FS Advice Volume 15 Issue 01

Volume 15 Issue 01

EMPOWERING ABILITY William Johns Health & Finance Integrated

Life expectancies Jeremy Cooper, Challenger

Data will change everything MicroStrategy

Published by

Codes of ethics Understanding RMBS Bank of Mum and Dad

Get the Advantage.

Partner with CMC Markets.

Easily switch between our two platforms, standard and Pro, offering an extensive range of products available to trade under one login.

Take your client management to the next level with essential adviser tools, analyse your clients’ portfolios with ease using external data feeds and an excel add-in for our Pro platform.

Our comprehensive trading solution means there’s no better choice for client management. Find out more at www.cmcmarkets.com/en-au/partners.

Advantage platform

International Shares

Online Options

Adviser tools

Seek independent advice and consider the relevant Terms and Conditions at cmcmarkets.com.au when deciding whether to invest in CMC Markets products. CMC Markets Stockbroking Limited (ABN 69 081 002 851 AFSL No. 246381).

Contents

www.fsadvice.com.au Volume 15 Issue 01 I 2020

1

COVER STORY

EMPOWERING ABILITY William Johns, Health & Finance Integrated

18 NEWS HIGHLIGHTS

FEATURES

STAMPING FEES UNDER THE MICROSCOPE

6

Stamping fees paid by fund managers to financial advisers and brokers for exchange-listed funds are under the microscope, as public scrutiny into the practice mounts.

SAM HENDERSON SPEAKS OUT

05 7

Whitepaper Men’s health and life insurance

Former financial adviser and TV show host Sam Henderson has spoken out for the first time since the Royal Commission.

ELDERS FP TO SHUTTER

8

Elders Financial Planning, home to 59 advisers, will be wound down.

The news follows the departure of its managing director.

AMP REMEDIATION PROCESSES QUESTIONABLE

Welcome note Christopher Page

9

30

For news updates like this follow us on social media

AMP has responded to reports it is refunding planned service fees charged to corporate super members pre-2014 into new AMP super accounts opened without customers’ knowledge or consent.

FS Advice

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

2

Contents

www.fsadvice.com.au Volume 15 Issue 01 I 2020

06 Published by a Rainmaker Information company.

A: Level 7, 55 Clarence Street, Sydney, NSW, 2000, Australia T: +61 2 8234 7500 F: +61 2 8234 7599 W: www.financialstandard.com.au

News

RE PERSONALITY TESTS THE NEXT BIG A THING IN FINANCIAL ADVICE? BEWARE THE RETIREE TRAP

w

07

News

GRAVE MENTAL HEALTH CONCERNS AIRED ASIC ALTERS ADVISER LEVY

Associate Editor Elizabeth McArthur elizabeth.mcarthur@financialstandard.com.au Production Manager Samantha Sherry samantha.sherry@financialstandard.com.au Graphic Designer Jessica Beaver jessica.beaver@financialstandard.com.au Technical Services Roger Marshman roger.marshman@rainmaker.com.au Advertising Stephanie Antonis stephanie.antonis@financialstandard.com.au

08 09 10

News

ASEA PRESSURED ON MANAGED ACCOUNTS F CONTRIBUTION FEES OUT

News

TRUE OPINIONS ON LIFE COMMISSIONS CBUS HEAD’S NEW MOVE

News

PRO BONO SUPPORT FOR BUSHFIRE VICTIMS MORE SUPPORT AVAILABLE

Director of Media and Publishing Michelle Baltazar michelle.baltazar@financialstandard.com.au Managing Director Christopher Page christopher.page@financialstandard.com.au

FS Advice: The Australian Journal of Financial Planning ISSN 1833-1106 All editorial is copyright and may not be reproduced without consent. Opinions expressed in FS Advice are not necessarily those of Financial Standard or Rainmaker Information.

Financial Standard is a Rainmaker Information company.

ABN 57 604 552 874

11 15

News

ANK OF MUM AND DAD FORKING OUT B SERIOUS DOSH

News

INANCIAL ADVISERS STILL UNCLEAR ON F REFERRAL RULES

Subscriptions hotline:

1300 884 434 Ask about our PLUS DEALS.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

For more news and updates, visit www.fsadvice.com.au

FS Advice

MetLife Protect, a smart solution for your clients.

To find out more, visit metlife.com.au/advisers or call your local MetLife BDM.

Information is general only and does not take into account your personal situation, needs or objectives. Before deciding whether to acquire, or continuing to hold, any of our products, please read the PDS available at metlife.com.au. Life insurance products are issued by MetLife Insurance Limited ABN 75 004 274 882 AFSL 238096.

4

Contents

WHITE PAPERS

www.fsadvice.com.au Volume 15 Issue 01 I 2020

26 34

Applied Financial Planning

FINANCIAL ADVICE EVOLVING FROM SCREEN TO VOICE

By Nalika Nanayakkara, EY Traditional client engagement channels are being consigned to the past.

Ethics & Governance

OVERCOMING OBSTACLES TO ETHICAL BEHAVIOUR

By Shlomo Sher, California State University

This paper examines the factors that might get in the way of upholding ethics.

38

Ethics & Governance

RETHINKING ETHICS AND CODE OF CONDUCT TRAINING

By Attracta Lagan, Managing Values

Poor code of conduct training can leave employees jaded and frustrated instead of empowering them.

42

46

Investment

ETFS VERSUS MANAGED FUNDS

By BetaShares Understanding the key differences between exchange traded funds and managed funds.

Investment

THE AUD, FOREIGN DEBT, TRADE: THE NEXT DECADE

By Peter Pontikis, India Avenue Investment Management

This article examines how the macro environment over the next decade is likely to impact Australian investors.

50 Retirement

UNDERSTANDING LIFE EXPECTANCIES

By Jeremy Cooper, Challenger Limited The element that needs to be understood in retirement planning.

Investment

RMBS: WEIGHING UP RISK VERSUS REWARD

By John Sorrell, Nikko Asset Management

Residential mortgage-backed securities were severely impacted by the GFC - here’s what you need to know.

58

Taxation & Estate Planning

THE MAIN RESIDENCE EXEMPTION

By Janet Manzanero-Caruana, IOOF TechConnect

Changes to the main residence exemption will impact many foreign residents but the exemption is still available under limited circumstances.

54 62

Technology

HOW DATA IS TRANSFORMING THE INDUSTRY

By Lesley French, MicroStrategy

Technologies will transform business but with such opportunities come cybersecurity risks.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

FS Advice

Welcome note

www.fsadvice.com.au Volume 15 Issue 01 I 2020

5

Christopher Page managing director Financial Standard

Getting on with it elcome to the first FS Advice for 2020. As I’m sure W all of you are well aware, when the fireworks went off and we welcomed the new year on January 1 a new regime for financial advisers also became official in Australia.

The Financial Adviser Standards and Ethics Authority’s Code of Ethics is now in effect. All advisers must be compliant with the code.

However, there is no code monitoring body. ASIC, along with the Australian Financial Complaints Authority are taking what is essentially a “wait and see” attitude to the code rather than an enforcement approach.

That, of course, doesn’t mean advisers can take the code any less seriously. Licensees are expected to monitor their advisers for compliance with the code.

Several dealer groups have bolstered their compliance teams in response to the challenges that lie ahead in this area for 2020.

Our final issue of this publication for 2019 spent some pages diving into the issues around the Code of Ethics.

And in this edition, the Association of Financial Advisers and Financial Planning Association of Australia’s policy experts give their opinions on another dilemma presented by the code – referrals.

It seems despite further guidance from FASEA, when referral agreements are permitted and when they aren’t is still an area that lacks clarity.

While it’s an important issue that will impact many businesses, the rest of this issue focusses on something else – getting on with the job.

You’ll notice a few news stories in this edition highlighting what the financial advice industry is doing to assist those Australians impacted by the bushfires that ravaged the country for months.

For those in affected areas, there will be a significant and ongoing financial toll following these devastating fires.

Of course it only makes sense that those with the skills to help are reaching out to those in need.

FS Advice

It’s just another example of what all of us know – this industry is made up by a lot of really great people.

And speaking of great people, I’m delighted to introduce our cover star – William Johns.

Johns has built a career making life easier and richer for those who so often have the hardest time financially.

His businesses, Health & Finance Integrated and ClaimRight, serve those who are disabled or have ongoing illnesses.

There was something Johns said that particularly struck me.

“The financial services industry can be very harsh. It classifies people into who is high net worth, who is ultrahigh net worth and it’s very appealing for financial advisers to specialise in serving those people,” he said.

“But as professionals we have an obligation to offer services to everybody.”

That sense of duty is something I’m sure a lot of financial advisers have when they enter the industry.

Certainly, it’s plain to see the delight advisers get from helping people through tough financial times and seeing them succeed and build a more comfortable and secure life.

We’ve heard from advisers that it’s getting harder and harder for them to serve those who most need financial advice as the cost of providing advice increases with regulatory change.

But, with a bit of ingenuity and a lot of drive Johns has built two business models that work and that provide valuable service to those who need it most.

And it seems a big part of his secret to success was just quietly getting on with it. fs

The quote

Johns has built a career making life easier and richer for those who so often have the hardest time financially.

Christopher Page managing director, Financial Standard

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

6

News

www.fsadvice.com.au Volume 15 Issue 01 I 2020

Beware the retiree trap New analysis from BetaShares shows superannuation and the age pension can have undesirable outcomes for some retirees, forcing them to ensure they have at least $500,000 squirrelled away ahead of retirement.

BetaShares senior investment specialist Roger Cohen’s analysis shows that for Australians at retirement age with savings of between $350,000 and $600,000, increasing their savings can result in their income decreasing.

This retirement trap results from the reduction of age pension entitlements as assets and income in retirement increase above certain thresholds.

In bad news for many, this new analysis indicates that to safely escape the retirement trap retirees will have to have accumulated well over $500,000.

After the half a million dollar mark, increased savings actually do start to equal increased income.

“Common wisdom tells us that accumulating more savings through our working lives should result in higher income in our retirement years,” Cohen said.

As part of this new analysis, BetaShares has released a pension multiplier.

This is a number (greater than or equal to one) which represents the current or future income stream a retiree can expect relative to the age pension (for example, a pension multiplier of 1.5 means that income of one and a half times the government pension can be expected in retirement).

For an individual, there is an income range between $174 and $2026 per fortnight, where for every additional dollar earned, the pension is reduced by 50 cents.

This effectively halves the value of additional earnings for retirees in this range. fs

Stamping fees under the microscope Kanika Sood

T

The quote

We are addressing potential concerns regarding conflicted remuneration.

reasury has announced a consultation into stamping fees paid by fund managers to financial advisers and brokers for exchange-listed funds, as public scrutiny into the practice mounts.

The Future of Financial Advice (FoFA) reforms in 2013 put an end to commissions that financial advisers could collect from putting clients into investment products such as unlisted trusts.

However, the new legislation permitted advisers to continue collecting commissions on stock exchange-listed investment products – an exemption that is frequently termed as a loophole.

In the intervening six years, ASXlisted investment products have grown rapidly.

The consultation, which was announced by Treasurer Josh Frydenberg, will consider the merits of this exemption granted to stock exchangelisted investment products.

“Public consultation will allow the government to make an informed decision on whether to retain, remove or modify the stamping fee exemption in order to ensure that the interests of investors are protected and capital markets remain efficient and globally competitive,” Treasury said in a statement.

Last year, Magellan front-ran the scrutiny into stamping fees when it chose to skip paying commissions to brokers and advisers while raising for a LIT that replicates the strategy of the Magellan High Conviction Fund.

Magellan, at the time said it would not appoint a broker syndicate for the raise.

“We are addressing potential concerns regarding conflicted remuneration by proceeding without appointing a broker syndicate or paying any fees or commissions to any brokers or advisers to handle the offer,” MFG chair and chief investment officer Hamish Douglass said in ASX filings. fs

Are personality tests the next big thing in financial advice?

Elizabeth McArthur

Two financial advisers in Sydney say they are on to the next big thing - helping clients succeed through rigorous, double-blind, scientifically backed personality tests.

Tristan Scifo and Harry Goldberg at Purpose Advisory offer Personality Typing Coaching through which people can be assessed as one of 512 personality types.

The advisers point out that behaviours are determined by personality and by ingrained beliefs.

“Many advisers who dive into coaching will attempt to change clients’ beliefs alone. The important point is that without recognising the impact of personality it is exceptionally difficult to create profound, lasting and impactful change for clients,” Goldberg said.

Interestingly, he said most clients get their personality type exactly wrong - saying that they are dominant in the opposite qualities than what they are.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

“If spending time alone is hard for you, you’re going to put effort into that and that alone time is going to feel like it goes on and on,” Goldberg explained.

“It makes sense that the things that are the hardest for us are the things we really focus on, and that’s why when people ask us to sum up who we are those qualities that are actually our weakest suit.”

Sarah Penn, chief executive of Mayflower Consulting, said she can see why some clients might be interested in this unconventional approach but notes that it’s not for everyone.

“People are looking for coaching as part of a more holistic approach to advice. I think that has the potential to be a really good thing for clients because there is a lot of psychology that goes along with money - human beings are extremely irrational,” she said.

“There’s already so much information you have to give an adviser though and this sounds pretty labour intensive for clients.” fs

FS Advice

News

www.fsadvice.com.au Volume 15 Issue 01 I 2020

ASIC alters adviser levy The Financial Planning Association of Australia head of policy and standards Ben Marshan has pointed out that ASIC has quietly altered the per adviser levy.

Marshan told Financial Standard that financial advice businesses which have budgeted for levies for the year might need to change their plans.

He explained while it might not be a big deal for some licensees, those with many advisers will feel the difference.

And, Marshan said the big issue is that ASIC has updated its calculations without notifying anyone specifically – meaning many will be working off the old figures.

“For any financial planners, CARs or licensees who’ve done their budgeting for ASIC levies for this year - please be advised that while ASIC indicated that the per-adviser levy for 2018/2019 would be $907 (as per their ASIC Industry Funding page) - this has now been changed to $1142 per adviser,” Marshan said on LinkedIn. He added that ASIC made this change without a press release, meaning that it may have gone unnoticed by many.

The $907 figure was only an estimated fee announced by ASIC at the end of November.

The minimum levy is $1500 and the $1142 figure cited by Marshan is per-adviser.

Last year, the minimum levy was the same at $1500 and the per-adviser levy was $934.

Financial advisers commenting on Marshan’s revelation thanked him for keeping them informed.

One adviser questioned whether the regulator was forced to up the levy due to so many advisers leaving the industry in 2019. fs

FS Advice

7

Sam Henderson speaks out Elizabeth McArthur

F The quote

We can argue whether [the Royal Commission] was done in a constructive way or with a cricket bat.

ormer financial adviser and TV show host Sam Henderson has spoken out for the first time since his Royal Commission appearance and subsequent ASIC ban, taking to the XY Adviser podcast to describe the impact events of the last 18 months have had on his life.

Appearing on the podcast, Henderson said the financial services industry is a victim of “tall poppy syndrome” because the public sees the profits being made by the big banks and then look at fees they pay to those same institutions.

“Understand that the Royal Commission was around building a narrative towards the industry to bring about change,” he said.

“The Royal Commission was not a full investigation… We can argue whether it was done in a constructive way or with a cricket bat.”

Mental health was a topic of conversation for much of the episode, with Henderson citing a statistic that there have been 19 suicides in the financial advice industry in the last nine months.

While that exact number is unconfirmed, suicides in the industry have been widely reported and the Association of Financial Advisers and Financial Planning Association of Australia have each put resources behind mental health initiatives to support members.

Henderson told Financial Standard that statistic was the catalyst for him to speak publicly.

“I wasn’t planning on saying anything; I haven’t said anything to anyone. I haven’t told my story, I haven’t shared it,” Henderson said.

“That statistic was the reason I told my story. I wasn’t suicidally depressed myself, but I thought if my story could bring some light to one person that’s a good thing.”

Following the Royal Commission, Henderson said he embarked on a men’s retreat and read a lot of books to focus on self-reflection and self-development. He now refers to the Royal Commission as a “gift”, he said.

During the discussion, he said that self-reflection made him want to own certain issues. “We’re not innocent victims,” he said. fs

Grave mental health concerns aired The Association of Financial Advisers and the Financial Planning Association of Australia have come together to call for a coordinated approach to supporting the mental health of financial advisers.

At a forum hosted by Zurich Life and Investments, advisers were invited to share their stories coping with mental health concerns.

Those present spoke of being overwhelmed by a “perfect storm” of change – with new education standards, grandfathered commissions being wound up, business values being downgraded and widespread licensee consolidation.

“The message from the conference was that any one of these conditions are red flags that the mental health of a financial adviser and small business

owner might be affected,” said Kristine Brooks, chief distribution officer, Zurich Life and Investments.

“Any adviser impacted by all three at once might really be struggling.”

EQ Wealth principal Simone Du Chesne said: “This is hindering advisers from doing what they love the most and who are potentially working harder for less money. A lot of us are small businesses owners with staff to care for, many of whom are also struggling with the uncertainty pervading our industry at the moment.”

Both the AFA and FPA offer mental health programs for members – AFA Care and FPA Wellbeing.

The two major industry associations agreed there needs to be a bipartisan and coordinated approach to supporting the mental health of financial advisers. fs

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

8

News

www.fsadvice.com.au Volume 15 Issue 01 I 2020

Contribution fees out

Elders FP to shutter

AMP has informed licensees and financial advisers of the end of contribution fees.

In a letter from AMP managing director of superannuation, retirement and platforms Lara Bourguignon, AMP said it would cease charging and paying contribution and non-default contribution fees in the best interests of its clients.

Contribution fees have been removed from six superannuation products, from 31 January 2020, and contribution fees and nondefault contribution fees have ceased being charged on eight PortfolioCare and WealthView products from March 31.

The first round will saw the fees removed from: Flexible Lifetime – Super, Flexible Lifetime – Investment, CustomSuper, Super Directions, Tailored Super and Simple Super.

Ahead of the changes, in order to determine the impact it would have on revenues advisers were supplied with a list of clients the fees are currently paid by, AMP said.

The second round of removals will apply to: PortfolioCare Super Service, PortfolioCare Investment Service, PortfolioCare Elements Super, PortfolioCare Elements Investment, PortfolioCare eWRAP Super, PortfolioCare eWRAP Investment, WealthView eWRAP and WealthView eWRAP Investments.

Advisers were separately supplied with a list of clients paying those fees, AMP said.

Describing them as grandfathered conflicted remuneration, AMP advised that any adviser with clients in these products will stop receiving the revenue or commission relating to those fees. fs

E

Jamie Williamson

The quote

Elders Financial Planning is now moving forward with a phased wind down of its business.

lders Financial Planning will be wound down, the dealer group has confirmed.

In a statement to Financial Standard, a spokesperson for Elders Financial Planning has confirmed a decision to close the dealer group was reached at the end of November 2019.

“Following consultation with its advisers, Elders Financial Planning is now moving forward with a phased wind down of its business,” the spokesperson said.

According to Rainmaker analysis of the ASIC Financial Adviser Register, Elders is currently home to 59 advisers.

The advisers are expected to transition to other licensees, with most likely to move to Millennium3 – the majority owner of Elders.

“Clients will receive letters from their advisers, advising them of the change in arrangements when they

occur,” the spokesperson said. The news follows the departure of its managing director Tony Beaven at the end of November 2019.

Several other senior figures from the business have also made clear they are looking for new opportunities, with Elders SA/WA regional manager Allan Ward looking for a new role alongside EFP national practice development manager Michael Payne.

In October it was confirmed the IOOF-aligned dealer group was in discussions over its future. As a smallscale advice group, the company said it was difficult to generate the income required to cover increasing compliance costs.

“EFP has conducted a review of its business and had identified a potential way forward for EFP and its adviser network. EFP is seeking feedback from advisers on this proposal,” Elders said at the time. fs

FASEA under pressure on managed accounts Elizabeth McArthur

The Financial Adviser Standards and Ethics Authority is under pressure to clarify its stance on all forms of managed accounts.

FASEA chief executive Stephen Glenfield confirmed he has met with the Institute of Managed Account Professionals and is considering whether managed accounts require specific guidance from the authority.

“We’ve met with the IMAP crew,” Glenfield told Financial Standard.

“We are considering whether [managed accounts] need guidance going forward. It’s certainly on our radar.”

Glenfield encouraged those concerned about what standard 3, which says advisers must not advise, refer or act in any other manner where they have a conflict of interest or duty, means for managed accounts to consider the code as a whole – rather than just one standard.

“I think you’d do it in the same way you’ve done other forms of charging a fee. You need to sit back and consider that service in the realms of the totality,” Glenfield said.

“I think it comes down to, if you look at what’s

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

come out of all the enquiries in recent times – has disclosure and conflict management worked?”

He also suggested that some have concerns about conflicts that don’t actually exist.

“What we’re trying to do is show what is an actual conflict. The standard relates to actual conflicts.

I think a lot of what gets discussed is potential conflicts,” Glenfield said.

“It’s about stepping back from those potentials and looking at actual compliance with the code.”

Toby Potter, chair of IMAP, revealed to Financial Standard that IMAP was invited to provide an example to FASEA as a means of seeking clarity on the issue.

IMAP sent an example to FASEA which runs through an advice business with its own AFSL, a broad approved product list and over 1000 clients which began offering multi asset class, multi manager managed accounts five years ago.

In the example, the adviser who recommends managed accounts is also a major shareholder in the advice company and therefore stands to benefit from the margin the advice firm earns on the managed accounts fees.

FASEA has not yet provided its guidance on the IMAP example, but Potter is hopeful. fs

FS Advice

News

www.fsadvice.com.au Volume 15 Issue 01 I 2020

Cbus head’s new move

AMP remediation processes questionable

Kanika Sood

The former head of advice of the $57 billion superannuation fund has launched a new advisory aimed at working with super funds and dealer groups to develop better models of delivering advice.

Greg Harper was Cbus’s head of advice and retirement for over six years, before leaving in October last year following an internal restructure.

Harper is back with his own firm, called the Financial Advice Services Institute (FASI).

FASI will work with superannuation funds, dealer groups or licensees, professional associations, regulatory bodies and political stakeholders on developing better advice models.

The way Harper sees it; there are two main problems for financial advice to solve.

The first is for orgnisations to move away from conflicted performance measures (such as measuring an adviser’s performance by sales, FUM or the number of statements of advice) towards better performance measures, while maintaining commercial success.

The second challenge is for industry super funds to deliver personal advice to members who ask for it, without cross-subsiding it from the combined pool of their total membership.

“It is widely known that there is a lack of expertise in superannuation funds for financial advice,” Harper said.

“The way many superannuation funds have done it is that they have used members’ pooled money to subsidise the cost of non-intrafund advice,” he said.

“The law clearly says that members’ money can’t be used for advice other than intra-fund advice.” fs

FS Advice

9

Jamie Williamson

A The quote

Refunds for those without existing accounts were deposited into newly established AMP accounts.

MP has responded to reports it is refunding planned service fees charged to corporate super members pre-2014 into new AMP superannuation accounts opened without customers’ knowledge or consent.

AMP has confirmed it is depositing refunds owed to former customers into AMP Eligible Rollover Fund accounts opened in their name.

A spokesperson for AMP told Financial Standard the refunds are for planned service fees that were charged to corporate super members up until 2014 and that particular remediation program is now complete.

As part of it, AMP contacted customers last year to notify them of the money they were owed but didn’t ask them to nominate an existing super account for the refunds to be paid into.

The spokesperson said the majority of money returned was to existing members who still have active AMP super accounts. However, the refunds for those without existing accounts were deposited into newly established

AMP Eligible Rollover Fund accounts.

AMP Eligible Rollover Fund accounts incur an investment fee of 0.69% per annum, while administration fees are calculated according to the total balance of the account.

Accounts with a balance of less than $2500 incur an admin fee of 2.36% or $59, while those with a balance between $2500 and $9999 pay 1.18% in admin costs.

Meanwhile, accounts holding $10,000 up to $49,999 are slugged 0.89% and those with more than $50,000 pay 0.65%.

What’s more, the fees equate to a huge chunk of the fund’s returns which have been consistently low for some time.

That said, the fund does have a capital guarantee to ensure the starting balance is not eroded.

As at September 2019, the AMP Eligible Rollover Fund’s five-year return for accounts below $2500 is just 1.6% while that for $50,000 and above is 3%. The other balance thresholds – between $2500-$9999 and $10,000$49,999 – returned 2.6% and 2.8% respectively. fs

True opinions on life commissions Elizabeth McArthur

New research from MetLife suggests that financial advisers should consider multiple payment structures to meet client needs.

The MetLife Client-Adviser Relationship Report looked at what clients want from financial advice and life insurance.

The research found that “commission” isn’t necessarily a dirty word to clients – but they want flexibility in how they pay.

Eight in 10 consumers with life insurance through an adviser would prefer an upfront fee for advice with lower premiums over the life of the policy.

The average amount those consumers were willing to pay was $1700.

About 55% of consumers reported not knowing

how much their adviser receives in commissions.

When asked what type of advice they were willing to pay for, 54% were said they were driven to pay by the desire to build up investments.

That was followed by saving for retirement at 50%.

However, advisers offering life cover may have a bit of a harder time – only 46% were driven to pay a fee to their adviser by life insurance.

Interestingly, 72% of consumers thought removing commissions would result in more people being underinsured.

Only 19% reported that removing commissions would make them more likely to see a financial adviser.

“Our industry has traditionally operated on a commission-for-advice model which has proved to be a highly effective charging method.” fs

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

10

News

www.fsadvice.com.au Volume 15 Issue 01 I 2020

YBR exits wealth, sells for $2.5 million Elizabeth McArthur

M

More support available Eliza Bavin

AMP has announced it will provide free financial advice to Australians who have suffered from the bushfires.

AMP said it has partnered with its advisers to offer the pro-bono service which includes general and personal advice and is available to both AMP clients and members and the general public.

AMP Australia chief executive Alex Wade said the initiative will help individuals and families on their road to recovery.

“We have advisers in local communities across many of the impacted areas who would like to help people get back on their feet,” Wade said.

“AMP has a long history of supporting Australians through tough times and we’ll help those affected by this disaster however we can.”

The financial services company also announced a disaster relief package for its client’s impacted by the fires.

The package includes waiving certain bank fees for those requiring urgent access to their funds, temporarily postponing home loan repayments, a one-off three month waiver form paying AMP life, total and permanent disability, trauma, income protection and business expenses insurance premiums.

The package also includes the earl release of superannuation funds to help with expenses, but only for those whom the ATO has assessed eligible on compassionate grounds. fs

The numbers

$2.5m

YBR sale price.

ark Bouris’ Yellow Brick Road shuttered its wealth business to focus on mortgages, entering into a sale agreement for a sum of approximately $2.5 million.

YBR Wealth’s share of rights to the recurring revenue streams derived from its wealth advice and life insurance distribution businesses has been sold to Interprac, a wholly owned subsidiary of Sequoia Group.

The sale will mean current YBR Wealth advisers will become licenced advisers of Interprac (which holds an AFSL within the Sequoia Group).

Rainmaker analysis of the ASIC Financial Adviser Register shows that YBR had 58 advisers in the middle of December and that number has not yet changed following the announcement of the sale on 27 December 2019.

Each adviser will have to enter a new agreement with Sequoia and complete an onboarding process. YBR advisers who do transfer will continue to provide services to their existing clients under Interprac’s AFSL and will retain their

rights to income from their client books.

YBR advisers who do not transfer will be assisted in selling their rights to income from their client book to other transferring YBR advisers or other advisers within the Sequoia Group.

The $2.5 million sale price is dependent on all YBR advisers transferring on completion of the sale – otherwise that price will be reduced pro rata for any non-transferring revenue streams.

Whether the YBR Super book will be included in the sale is up in the air for the time-being.

The sale price could also come down if any advisers are terminated within an 18-month period post-sale or if there are compliance issues.

As part of the agreement, Sequoia Group will act as the preferred referral partner for YBR’s mortgage broking network.

The cross-referral agreement means mortgage customers who need wealth advice will be referred to Sequoia and advice customers who need mortgage broking services will be referred to YBR. fs

Pro bono support for bushfire victims The Financial Planning Association of Australia is establishing a pro bono program where members can volunteer their time to help Australians impacted by the bushfire crisis.

“The FPA community supported those who suffered in the 2009 Black Saturday bushfires and we want to offer our support again,” FPA chief executive Dante De Gori said.

“Our members have lifelong relationships with some of the people impacted by the bushfires. We will be offering whatever aid we can to help rebuild and recover.” Any FPA member who is interested in signing up to the pro bono program to help those impacted by the bushfires can contact the FPA by emailing probono@fpa.com.au.

The association is also reminding members that if they have been free, confidential support is available

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

through FPA Wellbeing and through the association’s critical incident and major events resource kit.

The pro bono program is being finalised, those needing support will be able to apply in the coming weeks.

It’s just the latest in a range of initiatives from the industry reaching out to those impacted by bushfires.

Separately, Victorian financial advice firm Tribeca Financial is also doing its bit to support those in need.

The firm took to social media to offer financial advice services at no charge to those affected by the bushfire emergency.

“The impact to families around the country is longlasting and overwhelming. Those affected will require long term support to get back on their feet. So, we’d like to help in our own small way,” the firm said on Facebook. fs

FS Advice

News

www.fsadvice.com.au Volume 15 Issue 01 I 2020

11

Bank of Mum and Dad forking out serious dosh Ally Selby

M

ore young Aussies are turning to their parents, the appropriately dubbed ‘Bank of Mum and Dad’, to help secure equity for a first home deposit, and financial advisers are split on the growing trend.

For some, the lucky few, the money for the deposit is a gift. For others, it’s a loan, with parents offering to match their kid’s savings or covering the deposit in full.

Parents are forking out an average $250-$300k to help their children afford a home deposit, according to retirement funding provider Household Capital’s chief executive Josh Funder.

“For a lot of Baby Boomers they enjoy such great longevity that their children don’t get to enjoy their wealth until they are old themselves,” he said.

“Parents aspire to be the ‘Bank of Mum and Dad’ and provide financial support to their children. But intergenerational wealth transfer needs to be responsible. Boomers must make sure their own needs are met before trying to assist their loved ones,” Funder said.

Financial adviser Hugh Robertson said his Baby Boomer clients get “tremendous satisfaction” from this new trend of wealth transfer.

“A number of our clients want to help their kids now when it will add the most value to them, whether that be helping them pay down home loan debt, assisting in buying a family car, holidays away or the school fees. This gives our baby boomer clients tremendous satisfaction to see their wealth put towards something so available to them - their family,” he said.

“After some thorough financial planning the client knows they will not run out of money and therefore have peace of mind they will be okay, and are immensely proud to be able to help their children and provide a family legacy of providing for the next generation.”

FS Advice

However, financial adviser Troy Theobald said Boomers are starting to feel the pinch.

“Baby Boomers are dealing with their ageing parents needing to go into aged care and also their kids not being able to afford housing and they are also becoming grandparents themselves,” he said.

That said, he doesn’t see any issue with parents assisting their children with home deposits.

“If parents are in a position to help then it is probably the greatest thing they can provide for their kids beside education,” Theobald said.

Not everyone will be in the position to fork out a home deposit for their children, and as financial adviser Chris Carlin warns, not all experiences with the ‘Bank of Mum and Dad’ will be positive.

“Most of my examples of using the ‘Bank of Mum and Dad’ have been quite negative, not so much from a financial perspective but from an emotional and relationship experience,” Carlin said.

“Upon getting the arrangement set up, there is quite a lot of ‘pressure’, whether perceived or actual, from the parents to the children to pay off the loan as soon as possible. Simple pleasures like a weekend away or a night out can cause considerable angst and anger as the ‘children’ don’t want to feel like a child again.”

Theobald has seen the Bank of Mum and Dad open its cheque book as recently as yesterday.

“We had younger clients in yesterday that are paying $650 a week in rent, they both work hard but it is hard to get ahead and build that deposit.

The home loan they would look to take out would only be an additional $380 a week. In their instance there was a parent that was willing to provide the deposit,” he said.

Theobald said the new trend had spawned from decades of low interest

The quote

Buying your house and paying down the mortgage is one of life’s great achievements.

rates and people gearing their investments to the max, locking younger generations out of the property market with high prices.

“The need for this is more out of necessity,” he said.

“We have seen low interest rates that have allowed Australians to borrow more to buy more housing, which in turn, pushes costs up. Negative gearing allows them to buy additional properties which forces prices higher again.

“This is a generational issue.

There is now a generation of X, Y and Millennials that will spend most of their working lives simply trying to afford their home.”

Carlin argued that young people should try stand on their own two feet.

“I would always advise not to proceed with the bank of Mum and Dad,” he said.

“There are incentives available of up to $82,145 for first home buyers (in Victoria) and with the various schemes available and the right advice I am confident everyday Australians can continue to access the housing market.”

Robertson disagreed.

“As a parent, if I were in the financial position to help my children I would always offer,” he said.

“My personal view is that buying your house and paying down the mortgage is one of life’s great achievements - to be debt free and to have the satisfaction of doing it.

“If parents are seeing their kids work long hours and struggle to purchase a property, I can understand that if you were in the financial position to assist, then you could be inclined to do so.” fs

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

12

News

www.fsadvice.com.au Volume 15 Issue 01 I 2020

Improve or lose, super Challenger’s Jeremy Cooper is calling for better product design from super funds as new research shows most Australian seniors are living in fear that they will outlive their savings.

New insights from Challenger and National Seniors Australia reveal 53% of older Australians are worried about outliving their savings and women are even more worried.

About 59% of women are concerned they’ll outlive their retirement savings, as opposed to 47% of men. This comes down to longer life expectancy, pay inequality, marital status and gender role expectations.

The report found people currently retired and receiving some income from super were more likely to be unconcerned (39%) than those who were retired, but not receiving any income from superannuation (27%).

Those without any super income, meanwhile, were the most likely to worry frequently (23%).

“Super not only provides a reliable source of income, but also reduces worry for older Australians. On average, women live three years longer than men, but our super system doesn’t cater for this difference in longevity,” Challenger chair of retirement income Jeremy Cooper said.

“What this and other National Seniors research clearly highlights is that people treat the age pension and their own savings differently.”

Cooper said it’s clear people fear running out of their own money, even though the safety net of the age pension will be there for them.

“This sends a strong signal that people worry about being solely reliant on the age pension,” he added. fs

Sophistication: More than money Elizabeth McArthur

U

The quote

You should treat this person in a manner consistent with their level of financial understanding.

nder the FASEA Code of Ethics the amount of money an individual has to invest can no longer be relied upon to determine whether they are a sophisticated investor or not.

Sophisticated investors are defined by ASIC’s Money Smart as investors with a gross annual income of $250,000 or more in each of the previous two years and net assets of at least $2.5 million.

That’s the same definition prescribed

by Corporations Regulations 2001.

However, in FASEA’s guidance accompanying its Code of Ethics, accounting certificates declaring a person to be a wholesale investor because of assets alone were brought into question.

Stephen Glenfield told Financial Standard: “This relates to standard 1 – complying with the intent of the law. In the guidance to the Code we give an example of an adviser relying on accounting certificates that declare the person to be a wholesale investor because of assets (most likely the family home), yet it is clear in dealing with the person they are not a sophisticated investor and have little understanding of finance.”

The example in question details a couple with a family home in Bondi worth $3.4 million whose stockbroker and financial adviser declare them wholesale clients.

When the wife in this imaginary scenario comes into a $20,000 inheritance she tells the adviser that she has no clue about money matters and asks for a recommendation.

The stock the adviser recommends crashes by 25% and, as the client is a wholesale investor, there is no Statement of Advice.

“The code, which governs ethical behaviour and values, would suggest that ethically you should treat this person in a manner consistent with their level of financial understanding,” Glenfield said.

However, he reiterated that the code does not apply to genuine wholesale advice.

David Lane – director, senior adviser and representative at Pitcher Partners Brisbane – said to meet best interests duty most good financial advisers would not look at clients in such simple terms. fs

ASIC bans former Charter, NAB adviser Kanika Sood

A financial adviser who worked for AMP’s Charter Financial Planning and NAB’s GWM Adviser Services has been handed a four-year ban after the regulator reviewed a sample of his client files.

David O’Brien failed to consider his clients’ circumstances and existing financial products while providing advice, ASIC said.

In providing superannuation advice, O’Brien did not check costs, investment strategy or his clients’ existing insurance through their superannuation arrangements.

When providing insurance advice, he failed to prepare a needs analysis or objectively assess what level of insurance cover would achieve his clients’ needs, ASIC said.

“One of Mr O’Brien’s clients had their cover declined for pre-existing medical conditions after

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

their existing insurance had been cancelled, leaving them uninsured,” the regulator said.

O’Brien was licensed by AMP for close to eight years, first through Jigsaw Support Services and later Charter Financial Planning. He then moved to GWM Adviser Services in July 2016.

O’Brien is a member of the Financial Planning Association of Australia, according to the ASIC Financial Adviser Register.

He has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decision.

He is the 64th adviser to be banned by ASIC under its investigation of the conduct at the big four banks, AMP and Macquarie. ASIC is looking at the conduct of Australia’s biggest financial institutions in areas of credit and retail lending, financial advice, fees for no service, superannuation trustees, insurance, unfair contract terms and other licensee obligations. fs

FS Advice

News

www.fsadvice.com.au Volume 15 Issue 01 I 2020

Future of risk in doubt The Australian Prudential Regulation Authority released its look-back at 2019, making special mention of tough times for the life insurance industry and questioning its sustainability.

“Australia’s life insurance sector faced deteriorating conditions over 2019,” APRA said in its report Safeguarding Australia’s Financial Wellbeing.

The viability of some life insurance products, the regulator said, is in severe doubt due to risks and challenges hampering profitability.

“For a fifth straight year, the performance of individual disability income insurance worsened taking losses over that time to more than $3 billion,” it said.

The profitability of individual lump sum insurance and group disability income insurance also deteriorated.

APRA said this was, in part due, to “poor product design” and “aggressive” selling methods, as highlighted during the Royal Commission.

“Some long-standing issues in this industry remain unresolved, including how to deal with legacy products,” the regulator said.

“These products have become increasingly complex and expensive to administer over time, resulting in poor consumer outcomes and increased operational risk for insurers.”

The inappropriate sale of life insurance and poor claims handling practices were also highlighted as issues.

Protecting Your Superannuation legislation removing life insurance for low-balance super members and Putting Members’ Interests First making life insurance opt-in for members under the age of 25 were also acknowledged as contributing to turbulent times for the industry in 2019. fs

FS Advice

13

ASIC claims to support robo-advice Elizabeth McArthur

I The quote

Different types of digital advice models face different challenges.

n a submission to the Select Committee on Financial Technology and Regulatory Technology, ASIC has claimed it is “supportive” of robo-advice, though harbours concerns around its ability to meet the best interests duty.

The regulator said it has met with industry to discuss proposed models for robo-advice covering risk profiling and investment advice, superannuation strategies, life insurance, selfmanaged super fund establishment and holistic advice.

“Different types of digital advice models face different challenges in meeting their obligations, and this is likely to affect the trends in digital advice in Australia,” ASIC said.

ASIC made mention of Lime FS recently agreeing to shutter its digital advice tools, saying that this was an example of robo where the regulator had concerns about the quality of advice given and how that advice was monitored.

Speaking to Financial Standard at the time of ASIC’s announcement, Lime’s director said it is extremely difficult to operate robo-advice in the Australian regulatory environment.

He said holistic advice was almost impossible to offer under ASIC’s current approach to regulating roboadvice.

However, ASIC makes specific mention of holistic advice as one of the areas of financial advice where robo could meet demand in this new submission.

Later in the submission, the regulator detailed its concerns that robo advisers might not be able to comply with best interests duty – for example, ASIC questioned how a robo-advice offering might be sure that the client understands the scope of the advice they are receiving.

“Natural persons who provide financial product advice to retail clients are required to meet the minimum training and competence standards for advisers in Australia,” ASIC then said.

“For digital advice licensees to meet the organisational competence obligation in RG 105 Licensing: Organisational competence (RG 105), ASIC requires that a licensee has at least one responsible manager who meets the training and competence standards.” fs

IOOF identifies 67 high risk advisers Eliza Bavin

Embattled wealth manager IOOF has told the House of Representatives Standing Committee on Economics that it has identified 67 “higher risk” financial advisers within its business.

The number comes as IOOF fronts the committee to answer questions previously taken on notice, as part of the parliament’s review into the financial services and superannuation industry.

The wealth manager also admitted to lagging behind when it comes to making remediation payments, saying until it completes a full analysis of the situation it would “not be prudent” to estimate how many clients have been impacted.

“IOOF has not commenced making the remediation payments that form part of this provision as we are still in the process of collecting

and assessing remediation data. However, we are committed to ensuring this process is completed as quickly as possible,” IOOF said.

“We have directed significant resources towards remediation and have engaged independent experts (one for investigations and another for remediation) to develop and implement (and therefore expedite) the remediation process. This will help us ensure we achieve the best outcome for our clients.”

The wealth manager said it expects remediation payments to begin this year and will be able to provide further information once it has completed its internal analysis.

Despite remediation payments lagging behind the big four banks, IOOF said it believes doing analysis over a six month period would be considered “reasonably swift”. fs

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

14

Opinion

www.fsadvice.com.au Volume 15 Issue 01 I 2020

Dawn Thomas executive relationship manager Wealthwise Financial Planning

Playing with different rules here are statements that most reasonable T people will agree on in regards to female centric issues.

More women should become financial advisers, more women should seek financial advice, there should be better support of working parents, women should be paid fairly, women should be secure in their retirement.

These war cries come out in full force around International Women’s Day. The day passes, the chants for change quieten and the plan for transformation is neatly boxed away like the last year’s Christmas decorations.

When it comes to prioritising action, female centric issues, take a back seat to ‘essentials’ such as profitability.

Some statistics to consider: 22% of financial advisers are women, the wage gap in the financial services industry is 27%, women over 55 are the fastest growing demographic of people who are homeless, up to 70% of women leave their financial advisers when their husbands pass away.

Unsurprisingly, an Australian Institute of Health and Welfare survey revealed that 40% of Australians feel that gender inequality is exaggerated.

What does gender inequality feel like to a working mother in financial advice?

It feels like you are invited to play a game, promised that it will be governed fairly, and then you find out that you have an additional set of penalising rules that the other players don’t have to adhere to.

I started a family, post graduate studies and my financial planning career at the same time.

At that stage, I was the only woman in my department who intended to have a family and return to work.

There was no scope to adjust my targets,

resulting in the same measurement of outcomes as my peers within a shorter time frame.

I chose to be a working mother and, as so many women find out, this does ultimately affect remuneration.

It is demoralising seeing your figures flashed up next to everyone else’s.

The figures don’t tell the whole story and it can make you feel that you are awful at your job.

For women in my position, our obstacles are largely invisible to peers. We stay silent because we are used to getting the job done regardless of circumstance.

At times I was blind to my obstacles and it is only upon reflection that I understand the hurdles I have overcome.

I went into labour five weeks early and had an emergency c-section.

At the time, I was completing a master’s degree. The education provider wanted proof that I was in hospital and that the csection was not planned.

Then, the extension was only by the amount of time I’d been in hospital.

There was no understanding that when I got home to my 17-month-old and threeyear-old, I would be nursing a baby and on very little sleep.

I relied on right handed typing as I held my baby in my left arm, while he fed.

The new education standards introduced have become an unintended barrier for working mothers.

My question is, for all the rhetoric around getting more women into financial advice – has anyone really considered the support they’d need to meet those requirements?

I also experienced other ugly dimensions of gender inequality when I left the safe confines of a large financial institution.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

When someone disregards your worth as a professional in favour of looking at your physicality, it is soul-crushing.

Why express this in such a public forum when it risks having me labelled as weak or exaggerating the situation?

For the ‘you’ reading this, who is similar to ‘me’, we are in this together and we play a crucial part in this industry flourishing.

More women in our industry will make financial advice more inclusive to more Australians. But how can women even the playing field?

My tips to survive, thrive and bridge the inequality gap • Ensure you are getting support at home.

• Find leaders who will invest in you.

• Ask for the flexibility you need to be successful at work.

• Unapologetically own your value.

• If remuneration can’t be changed, ask for other benefits. My previous employers supported me in other ways such as sponsoring my studies and sending me on leadership courses.

• Flood your world with the amazing women and male advocates in this industry.

Find your community of like-minded people in the industry – whether it’s online or in the office break room.

• Grow and self-reflect by reading development books. Start with Lean in by Sheryl Sandberg & See Jane Lead by Lois P Frankel and go from there • Get the hang of coffee catch ups with people in the industry.

• Don’t ever hide your light.

The Royal Commission revealed that the financial planning industry has to work on gaining the trust of the public. Maybe it is time we start changing the game altogether. fs

FS Advice

News

www.fsadvice.com.au Volume 15 Issue 01 I 2020

15

Financial advisers still unclear on referral rules Elizabeth McArthur

T

he Financial Adviser Standards and Ethics Authority Code of Ethics which came into effect from the start of the year has left many unclear on what kind of referrals are allowed.

Amid news that Mark Bouris’ Yellow Brick Road would exit wealth to focus on mortgages, a referral agreement that was part of the sale sparked debate.

As part of the agreement, Sequoia Group will act as the preferred referral partner for YBR’s mortgage broking network.

The cross-referral agreement means mortgage customers who need wealth advice will be referred to Sequoia and advice customers who need mortgage broking services will be referred to YBR. News of a new referral agreement so early in the first year of the Code of Ethics coming into effect prompted some to wonder whether it was compatible with the code.

Standard 3 in the Code of Ethics (“You must not adviser, refer or act in any other manner where you have a conflict of interest or duty.”) appears to be the source of some confusion on the issue.

However, a spokesperson for FASEA reiterated that the code does not apply to businesses like YBR or the structures they put in place – only to individual financial advisers.

In FASEA’s preliminary response to submissions from stakeholders on the Code of Ethics it first attempted to clear up the referral issue.

“Many industry stakeholders sought clarity on when referral fees are banned, specifically in relation to adviser and/or licensee existing third party referral arrangements,” FASEA said.

“FASEA confirms that referrals to specialists or other professionals are acceptable. However, financial advisers cannot receive referral fees directly

FS Advice

from a third party for advice and services provided to their client, even if these are non-financial products.”

In the same response, FASEA provided an example where an adviser had a referral arrangement with a mortgage broker.

The question states: “In return the mortgage broker gives me a $500 payment from the commission he receives for the loan/mortgage. Given this is not a financial product that is affected by the code can I still receive this fee?”

And the response from FASEA said simply: “Referral fees received from a third party directly to the adviser will breach the Code of Ethics.”

However, in another example question about licensee referral agreements FASEA was clear in saying: “Licensee arrangements fall outside the code and will not be required to change as they are not subject to the code provisions.”

Financial Planning Association of Australia head of policy and standards Ben Marshan told Financial Standard: “I guess the problem is FASEA is not overly clear in how it communicates.”

He added that FASEA’s position on referral fees is actually clearer than other issues raised by industry bodies and financial advisers about the Code of Ethics.

But, he said: “They have still managed to create uncertainty and confusion with how they communicated in the guidance document.”

For Marshan, the issue in part comes back to the need for a code monitoring body to tell advisers exactly how the FASEA standards will be interpreted.

“So until FASEA are clearer - or until we have a code monitoring body - there actually isn’t an answer, and only more pain, confusion and uncertainty,” Marshan said.

Association of Financial Advisers general manager, policy and professionalism Phil Anderson said many advisers have raised concerns regard-

The quote

Referral fees received from a third party directly to the adviser will breach the Code of Ethics.

ing the impact of the code on the viability of their businesses – particularly in relation to referral agreements.

Anderson explained the payment of referral fees to other professionals like accountants and mortgage brokers is the main way many advisers gain new clients and without the certainty of those flows of business they could be facing an uphill battle.

“We are getting feedback from members and the issue of referrals in particular is one that I think is has triggered a great deal of concern,” Anderson said.

“In particular, it’s an issue because changing referral agreements mean they need to make significant changes to their current business models. And have they been given the time or support to do that?”

Anderson made it clear that he doesn’t see how businesses paying referral fees to accountants and mortgage brokers could be seen as a conflict of interest at all.

On the question of arrangements like YBR’s, Anderson explained the code does not apply at the business level.

However, if individual financial advisers were referring inline with a company level agreement but the referral was not in the best interests of the client that adviser would ultimately be culpable. fs

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

16

Tables

www.fsadvice.com.au Volume 15 Issue 01 I 2020

Top 5 SQM Research Rated Funds Ranked by 1 Year Total Return % APIR Code

Fund Name

1yr Return

3yr Return

5yr Return

PERIOD ENDING – DECEMBER 2019

1yr StdDev

Mgmt Fee

SQM Rating

Size $ mill

ALTERNATIVES MON0001AU

Monash Absolute Investment Class A

37.01

8.25

7.57

9.81

1.54

3.75

20.5

BEG0006AU

Australian Equities Extension Fund

20.51

8.30

9.70

9.48

0.44

4.00

235.6

COR0001AU

Cor Capital Fund

10.39

6.46

5.49

3.08

1.03

4.00

110.0

MAQ5143AU

P/E Global FX Alpha Fund

6.84

n/a

n/a

13.85

1.88

4.25

93.6

BEG8635AU

Multi Strategy Alternative

6.26

n/a

n/a

7.23

0.21

4.00

364.6

248.4

DOMESTIC PROPERTY SECURITIES BTA0061AU

Pendal Property Securities

22.92

10.66

11.63

11.45

0.65

4.25

NFS0209AU

Antares Prof Listed Property

18.45

6.90

8.89

11.64

0.72

3.75

60.6

ZUR0064AU

Zurich Investments Aus Property Secs

18.26

9.04

10.78

10.25

0.81

4.25

274.4

COL0001AU

Charter Hall Maxim Property Securities

18.16

10.98

12.81

8.60

0.95

4.25

160.5

APN0004AU

APN Property for Income No. 2

15.64

8.11

10.25

8.35

1.08

3.75

37.4

47.6

FIXED INCOME MAQ0782AU

Premium Asia Income

15.49

8.76

9.84

3.56

0.98

4.25

CIM0161AU

Capital Group Global Corp Bond Hedged

12.52

n/a

n/a

3.80

0.60

4.00

0.8

CIM3839AU

Capital Group Global High Inc Opps H

10.99

n/a

n/a

6.06

0.85

4.00

11.3

MST0002AU

Mason Stevens Credit

7.81

4.81

4.95

1.31

0.64

4.25

114.0

SIA0001AU

SPW Global Income

7.80

4.23

4.78

3.08

1.00

4.00

26.2

INFRASTRUCTURE SECURITIES AAP3254AU

Ausbil Global Essential Infras Wholsl

29.71

n/a

n/a

7.25

1.00

4.00

67.3

BFL0019AU

4D Global Infrastructure

29.39

16.64

n/a

6.75

0.95

4.00

80.1

TGP0016AU

RARE Infrastructure Income

28.48

12.50

9.71

7.76

1.03

4.25

160.5

MICH

Magellan Infrastructure Ccy Hdg ETF

27.07

13.64

n/a

8.79

1.05

4.25

583.2

TGP0008AU

RARE Infrastructure Value Hedged

25.71

10.35

7.66

7.84

1.03

4.00

928.4

EQUITIES BIM8414AU

Bombora Special Investments Growth

52.89

n/a

n/a

16.36

1.50

4.00

0.0

ECL0984AU

Ellerston Australian MicroCap Fund

44.80

n/a

n/a

7.24

1.20

4.00

82.8

AAP0007AU

Ausbil MicroCap

42.07

18.65

20.99

9.68

1.20

4.00

262.2

ETL0390AU

Evans and Partners International Fund

39.91

17.87

15.00

10.69

1.25

4.00

62.2

CLA1557AU

Clime Smaller Companies

39.72

n/a

n/a

8.23

1.03

4.00

0.0

217.3

GLOBAL PROPERTY SECURITIES BFL0020AU

Quay Global Real Estate-Daily Series

23.89

12.96

n/a

8.79

0.82

4.50

APN0023AU

APN Asian REIT

23.87

15.52

11.63

7.42

0.98

4.00

58.2

WHT0015AU

Resolution Capital Global Property Secs

23.72

9.60

8.54

10.83

0.80

4.50

1253.3

SLT0054AU

Reitway Global Property Portfolio

22.84

8.08

8.00

9.93

1.50

3.75

0.0

MAQ0832AU

Macquarie True Index Glbl Rel Est Secs

22.10

9.37

8.81

9.30

0.00

4.50

147.8

MORTGAGE TRUST TGY0003AU

Trilogy Monthly Income Trust

7.57

7.77

7.87

0.08

0.96

4.00

404.9

LTC0002AU

La Trobe Financial 12 Month Term Account

5.27

5.31

5.38

0.02

1.57

4.25

3089.0

PER0697AU

Firstmac High Livez Wholesale

5.07

4.78

4.86

0.63

0.35

4.00

74.4

PER0561AU

FirstMac High Livez

4.80

4.53

4.61

0.63

0.45

4.00

74.4

ETL0122AU

EQT Wholesale Mortgage Income

3.83

3.64

3.84

0.04

0.81

3.75

307.5

10.54

12.74

12.50

2.42

1.13

4.75

1650.0

DIRECT PROPERTY AUS0102AU

AUI Healthcare Property Trust R

Copyright 2019 SQM Research Pty Ltd The rating contained in this document is issued by SQM Research Pty Ltd ABN 93 122 592 036 AFSL 421913. SQM Research is an investment research firm that undertakes research on investment products exclusively for its wholesale clients, utilising a proprietary review and star rating system. The SQM Research star rating system is of a general nature and does not take into account the particular circumstances or needs of any specific person. The rating may be subject to change at any time.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

Source:

FS Advice

Tables

www.fsadvice.com.au Volume 15 Issue 01 I 2020

Top 50 ETFs Ranked by 1 Year Total Return

17

PERIOD ENDING – DECEMBER 2019

1m Return

3m Return

6m Return

1yr Return

3yr Return

5yr Return

1yr StdDev

BETASHARES GEARED US EQ CCY HDG ETF

5.20

17.39

19.67

69.00

BETASHARES GEARED AUSTRALIAN EQUITY ETF

-4.94

0.56

4.78

52.13

25.46

N/A

29.23

INTERNATIONAL EQUITIES

15.84

12.61

19.28

AUSTRALIAN EQUITIES

ETPMPD

ETFS PHYSICAL PALLADIUM ETC

0.80

9.91

25.46

MNRS

BETASHARES GLB GOLD MINERS ETF-CCY HDG

8.69

14.46

25.21

51.50

42.32

22.27

20.95

ALTERNATIVES

50.98

12.58

N/A

27.29

INTERNATIONAL EQUITIES

CNEW

VANECK VECTORS CHINA NEW ECONOMY ETF

4.29

6.05

8.78

GDX

VANECK VECTORS GOLD MINERS ETF

4.35

4.86

14.26

40.52

N/A

N/A

24.89

INTERNATIONAL EQUITIES

66.6

39.43

13.56

N/A

26.50

INTERNATIONAL EQUITIES

200.1

NDQ

BETASHARES NASDAQ 100 ETF

0.00

8.24

TECH

ETFS MORNINGSTAR GLOBAL TECHNOLOGY ETF

-1.12

6.73

13.86

38.71

23.28

N/A

13.37

INTERNATIONAL EQUITIES

717.1

14.51

38.14

N/A

N/A

18.58

INTERNATIONAL EQUITIES

123.8

GLIN

AMP CAPITAL GLOBAL INFRAS SECS UNHDG ETF

2.22

3.00

ASIA

BETASHARES ASIA TECHNOLOGY TIGERS ETF

4.09

14.20

9.38

37.88

14.25

N/A

8.43

PROPERTY

21.14

37.20

N/A

N/A

17.97

INTERNATIONAL EQUITIES

QUAL

VANECK VECTORS MSCI WLD EX AUS QLTY ETF

-0.25

6.93

ETHI

BETASHARES GLOBAL SSTNBTY LDRS ETF

-0.01

8.16

12.84

35.78

18.22

15.07

10.89

INTERNATIONAL EQUITIES

910.1

13.32

35.60

N/A

N/A

9.60

INTERNATIONAL EQUITIES

520.8

QLTY

BETASHARES GLOBAL QUALITY LEADERS ETF

-0.58

6.82

12.13

34.52

DIV

UBS IQ MORNINGSTAR AUSTRALIA DIV YLD ETF

-2.02

2.96

8.80

33.95

N/A

N/A

11.13

INTERNATIONAL EQUITIES

36.8

10.15

8.01

9.77

AUSTRALIAN EQUITIES

CETF

VANECK VECTORS CHINAAMC CSI 300 ETF(AU)

2.40

3.99

4.19

33.57

21.9

5.38

N/A

20.65

INTERNATIONAL EQUITIES

MOAT

VANECK VECTORS MORNINGSTAR WIDE MOAT ETF

-3.05

4.90

13.79

31.9

33.42

18.58

N/A

14.39

INTERNATIONAL EQUITIES

179.8

ITW

ISHARES MSCI TAIWAN ETF

2.45

10.84

WCMQ

WCM QUALITY GLBL GR ETF (QUOTED MGD)

-0.10

2.47

19.92

32.99

15.46

12.36

10.30

INTERNATIONAL EQUITIES

5.9

4.88

32.13

N/A

N/A

10.13

INTERNATIONAL EQUITIES

109.5

FEMX

FIDELITY GLOBAL EMERGING MARKETS ETF

2.59

CURE

ETFS S&P BIOTECH ETF

-1.75

8.14

9.59

32.06

N/A

N/A

8.85

INTERNATIONAL EQUITIES

70.8

19.94

8.34

31.99

N/A

N/A

26.34

INTERNATIONAL EQUITIES

UBU

UBS IQ MSCI USA ETHICAL ETF

-0.87

4.76

7.1

10.55

31.38

15.94

N/A

11.26

INTERNATIONAL EQUITIES

8.8

RBTZ

BETASHARES GLB RBTC & ARTFCL INTLGC ETF

-1.17

VTS

VANGUARD US TOTAL MARKET SHARES ETF

-1.02

6.09

6.01

31.20

N/A

N/A

20.13

INTERNATIONAL EQUITIES

29.7

4.59

10.01

31.00

15.70

14.64

11.71

INTERNATIONAL EQUITIES

1866.7

IVV

ISHARES S&P 500 ETF

OOO

BETASHARES CRUDE OIL ETF CCY HGD(SYNTH)

-1.06

4.46

10.53

30.97

16.16

14.97

11.20

INTERNATIONAL EQUITIES

3621.4

10.83

12.82

4.31

30.77

1.59

-9.71

30.03

ALTERNATIVES

SPY

SPDR(R) S&P 500 ETF

-1.37

4.10

10.04

30.58

16.02

14.87

11.37

INTERNATIONAL EQUITIES

IOO

35.7

ISHARES GLOBAL 100 ETF (AU)

-0.15

5.38

11.00

29.70

15.45

13.15

10.06

INTERNATIONAL EQUITIES

1902.2

VESG

VANGUARD ETCLLY CONS INTL SHRS ETF

-0.30

5.28

10.72

29.62

N/A

N/A

9.81

INTERNATIONAL EQUITIES

70.2

ROBO

ETFS ROBO GLBL ROBOTICS AND ATMTN ETF

-1.11

6.37

5.88

29.50

N/A

N/A

21.39

INTERNATIONAL EQUITIES

135.6

IHVV

ISHARES S&P 500 AUD HEDGED ETF

2.64

8.44

9.91

29.09

14.04

11.36

12.75

INTERNATIONAL EQUITIES

280.6

IHOO

ISHARES GLOBAL 100 AUD HEDGED ETF

3.23

8.30

10.54

28.54

13.63

10.92

11.54

INTERNATIONAL EQUITIES

54.0

MVR

VANECK VECTORS AUSTRALIAN RESOURCES ETF

0.56

4.07

3.93

28.42

18.14

14.36

14.51

AUSTRALIAN EQUITIES

HACK

BETASHARES GLOBAL CYBERSECURITY ETF

-5.04

4.20

4.88

28.27

16.56

N/A

20.11

INTERNATIONAL EQUITIES

QMIX

SPDR(R) MSCI WORLD QUALITY MIX ETF

-1.11

3.47

9.28

28.24

14.42

N/A

9.04

INTERNATIONAL EQUITIES

26.0

VGS

VANGUARD MSCI INTL ETF

-0.86

4.27

9.12

28.11

13.85

12.29

10.28

INTERNATIONAL EQUITIES

2207.5

UBW

UBS IQ MSCI WORLD EX AUSTRALIA ETHCL ETF

-0.82

4.32

9.14

27.98

13.75

N/A

10.26

INTERNATIONAL EQUITIES

46.3

MGE

MAGELLAN GLOBAL EQUITIES ETF

-0.90

3.12

5.00

27.90

17.03

N/A

10.85

INTERNATIONAL EQUITIES

1649.3

ESGI

VANECK VECTORS MSCI INTL SUST EQ ETF

-0.83

4.95

10.22

27.34

N/A

N/A

9.60

INTERNATIONAL EQUITIES

27.9

WXOZ

SPDR(R) S&P WORLD EX AUSTRALIA ETF

-0.81

4.23

9.02

27.30

13.63

12.00

10.09

INTERNATIONAL EQUITIES

216.7

QUS

BETASHARES FTSE RAFI US 1000 ETF

-0.88

3.91

9.64

27.19

11.15

11.86

12.26

INTERNATIONAL EQUITIES

53.0

IWLD

ISHARES CORE MSCI WORLD ALL CAP ETF

-0.87

4.02

9.04

27.10

12.97

N/A

10.17

INTERNATIONAL EQUITIES

136.9

EX20

BETASHARES AUS EX-20 PORT DIVRS ETF

-2.22

3.06

6.90

27.09

12.54

N/A

9.36

AUSTRALIAN EQUITIES

168.0

MICH

MAGELLAN INFRASTRUCTURE CCY HDG ETF

1.60

1.69

3.68

27.07

13.64

N/A

8.79

PROPERTY

583.2

VGAD

VANGUARD MSCI INTL (HDG) ETF

2.30

7.50

8.97

27.02

12.09

10.00

11.85

INTERNATIONAL EQUITIES

773.7

MHG

MAGELLAN GLOBAL EQUITIES CURRENCY H ETF

2.35

6.38

4.59

26.71

15.62

N/A

12.03

INTERNATIONAL EQUITIES

133.6

ETPMPM

ETFS PHYSICAL PM BASKET ETC

1.09

2.14

14.87

26.43

14.50

9.33

12.79

ALTERNATIVES

11.6

VISM

VANGUARD MSCI INTERNATIONAL SC ETF

-0.44

5.40

8.65

26.27

N/A

N/A

12.13

INTERNATIONAL EQUITIES

29.8

VBLD

VANGUARD GLOBAL INFRASTRUCTURE ETF

0.44

-0.37

6.65

26.27

N/A

N/A

6.91

PROPERTY

80.9

HEUR

BETASHARES EUROPE ETF-CCY HDG

1.22

5.37

6.95

26.21

8.90

N/A

12.62

INTERNATIONAL EQUITIES

27.9

IHWL

ISHARES CORE MSCI WORLD ALL CAP AUDH ETF

2.21

7.12

8.83

26.04

11.38

N/A

11.73

INTERNATIONAL EQUITIES

240.4

Code

Fund Name

GGUS GEAR

Asset Class

Only licensed financial advisers may use the SQM Research star rating system in determining whether an investment is appropriate to a person’s particular circumstances or needs. You should read the product disclosure statement and consult a licensed financial adviser before making an investment decision in relation to this investment product. SQM Research receives a fee from the Fund Manager for the research and rating of the managed investment scheme.

FS Advice

Size $ mill 29.7 102.2 5.8 15.7

36.9 110.8

23.6

69.7 193.9

Source:

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

18

Cover story

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

www.fsadvice.com.au Volume 15 Issue 01 I 2020

FS Advice

Cover story

www.fsadvice.com.au Volume 15 Issue 01 I 2020

19

EMPOWERING ABILITY William Johns, Health & Finance Integrated There’s a lot of talk about the value of financial advice and how advisers can prove that value. For William Johns, the real value of advice is in it’s ability to empower those left disempowered by systems. Elizabeth McArthur writes.

FS Advice

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

20

Cover story

W

illiam Johns thinks Australians are too hard on themselves when it comes to money matters.

“Australians are not financially illiterate,” he says.

“We are bamboozled and confused by complicated financial systems.”

Johns has an ability to see the way bureaucracy really affects people and how systems can render them powerless – by design or by default.

He should know, after all, his days are filled with battling these very systems.

But he’ll tell you it’s his clients who are really fighting.

Johns owns two businesses. In 2013 he founded his advice practice Health & Finance Integrated to, as he puts it, serve those with complex health conditions and disabilities as they transition from one life stage to another.

Then, in 2017, he founded ClaimRight, a digital service that assists people applying for the disability pension and has “hacked” the Centrelink application process.

“I was involved with many families after a damning diagnosis that changes lives and takes lives,” he says of what made him start his first business.

“I felt like as a financial planner, from a technical perspective but also from a human perspective, I didn’t have the resources to deal with these things.”

Prior to specialising in advising clients with disabilities and ongoing health issues, Johns found himself in some situations that made him uneasy.

Your average financial advice practice, he explains, is just not equipped to truly deal with disability in a sensitive and appropriate way consistently.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

www.fsadvice.com.au Volume 15 Issue 01 I 2020

“If you don’t understand the language of disability and the parameters of advocacy, the human rights laws and disability discrimination laws then you cannot advocate effectively,” he says.

“You need all these skills to be able to transition someone and give them foresight. You need to be able to put yourself in their shoes and understand what the future holds for them and their family.”

The gravity of some of the choices that face disabled and ill clients is something that’s not always easy for financial services to get its head around.

“A client might be transitioning out of work and into aged care what does that mean if they’re a young person and forced into that with little say, how much money do they have to have at that point, and so on,” Johns says.

“I thought the best way to understand it was really to become qualified in the area.”

He acquired a Master of Disability Studies degree from Flinders University (the degree is now known as the Master of Disability Policy and Practice) in 2014.

Johns’ dedication to educating himself on the issues facing disabled people runs deep, and once he was educated, the injustices that society deals the disabled became clearer than ever.

The unfortunate truth was that like so many other industries, financial advice does sometimes discriminate.

When a disabled person and their family come to a financial adviser, that adviser must deal with many complex systems at once, Johns says.

Public housing, Medicare funding, NDIS funding, the aged care system, superannuation and insurance claims alongside banking and credit – it’s a lot to untangle.

“You’re dealing with all of that and a compliance manager says people with disabilities are risky and wants to audit all the files related to people with disabilities,” Johns says.

“That’s fine. The licensee has an obligation to make sure advice

FS Advice

The quote

Imagine someone who has chronic pain who is on pain kill­ers with side effects...

How are they supposed to read the PDS?

22

Cover story

www.fsadvice.com.au Volume 15 Issue 01 I 2020

is in the best interest of the clients. But, there is an issue. When you start saying some clients are disabled and some aren’t, you’ve just discriminated.”

The way Johns sees it, understanding discrimination - and the fact that even well-intentioned actions can be discriminatory - is what disabled clients really need in order to be empowered to make their own decisions.

“Disability has to be acknowledged by the sufferer. When someone has a broken leg you might consider them disabled but to them the use of the crutch might overcome that disability and if I define them as disabled I’ve just discriminated against them,” he says.

As part of Johns’ education, he came to understand the Disability Discrimination Act and the United Nations’ Convention on the Rights of Persons with Disabilities.

“It becomes very hard to work in a corporate environment, where compliance managers and so on are only interested in the compliance with the financial services laws,” he admits.

“I saw it as major discrimination. It happens everywhere. I think a lot of people don’t understand disability discrimination for what it is – it is breaking the law.

“As soon as you start making calls on who has a disability and not that becomes the discriminatory part.”

So he set about creating a business that respects disabled people and empowers them – and part of that means fighting disempowering systems.

Bureaucracy is not something anyone gets excited about dealing with, but the amount Johns wades through would likely drown most.

He is philosophical when he discusses the NDIS and Centrelink, understanding that they will never be perfect.

However, there was one period of time in this country when the system was particularly broken.

Australians who don’t have to interact with Centrelink or the NDIS might not be aware of this but, Johns explains, roughly between 2013 and 2016 when the NDIS was introduced there was a rough transition period.

“During that transition it was very difficult for families to get anything. I had people call me up and say, ‘I’m going to leave my son in a train station. I don’t know what to do’,” Johns says.

“I had mothers say to me, ‘I need to relinquish care. I can’t afford $40,000 in therapies when my salary is $60,000 and my husband has left.’ You cry with them, you share their pain.”

It shines a harsh light on something many don’t pay mind to - caring for a disabled or critically ill person in Australia is expensive.

“Even if you access super on compassionate grounds, after tax that’s only $8000 a year. That doesn’t do much when you’re talking about a growing child who needs $40,000 in therapies or a growing child who is punching the mother in the face and the mother needs support,” Johns says.

Johns has even encountered cases of families relinquishing their children.

“People were leaving their kids in train stations and walking away,

hoping the state would provide services for that child. That happened more than it should have,” Johns says.

While you might expect a social worker, charity or hospital to get the call in these dire circumstances, that isn’t always the case.

Johns found himself on the front line because he had expertise in the one thing these families really needed to help themselves – money.

“That’s why I needed to upgrade my qualifications. I needed to go deeper into these situations where even social workers, and certainly other financial planners can’t work it out,” Johns says.

He explains once he upgraded his qualifications he unlocked more ways to help people – but still, the red tape those who are reliant on social services have to constantly cut through is sometimes still unfathomable.

“There are some times when you exhaust everything and you are faced with bureaucracy,” he says.

He offers an example of a client who saved to install an air conditioner, they had multiple sclerosis and temperatures above 24 degrees could hospitalise them.

But the client was in public housing and the housing department would not give them the tick to install the air conditioner.

Or, he explains, something like that might take two or three years to get through the layers of bureaucracy and by that time the person’s condition has deteriorated as a result.

“There are times when the system is broken and it needs advocacy. It needs people to be upset and bitter on behalf of other people,” Johns says.

With fighting systems his life work, Johns says this is not necessarily an area where financial advice generally excels.

“I feel like financial planning has a long way to go. We could play a great part as translators to help people make up their own mind and make financial decisions,” he says.

“I don’t want someone to blindly follow their financial planner just because the system is so complex.”

And it’s not just Australia’s most vulnerable that face difficulty - the confounding nature of financial systems is an issue for all Australians.

“You open a bank account and get a 60 page document and somewhere in it there’s an explanation of the fee for an overdraft,” he says.

“People say we need financial literacy so that people understand that, but it’s not true – we are left helpless by that system.”

It’s in this way that the financial services industry does share some similarities with the NDIS and Centrelink.

“Those systems foster a reliance on others because you feel helpless in the face of such complexity. You can understand it simply by just adding one extra factor,” he says.

“Now imagine someone who has chronic pain who is on pain killers with side effects. Their condition doesn’t have a clear end point, how are they supposed to read the PDS? “Now imagine someone who has been told they have 24 months to live and they have a young family. But still, they have to go through with the financial decision making.”

Having empathy for these situations, Johns wants to see supported decision making for people with disabilities.

I don’t want someone to blindly follow their financial planner just because the system is so complex.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

FS Advice

24

Cover story

The quote

If the viability of your service is measured by the ul­tra-high net worth, that is not allowing access to people.

He is frustrated by the way that disabled people and their families are so often systematically disempowered.

Government bureaucracy aside, financial services has a long way to go in serving this part of the community.

The financial services industry can also be very harsh, Johns says.

“It classifies people into who is high net worth, who is ultra-high net worth and it’s very appealing for financial advisers to specialise in serving those people,” he explains.

“But as professionals we have an obligation to offer services to everybody, we have to make it viable for everybody.

“If the viability of your service is measured by the ultra-high net worth that is not allowing access to people.”

Affordability is also a major issue.

According to recent research by CoreData and Fidelity International, most Australians don’t seek financial advice because they do not believe they can afford it (37%).

Meanwhile, of those who are advised the benefits of a financial adviser turn out to not just be about investment returns at all.

Rather, good advice has the ability to relieve worries with 42% citing this as the main benefit of receiving advice. Further, 39% of advised Australians say their mental health improved from getting financial advice.

Advised Australians are more likely to value the stress relief and mental health benefits their financial adviser provides than the ability to take more holidays or spend more on hobbies and passions.

And, perhaps most tellingly, the research shows almost 15% of the respondents who received financial advice experienced improved physical health.

That’s just one study showing how life changing advice can be.

But the question remains – can those who could benefit the most from advice really afford it?

That’s where Johns’ ClaimRight comes in.

ClaimRight uses artificial intelligence to “hack” the Centrelink claims process.

“People with disabilities and their families – their days are consumed by fighting systems, preparing for appointments, arranging transport. They don’t have time to sit down and consider their finances,” Johns says.

He explains that in 2017/18 there were about 96,000 applications for the disability support pension but only about 26% were accepted.

Those 67,000 people that were denied the pension, Johns says, should concern all Australians. What happens to those people? And how can such a large majority be rejected?

“If your acceptable margin of error is 75% people might ponder whether this is good social policy. Are people being given the right information when they apply?” he says.

In 2017 Johns recreated the Centrelink assessment

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

www.fsadvice.com.au Volume 15 Issue 01 I 2020

process from scratch as he was dumbfounded how people with paraplegia or quadriplegia were being declined a disability support pension.

The experience of seeing those with really no other options and no ability to work be denied Centrelink payments, Johns says, made him consider what role technology could play.

ClaimRight’s aim is to “reverse engineer” the Centrelink claims process.

“Centrelink is a system that makes people feel helpless because it is so complex. People were not helped by Centrelink to obtain the right benefits easily. Social workers, care facilities staff, financial counsellors all do their best but they are not experts in the Social Security Act,” Johns explains.

He hired a small team that boasts some impressive legal credentials and started charging $500for a no win/no fee application.

“Until you get your disability support pension you owe us nothing,” Johns explains of how he made ClaimRight affordable to those who need it.

“We now have a 96% average success rate, compared to the national average of about 26%.”

Unfortunately, the experience of fighting systems like Centrelink can be incredibly disheartening.

“All the stereotypes about how people get treated by Centrelink, and unfortunately there is some truth to that stereotype,” he says.

“But I can’t say Centrelink is bad – it administers the biggest and most valuable source of income to a lot of vulnerable Australians and I understand protecting the taxpayer money is important.”

ClaimRight, though first designed for Centrelink, also boosted NDIS funding for clients by 30% in a trial run.

Johns is in touch with the purpose that is at the core of why he started both his businesses.

“It was the first client who said to me, ‘I have a child with autism’ and then the first who said ‘I have a child with cerebral palsy’ and ‘I don’t know what to do in the future,’” he says.

Battling bureaucracies and hacking systems might not be the first thing many people think of when they wonder what support a disabled person needs, but Johns has seen the frustration and pain these things can cause.

“It makes people happy to take that stress away,” he admits.

Johns sees ClaimRight as being the back office for every financial planning company and law firm to deal with what is currently an administrative nightmare.

“Artificial intelligence can help us in deciphering medical data, legal data and, and legislation to see whether people qualify for particular payments in a really quick manner,” he says.

“The whole thing about disability is if you find a way around it, do you have a disability? These systems are like disabilities we have to overcome. Once we find a way to hack them, we can turn that disability into ability.” fs

FS Advice

Responsible investment

www.fsadvice.com.au www.fsprivatewealth.com.au Volume 07 15 Issue Issue01 01 I|2020 2018

25

Applied Financial Planning:

26

How financial advice is digitally evolving from screen to voice

FS Private THE JOURNAL Wealth OF FAMILY OFFICE INVESTMENT•

By Nalika Nanayakkara, EY

THE JOURNAL OF FAMILY OFFICE FS Private INVESTMENT Wealth •

26

Applied Financial Planning

www.fsadvice.com.au Volume 15 Issue 01 I 2020

CPD Earn CPD hours by completing the assessment quiz for this article via FS Aspire CPD. Worth a read because: This article provides advisers with an overview of the key challenges of digital technology, best practice engagement models, growing trends and engagement preferences of various demographic groups.

Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

How financial advice is digitally evolving from screen to voice Traditional client engagement channels are being consigned to the past as voice-enabled tools and digital assistants take us to the future.

T Nalika Nanayakkara

Keeping pace with digital change

he velocity of digital innovation in wealth management is causing unexpected shifts in client engagement, with client preferences for smart mobile apps already eclipsing traditional channels. Meanwhile, an accelerating preference for digital and voice-enabled assistants is quickly taking hold.

Clients are beginning to demand technologies that can listen, learn, process complex language and anticipate needs – not just for basic, transactional activities, but also to manage wealth and receive financial advice. The ongoing challenge for wealth management firms is how to balance such evolving high-tech solutions with “hightouch” advisory services that offer clients the seamless and personalised experience they demand.

The pace of change should not be underestimated, as the move to new technologies is happening faster than most wealth management firms and their clients had previously predicted.

Digital technology is evolving faster than wealth management companies – and even their clients – can anticipate. A comparison of results from our most recent global research study of wealth management clients and our 2016 survey highlights how challenging it is for wealth managers to accurately predict future changes.

For example, in 2016, clients vastly underestimated how quickly their preference for mobile applications would grow over other methods of engagement. In that year, on average, 18% of clients preferred mobile apps across wealth management activities and 24% projected to prefer apps in two to three years. However, the actual preference today is over double that projection: mobile apps are now the channel that 41% of clients currently prefer to use for engaging with wealth management firms, followed by websites, face-to-face interactions and phone calls.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

Preference for advanced digital channels is exceeding projections from our last survey

FS Advice

www.fsadvice.com.au Volume 15 Issue 01 I 2020

Furthermore, clients are now preferring apps for a wider variety of wealth management activities. Nearly two-thirds prefer apps for executing transactions, while just over half prefer them for other basic tasks, such as monitoring and analysing results and opening accounts. They are also starting to prefer apps for more advanced activities, such as portfolio rebalancing and receiving financial advice.

With clients gravitating toward mobile, the preference for first-generation digital channels such as websites has steadily declined since 2016, contrary to what clients had predicted. At the time, 38% of clients preferred websites as a primary channel across wealth management activities, with the same percentage believing they would prefer them in the future. Less than three years later, websites as a primary channel have declined dramatically – by about a third.

Leading the next digital wave With many mobile technologies now commonplace, wealth management providers looking to differentiate must move quickly to capitalise on the next wave of client engagement: digital and voice-enabled assistants.

These assistants, commonly known as chatbots, can offer a more personalised and user-friendly experience than mobile apps. With their use of natural language processing and ever-advancing machine learning capabilities, chatbots can answer questions, monitor transactions, place orders, perform screening functions and link clients to advisors. They can also support advisors in becoming more efficient in their daily activities, enabling them to spend more time with their clients.

While only 1.4% of clients prefer to use digital and voice-enabled assistants as a primary channel today, 9% of clients say they would prefer this channel in the near future. This trajectory indicates a considerable swing in momentum – but these numbers may be significantly underestimating growth potential, just as mobile app growth potential was underestimated in 2016.

Applied Financial Planning

Digital assistants and chatbots are emerging as a preferred method of interaction

Most interestingly, the future demand for these technologies is not restricted to basic, repeatable activities.

Our research shows that the preference for chatbots is greatest when seeking financial advice (18%) and learning about products and services (11%), as opposed to making transactions (2.5%).

These preferences increase with the level of investable assets, countering a common perception that automated, low-cost services should be reserved for the mass market and mass affluent segment only. Our research showed no discernible difference by age, indicating an openness across generations to these new technologies.

Given these trends, incumbent wealth managers must take a fresh look at how they will interact with clients in the coming years – from conference rooms to living rooms. As firms prioritise their digital investments among multiple channels such as mobile, website and voice, they need to pay close attention to where clients will be in the next few years. This may mean reallocating budgets from websites to voice-enabled tools sooner rather than later.

Blending high-tech with high-touch Despite rapid demand for digital engagement, wealth managers must continue to balance building scalable, automated solutions with human interactions for those clients that desire the human touch.

One-quarter of clients currently prefer face-to-face interactions or phone calls as their primary method of engagement; even more clients do so for receiving financial advice (42%). High-touch engagement is especially desired during periods of significant market turmoil, when clients are looking for a trustworthy advisor to soothe nerves.

Figure 1. Percentage of clients who prefer each channel as their primary method across all wealth management activities

Source: EY 2016, Could your clients' needs be your competitive advantage.

FS Advice

27

Nalika Nanayakkara, EY As the wealth and asset management US advisory leader at EY, Nalika has worked extensively with many of the top 10 global wealth and asset management firms.

Nalika has led projects ranging from strategy to execution, focusing on business, operations and technology operating models.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

28

Applied Financial Planning

CPD Questions

www.fsadvice.com.au Volume 15 Issue 01 I 2020

Figure 2. Percentage of respondents who prefer to use method as their primary channel currently and in the future, aggregated across all wealth management activities

Earn CPD hours by completing this quiz via FS Aspire CPD 1. What is one of the key challenges presented by digital technology as per the data cited in the article? a) Underestimating the pace of adoption b) Overestimating the pace of adoption c) Underestimating the cost of adoption d) Overestimating the cost of adoption

Source: EY Wealth Management Research.

2. As highlighted by the author, the ideal digital engagement model would encompass: a) Uniform automated solutions free from ‘human’ error b) Scalable automated solutions free from ‘human’ error

Figure 3. Percentage of clients who would prefer to use each method as their primary channel in the future for key wealth management activities

c) Uniform automated solutions with a ‘high-touch’ dimension d) Scalable automated solutions with a ‘high-touch’ dimension 3. According to research cited in the article, the choice to use chatbots was greatest for: a) Completing repetitive administrative tasks b) Seeking financial advice c) Supplying product and services information d) Fielding one-off complex enquiries Source: EY Wealth Management Research.

4. What findings did the article present in terms of client types and communication preferences? a) The immediacy of digital decisions suited risk-averse clients b) The desire for face-to-face interaction grew with wealth level c) The desire for face-to-face interaction dropped with wealth level d) The certainty of digital decisions suited conservative clients

The demand for human interaction is steeper for some types of clients – particularly those with more complex financial situations or conservative risk attitudes. Risk-averse clients show a much stronger preference for face-to-face communication than those who are more risk-tolerant (23% versus 7%). Meanwhile, the desire for face-to-face interactions decreases with wealth level: mass affluent clients prefer them at almost double the rate of ultra-high net worth clients (11.7% versus 6.5%).

5. Research cited in the article found that younger cohorts were more willing to use new technologies. a) True

b) False

6. The popularity of mobile apps has been greatly affected by digital assistants. a) True

b) False

Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

Mobile apps remain the preferred method of interaction in the future for key activities

To enable high-touch service, firms must harness technology to improve the productivity and quality of engagement from their own employees. Those who can eliminate mundane, repetitive tasks can free up time for their financial advisors to focus on providing highly personalised client service.

These trends point to exciting opportunities for wealth managers, allowing organisations to serve clients in innovative ways. It also allows providers to reimagine the client relationship, with possibilities to leverage newer technologies such as natural language processing and artificial intelligence at the heart of an evolving set of interactions. fs

FS Advice

Responsible investment

www.fsadvice.com.au www.fsprivatewealth.com.au Volume 07 15 Issue Issue01 01 I|2020 2018

29

Insurance:

30

Men’s health and life insurance

FS Private THE JOURNAL Wealth OF FAMILY OFFICE INVESTMENT•

By Rachel Leong, BT

THE JOURNAL OF FAMILY OFFICE FS Private INVESTMENT Wealth •

30

Insurance

www.fsadvice.com.au Volume 15 Issue 01 I 2020

CPD Earn CPD hours by completing the assessment quiz for this article via FS Aspire CPD. Worth a read because: This article explains the merits and suitability of life products and insurance options for clients suffering serious illness.

Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

Men’s health and life insurance

A Rachel Leong

nnual events such as Movember highlight the need to consider the various insurance policies that can protect clients against the financial impacts of serious diseases most commonly affecting men, such as prostate cancer.

Many people are aware that the medical and living costs associated with a cancer diagnosis can be considerable, however, they may not realise that payments made under life insurance policies can alleviate a significant part of the financial burden.

Over the past three years, prostate, colon and lung (or bronchus) cancer have been the most prevalent diseases relating to claims by men across all BT Protection Plan insurance policies.

In relation to prostate cancer alone, in the period October 2016 to September 2019, BT paid over $20 million in claim benefits to men under their trauma or living insurance policies.

While the majority of prostate cancer claims were made under trauma or living insurance, claims benefits were also paid out of income protection (IP), death, terminal illness and total permanent disability (TPD) insurance.

While everyone’s financial situation is different, here is a summary of the different types of cover, which may help clients choose what is right for them.

IP insurance Through IP insurance, the client can cover up to 80% of monthly income, assisting with living costs and partly covering lost super-

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

annuation contributions. People often do not consider how they would cope if they suffered from a disability. According to findings from the Actuaries Institute of Australia (2007), the reality is one in three Australians will be disabled for more than three months before reaching 65 years of age. IP payments replace part of the insured’s income in the event they are disabled due to sickness or injury and unable to work.

As mentioned, IP insurance can provide a monthly benefit that can generally replace up to 80% of income. This can ensure that bills such as the mortgage repayments or rent, electricity and school fees can be paid, and lost superannuation contributions are partially offset, if the client is temporarily or permanently ill or injured. In some cases, IP can be used together with trauma or TPD insurance to cover the full amount of income lost.

In addition, some comprehensive IP policies include a crisis benefit that provides a payment equal to six months of the monthly benefit in some situations. A payment may be made if the client suffers from prostate cancer and meets the policy definition.

TPD insurance If prostate cancer renders the client totally and permanently disabled as defined under the policy, TPD insurance can pay a lump sum benefit.

There are two main types of TPD insurance: ‘own occupation’ and ‘any occupation’. Own occupation TPD insurance proceeds are payable if the client is permanently unable to work in their current occupation. Any occupation TPD insurance proceeds are payable if they are permanently unable to work in an occupation that

FS Advice

Insurance

www.fsadvice.com.au Volume 15 Issue 01 I 2020

they would be suited to with their education, training and experience. Some policies will also pay a benefit if the client is able to work, but in a severely reduced capacity.

An own occupation TPD definition is more likely to be met, since the definition is more generous. However, own occupation TPD premiums are approximately 50% more expensive than any occupation TPD premiums. TPD definitions in group insurance policies can be more stringent than those of retail policies, so it is worth checking the exact definition wording.

Living or trauma insurance Living insurance (also known as ‘trauma insurance’) can provide a lump sum payment, among other benefits, for people suffering from one of a range of specified medical events, including cancer. A lump sum payment could be crucial to helping someone living with the disease, to assist with any financial strain that may come with associated medical and accommodation expenses.

Living insurance proceeds can also be used to reduce debt to allow more flexibility with work, such as working part-time or changing careers.

While most insurers will allow a partial payment for less-advanced tumours, the amount payable may be as low as 5% of the insured amount. However, some insurance policies will pay the full insured amount when a

FS Advice

non-advanced prostate cancer has been diagnosed and surgery or therapy (such as radiotherapy or chemotherapy) is needed to prevent the cancer spreading.

Term life insurance Term life insurance pays a lump sum benefit if the insured dies or suffers a terminal illness. If the client is deemed to have less than 24 months to live, an advanced payment can be made for terminal illness. Not all policies are this generous and may restrict payment to circumstances where the client has less than 12 months to live, rather than 24. BT was the first retail insurer to extend its life expectancy time provision for terminal illness conditions of release to 24 months.

Claim proceeds can be used to pay off debts and provide funding to allow the client’s family to maintain their standard of living, including continuing to reside in their current home.

Consider insurance policies that offer help for homemakers According to an Australian Bureau of Statistics’ Father’s work and family balance report of 2006, the number of stay-at-home dads is on the rise. If the client is a homemaker, IP insurance can be obtained whereby if, due to sickness or injury, they are prevented from carrying out normal household duties, a benefit may be

31

Rachel Leong, BT Rachel Leong is BT’s senior manager, product technical, life insurance.

With over 15 years’ industry experience, Rachel uses her in-depth knowledge of product and industry, together with financial planning strategies, to develop and deliver effective advice strategy tools and collateral.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

32

Insurance

www.fsadvice.com.au Volume 15 Issue 01 I 2020

CPD Questions Earn CPD hours by completing this quiz via FS Aspire CPD 1. Homemakers insurance: a) Pays a TPD benefit if the client is permanently unable to perform normal household duties b) Pays a TPD benefit if the client is permanently unable to perform strenuous household duties c) Is specifically geared towards stay-at-home fathers d) Pays a TPD benefit if it is not practical for the client’s partner to take time off work to run the household 2. Own occupation policies: a) Have more stringent TPD definitions in retail policies compared with group policies b) Will pay a benefit if the client is temporarily unable to work in their current occupation c) Will more likely be met as the definition is more generous than for any occupation d) Are approximately 20% more expensive than any occupation TPD premiums 3. Which of the following statements is CORRECT regarding living or trauma insurance? a) It provides a fortnightly benefit b) It provides a lump sum benefit c) The amount paid for less-advanced tumours is at least 30% of the insured amount d) Most policies pay the full insured amount for non-advanced prostate cancer

received which can pay for someone to help with these tasks. If it is not practical or financially viable for the client’s partner to take time off work to run the household during that time, IP cover for homemakers may be appropriate in some situations.

There is also a TPD insurance policy available for homemakers where a benefit is payable if the client is permanently unable to perform normal household duties. Again, insurance proceeds can be used to pay for someone to perform these duties if they are no longer able to.

Consider whether cover should be inside superannuation Holding insurance within superannuation can ease the cost of life insurance. To decide whether this is an appropriate solution for clients, advisers should consider factors such as: • the types of cover and product features the client requires • definitions of the products available inside and outside superannuation • tax effectiveness of holding the cover inside superannuation.

If it is appropriate for the client to hold insurance inside superannuation, but they require a type of insurance cover or features which cannot be held inside superannuation, superannuation-linking is an option. Superannuation-linking allows cover held outside superannuation to be linked to cover inside superannuation. This generally allows most of the premium to be paid from within the superannuation fund.

Conclusion A cancer diagnosis can often be overwhelming. However, an insurance plan that is comprehensive in scope can alleviate the stress associated with financial uncertainty, and allow the client to focus on their health and family. fs

4. Which of the following factors should be considered in relation to holding insurance inside superannuation? a) The types of cover and product features the client requires b) Definitions of products inside and outside superannuation c) Tax effectiveness of holding cover inside superannuation d) All of the above 5. All policies allow an advanced payment if the client is deemed to have less than 24 months to live. a) True b) False 6. Superannuation-linking generally allows the majority of the premium to be paid from the superannuation fund a) True

b) False

Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

FS Advice

Responsible investment

www.fsadvice.com.au www.fsprivatewealth.com.au Volume 07 15 Issue Issue01 01 I|2020 2018

33

Ethics & Governance:

34

Overcoming obstacles to ethical behaviour

38

By Shlomo Sher, California State University

Rethinking ethics and code of conduct training

FS Private THE JOURNAL Wealth OF FAMILY OFFICE INVESTMENT•

By Attracta Lagan, Managing Values

THE JOURNAL OF FAMILY OFFICE FS Private INVESTMENT Wealth •

34

Ethics & Governance

www.fsadvice.com.au Volume 15 Issue 01 I 2020

CPD Earn CPD hours by completing the assessment quiz for this article via FS Aspire CPD. Worth a read because: It is important to recognise why ‘ethical slippages’ occur in an advisory practice and how behavioural science can facilitate more effective and credible ethics and code of conduct training.

Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

Overcoming obstacles to ethical behaviour

T Shlomo Sher

he process that leads to effective moral action can be roughly divided into three components: 1. Moral awareness — the process of identifying the ethical issues involved, the parties who have a stake in the action, what is at stake, and what the action options are.

2. Moral judgment — the process of weighing the ethical considerations that bear on the situation and determining the moral course of action.

3. Acting in accordance with moral judgment — deciding the right thing to do is not enough. One still needs to form the intention to do the moral thing and deal with practical obstacles in order to act effectively.

The following discussion examines some of the central obstacles that may be faced along each step of the process, along with suggestions about how they can be overcome.

Obstacles to good awareness Low or myopic moral perception

Some people fail to see the moral dimensions of given situations.

Others have distorted moral vision that results largely from rationalisation or from an unwillingness to focus on the problem so that it is seen clearly. The rationalisations contribute to and reinforce the perceptual problem (Drumwright & Murphy 2004).

THE JOURNAL OF FAMILY OFFICE INVESTMENT•

To overcome this obstacle Be alert to the impact of your actions on stakeholders and increase your awareness by taking on their perspectives of the situation.

Moral disengagement

While the situation in question normally elicits a particular moral response from an observer, in this case, the agent lacks such a response.

The agent is ‘cold’ to the situation (Bandura 1999).

To overcome this obstacle Place yourself in the position of the person(s) likely to be harmed by the event and remind yourself of the golden rule — ‘Do unto others as you would have them do unto you’.

Morally inattentive informal norms and formal codes

Such norms and codes create a background of expectations that can distort, obscure, or oversimplify the moral considerations present in a situation.

To overcome this obstacle As members of organisations and communities, we can consciously strive to improve the content and practical applicability of our norms and codes of conduct.

Self-serving bias

People tend to look for information that will confirm their pre-existing views, to interpret information in ways that support their own

FS Private Wealth

Ethics & Governance

www.fsadvice.com.au Volume 15 Issue 01 I 2020

view, and to selectively remember the information that supports their view (Hartman 2008).

To overcome this obstacle Try to find alternative interpretations of the same data, identify persuasive arguments, and soften the ground for efforts to consider a different, perhaps less self-serving, interpretation.

Issues of low ‘moral intensity’: low and infrequent recognition

Issues of low ‘moral intensity’ will not be recognised as frequently as issues of high moral intensity. This is because their ethical elements tend to stand out less from the background and to be seen as less emotionally interesting, concrete, and visually provocative. When this is the case, moral elements of the situation are likely to be obscured, thus limiting or distorting one’s moral awareness (Jones 1991).

Following is a description of what Jones points to as the six components of moral intensity: 1. Social consensus — the degree of social agreement about the moral value (e.g. evil) of a proposed act.

2. Magnitude of consequences — the sum of the benefits/ harms done to victims/beneficiaries of the moral act in question.

3. Concentration of effect — how spread out or concentrated the harms/benefits of the proposed action are.

4. Probability of effect — a joint function of the probability that the act in question will actually take place and that it will actually cause the harms/benefits predicted.

5. Temporal immediacy — the length of time between the present and the onset of consequences of the moral act in question.

6. Proximity — the feeling of nearness (social, cultural, psychological, or physical) that the moral agent has for the victims/beneficiaries of the evil/good act in question.

Stimuli are salient to the extent that they stand out from their backgrounds. High-intensity moral issues are more salient than low-intensity issues because either their effects are more extreme (magnitude), or they stand out in some particular way (higher concentration of effect), or involve significant others (proximity).

Stimuli are vivid to the extent that they are emotionally interesting, concrete, and proximate in a sensory, temporal, or spatial way. High-intensity moral issues are more vivid than low-intensity ones because: a) their effects are emotionally interesting (magnitude or concentration) b) t hey are more concrete (social consensus or probability of effect), or c) they are more proximate — higher vividness means greater probability of moral recognition.

To overcome this obstacle Compensate for the effect of low-moral-intensity situations by being mindful of the way components of moral intensity affect you. Consider whether your intuitions

FS Advice

35

about the moral issue in question are not misdirected by the psychological predispositions these situational components trigger.

Obstacles to good ethical decisions Poor moral awareness

Poor moral awareness can either result in a failure to perceive the problem as being an ethical problem at all (in which case, one does not go through the steps of good ethical decision-making), or can present the agent with a distorted or insufficient picture of the problem to be resolved.

To overcome this obstacle Identify the relevant obstacles to moral awareness and address them as suggested in the preceding section.

Failure to gather relevant facts

Good practical decisions require that we know important facts relevant to the decision, such as those that help us determine the likely impact of the action on stakeholders.

To overcome this obstacle Make sure to take the time to gather whatever facts you need to come to a good decision. Do not rush to judgment before all the facts are in.

Since, in many cases, different stakeholders have interests that would be best served by different actions, it is important to carefully vet the facts one gathers to ensure that they represent as unbiased a representation of the situation as possible.

Precisely what facts or types of facts are necessary for a good judgment on the issue may not be clear at the beginning of the process. As one considers the situation from the perspectives of different stakeholders, the need for additional facts (or clarification of already attained facts) will probably arise.

Rationalising ourselves out of good moral decision-making

It is easy to convince ourselves that we can do what we would like. Following are poor, but unfortunately all too common, rationalisations we use to excuse our actions (Josephson 2002): • If you have to do it, it is ethical to do.

• If it is legal, then it is moral.

• It is just part of the job.

• It is all for a good cause.

• I was just doing it for someone else’s sake.

• I am just ‘fighting fire with fire’.

• It does not hurt anyone.

• Everyone is doing it.

• It is okay if I do not benefit personally.

• I deserve it.

To overcome this obstacle Be mindful that these are rationalisations that we all commonly use — and avoid them. Replace such rationalisations with a substantial and rigorous ethical deliberation process.

Shlomo Sher, California State University Shlomo Sher is committed to encouraging ethical reflection in and out of the classroom.

He teaches Philosophy at California State University, Fullerton and the New York Film Academy in Los Angeles.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

36

Ethics & Governance

Insufficient time and attention given to ethical decisionmaking

Insufficient attention/time is often given to the ethical decision-making process because the situation has low moral intensity (see explanation of moral intensity discussed earlier) (Jones 1991).

To overcome this obstacle Compensate for the effect of low-moral-intensity situations by being mindful of the way components of moral intensity affect you; consider whether your intuitions about the moral issue in question are not misdirected by the psychological predispositions these situational components trigger.

Slippery slope

People are willing to do unethical things because they have already done smaller, less extreme acts that make the bigger choice appear less (or not at all) unethical (Hartman 2008).

To overcome this obstacle Consider the positive power in this tendency. Break down your challenges into smaller, immediately actionable steps to tackle larger problems. You can also zoom out even further to the bigger picture of your life and see how you would feel about your decision when the dust settles.

Sunk costs and loss aversion

We tend to continue toward an unethical course of action simply because we are reluctant to accept that our prior choices or investments were wrong or wasted (Hartman 2008).

To overcome this obstacle Talk about what we have already learned from the prior decision or investment, even if it is not a financial gain.

Common biases and their influences Common biases can unconsciously influence our decision-making process and result in unintentionally unethical conclusions (Messick & Bazerman 1996).

Biases about the world

1. We tend to miscalculate the negative consequences of our behaviour and the risk involved.

2. We create inaccurate judgments about causal perceptions.

3. We ignore low-probability events altogether.

4. We deny uncertainty.

5. We discount the future, giving disproportionally more weight to present consequences than anticipated future consequences.

www.fsadvice.com.au Volume 15 Issue 01 I 2020

• Overconfidence in our abilities causes us to mispredict our future ethical behaviour.

To overcome this obstacle Be mindful of these biases and rationalisations that we all commonly use – and avoid them. Replace such rationalisations with a substantial and rigorous ethical deliberation process.

Obstacles to moral action post-judgment Rationalising immoral action by deciding that morality just is not all that important

Even after one has concluded that an action is immoral, it is easy to convince oneself that doing the morally right thing is not important enough, given other considerations (economic, self-interest, etc.)

This is particularly easy to do with regard to a particular situation where acting morally appears to be against one’s interests.

To overcome this obstacle Be mindful of this tendency — ask yourself whether it is something you truly believe, or merely an excuse for self-serving action.

Remember that you expect others to act morally, and prehaps criticise those who fail to do so as ‘callous’, ‘selfish’, or ‘evil’. Keep in mind that your actions reflect upon and determine your own character — especially when faced with decisions such as this one. Do you want to be the kind of person who chooses self-serving over morally right action? Do you want to be a hypocrite who criticises the immoral actions of others, while excusing your own?

Obedience to authority

We tend to obey those in authority, including when authorities direct us to perform actions we believe are unethical (Hartman 2008).

To overcome this obstacle • Keep in mind that you are ultimately responsible for your own actions, and that others will hold you responsible for these actions.

• Identify other/alternative authorities to serve as role models.

Consensus/peer pressure

We have a tendency to succumb to peer pressure, both because we want to ‘fit in’ and succeed within an organisation, but also because our actual thinking is changed (Hartman, 2008).

To overcome this obstacle • Keep in mind that you are ultimately responsible for your own actions, and that others will hold you responsibility for these actions.

• The more mindful we are of this pressure, the less power it has over us.

• Build your own group of like-minded individuals to create peer pressure that is more in line with your personal values.

Biases about other people

1. Through ethnocentrism and stereotyping, we inaccurately believe that our values and beliefs are superior to those of a different group.

2. We can be misguided by our trust in an ‘authority heuristic’ — we often trust in the wisdom, expertise, and experience of authority figures, but occasionally this trust is misplaced and the heuristic becomes a harmful bias.

Biases about ourselves

• We have illusions of superiority (we are morally better people than others), sometimes because we misremember the past in our favour.

• We have self-serving perceptions of fairness.

THE JOURNAL OF FAMILY OFFICE INVESTMENT•

The inside/outside struggle

We do not want to be cast out for being different. In many cultures, if you diverge, you are shunned. The consequences for pushing against the in-group of the organisation can include: blackballing, excommunication, dis-fellowship, discharge, expulsion, and denial (Hartman 2008).

To overcome this obstacle • Consider the impact of inaction. Will your failure to do what is right result in continual harm to others and/or the violation of other’s rights?

• Keep in mind that once enough people diverge, a new majority arises.

FS Private Wealth

Ethics & Governance

www.fsadvice.com.au Volume 15 Issue 01 I 2020

37

Perception that we have little influence over events

The more control we believe we have over an event, the more we tend to perceive ourselves as responsible for the events we bring about or allow to happen. Situations where the consequences of our actions are far removed from us, particularly give us this perception. This is the case even when the impact of our actions is considerable, and typically makes it more difficult for us to form the intention to perform moral action and to act upon that intention (Jones 1991).

To overcome this obstacle Be mindful of the tendency to minimise the significance of your actions — particularly in situations where the impact of your actions is not immediately evident.

Lack of experience

Lack of experience is a general obstacle which affects awareness, judgment, and action. All of the above barriers and suggested remedial actions can be improved with practice and self-reflection.

To overcome this obstacle Ethics education will probably not transform you into an ethical person overnight, but good ethics education that gives you practice dealing with difficult situations and increases awareness and self-reflection about how you approach ethical problems can surely help. Such measures have been shown to make people feel more comfortable when faced with ethical challenges and to increase the sophistication of their moral reasoning. fs

References Bandura, A 1999, ‘Moral disengagement in the perpetration of inhumanities’, Personality and Social Psychology Review, 1999, vol. 3, no.

3, pp. 193–209.

Drumwright, ME. & Murphy, PE 2004, ‘How advertising practitioners view ethics: moral muteness, moral myopia, and moral imagination’, Journal of Advertising, summer 2004.

Hartman, LP 2008, ‘Ethical decision-making: processes and frameworks’, conference presentation, 2008.

Jones, TM 1991, ‘Ethical decision making by individuals in organizations: an issue-contingent model’, The Academy of Management Review, April 1991.

CPD Questions Earn CPD hours by completing this quiz via FS Aspire CPD 1. Which of the following findings does the author put forward in terms of people’s perceptions of their influence over events? a) They tend to inflate the importance of their actions b) There is no meaningful control-consequence link c) The more control one believes they have over an event, the less they tend to perceive themselves as responsible for it d) The more control one believes they have over an event, the more they tend to perceive themselves as responsible for it 2. What does the author recommend to counter shortsighted moral perception? a) Practise disengagement to remain ‘cool’ and neutral b) Place yourself in the position of those likely to be harmed c) Rely on personal rationalisations to clarify problems d) Create a background of expectations as a guide 3. Which of the following situations might put people on the path to unethical behaviour? a) Their smaller, less extreme acts justifying bigger choices b) Their desire to play catch-up over ‘wasted’ choices c) They zoom out too far to the bigger picture of their life d) They exaggerate previous learnings 4. What does the author highlight in relation to gathering relevant facts? a) Avoid lengthy analysis of the facts b) Facts necessary for good judgment may be unclear at the start of proceedings c) Parties often have interests best met by similar actions d) Facts necessary for good judgment are often clear

Josephson, MS 2002, ‘Making ethical decisions’, Josephson Institute of Ethics.

5. In terms of biases, actions and decisions, people are inclined to obey/trust those in authority. a) True b) False

Messick, DM & Bazerman, MH 1996, ‘Ethical leadership and the psychology of decision making’, Sloan Management Review, pp.

9–22.

6. According to the article, people tend to miscalculate the negative consequences of their behaviour and associated risks. a) True

b) False

Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

FS Advice

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

38

Ethics & Governance

www.fsadvice.com.au Volume 15 Issue 01 I 2020

CPD Earn CPD hours by completing the assessment quiz for this article via FS Aspire CPD. Worth a read because: Challenging our beliefs, biases and motivations can help ensure that adviser-client interactions are based on sound ethical foundations.

Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

Rethinking ethics and code of conduct training Better design to manage risk

I

Attracta Lagan

t seems everyone has experienced a code of conduct or business ethics training session that is unmemorable, generic and fails to resonate. The unintended consequence of such training is that it leaves employees jaded with management’s intent, annoyed at the waste of their time and frustrated by the lack of relevance of content, despite well-known workplace ethical challenges being unacknowledged and remaining unaddressed.

Such training can also blindside risk managers, boards and regulators into a false sense of security that employees are aware of the specific industry challenges they will face. The sad reality is that we do know where the high-risk areas are in each industry, and it is a management remiss not to engage employees with specific skills training to anticipate and respond appropriately.

So, why do so many training initiatives fail to engage employees or protect employers? As is the case with organisational culture, much training fails simply because of its poor sponsorship by organisational leaders, poor design and poor resourcing.

The systemic source of poor design begins with an approach that takes a legal or compliance perspective. Often the focus is on telling employees about what they can and cannot do instead of recognis-

THE JOURNAL OF FAMILY OFFICE INVESTMENT•

ing and responding to their innate need to ‘make sense’ of the codes they are being asked to sign up to, how they apply to their day-today activities and decisions and how they are designed to influence interpersonal relationships to enable a shared understanding of what appropriate workplace behaviour looks like.

A compliance approach assumes everyone will make the same interpretation of workplace challenges, so there is only a need for one ‘right’ answer, and it will cover a myriad of situations including the very different issues of a service context, a marketing context or a sales context within the one organisation.

It further assumes that employees will interpret the code’s directives in the same way regardless of age, gender, race or educational background.

The traditional, tired approach to code of conduct training stays silent on the informal cultural priorities that shape workplace behaviours. Such cultural pressures include: • obeying one’s boss • doing more with less because of budget cuts • achieving financial targets because personal and group bonuses depend on it • producing reports to meet time deadlines with pressure to do ‘whatever it takes’ to achieve this.

FS Private Wealth

Ethics & Governance

www.fsadvice.com.au Volume 15 Issue 01 I 2020

Moreover, it stays silent on ‘the other message system’ that prevails, the one where people listen with their eyes, see what behaviour is being rewarded and feel they have to either fall into line, vote with their feet and leave, feel compromised, or stay but cheat the system as ‘payback’ because the organisation cheats them.

The recent trend to design content that includes ethical dilemmas or hypotheticals which encourage discussion and reflection could be around the real workplace ethical challenges people face such as reporting managerial bullying, recommending products and services that may not be ‘best’ for clients, or taking liberties with report figures for the sake of ‘looking good’.

Instead, unfortunately, many of these hypotheticals also emanate out of the legal department and are designed to provide the organisation with legal coverage should a scandal emerge. Typically they speak to the black and white decisions and not the contextual pressures that push people over the line such as ‘stretch goals’ or stretching an espoused value to deal with a particular situation.

Lack of resourcing can mean that face-to-face training, where the nuances of organisational culture, situation context and individual interpretations can be professionally mediated, are sacrificed to an obligatory annual online learning program, completed with a mandatory sign-off. These typically ineffectual ethical ‘sheep dips’ may no longer provide a compliance shield as regulators become increasingly savvy to leadership failure to engage and forewarn their people about what is ‘right’ in pursuit of business goals and where tolerances lie.

Tailoring training content in this way ensures genuine situational and cultural challenges are being addressed. It engages employees because it is relevant to their day-to-day situations and it sends a powerful signal to regulators that leaders are genuine in their desire to create an ethical culture where employees are supported to do the right thing.

Authenticity of design

Authenticity of design in terms of desired results also matters. Organisational leaders need to ‘set the tone’ by showing up at training sessions and speaking openly about some of the challenges they have faced and how they responded. They need to draw on the new behavioural sciences highlighting how organisational contexts can trump an employee’s character causing them to behave in ways not necessarily of their conscious choosing in workplace decisions, making it essential to remain alert to known risks.

Example: rationalisation awareness Our ability to rationalise our behaviour is a known risk.

Behavioural science shows that when employees’ conduct clashes with their beliefs, they change their beliefs to support their conduct, failing to notice the switch. Unethical actions become acceptable after the fact as the individual re-categorises them as ‘acceptable’. By sharing the list of well-documented rationalisations used by staff at all levels to justify unethical acts, employees are forewarned and

The road less taken

forearmed to be alert to their possible ethical slippages

Progressive organisations make explicit ‘the how’ of business development and business success. They invest in ensuring employees understand ‘the why’ behind their company values as well as provide clarity on the ‘must nots’ in pursuit of success. The fact that so many high-profile global brands, and, here in Australia, the financial institutions exposed by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, failed to ensure ethical standards of behaviour and have suffered brand damage as well as loss of consumer confidence, hopefully, will help reset the default approach to code of conduct/ethics training.

as well as those of others. When people, for instance,

Designing ethics or code of conduct training with integrity Authenticity of content

Authenticity of content is the first principle. Instead of hypothetical dilemmas, risk managers can canvass employees’ input from different levels within their organisations and identify precisely the ethical challenges they face. This input can be gathered anonymously to offset organisational power politics or by a third party where trust is low.

FS Advice

39

say, ‘It’s just a business decision’, employees can be alert to the other considerations perhaps deliberately ignored in this decision-making process.

Thus, this research provides employees with the scientific findings on how social pressures to go along to get along can ‘push’ people to behave in such ways and can give rise to rationalisations justifying poor decisions or behaviour. It also highlights how in scandal-plagued companies, employees had changed their thinking to justify their behaviours once they had taken unethical steps. Further, the social phenomenon of ‘ethical fading’ means that the ethical dimension may vanish from consideration.

Behavioural science has delivered a new range of very powerful levers to encourage and implement healthy ethical cultures. By sharing these findings with employees, they too can be engaged in the co-design of the desired culture at every level. Instead of depending on ‘courage’ or ‘moral compasses’, employees are forewarned of the ‘slippery slopes’ leading them potentially towards unethical behaviour.

Attracta Lagan, Managing Values Attracta Lagan is co-principal of Managing Values. As a leading subject matter expert in behavioural ethics, she has worked extensively in the corporate and government sectors in Australia and Asia.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

40

Ethics & Governance

www.fsadvice.com.au Volume 15 Issue 01 I 2020

On-time training

CPD Questions Earn CPD hours by completing this quiz via FS Aspire CPD 1. How does the author believe integrity can be entrenched in ethics and code of conduct training? a) Using behavioural science to show how organisational contexts can influence employee character b) Leadership that ‘sets the tone’ and is open about challenges and responses c) Making content relevant to day-to-day situations and experiences d) All of the above 2. Why does the author think traditional code of conduct training falls short? a) It stays silent on people ‘listening with their eyes’ b) It fails to address informal cultural priorities c) It uses hypotheticals geared primarily towards compliance d) All of the above 3. What technique does the author suggest to help counter ethical slippages in organisations? a) Assuming that ‘cultural drift’ and ‘ethical fading’ are inevitable, and being prepared for the worst b) Sharing well-documented rationalisations used by staff at all levels to justify unethical acts c) Avoiding traps such as canvassing employee input, which encourage a culture of ‘complaint’ d) Making individual face-to-face training paramount, even if it just once year 4. What element does the author see as key in reinforcing the importance of workplace ethics training? a) eLearning b) Formality c) Frequency d) Symbolism

On-time training means ‘tailoring’ content to speak to specific cultural risks and contexts or calendar periods where risk is at its highest, rather than focusing on individuals. Employees can be skilled in how to offset specific organisational cultural pressures such as: • reaching end-of-month sales quotas • countering the pressures from ‘relationship marketing’ suppliers in the procurement area • how to respond to organisational change pressures by skilling employees in change management and ensuring they can continue to experience their organisations as fair places to work.

Organisational justice research reminds us that if employees see the organisation as unfair, they may in extreme circumstances be prone to retaliate with workplace sabotage including fraud, data leaks and other misdemeanours.

Frequency of training

A once-a-year eLearning program is symbolic of its lack of importance relative to other business communications. Ethical issues arise daily. Thus, conversations and timely training that checks in with how employees are doing, signals that leaders are keen to make it as easy as possible for employees to do the right thing. Further, the frequency of ethical conversations helps to offset ‘cultural drift’ where informal ways of doing things overtakes the formal ways while employees remain blindsided to the drift.

Resetting the default button If leaders are serious about managing risk and designing cultures of choice, it is time to reset the default button on code of conduct and business ethics training. Employees and employers will reap the benefit of genuine workplace learning opportunities about ‘the how’ and ‘the why’ of ethical business practices and accountabilities.

Most people see themselves as ethical. By leveraging off our ethical identities and using behavioural science findings to forewarn and forearm employees at all levels about the ethical challenges they will inevitably face, risk will be managed proactively with engaged employees helping to ensure that a more widespread culture of integrity emerges. fs

5. Behavioural science helps entrench qualities such as ‘courage’ or a person’s ‘moral compass’ to mitigate unethical behaviour. a) True b) False 6. Progressive ethics training accounts for the ‘how’, ‘why’ and ‘must nots’ of a company’s operations. a) True

b) False

Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

FS Advice

Responsible investment

www.fsadvice.com.au Volume 15 Issue 01 I 2020

41

Investment:

42

ETFs versus managed funds

46

By BetaShares

The AUD, foreign debt and trade: Into the next decade

50

By Peter Pontikis, India Avenue Investment Management

RMBS: Weighing up risk versus reward

By John Sorrell, Nikko Asset Management

Investment

42

www.fsadvice.com.au Volume 15 Issue 01 I 2020

CPD Earn CPD hours by completing the assessment quiz for this article via FS Aspire CPD. Worth a read because: This article compares the performance and qualities of ETFs and managed funds in the areas of risk diversification, fees, pricing, liquidity, accessibility and transparency.

Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

ETFs versus managed funds Key differences explained

T BetaShares

his paper examines the key differences between traditional, actively managed funds (managed funds) and exchange-traded funds (ETFs), and highlights how these differences can affect investors. These differences are summarised in Table 1.

market capitalisation, in a single trade. This diversification means that the risk for an investor in an ETF is significantly lower than investing in a single stock.

In the case of actively managed funds, the fund manager selects which stocks to invest in. While the manager typically will invest in a portfolio of stocks, in some cases a fund may have a significantly concentrated exposure, increasing the risk position from an investor’s perspective.

Risk diversification

Expenses and fees

A key benefit of ETFs is the diversification they provide. ETFs typically aim to track an index that serves as a benchmark for an entire sharemarket, or a market sector. For instance, BetaShares Australia 200 ETF (ASX Code: A200) gives an investor exposure to the top 200 companies on the Australian sharemarket by

The cost differential between managed funds and ETFs is arguably one of the primary reasons for the growing popularity of ETFs. Managed funds typically charge significantly higher fees than ETFs offering similar exposure. In addition, some managed

Table 1. Comparison of ETFs with managed funds

ETFs

Managed funds

Risk diversification

Generally high — exposure to entire index

Varies depending on the fund

Expenses and fees

Brokerage costs; lower management fees; bid/offer spreads

Buy/sell spreads, higher management fees, performance fees possible

Pricing

Real time, intra-day

Varies from end of day to weekly or even monthly

Liquidity

High, intra-day

Varies significantly from high (daily) to limited liquidity in closed-end structures

Accessibility

Purchased like a share, can be used on or off platform

Entry via manager or intermediary (platform or adviser) — generally, a high administration burden

Transparency of underlying portfolio

Portfolio constituents visible daily

Rarely daily; can be opaque

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

FS Advice

Investment

www.fsadvice.com.au Volume 15 Issue 01 I 2020

funds charge investors ‘performance fees’ when their performance exceeds a nominated benchmark. By comparison, most ETFs charge a simple management fee and no performance fees.

The management fees for BetaShares’ broad market Australian shares ETF (A200), for instance, are only 0.07% p.a. — whereas managed funds providing exposure to Australian shares typically charge fees of around 1.55% p.a. The primary reason for this dramatic cost differential is that most ETFs are passive funds, aiming to track the performance of an index, and so do not incur the costs of active management.

The impact of fees on investor returns can be significant.

As an illustration, Figure 1 compares the returns from a lowfee passive ETF investment with those from a typical actively managed fund, assuming: • pre-fee returns of 5% p.a.

• a starting balance of $10,000 • A200’s fee of 0.07% p.a.

• a typical active management fee of 1.55% p.a. (Morningstar).

Over a 40-year period, the low fee-investment would have grown to be worth $68,547 compared to the high-fee investment’s closing value of $38,835. The low-fee option would have been worth around $30,000, or 77%, more than the high fee option at the end of this period.

Seemingly small differences in management fees may not at face value appear to matter all that much, but thanks to the power

FS Advice

43

of compounding, they can have a significant effect on after-fee returns over time.

Pricing Another benefit of ETFs is their pricing transparency.

Because ETFs are traded on the ASX, an investor and their adviser can see the price of their investment at any time during the trading day. By comparison, pricing for managed funds is typically provided far less regularly, on a daily, weekly or even a monthly basis.

Due to the intraday pricing of ETFs, an investor should always be able to determine their investment position. Further, because they are traded like shares, there is no minimum investment size for ETFs (aside from any low minimum the investor’s broker may require), unlike many managed funds which set minimum investment sizes.

Liquidity As ETFs are traded on a stock exchange, an investor can normally buy or sell at any time during the trading day at then-current market prices. In addition, ETFs are required to have at least one dedicated market maker, seeking to ensure there will be sufficient liquidity to permit investors to buy and sell their units, and that the difference between the bid and offer is kept low. Managed funds do not provide intraday liquidity, and investors may only be able to dispose of their investment as at the end of the day or less frequently.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

44

Investment

www.fsadvice.com.au Volume 15 Issue 01 I 2020

Figure 1. Investment portfolio value over time

Illustrative only. Assumed performance is not indicative of actual performance. Actual performance of A200 and the Australian sharemarket may differ.

Source: BetaShares

The quote

One of the most oftencited benefits of ETFs is their transparency.

Accessibility

Performance

As mentioned, ETFs are traded like shares, so investors can buy units through their broker or financial adviser.

Once an investor has a brokerage account, no additional paperwork is required. In comparison, managed funds are typically purchased off-market. Application forms are usually required, which can be time consuming and complicated to fill out. For the advisers themselves, ETFs can be bought and sold on all major investment platforms, but, should the adviser so desire, can also be bought ‘off platform’ directly via the ASX.

Investors are increasingly scrutinising the performance of actively managed funds versus passive options, and are becoming more aware of the impact on performance of fees charged by active fund managers, relative to lower-cost alternatives such as ETFs. The track record of active fund managers against their benchmark indices has generally been poor. As Table 2 shows, after fees were taken into account, fewer than one in five Australian equity fund managers who benchmark to the S&P/ASX 200 Accumulation index actually beat this index over the three and five years to 30 June 2019, while fewer than one in 10 beat the benchmark in 2018/19. By comparison, ETFs aim to provide simply the index return, at low cost.

A200, for instance, aims to track the performance of the largest 200 companies on the ASX by market capitalisation, at a management fee of 0.07% p.a.

ETFs are increasingly used in place of, or as a complement to, managed funds. Further, as more and more products are launched on the Australian market, investors are able to diversify further into new investment strategies, new asset classes and new geographic regions — all as simply as buying a share. fs

Transparency One of the most often-cited benefits of ETFs is their transparency. For instance, the BetaShares website provides information on the portfolios held by BetaShares ETFs, updated on a daily basis, so an investor can check what the fund holds at any time.

By comparison, many managed funds provide relatively little information about the holdings of the fund.

Often an investor is given information only about the largest holdings, and even then on a relatively infrequent basis, making it harder for them to understand exactly what is being held by the manager.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

FS Advice

Investment

www.fsadvice.com.au Volume 15 Issue 01 I 2020

45

Table 2. Percentage of active funds underperforming the index: as at 30 June 2019 Fund category

Comparison index

One year (%)

Three year (%)

Five year (%)

Australian EquityGeneral

S&P/ASX 200

93.2%

83.3%

80.6%

Australian Equity Mid- and Small- Cap

S&P/ASX Mid-Small

60.5%

79.8%

75.2%

International Equity General

S&P Developed Ex-Australia LargeMidCap

72.9%

74.0%

82.8%

Australian Bonds

S&P/ASX Australian Fixed Interest 0+ Index

84.6%

77.6%

90.6%

Source: Standard and Poor’s. Past performance is not an indication of future performance.

CPD Questions Earn CPD hours by completing this quiz via FS Aspire CPD. 1. A key benefit of ETFs is: a) Concentration b) Diversification c) Active management d) Investment homogenisation

2. Which of the following statements is correct? a) ETF investors can buy units through their broker or financial adviser b) Once an ETF investor has a brokerage account, no additional paperwork is required c) Managed funds are typically purchased off-market, and require more paperwork than ETFs d) All of the above 3. Most ETFs charge a performance fee. a) True b) False

4. Which of the following statements is correct? a) There is no minimum investment size for managed funds b) Pricing for managed funds is typically provided far less regularly than for ETFs c) Pricing for ETFs is typically provided far less regularly than for managed funds d) There is no requirement for ETFs to have a dedicated market maker 5. In comparing ETFs with managed funds: a) Managed funds offer greater transparency of the underlying portfolio b) ETFs are subject to greater variations in liquidity c) ETFs generally offer higher risk diversification d) Managed fund investors can dispose of their investment more frequently 6. It is not possible for ETFs to be purchased off-platform. a) True b) False

Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

FS Advice

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

46

Investment

www.fsadvice.com.au Volume 15 Issue 01 I 2020

CPD Earn CPD hours by completing the assessment quiz for this article via FS Aspire CPD. Worth a read because: This article outlines considerations and reasons for holding a mixture of overseas and local investments and how Australia’s net positive currency asset position may influence investment decisions.

Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

The AUD, foreign debt and trade Into the next decade Peter Pontikis

Australia posts its first current account surplus in 44 years Recent Australian overseas trade and investment data saw the country move into a net foreign equity asset position. This was powered by persistently higher commodity prices, elevated terms of trade and sustained export volumes (increasingly diversified into medical-pharmaceuticals and manufactured goods) that saw its cyclical deficit on trade swing decisively into surplus; most recently recorded at 4% of GDP (see Figure 1) — its highest since 1959 when quarterly data reporting began. Combined with marginal improvements on the income deficit, the overall current account moved in the 2019 September quarter into its first surplus since 1975.

Foreign debt improved in quantity and quality Less apparent than the improved balance of trade scenario has been Australia’s foreign debt position (more correctly called the net foreign liabilities position that includes inbound and outbound equity investments). A decade ago at the time of the global financial crisis — the bulk of Australia’s foreign liabilities (50% of GDP) was in the form of debt split between short term and longer term (oneyear maturity), another 10% of which represented the net deficit on equity exposures (that is, more foreigners owning Australian businesses than Australian residents owning foreign shares).

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

The total figure of net foreign liabilities is important as its magnitude tends to drive the income deficit (as it usually is in Australia’s case) or surplus. If the country has a net foreign debt load, the servicing of it (that is, payment of interest and dividends) tends to leak out of the country.

While Australia has a current net foreign liabilities figure of 50% of GDP, it has in 10 years declined in relative terms and also improved qualitatively by now having a safer mix. It has achieved this with a lesser proportion of net short-term debt owed by Australians (mostly banks) to the world now close to zero, and the previous negative net equity figure of flows now positive. That is, for the first time Australians own more foreign equities than foreigners own Australian equities, reflecting as it does the accumulation of investments (and compound dividends) offshore by superannuation funds.

This means the entire net figure of foreign liabilities owed by Australia (50%) is comprised entirely (and more, that is, the figure for long-term liabilities is greater than total net liabilities as shown in Figure 2) of net long-term debt owed.

From a currency risk perspective, the vast bulk of all foreign liabilities are hedged back into AUD (85%, as per the left-hand panel of Figure 3), which makes sense from a balance sheet risk management point of view. The figure though for Australian residents’ share of owning foreign assets or net foreign currency asset position is different and, alternatively, most of it is unhedged. This is shown in Figure 3.

FS Advice

www.fsadvice.com.au Volume 15 Issue 01 I 2020

Investment

47

Figure 1. Current account balance

Sources: ABS, RBA

It is important to remember that a large part of the rationale for Australian offshore investment is that it is also unhedged for the very important role in diversifying risk away from both the narrow range of domestic investment choice and currency risk concentrated in the AUD. If anything, the mix of overseas assets and liabilities of Australian residents (including the government sector) is well placed for a currency that traditionally is weak and consistent with its history as a quasi-emerging-market currency heavily dependent on foreign capital and commodity prices.

But is this a good guide for the AUD’s secular future?

Implications for the AUD The recent run of persistent trade surpluses together with a more benign configuration of net foreign liabilities that improves the income deficit position of the AUD is at an interesting juncture in the currency’s history.

Given the range of possible outcomes, the first and historically most frequent (and pessimistic) scenario sees the Australian economy reverting back to its mean and returning to its track record of running up current account deficits, crystallising its potential risks and vulnerabilities around: • commodity prices (specifically iron ore prices) and/

FS Advice

or export volumes declining into the next decade, pressuring both the current account and the currency • world economic and global growth remaining more subdued for longer, dissipating any trade surplus balances, and/or, • a future rise in global interest rates leading to an increased income deficit, or indeed • any or all combinations of which would force the AUD back down to its trade-weighted averages in the longer decade-plus time horizon.

Conversely, and quietly possible, is a second scenario that sees a new secular trend beginning with 2019 seeing Australia’s first current account surplus in a generation. If the fears highlighted in the preceding list do not eventuate, will 2019’s surplus be a harbinger of a new AUD ‘normal’ where trade surpluses come to be maintained for years to come?

The still provisional improvements on trade would also be assisted by improvements on the income deficit side too — particularly if worldwide interest rates (on Australia’s liabilities) remain low for longer with the compounding effect of a new decade or so of 3–4% accumulating current account surpluses that could see Australia shed its status as a debtor nation, transitioning to that of a creditor nation.

Peter Pontikis, India Avenue Investment Management Peter Pontikis is director of macro strategy for India Avenue Investment Management, a fund specialising in mid-cap Indian equities. He has over 30 years’ investment, wealth management and financial markets experience.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

48

Investment

www.fsadvice.com.au Volume 15 Issue 01 I 2020

Figure 2. Net foreign liabilities

The quote

The total figure of net foreign liabilities is important as its magnitude tends to drive the income deficit (as it usually is in Australia’s case) or surplus.

Source: ABS

Figure 3. External position*

Sources: ABS, RBA

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

FS Advice

Investment

www.fsadvice.com.au Volume 15 Issue 01 I 2020

49

CPD Questions Earn CPD hours by completing this quiz via FS Aspire CPD 1. Which of the following statements is CORRECT? a) Australia’s current net foreign liabilities are around 60% of GDP b) Australians now own more foreign equities than foreigners own Australian equities c) Australians now own fewer foreign equities than foreigners own Australian equities d) Australia’s current net foreign liabilities are around 40% of GDP 2. Australia’s current account surplus was driven by: a) Persistently higher commodity prices b) Elevated terms of trade c) Sustained export volumes d) A ll of the above 3. Which of the following statements regarding net foreign liabilities owed by Australia is CORRECT? a) Australian’ residents share is mostly hedged b) Around two-thirds is hedged back into AUD c) It is made up entirely of net long-term debt d) It is made up entirely of net short-term debt

Regardless of one’s view of the current account’s future course, the increasing Australian superannuation fund investment allocation to overseas assets means that the growing net foreign asset exposures will become a more relevant area of focus for foreign exchange market participants. This will become especially relevant at the next peaking of the strong USD cycle underway giving way to a plausible strengthening in the AUD that could trigger a ‘scramble to hedge’. That is, to buy AUD.

4. Which of the following scenarios are highlighted in the article? a) The AUD may move closer to being a safe-haven currency b) Trade surpluses may become the norm for Australia Australia c) may transition to being a creditor country d) All of the above

Conclusion

5. Australian superannuation funds’ allocation to overseas assets is increasing. a) True b) False

Australia’s current net positive foreign currency asset position together with the prospect of sustained current account surpluses into the 2020s could conceivably (in an optimistic scenario) force a rethink of the AUD’s characteristics. Past patterns that correlated with commodity-dependent emerging-market currencies may give way slowly (or quickly) to a perception that this currently AAA-rated currency may in fact have reserve-like qualities.

While too early to call the AUD the ‘Swiss franc of the South Pacific’ (that is, a globally recognised safe-haven currency), there is data on the ground for which if trends do eventuate would make the AUD of the 2020s markedly different from that of preceding decades. fs

FS Advice

6. The author believes the AUD will remain strongly correlated with commodity-dependent emerging-market currencies. a) True

b) False

Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

50

Investment

www.fsadvice.com.au Volume 15 Issue 01 I 2020

CPD Earn CPD hours by completing the assessment quiz for this article via FS Aspire CPD. Worth a read because: Not all residential-mortgage-backed securities (RMBS) are created equal. This article helps investors evaluate the various aspects regarding the credit quality and ratings of RMBS, given the variations in structures and assets.

Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

RMBS: Weighing up risk versus reward Residential mortgage-backed securities

D John Sorrell

uring and after the global financial crisis, the prices of residential mortgage-backed securities (RMBS) were quite severely impacted; however, since then they are once again proving popular with investors.

So, just how risky are they in the current environment? And how does one determine if the spreads on RMBS are attractive?

Residential mortgage-backed securities RMBS are debt-based securities, backed by principal and interest paid on residential mortgages. These securities are protected from the risk of default inherent with individual loans, by pooling many such loans to minimise the impact of an individual default.

RMBS can be considered as appropriate when a longer holding period is considered and, critically, provide attractive spreads with solid credit profiles that are less exposed to house prices than might at first be thought.

Australian RMBS provide a source of highly-rated assets, with consistent income generation and can be an attractive investment within portfolios. The caveat is that they can potentially be illiquid

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

and tend to be better suited to portfolios that target longer investment terms and are not as focused on short-term trading.

An appropriate sizing of RMBS holdings within a portfolio can increase running yield while maintaining or improving overall credit quality of the portfolio. The structuring of the deals results in a variety of securities with different risk profiles from solid triple-A securities through to lowly-rated or unrated deeply subordinated issues.

In order to consider the sizing and selection of issues, it is essential to understand the structure of the RMBS issues and to validate that the securities warrant the credit ratings assigned. Such analysis will also form a basis for comparison between issues, given the variations in structures and assets, and help explain how not all RMBS are created equal.

Assessing RMBS credit quality To help understand the credit quality of RMBS, investors need to consider various aspects, including: • quality of the assets • issue/issuer performance • seniority of claim.

There is a variety of perspectives from which the quality of assets might be assessed. Some of the key areas of comparison include:

FS Advice

Investment

www.fsadvice.com.au Volume 15 Issue 01 I 2020

the loan-to-value ratios (LVRs); loan terms; borrower income relative to mortgage payments; geographic distribution, borrower credit history; level of income verification; interest-only as opposed to amortising and owner-occupied as opposed to investment loans.

RMBS issues can be classified as prime or non-conforming. Prime loans in Australia have historically been defined as those qualifying for lender’s mortgage insurance (LMI). Usually losses on non-conforming loans are higher. The typical way to compare issuer’s performance is to examine the level of arrears and defaults on their mortgage pools, adjusting for whether the loans are prime or more aggressive.

Seniority of claims is, however, the first and foremost part of assessing any RMBS issue and requires careful scrutiny. To understand this, a thorough understanding of the structure of an issue is necessary. An example of how property defaults are managed by the structure can be seen through considering a Prime RMBS with a senior tranche consisting of 92% of the issue and an (unrated) 8% subordinated tranche: 1. The property is taken into possession and resold— the proceeds are used by the RMBS to pay off as much of the mortgage principal exposure as possible, including any interest on the loan that has accrued and other expenses.

51

2. If there is a shortfall and there is mortgage insurance (in most cases loans with LVRs greater than 80% have LMI) then the shortfall is claimed against the insurance policy.

3. If the LMI rejects part or all of the claim or there is no LMI, then excess spread is used to pay as much of the shortfall as possible (excess spread is the difference between the mortgage interest rate and the interest rate on the RMBS).

4. If there is still a shortfall, then the loss is deducted first from the principal amount of the subordinated tranche.

5. Only once the principal of the subordinated tranche is completely depleted, will further shortfalls be charged off against the senior notes.

Standard and Poor’s recently noted that no RMBS they rate has even incurred loss on the unrated tranche (ie. hit stage 4). This highlights how robust the structures are.

Pricing and trading RMBS Based on rating alone, RMBS currently appear relatively cheap: triple-A senior prime deals of about three years’ average life are pricing at over 100 basis points to swap compared to spreads for three-year bank paper in the double-A rating band of nearer to 60 bps.

John Sorrell, Nikko Asset Management John Sorrell is head of credit research, Nikko Asset Management Australia.

John joined Nikko Asset Management in 2008 and is responsible for the Australian credit process and strategy, as well as managing portfolios for the credit solutions segment of the Australian fixed income offering.

FS Advice

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

52

Investment

www.fsadvice.com.au Volume 15 Issue 01 I 2020

CPD Questions Earn CPD hours by completing this quiz via FS Aspire CPD 1. RMBS tend to work well for portfolios that are orientated towards: a) Shorter investment terms and trading within the short term b) Longer investment terms and trading beyond the short term c) Trading strategies such as taking views on their spreads 2. Which of the following is a disadvantage of RMBS? a) They may be subject to illiquidity a) Based on rating alone, they are expensive c) In most cases, most loans are not covered by LMI d) Their spreads reflect inconsistent credit profiles 3. If RMBS experience overly tight margins, they are: a) Often the catalyst for rejected LMI claims, and excess spread used to pay shortfalls b) Buffered from negative events, as underlying investments in the pool are segregated c) Strongly prone to the effects of adverse economic events such as the GFC d) Subject to an increased demand for securities with

However, it is not as simple as comparing these spreads. Those who held RMBS in 2007-09 during the financial crisis know how the prices of RMBS can suffer. In some cases, triple-A senior RMBS were discounted by as much as 20% even while the pools themselves were performing quite satisfactorily.

In this case, margins on RMBS had tightened too much. The margins on a senior deal were issued as low as 13 bps above swap and 5-year mezzanine tranches as low as 16 basis points. At these levels, they were highly sensitive to any negative events and when the financial crisis hit, they suffered. This irrational pricing highlights the fact that RMBS, like any other investment, can be mispriced and there are times they should be avoided.

In the ten years since the financial crisis, Australian RMBS spreads have been considerably wider than at any time leading up to 2007. As a general rule, the range of 90 to 120 basis points spread for a major bank senior tranche seems to be the standard with other issues being priced at pick-ups above these benchmark issues.

When margins fall below 90, support for deals from investors has been reduced while at over 120, bank issuers tend to focus more on alternative funding strategies. Within this range, RMBS would seem an attractive investment. The increased number of participants in the Australian RMBS market may squeeze the margins, particularly at the wider end.

RMBS are, however, poorly suited to trading strategies such as taking views on their spreads since their non-standard issue structures, bid-offer spreads and uncertainty due to monthly prepayment could erode the performance of any view-taking position.

Overall, RMBS provide attractive spreads with solid credit profiles which have less exposure to house prices than many critics suggest. For investors seeking yield, and who have a longer investment horizon, they may offer solid portfolio benefits. fs

homogenous risk profiles 4. An RMBS would be seen as an appealing investment if it fell between: a) 60 and 100 bps

b) 70 and 120 bps

c) 80 and 100 bps

d) 90 and 120 bps

5. Seniority of claims is the primary component of assessing an RMBS issue. a) True

b) False

6. In Australia, prime loans are those qualifying for LMI. a) True

b) False

Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

FS Advice

Responsible investment

www.fsadvice.com.au Volume 15 Issue 01 I 2020

53

Retirement:

54

Understanding life expectancies

By Jeremy Cooper, Challenger Limited

54

Retirement

www.fsadvice.com.au Volume 15 Issue 01 I 2020

CPD Earn CPD hours by completing the assessment quiz for this article via FS Aspire CPD. Worth a read because: There is a need for advisers to improve clients’ understanding of life expectancy data in light of retirement income plans and better account for specific groups and situations when providing advice.

Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

Understanding life expectancies A big financial literacy gap for retirees

I

Jeremy Cooper

t is a fact of life that nobody knows exactly how long they will live. Of more concern is that most people don’t know how long they are expected to live on average either. Given that Australian seniors are responsible for financing their own retirement, this is a significant financial literacy issue.

In a 2014 survey of seniors, respondents thought that an average 65-year-old Australian would live to 83.2 years, when the correct figure at the time was 88 years—almost five years higher (National Seniors Australia, 2014). In the survey, the average estimation of own life expectancy for the 50-54 age group was seven years below the correct average, while for the 70-74 age group it was two years below.

Speed of change Today’s retirees are now typically living into their late 80s; 10 years longer than they did in the 1990s. In 2017, the most common age of death in Australia was 88, whereas only 20 years earlier in 1997, it was age 78. The speed of this change partly explains why it is not well understood in the community.

What is life expectancy?

Life expectancy is an estimate published by the government of how long people are likely to live on average. These can be estimates from

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

birth or from other ages, typically age 65. How long you are expected to live on average is vital information for Australians who are over age 50 and are starting to plan seriously for their retirement. Unfortunately, this information is currently not getting through to those who most need it.

The potential causes are: • complicated and differing information maintained by separate parts of government • widespread ignorance across the financial services industry • over reliance on averages and out-of-date inputs in retirement calculators.

The result is consumer confusion and potentially poor outcomes, because people cannot plan properly for the financial implications of a longer than expected retirement.

Confusion around life expectancies Take the latest life expectancy figures from the Australian Bureau of Statistics (ABS). The ABS estimates, based on data from 2015-17, that the life expectancy of an Australian male is 80.5 years and 84.6 years for a female (ABS Cat No. 3302.0.55.001).

These are authoritative and accurate, but they are apt to be misinterpreted.

This is because they are estimates of life expectancies from birth, so they include the deaths of people who die young from accidents

FS Advice

Retirement

www.fsadvice.com.au Volume 15 Issue 01 I 2020

or illness. As a result, these figures are misleading to use for retiree life expectancy because they are too low.

Having reached age 65, you have a higher life expectancy because you are already a survivor. It is alarming how often supposed experts use these figures to talk about retirement planning.

The most recent example was in a weekend newspaper in August 2019, where it was cited: “If you are 65 today, you should expect to live to 80.4 for men and 84.5 for women” (‘How to turn your retirement savings into a regular pay cheque’, The Sydney Morning Herald, 31 August 2019).

The figures were both out-of-date and used in the wrong context. Getting to the correct figures, however, is currently far too difficult for nearly all of the relevant stakeholders: members of the public; financial advisers and others who are involved in providing financial services.

The ABS does produce life expectancies for 65-yearolds, but it merely looks at the probability of survival based on data from the past. There is an improving mortality trend that means that each generation is living longer than the previous one. Another part of government, the Australian Government Actuary (AGA) inside Treasury, estimates this trend and provides improvement factors that can be used to adjust ‘unimproved’ life expectancies.

These two separate sources of data are not easy to locate or reconcile and hence are not as widely understood as they should be. This means that many estimates of life expectancy fall short of the mark because only the ‘unimproved’ ABS expectancies are used.

Based on the improvements over the past 25 years tabulated by the AGA, half of today’s 65-year-olds will live to at least age 88 for males and at least age 90 for females. These numbers have been increasing for many years and are likely to continue to increase for some time, even though the rate of that increase might fluctuate from year to year.

The differences between these three data sets are illustrated below:

Not everyone is average We must also remember that these numbers are only averages. In reality, there is a wide distribution of actual lifespans either side of the average. Approximately two-thirds of today’s 65-year-olds will die somewhere between their early 80s and their mid-90s, across a span of around 16 years.

A plan that only lasts up to the average life expectancy will disappoint one in two retirees.

Surviving longer also impacts a person’s average life expectancy. For example, a male alive at age 90 can, on average, expect to live to age 94, whereas a female can expect to live to age 95. This reminds us that human beings use averages to make complicated things seem simpler, while the reality remains complex.

The spread of actual lifespans can be seen in Figure 2, which shows the age of death for older Australians in 2017. The data in the chart are historical (ie. the peak of the histogram reflects people who were age 65 in 1994) and don’t capture the mortality trend for younger retirees, but are indicative. The wide range of ages can be seen in Figure 2, and while another 1% have lived longer than age 100, the highest point (at age 88) is still less than 5% of over-65s. Two out of three people lived beyond age 80, and this proportion will continue to increase over time. Figure 3 illustrates the skew across all ages.

Perhaps the most important point from this chart is the difficulty in predicting an individual lifespan. With at best a 5% success rate, a plan that relies on a certain age at death is almost certain to fail. It will either be too short and leave a retiree to live only on the age pension, or it will be too long and leave a lot of unspent wealth.

Life expectancy of couples A significant majority of people enter retirement as a couple. Another interesting fact is that the life expectancy of a couple is actually greater than their individual life expectancies. This is because a couple is a pool of two people, rather than one. This increases the risk that one of them will live longer than their combined individual life expectancies. Again, this is a little-known fact.

What are some of the solutions?

Short of a national campaign along the lines of the ‘slip, slop, slap’ anti-skin cancer blitzes of the 1970s, there might be a technological solution awaiting us. Every day, enhancements are made in the burgeoning financial technology or fintech industry.

The future of presenting financial information and giving financial advice is inextricably linked to fintech.

The complications of life expectancies could be simplified and presented in an easy-to-understand format as part of a retirement income calculator or other tool designed to help retirees. This could be thought of as ‘retiretech’. fs

Figure 1. Making sense of different life expectancies

Average life expectancy

From birth

From age 65

From age 65 with mortality improvements

Males

80

85

88

Females

85

87

90

FS Advice

55

Jeremy Cooper, Challenger Limited Jeremy Cooper is chair, retirement income at Challenger Limited, a fulltime executive role focusing on research, public policy issues and thought leadership.

Before joining Challenger, Jeremy chaired the Cooper Review into superannuation the recommendations of which have been substantially adopted.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

56

Retirement

Figure 2: Actual age of death in Australia in 2017 for the 65-100 age group

Source: Australian Bureau of Statistics ABS Cat 3302.0.

www.fsadvice.com.au Volume 15 Issue 01 I 2020

Figure 3. Actual age of death in Australia in 2017 for all ages

Source: Australian Bureau of Statistics ABS Cat 3302.0.

Disclaimer This paper is dated 19 September and is provided by the authors on behalf of Challenger Limited ABN 85 106 842 371. The views expressed are not intended to be financial product advice, tax advice or legal advice and should not be relied upon as such.

CPD Questions Earn CPD hours by completing this quiz via FS Aspire CPD. 1. How would you explain life expectancy to a client? a) It gives an accurate lifespan for an individual b) It measures how long, on average, a person is expected to live c) It gives an accurate lifespan for a couple d) It provides data on patterns of diseases that cause death, by population groups over time 2. A client born in 1965 and retiring anytime soon is expected to live: a) Beyond age 75 b) Beyond age 80 c) Beyond age 90 d) Beyond age 100 3. Why are the estimates of life expectancies misleading? a) They do not include all types of ethnicity in Australia b) They include people who die young from accidents or illness c) The life expectancy metrics are too high d) They include young and old people who die from accidents only

4. From the article’s findings, which one of the following statements is CORRECT? a) Life expectancy is an estimate and should not be taken seriously b) Life expectancy is only accurate once a person turns age 65 c) Life expectancy should be viewed in parallel with mortality rates d) Life expectancy should only be interpreted by a qualified financial adviser 5. L ife expectancy is not well understood by retirees, which can be problematic when they want to manage their retirement income. a) True b) False 6. Measuring life expectancy from birth is not the right measure for people who are already age 65. a) True b) False

Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

FS Advice

Responsible investment

www.fsadvice.com.au Volume 15 Issue 01 I 2020

57

Taxation & Estate Planning

58

The main residence exemption

By Janet Manzanero-Caruana, IOOF TechConnect

58

Taxation & Estate Planning

www.fsadvice.com.au Volume 15 Issue 01 I 2020

CPD Earn CPD hours by completing the assessment quiz for this article via FS Aspire CPD. Worth a read because: Changes to the main residence exemption will impact many foreign residents who own a home in Australia or depart the country, though the exemption is still available under limited circumstances.

Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

The main residence exemption Taxing times for non-residents who sell their Australian home

S

Janet Manzanero-Caruana

elling one’s home without the main residence exemption can mean a substantial tax bill. The capital gains tax (CGT) main residence exemption (the exemption) is available to all Australian residents.

The exemption: • disregards a capital gain or loss for income tax purposes when a person disposes of property that was

their home • applies for the period the property was treated as the person’s main residence • is no longer available to foreign residents.

Measures to restrict the exemption to Australian residents were announced in the 2017/18 Federal Budget to reduce pressure on housing affordability. One of the measures is to deny a foreign resident access to the exemption on the sale of their Australian home. Concessions were made to the original announcement to allow an individual who was a foreign resident for not more than six years at the time of the CGT event and who meets the life event test to be eligible for the exemption.

The Treasury Law Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 became law on 12 December 2019 and is effective retrospectively from 7:30 pm (AEST) on 9 May 2017.

Transitional provisions allow the exemption to apply where a foreign resident sells a home that was acquired before 7:30 pm (AEST) 9 May 2017, and the CGT event happens on, or before, 30 June 2020.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

The changes will impact many foreign residents who have a home in Australia or those departing Australia permanently or for an extended period. This is an important consideration for any clients who own an Australian home. They should seek tax advice to understand and consider their options (financial advisers cannot provide tax advice).

This paper discusses the limited circumstances in which the exemption may be available to a foreign resident.

Clients who may be affected The measures may be relevant for the following clients: • Foreign residents who bought a home after 9 May 2017 and have or who intend to sell their Australian home.

• Foreign residents who bought a home before 9 May 2017 and intend to sell their Australian home after 30 June 2020.

• Australian residents who are leaving Australia for several years and are considering whether to retain or sell their home.

• Former Australian residents who have a former home in Australia.

• Temporary residents who own an Australian home and may become foreign residents.

Australian tax resident or non-resident?

The first consideration is whether the client is, or will be, an Australian tax resident at the time of the CGT event. The meaning of Australian resident for tax purposes is not the same as an Australian resident for immigration purposes. A person is an Australian tax resi-

FS Advice

Taxation & Estate Planning

www.fsadvice.com.au Volume 15 Issue 01 I 2020

dent, including a temporary resident, if they meet any of the following criteria: • They reside in Australia. ‘Resides’ is not defined in the income tax legislation and is discussed in Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia.

• They have a domicile (permanent home by law) in Australia, unless the Australian Taxation Office (ATO) is satisfied that the individual’s domicile is not in Australia. Taxation Ruling IT 2650 Income tax: residency — permanent place of abode outside Australia confirms factors that need to be considered when determining a client’s permanent place of abode.

• They have been in Australia for at least 183 days during the income year, or • They are an Australian Government employee working at an Australian overseas post and is a member of the Commonwealth Superannuation Scheme or the Public Sector Scheme (or a spouse or child under age 16 of that employee).

A person who is not an Australian tax resident is a foreign resident for the purposes of determining eligibility for the exemption. Foreign residents are not typically entitled to the exemption, but exceptions apply.

59

Example 1: Life event test is not met Jared purchased a home on 1 June 2012 and lived in it until he left to settle in Spain with his new wife on 1 July 2016. He rents the home and subsequently sells the property on 10 July 2020. The exemption does not apply because when he signed the contract of sale, he was a foreign resident. While Jared’s period of foreign residency does not exceed six years, he does not meet the life event test. The ability to treat the home as the main residence for up to six years when the home is rented does not apply because Jared is not eligible for the exemption. If Jared sells the property on or before 30 June 2020, he is eligible for the exemption under transitional provisions because the property was acquired prior to 9 May 2017.

Example 2: Life event test is met Paul and Patty purchased their Melbourne home in joint names in 2000. They lived in it until they migrated to Canada in 2016 where they live in a rented apartment.

The Melbourne home is rented out. In 2019, Paul becomes terminally ill. The couple can no longer afford mortgage repayments on the Melbourne home.

In August 2020, they sell the property. As Paul and Patty’s periods of foreign residency do not exceed six years and the life event test is met (Paul being terminally ill), the exemption is available for the period the home was their main residence, including the time they were absent from the home. If the home is rented, absence is for a maximum of six years.

Foreign residents The exemption may be available to a foreign resident whose foreign residency does not exceed six years and who meets the life event test.

The life event test is met if any of the following life events happened during the period of foreign residency: • The person, their spouse, or the person’s minor child (defined as under age 18) had either a terminal medical condition or passed away, or • The disposal of the home is the consequence of a court order, maintenance agreement, financial or written agreement resulting from the breakdown of the relationship between the person and their spouse.

A terminal illness condition exists where two doctors certify that the person suffers from an illness or injury that is likely to result in their death within 24 months of the certification, and one of the doctors must be a specialist practising in that area related to that illness or injury.

Deceased estates The exemption is not available to a surviving joint tenant or the trustee or beneficiary of a deceased estate when the deceased was an excluded foreign resident at the time of death.

The trustee of a deceased estate or the beneficiary of a deceased estate including a beneficiary who is a foreign resident may avail themselves of the exemption if the deceased was an Australian resident at the time of death. In this case, the exemption is available to the extent it was available to the deceased.

The exemption applies to the period: • the home was the main residence of the deceased

FS Advice

• up to two years after the death (or longer if allowed by the ATO Commissioner) • immediately after the death where it was the main residence of the deceased’s spouse or a person who has a right to live in the home under the Will • where certain absences allowed the home to be treated as the main residence (e.g. a six-year absence when the home is used to produce assessable income, changing residences, or because of renovations and repairs).

However, the exemption cannot apply to the period where a foreign resident beneficiary owns the home in their own right and sells it outside the two-year period.

Janet

Properties The new measures apply retrospectively, therefore, foreign residents who bought and sold their homes after 9 May 2017 may need to review their tax returns. The ATO announced that no tax shortfall penalties or accrued interest will apply up to the date of enactment of this measure.

Tax rates and discounts Where a capital gain is taxable, the 50% CGT discount is available if the person held the property for at least 12 months. However, the 50% CGT discount is not available to foreign residents if the property was purchased after 8 May 2012.

The discount may be available on a pro-rata basis where the property was acquired before that date or the individual had a period of Australian residency after that date.

In addition, a foreign resident is taxed at 32.5% on their first $90,000 of income, then 37% on income between

ManzaneroCaruana, IOOF Janet ManzaneroCaruana is IOOF TechConnect’s senior technical services manager.

She helps financial advisers develop customised financial planning strategies with a particular focus on retirement.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

60

Taxation and Estate Planning

CPD Questions Earn CPD hours by completing this quiz via FS Aspire CPD 1. Foreign residents can use the exemption if buying a home: a) I n 2018 and selling it prior to 30 June 2020 b) A fter 1 July 2020 and selling it after 1 July 2026 c) I n 2012 and selling it after 1 July 2020 d) I n 2012 and selling it prior to 30 June 2020 2. A foreign resident beneficiary is eligible if the deceased: a) W as a foreign resident since 2011. The beneficiary sold the home 18 months after the deceased’s death. b) W as a foreign resident at time of death. The home was then rented out and sold 10 years later. c) W as an Australian resident, living in thier home at the time of death. The beneficiary sold the home within 2 years of death. d) B ought the home in May 2017 and left Australia permanently that year. They died in 2020 and their home sold that June.

3. A foreign resident can use the exemption on the sale of their Australian home if: a) They left Australia 10 years ago and their child was terminally ill five years ago b) They left Australia three years ago and the home was sold due to a divorce settlement c) They inherited the home from their parents who were foreign residents for 15 years d) They left Australia five years ago and the home was compulsorily acquired by local council in 2021 4. A foreign resident for five years sells their Australian home, they would not qualify for the exemption if: a) T heir child, aged 10, passed away four years ago b) T hey were diagnosed with a terminal illness last week c) T heir spouse was permanently disabled two years ago d) T heir home was sold because of a court order

www.fsadvice.com.au Volume 15 Issue 01 I 2020

$90,001 to $180,000, and 45% for any income exceeding $180,000.

The effective tax rates are higher because the tax-free threshold and the lower 19% tax rate is not available.

Example 3: Deceased was an Australian resident at the time of death Anu purchased a property in January 2000 and lived in it until his death on 1 July 2018. Chaturi, his beneficiary, has been a foreign resident for 10 years (excluded foreign resident). If she sells the property within two years of Anu’s death, the exemption for a disposal within two years after Anu’s death will apply.

However, if Chaturi continues to be an excluded foreign resident and sells the property after the two-year period (on or after 1 July 2020), the exemption is only applied to the period when it was Anu’s main residence (up to 1 July 2018). The period after Anu’s death is not eligible for the exemption.

Example 4: Deceased was an excluded foreign resident at the time of death Georgina purchases her Sydney home in 2002. She lives in it till July 2012 and rents it out with the intention of coming back to Sydney sometime in the future. Georgina passes away suddenly in July 2020. Gabriel, the trustee and beneficiary of her deceased estate, is an Australian resident and sells the home in December 2020. As Georgina is an excluded resident (foreign residency period exceeds six years) at the time of her death, the exemption is not available to Gabriel, even if he is an Australian resident. The rule where the cost base is reset at market value when the home is first used to produce assessable income will not apply because the exemption is not available.

If Gabriel does not sell the home and lives in it, he can choose the home to be his main residence. However, he is not eligible for the exemption for the period Georgina owned the home (the period up to her death).

Consider Even though there is an intention to return to Australia and live in

5. A foreign resident would be: a) S omeone who has lived and worked in Australia for two years while applying to be a permanent resident b) A n Australian who has lived and worked overseas with their family for the past eight years c) A n Australian who works overseas on a short-term contract d) A defence force employee stationed overseas 6. The 50% CGT discount is available to foreign residents if they purchased a property after 8 May 2012. a) True b) False Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

the home in the future, factors outside a client’s control may make it necessary to sell the home at short notice. The ability to meet the Australian residency test may not always be possible.

Conclusion With significant surges in the values of residential homes over the last few decades, the importance of being an Australian resident at the time of disposing of one’s home cannot be overstated, especially when significant capital gains may be realised. The years of the home being the main residence will not matter at all if the person does not qualify for the exemption at the time of the sale.

Those who acquired their former home before 7:30 pm on 9 May 2017 still have up to 30 June 2020 to sell their home and qualify for the exemption under the transitional rules. fs

FS Advice

Responsible investment

www.fsadvice.com.au Volume 15 Issue 01 I 2020

61

Technology:

62

How data is transforming the financial services industry

By Lesley French, MicroStrategy

62

Technology

www.fsadvice.com.au Volume 15 Issue 01 I 2020

CPD Earn CPD hours by completing the assessment quiz for this article via FS Aspire CPD. Worth a read because: Data-driven strategies and associated technologies will transform business operations and the customer experience for the better. However, such opportunities bring increased cybersecurity risks.

Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

How data is transforming the financial services industry

B Lesley French

anking and financial services is a datadriven industry in which organisations rely heavily on data analytics to meet customer expectations and stay competitive. Like most industries, customers within this sector increasingly require fast and easy personalised experiences, with the added assurance that their information will be kept safe. To be successful within this sector, financial services organisations must be able to pivot rapidly to address changing needs in the market while ensuring the protection of personal data.

In addition to these traditional challenges, the industry faces a unique cultural shift due to the emergence of artificial intelligence (AI) and automated technology, coupled with ever-increasing industry regulation.

Once-thriving sources of capital are not performing in the current market, so business models must adapt to maintain profitability. As a result, the industry is refining its approach to data analytics to keep pace with digital transformation and the evolving regulatory environment.

The rise of data-driven strategies Data-driven strategies are becoming increasingly paramount for corporate agendas across many industries in order to maintain

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

a competitive advantage (Barton & Court 2013). With specific regard to the banking and financial services industry, ‘big data’ and analytics can provide key information for devising consumer and business products, corporate strategy, operational plans, and forecasting future business performance and goals.

Banking and financial services organisations currently use data analytics for the development of products and services and to monitor industry trends through the collection of behavioural, demographic, geographic, and psychographic data from their customers.

Smart devices and apps are conveniently capturing and generating massive volumes of data, including: • customer information • financial transaction details • product and service purchase histories • customer journeys • service enquiries • social media streams • Internet of Things, or IoT, streams • software logs • text messages • emails.

It is key that organisations effectively capture all of this disparate data across multiple streams to develop an accurate and consolidated picture of the current market situation.

FS Advice

Technology

www.fsadvice.com.au Volume 15 Issue 01 I 2020

There are five areas are where data is transforming the banking and financial services industry, namely: 1. customer service and experience 2. operations 3. risk reduction and security 4. marketing 5. revenue opportunities and future plans.

These areas are examined in the following sections of this paper.

1. Customer service and experience Leveraging data to analyse individual customer preferences optimises the customer journey by personalising their experience through specifically targeted products and services (Department of Industry, Innovation and Science 2018). Banking and financial services companies can now use digital tools, such as chatbots and robo-advisers, to more rapidly assist online customer enquiries while gathering customer data. This not only reduces the effort and time required of employees but provides customers with further information to make informed decisions, while also enabling an additional source of customer data to companies.

Banking and financial services organisations can use data to recognise customer loyalty by monitoring customer actions and inactions. Companies can then provide rewards for milestones, on-time payments, or other particular service actions that have been met. Additionally, it can help companies to identify upsell and crosssell opportunities where other business services could be beneficial to a customer. Data is also being used to identify recurring customer issues that require more attention, such as a need for additional employee training.

2. Operations Data analytics, combined with new technology and automation, are streamlining business operations and increasing efficiencies across various industries, including banking and financial services. From 2018 until

FS Advice

2020, Deloitte predicted that 76% of Australian businesses would increase their investment in analytics capabilities (Deloitte Access Economics 2018).

AI and automating processes, led by analytics, improve employee productivity, optimise company resources, and improve response times to customer enquiries. In fact, AI is considered by PwC to be one of the eight essential technologies that businesses should be incorporating into their strategies (PwC Global n.d).

These new technologies can better manage the vast amounts of data coming into financial services organisations every day. Companies that operate on legacy systems may actually be at corporate risk in the longer term because legacy systems were not designed to withstand the growing workload from the current data-rich environment. Legacy infrastructure was simply not made to collect, store, and analyse large volumes of data.

Example: Using data analytics and automation to recover debt One area where data analytics and automation work seamlessly together is debt recovery. Analytics can show trends on different methods to contact individuals and organisations with outstanding debt and identify those that deliver the best results. This data can be fed into an automated system that generates customer communications and manages the full debt recovery process without the need for employee intervention.

3. Risk reduction and security Data is beneficial to improved accuracy, recommendations, and setting precedents in the organisation based on findings. It provides an overall picture of the company operations, which can reduce the risks associated with particular areas of weakness.

63

Lesley French, MicroStrategy MicroStrategy’s general manager for Australia and New Zealand, Lesley is responsible for leading the local teams and driving growth by managing sales and alliances, marketing and business development, pre-sales, customer success and support and professional services.

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

64

Technology

These may include: • determining loan and credit amounts • delivering real-time credit recommendations • recognising the signals that may indicate illegal activities (e.g. fraud or money laundering).

Analytics can prevent fraudulent crime by assessing customer, geospatial, and transactional data — among other types — in order to identify anomalies and detect suspicious activities. For 2019, there were more than 4,600 reports of investment scams in Australia (Australian Competition & Consumer Commission 2019), with 42.1% reporting financial losses that totalled over $54 million. Australia’s reports of fraudulent crimes have been on the rise and now sit above the global average (Shackell 2018).

Given the confidential information that banks and financial institutions have to obtain from customers, it should come as no surprise that cybersecurity is a burning issue for the industry. The importance for businesses to have a strong privacy solution for the digital realm is only increasing, with the financial sector across all countries noted as being highly vulnerable to cyber threats due to confidentiality of the data.

Digital transformation is a double-edged sword. On one side, it benefits companies by streamlining operations and processes, generating more productivity, and creating the potential for increased profits; but on the other side, by transferring information and processes to digital, it increases the range and number of entry points hackers can exploit (Bouveret 2018).

Alarmingly, only 34% of professionals were highly confident in the ability of their organisation’s cybersecurity team to detect and respond to cyber threats (ISACA 2019).

Between July 2018 and April 2019, Australian organisations took

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

www.fsadvice.com.au Volume 15 Issue 01 I 2020

an average of 281 days to identify and contain breaches, which contributed to an average cost of US$2.13 million per data breach.

However, for the Australian financial industry, the average breach cost US$4.3 million, with the industry representing the highest average for cost per record. The repercussions of these breaches resulted in a loss of customer trust and, in turn, led to serious financial consequences, of which lost business had the greatest impact on companies (IBM Security & Ponemon Institute 2019).

4. Marketing Using data to drive marketing campaigns can provide better results as it identifies consumer insights and industry trends. Companies gather information on customer preferences, accounts, loyalty, and recent actions. This data can be used to generate more lead-driven marketing efforts, such as tailored solutions and services for specific channels or scheduling advertisements at specific times. Mapping customer experiences and personalising content are considered as the most effective tactics that optimise marketing automation efforts (HubSpot 2019).

Being proactive about knowing what types of customers the business has and the main concerns of these customer can help to make the messages more specific within marketing collateral.

Knowing more about potential customers, how they search, and key words they are looking for, can improve a company’s search engine optimisation, or SEO, thus leading to better results.

5. Revenue opportunities and future plans The traditional business strategy is no longer relevant to the current banking and financial services industry environment, with the avenues that once brought in the most capital now struggling.

FS Advice

Technology

www.fsadvice.com.au Volume 15 Issue 01 I 2020

The acceleration of digital technology and new innovations has caused mass disruption and a need to reassess future strategies.

In order to stay competitive and relevant, using data and analytics becomes an essential part of strategising for future forecasts, long-term corporate strategies, and identifying areas for improvement. Data provides insights on what has worked and what has not, areas of success or failure, products and services, and differentiating consumer experiences. It can also pinpoint new areas and opportunities that are emerging in the market, and assist executive members in forward-thinking approaches.

Data and analytics are providing the industry with the ability to transform businesses from internal day-to-day operations to reviewing plans and strategies for the future. They are also providing key insights specific to the individual company on customer preferences, experiences, and services offered, and picking up on issues or areas that need improvement.

Cybersecurity is the greatest ongoing risk for all types of financial services companies across many multinational markets.

Therefore, financial services companies continue to invest to protect valuable customer information. A key opportunity for the financial services industry is the use of data to identify company and industry insights, such as weaknesses or competitive threats, so that the industry can be future-proofed from emerging issues while capitalising on new market sectors. fs

References Australian Competition & Consumer Commission 2019, ‘Scam statistics for 2019’.

65

CPD Questions Earn CPD hours by completing this quiz via FS Aspire CPD 1. The article found that legacy systems were: a) A good fit with AI and automation b) Deficient in dealing with large volumes of data c) Surprisingly robust compared with new technologies d) The best vehicle for debt recovery 2. In terms of capturing and generating data, smart devices and apps can readily and efficiently cover: a) Service enquiries

b) Software logs

c) Social media streams

d) All of the above

3. According to findings presented in the article, the number of industry professionals who were very confident handling cyber threats was around:

a) Half

b) One-third

c) One-quarter

d) Three-quarters

4. Which of the following findings did the article highlight regarding digital transformation? a) It focuses primarily on long-term internal day-to-day

Barton, D & Court, C 2013, ‘Three keys to building a data-driven strategy’, McKinsey & Company.

Bouveret, A 2018, IMF working paper: cyber risk for the financial sector: a framework for quantitative assessment, International Monetary Fund.

Deloitte Access Economics 2018, The future of work: occupational and education trends in data science in Australia.

operations b) It has an adverse effect on productivity c) It increase avenues for hackers d) It decreases avenues for hackers 5. Australia’s reports of fraudulent crimes have plateaued because of data innovation. a) True

b) False

Department of Industry, Innovation and Science 2018, Australia’s tech future: delivering a strong, safe and inclusive digital economy, Commonwealth of Australia.

6. According to findings presented in the article, using data

HubSpot 2019, ‘The ultimate list of marketing statistics for 2019’.

a) True

IBM Security & Ponemon Institute 2019, Cost of a data breach report.

Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.

to drive marketing campaigns is efficient but not suited to bespoke client offerings. b) False

ISACA 2019, State of cybersecurity 2019.

PwC Global n.d, ‘The essential eight: your guide to the emerging technologies revolutionizing business now’.

Shackell, M 2018, ‘Report: pulling fraud out of the shadows’, PricewaterhouseCoopers Consulting (Australia) Pty Limited.

FS Advice

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

Finished reading?

Content from this journal is CPD accredited.

Go to FS Aspire CPD and search ‘FS Advice’ to start earning CPD hours.

Available for individual and corporate subscribers Administrators can upload exams and build training plans FASEA reporting functionality Access to hundreds of hours of FPA and CPE accredited content Content from Australian and international thought leaders Claim CPD from events Track your progress via the live dashboard Device-friendly user interface Access to whitepapers, video, audio and event material Access to FS TechZone, your technical resource library

To request a demonstration call 1300 884 434 or visit www.financialstandard.com.au and click ‘FS Aspire CPD’

Don’t just do your CPD, discover your professional potential

68

Quick reference

www.fsadvice.com.au Volume 15 Issue 01 I 2020

News and opinions

White papers

AMP

8,9, 10

APRA 13 ASIC

3

Association of Financial Advisers

Applied financial planning How financial advice is digitally evolving from screen to voice

26

7, 15

BetaShares 6

Insurance

Cbus 9

Men’s health and life insurance

30

Challenger 12 Charter Financial Planning

12

Elders Financial Planning

8

Financial Adviser Standards and Ethics Authority Financial Planning Association of Australia

Ethics & Governance Overcoming obstacles to ethical behaviour

34

8, 12, 15

Rethinking ethics and code of conduct training

38

7, 10, 15

Investment

Household Capital

11

IOOF 13 Magellan 6 Metlife 9 NAB 12 Purpose Advisory

6

ETFs versus managed funds

42

The AUD, foreign debt and trade: Into the next decade

46

RMBS: Weighing up risk versus reward

50

Retirement

Wealthwise 14 XY Adviser Yellow Brick Road

7 10

Understanding life expectancies

54

Taxation & Estate Planning The main residence exemption: Taxing times or non-residents who sell their Australian home

58

Technology How data is transforming the financial services industry

THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING•

62

FS Advice

ACTIVELY SEARCHING TO DELIVER WORLD CLASS RETURNS Today’s companies are more dynamic than they have ever been. Regardless of location or industry, management teams are distrupting the status quo through technology and product innovation.

This dynamism can create attractive return opportunities for sharp-eyed, active investors.

Need to increase your global equities exposure?

Take a look at our global equity solutions: 1 yr %*

3 yrs % p.a*

5 yrs % p.a*

Legg Mason Martin Currie Emerging Markets Fund

28.22

17.38

12.17

Legg Mason Martin Currie Long-Term Unconstrained Fund^

32.16

19.22

n/a

Legg Mason QS Investors Global Equity Fund

22.53

12.33

12.46

Legg Mason QS Investors Global Responsible Investment Fund^

Launched 29 May 2019

INVEST WITH A GLOBAL LEADER Discover more at leggmason.com.au/goglobal

*Net of fees as at 31 December 2019. ^Inception date of Legg Mason Martin Currie Long-Term Unconstrained Fund is 17 Dec 2015 and inception date of Legg Mason QS Investors Global Responsible Investment Fund is 29 May 2019 so performance data for all periods is not available. Legg Mason Asset Management Australia Ltd (ABN 76 004 835 849 AFSL 240827) is part of the Global Legg Mason Inc. group. Legg Mason Australia as Responsible Entity has appointed Martin Currie and QS Investors as the fund managers for the Legg Mason Martin Currie Emerging Markets Fund (ARSN 147 940 467); Legg Mason Martin Currie Global Long-Term Unconstrained Fund (ARSN 609 150 889), Legg Mason QS Investors Global Equity Fund (ARSN 088 669 827) and Legg Mason QS Investors Global Responsible Investment Fund (ARSN 631 941 172). Before making an investment decision you should read the Product Disclosure Statement (PDS) for the Funds carefully and you need to consider, with or without the assistance of a financial advisor, whether such an investment is appropriate in light of your particular investment needs, objectives and financial circumstances. The PDS is available and can be obtained by contacting Legg Mason Australia on 1800 679 541 or at www.leggmason.com.au.

ACTIVELY SEARCHING TO DELIVER WORLD CLASS RETURNS Today’s companies are more dynamic than they have ever been. Regardless of location or industry, management teams are distrupting the status quo through technology and product innovation.

This dynamism can create attractive return opportunities for sharp-eyed, active investors.

Need to increase your global equities exposure?

Take a look at our global equity solutions: 1 yr %*

3 yrs % p.a*

5 yrs % p.a*

Legg Mason Martin Currie Emerging Markets Fund

28.22

17.38

12.17

Legg Mason Martin Currie Long-Term Unconstrained Fund^

32.16

19.22

n/a

Legg Mason QS Investors Global Equity Fund

22.53

12.33

12.46

Legg Mason QS Investors Global Responsible Investment Fund^

Launched 29 May 2019

INVEST WITH A GLOBAL LEADER Discover more at leggmason.com.au/goglobal

*Net of fees as at 31 December 2019. ^Inception date of Legg Mason Martin Currie Long-Term Unconstrained Fund is 17 Dec 2015 and inception date of Legg Mason QS Investors Global Responsible Investment Fund is 29 May 2019 so performance data for all periods is not available. Legg Mason Asset Management Australia Ltd (ABN 76 004 835 849 AFSL 240827) is part of the Global Legg Mason Inc. group. Legg Mason Australia as Responsible Entity has appointed Martin Currie and QS Investors as the fund managers for the Legg Mason Martin Currie Emerging Markets Fund (ARSN 147 940 467); Legg Mason Martin Currie Global Long-Term Unconstrained Fund (ARSN 609 150 889), Legg Mason QS Investors Global Equity Fund (ARSN 088 669 827) and Legg Mason QS Investors Global Responsible Investment Fund (ARSN 631 941 172). Before making an investment decision you should read the Product Disclosure Statement (PDS) for the Funds carefully and you need to consider, with or without the assistance of a financial advisor, whether such an investment is appropriate in light of your particular investment needs, objectives and financial circumstances. The PDS is available and can be obtained by contacting Legg Mason Australia on 1800 679 541 or at www.leggmason.com.au.

Everything from alpha to beta.

We’ve been offering active funds since we first opened for business in 1975.

Even before our founder created the first index fund for individual investors.

No matter the investment style, all our funds are low cost. So your clients keep more of their returns.

vanguard.com.au/lowcostactive

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. You should consider your clients’ circumstances and our Product Disclosure Statements (“PDSs”) before making any investment decision. You can access our PDSs at vanguard.com.au. This publication was prepared in good faith and we accept no liability for any errors or omissions. © 2020 Vanguard Investments Australia Ltd. All rights reserved.