Financial Standard vol19 n11

www.financialstandard.com.au

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BlackRock, IFM Investors

Clayton Sills, Mercer

Managed accounts

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Product showcase:

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Feature:

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Allan Gray

Life insurance

Andrew Polson Frontier

News:

Government bonds pose ethical dilemma Annabelle Dickson

he former chief investment officer of the T world’s largest pension fund has suggested investment in Australian sovereign bonds poses an ethical dilemma for ESG-minded superannuation funds, but those same super funds see things differently.

Speaking at the recent Morningstar Investment Conference, United Nations special envoy on innovative finance and sustainable investments Hiro Mizuno was asked what Australian asset owners can do to strive for net zero when the regulatory environment is not favourably inclined to do so.

Mizuno said during his time as chief investment officer at Japanese Government Investment Fund (GPIF) he declined an invitation by the UN Secretary General to join the Net-Zero Asset Owner Alliance.

“How could the public pension fund say, ‘we commit to net zero’ while owning a big chunk of the Japanese government’s sovereign bonds as well as Japanese corporates in our portfolio?” Mizuno said.

Instead, Mizuno told the UN that he needed to work on Japanese government policy to enable the commitment otherwise there would be no environment to support it.

With Australia yet to make any climate commitments, Mizuno pushed local institutions to do the same, but Australian Ethical head of ethics research Stuart Palmer disagrees with the approach.

“Investors shouldn’t be sitting back and waiting for governments to get all the policy settings just right before taking action,” Palmer says.

A recent update to the Centre for Policy Development’s material on the legal opinion by Noel Hutley and Sebastian Hartford Davisstressed that superannuation funds have the ability play a “catalytic role” in supporting the climate transition and should prepare for greater scrutiny of their climate-related governance and risk management.

Palmer agrees and believes super funds play an important role in urging companies and the government to commit to net zero as they invest over a long period and widely across the economy.

“It’s the alignment of wanting to build a better future with the long-term financial interests of investors,” he says.

Australian Ethical Super engages the ethical framework for investing in the government differently to its approach to industry sectors.

“Our key criteria for whether we will or won’t invest in governments is the quality of the democracy and the legitimacy of the government,” Palmer explains.

“It is less about what the policy of the current government is and more about whether there is a robust democracy and the focus as an investor is playing a constructive role in the operation of that democracy and trying to get governments to implement good policy.”

Elsewhere, Active Super also invests in Australian bonds, but for its defensive characteristics.

Head of responsible investment Moya Yip says the fund invests in Australian government bonds, but she would love to see the government echo what other companies are doing in committing to net zero.

“But because we are a multi-asset class portfolio we need to invest in fixed income as a risk management tool. We have green bonds but would like to invest more,” she says.

When it comes to pushing for policy change, Australian Ethical and Active Super share similar approaches.

“We’re talking to ASIC about investment screening, our processes with ESG integration, governance and engagement with specific companies,” Yip says.

“We are members of the Australian Council of Superannuation Investors and we vote on behalf of our members on specific issues that they care about. We’re not activists, we’re active owners.”

Meanwhile, Australian Ethical has a threepronged approach to influencing policy.

The first is by engaging directly with the government through submissions to legislative consultations on climate policy and also through bodies like the Investor Group on Climate Change.

“The second one is sort of trying to influence companies we invest in to play a more constructive role in climate policy debate,” Palmer explains.

“Lastly, just being part of the public conversation and the influence of we can bring to bear on citizens who ultimately are going to vote for governments.”

Yip emphasises that taking these steps to try and change policy is part of a super fund’s fiduciary duty.

“We have a fiduciary duty to our members both to protect the value of the investment from climate change as well as deliver strong member outcomes,” she says. fs

15 June 2021 | Volume 19 Number 11 www.financialstandard.com.au 20 January 2020 | Volume 18 Number 01

Opinion:

Featurette:

Profile:

Group insurance cost declines Karren Vergara

Moya Yip

head of responsible investment Active Super

Despite the spate of superannuation funds increasing the cost of cover, new Rainmaker analysis shows group insurance premiums fell by 7% to a four-year low of $8.7 billion.

The research, conducted over 10 years, also revealed that not-for-profit (NFP) superannuation funds have cut their premiums more aggressively than retail funds, meaning that retail fund members are paying higher-than-average premiums.

Across most age groups, annual insurance premiums for standard cover have increased by 8%.

The standard cover on average is $240,000 for young members and $80,000 for pre-retirees.

“The cost for this cover averages $3.62 per week for a 20-year-old, before hitting a high of $9.16 per week for members aged 55,” Rainmaker said.

During 2020-21, members aged 30 and under saw their premiums increase by $10,000 or 17%. Retail funds have increased premiums by $9000-$17,000 across these age groups.

Continued on page 4

Financial services job market hot Elizabeth McArthur

According to the latest Hays salary guide, a renewed sense of optimism has swept across the accounting and finance jobs markets in early 2021.

Hays found 57% of accountancy and finance employers will increase salaries by up to 3% when they next review. Meanwhile, 68% of accountancy and finance professionals say an increase of 3% or more would better reflect their performance.

While 3% might not sound like much to some, recent Australian Bureau of Statistics data shows wages growth of just 0.6% overall.

The Hays guide is based on a survey of 3500 organisations, representing over 8.8 million employees.

It found that 67% of employers plan to increase salaries in their next review, up from 45% who did so in their last review.

The legal sector topped the list of most generous industries – with 31% of employers planning to award salary increases of more Continued on page 4

News

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

Concern for consumers ahead of YFYS reforms

Editorial

Elizabeth McArthur

Jamie Williamson

A

Editor

What is the difference between theft and fraud?

This was the question the Financial Standard team was found asking itself recently when covering the legal action brought against a former financial adviser who took millions of dollars from people – some of whom were his clients – allegedly under the guise of a business loan and then gambled it away.

The person in question was charged with “dishonestly obtaining financial advantage by deception”.

Under the New South Wales Crimes Act 1900, the key elements of fraud - which is what the person in question was charged with - include acquiring property which belongs to someone else, obtaining some kind of financial advantage, and causing someone else some kind of financial disadvantage.

However, the basic definition of theft as laid out in the Crimes Act of 1958 reads: “A person steals if he dishonestly appropriates property belonging to another with the intention of permanently depriving the other of it.”

In reading that, there seems to be some overlap. This is why, when the person in question was permanently banned, we thought it was fine to run the story with a headline that said $3.3 million had been stolen.

We also thought it was fine because the previous story about the former adviser being charged was similarly headlined and there was apparently no issue with that one.

But after the second story was published, we got a call from a reader who explained that the funds weren’t stolen because they were handed over willingly.

And I see that point – the actual act of taking the money isn’t stealing. But the rest is just semantics, right?

One could sit there all day picking apart the meaning of the word and, depending on how close you are to such a situation, draw different conclusions.

If I had willingly handed my money over to someone, believing they were investing that money in a new business and then discovered that hadn’t been the case and the money was gone, I would feel as though my money had been stolen. I thought it was safe and sound in one place, but it wasn’t.

Acknowledging the legal technicalities, I still think it takes a brave person to posit that “fraud isn’t theft”. What would the average person on the street think? It just doesn’t pass the pub test.

It also reminds me of those Reddit threads and social media posts you sometimes see making the rounds, listing things that are “classy if you’re rich but trashy if you’re poor”.

Could it be that committing fraud is just the classy way of stealing?

Either way, I have learned something from the experience, though I hope it’s not a lesson I’ll be drawing on again any time soon. fs

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The quote

Some total and permanent disability (TPD) and life insurance policies are industry or employer specific.

fter the Your Future, Your Super reforms were passed in the House of Representatives, lawyers have expressed concern consumers may not understand the impact of the changes.

Law firm Slater and Gordon warned that Australians could end up with less insurance coverage or the wrong insurance policy if the stapling reforms are passed into law.

Under the reforms, workers will have one default fund that follows them from job to job.

“Some total and permanent disability (TPD) and life insurance policies are industry or employer specific,” Slater and Gordon practice group leader Sarah Snowden said.

“A policy may exclude jobs deemed as hazardous based on working conditions or offer benefits only to those employed in a specific industry meaning a person who moves into a different role could be ineligible to claim against their own policy after paying premiums if they are injured or ill while working in that role.”

Snowden said consumers must give serious consideration to their insurance policy under the new laws, as now injured workers will not have the multiple insurance policies through multiple super accounts that many currently have.

“People often overlook the fact they have insurance benefits they can access if they become ill or injured and can no longer work, within their super fund. It’s arguably the most cost effective and affordable insurance for people to have and it can be devastating to learn that you are no longer entitled to this insurance,” she said.

It is just one of many criticisms that have been levelled at the reforms.

The Actuaries Institute warned there are fundamental problems with the proposed

regulations, including the test that deals with underperformance.

In a submission to Treasury, the institute said: “The test may, in some cases, be to the substantial long-term detriment of members.”

Actuaries Institute superannuation practice committee Tim Jenkins said asset allocation is disregarded in the test.

“As a result, the proposed performance test leads to some concerning results, including an investment option with top quartile net returns potentially failing the test. Or two investment options having the same overall risk profile and identical net returns after fees yet one passes the test, and the other fails,” he said.

On Thursday, June 3 the YFYS bill passed the House of Representatives.

In doing so, the Best Financial Interest Duty’s proposal to give ministers the power to ban superannuation funds’ investments was dropped.

This was one amendment the Labor Party had pushed for. The others, stapling to exclude dangerous occupations, a deferred start date to stapling and inclusion of choice products in the performance tests, were not made.

Following that, the bill was due to hit the Senate in mid-June.

The Australian Institute of Superannuation Trustees chief executive Eva Scheerlinck welcomed the culling of government’s powers, but said the bill still had flawed measures.

“The amendments to the bill don’t change the fact that this piece of legislation contains fatal flaws that will result in significant unintended member detriment,” Scheerlinck said.

“This bill excludes more than one third of super savings from scrutiny and disclosure and does not prevent members from being stapled to funds that have not been tested or have failed the test.” fs

QSuper, Sunsuper appoint leadership team for merged fund Jamie Williamson

The bulk of the executive lineup that will lead QSuper and Sunsuper post-merger has been named.

In addition to Bernard Reilly as chief executive, eight more executives have been appointed to lead the merged fund following all relevant approvals.

Most notably, Sunsuper’s chief investment officer Ian Patrick will retain his role following the merger. QSuper chief investment officer Charles Woodhouse will serve as his deputy.

QSuper’s chief risk officer Anne Browne will also retain her role, as will Sunsuper’s chief technology officer Rod Greenaway and QInsure chief executive Phil Fraser.

QSuper chief operating officer Karin Muller will take on the role of chief member officer and Sunsuper’s executive general manager, employer growth Dave Woodall has been appointed chief growth officer.

The fund’s strategy will be spearheaded by Teifi Whatley as chief strategy officer. Currently she serves as Sunsuper’s chief strategy and impact officer.

Meanwhile, a chief of staff role has been created,

with Sunsuper’s executive general manager, risk, legal and compliance Lachlan East appointed.

“The appointed executives have the right mix of expertise and experience to deliver outstanding services, greater efficiencies and lower costs for the merged fund’s two million members and their $200 billion in retirement savings,” the funds said.

There is still two more leadership roles to be filled – chief financial officer and chief people officer. An external recruitment process is now underway for these, the funds said.

Naming the leadership team is the latest development in the merger process, which was officially announced in March. This was followed by confirmation that Reilly would lead the merged fund, with current QSuper chair Don Luke as chair of the board.

The board has also been named, comprising Michael Clifford, Bruce Cowley, Mary-Anne Curtis, Andrew Fraser, Mark Goodey, Elizabeth Hallett, Shayne Maxwell, Sandra McCullagh, Beth Mohle, Kate Ruttiman, Michael Traill and Georgina Williams.

It’s anticipated the merger will complete in September this year. fs

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News

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

01: Alex Dunnin

Cost of group insurance declines

executive director, research Rainmaker Information

Continued from page 1 NFP funds on the other hand increased premium values by $2000-$9000 for the same age groups.

The largest group insurance players based on member numbers are TAL (37%), AIA (22%) and MetLife (14%).

ASIC estimates that 86% of superannuation members with insurance are on the default settings.

“Many superannuation members are not even aware that they have insurance through their superannuation, or that they are paying for it.

Those who are aware may be deterred from engaging with their insurance because they find design features, terms and conditions, and pricing difficult to understand,” the regulator’s Default insurance in superannuation report shows.

ASIC’s review of the group insurance market found that two MySuper members will receive different covers at varying prices.

For example, a 30-year-old woman’s total premium varied by 25 times (from $29 to $732 a year) and a 50-year-old man’s varied by 37 times (from $40 to $1480 a year).

Super funds that have increased their group insurance premiums recently include ESSSuper, Media Super and LGIAsuper. However, Australia’s largest fund, AustralianSuper, recently made changes to its insurance offering that saw some premiums decrease. fs

Super fee squeeze continues Kanika Sood

F

ifty-six superannuation products dropped their fees in the March quarter, according to Rainmaker Information’s analysis of 475 product disclosure statements.

Overall, 152 superannuation products updated their PDS’s between January and March 2021. Of this, about 10% (16 products) increased their fees, 37% (56 products) decreased their fees and 53% left their fees unchanged.

The share of superannuation products that lowered their fees, was smaller than the December quarter.

“While a 37% quarterly fee decrease ratio is huge, it’s one-third lower than the 56% ratio it was last quarter. The implication is that there is

AMP sued for charging dead clients fees, premiums for years Jamie Williamson

Financial services job market hot Continued from page 1 than 3%. In accountancy and finance 17% of employers said they would be raising salaries by more than 3%.

“The value of salary increases is driving a wedge between employers and employees,” Hays managing director Nick Deligiannis said.

“On the one hand, we have almost seven in 10 employers planning to increase salaries in the year ahead, which is a remarkable sign of the confidence employers exhibit today. On the other, professionals say the value of these increases is far less than they deserve.”

This gap between what employers will offer and what employees think they are worth must be managed with sensitivity if companies are serious about attracting and retaining talent, he said.

Deligiannis added that talent is in short supply in many sectors right now. For example, there is an increased vacancy rate in financial services as employers add to teams and create new roles.

However, candidate demand has not been met by a similar rise in the number of job seekers.

Hays found employers are aware of a talent shortage, with 64% saying that in the next year skills shortages will impact the effective operation of their organisation or department.

In terms of lingering wage pressure, another recent study, this time from the CFA Institute, found 15% of CFAs had a COVID-related pay cut, 8% had a pay cut for other reasons, and 6% reported an employment status change in 2020.

Those with bigger pay cuts were more likely to expect the reduction to last longer. fs

an overwhelming trend towards super funds lowering their fees,” Rainmaker executive director of research and compliance Alex Dunnin01 said.

Looking at the mix of fee cuts amongst the fee cutters: about a third lowered their administration fees (similar to 30% in previous quarter), about 17% lowered investment management fees (down from 38% last quarter), about 60% decreased ICR (up from 40% last quarter).

Dunnin said the 16 products increasing their fee during the period were a surprise.

“In today’s superannuation policy environment, trustees that increase their fees are brave indeed and should expect a lot of regulatory scrutiny and perhaps a summons to a parliamentary committee,” Dunnin said. fs

The quote

The deceased member had died. There was no longer any life to insure... The deceased member had died.

There was no longer any personal advice to provide.

ASIC has taken Federal Court action against AMP for allegedly charging more than 2000 deceased clients insurance premiums and financial advice fees after being notified of their death.

The action relates to five companies that are or were subsidiaries of AMP between May 2015 and August 2019. These include AMP Superannuation Limited; NM Superannuation Proprietary Limited; AMP Life Limited, AMP Financial Planning Proprietary Limited; AMP Services Limited. AMP Life was part of AMP when the conduct occurred but has since been acquired by Resolution Life.

ASIC alleges the companies deducted life insurance premiums and financial advice fess from 2069 deceased customers’ superannuation accounts despite being notified that the customer had died. This amounted to $500,000 in insurance premiums, at least $350,000 of which was received in the period in question. A further $100,000 was deducted in advice fees, with $75,000 received during the period.

The misconduct was first revealed by the Hayne Royal Commission in 2018, where it was made public that staff were aware deceased client accounts were being charged. According to ASIC’s filing, this conduct continued on for a further 12 months after the Royal Commission wrapped up.

While the conduct actually dates back to 2011, any breaches prior to 2015 are now statutebarred, ASIC said.

According to documents filed by ASIC, in November 2019 AMP notified the regulator that a total of 9308 deceased members had been impacted since 2011. AMP later told ASIC it was 10,155 accounts that were affected.

In a statement to the ASX, AMP confirmed

a remediation program commenced in 2019 found breaches dated back to 2011. The program returned $5.3 million to estates and representatives of deceased customers, including some that are the subject of this action.

ASIC is also alleging the companies failed to ensure a system was in place to prevent this from happening, and failed to ensure that a system was in place to manage conflicts of interest between the AMP companies’ interests and members’ interests. This, despite super members paying administration fees to enable the correct administration of their account, ASIC pointed out.

“Members had died and were thus unable to take steps to remedy this conduct. Member representatives who were responsible for administering the members’ estate were likely coming to the member’s superannuation product for the first time, and thus unlikely to be aware of the terms and conditions governing the member’s superannuation product,” documents filed by ASIC read.

“Some representatives (such as partners, family members or friends) were likely to be transacting at a time of distress. Members and their representatives were thus dependent on the defendants having adequate systems and procedures for ensuring that premiums and advice fees were not deducted following a member’s death.”

ASIC added that AMP and its subsidiaries had no reasonable grounds for believing they could supply life insurance or personal advice to the members in question “at any time or at all”.

“The deceased member had died. There was no longer any life to insure... The deceased member had died. There was no longer any personal advice to provide,” the regulator pointed out.

AMP and the businesses contravened their obligations as licensees. fs

News

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

Dexus, Australian Unity partner

01: David Lamming

chief executive Plenary Group

Kanika Sood

Dexus is investing $180 million in an Australian Unity property trust, as it looks to tap into the latter’s pipeline of healthcare property assets.

The Australian Unity Healthcare Property Trust holds 67 properties and is valued at $2.3 billion.

Dexus has come on board as a cornerstone investor in AUHP’s $320 million raise announced on June 8, with a $180 million investment.

Dexus will hold 7% of the pro forma issued equity in AUHPT and bought at $2.60 per unit, or a 16% premium to current net asset value.

It will also have the opportunity to participate in the AUHP’s $1 billon pipeline of greenfield and brownfield development opportunities.

“We are confident in the outlook for healthcare real estate and the investment in AUHPT provides us with an efficient way to increase our exposure to this attractive asset class at an appealing price,” Dexus chief executive Darren Steinberg said.

“The broader relationship with Australian Unity provides an opportunity for us to accelearte our growing footprint in healthcare real estate and provides our funds and third party partners with additional investment opportunities.”

Dexus said it will still push ahead with its own $1.1 billion Dexus Healthcare Property Fund. It expects the Australian Unity investment to be accretive to FY22 adjusted funds from operations and distributions per security.

Australian Unity is offering the remaining of $320 million raise as: a $120 million entitlement offer to existing AUHPT unitholders, and a $20 million placement to the AUHPT’s responsible entity AUSH. There is also a premium cash offer (PCO) priced at $1.4 to $2.29 per AUHPT unit for investors looking to get out of the trust.

It’s been a big few months for Dexus, with the company recently acquiring APN Property Group.

Dexus will acquire all of APN Group’s stapled securities in a bid that values the latter at about $320 million.

Dexus will pay 91.5 cents per APN stapled security in cash.

“We believe the combination of the two businesses will provide incremental growth opportunities for the APN business as well as its underlying funds, investors and our team members...” APN chair Chris Aylward said.

“This transaction supports our strategic initiative of expanding and diversifying our funds management business, increasing our suite of funds on offer outside of wholesale funds into listed REITs, real estate securities funds and unlisted direct property funds, The transaction also expands our investor network to include retail and high net worth capital,” Dexus chief executive Darren Steinberg said. fs

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Plenary enters local funds management market Annabelle Dickson

P The quote

Our expansion into funds management is a natural evolution in the development and growth of our infrastructure activities.

lenary Group has appointed AMP Capital’s global head of social care to lead its new funds management business in Australia and New Zealand.

Julie-Anne Mizzi has over 30 years’ experience in financial services having spent most of her career at AMP, spending much of that time leading the growth of AMP Capital’s Community Infrastructure Fund.

She was previously head of strategy before going onto investment director, social infrastructure and PPPS and later principal, head of social infrastructure and aged care.

In her new role, Mizzi will establish and grow Plenary’s boutique funds management business while complementing its current infrastructure investment and management activities.

Plenary is an independent long-term investor, developer and manager of public infrastructure with 19 assets under management worth more than $23 billion in Australia.

“Our expansion into funds management is a natural evolution in the development and growth of our infrastructure activities,” Plenary chief executive David Lamming01 said.

“We couldn’t be more pleased to have JulieAnne join us to lead this arm of our business – there is nobody better placed to lead a boutique funds management business focused on the infrastructure space.”

Mizzi’s move to Plenary follows the group expanding its local property team.

The group hired four from John Holland with a combined 80 years of experience. fs

ASIC bans adviser over $5m fraud Elizabeth McArthur

ASIC has permanently banned former Sentinel Wealth financial adviser Gavin Fineff, after he was charged with misappropriating between $3.3 and $5 million of client money.

On May 7, Fineff was arrested and charged by New South Wales Police with 18 offences of dishonestly obtaining financial advantage by deception.

Now, ASIC has permanently banned him and has suggested that Fineff may have sourced more than $5 million from clients and individuals as loans.

Fineff had a gambling addiction and allegedly gambled these funds, without the knowledge or consent of clients, and lost a significant amount.

ASIC also found Fineff was providing financial services outside of his authorisation from Sentinel and that he also acted in conflict with Sentinel - even competing with Sentinel.

The regulator found Fineff breached financial services laws by failing to act in the best interests of clients and engaging in unlicensed conduct.

Concluding that Fineff was likely to breach financial services law in the future, was not adequately trained and was not a fit and proper person to provide financial services,

OUTPERFORMANCE OVER THE LONG TERM. Join the pursuit at pgimfixedincome.com For Professional Investors Only. All investments involve risks, including the possible loss of capital. 2021-1588

ASIC said a permanent ban was necessary.

Fineff has the right to appeal ASIC’s decision to the AAT. His banning and arrest comes almost a year after Sentinel first lodged a breach notification with ASIC in relation to Fineff’s behaviour on 25 March 2020.

Sentinel managing director Justin Hooper said in a statement: “Gavin informed me of the allegations on Saturday 14th March 2020. I suspended him on the spot pending an investigation. Following that investigation that took a week, I sacked him. He had worked for us for 10 years.”

Hooper added that Fineff entered into personal loans with a number of people, some of whom were clients.

“No client accounts were breached. The lenders transferred money from their personal bank accounts to his personal bank account,” he said.

“In almost all of the cases we have seen, he had signed loan agreements in which there was a specific clause saying the arrangement was not approved by us and offered very large interest rates. The one thing he did do was make it abundantly clear to his victims that the arrangements they were entering into with him that are now the subject of the prosecution had nothing to do with the company.” fs

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News

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

GIC to open Sydney office

01: Rimmo Jolly

head of Asia Pacific BlackRock iShares

Kanika Sood

Singapore’s $708 billion sovereign wealth fund will open an office in Sydney, as it looks to increase its focus on Australian investment opportunities.

The Sydney office will be GIC’s 11th internationally.

The fund said it will look for opportunities in various sectors and partner with businesses with long-term growth prospects, especially its private markets capabilities.

“We are confident in the long-term growth of the Australian market and believe that an on-theground team will enhance our ability to capture more investment opportunities in this dynamic market,” GIC chief executive Lim Chow Kiat said.

“We are already very pleased with our existing portfolio in Australia, especially in real estate.

We believe the new office will better support the management of our existing assets and increase interaction with local partners so we can generate more value-add together.”

GIC was established in 1981 and has US$550 billion in assets under management, according to Global SWF which tracks 400 sovereign wealth funds and public pension funds. fs

Madison appoints general manager Karren Vergara

The head of advice at Madison Financial Group has been promoted to the role of general manager in a newly created role.

Jaime Johns takes on the new role after leading the advice unit for two years. She joined the group as national manager advice and business consulting in November 2015.

Her experience includes working across mergers and acquisitions for financial planning practices, business coaching and product development.

Prior to joining Madison, Johns was national network manager at Capstone Financial Planning.

She also worked at ING, AXA, Bendigo and Adelaide Bank, Genesys Wealth and AMP. ASX-listed Clime Investment Management acquired Madison in June 2020.

At the time, Madison had about 100 advisers with $3 billion in funds under advice and total in-force insurance premiums of $65 million.

Johns effectively leads Madison, which was previously former chief executive Annick Donat’s responsibility. Donat was recently appointed chief executive of Clime.

Donat said: “With her deep industry knowledge and experience, commitment to advice and the Madison community, Jaime is a well-respected leader and a natural choice for the role.”

Donat led Madison for about three years prior to the acquisition.

“The integration of Madison into Clime has been highly successful and enhanced our ability to support our adviser community,” Johns said.

Having spent over five years with the business, “it has been pleasing to see the success of our existing advice network, and our focus will now be on enhancing our offering and growing our client base to ensure more people are receiving best in class financial advice,” she said. fs

BlackRock unifies offering, rejigs executives Annabelle Dickson

B

The quote

We are pleased to be able to promote from within and expand the roles of our senior leaders to deliver bespoke solutions to our clients.

lackRock Australia is combining its client business and iShares teams to deliver whole portfolio solutions to its clients and reshuffled its executives in the process.

According to the investment giant, the bringing together of the teams will bring a holistic solution-based approach to the delivery of BlackRock’s capabilities to clients.Under the restructure, James Kingston will take on the expanded role of head of iShares Australasia while maintaining his current responsibility as head of APAC portfolio analysis & solutions.

With the iShares role, Kingston takes over from Christian Obrist who has been promoted to lead iShares distribution Asia ex-Japan out of Hong Kong.

BlackRock head of wealth and banks Chantal Giles has been appointed to the expanded role of head of iShares Wealth Australasia. She will lead a team responsible for the distribution of BlackRock’s index and iShares offering and portfolio services to wealth management, bank and platform clients.

Further to this, director of product strategy Eleanor Menniti will take on the newly created role of head of client product strategy and consultant relations.

She will focus on the distribution strategy

behind the design and delivery of BlackRock’s product capabilities and solutions to the Australian wealth market and manage the team responsible for relationships with retail asset consultants and research houses.

“As we evolve our business to reflect changing market dynamics and client needs, we are pleased to be able to promote from within and expand the roles of our senior leaders to deliver bespoke solutions to our clients,” BlackRock head of client business Australasia Jason Collins said.

“Our ability to work with clients across a range of investment types – index, active, multi-asset and alternatives – and deliver this via various structures, gives BlackRock a unique ability to partner with firms as they seek to curate and provide leading investment options to their end clients.” iShares head of Asia Pacific Rimmo Jolly01 added: “It’s exciting to see clients across the region increasingly turning to BlackRock to be their partner of choice for iShares ETFs as portfolio building blocks and whole portfolio solutions.”

The latest development follows the appointment of Rachel Lord chair and head of Asia Pacific, joining from her role as head of Europe, the Middle East and Africa. She commenced the role in May. fs

IFM Investors named in class action Elizabeth McArthur

IFM Investors has been named in a class action regarding the Colonial Pipeline, which the industry fund investment house acquired in 2007 as part of a consortium.

The class action was filed in the United States District Court in the Northern District of Georgia with Ramon Dickerson as the lead plaintiff.

Along with IFM, CDPQ Colonial Partners, KKR-Keats Pipeline Investors, Koch Capital Investments, Shell Midstream Operating were also named as defendants – with the entities collectively doing business as the Colonial Pipeline Company.

The Colonial Pipeline supplies the east coast of the US with petroleum and is a critical piece of infrastructure, transporting around 2.5 million barrels of gasoline, diesel fuel, heating oil and jet fuel per day.

On 7 May 2021, a ransomware cyber attack shut down the Colonial Pipeline. The entire east coast of the US was deprived of its normal supply of petroleum.

To secure the pipeline, US$4.4 million worth of bitcoin was paid to a hacking group which the Federal Bureau of Investigations named Darkside.

The class action claims that Colonial Pipeline Company failed to properly secure the infrastructure and left itself open to potential ransomware attacks.

“The defendant’s unlawfully deficient data security has injured millions of consumers in the form of higher gas prices, and gasoline shortages that exist/existed, due to Colonial’s decision to effectively turn off the pipeline,” the action alleges.

While the pipeline supplies whole airports with jet fuel, the lead plaintiff in this case is a consumer who paid more for petrol as a result of the shutdown than he otherwise would have.

Ramon Dickerson purchased petrol on May 7, May 8, May 9 and May 10 in Fayetteville and Greensboro, North Carolina. Each of these purchases were inflated as a result of the shutdown of the pipeline, the action alleges.

“For the first time in six years, the average price of a gallon of gasoline in the United States exceeded [US]$3 – and this was due to the defendant’s failure to adequately protect their IT systems and then shut down the Colonial Pipeline,” the action claims. fs

Wealth Management Roadshow

The Advisers Big Day Out (ABDO) Wealth Management Roadshow is part of Financial Standard’s professional development series, attended by 2000 financial advisers around the country each year.

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8

News

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

PRI chief executive resigns

01: Eric Blewitt

chief executive AUSIEX

Elizabeth McArthur

The chief executive for the United Nations Principles for Responsible Investment has stepped down after being in the role for almost a decade.

Fiona Reynolds has been chief executive of the PRI since 2013. She joined the responsible investing group after previously leading the Australian Institute of Superannuation Trustees as chief executive between 2006 and 2013.

In Reynolds’ time with the PRI, it has grown from 1000 signatories to 4000. The PRI now claims to represent more than half the world’s institutional assets.

It also grew from a staff of 37 to 170 under Reynolds’ leadership.

Reynolds said that being in London, away from her home country of Australia, during her time leading the PRI has been challenging on a personal level.

“The COVID-19 pandemic has made this more difficult in many ways, particularly with the ongoing closure of borders, and so has hastened my decision. The trade-offs of not being able to spend time with my family, or even being able to reach them if I needed, have simply become too high for me,” she said.

“Of course, if it was viable to maintain my role as chief executive from Australia I would, but this is not practical or indeed possible. And so, the time has come to pass on the baton to the next passionate leader in responsible investment.”

Reynolds said an orderly transition will be her top priority and she will maintain her position until the new year. fs

AUSIEX launches, announces leadership team Karren Vergara

C

The quote

With unrivalled expertise, scale and heritage, and a fantastic team of industry specialists, AUSIEX will continue to provide solutions...

ommonwealth Bank’s former trading platform for financial advisers, now known as AUSIEX, has unveiled its executive lineup after being acquired by a Japanese firm.

CommSec Adviser Services (CAS) has rebranded to AUSIEX (Australian Investment Exchange) and is led by chief executive Eric Blewitt 01, who previously served as the general manager of CAS for over eight years.

Formerly the head of distribution of CAS, Andrew Stewart is the new head of product and sales of AUSIEX. Matthew Tilley shifted from head of trading and client services to the head of markets and client solutions.

The rest of the executive team includes Amanda Heard as head of customer experience and marketing; Karin Maltby as head of market operations; Hiroki Shimada as head of strategy and Mark Pace as head of technology.

Blewitt commented: “With unrivalled expertise, scale and heritage, and a fantastic team of industry specialists, AUSIEX will continue to provide solutions to the operating challenges facing financial institutions and intermediaries across Australia.”

Tokyo Stock Exchange-listed Nomura Research Institute flagged its intentions to acquire CAS in April 2020. CAS is separate to CommSec’s retail broking business.

On 1 May 2021, AUSIEX separated from CBA to operate independently, providing trading, asset management solutions, and wholesale brokerage that includes equities execution and administration services, as well as clearing and settlement services.

In June, it partnered with LAB Group for a white labelled client-onboarding solution.

LAB Group will accelerate registration and enable electronic identity verification for individuals, companies and self-managed superannuation funds. fs

Paraplanners jump on platform

Future Fund to expand investment team with 70 new hires

Elizabeth McArthur

Kanika Sood

A platform that connects financial advisers to paraplanners has onboarded over 250 users in the short time since it launched.

Tanngo is streamlining the way advisers source paraplanning staff, growing to 140 advisers and 120 paraplanners since it set up shop 18 months ago.

Founder Melanie Drago said she launched the platform in an effort to eliminate the many pain points she experienced working as a paraplanner.

Tanngo is the only platform of its kind in Australia, Drago told Financial Standard, adding it is similar to AirTasker in that advisers can get work done immediately.

Advisers can log into Tanngo, list jobs with deadline dates and receive quotes from paraplanners.

The adviser and paraplanner then rate each other on three metrics: the quality of work, timeliness and if the parties will work with each other again.

One advantage the platform gives paraplanners is that they are paid for their services upfront, which is currently not the case as many typically wait for lengthy periods to be remunerated, Drago said.

Drago is an experienced paraplanner, having previously worked at AMP, ANZ and AXA, as well as boutique firms, across roles that covered advice solutions, documentation, technology integration and customer service. She launched the Paraplanner Hub three years ago, a community of paraplanners with about 1200 members. fs

The sovereign wealth fund is looking to add 70 people to its investment team, with the specific skill sets of identifying good external managers.

Appearing at senate hearings, Future Fund chief executive Raphael Arndt and chief investment officer Sue Brake confirmed the additional hiring.

The Future Fund requested and was granted an increase in its average staffing levels (ASLs) from 196 to 350 which is 79% higher, on the back of a more challenging investment environment and needing internal operational infrastructure.

Arndt said nearly half of the ASL increase of 154 will go towards hiring on the investment team. Future Fund does not manage any money internally, all of it is allocated to external managers.

The additional hiring will take the investment team from about 80 to 150.

The remaining hires will be split across operations that support the investment team (data and technology), and company-wide infrastructure such as leadership training and upskilling.

Arndt said the old ASL was set a few years ago, and the Future Fund has since added other funds to its remit. “…since that time we have received a number of new funds to manage. So, our internal operating environment has become more complex.”

“The investment environment is more challenging, and we think that to be able to meet our mandates in the periods ahead, we need to ramp up our activity in a number of areas particularly what are called alpha seeking strategies…so we need more staff to do that,” he said, referring to external manager selection.

“Thirdly, we feel like we need to get better at adjusting the portfolio because of these significant changes in markets and volatility we expect to occur going forward.”

Brake said for the investment hires, Future Fund will be looking to individuals who can identify alpha-generating external managers and also manage the assets once they are on Future Fund’s books.

The government has kept the Future Fund’s CPI plus return target unchanged, even as low interest rates affect returns from various asset classes and reflation fears make a comeback.

Arndt said majority of the hires are likely to be in Melbourne, where Future Fund is based with the rest in Sydney as required.

Earlier in the hearings, Arndt addressed inflation concerns.

“Policy settings continue to support markets for the time being. But this is priced into assets and unwinding these measures will be a complicated exercise,” he said. fs

Product showcase

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

9

01: Julian Morrison

head of research relationships and national key accounts Allan Gray Australia

Sometimes, less is more

Keeping it simple can lead to better outcomes – just ask Allan Gray Australia f there’s one thing that everyone knows about Ifinancial investing, regardless of their income or their literacy, it’s that to outperform cash you have to take on some risk; much like death and taxes, it can be difficult to avoid.

But, contrary to popular belief, beating cash doesn’t need to be complicated.

And that’s exactly what Allan Gray does – relishes in the contrary.

It also takes a cue from Albert Einstein, who famously said: “Everything should be made as simple as possible, but not simpler.”

For Allan Gray head of research relationships and national key accounts Julian Morrison, the simplicity of the Allan Gray Australia Stable Fund is its biggest drawcard.

Benchmarked to the Reserve Bank of Australia cash rate, the fund’s core objective is to outperform cash with less volatility than the Australian sharemarket.

“In trying to do that, many other strategies and funds that are available would be considered absolute return funds or cash plus funds, and many of the strategies employed in those funds are more complicated. It’s worth considering whether complexity is necessary to achieve that,” Morrison says.

“Funds may use derivatives, they may use options within that space, have long-short strategies and so forth. Each of these has their benefits, but we think one of the strongest features of the Stable Fund is its simplicity.”

Rather than using derivatives or gearing, the Allan Gray Australia Stable Fund uses cash as the defensive mechanism and selected Australian shares are used to add the majority of upside, according to the fund manager’s contrarian approach, which finds value in shares that others overlook or undervalue.

In doing that, Allan Gray is conscious that all investments are going to get challenged at one time or another, regardless of what they are.

“When that happens, we think it’s important for all financial advisers to have a clear understanding of the fund and what’s driving its performance so they can explain it to themselves and their clients, and we think that can be a lot more difficult with a more complicated approach and structure,” Morrison says.

It’s this careful balance between cash and domestic stocks that helps the fund in its aim to achieve a more stable return than a complete allocation to shares.

“Often funds will take a more complicated approach, or they will passively combine a set of different asset classes, hoping they will all balance each other out,” Morrison says.

Allan Gray takes a different approach, he says,

with the fund able to be fully invested in cash, but able to allocate up to 50% in ASX-listed securities; it all depends on valuations.

“We will look to selectively add attractive shares when the price is low and shy away from them when they run up in price,” he explains.

“Then it’s a matter of looking at all the opportunities we see and determining how many of those we should have versus cash, given the risk versus value we see in shares.”

As at May end, about 32% of the fund was invested in shares, including Alumina, Newcrest Mining, Woodside Petroleum and Asaleo Care.

A further 68% was allocated to cash and money market instruments issued by the big four banks.

When the market is high, the fund will typically have a much lower allocation to shares, while exposures are built up when the market is low.

Following this simple process, during 2020 when Australia experienced one of history’s larger market drawdowns, the fund achieved a one-year return of 2.9% net of fees. This, when the RBA cash rate benchmark saw a return of just 0.3% and the S&P/ASX 300 Accumulation Index returned just 1.7%.

Since its July 2011 inception, the fund has returned 6.1% annualised, versus the cash rate’s 2%. This is despite the Chinese stock market crash of 2015, global markets’ loss of trillions in August 2015, the unexpected drop at 2018 end and, of course, the COVID-19 crisis of 2020.

“If we look at the worst-performing periods for the broad Australian share market… the fund has performed considerably better than the market during drawdowns,” Morrison says.

It’s partially due to the defensive allocation to cash but is also due to the difference in equities holdings in the fund compared to the market, he adds.

“That’s evident when we look at a few of those drawdowns, the fund has actually had a positive return rather than negative. Our relatively limited position has been beneficial for some of our clients who are aiming for a more stable profile,” he says.

So, while investors have benefited from strong performance and attractive returns, they’ve also benefited when things weren’t so rosy – and in more ways than one.

The Allan Gray Australia Stable Fund charges a base fee of just 0.25%; less than some conservative, passive strategies. And, while it does charge a 20% performance fee, this is subject to high-water marks to ensure no double charging, meaning the team must rectify any underperformance before it can charge investors again.

“One of the philosophies we have in regard to

The quote

If we look at the worstperforming periods for the broad Australian share market… the fund has performed considerably better than the market during drawdowns.

fees is that performance fees can strongly align interests between fund manager and client,” Morrison explains.

“Obviously if you charge a high base fee and a high performance fee, it’s hard to align those interests. Our premise is to charge a much lower than average base fee for an active manager and then to charge a performance fee when we deserve it, when we outperform.”

Over time, Morrison says, this has worked for clients; “When we’re not delivering, they’re not paying significant fees.”

It’s an important factor for any investor, let alone those that are more conservative; the last thing you want when you’ve taken a financial hit is for a side of high fees to be served.

So, how can financial advisers position the fund within client portfolios for maximum impact?

While careful to point out he’s not a financial adviser himself, Morrison says feedback from advisers suggests the relative stability of the fund makes for a strong core of a portfolio.

“The fund aims to outperform cash while mitigating downside risk, so some advisers like to use it at the centre and add more aggressive investments around it,” he explains.

Others have positioned it within a broad defensive category, while some may use it as the entire exposure for a client with a particular risk profile.

Meanwhile, some advisers are using it within their equity exposure as a de-risked exposure.

“They know it’s not going to be higher than 50% but it will have some exposure to equities, so it may work well for clients with some sensitivity to risk,” Morrison says.

As global uncertainty and regular market volatility wears on, there’s clearly a multitude of uses for the fund – the question now is how you’ll use it. fs Allan Gray Australia Pty Limited, ABN 48 112 316 168, AFSL No. 298487 (we) is the appointed investment manager of the Allan Gray Australia Stable Fund ARSN 149 681 774. The Fund is offered by Equity Trustees Limited, ABN 46 004 031 298, AFSL 240975, as the Fund’s Responsible Entity. All performance returns shown are net of fees and assume reinvestment of distributions. Past performance is not a reliable indicator of future performance. There are risks involved with investing and the value of your investments, including in the Allan Gray Australia Stable Fund (Fund), may fall as well as rise. This article is intended for Australian persons and constitutes general advice only and not personal financial product, tax, legal, or investment advice.

Before deciding to acquire an interest in the Fund, please read the disclosure document which can be found at www.allangray.com.au.

We have tried to ensure that the information in this article is accurate in all material respects, but cannot guarantee that it is.

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10

News

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

Short sellers put on notice

01: Omar Taheri

chair Ascent Fund Services Australia

Karren Vergara

ASIC is putting short sellers on notice, warning them that any information released on a target company must be accurate and objective.

The corporate watchdog outlined several areas that it will keep an eye on in the newly released Information Sheet 255 Activist short selling campaigns in Australia (INFO 255).

ASIC wrote that short sellers must verify their information and must fact-checks these against the target entity.

“Providers of short reports should avoid being selective in deploying only facts that support their short thesis while ignoring facts that run counter to the thesis. Engaging with only a small and select sample of clients, ex-employees or contracted parties may not be representative of issues across the entire entity,” the report read.

Another requirement is that short seller reports must be released outside of Australian trading hours and not immediately before market open.

This is so that the target entity can prepare a response and that the market can be fully informed when the short report is released.

ASIC is well aware of the impact short reports have on the share price.

The possession of information about the impending publication of a short report may amount to possession of inside information, it said, noting that there is high risk that possessing such information could breach insider trading prohibitions. fs

Primewest accepts merger offer The founders of Primewest, who hold a 53% stake in the company, have accepted Centuria Capital Group’s merger offer to become one of the largest real estate managers on the ASX. The Primewest founding directors John Bond, David Schwartz and Jim Litis have accepted the take-over bid and merger proposal. Securityholders that represent 76% of Primewest securities have also informed Centuria of their acceptance.

Back in April, Centuria entered a bid implementation deal to merge and under the deal, Primewest shareholders will receive $1.51 per security made up of $0.20 in cash and $0.473 Centuria securi-ties.

Centuria has now declared the offer unconditional and will provide Primewest securityholders who accept prior to the close of the offer their consideration within five business days of acceptance.

The Primewest board unanimously recommend securityholders accept the offer, which is now open for acceptance until June 24.

The merged group will have $15.5 billion in assets under management (AUM) with a market cap of $2.2 billion, representing a 52% increase in AUM for Centuria and a 209% increase for Primewest.

The group will also benefit from new distribution channels, enhanced geographic and sector diver-sification resulting in improved synergies to support the growth of assets under management and expansion of property services. fs

Fund administrator eyes Australian market Kanika Sood

A

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Ascent sees an opportunity to help new and existing managers start their businesses at a competitive cost.

Singapore-based fund administrator will establish full-service operations in Australia as it sees an opportunity in the local market.

Ascent Fund Services currently services about US$7 billion in assets. This includes 150 products across six Asia Pacific countries, including hedge funds, unit trusts, funds of funds, private equity, managed accounts, venture capital and digital asset funds.

Its push into Australia comes as it sees opportunities in servicing funds investing in alternative assets and local players like Mainstream and Apex Fund Services get mergers and acquisitions attention.

“Ascent sees an opportunity to help new and

existing managers start their businesses at a competitive cost,” said Ascent Fund Services Australia chair Omar Taheri01, who previously worked for Macquarie.

“We also see opportunity to help established funds control their costs and win new allocations.”

Australian private capital industry hit a record high of $77 billion at June 2020, according to Preqin and Australian Investment Council’s annual tally of the sector.

Ascent was founded in 2019 and has fund administration clients in Australia, Singapore, Malaysia, Hong Kong, mainland China and Japan.

SS&C and Apex Group are currently in a bidding war for the ASX-listed Mainstream Group. fs

Use of LIBOR to be phased out by year end: Regulators Elizabeth McArthur

Australian regulators expect institutions to cease the use of LIBOR in new contracts before the end of 2021.

ASIC, APRA and the Reserve Bank of Australia have reiterated the importance of ensuring a timely transition away from the London Interbank Offered Rate (LIBOR).

Some USD LIBORs will continue until mid-2023, but even in the US regulators have stated that firms should cease entering into new contracts using USD LIBOR as a reference rate as soon as practicable and no later than 31 December 2021.

The Financial Stability Board supports the adoption of overnight risk-free rates where appropriate, and recognizes the role of forward looking risk-free rate term rates in some limited cases.

It also supports International Swaps and Derivatives Association (ISDA) spread adjustments in cash products.

“Continued reliance on LIBOR poses significant risks and disruptions to the stability and integrity of the financial system. Firms themselves may also face financial, conduct, litigation, and operational risks associated with inadequate preparation,” ASIC, APRA and the RBA said in a joint statement.

ASIC commissioner Cathie Armour added: “Firms should, as soon as practicable, stop the sale and issuance of LIBOR-referenced contracts that expire after their relevant cessation dates and most importantly, stop offering new LIBOR products after the end of 2021.”

RBA assistant governor (financial markets) Christopher Kent said: “Firms should not waste any time in moving away from LIBOR. The end

date for LIBOR is clear and pending. Continued use of LIBOR after the end of 2021 poses significant risks to firms. There should be no new use of LIBOR – including USD LIBOR – after the end of 2021.”

LIBOR is an interest-rate average calculated from estimates submitted by the largest banks in London.

It is open to corruption and cartel behaviour due to the nature of relying on estimates submitted by the big banks in one city. The need to transition away from LIBOR became apparent in 2012 when significant collusion between big banks in the UK was revealed.

The LIBOR scandal of 2012 resulted in a US Congress investigation and a parliamentary enquiry in the UK. Court documents filed in Singapore saw a Royal Bank of Scotland trader confirm that the LIBOR fixing process had essentially become a cartel. Messages were filed in court that showed traders blatantly discussing manipulating the LIBOR rate to the advantage of hedge funds.

The scandal also resulted in US homeowners filing a class action against their mortgage lenders, claiming that LIBOR manipulation made mortgage repayments more expensive. This case was based on analysis showing LIBOR rates rose on the first day of each month between 2000 and 2009. Most adjustable-rate mortgages reset payments based on the interest rate on the first day of the month.

ASIC has been conducting an ongoing investigation into Australian banks manipulation of interest rates, in 2015 it named ANZ as obstructing its investigation. fs

Opinion

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

11

01: Clayton Sills

principal Mercer

Lifecycle funds Enabling superannuation fund members to have their cake and eat it too olatility and uncertainty are the new norm V in financial markets. We’ve had three “once in a lifetime” market crises in 25 years: the dot-com bubble, the Global Financial Crisis (GFC) of 2007-8 and most recently the COVID-19 crisis.

Superannuation funds have a role to play in navigating market shocks to protect their members’ retirement wealth. Funds must balance risk with return to help members grow their nest egg.

However, risk appetites aren’t static and so it makes sense for investment strategies to change at different life stages, too. Lifecycle funds do just that, making them the most appropriate default investment strategy, particularly for a largely disengaged membership.

Managing risk While younger people with longer time horizons typically have the appetite and are more suited for high growth, higher risk strategies, this isn’t the case for members nearing or in retirement, who are on average, more risk averse. A recent survey Mercer conducted of over-55s found that only 6% were willing to accept a loss of more than 10% in any one year.

This is consistent with the investment theory that the impact of a market fall late in an individual’s career has a greater impact (reduction) to member retirement incomes than an equivalent market fall early in their career.

It’s an important point because many members nearing or in retirement may not stay the course in times of volatility.

And, once a member switches to a more defensive option - effectively locking in any losses they have experienced - it is very difficult to convince them to switch back.

If members are no longer invested, it doesn’t matter how quickly markets recover.

They will miss out.

For example, research by Aware Super that was highlighted in the Retirement Income Review found that eight in 10 members over the age of 50 who switched to a more defensive option during the Global Financial Crisis missed the rebound in markets and had not switched back by the end of 2009-10.

It’s therefore critical that in designing default investment strategies, a strong alignment with risk profile and stability of balance exists, particularly for those more engaged members who are approaching retirement.

This is the role of lifecycle products. Designed well, they ensure the right balance of risk and return and delivery of superior whole of life outcomes. They generate wealth by investing in high growth assets when members are younger and have the timeframe to weather short term losses, and gradually transition to lower-risk investments as members approach retirement. For those less engaged members, it mimics the behaviours that an informed investor is likely to take.

Figure 1: Additional balance at retirement: Lifecycle vs. balanced

$100,000

$80,000

$60,000

$40,000

$0 5th

25th

Median

75th

95th

Figure 1. Modelling is based on 2000 trials comparing Mercer SmartPath to a comparable 75% growth balanced fund. The model is net of investment fees and taxes, assumes salaries increase with average weekly ordinary time earnings (AWOTE), and that SG contributions increase to 12% in line with current regulations. It also assumes the member enters the fund at age 20 with a salary of $50,000 and they retire at age 67. The final balance is shown on a real basis.

Generating returns

The quote

Risk appetites aren’t static and so it makes sense for investment strategies to change at different life stage too.

Lifecycle funds can also deliver returns superior to typical balanced strategies without increasing the downside risk to retirement incomes.

In a well-designed lifecycle strategy, the growth allocation in younger years will be higher than that of a balanced strategy. Members can therefore take more advantage of the free lunch that is compound interest. Earning higher returns in earlier years, even if by a small amount, can have a significant and cumulative impact on retirement balances later on.

And, owing to the higher growth allocation in younger years, lifecycle funds can still deliver superior lifetime returns despite growth allocations gliding down in later years. The below modelling (Figure 1), from the fifth to the 95th percentile of outcomes, shows the lifecycle fund achieved a higher balance at retirement than a comparable balanced fund.

The median member is expected to have a balance at retirement of over $70,000 more on a real basis. Even if investment returns are very strong throughout the member’s lifetime (the 95th percentile), the well constructed lifecycle strategy still adds over $60,000 more to a member’s balance at retirement, in comparison to members of a balanced fund.

And, crucially, the probability of a return below -10% in the lead up to retirement was reduced by more than 40%.

Members will naturally have different levels of engagement, investment objectives, and varying risk appetites as they get older.

It therefore makes sense to have a MySuper strategy that adjusts to a member’s changing needs – and even better, without the need for direct intervention from the member.

What’s important is that this can be achieved without compromising the balance at the point of retirement and the risk of that falling short of expectations. Members really can have their cake and eat it, too. fs

12

News

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

Halifax auditors face charges Audits of defunct stockbroker Halifax have resulted in the first criminal charges ever laid in Australia for failure to comply with auditing standards.

EC Audit and its director Robert Evett have been charged with breaches of auditing standards and were mentioned in Downing Centre Local Court.

ASIC has brought three charges against the auditor relating to the audits of the profit and loss statements and balance sheets of Halifax Investment Services.

The regulator alleges Evett and his company failed to conduct the audits correctly.

The maximum penalty for the offences occurring before 1 July 2017 is a $9000 fine for each charge against Evett and a $45,000 fine for each charge against EC Audit.

For the offences occurring on or after 1 July 2017, the maximum penalty is $10,500 for the charge against Evett and $52,500 for the charge against EC Audit.

Halifax was placed into administration in November 2018 and entered liquidation in March 2019. ASIC cancelled its AFSL in January 2021.

The regulator had been looking into the company for some time, with ASIC initially finding deficiencies in the business’ risk management and compliance processes in April 2013. The firm went into voluntary administration in November 2018 with $19.7 million of client funds having been used to cover operating costs, according to Ferrier Hodgson’s report. fs

Students win climate case The Federal Court has ruled in favour of eight high school students, finding that the Federal Environment Minister has a duty of care not to cause them harm from climate change.

The case was brought by Equity Generation Lawyers principal David Barnden.

He is the same lawyer who defended Mark McVeigh in his case against his super fund Rest.

That case resulted in McVeigh and Rest settling out of court and Rest changing its policies around climate change – which Barnden and McVeigh chalked up as a success.

This latest case was a class action brought by the students against Environment Minister Sussan Ley in September 2020.

The students alleged that approving a major extension to the Vickery coal mine in northern New South Wales would breach the minister’s duty.

The court ruled that the minister does have a duty of care and should not make a decision that harms young people, but stopped short of preventing the minister from approving the Vickery extension.

The judge instead called upon the parties to confer on orders over the future of the project.

“This is a victory for young people everywhere.

The case was about young people stepping up and demanding more from the adults whose actions are determining our future wellbeing,” 17-year-old student Laura Kirwan said.

“Our voices are powerful and I hope this case inspires more young people to push for stronger, faster and deeper cuts to carbon emissions.” fs

01: Matthew Rowe

chief executive CountPlus

CountPlus acquires tech paraplanning solution Elizabeth McArthur

C The quote

We understand the importance of creating efficiencies in how we deliver advice.

ountPlus announced a 51% investment in a paraplanning and administration service.

The listed dealer group has acquired the majority stake in Wealth Axis, which is a boutique provider of paraplanning, technology and administration support services to financial planning firms.

CountPlus said the acquisition will enhance the range of services available to its member firms and is aligned with its strategic plan to deliver services that speed up the advice process.

Wealth Axis managing director Mikel Guyetsky will remain in his position. CountPlus said its capital injection in the firm should benefit existing Wealth Axis clients through additional resources, scale and access to best practice capabilities.

“We understand the importance of creating efficiencies in how we deliver advice so that advisers and their clients have a positive experience,” CountPlus chief executive Matthew Rowe 01 said.

“Wealth Axis has a strong reputation for

providing services that reduce costs and complexity for financial services businesses which provides real value. Importantly, they are also a business with shared values to CountPlus and their client-first mentality makes them a good cultural fit.”

He added that acquisitions like this are in line with CountPlus’ growth strategy.

“We speak openly about the need for a strong financial position to navigate the current dislocation in financial advice, and we understand our strong financial position provides certainty and stability to our member firm network and clients of Wealth Axis,” Rowe said.

Guyetsky welcomed CountPlus’ investment.

“At Wealth Axis, we are passionate about what we do because we know the direct impact our service plays in delivering financial wellbeing to Australians. To become part of the CountPlus community is an important milestone in our history and will enable us to build on our success and take our offer to the next level,” he said. fs

Jobs to go at AMP Australia With the leadership of AMP Australia’s new chief executive Scott Hartley, the business will undertake a restructure which is likely to cost jobs.

The Sydney Morning Herald reported that a source claimed 20% of all AMP Australia staff would be made redundant. AMP declined to comment on this figure.

However, a spokesperson did confirm to Financial Standard that an “updated” organisational structure would impact jobs.

“Scott Hartley was appointed AMP Australia chief executive in January and has been working through changes to ensure the business is sustainably competitive, and focused squarely on delivering for customers and members, and supporting our strong relationships with our adviser and broker partners,” the spokesperson said.

“The first step was providing an updated organisational structure for AMP Australia and the announcement of Scott’s leadership team, earlier this month. We are now working through the details of each AMP Australia business, including team structures in the levels below the leadership team and this will unfortunately involve impacts to some peoples’ roles.”

On May 11, Hartley announced his new

executive lineup and an updated operating model.

Hartley will have seven direct reports and the updated operating model will see AMP Australia focus on platforms and super with those two businesses being separated.

AMP Australia appointed a new chief investment officer, Anna Shelley (formerly chief investment officer of Equipsuper and Catholic Super) and brought accountability for investment performance within the business as part of the changes.

The changes come after former chief executive of AMP Australia Alex Wade departed suddenly.

AMP is also facing headwinds as a group, with chief executive Francesco De Ferrari is also set to leave, with Alexis George appointed to replace him.

At the same time, the group is facing off with ASIC in the Federal Court.

Several of its entities - AMP Superannuation Limited; NM Superannuation Proprietary Limited; AMP Life Limited, AMP Financial Planning Proprietary Limited; AMP Services Limited - are being sued for charging dead clients for insurance premiums and advice fees.

AMP Life was part of AMP when the conduct occurred, but has since been acquired by Resolution Life. fs

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News

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

13

Executive appointments 01: Angelo Calvitto

IFM adds to board The $150 billion fund manager has added an independent director, in its second board appointment based in North America.

Theresa Whitmarsh is an executive director at Washington State Investment Board (WSIB) which manages retirement plans and funds for public sector employees. She has led the business for nearly 20 years.

She has experience in private markets like private equity and pension investing.

“Ms Whitmarsh is a recognised thought leader on issues of vital importance for longterm investors, including value creation in global markets, enhancing shareholder rights through corporate governance, and aligning fiduciary duty and investment discipline with an evolving focus on sustainability,” IFM said in a statement.

Her appointment takes the IFM board to nine people. “[Whitmarsh’s] skills and experience as a steward of investments will be a great asset to IFM, as we continue to pursue a global growth strategy, in fulfilment of our purpose to protect and grow the retirement savings of working people,” IFM chair Greg Combet said.

“Ms Whitmarsh is a global leader in the public pension capital sector and has a record of delivering incredible results – having someone of her calibre and with her values on the board positions IFM well now and into the future.”

IFM Investors manages about $150 billion and is owned by industry super funds.

Northern Trust appoints head of APAC Northern Trust has promoted its country head of Australia to lead the asset servicing business across Asia Pacific, taking over from William Mak. Angelo Calvitto 01 has been with Northern Trust for over 13 years. He has been managing director, country executive Australia for three years.

In a 2018 profile interview with Financial Standard, shortly after his appointment as country head, Calvitto said: “There were a number of factors why I joined Northern Trust, but the opportunity to run the business at some point was one of them.”

Throughout his 30-year career he has served at Northern Trust as head of sales, Asia Pacific, head of sales and marketing, head of sales and relationship management and head of client services and relationship management.

Calvitto was head of sales and account management at ANZ Custodian Services for eight years and spent another eight years at State Street where he was vice president, pension fund services and in other client service roles.

In his new role, Calvitto will drive the growth of the asset servicing business serving institutional clients such as sovereign wealth funds, public pension funds and investment management firms.

“Ange, through his leadership of our business in Australia, has demonstrated his expertise in bringing our solutions to clients and we look forward to seeing him harness his experience

Vanguard head jumps to Cbus Andrew Reeve has been appointed head of strategy and innovation – investments at Cbus, the industry fund for the construction and building sector.

Reeve had spent about five years at Vanguard Australia as head of product management. Prior to joining Vanguard, he was a senior consultant at JANA. He joined the Cbus team in Melbourne recently, the super fund confirmed.

Cbus also recently appointed a head of advice, promoting from within.

Lynda Cross was promoted from her previous position as manager of advice partnerships and performance.

Prior to joining Cbus, Cross was manager of advice and education at LUCRF Super and had a 16year career at Mercer in roles including scaled advice leader.

Reeve’s appointment comes as Vanguard moves into superannuation in Australia.

Industry fund HESTA also recently looked to Vanguard for talent, hiring its Asia Pacific head of fixed income to lead the fund’s defensives team.

across the region and continuing to build on William’s successful legacy,” Northern Trust president of corporate & institutional services Peter Cherecwich said.

Based in Singapore, Mak spent over 11 years as head of Asia Pacific and led the expansion of Northern Trust throughout the region.

“We thank William for his service and leadership and are delighted to name Ange to this important role,” Cherecwich said.

“The Asia Pacific region is a leading centre for technology innovation, with Singapore as a key hub, particularly for our blockchain initiatives. More broadly, we continue to see significant demand for our entire range of asset servicing solutions across the region.”

Boutique names head of distribution A boutique global equities fund manager has hired a distribution lead, formerly of Meritum Financial Group.

Gold Coast-based fund manager Swell Asset Management appointed Stephen Poole as head of distribution.

Poole was the general manager of NAB’s Meritum Financial Group for over three years and prior to that was the manager of business growth for NAB Wealth.

NAB merged Meritum together with Garvan and Apogee in May 2020 under the umbrella of TenFifty Financial Group.

Before NAB, he was worked at Keystone Partnership, Centrepoint Alliance, Suncorp Life and the Macquarie Group.

“I am looking forward to growing the Swell Asset Management brand across its target market segments of high-net-worth individuals, family offices and financial advisers across Australia,” said Poole.

Swell AM chief executive and chief investment officer Lachlan Hughes said Poole’s broad knowledge of the industry and his understanding of financial advice and product solutions will help build the business.

Hughes established Swell AM in 2014, offering the Swell Global Portfolio, which invests in global equities such as Alibaba, Alphabet, Amazon and Netflix.

The fund targets high-net-worth investors, requiring a minimum investment of $500,000.

It has about $88.3 million in assets under management and returned 25.55% per annum in the year to April.

GAM appoints insto business lead The Swiss manager is investing in its local business, adding to its product offering and hiring an institutional business lead from BlackRock.

Close to three years since opening its Australian office, GAM Investments is growing the Sydneybased team with the addition of Sophie McFadyen02 as senior manager, institutional business.

In the newly created role McFadyen will drive GAM’s institutional business across Australia and New Zealand.

McFadyen has spent the last six years

02: Sophie McFadyen

servicing institutional and wealth clients as part of BlackRock’s client business team. Prior to that she spent several years at Credit Suisse in both Sydney and Hong Kong, focused on the hedge fund space.

McFadyen will report directly to her fellow BlackRock alumnus, GAM head of Australia Alex Zaika, who said: “We are delighted to welcome Sophie, who will further support GAM’s growth in Australia and New Zealand with our differentiated investment solutions.”

“She is highly regarded in the industry and I’m excited to be working with her again.”

The appointment comes as GAM takes on a new mandate from an unnamed, “prestigious” institution to invest in insurance-linked securities.

With the Australian business’ assets under management now sitting at about $3 billion, the manager is also adding to its suite of local offerings with the introduction of GAM EM Rates, an emerging market bond strategy that “seeks to actively reduce FX volatility”.

“We have seen growing interest in emerging market bonds because yields from traditional sources are so low and, in some cases nonexistent,” Zaika told Financial Standard.

“It’s also a reason why we were awarded the insurance-linked securities mandate - another source of higher income that is uncorrelated.”

The new strategy will complement GAM’s existing local offerings in alternative risk premia, systematic core macro and insurance-linked securities strategies, GAM said.

Frontier hires people and culture lead A human resources expert with previous experience at AXA, EY and Grant Thornton is Frontier’s new head of people and culture.

The asset consultant has bid farewell to Margie Hill, who was responsible for people and culture for three years.

In doing so, it has appointed Nicole Hartigan to the role. Hartigan spent close to a decade in HR at HLB Mann Judd, having joined from Grant Thornton in 2012.

The appointment was effective last month, following Hill’s decision to retire. Hill first joined Frontier in June 2018, having spent the previous nine years as general manager, people and culture at AustralianSuper.

In confirming Hartigan’s appointment to sister publication Industry Moves, Frontier said she brings 30 years of HR experience to the company.

“People are a critical component of our business as a consulting firm. Our staff numbers have grown by 30 people (net) over the last three years so recruitment has been, and continues to be, a key focus,” a spokesperson said.

“Being able to offer a strong and positive culture, along with the general success of the firm, has been a critical asset in attracting the number and quality of staff we have found in that time.

“Nicole’s experience and approach will be invaluable in continuing that success as we continue to grow.” fs

14

Feature | Life insurance

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

IN SICKNESS AND IN HEALTH Life insurers are weathering many storms. Can the industry come together, not losing sight of its core purpose: protecting customers when they need it most?

Karren Vergara writes.

Life insurance | Feature

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

A

01: Ronald Pratap

02: Christine Swanson

03: Michael Mulholland

principal financial planner RP Wealth Management

financial adviser Prominent Financial Services

chief distribution officer MetLife

bout two years ago, a prospective client stepped into Ronald Pratap’s 01 office seeking financial advice.

One piece of advice Pratap recommended was obtaining life insurance cover. The client willingly took it on board, but one year later asked Pratap to cancel her trauma cover.

This is a fairly common request as many clients cancel premiums held outside of super because the amounts deducted seem like a significant hit to their cash flow.

He advised her not to cancel it, saying: “You never know what’s going to happen. At least decrease the amount so that it is affordable, and you’ll still have some level of coverage.”

The client listened. About three months later, while on an overseas holiday, she found a lump in her breast. When she returned home, she was diagnosed with breast cancer. For her treatments, she had to borrow money from her parents. Despite her illness, the client was still able to work.

Like Pratap, Prominent Financial Services financial adviser Christine Swanson02 comes across several clients bent on cancelling their cover saying it’s too expensive.

If they did not have an adviser guiding them about other options available, many would end up cancelling it altogether. What tends to happen is that the cover is reduced, and the clients make claims that are often paid out.

“They were very grateful that they had me there to guide them,” Swanson says.

With her trauma cover, Pratap’s client was able to repay her parents.

“Trauma insurance is something that most people don’t consider,” he says.

In fact, research shows that most Australians don’t consider life insurance at all.

Five years ago, Rice Warner (now Deloitte) released stark figures into the nation’s underinsurance gap, estimating that the median level of life cover meets just 61% of basic needs like debt repayments and day-to-day living expenses. In revisiting the figures in 2020, it found that the underinsurance gap worsened.

The lack of awareness about the value of life insurance isn’t the only issue working against the sector. The entire ecosystem is facing a

reckoning, driven by profitability, sustainability, distribution and regulatory issues that have forcibly pushed the industry to a crossroads.

The declining take-up saw total premiums rise marginally by 0.8% to $16.3 billion at the end of 2020, according to Plan For Life. Risk products made a considerable loss of $1.4 billion based on KPMG estimates (Figure 1).

Moreover, the market is contracting. AIA Australia acquired CommInsure; Zurich took over ANZ’s life insurance arm via OnePath; while NAB’s minority stake in MLC Life Insurance hangs by a thread. Westpac is the only major bank tied to life insurance via subsidiary BT Wealth Connect, but even that strategy is up for review.

Once the lifeblood of AMP, the life insurance book was sold off to Resolution Life for $3 billion, while Suncorp shed its offering to TAL. For MetLife chief distribution officer Michael Mulholland03 , the issue of life insurance accessibility for everyday Australians hits close to home.

“My fear is that middle-class and workingclass Australia will not have the means to get financial advice and insurance. If an unforeseen event happens, all they have left is government services such as the NDIS. That means a significant hit to their lifestyle that will in turn pass on to the next generation. I come from a workingclass background and that issue, in particular, resonates with me,” he says.

It’s a double-edged sword for Mulholland because he used to be a financial adviser.

“I have seen how valuable life insurance is at the coalface for both the working class and the high-net-worths. From a societal point of view, life insurance is a community standard that every family should have,” he argues.

The falling adviser population has crippled accessibility further. Rainmaker analysis of ASIC’s adviser register shows that 2579 advisers were authorised to give risk advice at the end of March, dropping nearly 10% from 2841 as at June 2020.

With an ageing adviser population, there are not enough young, vibrant, highly educated life insurance advisers that can take their place with a diversity that is reflective of the broader Australian population, Mulholland says.

“This is a critical issue that needs to be ad-

You can read Shakespeare’s Macbeth in less time than it takes to read a PDS.There are less words in Macbeth.

Michael Richardson

15

dressed. I want to see the societal imports of life insurance to be met and for that, we need a new cohort of advisers. In particular, we need to support the transition from where they are now in growing their business or handing the reins over to the next generation,” he says.

Resolution Life partners with over 3000 independent financial advisers, supported by dedicated teams that directly help them meet the queries of customers.

“It’s impossible to expect advisers to be across all the details of existing policies. So, we help advisers understand what existing customers can do to make changes to their policies as their needs change,” Megan Beer04 , chief executive of Resolution, says.

This includes allowing customers to make increases to their policies; decrease the sum insured; and make additional contributions.

“We are very much open for business for all the types of changes existing customers might want in their policies. Sometimes that means transitioning them to other offers that we have as well. We are focused on supporting advisers with the changes to support their customers that they have advised relationships with,” she says.

The COVID-19 pandemic has forced many Australians to review their life insurance cover and seek the help of a financial adviser.

According to the latest MetLife Adviser-Client Relationship Report, over 40% of the participants surveyed were more likely to see an adviser since the pandemic, spurring one in four to increase their cover.

For advised participants, the majority (80%) feel better about their financial position as a result of having an adviser, despite the challenges posed by the pandemic. They also feel better about having the right level of life insurance.

The stapling measures, which form one tranche of the looming Your Future, Your Super legislation, could further aggravate the affordability of advice and the underinsurance problem.

Seventy percent of Australians who have life insurance do so via their super fund.

Unless they make an informed decision to switch providers, from July 1, members will see their existing super fund and group insurance policy follow them from job to job.

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16

Feature | Life insurance

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

04: Megan Beer

05: Robbie Campo

06: Simon Swanson

chief executive Resolution Life Australasia & AMP Life

group executive of brand, advocacy, marketing and product Cbus Super

managing director ClearView Wealth

not actively take out life insurance, default cover is their only safety net.

The risk of blanket legislation is that it overlooks nuances, like the building and construction workers considered to be in high-risk occupations.

Stapling, in the form currently proposed by YFYS, will lead to young people being attached to funds that don’t appropriately cover workers in hazardous industries, Cbus Super group executive Robbie Campo 05 says.

“I’ve listened to construction workers talk about what it’s like on site after a significant injury or death. It shakes everyone up. Members onsite want to know that their colleagues and their families are covered by appropriate insurance, so they can pay the mortgage and look after the kids,” she says.

Cbus is covered by the Protecting Members’ Interest First legislation Dangerous Occupation Exception, allowing it to provide cover for members under 25 and/or have an account balance that is less than $6000.

There are now fears stapling will undermine the government’s previous efforts to ensure young workers in hazardous industries are protected.

“Why would the government recognise the importance of insurance for workers in dangerous occupations then, but not now?” Campo says.

Three years on Since the Life Insurance Framework (LIF) took effect, Swanson says the reform has “created enormous issues”.

“Advisers are shying away from insurance advice due to the complex nature of advice documents, insurance commissions reducing and clients not wanting to pay an upfront fee for advice,” she says.

Figure 1. Profitability of risk products in FY20

Source: KPMG 2020 Life insurance insights dashboard

Most of her clients are 45-plus years old with independent children, earn double income, have little or no debt and want advice to ensure their current lifestyle is sustainable once they retire.

Several years ago, she made a conscious decision to service and review existing clients with insurance advice but no longer provides new advice, referring them instead to other advisers.

On 1 January 2020, upfront commissions locked in at 60% of the premiums for the first year, while trailing commissions were capped at 20% thereafter.

Some advisers cannot afford to survive only on life insurance, says ClearView Wealth managing director Simon Swanson06 , adding that LIF’s impact – particularly on remuneration – has been significant.

He sees the shift to the fee-for-advice model moving at “glacial” speed.

“It is all about consumer choice. Our view is that there is no need to get rid of commissions at all because that would be disastrous. We believe it is up to the consumer to pay an upfront fee of $4000 or have the life insurance company fund the advice over the period of the policy,” he says.

Catering to a group of clients who are medical experts, specialist risk adviser Amanda Levine’s 07 practice North City Group has gone from strength to strength, making it an outlier.

At this point in her career, Levine does not actively look for new business. They reach out to her via word of mouth.

“I am lucky that I work with a demographic who do not question the need for life insurance,” she says.

The majority of new clients are in their 30s who mostly prefer to interact over the phone, Zoom and email.

“I’ve advised around a hundred new medical Profit by Risk Products

We need to support the transition from where they are now in growing their business or handing the reins over to the next generation.

Michael Mulholland

clients since the start of 2020 and I’ve met only 15 of them in person,” she says.

Levine’s father was also a risk adviser and 12 years ago joined his practice.

She says working in the industry is akin to surfing.

“You stand up and a wave knocks you down – you get up again and another wave knocks you down. That’s what it felt like working in the industry for a while, so you need to be made of steel,” Levine says.

Changes to remuneration, education, compliance regimes and products, like income protection, have made it impossible for some advisers to keep their head above water.

Her business is well-positioned thanks to recurring revenues and because it does not rely on upfront remuneration.

“We have focused on client retention and replacing clients that have reached the end of the advice journey. As a result of this, our client composition is really healthy,” Levine says.

“At 60% up front commission, the cost of placing the business can exceed the remuneration received, but if it’s the right type of client for your business and you can maintain the relationship in the years to come, they will become profitable. We’re focused on the long game.”

Broken products History seems to be repeating itself for insurers, faced with a predicament that might culminate like the LIF reforms.

This time, it is the loss-making individual disability income insurance (IDII) or income protection insurance that caught the regulator’s attention.

Industry veteran Jim Minto 08 criticised the “broken” state of IDII, which is increasingly becoming unaffordable and being shunned by people who need it the most.

“The community suffers in a wider sense from poorly designed and over-engineered products, including products I designed when I was chief executive [of TAL],” he told a recent industry event.

“They delivered generous benefits in most cases, while policyholders generally faced cycles of price increases as companies looked to recoup losses from unsustainable products.”

The market is littered with these products deemed expensive and poorly valued. For example, products created in the 1990s with lifetime benefits had “disastrous consequences” and many of these policies are still in force charging large premiums.

APRA estimates insurers and friendly societies have lost $3.4 billion in five years from IDII. Insurers have until 1 October 2021 to implement APRA’s new measures aiming to enhance their sustainability.

One measure is ensuring benefits do not exceed 90% of the policyholder’s earnings at time of the claim. Life insurers were given another year – 1

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18

Feature | Life insurance

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

07: Amanda Levine

08: Jim Minto

09: Michael Richardson

specialist risk adviser North City Group

chair Swiss Re Life & Health Australia

technical product consultant RGA

October 2022 – to meet the policy contract term measure, which will be capped at five years.

Minto urged insurers to get their act together or else face another LIF-type scenario.

“The LIF came about because the industry could not commit to unified action when we were being told by the regulators and government we had to,” he said.

“We complain about the framework, but we caused it. We couldn’t act. Here we are again with disability income. Can [the industry] act?”

The inability to unify has come at a costly price.

“If we had true alignment in the industry, sales managers and company executives would be receiving negative bonuses each year from distributing loss-making products and destroying shareholder value. Customers aren’t happy either,” Minto added.

“Shareholders are hurting with losses and capital injection, yet we still struggle with the simple idea that we need to change and act together to do this.”

Levine says income protection drives a lot of conversations with clients. If they can’t use their hands or eyes or problem solve, they can’t generate an income. A veteran with 15 to 20 years’ experience understands the need to insure such assets.

“It then becomes a question of: ‘who can I trust to help me navigate this?’. I demystify complex concepts and educate them so that they can make informed decisions,” she says.

The younger clients often contact her to discuss income protection.

“We go on to discuss lump sum too, and there may be a need for that initially. As their personal circumstances evolve, their insurance needs change and this is addressed when it becomes relevant.” IDII, the looming Design and Distribution Obligations (DDO), due to commence on October 5, should provide some guiding light.

At the core of creating products, producers must keep the customer front and centre and consider three things: the objectives and needs of consumers, and their financial situation.

“Insurers and distributors have to be more conscious of and accountable for how products are distributed and sold to make sure they reach the intended audience,” RGA technical product consultant Michael Richardson09 says, telling the recent Actuaries Institute Summit that DDO comes down to product governance and the cycle of control.

Product issuers must also factor in the Target Market Determination (TMD) for every product sold.

Currently, the problem is insurers started with a product concept and an identifiable customer need – but meeting compliance obligations became their central focus, he says.

By way of example, Richardson confesses he has trouble understanding Product Disclosure

Statements – even as a risk expert. So, what chance do advisers and consumers have?

“The industry made sure customers were well informed about the comprehensive and flexible products we offered,” he says.

However, they are handed a PDS that averages 189 pages and a Statement of Advice, adding another 23 pages.

“This results in a mountain of information – 200 to 300 pages for consumers to read and digest. While they are well informed, they are certainly understandably confused,” Richardson says.

“You can read Shakespeare’s Macbeth in less time than it takes to read a PDS. There are less words in Macbeth.”

Long-lasting legacies Adding to their woes, legacy products continue to hold back insurers.

The Financial Services Council estimates that there are 286 outdated life insurance products attached to $22.6 billion that are costly, carry higher risk and produce lower returns.

This is not lost on the federal government, which recently launched new measures to curb their unintended consequences, pledging $2.5 million to establish an industry working group to help rationalise archaic life insurance products and managed investment schemes.

MetLife’s Mulholland says the industry must ensure that consumers who took out a policy 10 or 20 years ago are provided with contemporary products and services, like mental health services.

The fact that Australia’s life insurance landscape is contracting has set the stage for players to either acquire or be taken over, leaving long-term products by the wayside. At present, foreign companies currently control most of the sector: TAL holds the largest market (28%), followed by Hong Kong-based AIA Australia (19%), Swiss firm Zurich (14%) and Nippon Life’s MLC Life (11%).

“A life insurance company that has been around for several years and has gone through an acquisition for example, would close some products otherwise known as ‘closed products’, which are not as modern as the new products,” Mulholland says.

“We want to see that the services and products are contemporary and update to date, and available for the whole client book and not just for new clients.”

Ballooning premium rate rises are another headache for consumers and advisers.

“We are seeing large rate increases – which are too high – and in some cases premiums have gone up 40% to 50% and invariably this is a bad consumer experience,” he says.

RP Wealth Management’s Pratap says: “The biggest issue we have at the moment is insurance premiums increasing at such a significant rate that people are being pushed out of insurance.”

As an Adviser, I want the insurer to help deliver on the promise that’s been made and sometimes they lose sight of that.

Amanda Levine

Pratap used to recommend level premium insurance commonly. Notwithstanding inflation and any product changes, he’d tell clients that premiums are pretty much locked in, usually up until 60 years of age.

“Because there have been so many rate increases, it is hard to keep these clients on level premiums. They are probably better off on step premiums because the crossover point is going to be 30-plus years before the premium becomes cheaper,” he explains.

Rising premiums have also infiltrated group insurance. APRA lashed out at this cohort hiking premiums and tightening terms and conditions in return for a deteriorating claims experience and poor member outcomes.

Advisers are crying out for pricing stability.

While this ultimately impacts the consumer, the messenger is often overlooked.

“Level premiums have seen massive hikes in the last year,” Levine says.

“Advisers have to explain this to clients and I don’t think insurers appreciate how much energy it takes to have to front up to client after client to justify price increases that we never saw coming.”

Levine says insurers should remember that “at the end of their process, there is a client, a person”.

“When I recommend Insurer A, I am asking my client to trust that insurer based on my trust of that insurer.

“When the insurer lets the client down, e.g. by an administrative mistake, or unnecessary inflexibility, both of our brands are impacted.

When we make mistakes, we should own them and sometimes that means making it right, whatever it takes. I feel frustrated when insurers are inflexible. We are all here for the same end purpose – to protect people from life’s unforeseen events.”

Beer says the industry must make an effort to come together and have higher-order conversations. To sit down with claim assessors and “truly stand in the customer’s shoes and have that empathy and understanding of what goes on in their life” is something everyone will benefit from.

While deep conversations are taking place among the players, associations, consultants and regulators, often the advisers and consumers are left out in the cold.

“I think that there are a lot of discussions taking place and decisions being made, but advisers aren’t involved in those discussions,” Pratap says.

The virtues of life insurance – beyond a reasonable doubt – are invaluable. If we can all agree that it is a force for good, then why can’t the industry get even the most basic fundamentals right?

Life insurers must regroup and reinvent themselves because at the eye of the storm is the consumer and the adviser advocating on their behalf. fs

20

News

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

Family law super reforms released

01: Brett Cairns

chief executive Magellan

Karren Vergara

The government has released the long-awaited exposure draft legislation intended to prevent individuals from hiding superannuation assets in family law proceedings.

The exposure draft legislation will use information held by the Australian Taxation Office (ATO) and allows an individual to apply to the court to request their former partner’s superannuation information.

The information sharing with the ATO will also disclose superannuation information to court registry staff for the purpose of use by the parties for relevant family law proceedings.

The reforms were originally announced in late 2018 and due to take effect from July 2020. At the time, the delay was put down to “vagaries” of the federal system.

“Once commenced, the new information-sharing process will make it harder for parties to hide or under-disclose their superannuation assets in family law proceedings, and will reduce the time, cost and complexity for parties seeking accurate superannuation information,” minister for superannuation and financial services Jane Hume said.

The bill will be accessible in the Family Court of Australia, Federal Circuit Court of Australia and Family Court of Western Australia.

The Australian Institute of Superannuation Trustees (AIST) chief executive Eva Scheerlinck welcomed the legislation and said it is an important step for improving retirement outcomes women, along with removing the $450 monthly income threshold for super contributions, which was recently scrapped in the federal budget.

“Superannuation is often the biggest – or only – asset in a relationship. Importantly, this new measure will speed up what can be a very difficult process,” Scheerlinck said. fs

Magellan launches retirement product Annabelle Dickson

M

The quote

There is no silver bullet, but we do believe this offer will be appealing to some investors in that retirement income space.

ATO cracks down on crypto The Australian Taxation Office is cracking down on cryptocurrency investors to report capital gains and losses in their tax returns after fears investors may think they are tax-free.

The ATO estimates that 600,000 taxpayers have invested in crypto assets in recent years and will be writing to 100,000 taxpayers to explain their tax obligations and review previously lodged returns.

“We also expect to prompt almost 300,000 taxpayers as they lodge their 2021 tax return to report their cryptocurrency capital gains or losses,” ATO assistant commissioner Tim Loh said.

Crypto investors must report a disposal of the currency for capital gains tax if one currency is exchanged for another; if it is traded, sold or gifted; and if it has been converted to Australian dollars.

CGT also applies to the disposal of non-fungible tokens. The ATO recommends investors keep records of transactions associated with acquiring, holding and disposing of cryptocurrency.

The ATO matches data from cryptocurrency service providers to individuals’ tax returns, to ensure investors are paying the correct tax.

“We are alarmed that some taxpayers think that the anonymity of cryptocurrencies provides a licence to ignore their tax obligations,” Loh said. fs

agellan has launched its much-anticipated retirement income product with a pay cheque replacement, having first flagged the idea back in 2017.

FuturePay is an actively managed fund available on Chi-X and is an unlisted vehicle investing in low volatility, high quality global companies.

Magellan general manager – distribution Frank Cassarotti said his elevator pitch for FuturePay is that it delivers a predictable and growing monthly income and aims to grow capital with a focus on downside protection with daily liquidity.

“It ticks a few boxes. There is no silver bullet, but we do believe this offer will be appealing to some investors in that retirement income space,” he said.

Magellan chief executive Brett Cairns 01 went on to explain FuturePay is a replacement for a pay cheque.

“The pay cheque stops and the super and savings need to be replaced with what you had from a pay cheque. The idea here is trying to replace a pay cheque - a predictable, known income,” Cairns said.

“Growth is a very important part of this. Access to capital is also important there is no point locking your money up if you are feeling anxious about that money.”

In terms of asset allocation, Magellan head of retirement solutions Paddy McCruden said it is in real growth assets and Magellan believes

many investors are using equities to solve their retirement needs.

“As this grows, we expect we will manage a full allocation into growth assets,” he said.

In risking markets, FuturePay will reserve a portion of the outperformance to a support trust (reserve).

In falling markets where the portfolio isn’t keeping up with inflation adjusted target, the support trust is available to help and lend support back to the FuturePay fund.

Cairns explained the support trust will invest in cash and is a discretionary trust with FuturePay as the beneficiary and a Magellan entity as trustee.

“It acts like a mutual fund as there is an upfront contribution on investment and has ongoing contributions from investment outperformance,” Cairns said.

Investors will need to pay a contribution upon entering the fund and, if they redeem, the investor will receive the money from the portfolio and leave behind the value of the benefit provided by the trust.

The contribution is currently around 5% of the initial investment.

“We believe the way the support trust is set up deals with sequencing risk, leans on mutualisation and does it effectively,” Cairns said.

He added that the amount to enter FuturePay will go up as the reserves become more valuable.

MFG has set aside $50 million to be incrementally added to the support trust as new units are issued. fs

Super fund risk culture “immature”: APRA Elizabeth McArthur

APRA executive director, superannuation division Suzanne Smith has warned superannuation funds that the regulator is looking out for toxic corporate culture and instances of misconduct.

Speaking at the ASFA Spotlight on Risk and Compliance event, Smith said workplace misconduct has never been a more highprofile issue in the media.

“A single serious accusation of misconduct can cause immense damage to an organisation’s reputation, eroding public trust, deterring customers and investors, or attracting financial penalties such as fines,” Smith said.

“That in itself is a prudential risk. APRA’s chief concern when it comes to misconduct, however, is what it says about an institution’s culture, and whether that culture potentially enables or even encourages damaging behaviour.”

Smith said APRA has stepped up its focus on transforming governance, culture, remuneration and accountability.

The regulator’s primary concern, she clarified, is risk culture – an entity’s attitude to risk management.

“As with banking and insurance, the superannuation sector

also has more work to do. Building on the risk governance selfassessments of 2018/19 and the recent Supervisory Risk and Intensity (SRI) assessments undertaken by APRA supervisors, we have found superannuation funds present a number of concerns,” Smith said.

“These include instances of immature risk cultures, an approach to risk management that has not kept pace with the growth and maturity of the organisation, sub-optimal board compositions including the lack of specific trustee capabilities, and conflicts of interest.”

She added that APRA looks at 10 dimensions when it comes to risk culture: leadership, risk appetite and strategy, decision making and challenge, communication and escalation, risk capabilities, risk governance and controls, responsibility and accountability, performance management and incentives, shared values and risk culture assessment.

“It’s no coincidence leadership is number one on the list; nothing influences an institution’s risk culture more than the words and actions of its board and senior executives – the tone from the top,” she said. fs

News

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

21

Products 01: Duncan McPherson

Link moves to streamline super advice Link Group has a new technology partnership aimed at streamlining financial advice for superannuation fund members.

Link will combine its services with personal financial management tool Moneysoft for a new offering will be available to all super funds that are Link Advice clients and is called the Link Advice Digital Fact Find.

Link said it is designed to reduce barriers to the uptake of advice by completely digitising paper-based fact find documents, autopopulating fact find modules to improve member experience and automating data entry to save advisers time.

These capabilities should allow funds to provide personalised financial advice at a reduced cost per-member by putting the fact find in a simple digital format, which funds can customise to their members requirements.

“Digital Fact Find is the best of Link Group solutions and Moneysoft products combined to better service members and clients. We’ve seen an opportunity to capitalise on both the increased adoption of digital platforms throughout COVID and the drive to continually improve the access and affordability of advice,” Link Advice chief executive Duncan McPherson 01 said.

“The introduction of the Link Advice Digital Fact Find will not only improve member engagement but also improve adviser efficiency and compliance.

“The combination of new and old means Digital Fact Find could be brought to market quickly and rapidly deployed, while benefitting from years of prior testing.”

Moneysoft chief executive Jonathan Shaw added: “We are proud to partner with Link Group by offering the advanced fact find capability, which benefits both fund members and advisers.

“This technology is specifically designed to improve the completion rate of fact-finding, significantly increase the efficiency of advice delivery, and reward members by compressing the interest-to-execution timeframe. The Moneysoft team is looking forward to working with Link Advice on a number of upcoming deployments.”

BT enhances LifeCENTRAL+ BT’s LifeCENTRAL+ can now produce quotes for financial advisers wanting to alter life insurance policies for clients in less than 10 minutes.

BT has introduced a new self-service functionality for advisers, providing a quote for the most commonly requested changes to in-force policies, such as the sum insured, optional benefits and frequency of premium payments.

The in-force functionality is available for most eligible single life insured and stepped premium protection plans policies, BT life insurance head of adviser distribution Steve Craig 02 said.

“An adviser can be on a phone or video call with a client, conducting a review of their life

MyNorth adds partnered portfolios AMP has launched six new partnered managed portfolios (PMP) with advice practices, bringing the total range to 11.

A total of eight practices have added the six PMPs, which each represent distinct investment offers.

Four are managed by Zenith and Mercer.

The range of PMPs includes the first valuesbased sustainable managed portfolios in the market a portfolio series which combines index and active management.

“Advisers can expect more managed portfolios and innovative retirement solutions to be launched through the MyNorth platform in the coming months,” AMP Australia’s director of wealth distribution Nicole Mahan said.

“We are committed to making MyNorth the platform of choice for all advisers and their clients.”

insurance needs, and obtain a quote right there and then. This can help the adviser and client make decisions on updating policies with minimal delay, resulting in a better client experience and more efficient process for the adviser,” he said.

In the last 10 years, BT’s life insurance offering has introduced electronic medical certificates to simplify claims processes for claimants.

Over the period, Craig said the tele-claims offering has also grown.

As most new claims across income protection, trauma, life and terminal illness policies now being processed over the phone, this removes the need to fill out forms and reducing the turnaround time to approve claims and process payments to clients, he said.

Platinum launches investment bond Platinum Asset Management has launched an investment bond with Australian Unity.

It is offering two options: Platinum’s International Fund or the Asia Fund, according to the March 19 product disclosure statement.

Lifeplan Australian Friendly Society will act as the issuer of the investment bond structure.

The minimum investment size is set at $1000.

Management costs are set at 1.35% per year, of which 30bps is administration fees and 1.05% is the investment management fees.

Investment bonds are tax-paid structures, where the bond issuer pays the 30% company tax rate to the ATO, thereby freeing the bond holder of the obligation of including it on their annual tax return.

Withdrawals after 10 years don’t incur additional personal income tax subject to other conditions.

They also don’t incur capital gains tax when the ownership of the bond is changed; issuers often pitch them as estate planning structures that are faster and more effective than Wills.

Platinum’s competitor Magellan Asset Management also recently signed up for inclusion in the investment bond structure, via Generation Life’s tax optimiser series.

Asendium launches swift SOA solution The fintech has officially launched a solution that slashes the time to generate a statement of advice from eight hours to two hours.

Asendium is aiming to reduce three major bottlenecks for advisers: processes, people and fragmented systems.

Asendium chief executive and former financial adviser Scott Miller told Financial Standard that the solution does not aim to eliminate paraplanners in the advice process, rather give them and advisers more time to focus on strategies.

When he was an adviser, Miller said the longest time he had to wait for the SOA to generate was eight weeks.

Asendium on the other hand, is able to eliminate much of the physical and elapsed work

02: Steve Craig

times, so that for one scope of advice, such as investment advice for example, the time it takes to compile an SOA is reduced to two hours, he said. Meanwhile, the system can spit out the physical SOA in 30 seconds.

Miller said Asendium works best with another customer relation management system like Xplan and AdviserLogic.

The first iteration, Asendium Lite, launched in August 2020, was implemented by new dealer group Finchley & Kent.

Asendium Lite offered a file note solution at the time, while the new product incorporates file notes, fact-finds and investment strategy documentations.

Miller is one of three co-founders of the fintech, which launched in June 2019. Sharon Lee is the chief creative officer and William Kim acts as chief operating officer.

The fintech has on board seven financial advisers who are also investors and part owners.

These advisers have been using Asendium in their practices, Miller said, adding that the product officially launches to all advisers today.

Asendium’s pricing starts at $650 per month with the flexibility of cancellation “Netflix-style”, he said. Discounts are also provided for licensees that want to use the solution for the group.

Looking to the future, Asendium will add on an audit report, enhanced questions, integrated data feed and a client portal.

BlackRock rejigs Aussie shares fund BlackRock is changing the name and fees for the BlackRock Concentrated Industrial Shares strategy.

Effective June 1, the fund was renamed to BlackRock High Conviction Australian Equity Fund.

The strategy has about $700 million in total assets, of which about $200 million are in the D class.

The performance fee remains the same but will now be charged on net (of management fees) returns rather than on gross returns.

The fund is managed by Charles Lanchester, Madeleine Beaumont and Sam Theodore.

About a quarter of the strategy’s assets are invested in consumer discretionary stocks like auto dealership Peter Warren and pureplay e-commerce player Redbubble.

Industrials are the second-highest sector exposure, accounting for 12.9% of the fund.

The strategy has returned 46.5% in the year ending April, to the S&P/ASX 300’s 31.6% over the same period.

It has also enhanced its quality filters including management, profitability, debt, business and sustainability.

From June 1, the fund is also formally excluding sectors including tobacco producers, controversial weapons, thermal coal (greater than 5% revenue from production and power generation), oil sands (greater than 5% revenue from production), nuclear weapons, and oil and gas. The managers typically excluded these previously. fs

22

Featurette | Managed accounts

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

A universe of its own After years of being described as the next big thing, managed accounts are now the only thing keeping Australia’s platform industry from going backwards. Annabelle Dickson writes.

The role of technology in financial advice firms has developed as financial advice practices have introduced more platforms into their operations and consequently revolutionised the delivery of advice.

The strength and prowess of platforms can be pinpointed to the development and popularity of managed accounts.

But managed accounts have emerged as the only aspect of the platform industry with signs of stellar growth.

Rainmaker Information’s latest Wholesale Advantage Report for the December 2020 quarter recorded 2.2% platform growth per annum over the last three years while managed accounts have surged 31%.

However, removing the growth of managed accounts, platforms would have shrunk $3 billion over December 2017 and December 2020.

Rainmaker executive director of research Alex Dunnin says managed accounts are the only growth vector in the platform market.

“It shows the managed account share of the wrap platform segment to have ballooned five-fold between December 2017 to December 2020 from 10% to more than 50%,” Dunnin says.

“If it wasn’t for managed accounts, platforms would be in run-off.”

Even Praemium chief commercial officer Mat Walker01 acknowledges the contribution managed accounts have made to platform growth.

“There’s no doubt that managed accounts have been a key driver of the growth of platforms in

recent times. As a segment, it’s arguably been the fastest growing segment of the market,” he says.

Given this increase in the managed account share of wrap platforms, they are also set to engulf wraps with 23% growth in the last 12 months compared to 6.7% for wraps.

The monumental growth of managed accounts is in line with the SPDR ETFs/Investment Trends Managed Accounts Report which found 70% of advisers are either using managed accounts or intend to, up from 44% in 2012.

Further to this, over 80% of advisers that use managed accounts believe it is easier to demonstrate client best interest duty through managed accounts compared to managed funds (73%) and a portfolio of direct shares or listed investments (69%).

As such, new client inflows into managed accounts have grown 42% over the last 12 months.

Institute of Managed Account Professionals (IMAP) chair Toby Potter02 puts the growth of managed accounts down to the better outcomes they provide.

“There’s no doubt in my mind that managed accounts are one of the best ways of advisers ensuring that their clients achieve the best possible outcome from the advice process,” he says.

“The growth in managed accounts on platform has therefore been a combination of improved functionality from the platform, but also advisers and licensees recognising that a managed account approach to implementing advice is likely to achieve better outcomes.”

If it wasn’t for managed accounts, platforms would be in run-off.

Alex Dunnin

Mason Stevens managing director, global investment service Nick Mitchell03 agrees and says the surge in managed accounts comes down to them being a pivotal method for advisers to deliver value.

“They have evolved significantly in the last two to three years which comes down to improved technology, asset managers embracing them and that challenging market conditions have paved the way for advisers to better methods of investment, execution and innovation,” he says.

From the platform market, BT remains the largest ownership group in the platform market with $139 billion in funds under administration (FUA), making up 19% of the platform market at the end of December 2020.

It is followed by AMP and Colonial First State with $126 billion and $104 billion, respectively.

Meanwhile, younger platforms are gaining traction with Netwealth recording $46 billion in FUA, followed by HUB24 at $22 billion and Praemium at $8 billion, prior to any acquisition activity.

However, Dunnin argues the platform market is under considerable pressure as the superannuation market pushes through $3 trillion, on its way to $6 trillion.

“For the platform sector to be at-best flatlining is a wake-up call to Australia’s wealth management groups. It’s like the massive growth happening in not-for-profit super, exchange-traded products and private investing is passing them by,” he says.

“But the wildcard is how the Your Future, Your Super legislation could impact them. This is

Managed accounts | Featurette

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

because, if, as expected, it leads to a push for funds to lower fees and dump excessive numbers of investment options, this could flow-on to the non-super platform sector.”

Potter agrees and says it is pushing platforms to work harder to increase functionality.

“As superannuation flows favour industry funds, it has led that’s led to a position where the functionality demanded by advisers of the platforms is increasing,” he says.

But Walker is not convinced and thinks industry funds and platform service different areas of the market.

“I don’t necessarily agree. I think most of the money going to industry funds is in the smaller, simpler end of the market whereas platforms as we know them are dealing with people who are looking for more choice and professional financial advice with that,” he says.

“Whether that’s choice of managed accounts, direct investments, managed funds, and ETFs. It’s quite a different submarket in my mind. I don’t I don’t think that industry funds are really the threat to platform growth.”

Rainmaker research shows separately managed accounts (SMAs) hold almost half the market followed by managed discretionary accounts (MDAs) at 30%, with the remaining 22% being in the ‘other’ category.

SMAs are expected to continue strong growth at a rate of 10 times faster than MDAs at 38% per annum compared to 4%.

With the growth of managed accounts aside, the real problem Dunnin says, is that platforms will have to fight for market share as financial adviser numbers are dwindling at a five-year low.

Rainmaker analysis of ASIC’s Financial Adviser Register recorded the adviser population at 20,667 in the first quarter of 2021.

This is an 11% decrease on the previous corresponding period and about 10,000 advisers short of the peak following the Hayne Royal Commission.

In two years, 7000 advisers have left the industry which equates to around one-in-four advisers that are no longer there.

As such, platform providers are likely to struggle to acquire new advisers.

“This could be about to unleash a massive wave of inward-focused carnage as platforms fight to the death for market share,” Dunnin says.

“The fight among platforms for technologydriven features and new functionality could cause the sector to cannibalise itself.

“If platform groups think they’re going to grow because they’re going to attract more advisers, new advisers, then they better take a look at what’s happened to adviser numbers these past few years.”

However, Walker believes the reduction in advisers are those that have been licenced and not full-time advising nor growing a significant advice business.

“The numbers have come down, but I think a

01: Mat Walker

02: Toby Potter

03: Nick Mitchell

chief commercial officer Praemium

chair IMAP

managing director, global investment service Mason Stevens

lot of the advisers that have exited the industry would not have been bringing a lot of clients on the platforms in the first instance,” he says.

However, a possible saving grace for the platform industry is more advisers claim to be non-aligned and should be open to working with new platforms or swapping across.

Walker does agree that the platform market is always going to be competitive, particularly because advisers have choice.

“In recent years, one of the big trends that you’ve seen is that a lot of advisers have now moved away from the banks and there is quite a lot more independent advisers out there that are now looking for a broader choice of platform to meet their client’s needs,” he says.

“With best interest duty the average number of platforms a firm uses these days is around 2.5.

They typically have a primary one, but the result really is that it’s always going to continue to be a competitive market.”

Mason Stevens’ Mitchell says while the reduced number of advisers is damning for the industry, he believes there is an opportunity for advisers to attract new clients.

“With better transparency, simpler transacting capability and a strong focus on automation, the industry is actually going to attract clients and encourage first timers to seek professional advice,” he says.

“I think advisers will see an increase in the amount of people seeking their help. If advisers utilise all those efficiency advantages of operating a portfolio under an MDA or an SMA, that will drive costs down.”

Potter agrees with Dunnin and says the competition for those advisers who remain

The gravitation towards specialist platform providers... indicates that advisers will go where the quality is.

Nick Mitchell

becomes even more compelling but comes down the offering of platforms.

“The primary driver for market share competition amongst platforms is the widening gap in capability and functionality between the newer emerging platforms and the platforms whose demise has already been announced,” he says.

MLC is a case in point, Potter explains, as it announced it will be replacing its platform.

“That suggests that advisers are likely to want to move to a to a more modern platfom,” he says.

Mitchell agrees: “The gravitation towards specialist platform providers, away from the traditional platform heavyweights indicates that advisers will go where the quality is.”

One of the elements of the Mason Stevens platform is that it has live trade execution. Mitchell believes all platforms should implement this functionality.

“A lot of other platforms use volume weighted trading. They wait until the end of the day to pool those trades and then make that call,” he says.

Mitchell believes the market volatility in March 2020 is a perfect example of where real time execution on managed accounts helped to provide superior investments outcomes for clients.

“You certainly wouldn’t want to be waiting to the end of the day. I think executing on a rebalance in real time should be industry standard,” he says.

At the end of the day, Dunnin says managed accounts are the fourth generation of platforms and their ability to provide access to model portfolios and improved tech solutions is what makes them appealing.

“None of this is Armageddon,” he says.

“But the age of disruption is a long way from done.” fs

Managed accounts types and FUA growth, December 2020

Figure 1. Managed accounts types and FUA growth, December 2020

60% 50% 40% 30% 20% 10% 0% -10% -20% SMA/MIS

MDAs

OTHER

1year Source: byInformation Rainmaker Information Source: IMAP, IMAP, analysis analysis

by Rainmaker

3years

23

TOTAL

24

International

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

NZ Super bolsters leadership

01: Sarah Melvin

head of UK BlackRock

Elizabeth McArthur

NZ Super has announced a new general manager, portfolio completion to oversee the implementation of its reference portfolio.

The Guardians of New Zealand Superannuation, the entity which manages the NZ $57 billion fund, promoted George Crosby to the role.

Crosby was previously head of portfolio investments at NZ Super and has been with the fund since 2008.

In his new position, Crosby replaces Mark Fennell who was appointed to the role of general manager, risk earlier this year. They will both take up their new roles on July 5.

“Mr Crosby is a world class investment professional who is widely respected in the industry globally. We count ourselves very fortunate to have him on our team,” Guardians chief executive Matt Whineray said.

The Guardians are recruiting for a head of portfolio investments.

Prior to joining NZ Super, Crosby had held roles at Westpac, BNP Paribas and Toronto Dominion Bank. fs

BlackRock wins monumental mandate Annabelle Dickson

I The quote

We are honoured to be entrusted to manage the assets of these two important pension schemes through the creation of a bespoke model.

MAM fund buys waste company Macquarie Asset Management has acquired Beauparc Utilities from its founder and a private equity firm for an undisclosed fee.

Macquarie European Infrastructure Fund 6 bought out the Dublin-based company from Eamon Waters and the Blackstone Tactical Opportunities Fund.

Beauparc is a waste-to-resource business with presence across Ireland and the Netherlands.

It generates value from waste by processing materials from collectors towards reusable products and supplying waste to cement kilns and energy-from-waste facilities.

“We see a significant opportunity to build on Beauparc’s strong reputation in the sector, investing to support the growth of the circular economy through projects that divert waste from landfill,” Macquarie Infrastructure and Real Asset head Leigh Harrison said.

“We look forward to partnering with its team to support Beauparc’s long-term growth plans, maintaining its strong focus on customers, health and safety, and sustainability.”

Blackstone previously made a 37.6% stake in Beauparc two years ago with the remaining holding belonging to Waters.

“It has been a pleasure to partner with Eamon and the management team, and we are immensely proud of the success the company has achieved in recent years,” Blackstone managing director Amer Khatoun said.

“Beauparc has established itself as a pioneer in the circular economy, and we wish the management team every success in its future partnership with Macquarie.”

Waters added: “Our team has worked tirelessly to build the trust of our clients and the communities we serve. We are pleased to have found a new owner to shape the next chapter of Beauparc’s growth story.” fs

n what is reportedly one of the biggest transfers of retirement savings, BlackRock has won the first external investment mandate for two of the largest defined benefit schemes in the UK. BlackRock will be the outsourced chief investment officer (OCIO) for $39.9 billion (£21.5 billion) of British Airways Pensions’ assets.

The mandate is for the investment management of Airways Pension Scheme (APS) and New Airways Pension Scheme (NAPS) which serve more than 85,000 members.

Both APS and NAPs where previously managed by British Airways Pension Investment Management (BAPIML).

The choice to externalise the investment management came from increased regulation, operational costs and investment complexity in the UK pension scheme industry.

In addition, the schemes have matured, and the investment needs have changed, requiring an increased focus on managing investments to provide an income that matches members’ pension benefits.

BA Pensions selected BlackRock after a competitive tender process due to its knowledge on UK pensions and scale, investment expertise

and risk management technology which are set to maximise value for members.

The mandate follows British Airways Pension being forced to defer more than $820 million in pension payments in February last year after COVID-19 impacted air travel. Prior to the deferment, British Airways Pension was already dealing with a funding shortfall of about $4.39 billion, first identified in 2018 valuations.

“We are honoured to be entrusted to manage the assets of these two important pension schemes through the creation of a bespoke model. We look forward to delivering enhanced investment performance for the ultimate benefit of the Schemes’ members,” BlackRock’s head of UK business Sarah Melvin01 said.

The agreement also included the transfer of employees from BAPIML and some employees of British Airways Pension Services Limited (BAPSL) to BlackRock.

BAPIML has delivered on investment performance and stewardship of the schemes over many years but the mandate is the next step to ensure the evolution of both schemes, chair of trustee APS and NAPS trustee Roger Maynard said.

The transition of assets completed on 1 June 2021. fs

Research reveals factors influencing advice Jamie Williamson

A study which saw financial advisers providing advice for hypothetical clients found stark inconsistencies in risk assessments, with suggestions an adviser’s own circumstances can influence the advice provided.

The data from Oxford Risk shows, when asked to make recommendations for imaginary clients, advisers made “remarkably different” judgements when it came to how much investment risk was suitable despite being given the same hypothetical information.

When it came to asset allocations, Oxford Risk described those recommended as “scattershot”, adding that even when advisers agreed on risk tolerance, they disagreed on asset allocation.

The research found there are certain characteristics of financial advisers that seem predictive of the resulting advice.

For instance, married advisers are more likely to recommend slightly lower risk levels than those that are single.

Elsewhere, university-educated advisers have lower risk capacity assessments on average, while salaried advisers gave higher recommended risk levels than those receiving commissions or fees.

Experience, nor how many clients an adviser serves makes no significant difference to the advice provided, the study suggests.

Ultimately, Oxford Risk found recommendations “were closer to totally random than totally consistent”.

The study, conducted in partnership with South Africa’s professional body The Financial Planning Institute and South African firm Momentum Investments, suggests variations are also being driven by “noise”; that which cannot be reliably explained. The research suggests this can include anything from the advisers’ mood to the length of time since they last ate and the weather.

Advisers were provided with six hypothetical client profiles.

Clients one and four were identical aside from risk tolerance, clients two and five were the same save for one owning a much more valuable property, and three and six were only differentiated by their varied spending goals. Their names corresponded to randomised genders to detect any potential gender bias.

Commenting on the findings, Oxford Risk noted the artificiality of the exercise, acknowledging it is “not a flawless representation of the way adviser-client relationships, nor advice processes, exist in real life”.

“This artificiality limits the weight to attach to any conclusions. However, just as roleplays, however artificial, improve real-life performance, so should this noise audit. The real world in which advisers operate is messy, and full of potentially unhelpful influences. Mere knowledge of this messiness is not sufficient protection,” the firm said. fs

Between the lines

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

Licensee awards tech mandate

25

01: Jodie Hampshire

ROAR Software has won a technology solution mandate from a recently launched dealer group.

Dealer group Finchley & Kent claims that its advisers save up to 60% of their time on administrative work as result of this new partnership.

The solution is speeding up file notes and Statement of Advice generation and eliminates the need for a paper-based fact finder, the dealer group’s managing director Sam El Shammaa said.

In eliminating the 60-page fact finder, El Shammaa said digitising this and adding in information to the broad transcript on topics such as insurance, income protection and retirement, which can be tailored to an individual client’s needs, provides a better client experience of advice.

Finchley & Kent, which launched one year ago and has on board about 14 advisers, has replaced Asendium as its tech solutions provider.

In March, ROAR patented Highlighter, its proprietary application that enables the conversion of Microsoft Excel tools into online web applications.

ROAR chief executive Kevin Liao said this allows financial advisers to develop fully functional software applications ready for an SaaS model and remove the time and cost barriers of developing software for businesses.

“By leveraging technology such as Highlighter, advisers can reduce inefficiencies such as errors and multiple iterations of the same documents and protect themselves and their licensees with automatic compliance,” Liao said. fs

managing director, Australia and New Zealand Russell Investments

Russell wins mandates worth $285m Karren Vergara

R The quote

These mandates underline the importance of transitioning towards a superannuation system that puts real member goals and personal funded status at the centre.

ussell Investments has won corporate superannuation mandates from three employers amounting to $285 million.

Clayton Utz, Byrnecut Group and an unnamed reinsurer have tasked the Russell Investments Master Trust to oversee their employees’ superannuation plans. Some 2500 new employees have joined the master trust.

Byrnecut Group, a contract mining company, awarded the mandate via Resource Super, a division of the Russell Investments Master Trust.

Russell Investments managing director of Australia and New Zealand Jodie Hampshire01 said the new members will have access to Russell’s personalised superannuation program GoalTracker.

The new mandates indicate that leading employers are increasingly seeking solutions which increase member engagement and personalise

Rainmaker Mandate Top 20

the typically commoditised superannuation experience, she said.

“Leading employers are increasingly endorsing personalised superannuation and these mandates underline the importance of transitioning towards a superannuation system that puts real member goals and personal funded status at the centre of the super experience,” Hampshire said.

GoalTracker enables members to select the type of lifestyle they want in retirement –modest, comfortable or aspirational.

Russell has visualised these lifestyles with things like travel destinations and the type of car they might drive or where they might be able to shop, depending on their level of retirement income. Members are even prompted to select how often they might like to dine out in retirement.

Then GoalTracker determines how much income an individual would need in retirement to achieve those goals. fs

Selected cash and bonds mandates appointed last 2 quarters

Appointed by

Asset consultant

Investment manager

Mandate type

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

HarbourVest Partners, LLC

Fixed Interest

16

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Kapstream Capital Pty Limited

Alternative Fixed Interest

25

Christian Super

JANA Investment Advisers

Self

Enhanced Cash

Christian Super

JANA Investment Advisers

Other

Cash

Citibank Australia Staff Superannuation Fund

Willis Towers Watson

Macquarie Investment Management Australia Limited

Australian Fixed Interest - Diversified

1

Citibank Australia Staff Superannuation Fund

Willis Towers Watson

Macquarie Investment Management Australia Limited

Enhanced Australian Fixed Interest

8

Citibank Australia Staff Superannuation Fund

Willis Towers Watson

Ardea Investment Management Pty Limited

Inflation Linked Bonds

5

Citibank Australia Staff Superannuation Fund

Willis Towers Watson

Macquarie Investment Management Australia Limited

Cash

3

Energy Super

JANA Investment Advisers

Robeco

Global Fixed Interest

195

Energy Super

JANA Investment Advisers

IFM Investors Pty Ltd

Australian Fixed Interest

199

Energy Super

JANA Investment Advisers

Janus Henderson Investors (Australia) Limited

Fixed Interest

Health Employees Superannuation Trust Australia

Frontier Advisors

Macquarie Investment Management Australia Limited

Global Fixed Interest

44

Health Employees Superannuation Trust Australia

Frontier Advisors

Macquarie Investment Management Australia Limited

Indexed Global Bonds

141

Hostplus Superannuation Fund

JANA Investment Advisers

Other

Fixed Interest

39

Hostplus Superannuation Fund

JANA Investment Advisers

BlackRock Investment Management (Australia) Limited

Ethical/SRI Fixed Interest

10

Retail Employees Superannuation Trust

JANA Investment Advisers

Macquarie Investment Management Australia Limited

Ethical/SRI Fixed Interest

15

Retail Employees Superannuation Trust

JANA Investment Advisers

JP Morgan Asset Management (Australia) Limited

International Fixed Interest

1,343

Retail Employees Superannuation Trust

JANA Investment Advisers

Wellington Management Australia Pty Ltd

International Fixed Interest

1,101

Spirit Super

Whitehelm Capital

National Australia Bank Limited

Cash

State Super (NSW)

Frontier Advisors

Bentham Asset Management Pty Limited

Australian Fixed Interest

Amount ($m)

1

50 226 Source: Rainmaker Information

26

Managed funds

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11 PERIOD ENDING – 31 MARCH 2021

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

GROWTH

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

CAPITAL STABLE

Vanguard Diversified High Growth Index ETF

863

31.6

6

13.0

1

Macquarie Capital Stable Fund

27

9.6

20

7.0

1

6.6

3

Vanguard Diversified Growth Index ETF

399

24.0

19

10.7

2

IOOF MultiMix Moderate Trust

586

13.3

7

6.9

2

7.3

1

3857

31.5

7

10.5

3

10.9

4

Dimensional World Allocation 50/50 Trust

644

20.4

1

6.5

3

7.1

2

Vanguard High Growth Index Fund Perpetual Split Growth Fund

43

28.4

13

10.2

4

10.9

3

MLC Index Plus Conservative Growth

251

15.6

5

6.3

4

MLC Wholesale Horizon 6 Share

309

33.3

4

10.1

5

11.0

2

MLC Horizon 3 Conservative Growth

1150

17.3

3

5.9

5

Fiducian Ultra Growth Fund

246

47.8

1

10.0

6

11.3

1

Vanguard Diversified Conservative Index ETF

169

9.9

18

5.9

6

Fiducian Growth Fund

192

32.3

5

9.6

7

10.1

7

Vanguard Conservative Index Fund

2898

9.9

19

5.8

7

5.6

6

10

34.3

3

9.6

8

10.5

5

AMP Capital Income Generator

1477

16.2

4

5.5

8

5.5

8

IOOF MultiMix Growth Trust

673

22.4

21

9.4

9

10.4

6

Perpetual Conservative Growth Fund

325

10.0

17

5.4

9

5.0

13

MLC Wholesale Index Plus Growth

156

26.8

16

9.2

IOOF MultiMix Conservative Trust

639

8.3

22

5.3

10

5.6

7

Sector average

602

27.8

Sector average

419

4.8

5.0

BT Multi-Manager High Growth Fund

10

8.0

8.7

BALANCED

11.6

6.3

4

CREDIT

BlackRock Global Allocation Fund (Aust)

585

34.4

2

9.8

1

9.3

3

MCP Real Estate Debt Fund

762

7.9

10

8.8

1

Ausbil Balanced Fund

132

34.8

1

9.7

2

10.2

1

MCP Secured Private Debt Fund II

653

7.7

11

8.5

2

Australian Ethical Balanced Fund

153

19.8

24

9.7

3

Legg Mason Brandywine Global Inc. Opt. Fund

135

15.6

2

7.3

3

Macquarie Balanced Growth Fund

789

17.8

30

9.1

4

9.6

2

Yarra Enhanced Income Fund

169

12.0

5

5.6

4

BlackRock Tactical Growth Fund

533

23.6

14

8.8

5

8.2

13

VanEck Vectors Aust. Corp. Bond Plus ETF

246

3.9

23

5.1

5

Fiducian Balanced Fund

477

27.3

4

8.8

6

9.2

4

Metrics Credit Div. Aust. Sen. Loan Fund

2904

4.3

21

5.0

6

4.9

4

Responsible Investment Leaders Bal

128

24.9

8

8.6

7

8.4

11

Janus Henderson Diversified Credit Fund

642

13.9

4

4.9

7

5.1

3

92

21.3

21

8.5

8

8.5

9

Pendal Enhanced Credit Fund

407

3.1

26

4.6

8

4.4

10

IOOF MultiMix Balanced Growth Trust

1871

17.8

31

8.4

9

9.2

5

Vanguard Australian Corp Fixed Interest Index

543

2.7

28

4.6

9

4.5

7

MLC Wholesale Index Plus Balanced

298

22.3

20

8.0

Vanguard International Credit Securities Index

544

6.2

15

4.5

10

4.2

11

Sector average

692

21.8

Sector average

790

6.4

4.0

3.8

SSGA Passive Balanced Trust

10

6.9

7.5

Note: The performance figures for diversified funds are net of fees, performance figures for sector specific funds are adjusted for fees.

6.6

1

Source: Rainmaker Information

No MOA outcome eginning financial year 2020, all RSE liB censees were required to release annual member outcome assessment and most are now

Pooja Antil

research manager Rainmaker Information

on their website.

The reforms required all RSE licensees to determine whether the financial interests of their members were being looked after.

The guidance from APRA was that RSEs should look at a whole range of factors including but not be limited to setting up their strategic objectives, incorporating both financial and non-financial outcomes that are historical and forward looking, nominal and risk-adjusted investment performance, fees and costs, insurance premiums, other benefits and services.

Additionally, RSEs were to ensure that their scale, business operating costs and their fees were not disadvantaging fund members.

One would naturally think that all RSEs, being the fiduciary guardians of their funds, must be already doing all this and these MOAs were just a matter of communicating it. This was a great opportunity for super funds to sing from the rooftops about how well they have fulfilled their best financial interest obligations.

But contradictory to this, all MOAs were released silently, stealthily, almost secretly.

Funds usually communicate with their mem-

bers on a regular basis, especially if there are any significant changes happening at the fund.

Turns out RSEs think their MOAs are not that significant, to the funds or members.

Rainmaker’s views are based on an analysis of a sample of super fund MOAs and found inconsistencies all round.

The first and obvious question was what needed to be assessed. While some funds released fund-wide MOAs, i.e., spanning all their products, a handful only looked at their MySuper product though some covered choice options to some extent.

One of the requirements of SPS 515 was to consider best financial interests of specific member cohorts or all groups in their membership. But there were only a couple of funds that assessed the benefits of their fees and insurance this way; most focused only on standard measures.

Talking about investment returns, while most funds used one, three, five, seven and 10-year returns to compare and benchmark themselves, there were a handful that only compared their long-term returns. Investment returns and investment risks were talked about but nothing more than what is already in the funds’ PDS and investment information booklets.

In some instances, dollar member fees - a compo-

nent of administration fees - was not even accounted for when calculating net investment returns.

Albeit there were super funds in the sample that translated net member benefit in dollars over certain periods and how they stack against an industry average. This could be something meaningful and easily understandable by members. Keep in mind that most of this analysis did not make clear if insurance premiums were considered or not.

Some MOAs also touched on operating costs per member of the fund compared to median operating costs. Surprisingly, the industry median operating costs per member referred by super funds were not consistent.

And somehow super funds defied the whole concept of scale efficiency, as trustees of all super funds no matter their size determined that they are providing the best financial outcomes for their members. But the good news is that it means super funds with funds under management ranging from $200 billion down to $2 billion or lower all are performing their fiduciary duties.

So, what’s all this fuss about mergers?

From looking at MOAs there can be no doubt that all funds are promoting their members best financial interests. If strategic planning and member outcome guidelines was some sort of test, all super funds surely passed. fs

Super funds

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11 PERIOD ENDING – 31 MARCH 2021

Workplace Super Products

1 year

3 years

% p.a. Rank

5 years

SS

% p.a. Rank % p.a. Rank Quality*

GROWTH INVESTMENT OPTIONS

27

* SelectingSuper [SS] quality assessment

Retirement Products

1 year

3 years

% p.a. Rank

5 years

SS

% p.a. Rank % p.a. Rank Quality*

GROWTH INVESTMENT OPTIONS

UniSuper - Sustainable High Growth

29.1

11

12.9

1

12.0

2

AAA

UniSuper Pension - Sustainable High Growth

32.3

15

14.3

1

13.3

2

AAA

UniSuper - High Growth

35.1

1

11.8

2

12.6

1

AAA

UniSuper Pension - High Growth

38.4

3

13.1

2

13.9

1

AAA

HESTA - Sustainable Growth

26.5

33

10.6

3

10.8

7

AAA

Suncorp Brighter Super pension - MM High Growth Fund

26.6

51

12.2

3

AAA

UniSuper - Growth

28.3

16

10.2

4

10.7

8

AAA

HESTA Income Stream - Sustainable Growth

29.7

27

11.6

4

11.7

8

AAA

Equip MyFuture - Growth Plus

30.0

9

10.0

5

11.7

3

AAA

UniSuper Pension - Growth

31.3

19

11.3

5

11.9

7

AAA

PSSap - Aggressive

21.8

91

9.9

6

10.3

14

AAA

smartMonday PENSION - High Growth Index

34.5

9

11.3

6

11.5

13

AAA

Military Super - Aggressive

21.7

93

9.8

7

10.3

14

AAA

MyLife MyPension - PositiveIMPACT

20.5

83

11.2

7

AAA

Cbus Industry Super - High Growth

30.9

7

9.8

8

11.1

5

AAA

Cbus Super Income Stream - High Growth

35.3

5

11.0

8

12.5

5

AAA

ADF Super - Aggressive

21.4

96

9.8

9

AAA

Vision Income Streams - Growth

30.7

22

11.0

9

11.7

9

AAA

HOSTPLUS - Shares Plus

30.1

8

9.7

AAA

Equip Pensions - Growth Plus

33.9

12

10.9

10

12.9

3

AAA

Rainmaker Growth Index

25.0

Rainmaker Growth Index

27.8

10

8.1

11.5

4

8.9

BALANCED INVESTMENT OPTIONS

8.8

9.8

BALANCED INVESTMENT OPTIONS

UniSuper - Sustainable Balanced

20.0

33

10.0

1

9.4

2

AAA

UniSuper Pension - Sustainable Balanced

22.6

29

11.4

1

1

AAA

UniSuper - Balanced

22.6

9

9.1

2

9.2

4

AAA

Suncorp Brighter Super pension - MM Growth Fund

21.7

40

10.8

2

AAA

Australian Ethical Super Employer - Balanced (accumulation)

19.3

49

8.9

3

8.4

21

AAA

Future Super - Balanced Growth Pension

19.2

71

10.4

3

8.4

43

AAA

Australian Catholic Super Employer - Socially Responsible

17.3

77

8.9

4

8.0

40

AAA

UniSuper Pension - Balanced

25.4

7

10.4

4

10.4

3

AAA

AustralianSuper - Balanced

21.7

16

8.6

5

9.5

1

AAA

Australian Catholic Super RetireChoice - Socially Responsible

19.1

72

10.0

5

9.1

22

AAA

HOSTPLUS - Indexed Balanced

22.7

8

8.5

6

8.7

13

AAA

Sunsuper Income Account - Balanced Index

25.0

8

9.6

6

9.4

13

AAA

Sunsuper Super Savings - Balanced Index

22.7

6

8.4

7

8.2

24

AAA

HOSTPLUS Pension - Indexed Balanced

25.8

5

9.5

7

9.8

8

AAA

CareSuper - Sustainable Balanced

18.2

60

8.4

8

8.4

20

AAA

ESSSuper Income Streams - Basic Growth

22.9

25

9.4

8

AAA

Lutheran Super - Balanced Growth - MySuper

20.6

24

8.2

9

8.8

11

AAA

AustralianSuper Choice Income - Balanced

24.1

14

9.4

9

10.4

2

AAA

AustralianSuper - Indexed Diversified

20.1

31

8.2

10

8.3

23

AAA

AustralianSuper Choice Income - Indexed Diversified

22.8

27

9.3

10

9.4

12

AAA

Rainmaker Balanced Index

17.9

Rainmaker Balanced Index

20.1

6.6

7.3

CAPITAL STABLE INVESTMENT OPTIONS

7.3

10.6

7.9

CAPITAL STABLE INVESTMENT OPTIONS

QSuper Accumulation - Lifetime Aspire 2

13.0

16

7.3

1

7.3

4

AAA

Suncorp Brighter Super pension - MM Balanced Fund

15.1

19

8.4

1

AAA

QSuper Accumulation - Lifetime Focus 1

13.4

13

7.2

2

7.3

5

AAA

Vision Income Streams - Balanced

18.5

2

7.9

2

8.7

1

AAA

Vision Super Saver - Balanced

16.6

2

7.0

3

7.7

1

AAA

AustralianSuper Choice Income - Conservative Balanced

17.1

7

7.7

3

8.4

2

AAA

AustralianSuper - Conservative Balanced

14.9

5

6.8

4

7.4

2

AAA

Cbus Super Income Stream - Conservative Growth

15.5

15

7.5

4

8.2

3

AAA

QSuper Accumulation - Lifetime Focus 2

11.8

21

6.7

5

6.6

9

AAA

LUCRF Pensions - Moderate

17.0

9

7.2

5

7.5

5

AAA

VicSuper FutureSaver - Balanced

12.3

18

6.3

6

7.4

3

AAA

Suncorp Brighter Super pension - Suncorp Universal Bal Fund

17.2

5

6.5

6

AAA

Cbus Industry Super - Conservative Growth

13.6

10

6.2

7

AAA

Aware Super Pension - Balanced Growth

13.0

36

6.5

7

4

AAA

LUCRF Super - Moderate

14.5

6

6.2

8

6.5

10

AAA

Suncorp Brighter Super pension - Lifestage Fund 1955-1959

17.4

4

6.5

8

AAA

QSuper Accumulation - Lifetime Focus 3

10.1

42

6.1

9

6.0

16

AAA

Super SA Income Stream - Moderate

17.1

8

6.5

9

9

AAA

Aware Super Employer - Balanced Growth

11.7

22

5.9

10

6.9

6

AAA

Prime Super Superannuation Income Stream - Income Focused

13.2

29

6.5

10

AAA

Rainmaker Capital Stable Index

9.6

Rainmaker Capital Stable Index

10.5

4.4

4.7

Note: Please note that all figures reflect net investment performance, i.e. net of investment tax, investment management fees and the maximum applicable ongoing management and membership fees..

4.8

7.7

7.2

5.1 Source: Rainmaker Information www.rainmakerlive.com.au

28

Economics

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

Victorian virus victory hangs in balance Ben Ong

he state of Victoria is locked down once again, TFactset for the fourth time in about 18 months. reports that: “Business leaders estimate that Victoria’s lockdown will cost the economy more than A$1 billion (some estimates of up to A$2 billion), with the effects compounded by the absence of support measures like JobKeeper.”

If all goes well, this newly-imposed seven-day lockdown would go the same way of the fiveday lockdown imposed only three months earlier (February) – short and minimal disruption to economic activity and short-circuiting the spread of infections.

Then again, all might not go well because Victoria is now dealing with a different organism, a more aggressive and highly infectious variant with contact tracers identifying 15,000 primary and secondary contacts who may have been exposed to the ‘Indian variant” in more than 300 exposure sites to date.

But Australia is now in a better place compared with the lockdowns of days past.

Although the Westpac-Melbourne Institute index of consumer confidence dropped by 4.8% in May from April, the 113.1 reading is the second highest since April 2010.

And why not? Australia’s labour market continues to improve despite the withdrawal of the government’s JobKeeper scheme. The country’s unemployment rate fell from 5.7% in March to 5.5% in April – just 0.2 percentage points (or 33,000 people) above the start of the pandemic and 2.0 percentage points below the 7.5% high recorded in July 2020 and the sixth straight monthly decline in the jobless rate.

Moreover, Australian business conditions jumped to a new all-time high reading of 32 in April, bettering what was then the record high score of 24 in the previous month, driven by continued improvement to record highs in the index’s sub-components.

Business confidence surged to a record high reading of 26 in April from the already above long-term average readings of 17 in March and 19 in Feb (long-term average is 6).

This would encourage Australian businesses to keep on lifting their investment on buildings and structures, equipment, plant and machinery and staff.

The Australian Bureau of Statistics’ (ABS) latest ‘CAPEX’ report reveals that they have already done so in the March 2021 quarter.

Here are the key stats: • Total new capital expenditure rose by 6.3% • Buildings and structures rose by 3.8% • Equipment, plant and machinery rose by 9.1% • Estimate 2 for 2021-22 is $113,635m. This is 7.9% higher than Estimate 1 for 2021-22 Lest you, I and Irene forget, there’s also the A$74.6 billion spending splurge announced in the budget.

For sure and for certain, the government wouldn’t be taking back the money it announced it’ll be giving us - that would be political suicide.

Victoria’s state government could even decide to loosen its budget spending.

And then, there’s the Reserve Bank of Australia (RBA). It has hinted that it could start tapering its bond purchases in July.

This now, to a certain extent, hinges on developments in Victoria. fs

Monthly Indicators

May-21

Apr-21

Mar-21

Feb-21

Jan-21

Consumption Retail Sales (%m/m)

-

1.14

1.32

-0.78

0.29

Retail Sales (%y/y)

-

25.12

2.22

9.09

10.61

Sales of New Motor Vehicles (%y/y)

-

137.24

22.42

5.05

11.06

Employment Employed, Persons (Chg, 000’s, sa)

-

-30.59

77.01

84.08

33.41

Job Advertisements (%m/m, sa)

-

4.68

7.78

7.46

2.74

Unemployment Rate (sa)

-

5.48

5.70

5.87

6.41

Housing & Construction Dwellings approved, Tot, (%m/m, sa)

-

4.57

1.96

15.02

-10.64

Dwellings approved, Private Sector, (%m/m, sa)

-

-8.61

18.86

20.13

-17.06

Survey Data Consumer Sentiment Index

113.13

118.78

111.80

109.06

107.00

AiG Manufacturing PMI Index

61.80

61.70

59.90

58.80

55.30

NAB Business Conditions Index

-

31.75

23.61

18.17

10.80

NAB Business Confidence Index

-

26.04

16.65

18.72

13.55

Trade Trade Balance (Mil. AUD)

-

-

5574.00

7595.00

Exports (%y/y)

-

-

-5.61

8.58

1.72

Imports (%y/y)

-

-

5.75

-4.19

-12.00

Mar-21

Dec-20

Sep-20

Jun-20

Mar-20

Quarterly Indicators

9527.00

Balance of payments Current Account Balance (Bil. AUD, sa)

18.28

16.01

10.57

16.48

6.92

% of GDP

3.60

3.15

2.17

3.52

1.37

Corporate Profits Company Gross Operating Profits (%q/q)

-0.33

-4.78

4.01

13.40

2.58

Employment Wages Total All Industries (%q/q, sa)

0.60

0.67

0.08

0.08

0.53

Wages Total Private Industries (%q/q, sa)

0.52

0.52

0.53

-0.08

0.38

Wages Total Public Industries (%q/q, sa)

0.52

0.52

0.45

0.00

0.45

Inflation CPI (%y/y) headline

1.11

0.86

0.69

-0.35

2.19

CPI (%y/y) trimmed mean

1.10

1.20

1.20

1.30

1.70

CPI (%y/y) weighted median

1.30

1.30

1.20

1.20

1.40

Output

News bites

PMI “Australian private sector growth eases from record but remains elevated,” sums up Markit Economics’ findings for the month of May. The IHS Markit flash Australia composite PMI output index eased to a reading of 58.1 in May, but this, from April’s final reading of 58.9 – the highest level recorded since the survey began in May 2016 and marks the ninth straight month of expansion in private sector activity. “The continued expansion of the private sector was supported by improved client confidence, buoyant market conditions, strengthening demand, the easing of COVID-19 restrictions and low interest rates.”

Employment The ABS reported that the country’s unemployment rate fell from 5.7% in March to

5.5% in April — 0.2 percentage points (or 33,000 people) above the start of the pandemic and 2.0 percentage points below the 7.5% high recorded in July 2020 and the sixth straight monthly decline in the jobless rate. However, total employment contracted by 30,600 in April from March as the loss of 64,400 part-time jobs negated the 33,800 full-time hires over the month.

Still, this is a great deal less than the 100K-to 150K pink slips the Treasury forecast.

There could be some employment losses over coming months but this goes against the recent improvement in leading indicators.

Wages The ABS’ “Wage Price Index” report showed that growth in total wages accelerated to 1.5% in the year to the March 2021 quarter. Private sector wages growth steadied at 1.4% in the first quarter but public sector wages “recorded its lowest annual rate of growth (1.5%) since the commencement of the series” from 1.6% in the December 2000 quarter.

The Australian economy is certainly recovering faster than expected and the labour market has improved significantly. But it would take some time before it translates into higher wages and then spill over into higher inflation.

Recall the RBA intimating that wages have to grow sustainably by more than 3% for it to translate into higher inflation. fs

Real GDP Growth (%q/q, sa)

-

3.13

3.40

-7.00

-0.30

Real GDP Growth (%y/y, sa)

-

-1.12

-3.70

-6.31

1.40

Industrial Production (%q/q, sa)

-

-0.30

0.20

-3.01

0.10

Survey Data Private New Capex, Total, Chain, Vol, (%q/q, sa) Financial Indicators

6.27

4.23

-2.87

-6.32

-1.94

28-May Mth ago 3mths ago 1yr ago 3yrs ago

Interest rates RBA Cash Rate

0.10

0.10

0.10

0.25

1.50

Australian 10Y Government Bond Yield

1.63

1.68

1.88

0.88

2.61

Australian 10Y Corporate Bond Yield

1.96

1.55

1.27

1.98

3.34

Stockmarket All Ordinaries Index

7424.0

S&P/ASX 300 Index

7173.6

S&P/ASX 200 Index

7179.5

S&P/ASX 100 Index

5942.9

Small Ordinaries

3293.4

1.42%

6.96%

24.61%

21.43%

1.65%

7.65%

23.29%

20.22%

1.63%

7.59%

22.70%

19.58%

1.82%

7.98%

23.18%

20.56%

0.45%

5.43%

24.37%

17.59%

Exchange rates A$ trade weighted index

63.50

A$/US$

0.7709 0.7766 0.7742 0.6660 0.7547

63.90

64.50

57.80

62.50

A$/Euro

0.6329 0.6424 0.6378 0.6024 0.6494

A$/Yen

84.79 84.58 82.48 71.67 82.52

Commodity Prices S&P GSCI - commodity index

519.23

504.92

476.99

299.51

482.07

Iron ore

163.68

178.80

163.93

92.05

66.27

Gold

1899.95 1772.20 1742.85 1717.35 1303.50

WTI oil

66.32

63.81

61.55

33.67

Source: Rainmaker Information /

67.92

Sector reviews

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

Australian equities

Figure 1. Business conditions and confidence

Figure 2. Consumer sentiment

40

130

INDEX

20

120

0

110

-20

100

-40

Prepared by: Rainmaker Information Source:

-80

Business confidence

04

05

06

07

08

09

10

11

12

13

14

15

CPD Program Instructions

INDEX

90

Business conditions

-60

80

16

17

18

19

20

21

70

2004

2006

2008

2010

2012

2014

2016

2018

2020

Australia’s confidently recovering Ben Ong

T

he April survey result is simply stunning – with many variables reaching survey highs.

Conditions reset last month’s high, driven by further gains across trading conditions, profitability and employment. Confidence has also set a new high – pointing to ongoing strength in conditions in the near term.”

I would have exclaimed the same just looking at the top line numbers of the latest NAB Business Survey. But the bank’s group chief economist Alan Oster had first dibs.

Survey says…

Australian business conditions jumped to a new all-time high reading of 32 in April, improving on what was then the record high score of 24 in the previous month, driven by continued improvement to record highs in the index’s sub-components: Trading increased to a reading of 40 in April from 35 in March and 24 in February. Profitability scored 33 in April from 25 in March and 21 in

International equities

February. Employment rose to 22 in April from 15 in March and 10 in April.

With business conditions like these, the jump in business confidence hardly comes as a surprise. Business confidence surged to a record high reading of 26 in April from the already above long-term average readings of 17 in March and 19 in Feb (long-term average is six).

Further, the survey found that confidence improves in all industries and higher in all Australian states “except WA [Western Australia], which was flat”.

“Oh, and more, much more than the outlook points to continued, if not accelerating, improvement. Forward orders reset last month’s record high – and point to a growing pipeline of work. Capacity utilisation also very high, and implies alongside the strength in a tivity, that firms may need to continue to hire workers and undertake investment in new projects to continue to grow,” it reads.

Figure 1. US inflation expectations 3.00

3.0

2.00

2.0

1.50

1.0

0.50

ANNUAL CHANGE %

10-year 5-year

-1.0

Core PCE price inflation Headline PCE

0.00 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

-2.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Inflation expectations influence actual inflation Ben Ong

all Street had been marching to the beat W of inflation speculations, with equities falling on stats and survey releases indicating rising inflationary pressure and rising when indicators suggest otherwise and soothing words from Fed officials.

US Federal Reserve chair Jerome Powell has stressed time and again that, although measured inflation would increase in the coming months, they are likely to be “transitory” – one that’s echoed by FOMC members.

US Federal Reserve Bank of St. Louis President James Bullard provided a timely venue for the Fed to push back on inflation fears – prompted by the release of higher-than-expected CPI inflation – that drove equity markets down on May 12.

Bullard’s take on inflation as published by the Federal Reserve Bank of St. Louis: “Bullard noted that market-based inflation expectations

have recovered from lows reached in March 2020. He said TIPS-based breakeven inflation could move higher and still be consistent with an inflation outcome (based on the personal consumption expenditures price index) modestly above the 2% inflation target set by the Federal Open Market Committee (FOMC).

“This would be a welcome development for the FOMC, as inflation has generally been below target for many years,” Bullard said.

Bullard may be correct with regards to the market-based inflation expectations being “consistent with an inflation outcome (based on the personal consumption expenditures price index) modestly above the 2% inflation target” – there’s a strong correlation between actual inflation and inflation expectations – but history shows that it had been the Fed’s countermeasures that tamed previous inflation breakouts.

US inflation expectations – measured as the differential between nominal bond yields

Australian equities CPD Questions 1–3

1. Which NAB business survey measure soared to record highs in April? a) Business conditions b) Business confidence c) Both a and b d) Neither a nor b 2. Which price measure accelerated in NAB’s April business survey? a) Final product prices b) Labour costs c) Purchase costs d) Retail prices 3. Australian wages grew by 1.5% in the March 2021 quarter. a) True b) False

CPD Questions 4–6

0.0 US nominal Treasury yield less US Treasury Inflation- protected securities yield

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].

International equities

Figure 2. US PCE price inflation

2.50

1.00

Prepared by: Rainmaker Information Source: Rainmaker /

Wait there’s more!

A fine print in the NAB Business Survey reveals that: “Fieldwork for this survey was conducted from 21 to 30 April 2021, covering over 400 firms across the non-farm business sector.”

This was after reports of delays in Australia’s vaccine roll-outs and the end of the JobKeeper scheme at the end of March.

Further, the survey was conducted before the Australian Federal Treasury’s spending splurge announced in the 2021/22 Budget on May 11.

The Westpac-Melbourne Institute index of consumer confidence dropped by 4.8% in May from April. Then again, and as Westpac points out, “It is still the second highest print for the Index since April 2010 and does follow an 11% rise in the Index over the previous three months”.

The question now is whether Australia is having too much of a good thing that a bad thing – rising inflation – is on its way. fs

4.0

DIFFERENTIAL %

29

and the yield on Treasury Inflation-Protected Securities (TIPS) have been rising. They’re now at levels higher than the Fed’s first QE taper in 2013, its rate hike campaign between 2017 and 2019 and when then Fed chair Janet Yellen announced the first interest rate hike since the Global Financial Crisis of 2009 in December 2016.

These countermeasures reversed inflation expectations and kept measured inflation within target.

She was chair of the US Federal Reserve when now Treasury Secretary Yellen explained the significance of inflation expectations.

“In standard economic models, inflation expectations are an important determinant of actual inflation because, in deciding how much to adjust wages for individual jobs and prices of goods and services at a particular time, firms take into account the rate of overall inflation they expect to prevail in the future.” fs

4. What according to St. Louis Fed president Bullard have recovered from the March 2020 lows? a) S&P 500 index b) DJIA c) Market-based inflation expectations d) All of the above 5. Current inflation expectations are higher than which years? a) 2013 b) 2016 c) 2019 d) All of the above 6. Janet Yellen believes that inflation expectations are an important determinant of actual inflation. a) True b) False

Sector reviews

Fixed interest CPD Questions 7–9

7. What was the RBNZ’s decision at its May meeting? a) It raised the official cash rate by 25 basis points. b) It kept the official cash rate unchanged. c) It lowered the official cash rate to 0.1%. d) It expanded its existing LSAP programme 8. When is the RBNZ expected to lift interest rates? a) June 2021 b) September 2021 c) June 2022 d) September 2022 9. The RBNZ expects headline inflation to peak at 2.6%. a) True b) False Alternatives CPD Questions 10–12

10. Which China activity indicator slowed in April from March? a) Retail sales b) Industrial production c) Fixed asset investment d) All of the above 11. What’s China’s current benchmark lending rate? a) 0% b) 0.85% c) 1.58% d) 3.85%

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

Fixed interest

Figure 1: RBNZ cash rate target

Figure 2: NZ inflation

4.0

3.0

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3.5

Headline inflation

2.5

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3.0 Annual change %

30

2.5 2.0 1.5 1.0

Prepared by: Rainmaker Information Prepared by: FSIU Source: Rainmaker / Sources: Factset

1.5 1.0 0.5

0.5

0.0 2012

0.0 2012

2.0

2013

2014

2015

2016

2017

2018

2019

2020

2021

2013

2014

2015

2016

2017

2018

2019

2020

2021

RBNZ steady, but not for long Ben Ong

T

he Reserve Bank of New Zealand (RBNZ) kept the official cash rate unchanged at 0.25%, maintained the existing LSAP programme, and retained the existing Funding for Lending Programme (FLP) conditions.

Same old, same old. The central bank notes that: “The improvement in global and domestic economic indicators … have provided members more confidence in this outlook, they agreed on the need for caution as domestic activity remains uneven across sectors of the economy.”

Ergo: “The Committee agreed to maintain its current stimulatory monetary settings until it is confident that consumer price inflation will be sustained near the 2% per annum target midpoint, and that employment is at its maximum sustainable level. Meeting these requirements will necessitate considerable time and patience.”

The RBNZ’s monetary policy statement sug-

Alternatives

gests that that time is near, and patience would run out by the third quarter of next year.

This is because New Zealand’s economic narrative is getting brighter. While the central expects GDP to have contracted in the first quarter of 2021 on the back of weaker domestic consumption and poor tourist arrivals during the peak summer season, it predicts GDP growth to accelerate to 3.9% by late 2022 that, in turn, would turn the output gap from negative to a big positive.

This is supported by its unemployment and inflation forecasts.

“The unemployment rate is assumed to have peaked at 5.2% in the September 2020 quarter.

Over the projection, the unemployment rate is assumed to gradually return to 4.3% as economic activity recovers and capacity pressures begin to rise. Employment is expected to return to around its maximum sustainable level in the second half of the projection.”

Figure 2: PBOC 1-yr loan prime rate

Figure 1: China retail sales, FAI & IP 40

ANNUAL CHANGE %

ANNUAL CHANGE %

30

15 10 5 0

-10

-5

Fixed asset investment - LHS

-20

2014

5.4

RATE%

5.2 5.0

20

0

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35 25

10

Prepared by: Rainmaker Information Prepared by: FSIU Source: IEA Sources: / Factset

40 30

20

12. China will hit its growth target this year. a) True b) False

Rising capacity pressure plus a declining unemployment rate equals higher wages growth.

“Annual LCI private sector wage inflation is assumed to accelerate from 1.6% in the March 2021 quarter to 2.4% at the end of the year, reflecting the April 2021 minimum wage increase and a tightening labour market. Annual wage inflation peaks at 2.6% later in the projection…”

Higher wages lift inflation. The RBNZ believes that headline inflation would peak at around 2.6% “but the factors lifting inflation are assumed to be relatively short-lived” and is therefore, expected to ease below 2% in 2022 before rising “above the 2% midpoint towards the end of the projection”.

Should the RBNZ’s growth and inflation assumptions and forecasts turn out correct, expect the official cash rate to be doubled to 0.5%

by September next year and doubled again to 1.0% by June 2023 before settling at 1.5% by the end of the same year. fs

2015

-10

Industrial production

-15

Retail sales

-20 -25

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2017

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2019

2020

2021

4.8 4.6 4.4 4.2 4.0 3.8

2015

2016

2017

2018

2019

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2021

China slowing to normal Ben Ong

S

Go to our website to

Submit

All answers can be submitted to our website.

lowing or just normalising?

This is the question prompted by the release of China’s latest activity stats – a question whose answer will determine future policy moves by the People’s Bank of China (PBOC) and the Politburo.

Retail sales, industrial production and fixed asset investment numbers for April suggest that China is gradually coming off the low base comparisons of February and March 2020 when the coronavirus pandemic hit, prompting the government to impose draconian lockdown measures that virtually froze social and business activity.

But back to the future and the recent stats.

The National Bureau of Statistics (NBS) reported that China’s retail sales grew by 17.7% in the year to April, slowing from March’s yearon-year rate of 34.2% (repeat, due to base effect) and less than market expectations for a 25.0%

pick up. Industrial production rose by 9.8% over the same period, down from the 14.1% annual growth rate in March and missing expectations for a 10.0% gain. Fixed asset investment increased by 19.9% in the year to April, down from 25.6% in March and still slightly behind expectations for a 20.0% expansion.

The chart below underscores these indicators path towards normality, possibly until August at the latest which, coincidentally is marked by the post-pandemic pool party Wuhan Maya Beach Water Park that went viral on 17 August 2020.

However, the PBOC is not taking any chances. It has kept its benchmark lending rate – the one-year loan prime rate (LPR) unchanged for the 12th straight month at 3.85% at its April fixing.

Deducing from its first quarter monetary report (released May 11), it’s not thinking of reducing accommodation yet. According to

the report, the PBOC believes that the foundation for China’s economic recovery is not yet solid. According to the PBOC report, “residents’ consumption is still constrained and investment growth is insufficient,” adding that “prudent” monetary policy would be flexible, targeted and appropriate.

China’s central command agrees. In their meeting conducted a day after the PBOC’s report, they acknowledged that there’s still high pressure to support employment and thus, decided to extend unemployment support till the end of this year.

This, despite China’s unemployment dropping to a pre-pandemic rate of 5.1% in April from 5.3% in the previous month and 6.2% in February 2020.

At any rate, it appears that China will hit this year’s target of “GDP growth of over 6% for 2021” - a low target compared with consensus expectations for around 8.0% growth. fs

Sector reviews

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

Property

Property

CPD Questions 13–15

Prepared by: Rainmaker Information Source: ME Bank

anding down the State Budget on May H 20, the Victorian government announced plans to increase taxes on top-end property owners who have benefited from soaring real estate prices.

Part of the state’s plan to make those who benefited most from the COVID-19 pandemic “pay their share”, the government said it would increase land tax on holdings worth more than $1.8 million.

For properties valued between $1.8 million and $3 million, the land tax will rise by 0.25%.

For those in excess of $3 million, it will increase by 0.30%.

The increases will be effective from the 2022 land tax year.

According to treasurer Tim Pallas, it will only impact 10% of Victorians paying land tax, which is not required on owner-occupied homes.

A premium stamp duty will also be introduced, seeing property transactions above $2 million attracting a $110,000 duty plus 6.5% of the dutiable value over $2 million. This will apply to all contracts entered into on or after 1 July 2021.

Temporary land transfer duty concessions

Victoria introduces property tax reforms, hikes Jamie Williamson

will be offered on new residential property within the City of Melbourne local government area with a dutiable value of up $1 million. A 50% concession will be available for new residential properties, while a full exemption will be made available where a new residential property has remained unsold for a year or more following completion of construction.

The concession will be available from 1 July 2021 until 30 June 2022, while the exemption is available now through to 30 June 2022.

The state will also introduce a windfall gains tax on rezoned land, which will only apply where a property’s value is boosted by more than $100,000. The new tax imposes a 50% tax on gains of $500,000 and above.

This will be effective 1 July 2022 and is estimated to raise about $124 million over four years.

“There needs to be a balance between those wanting to buy their first property and large property investors who continue to profit from soaring property values,” Pallas said.

From the 2022 land tax year, the general land tax threshold will increase by $50,000 to

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$300,000, while the threshold for land held on trust remains unchanged at $25,000.

The Property Funds Association believes there is potential for slower rental growth as a result of the reforms, as tenants find their costs increase. In cases where landlords cannot pass on the extra costs, they will face a drop in net income, chief executive Paul Healy said.

“Unlisted property funds have been a strong driver of economic activity in Victoria, and meet investors’ demands for income-producing investments in a low interest rate environment,” he said.

“However, it is unclear how increased taxes on this activity benefits owners, tenants, ordinary investors, or Victoria’s economic recovery.”

Grattan Institute program director Brendan Coates disagreed, saying: “As a tax, collecting unearned windfall gains is extraordinarily efficient, so efficient it shouldn’t even be called a tax but a charge for a change in allowable land use, which is what it is.”

However, Coates was critical of stamp duty increases, as someone buying a $2.5 million home will pay just $5000 extra in stamp duty. fs

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13: How did the program director for the Grattan Institute respond to the proposed property tax reforms announced by the Victorian government? a) He expressed doubts over how increased taxes on property transactions would benefit Victoria’s economic recovery. b) He would have preferred to see the abolition of the general land tax threshold under which no land tax is payable. c) He claimed any additional taxes imposed on topend property owners to be extraordinarily inefficient. d) He considered taxing windfall gains from soaring property prices as extraordinarily efficient.

14: The planned increases to land tax recently announced by the Victorian government will not affect owneroccupied homes as they are exempt from land tax. a) True b) False 15: The general land tax threshold in Victoria is to increase from the commencement of the 2022 land tax year by: a) $25,000 to $300,000 b) $50,000 to $300,000 c) $100,000 to $500,000 d) $25,000 to $100,000

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Profile

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

THE NEW FRONTIER As chief executive of Frontier, Andrew Polson is steering the asset consultant through a consolidation frenzy in its traditional client base of super funds. He talks to Kanika Sood about diversifying the 27-year-old business.

n April 2018, when Andrew Polson took the Iconsultant reins as Frontier’s chief executive, the asset had already been thinking about diversifying its business for at least four years.

Superannuation clients were Frontier’s bread and butter.

But now they were building more sophisticated teams, and actively looking for merger partners – shrinking the pie for many vendors, including asset consultants like Frontier.

Polson says he was attracted to the Frontier role for the same reasons that he was attracted to financial services as a young commerce graduate — the intelligence of people working there.

Polson’s family immigrated from South Africa amid racial tensions. His father, Peter Polson was an investment banker and later a fund manager, who now chairs the board of ASX-listed annuities giant Challenger.

“It’s been a great home for us and a relatively easy migration. The first period was tough, but we’ve been awfully lucky in terms of education and career opportunities,” he says.

Polson’s 26 year-long career stretches across plum jobs in retail wealth giants.

He started with NAB’s business bank and group strategy, and later worked at ANZ Investments (which became ING Australia), IOOF’s retail funds management business, and then ANZ private bank and ANZ Trustees.

He also ran the wealth business of much smaller MyState for two years.

When he arrived at Frontier, he had interacted with retail superannuation products but hadn’t directly worked in it, by his own measure.

“From my perspective, [it was due to] wanting to get a better understanding and exposure to a part of the financial services market that I hadn’t had much exposure to,” he says when asked why he took the Frontier job.

“I think, it’s critical to understand that if you’re going to be a well-rounded executive in financial services in Australia.”

Frontier had a 27.3% share of the investment consulting assets in not-for-profit superannuation sector at December end, according to Rainmaker Information estimates.

This makes it the second largest player in the space, behind JANA which had a 31.7% slice, and ahead of international consultants such as Willis Towers Watson, Mercer and Russell.

Since his arrival, Frontier’s revenue has grown by 30%. Polson declined to comment on the actual revenue but said Frontier was profitable, growing and thinking about its future.

“We have broadly just under 20 superannuation clients, and we’ve already experienced some consolidation of our client base. We don’t own a crystal ball, but we need to kind of try and forecast what that’s going to look like in the future. So, we’re diversifying our revenue stream accordingly,” he says.

Frontier is now seeking a new set of clients,

including other Asia Pacific institutional investors, local endowments and not-for-profits, high-net-worth investors and liability-driven investors such as insurers and public pools of money. Superannuation remains the core.

It has also accelerated its investment in ESG, governance and technology capabilities, on the way hiring extensively for its team which is now 85 people strong.

Technology is an increasingly popular product with its client base.

Polson says Frontier’s research found a lot of technology used by asset owners is fundmanager-specific and was born at the sell side of global financial markets. But there little specifically tailored for the cohort of asset owners.

“I’ve been involved in lots and lots of advice businesses. Ultimately, this is more institutional advice.

But again, the principles are the same,” he says.

“For me, what’s very different is getting my head around what’s possible with technology.

That’s really [about] trying to find what is the essence of the business opportunity, rather than me being a technologist, which I’m not.”

The firm has also spent nearly five years building a network in Asia Pacific, especially Japan where it wants to advise institutional asset owners on investments.

“In Australia we have very sophisticated pension funds. That market will ultimately consolidate, and you know, our opportunity is to take the learnings, the knowledge, experience [we] have with those sophisticated funds to other markets too,” Polson says.

However, it’s been a slow climb so far.

Frontier is still waiting to sign on a Japanese client, which Polson says is a consensus-driven market with the first win being the hardest. For its foray into smaller local institutional investors, Frontier is working with platforms like Praemium, Netwealth and HUB24.

One thing it wants to stay away from is manufacturing product.

“We remain the only consultant in Australia that is truly independent. We see that [when consultants] manufacture products, over time their capacity to be independent is limited. Not manufacturing gives us much more of an ability to make the right decisions on behalf of our clients without conflict,” he says.

Polson’s vision for Frontier a decade from now, is a consultant that is independent, global and diversified. He wants it to be the local leader in superannuation, liability-driven and emerging institutional markets. “[I hope that] 10 years from now, Frontier will have a technology business that is at least the same size, if not larger than the consulting business today,” he says.

“I hope and expect one of the great challenges we face today is

I think, it’s critical to understand that if you’re going to be a well-rounded executive in financial services in Australia.

Andrew Polson

how to compete with the global specialists and also be institutional enough.”

Outside of work, Polson is building a house and has a family with two young children.

“We try and do as much as possible with the kids on the weekend in the sport and activity zone.

I try and do as much exercise as I can. So, it’s relatively straightforward in that regard,” he says.

“And then like everybody involved in this sort of industry, I just love to read about investment matters and market analysis,” he says, listing The Ascent of Money: A Financial History of the World

by Niall Ferguson as his recommended must-read.

After 26 years in the industry, Polson is still surprised by the polarisation but also the innovation that can persist in financial services.

“What surprises me is, we don’t look to the opportunity to be the best, rather than try and languishing in what we could have done…You know, the things that I’ve always loved about financial services or enterprise are the innovations that can exist in financial services,” he says.

Three years into the job, what still surprises him about asset consulting?

“Consultants need to stop thinking they’re the masters of all knowledge. Because we’re not,” he says.

“And really, what does that mean? It means finding ways to partner better and better with our clients, and evolving with them.” fs