29, 2018”.

The submission lodged by Breakey and Sampford is regarded as having been supportive of the approach adopted in the controversial Standard 3 of the FASEA code of ethics while a separate submission lodged by CHOICE is regarded as having been equally supportive.

ASIC documentation confirms that both CHOICE and CALC are represented on its Consumer Advisory Panel and CALC’s Catriona Lowe and Carolyn Bond, a former CALC officeholder, were on the board of FASEA at the time of the submissions being received along with CHOICE representative, Elisa Freeman.

It is not known if they were representatives to the ASIC Consumer Advisory Panel at the time the code of ethics submissions were received.

Bond and Freeman were still

members of the FASEA board while Lowe resigned her position to take a position with the Australian Energy Regulator.

It has also been pointed out that another board member and the man who stood in as interim chief executive of FASEA, Dr Mark Brimble, is a professor of finance at Griffith University.

Advisers have previously pointed to Griffith University’s website reference to the Breakey and Sampford submission defining it as a “consultancy/commercial research” relationship with ASIC pertaining to submissions to FASEA (June/ASIC).

The links between the Breakey and Sampford submission and ASIC’s Consumer Advisory Panel have only been identified since FASEA, under pressure from members of a Parliamentary Committee, made the 2018 code of ethics submissions publicly available at the beginning of last week.

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4 | Money Management November 19, 2020

Editorial

mike.taylor@moneymanagement.com.au

FE Money Management Pty Ltd Level 10

TIME FOR CLARITY AND A CLEAN HOUSE ON FASEA

4 Martin Place, Sydney, 2000 Managing Director: Mika-John Southworth Tel: 0455 553 775 mika-john.southworth@moneymanagement.com.au Managing Editor/Editorial Director: Mike Taylor Tel: 0438 789 214 mike.taylor@moneymanagement.com.au

The widespread general criticism of the Financial Adviser Standards and Ethics Authority’s latest efforts around code of conduct guidance should be the catalyst for the Government announcing a new approach beginning in 2021.

AS 2020 draws to a close, it is worth noting that the Financial Adviser Standards and Ethics Authority (FASEA) was high on the list of problem areas for financial advisers in January and it remains just as high on that list as we begin to close out the year in November.

The FASEA was established with good intentions. It was established to help drive higher standards and more professionalism in the financial planning industry and it has arguably succeeded in achieving some of the objectives the Government set for it back in 2016/17.

But what FASEA has most definitely not done is win the support of a majority of the financial planning industry – something which it needed to do if it was to successfully take them on the journey outlined in its statutory objectives.

If any proof were needed of this, the FASEA board received it in late October and early November as the major financial planning organisations lodged their submissions responding to FASEA’s latest guidance around the authority’s Financial Planner code of ethics. Putting aside the polite expressions of support for FASEA’s objectives, virtually every major advice organisation has made clear they remain deeply dissatisfied.

This should be of considerable concern to the

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Government and, in particular, the Assistant Minister for Superannuation, Financial Services and Financial Technology, Senator Jane Hume, because the continuing complaints of the Financial Planning Association (FPA), Association of Financial Advisers (AFA), the SMSF Association, the Institute of Managed Account Professionals (IMAP) and the Stockbrokers and Financial Advisers Association (SAFAA) make clear that FASEA is seriously at odds with the operational end of the financial planning industry.

What is more, FASEA has been seriously at odds with the operational end of the financial planning industry for more than 18 months, particularly around Standard 3 of the code of ethics, without having been able to satisfactorily repair the situation.

What should also be concerning to Hume is that any examination of statements made within Senate Estimates or within the House of Representatives Standing Committee on Economics suggests that politicians on both side of politics are painfully aware of the criticisms of FASEA with a number of Government backbenchers openly challenging the actions of the authority and its executives.

It is in all these circumstances that the

Government would do well to roll the operations of FASEA into the new Financial Adviser Single Disciplinary Body recommended by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. What is more, it would do well to ensure that the FASEA code of ethics is made fit for purpose before the Single Disciplinary Body becomes operational.

The simple bottom line is that because of the Government’s decision not to proceed with Code Monitoring Authorities and because of the time taken to establish the Single Disciplinary Body advisers have been left to deal with an arguably flawed code of ethics while operating in highly nebulous regulatory territory.

Advisers deserve better and the Government should clearly signal its intentions.

This is the last print edition of Money Management for 2020.

The Money Management daily e-newsletter will continue through to Friday, 18 December and resume in the second week of January. The print edition will be back in February.

On that basis, myself and the entire team at Money Management wish our readers an early Merry Christmas and safe and prosperous New Year.

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Mike Taylor Managing Editor

11/11/2020 11:26:22 AM

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6 | Money Management November 19, 2020

News

It’s unanimous – advice bodies deliver FASEA a fail

BY MIKE TAYLOR

THE Financial Adviser Standards and Ethics Authority (FASEA) has run into more criticism of its code of ethics guidance with complaints that it has failed to recognise the special circumstances of both stockbrokers and life risk advisers.

The Association of Financial Advisers (AFA) pointed to the failure with respect to life/risk advisers while the Stockbrokers and Financial Advisers Association (SAFAA) has strongly pointed out its deficits with respect to stockbrokers.

The SAFAA used its submission to warn that “the revised guide continues to offer significant challenges to the stockbroking profession and offers limited assistance in clarifying how advisers are to apply the code of ethics to their broking and investment advice practice”.

“We also stress that the lack of understanding evinced by FASEA about how stockbroking differs from financial planning continues to present challenges,” the SAFAA said.

And like the Financial Planning Association (FPA), the AFA and the Institute of Managed Account Professionals (IMAP), the SAFAA pointed to the entrenched shortcomings inherent in FASEA’s approach to Standard 3.

“The focus of most concern remains Standard 3, which changed from the original

wording of: ‘You must not advise, refer or act in any other manner if you would derive inappropriate personal advantage from doing so’ to ‘You must not advise, refer or act in any other manner where you have a conflict of interest or duty’,” the SAFAA submission said.

“This significant amendment to Standard 3 was undertaken without consultation and the Standard remains unworkable in practice, particularly in light of the lack of a test of materiality or proportionality,” the SAFAA submission said The SAFAA also made clear its concern that the FASEA had not adequately consulted on either the code of ethics or its guidance.

“No broking firms were consulted in relation to the revised guide, which would

have clarified that the financial planning lens applied to both the code of ethics and the original guide continues to apply to the revised guide.

“While SAFAA was consulted much earlier in the year, it was in relation to the original guide and the explanatory response to submissions issued by FASEA at the end of 2019 rather than the revised guide. We did make the comment that fewer examples and a more principles-based approach would help in any revised guide and appreciate that this has been taken on board.

“Unlike financial planning, stockbroking has existed for many centuries and is highly regulated, governed by the Australian Securities and Investments Commission (ASIC) Market Integrity Rules. The profession has made an incredible contribution to Australians’ economic strength, not only in terms of personal wealth creation, but also in the all-important equity formation for Australian companies, ranging from CSL, BHP and CBA down to the smallest and smartest technology and science successes.

“The key challenge in being subjected to a code of ethics and the original and revised guide aimed at the financial planning industry is that stockbroking provides a different service to clients and is remunerated differently from financial planning. Stockbrokers often work hand-inhand with financial planners to advise clients,” the SAFAA submission said.

Is AMP about to lose its mantle as largest adviser group?

BY OKSANA PATRON

THE lead of AMP Financial Planning (AMP FP), the single largest financial planning group, over the second biggest license by adviser numbers in Australia, SMSF Adviser Network (SMSF AN), has narrowed to only 70 advisers from 230 from the start of the year, according to data from HFS Consulting.

AMP FP once again topped the list for losses for the week with the departure of seven adviser roles this week which has brought the overall number of adviser roles being lost year to date to almost 250 (245) for the group.

According to HFS’s data, AMP FP had 911 adviser roles as of the first week of November while, at the same time, SMSF AN’s had 841 registered advisers as according to the Australian Securities and Investments Commission’s (ASIC) Financial Adviser Register (FAR).

By comparison, according to the Money Management’s 2020 Top Financial Planning Group’s ranking, which looked at the mid-year numbers in July, AMP FP had 1,000 authorised representatives who were engaged as financial planners at their primary role.

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Following this, SMSF Advisers Network, which advertises itself as a flat-based fee model for accountants in practice, stressed that of all its close to 850 authorised representatives all were accountants.

According to 2019’s Top Financial Planning Groups ranking, AMP FP had 1,255 advisers on its books which gave it an advantage over the second biggest group of around 260 advisers.

Colin Williams, director at HFS Consulting, said that the fast approaching year-end also encouraged a closer look at licensees which were emerging as winners (measured by adviser growth).

“As we head into the close for the year, Lifespan continues to lead the way with a net gain of 61 adviser roles YTD [year to date], followed by Interprac with 48 and Sentry at 34,” he said.

“At a group level, (licensee owner may own more than one licensee) Castleguard Trust continues on in first position with 61 adviser roles, closely followed by Sequioa with 59.”

For the week ending 5 November, a total of 28 adviser roles were lost, reducing the total number of adviser roles to 21,399 and 21,051 ‘actual’ advisers which were defined by HFS as advisers associated to more than one licence, most likely within a group holding.

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November 19, 2020 Money Management | 7

News

Key Godfrey Pembroke firm moves to Count Financial

Advisers query ASIC role in academics’ FASEA submission

BY MIKE TAYLOR

FINANCIAL advisers are querying whether two Griffith University academics received some form of commercial backing from the Australian Securities and Investments Commission (ASIC) to produce a 2018 submission to the Financial Adviser Standards and Ethics Authority (FASEA) on the financial adviser code of ethics.

The advisers are pointing to information on the Griffith University website which states that one of the authors of the submission, Dr Hugh Breakey, together with the other author, Professor Charles Sampford had a “consultancy/commercial research” relationship with ASIC pertaining to submissions to FASEA (June/ASIC).

Also, under the heading of “consultancy/ commercial research” the Griffith University website lists FASEA Submission (August) Financial Adviser Standards and Ethics Authority.

The advisers have raised the query after FASEA finally published submissions received from the 2018 consultation process in which Breakey and Sampford argued for the inclusion of a standalone Standard strictly prohibiting conflicts of interest, stating such a measure was critical for several reasons.

Their submission argued that the “removal of any and all conflicts of interests helps demonstrate and communicate the profession’s ethics to the wider public. It is a tangible reform that is visible to and understandable by the wider public, and will assist in rebuilding trust in financial services”.

The Griffith University website revealed that Breakey had received grants from a range of organisations, including the Australian Bankers’ Association (ABA) and the Australian Research Council.

Money Management has sought comment and clarification from Dr Breakey about the status of the submissions filed in relation to the code of ethics consultation.

SIGNIFICANT Godfrey Pembroke-aligned financial planning firm, Ascent Private Wealth, has broken away from any move to an IOOF license by joining CountPlus-owned Count Financial.

The move is significant because it comes as other Godfrey Pembroke-aligned advice firms consider their future license coverage in the wake of IOOF’s acquisition of MLC Wealth.

Count Financial has been amongst a number of licensees vying to attract advice firms impacted by the IOOF/MLC Wealth transaction.

Count Financial has described the Melbourne-based Ascent Private Wealth move as being reflective of its growth strategy, noting that Count Financial had attracted 50 new financial advisers to its revamped national advice network since January.

The significance of the move is reflected in the fact that the founder and principal of Ascent Private Wealth, Mark O’Toole, was a founding member of the Godfrey Pembroke advisory board.

O’Toole’s official statement around the move said Ascent’s decision to join Count Financial was made easier after discovering the cultural alignment between the respective businesses.

“As a small business, it’s important that our licensee partner operates as an extension of our practice, allowing us to tap into resources which ultimately help us to deliver advice more efficiently and effectively. Count Financial is running a clean model which has clear separation between product and advice – which is how we believe the best client outcomes can be

achieved. They also have a strong balance sheet and have invested in robust compliance and technology systems to enable us to better deliver quality advice to clients.

“Choosing a licensee comes down to more than just the service offer – it’s all about the people. They need to understand the unique challenges faced by advisers and have walked a mile in our shoes. The Count Financial team know the ins and outs of what self-employed advice businesses are confronted with and use that knowledge to help us accordingly,” O’Toole said.

Count Financial chief advice officer, Andrew Kennedy, said the appointment of Ascent was an enormous boost for the licensee which continues to target quality advice firms to join its network.

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11/11/2020 3:50:22 PM

8 | Money Management November 19, 2020

News

Super funds ignoring Aussie small caps

BY LAURA DEW

THE drive by superannuation funds to invest in exchange traded funds (ETFs) is constraining those smaller companies which sit outside of the indices.

According to Stoic Venture Capital, there had been a drive recently towards ETFs by superannuation funds which were looking for easier and cheaper ways to invest.

Given the broad reach of ETFs, this was giving super fund members exposure to areas such as US technology and other

high-growth opportunities.

However, it was also having the effect of withdrawing potential investment capital away from smaller Australian companies.

Stoic partner, Dr Geoff Waring, said the trend for ETF usage was “undermining the establishment and growth of early-stage start-ups” which would damage Australia’s economic outlook.

“Less investment into smaller, younger Australian companies will have the corollary effect of constraining the future development of our economy and the provision of

new employment opportunities,” Dr Waring said.

“It ignores the higher returns selected venture capital managers could bring to the superannuation industry.

“Superannuation funds could be earning more through longer-term venture capital investment than compared with today’s short-term public equity markets.

“This is particularly the case for industry-focused superannuation and specialised venture capital funds which are committed to the same vision – creating a better future for their

industries and their members.”

He suggested more investment into small-cap funds and venture capital would finance growth industries as well as increase benefits for super members.

Who’s focusing on long term opportunities?

AMP extends life insurance APL across all licensees

BY MIKE TAYLOR

AMP has increased its life insurance approved product list (APL) to include five major insurers and made it common across all AMP licensees.

The company announced that its life insurance APL now included BT and MetLife as new additions alongside AIA, OnePath/ Zurich and TAL. The company said that, for the first time, the APL would be common across all AMP’s licensees: AMP Financial Planning, Hillross

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and Charter.

Commenting on the move, AMP director of adviser partnerships, Brian George, said it had followed rigorous industry review and tender processes by the company’s advice research team.

“Clients and advisers will benefit from a competitive choice of policies and the enhanced service levels these insurers are offering, including claims resolution and support, technology support (including data feeds, shared portals), licensee-centric reporting, education and technical support,

and future product development.

“Existing life policies held by clients with insurers not on the APL will not be affected by the changes,” he said.

11/11/2020 11:26:06 AM

November 19, 2020 Money Management | 9

News

Fees – how the Govt gave with one hand and took with the other

BY MIKE TAYLOR

THE Government’s efforts to force down superannuation fees appears to have been significantly undermined by the increased regulatory burden it has imposed on superannuation funds.

Evidence provided to a Parliamentary Committee has revealed that while technological innovations have helped funds to reduce costs at one level, those cost-savings have then been eroded by the imposition of more regulatory imposts.

Small to mid-size independent super fund, AMG Super has told

the House of Representatives Standing Committee on economics that the cost-savings delivered via the straight-through processing of SuperStream, the use of robotics and bulk processing have been offset by additional costs imposed elsewhere.

“These innovations have delivered costs savings. However, as the fund has grown, and other compliance obligations have increased the resources have been deployed to other areas of the business,” the fund said.

“It is difficult to quantify the exact cost savings but below is an estimate for each item:

• Straight through processing of SuperStream – approximately $30,000 pa; • Bulk processing/transaction capabilities – approximately $25,000 pa; • Annual statements delivered electronically – approximately $20,000 pa; and • Use of robotics for data extract and analysis such as for invoicing – $25,000 pa.

“These innovations have delivered costs savings. However, there have been significant other regulatory costs over the same period such as, increased [Australian Prudential Regulation

Authority] APRA reporting obligations, [Protecting Your Super] PYS and [Putting Members Interests First] PMIF,” the superannuation fund said.

It said that, despite this, the fees charged to AMG Super members had decreased across the fund over the last decade.

• MySuper member’s fees have reduced by 0.48% pa over the last decade; • Personal super member’s fees have reduced by 0.11% pa over the last decade; and • Pension member’s fees have reduced by 0.26% pa over the last decade.

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Pendal Group sees funds under management decrease

BY CHRIS DASTOOR

PENDAL Group saw an 8% decrease over the previous corresponding period (PCP) in average funds under management (FUM), at $94.8 billion, while closing FUM was $92.4 billion in its FY20 results.

Cash net profit after tax (NPAT) for the financial year was $146.8 million, a 10% decrease on PCP primarily due to lower fee revenue, while statutory NPAT dropped 25% to $116.4 million.

A final dividend of 22 cents per share (cps)

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brought down the full-year dividend to 37cps, an 18% decline.

Base management fees declined 5% to $458.1 million which was attributed to lower average FUM. Performance fees for the year totalled $13.4 million, $7.5 million higher than the PCP, thanks to outperformance by Australian equities.

Emilio Gonzalez, Pendal chief executive, said it was a tumultuous year and the COVID19 pandemic had the most profound impact

along with the US/China trade war and Brexit.

“Our diversification and robust business model, supported by our financial strength, has proven resilient in this most challenging of years,” Gonzalez said.

“Our people have stepped up admirably to manage through the year’s events, maintain business continuity and support our clients.

“During the year, we saw strong investment in key funds, an uplift in performance fees and an improvement in net flows in the second half of FY20.”

11/11/2020 11:25:45 AM

10 | Money Management November 19, 2020

News

Industry fund smoking gun or simple expression of concern?

BY MIKE TAYLOR

GOVERNMENT politicians are pointing to a possible red flag in terms of industry superannuation funds seeking to influence public perceptions of the Victorian Labor Government over its COVID-19 lockdown.

The politicians are pointing to answers to questions on notice from Australia’s largest industry superannuation fund, AustralianSuper which confirmed that the fund’s chief executive, Ian Silk, spoke to a businessman who had reportedly been critical of the length of the lockdown, CSL chair, Dr Brian McNamee.

However, AustralianSuper has made clear that Silk only spoke to McNamee after the newspaper reports appeared about the issue, not before.

In a series of questions on notice directed at industry superannuation funds, the chairman of the House of Representatives Standing Committee on Economics, Tim

Wilson, pointed to a newspaper report suggesting that McNamee and other lockdown critics had been “pressured” by “union-aligned industry superannuation fund managers”.

Wilson asked in questions to the industry funds whether, “in the context of confronting, bullying or intimidatory workplace cultures, please advise:

“(a) Has the Chair of your fund been in contact through any medium with Dr McNamee or his office since 5 August, 2020, and if so please advise the name of the person who made contact and the nature of any communications. “(b) Have board members of your fund been in contact through any medium with Dr McNamee or his office since 5 August, 2020, and if so please advise the name(s) of the person(s) who made contact and the nature of any communications. “(c) Has the CEO of your fund been in contact through any medium with Dr McNamee or his office since 5 August, 2020, and if so please advise the name of the person who made contact and the nature of any communications.”

AustralianSuper answered “yes” to part C of the question and said that its chief executive had been in contact, adding “Mr Silk spoke with Dr McNamee about the media report after it had appeared in the media”.

Super member wins lawsuit against Rest on climate change

BY JASSMYN GOH

INDUSTRY superannuation fund, Rest has agreed to settle litigation brought by its member, Mark McVeigh, creating a climate risk fiduciary precedent.

In 2017, McVeigh filed legal action against the fund for breaching fiduciary duties by failing to adequately handle climate change risk.

Rest issued a statement that said it would take further steps to ensure its investment managers took active steps to consider, measure, and manage financial risks posed by climate change and other relevant environmental, social, and governance (ESG) risks.

It noted that it would use “a variety of mechanisms” to access and, if necessary, take steps to improve the compliance of its investment managers.

Rest said climate change was a “material, direct, and current financial risk” to super funds across risk categories such as investment, reputational, strategic, governance, and third-party risks.

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Rest said it considered that it was important to actively identify and manage these issues, and continue to develop systems, policies and processes to ensure that the financial risks or climate change were: • Identified and, to the extent possible, quantified in respect of both individual assets and the fund’s portfolio as a whole; • Considered in the context of the fund’s investment strategy and asset allocation mix (including in respect of Australian and international shares, cash securities, bonds, alternatives, infrastructure and property); and • Otherwise appropriately mitigated and managed, having regard to the goals of the Paris Agreement and other international efforts to limit climate change.

“Rest’s policy requires that the management of climate change risks also involves the disclosure to members of those risks, as well as the systems, policies and procedures maintained by the trustee to

address those risks,” it said.

“Rest agrees with Mr McVeigh to continue to develop its management processes for dealing with the financial risks of climate change on behalf of its members.”

The statement said that McVeigh acknowledged and supported Rest’s initiatives to: 1) Implement a long-term objective to achieve a net zero carbon footprint for the fund by 2050; 2) Measure, monitoring and reporting outcomes on its climate related progress and actions in line with the recommendations of the TCFD [Task Force on Climaterelated Financial Disclosures]; 3) Encourage its investee companies to disclose in line with the TCFD recommendations; 4) Publicly disclose the fund’s portfolio holdings; 5) Enhance its consideration of climate change risks when setting its investment strategy and asset allocation positions, including by undertaking scenario analysis in respect of

6)

7)

8)

9)

at least two climate change scenarios (including one scenario consistent with a lower-carbon economy well below 2°C this century); Actively consider all climate change related shareholder resolutions of investee companies and otherwise continue to engage with investee companies and industry associations to promote business plans and government policies to be effective and reflect the climate goals of the Paris Agreement; Conduct due diligence and monitoring of investment managers and their approach to climate risk; Continue to develop its management processes and implementing changes to its climate change policy and internal risk framework, which apply to all of the fund’s investments, to reflect the above; and Seek to require that its investment managers and advisers comply with the above.

11/11/2020 11:25:34 AM

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12 | Money Management November 19, 2020

News

FPA confirms 6.6% membership decline

BY MIKE TAYLOR

THE Financial Planning Association (FPA) has revealed 6.6% year-on-year decline in its membership but claims this is well within expectations.

Issuing its annual report, the FPA pointed beyond the overall 6.6% decline to 1,090 new members which it said had brought it to a total of 13,189 members.

The commentary associated with the annual report says that “significant industry reform from the Financial Services Royal Commission, new FASEA [Financial Adviser Standards and Ethics Authority] standards, and changes to business models and financial planner numbers by a number of large Australian financial services licensees, have caused a significant number of financial planners to leave the profession”.

“This has been reflected by an approximate 15% reduction in financial advisers listed on ASIC’s Financial Adviser Register (FAR) from June 2019 to June 2020. We expect this to continue to affect FPA member numbers and the wider financial planner population over the coming year.

“However, against this challenging backdrop the FPA is building a brighter future for financial planning. This year we unveiled a

new strategic direction to support the growth of the profession, restructuring to better service members and embarking on a new five-year strategic plan to secure the future of financial planning in Australia,” the commentary said.

The annual report pointed to a reduction in the association’s number of CFP members to 5,550 down from 5,724 the previous year and

Westpac reports 66% decline in profit WESTPAC has reported a 66% decline in statutory net profit to $2.2 billion on the back of a 62% decline in cash earnings.

In a result which Westpac chief executive, Peter King, described as “disappointing” he said it had been a particularly challenging year for the big group.

The bank board declared a final fully franked dividend of 31 cents per share, and the company said that neither the chief executive or group executives would receive short-term incentives this year.

“Despite the challenging period, our balance sheet remains strong,” King said. “We have improved our capital position with our common equity tier 1 (CET1) capital ratio rising 46 basis points to 11.13% and our funding and liquidity ratios are comfortably above regulatory requirements”.

Discussing the outlook, King said that COVID-19 had been a once in a 100 year health and economic crisis and the near-term economic outlook would remain uncertain.

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financial planner AFP members down from 4,124 in 2019 to 3,725.

The annual report document stated FPA recorded a before-tax surplus of $241,000 for the year ended 30 June, 2020 (2019: surplus $270,000), and an after-tax surplus of $241,000 (2019: surplus $281,000), increasing accumulated members’ funds to $11,480,000 at 30 June, 2020 (2019: $11,100,000).

Early release of superannuation impact $8.50 per week: mSmart

BY JASSMYN GOH

THE impact of the Government’s early access to superannuation hardship scheme might only be $8.50 per week in terms of today’s spending power, mSmart believes.

The fintech platform’s founder and chief executive, Derek Condell, said the super industry did not have any tools that could predict spending power of retirement cashflows in the future with comparisons.

“Many people will be surprised to learn the impact of early release is not as bad as has been reported by the industry. It might only be $8.50 per week when expressed in terms of today’s spending power,” he said.

Condell said super members did

not have to make more contributions to recover their spending power that was impacted by the early release scheme but could instead tilt their investment strategy towards growth options.

He noted that forecasts that failed to explain lump sums and income projections in terms of today’s spending power could be meaningless.

Traditional methods, the firm said, focused on the lump sum at preservation age based on generic asset allocations that did not explain the probability of different outcomes and that scenario modelling was very limited. mSmart said it launched its super report tool mProjections to project retirement cashflow from different investment options.

11/11/2020 11:25:11 AM

November 19, 2020 Money Management | 13

InFocus

WHEN THE BIG BANKS LEFT THEY TOOK THEIR MONEY OFF THE TABLE There is no lack of competition between licensees to attract good financial planning businesses, but Mike Taylor writes, the days of the deep pockets of the big banks are well and truly over.

A LOT HAS changed in the past 10 years and financial planning practices impacted by the sale of MLC Wealth to IOOF have been learning what happens when the major banks are sellers rather than buyers.

As financial planning businesses operating under MLC Wealth’s Godfrey Pembroke license contemplate their options to moving across to IOOF license coverage, they might care to reflect on the similar situation which confronted financial practices operating under the Count Financial license when it was acquired by the Commonwealth Bank in 2011.

The difference between 2011 and 2020/21 are stark. In 2011, the Commonwealth Bank was prepared to make significant ‘retention payments’ to keep good financial planning businesses under the Count Financial license in circumstances where competitors like Westpac’s BT were prepared to offer ‘transition payments’ to lure them across to its licensees such as Magnitude.

With sums of more than $500,000 being offered around as either ‘retention’ or ‘transition’ payments, the principals of some of the better financial planning practices found themselves in windfall territory as they parlayed efforts of the major banks to grow

COVID-19 SUPERANNUATION EARLY RELEASE SCHEME

their wealth management businesses.

Today, amid the inevitable uncertainty generated by a transaction of the size of IOOF’s acquisition of MLC Wealth, competitor licensees are no less interested in luring good financial practices away from IOOF, they are just not in a position to be as generous as the big banks were in 2011.

Lacking that generosity they have had to become creative.

Thus, the six figure ‘retention’ and ‘transition’ payments have given way to discounts on dealer

group services and, in the case of IOOF itself, an amount of up to $10,000 to help advice practices manage their transition from one licensee to another.

According to IOOF’s head of advice, Darren Whereat, the $10,000 is on offer to cover genuine costs up to that amount to help advisers “manage the transition to a new licensee including expenditure on new stationery and client communication”.

IOOF will also be maintaining the discounted dealer group costs that advice practices were paying

at MLC Wealth TenFifty, with Whereat suggesting they would be asked to pay additionally for professional indemnity (PI) insurance and Xplan.

The problem for other dealer groups in seeking to lure MLC Wealth or IOOF-aligned practices to their licenses is that they have to be conscious of the discounts and other concessions they are offering those practices and how that is likely to impact their existing adviser workforce, especially in circumstances where dealer group fees have generally been rising across the industry.

As Money Management reported earlier this year, advice practices have been asked to accommodate fee increases of between 10% and 50%.

In one instance, the dealer group increased its fees for a financial adviser working within an aligned practice by 11% to $26,400 plus 3.3% of revenue.

Another dealer group’s documentation pointed to adviser fees rising from $32,000 for a one authorised representative (AR) firm in 2020 to $45,000 for the same AR next year.

So, the bottom line for dealer groups looking to lure financial planning practices to grow scale and resilience is that it is a balancing act constrained by many fixed costs.

$34.8b

$7,658

3.3

Payments made

Average payment

Average business days to payment

Source: Australian Prudential Regulation Authority (APRA), from inception of scheme to 9 November 2020

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11/11/2020 5:57:36 PM

14 | Money Management November 19, 2020

EOY wrap

2020 – A YEAR OF INCIDENTS AND CHALLENGES

Amid the challenges of the COVID-19 pandemic, Australian financial advisers were also witness to significant changes, writes Mike Taylor, not least with respect to AMP and IOOF. IF 2020 IS to be remembered for anything in the financial planning industry then it will be as the year in which a global pandemic hastened inevitable change including the increased adoption of technology and the continuing exit of financial advisers.

What it also revealed, however, was the reality that the industry had become mired in regulatory red tape which was capable of being pulled aside by a Government and financial services regulators keen to ensure that the clients of financial advisers were not needlessly inconvenienced and disadvantaged as a result of

21MM191120_14-27.indd 14

lockdowns, particularly in Victoria.

But, beyond the COVID-19 pandemic, what are the events which will be seen as having marked 2020?

• IOOF acquired the MLC Wealth business; • AMP Limited was the subject of an adviser class action, the controversial exit of its wealth chief executive, Alex Wade, the consequent exit of its chair, David Murray, a sexual harassment scandal around its chosen chief executive for AMP Capital, Boe Pahari and then a takeover bid;

• Iress acquired OneVue; • More than $35 billion was withdrawn from superannuation under early release arrangements; • The chair of the Australian Securities and Investments Commission (ASIC), James Shipton, stood aside amid an expenses scandal. His deputy, Daniel Crennan, first stood aside and then announced his resignation; • The Financial Adviser Standards and Ethics Authority (FASEA) financial planning exam continued to generate 79% to 88% pass rates but

11/11/2020 11:24:13 AM

November 19, 2020 Money Management | 15

EOY wrap

dissent continued around its code of ethics; and • The Australian Securities and Investments Commission (ASIC) started its review of the Life Insurance Framework.

THE FUTURE OF AMP LIMITED Currently the subject of a takeover bid by US private equity bidders, what is clear is that AMP Limited will likely never be the same again.

AMP’s 2020 woes started with the somewhat peremptory exit of AMP chief executive, Alex Wade, in early August amid allegations of inappropriate conduct with respect to female colleagues.

The company’s woes became magnified within weeks amid media and shareholder pressure around the appointment of Boe Pahari as chief executive of AMP Capital in circumstances where had been the subject of sexual harassment allegations while running the company’s infrastructure team in the UK in 2017.

The circumstances surrounding Pahari’s appointment and exit also led to the resignations of AMP chair, David Murray, and AMP Capital chair and AMP Limited non-executive director, John Fraser.

Within weeks, the AMP board virtually declared it was putting the company on the sales block by announcing a “portfolio review of the group’s assets and businesses”.

That announcement, on 2 September, noted that “AMP periodically receives unsolicited interest in its assets and businesses, and recently has experienced an increase in interest and enquiries”.

“The board has therefore decided to undertake a portfolio review to assess all opportunities in a considered and holistic manner, evaluating the relative merits as well as potential separate

21MM191120_14-27.indd 15

costs and dis-synergies, with a focus on maximising shareholder value,” the company said.

By the end of October, AMP announced that it had received a takeover bid from US firm Ares Asset Management.

In the meantime, the company remains subject to a class action mounted by current and former AMP advisers over buyer of last resort (BOLR) contracts as well as exposure to a multi-million dollar client remediation bill.

IOOF TAKES MLC WEALTH IOOF currently employs the second largest number of financial planners in Australia.

From 2021 onwards, because of its acquisition of MLC Wealth, it will likely be the largest employer of financial planners.

However, as is usually the case with major financial planning acquisitions, a number of MLC Wealth financial planning practices together with some from IOOF have voted with their feet by moving to other financial planning licensees.

IOOF announced in late August that it had entered into transaction agreements with National Australia Bank to acquire 100% of MLC Wealth for $1,440 million, claiming the acquisition was expected to deliver in excess of 20% earnings per share share accretion.

It said the transaction comprised MLC Wealth’s financial advice, platforms and asset management businesses and would lead to IOOF being the number one advice business with 1,884 advisers and funds under management and advice of $510 billion.

However, by the close of the year the transaction was being scrutinised by the Australian Competition and Consumer Commission (ACCC) and a number of MLC Wealth-aligned advice firms were signalling that

they were unhappy with the terms being offered to move under the new IOOF licenses.

It remains to be seen whether the company’s prediction of 1,884 advisers within its licenses is realised.

FASEA – STILL PROBLEMATIC The Financial Adviser Standards and Ethics Authority (FASEA) arguably remained unpopular with many financial advisers in 2020, particularly with respect to its code of ethics.

Notwithstanding the impact of the COVID-19 pandemic and lockdowns, financial advisers continued to sit and pass the FASEA exam with the lowest pass rate being a very robust 79%.

However, the bone of contention between FASEA and financial planners continued to be the code of ethics and, in particular, Standard 3, with the authority’s latest release of guidance around the code failing to gain any significant support from any of the major financial planning organisations.

Indeed, as the year came to an end the Financial Planning Association (FPA), the Association of Financial Advisers (AFA), the SMSF Association, the Stockbrokers and Financial Advisers Association (SAFAA) and the Institute of Managed Account Professionals (IMAP) continued to express their concerns about the code.

On top of this, key Government members of the Senate Economics Committee continued to question FASEA chief executive, Stephen Glenfield, about how the authority had arrived at the wording of Standard 3.

Questioning by Queensland Liberal Senator, Amanda Stoker, succeeded in persuading FASEA to make the submissions it had received underpinning its

Continued on page 16

11/11/2020 11:24:22 AM

16 | Money Management November 19, 2020

EOY wrap

Continued from page 15 approach to the code of ethics publicly available.

At the time of writing, some of those submissions were being made publicly available for the first time.

Perhaps significantly, the October Federal Budget did not define continuing funding for FASEA beyond the 2021 Budget scheduled for May next year, giving momentum to suggestions that the authority will ultimately be rolled into the structure of the Financial Adviser Single Disciplinary Body recommended by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

EARLY RELEASE SUPER – THE FUTURE WILL TELL Australian superannuation fund members have drawn down a combined total of over $35 billion under the Government’s COVID-19 early release scheme.

The Government has been hailing the scheme as a success while its critics have been arguing that it has simply forced people to use their own resources to fund themselves through COVID-19 hardship.

At the time of writing, 3.3 million people had utilised the early release scheme, with a further 1.3 million people having made repeat applications. The rules stated that people could access $10,000 in each of two tranches.

The average amount drawn down from early release superannuation in the first tranche was $7,401 while the average amount drawn down in the second tranche was $8,336.

It surprised no-one that the

21MM191120_14-27.indd 16

superannuation funds most exposed to superannuation early release were the largest funds such as AustralianSuper and those with most exposure to the areas hardest hit by the COVID19 lockdowns and border closures such as Rest and HostPlus.

What the early release scheme also triggered was significant debate within the Government backbench about the overall future of superannuation, with Liberal backbenchers such as NSW Senator, Andrew Bragg, questioning not only the future of the Government’s timetable for lifting the superannuation guarantee but also compulsory nature of the superannuation guarantee charge.

Having last year commissioned its Retirement Income Review, the Government was this year expected to publish the results of that process and deliver a policy roadmap.

However, it has not yet done so and the impact of superannuation early release and other changes suggests the review findings are already significantly dated.

The early release scheme is scheduled to cease at the end of 2020.

How it is viewed by history will likely be determined by the extent to which early release drawdowns increase pressure on the Age Pension in future years.

ASIC – THE WATCHDOG BEING WATCHED As 2020 draws to a close, the Australian Securities and Investments Commission (ASIC) chair, James Shipton, is stood aside and awaiting the outcome of a review into expenditure on his personal tax affairs.

His deputy, Daniel Crennan similarly stood aside over expenditure on his removal allowance from Melbourne but has subsequently signalled his resignation.

For financial advisers and financial planning licensees, the uncertainty within the upper echelons of ASIC comes at a time when the regulator is reviewing the affordability of financial advice, the success of the Life Insurance Framework (LIF) and as the status of FASEA code of ethics breaches remains in limbo.

The uncertainty about the future leadership of ASIC also comes amid its efforts to introduce the new Design and Distribution Obligations (DDO) regime and to refine RG 97.

While the Treasury-initiated review of the regulator and Shipton’s review is afoot there is likely to be no certainty about the future policy stance of the regulator and whether the Government would look for another external replacement for the current chair or look internally.

11/11/2020 11:24:36 AM

SUPER A NNUATION P OLICY IN V E S TMENT S INSUR A NCE A DMINIS TR ATION

AUSTR ALIA’S LE ADING SUPER ANNUATION M AGA ZINE

Industry challenges

The industry would do well to put aside its differences and present a united voice to the policy makers in Canberra

Superannuation administration

Super funds had just weeks to build a process to pay out thousands of dollars for the early release of super scheme

Super Fund of the Year Awards 2020

One fund has taken home Super Review’s coveted Super Fund of the Year award for 2020

Member returns

The Government’s proposed super performance test could drive an oligopoly structure

VOLUME 34 - ISSUE 5, NOVEMBER 2020

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12/11/2020 10:55:38 AM

CONTENTS

10

NOVEMBER 2020

A

WWW.SUPERREVIEW.COM.AU F IN D U S O N TWITTER @SUPERREVIEW LINKEDIN SUPER-REVIEW FACEBOOK SUPERREVIEW

TOP STORIES & FEATURES

4

ASIC investigates super fund trustee and 5 | APRA’s heatmaps executive COVID-19 have not discouraged investment switching innovative investment

decisions: Rowell

Executives from UniSuper, NGS Super, Cbus, CareSuper, and Rest had executives who switched investments.

The authority’s performance heatmaps have not driven a material shift in investment strategies or has led to benchmark hugging.

10 | Administrating through a pandemic

12 | Super Fund of the Year Awards 2020

The early release of super scheme tested funds’ administration services as they grappled with designing a release process, security, and the ability to address member issues quickly.

The overall winner for this year’s awards was praised for its strong and consistent long-term investment performance with competitive fees.

6 | Significant superannuation lessons from McVeigh v Rest lawsuit The settlement by Rest has ensured the active management of climate change risks by superannuation funds.

14 | Super changes will undermine innovation, nation building and member returns While the proposed super performance test is well-meaning, it appears to be interventionist and flawed.

2 | Super Review

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12/11/2020 2:19:34 PM

EDITORIAL

Time for the superannuation industry to unite 2020 has been challenging for the Australian superannuation industry and with 2021 promising even more challenges it is time for the industry to present a much more united front.

A

Australia’s superannuation industry has rarely been subjected to the Government, remains focused on encouraging the exit of more pressure than occurred during 2020 and superannuation what it regards as underperforming funds along with further fund executives should expect more of the same in 2021. fostering the merger activity which is currently underway.

Just because the Government’s superannuation hardship When this is taken together with the Government’s changes early release scheme will end on 30 December does not mean to default superannuation fund arrangements and the that the Government will not be pursuing further changes continuing arguments of Government backbenchers around to the superannuation regime, many of which will represent policy issues such as the continuing compulsory nature of the an existential threat to the future of some, smaller funds.

SG and the use of superannuation to fund first home deposits, As well, lurking in the background, is what may prove to be there is much for the industry to be concerned about. the catalyst for further superannuation policy It is in these circumstances that the change – the long-delayed release of the industry would do well to put aside its Government’s Retirement Income Review (RIR). differences and present a united voice to “The internecine The RIR report has been in the hands of the policymakers in Canberra. In short, the politics of the old the Treasurer, Josh Frydenberg since early Association of Superannuation Funds of industry fund versus this year but for whatever reasons Frydenberg Australia (ASFA) and the Australian Institute retail master trust has chosen not to release it to the industry, of Superannuation Trustees (AIST) should divide need to be perhaps realising that the impact of the ensure they are singing from the same abandoned because it superannuation early release scheme and the hymn book in defending the industry. is that very division ongoing impact of the Government’s earlier The internecine politics of the old which has assisted the policy changes around Protecting Your Super industry fund versus retail master trust (PYS) and Putting Members’ Interest First divide need to be abandoned because it critics of the industry.”

(PMIF) needed to be taken fully into account. is that very division which has assisted Also at play is whether the Government will, the critics of the industry to successfully as legislated, proceed with lifting the superannuation guarantee undermine public perceptions of the success of the industry.

(SG) beyond the current 9.5% or whether it will choose to use 2020 has been a challenging year for superannuation. next year’s May Budget to further delay the increase as part of a 2021 will be equally challenging and the industry broad sweep of measures aimed at restoring economic activity as must be prepared to meet those challenges.

Australia emerges from the 12 months of the COVID-19 pandemic.

This is the last print edition of Super Review for 2020. It But what should already be obvious to the executives will be returning in March 2021. The entire team wishes our of smaller superannuation funds is that the Australian readers a Merry Christmas and a safe and prosperous 2021.

Prudential Regulation Authority (APRA), with the backing of

Mike Taylor, Managing Editor

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3 | Super Review

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11/11/2020 3:49:15 PM

NEWS

Only 10 balanced funds make a return

BY JASSMYN GOH

Only 10 funds have made a return so far this year as most have not managed to recover losses from the global sell-off induced by the COVID-19 pandemic, according to data.

According to FE Analytics, the balanced superannuation fund sector average was a loss of 1.75% and only 10 funds out of 191 have made a return since the beginning of the year to 31 October, 2020.

Australian Catholic Super’s Australian MySuper Balanced Option fund was the top-performer with a return of 6.44%, 3% higher than the second-best returning fund.

Suncorp Brighter Super Personal Suncorp Multi-Manager Balanced fund came second at at 3.45%, followed by AMP SIGS MySuper Macquarie Balanced Growth at 3.24%, Australian Catholic Super Socially Responsible Option at 2.94%, and Amp SignatureSuper Macquarie Balanced Growth at 2.9%.

According to Australian Catholic Super’s latest investment update, the fund said due to the COVID-19 pandemic it had reduced exposure to growth assets such as overpriced stocks prior to the virus.

The fund also said it increased investments in growth assets when these assets were sufficiently discounted following the fall in investment markets in March 2020, and decreased investments in growth assets following the market recovery as uncertainties posed by COVID-19 continued to be a risk.

Over the longer term, it was Australian Super Balanced Option which topped the charts at a return of 48.31% over the five years to 31 October, 2020.

AMP SIGS MySuper Macquarie Balanced Growth came in at second at 40.9%, followed

by CareSuper Sustainable Balanced at 40.21%, CareSuper Balanced at 39.76%, and Suncorp Corporate Investment Super Balanced at 39.44%.

The average sector return for this time period was 21.7%.

However, none of the top-performing funds had managed to recover losses from the sell-off in March 2020.

ASIC investigates super fund trustee and executive COVID-19 investment switching

BY MIKE TAYLOR

The Australian Securities and Investments Commission (ASIC) has confirmed it is considering whether to take action against superannuation fund trustees and executives who switched their investments at the height of the COVID-19 market downturn earlier this year.

Examples of superannuation funds whose members had switched investments in that period were provided to ASIC by the chair of the House of Representatives standing committee on economics, Tim Wilson, and ASIC confirmed those were the types of matters it would investigate.

Among the superannuation cited by Wilson were UniSuper, NGS Super, Cbus and CareSuper.

ASIC’s formal response to Wilson stated: “It is not ASIC’s practice to comment on whether it has formally commenced an investigation or make public comment about the progress of investigations. But we confirm that we are considering the material supplied and what further action might be appropriate for ASIC to take in accordance with our usual practices upon the receipt of intelligence”.

“We also note that investigations of matters such as breach of directors duties and market misconduct can take some time,” the ASIC response said.

In asking his question of ASIC during a committee hearing, Wilson cited CareSuper and then pointed to other funds.

“For instance, I believe UniSuper have admitted that one member, who is also an executive of the fund, had one or more switch requests processed during the high load periods of their fund to a total value of $445,368,” he said. “We then have other funds where we see other issues similarly occurring.

“AustralianSuper had one person who did a transaction during that time. I’ll table that one.

We have Cbus, who refuses to provide any information to us, which is interesting. We then have NGS Super. They have outlined that they have trustees who did major transactions—three of them, in fact—during that time.”

“Then we have Rest. Rest has a person who transacted $465,949 in funds,” Wilson said.

“You can see the pattern of behaviour. We have people who are trustees or managers of funds transacting huge sums of money within a defined period, where it’s known that the stock market may not have reached bottom—we have to concede that—but had dropped considerably while they hadn’t revalued their unlisted assets and therefore may have been able to secure a benefit. Is that the sort of thing that ASIC would investigate?”

4 | Super Review

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12/11/2020 2:19:52 PM

NEWS

LGIAsuper reduces allocation towards property, bonds and global equity

BY JASSMYN GOH

LGIAsuper has reduced its exposure to property, traditional bonds and international shares while increasing its allocation to infrastructure, cash, and Australian shares in a bid to increase risk-adjusted returns.

The superannuation fund said the changes took effect on 1 November and had introduced new asset class private capital to target higher-returning investments, as well as altering the mix of its alternative investments.

LGIAsuper chief investment officer, Troy Rieck, said the new allocations would provide greater transparency to members on their investments, provide more flexibility to invest, and better position members’ savings in the new investment environment.

“We are focusing on assets where we expect higher risk-adjusted returns to support our members in building their retirement balances and generating the income they need in retirement,” he said.

“Placing more emphasis on generating sustainable income from our diversified portfolios makes sense in a world when capital gains will be harder to generate.

“We are also working the assets harder, increasing the flexibility of the investment program and cutting investment fees, as every dollar we save in fees flows straight to members.”

Rieck said the reduction of property and international shares reflected market conditions and aimed to protect members from continued volatility.

He noted that the fund expected better returns from infrastructure in the coming years compared to property and would add to its portfolio over time.

“Current valuations also suggested rebalancing our share market portfolio in favour of domestic assets at the expense of our global portfolio, after a long period of being overweight in global shares,” he said.

“We keep the interests of our members at the heart of everything we do, and our focus on solid, long-term growth in a diversified portfolio enables us to respond to opportunities to ensure that our members can plan for their future in times of both prosperity and volatility.”

APRA’s heatmaps have not discouraged innovative investment decisions: Rowell The Australian Prudential Regulation Authority’s (APRA’s) superannuation performance heatmaps will not and has not discouraged trustees to make innovative investment decisions, the authority believes.

Speaking at the Financial Services Council’s (FSC’s) investment conference, APRA deputy chair, Helen Rowell said the heatmaps had not driven a material shift in investment strategies nor had it led to a shift to wholesale indices.

“We don’t see it as having driven material shift in investment strategies so far. We haven’t seen the shift to wholesale index hugging that people said that would happen as a result and nor do we think that should happen,” Rowell said.

“At the end of the day the measures are risk based, they are meant to assess the performance against the strategy that the trustee has selected for their members and so trustees still have that flexibility to make those decisions about the risk return outcomes for the appropriate members and shape their strategy accordingly and make those key decision on how they implement that in terms of liquid and illiquid, or passive versus active strategies.

“If those strategies aren’t delivering value and outcomes relative to the cost and risks taken then it suggests there’s a need to revisit and a change to the strategies are needed.”

Rowell said while APRA was surprised at the “noise” that was created when the authority announced its heatmaps, it had “seen good things” so far.

“The industry has responded really well and most of the industry has turned its minds to actually improving outcomes in investment space, reducing fees etc.

When we did the update in June 2020 we were able to show that more than 40% had received a fee reduction in their MySuper product and that proportion has continued increased and you’ll see more change when we continue to release the update in December,” she said.

“We’ve also seen shifts in investment governance and implementation with a view to improving outcomes. For example, funds moving out of higher cost investment strategies and options where those weren’t adding value. We felt that the heatmaps were a game changer in terms of industry transparency and getting a better sharper focus on lifting member outcomes and that has been realised in our view.”

Commenting on concerns regarding benchmark hugging as a result of the Government’s Your Future, Your Super investment performance test, Rowell said she did not see a tension or trade-off between balancing obligations for members and having investment strategies that had good outcomes however it was measure and irrespective of its benchmark.

“The question fundamentally is what is the right investment strategy for your members? And whether it’s APRA’s heatmap or the government’s measures the trustees continue to have flexibility to set the strategy they think is right in terms of risk return outcomes for their members,” she said.

“Then they need to implement that in a way and monitor the delivery of that to make sure they’re delivering the value and outcomes they expect. If they’re not meeting those benchmarks or not delivering value for the strategy that you’ve implemented then you have to ask the question on whether this is the right strategy and if not, change it.”

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NEWS

Geared Aussie equity super funds best over five years

Significant superannuation lessons from McVeigh v Rest lawsuit

BY JASSMYN GOH

BY MIKE TAYLOR

SUPERANNUATION funds focused on geared Australian equities have performed the best over the last five years to 30 September, 2020, with an average return of 55.66%, according to data.

There are significant implications for superannuation fund trustees, their executives and the relationships between superannuation funds and their investment fund managers flowing from the recent settlement reached between Rest and its member and ecologist, Mark McVeigh.

That is the assessment of legal firm, Mills Oakley which argues that because the case was settled it has not succeeded in establishing a legal precedent it has nonetheless established a standard against which other superannuation funds will be measured.

Mills Oakley partner, Mark Bland, has written that while the lack of a court determination is an issue, the settlement appears to have ensured the active of management of climate change risks by superannuation funds.

This case promised the first judicial consideration of the disclosure and conduct of obligations of superannuation trustees as they relate to managing climate change risk.

A judgement would have provided certainty for trustees who are operating in a highly uncertain environment.

The requirement for action on climate change risk by the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) is at variance with the views expressed by members of Government. Also, the strongest voices for addressing climate change risk at each of ASIC and APRA will have departed by the end this year.

“While settlement is, in one sense, a lost opportunity for certainty, it has the direct impact of setting the $60 billion in Rest on a course where climate change risks are actively managed. It also sets a standard against which other funds can expect to be measured by their members,” he wrote.

“The claim was also based on conduct prior to July 2018, so any judgement may have been highly fact specific and related to expectations at that time, which have shifted considerably.

While the commitments made by Rest do not appear to be directly enforceable, the mechanism of a press release amounts to a representation that, if Rest were to depart from privately, would result in misleading or deceptive conduct.”

Bland wrote that funds that are lagging in the management of environmental, social, and governance (ESG) related risks will be carefully considering what steps they will need to take to avoid being the next target of such an action and to ensure they don’t see members exit the fund in favour of funds that are actively managing climate change risk.

“Funds should be careful, however, in rushing to make commitments in response to member pressure. Not only could the failure to keep to promises cause significant reputational damage, it would also likely amount to misleading or deceptive conduct,” he said.

According to FE Analytics, when it came to super funds focused on a specific equity class, geared Australian equities was followed by small/mid cap Australian equities (52.01%), Asia Pacific ex Japan (50.16%), global equities (45.21%), and global hedged equities (45.05%).

On the other end of the scale, it was global property that performed the worst at 7.36% followed by Australian property at 23.59%, and infrastructure equities at 27.7%.

While the Australian geared equity sector had performed the best over the five years to 30 September, 2020, it still had not recovered losses induced by the COVID-19 pandemic.

At its peak, the sector returned 125.9% since 30 September, 2015, to 20 February, 2020. However, the sector was currently still down 31.1% since the February peak.

The top five performing geared Australian equity funds in the sector were all CFS funds.

The top performers were Commonwealth Select Personal Supa - Colonial First State Wholesale Geared Share at 119.27%, CFS FC PSup Colonial First State Wholesale Geared Share at 99.41%, CFS Colonial First State Geared Share Select at 97.27%, CFS Geared Share ROSCO at 90.55%, and CFS FC Psup Colonial First State Geared Share at 89.52%.

The top five holdings for the Colonial First State Wholesale Geared Share were CSL, BHP Group, Commonwealth Bank of Australia, Woolworths Group, and National Australia Bank.

None of the top-performing funds had recovered losses from the sell-off earlier this year induced by the coronavirus pandemic.

The Commonwealth Select Personal Supa Colonial First State Wholesale Geared Share is still down 24.53% from its peak on 20 February, 2020 at 190.54%.

On the other end, it was two Perpetual funds that were the bottom performers.

Perpetual WF Super Perpetual Geared Australian returned 9.32%, followed by Perpetual Select Super Geared Australian Share Investment Option (18.56%), CFS FC Psup FirstChoice Geared Australian Share (33.29%), AMP FLS and CS Future Directions Geared Australian Share (34.15%) and AMP Flexible Super Super Future Directions Geared Australian Share (37.36%).

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NEWS

Asia Pacific ex Japan super funds best at navigating COVID-19

BY JASSMYN GOH

Superannuation funds focused on Asia Pacific ex Japan equities were the clear winners in navigating through the COVID-19 pandemic as the sector average return was 9.49%.

According to FE Analytics, when it came to super funds focused on a specific equity class, the Asia Pacific ex Japan sector was the only sector to make a return since the start of the year to 30 September, 2020.

The second-best performing sector was the Australia small/mid cap equity sector at a loss of 0.37%, followed by global equities (-1.82%), global hedged equities (-3.76%), and alternative (-4.83%).

At the other end of the scale it was the Australian equity geared sector at a loss of 22.26%, followed by global property (-17.18%), infrastructure equity (-11.26%), Australian equity (-8.99%), and emerging market equity (-7.48%).

The top-performing Asia Pacific ex Japan super fund was MLC MK Super Fundamentals Platinum Asia at 15.25%.

This was followed by ANZ ASA BT wholesale Asian Share Manager at 15.07%, ANZ Smart Choice Super Platinum Asia at 14.83%, OnePath OA Frontier Personal Super Platinum Asia at 14.82%, and CFS FC W PersonalSuper Platinum Wholesale Asia at 14.52%.

Only two funds did not make a return – AMP SignatureSuper Future Direction Asian share (-1.02%) and AMP Flex LifetimeSuper and CustomSuper Future Directions Asian Share (-1.57%).

According to the Platinum Asia fund’s latest factsheet, the fund’s largest geographic weighting was to China at 44.9%, followed by Korea at 10.2%, India at 9.2%, Hong Kong at 8.2%, and Taiwan at 7.3%.

Consumer discretionary was the fund’s largest industry exposure at 26.3%, followed by information technology at 22.6%, financials at 11.1%, communication services at 10.1%, and real estate 5.5%.

For the month of September, Platinum said the key drivers of the fund’s performance was due to large holdings in Taiwan Semiconductor Manufacturing and Samsung.

“We expect Chinese-US tensions to persist, and that there will be winners from this ongoing tension and industrial displacement,” it said.

“In our view Samsung is a potential beneficiary, given the US-led effort to block Huawei’s sales of 5G network equipment.”

Industry superannuation funds canvass three-way financial advice fee split

BY MIKE TAYLOR

Industry superannuation funds are asking whether it is possible to split advice fees into three components, one of which is intrafund advice.

In a discussion paper forming part of Industry Funds Service (IFS) submission to the Australian Securities and Investments Commission’s (ASIC’s) current advice within superannuation project, the industry funds body has openly canvassed whether it is possible to split statement of advice (SOA) fees into three components.

It listed those three components as “(part intra-fund, part fee deduction from account, and part payable directly by the member)?”

In asking the question, the IFS document has argued that “a full retirement plan may involve advice on investment choice (covered by intra-fund), contributions and pension recommendations, including Centrelink, that we charge the member via a deduction from their account, and a non-super investment recommendation which the member needs to pay from their own funds, for example”.

“What is the expectation of a fund to accurately cost their advice in order to set their advice fees?” It asked. “Further, for advice that goes beyond intra-fund, how is it to be determined what the costs of those elements are in achieving cost recovery?”

The IFS document has pointed to areas where the organisation there needs to be more regulatory guidance and clarification and specifically asks whether retirement advice can be provided as intra-fund advice.

“This is where we see the biggest contention from the broader advice industry, and the widest variance of interpretation amongst super fund,” it said. “Some funds provide near full retirement planning advice under its ‘intra-fund offering’ and remain silent on advice relating to other products or a spouse. Other funds do not provide retirement advice in any form on the basis that it isn’t simple and cannot include strategies for a non-member spouse.”

The IFS paper also asked whether the charging rules have such a significant impact on how advisers are licensed, and hence which members needs are addressed and stated that: “More fundamental is whether the use of limited licensing to align to intrafund charging rules is creating challenges for advice models and advisers i.e. the scope of needs rarely falls neatly into one charging bucket. The limited adviser needs to assess whether the member sufficiently understands the impact of only receiving limited advice and then determine if it’s appropriate to proceed with giving it.

“This is a growing conflict for limited licensed advisers who often need to operate at the limits of what they are allowed to do, yet are qualified and capable of solving for more.

“Further the member’s expectations are for them to address their superannuation and retirement needs. Limited super licensing is not something that a consumer should be expected to understand. Instead advisers should be licensed to solve for super and retirement and scope up and down as required.”

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NEWS

Superannuation investment performance test a ‘blunt single-issue measure’ Wage boost promises were not kept in 2014 when SG froze

BY JASSMYN GOH

The wage boost promise, when the superannuation guarantee (SG) was frozen in 2014, never materialised and workers were not compensated for their lost super, according to an enterprise bargaining agreement (EBA) analysis.

The analysis of 8,370 EBAs conducted

by Industry Super Australia (ISA), found that while thousands of agreements were in place when the SG freeze was announced, most employers saw little need to renegotiate them to pass on the lost super as higher wages.

ISA noted that politicians were again claiming that cutting next year’s legislated 0.5% SG rise would lead to higher wages.

“The economic downturn makes wage rises far less likely now and most economists now concede that Australian workers are not going to receive any real wage growth over the coming years – making the super rate increase the only pay rise on offer for most workers,” ISA said.

“A worker on the cusp of retirement has already lost about $100,000 from previous super guarantee delays, further pauses will compound the losses.

“It is unfair that some politicians – who receive more than 15% super contributions – are once again cruelly asking workers to sacrifice their chance for security and dignity in retirement for nothing in return.”

The rate was scheduled to rise to 10% in 2015, and 0.5% each year after until it reached 12% in 2019. ISA said the delay could cost the average full-time worker in their 30s, $45,000 at retirement.

“The pay cut persisted for years, once those agreements expired the new deals did not include catch up wage increases to compensate for the lost super,” ISA said.

“In agreements certified after the super rate was cut, wage growth fell from 3.33% before the cut to 3.27%. This shows employers pocketed the lost super and workers’ total remuneration also went backwards.

“This paper confirms what Australians already knew, that most employers do not voluntarily return the loss of mandatory super payments as wages and the 2014 super freeze left workers worse off.”

Superannuation funds that fail the Government’s proposed investment performance test will be unable to turn their eight-year performance around in one year and will be “very messy for all concerned”, according to Rice Warner.

In an analysis, the research house said underperforming funds would have to set up different structures to accommodate new members and this would be “very messy”. It said this suggested that the Government appeared to hope that these funds would exit the industry.

It noted that there were many ways funds would deviate from the new benchmark or encounter issues such as: • Most market indices are cap-weighted whereas funds should seek industries which will grow in future rather than those that grew in the past. Similarly if a fund wishes to avoid areas of the market which it considers to be over-valued, then it needs to be able to stay the course if they miss out temporarily from these shares becoming even more over-valued; • Funds can use derivatives to change their exposure – and this will alter their returns; • Funds can seek franking credits to maximise after-tax returns. They will participate in off-market buy-backs as these provide strong after-tax returns; • Funds investing in infrastructure will be measured against a benchmark which could be quite different from their holdings; • Lifestage products have multiple asset allocations. Each will be measured separately – and theoretically a fund could find itself underperforming in one area. Sorry, you can’t join our default for people under age 30 this year, but why not join the 30 to 45 group instead!

• Some funds will revert to bland indexed investments thus avoiding the chance of underperformance – but forgoing the opportunities for higher performance from unlisted investments; • While we know that past performance is no guide to the future, funds cannot change the first six years on the forthcoming eight-year test. Even if a fund totally revamps its strategic asset allocation, moves some classes to passive and brings some funds in-house to cut costs, it will still have this past performance within its measured returns; and • Some funds have had poor returns (after fees) and they will have no option but to wind up. They will not be able to recover in two years when 75% of their return will still be poor. This applies even though new members will not receive the past performance. They could start again but are more likely to merge with a high-performing fund (even a very small one) and SFT into that option to preserve the good performance.

The analysis also said that while strategic asset allocation was one of the largest contributors to investment performance, it was not being measured. It was possible, Rice Warner said, for a fund investing in volatile assets to provide a sound return and deliver on member targets but fail the benchmark test in some period.

“Conversely, a fund could invest entirely in cash and not be at risk of measured underperformance. Yet, it would deliver a poor retirement outcome. This is an extreme example of some unintended consequences, and the reality is that few members would choose this option, but it shows how the new process could distort behaviour,” it said.

Some funds could also fail on investment performance yet do well in other areas such as retirement or life insurance. This meant that the test was a “blunt single-issue measure and there does not appear to be any leeway for tolerance”.

“The over-arching effect of the proposed measures would likely be to pressure funds to forgo opportunities for long-term outperformance to mitigate the risks of underperformance against a nominated benchmark,” it said.

Rice Warner said it was likely many funds would become passive on Australian shares and, in time, prices would be set by the trading activities of foreign investments, the retail investors and self-managed super funds.

“The new system will lead to changed behaviour. We hope funds stay the course and continue to seek alpha in unlisted asset classes. However, they will have to watch the benchmarks carefully and might use derivatives to protect against any major deviation from the fund’s own assets,” it said.

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NEWS

Contributions and asset allocation need personalisation: Russell Investments

BY JASSMYN GOH

Link’s McMurtrie rebuts takeover consortium’s claims

BY MIKE TAYLOR

Link Administration outgoing managing director, John McMurtrie, has defended the company against suggestions that it has lost ground in the superannuation administration market through the loss of mandates.

Addressing the company’s annual general meeting, McMurtrie pointed to suggestions contained in a private equity-led takeover bid that the loss of mandates had weighed on the company.

He noted that the issues raised by the consortium included $800,000 of lost contract accounts including TWU Super, Care Super, Austsafe and Kinetic Super and reduced client accounts resulting from Protecting Your Super (PYS) and early release super (ERS).

As well, he pointed to the Government’s recently announced Budget initiative Your Future, Your Super which would see the stapling of existing super accounts to an individual member to prevent account duplication.

“While we recognise that these have had an impact on the financial results, I would add the following additional context,” McMurtrie said. “In the past 18 months we have resigned 15 clients on long-term contracts including AustralianSuper, Rest, and HESTA.” “Together these clients represents approximately 6.3 million members and over 70% total annual contracted revenue earned in Australia.”

McMurtrie said the financial impacts of PYS and ERS had been highlighted in all the company’s results presentations and were well understood.

“By the time we enter the next financial year, we expect the majority of this immediate financial impact to be behind us. Conversely, we anticipate that the recent volume of regulatory change and increased regulatory oversight will create further opportunities for us, as we are able to offer superannuation funds a high-quality outcome underpinned by our leading technology, scale and breadth of service,” he said.

Optimising contributions and asset allocation can help close the retirement gap in Australia, according to Russell Investments.

During a virtual roundtable, Russell Investments managing director, Jodie Hampshire, said personalising contributions and asset allocation would improve superannuation members’ chances of reaching retirement goals as currently most super funds were using a one size fits all approach which was not ideal.

The investment firm said accurately optimising voluntary contributions depended on the personal circumstances of each investor and the retirement income they were trying to achieve.

Its ‘Making Super Personal’ whitepaper said engagement from members was needed to obtain information to personalise contributions.

“By focusing individuals on the retirement lifestyle they would like to achieve (rather than complex investment decisions), the

entry into superannuation can be significantly simplified and much more engaging,” it said.

On optimising asset allocation, Hampshire said that most Australians were defaulted into super options that significantly compromised their returns.

The whitepaper said the one size fits all approach ignored other personal information that could improve asset allocation, such as the super account balance, contributions, and the individual’s retirement income goal.

“Shifting from ‘one size fits many’ to ‘mass personalisation’ of investment strategy is a real ‘free lunch’. It provides a benefit without an associated trade off. It does that by removing the compromises in the current one-to-many approaches,” the paper said.

“By optimising asset allocation (removing the compromises of one size fits many approaches), our analysis shows more than two-thirds of those analysed would have higher projected retirement incomes, with some incomes increasing by over 30%.”

ASIC explains no action position on super advice The Australian Securities and Investments Commission (ASIC) has revealed it did not take action against superannuation funds which it identified as having delivered defective advice but, instead, contacted them and asked them to fix the problem and then confirm they had done so.

Answers provided by ASIC to a key Parliamentary Committee have revealed the regulator has not and does not intend taking action with respect to the advice.

Answering questions on notice from NSW backbencher, Jason Falinski, ASIC stated: “ASIC has not taken enforcement action against any specific funds as a result of the advice review findings and it does not plan to do so.

“For the files where there was an indication that the member was at risk of suffering financial or non-financial detriment, we contacted the advice licensee of the advice provider requesting them to review the advice and where required, remediate those affected members. We asked advice licensees to confirm that they had undertaken the appropriate steps and to provide us with an update on the outcome.”

ASIC referenced its financial advice by superannuation funds project which it said included a review of personal advice provided to 233 members of 21 industry, retail, corporate and public sector superannuation funds.

“In the review we assessed 32 files recording advice that was provided under an intrafund arrangement, 68 files recording advice that was scaled/limited in scope but not provided under an intra-fund arrangement and 133 files recording advice that was comprehensive in scope,” it said.

“The findings from the advice review identified the need for improvement in the advice provided to members of superannuation funds. For most files, that did not demonstrate full compliance with the best interests and related obligations, this was due to procedural, disclosure or record keeping deficiencies.

“However, the file did not indicate that the member was at risk of suffering detriment as a result of the advice. For a smaller number of files (36) that did not demonstrate compliance with the best interest duty and related obligations, there was an indication that the member was at risk of suffering detriment as a result of the advice.”

It said it was with respect to those instances of advice that it had “not taken enforcement action against any specific funds as a result of the advice review findings and it does not plan to do so”.

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ADMINISTRATION

Administrating through a pandemic

BY JASSMYN GOH

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With just weeks given to superannuation funds to build processes for the early release of super scheme, much of their success in paying $34.8 billion to over four million applications has come from administration whether the function is insourced or outsourced.

There is no doubt that one of the biggest responses to the COVID-19 pandemic in Australia was the Government’s early access to superannuation scheme.

Once the scheme was announced to the public, super funds had just weeks to come up with a process that expected the funds to release a maximum of $10,000 to any member suffering from financial hardship as a result from the virus’ impact for the first tranche.

Despite worries about liquidity, Australian super funds were successful in collaborating with their administrators and the Australian Taxation Office (ATO) to roll out the program.

Link Group’s chief executive for retirement and super solutions, Dee McGrath, told Super Review, that they had just 19 days to work with the ATO and the broader industry to build, design, and implement the scheme.

“The industry did a really good job in coming together in a collaborative way to implement a solution. Overall, there have been 3.3 million claims across the industry so far. We have processed over two million of those and about $17.5 billion to date. The industry has done a really good job, our clients have been incredibly proactive and supportive through that period,” she said.

Apart from building the system that would process the applications, McGrath said Link needed to think through the security and what the ATO were doing. The administrator added features such as SMS updates once it received a claim to validate the member had requested the claim as a form of second line of defence.

As the Government stipulated that 95% of claims needed to be paid within five business days, McGrath said Link needed to make sure they could process those payments that were in the thousands of dollars.

McGrath said the biggest challenges were to do with processing, having to quickly address member questions, and trying to fast-track claims within 24 hours for those people who were in dire circumstances.

“One of the things that you don’t necessarily design for – we had people that through no fault of their own might have put a wrong digit in so we had incorrect bank details. We were seeing rejections on a daily basis in the files being sent to the banks so we had to contact those people and get things reprocessed and so it was a really large program of work,” McGrath said.

“There were people in some quite dire circumstances so we were making sure we were able to deliver. So far we’ve delivered around 97.5% of the claims in the five days and also being able to make personal contact with people where we needed to clarify something.”

Mercer commercial operations leader, Pacific, Chris Stevens, said Mercer had identified that it needed to work quickly with its superannuation fund clients to ensure everyone was on the same page.

“We had to set up project teams quickly, to make sure the tech and the interface with the ATO was in place, and we could support the scale and volume of requests coming in.

That was a really successful program that led to deferrals of some other activity but it was really critical and we prioritised that for members. By in large it was very successful and while there is still some activity to early release, it certainly had its peak in April, July, and August,” Stevens said.

He noted that prior to the second tranche of the scheme, the ATO recognised that security of member information was critical which meant administrators

had to introduce additional identification requirements which led to some minor delays in issuing some payments.

“But it was a prudent change the ATO introduced in the third quarter. Generally, we were in good shape in being able to support that outcome.”

Insourcing vs outsourcing admin Given Aware Super, formerly First State Super, both insources and outsources administration chief operating officer, Jo Brennan, said the fund needed to process the early release claims under three different systems.

The super fund inherited the three different systems as a result of the mergers with StatePlus and VicSuper.

While both StatePlus and VicSuper insourced all of their administration, First State Super used a hybrid system with some services inhoused and some outsourced.

“When it came to the early release scheme we needed to make changes and processes three times to each platform. This increased the cost and risk when making the changes three times,” she said.

“We have the WA Super merger coming up next month and we are fundamentally simplifying our business and bringing all our administration inhouse so that we have full control and accountability for that service delivery. It’s a really complex program of work and so we’ll do that progressively.”

Brennan noted that the fund looked to amalgamate the three systems within the next 18 to 24 months.

She said insourcing allowed her fund to have full accountability and control on the member experience. The ability to streamline and drive its strong digital first model would allow the fund to have its hands on the levers

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ADMINISTRATION

that would make the most difference for members, she said.

“By insourcing we can focus on the digital side allowing members to access us anytime and we’ll be able to drive a strong continuous improvement around that,” Brennan said.

“We’ll also be able to drive the member first culture focus across the entire team through one single model and view by having a single view of our members. By having one system we’ll have that control and accountability and it will create a cost efficiency by using our scale.”

However, McGrath said super funds were more likely to outsource rather than insource their administration.

With the Government and regulators putting focus on members’ best interest, McGrath said super funds were looking at what they could do themselves versus what an administration partner could provide for their fund.

“Going forward, less and less funds are going to look at the end-to-end themselves. I think they will look at having a large component of administration outsourced from a provider to provide scale and the continued investment into technology,” she said.

The insourcing and outsourcing topic, Stevens said, was something the wealth management industry was continually considering for their super administration whether it be part of their offering as a core part of their business or to looking to partner with an administrator.

When thinking about the investments Mercer had made into their administration business on an annual basis, Stevens said there were very few examples where he could see where funds could insource their administration as it was a significant investment commitment.

“Insourcing potentially adds risk to the

business and funds need to be mindful of those things. By in large we still see the majority of our industry being administered by very large institutional providers,” he said.

What funds want from their administrator Even prior to the pandemic compelling businesses to pivot towards digital offerings, super funds were already looking at administrators to help support their value proposition through digital and data services.

Stevens said more super funds were asking Mercer to provide broader access to member data to gain a better understanding of their membership to allow them to give better support.

Brennan said Aware was looking to drive a digital-first experience for members to allow requests to be processed quickly, and to provide a facility for members to track their requests – much like tracking parcel deliveries.

This would allow members to understand the timeline and where things were in the process, and empower members to have the most efficient and seamless service by being able to access their fund anywhere, anytime.

App support was another part of the digital first experience Brennan said was an important part of their administration.

“Members will be able to go to the app safely and securely and simply be able to access the information they need and complete the things they need to do online simply and consistently,” she said.

“If they need help and support we have a team that’s empowered to be able to help them with what they need quickly and as simply as possible. Super is complex and being agile makes it less complex.”

She noted that the early release scheme highlighted how important security was for members and that her administration team were conducting ongoing assessments and reviews of its security system and model.

McGrath agreed and said there was a big focus on digital transformation and that COVID-19 had fast tracked that focus. This included designing experiences that made it easy for members to engage with their fund whether it was through mobile apps, websites, click-to-chat functions, and phone services.

Personalisation and the ability to respond to member needs was another part of the digital transformation as Link was working on building tools and solutions to help people plan for retirement.

She said super members needed to have the tools to provide them with a living salary in retirement.

“So, we’ve got some digital capabilities we will be launching in 2021 that helps them to be able to put certain funds into a pot that gives them an income. They might want to put some in a rainy day, or into a holiday fund, or whatever they choose to which allows them to manage their funds in retirement more effectively,” she said.

“The other thing is administration is very much enabled by technology so I think funds are thinking about how they look at their service strategy and us as an administrator the investments we continue to make.

“We made $250 million of investments in the last year and we continue to build on the capability that we have. It’s about taking the friction out of the experience and making sure it’s a good experience and providing the tech and tools to further clients and having that human element in our people that are servicing them every day.”

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SFOTY

SUPER

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FUND OF THE YEAR AWARDS

2020

In partnership with 12 | Super Review

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SFOTY

AustralianSuper wins Super Fund of the Year 2020

BY JASSMYN GOH

AustralianSuper has been named Super Fund of the Year 2020 at Super Review's Super Fund of the Year Awards, with its research partner, The Heron Partnership.

T

The coveted win was based on a holistic assessment of the finalists in each award category and AustralianSuper was deemed to be the most outstanding fund this year.

Heron’s chief executive, Chris Butler, said the fund had strong and consistent long-term investment performance with very competitive fees, and ongoing and evolving

plans to pass on benefits of scale to members.

It was also praised for its ability to react and empathise with members in difficult times such as free death cover during COVID-19, its full offering from accumulation to retirement phase, comprehensive member servicing, and its experienced trustee board and executive team.

CATEGORY

WINNER

Best Corporate Solution Product

Sunsuper for Life Corporate

Best Industry Fund

AustralianSuper

Best Public Sector Fund

Aware Super

Best Pension Product

AustralianSuper Choice Income

Best Insurer

MetLife

Best MySuper

Unisuper

Best Commercial Product – Personal

BT Panorama Super

Best Member Engagement Innovation

Russell iQ Super

Super Fund of the Year 2020

AustralianSuper

13 | Super Review

05SR191120_01-16.indd 13

11/11/2020 3:47:14 PM

SUPER PERFORMANCE TEST

Super changes will undermine innovation, nation building and member returns

BY MATTHEW GRIFFITH

A

The Government’s proposed superannuation performance test could drive the market towards an oligopoly structure which could create diseconomies of scale and concentration risk.

Australia’s superannuation system has been reshaped over the past two decades by market forces and regulatory reform, creating an industry that has significantly consolidated and is widely acknowledged globally as a strong system.

We all want to strive for better member outcomes and while the Government’s superannuation budget initiatives are generally in the right direction, one proposal, whilst well-meaning, appears interventionist and flawed.

Subjecting super funds to an annual performance test – creating a ‘league table’ index and blocking underperformers from taking new members – is overly simplistic and will have potentially significant, negative impacts on investment outcomes for members.

I fear that the drive to be within 0.5% of a simplistic portfolio benchmark test as proposed by the Government, with harsh consequences for failure,

will incentivise a focus on simply being average, rather than being great.

This flies counter to my 20 years’ experience in the industry which has witnessed diverse approaches to objective attainment, including funds “bucking the trend” by early adoption of investments in unlisted infrastructure and property, internalisation, backing start-up managers and entrepreneurs through investing in private equity.

We take many of these innovations as industry norms today, but at the time when these were adopted, they were innovative and required courage to take a carefully calculated risk. Many of these approaches have been enormously beneficial to members.

Instead, the Government’s proposed benchmark test has potential for less innovation, amongst other consequences detrimental to super fund members.

Firstly, trustees may become significantly more index aware, resulting in asset

allocation and investment approaches based significantly on an index and peers, rather than investment opportunities that are considered in the best interests of members.

Secondly, trustees may become more fee conscious, resulting in approaches that limit access to high potential return but higher cost investment opportunities that would be expected to improve returns and/or reduce risk (e.g. including nation building infrastructure, property, and support for entrepreneurs through private equity and small public companies).

Thirdly, we could see trustees being less prepared to adopt longer term investment approaches better suited to the long-term nature of superannuation for fear of failure of not meeting the performance test.

Fourthly, market behaviour might actually continue to focus on shorter term measures, resulting in net cash outflows from some very high quality, strong long-term performing funds that have

14 | Super Review

05SR191120_01-16.indd 14

11/11/2020 11:18:38 AM

SUPER PERFORMANCE TEST

weaker shorter-term performance.

Fifth, the new benchmark regime assesses funds on only one criteria. In reality, the best fund for any member is a combination of risk alignment, performance objectives, investment approach, appropriate insurance, and service levels including advice.

Finally, this proposed change may drive the market towards an oligopoly structure. There seems to be a view amongst some policy makers that only eight to 10 mega funds (or less) is optimal.

Even with a hypothetical industry of only four mega funds, there will be one upper quartile and one in the lower quartile. There are limits to killing the bottom quartile, and you may create a system that achieves ‘mega scale’.

However, this comes with diseconomies of scale and concentration of risk with massive funds under management under the purview of a shrinking and smaller group of fiduciaries.

To highlight what this might look

“Trustees may become significantly more index aware resulting in asset allocation and investment approaches based significantly on an index and peers rather than investment opportunities that are in the best interest of members.” like for super, consider the outcomes from the Banking Royal Commission.

This highlighted the issues with a large, conglomerate sector with only subtle differentiation between participants, where the structure of that large industry has created other issues, including agency risk.

The Government’s approach ignores that natural market forces and regulatory changes over the last 20 years that have resulted in heightened competition, consolidation and pressure to maintain

strong member outcomes – particularly since Stronger Super was introduced in 2013.

The annual performance test also undermines the evolution of recently developed regulatory initiatives which take a more holistic view of performance.

The Australian Prudential Regulation Authority’s (APRA’s) member outcomes and heatmap evaluations have the capacity to highlight underperformance, across a broader range of measures.

The ink has barely dried on recent regulatory innovations such as member outcomes. The industry at large should be focusing on further development of existing regulatory approaches aimed at developing a wider range of aspirational targets and benchmarks for members retirement outcomes.

We, as an industry, can do better than what the Government has proposed.

Matthew Griffith is principal consultant at JANA.

15 | Super Review

05SR191120_01-16.indd 15

11/11/2020 11:18:54 AM

ROLLOVER THE OTHER SIDE OF SUPERANNUATION

Digging, digging, always digging for dirt Rollover recognised that there would be those inside TWUSuper who would like to hope that the events of the Trade Union Royal Commission are now in the past and gathering dust.

But not if Victorian Liberal backbencher and chair of the House of Representatives Standing Committee on Economics, Tim Wilson, has his way.

You see it might be over half a decade since the Royal Commission into Trade Union Governance and Corruption was finished, but Wilson reckons there’s still political mileage to be gained in the relationship between the Transport Workers Union and TWUSuper.

Which is why Wilson dredged up the evidence that TWU ‘Superannuation Liaison Officers’ were paid $150,000 a year to encourage members to sign up to TWUSuper.

But Wilson went further in asking the Australian Securities and Investments Commission (ASIC) whether those same Superannuation Liaison Officers might have also been providing unlicensed financial advice.

The answer from ASIC was that there was not enough evidence to suggest any advice was actually provided but it will probably satisfy Wilson that the regulator said it would consider whether it should make further enquiries.

It would seem that there is many a fine tune played on an old fiddle.

WILL THOSE IN TIGER LAND BE ASKED TO ENTER THE LION’S DEN? It is November and so Rollover has noted the manner in which football fields have miraculously been turned into cricket grounds and so suspects that those who attended the first-ever AFL Grand Final to be held in Brisbane are now safely back in Melbourne.

What is more, Rollover notes that those who were lucky enough to travel to Queensland, quarantine in affable resort digs on the Gold Coast and then join the AFL bubble ahead of the Grand Final have now returned to a Melbourne which

WWW.SUPERREVIEW.COM.AU

05SR191120_01-16.indd 16

has been freed from lockdown and unshackled from its travelinhibiting ‘ring of steel’.

Rollover therefore wonders whether those superannuation fund executives who travelled to Queensland to check on their members’ sponsorship investments will be travelling to Canberra to discuss the matter with the House of Representatives Standing Committee on Economics.

It might prove to be a case of leaving ‘Tiger Land’ to enter a political lion’s den.

16 | Super Review

Smooth as Silk, the $1 million question On the subject of Tim Wilson and tough questions for superannuation funds, Rollover also notes that his questions on notice have confirmed that the moustachioed chief executive of AustralianSuper trousered $1,111,234 last year.

And it seems that the objective of Wilson’s questioning was to determine how that compared to the “annual remuneration of the average worker who contributes to your fund”.

Sadly for Wilson, AustralianSuper said it was unaware of the remuneration of members but then detailed the annual superannuation contribution of members of its fund, which in the last financial year was $5,338.

To help Wilson, Rollover has conducted a quick calculation premised on $5,388 being 9.5% of a member’s total annual salary. That works out to just over $50,000 a year albeit that other sources suggest the average member account balance is $77,000 a year so, yes, Silk is taking home slightly more than 20 times that of the average member.

On the other hand, they are not overseeing a financial services organisation with over two million members and $172.4 billion in funds under management.

F IND U S O N

11/11/2020 5:55:30 PM

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12/11/2020 11:34:57 AM

18 | Money Management November 19, 2020

Wealth management

A COMMUNITY OF COMMITMENT, TRUST AND COMPANIONSHIP As a part of its wealth management series, Money Management speaks to financial planning groups for their views on the industry. This month, Money Management spoke to Futuro Financial Services’ executive chairman, Dennis Bashford, and managing director, Paul Kelly.

MONEY MANAGEMENT: What are the strengths of your business and how well are you positioned for the future?

PAUL KELLY: We have got two licenses, Futuro Financial Services and Insight Investment Services, where Futuro was our original licence and has been operating successfully for over 20 years.

We bought Insight in 2016 and we have left it for nearly two years, however like all mid-sized Australian financial services licenses (AFSLs) we spent a lot time and effort over the years in trying to recruit planners to our businesses.

And during the process, we found that Futuro had a terrific offering around helping the firms grow, something that we have been doing for a long time and there is also a very distinct community atmosphere around our offering with Futuro. We meet the firms, mostly on a face-toface basis, about six times a year plus we organise a couple of conferences on top of that.

This is because the traditional financial planning business is a

21MM191120_14-27.indd 18

relatively small business, it is typically a one-to-two man practice so it offers a lone existence.

Therefore, for a lot of planners, this is the way they can come together as a group and get the support that a group can offer by getting the leverage to work out of the experience of another person who has been on another path which can make that journey a lot easier.

There is also a certain price structure that comes with it. It’s like Qantas but Qantas also has Jetstar. Some people have very good businesses and they will not need us to help them with their business and marketing plans and all they need is just good clean compliance services.

DENNIS BASHFORD: Insight is really an offering for the larger firms, who are pretty selfsufficient but Futuro and Insight are two very separate offerings.

Our motto is the community of commitment, trust and companionship – most of those sounds very nice but it’s pretty much what it is. It is a community where planners do talk to each other all the time and they trust each other.

11/11/2020 12:15:19 PM

November 19, 2020 Money Management | 19

Wealth management Strap

MM: How do you approach the recruitment process of new planners? Are you recruiting currently?

PK: Yes, we are looking at the practices from former banks and instos as I do not think there is an AFSL in the country right now that is not looking at the fallout from what the instos have been doing.

We will never be a firm that wants a thousand planners and our focus has always been on the relationship with the underlying firms. I see people talking in the press about wanting 300 to 500 planners and I have never understood why people quote adviser numbers as my preference – when I look at what we want to do – is on the relationship with the client who puts his life on the line to create assets for him and his family moving forward. If I can have overall 100 good practices that work well with us then I think it is a really good model for us.

DB: Having said that, there is a significant portion of those [planners] you probably would not want anyway. A lot of planners were relying on grandfathered commissions and many of them had not grown their businesses.

We want people who are exciting to be around, who will share their ideas, and whose ideas are worthwhile listening to. No one wants people who look for a place to lie down.

Also, all of the AFSLs need to have a good, what we call, a ‘hygiene practice’, so the AFSL,

21MM191120_14-27.indd 19

particularly a mid-tier AFSL, needs to have good processes and systems around things such as the IT systems and compliance regime that all work and fit together.

MM: Would you consider any acquisitions at the moment?

PK: I am not sure we would buy an AFSL per se. Would we be open to bringing new advisers in from another AFSL in a deal like we did with Ausure? Yes certainly but there is a massive amount of due diligence work that goes into that If the question is whether we would buy the underlying AFSL itself? No. In today’s world I do not think it is particularly prudent course of action as there is too many risks associated with that.

So are we doing another Insight’s deal? Probably not.

DB: With the Ausure deal – we took the advisers but we did not buy the licence.

MM: How well are advisers positioned for the future?

PK: If we look at where these advisers are coming from – they have been through all of that turmoil, they have been through all the compliance restructure of their businesses and they have committed to stay within the financial planning. So I think they are actually very well positioned for the future. They are very clean and they have a compliance regime and understanding of what their environments are and they have the good handle of it.

MM: What are the key challenges for advisers across the industry moving forward?

DB: Part of that challenge is actually around pricing. The advisers in some businesses have had the product support licencing regime which was cheap and they had a really good deal. But if we look at the pricing structures inside the licences now, it is more, in some cases significantly more, than what these firms were having inside the instos so the challenge for both the advisers’ firms and for the AFSLs is to understand this is the cost.

We are certainly not the cheapest but we are also not the most expensive either. There are two different price structures for two licenses and there are no special deals, every planner and adviser and business in our network knows what those arrangements are and everybody has trust that’s what the deal is.

DENNIS BASHFORD

PAUL KELLY

PK: To be sustainable as an AFSL, there is a certain amount that you have to charge so if I were an adviser looking to move then I would have to question some of the really very cheap deals because if you do not operate profitably you cannot reinvest back into the business to protect it. At the end of the day, we need to be compliant and if you do not have the funds to do that then everybody is at risk so profits are very important and that means that there is a certain price that the AFSL needs to charge.

11/11/2020 12:15:28 PM

20 | Money Management November 19, 2020

ETFs

FUTURE-PROOFING RETIREMENT PORTFOLIOS Exchange-traded funds can be a suitable way for retirees to future-proof their portfolios and generate a stable income, writes Kanish Chugh.

RETIREMENT PORTFOLIOS NEED to generate a stable income, preserve capital and still offer some level of growth to allow investors to manage inflation and longevity risks, along with a reasonable standard of lifestyle. Retirees also need to be cost conscious, understanding how fees can affect their overall returns and balance. This poses more challenges than in the accumulation phase.

MAJOR ECONOMY’S INTEREST RATES US: 0 - 0.25% UK: 0.1% Eurozone: -0.5% Australia: 0.1% Source: Bloomberg, 11 November 2020

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The current Association of Superannuation Funds Australia (ASFA) retirement standards paint a confronting picture of this investment challenge. According to the standards, a comfortable retirement for a single person means an annual income of $43,687 per year.

This income is generated by having savings at retirement of $545,000 and assumes that the individual will own their own home mortgage free, will drawdown their finances completely, take a partial pension and receive annual investment earnings of 6%.

It is this last figure that poses concerns for many.

Between globally low interest rates and a challenging market environment during the COVID-19 pandemic, financial advisers have been forced to consider alternative and more creative sources of

income for their clients’ portfolios, such as managed investments like exchange traded funds (ETFs).

DIVIDENDS FOR INCOME Equities play a dual function in a retirement portfolio with the aim to offer both growth as well as some form of income.

Many financial advisers are currently using equities for dividend income in their clients’ portfolios while remaining conscious of risk tolerance and retirement suitability.

There are two key approaches that may be suitable in retirement:

Table 1: Performance of gold v equities

Event / Bear Market

Period

S&P 500

Gold Price

US bear market/Gold bubble

28 Nov 1980 – 12 Aug 1982

-27%

-46%

Black Monday (1987)

25 Aug 1987 - 4 Dec 1987

-33%

6%

Iraq war

16 Jul 1990 - 11 Oct 1990

-19%

7%

1998 Russian financial crisis

17 Jul 1998 - 31 Aug 1998

-19%

-5%

Dot-com bubble

27 Mar 2000 - 9 Oct 2002

-49%

12%

US bear market

9 Oct 2007 - 9 Mar 2009

-56%

26%

European debt crisis

10 May 2011 - 3 Oct 2011

-19%

9%

Source: Bloomberg, ETF Securities. LMBA Gold price vs S&P500 in USD.

11/11/2020 2:05:07 PM

November 19, 2020 Money Management | 21

ETFs

In this strategy, investors aim for high-yielding companies with solid cashflow and earnings prospects at a fair valuation. It’s not uncommon for companies paying high dividends to also be priced above their true value.

Financial advisers also need to monitor activity to avoid companies where high dividends are instead a sign of company distress or are unsustainable in the long-term.

Using managed options such as smart-beta ETFs, which identify or eliminate companies for investment based on certain characteristics, may be a time-efficient and costeffective option for financial advisers to access high yield companies.

This approach could be used with domestic equities but financial advisers may also consider extending it to international equities for diversification.

2. Less cyclical and more stable sectors and industries Financial advisers looking for stable and defensive industries with consistent dividend streams might turn towards the infrastructure sector. This sector includes many essential services areas such as utilities, telecommunications, industrials and transport. These tend to be less vulnerable to market cycles and movements.

Infrastructure tends to be less volatile than other sectors, such as technology or banks, making it worth investigating for retirement portfolios. The reason for this comes down to the nature of infrastructure assets.

Infrastructure industries typically have high capital costs, low elasticity of demand, long business timelines and often exist as regulated oligopolies or monopolies.

Their capital-intensive nature means that they are very difficult and, in some cases, like energy distribution networks, nigh impossible to disrupt.

Many Australian investors will have some infrastructure as part of their portfolios, with a greater leaning towards real estate, but may be missing diversification to

21MM191120_14-27.indd 21

Table 2: Correlation of gold to other asset classes

Correlation

Australian equity

Global equity

Australian fixed income

Global fixed income

-0.28

-0.12

0.37

0.07

Source: Bloomberg data as at 30 September 2020

international assets offering wider scale of operations.

Some international examples of companies in this sector include East Japan Rail, China Mobile and Verizon Communications. Investors looking for broad and liquid exposure could consider infrastructure focused ETFs. Equities may not be suitable for all clients, which is where advisers may consider other asset classes.

THE ALTERNATIVES SPACE Financial advisers may be wary of alternatives in a retirement portfolio, assuming these will be higher risk and higher cost. Though investments like hedge funds may tend to fall into this category, commodities like gold can offer diversification and stability.

Gold is often treated as a safe haven asset and holds both defensive and growth characteristics. Its position as desirable from both a consumption and investment perspective has allowed it to perform in a range of markets.

For example, Table 1 shows its performance compared to equities during a range of market events.

It also has a low (and at times, negative) correlation to other asset classes making it an appropriate diversification tool for retired investors.

Investors can access gold in a range of ways but using a goldbacked ETF is an effective option as it is liquid, easy to use and lower cost compared to the costs of purchasing and storing physical gold bullion.

While gold tends to be more popular, other precious metals can be appealing for investors too.

Silver historically performs in a similar way to gold. Where it differs from gold is that its price is driven by industrial demand as well as investment demand. It has

wide applications for industry and technology manufacturing, and 52% of global use of silver is for this purpose.

While considering defensive properties from commodities like gold and silver, a balanced retirement portfolio should still maintain exposure to fixed income and cash.

FIXED INCOME AND CASH Even in the current low interest rate environment, exposure to fixed income and cash remain important components of a diversified retirement portfolio. Fixed income continues to offer predictability and stability of income and assists in offering a buffer against volatility in equity markets.

Just as with equities though, many Australian investors may be too concentrated towards Australian fixed income and currency. Diversifying globally can help buffer against changes in any country where an investor is likely to have exposures.

Investors can also generate income through cash investments internationally – and where international currencies appreciate or depreciate against the Australian dollar, there may be the opportunity to realise capital growth depending on the type of investment used. One example is using the US dollar, the most heavily-used currency in the world based on foreign trade and reserve bank holdings.

MANAGING PORTFOLIO COSTS USING ETFS Retirement portfolios need to be cost-conscious and ETFs may be a suitable option for financial advisers to consider. There are a wide range available on the Australian stock exchange, covering a range of assets, sectors and styles.

ETFs typically have lower management costs compared to

actively managed options, with purchases involving a brokerage fee, much like shares.

They also offer more cost effective diversification and access – owning individual shares covering the entire S&P/ASX 200 or the S&P 500 may be out of reach for most investors, but using an ETF which invests in all of these companies may be within the cost budgets.

There’s also the matter of administration. ETFs are easy to use and generally liquid investments which can be traded on the stock exchange, compared to filling out documentation for managed funds or physical assets.

They are also less time consuming than individual share and asset ownership, allowing financial advisers to focus their time on client relationships and overall strategy.

A FUTURE VIEW ON RETIREMENT PORTFOLIOS While the current environment may have posed challenges for investing a retirement portfolio, it has highlighted the importance of a diversified approach to assist with growth and income.

More than other investors, retired investors also have constraints around risk and costs to consider and this is where ETFs can be an effective solution for portfolio construction.

Financial advisers have been forced to adapt not only to changes in the working and regulatory environment but to a new world for retirement investing. It is likely that the lessons of today will hold to the future. Diversifying yield across more investments than just cash and fixed income has become the standard for risk management and to help with achieving income goals.

Kanish Chugh is head of distribution at ETF Securities.

11/11/2020 11:17:58 AM

22 | Money Management November 19, 2020

Emerging markets

FINDING WHERE THE STRENGTH IN EM REALLY LIES While emerging markets are coming out of the shadows to be major players, there is still a divide with some being better than others, writes Jonathan Wu. IT IS FAIR to say that most emerging markets (EMs) have now “emerged”, but like most large cohorts, it is worth lifting the lid a bit to make sure you are accessing these markets in the best way.

To begin, a few bits of evidence to bring out the first statement that they have indeed emerged.

Emerging and developing economies are now almost 60% of the world’s gross domestic product (GDP), and growing, and they have some of the highest rates of real GDP growth. This share of GDP will only continue to

increase and is driven by longterm systemic trends.

EMs are the home of close to 90% of the world’s population – give or take six billion people – and it is a younger population.

Australia is about 2% of global share market capitalisation. Clearly the majority of investment opportunities lie outside our shores, and this includes sectors and stocks not well represented in the Australian Securities Exchange (ASX).

China now accounts for 40% of the MSCI EM index and is less

Chart 1: Main EM countries not Asia ex Japan

Source: MSCI

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11/11/2020 3:58:13 PM

November 19, 2020 Money Management | 23

Emerging markets Strap

Table 1: Emerging Markets are mostly Asia ex Japan

vulnerable than other EMs with the fiscal and monetary wherewithal to rebound from temporary economic setbacks.

China has spent only 5% of GDP on stimulus during the COVID-19 pandemic, less than the 13% of GDP spent by the US leaving it room to spend more if necessary.

We think that a better investment outcome comes from drilling down a bit deeper. It comes as a surprise to some that 80% of the EM index is now Asia ex Japan. This raises a couple of key questions. What is the 20% difference? Is it performance additive or is it problematic? The following tables show us the make up the MSCI EM and the MSCI Asia ex Japan indices.

As well as Asia ex Japan making up 79.1% of the EM index, Greater China (China, Hong Kong and Taiwan) make up over half of the EM index, and two-thirds of Asia ex Japan.

What are the main differences? Four countries out of the 17 that are not Asia ex Japan comprise 15% of the EM index.

Brazil, Russia, South Africa and

Saudi Arabia. The remaining 13 countries total about 5%.

Essentially, those four countries are strongly linked to commodities and also have some material governance and social issues, bringing significant volatility. Some argue that they are purely opportunistic plays in emerging markets.

In the end, we believe that outcomes matter most to clients.

Asia ex Japan with its greater stability, population and opportunities versus EM has also delivered better outcomes, as exhibited in the charts below, where the respective indices show the result clearly.

We would add, too, that EM countries generally are countries where markets still have inefficiencies and greater stock picking opportunities, especially when there are feet on the ground with local contacts and expertise.

So – we completely agree that EMs are a strong opportunity, but the numbers show that EM’s strength is really Asia ex Japan.

Jonathan Wu is executive director at Premium China Funds.

Chart 2: Extra exposure to Greater China in Asia ex Japan vs EM

Source: MSCI

21MM191120_14-27.indd 23

MSCI Emerging Markets

MSCI All Country Asia Ex Japan

Total

100

100

China

39.63

43.68

Taiwan

12.86

14.17

0

9.66

Greater China

52.49

67.51

Korea

11.74

12.94

India

8.36

9.21

Thailand

2.32

2.56

Indonesia

1.54

1.69

Malaysia

1.82

2

Singapore

0

3.14

Philippines

0.83

0.91

Pakistan

0.02

0.03

Rest of Asia ex Japan in EM

26.61

32.47

Total Asia ex Japan in EM

79.1

32.47

Hong Kong

Table 2: The rest of the EM countries (USD)

MSCI Emerging Markets Brazil

4.73

Russia

3.34

South Africa

3.77

Saudi Arabia

2.59

Mexico

1.82

Qatar

0.92

Poland

0.73

Chile

0.67

United Arab Emirates

0.56

Turkey

0.42

Peru

0.28

Hungary

0.24

Colombia

0.23

Greece

0.21

Argentina

0.13

Egypt

0.13

Czech Republic

0.11

Non Asia EM

20.88

About 15% of EMs

Source: Premium China

11/11/2020 3:58:25 PM

24 | Money Management November 19, 2020

Advice

WELCOME TO THE FUTURE Andrew Walsh explores what trends have disrupted financial advice this year and how the sector is proving resilient in the face of change.

IT’S APPROACHING THAT time of year when we step back and think about what’s happened and what’s ahead. Only this time, we’re doing it from a very different perspective.

When I look back at some of the trends I thought would dominate 2020 it turns out the game-changer came along a lot sooner than expected. It wasn’t blockchain and it wasn’t APIs. And while the implications of the Hayne Royal Commission have continued to play out, this too wasn’t the driving force behind the biggest changes to the industry.

It was a pandemic which fastforwarded us into the future and a new digital way of working. We’ve been living through a strange,

21MM191120_14-27.indd 24

unsettling, challenging time ever since. But for all the lows, there have been highs too and many changes for the better as we’ve adapted to our new world.

So what have we learnt so far?

THE NEED FOR ADVICE IS STRONGER THAN EVER Despite some pretty dire predictions towards the end of last year, reports of the death of the advice industry have been greatly exaggerated.

COVID-19 brought twin crises in the form of a once-in-100 year public health event and an associated economic downturn.

Along with supporting clients watching volatile financial markets and worrying about their retirement futures,

financial advisers have been providing recommendations about the suitability of Government stimulus measures such as the early release super scheme. They’ve been embracing technology to support and stay close to clients, using an array of digital touchpoints to do what they do best.

The pandemic came hot on the heels of a Royal Commission and the previous decade of immense regulatory and legislative change for the industry. And yet, the profession is adapting, resilient and strong.

As we look toward 2021 the financial services industry remains critically important as does the ability of technology to ensure it continues to evolve and adapt.

TECHNOLOGY RULES. BUT DON’T LET IT RULE YOU We’ve seen digital transformation that I thought would take years to achieve, happen in months.

The rapid shift to remote working was relatively simple for many businesses. This suggests they had the right tools, technology and training to handle the uncharted territory of the pandemic.

While digital ways of working have been around for a long time, some businesses had been persisting with old, manual and paper-based processes because it seemed easier than changing. In 2020, this was no longer possible – and by changing to digital and data-driven business models, silver linings have emerged.

11/11/2020 3:45:27 PM

November 19, 2020 Money Management | 25

Advice

More of our clients have accelerated adoption of financial technologies like digital signatures and client portals, others have brought forward strategies to digitise and automate further, driven by the momentum they’ve made.

Tools like Zoom, Slack, and Miro have become mainstream and using them to stay connected and collaborate is almost second nature, even for people that never touched them before. Most events and conferences have moved out of the real world and into a virtual one – just as we all have. Don’t underestimate how much of a leap forward this has been.

The flipside of all this? It wasn’t long before too much screen time started to suck the life out of us. When Zoom fatigue became very real at Iress, we didn’t hesitate to ruthlessly shake up the way we do meetings. Like many businesses grappling with the realities of the current situation, there’s a lot we can’t control so we focus on the things we can – meetings are one of them, and so is technology – don’t let it rule you.

WHAT IT MEANS TO BE PRODUCTIVE In the beginning, no-one really knew how long we’d be in this situation. From our homes, driven by the novelty of remote working, we threw ourselves into a huge surge of productivity – lots of people got a lot of things done.

But as the situation continues to stretch out, the initial euphoria has worn off and task-based productivity has dropped.

That’s no bad thing if it’s replaced with deep, strategic

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thinking but if you’re going from one Zoom meeting to the next, when does that get done?

To perform at our best we need to have the discipline to switch off and focus – we’re humans, not machines. And so 2020 will also be known as the year we became more mindful and realised that productivity isn’t just about tasks.

Interestingly, this is where technology can play a key role.

By having the right tools and processes in place, leaders are able to step back from the detail and work ‘on the business’ rather than ‘in it’.

Employees too are freed up to focus on getting critical work done rather than responding to requests for status updates or repeating the same, low-value tasks over and over. Technology has the potential to support deep, value-creating work – when it’s deployed in the right way.

WHAT DO I NEED TO ACHIEVE TODAY? We’re all thinking and talking about the future of work. While I think anyone making firm predictions right now is likely to come unstuck, I do see a new model emerging for many businesses.

Some companies have already announced a permanent move to remote working and it will be interesting to see how that goes.

Others want to recreate the past with a more forced approach to get people “back into the office”.

For us, it feels too soon to make any assumptions or bold predictions.

We’re thinking more about ‘what’ and less about ‘where’.

Less about home versus office and more about ‘what do I need

“As individuals, we’ll be more resilient, more considerate of time (and that of others), digitally skilled and more open to change.” to achieve today and how am I best set up to achieve that’. A secondary question will be ‘where do I need to be to get the best result for me and my team’.

The balance between individual, team, business and clients will be the focus and will be different for each business.

YOU’RE MORE RESILIENT THAN YOU THINK We believe a more sophisticated world of work will emerge, based on factors we won’t fully understand for some time – like how the virus continues to impact social distancing and the economy, as well as personal pressures such as childcare. All that’s just too unpredictable right now.

More sophisticated businesses will emerge too – with smarter ways of working, focused on the right things with less waste. As individuals, we’ll be more resilient, more considerate of time (and that of others), digitally skilled and more open to change.

The adjustments you’re making means you’re already some of the way there.

The big digital transformation might have happened faster than any of us expected and some days it might not feel like progress is being made at all, but stop scrolling, switch off for a moment, and take a step back to see just how far you’ve come.

Andrew Walsh is chief executive of Iress.

11/11/2020 3:45:51 PM

26 | Money Management November 19, 2020

Income

UNIQUE OPPORTUNITY FOR INCOME-SEEKING RETIREES While those in need of income may be facing headwinds as a result of the interest rate cut, opportunities still exist, writes Scott Kelly.

THE RBA HAS just slashed interest rates to a historic low of 0.10% and initiated $100 billion of quantitative easing, essentially ensuring low interest rates for the foreseeable future.

Associated cash, term deposit and fixed interest investment products are not appealing.

In addition, the COVID-19 pandemic has resulted in Australian stockmarket (ASX200) dividends to be cut 20% in calendar year 2020, with typical dividendpaying stocks like the banks down even more than this.

Despite this, we believe investors are currently being presented with a unique opportunity, one not seen for over a decade.

Dividends have rebased with upside potential as revenues and dividend payout ratio’s normalise over the coming years. Dividends are likely to recover quickly, with 2022 underlying dividends expected to be broadly in-line with 2019.

Consequently, the dividend yield on equities is very attractive, with dividend yields for 2021 and 2022 forecast to be 4% to 5%, compared to cash rates and fixed interest products below 1%. In addition, franking benefits are unique to the Australian market and provide a source of upside for domestic investors – particularly retirees.

Now more than ever, incomeseeking investors need to look beyond any single asset class and specifically consider higher allocation to Australian equities with strategies focused on tax-advantaged, reliable and growing income generation.

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WHAT IS THE IMPACT FROM THE COVID-19 PANDEMIC ON 2020 DIVIDENDS? Since the beginning of the COVID-19 pandemic, 2020 calendar year dividend expectations for the ASX 200 have fallen from -$73 billion to -$58 billion, representing a decline of -20%. This is broadly the same level of dividends that were paid in 2013 (see Chart 1).

While partly driven by a ~20% fall in earnings, the reduction is also driven by a fall in payout ratio of Industrials to below 60%, as boards understandably exercise caution in the current uncertain environment.

WHAT IS THE OUTLOOK BEYOND 2020?

As earnings recover, dividend growth is projected to be around 15% in 2021, with a further +10% expected in 2022.

On a dollar income basis, we expect 2022 dividends will be back broadly in-line with 2019. Note, that this is on an underlying basis, ignoring special dividends that were elevated in 2019, ahead of a potential Labor government and proposed franking policy changes.

WHAT GIVES YOU THE CONFIDENCE IN THE DIVIDEND OUTLOOK? Of course, the recovery path for economies remains uncertain. The COVID-19 pandemic is ongoing with various lockdown strategies offset by the potential of a vaccine and ongoing government stimulus.

Overlay this with a deteriorating China relationship and Brexit, it is a very challenging time for investors.

11/11/2020 11:16:35 AM

November 19, 2020 Money Management | 27

Income Strap

Chart 1: ASX 200 Dividends Paid

Despite this, we still expect income from equities to be an important source of return for investors for several reasons.

1) Firstly, the yield on equities is still very attractive relative to alternatives. Equity yields of 4% to 5%, compare to cash rates and fixed interest products below 1%.

2) Secondly, dividends will continue to be a large contributor to market returns, having contributed approximately half the ASX 200 index returns since 1950. This remains a defensive investment plank in Australia’s investment case, relative to other markets.

3) Net dividend yields (excluding franking) have consistently averaged ~4% p.a. over the last ~30 years, whilst bond yields have declined from ~8% to less than 1% currently.

4) Fourth, franking benefits are unique to the Australian market and provide a source of upside for investors – particularly retirees. Each year the Australian market (ASX 200) typically receives dividends with ~75% to 80% franking attached.

5) Last and certainly not least, dividends have rebased with upside potential as revenues recover and dividend payout ratio’s normalise over the coming years.

STOCK-SPECIFIC DIVIDEND OPPORTUNITIES There have been dividend winners and losers over the course of 2020, with financials hit hard due to recession headwinds and regulatory intervention, whilst resources companies have been faring well as high commodity prices help generate significant free cash.

This is a timely reminder for investors that sources of yield shift

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Annual rebasing of dividends applied to ASX200. Source: IRESS, Factset

over time. Active portfolio management and stock selection can therefore have a significant impact on income generation.

We continue to position our portfolio in high-quality businesses that offer a combination of sustainable free cashflow generation, attractive dividend yields, growth, franking benefits and importantly, valuation support.

Below are some examples: IPH Limited: Provides intellectual property, patent and trademark services across Australia, New Zealand and Asia.

Its defensive characteristics, robust patent filing volumes and strong progress on the synergies from recent acquisitions were key highlights from reporting season.

The stock is expected to deliver a ~6% p.a. gross yield with high single digit growth and potential acquisitions should also serve as a catalyst.

Atlas Arteria: Following a significant decline in traffic earlier in the year, traffic quickly rebounded on the main asset in France. Escalating COVID-19 case numbers and new lockdown restrictions in France have stalled the traffic recovery. Inter-regional roads bounce back faster than the city roads, and therefore normalisation should occur relatively quickly. This implies free cashflow of up to ~40 cents per

share (cps), which translates into a dividend yield of ~6% p.a. at current prices.

BHP: Offers ongoing earnings growth potential from its iron ore and copper exposure, with leverage to an eventual global economic recovery through coal and energy resources. In particular, iron ore prices continue to be robust given i) ongoing strong China demand; ii) Brazil supply constraints; and iii) contracting economic output in world-ex China. Dividend yields of mid-single digits are supported by free cash flow yields in the high single and double digits over the next two to three years.

Telstra: Has not been immune from COVID-19 disruption with some negative one-off impacts from lower international roaming charges, customer incentives and delayed synergies. The market appears to have focused on the risk to the 16cps dividend from a lowering of near-term return on invested capital targets. In our view, the competitive environment in mobile is rational and will see improving earnings over the next few years. As such, we think the 16cps is sustainable, and represents an attractive gross yield of ~8% p.a. at current prices.

FOCUS ON GROWING INCOME OVER TIME We believe that a growing dollar

income over time will deliver the best outcome for income seeking investors as they seek to offset inflation and look to maintain lifestyles in retirement.

The annual income received from ASX 200 dividends has increased materially compared to the annual income received from term deposits over the last 20 years.

To demonstrate further, let’s compare an investment in Commonwealth Bank (CBA) versus REA Group (REA) over the last decade. CBA’s annual dividend in 2020 is broadly the same as it was in 2010 at ~$3 p.a.

Whilst REA’s dividends have increased from 16cps to $1.10 p.a. over the same period. In other words, the yield on initial investment for REA Group is currently almost ~12% including franking benefits, whilst CBA’s remains around ~6%.

This is before we consider capital growth, where REA’s share price has increased ten-fold over the last decade, whilst CBA’s is now just ~30% higher.

Now more than ever, income investors need exposure to a diversified portfolio of quality companies at reasonable prices, with good visibility on long-term dividend sustainability and aftertax benefits.

Scott Kelly is portfolio manager at DNR Capital.

11/11/2020 11:16:47 AM

28 | Money Management November 19, 2020

Toolbox

CGT RELIEF OPTIONS FOR SMALL BUSINESSES John Ciacciarelli explores the tax implications of running a small business and the relief measures available to help business owners with the costs.

MANY CONSIDERATIONS COME into play when a business owner is looking to dispose of business assets as part of their retirement planning. Matters that typically need to be considered include: 1) Managing any capital gains tax (CGT) resulting from the disposal of the business assets, and; 2) How to efficiently use the proceeds to help meet required income needs in retirement.

It’s when the small business CGT (SBCGT) relief in Division 152 of the income tax legislation is viewed as part of these retirement planning considerations that the significant value of the relief becomes clear.

That’s because any tax payable on the capital gains generated by the disposal of the business assets can be reduced, deferred or

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eliminated if the qualifying conditions are satisfied.

Additionally, depending on which SBCGT relief concession applies, the business owner may also potentially use all or part of the proceeds to make extra superannuation contributions using the lifetime SBCGT contribution cap.

These additional contributions increase the amount of accumulated superannuation business owners can use, once the usual superannuation condition of release rules are satisfied, to commence a tax-effective retirement income stream up to their pension transfer balance cap.

This becomes especially important where, other than their main residence, the business owner’s wealth is tied up in their business – with only minimal amounts accumulated in superannuation.

Outlined below is a broad overview of the CGT relief available to qualifying business owners when they sell their qualifying business assets. The focus is on the required conditions that need to be satisfied in order to qualify for the four separate concessions that together make up the SBCGT relief.

THE FOUR SBCGT RELIEF CONCESSIONS The four concessions that make up the SBCGT relief can be briefly summarised as follows: 1) Fifteen-year exemption: This exempts all the capital gain and, broadly, is applicable when disposing of a qualifying asset that had been owned continuously for at least 15 years prior to its disposal. Other specific conditions that need to be satisfied for this concession

include the relevant business owner having to be age 55 or over at the time of the asset disposal, and the disposal having to occur in connection with the retirement of the business owner. If the 15-year exemption is not available, then the concessions below may be applicable.

2) Active asset reduction of 50%: This exempts 50% of the capital gain and applies in addition to, and after the application (where applicable), of the general CGT 50% discount.

3) Retirement exemption: This lifetime concession exempts up to $500,000 of otherwise assessable capital gain for each individual business owner.

Despite its name, this concession does not actually require the relevant business

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November 19, 2020 Money Management | 29

Toolbox

owner to retire. However, if they are under-55, one of its specific conditions requires the business owner to make a superannuation contribution equal to the CGT exempt amount.

4) CGT roll-over relief: Provides deferral for at least two years of any assessable capital gain remaining after having applied the other concessions to the disposal.

QUALIFYING CONDITIONS Before the disposer can access any of the SBCGT concessions there are some basic qualifying conditions that must first be satisfied.

In addition to these basic conditions, there are specific qualifying conditions that also apply to some of the concessions.

The critical starting point is to accordingly understand that the SBCGT concessions will not apply if the disposer fails any of the basic conditions.

Two initial basic conditions There are two initial basic conditions that must always be satisfied. They are: 1) The ‘small business’ requirement, whereby the disposer must satisfy either the: a) Under $2 million aggregated turnover test; or alternatively b) The $6 million maximum net asset value (MNAV) test; and 2) The CGT asset must satisfy the active asset test.

It’s worth noting that certain assets are excluded from the MNAV test, these include, but are not limited to, the disposer’s main residence, superannuation, and

21MM191120_28-32.indd 29

assets used solely for personal use and enjoyment. The MNAV test is assessed immediately before the disposal of the business assets occurs.

Active assets For this purpose, a CGT asset is an active asset at a point in time if at that time it is owned by the disposer and: • It is being used, or held ready for use, in the course of carrying on a business by the disposer; or • It is used, or held ready for use, in the course of carrying on a business by the disposer’s affiliate, or by another entity that is connected with the disposer; or • Where the asset is an intangible asset (e.g. goodwill), it is inherently connected with a business that is carried on by the disposer, an affiliate, or another entity that is connected with the disposer.

Despite this active asset definition, it’s also important to note that certain CGT assets cannot be active assets even if they are used or held ready for use in the course of carrying on a business. In particular, an asset whose main use is to derive rent cannot be an active asset at that time, unless it was rented to an affiliate or connected entity for use in that related entity’s business.

Once it has been established that during its ownership by the disposer the asset was at some time an active asset, one then needs to also satisfy the minimum time period requirement in the active asset test.

A CGT asset generally satisfies

this minimum time period requirement if: • Where the asset was owned for 15 years or less by the disposer, the asset was an active asset for a total of at least half of the period it was owned; or • Where the asset was owned for more than 15 years, the asset was an active asset of the disposer for at least 7.5 years.

It’s accordingly worth noting that for an asset to qualify as an active asset under this test, the asset does not have to necessarily be continuously active, or be active at the time of the CGT disposal event.

UTILISING THE SBCGT CONCESSIONS AND SUPERANNUATION Notwithstanding the $1.6 million (indexed) superannuation pension transfer balance cap limit, using superannuation remains a widely accepted tax-effective way to fund an individual’s income needs in retirement.

By qualifying for the SBCGT concessions, small business owners can accordingly aim to get two sets of tax concessions on selling their business.

First, they can utilise the SBCGT concessions to reduce, eliminate or defer their CGT liability on the sale of their business assets. Secondly, they can use the CGT exempted amount, or in some cases the entire sale proceeds, to make additional superannuation contributions using the SBCGT contribution cap.

On subsequently meeting a qualifying superannuation condition of release, such as retirement, the contributions made using the SBCGT contribution cap, along with the person’s other

accumulated superannuation, can then be used to create a tax effective superannuation retirement income stream within the $1.6 million pension transfer balance cap.

A small business owner looking to use the proceeds from the sale of business assets to increase their superannuation savings will also need to consider two other typical superannuation issues: 1) Contribution acceptance rules; and 2) Contribution caps.

Eligibility to contribute to superannuation Amounts that are to be placed into a superannuation fund under the SBCGT concessions are treated as contributions and not as a rollover or transfer.

Where a business owner wishes to make SBCGT contributions, the usual voluntary superannuation contributions, including work test requirements generally apply.

This means a business owner can make SBCGT contributions up to the age of 67. However, from age 67, the business owner would need to first meet the work test (i.e. have worked 40 hours in 30 consecutive days in the relevant financial year), or alternatively be able to use the work test exemption rule for recent retirees.

Further, the fund could not accept a contribution made after 28 days after the end of the month where the business owner turns age 75, as at that age the only superannuation contributions that can generally be accepted are compulsory employer contributions.

Continued on page 30

11/11/2020 3:36:20 PM

30 | Money Management November 19, 2020

Toolbox

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

Continued from page 29 Superannuation contribution caps and SBCGT concessions Generally, super contributions will count towards a member’s contribution caps unless a specific exemption applies. Subject to the total superannuation balance limitations and the person’s age, the standard non-concessional contributions cap is currently $100,000 per annum or up to $300,000 utilising the bring forward rules.

Contributions made from certain amounts arising from the disposal of qualifying small business assets are exempt from the standard non-concessional contributions cap. They instead fall within the SBCGT contribution cap that provides an ability to contribute up to a lifetime maximum of currently $1.565 million (indexed) in addition to the standard contribution caps.

Importantly, not only is this cap effectively an addition to the standard non-concessional contributions cap, it applies to allow contributions even where the person already has a total superannuation balance at the start of the relevant financial year of $1.6 million or more.

Broadly, contributions allowed under the SBCGT contribution cap are: • Up to $500,000 of capital gains that qualify for the small business retirement exemption; • The capital proceeds from the disposal of assets that qualify for the small business 15-year exemption; and • The capital proceeds from the disposal of assets that would have qualified for the small business 15-year exemption, but for: - No capital gain resulting from the disposal of the asset, i.e. the disposal has led to a capital loss; - The asset was a pre-CGT asset; or - The asset being disposed of before the required 15-year holding period because of the permanent incapacity of the person.

Where the disposer is an individual, to qualify for the CGT contribution cap, the contribution must generally be made to a superannuation fund on or before the later of the day the person is required to lodge their tax return for the year in which the CGT disposal event occurs, or within 30 days of the receipt of the proceeds by the individual.

Where a company or trust claims the SBCGT concessions, and subsequently makes payment within the required timeframes to a CGT concession stakeholder, a contribution must generally be made by the CGT concession stakeholder no later than 30 days after receiving the payment from the company or trust.

To take advantage of the SBCGT contribution cap, a member must also complete and forward an Australian Tax Office (ATO) approved CGT election cap form to their superannuation fund before or at the time that they make the contribution.

TAX ADVICE REQUIRED The various rules associated with the SBCGT concessions are complex and eligibility needs to always be confirmed by a tax agent/accountant who has a good understanding of the various rules. Individuals and entities who use the SBCGT concessions should expect to have the exempted amount reviewed by the ATO. John Ciacciarelli is technical strategy manager at AMP.

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1. The basic conditions that always apply when accessing the small business CGT concessions are? a) The under $2 million aggregated turnover test, or maximum $6 million net asset value test b) CGT significant individual test c) Active asset test d) Only (a) and (c) above 2. When must a person satisfy the CGT concession stakeholder test as a basic condition in order to qualify for the small business CGT concessions? a) When the asset being sold is business property b) When the asset being sold is a share in a company or an interest in a trust c) When the asset being sold is the business goodwill d) Whenever someone wants to utilise the small business CGT concessions 3. Which of the following is not a qualifying specific condition that applies to the 15-year exemption? a) The relevant asset must have been held continuously for at least 15 years b) The relevant individual must be at least age 55 at the time of disposal c) The disposal of the asset must be in connection with the individual’s retirement d) The disposer must always contribute an amount equal to the the exempted amount to superannuation 4. Structures that can potentially be entitled to the small business CGT concessions include the following: a) Individuals b) Trusts c) Companies d) All of the above 5. Which of the following statements is false? a) Amounts placed into superannuation under the SBCGT concessions are treated as contributions and not as a rollover or transfer b) SBCGT contributions are subject to the usual voluntary superannuation contribution rules, including work test requirements c) To access the SBCGT contribution cap, a member must complete and forward an ATO approved CGT election cap form to their superannuation fund within 12 months of making the contribution d) The $1.565 million SBCGT contribution cap is available in addition to the standard concessional and non-concessional contribution caps

TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/ features/tools-guides/ cgt-relief-options-small-businesses For more information about the CPD Quiz, please email education@moneymanagement.com.au

11/11/2020 5:54:43 PM

November 19, 2020 Money Management | 31

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

Appointments

Move of the WEEK David Bryant Chair Financial Services Council

Mercer Australia chief executive, David Bryant, has been elected to replace Geoff Lloyd as chair of the Financial Services Council (FSC).

Lloyd was required to stand down as chair of the FSC after resigning his position as chief executive of MLC Wealth.

Synchron has appointed Sarah Congdon as its new Victorian state manager, replacing Jason Milosevski, who has been in the role since 2015.

Congdon joined Synchron after 10 years as a business development manager with MLC Life Insurance, where she worked on the Synchron account.

She also worked for a period of time as an insurance adviser.

Don Trapnell, Synchron director, said Congdon had extensive industry experience and an excellent understanding of insurance, financial advice and practice development.

The Association of Financial Advisers (AFA) has appointed Michael Nowak as president, Sam Perera as vice president, and Matthew Hawkins as treasurer to its board.

Nowak had been a member of the AFA board for eight years and had been vice president for the two previous terms.

The new AFA board line-up was now: Executive • President – Michael Nowak; • Vice president – Sam Perera; • Treasurer – Matthew Hawkins; and

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Bryant has held a number of positions with the FSC since being appointed to the board in 2013 including co-deputy chair, co-chair of the advice board committee, chair of the standard oversight and disciplinary board committee and a member of the administration

• Company secretary – Philip Kewin.

State directors • NSW/ACT – Katherine Hayes; • VIC – Samantha Robinson; • QLD – Patricia Garcia; • SA/NT – Jawad Ahmad; • WA – Stephen Knight; and • TAS – Vacant Franklin Templeton Australia has announced its new senior distribution leadership team, following the acquisition of Legg Mason.

The acquisition was completed on 31 July, 2020.

The new Franklin Templeton Australia distribution leadership team included: • Felicity Walsh would expand her role as head of sales, to lead both the institutional and retail sales teams; • Amy Teh would continue in her role as head of investment and consultants; • Louise Farmakis would continue in her role as head of client service; • John Besley, formerly head of product and client operations at Legg Mason, would take up the new role of head of product; • Felicity Nicholson, formerly

and risk board committee and nominations board committee.

Challenger chief executive and managing director, Richard Howes, has been elected to the FSC board replacing Challenger chief financial officer, Andrew Tobin, who will step down in November.

of Legg Mason, continued in her role as head of marketing; and • Serg Premier continued in his role as managing director ifsInvest.

First Sentier Investors has made several leadership appointments in its direct infrastructure team as it aims to strengthen its global management structure.

New York-based director and head of infrastructure investments for North America, John Ma, was appointed partner and head of North American infrastructure.

Former co-head of Europe, Marcus Ayre, was promoted to head of Europe in London, and Sydney-based Danny Latham and Chris McArthur retained their roles as co-heads of Australia and New Zealand.

The asset manager also appointed Nick Grant, Gregor Kurth and Hamish Lea-Wilson as partners and would join the global infrastructure senior management team. Gavin Kerr was appointed as head of transactions, Australia New Zealand, and Daniel Timms was appointed head of asset management, Australia and New Zealand.

ING Bank Australia has appointed Melanie Evans as chief executive, replacing Uday Sareen who will relocate to Europe.

Evans began her career with a cadetship at St George Bank in 1995 and later joined Westpac’s equities business in 2000.

After moving to BT Financial Group in 2003, she spent a decade in product, brand, marketing, superannuation, platforms and investments leadership roles.

She returned to banking within the Westpac Group as a chief of staff.

Platypus Asset Management has appointed Kristen Le Mesurier as its head of environmental, social and governance (ESG) and engagement.

Le Mesurier joined from AMP Capital where she was a senior member of the ESG team before becoming portfolio manager of the Ethical Leaders diversified funds.

Gary Adamson, Platypus chief executive, said Le Mesurier’s addition to the team was an important step in achieving the firm’s goal to be recognised as a leader in the integration of ESG and company engagement.

11/11/2020 5:54:15 PM

OUTSIDER OUT

ManagementNovember April 2, 2015 32 | Money Management 19, 2020

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

From the folks who brought you Viagra – a vaccine OUTSIDER regrets to say that his extensive portfolio of investments does not include pharmaceutical giant Pfizer which, at the time of writing, has announced that with its German partner BioNTech it has come up with a COVID-19 vaccine which appears to be 90% effective.

Outsider’s regret is that he was

not able to surf the 15% surge in Pfizer’s share price generated by the vaccine announcement because, as everyone knows, it is handy if you can sell down a few shares during a spike.

For the record, this is not the first time that Outsider has missed the boat on a Pfizer breakthrough. The last time was in 1989 when he somehow failed to notice that the pharmaceutical giant had somehow managed, by accident, to invent Viagra.

Now, if Pfizer is on the money with this COVID-19 vaccine then it will be distributed to millions around the globe, which will be similar to the distribution of Viagra which apparently generated the writing of more than two million prescriptions in the US last year albeit the outcomes will be distinctly different.

From what Outsider is told, the COVID-19 vaccine will drive temperatures down while, from what he hears, Viagra tends to drive temperatures up.

Either way, Pfizer investors can stand tall, having found themselves in a happily solid position.

Graceful or not.

Who exited fastest in 2020?

AS this is the last print edition of Money Management for 2020 but Christmas is still some weeks off, Outsider thought he would start a new tradition – The Rapid Exit Award – and it turns out that 2020 has a few candidates vying for the laurels.

There was, for instance, the somewhat pre-emptory announcement of the exit of Alex Wade as chief executive at AMP Limited which was much more surprising and much more rapid than that of his companion at AMP Capital, Boe Pahari, who did not so much exit as move aside. There was also the consequent exit of AMP chair, David Murray.

Then, too, Outsider wonders whether Australian Securities and Investments (ASIC) chair, James Shipton, should be considered in the award stakes because, while he has not exactly exited the building, he surprised many by telling a Parliamentary Committee he would be standing aside pending the outcome of an independent investigation into the bill for his private tax advice being picked up by the tax-payer.

Shipton’s deputy chair, Daniel Crennan QC, also stood aside over the nature of his removal expenses but Outsider regards him as a scratching from the awards because he has subsequently announced his resignation.

But then, as is often the case, there was a late entry in the awards – the exit of Rod Bristow as chief executive of Clime Asset Management – something announced so close to the daily close of the Australian Securities Exchange that Outsider nearly missed it.

Having weighed up the pros and cons, Outsider is awarding the 2020 Christmas Rapid Exit Award to Bristow for both his timing and the absence of any immediate formal explanation.

He wishes all those who have exited or stood aside in 2020 a restful festive season and the hope of better times ahead in 2021.

Sleepy Joe awakens to US presidential election victory OUTSIDER has previously mused over Donald Trump’s messaging cutting through in Australia, with the “Sleepy Joe” moniker catching on with the delegates at the Association of Financial Advisers annual conference last month.

Although it’s not a surprise that American trends catch on in Australia – after all, we have just celebrated Halloween – it was rather interesting to watch “Sleepy Joe” run up the stage to deliver his victory speech to the shock of Trump supporters who were still unconvinced pre-election polling was right and believed President-elect Biden would drop dead by 4 November.

It did feel like it took a while for Sleepy Joe to awaken as it wasn’t until mail-in votes in key swing states started getting counted that he took the lead.

For all the doom and gloom around the “socialist” agenda

OUT OF CONTEXT www.moneymanagement.com.au

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of the Democratic Party, markets have historically performed well under Democratic administrations.

Despite the result still being challenged by the Trump campaign and the President refusing to concede, legal experts have said the challenges are toothless and markets have quickly moved on from the pre-election uncertainty.

The Trump campaign has continued claims of voter fraud, most notably booking the parking lot of Four Seasons Total Landscaping to hold a press conference, rather than the hotel of a similar name.

Pre-COVID-19, Money Management would host several events a year, including at the Four Seasons Hotel, and Outsider now has a greater appreciation for our staff who are able to call the correct businesses, as it turns out this isn’t a straightforward task.

"Like the emblems on our national crest, the kangaroo and the emu, they only go forward, and that can be the only plan for Australia."

"STOCK MARKET UP BIG, VACCINE COMING SOON. REPORT 90% EFFECTIVE. SUCH GREAT NEWS!"

- Prime Minister Scott Morrison

- Future former US President Donald Trump

Find us here:

11/11/2020 2:49:03 PM