Financial Standard volume19 number02

www.financialstandard.com.au

06

11

18

Westpac, ASIC

MLC Life, Parametric, Investment Trends

Future Super, Verve

Feature:

Profile:

News:

09

Opinion: Kristiaan Rehder Kardinia Capital

Wage subsidy to rescue advice industry Elizabeth McArthur

ith just 65 new names appearing on the W ASIC Financial Adviser Register in 2020, the rapid decline in adviser numbers has industry experts calling for a wage subsidy to incentivise advice practices to take hire graduates.

In its pre-Budget submission, the Association of Financial Advisers (AFA) recommended the government introduce a $10,000 wage subsidy for employing professional year students, citing the significant cost involved in bringing on a new entrant whose contribution to the business may be limited.

According to Rainmaker analysis of the ASIC FAR, 3318 advisers departed the industry in 2020.

Commenting on the shrinking industry, Profusion Group director Chris Gordon says: “The attrition will continue for at least another two to three years, especially this year. However, I don’t believe the numbers will be as high as expected.”

Still, according to the AFA, a roadblock still exists in the form of the professional year, which many small practices cannot afford to finance.

With almost half of the ASIC FAR yet to complete the FASEA exam, and the deadline to do so fast approaching, Gordon says he will be watching the number of exam enrolments for an indication of the direction the industry is going in.

So far, Gordon says private wealth firms have been the most active recruiters of financial advisers with Profusion over the past 12 months.

Large super funds have been focused on their digital or robo-advice offerings as they look to reduce costs and staffing requirements, he says.

Intra-fund phone-based teams have also grown.

“However, for face-to-face advisers/senior advisers, growth is stable with the majority of vacancies being replacement roles as opposed to growth,” Gordon says.

However, Kaizen Recruitment’s Simon Gvalda says super funds are looking for a very particular brand of adviser.

“Most super funds prefer advisers that come from a background within superannuation or larger corporate and who have a strong technical knowledge of superannuation,” he says.

“Advisers with a proven track record of managing a client book, have strong interpersonal skills and solid technical experience are always in demand.”

But the requirement of a proven track record isn’t only a theme at super funds. Both Gordon and Gvalda acknowledge that firms are narrowing their candidate pool when hiring advisers to just those who are very experienced, but this too could be to the detriment of the industry.

As it stands, for a new generation to enter the industry and turn dwindling adviser numbers around, advice firms are going to have to step up.

Striver head of partnerships and growth Scott Bunny says financial advice needs to start embracing graduates in new ways – both those with FASEA-approved degrees and related degrees.

“I think all the regulations around degrees and professional years and compliance and paperwork has really made employers nervous about getting it wrong from a HR perspective.

We need to drive it the other way,” he says.

“Some practices are still stuck in the mindset that a person who is green out of uni can’t help them. There’s a feeling of ‘I don’t have time to train someone’ and a lack of awareness on how to attract, retain and develop a culturallyaligned graduate.”

Bunny says what firms are failing to realise is the benefits they can reap from training up a graduate.

“Even if that person leaves you down the track or doesn’t become an adviser, the two years of bandwidth and assistance they give you will provide you with return on investment and provide the profession with more qualified supply of talent,” he says.

And Gordon says such opportunities are highly sought after.

“A very attractive proposition for less experienced advisers is to buddy up with a senior adviser into a support or servicing role with a pathway to move into a full adviser in the medium to long term,” Gordon says.

However, most businesses he’s seen hiring junior staff want them to have already completed their professional year. Gordon says this means the industry is missing out on candidates who want to step up.

Bunny agrees: “We have to attract people who are tempted by other professions… after a couple of years of support work, you’ll have someone who is ready to come more wholly into advice via the professional year. That’s a tricky part that as a profession we need to manage. We need to reduce the friction in hiring graduates.” fs

8 February 2021 | Volume 19 Number 02 www.financialstandard.com.au 20 January 2020 | Volume 18 Number 01

Executive appts:

News:

14

32

SMSFs

Senator Jane Hume

Risk, strategy disconnect rife Eliza Bavin

Scott Bunny

head of partnerships and growth Striver

New research from Deloitte has found there is a disconnect between boards’ risk appetite and effective strategic planning, which it said is threatening companies’ ability to take on risk.

The report, Refocus on Risk to Thrive, was based on interviews with 75 board and management representatives of Australia’s largest public and private organisations in late 2020.

It found almost all (93%) of Australia’s largest organisations believe the COVID-19 crisis has presented opportunities for them, as they look to 2021.

However, 68% would have higher confidence in achieving their objectives if there was a stronger alignment between strategy and risk appetite.

Deloitte said that while business confidence is at pre-crisis heights, there are justified concerns that Australian businesses are not backing themselves and taking the risks required to thrive.

It said business needs to rethink its approach to risk and more explicitly connect its risk appetite Continued on page 4

IPO outlook positive for 2021 Annabelle Dickson

The pipeline is encouraging for initial public offerings on the ASX this year as 14 companies are set to list, according to the latest HLB Mann Judd IPO Watch report.

The 14 companies are seeking to raise $172 million, up from $111 million sought compared to the same time last year. The largest amount of funds sought is $35 million by Chimeric Therapeutics.

HLB Mann Judd partner and author of the report Marcus Ohm said: “It is telling that in a post-COVID-19 recovery environment, the pipeline is quite good compared to previous years, and this reflects the strength of Australia’s economic fundamentals and positive investor sentiment.”

IPOs picked up in the last quarter of 2020 with 28 companies listing in December alone after a slow year; 84% of the 74 companies listed in the second half, an improvement on the 12 listings by the end of the June quarter.

Continued on page 4

News

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

Shipton to leave ASIC

Editorial

Jamie Williamson

T

Jamie Williamson

Editor

We all remember this time last year; the reality of the COVID-19 pandemic was beginning to set in but little did we know the havoc it would wreak on financial markets in just a few weeks’ time.

At the same time, there was no knowing how significant of a role self-directed investors would play in the stock market’s recovery. Be they firsttimers dipping their toes in, or long-time investors who suddenly had more time on their hands with which to manage their investments, the boom was real.

But a recent study by eToro – which saw a 480% increase in new users last year – found many Aussie investors are relying on social media and YouTube for advice on where to invest.

Similar can obviously be said internationally, if the recent GameStop/WallStreetBets short squeeze saga is anything to go by. And don’t forget the same group’s attempts to pump up the price of Dogecoin, a cryptocurrency started as a joke in 2013.

Yes, there were winners; a 10-year-old boy in Texas with 10 GameStop shares he’d been holding on to for two years scored US$3200 when he cashed them after hitting US$320 a share, not to mention the owners and executives of the company and other existing shareholders such as BlackRock, which reportedly gained over US$1 billion.

But the same can’t be said for the countless retail investors who jumped on the bandwagon a little too late in the game, convinced they were on to a sure thing, and lost. And the Wall Street suits targeted? While bruised and out of pocket for the short-term, they’ll all go on to live another day after being bailed out.

So while engagement with financial markets has increased, to what extent has it actually improved financial literacy? And even if it has, how long will it last? Social media content, particularly on TikTok, is designed for short attention spans and isn’t generally used as a jumping off point to learn more; when it comes to education and information these days, social media is arguably the main course, enjoyed with a side of Wikipedia.

At the end of the day, people’s money is their own to do with what they wish, but I hope that even just a few of those who benefited from the GameStop short squeeze take a leaf out of the 10-year-old’s book and put their ‘winnings’ to good use; he is reportedly saving US$2200 and reinvesting US$1000, having now experienced the joy of investing we so often hear of. fs

CORRECTION: The January 25 edition of Financial Standard listed Prime Super as a perennial underperformer over six years in an article headlined ‘New heatmap shames trustees’. This was incorrect. Financial Standard apologises to Prime Super and to our readers for any confusion or inconvenience this caused.

3

The quote

In the absence of any monetary value in that agreement [for tax services], there should have been no expectation that the agreement was for an uncapped amount.

reasurer Josh Frydenberg has announced ASIC chair James Shipton will leave the regulator in the coming months, despite being cleared

by Vivian Thom’s review of ASIC Governance.

Releasing the review findings, Frydenberg said he and Shipton agree it is in the best interests of the regulator for Shipton to leave. He has been in the role for three years.

Shipton will continue in the role for now, after having been stood down for the last few months. He will depart once a new chair has been appointed, which is expected to occur in the next three months with the search to commence immediately.

The report was first handed to the Treasurer on December 17, and Frydenberg said Thom made no adverse findings against Shipton or former deputy chair Daniel Crennan. However, Thom did say it was open to Treasury to seek legal advice as to whether Shipton breached applicable codes of conduct and what action could be taken if so.

“After considering Dr Thom’s report and supplementary legal advice provided to the Treasury concerning these matters, I am satisfied that there have been no instances of misconduct by Mr Shipton concerning his relocation arrangements, including ASIC’s payment for tax advice resulting from his relocation to Australia in early 2018, nor have there been any breaches of applicable codes of conduct,” Frydenberg said.

The review concluded that Treasury could improve its processes for managing the appointments of statutory officers and

has implemented a new system as a result.

For ASIC, Thom noted issues of concern in relation to the proper use and management of public resources, systems of risk oversight and management, systems of internal control and cooperation between ASIC officials. The regulator is now expected to make a series of changes as a priority and provide regular progress reports to Frydenberg.

The review was kicked off in October 2020 when it was brought to the Treasurer’s attention that Shipton and Crennan had both been significantly overpaid. Shipton and Crennan stepped aside pending the outcome of the review.

Shipton’s additional payments related to tax advice he received amounting to more than $118,000. While ASIC had agreed to pay for some tax advice received by Shipton, Thom estimated that a reasonable amount to have covered by the regulator would have been around $14,000.

“In the absence of any monetary value in that agreement, there should have been no expectation that the agreement was for an uncapped amount,” Thom wrote.

“It is the opinion of this review that any increases after that [$13,666.76] should have been subject to a further consideration as to whether the costs were reasonable and whether a clear ceiling was to be established.”

The overpayments to Crennan were in relation to relocation expenses incurred upon taking up his role, but that continued long after he had relocated. Crennan has since repaid the money and resigned from the regulator, taking on a new role at EverBlu Capital. fs

Global equities continue to soar: Rainmaker analysis Karren Vergara

Global equities fared better than Australian equities in the three years to September on a risk adjustedbasis, a new RMetrics report finds.

Rainmaker’s quarterly RMetrics report looked at Australian and global shares across 270 products.

On a risk-adjusted basis, the Australian equities active core category delivered a median return of 4.4% per annum for the period – lower than the S&P/ASX200’s 5.2% per annum.

Aussie equities small caps delivered 7.5% p.a., which is above the benchmark’s 6.1% p.a.

In global equities, active core products outperformed the high-performance category of 10.5% p.a. and 7.5% p.a. respectively. Both failed to beat the index’s performance of 11.2% p.a.

Products with lower active risk outperformed those with higher tracking errors in both Aussie and global equities, Rainmaker found. Global shares fared better as a result of the Aussie dollar appreciating against the USD, as well as the continued rise in tech stocks.

In terms of products, Alphinity’s Sustainable Share Fund ranked number one among Aussie equities active core products. Greencape’s Broadcap Fund and Macquarie’s Australian Shares Fund came second and third respectively.

The best risk-adjusted Aussie equities high performance product was Hyperion’s Australian

Growth Companies Fund. Australian Unity and Platypus’ Australian Equity Funds and Bennelong’s Australian Equities Fund comprised the top three.

As for emerging markets, Fidelity’s Global Emerging Market Fund topped the list, followed by the Capital Group New World Fund and the Schroder Global Emerging Markets Fund.

RMetrics takes into account a range of risk ratios and measures, resulting in an integrated risk score. These include some of the well-known risk measures: the Sharpe, Sortino and Omega ratios.

RMetrics also uses the gains-to-losses ratio and looks at the number of negative months and hit rate, and the minimum and maximum monthly returns.

Last year proved difficult for several Australian equities managers, with fee and performance pressures hitting home.

However, Longlead Capital believes 2021 will be a strong year for Pan-Asian equities.

Longlead Capital’s chief investment officer Tim Campbell said: “As a firm, we are seeing very strong interest from institutional investors, superannuation funds and sophisticated investors, looking to increase their overall allocation to the Pan-Asian region.”

“This is driven by the region’s positive economic fundamentals, as well as Asia’s compelling opportunity set driven by early and decisive action in the region to stem the spread of COVID-19.” fs

4

News

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

01: Dante De Gori

Risk, strategy disconnect rife

chief executive Financial Planning Association of Australia

Continued from page 1 to strategic decisions to make the most of the coming year.

The research found four key areas of development that organisations should focus on to give themselves the confidence to take risks.

These include: better alignment of strategy, risk appetite and culture setting processes, improved quality of risk data and risk reporting, increased management accountability for performance within risk appetite and using risk appetite as a tool to influence risk culture.

The research found that many boards have not established clear alignment between their organisation’s strategic plans, risk appetite and culture, and this is directly impacting their ability to achieve their objectives.

It highlighted the board and management were commonly disconnected, with management more likely to indicate that their organisation’s definition of risk appetite was adding limited value to decision making processes such as strategic planning.

Equally, poor quality risk data, and highly manual reporting processes, have undermined the ability of boards and management teams to make risk intelligent decisions.

This low level of confidence in data quality is driven by the highly manual nature of risk reporting processes, particularly in the areas of non-financial risk which have not been prioritised for digitisation beyond establishment of general governance, risk and compliance applications. fs

IPO outlook positive for 2021 Continued from page 1 Despite this, the total number of IPOs was down on the five-year average of 89.

Total funds raised over the year was also down on previous years with just $4.98 billion raised, a decrease on $6.91 billion on 2019 and $8.44 billion in 2018.

Ohm said the fall in volumes impacted the total funds raised, as June’s figure of $132 million represented just 3% of the total funds raised for the year.

The largest amount raised during the first quarter was $30 million by Atomo Diagnostics (ASX: AT1) which was also the only large cap IPO in the first half of the year – the other 31 occurred in the second half of 2020.

Despite challenging market conditions, 49 of the 74 IPOs posted a year-end gain, with the average gain being 34%.

“In all, 24% of all new listings recorded a gain of 50% or more for the year. While this is an excellent outcome for these companies, the gains are in line with the performance of the wider market in the second half of the year following the market low of early March,” Ohm said.

In regards to first-day gains, 74% of all IPOS ended their first day above their listing price with the average gain of 31%.

Furthermore, 93% of all new listings were able to raise the target amount of funds sought which was up on both 2019 (84% of targets met) and 2018 (72% of targets met). fs

Reference checks should cover all advice: FPA Karren Vergara

R

The quote

It’s an inefficient regulation of a critical consumer protection policy.

eference checks should be extended to general advice and to anyone that has the ability to influence the financial advice process, according to the Financial Planning Association of Australia.

In its submission to ASIC for CP333 Implementing the Royal Commission recommendations: Reference checking and information sharing, the FPA is calling for the proposed laws to extend to directors, management and responsible managers and not just financial advisers.

The reforms emanate from the financial services Royal Commission, which recommends that AFS licensees should be required to comply with reference checking and information-sharing regulations like what the Australian Banking Association has in place (Recommendation 2.7).

It was also recommended that advisers are bound by the same obligations as mortgage brokers (Recommendation 1.6).

Commissioner Kenneth Hayne slammed the advice industry for its poor background-checking practices, urging it to follow in the footsteps of the ABA. The inquiry found licensees frequently failed

to respond adequately to requests for references on their previous employees, and when recruiting, many do not take the information provided to them by referees seriously.

FPA chief executive Dante De Gori01 said the association has been a strong supporter of the central referee register maintained by the ABA but is “confused” why ASIC would not create a central register. “The proposed process is laborious because it requires the new licensee to manually search through multiple web pages as part of the reference checking process. It’s an inefficient regulation of a critical consumer protection policy,” he said.

Additionally, the FPA is recommending that advisers are protected if they raise a complaint to ASIC about a licensee providing false information or reports inappropriate behaviour.

Another recommendation is that the establishment of a single register of designated referee details is established as opposed to individual referee contact details dispersed between licensee websites.

ASIC’s consultation period ended on January 29. fs

Hostplus called out on climate change Elizabeth McArthur

The $50 billion industry super fund Hostplus is the latest fund to be the subject of a campaign from Market Forces, demanding it divest fossil fuels and develop a climate action plan.

Activist group Market Forces recently had success lobbying UniSuper to change its approach to investing in fossil fuel companies and managing the risk of climate change.

AustralianSuper, Aware Super, UniSuper and HESTA all recently committed to divesting thermal coal (some only in active strategies and some only if thermal coal contributes to a certain percentage of company revenue).

In fact, six of the 10 largest industry super funds have now committed to net zero emissions by 2050.

Market Forces points to this as evidence that Hostplus is not keeping up with its peers.

“Even if Hostplus is determined to ignore the science and the financial regulators, it needs to listen to its members,” Market Forces asset management campaigner Will van de Pol said.

“As the default super fund for the hospitality, tourism and sports industries, Hostplus’ members want to see their fund investing in a clean, renewable future that protects the places and activities they love, not the polluting industries of the past.”

In a statement to Financial Standard, Hostplus

said it agrees that climate change poses a material, direct and current financial risk that is relevant to its investment strategy.

“Hostplus takes climate change and its associated risks very seriously and in line with both the science and financial regulation, incorporates climate change factors into the investment process in a way that is consistent with delivering the best retirement outcomes for our members,” a spokesperson said.

“As we stated at our most recent Annual Member Meeting last December, we are actively considering our climate change policies as part of a review that has been substantively underway for some months now, and we look forward to updating our members, and the broader community, on the outcome of this review in the near future.”

A Hostplus member and Olympic walker, Rhydian Cowley, is the voice of the campaign.

“Summer sports in particular already have to plan around the increased risk of extreme heatwaves from just one degree of warming. The last thing athletes want is the money in our super fund making the problem even worse,” Cowley said.

“We all want to see Hostplus, the super fund representing the sports and recreation sector, end fossil fuel finance and use their funds to become a leader in driving the transition to a clean and sustainable low-carbon economy.” fs

MLC Core Investment List.

Now with more on the menu.

Invest in six new SMAs and the Antares Income Fund.

We recently launched the MLC Core Investment List on our Series 2 Wrap to give your clients cost-effective access to our high-quality multi-asset funds. We’ve now added six new Separately Managed Account (SMA) model portfolios and the Antares Income Fund.

Today, with over $1 billion in funds under management, advisers are using the choice and value MLC Core is offering to help them achieve their clients’ goals.

To find out more, speak to your BDM or visit mlc.com.au/adviser/core

Important information: MLC Wrap Investments Series 2 and MLC Navigator Investment Plan Series 2 are Investor Directed Portfolio Services operated by Navigator Australia Limited ABN 45 006 302 987 AFSL 236466 (NAL). MLC Wrap Super Series 2 and MLC Navigator Retirement Plan Series 2 are superannuation products issued by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) through the MLC Superannuation Fund ABN 40 022 701 955. The information is a summary only and should not be relied on for decision making and is provided solely for the use of authorised financial advisers and is not intended for distribution to investors and potential clients. You should obtain and consider the relevant Product Disclosure Statement and the Financial Services Guide before deciding whether to acquire or continue to hold the product. Relevant disclosure documents for each product are available by calling 133 652 or from www.mlc.com.au. The information is correct as at 1 January 2021 but may change in the future. A160448-0121

6

News

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

New trading platform to launch

01: Danielle Press

commissioner ASIC

Karren Vergara

The trading platform that encourages long-term investing backed by automation is gaining ground with a new generation of investors.

Retail trading platform Pearler gives investors the option to invest how they please or set up an “autoinvest” strategy – akin to the way superannuation is invested.

One way it encourages to invest in the long term is via the platform’s partnership with ETF providers.

Pearler works in partnership with eInvest, ETF Securities and VanEck, offering 43 ETF products.

Pearler was founded by a Sydney-based trio about two years ago after noticing a slew of “confusing” trading platforms and expensive micro-investment apps in the market.

Co-founders Nick Nicolaides, Hayden Smith and Kurt Walkom came together to brainstorm how best to bridge the gap. Nicolaides, a portfolio manager of private markets at Atrium Investment Management, previously worked with Walkom at family office Marshall Investments. The two eventually brought in Smith to provide technical know-how.

The platform ramped up testing in August of last year and currently has some 5000 early-access users.

About half of its clients are autoinvesting. The platform is expected to be live over the next few weeks.

One of its features is a pooled cash account it set up with Sanlam Wealth, which allows users to create automatic debits deducted on a fortnightly basis for example, that can be used to invest.

While only ASX securities are currently on offer, Nicolaides told Financial Standard that the platform is looking into launch global equities trading.

Part of the founders’ larger vision is a philanthropical offering whereby investors can opt to donate brokerage fees, 100% of which will go to charity.

Brokerage fees start at $9.50 per transaction for up to $17,500 and charges 0.055% for any transactions over this amount. fs

Milestone offers allocation tool The global fintech firm is targeting Australian superannuation funds with the launch of its tailored institutional asset allocation solution in Asia Pacific (APAC).

Milestone Group’s pControl Asset Allocation offers a set of cost-effective and comprehensive solutions that manages modelling, portfolio implementation and the execution process.

The discretionary portfolio management solution supports funds in managing partial discretionary allocations and algorithmic portfolio management for organisations that manage product-centric asset allocation models.

In addition, pControl’s Investment Operations solution provides Investment Book of Records (IBOR) capabilities and middle-office automated cash allocation, rebalancing and unitisation.

Milestone Group’s managing director for APAC Marian Azer said : “There is a growing demand from Australian superannuation funds, of all sizes and complexities, for an enterprise-based technology to manage daily asset allocation parameters and to be able to effectively model, monitor and transact in near real time,” she said. fs

High Court dismisses Westpac appeal Jamie Williamson

T The numbers

$650m The increase in funds under management the two phone campaigns generated for Westpac.

he High Court has affirmed the Federal Court’s 2019 decision that two Westpac subsidiaries provided unlicensed personal financial advice.

The High Court of Australia dismissed Westpac’s appeal, determining the financial product advice Westpac gave to 14 members via two 2014 telephone campaigns related to super switching was personal advice. As a result of the campaigns, Westpac gained $650 million in FUM. Westpac won the original case in December 2018, with the Federal Court ruling that Westpac Securities Administration Limited (WSAL) and BT Funds Management (BTFM) had breached the Corporations Act when recommending customers rollover of superannuation accounts to Westpac/BT products.

At the time, the judge said ASIC failed to prove the phone calls constituted personal financial advice. Under their respective AFSLs, WSAL and BTFM are only licensed to provide general advice.

ASIC appealed this decision in 2019 in the Federal Court and won. It is this decision that Westpac appealed in the High Court, a move that was dismissed this morning with costs.

Proceedings will now be remitted to the Federal Court for a hearing on penalties, with ASIC saying it will seek orders for financial penalties.

“Westpac were actively conducting a sales campaign aimed at rolling customers into Westpac products under the banner of general advice,” ASIC commissioner Danielle Press01 said.

“By clarifying the distinction between tailored, quality, personal advice in the customer’s interest, and general advice given via a sales campaign, today’s judgment will provide clear guidance to those financial institutions that develop campaigns to sell financial products through direct approaches to retail clients.”

The appeal sought to find what a reasonable person might have expected; “that Westpac has in fact considered one or more of the member’s objectives, financial situation and needs and not whether the member might expect that Westpac should have considered these circumstances”.

The decision states that the judge in the 2019 determination was dissuaded from concluding Westpac had done the wrong thing because each phone call began with a disclaimer that the ensuing advice was general in nature and doesn’t consider personal circumstances; the advice was free of charge; and that the callers “revealed a lack of knowledge about the member’s financial situation that was inconsistent with a capacity to consider one or more of the member’s objective and financial situation”.

In a statement to the ASX, Westpac simply acknowledged the decision. fs

Investors going in blind: Research Annabelle Dickson

Australians are entering the stockmarket guided only by word of mouth, independent research and social media posts, new research shows.

Online trading platform eToro surveyed over 1000 Australian investors to find out where they are getting their advice, where they are investing and to explore changing sentiments.

The research found that around 10% of investors in New South Wales are more likely to invest from what they have read on social media with 13% receiving advice from YouTube.

Victorian investors are watching news (22%), analysing charts (20%) or going with their gut (14%) when it comes to getting advice or knowing when to trade stocks. Meanwhile, 35% of investors from Western Australia are getting investment advice from friends while 38% trust their families for advice.

South Australians and Queenslanders are independent when it comes to getting investment advice, preferring to do their own research (34%).

Interestingly, 35% of Victorians invest to earn more income, particularly for those on reduced salaries or JobKeeper, while 24% of West Australians don’t have other employment than investment income.

Nearly one third of investors in NSW are investing to supplement income while 20% want to use their investment earnings to buy a house.

The research follows a surge of activist investors have pushed the share price of US-based retailer GameStop over 600% in a bid to short-squeeze hedge funds.

The amateur investors, using the Reddit forum WallStreetBets, are reportedly targeting hedge fund Melvin Capital Management for putting a hefty short position on the stock and leaving a paper trail in doing so.

As a result, it has been reported that Melvin received a US$2 billion bail out to cover the losses from the short position.

This activist investment behaviour may spark something similar on Australian shores as eToro saw a 480% increase in new Australian registered users in 2020 compared to the year prior.

This is consistent with the exchange-traded fund industry as the BetaShares Australian ETF Review for year end 2020 revealed the industry grew to $95.2 billion, up from $62 billion at the start of the year.

This is not only the highest annual change on record but shot the market capitalisation of the industry to an all-time high.

BetaShares head of strategy and marketing Ilan Israelstam said the most striking feature of the industry’s growth was that it was driven by inflows of $20.5 billion rather than asset value appreciation.

“This represents by far and away the highest annual inflows on record, representing a 59% increase in flows from the previous year’s figure,” Israelstam, who also authored the report, said. fs

News

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

7

01: Jonathan Scholes

02: Ban Travers

managing partner Findex

senior financial adviser Infinity Financial Advisors

The pendulum swing of advice ast year saw the world change in ways no one L could have imagined and the advice industry was turned on its head. The time that people needed advice the most was also the time advisers had never been under so much pressure.

Last year saw the pendulum swing from face-to-face meetings to online only. But now, as the dust seems to settle and the phrase “the new normal” is starting to actually feel a bit more “normal”, the advice industry has begun a new phase as well.

Jonathan Scholes 01 from Findex says the radical nature of change last year was helpful for the advice industry, forcing some of the laggards to catch up and modernise.

“We’re starting to find that happy medium.

Human beings have a natural predilection to over-correct things, and I think we saw that with everyone going digital because we didn’t have a choice to go and see clients,” Scholes said.

“Once, we’re able to get out there and see clients face-to-face a bit more I think we will find a happy medium of around a 50/50 split.”

Scholes says several clients prefer digital engagement because they enjoy being able to access advice from the comfort of their home.

“I like meeting people and talking to clients, I think it helps build that trust element. So, one of the harder things to figure out is how to build that trust digitally,” he says.

And the future of advice will be more valuebased, Scholes says, believing there will be a higher importance placed on goals and objectives and less focus on product.

“I think products can be an outcome of conversations around goals and objectives, and how you deliver that product through advice,” Scholes says.

“The reality is, I’ve been doing this job for 22 years and in that time a Statement of Advice (SOA) has not evolved greatly. They are still generally very lengthy and clients often find it difficult to understand without additional explanation.”

Scholes says one of his biggest priorities over the next 12 months or so is to work on the advice document and hopefully be able to make the change so that even it is digital.

“It would be great for a client to be able to interact with that document online, so they can ask questions and highlight different sections they want to see,” Scholes explains.

“So, really being able to deliver that content, and deliver advice in a manner which allows the client to properly understand it rather than it being this static ‘point in time’ document. It can become this genuine living, breathing thing you can update on a regular basis.”

Clark Morgan, vice chair and head of strategy development at Crestone Wealth Management,

says the most important aspect of the advice business is creating depth, and last year that was made more difficult to achieve.

“Advice is a relationship business, we build relationships with our clients and when you don’t have personal contact with them you don’t have the ability to meet with them individually, you lose a lot of the depth,” Morgan said.

“For us, it’s more than just investment. We build investment portfolios, but quite often our clients have a keen interest in being socially responsible or want to invest in interesting philanthropy, they might be looking at the next generational issues.

“So, it’s always things that go beyond simple portfolio construction, when you can’t meet with them over a cup of coffee or in a more relaxed environment, it is sometimes difficult to cover off the depth that’s required in those particular topics.”

However, despite the challenges, Morgan says the advice industry faced those issues head on and come out the other side generally unscathed.

“I think we probably had five years compressed into one year of businesses adopting technological advances,” he says.

Much like Scholes, Morgan also sees things like electronic signatures sticking around, but he is cautious of some issues that arise in adopting new technologies too quickly without considering the risks.

“You have to consider things like cyber security and ensuring that as you’re communicating electronically, with sensitive information, you’re doing so responsibly,” Morgan says.

“Even using Zoom, a platform that we hadn’t really explored in the office, we had to figure out how to use it so that the content is valuable to our clients.”

Advisers and practices must also figure out how to use it in a way that keeps clients engaged.

“Keeping in mind that the relationship with our clients was becoming less personal because of the restrictions, we knew we had to keep them involved,” he explains.

“So, we started making investment webinars with Julie Bishop to talk about China relations and US foreign policy, and we have AFL executives talking to clients about how changes were being implemented within their organisation.

“So, we aimed to have a complete suite of opportunities to engage and bring a broader menu of topics to clients and take them beyond the four walls we were all restricted to.”

Infinity Financial Advisors senior financial adviser Ben Travers 02 says that while he has been impressed with his clients’ ability to adopt digital, he doesn’t think it will ever replace the human experience.

The quote

I think we probably had five years compressed into one year of businesses adopting technological advances.

“As an adviser, there are reactions and emotions we observe during a face to face conversation, especially when clients are processing information,” he says.

“I have noticed that a meeting is often shorter when via video chat, and I put this down to the lack of personal interaction when a client feels free to talk in front of you.”

Travers feels that presenting an SOA over video chat, relative to face to face, requires a completely different skill set that advisers haven’t been trained in.

Despite this though, he still feels the heavy adoption of digital communication will become part of the new norm, so perfecting the new social interaction will be needed.

“COVID-19 was just a reminder of how easily disruptions can create uncertainty and emotionally driven clients. Technology allows you to run an efficient business model that creates effective communication and outcomes,” he says.

“It is not possible to deliver fully compliant advice in short periods, across mass, without it.

Especially when clients are becoming savvier and demanding more trustworthy information.”

Travers says the best way to move forward is to accept the change thrust upon the industry last year and learn from those who came before.

“Any mentoring must start at the university level.

With the requirements around relevant degrees, we need to engage future advisers when they are choosing their education pathways,” he says.

“This is the first step. Then we focus on the professional year, which is twofold; we need new advisers to embrace the commitment, training and exam, whilst at the same time encouraging supervising advisers to dedicate their time to follow the framework.”

Travers says it is hugely important for new entrants into the profession to research other advisers beforehand.

This way, he says, new entrants can be matched to advisers that are on board with the FASEA requirements, and have a proven track record in client engagement and delivering advice.

Whatever will come from 2021, most advisers seem confident that the technological advances adopted during 2020 are here to stay.

Polling of last year’s FS Power50 found only 23% believe face-to-face meetings would continue as part of general business practice.

A further 31% said they think face-to-face will be replaced by video calls and meetings and nearly half (45%) said the way forward will be a mixture of the two.

While 2020 caused a lot of harm, it also provided an opening for innovation and financial advisers were able to take the steps towards the financial advice industry of the future. fs

8

News

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

ESG professionals in huge demand

01: Tim Howard

technical consultant BT

Elizabeth McArthur

Recruiters are reporting that financial services professionals specialising in environmental, social and governance (ESG) areas are in very strong demand.

“The demand for ESG professionals is increasing, clearly outstripping supply of experienced professionals,” Kaizen Recruitment said.

“Many funds are competing for the same limited supply of talent and it was challenging to find professionals who had the desired blend of genuine investment knowledge and ESG experience.”

After a mixed year for recruiters, Kaizen said it ended 2020 with a busy period – and the funds management sector accounted for the bulk of that, with half of Kaizen’s recruitment assignments coming from the industry.

“There was plenty of opportunities for experienced investment operations and investment accounting professionals, with many candidates receiving multiple offers,” Kaizen said.

“One candidate had three clients competing for his services and ultimately, he received a 50% salary increase to join a leading super fund.”

Kaizen works with Victoria Funds Management Corporation, Rest Super, Generation Life, CCI Insurance, Equity Trustees, Prime Super, legalsuper, Zenith Investment Partners, Payton Capital, Cooper Investors, ACSI, Paradigm Group, Aware Super, IFM Investors, Franklin Templeton, Neuberger Berman, APN Funds Manager and U Ethical among others.

The recruiter said its survey of the superannuation industry revealed some hiring patterns – with many super funds looking for data professionals, those with acurity system skills and investment professionals with asset class specialisation. fs

ASIC detects bond scam

Family home dominates adviser conversations Karren Vergara

The quote

Many funds are competing for the same limited supply of talent.

I

nvestment and retirement strategies around the family home were hot topics for financial advisers’ clients in 2020.

BT financial advisers’ December 2020 quarter survey found clients continue to query advisers about their eligibility for the downsizer contribution scheme nearly four years since it was introduced.

The downsizer contribution, limited to $300,000 or $600,000 for a couple, does not count towards the non-concessional contributions cap. It was introduced the 2017–18 budget as part of the government’s package of reforms to reduce pressure on housing affordability in Australia.

BT technical consultant Tim Howard01 said advisers can encourage their clients to discuss early in the process whether a downsizer contribution to super should be part of their financial plan.

Another area of interest for clients downsizing is the impact selling the family home will have on the Age Pension.

This is particularly relevant among clients who sold their principal place of residence and want to use the proceeds to buy, build or renovate a new principal home. Such proceeds can be exempt under the assets test for 12 months and will not adversely affect their pension during that time.

Clients also frequently asked about the bringforward contribution changes.

Reforms are underway to increase the eligi-

bility age to 67 in order to make a bring-forward non-concessional contribution to super. While this was slated to take effect on 1 July 2020, the legislation has yet to pass in parliament.

Howard said the volume of adviser queries on this subject remains high, as advisers question whether the start date will be amended, if a grace period will be put in place, and whether the proposed legislation will likely become law.

“The legislative process has been delayed, however there is still a high level of confidence that the critical component, regarding the bring-forward non-concessional contribution to super, will pass, as it’s not contentious,” he said.

Treatment of foreign assets, pensions and income streams were issues members who lived overseas or maintain a connection to foreign countries frequently asked about.

Many own a property or receive a pension from a foreign government where they previously worked.

Due to the restrictions on travel during COVID-19, some may be leaving their income streams as is, while others are looking into selling their assets.

Howard said advisers are being asked how these will be treated by Centrelink in relation to clients’ eligibility for the Age Pension.

Broadly, foreign assets and income streams are captured in Centrelink’s assessment for eligibility, however the treatment can be different depending on the country, so it’s best to thoroughly check each client’s situation, he added. fs

Annabelle Dickson

The corporate regulator is warning investors of scam bond investment operations targeting Australian investors with claims of high yield bond investments.

The scammers are claiming to be from reputable domestic and international financial firms when there is no underlying investment at all.

ASIC believes the scam occurs in most cases after an investor completes an expression of interest form via a third party or fake investment comparison website.

Some of the scammers have been sending victims professional looking fake prospectuses with unrealistically high returns and falsely claiming investor funds will be pooled to invest in government bonds or the bonds of companies with AAA credit ratings.

In addition, further tactics include claiming the price of the bonds is protected under the Commonwealth Government Financial Claims Scheme and using contact details obtained online to contact people pressuring them to invest.

ASIC acting chair Karen Chester urged investors to be wary of the high yield claims given interest rates are low. fs

Superannuation trustee board composition evolves Kanika Sood

In the last six years, independent directors have gone from holding 5.2% of the total board positions at RSE licensees to 10.7% of them as at June 2020, says new APRA data.

The total directorships at responsible superannuation entity licensees shrunk 22.7% from 1093 positions at June 2015 to 845 positions at June 2020.

Of the total 845 directorships at RSE trustees at June 2020, member representatives had the largest share of the board seats at about 32%.

This stayed relatively the same over the last six years.

Most other types of directors saw their share of board shrink marginally.

Directors that are employer representatives went from holding 32.7% of the total board seats to 30.5% in the period.

Executive directors’ share of board seats fell from about 5.8% to 4.5%. Non-executive directors were down from 17.7% of the total board to 16.6% of it.

Lastly, non-affiliated directors’ share of RSE trustee board seats fell from 6.4% to 5.7%.

Independent directors were the only cohort of the six listed by APRA, whose representation increased on RSE trustee boards increased in the period.

At June 2020, there were 90 of them across Australia accounting for 10.7% of the 845 total directorships. Six years ago, this share stood at 5.2%.

The average director was paid $57,796 per year at June 2020, up from $41,246 six years ago.

Only a small proportion of them (6.5%) had other directorships.

In total the RSE trustees spent $49 million in the year ending June 2020 to employ an average of eight directors each for their board. fs

Opinion

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

9

01: Kristiaan Rehder

portfolio manager Kardinia Capital

Short selling basics When should you short and why? hort sellers are often criticised for preying S on the weak and taking advantage of misfortune. Napoleon is said to have called them ‘enemies of the state’. Whenever the market falls sharply, it is short sellers who often come in for criticism, with calls for increased regulation or a banning of the practice.

Contrary to some opinions, however, short sellers don’t operate in packs and short well-run businesses. Instead, they tend to look for poorlyrun businesses whose management teams often resort to accounting tricks to give an overly optimistic assessment of their business.

What is short selling?

Anyone with a cursory interest in the share market has heard of short sellers, but many don’t really understand how it works. Let’s start with a simple example.

Imagine for a moment you are a farmer. You don’t own any sheep, and you believe they’re overpriced. So you look over the fence and ask your neighbour if you can borrow their sheep and pay them interest over the holding period. Since sheep are broadly homogeneous, your neighbour is happy to do so as long as the correct number of sheep are returned when requested.

Off you go to market to sell the sheep for $100. Your instinct about the price was correct, and the price per sheep subsequently falls to $65. You buy the sheep back at the lower price, return them to the neighbour and profit $35.

Quite simply – borrowing something which is not yours, taking it to the market, and selling it with the belief you can buy it back cheaper: that’s shorting.

Once the decision is made to short a company, the shares are ‘borrowed’ via a broker. It is important to make sure the borrowing costs aren’t prohibitive – and then it is a matter of selling the shares on market like any other sale.

The stock is monitored like any other stock in an investment portfolio, and once the trade has played out, the shorted shares are purchased and returned to the lender. At this point there is no more borrow fee.

One of the most successful shorts in the Kardinia Capital portfolio over the past couple of years has been our position in Bendigo Bank (closed in 2020). With a weak capital position, we believed a raising was highly likely, resulting in a further dilution to earnings – which we eventually saw in February 2020. Since then earnings quality has been consistently poor, with a heavy reliance on Homesafe given the reliance on revaluations to drive profits (home owners sell a share of the future sale value of their homes). Returns remain bottom quartile as the company battles to restructure the underlying business, with heavy spending through to 2022 growing to $80 million. Its cost outcome continues to be flattered by capitalised software charges that continue to run in excess of amortisation. Dividends have recently been cut, revenue downgraded and costs blown out.

What makes a good short?

The decision on which stock to short should be made in the same way as the decision on which stock to buy and hold. The only difference between a short manager and a long only manager is that when analysing a company and discovering too many red flags, a long only manager will place their pen down; a short manager can continue to work and then make money off the idea by going ‘short’ the stock.

When it comes to shorting, it’s important to look for as many of the following attributes as possible.

• Weak balance sheet • Poor earnings quality/cash flows • Low returns • Small potential market • Industry headwinds It’s a difficult business, and you’re fighting against many factors. Markets tend to go up, broking houses tend to publish supportive research, management are always talking up their stories – so you need a healthy serve of patience to see the investment thesis play out.

The big squeeze One of the biggest short squeezes of all time occurred during the attempted takeover of Volkswagen by Porsche in 2008, when the share price of Volkswagen skyrocketed 400% in the space of two trading days – from €200 to €1000.

In March 2008, Porsche owned 31% of Volkswagen. Hedge funds had shorted Volkswagen partially due to concerns over auto demand during the GFC. But in October 2008 Porsche announced it had increased its stake in Volkswagen to 43% and it owned call options over a further 31% of Volkswagen shares – giving Porsche an effective interest in the company of 74%.

At that time, around 12% of the issued shares in Volkswagen were net short. Normally when a company is in play, short sellers need to buy shares on market to deliver back to the entity who lent them the shares in the first place. The issue for the short sellers in this case was the company’s share register: Porsche controlled 74% of the shares and Lower Saxony owned 20%, and neither were sellers. What followed was an aggressive short squeeze as shorters covered their positions by pushing the share price ever higher. In doing so, the shorters briefly made Volkswagen the biggest company in the world, with a market capitalisation of more than $350 billion. In the end, Porsche failed to stump up the cash to exercise the options, and was itself bailed out by none other than – Volkswagen.

The competitive advantage from shorting experience The quote

You need a healthy serve of patience to see the investment thesis play out.

One of the side benefits of shorting is that the knowledge and experience gained from shorting poor-quality businesses can provide a competitive advantage when it comes to picking stocks for long investment. Because we’re aware of the short positioning in a stock, the availability of borrow, the cost of that borrow and other factors involved in shorting a stock, it can provide valuable market intelligence with respect to market positioning in a stock and helps to identify heavily shorted stocks, or ‘crowded shorts’.

When a stock is heavily shorted and reports reasonable news, there are few headwinds to the stock moving higher, as market participants are unable to short any more stock and often buy the stock on market to cover their short position. It is possible to take advantage of this knowledge when we have a more bullish assessment of a company’s prospects, particularly during reporting season when crowded shorts can rally significantly (‘short squeeze’) – even on a poor result.

Making the shorts work While a takeover of a short position is always a risk, the risk can be minimised by taking smaller position sizes in shorts and using market intelligence gained with respect to the market positioning of all short positions. Some of the most heavily shorted stocks currently in the Australian market include Webjet, Platinum Asset Management and Zip Co. It is also important to try to avoid shorting companies that have assets that might be attractive to an acquirer. Break-up valuations should take on more prominence in an investment process when analysing potential short positions. fs

10

News

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

BT appoints new risk expert

01: Dougal Maple-Brown

head of Australian equities Maple-Brown Abbott

Karren Vergara

BT has hired a wealth management risk expert from MLC to oversee compliance functions across its platforms and operations.

Caroline Guillot recently joined BT from MLC, taking on the title of head of risk platforms, investment and operations.

Guillot most recently served as the head of business risk and resilience for retirement and investment solutions at MLC for just two months before moving to BT. She joined MLC as head of management assurance in October 2017.

Prior to that, she was an independent consultant at the Commonwealth Superannuation Corporation for two years and spent a decade at PwC in senior roles.

Other than risk and compliance, her experience in wealth management includes performance improvement, transformation/ change projects, stakeholder management and business processes.

BT parent company Westpac is currently hiring an executive manager or risk for platforms and investments who will report to Guillot.

The responsibilities include leading a team that will deliver a strategic and integrated approach to risk and compliance across superannuation, and investment products and operations. fs

ASIC policy inconsistent: MSC Annabelle Dickson

ASIC has applied its policies for trustees inconsistently and scared away participants, Melbourne Securities Corporation told the corporate bonds market enquiry.

It said ASIC has been inconsistent in applying its policies while approving applications to act as a trustee under the s238GB of the Corporations Act. The section lays the requirements for trustees of unlisted debenture insurers including how much personal indemnity insurance they should hold.

MSC said it understood ASIC applied the financial requirements unevenly to only professional trustees and not traditional trustees.

“This has resulted in trustees existing the market and new trustees not willing to enter the market,” MSC said in its November submission to the enquiry which was published this month.

“The need to engage with ASIC on the policy application for each application creates uncertainty on the conditions of approval and results in uncertainty for the issuer, impacting market disclosure and certainty over ability to issue and timing of issuance.”

MSC also said ASIC hasn’t applied the policy consistently within professional trustees which, MSC says, led to significant detrimental impact on market participants.

The Corporation Act (283 GB) asks unlisted debenture issuers to hold $250,000 in net current assets per trusteeship, and PI insurance. For debenture issues with total value below $5 million, the PI insurance must be held at the total value of debenture issued. If the total issue is greater than $5 million, the unlisted trustee must hold PI insurance on the greater of $5 million or 25% of the total issue. fs

Maple-Brown Abbott sees win for value Eliza Bavin

T The quote

We are seeing good pockets of value despite the overall market still trading on the expensive side.

he emerging market rotation from growth to value signals a trend which may see valuations adjust significantly in 2021, according to Maple-Brown Abbott.

Head of Australian equities Dougal MapleBrown01 said the market is at the beginning of a new cycle and believes it is value’s time to shine.

“There was a significant market shift in favour of value in the last quarter of 2020 with a number of growth stocks tracking sideways or underperforming, while value stocks outperformed,” he said.

“A couple of factors drove this, such as the news of a successful COVID-19 vaccine and its speedy rollout in many countries, as well as the US election result, both of which helped push long bond yields higher.”

Maple-Brown said that although price-earnings ratios of the most expensive stocks in the Australian market have started to come down, they remain extremely high.

“At the same time, we are seeing good pockets of value despite the overall market still trading on the expensive side,” he said.

Head of Asia Pacific equities Geoff Bazzan said despite the impacts of the pandemic, last year was a strong year for Asian markets

finishing the year strong and offsetting first half losses.

“We also saw some very encouraging signs of the market rotation in Asia, and we continue to position our portfolio to focus on those parts of the market where we feel the recovery in earnings is underappreciated,” Brazzen said.

“In particular, we believe there are a number of overlooked companies offering strong valuation support, robust cashflow, and attractive dividend yield – something we think will be a feature of Asian markets for many years to come.”

However, Brazzen said markets remain significantly distorted between those stocks that are considered safe or are beneficiaries of COVID-19, and those that continue to suffer.

“One feature of the market in recent years is that there has been an all-time high in the concentration of the top five stocks. With economies recovering and earnings improving, it’s much more likely we’ll see a broader participation of stocks performing in the market,” he said.

“Overall, the environment at the start of 2021 is encouraging. Favourable valuation dispersions will be tested this year as investors begin to focus on recovering earnings, and we have seen some vulnerabilities exposed in some of the very expensive companies.” fs

Malicious attacks most common in finance The finance sector reported the second largest number of data breaches last year, beat out only by the health sector, according to the Office of the Australian Information Commissioner (OAIC).

The Notifiable Data Breaches Report found the finance sector accounted for 15% of all reported data breached in the period from July to December 2020.

The health sector remains the highest reporting industry sector, notifying 23% of all breaches.

Financial services, including the superannuation industry, reported 80 breaches for the period, with only 68% of those reported within 30 days of the incident.

Australian Information Commissioner and Privacy Commissioner Angelene Falk said 38% of all data breaches notified during the period were attributed to human error.

“In the past six months, we saw an increase in human error breaches both in terms of the total number of notifications received – up 18% to 204 – and proportionally – up from 34% to 38%,” Falk said.

“The human factor is also a dominant theme in many malicious or criminal attacks, which remain the leading source of breaches notified to my office.”

Malicious or criminal attacks were the most common source within the finance sector, comprising 66% of data

breaches reported by the sector. Human error was the source of 28% of data breaches within the finance sector.

“Organisations need to reduce the risk of a data breach by addressing human error – for example, by prioritising training staff on secure information handling practices,” Falk said.

Additionally, of the top five industry sectors, the finance sector reported the most breaches resulting from system faults.

The OAIC received 539 data breach notifications from July to December 2020, an increase of 5% on the previous six months (512).

Falk said the OAIC is also calling for entities to have effective systems in place for responding to data breaches.

“Being prepared for a data breach is important for all entities that handle personal information. Entities must have effective systems for detecting, containing, assessing, notifying and reviewing data breaches,” Falk said.

“Critically, they need to provide individuals with clear and timely information about data breaches, including recommendations on steps they can take to protect themselves from harm. Any unnecessary delay in providing this information undermines the purpose of the Notifiable Data Breaches scheme.” fs

News

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

11

Executive appointments 01: Recep Peker

Head of research appointed Investment Trends has announced a new head of research as Recep Peker01 steps down to support the business in an advisory capacity.

Irene Guiamatsia will step into the role, bringing two decades of experience spanning academia, market research and financial regulation.

Guiamatsia previously worked with Investment Trends as a key industry expert for the retail online broking and leveraged trading markets prior to joining ASIC in 2019.

She replaces Peker who has worked with Investment Trends for over a decade, starting as an analyst in 2009.

Prior to that he worked as an associate financial adviser at Ark Financial and a research assistant for economics and banking at the University of Technology, Sydney.

Investment Trends chief executive Sarah Brennan said she was extremely pleased to welcome Guiamatsia to the team.

“I’m delighted to have the invaluable expertise, experience and leadership of Irene in guiding our world class team of industry experts,” Brennan said.

“Investment Trends is ever focused on giving consumers a voice and improving outcomes in all markets we explore, and Irene and the team will strive to provide the highest quality research, data analytics and actionable insights to support our valued clients.”

Prior to that he worked as an associate financial adviser at Ark Financial and a research assistant for economics and banking at the University of Technology, Sydney.

Brennan is also a new addition to the Investment Trends team, having joined in November 2020 from BMFS Consulting.

Brennan replaced Michael Blomfield who joined Iress last September.

EY Australia chief steps down EY’s Australia chief executive and Oceania regional managing partner has resigned after over 34 years with the firm.

Tony Johnson joined EY in 1987 and was made partner just over a decade later.

Following this, Johnson was promoted to managing partner of Assurance Oceania in 2009 before moving onto managing partner of financial services in Asia Pacific before moving onto the top role in 2014.

In his seven-year tenure as chief executive, Johnson doubled revenue to over $2.2 billion and led a series of acquisitions including digital, data analytics, cyber security, technology, climate change and sustainability and management consultant firm Port Jackson Partners.

Commenting on his time as chief of EY Australia, Johnson said it has been an immense privilege to lead the organisation.

“While there is no fixed term limit, upon coming to the role I committed to give it my all for five years and then it would be best for EY, my family and me to pass the baton. Time has flown and I missed the

Cromwell appoints head of development The ASX-listed property developer and manager has promoted internally to appoint a head of development with responsibility for Australian and European projects.

Effective February 1, Chris Hansen will oversee Cromwell Property Group’s development and project management initiatives in the two regions.

In Hansen’s most recent role as Cromwell’s head of development in Australia, Cromwell has recently received development approvals for assets in Canberra (19 National Circuit), Chatswood (475 Victoria Avenue) and Melbourne (700 Collins Street).

Hansen joined Cromwell in 2013 and worked on the Qantas global headquarters’ $131 million refurbishment and Northpoint Tower’s $130 million redevelopment.

Cromwell said it has a forecast development book in Australia estimated at $1 billion based on final completion value. It also has projects underway and in assessment in Europe, including a recent acquisition of a logistics park in Italy.

five-year mark but am certain this is the right time for a change,” he said.

“When I accepted the role in late 2014, I knew we were a very good organisation with outstanding talent and great values.

“My focus has been on instilling additional belief across the firm so that we are more bold, confident and distinctive in all we do whilst continuing to deliver exceptional service to our clients.”

Johnson will stay in the role until 30 June 2021 to ensure a seamless transition and will remain a partner until 31 October 2021.

MLC Life appoints transformation lead MLC Life Insurance has welcomed a new chief innovation and transformation officer who has previously held roles with AIA Australia and NAB. Rick Wingfield has taken on the role, replacing acting chief innovation and transformation officer Tahir Tanveer. He joins from listed sports performance technology company Catapult, which provides solutions to the likes of the New England Patriots and Real Madrid.

MLC Life described Wingfield as a highly credentialled financial services executive, having previously served as chief information officer at AIA Australia and head of technology at NAB. He has also previously held the role of general manager, innovation at Australia Post.

“Rick joins us at a critical time in our journey as we deliver on our current business plans and beyond. In leading the Innovation and Transformation Division at MLC Life Insurance, he will be responsible for creating superior experiences for our customers, partners, and people, supported by technology,” MLC Life chief executive Rodney Cook said.

“I look forward to him joining our senior leadership team.”

Likewise, Wingfield said he is excited to be rejoining the life insurance industry and MLC Life.

“We have much work to do to improve the experience of customers and our partners when they engage with our products, services, and systems. I look forward to working with Rodney and the MLC Life Insurance leadership team,” he said.

The appointment forms a significant part of the insurer’s ongoing transformation strategy, which also includes the recent unification of its retail and group insurance businesses.

ASI appoints new APAC chief Rene Buehlmann has been named chief executive of APAC, effective 1 March 2021. Buehlmann will succeed Hugh Young, who is taking on a new role as chair of Asia.

ASI said the appointments broaden the global talent and will support the company’s ambitious growth agenda.

Buehlmann has over three decades’ experience in global wealth and asset management, corporate banking, and financial markets.

He spent 29 of those years working with UBS where he was most recently head of asset

02: Raewyn Williams

management Asia Pacific and global head of wholesale client coverage.

Buehlmann was responsible or leading UBS’s regional operations across seven countries and managing its global wholesale business.

At ASI Buehlmann will drive the company’s global strategy in the APAC region as it invests to further build its franchise, accelerating growth in Asia Pacific and bringing its full breadth of global investment capabilities closer to clients.

Based in Singapore, Buehlmann will join the executive leadership team and report to chief executive of Standard Life Aberdeen Stephen Bird.

“The Asia Pacific region is core to Standard Life Aberdeen’s growth strategy. Rene’s wealth of experience in asset and wealth management, deep knowledge of key client segments and a proven record of developing a strategic business will support our growth ambition,” Bird said.

“His acute understanding of client needs, and evolving investment trends will be vital, as we focus on the significant opportunities in the region and delivering a diverse array of future-fit investment solutions to our clients.”

The investment manager said in Young’s new role of chair in the region he will continue to champion ASI’s business in the region.

Additionally, he will provide strategic counsel to Buehlmann and retain his director positions on fund and UK investment trust boards.

Parametric names new research lead Parametric has announced the appointment of its new local manager of research and strategy, a position held by Raewyn Williams02 for seven years.

Whitlam Zhang takes on the role of manager of research and strategy for Australia and New Zealand, based in Sydney.

Williams leaves the firm to pursue other interests.

She previously held senior positions, specialising in tax strategies at Russell Investments, QIC and Barclays Global Investors.

Zhang joined Parametric in 2015 and most recently worked with the firm’s global core platform technology team as enterprise data management architect. He previously worked at Russell Investments and APRA. His new responsibilities include focusing on the firm’s after-tax investing, post-retirement, and responsible investing capabilities. Analyst Joshua McKenzie reports to Zhang.

Zhang reports to Chris Briant, head of Australia and New Zealand at Eaton Vance Management, and Paul Bouchey, global head of research at Parametric.

Briant commented: “While we are excited about Whitlam’s promotion, we are sorry to see Raewyn leave and sincerely thank her for her enormous contribution to the business over the past seven years. We wish her all the very best for her future.”

In her final research piece, Williams recently wrote about the pivotal role centralised portfolio management (CPM) can play in the mass consolidation of the superannuation industry, particularly over the next decade. fs

12

News

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

Link scraps acquisition

01: Paul Kearney

chief executive Kearney Group

Karren Vergara

Link scrapped its takeover bid of Pepper European Servicing (PES), offering $266 million for the loan servicing, advisory and asset management firm operating in the UK and Ireland, and in parts of Europe, announced a year ago.

The transaction was subject to regulatory approvals and commercial conditions, with a deadline of 30 January 2021, that did not progress.

“As the long stop date has passed without a transaction being completed, Link Group has exercised its right to terminate the SPA and not to proceed with the acquisition,” Link told the ASX. Link also announced that its divestment of its 44% stake in Property Exchange Australia (PEXA) is underway with “good indicative interest received to date”.

Link and Commonwealth Bank bought PEXA less than three years ago for $1.6 billion.

Chief executive and managing director Vivek Bhatia said: “The board is committed to maximising the value of its interest in PEXA for Link Group’s shareholders. PEXA’s cash balance continues to strengthen month-on-month highlighting the strong cash-flow conversion of this investment.”

Link has been the takeover target of a consortium, led by Pacific Equity Partners and Carlyle Group. Link rejected the consortium’s bid late last year, partly because the offer price undervalued PEXA. Bhatia confirmed that the firm will prioritise the sale of PEXA by divesting its shares and shareholder loans in PEXA. fs

GQG sees huge FUM growth Kanika Sood

The global equities boutique swelled its assets by over $45 billion in 2020 amid a year of good performance.

GQG Partners, which is a part of ASX-listed multi-boutique Pacific Current Group, now has $86.9 billion in total funds under management, according to PCG’s filings.

At December end, the boutique represented about 77% of the total funds under management across PCG’s 12 boutiques.

“While not unscathed, we feel good about how our portfolio companies navigated 2020. The last quarter of the year was a quiet one from an inflow perspective, with the exception of the strong growth of GQG,” Pacific Current Partners chief executive Paul Greenwood said.

GQG started the December quarter with $77.7 billion in total funds under management and ended the calendar year with $86.9 billion.

Pacific Current did not break down the FUM growth into inflows and performance.

The Florida headquartered manager is represented locally by Laird Abernethy, who joined the firm in late 2018.

According to Rainmaker data, GQG won three mandates from local institutional investors in the 12 months to March 2020. fs

Kearney Group launches ESG portfolios Eliza Bavin

K

The quote

Short-term gains that come at the expense of our community and planet, aren’t really ‘good returns’.

earney Group has announced the launch of a suite of responsibly managed investment portfolios targeting socially conscious and sustainability-minded investors.

The Ethos Managed portfolios will focus on an actively managed approach to achieve competitive returns and contribute to a sustainable future.

“At Kearney Group, we’ve long believed that good investment is responsible investment,” Kearney chief executive Paul Kearney 01 said.

“Short-term gains that come at the expense of our community and planet, aren’t really ‘good returns’.”

Kearney said the portfolios were 18 months in the marking as the firm redesigned its investment management service.

“We’ve deliberately designed a new suite of portfolios that explicitly and systematically consider environmental, social and governance (ESG) factors in our fund manager selection and investment decision-making process,” he said.

Kearney added that he believes it is a moral obligation for financial advisers to consider ESG performance for clients.

“We know ESG has direct financial relevance and is a good indicator of long-term value. So,

failing to consider ESG is failing our clients, our profession and our community,” Kearney said.

“Who are we, if we’re giving advice that encourages extraction or over abundance now, at the expense of our ability to live well into tomorrow? What good is saving for retirement if when you get there, you can’t breathe the air or drink the water, or the society you retire to deteriorates?

These aren’t a far-off dystopian fantasy. These are critical questions we need to be asking now.”

The Ethos Managed Portfolios will be overseen by the Ethos investment committee chaired by Zenith Investment’s chief executive David Wright.

The Ethos High Growth Fund and the Ethos Growth Fund are both aiming to outperform the benchmark by 23.57% and 21.20% respectively from the fund inception.

The balanced option is aiming to beat the benchmark by 18.49% while the conservative and defensive options are aiming for 14.15% and 8.34% outperformance since inception.

“We know the vast majority of us want to know our money is doing good, not just raking in big returns at all costs,” Kearney said.

“People are voting with their feet – and they should. fs

Gender diversity has a way to go: Bloomberg Index Annabelle Dickson

Only 10 publicly listed companies in Australia have made it onto the Bloomberg 2021 Gender Equality Index (GEI), despite a record number of companies that disclosed data.

From financial services, companies that made the index include Commonwealth Bank, Westpac, Challenger, National Australia Bank and QBE Insurance.

Other companies include Nine Entertainment, Scentre Group, Incitec Pivot, NIB and this year’s only new inclusion, gold miner St Barbara.

There are 380 companies headquartered across 44 countries and regions are included in the 2021 GEI and brings transparency to genderrelated policies at publicly listed companies.

GEI companies had an average disclosure score of 94% but the average data excellence score was just 55%, highlighting the need for more effort.

The data excellence score is broken down into scores across five pillars: female leadership and talent pipeline, equal pay and gender pay parity, inclusive culture, sexual harassment policies, and pro-women brand.

On average, GEI companies are recruiting more

women than they are losing with 69% having a strategy for recruiting women and 59% conduct a global gender-based compensation review.

In addition, 85% of employees returning to work after parental leave stay with their companies and 65% offer lactation rooms on-site while 46% offer childcare subsidies or financial support.

Nearly two thirds of GEI board members are women while 61% have a chief diversity officer.

These companies have 39% of women in revenueproducing roles.

Bloomberg global head of sustainable finance solutions Patricia Torres said as businesses strive to maintain corporate culture, business leaders can drive gender equality progress.

“This progress can begin with the GEI framework, which helps companies assess where they are on the path to gender parity relative to their peers, and hold themselves accountable to their goals,” she said.

In turn, the GEI data gives investors a comprehensive view into how these practices are driving increased employee engagement and productivity, bringing higher market value to companies, and creating positive change in local communities.” fs

News

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

13

Products 01: Ross Lees

Centuria spends big ahead of fund launch Centuria Capital Group has announced three new acquisitions for its unlisted fixed term Centuria Industrial Income Fund set to launch this month.

The three industrial properties are worth a collective $62.5 million and provide a 9.1-year portfolio Weighted Average Lease Expiry (WALE).

The most expensive property, acquired for $39.6 million, is in Boondall Queensland and is 100% occupied until June 2031.

Another Queensland property, a $12.4 million warehouse located in Crestmead, is also 100% occupied until February 2031.

The final property was acquired for $10.5 million and located is in Gillman, South Australia. It has three years remaining on its lease and is currently 100% occupied.

All properties are located within key industrial submarkets with excellent transport connectivity.

Centuria head of funds management Ross Lees01 said: “Centuria has a strong track record with actively managing industrial and logistics properties nationwide as evident by our ASX-200 listed Centuria Industrial REIT, which is Australia’s largest listed pure-play industrial fund. We aim to replicate the strong performance of CIP through this unlisted pure-play industrial fund.”

Centuria’s portfolio includes $3.1 billion of industrial AUM, across its Australian and New Zealand platforms.

Manager of the new fund Stuart Wilton said industrial property has experienced strong tailwinds throughout the past 18 months because of increased online retail due to COVID-19 restrictions.

The fund provides an initial six-year fund term with a 6% pa forecast FY21 distribution yield growing to 6.25%pa in FY22.

The fund is part of Centuria’s strategy to broaden its offering across its unlisted platform.

Boutique rejigs Aussie equities lineup The Sydney boutique is winding up its geared Australian equities fund after underperformance and dwindling assets, while trimming the fees on two others.

Maple-Brown Abbott’s Australian Geared Equity Fund has been around since 2002 and uses leverage to invest in two other funds from the firm: the Sharemarket Fund and Small Companies Trust.

Over that period, it returned 6% p.a. while the S&P/ASX 200 Total Returns did 9% p.a.

The geared funds’ performance picked up in the last three months of 2020, as it returned 34.6% to benchmark’s 13.7%. But beyond that, the fund falls behind the benchmark for most periods, including -21.5% in the year ending December to the benchmark’s 1.4%. The firm reduced the geared funds’ fees at December 1 last year.

However, by December end the fund’s total assets sat at only $13 million. “...[As] a result of the small size of the Australian Geared Equity Fund ($13 million as at 31 December 2021), Maple-Brown Abbott considers

Clime consolidates SMAs Clime Investment Management has streamlined its operations by consolidating and replacing several separately managed accounts (SMAs) after its acquisition of Madison Financial Group.

The investment manager initiated its Project Streamline by consolidating Madison, WealthPortal, ProActive Portfolios and AdviceNet into Clime Group.

In addition, Clime has commenced replacing seven of its SMAs with ProActive’s portfolios and taken steps to reduce duplicated supplier arrangements and expand investment product availability.

Project Streamline follows the closure of two retail funds, including the Clime Australian Value Fund in November. The two funds were “deemed uneconomical” and instead investors were offered access to Clime Capital Limited (CAM).

“Investors who took up the offer have benefitted from a strong market performance of CAM,” the company said. .

it is no longer viable to continue to maintain an efficient loan facility for gearing,” the firm said in a statement to Financial Standard.

“It has therefore decided it is in the best interests of investors to change the investment strategy of the fund so that it invests directly in the [non-geared] Australian Share Fund and then take steps to wind-up the Geared Equity Fund, including transferring units in the Australian Share Fund to investors in the Geared Equity Fund.”

The geared fund was managed by head of Australian equities Dougal Maple-Brown.

The Australian Share Fund, to which the firm wants to transfer the assets, has also underperformed its benchmark since its inception in the 1980s and for most recent annual periods, except in the last three months of 2020.

Additionally, Maple-Brown Abbott will reduce the fees on two funds: the Australian Share Fund will go to charging 1.25% p.a. for ordinary and NEF share classes, while the Sharemarket Fund’s ordinary class now charge 1.5% p.a.

Ophir readies new fund The equities boutique will launch a new mid-cap focused equities fund, as its last fund readies for a hard close at January end.

The Ophir Global High Conviction Fund will be an extension strategy to the $773 million Global Opportunities Fund, with a greater focus on midcaps and a more concentrated portfolio.

The strategy has been running since September 30 and returned 33.6% net in the three months to December end.

Ophir will open the fund to investors in the first quarter and will be managed by co-founders and senior portfolio managers Andrew Mitchell02 and Steven Ng. Meanwhile, the older strategy Global Opportunities Fund will close to new investors at January end.

Ophir said: “It has always been our intention to hard close the fund between $600m to $800m FUM. By strictly managing capacity limits for each of the Ophir funds we believe this provides us the best ability to generate attractive returns over the longer term…”

“As a result, the GOF as of 31st December 2020 was approximately $773m in FUM which is at the upper end of our hard close target range. This combination of strong inflows and performance has absorbed approximately $300 million of capacity in less than [two] months.”

Ophir took the same approach with its Australian equities fund, closing its first fund, the Ophir Opportunities Fund, and then launching an extension strategy, the Ophir High Conviction Fund.

Raiz launches custom portfolio option Raiz has introduced a new custom portfolio option that will enable clients to gain more control over their portfolio allocations.

Raiz said the custom portfolio, unlike its seven standard ETF portfolios, will allow users to build

02: Andrew Mitchell

their own personalised portfolio by choosing the target weighting for up to 14 ETFs as well as Bitcoin.

“The Custom Portfolio gives Raiz users more control over how they invest. For example, they can now build a portfolio that is more tech focused, more internationally focused, or more focused on sustainability,” Raiz said.

“Or, if a user would prefer to include cryptocurrency in their portfolio, they can choose to have up to a 5% target weight in Bitcoin.”

Raiz confirmed there would be no brokerage costs associated with the option so users can buy or change ETFs with flexibility.

Instead, there is a $4.50 per month fee associated with the custom portfolio option for accounts less than $20,000, or 0.275 p.a. for balances over $20,000.

Raiz said it also automatically rebalances portfolios to keep holdings in line with the target weightings specified by the user.

Additionally, Raiz said users can have a customised name for their personal portfolio.

“Each custom portfolio is going to have a different allocation, a different account balance, and each Raiz user will have different investment goals,” Raiz said.

“To reflect that, Raiz is allowing customers who choose this option to create a personalised name that suits their approach, style, and personality.”

Integrity Life updates product offering The life insurance provider has revealed several changes to its products with a new support package for clients and a multi-cover discount.

As of February 1, lump sum cover includes Integrity’s Care Support Package for policyholders who are unable to work due to sickness, injury, or terminal illness. The package is available without an increase to price.

It provides reimbursement on accommodation for immediate family members if visiting the policyholder while they are receiving medical care.

The package also includes home care, grief care for the policyholder and their family and the ability for those who may require palliative care to choose how they spend their final 30 days.

In addition, across covers under Integrity’s Here for You policyholders can access a professional services benefit of up to $3000 reimbursed for an adviser, accountant or lawyer to prepare a plan.

If the policy is for a business and the policyholder is the owner, partner, or shareholder they can increase the cover for business events to the lesser of 30% of the initial cover amount or $500,000 per increase, up to $3 million over the life of the policy.

Integrity Life head of retail product William Rogers said the changes are to provide clients with more value.

“Central to Integrity’s philosophy is listening to what advisers and their clients want, and then actually doing something about it – so we’re thrilled to be releasing a bundle of changes that our advisers have asked us for,” he said. fs

14

Feature | SMSFs

FIT FOR PURPOSE

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

Beset with stagnating assets and heavy-handed regulation, for many with skin in the game, are SMSFs still delivering on expectations?

Karren Vergara reports.

SMSFs | Feature

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

S

01: John Maroney

02: Murray Howlett

03: David Busoli

chief executive SMSF Association

partner Pilot Partners

principal SMSF Alliance

even years after the Superannuation Guarantee was introduced, little did the industry know that a new breed of pension vehicles would permanently change the way workers’ retirement savings

will be managed.

This emerging class of pension funds known as “excluded superannuation funds” were gaining ground with about $35 billion tucked away in 150,000 accounts.

Excluded superannuation funds were somewhat a by-product of the services accountants provided to many small businesses, according to SMSF Association chief executive John Maroney01, who looked after the tax and financial affairs, business structures and incidentally the retirement savings of clients.

The 1996 Wallis Inquiry also played a hand in the burgeoning sector, he says, adding that because government agencies were so focused on banks and financial institutions, excluded super funds were left in regulatory limbo.

In 1999, the passage of Superannuation Legislation Amendment Bill (No.3) appointed the Australian Taxation Office to oversee excluded super funds with fewer than five members, or what we now know as self-managed superannuation funds (SMSFs).

Since then, SMSFs’ substantial foothold on the superannuation sector over the last two decades has been inviolable (see Figure 1). That was until about mid-2019 when industry super funds began outpacing SMSF assets, raking in new members mostly from retail funds off the back of the Hayne Royal Commission, in addition to delivering solid returns.

Industry funds’ rate of growth has since been on an upward trajectory while SMSFs flatten. At the end of September 2020, SMSF assets reached $728.2 billion, dwarfed by the momentum of industry funds, which reached $761 billion.

From a product point of view, MySuper assets are at $753.6 billion. A Rainmaker analysis in early 2019 calculated these products are growing 60% faster than the broader superannuation sector.

The astounding growth of the super industry has reached nearly $3 trillion in a short period of time, trumping the nation’s GDP of about $2 trillion, and begs the question: why has super become the phenomenon it is today?

The 15% tax rate is a significant, if not the only drawcard, that underpins its popularity, many flocking to such vehicles because no other structure can compete on a tax-incentive basis.

The 15% tax rate is so appealing that members are willing to put up with the regulation and rigid restrictions it imposes. But there is another issue they are willing to bear: political risk.

Murray Howlett 02 , a partner at Pilot Partners, says during the John Howard and subse-

quent Kevin Rudd/Julia Gillard era, super was a “plaything” for politicians, underscoring the political risk that has become part and parcel of the nation’s retirement system.

A member who puts money into super today and is due to retire in 10 years, Howlett says, faces political risk in which during that time, the laws could change and will not work out in the member’s favour.

“However, if I put my money in a trust on the other hand and the laws change, I can collapse that structure tomorrow,” he says.

“The 15% tax is generously attractive, but among the issues is political risk. The closer people get to 60 or 65 years old, the more they are willing to take on that risk because of the shorter timeframe they have to deal with it.”

When talking about super, the political-risk conversation must come into play.

“Whether a member decides to [take the superannuation route] ultimately comes down to a personal decision,” he says.

A level playing field David Busoli03 , principal and SMSF mentor at the SMSF Alliance, sees SMSF establishments spike during times of disruption, like the onset of COVID-19 and when markets are volatile.

“This is because many people see certain opportunities, they can take up in SMSFs they typically can’t with a retail fund. For example, members can invest in a particular property that has become available if it becomes distressed,” he says.

In the five years to September 2020, the number of SMSFs attached to over 1.1 million members grew modestly by 9% to 591,905.

During the period, an average 6482 SMSFs were established – almost twice as many accounts that shut down.

“Additionally, many SMSF members cannot justify the amount of fees they are paying – particularly retail funds – when they can go at it alone,” Busoli says.

“The reality is if you have under $200,000 in an SMSF, you will most certainly pay more in fees than having your money in a retail fund.”

The SMSF Association and Rice Warner came to this figure late last year and found that SMSFs are now at a level playing field with both industry and retail funds.

SMSFs with $200,000 or more are not only cost competitive against larger funds but deliver for members in terms of returns.

In 2017, APRA-regulated funds delivered 9.1% p.a. while SMSFs returned 10.2% per year. In 2018, returns were 8.5% p.a. and 7.5% p.a. respectively, the joint research found. Many in the SMSF industry would have felt vindicated by the findings.

“These results may not support the proposition that SMSFs are better investment managers than APRA-regulated funds, but they do indicate that members of SMSFs, in aggre-

The 15% tax is generously attractive, but among the issues is political risk.

Murray Howlett

15

gate, are not disadvantaged when compared to APRA regulated funds,” Maroney says.

Busoli commented that with balances over $500,000, members will very likely incur lower costs.

“With over $1 million, you will certainly pay less. That is why there has been a general shift away from retail funds to SMSFs for members with higher balances,” he adds.

Many APRA-regulated super funds have cottoned on to the fact that members get a kick out of controlling their own investment destiny, and despite the rate of growth stalling, opportunities in the SMSF sector are still ripe for picking.

Some large funds are catering to members’ desire for autonomy by providing direct investment options, which gives them the ability to exercise a great deal of choice in selecting their own, customised investments.

AustralianSuper’s Member Direct Investment option for example, lets members pick and choose from the top 300 blue-chip stocks on the ASX. However, chief executive Ian Silk made it clear that the $180 billion fund is not making a play for the sector for the simple reason that in 2019 alone, some $1 billion of net inflows came from SMSFs. Conversely, Hostplus launched Self-Manage Invest (SMI) about three years ago specifically for SMSFs. Hostplus group executive of member experience Paul Watson04 says SMI has grown to about $165 million in assets under management across 1300 investments.

Almost half (47%) are invested in the Balanced Investment Option and about a quarter (21%) are invested in the Indexed Balanced Option.

The mix of self-directed investors and advised members, Watson says, see SMI more like a fund manager that gives them access to six out of 23 investment options. (SMI is not a superannuation admin service).

SMI members typically either had a past connection with Hostplus or are small business owners.

After seeing extensive outflows that moved into SMSFs, Hostplus was prompted to act.

Perplexed why members were leaving given that the fund was performing well, and fees were competitive, it found that many established SMSFs because it was a suitable structure for them at the time.

“We saw that there were appropriate and understandable reasons why SMSFs were being set up and by the same token, there were ones set up for the wrong reasons,” Watson says.

“We established SMI because we wanted to continue our relationship with those investors.

All SMSFs have lifespan and at some point, in the future, when the structure is no longer suitable for their needs and requirements, we would like to think that we can have a relationship with them.”

16

Feature | SMSFs 04: Paul Watson

05: Janine Cox

06: Tamara Gillman

group executive, member experience Hostplus

senior analyst Wealth Within

founder and director True Journey Financial Planning

Control issues For members to branch out and manage their own retirement savings takes courage – mainly because it is their skin in the game.

A recent SMSF Association survey reveals nine out of 10 trustees believe managing their own super fund provides a level of satisfaction that an APRA-regulated fund cannot provide.

The 2020 Investment Trends and Vanguard SMSF research delved into the core reasons why members set up their own super fund: the majority were inspired by having total control.

The joint research also revealed that direct shares outside managed funds and ETFs continue to uphold many SMSF investment portfolios, driven historically by generous dividend payouts of Australian blue chips and low interest rates.

Being financially savvy and having the confidence to navigate the stock market are qualities that presumably come with having such a large weighting to equities.

But Wealth Within senior analyst Janine Cox05 says that only a small percentage of clients, who operate their own SMSF, make the commitment to educate themselves properly by undertaking the appropriate course to assist them to safely invest.

Generally, there are three types of investors.

“Given the broad variance in what SMSF investors want there is clearly a proportion who want to take control and invest themselves and they are excited to be able to do this. These investors are prepared to spend the time and invest in themselves to learn how to trade properly,” she says.

Figure 1. Size of the sector

Source: ATO, APRA, and CoreData

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

Those who are on the path of self-education either want to understand how to invest in stocks and/or ETFs themselves.

“Generally, those who do want to invest for themselves want to know how to select the right stocks for their SMSF portfolios and how to manage their risk to protect their money from market fluctuations.

Many investors share they would like to invest themselves but lack the knowledge and the confidence to do it themselves,” Cox says.

Commonly asked questions Wealth Within receives range from what strategies are used to trade for profit and how to properly manage risk such as stop losses.

“What is interesting is how few ask about money management, which is an area that is critical to both investors and traders,” she says.

The second group prefer to control part of their savings themselves and pay a fund manager to be oversee the remainder of their investments.

The last group outsources all the investment management functions to a fund manager(s).

“Some admit they do not have the time or desire to run a portfolio themselves and would rather a professional fund manager do this on behalf of their SMSF,” Cox adds.

Diversification rules In August of 2019, the ATO sent letters to SMSF trustees who failed to comply with diversification requirements.

Holding 90% or more in one asset class has the potential to incur a $4200 administrative penalty, the ATO told more than 17,000 trustees in the firing line, the majority of which were invested in property.

Many SMSF members cannot justify the amount of fees they are paying – particularly retail funds – when they can go at it alone.

David Busoli

SMSFs and property have had a long love affair. But since the introduction of the $1.6 billion transfer balance cap, Pilot Partners’ Howlett has seen the tax regulator shift its compliance focus, challenging those, particularly with larger account balances, about their structures.

“Even some of the more aggressive decisions made in SMSFs 10 years ago would not be done today because the context of compliance is very different,” Howlett says.

Howlett stresses this point because of the popularity of property within SMSFs. Back then, it was common for a property owned by a fund to enter a joint venture with a company or trust to develop the asset into something “bigger and better”.

“It is difficult to do that in a way the regulator would be happy today,” he says.

While the law itself has not changed, the ATO has shifted its focus, particularly around property investment structures.

“Anything other than a vanilla, buy-and-hold proposition in an SMSF is quite tricky and even risky,” Howlett says.

Brisbane-based Tamara Gillman06 , the founder and director of True Journey Financial Planning, is seeing interest in property investments located in coastal and regional areas pick up because many do not want to be priced out in the future.

“In many cases, they’re buying in areas where they potentially see themselves moving to in the future for retirement, but they’re still being very diligent when selecting their investment property, and not just buying on emotion,” she says.

Gillman adds that the ability to use borrowed money to invest in property is what clients find very appealing.

“Many have done well with investing in property in the past and are keen to use the power of leverage (i.e., using the bank’s money) to be able to purchase a property that they wouldn’t otherwise have been able to purchase if only using their current super balance.”

A comprehensive survey conducted in 2016 by several academics led by Susan Thorp07, a finance professor at the University of Sydney, revealed that members tended to overestimate the performance of their investments and others didn’t bother with metrics at all.

Of the 854 current SMSF members canvassed, nearly one-third did not benchmark the fund’s performance. They used the account balance (39%) – the most popular metric – followed by net returns (32%) and annual income (16%).

Meanwhile, 20% who used benchmarks such as an equity index utilised it inappropriately if the fund was well diversified.

While the research did not ask in detail why members overlooked benchmarks, Thorp says benchmarking is a sophisticated financial concept for many of the members.

SMSFs | Feature

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

07: Susan Thorp

08: Ron Lesh

09: Shelley Banton

finance professor The University of Sydney

managing director BGL

head of education ASF Audits

In terms of engagement, many conducted short-term (daily and weekly) monitoring of performance, but the interest tapers off in the longer term. Aussie equities evoked the highest level of engagement as over 50% of respondents took sole responsibility for this asset class.

The other asset classes that registered close to 50% were fixed interest (typically term deposits) and individual property investments. In the other asset classes, members rely mainly on input from financial professionals, Thorp found.

Digital rivalry SMSF members are not shy about vocalising their aversion to paperwork.

It is not surprising that one quarter of SMSF members in Thorp’s research were most frustrated by administration and compliance.

About one in 10 were stressed by the fund’s performance, while a similar number complained about the amount of time devoted to the SMSF. While technological advancement has contributed immensely to keeping costs down, has it moved the needle on improving the administrative processes?

SMSF compliance requires continuous documentation and sign off. The theory behind the paperwork trail is to make trustees accountable for every activity of the SMSF. So where can administrators add value?

Ron Lesh08 , the managing director of SMSF admin and compliance solutions provider BGL, says automation and making data more accessible is the way forward.

“The aim is to automate the process without the need for human intervention until the audit,” he says.

Lesh envisions the sector reaching a point where artificial intelligence obtains data feeds and allocates and classifies it seamlessly.

“The AI engine we are building is able to read data and whatever comes in, whether they are transactions from a bank or a broker, it knows where it should go. While we are not there yet, we are getting closer.”

Already, the software is integrated with a suite of accounting work papers; automates the extraction of tax and distribution statements; and swiftly processes corporate actions.

Among the handful of administration providers in the market, the race to automation is fierce.

Last year, Class acquired two compliance and documentation providers, NowInfinity and Smartcorp for $25 million and $4.2 million, respectively. It also joined forces with financial advice software platform Xplan to feed it data on unlisted holdings and cash-transaction types for pension payments, contributions, income, actuarial and property expenses.

This year, SuperConcepts is set to roll out new features, promising a mobile app, swift reconciliation processes and linkage to the Open Banking regime.

As an experienced SMSF auditor Shelley Banton09 knows how critical it is to have accurate data delivered in a timely manner.

An SMSF auditor provides two types of audits. A financial audit ensures that asset values are stated in the financial statements and that the operating statement is accounted for and verified. A compliance audit looks at 29 specific rules, like if the fund meets the definition of an SMSF, keeps its accounting records, and meets the sole purpose test and so forth.

As head of education at ASF Audits, Banton says: “We are able to conduct rigorous testing on the data feed and rely on that as a source of truth. It has eliminated the amount of paperwork that we need to ask clients for at the end of the day. Any efficiencies we can gain through the audit process is what we are looking for.”

Five years ago, clients were uploading PDF copies of financial and operating statements auditors need to be able to undertake the audit.

Now, these now come straight through to ASF’s system via an API it developed. Over the next 12 months, the firm is looking to roll out optical character recognition (OCR).

“This involves looking at the software that is able to process OCR that results in robust and transparent and accurate,” she says.

“An improvement in processes has a flowon effect to the client. Reducing the audit time provides them information that in turn reduces audit query times.”

When the government gives away some $35 to $40 billion in tax concessions each year, Banton says that only an independent audit can ensure that there is integrity in the system.

“When we think about the tax concessions given to SMSFs, and money that could have been used for health and education or infrastructure, you start to consider how important it is that those audits are done correctly, so there is faith and a level of comfort that the SMSF is doing what it is supposed to be doing,” she says.

Sources of truth When the transfer balance cap, currently $1.6 million, is indexed to $1.7 million on 1 July 2021, it potentially brings with it several headaches for administrators. Busoli predicts a lot of “confusion” will ensue.

This is because members who have not yet commenced a pension will be eligible for the new $1.7 million TBC. But for a member whose highest transfer balance account is recorded at $1.6 million or more, their TBC remains at $1.6 million.

“For a member who has registered $800,000 (half their $1.6 million TBC), their new TBC will be $1.65 million. i.e., they will receive half the increase as they have used half their entitlement.

The numbers

$200k

The balance size for SMSFs to be cost competitive.

17

“This means that unique, member specific transfer balance caps will be the norm,” Busoli explains.

But the two major overarching issues the industry faces are the lack of data the ATO provides and its inability to update its systems.

Administrators have SMSF data that does not necessarily match what the ATO has in its possession. There is also no knowing if an SMSF is linked to another super fund.

“The only way that we can get the data that we need is if we are the personal tax agent for the client or if we ask the client to obtain the data themselves,” Busoli says.

One way of overcoming the issue, Busoli suggests, is for administrators to work off an authority to receive an ongoing fee from the ATO. “It would vastly simplify and increase the immediacy and relevance of the advice that we get.”

As SMSF administrators scramble to roll out the best technology possible, such enthusiasm is not matched by the ATO, which has been criticised by the industry for its sluggish and outdated systems.

When the transfer balance account regime was introduced almost four years ago, for instance, the ATO issued some 20,000 excess notices which in fact turned out to be errors.

If administrators had the complete data in the system, Busoli says comparative checks can be conducted very easily and issues determined immediately.

“It is the single most important issue in terms of compliance in this sector that needs to be addressed.

“I know that the ATO isn’t in disagreement.

Commitment is needed by the Treasury to fix this as it is hugely important to our sector,” he says.

This year, SMSF trustees should beware that the tax office will tighten its belt on non-compliance as COVID-19 priorities such as JobKeeper and the early release of super schemes subside.

Trustees will need to brace for a new regime that empowers ATO staff to impose administrative penalties via the Practice Statement Law Administration 2020/3 (PSLA), which was introduced last October.

It is clear through the PSLA, Banton says, that the ATO’s process of educating SMSF trustees to ensure compliance is over.

“The ATO has been [making this effort] since 2014 and while it is working for some areas, it is not seeing reductions in contravention percentages that it receives,” she says.

The current environment SMSFs operate in is starkly different compared to 22 years ago.

Even as significant challenges pervade the SMSF ecosystem, there is no shortage of loyalist, in terms of members and service providers, who are willing to tolerate political and regulatory risks that afflict the sector. For SMSF advocates, the trouble is worth it. fs

18

News

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

Chant West hires distribution head Chant West has appointed a former ANZ and BT Financial Group executive to expand its institutional sales footprint.

Don Sillar has been named the new head of institutional sales, the research house announced.

Sillar spent nearly eight years at ANZ, leading the national sales team of about 100 staff for the insurance unit OnePath. Sillar was responsible for the distribution of life and disability insurance, investments and superannuation products through financial advisers.

He also worked at E*Trade, and BTFG for about a decade, starting out as head of client management before moving up the ranks to become head of distribution and then business transformation lead.

Chant West general manager Ian Fryer said Sillar is an experienced and respected professional who is highly regarded in superannuation and investment circles.

“He has a strong customer focus, which will enable him to support the super and advice markets to empower their members and clients to make informed decisions. We’re confident he’ll bring a fresh and dynamic approach to our team,” Fryer said.

Late last year, Geoff Peck left his part-time role as head of client development after about four and a half years with the company. fs

Risk inflows remain flat Annabelle Dickson

Risk premium inflows experienced marginal decreases in the 12 months to September 2020, new research shows.

The latest data from Plan For Life showed inflows decrease by 0.4% with the largest falls from BT/Westpac (-20.8%) and AIA (-10.1%).

These were however, offset partially by increased inflows reported by TAL (15.7%) and ClearView (7.9%).

“With the exception of ClearView, all these results were mainly driven by changes in their respective Group Risk business,” Plan For Life said.

Other insurers with relatively flat inflows were Zurich Australia up 1.8% and MLC Life who recorded a loss of 2.3%.

Despite this, annual sales in the risk market increased by 28.9% over this period. TAL recorded the largest increase (193.8%) followed

by AIA (61.1%).

The other risk market insurers recorded loss in sales particularly MetLife (-44%), MLC Life (-15.9%), Zurich (-13.5%), Resolution (-11.3%) and BT/Westpac (-11.%).

Plan For Life noted TAL, AIA and MetLife contributed significantly to the overall result.

The data is in line with APRA’s quarterly life insurance performance statistics which painted a bleak picture with net profit after tax down 95.6% to $18 million while total revenue down 27.4% in the September quarter.

The results are worse year on year with net profit after tax down $1.6 billion down from $220 million the previous year while total revenue plummeted 63% to $12.9 billion. fs

01: Christina Hobbs

chief executive Verve

Future Super, Verve accused of misleading members Elizabeth McArthur

T

The quote

If you want a world where all Australians are members of AustralianSuper, they will have lower fees but there will be other issues for the Parliament to consider.

he House of Representatives Standing Committee on Economics has accused Future Super and Verve of misleading consumers who are unlikely to understand the funds’ relationship to Diversa Trustees.

During questioning, Liberal MP and committee chair Tim Wilson questioned Future Super and Verve on the funds’ allocations to BetaShares ETFs. He suggested that the ETFs Future Super invests in contain underlying assets that might not live up to the kind of environmental impact consumers think they are having.

Wilson also asked why Future Super has 12 people employed full-time to allocate investment mandates when 60% of funds under management are allocated to three BetaShares ETFs. However, Future Super governance and regulatory lead Fahmi Hosain argued that the fund had innovated on the use of ETFs in super and that the ETFs are not actually passive investments.

“We are essentially active managers of these ETFs because we constantly look at the underlying assets and they have to meet our screens. So, it’s not a passive investment,” Hosain said.

Hosain clarified that although the fund might buy a single BetaShares product, it has a duty to ensure that all underlying assets meet the funds’ screens which is why the 12 employees are necessary.

Certes Corporation chair Lindsay Tanner referred to Verve and Future Super as “promoters” of Diversa funds. This prompted Labor

MP Andrew Leigh to liken the funds to “giant SMSFs” and question their marketing spends.

However, Tanner defended Diversa’s business model.

“If you want a world where all Australians are members of AustralianSuper, they will have lower fees but there will be other issues for the Parliament to consider,” he said.

Future Super said it spends $3 million a year on marketing and Verve said it spent just $300,000 on marketing.

Leigh also suggested Verve may not be living up to its mission statement. He asked: “In charging a higher fee than the best performers in the super space, aren’t you widening the gender gap in super?”

Verve chief executive Christina Hobbs01 said the funds’ fees are fair and that at the time of launching its fees were on par with HESTA’s ethical option.

“To say our members are worse off is just incorrect,” she said.

Hobbs was questioned on Verve’s general advice offering, which gives members access to a divorce coach and a pay rise negotiator among other coaching and general advice services.

The committee wanted to know whether members pay for these services through fees.

“You could argue [members] are paying for it or you could argue that our organisation’s salaries are incredibly low,” Hobbs said, clarifying that her salary is $100,000 and the highest paid person at Verve earns $150,000.

Hobbs also revealed that Verve has just 4000 members and 10 employees. fs

IFM, QIC to acquire energy company Karren Vergara

IFM Investors, together with a global pension fund, is set to acquire a clean, low-carbon energy company for $2.9 billion. QIC has also bought into the same company in a separate transaction.

IFM and the $210 billion Ontario Teachers’ Pension Plan Board will acquire 100% of Enwave, the second co-investment for the firms, from Brookfield Infrastructure. QIC consortium partner Ullico meanwhile have acquired 100% of Enwave Energy US, the American unit of the group which powers more than 400 buildings across the country.

The combined transaction is worth US$4.1 billion.

Based in Toronto, Enwave provides sustainable cooling and heating solutions to over 320 customers across Canada.

Enwave’s brand remains as is after the acquisition and ownership will be evenly spilt. The transaction is expected to finalise in mid-2021.

Kyle Mangini, global head of infrastructure at IFM Investors, commented that the investment is aligned to both firms’ net-zero carbon emissions pledges. “[Enwave’s] delivery of essential district energy services, providing investors with highly defensive, utility-like exposure coupled with leading sustainability attributes, will help IFM Investors deliver on our purpose to protect and grow the long-term retirement savings of working people,” he said.

Ontario Teachers senior managing director of infrastructure and natural resources Dale Burgess said: “Enwave is a prime example of an investment that we believe can be both commercially attractive and contribute to broader sustainability efforts. It provides district energy solutions to a high-quality portfolio of clients in Canada, helping them reduce greenhouse gas emissions and improve energy efficiency.”

The firms have been the co-owners of Global Container Terminals, which operates terminals in North American ports, since 2018. fs

News

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

Future Fund increases cash

01: Roger Urwin

advisory director MSCI

Kanika Sood

The $171 billion sovereign wealth fund increased its cash position to 19.8% or about $34 billion, as it reports a positive year for returns ending December.

Future Fund returned 1.7% in the year after positive returns in the September and December quarters lifted it back to the positive territory from FY20’s negative returns.

The 1.7% return for 2020 is still below the target return of 4.4%, which is set at CPI plus 4-5% over the long-term. It is also a sharp contrast to 2019’s pre-COVID returns of 14.3%.

Longer-term returns (three-years and beyond) remain above the target.

Future Fund chief executive Raphael Arndt said the remarkable changes in policy, economies and markets is changing the investment landscape.

“The negative returns of the first half have been more than reversed and the Fund continues to exceed its mandated benchmark return while controlling risk levels,” said Arndt, who moved into the role from chief investment officer after David Neal’s departure for IFM Investors.

“While markets have performed strongly, we remain conscious of the potential downside risks, including from public health and economic reversals and so the portfolio is positioned at around neutral levels of risk,” he said.

“This is designed to allow us to continue to generate returns when markets are strong, while reducing the impact of market falls. This neutral risk positioning and our dynamic approach to managing the portfolio also allows us to selectively deploy capital into new opportunities where we identify them.” fs

AU1 takeover saga continues Karren Vergara

Magnolia Capital has expressed doubts about the solvency of The Agency Group as the saga over its takeover bid continues.

Magnolia said it has accepted the findings of the Takeovers Panel but continues to have concerns about the solvency of The Agency Group (AU1).

It will await the release of AU1’s audited half yearly financial accounts to address this concern.

Magnolia made a takeover bid for the ASX-listed real estate agent late last year, which the latter claimed was too low.

Magnolia offered four cents per AU1 share in return for 100% of fully paid ordinary shares.

The share price of AU1 closed at five cents on December 4.

Last December, AU1 submitted its concerns to the Takeovers Panel about Magnolia providing “insufficient evidence” of being able to fund the acquisition and repay its debt.

In response to the February 1 ruling, Magnolia Founder and chief investment officer Mitchell Atkins said the Panel’s response and orders are technical in nature and demonstrate that it did not uphold the contention by AU1 that there was significant doubt as to Magnolia’s capacity to fund its announced bid. fs

19

Big year for ESG ahead: MSCI Eliza Bavin

T The quote

At the heart of this revolution is climate data, already widely used defensively to manage risk. Using climate data in an effort to boost returns is less common.

he move towards environmental, social and governance (ESG) considerations dominated MSCI’s Investment Insights 2021 survey.

Around 200 executives at different asset owners were surveyed by phone late last year, representing sovereign wealth funds, insurers, endowments/ foundations and pension funds. All together the executives manage around $18 trillion in assets.

An overwhelming majority (73%) said they plan to increase ESG investment either significantly or moderately by the end of 2021.

“The move towards incorporating ESG considerations into investment decisions accelerated due to the pandemic, transitioning from a side-fund to a main-fund issue,” MSCI said.

“As a result, more investors are putting greater emphasis on the “S” (social) in ESG. Progress on ESG is held back, though, by concerns over fiduciary duty, perceived issues with data, cost and manager inexperience.”

Around 79% of those surveyed said they use climate data to manage risk in their investments.

“A revolution in data usage is seen as a solution to many problems, from regulation to in-

creased public pressure for transparency,” the survey said.

“At the heart of this revolution is climate data, already widely used defensively to manage risk.

Using climate data in an effort to boost returns is less common.”

The survey found investors with over $200 billion are four times more likely to regularly use climate data to identify investment opportunities than those with less than $25 billion.

On the internal culture side, the survey revealed diversity is among a top priority for many large firms.

Of the 200 executives surveyed, just one said internal staff diversity was unimportant, however investors still feel there is room to grow with 86% agreeing that ‘more needs to be done’ or ‘there’s a long way to go’.

“In the space of six or 12 months, investors have gone from thinking about ESG as a side issue to thinking about it as completely core to the future of their funds,” MSCI advisory director Roger Urwin01 said.

“It is a big shift. And in my career, I haven’t seen a shift quite like it.” fs

Best, worst investment ideas for 2021: ARK Elizabeth McArthur

Innovation-focused investment manager ARK Invest has released its annual Big Ideas report for 2021, highlighting the best and worst investment opportunities out there.

When it comes to the worst ideas, ARK said household name NASDAQ listed Intel is failing to keep up with the times.

The company’s competitors are a full generation ahead of Intel in server chip production, mass producing 5nm processors while Intel has still not shipped a 10nm server chip.

Intel’s failure to keep up with the times could see them miss out on what ARK considers to be a strong thematic for 2021 – the re-invention of the data centre thanks to cheaper, faster processors.

ARK believes that Intel is likely to be displaced entirely by its competitors in the data centre cloud market. For a company that has been around since 1968 and reported US $71.9 billion in revenue in 2019, ARK’s prediction could be bad news for investors.

Meanwhile, in financial services ARK predicts that traditional banks are facing sizeable risks from digital wallets like Alipay and Venmo and digital lenders like Klarna.

Venmo, which is owned by PayPal, amassed roughly 60 million active users in the last 10 years – a milestone that took J.P. Morgan more than 30 years and five acquisitions to reach.

In the US, Venmo now has more active users than J.P. Morgan Chase has deposit account holders, according to ARK. And, as Bitcoin’s price hit an all-time high and began to fall, ARK said its research indicates that the fundamentals remain healthy and cryptocurrencies remain an attractive investment opportunity.

“Based on search volumes compared to 2017, Bitcoin’s price increase seems to be driven less by hype. With bitcoin

appearing to gain more trust, some companies are considering it as cash on their balance sheets,” ARK said.

If more companies were to allocate cash to Bitcoin that could have a dramatic impact on its value. ARK estimated that if all S&P 500 companies allocated 1% of their cash to Bitcoin its price would increase by $40,000.

ARK pointed to Square and Microstrategy as two companies with balance sheet investments in Bitcoin, something it predicts could become commonplace.

“We believe Bitcoin offers one of the most compelling riskreward profiles among assets,” ARK said.

“As our analysis suggests, it could scale from roughly $500 billion to $1-5 trillion in network capitalisation during the next five to 10 years.”

ARK also predicts institutional investors will jump on the cryptocurrency bandwagon.

For example, US insurance giant MassMutual invested $100 million in Bitcoin in 2020. Billionaire investor Stanley Druckenmiller and macro hedge fund investor Paul Tudor Jones also disclosed investments in Bitcoin last year. Fidelity Digital also announced it would hold Bitcoin as collateral for cash loans.

Bitcoin has earned a strategic asset allocation in welldiversified institutional portfolios, ARK argued, as during the last decade it is the only major asset with consistently low correlations to traditional asset classes. It has less of a correlation to real estate, gold or emerging market currencies than the S&P 500.

“Based on daily returns across asset classes during the past 10 years, our analysis suggests that allocations to bitcoin should range from 2.55% when minimising volatility to 6.55% when maximising returns,” ARK said. fs

20

News

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

NAB swallows up neobank Following the recent downfall of Xinja, Neobank 86 400 will now follow suit and transfer its customer accounts to the big four bank.

Founded by Cuscal, a Sydney-based IT service management company, and led by chief executive Robert Bell, 86 400 launched the mobile-led digital bank and was granted an ADI licence in July 2019.

Under the acquisition agreement, its 85,000 customers, $375 million in deposits, $270 million in approves residential mortgages and 2500 accredited brokers will all be transferred to NAB. In April 2020, NAB announced plans to prioritise UBank, its Australian direct banking arm. NAB said the acquisition of 86 400 will accelerate the growth of UBank by combining its customer base, brand and colleagues with 86 400’s experience and technology platform.

The news of the purchase follows the demise of Xinja which ceased operating as an authorised deposit taking institution in December 2020.

All remaining 4176 accounts with Xinja, with a total value of $65,809, were transferred to NAB for customers to collect.

It remains to be seen whether neobanks will become the game changers they were expected to; the big four still control around 75% of the financial services market.

It seems NAB had been planning its move on 86 400 for some time, acquiring an 18.3% stake last year. NAB said it did this “to support 86 400’s growth”.

Now, it has taken the leap for a full acquisition for $220 million, including all upfront transaction expenses.

The deal is still subject to regulatory approval, but assuming it is granted NAB said the transaction is expected to be completed by mid-2021.

NAB said 86 400 and UBank will continue to operate as separate businesses. fs

Ord Minnett expands footprint Annabelle Dickson

In its next phase of growth, the wealth management group has opened the doors to its new office in Tasmania.

The office is led by senior investment adviser and branch manager Luke Rybarczyk, previously a client adviser at Bell Potter for nearly 10 years.

“Ord Minnett was the right choice for our clients given a strong history of servicing a wide range of private clients large and small,” he said.

“Ords has a proud history and heritage of service excellence and is well known for their quality domestic research having been awarded ‘Number 1 Emerging Company Research’ in recent years.”

Rybarczyk will be supported by Nathalie Leonard as office manager and will offer private investor clients services such as SMSF, funds management, investment banking and portfolio services.

Ord Minnett chair Warwick Smith said the new office is an opportunity to expand the firm’s national footprint as a respected private wealth firm.

“Importantly, Ord Minnett is delighted to be able to provide clients in Tasmania access to Ords’ trusted and professional wealth management advice and services,” Smith said. fs

01: Renato Mota chief executive IOOF

IOOF buffeted by advice restructure Eliza Bavin

I

The quote

We have continued to meet key milestones in the execution of our transformation program including Advice 2.0 and Evolve.

OOF has seen over $1 billion in outflows from its advice business in the second quarter due to its business transformation program known as Advice 2.0.

The company’s funds under management saw losses of $400 million in the quarter to 31 December 2020.

IOOF said the result actually reflects a strong quarter with an uplift of $12.7 billion due to market movements, but largely offset by one-off negative impacts.

These include an $8.1 billion loss from the termination of its external platform relationship with BT, $1.5 billion from the liquidation of IOOF’s cash management fund and a $400 million one-off transfer from the cash management trust.

The financial advice business saw outflows of $1.3 billion with IOOF saying it was because of the advice business transformation as well as the termination of the BT relationship.

IOOF chief executive Renato Mota01 said the company is making good progress towards the overall transformation of the business.

“We are transforming the advice business through out Advice 2.0 strategy and progressing our platform simplification strategy, while supporting IOOF’s open architecture approach and enabling choice for our clients,” Mota said.

“This quarter has seen ongoing impacts of ERS, especially the final opportunity for early access. As well, we have experienced the ongoing impacts of COVID, including client concern and uncertainty around ongoing and potential economic impacts.”

Mota said the company has been focusing on ensuring clients have been receiving the help they need during times of uncertainty.

“We have continued to meet key milestones in the execution of our transformation program including Advice 2.0 and Evolve,” Mota said.

“We are progressing well and meeting targets to enable the completion of the proposed MLC acquisition before 30 June 2021.”

So far, Mota said Advice 2.0 has seen practices with $363 million in funds under advice (FUA) become self-licensed while still using IOOF Group services, and 22 advisers with $869 million in FUA transition to other licences. fs

ASIC winds up Mayfair 101 debenture issuer, M101 Nominees Elizabeth McArthur

ASIC has succeeded in winding up the issuer of Mayfair 101’s debenture products, with the Federal Court ordering M101 Nominees to wind up.

The is the first outcome arising from ASIC’s ongoing actions against Mayfair 101 Group and its director James Mawhinney.

Said Jahani and Philip Campbell-Wilson of Grant Thornton have been appointed as liquidators.

M101 Nominees raised approximately $67 million from investors during 2019 and 2020 based on representations that funds invested would be fully secured, when they were not, ASIC said.

In March 2020, M101 Nominees stopped repaying funds to investors and then it froze interest payments to investors from June 2020.

“ASIC moved decisively early last year, directly and then ultimately through the courts, to restrain Mayfair from promoting these allegedly misleading products and to protect not only potential new investors but also the interests of existing investors,” ASIC acting chair Karen Chester said.

“This action is one of several we have underway (under our project True to Label) targeting fund managers not doing the right thing by investors.

Especially those fund managers preying

on unsophisticated investors, such as older Australians and retirees in regional Australia.”

The court heard in September 2020 that M101 Nominees was unstable because it was raising funds from noteholders on a short-term basis and then lending for a term of 10 years.

It also heard that distributions and redemptions paid to M Core noteholders were funded from money raised from other M Core noteholders or, to a lesser extent, from investors in unsecured debentures also promoted by Mayfair 101 – in a model not dissimilar to a Ponzi scheme.

However, Mawhinney has aggressively defended the company against the Ponzi scheme allegations.

“The Ponzi claims made against us are meritless, highly defamatory and are the basis of an unwarranted character assassination,” Mawhinney said.

“All debt-funded businesses operate on the same principles – departing investors are refinanced with incoming investors. Ask any investment manager running a debt-based business. It is beyond me how these allegations can be given any airtime in Court, in the media or online when they defy conventional finance principles and misrepresent a compliant business.” fs

Technology

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

Squirrel Super taken to court The corporate regulator has initiated action against a fintech for allegedly misleading customers about the benefits of investing in residential property in self-managed superannuation funds.

Squirrel Superannuation Services, an SMSF platform provider, faced the Federal Court on 23 December 2020 for allegedly marketing misleading information between January 2015 and July 2018.

In the brochure, How buying established residential property can super charge your superannuation?, which it distributed via email and hard copies at a seminar held on 28 April 2015, ASIC alleges, Squirrel made a number of misleading representations.

One of which is that the promised returns for residential property in metropolitan locations doubles in value every seven to 10 years and generates rental returns of around 4-5% per annum.

Another is highlighting the “remarkable” difference in returns between superannuation fund (7%) and using an SMSF that purchased residential property (14%).

Squirrel sold the idea that that costs of managing an investment property via an SMSF are “surprisingly low” compared with using a financial planner to select a series of managed investment funds, which ASIC found contentious.

The Sydney-based firm ceased distributing the material in July 2018. Five months later, ASIC commenced its investigation.

“The provision of misleading information about SMSFs undermines the SMSF sector and limits the ability of Australian consumers to make confident and informed decisions about their superannuation savings,” ASIC said. fs

Macquarie backs drone testing Macquarie Infrastructure and Real Assets (MIRA) portfolio company will trial a medical drone logistics network across the United Kingdom.

AGS Airports, held by Ferrovial and the MIRA managed entity AGS Ventures Airports, is leading a consortium to develop and trial drones to transport essential medicines, blood, organs and other medical supplies throughout Scotland.

The CAELUS (Care & Equity - Logistics UAS Scotland) commenced on 1 December 2021 with the live drone flight trials ending in 2021 and scheduled to run into 2022.

The AGS led consortium has 14 member organisations including ANRA Technologies, Schneider Electric and University of Strathclyde secured £1.5 million from the UK Industrial Strategy Future Flight Challenge Fund to demonstrate how drones improve access to medical supplies in rural areas.

University of Strathclyde vice-chancellor Jim McDonald said the project aligns with the University’s health technologies research cluster and its history of working with both industry and the public sector.

“We look forward to demonstrating the potential value of drone delivery of medical supplies for the public, NHS, the economy, social equality and for the aviation manufacturing industry in Scotland,” he said. fs

21

01: Michael Pahlke

group chief service delivery officer Avaloq

Technology a tool not a threat: Avaloq Annabelle Dickson

T

The quote

In this new era, market leaders will be defined by their ability to deliver realtime and straightthrough processing based on clean and consistent data.

he implementation of technology to front, middle and back office functions will result in more efficiency and the delivery of a superior service, new research shows.

A new study by Avaloq, The Front-to-Back Office Report – How are functions in the financial industry changing?, technologies such as cloud-based operating models, artificial intelligence (AI), data analytics and automation can work with human experience can enhance office functions.

Avaloq interviewed several financial institutions and found front office staff such as client advisors and relationship managers will remain in demand while offering a blended delivery of artificial intelligence to meet speed and productivity.

Further to this, technology will be able to predict what the end-client is seeking next and will be able to react accordingly.

One of the most time-consuming tasks for the middle office is the increase in regulation such as anti-money laundering. Respondents noted this has led to having less time to do things to a higher standard.

Back office professionals believe that technology will assist in removing human error and allow for more efficiency, flexibility and free up resources for specialist tasks.

The back-office respondents noted that the role of technology will not replace their job but make actions like settlements or payments easily automated.

Avaloq group chief service delivery officer Michael Pahlke01 said smart automation will deliver material advantages to financial institutions.

“In this new era, market leaders will be defined by their ability to deliver real-time and straightthrough processing based on clean and consistent data,” he said.

“What has been most interesting from our study, however, is not that technology will replace back, middle or front office staff, but that it will empower them to do more and deliver a superior service.

“While there will be a need for new specialisms, and some functions will likely need to adapt and change, the fundamental need for the ‘human touch’ right across an institution remains loud and clear.”

Nearly three quarters of end-investors believe the use of technology such as AI, robotics and automation will be defining sector trends of the future and 69% consider low cost when establishing a service provider.

However, human touch remains at the forefront of the end investor with 62% unwilling to use a completely robotic service.

“We believe that sophisticated technologies and greater analytics will be central to how firms meet these challenges, with the back and middle office functions supporting front office staff in the delivery of a better, more personal and flexible client service in which human advisory will continue to shine,” Avaloq group chief product officer Martin Greweldinger said.

“Our research with investors showed a strong correlation with the views from institutions, particularly with regards to the use – and acceptance – of technology and a need to cater for new segments and fast-developing market requirements such as ESG.” fs

ASIC faces cybersecurity attack Karren Vergara

Corporate watchdog ASIC was hit with a cybersecurity breach on January 15 that has potentially exposed personal information.

ASIC announced on January 25 that the incident involved unauthorised access to a server that contained documents associated with recent Australian credit licence applications.

The server provider, Accellion, is a US software firm that facilitates cloud-based file sharing and collaboration. The firm claims to prevent thirdparty cyber data breaches and compliance violations with its enterprise content firewall.

While the investigation is ongoing, ASIC said, it appears that “there is some risk that some limited information may have been viewed by the threat actor”.

“At this time ASIC has not seen evidence that any Australian credit licence application forms or any attachments were opened or downloaded.”

ASIC has since disabled access to the server and is working on alternative arrangements for submitting credit application attachments, engaging cybersecurity to undertake a detailed forensic investigation to bring systems back online safely.

It is also working with Accellion and has notified the relevant agencies and those impacted by the incident.

“As a precaution, and to protect information and systems, ASIC has disabled access to the affected server. ASIC is working on alternative arrangements for submitting credit application attachments which will be implemented shortly,” ASIC wrote on its website. fs

22

News

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

AFCA forced into rule change

01: Peter Fowler

founder Chi-X Australia

Elizabeth McArthur

The Australian Financial Complaints Authority has been forced into a rule change regarding its jurisdiction over authorised representatives after a court decision.

The NSW Supreme Court ruled in the case of DH Flinders v Australian Financial Complaints Authority that AFCA’s rules regarding its jurisdiction over authorised representatives must be clearer.

The case related to AFCA’s jurisdiction to consider a complaint against a licensee in relation to the conduct of its corporate authorised representative, specifically where the conduct of the representative was without or outside authority.

AFCA has now updated its rules, at ASIC’s directions, to reflect the same statutory liability for licensees regarding their authorised representatives as set out in the Corporations Act and the National Consumer Credit Protection Act. The new rules will come into effect from 13 January 2021, but complaints received before that date are still being assessed under the old rules.

AFCA said it is reviewing a small number of complaints received before that date but added that most of the complaints it handles on a day-today basis will not be impacted by this change.

“For the small number of complaints which may be outside AFCA’s rules, AFCA will be encouraging the financial firms involved to consent to AFCA considering the complaint to achieve an early resolution and avoid the prospect of potential court or other action by the complainant,” the authority said. fs

Perpetual reports $2.7bn outflows Kanika Sood

Perpetual’s strategies saw $2.7 billion in net outflows in the December quarter, taking its total assets to $89.2 billion.

The outflows were primarily from the institutional channel at $2.6 billion, while about $700 million came out of the intermediary channel.

By asset class, $1.8 billion of the outflows were from cash and fixed interest, which Perpetual said was low margin. About $900 million in outflows was from equities.

The $89.2 billion in total assets includes Perpetual Asset Management Australia’s $22.7 billion (down 2% in the quarter) and recently acquired Barrow Hanley’s $66.5 billion.

“During 2020, investment markets went through significant volatility, and our investments capabilities across all asset classes have weathered this well, finishing the year strongly,” Perpetual chief executive Rob Adams said.

“Over the last quarter we have seen a positive rotation to value stocks and our performance relative to benchmark has improved significantly across our Australian equity funds in particular.”

Perpetual Private’s funds under advice grew by 6% to $15.5 billion, including $200 million in inflows. Perpetual Corporate Trust’s FUA grew 1% to $936.2 billion.

PPT said it now has 70 distribution professionals in key regions and has made recent appointments in the US. fs

Vale Peter Fowler Eliza Bavin

C

The quote

At Chi-X we are enormously grateful and proud that Peter Fowler was an integral part of our past.

hi-X has expressed its sadness over the death of founder and first chief executive Peter Fowler01.

Chi-X said Fowler will be remembered with affection, respect and gratitude by those who worked with him as a founding employee, chief operating officer, chief executive and board director of Chi-X Australia.

“Pete was more responsible than any other person for successfully launching genuine competition between Australian market operators,” Chi-X said.

“Pete definitely enjoyed being one of what was initially a handful of people at Chi-X Australia, taking on its large multibillion dollar competitor.”

Fowler qualified as a computer programmer in 1969 and joined the London Produce Clearing House, which subsequently became the International Commodities Clearing House (ICCH) and then LCH. In 1986, Fowler transferred to Sydney as the managing director of ICCH for the Asia Pacific region.

In 1992, he founded and worked for his own

company developing market infrastructure systems, including clearing systems, and back office, risk management and order management systems used by Australian brokers.

“Notwithstanding that it brought predictable ribbing during the Ashes and many other sporting contests, Pete was convinced that living in Sydney was winning the lottery,” Chi-X said.

“Chi-X had a similar view when Pete joined us in 2008, as one of our first employees charged with launching competition to the ASX.” Chi-X credited Fowler with the success of the business, saying that the business would not be where it is today were it not for his efforts.

“Pete will be greatly missed by those fortunate enough to have got to know a person who had inspiring endurance and was disarmingly sensitive, warm and loyal, once an at times gruff exterior was taken down,” it said.

“Our thoughts at this very sad time are with Pat, Jackie, Paul and Leanne, and all members of Pete’s family. At Chi-X we are enormously grateful and proud that Peter Fowler was an integral part of our past, he will always have played a crucial role in the success of our company.” fs

APRA delays insurance in superannuation guidance APRA updated draft guidance for insurance in superannuation,delaying the commencement date by six months.

Several changes have been made to the original document released in November last year after taking on board suggestions from those in the industry.

The guidance, Prudential Standard SPS 250 Insurance in Superannuation, seeks to establish requirements for an RSE licensee with respect to making insurance benefits available to beneficiaries.

Feedback from the November 2019 consultation, which closed on 3 February 2020, broadly supported the proposed amendments, which largely reflected recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and the findings of APRA’s post-implementation review of the superannuation prudential framework,” APRA said.

Various changes have been made to the draft guidance, one of which is a revised date of commencement, which has been pushed back from 1 July 2021 to 1 January 2022.

Additionally, the new document separates the independent certification requirements into two paragraphs; one for connected entities and the other for ‘priority or privilege’ arrangements with non-related parties.

It also recast some of the independent certification

requirements including ‘the best interests of beneficiaries’, the signoff of legal and regulatory requirements, and narrowing the requirements for ‘priority and privilege’ arrangements.

It clarifies the timing requirements for obtaining an independent certification and for providing it to APRA and amending the requirement for the independent review cycle from a biennial requirement to a triennial requirement.

Finally, the revisions included that related party arrangements already in force on the effective date of the revised SPS 250 must seek an independent certification within 12 months of that date.

“In responding to the consultation, industry sought guidance on many of the proposed amendments, particularly in respect of the independent certification requirements and the meaning of priority and privilege in non-related party insurance arrangements,” APRA said.

The regulator said it received 11 submissions in response to its first draft of the guidance.

“APRA has responded to this feedback by amending our proposals in revised draft SPS 250 and by issuing a proposed draft SPG 250, providing guidance on these new requirements,” it said.

“A detailed response to all submissions, including from this second consultation, will be provided as a Response Paper, expected to be issued in mid-2021.” fs

International

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

BlackRock eyes crypto exposure

01: Joseph Cuschieri

former chief executive Malta Financial Services Authority

Karren Vergara

The world’s largest asset manager is flirting with the idea of investing in cryptocurrency, priming two of its global funds to potential exposure to bitcoin futures.

Two filings with US watchdog the Securities and Exchange Commission reveal that two of BlackRock’s funds – the BlackRock Global Allocation Fund and BlackRock Funds V – could potentially trade in bitcoin derivatives.

“Each fund may use instruments referred to as derivatives, which are financial instruments that derive their value from one or more securities, commodities (such as gold or oil), currencies (including bitcoin), interest rates, credit events or indices (a measure of value or rates, such as the S&P 500 Index or the prime lending rate),” SEC Form 497 shows.

The documents refer to several risks involved in using derivatives, specifically bitcoin futures, which “are not as heavily traded as other futures given that the bitcoin futures market is relatively new”.

Further, BlackRock acknowledged that bitcoin futures experience technical and operational issues, making its prices unavailable at times.

“In addition, the cash market in bitcoin has been the target of fraud and manipulation, which could affect the pricing of bitcoin futures contracts,” it said.

The Global Allocation Fund invests in global equities as well as debt across 40 countries and 30 currencies, split across a 60% (equities) to 40% (debt) basis.

The fund is managed by Rick Rieder, David Clayton and Russ Koesterich. fs

Bezos steps down at Amazon Jamie Williamson

Jeff Bezos will step down as chief executive later this year, transitioning to the role of executive chair.

Announced in Amazon’s full year 2020 results, chief executive of Amazon Web Services (AWS) Andy Jassy will take over as chief executive in Q3 of this year.

In the executive chair role, Bezos has said he will focus his energy on new products and early initiatives.

“As much as I still tap dance into the office, I’m excited about this transition. Millions of customers depend on us for our services, and more than a million employees depend on us for their livelihoods,” Bezos said.

“Being the CEO of Amazon is a deep responsibility, and it’s consuming. When you have a responsibility like that, it’s hard to put attention on anything else.”

He said he plans to focus on the Bezos Earth Fund, Blue Origin and The Washington Post among other passions.

His successor Jassy has been with Amazon since 1997 and founded AWS in 2003.

“Andy is well known inside the company and has been at Amazon almost as long as I have. He will be an outstanding leader, and he has my full confidence,” Bezos said. fs

23

Maltese regulator in overpayment scandal Elizabeth McArthur

T

The quote

I insisted on the importance of high compliance standards to be the hallmark of our jurisdiction.

he former chief executive of the Malta Financial Services Authority has been asked to payback tens of thousands of Euros he was paid above and beyond his already lucrative salary package.

Maltese newspaper The Shift exclusively revealed that Joseph Cuschieri01 has been asked by the MFSA to repay €23,000 in extra payments he received in 2019 and 2020.

Cuschieri earned a €150,000 financial package, but drew extra payments for attending board meetings. The problem was that in his role as chief executive he should have been attending those board meetings – they did not require extra payment.

According to The Shift, the board was kept in the dark about these payments and abruptly put a stop to it in 2020 when they found out.

Cuschieri resigned as MSFA chief executive before a review could issue findings on his actions.

His resignation came after revelations that he travelled to Las Vegas on a trip financed by Yorgen Fenech, who is currently accused of a

murder-for-hire plot causing the death of journalist Daphne Caruana Galizia.

The trip occurred in 2018, when Cuschieri was working for the Malta Gaming Authority.

Fenech is a casino owner so the trip also raises questions about Cuschieri’s management of conflicts of interest.

Just before Cuschieri resigned from his post, he shared on Instagram that he had attended FinanceMalta’s digital conference.

“I insisted on the importance of high compliance standards to be the hallmark of our jurisdiction,” he said.

Cuschieri’s salary being topped up with erroneous payments has similarities to ASIC’s recent remuneration issues.

In October 2020, ASIC chair James Shipton stepped aside and deputy chair Daniel Crennan resigned after it was revealed they had received extra payments.

Shipton was paid relocation expenses of $118,5557 and Crennan received $69,621 in rental assistance. fs

IFM makes multi billion-dollar bid for Spanish energy provider Eliza Bavin

IFM Investors has made a EUR 5 billion offer for a 22% stake in Spanish energy company Naturgy Energy Group.

The stake will form part of IFM’s Global Infrastructure Fund.

Naturgy is based in Spain and listed on the IBEX 35 exchange. Its diversified infrastructure portfolio spans over more than 20 countries and includes the largest gas distribution and third largest electricity distribution networks in Spain.

IFM said it is also a major investor in renewables, with an existing portfolio of 4.6GW of capacity including wind, solar and hydroelectric.

“IFM’s 25 years of expertise in the infrastructure sector across the globe, and long-term investment philosophy and commitment to the energy transition, offers a strong addition to Naturgy’s shareholder registry,” IFM said.

“As one of the largest infrastructure investment managers globally, IFM’s purpose is to protect and grow the long-term retirement savings of working people.”

IFM added it is committed to environmental

sustainability, having recently announced it will reduce carbon emissions across its asset classes, targeting net zero by 2050.

The price of the offer accounts for EUR 23 per share of Naturgy, implying a maximum amount payable of over EUR 5 billion.

IFM said the offer will be fully paid in cash and implies a premium of around 19.7% on Naturgy’s trading price at the closing of the stock exchange on the date immediately prior to the announcement.

The offer also implies a 22.7% premium on the volume weighted average trading price of Naturgy’s shares during the three-month term and a 28.9% premium on the volume weighted average trading price during the six-month term immediately prior to the date of the announcement.

“The offer price will be adjusted downwards if Naturgy pays or announces dividends, distributions or similar remuneration prior to the offer settlement,” IFM said.

“IFM will finance the majority of the transaction with equity commitments from its fund investors, with the remaining to be financed by an acquisition debt facility.” fs

For more news and events, like us on Facebook

24

News

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

TAL continues FASEA course

01: Thomas Bignill

former managing director Mason Stevens

Elizabeth McArthur

Life insurer TAL has launched another round of its FASEA exam masterclass, which aims to prep financial advisers for the exam.

The masterclass, run through TAL Risk Academy, has proven very popular with TAL noting it is one of the most attended courses it has ever run through Risk Academy.

There are only six more exam sittings in this year, and if advisers who have not yet passed the exam do not pass one of those they will be forced out of the industry.

“Passing the FASEA exam is an essential component of the educational qualifications that advisers need to achieve before providing personal advice to clients. With only six more FASEA exam sittings left this year, we’re encouraging those advisers who have yet to sit the exam to consider the FASEA Exam Masterclasses in their preparation,” TAL head of licensees partnerships Beau Riley said.

“TAL Risk Academy’s FASEA Exam Masterclasses are delivered in a virtual, on-demand format, which means advisers can review the content as many times as they like, even once they have completed the course.”

And advisers who sign up for the course to get themselves exam ready will also be supporting a worthy charitable cause.

It costs $55 for advisers to register in the course, but TAL donates the entirety of this fee to the Australian Business and Community Network (ABCN).

ABCN is a charity which partners with low socio-economic schools and business to address educational disadvantage by providing students with structured workplace mentoring. Corporate mentors support the development of students’ skills and can provide them with a boost of confidence and some ideas about future career goals. fs

AMP Bank boss to join BOQ Karren Vergara

Rod Finch, who was appointed to the post in November 2019 shortly after AMP chief Francesco De Ferrari stepped in, has accepted a role as transformation director at ASX-listed Bank of Queensland’s retail unit.

Altogether, Finch was at AMP for eight years, starting out as the director for customer transformation before moving on to executive roles in customer segments and marketing, and wealth, platforms and products. Lara Bourguignon took over responsibilities for the wealth and platforms business, but recently left the company.

An AMP spokesperson commented: “Rod is highly regarded at AMP and we wish him all the best for the next stage of his career.”

At BOQ, Finch will report to Martine Jager, who was most recently Westpac’s chief digital and marketing officer. Jager replaces Lyn McGrath, the group executive of retail banking, who has announced her retirement.

Nicholas Allton was also appointed as group general counsel and Danielle Keighery as chief customer officer. fs

Longstanding Mason Stevens MD exits Eliza Bavin

The quote

We wish him well and especially appreciate his dedication, enthusiasm, and contribution to the success of Mason Stevens.

Thomas Bignill01 has left his role as co-chief investment officer and managing director of Mason Stevens after being a founding member of the company 11 years ago.

Bignill told Financial Standard he has left to pursue other opportunities in January but remains a shareholder of the business.

“After 11 years I thought it was time to figure out my next journey, but I am very proud of what we have built over the last 10 years,” Bignill said.

“It is a really unique business with great people and great clients. The business is in great shape and it has a wonderful management team to lead it into the next chapter.”

Mason Stevens confirmed Bignill’s role will not be replaced, but rather Vincent Hua will

resume as sole chief investment officer and chief executive.

Hua thanked him for his contributions to the firm.

“Tom has not only been integral to the success and development of Mason Stevens, but also the wealth management industry having spearheaded the managed accounts segment which has seen significant evolution in recent years and remains at the core of our business,” Hua said.

“We wish him well and especially appreciate his dedication, enthusiasm, and contribution to the success of Mason Stevens.”

Prior to Mason Stevens, Bignill held several roles at BT Financial, Merrill Lynch, Next Financial and Personal Choice Portfolios.

Bignill had been with Mason Stevens since its launch back in February 2011. fs

Super concerns over legislation: Schroders Annabelle Dickson

Superannuation funds are making changes to investment portfolios ahead of the Your Future, Your Super legislation which in turn could lead to more volatility and less diversification for members.

Speaking at a media briefing, Schroders head of distribution Graeme Mather said from conversations he has been having with superannuation clients, they are focused in on the implications of the performance benchmarking test.

As announced in the 20/21 federal budget, the performance benchmarking tests the net investment performance of MySuper products and is slated to commence from 1 July 2021.

The products that have underperformed APRA’s standards over two consecutive annual tests will be prohibited from receiving new members until a further annual test that shows they are no longer underperforming.

Mather said super funds are concerned how the test will affect portfolio management and consequently are changing exposures.

“The implications for members may be that their portfolios are less diversified, have more volatility and less exposure to private assets,” he later told Financial Standard.

“The conversations that I’m having with

asset owners more broadly is that some have increased their passive exposure and some have adjusted their asset allocation to be more benchmark aware.”

Mather said of the package, reducing multiple accounts by stapling members and increased transparency is seen as a positive but the performance benchmarking remains the biggest challenge for funds.

“The industry has engaged Treasury on the details of the performance benchmarking and the consultation ended before Christmas so some tweaks might come in,” he said.

“But the vast bulk of them are still assessing this and most of them are treating it as an additional risk they need to manage and the adjustments they need to make against the risk to ensure they are not too far away from APRA’s benchmark.”

Your Future, Your Super has garnered criticism from the industry with Industry Super Australia believing the reforms will only benefit retail funds.

In addition, Rice Warner has concerns over the benchmark will miss the impact on member outcomes for asset allocation - usually the most important source of investment returns.

And of the YourSuper comparison tool, the firm said it will not be able to compare the data accurately given its simple metric. fs

Keep up to date with Financial Standard’s latest news and events on LinkedIn

Between the lines

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

Super fund ousts ethical manager

25

01: Sonya Sawtell-Rickson

chief investment officer HESTA

Jamie Williamson

LGIAsuper’s Socially Responsible Balanced option is now invested in Pendal Group’s Sustainable Balanced Fund. The option was invested in the AMP Capital Ethical Leaders Balanced Fund but was transferred during the week of January 11.

“Our SR Balanced option was invested in AMP Capital’s Ethical Leaders Balanced Fund, however, due to concerns with investment performance and reports about culture at AMP, LGIAsuper has transferred the investment from AMP Capital into Pendal Group’s Sustainable Balanced Fund,” LGIAsuper said.

According to the super fund’s website, the Socially Responsible Balanced option returned -1.33% for the year ending 30 June 2020.

The government fund first handed the mandate to AMP Capital Ethical Leaders in 2008 and was not due for renewal until 30 June 2023, according to Rainmaker data.

In 2012, LGIAsuper also invested its SR Australian Shares option with AMP Capital – a mandate that is up for renewal on 30 June 2021.

LGIAsuper’s website shows this option returned -8.43% to 30 June 2020.

Communicating the change, LGIAsuper said: “Pendal is an investment manager with a proud 35-year heritage in and ongoing commitment to leadership in responsible investing. Responsible investing aims to include ESG (environmental, social and governance) factors into investment decisions.” fs

HESTA awards tech mandate Annabelle Dickson

T The quote

We are confident that the scope of our partnership... will provide HESTA with a consolidated and complete offer.

he super fund selected SimCorp’s Dimension as a Service to consolidate its investment data into one central location including business intelligence and a data warehouse.

In addition, the cloud investment platform will benefit HESTA adopted a total-portfolio approach by delivering multi-asset coverage for the internal management of its Australian equities this year and cash and fixed interest in 2021.

HESTA chief investment officer Sonya Sawtell-Rickson01 said the decision to internalise a portion of investment management sparked the need to find a partner who could support scale.

“Our technology investment marks another significant step forward in the implementation of our investment strategy, which supports us to continue delivering strong, competitive longterm returns for members at the lowest achievable cost and risk exposure,” she said.

As a part of the SimCorp Dimension as a Service, HESTA will have access to the Investment

Rainmaker Mandate top 20

Book of Record which will allow the investment team to see both internally and externally managed investments, to enhance risk management and asset allocation decisions.

SimCorp senior vice president and managing director Oliver Johnson said he has seen many asset-owners in Australia move to internal investment management.

“Having supported some of the world’s largest pension funds, both in the region and globally, we are confident that the scope of our partnership, including vital front office delivery, together with a cloud infrastructure and managed services, will provide HESTA with a consolidated and complete offer to reinforce its investment operations and successfully deliver on its long-term business goals,” he said.

The latest development follows the appointment of Michael Sommers as general manager portfolio construction and risk earlier this month to bolster its internal portfolio management talent. fs

Note: Largest cash & bond mandate appointments of 2020

Appointed by

Asset consultant

Investment manager

Mandate type

LGIAsuper

JANA Investment Advisers

QIC Limited

Cash

Aware Super

Willis Towers Watson

Ardea Investment Management Pty Limited

Fixed Interest

850

MyLifeMyMoney Superannuation Fund

JANA Investment Advisers

Antares Capital Partners Ltd

Cash

600

Aware Super

Willis Towers Watson

Payden & Rygel

Fixed Interest

292

Aware Super

Willis Towers Watson

Wellington Management Australia Pty Ltd

Fixed Interest

237

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Coolabah Capital Institional Investments Pty Limited

Fixed Interest

169

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Other

Alternative Fixed Interest

154

legalsuper

Willis Towers Watson

IFM Investors Pty Ltd

Cash

153

Health Employees Superannuation Trust Australia

Frontier Advisors

Macquarie Investment Management Australia Limited

Global Fixed Interest

121

ANZ Australian Staff Superannuation Scheme

Willis Towers Watson

First Sentier Investors

Australian Fixed Interest

79

MyLifeMyMoney Superannuation Fund

JANA Investment Advisers

Macquarie Investment Management Australia Limited

Australian Fixed Interest

70

MyLifeMyMoney Superannuation Fund

JANA Investment Advisers

PIMCO Australia Pty Ltd

International Fixed Interest

70

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

PGIM, Inc.

Emerging Markets Fixed Interest

47

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Ashmore Investment Management Limited

Alternative International Fixed Interest

47

ANZ Australian Staff Superannuation Scheme

Willis Towers Watson

Ardea Investment Management Pty Limited

Australian Fixed Interest

42

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

PGIM, Inc.

International Fixed Interest Emerging Markets

35

Health Employees Superannuation Trust Australia

Frontier Advisors

Other

Cash

29

WA Local Government Superannuation Plan

Willis Towers Watson

Putnam Investments Australia Pty Limited

Fixed Interest

26

Construction & Building Unions Superannuation

Frontier Advisors

Mesirow Financial

Cash

23

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Revolution Asset Management Pty Ltd

Alternative Fixed Interest

Amount ($m) 1,015

15 Source: Rainmaker Information

26

Managed funds

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02 PERIOD ENDING – 30 NOVEMBER 2020

Size 1 year 3 years 5 years

Size 1 year 3 years 5 years

Fund name

Fund name

Managed Funds

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

AUSTRALIAN EQUITIES

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

COMBINED PROPERTY

Hyperion Australian Growth Companies Fund

1,840

27.1

1

18.9

1

14.7

4

Australian Unity Diversified Property Fund

190

18.0

4

17.9

2

14.8

3

Lendlease Aust Prime Property Industrial

Bennelong Australian Equities Fund

766

18.8

2

17.6

3

15.6

2

Investa Commercial Property Fund

5,989

5.9

3

11.5

3

12.7

2

Australian Ethical Australian Shares Fund

403

18.6

3

14.3

4

12.8

7

Lendlease Aust Prime Property Commercial

5,046

4.2

4

10.3

4

12.4

3

1,234

13.9

6

14.1

5

16.2

1

Pendal Property Securities Fund

415

-2.5

10

9.3

5

10.5

5

Alphinity Sustainable Share Fund

256

4.4

19

12.7

6

11.8

10

Ironbark Paladin Property Securities Fund

286

-2.4

9

8.0

6

9.8

7

Greencape Broadcap Fund

943

9.7

8

11.7

7

13.5

5

Australian Unity Property Income Fund

254

-3.5

11

7.4

7

9.7

9

Greencape High Conviction Fund

560

5.0

14

10.4

8

12.4

9

DEXUS Property Fund

10,387

-1.0

7

7.2

8

10.2

6

Macquarie Australian Shares Fund

177

4.5

18

10.3

9

13.2

6

Macquarie Property Securities Fund

42

-9.3

26

7.1

9

9.4

10

47

2.4

25

10.1

10

11.0

17

Resolution Cap. Core Plus Prop. Sec. Series II

25

-5.0

13

6.7

10

9.1

12

Australian Unity Platypus Aust Equities

Bennelong Concentrated Aust Equities

Aberdeen Standard Australian Equities Fund Sector average

282

14.7

1

14.5

1

16.9

1

1,098

9.9

2

12.3

2

11.2

4

482

-0.6

6.4

9.1

Sector average

1,275

-9.5

4.0

6.4

S&P ASX 200 Accum Index

-2.0

6.9

9.1

S&P ASX200 A-REIT Index

-9.2

5.4

7.7

INTERNATIONAL EQUITIES

FIXED INTEREST

Loftus Peak Global Disruption Fund

142

39.4

1

23.1

1

Zurich Concentrated Global Growth

51

19.5

9

22.4

2

990

24.3

6

21.1

3

BetaShares Global Sustainability Leaders ETF T. Rowe Price Global Equity Fund

17.9

Legg Mason Brandywine Global Inc Optimiser Fund 2

Principal Global Credit Opportunities Fund Schroder Fixed Income Fund

94

13.7

1

7.2

1

245

11.4

2

6.8

2

6.5

1

2,100

4.7

23

6.3

3

5.2

11

4,677

30.0

3

20.9

4

18.4

1

AMP Capital Wholesale Australian Bond Fund

984

4.4

33

6.1

4

5.4

6

Franklin Global Growth Fund

441

29.9

4

20.1

5

17.6

3

Macquarie Australian Fixed Interest Fund

230

4.1

40

6.1

5

5.4

5

Platinum International Health Care Fund

457

27.8

5

19.9

6

14.8

5

Pendal Government Bond Fund

910

4.0

41

6.0

6

5.1

15

Nikko AM Global Share Fund

123

16.3

13

17.7

7

15.2

4

VanEck Vectors Aust. Corp. Bond Plus ETF

256

4.5

29

5.9

7

Evans and Partners International Fund

55

4.0

55

17.4

8

14.8

7

Nikko AM Australian Bond Fund

219

3.7

46

5.9

8

5.3

10

Capital Group New Perspective Fund

849

20.2

7

17.3

9

14.8

6

QIC Australian Fixed Interest Fund

9

5.2

12

Zurich Unhedged Global Growth Share Fund

414

13.8

20

16.7

10

13.8

12

Sector average

837

6.1

10.1

10.6

MSCI World ex AU - Index

5.7

11.2

11.1

Note: The performance figures for diversified funds are net of fees, performance figures for sector specific funds are adjusted for fees.

1,490

4.5

27

5.9

Perpetual Wholesale Active Fixed Interest Fund

194

3.5

50

5.9

Sector average

867

3.6

4.5

4.3

Bloomberg Barclays Australia (5-7 Y) Index

3.3

5.4

4.6

10

Source: Rainmaker Information

GameStop: The zeitgeist of 2021 the short squeeze on GameStop tells us anyIForfthing, it is that the craziness of 2020 continues. those readers not familiar with the brouhaha

Dial tones

By John Dyall john.dyall@ financialstandard .com.au www.twitter.com /JohnDyall

(there must be at least one), the story is that a large hedge called Melvin Capital was shorting what it thought was an overvalued bricks-andmortar retail store called GameStop which sells mostly new and secondhand computer games.

As we know, short selling is when an investor borrows stock and then sells that stock on the stockmarket. An important point is that the original owner does not lend that stock out for nothing.

They charge rental based on current interest rates and availability. When rates are as low as they are now, one of the major costs of short selling goes down dramatically. This is one reason why it is popular right now, in addition to general view that asset prices could be inflated.

The short seller has an agreement to buy the stock back off the market and deliver to the original owner.

If the stock price falls the short seller pockets the difference as profit.

Now the thing about short selling is that to work the stock price has to fall, and the faster the better.

One way to make it fall faster is to produce a YouTube video on why your investment thesis about why the company is worth way less than it is currently trading at is the correct thesis.

Retail investors, sometimes called “muppets” or “dumb money”, are supposed to see these videos, panic, and sell their stock while it is still above the so-called fundamental value propagated by the short seller.

But unfortunately for Melvin Capital, a bunch of day traders in a subreddit got together and decided to implement a short squeeze on the short sellers. A short squeeze is when people buy shares in a company that has been targeted by short sellers. The more they buy, the more the stock prices goes up. The more it goes up, the more the short seller gets squeezed, particularly when it comes time to return the stock to the original owner.

They have to rush to buy stock at ever higher prices, and create a feedback loop where the more they buy, the more the price goes up – and so do their losses.

The twist in this tale was that Robinhood, earns most of its money from the market maker Citadel Securities. Meanwhile the parent company of Citadel Securities had invested US$2 billion in Melvin Capital. So, they weren’t happy at losing out to the muppets. Robinhood – and there is some conjecture here as to their real reasons for doing so – then put limits [since lifted] on trades in GameStop and other stocks, thereby crippling the power of the short squeeze and helping out its major reve-

nue earner. Nothing to see here, folks, move along.

The fund, by the way, lost 53% in January while the retail investors made out like bandits with the stock price of GameStop rising as much as 1700%.

There is so much to unpack in this story so here are a few thoughts, both serious and frivolous, to take away: • The loss of many sports during the pandemic reduced the ability of online punters to bet.

They turned to day trading on the stockmarket and Robinhood was their go-to platform, as it was free. Investing, to them, was similar to gambling. It’s not about the power of compound interest, it’s about winning.

• Interest rates are at historic lows. For those willing to leverage, it is virtually free money.

It also plays havoc with the Efficient Markets Hypothesis, which is the belief that stocks have a fundamental value.

• “Stimmies” are the stimulus cheques people in the US used these cheques to play the stockmarket.

• “Tendies” are the profits made on trades, named after breaded chicken tenderloins, favourite food of man-children with neckbeards doing the trades.

So I guess the movie should be coming out around the end of 2022. Can’t wait. fs

Super funds

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02 PERIOD ENDING – 30 NOVEMBER 2020

Workplace Super Products

1 year

% p.a. Rank

3 years

5 years

SS

% p.a. Rank % p.a. Rank Quality*

MYSUPER / DEFAULT INVESTMENT OPTIONS

27

* SelectingSuper [SS] quality assessment

1 year

3 years

% p.a. Rank

5 years

SS

% p.a. Rank % p.a. Rank Quality*

PROPERTY INVESTMENT OPTIONS

Australian Ethical Super Employer - Balanced (accumulation)

6.1

1

8.1

1

7.6

13

AAA

Prime Super (Prime Division) - Property

-4.2

13

8.9

1

15.2

1

AAA

UniSuper - Balanced

4.4

4

7.9

2

8.5

1

AAA

AMG Corporate Super - AMG Listed Property

0.0

4

7.9

2

8.5

3

AAA

Virgin Money SED - LifeStage Tracker 1979-1983

2.3

23

7.4

3

AAA

Telstra Super Corporate Plus - Property

0.2

2

6.6

3

8.9

2

AAA

AustralianSuper - Balanced

3.8

7

7.3

4

2

AAA

CareSuper - Direct Property

0.1

3

6.1

4

8.5

4

AAA

TASPLAN - OnTrack Build

2.0

31

7.2

5

AAA

Rest Super - Property

-1.3

7

5.7

5

7.6

5

AAA

Cbus Industry Super - Growth (Cbus MySuper)

4.2

5

6.9

6

8.3

3

AAA

TASPLAN - Property

0.4

1

5.4

6

AAA

FES Super - Smoothed Option (Hybrid)

3.7

8

6.9

7

6.8

35

AAA

Acumen - Property

-1.9

8

5.1

7

7.1

8

AAA

Vision Super Saver - Balanced Growth

4.8

2

6.8

8

7.7

10

AAA

Sunsuper Super Savings - Australian Property Index

-7.9

19

5.0

8

7.2

6

AAA

Aware Super Employer - Growth

3.4

12

6.6

9

7.8

8

AAA

Virgin Money SED - Australian Listed Property

-8.3

20

4.9

9

AAA

Lutheran Super - Balanced Growth - MySuper

3.4

11

6.6

10

7.8

9

AAA

HOSTPLUS - Property

-0.6

5

4.9

Rainmaker MySuper/Default Option Index

2.1

Rainmaker Property Index

-7.7

5.9

8.4

7.1

AUSTRALIAN EQUITIES INVESTMENT OPTIONS

10

3.2

7.0

10

AAA

5.5

FIXED INTEREST INVESTMENT OPTIONS

UniSuper - Australian Shares

2.6

6

9.9

1

10.0

2

AAA

Australian Catholic Super Employer - Bonds

4.7

2

5.7

1

4.8

1

AAA

Vision Super Saver - Just Shares

8.7

1

9.0

2

10.5

1

AAA

AMG Corporate Super - AMG Australian Fixed Interest

4.2

8

5.0

2

4.1

6

AAA

ESSSuper Beneficiary Account - Shares Only

5.1

2

8.4

3

9.1

13

AAA

UniSuper - Australian Bond

2.5

29

4.6

3

3.9

9

AAA

CBA Group Super Accumulate Plus - Australian Shares

2.8

5

8.1

4

9.2

9

AAA

Mine Super - Bonds

2.6

25

4.6

4

4.0

7

AAA

Prime Super (Prime Division) - Australian Shares

3.3

4

7.9

5

9.7

3

AAA

Vision Super Saver - Diversified Bonds

4.3

5

4.5

5

4.1

5

AAA

-0.1

17

7.4

6

AAA

Intrust Core Super - Bonds (Fixed Interest)

3.8

12

4.5

6

4.1

4

AAA

TASPLAN - Australian Shares Maritime Super - Australian Shares

2.2

7

7.3

7

11

AAA

Aware Super Employer - Australian Fixed Interest

2.5

27

4.4

7

3.8

11

AAA

Virgin Money SED - Indexed Australian Shares

-1.2

28

7.3

8

AAA

GESB Super - Mix Your Plan Fixed Interest

3.4

17

4.2

8

3.6

17

AAA

1.8

8

7.3

9

9.4

7

AAA

QSuper Accumulation - Diversified Bonds

4.4

4

4.1

9

3.8

12

AAA

Media Super - Australian Shares

-1.2

31

7.3

10

8.7

23

AAA

HESTA - Diversified Bonds

3.7

14

4.1

10

3.9

8

AAA

Rainmaker Australian Equities Index

-0.8

Rainmaker Australian Fixed Interest Index

2.6

Intrust Core Super - Australian Shares

6.4

9.1

8.3

INTERNATIONAL EQUITIES INVESTMENT OPTIONS

3.9

3.4

AUSTRALIAN CASH INVESTMENT OPTIONS

UniSuper - Global Environmental Opportunities

40.6

2

18.5

1

16.5

1

AAA

AMG Corporate Super - Vanguard Cash Plus Fund

0.8

3

1.5

1

1.8

1

AAA

UniSuper - Global Companies in Asia

10.4

11

13.2

2

12.7

2

AAA

AMG Corporate Super - AMG Cash

0.9

2

1.4

2

1.7

2

AAA

AustralianSuper - International Shares

14.6

5

12.6

3

11.7

5

AAA

Intrust Core Super - Cash

0.6

9

1.4

3

1.7

3

AAA

UniSuper - International Shares

14.6

4

11.5

4

11.8

4

AAA

NGS Super - Cash & Term Deposits

0.8

5

1.4

4

1.6

4

AAA

LUCRF Super - International Shares (Active)

12.9

8

11.4

5

10.3

12

AAA

Sunsuper Super Savings - Cash

0.6

8

1.3

5

1.5

6

AAA

Equip MyFuture - Overseas Shares

14.0

6

11.2

6

11.1

7

AAA

Rest Super - Cash

0.8

4

1.3

6

1.5

10

AAA

Intrust Core Super - International Shares

11.4

9

10.7

7

10.9

8

AAA

ANZ Staff Super Employee Section - Cash

1.0

1

1.3

7

1.5

11

AAA

HOSTPLUS - International Shares

13.0

7

10.5

8

12.0

3

AAA

Media Super - Cash

0.6

11

1.3

8

1.4

14

AAA

Media Super - Passive International Shares

5.2

34

10.4

9

9.8

18

AAA

Virgin Money SED - Cash Option

0.4

22

1.3

9

AAA

Vision Super Saver - International Equities

15.5

3

10.3

10

11.4

6

AAA

Aware Super Employer - Cash

0.6

13

1.3

Rainmaker Cash Index

0.3

Rainmaker International Equities Index

6.2

7.6

8.9

Notes: T ables include Australia’s top performing superannuation products that also have a AAA SelectingSuper Quality Assessment rating.

Investment options are sorted by their three year net performance results. All performance figures are net of maximum fees.

WORKPLACE SUPER | PERSONAL SUPER | RETIREMENT PRODUCTS

Compare superannuation returns across asset classes using over 28 years of industry insights and research with SelectingSuper’s performance tables.

Simply visit selectingsuper.com.au/tools/performance_tables

10

1.0

1.5

12

AAA

1.2 Source: Rainmaker Information www.rainmakerlive.com.au

28

Economics

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

USA Inc. now under new management Ben Ong

J

oggin’ Joe hits the ground running.

Not soon after he was sworn in as the 46th President of the United States of America, Joe Biden rolled up his sleeves and went to work.

Hours after his inauguration, Biden signed 17 executive orders, memorandums and proclamations designed to reverse Trump’s policies on the US response to the coronavirus pandemic, immigration, climate change, and racial equality.

“Among other moves, he planned to issue a national mask mandate for federal workers and federal property, seek the extension of an eviction pause and student loan relief, rejoin the Paris climate accord, suspend construction of Mr. Trump’s border wall, lift the travel ban on certain predominantly Muslim countries, bolster the program allowing young immigrants brought into the country illegally as children to stay, bar discrimination by the federal government based on sexual orientation or gender identity and impose a moratorium on oil and natural gas leases in the Arctic National Wildlife Refuge,” the New York Times wrote.

While this certainly sends a message that the US is under new management, he is mindful of the wide domestic divide that four years of Donald Trump’s administration incited.

In his Inaugural Address, Biden called on Americans to “…end this uncivil war – red against blue, rural versus urban, conservative versus liberal. We can do this if we open our souls instead of hardening our hearts, if we show a little tolerance and humility, and if we’re willing to stand in the other person’s shoes, as my mom would say, just for a moment”.

“For without unity, there is no peace, only bitterness and fury. No progress, only exhausting outrage. No nation, only a state of chaos.

This is our historic moment of crisis and challenge, and unity is the path forward,” he said.

POTUS 46’s words and immediate actions would help close the divide in America and revive its stature in the global stage.

This is backed by the rise in US equities, with all benchmark indices rallying to record highs; 10year US bond yields slipping; and, the VIX index – the fear gauge – dropping by 7.1% to 21.58 points.

More so this time that the US executive, monetary and fiscal branches of government are united in ensuring a brighter and more sustainable outlook for the US economy.

The Biden administration has proposed a US$1.9 trillion coronavirus relief plan.

US Federal Reserve chair Jerome Powell assured markets that the central bank would not raise interest rates soon unless it foresees rising inflation or imbalances in the economy.

In her confirmation hearing, US Treasury Secretary nominee Janet Yellen declared that with interest rates at historic lows, smartest thing is to “act big” on coronavirus relief to shore up the recovery and prevent economic scarring.

What’s good for the US of A will be good for the rest of the world.

However, Donald Trump’s four years in office has awaken other countries around the world to the reality that they couldn’t forever rely on America’s good graces.

What if Trump, or a Trump mini-me, returns to again disrupt the domestic and international order? fs

Monthly Indicators

Dec-20

Nov-20

Oct-20

Sep-20

Aug-20

Consumption Retail Sales (%m/m)

-

7.11

1.79

-1.52

Retail Sales (%y/y)

-

13.33

7.05

5.17

7.08

13.55

12.39

-1.50

-21.77

-28.78

Sales of New Motor Vehicles (%y/y)

-3.99

Employment Employed, Persons (Chg, 000’s, sa)

-

90.00

180.37

-44.15

163.42

Job Advertisements (%m/m, sa)

-

13.88

11.85

7.45

4.31

Unemployment Rate (sa)

-

6.83

6.99

6.91

6.81

Housing & Construction Dwellings approved, Tot, (%m/m, sa)

-

6.09

3.07

12.14

4.65

Dwellings approved, Private Sector, (%m/m, sa)

-

2.56

3.31

17.41

-1.71

Survey Data Consumer Sentiment Index

112.00

107.66

105.02

93.85

79.53

AiG Manufacturing PMI Index

-

52.10

56.30

46.70

49.30

NAB Business Conditions Index

-

8.82

1.98

0.14

-5.81

NAB Business Confidence Index

-

12.38

3.24

-3.17

-7.64

Trade Trade Balance (Mil. AUD)

-

5022.00

6583.00

5658.00

3109.00

Exports (%y/y)

-

-10.38

-12.80

-20.81

-21.70

Imports (%y/y)

-

-9.51

-20.62

-22.36

-15.72

Dec-20

Sep-20

Jun-20

Mar-20

Dec-19

Quarterly Indicators

Balance of Payments Current Account Balance (Bil. AUD, sa)

-

10.02

16.35

7.23

3.45

% of GDP

-

2.06

3.49

1.43

0.68

Corporate Profits Company Gross Operating Profits (%q/q)

-

3.22

15.84

3.02

-3.71

Employment Wages Total All Industries (%q/q, sa)

-

0.08

0.08

0.53

0.53

Wages Total Private Industries (%q/q, sa)

-

0.53

-0.08

0.38

0.45

Wages Total Public Industries (%q/q, sa)

-

0.45

0.00

0.45

0.45

Inflation CPI (%y/y) headline

-

0.69

-0.35

2.19

CPI (%y/y) trimmed mean

-

1.20

1.20

1.70

1.84 1.60

CPI (%y/y) weighted median

-

1.30

1.30

1.60

1.20

Output

News bites

Domestic new home sales New home sales soared by 91.8% to 13,527 units in the last month of 2020 following a 15.2% increase in November. The Housing Industry Association attributes the second strongest monthly growth in new home sales in the survey’s 20-year history to “HomeBuilder as households finalised contracts to build a new home before the 31 December 2020 deadline to access the $25,000 grant. “The extension of the timeframe to commence building from three months to six, which was announced in November, played a significant role in December’s results”. Continued growth in homebuilding, supported by low interest rates, provide a positive outlook for employment and property prices.

Employment in Australia The Australian Bureau of Statistics’ (ABS) reported that 50,000 workers found employment

Real GDP Growth (%q/q, sa)

-

3.33

-7.03

-0.28

0.39

in December – in line with market expectations – though the monthly addition in jobs has slowed from 180,000 in October and 90,000 in November.

The latest employment number has reduced the total jobs lost this year from more than 922,000 to a little less than 64,000. Full-time employment increased by 35,700 workers while part-time hires grew by 14,300. The unemployment rate to 6.6% in December from 6.8% in the previous month and this comes despite the 0.1 point increase in the participation rate to 66.2% – indicating jobseekers’ confidence over their job prospects. The Reserve Bank of Australia has forecast an unemployment rate of 8.0% for end-year 2020.

Real GDP Growth (%y/y, sa)

-

-3.82

-6.36

1.37

2.16

Industrial Production (%q/q, sa)

-

0.30

-2.91

0.29

0.39

Local consumer sentiment The Westpac-Melbourne Institute index of consumer sentiment declined by 4.5% to a reading of 107 points in January from 112 in the previous month, with all of the index’s five components falling over the month. Westpac explains that: “Since the last survey in the second week of December we have seen domestic border closures; the emergence of COVID clusters in some states; and the sharp upswing in COVID cases overseas, notably the US and the UK,” adding that, “There may also be an element of statistical correction given that the Index had surged by 40% between August and December with the December print reaching its 10 year high. Nevertheless, the January reading indicates optimists still outnumber pessimists.” fs

Survey Data Private New Capex, Total, Chain, Vol, (%q/q, sa) Financial Indicators

- 08-Jan

-3.04

-6.36

-2.04

Mth ago 3 mths ago 1Yr Ago

-3.04 3 Yrs ago

Interest rates RBA Cash Rate

0.10

0.10

0.25

Australian 10Y Government Bond Yield Australian 10Y Corporate Bond Yield

0.75

1.50

1.09

1.03

1.32

1.30

0.82

1.19

2.62

1.57

1.93

3.15

Stockmarket All Ordinaries Index

7024.2

1.47%

11.39%

1.36%

12.63%

S&P/ASX 300 Index

6744.7

1.19%

10.86%

-0.49%

10.77%

S&P/ASX 200 Index

6757.9

1.05%

10.75%

-0.88%

10.24%

S&P/ASX 100 Index

5577.6

1.16%

11.03%

-1.35%

10.63%

Small Ordinaries

3133.6

1.39%

9.67%

6.58%

11.69%

Exchange rates A$ trade weighted index

63.40

A$/US$

0.7782 0.7414 0.7158 0.6856 0.7838

61.50

60.70

60.30

64.90

A$/Euro

0.6349 0.6120 0.6092 0.6165 0.6544

A$/Yen

80.77 77.19 75.89 74.47 88.55

Commodity Prices S&P GSCI - commodity index

427.56

385.52

359.08

431.04

443.76

Iron ore

169.52

145.04

122.46

94.61

78.00

Gold

1862.90 1868.15 1887.45 1571.95 1319.95

WTI oil

52.73

45.64

41.04

59.65

Source: Rainmaker Information /

61.73

Sector reviews

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

Figure 1. Employment growth

Australian equities

6

8.0

ANNUAL CHANGE %

7.0

0 -2

6.5

-4

6.0

-6

5.5

-8

Part-time

-10

Source:

RATE %

7.5

2

Prepared by: Rainmaker Information

CPD Program Instructions

Figure 2. Unemployment rate

4

5.0

Total Full-time

-12

4.5

-14 2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

4.0 2004

2006

2008

2010

2012

2014

2016

2018

2020

Jobs, jobs, jobs Ben Ong

T

heNational Statistician released its latest survey of the domestic labour market … and it was good.

The Australian Bureau of Statistics’ (ABS) reported that 50,000 workers found employment in December – in line with market expectations. Though the monthly addition in jobs has slowed from October and November, it remains a great feat when placed in the context of the resurgence in domestic and overseas coronavirus infections over the month and the Morrison government’s scaling back of its JobKeeper subsidy payments three months earlier.

Even better, the latest stats revealed strong gains in both full-time and part-time employment in December. Full-time employment increased by 35,700 workers while part-time hires grew by 14,300.

International equities

Even better is the decline in the unemployment rate to 6.6% in December from 6.8% in the previous month and this comes despite the 0.1 point increase in the participation rate to 66.2% – indicating jobseekers’ confidence over their job prospects.

This compares with the 8.0% unemployment rate the Reserve Bank of Australia forecast for end-year 2020 and lower than the Treasury’s already lowered MYEFO (Mid-Year Economic and Financial Outlook) prediction for the jobless rate to “peak at 7.5% in the March quarter 2021”.

These wonderful set of numbers could start a virtuous cycle in the domestic economy whereby rising employment boosts consumer optimism, stimulating spending, lifting company sales and profits, encouraging business spending in plant and machinery and staff, stimulating more hiring…

Figure 1. Total COVID-19 confirmed cases

65 THOUSAND PERSONS

60

3000

2000

France

50

Spain

40

Germany

1000

Prepared by: Rainmaker Information

500 0 MAR20 APR20 MAY20 JUN20 JUL20 AUG20 SEP20 OCT20 NOV20 DEC20 JAN21 FEB21

35

Manufacturing

30

Composite

25

Services

20 15 10 JAN18

MAY18

SEP18

JAN19

MAY19

SEP19

JAN20

MAY20

SEP20

Eurozone faces a double-dip Ben Ong

oronavirus infections in Europe varied C from country to country but they’ve surged from around 200-300 cases between June and September to a little below a million by the middle of October.

At the time, European governments resisted re-imposing national lockdowns, underscored

by Factset’s report on 17 October 2020: “Mitigation measures from major EU economies largely focused on limiting social mixing and toughening existing restrictions. France...declared a state of emergency with night time curfews in Paris and eight other cities. Germany also toughened rules on gatherings and curfews for bars and restaurants. The UK’s tiered mitigation system saw more parts of northern England, Northern Ireland and importantly, London facing tighter curbs... Meanwhile, Spain’s Catalonia shut bars and restaurants. Italy did

CPD Questions 1–3

1. How many jobs were added to the Australian economy in December 2020? a) -50,000 b) 50,000 c) 90,000 d) 180,000 2. What was Australia’s unemployment rate in December 2020? a) 6.6% b) 6.8% c) 7.5% d) 8.0% 3. Full-time and part-time employment increased in December 2020. a) True b) False

CPD Questions 4–6

45

UK

MID-OCTOBER

Source: Australian Budget Papers 2019-20 /

Australian equities

International equities

INDEX

55

Italy

1500

Australia’s successful containment of the coronavirus outbreak, less impulsive policy-making in the White House, and the wealth effect brought about by the rebound in the property and stock markets should provide additional growth impetus for the Australian economy.

This, in turn, could also limit the amount and duration of government support measures, limiting the strain on the government budget and the national debt.

You can’t please everyone. The Australian Financial Review prints that: “The materially stronger than expected economy raises the risk that the RBA does not announce the extension of its QE and YCC [Yield Curve Control] programs as we expect, especially if the surge in activity is accompanied by a sharper decline in unemployment,” UBS’ George Tharenou said.

“Risk”? Isn’t organic growth much better than gasping on life support? fs

The Financial Standard CPD Program has been developed for professionals governed by the Corporations Act 2001 and hold an AFS Licence which provides an obligation to undertake continuous professional development (CPD). Test your knowledge with the following questions.

[See next page for instructions on how to submit your answers].

Figure 2. IHS/Markit Economics Eurozone PMI

3500

2500

29

the same for many regions and strengthened existing social distancing and face covering rules.

The Netherlands entered a partial lockdown.

Central Europe, which had been spared in the March-April wave, saw big spikes in cases.”

We know what happened thereafter, virus infections (including from the new variant) got out of hand. So much so, that Eurozone member states and the UK are now tightening and/or extending mitigation measures. As per Factset: “France expanded a daily 12-hour curfew nationwide… while German Chancellor Merkel said she was leaning toward a tougher lockdown, which could last until April. Italian officials also strengthened mandates for virus curbs and eyed an easing won’t occur until the spring.

In Spain, regions are toughening rules for gatherings, traveling and restaurant opening times.”

This is complicated by the slow distribution of the COVID-19 vaccine and some scepticism

over its effectiveness that, in turn, are weighing on business activity.

The latest IHS Markit Eurozone Composite PMI showed that although overall activity improved from the six-month low reading of 45.3 in November, it remains in contraction (below 50) to 49.1 in December, dragged down by the fourth straight month of contraction in the service sector to 46.4 due to the negative effects of social distancing and travel restrictions on activity. New orders declined for the fifth straight month in December, along with exports and employment.

This was partly offset by the stronger manufacturing PMI – up from 53.8 in November to 55.2 in the following month – the highest level since May 2018 – supported by gains in new orders and new export orders.

The longer the Eurozone gets on top of the resurgence, the longer the lockdowns, the greater the risk of a double-dip recession. fs

4. Which country had been experiencing a resurgence in coronavirus infections since late 2020? a) Germany b) France c) Italy d) All of the above 5. What contributed to contraction in the IHSMarkit Eurozone Services PMI in December? a) New order b) Exports c) Employment d) All of the above 6. The IHS/Markit Eurozone Manufacturing PMI increased in December. a) True b) False

30

Sector reviews

Fixed interest CPD Questions 7–9

7. What was Japan’s annualised GDP growth rate in the September 2020 quarter? a) -8.3% b) -10.2% c) -29.2% d) +22.9%

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

Fixed interest

Figure 1: Japanese real GDP growth PERCENT

9. The BOJ remains optimistic over the outlook for the economy. a) True b) False Alternatives CPD Questions 10–12

10. What is iron ore’s highest price on record? a) US$169.97/tonne b) US$191.70/tonne c) US$197.69/tonne d) US$200.00/tonne 11. What was Chinese GDP in the year to the December 2020 quarter? a) 3.5% b) 4.9% c) 6.1% d) 6.5%

THOUSAND PERSONS

THOUSAND PERSONS

400

5

7.0

0

6.0

-5

5.0

-10

4.0

200

-15

3.0

150

Quarterly

2.0

100

Annual

1.0

50

0.0

0

Annualised quarterly growth rate

-25 -30

2012

8. How much has the Japanese government spent in pandemicrelated stimulus so far? a) US$1 trillion b) US$2 trillion c) US$3 trillion d) US$4 trillion

8.0

-20

Prepared by: Rainmaker Information Prepared by: FSIU Source: Sources: Factset

Figure 2: Japan confirmed COVID-19 cases

10

2013

2014

2015

2016

2017

2018

2019

2020

2021

350 300

New daily cases -LHS Total

250

MAR20 APR20 MAY20 JUN20 JUL20 AUG20 SEP20 OCT20 NOV20 DEC20 JAN21 FEB21

Japan’s second state of emergency Ben Ong

T

he worst of the pandemic appeared to have passed when Yoshihide Suga took over from Shinzo Abe – who resigned for health reasons – as Japan’s prime minister on the 16th of September 2020.

The number of daily new cases, active cases and daily deaths were trending down after peaking in August, justifying the lifting of the “state of emergency” on May 25 - a month and a bit after it was put in place on April 16. This, along with fiscal and monetary policy support, has allowed the economy to slowly recover.

Japanese GDP surged at an annualised rate of 22.9% in the September quarter (from a 29.2% plunge in the previous three-month period); it’s up by 5.3% quarter-on-quarter (from -8.3%) and its year-on-year rate of contraction has eased to minus 5.8% from negative 10.2% in the June quarter.

Manufacturing and service sector activity – as measured by the au Jibun Bank Japan PMI

Alternatives

– rebounded from the record lows recorded in April last year.

The sun was finally rising in Japan … that is, until the third wave when number of daily new cases, active cases and daily deaths began rising sometime around late November/early December last year.

This prompted the Suga administration to announce a third stimulus package worth around US$708 billion, that includes about ¥40 trillion (US$384.47 billion) in direct fiscal spending and initiatives targeted at reducing carbon emissions and boosting adoption of digital technology.

This new spending brings Japan’s total pandemic-related stimulus to around US$3 trillion (60% of GDP).

But Japan may need to spend more to mitigate the expected slowing in consumption and business activity following the declaration of a second “state of emergency”.

Prime Minister Suga declared a state of emergency in Tokyo and three surrounding prefec-

Figure 2: China GDP & Iron ore price

Figure 1: Iron ore price

12

180

200 ANNUAL CHANGE %

US$/MT

US$/TONNE

160

8

140

12. There had been a resurgence in coronavirus infections in at least 11 regions in three provinces in China. a) True b) False

tures on the 7th of January and extended to an additional eight prefectures on the 14th of the same month.

However, Bank of Japan (BOJ) governor Haruhiko Kuroda is more optimistic. In his opening address at the quarterly regional branch managers meeting that, “Japan’s economy is picking up, although conditions remain severe due to the impact of the pandemic” and indicated that the BOJ’s economic assessment remains unchanged despite the government’s latest state of emergency declaration.

Hoping for the best: “…the country’s economy will likely head for a recovery as the impact of the coronavirus pandemic gradually subsides.”

But prepared for the worst: “…the Bank will closely monitor the impact of COVID-19 and will not hesitate to take additional easing measures if necessary, and also it expects short- and long-term policy interest rates to remain at their present or lower levels.” fs

160 140

120

4

120 100

100

0

80

-4

40 20

2013

80 60

60

Prepared by: Rainmaker Information Prepared by: FSIU Source: IEA / Sources: Factset

180

China GDP

40

Iron Ore -RHS

2014

2015

2016

2017

2018

2019

2020

2021

20

-8 2011

0 2013

2015

2017

2019

2021

Iron ore is hot Ben Ong

T

Go to our website to

Submit

All answers can be submitted to our website.

he price of iron ore continues to rise and rise.

It’s up by another 9.1% in the first half of the first month of 2021 to US$169.97/metric tonne after soaring by 70.3% last year, sending it closer to the record high of US$191.70/ metric tonne it reached almost a decade before (February 2011).

The rise and rise in iron ore is largely due to China’s – the world’s biggest consumer – strengthening economy.

Chinese GDP expanded by 6.5% in the year to the December 2020 quarter – better than consensus expectations for a 6.1% gain and accelerating from the third quarter’s 4.9% annual rate. The National Bureau of Statistics (NBS) noted that the acceleration in economic growth came mostly from mining, while manufacturing grew at steady pace, with 35 out of 41 major industries contributing positively.

This is punctuated by the higher than expected increase 7.3% year-on-year increase in industrial production in December 2020 – a sharp improvement from the 1.1% contraction recorded in March last year.

Rising industrial production equals rising industrial demand. According to mining.com, “the country produced a record 1.05 billion tonnes of steel, a breakthrough as it is the first time the 1 billion mark has been exceeded”.

China’s iron ore imports rose by 1.17 billion tonnes in 2020, beating the 1.08 billion tonnes recorded in 2017.

The recent resurgence of coronavirus infections in at least 11 regions in three provinces in China, which had prompted authorities to impose restrictions and lockdown measures to stem the spread of the virus, could again slow economic activity, as it did in the first quarter of last year.

As at January 13, China’s National Health Commission (NHC) reported a total of 115 new confirmed cases, up from 55 cases in the previous day and the highest daily increase in infections since July.

In response, the Global Times wrote that local authorities in northeast China’s Heilongjiang province have imposed a lockdown in its five regions, while the Jilin province imposed restrictions in its two regions.

China’s quick and draconian response would again bring the new outbreak under control just as it did in 2020. This, along with the still disrupted supply chains in still highly infected iron ore exporters – namely, Brazil and South Africa – augurs well for iron ore prices.

This would be a godsend for Australia, in terms of economic growth and the budget, if not for the growing Sino-Aussie diplomatic and trade tensions. fs

Sector reviews

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

31

Property

Property

CPD Questions 13–15

Source: Phoenix Portfolios

he S&P/ASX 300 A-REIT Accumulation T Index continued its strong recovery from its March lows, gaining 13.3% over the quarter. Property stocks marginally underperformed broader Australian equities, with the S&P/ASX 300 Accumulation Index adding 13.8%.

As the likelihood of the delivery of a successful COVID-19 vaccine increased, so did the prices of retail property stocks. Scentre Group (SCG) provided a quarterly update in November, with reasonable outcomes including September quarter foot traffic of 90% compared to the same time in 2019 (excluding Victoria) and occupancy of 98.4%.

The key underperformers during the quarter were those with lower risk income streams, supported by longer weighted average lease expiries (WALEs). These REITs outperformed earlier in the year as risks around the effects of restrictions implemented to supress the spread of COVID-19 were less impactful to this property type. Similarly, positive news surrounding COVID-19 vaccine development is also less relevant for these exposures.

A-REITs continue to recover despite market headwinds Stuart Cartledge, managing director, Phoenix Portfolios

Office property owners broadly moved higher over the quarter, but could not keep up with the broader, strongly performing property sector.

Suburban office owners performed mostly in line with their larger counterparts.

Strength in residential property markets supported developers, as sales rates and pricing appeared robust over the quarter. Stockland added 13.6% and Mirvac Group moved 23.3% higher.

Smaller developers also performed well.

Since the onset of COVID-19, the listed property sector has been amongst the most volatile core asset classes both domestically and globally. The 35.1% fall of the S&P/ASX 300 Property Accumulation Index in March 2020 has been followed by a swift recovery, with the sector now almost back to its value as at the end of February 2020.

Such extreme volatility can partly be explained by the uncertain impacts of the crisis, where a once very forecastable sector had suffered from the withdrawal of earnings guidance, expected cuts to contracted rents in support of tenants and a renewed focus on balance sheets and the cost and availability of debt. In many cases, a strong

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

recovery is now priced into securities, however this varies significantly across the sector.

Phoenix remains cognisant of the structural changes occurring in the retail sector with the growing penetration of online sales and the greater importance of experiential offering inside malls. Recent events will likely accelerate these changes. Furthermore, in the short term, discretionary retail sales are likely to be driven by government stimulus and may be highly varied across retailers and dependent upon social distancing restrictions.

As COVID-19 passes, and earnings become more forecastable again, the market will be able to refocus on a resilient sector that is likely to continue to be supported by low bond yields for the foreseeable future.

While the risk of inflation currently seems remote, the enormous fiscal stimulus and extreme monetary policy setting that we now live with, increases the risk of inflation over the medium term. Historically, real assets such as property and infrastructure have performed well during inflationary periods. fs

Download

+61 2 8234 7530

michelle.baltazar@financialstandard.com.au

Editorial Jamie Williamson Karren Vergara Kanika Sood Elizabeth McArthur Eliza Bavin Annabelle Dickson

+61 2 8234 7562 +61 2 8234 7541 +61 2 8234 7519 +61 2 8234 7553 +61 2 8234 7516 +61 2 8234 7570

jamie.williamson@financialstandard.com.au karren.vergara@financialstandard.com.au kanika.sood@financialstandard.com.au elizabeth.mcarthur@financialstandard.com.au eliza.bavin@financialstandard.com.au annabelle.dickson@financialstandard.com.au

Research Alex Dunnin John Dyall Benjamin Ong

+61 2 8234 7508 +61 2 8234 7551 +61 2 8234 7563

alex.dunnin@financialstandard.com.au john.dyall@financialstandard.com.au benjamin.ong@financialstandard.com.au

Advertising Stephanie Antonis

+61 2 8234 7547

stephanie.antonis@financialstandard.com.au

Client Services Kayleigh Sotto Corona

+61 2 8234 7524

clientservices@financialstandard.com.au

Design & Production Samantha Sherry Jessica Beaver Shauna Milani

+61 2 8234 7564 +61 2 8234 7536 +61 2 8234 7542

samantha.sherry@financialstandard.com.au jessica.beaver@financialstandard.com.au shauna.milani@financialstandard.com.au

Subscriptions & CPD program Julian Clarkstone Giovanni Munoz

+61 2 8234 7514 +61 2 8234 7537

julian.clarkstone@financialstandard.com.au giovanni.munoz@financialstandard.com.au

15. History shows that real assets tend to perform poorly during inflationary periods. a) True b) False

THE JOURNAL OF SUPERANNUATION MANAGEMENT

Managing Director Christopher Page

+61 2 8234 7501

christopher.page@financialstandard.com.au

The latest edition of FS Super is out now.

CPD Program Instructions

Search: Financial Standard

FS Super

All editorial is copyright and may not be reproduced without consent. Opinions expressed in the Financial Standard are not necessarily those of Financial Standard or Rainmaker Information. Financial Standard is a Rainmaker Information company. ABN 57 604 552 874.

14. Generally, how has the listed property sector fared during COVID-19? a) Its outperformance eclipsed its endFebruary 2020 value b) It has been one of the most stable domestic and global asset classes c) It has been one of the most volatile domestic and global asset classes d) Its underperformance continues to gain momentum

Subscribers can read the Financial Standard newspaper on the go, accessing the very latest news and insights in wealth management.

Director of Media & Publishing Michelle Baltazar

Financial Standard is proud to work with Pegasus Print Group, an environmentally responsible printing company. Pegasus has Forest Stewardship Council®(FSC®) certification, and Financial Standard is printed on paper from well managed forests and controlled sources.

13. What did Phoenix Portfolios find regarding property market performance over the quarter? a) Developers were impacted by weak residential property markets b) Broadly, office property moved lower c) Suburban office owners mostly lagged their larger counterparts d) Developers benefited from strong residential property markets

Each fortnight the Financial Standard will provide you with a selection of CPD questions. You do not have to undertake the CPD program each fortnight.

You can do it as often or as infrequently as you require.

A CPD Activity Statement will be generated and is accessible from our website.

Online access Simply log in using your CPD Program username and password. A record of your CPD work history is maintained for instant online access. You need to have a Principal subscription of Financial Standard to access this service.

For more information please go to our website www. financialstandard.com.au or Freecall 1300 884 434.

32

Profile

www.financialstandard.com.au 8 February 2021 | Volume 19 Number 02

THE NEXT GREAT LEAP Minister for Superannuation, Financial Services and the Digital Economy Jane Hume made a name for herself in financial services. Now, she is establishing herself as a political force to be reckoned with. Annabelle Dickson writes.

ane Hume never intended on being a politiJfollowing cian, even after she joined the Liberal Party the birth of her first child.

Her career in financial services was taking off, having entered the workforce in the peak of the recession in the early 1990s after graduating with a Bachelor of Commerce from the University of Melbourne.

“At that stage, the cadetship programs had shrunk quite dramatically, and I ended up, very reluctantly, as a woman in my early 20s working for my dad,” Hume says.

Her father was a private company broker, and she began her career working on valuations of family companies that wanted to sell, merge or acquire.

By the time Hume was working at National Australia Bank she was able to understand and interpret numbers while also building a narrative around them.

“I think that has served me well, throughout my entire career, whether it be in financial services or in politics,” she says.

Taking a redundancy from Rothschild as Westpac took over in 2002, Hume soon became a mother for the second time; a life event that saw her reassess her aspirations.

“You realise that the future of the country is more important. You want to make sure that you’re doing everything you can to make their futures as good as they can be,” Hume says.

Choosing to study politics, Hume knew what she was passionate about but wasn’t able to articulate why, nor the context behind her beliefs.

Suddenly, she says, she could see the evolution of her beliefs in the thoughts of political and economic philosophers Edmund Burke, John Stuart Mill and Adam Smith.

“I learnt the historical context of my personal motivations and I found that absolutely fascinating,” Hume says.

And Hume was no stranger to politics, with both her parents joining the Liberal Party in the Whitlam era.

“They were quite passionate Liberals and at every election since I was a little tacker, they sent me to hand out ‘how to vote’ cards but I just did it because it was part of the family duty,” she says.

In fact, Hume acknowledges her late father Steve as her professional compass and her mother Louise, a barrister, as her personal compass.

“It was at a time when not many of my friends’ mothers worked. She was the one that made me realise I could do anything, she made me brave,” she says.

While studying, Hume became involved in the Liberal Party, running a campaign, assisting in a state campaign for a local seat and getting involved with the women’s section.

“I didn’t join to become a politician. I joined to become a volunteer and to help the cause,” she says.

“I suppose once you get involved in politics even if it’s just at the edges - the more involved you get, the more it perpetuates. It is cumulative.”

At the same time, she had returned to work at Deutsche Bank as a vice president before moving onto AustralianSuper as a senior strategic policy adviser - but politics remained at the forefront of her mind.

“The Liberal Party was my hobby but I realised quickly that my interest had become a passion, had become an obsession, and eventually became a profession,” she says.

“It was a clear evolution in my politics and while I loved my professional work in financial services, this is what launched my rockets.”

And when the then Victorian Liberal Party president Tony Snell tapped Hume on the shoulder and told her she was the right person to represent the party, she really went for it.

“For someone that senior in the party who I greatly admired, and for whom I had worked as a volunteer for a long time to say, ‘we think you reflect the party that you love so much’, meant a lot,” she says.

The real “sliding doors” moment came for her in the 2016 election when she entered parliament. Hume was the last senator out of the 76 to be elected and got through on a knife-edge.

“By the time they went through all the counting, I was the very last one to get across the line.

I nearly didn’t make it in,” she recounts.

It was during these early years in politics that Hume received a piece of advice that would set in after she was elected: “In politics, nothing is as bad as you think it is and nothing is as good as you think it is.”

Soon she would meet former Liberal senators Kay Patterson and Judith Troeth, who imparted their wisdom and advice to Hume.

Having this support network was pivotal for Hume and in her maiden speech in 2016, Hume reiterated that she will not pull the ladder up behind her.

“I think the most important thing to people is that you’re approachable and accessible,” she says.

“When it all comes down to it, for a Liberal Party politician, it doesn’t matter how good the individual is. You’re nothing without the party.

It’s important to pay it forward.”

After three years as a senator, she was appointed assistant minister in 2019 and was instrumental in introducing plans to remove grandfathered commissions to financial advisers, the Protecting Your Super reforms and extending the time for advisers to complete the Financial Adviser Standards and Ethics Authority exam and, most recently, winding the authority down to introduce a single disciplinary body.

Hume also advocated heavily for the early release of superannuation scheme in 2020.

However, what she didn’t expect to come from this, was what economists refer to as ‘revealed preference’ where people take their money out rather than having it locked up.

“The byproduct of that, was that many of the 3.2 million Australians that did take their money out

In politics, nothing is as bad as you think it is and nothing is as good as you think it is.

Jane Hume

had never even turned their minds to their superannuation before,” Hume says.

In saying that, Hume notes this is an opportunity as Australians are now more engaged with their superannuation than ever before.

“How can we capitalise on this new level of interest and engagement to make the superannuation system more efficient, more effective and more fit for purpose?” she asks.

The first step is Your Future, Your Super legislation slated to come into effect on 1 July 2021.

Hume has been busy reading industry submissions on the proposed reforms; she wants to ensure there is no misunderstanding in the legislation.

“We want to make sure the stakeholders understand the legislation the way it is intended and if we have missed anything, we can fix it,” she says.

Hume was recently promoted to cabinet in a role that sees her also taking on responsibility for the digital economy.

The evolution of the digital economy, she says, raises living standards and productivity and improves the economy.

And without discounting the role of the Treasurer, Hume sees the digital economy as an expansion of the economy.

“There is hardly a section of the economy that is not digital. It is absolutely fascinating to see the original Australian economy being overlayed with digital technology,” she says.

“And we will have a lot more to say on that soon.” fs