www.financialstandard.com.au
4 April 2022 | Volume 20 Number 06
06
11
22
First Sentier, La Trobe
BT, Magellan, TCorp
2022 Federal Budget
09
14
32
Michael Maher, JANA Investment Advisers
Income protection
Tim Unger, Willis Towers Watson
News:
Opinion:
Finfluencer warning may not be enough Chloe Walker
A
s ASIC tries to combat the conflation of personal and general financial advice online, many believe more stringent regulation should be implemented. Recent research from ASIC suggests nearly two thirds of young Australians follow finfluencers and are changing their own financial behaviours as a result. Now, ASIC has issued a fresh warning to those offering financial advice over social media. ASIC outlined activities where finfluencers may contravene the law if they are unaware of their legal requirements, considerations they should take, and also guidance for licensees who are engaging with influencers. The regulator warned finfluencers who earn money through affiliate links that send readers to online brokers that they may be providing a financial service, which also requires AFSL. Those without a licence, ASIC may seek to prosecute and could face up to five years in jail. “It is crucial that influencers who discuss financial products and services online comply with the financial services laws,” ASIC commissioner Cathie Armour said. “If they don’t, they risk substantial penalties and put investors at risk.” Glen James from popular podcast My Millennial Money welcomes the resource. “Firstly, I thought the clarity from ASIC was certainly welcome, and actually, the laws around this haven’t changed for some time, they’re just being explained,” James says. “I think I’d be more worried for the companies and the financial product providers that are using finfluencers rather than the finfluencers, because if you had a financial advice business, and you had someone in your office talking with the public and giving advice without a licence, that’s really bad. “I think from a product provider standpoint, if they’re employing someone to go and effectively funnel people into their product, I don’t see that there’s a big difference between that and having a physically unlicensed individual in a financial planning practice giving advice.” To curb this potential issue, James, who is an authorised representative of an AFSL, encourages other finfluencers to also get licensed. “I definitely encourage any finfluencers who do want to get licenced, to talk to various licensees, and see if they do have a general advice
offering. It’s important to carve out that in the general advice licencing world.” Vince Scully, founder and chief executive of Life Sherpa, agrees that ASIC’s INFO 269 is largely a restatement of what the law says. “I don’t think there’s anything particularly new there. I’ve always maintained that much of what is put out on blogs, podcasts, Instagram, TikTok will follow the line into financial advice, because it’s not very hard to follow that line,” he says. Scully says the point to note in ASIC’s document, which most people seem to gloss over, is the warning towards influencers who earn money through affiliate links. “If an influencer is driving traffic to financial services, like to a stockbroker or margin lender or any other product provider, they are essentially dealing in the course of an enterprise, so that person should have a licence,” he says. Angel Zhong, senior lecturer in finance at RMIT, says that INFO 269 is a great starting point for both finfluencers and financial service providers to follow, as it offers case studies of what actions constitute a breach of the law. Recent RMIT University research found financial information consumed online influenced investment decisions, a challenge to previous thinking that they merely justified people’s existing ideas. “Unverified investment advice is no different to fake news, which is frequently flagged by social media platforms that urge viewers to read with caution,” she says. So while it’s a good first step from ASIC, Zhong notes that areas of improvement remain, such as information for viewers and investors, as well as further regulation surrounding the cryptocurrency space. “Right now, many viewers don’t know what’s right or wrong when it comes to finfluencer marketing, because there isn’t a clear definition,” Zhong says. She says that, if they are adequately educated, viewers can play a part in contributing to this space by reporting illegal behaviour. “Secondly, the role of crypto remains unregulated,” she notes. “While there have already been several Senate hearings about potential crypto and blockchain regulation, if that space can be looked after, then we can better protect the financial wellbeing of the community.” fs
Exec appts:
Feature:
Special coverage:
Profile:
New hire salaries skyrocket Jamie Williamson
Angel Zhong
senior lecturer, finance RMIT
About 77% of Australian employers intend to increase starting salaries for new hires by 10% but financial services institutions are offering up to 30% more to get candidates over the line. Latest insights from Robert Half show larger organisations in the financial services space are increasingly poaching talent from smaller businesses, offering between 20% and 30% more in salary. This is creating more vacant roles at SMEs, while also lifting salary expectations across the board, Robert Half said, with 81% of employers saying candidates are typically asking for an additional 15% on top of what’s offered. Once again, when it comes to the expertise that’s most in demand, risk and compliance professionals top the list. “Businesses are looking for risk talent who can create bespoke risk frameworks for their company which requires a deep understanding of the business in the context of the current
Continued on page 4
ASIC scrutinises fund marketing ASIC is investigating the marketing of managed funds, to identify the use of misleading performance and risk representations in promotional material. The move from the regulator comes after action on several managed fund schemes, based around alleged mis-marketing. ASIC took enforcement action against Mayfair 101 Group, La Trobe Financial Asset Management and the Skyring Fixed Income Fund alleging misleading or incorrect promotional and marketing material. The regulator said it is now scrutinising traditional and digital media marketing of funds, including search engine advertising, targeting retail investors and potentially unsophisticated wholesale investors, such as some retirees. Search engine advertising was part of ASIC’s case against Mayfair, with the regulator accusing it of buying Google Adwords for terms such as “term deposit” in marketing
Continued on page 4
2
News
www.financialstandard.com.au 21 March 2022 | Volume 20 Number 05
Under the influence C
Editorial By Jamie Williamson jamie.williamson@ financialstandard.com.au
ould financial information communicated by a social media influencer be considered financial advice? That’s the question that’s been on everyone’s lips for quite some time now, though perhaps not nearly as much as in recent weeks due to the release of ASIC’s thinly veiled warning – INFO 269 Discussing financial products and services online. The information sheet, which has been a long time coming, outlines the requirements of both finfluencers and licensees who work with them to promote their products. What the information sheet doesn’t do is outline what exactly constitutes a finfluencer. Is there a benchmark number in terms of how many followers they must have, or is it that they must be seen to be legitimate in some way; perhaps they’re a former or current financial adviser? There doesn’t seem to be any hard and fast rules when it comes to defining what makes someone an influencer in Australia. In fact, the only example I came across from anywhere was in the UK where, in 2019, the Advertising Standards Authority ruled that a person with 30,000 followers is a celebrity and therefore influential. While that follower count may seem miniscule for a celebrity, especially when your idea of one might be a Kardashian or a Hemsworth, the body ruled that a person with 30,000 fol-
lowers or more has the attention of a significant number of people. On Instagram alone, the popular My Millennial Money has over 53,000 followers, while She’s on the Money has almost triple that with close to 145,000. One aspect that hasn’t been touched on by ASIC is the various Facebook groups and the like that have also cropped up as a result of the rise of the finfluencer. For instance, She’s on the Money boasts a huge online community, including a private Facebook group where women ask each other finance-related questions. These can range from whether it’s better to pay of HECS debt sooner or save for a house and questions about salary packaging, to tax and rentvesting queries. The community then responds, sharing their own experiences, directing the poster to resources and, sometimes, making recommendations around what they should do. If there’s a line to cross, surely it’s within these online groups that it’s most likely occurring? And then who’s at fault? I would be confident in positing that the vast majority of the group’s members don’t have tens of thousands of followers themselves, which would make it hard for ASIC – in the event another member of the group follows their advice to their detriment – to allege they’re capable of having influenced anyone. But then if several people follow that advice,
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can anyone be held accountable? While it’s not provided by the finfluencer themselves, are they accountable? It may seem a long bow, but one must only look at the High Court ruling from last year that determined publishers are liable for defamatory comments made on their social pages to see it’s not completely unrealistic. Indeed, it’s a rabbit hole – and it’s one that we maybe wouldn’t even find ourselves going down if financial advice hadn’t become so out of reach for so many in this country. Perhaps the rise of the finfluencer and other DIY financial gurus should be considered in the Quality of Advice Review? You can read more on ASIC’s warning to finfluencers on our front page and on page 5. fs Financial Standard and its partner publications have always been at the forefront of bringing you the news that matters to your decision-making and investment choices. When it comes to the topic of ESG and how it shapes investment portfolios, FS Sustainability is our weekly digital publication that gives you the expert and specialist coverage that matters most, curated by managing editor Rachel Alembakis. As of recently, in-depth ESG coverage will shift exclusively to FS Sustainability and I strongly encourage you to subscribe to stay informed of the latest developments in sustainability-related news and analysis.
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4
News
www.financialstandard.com.au 4 April 2022 | Volume 20 Number 06
01: Margaret Cole
New hire salaries skyrocket
member APRA
Continued from page 1 environment as well as strong business partnering and stakeholder management skills,” Robert Half said. “Compliance professionals who can work alongside stakeholders to interpret legislation and assess the impacts of regulatory change on a business will also be highly sought after.” Robert Half said candidates with experience in ASIC or APRA regulatory compliance are hot property, as are those with AFSL experience and GRC system implementation and maintenance experience. A beginner chief risk officer in Sydney could command around $250,000, the survey suggests, while the mid-level salary is $300,000 and experienced risk leads – the most in-demand - can be paid around $400,000. Meanwhile, a head of compliance could earn anywhere between $190,000 and $280,000 depending on experience. Signing bonuses have also become popular, the research found, with 57% of employers planning to attribute one to gain top talent this year. Where this isn’t possible, employers are offering flexible work arrangements, more paid leave and title upgrades. Not all employers are on board though, with 38% saying they will only offer higher salaries to hard-to-find talent. Robert Half surveyed 300 hiring managers at the end of 2021, including 100 chief financial officers and 100 chief investment officers. fs
Thirty-eight super funds face sustainability issues Jamie Williamson
A
The quote
While bigger isn’t always better, increased scale makes it easier for trustees to build an efficient and resilient business model...
ASIC scrutinises fund marketing Continued from page 1 its debenture products - which could give consumers a false impression that the debenture products carried as little risk as a mainstream bank term deposit. “ASIC has broadened our managed fund surveillance, as retail and unsophisticated investors continue to grapple with historically low yields alongside the outlook of even greater global risks and uncertainties,” ASIC deputy chair Karen Chester said. “ASIC remains concerned that managed fund promoters continue to target consumers, particularly retirees or those planning for retirement, with ambiguous or misleading performance and risk representations. Where we identify fund marketing of concern, we will also review the corresponding product disclosure statements, websites, and target market determinations to assess if the marketing claims are misleading. “ASIC is committed to protecting consumers where misleading marketing practices run counter to their interests. If we identify misleading conduct, we will take prompt action to disrupt behaviours by deploying across our regulatory tools – from administrative intervention through to enforcement action if warranted.” The regulator also reminded financial product providers that the physical limitations of a medium - for example, character limits on social media sites - are not an excuse for mismarketing. fs
PRA has named the superannuation funds it believes face immediate sustainability issues, with 38 of 78 funds declining on all metrics measured. APRA looked at the three sustainability metrics in the 2021 MySuper and Choice heatmaps; member accounts, cash flows and rollovers. The regulator found administration and operating expenses for super funds with less than $10 billion in funds under management sit at about 0.57% of net assets. This is compared to 0.33% for funds with more than $50 billion. The analysis suggests 24 small funds, being those with less than $10 billion, are declining and face immediate sustainability issues. Meanwhile, more than half of the funds with between $10 billion and $50 billion in assets are also facing adversity, APRA said. “Eleven medium sized RSEs are declining in net cash flows and member accounts. APRA considers that these RSEs will find it challenging to compete for membership growth in the medium term with larger RSEs as the large RSEs become even bigger and further leverage the benefits of scale,” APRA said. That said, most medium funds have lost member accounts, with only one fund with a total accounts growth rate above 0% over the three years to June 2021. Interestingly, seven small RSEs saw their account numbers grow by more than 10%. From a cash flow perspective, large RSEs are generally growing, with a median net cash flow ratio of 3.01% while small funds had a median of -0.44%. However, six small RSEs saw net cash flows of more than 10%, being those with
new or niche offerings, such as ESG-focused products, APRA said. Only six medium RSEs had positive net cash flow ratios in the three years to June 2021. The third metric analysed was the net rollover ratio over three years. More than half the large funds are seeing net asset growth as members roll their benefits in, with a ratio of 0.25%. Assets in small and medium funds are declining though, with members rolling out, causing a negative median net rollover ratio. However, five small RSEs again exceeded 10%. Overall, of the 78 RSEs analysed, 38 failed across all metrics and just 13 are growing across all metrics; eight are small and four are large. Of those that failed all three, APRA only named those with less than $10 billion in assets. These include Alcoa of Australia Retirement Plan, AMIST, BUSSQ, First Super, MIESF, Perpetual WealthFocus, Qantas Super, REI Super and TWUSUPER. Further, while APRA didn’t name them, it did say three of the funds that fail across all metrics have more than $50 billion in assets. Sixty-one per cent of medium funds, or 11, are declining across all metrics and will likely struggle to compete with larger RSEs, APRA said. “While bigger isn’t always better, increased scale makes it easier for trustees to build an efficient and resilient business model that delivers strong financial outcomes for members. A fund that is losing members or has declining net assets will face challenges to keep fees and costs low for members, and fund operational improvements that ultimately benefit members,” APRA member Margaret Cole 01 said. fs
APRA suspends IDII work Elizabeth McArthur
APRA has suspended its work on individual disability income insurance, which was causing huge losses to insurance companies, expressing disappointment in the industry’s response. The regulator first announced it was intervening on IDII products in 2019 and extended the deadline for insurers to overhaul IDII products by a full year (to October 2022). But now APRA has expressed disappointment in life insurer’s ability to reform products and address the issues in legacy products and has suspended its work entirely. “APRA acknowledges the challenges associated with the operationalisation of the IDII policy contract term measure. Notwithstanding these challenges, the measure provided industry with a valuable opportunity to make changes that would improve both IDII sustainability and effective customer engagement,” APRA deputy chair Helen Rowell said in a letter to life insurers. “It is therefore disappointing that the industry appears not
to have engaged with this opportunity as fully and openly as expected, or with a view to sufficiently shift away from problematic legacy practices where needed.” After receiving many submissions on potential solutions, submitted by insurance companies and other stakeholders, APRA took into the account Treasury’s ongoing review of legacy product rationalisation and Quality of Advice Review and came to the conclusion that the industry has not been able to properly address the challenges facing IDII products. The regulator remains of the view that there is inherent value in life companies having mechanisms other than price to address the risk of unsustainable product terms, expressing disappointment that life companies are simply raising premiums to push consumers out of unsustainable legacy products. APRA wants to see life companies collecting information on changes to policyholder’s circumstances, including occupational and financial circumstances and dangerous pastimes, to enhance their ability to understand and manage risks. fs
News
www.financialstandard.com.au 4 April 2022 | Volume 20 Number 06
New advice solution launches Scientiam, founded by Arch Capital managing director Nigel Baker, aims to assist advisers in servicing clients in a way that is both affordable and profitable. It’s a low-cost, cloud-based solution which is easy to implement, Baker said. Estimating that it may cost a firm $100,000 per year to look after 50 clients, Scientiam says this could be done for just a few thousand dollars. The solution was initially developed in 2019 for Arch Capital’s staff and family members, C and D clients, and the adult children of existing clients. Scientiam runs on a subscription model and is exclusive to advisers. As part of the registration process, all users must submit an adviser code and be linked to a financial adviser, the firm said. Clients can also access calculators and tools, track their spending, and access lowcost diversified superannuation and investment accounts through Scientiam. “Many advisers are grappling with how to profitably service segments of their client base and, beyond that, segments of the market that need advice but are currently missing out because they’re too young, don’t have enough to invest or have relatively simple needs,” he said. “As advisers, we want to help people but unfortunately that is getting harder to do due to rising costs. This is a sad reality because some clients have been loyal for 10-20 years but, over time, they no longer fit a firm’s ideal client profile. “With Scientiam, advisers can stay in touch with clients, deliver a compelling service and an excellent experience but not at a financial or opportunity cost to the business. Scientiam releases advisers to focus on servicing higher fee-paying clients with complex needs.” fs
5
01: Cathie Armour
commissioner ASIC
ASIC issues first warning to finfluencers Jamie Williamson
I
The quote
It is crucial that influencers who discuss financial products and services online comply with the financial services laws.
More super, less tinkering: ASFA
NFO 269 Discussing financial products and services online outlines the requirements of influencers and the licensees using them for exposure, including case studies to clearly identify the circumstances in which they may find themselves in trouble. ASIC recommends influencers consider whether they need an AFSL to promote financial products, are familiar with relevant regulatory guidance surrounding promotion and dealing of financial products and to do their due diligence on the people or companies paying for their services. On financial product advice, ASIC state: “You can share factual information that describes the features or terms and conditions of a financial product (or a class of financial products) without giving financial product advice. However, if you present factual information in a way that conveys a recommendation that someone should (or should not) invest in that product or class of products, you could breach the law by providing unlicensed financial product advice.” “If you’re an influencer who receives benefits or payment for your comments in relation to financial products, you’re more likely to be providing financial product advice because it indicates an intention to influence the audience.” In instances of dealing by arranging, ASIC said this depends on the extent of an influencer’s involvement in making the transaction happen. “You promote a link for your followers to access an AFS licensee’s trading platform
to trade financial products. It’s a unique link that can’t be accessed anywhere else. You receive a payment from the licensee for each click-through resulting in use of the platform. People that access the link also receive a benefit when buying the products because of your unique link,” ASIC’s example reads. “You’re actively involved in making the transaction happen.” ASIC also warned influencers on the laws regarding misleading or deceptive conduct, including the fact that they don’t need to be licensed to breach these provisions. “Any statement you make should be true, accurate and able to be substantiated. If you make a prediction, such as a future return or level of risk, you must have reasonable grounds for supporting that prediction,” the guidance states. Licensees who use influencers for promotional purposes should also do their due diligence, ASIC said. “If the influencer is acting on your behalf and is therefore your ‘representative’ for the purposes of the financial services laws, this triggers other obligations (including ensuring they are adequately trained and complying with the financial services laws),” the regulator said. “The way investors access information is changing. It is crucial that influencers who discuss financial products and services online comply with the financial services laws,” ASIC commissioner Cathie Armour01 said. “If they don’t, they risk substantial penalties and put investors at risk.” fs
Chloe Walker
The Association of Superannuation Funds of Australia (ASFA) found 81% of Australians believe more money should be saved for their retirement, not less. When a full list of national issues were proposed to respondents, government intervention in the superannuation industry was considered one of the least important priorities, with just 2% of Australians ranking further regulation of the industry as a top priority. However, ley findings of the research included an overwhelming majority of respondents (81%) agreed with the statement “people need to save more superannuation, not less”. Three quarters of respondents agreed with the statement that “postponing the super guarantee increases may mean that many people will have to work longer in order to retire” and 58% agreed that giving people early access to their super will undermine the fairness of the system. “The views of the community were unequivocal. Australians value superannuation and consider that it is crucial to ensure they have dignity in retirement,” ASFA chief executive Martin Fahy said. fs
Super mergers only beginning: J.P. Morgan Elizabeth McArthur
We’ve only seen the start of consolidation in superannuation, with mergers to accelerate, according to a new survey from J.P. Morgan. J.P. Morgan’s inaugural Future of Superannuation Report interviewed 12 super fund leaders, who collectively manage $1 trillion in assets. Those interviewed included AustralianSuper chief operating officer Peter Curtis, Australian Retirement Trust chief executive Bernard Reilly, Aware Super head of investment strategy Michael Winchester, Cbus chief investment officer Kristian Fok, Colonial First State Superannuation chief executive Kelly Power and UniSuper chief executive Peter Chun. Over 50% of the executives surveyed for the report said they believe the pace of mergers is set to accelerate further over the next few years. In 2021, there were 15 mergers or alliances announced to the market – the most merger activity ever seen in a single year. “My sense is that, just like most markets that evolve to maturity, the top five to 10 superannuation funds will end up
with perhaps the majority of the investment market share. Then, absent regulatory constraints, it’s likely that there will be a fairly long tail of much smaller funds,” State Super chief executive John Livanas, one of the survey respondents, said. Most of the executives surveyed agree that the number of super funds in Australia will dramatically shrink in the next three years. “The report shows that 50% of survey respondents believe there will be fewer than 75 funds by 2025. This would mean close to 100 of today’s 174 superannuation funds will no longer exist,” J.P. Morgan head of platform sales, securities services Nick Paparo said. The survey confirms that super fund executives consider the biggest driver of mergers to be the benefits of scale. Paparo added that it is critical that funds, regardless of their size, continue to leverage scale as it applies to them. “What has been interesting to read is that some of the smaller funds, that represent specific member cohorts, believe that member experience could be impacted as other funds become larger,” he said. “Being scalable can mean many different things for super and the report definitely shares a balanced view.” fs
6
News
www.financialstandard.com.au 4 April 2022 | Volume 20 Number 06
UK advice firm enters Australia A UK advice firm has expanded into Australia, targeting British expats. Skybound Wealth Management has entered the local advice market, looking to capitalise on the growing need for cross-border financial planning. In a statement, the firm said: “We are delighted to formally announce Skybound’s expansion into Australia. This exciting development means we are now able to provide advice on four different continents across the globe.” Commenting on the development, Skybound chief commercial officer Ian Sweet said: “The need for cross border financial planning is increasing throughout Australia.” “We will be pooling our collective resources, in-house knowledge, expertise and technology to provide advice to British expats living in the region.” Skybound is targeting the reported 1.2 million UK expats residing in Australia enjoying “a high quality of life, high salaries and high temperatures”. “And while these factors make for a great lifestyle, we have seen all too often how easy it can be to lose track of your finances back in the UK, namely, savings such as pensions and investments, and tax liabilities such as inheritance and capital gains tax,” Skybound said. “Many UK expats in Australia have savings back home that are either dormant or no longer fit for purpose. Now Skybound is able to provide support to these individuals backed by substantial in-house knowledge and expertise of international wealth planning.” Blacktower Financial Management Group, also UK-based, also entered the Australian market in March. fs
01: Greg O’Neill
president and chief executive La Trobe Financial
La Trobe takeover confirmed Chloe Walker
F
The quote
We remain very proud of the continued discipline and development of the business following my partnership with Blackstone...
ollowing speculation, Brookfield Asset Management has announced an agreement to acquire La Trobe Financial for $1.5 billion. The valuation includes a contingent payment tied to the business achieving certain performance milestones. La Trobe Financial is currently owned by Blackstone, which owns 80%, and president and chief executive Greg O’Neill 01 who is also selling his 20% stake. According to the AFR, O’Neill will depart the firm after 37 years when it is acquired by the Canadian private equity giant. “We remain very proud of the continued discipline and development of the business following my partnership with Blackstone over the past years,” O’Neill said. “The consolidation of La Trobe’s attractive value proposition to both borrowers and investors, through our service philosophy of “others before self”, remains a great source of pride for all staff. We are pleased that this transaction with Brookfield delivers our first-class management team and a very sound business into strong hands for its future.” Blackstone’s head of Asia Pacific for tactical
opportunities Menes Chee added: “It’s been an absolute pleasure partnering with Greg O’Neill and La Trobe Financial since 2017, helping the business strengthen its reputation as a leader in its chosen markets.” Since Blackstone’s investment, the company has more than tripled assets under management and further diversified funding, Chee said. “This investment embodies Blackstone and our Tactical Opportunities business’s commitment to working with visionary entrepreneurs and building businesses using our global scale and expertise to realise their full potential,” Chee said. “We’re confident that La Trobe Financial will continue to thrive under Brookfield’s ownership.” Commenting on the acquisition, Brookfield private equity managing partner Len Chersky said the firm is pleased to expand its presence in Australia. “We intend to invest in La Trobe Financial to support its growth and look forward to building on the business’s foundation of continuous growth and profitability,” Chersky said. The transaction is expected to close in the second quarter of 2022. fs
FSI rebrands direct infra
Practice valuations to normalise: Report
First Sentier Investors’ direct infrastructure business is becoming a standalone brand, with a new name to reflect its commitment to sustainability. Going forward, the business will be known as Igneo Infrastructure Partners; derived from the word ‘igneous’, a type of volcanic rock. First Sentier said the new name “underscores the team’s transformative approach to working with businesses to create investments that have sustainability and permanence”. The rebrand is part of First Sentier’s long-term strategy to build a global business comprising in-house and independently branded investment teams with expertise across a range of asset classes. “With a well-established investment process and proven track record of adding value for portfolio companies and our clients, now is the right time to introduce a global identity that better reflects who we are and how we work,” managing partner and head of Igneo Infrastructure Partners Niall Mills said. “Infrastructure businesses provide essential services to communities, so we are focused on proactively partnering with management teams to support responsible practices. By holding a significant or full ownership stake in infrastructure firms, the Igneo team can partner with company management teams to set strategy, foster innovation, and achieve sustainable operating models.” fs
Financial advice practice valuations are expected to regulate this year and will continue to trade at a premium, so long as financing terms remain favourable. That’s the prediction of Centurion Market Makers, outlined in its 2022 Practice Acquisition and Valuations Guide. Business values will normalise as business owners settle into the ‘new normal’, the report states. However, they will command a premium due to generally having low or no debtors or aged receivables; monthly recurring revenue with limited ups and downs; low or no bad debts; little working capital; low or no plant equipment; and no stock required. There is one caveat though, Centurion said. “That said, while the industry has usually had favourable financing terms, including 10-year principal and interest loans, if this does not continue, we may see an associated decrease in valuations in line with shorter loan period amortisation payback periods,” the report reads. Based on the firm’s experience in 2021, Centurion said the market has held the value of those businesses with a fee structure above $3000 with a comprehensive compliance regime attached. “These fees, with appropriate FDS and/or opt-in are the most attractive client style, and at above about $5000 p.a. are in demand,” Centurion said. “We expect this style of client book to hold value over time.” These books are selling for anywhere between 2.3x and 3.0x recurring revenue for annual client fees above $3000 and 2.5x to 3.0x for those over $5000.
Jamie Williamson
A financial planning business that is co-located with its buyer can fetch between 2.2x and 3.0x recurring revenue, while a risk/ super only client book could command between 2.0x and 2.5 x recurring revenue. Large practices with north of $3 million in revenue that is not co-located with the buyer are getting anywhere between 5x and 7x EBITDA. Meanwhile, a business with client fees between $2000 and $3000 per annum could sell for 1.5x to 2.2x recurring revenue, while those with less than $2000 per annum would see zero upfront and 1.0x to 1.5x if the clients agree to increased fees, Centurion said. And while regional practices typically sell for less than those located in metropolitan areas, Centurion said: “We note that most larger acquirers of financial planning businesses are still interested in practices that exist in ‘regional centres’ – that is within a one-hour flight of a capital city, having a major hospital and/or with other services.” Centurion added that the age of clients also continues to be a factor for buyers. “Whilst ages of the clients can assist in valuing the practice, as a standalone they’re no longer enough. Previously, age influenced a buyer’s view of the client’s lifetime value with the practice, propensity to purchase additional services and somewhat the level of interest they would provide to the adviser,” the report reads. “Now the fees clients pay is far more important than it has been historically. Given the costs of servicing clients, purchasers consider the fee per client as another measure of value. A client with a fee of $1500 p.a. may cost the same to service as a client with an annual fee of $5000 – regardless of their age.” fs
Rainmaker Information AAA Quality Ratings are in The 2022 AAA Quality Ratings have been announced. See which superannuation products have met the AAA standard.
View the full list www.rainmaker.com.au
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News
www.financialstandard.com.au 4 April 2022 | Volume 20 Number 06
ASX24 outage sparks concern
01: Alex Dunnin
executive director of research Rainmaker Information
Elizabeth McArthur
On March 17 the ASX identified a hardware related issue with its options and futures market ASX24 and placed it into a halt. ASX24 was not operational again until after 2pm, with the ASX reporting that the issue was confirmed to be caused by a hardware fault and was fully resolved. The ASX will now be required to provide a full incident report to ASIC, with the regulator expressing concern. “ASIC views outages of this nature with significant concern. It has had a significant impact on the market, including market participants and investors,” ASIC said. “The ASX Group forms a critical part of Australia’s national economic infrastructure. “Well-functioning financial market infrastructure is critical to the integrity and reputation of the Australian financial markets and the trust and confidence investors have in them.” The outage comes after an incident on 16 November 2020, when the ASX halted trading on ASX Trade after switching to new systems over the preceding weekend. The outage lasted for one day and was followed by problems with the ASX Centre Point, a dark-pool trade matching service. fs
More disclosure, oversight needed: Committee Jamie Williamson
T
The quote
... the narrative in the report appears to struggle to advance from discussions of economic academic theory to real life practicalities...
ASIC opens CCIV consultation ASIC is seeking feedback on licensing rules for the Corporate Collective Investment Vehicles regime ahead of its July implementation date. The consultation includes examining the licensing application process - AFSLs wanting to apply and operate a CCIV and those seeking to provide financial product advice on and/or deal in CCIV securities. It also looks at the administration of licensee obligations that apply to CCIV corporate directors. ASIC oversees licensing corporate directors and assisting them with compliance; it also oversees the registration process for CCIVs. ASIC deputy chair Karen Chester said: “ASIC is committed to supporting the effective implementation of the CCIV regime. Ensuring the regulatory guidance is up-to-date and fit-forpurpose when the new regime comes into effect is part of that commitment.” The licensing requirements also come into effect on July 1 when the broader CCIV regime commences. The Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021 passed parliament on February 10. The legislation enables the setup of CCIVs as a new type of company that is limited by shares and has a single corporate director. It is effectively an umbrella vehicle that can have one or more subfunds that offer multiple products and investment strategies within the same vehicle. ASIC said it recognises the similarities between CCIVs and managed investment schemes. It considers that AFSLs authorised to provide financial product advice on and/or deal in managed investment schemes “should be able to readily transition to the CCIV regime [and that it] will facilitate this transition through an ASICinitiated licence variation”. fs
he House of Representatives Standing Committee on Economics has recommended greater disclosure obligations for institutional investors and proxy advisors and for the ACCC to actively monitor common ownership in Australia – all the while sharing little evidence to suggest common ownership results in adverse outcomes. The committee said it does not agree with the ACCC that it is difficult to draw conclusions as to how common ownership is affecting competition in Australia, or its claim that this is because investors only need to disclose when they own 5% or more of a company and each movement of 1%. According to the report, in 2019 BlackRock, State Street and Vanguard owned 14% of the issued capital of the ASX 200, while the value of Aussie equities owned by super funds apparently grew by 50% between September 2012 and March 2021 to $467 billion. The committee states in its report that the lack of clear data on ownership means it’s likely the prevalence of common ownership is greater than estimated. To improve transparency, the committee has recommended new disclosure requirements be introduced for investors whose assets surpass a certain threshold, similar to the 13F disclosure rule in the United States. Holdings would need to be disclosed on a quarterly or annual basis, the committee said. Note, superannuation funds are already required to disclose their holdings under legislation effective 31 December 2021. When it comes to proxy advisors, the committee wants the government to consider forcing the publication of shareholder voting decisions
“to ensure asset managers do not use proxy advisors to collude in their voting decisions”. This is despite the committee not actually presenting any evidence of collusion having occurred. It also wants mechanisms introduced to ensure asset managers engage with their owners in making voting decisions, and for the AFSL requirements of proxy advisors to be expanded. “Overall, the notion that voting practices can serve as a mechanism of influence for institutional investors to encourage anti-competitive behaviour, remains contested. Critics of the common ownership theory have emphasised that large investors often demonstrate a diverse set of priorities and may not be fully aligned in voting, and also note that it is rare to see institutional investors dissent from management recommendations,” the report reads. “The committee’s view is that the use by funds of proxy advisers such as ACSI can provide a method for coordinating voting on given shareholder issues. While proxies may deny it, the efficiency and availability of the mechanism raises significant potential for anti-competitive behaviour at odds with Section 45 of the Competition and Consumer Act 2010.” Responding to the committee’s report, Rainmaker Information executive director of research Alex Dunnin01 said the inquiry appears to have achieved very little. “The committee’s report confirmed what most stakeholders were trying to explain to it – that there is no evidence whatsoever that socalled common ownership of securities creates any governance problems,” Dunnin said. “Reinforcing this, the narrative in the report appears to struggle to advance from discussions of economic academic theory to real life practicalities.” fs
Adviser numbers close in on 17k Karren Vergara
The number of financial advisers is close to dipping below the 17,000 mark as more than 700 recently exited the industry. As of March 17, the ASIC Financial Adviser Register recorded 17,246 active advisers, Rainmaker modelling of the data reveals. On January 20, there were 18,015 servicing the sector, meaning 769 advisers left in nearly eight weeks. The exodus of advisers follows a similar trend in which 800 hung up their boots between mid-December 2021 and 20 January 2022. AMP Financial Planning currently leads the pack in terms of adviser numbers with 591, losing only eight representatives between March 17 and mid-December 2021. Morgans Financial had 452 advisers on its books while Synchronised Business Services had 377. The remaining top 10 groups with the largest numbers are Charter Financial Planning (376), Consultum Financial Advisers
(320), SMSF Advisers Network (283), Count Financial (278), Interprac Financial Planning (267), Alliance Wealth (264), and Capstone Financial Planning (262). Synchron, which is set to be acquired by ASX-listed WT Financial Group (WTL), lost 45 advisers between March 17 and the end of 2021. Combining its forces with WTL will amount to more than 600 advisers and $16 billion in funds under advice, the firms announced this week. An early March Rainmaker analysis showed which advice businesses are home to the largest number of authorised risk advisers. AMP Financial Planning topped the list with 593, followed by Synchron with 380 and Charter FP with 375. There are currently about 13,821 active risk advisers. Compared to three years ago, however, the population dropped by 27% when there were 18,882 risk advisers. fs
Opinion
www.financialstandard.com.au 4 April 2022 | Volume 20 Number 06
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01: Michael Maher
co-head of not-forprofit consulting JANA Investment Advisers
How should not-for-profits navigate the post-COVID world? D
uring times of hardship, the resources of not-for-profits (NFPs) are relied on more than ever. The global pandemic has been no different. Many NFPs have been on the frontline in dealing with both the financial and social impacts of COVID, not to mention being impacted directly as organisations by the economic fallout that ensued. Risks to the economic outlook remain. The path of COVID is unpredictable, the political landscape remains volatile and there are everpresent geopolitical risks in both Europe and Asia. These risk factors are unique in nature and will have differing impacts for investors across varying geographies, asset classes and sectors. While Omicron looks to be less disruptive than the variants that came before it, we’re not out of the woods just yet. Many NFPs organisations are facing operational challenges and constraints flowing through to their financial positioning. Despite the near-term economic risks presented by the Omicron variant of COVID, the market consensus outlook is that global economic growth is expected to remain above pre-COVID trend levels in 2022, albeit accompanied by higher inflation. This consensus view remains supported by extremely stimulatory policy and rising global vaccination rates. The growth trajectory is expected to be uneven across regions and sectors, reflecting the differing experiences with the level of policy support and as well as vaccine availability and distribution. It can feel impossible to know where to begin. A major symptom of the pandemic has been information overload. However, there are a few simple steps NFPs can take now to financially equip themselves for 2022 and beyond.
Take stock of their assets NFPs are unique in that their investment strategies cannot exist in isolation to their purpose-driven organisational objectives. But as the global economy continues its uneven transition through the pandemic, there has never been a greater need for flexibility. This doesn’t mean NFPs have to invest in a way that is out of odds with its wider mission, whatever that may be. However, NFP investors should still take the time to review their investment objectives and strategic asset allocation - both to ensure they remain aligned to your purpose but also to identify if new, broader and prosperous options have arisen elsewhere. The world has changed beyond comparison in the
the impacts of higher spending levels above that budgeted for the long-term. Sustained overspending can cause financial ruin and the inability for a NFP to deliver its purpose. As such, NFPs should prioritise a review of spending policy and spending rates, particularly if the higher spending levels are not in alignment with the investment strategy. The alignment of spending to the wider investment strategy provides the best chance of long-term sustainability.
past two years, and new investment opportunities that could be advantageous to your organisation may exist within it.
Review the risk register An important part of reviewing your portfolio’s objectives and strategy is to consider how economic and financial risk outcomes could impact the delivery of your organisation’s purpose. History has shown that significant negative events in capital markets have different drivers to their inception. Examples include economic growth downturns, unexpected inflation surges or policy missteps by central banks and governments. Some key questions to ask would be which risks matter most to your organisation, both with regard to the investment corpus and the delivery of services? In light of the consensus outlook for the economic environment, what are the risks of higher inflation to your organisation? Finally, which risks could and should be hedged? Once you have a clear outlay of where the risks lie, then the NFP’s corpus can take action to assist in mitigating those risks.
Half empty or half full? While they have their many downsides, risk events can also present opportunities, particularly in the event of market dislocations. A good way to be prepared to take advantage of such events is to review and understand your organisation’s liquidity requirements. The fluid nature of the global economic environment could highlight the need to consider alternative strategies, possibly entailing some illiquidity, that will enhance risk adjusted returns throughout the market cycle. Understanding your liquidity profile requirements is key to making dynamic and tactical decisions.
Save the spending The impact of COVID continues to impact not only financial markets, but how societies and economies function. This has flowed through to the operations of NFPs and continues to have an impact in 2022. Many organisations may still be leaning on their corpus funds (capital funds generated and kept for the existence and sustenance of the organisation) more heavily than average to support their operations. Whilst these are usually expected to be short-medium term actions, it remains important for NFPs to understand
Go green – now The quote
Many NFPs organisations are facing operational challenges and constraints flowing through to their financial positioning.
The outcomes from COP26 stressed how organisations cannot stand still on Environmental, Social and Governance (ESG) matters. Global leaders made several commitments to combating climate change at COP26. JANA’s belief is that for every public sector commitment to climate, there is opportunity for private capital to secure a return on investment and the future of the planet. There is now a clear and proactive global trend to decarbonise the global economy. This transition will have implications for the way businesses are run and how asset owners invest. Policy needs to address issues from carbon emissions to physical impact mitigation and structural trends associated with climate change, such as water scarcity. Amongst other ESG related actions, we recommend NFPs undertake carbon-footprint analysis and aim to chart a course for alignment with global climate targets. There is an opportunity now for NFP investors to “future proof” their funds protect against and capitalise on the transition to a lower-carbon world. fs
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www.financialstandard.com.au 4 April 2022 | Volume 20 Number 06
TAL wins life company award
01: Sonya SawtellRickson
chief investment officer HESTA
Karren Vergara
TAL has taken out the Association of Financial Advisers’ 2021 Life Company of the Year Award for the fifth consecutive year. TAL also won the Overall Platinum and Income Protection categories. NEOS Life took home four awards for Service Quality, Trauma, Underwriting and Business Support. AIA Australia also swept four categories: Claims, Short-Term Income Stream, Annuity Innovation, and Investment Bond. Challenger was crowned the Overall Annuity Provider of the Year winner, and also won the Long-Term Income Stream category. MetLife’s Protect Life Cover Plan won the Term/ TPD category, while PPS Mutual took out the award for Risk Product Innovation. The awards are based on Plan For Life’s benchmarking metrics: financial strength; market share based on sales and growth over three years; a review of over 90 product features and definitions; service quality and premium rate comparisons across ages and sums assured. Product sustainability and innovation are also considered. Plan For Life regional managing director Rael Solomon said last year saw a return to positive new business growth in terms of new sales and policy increases, with lump sum growing by 8.8% and income protection by 20.6% over the 12 months to September 30. “New life insurers who recently commenced sales have had an impact and are amongst those included in the awards. The general improvement in the life insurance market augurs well for 2022.” fs
HESTA pushes forward with internalisation Elizabeth McArthur
T
The quote
I’ve been completely thrilled with the quality of talent and experience we’ve been able to attract to HESTA.
Independence increase for TPB The Tax Practitioners Board (TPB) will have a new level of independence, after the government acted to implement the recommendations of the TPB review. “In accordance with recommendation 3.2 of the review of the Tax Practitioners Board, the Morrison government has taken steps to continue to enhance the TPB’s independence, fostering trust and confidence in the regulation of tax practitioners,” assistant treasurer Michael Sukkar said. “The government has secured the Commissioner of Taxation’s agreement to delegate the power to appoint the TPB’s chief executive to the TPB chair. This means decisions about the day‑to‑day operations and overall direction of the TPB secretariat will effectively be under the control of the chair.” This new delegation is designed to ensure the chief executive has direct accountability to the board, as recommended by the review of the TPB. “As foreshadowed in the government’s November 2020 response to the review, this is being achieved efficiently, by avoiding the establishment of a new statutory authority and implementing changes that retain the flexibility and agility of current arrangements,” Sukkar said. fs
he fund recently reached a key milestone, with its in-house Australian equities team now actively investing. The Australian equities being managed inhouse represent $300 million in member retirement savings, chief investment officer Sonya Sawtell-Rickson01 told Financial Standard. Plans to bring cash and fixed interest in-house are well underway, and HESTA confirmed it is targeting at least 15% of its portfolio being internally managed in the short-to-medium term. HESTA will operate with a hybrid model of in-house investment management and external mandates going forward. “Our external manager relationships have been built as partnerships for over 30 years, and they obviously are very important to us. We see them being very important to the future,” chief executive Debby Blakey said. Even in equities, Sawtell-Rickson confirmed the fund is unlikely to completely internalise management. In some asset classes, she acknowledges HESTA may never achieve scale to in-house those investment functions. “We have small investments in insurancelinked securities for example, we will never be at scale in that asset class. We also have investments in some venture capital in the US, that is a very specialised capability and very complicated - I suspect we will not internalise those capabilities in my horizon,” Sawtell-Rickson said. Internalising management means the fund can keep costs down, especially as a not-for-profit fund, as it limits the amount of fees it pays to fund managers which each take a profit margin. However, bringing more asset classes in-
house will require hiring investment professionals. In a competitive jobs market, not-for-profit super funds might not be able to offer the largest salaries in what is traditionally a well-paid field. The Aussie equities team at HESTA is now finalised, with seven joining the team. Steven Semczyszyn was charged with developing the Aussie equities function as general manager, growth assets. After 10 years at Vanguard, Stephen Howard joined as general manager, defensives with HESTA last year. And former AMP Life chief investment officer Jeff Brunton was appointed head of portfolio management. “It is a competitive market. I think that’s where having a really strong employee value proposition matters. I’ve been completely thrilled with the quality of talent and experience we’ve been able to attract to HESTA,” SawtellRickson said. “If I look at each of them, and what attracted them to our business, it was really our purpose. These are great investors that have spent their employment working hard in these markets, they are senior people usually coming to a period in their lives where they actually want to make a difference. They’ve got children, they want to be part of driving sustainability, they want to be leading outcomes for people that matter.” Blakey agreed that the fund has been able to attract talent because of its purpose, not just by handing out large pay packets. “It’s wonderful to see, in the investment team, how much they appreciate when they have opportunities to meet members,” Blakey said. Sawtell-Rickson added: “We’re never going to be the highest paying firm on the street, nor do we aspire to be.” fs
New scaled advice offering launches Jamie Williamson
Scientiam, founded by Arch Capital managing director Nigel Baker, aims to assist advisers in servicing clients in a way that is both affordable and profitable. It’s a low-cost, cloud-based solution which is easy to implement, Baker said. Estimating that it may cost a firm $100,000 per year to look after 50 clients, Scientiam says this could be done for just a few thousand dollars. The solution was initially developed in 2019 for Arch Capital’s staff and family members, C and D clients, and the adult children of existing clients. Scientiam runs on a subscription model and is exclusive to advisers. As part of the registration process, all users must submit an adviser code and be linked to a financial adviser, the firm said. Clients can also access calculators and tools, track their spending, and access low-cost diversified superannuation and investment accounts through Scientiam.
“Many advisers are grappling with how to profitably service segments of their client base and, beyond that, segments of the market that need advice but are currently missing out because they’re too young, don’t have enough to invest or have relatively simple needs,” he said. “As advisers, we want to help people but unfortunately that is getting harder to do due to rising costs. This is a sad reality because some clients have been loyal for 10-20 years but, over time, they no longer fit a firm’s ideal client profile. “With Scientiam, advisers can stay in touch with clients, deliver a compelling service and an excellent experience but not at a financial or opportunity cost to the business. Scientiam releases advisers to focus on servicing higher feepaying clients with complex needs.” As a client progresses in life and their needs change, the system is designed to push them to seek comprehensive, personal advice from their referring adviser, the group said. fs
News
www.financialstandard.com.au 4 April 2022 | Volume 20 Number 06
Executive appointments Frontier appoints head of strategy The firm announced that Megan Mulia will become the head of strategy from April 19, overseeing corporate strategy, business planning and expansion plans. Mulia previously held senior roles based in Melbourne, including the most recent one as general manager of strategy at fintech Data Action, and prior to that PwC, and Asialink Business. She was previously based in Singapore working for KPMG, Bloomberg, and Thomson Reuters. “Megan’s Asian strategy experience, her experience in providing strategic direction in the fintech space, her consulting background and her experience relating to institutional clients similar to Frontier’s client base make her an excellent appointment for us,” Frontier chief executive Andrew Polson said. Polson added that Mulia’s role will be critical in capitalising on Frontier’s growth momentum, having increased its client base by 25% since July 2021.
VFMC hires from Cbus Victorian Funds Management Corporation appointed Leanne Taylor as head of portfolio strategy and asset allocation to its investments team. Taylor joined VFMC in March, leaving behind Cbus where she served as head of asset allocation and portfolio construction for the last year. “Leanne brings a wealth of economics and investment strategy experience to our team and will play a key role in helping VFMC continue to deliver strong, consistent and sustainable longterm returns to our clients,” VFMC said. Taylor was with Cbus for more than five years.
Douglass exits Magellan board
Capital Group adds new role Capital Group has appointed London-based Kat Ferris as head of product development for Asia and Europe. Ferris will lead the team responsible for product development, governance, and product management of Capital Group’s investment range for clients in Asia and Europe. Her responsibilities will include overseeing new fund launches across equity, fixed income and multiasset as the firm expands its offering for investors. She joins from Morgan Stanley Investment Management where she was head of international product for four years.
Mercer promotes three to partner Senior sustainable investment specialist Jillian Reid, head of market insights Chi Tran and head of Mercer Sentinel, Pacific Tricia Nguyen were all promoted to partner. Mercer president, Pacific Region and chief executive, Australia David Bryant said the appointments demonstrate Mercer’s confidence in its growth prospects in the region. “Our clients’ needs continue to change, and our new partners signify the increasingly strong demand in our key growth markets,” Bryant said. As we continue to bolster our capabilities in sustainable investing, workforce data and insights and investment operations, Jillian, Chi and Tricia add to the breadth and depth of our already impressive advisory team.”
TCorp appoints financial markets lead TCorp has named Rob Kenna as general manager, financial markets. Kenna will oversee the financial markets division’s key activities, including raising debt for NSW through local and global bonds, loaning to the NSW government public sector, and managing balance sheet risk. Kenna joined TCorp in May 2021 from Commonwealth Bank where he was head of programmatic funding. Commenting on the appointment, TCorp chief executive David Deverall said: “I’m delighted to appoint Rob to the executive team and am confident he will be a great addition, bringing deep expertise and experience across a range of financial markets disciplines.” fs
Magellan Financial Group’s Hamish Douglass tendered his resignation as a director from the board effective March 19. The board said his resignation is “due solely to his medical leave of absence”, which was announced to the ASX on February 7. The board added that it is in the process of appointing an additional independent director. Douglass has been an executive director of MFG’s board since 21 November 2006. Until December 2021, he was the chair and chief investment officer.
The numbers
26
The number of executive appointments reported by Financial Standard this past fortnight.
HUB24 names chief growth officer HUB24 has appointed Chesne Stafford to the newly created role of chief growth officer. Currently MetLife’s chief customer and marketing officer, Stafford will lead HUB24’s distribution and marketing functions and work with the broader team to leverage the group’s innovative product and technology solutions. Stafford has been with MetLife for the last seven years as chief distribution officer and then in her current role. She brings more than 25 years’ experience in the financial services industry across superannuation, wealth management, financial advice and insurance. Over the years she has served as head of sales strategy at ANZ OnePath, was a state manager and head of lead generation at NAB Wealth, and working in corporate superannuation at MLC.
McLaren to leave BT BT’s longstanding head of investment research and governance Marnie McLaren is leaving the organisation. A spokesperson for BT confirmed that McLaren will leave in April as part of broader changes in the business. “As part of becoming a simpler business we are making some changes to our investment research and governance function, which will now be embedded within the relevant product and governance teams as we build stronger end-to-end accountability within our product teams and across BT,” the spokesperson said. McLaren has been with the wider Westpac Group for almost two decades and has served in her current role for the last nine years. She is also a founder of the Financial Industry Community Aid Program.
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www.financialstandard.com.au 4 April 2022 | Volume 20 Number 06
Blacktower launches locally After flagging its intention to establish a local presence, global firm Blacktower Financial Management Group has launched in Australia. Blacktower first gained its AFSL and publicised its plans for Australian operations in October last year. The Blacktower website lists Sydney’s Martin Place as the office’s location. The firm plans to offer a full suite of holistic financial solutions to both expats and residents, it said. “We knew there was a real opportunity for the group in Australia and we were keen to set up operations on the ground to meet that demand,” Blacktower group managing director Gavin Pluck said. “Australia is an exciting market for us, and we are expanding the team to bring our global expertise to a new landscape.” At present, just one team member is listed on Blacktower’s website, being senior financial adviser Steven Klacar. Klacar was most recently Fisher Investments Australia’s private client director. The Australian office follows Blacktower’s expansion into Switzerland in recent months and precedes plans for offices in the UAE, South America and Canada. Blacktower’s expansion follows that of Skybound Wealth Management last week. In comparison to Blacktower, Skybound is solely targeting UK expats living in Australia. fs
01: Michael Sykes
chief executive AvSuper
AvSuper marks strong EOI response, adds to board Jamie Williamson
O
The quote
...we can confirm that the response quality is high, and we will assess each submission on its merits...
AMP completes GEFI sale AMP has announced the sale of its global equities and fixed income business to Macquarie Asset Management (MAM) has completed. The transaction sees $47 billion worth of assets under management transferred from AMP Capital to MAM, subject to approvals. Following the transaction, AMP will receive a net completion of about $63 million in cash from MAM, reflecting expected adjustments resulting from reduced assets under management and client pricing changes. The sale was first announced in July 2021, with the division valued at $185 million. In transferring, the GEFI business will be combined with Macquarie’s public investments platform. At the time, MAM expected its total assets under management to hit $720 billion following completion. AMP Capital chief executive Shawn Johnson said the completion of the transaction is a key milestone in AMP Capital’s separation from AMP and preparation for a demerger, creating Collimate Capital. “Our teams have been actively working to ensure a smooth transition of funds and clients and we’re confident that MAM, and our talented teams who are transferring, will deliver great outcomes for them,” Johnson said. We would like to thank the Macquarie team for the partnership through the transaction and wish our people joining their team every success.” Following the announcement of the completion, several other institutions and fund managers announced having nabbed AMP Capital staff, including HSBC Asset Management and MapleBrown Abbott. fs
ver 75% of the superannuation funds invited to take part in AvSuper’s expression of interest process have done so, the fund says, as it welcomes an industry stalwart to its board to assist with the process. Providing an update to members, AvSuper chief executive Michael Sykes 01 said more than 75% of the funds AvSuper courted have submitted a proposal, “proving AvSuper’s market appeal”. “The next step involves forming a shortlist as we determine who and what will best serve our 6000 members in the years ahead,” he said. As non-disclosure agreements were required to be signed, Sykes was unable to name the funds that participated or the details of their submissions. “However, we can confirm that the response quality is high, and we will assess each submission on its merits…” the fund said. He said the fund was delighted to receive such a strong response, with a shortlist ex-
pected to be finalised in the coming weeks and handed to the AvSuper board for review. Members will be updated accordingly, he said. At the same time, Sykes announced the appointment of former PwC partner David Coogan to the AvSuper board. Joining in March as an employer director, Coogan replaces Julie-Anne Schaefer who departed last November. Coogan has extensive experience and is well-regarded in the superannuation space, having served as national leader of PwC’s superannuation practice for more than two decades before retiring in early 2021. Among other things, Coogan is well versed in strategic planning and fund mergers, expertise that will come in handy as AvSuper considers its options. “David brings us a wealth of experience in the superannuation industry and we are sure he will contribute greatly to AvSuper’s board,” Sykes said. fs
Popularity soars for managed accounts Chloe Walker
More than ever, financial advisers are turning to managed accounts to better take care of client funds, according to SPDR ETFs and Investment Trends most recent report. According to the research, more than half (53%) of financial advisers are now using managed accounts, up from just 16%a decade ago. Advisers who already use managed accounts are now recommending them for 60% of their clients, up from 44% in 2021. State Street Global Advisors head of SPDR ETFs Australia and model portfolios for EMEA and APAC Kathleen Gallagher said outsourcing some aspects of investment management can help free up advisers to spend more time with clients, focusing on objectives and guiding them through market movements. “Advisers are telling us they like to use managed accounts because they provide access to institutional-grade investment management, and more scope to focus on educating their clients and meeting client goals,” Gallagher said. “Almost half of advisers who outsource investment management through managed accounts also said it reduced their operational risk.” Gallagher said this is because managed accounts are typically used across multiple clients, instead of having to manage individual investment portfolios, advisers can streamline their advice and investment management processes. With the report underlining the efficiency of managed funds with the total time savings increasing by almost three hours a day, Investment Trends chief executive Sarah Brennan said that from any adviser’s point of view, more time can be spent focusing on meeting their client’s goals. “I think what we’re seeing is the recognition of how much time
the managed accounts are saving the advisors on a day-to-day basis, and then importantly, what the benefit of that is,” she said. “Advisers are identifying that managed accounts give them that capability to spend more time with their clients.” In Australia, managed accounts have now crossed the $100 billion milestone of funds under management, with the latest numbers showing they reached $131.6 billion as of 31 December 2021. This is expected to rise to 25% by 2025, over and above flows into direct shares and listed investment companies. Brennan said the reason managed accounts are so popular is partly because advisers are seeing the benefits for a broader investor demographic. “Part of the growth in managed accounts comes down to their growing suitability as a whole- of-portfolio solution for lower balanced clients (less than $100k) and high-net-worth clients with more than $1 million in investable assets,” Brennan said. “What’s more, a third of managed account users say these structures are appropriate for millennials (aged under 35) and self-managed super funds (SMSFs). “When it comes to implementing responsible investing solutions, the vast majority, or 76%, of advisers prefer to do so within a managed accounts structure, suggesting they trust that ESG themes are best managed by professional investment managers.” Interestingly, separately managed accounts (SMAs) are the most popular, with more than 80% of advisers saying they implement managed accounts via this structure. Taking place between December 2021 and January 2022, the 13th edition of the report was conducted via an online quantitative survey for 669 Australian-based financial advisers. fs
News
www.financialstandard.com.au 4 April 2022 | Volume 20 Number 06
Products
Nanuk lists active ETMF Nanuk Asset Management has made its New World Fund available on the ASX. The Nanuk New World Fund is also now available via direct application and IDPS platforms as an active exchange traded managed fund. Its ASX ticker code is NNUK. Citi has been appointed responsible entity for the ETMF, while Solactive has been appointed by Equity Trustees as the iNAV provider for the quoted units. The Nanuk New World Fund is a global equities fund that invests in listed companies exposed to the broad themes of environmental sustainability and resource efficiency. It aims to achieve long term capital appreciation and outperformance of traditional The fund invests in sub-sectors including clean energy, energy efficiency, agriculture, water, waste management, recycling, digital technologies, advanced manufacturing, and sustainable materials. “All of these areas are undergoing significant changes as the world seeks to reconcile economic growth with longer term sustainability and provide us with a potentially rich and continued source of investment opportunities,” Nanuk chief investment officer Tom King 02 said. “The significant escalation of environmental commitments around the world over the past two years will support ongoing growth in many of these areas – and not just in prominent technologies such as solar, wind, batteries and electric vehicles, but across the entire economy. The devastating events in Ukraine in recent weeks are likely to accelerate these changes as energy independence and security demand a more rapid transition away from fossil fuels.” The fund currently has no direct exposure to Russian or Eastern European equities and only minor exposures to companies with operations in, or revenue exposure to, Russia and Ukraine, Nanuk added. In the six years to February 28, the fund has returned 15.4% per annum. Upon quotation, fees will drop for all units, Nanuk added, decreasing from 1.2% to 1.1.% per annum.
AMP North bolsters offering AMP’s North has added 18 investment options to its investment menu, covering equities, property, bonds and technology, and launched partner portolios on the platform. Some of the new additions to the investment menu include the BetaShares Crypto Innovators and VanEck Vectors Video Gaming and Esports ETFs, as well as funds such as Ausbil Active Dividend Income Fund, First Sentier Responsible Listed Infrastructure Fund, the Munro Global Growth Fund and the UBS Yarra Microcap Fund. North has also launched two new partnered managed portfolios (PMPs), with Milestone Financial and Coastline Advice. InvestSense is the appointed investment manager for both PMPs. This now brings the number of advice practices partnered with the North platform to 16.
01: Kristine Brooks
“Providing advisers and their clients with access to a diverse and growing range of high-quality and contemporary investments is a fundamental aspect of our strategy for North,” AMP’s director of platforms Edwina Maloney said. “We’ll also continue to draw on our knowledge of financial advice to work with more advice practices and investment managers to develop tailored managed portfolios, recognising the value they provide their clients.” Commenting on the venture, Milestone Financial’s director Ian Hayes said: “We are delighted to partner with North and InvestSense to launch a range of managed portfolios for Milestone Financial clients. “The portfolios offer our clients access to an expanded range of investment options and InvestSense’s expertise, while investment decisions can be implemented quickly and efficiently via the North platform, all of which will lead to better outcomes for clients.”
Hejaz launches new funds
02: Tom King
Hejaz Asset Management has appointed Equity Trustees as responsible entity of three new Shariacompliant funds. The three funds are the Hejaz Equity Fund, the Hejaz Property Fund and the Hejaz Income Fund. The Equity Fund aims to match the returns of the iShares MSCI World Islamic UCITS ETF through exposure to a diversified equities portfolio of Sharia Compliant investments. On the other hand, its Property Fund seeks to replicate movements in the MSCI World REITs Index through exposure to a diversified portfolio of Sharia Compliant REIT investments. Finally, the Hejaz Income Fund aims to outperform the Bloomberg AusBond Bank Bill Index by 2%, by investing in a diversified portfolio of Sharia Compliant fixed income instruments. Equity Trustees executive general manager, corporate trustee services Russell Beasley said: “We are delighted to have been selected to undertake the responsible entity role for this range of funds from Hejaz who are part of a broader specialist Sharia Compliant financial services group.” “We congratulate Hejaz Asset Management on the launch of these three funds and look forward
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to applying our well-established experience of funds governance to them.” Also commenting on the mandate, Hejaz Asset Management chief operating officer Muzzammil Dhedhy said that Equity Trustees has been invaluable in assisting with the launch of these funds. “In addition to dealing with funds governance matters, Equity Trustees efficiently supported the preparation and issuing of the three compliant product disclosure statements,” Dhedy said. “We believe these three funds offer additional ‘positive impact’ benefits above and beyond returns by incorporating ethical foundations based on achieving prosperity and providing Sharia compliant investments for fund members.”
New Aussie bluechip ETF The BetaShares Australian Quality ETF, with ticker code AQLT, comprises companies that have high return on equity, low leverage and relative earnings stability. AQLT will host about 40 companies; some of the index’s constituents include Macquarie Group, CSL, Woolworths Group and Wesfarmers. The index it tracks, since its June 2011 inception has returned 9.9% p.a. compared to 8.6% p.a. for the S&P/ASX 200 Index. AQLT favours growth sectors such as technology and consumer discretionary, and is underweight in the mining sector Management fees are charged at 0.35% p.a. or $35 for every $10,000 invested. BetaShares chief executive Alex Vynokur said AQLT will give investors access to a cost-effective investment that can serve as a core portfolio allocation for Australian equities. “The quality score methodology used by the fund aims to produce superior long-term performance compared to benchmark Australian equities indices,” Vynokur said. The fund manager recently launched its Digital Health and Telemedicine ETF (EDOC), which invests in up to 50 global firms operating in the healthcare sector, such as Boston Scientific, Abbott and Resmed. EDOC also looks at firms engaged in medical devices, remote patient monitoring, telehealth, or wearable products. fs
Milford adds to global product suite Milford Asset Management is bringing three new funds to the Australian market, targeting financial advisers and investors looking for globally diversified solutions. The expanded global offering follows Milford’s appointment of a head of global equities in January in Alexander Whight. The first of the three new funds is the Milford Global Real Asset Fund, which invests in global listed infrastructure, utility and real estate securities with the aim of providing income and capital growth. It seeks to outperform the RBA cash rate by 4% per annum over a rolling eight-year period. It is managed by portfolio manager Daniel Simmonds and portfolio manager and deputy chief investment officer Paul Morris. The Milford Global Growth Fund has also been added to the lineup, modelled on an existing Milford strategy that has been running in New Zealand since 2016. The fund invests in global equities with growth characteristics and looks to outperform the MSCI World Index. Portfolio managers Felix Fok and Stephen Johnston oversee the fund. Finally, the Milford Global Opportunities Fund also seeks to outperform the MSCI World Index over eight years, investing in global securities for capital growth. Johnston is also responsible for this fund, alongside Whight. Milford head of Australian business Kristine Brooks 01 said the time is right for the firm to diversify its product suite. “We know advisers want high-performing and globally-diversified portfolios and that’s what our funds are designed to deliver,” she said. “We have a strong and growing local investment team with deep talent that are well equipped in supporting Australian advisers ahead of this year’s anticipated market volatility.” Milford now offers six funds in Australia, with these three now sitting alongside the Diversified Income Fund, Australian Absolute Growth Fund, and the Dynamic Fund.
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Feature | Income protection
www.financialstandard.com.au 4 April 2022 | Volume 20 Number 06
BALANCING HAZARD
Income protection policies have been quite the conundrum for life insurers recently, but now a new wave of products aim to fix that. However, these new products still pose an issue for financial advisers. Are they really in the best interests of clients? Elizabeth McArthur writes.
Income protection | Feature
www.financialstandard.com.au 4 April 2022 | Volume 20 Number 06
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n the five years leading up to December 2019, the life insurance industry in Australia lost $3.4 billion on individual disability income insurance (IDII), more commonly known as income protection. This prompted the regulator, APRA, to intervene on the matter - demanding life companies overhaul income protection product design and policies. However, its work was briefly put on pause due to the outbreak of the COVID-19 pandemic. Between December 2019, when the intervention was announced, and September 2020, when it resumed, life companies lost a further $1.4 billion due to the sale of unsustainable income protection products. APRA’s work on income protection was supposed to continue until October 2022 but, on March 24, it announced it was suspending its work on the matter, expressing disappointment in the industry’s response to its intervention so far. “APRA acknowledges the challenges associated with the operationalisation of the IDII policy contract term measure. Notwithstanding these challenges, the measure provided industry with a valuable opportunity to make changes that would improve both IDII sustainability and effective customer engagement,” APRA deputy chair Helen Rowell said in a letter to life insurers. “It is therefore disappointing that the industry appears not to have engaged with this opportunity as fully and openly as expected, or with a view to sufficiently shift away from problematic legacy practices where needed.” After receiving many submissions on potential solutions, submitted by insurance companies and other stakeholders, APRA considered Treasury’s ongoing review of legacy product rationalisation and the Quality of Advice Review and concluded that the industry has not been able to properly address the challenges facing IDII products. APRA said it will suspend its work on the issue for at least two years - allowing time for Treasury’s ongoing reviews to play out. The regulator remains of the view that there is inherent value in life companies having mechanisms other than price to address the risk of unsustainable product terms, expressing disap-
01: Phil Anderson
02: Benjamin Martin
03: Jacqui Lennon
chief executive Association of Financial Advisers
senior technical manager AIA Australia
head of customer and digital Zurich Life and Investments
pointment that life companies are simply raising premiums to push consumers out of unsustainable legacy products. However, while APRA’s work on the issue is suspended it expects life companies to engage with customers, with engagement shown to be an area of weakness in industry submissions. It also expects insurers to maintain a focus on the sustainability of IDII; consider the conductrelated impacts of the design and distribution obligations, unfair contract terms, claims handling and duty of reasonable care; actively contribute to the Treasury reviews; seek to identify possible alternative ways to effectively address the risk of price being the only lever to deal with contract terms that are not sustainable; and strengthen engagement with financial advice bodies. That said, APRA did acknowledge that life companies releasing new IDII products in response to its work was an important milestone in ensuring the sustainability of income protection, and the ability of income protection products to provide ongoing benefits for customers. Association of Financial Advisers (AFA) chief executive Phil Anderson01 and Financial Planning Association of Australia (FPA) chief executive Sarah Abood issued a joint statement welcoming the suspension. If APRA’s work had continued until October 2022 as scheduled, it would have resulted in income protection policies being capped at five years, rather than being guaranteed renewable - typically until the retirement age of the policyholder – as is presently the case. “While policyholders would have had the option to re-apply for cover, the risk is that new contract terms and conditions may have changed, and policyholders would be underwritten again based on possibly changed income, occupation and pastimes,” the two association leaders said. “The measure would have had a number of unintended negative consequences for Australians, including: missing communications from their insurer or not acting on them in time, resulting in cover being lost inadvertently; leaving those with a changed situation at the time of renewal in a worse position, particularly those who have become pregnant, lost their job, or be experiencing income fluctuations (such as small business owners; creating uncertainty for
those who may be on a claim when five-year term expires; and potentially triggering sharply increasing premiums for those left ‘stranded’ in older, closed products (if they had experienced adverse changes in health or other factors that may have left them unable to obtain cover in new products).”
Out with the old
With so much change occurring with income protection products recently, we may not see much innovation over the short term. Jacqui Lennon
IN YOUR CLIENTS’ MOMENTS OF NEED, WE’RE HERE. During 2021, we paid over $2.1 billion* in claims across our Retail, Group and Direct Insurance policies.
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AIA Australia senior technical manager Benjamin Martin 02 explains that unfortunately unsustainable income protection products stuck around for so long because, in a sense, they were good for the consumer. “If we look at the old income protection products, which are now closed to new customers off the back of APRA’s intervention, there tended to be a fundamental disconnect between the benefit a customer received at claim versus the amount of income they were receiving prior to disability,” Martin says. “That disconnect risked creating a moral hazard. The risk was that often the product failed to create a sufficient financial incentive for claimants to return to work. This, alongside other factors, led to the poor claims experience which has been driving the significant in-force price increases experience over recent years.” The old products, he says, often had less restrictive terms and conditions built into the contract than the income protection products available for sale today. “Many advisers will have clients with these older, now grandfathered income protection policies. The challenge faced by advisers is in negotiating the best interest duty challenges of moving from the more generous, yet increasingly unaffordable older products to the less generous, new product designs that offer the potential for more affordable and stable premiums over the life of the policy,” Martin says. Martin explains that the moral hazard, in this instance, is on the part of the customer. The way products were designed in the past there was a possibility that the policy holder would take on a higher degree of risk than they would otherwise - knowing they had a generous income protection policy to fall back on. Zurich Life and Investments head of customer and digital Jacqui Lennon 03 says the industry released a range of new products that
aia.com.au
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Feature | Income protection
www.financialstandard.com.au 4 April 2022 | Volume 20 Number 06
04: Matthew Pilcher
05: Josh Mennen
06: Dawn Thomas
director of proposition PPS Mutual
principal lawyer Maurice Blackburn
financial adviser Integro Private
were designed to address the sustainability of the retail advised income protection offers. She emphasises that the focus has been on making sure the claimant is not in a better position post-claim than they would have been before making the claim. “At Zurich, we’ve been on a journey for several years to provide product solutions that were sustainable and provided real protection such as OneCare’s Income Secure Essentials, and Zurich’s Income Protector and Active solutions. While we had to release new products in response to APRA’s guidelines, this was part of that journey,” Lennon says. “With so much change occurring with income protection products recently, we may not see much innovation over the short term. In our view, the industry needs time for the new products to operate and be reviewed to ensure they are providing the customer support they intend.” Martin says the AIA team responded to APRA’s work on income protection by working to develop a product that could be sustainable - not loss-causing - and still represent value for customers. “We’ve manufactured an income protection product that goes to the root cause of this issue - to build a product that has a fighting chance of being liberated from those pricing pressures of the past, that is fundamentally within the spirit of what is required from APRA,” he says. “We’re confident that we’ve struck the right balance – a product that delivers adequate, appropriate and meaningful protection for consumers with a construct that provides greater confidence that we can keep premiums affordable and stable throughout the life of the policy.” The AFA’s Anderson explains APRA has ushered in two key changes: Firstly, from 31 March 2020, ‘agreed value’ policies were no longer permitted. From 1 October 2021, other significant changes commenced, including with respect to how income at risk was assessed and income replacement ratios. “These changes have been driven as a result of large losses sustained in these products,” Anderson says. “We are not calling for particular innovation in product design, however we would like to see work done in terms of how to protect the existing clients in the legacy products and what can be done to support the transition of clients from these legacy products to the new products, should that be in their best interests, such as through an exemption from being underwritten.” PPS Mutual director of proposition Matthew Pilcher04 says all insurers have had to respond appropriately to the serious issues APRA identified in the income protection market. “All insurers have changed product design on new products to reflect APRA’s expectations,” he says. He adds that PPS Mutual prioritises “existing loyal members” and refuses to disadvantage them to win new customers.
“We do not offer upfront discounts to be paid for by our loyal members and we have been careful to avoid large premium increases on existing members,” he says. “The result of which is loyal members and low lapses which lead to enhanced profitability and sustainable premiums. We also do not sacrifice good underwriting to write business, which again protects the profitability and premium sustainability for our loyal members.” However, Rowell was clear in her most recent letter to insurers that many life companies have done just that - increasing premiums on legacy products as a means of pushing customers out of those products.
Premiums versus benefits According to the Life Insurance Act 1995, premiums cannot be raised for one product without being raised on the entire class of products offered by an insurer. This is enshrined in law deliberately so that insurers do not push clients into the most profitable products by jacking up premiums on products earning them less. Maurice Blackburn principal lawyer Josh Mennen05 says it should be huge red flag for advisers that APRA has identified price as the main means by which life companies are attempting to move customers out of those legacy products. “What I’m concerned about is that with some legacy products which the insurers want to push people off, we want to make sure insurers are not artificially ring-fencing products and jacking up premiums to get people off the books,” he says. “I’m not making a specific allegation, but I am concerned that could become part of the playbook to cause a migration from one product to another. He believes advisers “should be very concerned” about premium changes that appear to target legacy products only. “If there is any sense the motivation behind that is to incentivise a move off the product, that would be against the insurer’s duty of utmost good faith. The consumer should seriously consider pursuing legal action - including through the Australian Financial Complaints Authority,” Mennen says. While the law appears to clearly put the onus on insurers to raise premiums in line with the law and their wider duty of utmost good faith, advisers have certainly been stung by the failures of product providers in the past. Mennen says advisers should be closely monitoring this issue. So, what should insurers do to encourage consumers out of the problematic legacy products? Mennan says it’s simple. “They could develop and market new products that offer a good value proposition for consumers to move to and to purchase, new products that represent good value for people who are starting out in their careers to start purchasing income protection,” he says. Increasing premiums are a serious concern
The rising costs make it harder for clients to see the value of cover. Dawn Thomas
for advisers and their clients, and something that Integro Private Wealth financial adviser Dawn Thomas 06 has observed and is concerned about. “The rising costs make it harder for clients to see the value of cover. Some who are not engaged with their adviser may just cancel their cover altogether without understanding what they may lose by doing so,” Thomas explains. “For clients who have advisers, we have to look at what we can dial back to make it more affordable and whether there are appropriate alternatives (through the new IP products). Clients who have health issues may be stuck with their providers and there are only so many features we can amend to make it cheaper.” Increasing premiums have also been an issue in group insurance. Insignia Financial (formerly IOOF) general manager of master trust and insurance products Sam Wall07 says while price pressure is being felt industry wide, it is not as acute in the group space. “Group and retail income protection policies have both seen increases in premiums in recent years due to increasing claim pressure,” he explains. “However, retail income protection products have also had an additional contributing factor when it comes to sustainability which is that many retail products are based on an ‘agreed monthly value’ which was set when the policy was taken out and may be higher than the claimant’s current earnings. Under these policies the insurer is required to pay the monthly benefit regardless of the insured person’s actual income at the time of claim.” Group income protection has not suffered from the same sustainability issue as retail products as they are generally classified as an ‘indemnity policy’, which means the monthly benefit payment is based on the member’s earnings at the time of the claim averaged over the previous 12 months, Wall says. This means group policies don’t have the issue that Martin identified as the heart of the unsustainable nature of legacy retail income protection products - that clients may be disincentivised to return to work. “In addition, most default [group] income protection insurance policies contain ‘offset’ clauses that reduce or offset the insurance benefit if the member receives other types of income support such as sick leave, workers’ compensation, or other insurance benefits,” Wall says. “Offsets are a necessary product sustainability measure that help ensure members are not incentivised to remain on-claim and instead are encouraged and supported to return to health.” One of the features of new income protection policies the life companies tout is access to rehabilitation programs. Despite being an in-demand and busy adviser, Thomas has never seen a client use these rehabilitation services. Mennen, on the other hand, has seen plenty of clients in various reha-
CHOICE AND SUSTAINABILITY BY DESIGN Including NEW flat 70% income replacement ratio
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Feature | Income protection
www.financialstandard.com.au 4 April 2022 | Volume 20 Number 06
07: Sam Wall
08: Anna Mirzoyan
09: Ben Marshan
general manager of master trust and insurance products Insignia Financial
compliance and technical officer Lifespan Financial Planning
head of policy strategy and innovation Financial Planning Association of Australia
bilitation programs with insurance companies. His view is that these programs are often used to pressure people, who are entitled to the insurance benefit they have paid for, to get back to work quicker than medically recommended. He says he’s also seen rehabilitation programs undermine the relationship between a client and their physician, pressure clients to take any job they can and has even seen a “rehabilitation program” which only involved one phone call to the client. Mennen says this puts advisers in a tough spot because if they haven’t seen such support in action, how can they really assess how good it is? How can they be sure insurance companies aren’t using rehab programs to pressure clients back to work just to improve their own bottom-line? There is no simple answer, Mennen suggests advisers make sure they listen to clients who do engage with various rehab programs and should also listen to the experience of other advisers’ clients. When it comes to rehab programs, marketing material from insurance companies should not be relied upon, as every client’s needs are going to be different and therefore their experiences with these programs will be different, he says. At AIA, Martin argues the rehabilitation and back-to-work support is genuinely a win for consumers. “I think there’s a misconception out there that rehabilitation is in some way mandatory, with insurers forcing a rehabilitation programme on the client as a condition of claim. This is however generally not the case. At AIA for example, our rehabilitation outcomes are ultimately guided by the customer. We work with each claimant to help them identify their objectives, develop a plan and help them achieve their desired outcomes from a rehabilitation perspective. “We think that this is in the long term best interest of not only the client, but also the advisor, who has an ongoing business and personal relationship with the client and is therefore just as much invested in delivering a return to wellness and financial independence.” He adds that AIA has found around 85% of clients that commence an income protection claim come off the claim within a period of two years. Of course, much of the responsibility on this matter falls to dealer groups; they have to determine which of the new generation of income protection products make it on to approved product lists (APL). Anna Mirzoyan08 , compliance and technical officer at Lifespan Financial Planning, explains the process of making it onto an APL. “When considering adding a new insurance product to Lifespan APL, we research the product first. In doing so, we refer to several sources, including the product PDS, Insurance Guide, claims history, risk researcher tool available in Xplan,” she says. “The product is usually approved if our research does not find any major shortfalls in mat-
ters such as the features and benefits of the product, claims history of insurer or affordability.”
In whose best interests? Martin explains that there is a best interests question for advisers to consider when it comes to income protection in this landscape, where legacy products have been shown to have issues but there are very real reasons clients may prefer to stay in those products. “The challenge faced by our financial advisers is, ‘If I do keep my clients within those old-style contracts, if and when pricing pressures materialise and emerge within those legacy books of policyholders, then what do I need to do from a best interests duty perspective?’ The question is do advisers keep them within those old products, or do they look to replace them with the newer style income protection contracts,” Martin says. “In an environment where there’s so much variation in terms of the new style income protection products, and given this is another round of regulatory change that we’re trying to acclimatise to, it really has complicated an already difficult insurance advice operating environment.” Anderson, meanwhile, doesn’t see the changes to income protection impact best interests duty directly, as such, but rather posing a broader challenge for all advisers. “These changes do not directly impact the best interests duty, however it does present a significant additional challenge in terms of how a financial adviser deals with the potential issues when considering whether it is in the best interests of a client to move them from one of the legacy products with better features, terms and conditions to one of the new, more basic products,” he says. “Financial advisers also need to consider the risks that might emerge, in terms of the potential for a client to be ineligible for a claim in the new product, when they would have been covered in the old product. Financial advisers need to have adequate protections to ensure that they are not exposed, should the client choose to make a complaint.” He adds that the AFA is keen to see additional guidance provided to assist advisers who might be placed in the difficult situation where the client has objected to the premium increases in their existing product and wants to understand the alternatives to reduce the cost, and the new products need to be considered. “The launch of the new IDII products has placed significant demands on advisers to understand these new products, which are so different to what was previously in the marketplace,” Anderson explains. “Whilst this has been demanding, but achievable, for risk specialists, it has been overwhelming for many generalists who previously provided some risk advice. As a result, we have seen an ongoing trend of generalist advisers exiting the risk advice space.” FPA head of policy, strategy and innovation
Careful consideration of the feature versus premium versus sustainability needs to be considered by planners against the consumers’ goals and objectives. Ben Marshan
Ben Marshan09 says if insurers do use increasing premiums in legacy products as a means to push clients out - which Mennen has highlighted is not in the spirit of the law - there could be a best interests complication in this space. “The implications for the best interest duty for existing clients becomes a trade-off between policies with favourable terms which are likely to see significant premiums increases over time, versus more sustainable and affordable premium products with lesser benefits,” Marshan says. “Careful consideration of the feature versus premium versus sustainability needs to be considered by planners against the consumers’ goals and objectives. To add to the risk, it’s possible an existing higher feature product may have paid a claim, whereas the lower feature product might not cover that insurable event or be impacted by one of the income features listed above.” This is a serious risk for advisers, as clients would have grounds for a complaint. “These changes to policies are complicated, they have been implemented in different ways by different insurers, and with the challenges of commercially providing advice on life insurance products only growing, evidence suggests most planners have abandoned this space,” he says. Mirzoyan suggests advisers should not lose sight of the basic principles of the best interests duty, despite the complications these recent changes have presented. “When recommending income protection insurance, other important factors must also be taken into consideration such as long-term affordability, features and benefits of the product, claims history of the insurer,” she explains. “With most legacy products, the costs of income protection has increased dramatically in recent years, forcing clients to think twice before renewing their current policy.” Again, this observation suggests some life companies are already attempting to shuffle clients out of legacy products. “Is having a longer benefit period more important to the client? Or do they prefer to take more risk and have a reduced benefit period ensuring ongoing affordability of income protection insurance,” Mirzoyan says. “What is important to one person may not be that important to another person. As such, having a detailed conversation with clients about their personal circumstances and what is more important to them can certainly help advisers in balancing the best interest duty and the right product advice.” Zurich’s Lennon acknowledges that these changes have left advisers with a lot to grapple with. “Financial advisers have had to become familiar with changing regulation and the new offerings in the market,” she says. “As a result, advisers must balance the generosity in products of old with a new design philosophy so that they are able to select the solution that best suits the particular client needs.” fs
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At AIA Australia we’re always looking for ways to add value to your client’s protection, which is why we’re excited to introduce our Crisis Extension cover. Carefully designed to complement our highly-rated Crisis Recovery insurance, Crisis Extension cover gives your clients the opportunity to enjoy flexible sums insured that offer them and their loved ones more cover for longer. By choosing the sum insureds for both these types of cover, your clients can access more protection for serious events at lower premium rates, customising cover that best suits their individual needs.
Copyright © 2021 AIA Australia Limited (ABN 79 004 837 861 AFSL 230043). All rights reserved. The life insurance policies relating to Priority Protection and Priority Protection for Platform Investors are issued by AIA Australia Ltd. This information is current at the date of this document and may be subject to change. AIA Australia Ltd takes no responsibility for any incorrect information (by omission or otherwise) contained in this document. This provides general information only, without taking into account your objectives, financial situation, needs or personal circumstances. You should consider such factors and view the Product Disclosure Statement, available at aia.com.au, in deciding whether to acquire or continue to hold a financial product. This document is a summary of the circumstances in which AIA Australia Ltd pays claims under these policies. The payment of claims is subject to the terms and conditions of the relevant product as summarised in the relevant PDS. 03/22 – ADV6627
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News
www.financialstandard.com.au 4 April 2022 | Volume 20 Number 06
ANZ develops stablecoin
01: Judith Fox
chief executive Stockbrokers and Investment Advisers Association
Chloe Walker
ANZ has made history with the first ever Australian bank-issued stablecoin payment, pegged to the Australian dollar, through a public permissionless blockchain transaction. The stablecoin transaction was successfully completed for Victor Smorgon Group via private wealth management firm for digital assets Zerocap. ANZ stated it minted 30 million A$DC using an ANZ built Ethereum Virtual Machine (EVM) via a smart contract through digital assets platform, Fireblocks. The coins were then transferred between the parties and later redeemed back into Australian dollars. “An ANZ-issued Australian dollar stablecoin is a first and important step in enabling our customers to find a safe and secure gateway to the digital economy,” ANZ banking services lead Nigel Dobson said. “We’re excited to continue to trial our capability and explore how this use case can be applied in other industries and to other customers in the future.” Victor Smorgon Group chief executive Peter Edwards said: “Through the Zerocap platform and continuing our multi-generational working relationship with the ANZ Bank, we are excited to have an Australian dollar stablecoin facilitating innovation and investment.” Zerocap co-founder and chief executive Ryan McCall added that truly understanding the needs of institutions like ANZ was critical to Zerocap playing a role in this ground-breaking initiative. fs
Dealer group faces charges A Brisbane-based financial advice business has been charged with anti-hawking offences after cold calling consumers and pushing them to roll over their super into a new product. National Advice Solutions appeared in Southport Magistrates Court in Queensland, charged with 11 counts of offering is issue or sell a financial product via unsolicited phone calls. The calls are said to have taken place between August 2019 and June 2020 and been made to 11 consumers, all of which were encouraged to roll over their superannuation into different products. National Advice Solutions is privately owned and describes itself as a “dealer group offering end to end financial planning solutions”. It is headed by managing director and responsible manager Gail Glasby and responsible manager Paul Carcallas. Reforms to the anti-hawking regime were introduced in October 2021, but due to the timing of these offences, National Advice Solutions has been charged under the previous provisions. At the time of the alleged offences, the maximum penalty for each breach of s992A(3) of the Corporations Act was $133,200. fs
Industry association announces rebrand Jamie Williamson
T The quote
Our name change clarifies who our members are and proudly encapsulates the value our members add...
he Stockbrokers and Financial Advisers Association will now be known by a name that more accurately reflects its membership, the body said. The association has received full member support to change its name to Stockbrokers and Investment Advisers Association (SIAA). The industry body said the new name “reflects accurately the breadth of our membership’s roles and responsibilities, given that not all of our members provide financial advice”. “Our members are full-service and online brokers, execution-only participants and provide wealth advice and portfolio management services,” SIAA said. It also confirms that all members are involved in facilitating investing and serving the interests of investors and distinguishes
members from other types of financial advice providers, SIAA said. SIAA chief executive Judith Fox 01 said the name change allows for recognition that different forms of advice provide different services to clients, based on their needs. “This clarification is helpful to the community when thinking about how to generate wealth over the long term by investing in equity and debt markets,” she added. Also commenting, SIAA chair Brian Sheahan said: “Our name change clarifies who our members are and proudly encapsulates the value our members add to the community of investors, businesses seeking capital and, ultimately, the economy.” “The tagline accompanying our new name — ‘Serving the interests of investors’ — captures the fiduciary relationship our members have with investors.” fs
More Diversa superannuation products to wind up The trustee is closing several of OneSuper’s subplans due to lack of scale. Diversa Trustees’ OneSuper, formerly known as Smartsave, is home to 14 superannuation offerings including Allan Gray Superannuation, GROW Super and Superhero. The OneSuper lineup also includes several lesser-known products such as Brightday, MYONESUPER and Super Prophets – three subplans Diversa has decided to wind up. As at 31 December 2021, OneSuper had total funds under management of $1.35 billion; just $28.8 million of this was held in Brightday ($14.8m), MYONESUPER ($10.3m) and Super Prophets ($3.7m). Diversa put the closure down to regulatory change and pressure and the shifting super landscape. “These changes have increased the complexity and cost of administering superannuation funds resulting in potentially poor outcomes for members where there is insufficient scale,” Diversa wrote to members. “With consideration of these changes and the ever-evolving regulatory landscape, Diversa Trustees Limited has made the decision that it would be in the best financial interests of members to close…” The options were all closed to new members
and existing members were given notice of the options’ closure on February 25 and had until late March to notify the fund of what to do with their savings. Their options were to transfer to another super fund of their choice or rollover into another Diversa sub-plan YourChoice Super. Those members that didn’t decide will have their retirement savings sold down to cash and transferred to the ATO commencing April 11. The decision to close Brightday, MYONESUPER and Super Prophets follows GigSuper – also a Diversa product – going into administration with about $2.8 million in FUM. Another sub-plan Diversa oversaw, Zuper, also closed in 2021 after failing to reach sufficient scale. Its closure came less than a year after it was transferred to OneSuper (then Smartsave) as part of a merger with industry fund LESF Super. At the end of 2021, OneSuper had about 28,000 members across its 14 sub-plans, according to APRA data. At that time, its more widely recognised products, GROW Super and Superhero had $47.18 million and $70.44 million in FUM respectively. YourChoice Super, the sub-plan members of the closing products were encouraged to roll into, is the largest of those remaining with total FUM of about $290 million. fs
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News
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UniSuper makes VC play The fund has invested $75 million with earlystage commercialisation fund manager, Uniseed. The investment will feed into UniSuper’s sustainable investment options. Uniseed was established in 2000 and is now owned by the Universities of Melbourne, Queensland, Sydney, New South Wales and the CSIRO. It provides seed funding for early-stage research and technology developed by its five partners, with the stated aim of identifying investment opportunities with positive social or environmental impact. UniSuper chief investment officer John Pearce says that Uniseed was a natural fit and logical choice for the fund. “UniSuper has always championed Australia’s thinkers, creators, and investigators. Uniseed is at the forefront of new start-ups and technologies,” Pearce said. “This is an excellent opportunity for UniSuper to actively participate in the development and commercialisation of research and technology that will shape the future. We look forward to seeing this investment blossom and grow over time.” Under the agreement, UniSuper has committed $75 million into Uniseed which will cover existing projects as well as new developments across industries of the future, such as biotechnology, pharmaceuticals, quantum computing and green energy. fs
NALI, NALE to be examined Jamie Williamson
Minister for superannuation Jane Hume said the government intends to reform the provisions to ensure they operate as intended. “The non-arm’s length expense provisions are designed to prevent superannuation funds from circumventing contributions caps, and artificially inflating fund earnings through non-commercial dealings,” a statement from Hume’s office read. “The government understands that some industry stakeholders have concerns regarding the interpretation of these provisions by the Australian Tax Office in a recent Law Companion Ruling and the implications of this ruling for both APRA-regulated funds and SMSFs.” Welcoming the news, the SMSF Association said in their current form, the NALE rules “could have far-reaching and unjustifiable consequences for funds, both large and small”. “It’s our considered view that the NALE rules go much further than originally intended. For example, there could be situations where all the income received by an SMSF, including taxable contributions and realised capital gains, is taxed at 45% because the SMSF failed to incur a small fund expense on arm’s length terms,” deputy chief executive and director of policy and education Peter Burgess said. “There could also be situations where all the income an SMSF receives from a particular investment, including any realised capital gains on selling the investment, is forever tainted as NALI because of a simple oversight. fs
21
01: Andrew Kleinig
managing director & head of Australia Nuveen
Australia more worried about inflation: Nuveen Elizabeth McArthur
A
The numbers
73%
The proportion of Australian institutional investors looking to mitigate inflation risk.
ustralian institutional investors are more concerned about inflation than their global counterparts, according to a new survey. Nuveen’s second annual Equilibrium Global Institutional Investor Study revealed similarities in the views and responses of investors across regions, but also highlighted areas in which Australian investors hold differing views. One such area is inflation, with 84% of APAC public/government plans and 73% of Australian institutional investors saying they are actively looking to mitigate inflation risk. Globally, 61% of investors are looking to mitigate inflation risk. “Investors in Australia and globally are concerned about fast-changing conditions in world markets and challenges in areas as broad-ranging as extreme weather, uncertainty around interest rates and inflation, the disruptive impact of Covid, and wider recognition of social inequality,” Nuveen managing director and head of Australia Andrew Kleinig01 said. “The survey shows there are many similarities in the thinking of Australian institutional investors compared with investors in the US and Europe, but it also highlights areas in which Australian investors’ views and preferences differ from those of their global peers.”
With yields still low in traditional fixed income, 62% of institutional investors the world over are looking to alternative credit. Nuveen reported that private credit saw the biggest year-over-year increase in the percentage of asset owners who hold the asset class. Now, 72% of those surveyed hold private credit, compared with 62% in 2020, and 31% say they plan to increase assets over the next two years. Among investors looking to increase their allocations to private credit, the most popular private credit investments were senior middle market debt (53%); infrastructure debt (45%) and real estate debt (38%). Australian investors were also interested in opportunistic private credit, with 60% expressing a preference for this asset type, compared with 35% of investors globally. “Australian investors are casting their nets wide in identifying opportunities for yield. Certain private credit is attractive to investors in Australia and overseas given the relatively higher spreads over public markets along with inflation protection via floating rates and covenant protection, yet generally exhibiting lower volatility relative to public markets,” Kleinig said. fs
Regulators fret over hobby traders The International Organization of Securities Commissions (IOSCO) has published a consultation paper on retail market conduct issues, with ASIC to co-chair a Retail Market Conduct Task Force with the Central Bank of Ireland. The consultation paper outlines several issues in retail trading that regulators are concerned about - from investors, with limited financial education, being pushed into scams through social media to retail platforms “gamifying” trading to attract younger investors and tempt users to trade more regularly. The paper acknowledges “greater retail investor participation in wealth creation through capital markets is a positive development for the overall economic progress”. It cites a UK Financial Conduct Authority paper which found that many consumers would benefit from investing a portion of savings rather than simply holding cash - especially in a low interest rate environment. Despite the upside, the regulators are still concerned that those participating in retail trading may not have enough financial literacy to properly assess the risk inherent in the investments they are making. They are also concerned certain trading patterns in retail
markets are magnifying losses. The consultation paper includes the inflation of US retail company GameStop’s share price after a social media campaign to pump up the stock succeeded in doing so. “This is a worldwide phenomenon, and likely to be an on-going challenge for regulators and the broader investment community, especially where the harm is digitally enabled. Like ASIC, our counterparts around the world are observing common types of harmful behaviour include misselling, mis-labelling and misleading disclosure – all of which have the potential to undermine confidence and stability,” ASIC commissioner Sean Hughes said. “The Retail Market Conduct Task Force has provided a timely opportunity to compare our experiences with other regulators and understand what innovative tools are being implemented successfully. “Australia’s experience indicates that a flexible and creative use of regulatory tools is important in acting quickly to disrupt misconduct. We encourage a broad range of stakeholders – including retail investors, financial consumers, and market participants - to engage with the IOSCO consultation.” fs
22
Special coverage
www.financialstandard.com.au 4 April 2022 | Volume 20 Number 06
Federal Budget 2022/23 In a Federal Budget very much aimed at getting voters on side, there were some glaring omissions, Elizabeth McArthur and Tom Watson write. The 2022 Federal Budget delivered a cash splash for the defence forces and cost of living support, including a cut to the fuel excise. The deficit for 2022/23 is expected to be $78 billion, 3.4% of GDP. Treasurer Josh Frydenberg announced the fuel excise will be cut in half, from 44 cents a litre to 22 cents a litre, for six months, with the government hopeful global oil prices will stabilise after that. The fuel excise has traditionally been positioned as a tax to fund road projects and maintenance, but the Treasurer promised this cut to the excise is not at the expense of infrastructure - touting a $12 billion road spend in the coming year. With cost of living pressures being felt around the country, Frydenberg announced a $420 cost of living tax offset for more low-and-middle income earners, which the government estimates should apply to 10 million Australians. “Individuals already receiving the low- and middle-income tax offset will now receive up to $1500 and couples up to $3000 from 1 July this year,” the Treasurer said in his Budget speech.
“This measure comes on top of the $40 billion in tax relief already provided by our government since the start of the pandemic.” Pensioners have also been offered cost of living support. Together, with existing indexation arrangements, a single pensioner should receive more than $500 in additional support over the next six months. And those receiving the pension, along with anyone else eligible for a Centrelink concession card, will also receive a one-off $250 payment aimed at easing cost of living pressure. With housing affordability remaining a contentious issue in Australia’s capital cities, the LNP will seek to appease voters with recommitments to three existing schemes - HomeBuilder, the First Home Super Saver Scheme and the Home Guarantee Scheme. The Budget also increases support for the National Housing Finance and Investment Corporation, which provides affordable housing to those on very low incomes, by $2 billion. Much of the other spending highlighted in the
Budget was dwarfed by a $270 billion 10-year plan to bolster Australia’s defence force, which the government predicts will create 100,000 jobs. The plan will see $38 billion spent in this year’s Budget alone.
Health spend
The numbers
$78bn The expected deficit in 2022/23.
As part of a package of health spending and with aims to reduce cost of living pressure, the government moved to lower the cost of some medicines. For example, Trodelvy, which is used to treat a rare form of breast cancer will now be listed on the PBS - with the Treasurer claiming its listing should save patients $80,000 per treatment. The Budget also prioritised mental health, with Frydenberg announcing: “Last year’s Budget saw a landmark $2.3 billion investment in mental health and suicide prevention. Tonight, we build on that commitment. More Headspace services, community-based treatment centres and digital mental health support. Combating suicide is a national priority.”
Special coverage
www.financialstandard.com.au 4 April 2022 | Volume 20 Number 06
The new spending allocated to mental health is $547 million. Additionally, a substantial women’s health package was announced, with investments in stillbirth and miscarriage support, the establishment of new endometriosis clinics and greater access to breast and cervical cancer screenings. The government has also allocated $2.4 billion over five years towards reducing the cost of medicines through the Pharmaceutical Benefits Scheme (PBS), with treatments for bowel cancer, breast cancer and cystic fibrosis among the new listings on the PBS. The PBS safety nets for both concessional patients and general patients will also be reduced from July 1 of this year - a decision which the government says will benefit nearly 2.5 million Australians. Sufferers of endometriosis - a disease which effects one in nine Australian women - were also recognised in this year’s budget. A total of $58 million will be spent as part of a dedicated endometriosis package which includes making access to MRI scanning available through Medicare as well as the construction of specialist treatment centers throughout the country.
Jobs still in focus Despite unemployment heading towards a 50-year low at just 4%, Frydenberg delivered a budget with a firm focus on jobs. Apprentices and the business that employ them are winners out of the government’s jobs package, which is aiming to keep the employment rate at a record low. More Australians are in apprenticeships now than since records began in 1968, with 220,000 currently undergoing the on-the-job training. But the government wants to see that growth in apprenticeships continue, with Frydenberg announcing a $2.8 billion investment aimed to further increase take up and completion rates. This program will see $5000 payments made to new apprentices, and up to $15,000 in wage subsidies for employers who take them on. The government handed out a significant win to small business, ensuring every $100 small businesses spend on digital technologies like cloud computing, eInvoicing, cyber security and web design will see them get a $120 tax deduction. Supply chain issues, which have been ongoing and exacerbated by COVID-19, floods, fires and the war in Ukraine, will be addressed through the Federal Budget by way of a new focus on sovereign manufacturing capability. New federal funding will see mRNA vaccines - like the Pfizer and Moderna vaccines manufactured in Victoria.
Women left off the agenda The superannuation lobby did not get its wish for super to be paid on Commonwealth Paid Parental Leave, but the Treasurer did announce some expansions to paid parental leave. Previously, mothers and their partners have been eligible for 10 weeks of paid parental leave each. Under the new measures, single parents will be able to use the full 20 weeks themselves and all families can access the full 20 weeks and decide how they would like to split it up. The government has committed a spend of $346.1 million over five years to enhancing the Paid Parental Leave scheme. Along with the new flexibility, the government
will broaden the income test to have an additional household income threshold of $350,000, per year. This addition is expected to benefit women who are the main breadwinner for families. However, industry says this doesn’t go nearly far enough to addressing women’s inequity in retirement. Aware Super chief executive Deanne Stewart said the Budget short-changed women, saying paying the Super Guarantee on top of paid parental leave and adjusting the Low-Income Superannuation Tax Offset (LISTO) to ensure lowincome earners don’t pay more tax on their super would make for a more equitable superannuation system. “Superannuation paid on parental leave and making childcare more affordable are examples of policies that could have made meaningful, long-term differences to Australian women’s retirement savings,” Stewart said. “We need to take the working lives of Australian women seriously, because if we don’t get that right, women will be condemned to retire in poverty for generations to come.” Industry Super Australia (ISA) also lamented the government’s decision not to prioritise paying super on parental leave. “This modest investment of paying super on parental leave would add up to $14,000 to the retirement balance of a mother of two. As 99.5% of applicants are women, paying super on Commonwealth parental leave would be a concrete step towards bridging the gender super gap,” ISA said. “Mums are continuing to pay a hefty future financial price for having a baby, with the gender super gap increasing by 5% since 2013 for women in their early 30s.” “This Budget was another missed opportunity to narrow the gender super gap and it’s disappointing the government did not make a modest investment in the financial future of millions of mums and pay super on parental leave,” ISA chief executive Bernie Dean said. “Working mums are going to keep falling behind until super is paid on parental leave.”
Increasing home ownership The federal government has announced an expansion of support measures for prospective home buyers by floating a new Regional Home Guarantee and boosting the number of places available under several existing schemes. Under the new Regional Home Guarantee scheme both Australian citizens and permanent residents who have not owned a home for at least five years will be encouraged to either purchase a newly built property or build a home of their own in regional areas. Similar to the existing First Home Guarantee scheme, eligible buyers using the new scheme will be able to take out a home loan with a deposit as low as 5% without the need for mortgage insurance. Instead, the government will act as the guarantor for the loan. Starting this year, 10,000 places will be available annually under the scheme until June 2025. “The introduction of the Regional Home Guarantee has the potential to help these home buyers but also to boost home building in the regions,” Home Industry Association managing director Graham Wolfe said. “Many people have chosen to move to regional areas over the last two years to build a new life, placing pressure on housing affordability in these
23
areas. Supporting home building at the same time as supporting people re-enter the housing market can make a real difference.” The budget also outlines an expansion to the number of places available under the existing First Home Guarantee and Family Home Guarantee schemes. First of all, 35,000 new First Home Guarantee places each year for three years will be made available to first home buyers with low deposits starting from July 1. An additional 5000 spots each year will also be opened up for single parents through the Family Home Guarantee scheme. The initiative also allows low deposit buyers to purchase a home without the added expense of lenders mortgage insurance, though eligible single parents are able to purchase with a deposit as low as 2% of the property price.
No Budget for climate
Working mums are going to keep falling behind until super is paid on parental leave. Bernie Dean
The 2022 Federal Budget has been labelled a “missed opportunity” or a “massive missed opportunity” on areas including climate and sustainable development. Nicki Hutley, a climate councillor at the Climate Council and an economist and former partner at Deloitte Access Economics calculated that just 0.3% of total expenditure for 2021-2024 has been committed to climate change initiatives, falling even lower, to just 0.2% in 2024-2026. She said much of the 0.3% is funding already committed prior to this Budget and that the 2022/23 Budget adds ‘virtually nothing’ to that. “Rather than investing in a green economic future, the federal government has used tonight’s Budget to toss mere pennies at genuine emissions reduction initiatives, such as the regional renewable microgrids,” Hutley said. “At the same time, significant funds are being spent on so-called ‘low emissions hydrogen’ and the costly and unproven carbon capture and storage. And a further $50 million dollars is being directed to accelerate polluting gas projects.” Hutley pointed out that the fuel excise cut could have been “perhaps better spent” on supporting electric vehicles and EV infrastructure investment as well as public and active transport initiatives.
Natural disasters a priority Australia’s recent natural disasters, including the devastating floods in New South Wales and South-East Queensland, have prompted a Federal Budget response. “Nothing I say can overcome the personal pain and loss of so many Australians. We will stand with these communities and help them rebuild,” Frydenberg said in his Budget speech. “Already, over one million disaster payments have been made. Total support to families, farmers, small businesses, local governments and their communities is expected to exceed $6 billion. It will deliver hope, work and the prospect of returning to a better life.” The estimated $6 billion assistance package in response to the floods would be higher than the $2.8 billion spent on the 2019-2020 bushfires and the $1.5 billion spent on the 2019 North Queensland floods. Of that spend, $2.2 billion will go to households for income support, temporary accomodation and social services; $665 million will go to businesses and farmers for repairs, new equipment and support; and $589 million will go to community clean-up and recovery. fs
24
International
www.financialstandard.com.au 04 April 2022 | Volume 20 Number 06
Vanguard hit with US class action Law firm Dovel & Luner filed a class action lawsuit against Vanguard trustees and on behalf of investors in Vanguard’s Target Retirement Funds, based in the US. The suit alleges that Vanguard’s mismanagement of these funds led to “enormous tax bills for investors who held the funds in taxable accounts. The Vanguard Target Retirement Funds allow US investors to save for a target retirement date. Federal tax law in the US requires that when a target date fund sells assets it distributes any capital gains to shareholders. Investors who hold target date funds in tax advantaged accounts can simply reinvest these distributions, without incurring any tax liability. Vanguard offered these target date funds to larger investors (with more than $100 million to invest), positioning the funds as institutional-grade. The investors in these large, institutional-grade target date funds could reinvest distributions without incurring tax liability. However, the complaint alleges Vanguard also markets and sells its target date funds directly to smaller, ordinary investors who hold these funds in taxable accounts. These investors allegedly had to pay taxes on distributions, even when they automatically reinvest them (which is what most do). “For these investors, if there is a massive sell-off of assets in their target date fund, this results in massive tax bills,” the complaint says. Target date funds don’t normally sell many assets, so capital gains distributions - and the tax implications - are minimal. But the complaint alleges that in December 2020, Vanguard caused an “elephant stampede” sell-off from its retail target date funds. This occurred because Vanguard opened its institutional-grade target date funds (which hold the same assets as the retail funds) to all retirement plans with at least US$5 million - when previously investors needed $100 million to invest. The institutional product has lower fees. fs
KKR acquires real estate manager Chloe Walker
KKR is acquiring all the outstanding shares of Mitsubishi Corp.-UBS Realty (MC-UBSR) from Mitsubishi and UBS Asset Management in an allcash transaction valued at US$2 billion. MC-UBSR was founded in 2000 as a joint venture between Mitsubishi and UBS. “Japan is one of the most important and highvolume real estate markets in the world, and is a market we have been dedicated to investing in with a local team since 2006. MC-UBSR has an excellent track record of serving investors across its REIT offerings and a strong commitment to enhancing its investments through a strategic approach to ESG,” KKR Japan chief executive Hiro Hirano said. “We look forward to working with and supporting a team that has served investors so well over the last two decades, and we anticipate that our combined strengths will further enhance MC-UBSR’s ability to deliver for new and existing clients and unitholders.” fs
01: Gary Gensler
chair Securities and Exchange Commission
SEC to standardise climate disclosures Elizabeth McArthur
I The quote
I believe the SEC has a role to play when there’s this level of demand for consistent and comparable information that may affect financial performance.
n a significant change, the US Securities and Exchange Commission (SEC) proposes all entities it regulates should have to disclose climate change-related factors including greenhouse gas emissions. The proposal would mean companies regulated by the SEC would have to disclose in annual reports and registration statements the climate-related risks likely to have a material impact on their business, results of operations, or financial condition. Companies would also have to disclose certain climate-related financial statement metrics in a note to their audited financial statements. The proposed required information about climate-related risks would include disclosure of greenhouse gas emissions, which the SEC acknowledged as an important factor in assessing a company’s exposure to climate-related risk. "I am pleased to support today’s proposal because, if adopted, it would provide investors with consistent, comparable, and decisionuseful information for making their investment
decisions, and it would provide consistent and clear reporting obligations for issuers," SEC chair Gary Gensler01 said. "Our core bargain from the 1930s is that investors get to decide which risks to take, as long as public companies provide full and fair disclosure and are truthful in those disclosures. Today, investors representing literally tens of trillions of dollars support climate-related disclosures because they recognise that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions. “Today’s proposal would help issuers more efficiently and effectively disclose these risks and meet investor demand, as many issuers already seek to do. Companies and investors alike would benefit from the clear rules of the road proposed in this release. I believe the SEC has a role to play when there’s this level of demand for consistent and comparable information that may affect financial performance. Today’s proposal thus is driven by the needs of investors and issuers." fs
Global alliance calls for buy now, pay later regulations Chloe Walker
CHOICE has joined consumer groups from nine countries calling for urgent action on buy now, pay later credit providers. The global statement released by Consumers International is supported by 11 consumer organisations from nine countries. It comes as CHOICE released new nationally representative data that found 78% of people who have missed or been late on a payment have experienced financial hardship because of buy now, pay later fees, including taking out an additional loan or foregoing household essentials. The research also shows that 30% of Australians have used a BNPL service in the last 12 months, and that 21% of those users have used the service to pay for basics such as food or utilities. CHOICE chief executive Alan Kirkland said this statement shows how much damage these unregulated financial products are causing. “International consumer groups have sounded the alarm on the harm being caused by the
unfettered buy now, pay later industry,” Kirkland said. “We are calling for governments across the world, including the Australian government, to ensure that buy now, pay later providers are subject to the same consumer protection laws as other credit providers. “Failure to act will create further hardship for individuals and families who are already doing it tough.” There is also community support for tighter regulation, he added. “Almost nine in 10 (87%) Australians agree that buy now, pay later companies should have to check someone’s capacity to repay a loan as part of the application process as credit cards are legally required to do,” Kirkland said. “It is critical to fix this loophole in our laws, to ensure these businesses can’t create debt traps for low-income households by providing credit that looks easy but is ultimately unaffordable. In some cases, people spend years trying to pay back debt they have signed up for in minutes.” fs
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Between the lines
www.financialstandard.com.au 04 April 2022 | Volume 20 Number 06
Midwinter scores AIA mandate
25
01: Russell Beasley
executive general manager of corporate trustee services Equity Trustees
Chloe Walker
The Sydney-based financial advice software company will support all aspects of AIA’s Financial Wellbeing business, enabling efficient advice generation for 160 advisers and support staff. According to AIA, Midwinter was selected because it offered comprehensive advice software that required minimal customisation to meet their requirements. AIA Financial Wellbeing’s staff were operational on the software following an implementation of just over four months, the business said. “Midwinter has been easy to work with and their comprehensive and configurable software has helped us quickly stand-up our new advice business,” AIA Financial Wellbeing chief executive Pina Sciarrone said. “We’re excited about the partnership and Midwinter’s ability to support our goal of enhancing the financial wellbeing of Australians.” Commenting on the mandate, Midwinter’s chief commercial officer Steve Davison said: “We’re proud to have been selected as the financial advice software partner for AIA Financial Wellbeing.” “This is a testament to the completeness of our advice software and vision, and our team’s ability to implement the software quickly and effectively.” AIA Financial Wellbeing was created when Commonwealth Bank transferred some of its Commonwealth Financial Planning advisers to the insurer as part of its broader plan to shutter the licensee. fs
Equity Trustees secures RE, custody mandates Karren Vergara
A The quote
We’re seeing a diversity of options available to investors who need income.
n alternatives asset manager and lender handed down a custody and responsible entity mandate to Equity Trustees for one of its funds. Metrics Credit Partners chose EQT to oversee the two functions for its Metrics Direct Income Fund. EQT replaces Sandhurst Trustees as the custodian and takes over Evolution Trustees as the responsible entity. The fund aims to achieve a target return of the RBA cash rate plus 3.25% p.a. net of fees, investing in the MCP Wholesale Investments Trust and the Metrics Master Income Trust (ASX: MXT). It has returned 6.55% p.a. since its inception of nearly two years ago. “Equity Trustees have adeptly stepped in as our new RE for the Metrics Direct Income Fund. We are fortunate to work with such an established organisation and benefit from its reputable custodial experience and wealth of
Rainmaker Mandate top 20
expertise,” Metrics managing partner Andrew Lockhart said. EQT executive general manager of corporate trustee services Russell Beasley01 said: “We’re seeing a diversity of options available to investors who need income. Equity Trustees is excited to perform this dual role and bring our years of experience in custody and funds governance to Metrics’ direct private debt and loans capability.” Actus Investment Group appointed EQT as its responsible entity in early March to oversee its new US Student Housing REIT, which was admitted on the ASX under ticker code USQ on March 4. The REIT invests in off-campus US student housing located near universities. EQT also recently won a mandate from Hejaz Asset Management to provide RE services for three new Sharia-compliant funds. The three funds are the Hejaz Equity Fund, the Hejaz Property Fund and the Hejaz Income Fund. fs
Note: Largest alternative investment mandate appointments of 2021
Appointed by
Asset consultant
Investment manager
Mandate type
Amount ($m)
Equipsuper
JANA Investment Advisers
Fulcrum Asset Management
Alternative Investments
415
Equipsuper
JANA Investment Advisers
Ruffer LLP
Alternative Investments
383
Care Super
JANA Investment Advisers
Ardea Investment Management Pty Limited
Alternative Investments
339
Hostplus Superannuation Fund
JANA Investment Advisers
BlackRock Investment Management (Australia) Limited
Alternative Investments
239
Equipsuper
JANA Investment Advisers
Graham Capital Management
Alternative Investments
133
Spirit Super
Whitehelm Capital
Insight Investment Australia Pty Limited
Alternative Investments
114
Energy Industries Superannuation Scheme - Pool A
Cambridge Associates; JANA Investment Advisers
JP Morgan Asset Management (Australia) Limited
Alternative Investments
100
Spirit Super
Whitehelm Capital
Elementum Advisors LLC
Alternative Investments
88
legalsuper
Willis Towers Watson
Ninety One Australia Pty Limited
Alternative Investments
80
legalsuper
Willis Towers Watson
Siguler Guff & Company, LP
Alternative Investments
79
State Super (NSW)
Frontier Advisors
Challenger Limited
Alternative Investments
71
Care Super
JANA Investment Advisers
Other
Alternative Investments
46
Energy Industries Superannuation Scheme - Pool A
Cambridge Associates; JANA Investment Advisers
Muzinich & Co. Inc.
Alternative Investments
45
Building Unions Superannuation Scheme (Queensland)
Frontier Advisors
Other
Alternative Investments
45
Spirit Super
Whitehelm Capital
GSA Capital Partners LLP
Alternative Investments
37
Construction & Building Unions Superannuation
Frontier Advisors
Copenhagen Infrastructure Partners
Alternative Investments
25
Macquarie Investment Management Australia Limited
Other
Alternative Investments
13
Hostplus Superannuation Fund
JANA Investment Advisers
Mesirow Financial
Alternative Investments
5
Construction & Building Unions Superannuation
Frontier Advisors
Mesirow Financial
Alternative Investments
5
Spirit Super
Whitehelm Capital
Other
Alternative Investments Source: Rainmaker Information
26
Managed funds
www.financialstandard.com.au 04 April 2022 | Volume 20 Number 06 PERIOD ENDING – 31 JANUARY 2022
Size 1 year 3 years 5 years
Size 1 year 3 years 5 years
Fund name
Fund name
Managed Funds
$m
% p.a. Rank
% p.a. Rank
% p.a.
Rank
AUSTRALIAN EQUITIES
$m
% p.a. Rank
% p.a. Rank
% p.a.
Rank
COMBINED PROPERTY
PM Capital Australian Companies Fund
40
24.7
1
Bennelong Australian Equities Fund
1,080
10.0
29
Bennelong Concentrated Aust Equities
1,872
12.0
19
Hyperion Australian Growth Companies Fund
2,260
-1.5
38
Chester High Conviction Fund
21.7
1
12.3
5
Lend Lease Aust Prime Property Industrial
1,567
19.5
2
19.2
3
17.9
4
41.1
1
20.2
1
17.0
1
16.2
1
Australian Unity Diversified Property Fund
15.7
2
Quay Global Real Estate Fund
345
21.6
19
14.2
2
16.2
2
548
32.3
4
11.2
3
12.3
3
13.8
4
UBS Clarion Global Property Securities Fund
444
30.8
7
11.2
4
9.0
16
332
20.5
22
11.1
5
11.3
5
38
19.6
27
10.5
6
10.8
8
91
17.7
7
16.6
5
UBS Property Securities Fund
277
20.2
2
16.3
6
Resolution Capital Real Assets Fund
Tribeca Alpha Plus Fund
173
12.9
17
15.8
7
10.1
20
Pendal Property Securities Fund
523
18.6
33
10.3
7
10.6
9
Australian Ethical Australian Shares Fund
622
3.7
34
15.5
8
10.9
10
Charter Hall Maxim Property Securities Fund
243
22.9
16
10.3
8
10.8
7
Ausbil Active Sustainable Equity Fund
123
9.4
32
15.5
9
Resolution Cap. Global Prop. Sec. Series II
983
32.0
5
10.2
9
10.5
10
10.9
25
30.6
8
10.0
23
Airlie Australian Share Fund
Greencape Broadcap Fund
1,433
10
12.1
10
8.7
920
10.8
10.4
8.5
Sector average
1,447
20.8
7.1
8.1
S&P ASX 200 Accum Index
9.4
9.8
8.5
S&P ASX200 A-REIT Index
19.0
7.0
8.2
Sector average
14.3
6
INTERNATIONAL EQUITIES
SGH LaSalle Conc. Global Property Fund
25
FIXED INTEREST
BetaShares Global Sustainability Leaders ETF
2,142
27.2
16
27.3
1
22.8
2
MCP Wholesale Investments Trust
Loftus Peak Global Disruption Fund
226
7.8
38
26.0
2
22.9
1
Capital Group Global Corporate Bond Fund Hedged
Zurich Inv Conc. Global Growth Fund
123
21.8
24
24.6
3
22.0
3
Vanguard Australian Infl Linked Bond Index
89
39.2
2
24.1
4
19.5
5
Ardea Australian Inflation Linked Bond Fund
Claremont Global Fund Franklin Global Growth Fund
2,973
5.1
1
5.8
1
12
-3.3
19
4.9
2
821
1.4
3
4.7
3
4.2
2
326
1.0
4
4.6
4
4.3
1
785
12.4
36
23.2
5
19.1
6
First Sentier Global Corporate Bond Fund
50
-3.6
26
4.5
5
3.8
6
2,700
28.8
8
22.7
6
19.1
7
iShares Government Inflation ETF
391
0.7
5
4.5
6
4.1
3
383
21.4
25
22.4
7
18.2
12
First Sentier Inv. Grade Corp. Bond Fund
683
-2.6
13
4.3
7
4.1
4
2,744
33.2
5
22.2
8
18.2
13
Ardea Real Outcome Fund
204
34.0
3
21.7
9
18.5
8
Apostle Dundas Global Equity Fund
1,366
23.8
22
21.3
10
18.0
14
Sector average
1,034
22.5
16.1
14.1
Sector average
919
-2.5
2.4
2.7
MSCI World ex AU Index
27.9
18.7
15.7
Bloomberg Barclays Australia (5-7 Y) Index
-3.9
2.2
2.9
VanEck MSCI International Quality ETF Intermede Global Equities Fund iShares Global 100 ETF Alphinity Global Equity Fund
Aberdeen Standard Global Corporate Bond Fund Lazard EM Total Return Debt Fund
Note: The performance figures for diversified funds are net of fees, performance figures for sector specific funds are adjusted for fees.
9,852
-1.0
8
3.9
8
4.0
5
251
-3.4
23
3.9
9
3.7
7
75
-3.9
27
3.8
10
1.9
23
Source: Rainmaker Information
Lambos or foodstamps and the prodigal son I
Dial tones By John Dyall john.dyall@ financialstandard .com.au www.twitter.com /JohnDyall
t’s Lent in the Christian calendar and time to consider one of the most famous parables in the Bible. The story of the prodigal son has many things to say about issues that still face families today. In the story a rich man has two sons (no mention of daughters and their rights but let’s not go there). The younger of the two wants his inheritance now, and his father gives it to him (with no input from his wife and mother of the child – not going there). The elder child stays home and tends to the family business, with some success. After all, he has capital and expert staff who he feeds well. The younger child goes to another land and spends his fortune. I personally recast the son as an entrepreneur who left town so he could get a tech start-up going, or invest in crypto. The fault isn’t necessarily his that a big-old recession hits the economy and he is left without means to feed himself, so he gets a low-paid job in the gig economy of the time (feeding swine was equivalent to being a barista now, what with the beards and such). Clearly he’s dissatisfied with how this has all turned out. A poor person with this job might be happy enough just to survive until the economy recovered, or might organise other dis-
enfranchised workers into some sort of union in order to protect their working conditions, but the prodigal son was born into wealth and there is an innate sense of entitlement he just can’t shake. He quits the job and goes home, where his father forgives him, and kills the fatted calf for a celebration. The other son is not happy. No mention is made on whether the prodigal son gets back his wealth, but one assumes he gets a privileged position in the family business, despite showing a lack of planning and business skills. Many modern middle-class families in Australia with grown children face the same issues. Unemployment might be low (due in no small part to the extraordinary stimulus provided by growing government debt) but there is increasing insecurity in jobs. The government classifies people with even one hour of work a week as being “employed” and therefore not “unemployed”. Housing prices are some of the highest in the world, inflation has reappeared and real wages are failing to keep up. If the bank of mum and dad don’t come to the party many kids won’t have the means to buy a house and attain the security and all the other things, like starting a family, that really should
be part of their birthright from being born in a relatively rich country. Instead they have a much greater interest in working for tech start ups and trading crypto. If they are in “regular” jobs with wages that they can’t save fast enough to get a housing deposit, they show a greater interest in high risk investing strategies where they either make a motza and can buy as many Lamborghinis as they want, or be poor and live on foodstamps. The middle ground where a person earns, saves and becomes financially secure through discipline, positive cash-flow and the magic of compound interest has evaporated for these people. Many see high stakes investing the only way they can get ahead, with the downside only moderately worse than what they have already. Well, in this parable what role do the older financially secure home-owning people play? In the original story the father rushed out to meet his son, throw his arms around him, forgive him and celebrate his return. Will they be like the father and act to make housing more affordable, to ensure real wages rise, to shout down politicians that say people should use their meagre super savings to buy property? I think that’s the real message of the story. fs
Super funds
www.financialstandard.com.au 04 April 2022 | Volume 20 Number 06 PERIOD ENDING – 31 JANUARY 2022
Workplace Super Products
1 year % p.a. Rank
3 years % p.a. Rank
27
* SelectingSuper [SS] quality assessment
5 years % p.a. Rank
SS
Quality*
MYSUPER / DEFAULT INVESTMENT OPTIONS
1 year % p.a. Rank
3 years % p.a. Rank
5 years % p.a. Rank
SS Quality*
PROPERTY INVESTMENT OPTIONS
Aware Super Employer - High Growth
13.8
5
11.7
1
10.6
1
AAA
AMG Corporate Super - AMG Listed Property
20.0
7
10.2
1
9.5
3
AAA
Virgin Money SED - LifeStage Tracker 1979-1983
13.0
7
11.0
2
9.3
6
AAA
Telstra Super Corporate Plus - Property
19.4
9
9.7
2
10.1
2
AAA
Mine Super - High Growth
14.3
3
11.0
3
9.3
5
AAA
FirstChoice Employer - FS Global Prop. Securities Select
20.9
4
8.8
3
7.3
17
AAA
Telstra Super Corporate Plus - MySuper Growth
14.9
2
10.8
4
9.2
7
AAA
Sunsuper Super Savings - Property
16.3
21
7.6
4
8.2
5
AAA
Active Super Accumulation Scheme - High Growth
13.8
4
10.5
5
9.4
4
AAA
Aware Super Employer - Property
19.0
10
7.4
5
8.6
4
AAA
Hostplus - Balanced
15.7
1
10.4
6
9.6
2
AAA
FirstChoice Employer - FC Prop. Securities Select
17.1
16
7.0
6
7.5
14
AAA
AustralianSuper - Balanced
11.8
15
10.3
7
9.4
3
AAA
UniSuper - Listed Property
22.7
2
7.0
7
7.7
10
AAA
8.9
43
10.1
8
8.6
15
AAA
Sunsuper Super Savings - Australian Property Index
17.4
15
6.8
8
7.8
9
AAA
Mercer CS - Mercer SmartPath 1979-1983
11.6
16
9.8
9
8.6
13
AAA
Hostplus - Property
15.3
22
6.7
9
8.2
7
AAA
Vision Super Saver - Balanced Growth
11.5
18
9.8
10
9.0
8
AAA
REI Super - Australian Property
17.7
14
6.7
10
7.5
12
AAA
Rainmaker MySuper/Default Option Index
10.9
Rainmaker Property Index
16.7
Australian Ethical Super Employer - Balanced
8.9
8.0
AUSTRALIAN EQUITIES INVESTMENT OPTIONS Australian Ethical Super Employer - Australian Shares
5.9
6.9
FIXED INTEREST INVESTMENT OPTIONS 4.6
55
15.5
1
11.1
2
AAA
Australian Catholic Super Employer - Bonds
-2.8
24
3.2
1
3.4
1
AAA
UniSuper - Australian Shares
12.9
6
12.8
2
11.3
1
AAA
IOOF ESE - IOOF MM Diversified Fixed Interest Trust
-2.5
19
3.2
2
3.1
2
AAA
Prime Super (Prime Division) - Australian Shares
11.7
14
12.7
3
10.4
3
AAA
StatewideSuper - Diversified Bonds
-1.4
10
2.8
3
3.0
4
AAA
IOOF ESE - IOOF MultiMix Australian Shares Trust
8.6
48
12.7
4
10.0
5
AAA
AMG Corporate Super - AMG Intl. Fixed Interest
-0.9
6
2.8
4
2.8
6
AAA
ESSSuper Beneficiary Account - Shares Only
10.9
22
11.4
5
10.2
4
AAA
AMG Corporate Super - AMG Aust. Fixed Interest
-2.8
25
2.7
5
3.0
5
AAA
Vision Super Saver - Australian Equities
11.5
16
11.3
6
9.2
10
AAA
QSuper Accumulation - Diversified Bonds
-2.0
15
2.6
6
2.7
7
AAA
StatewideSuper - Australian Shares
13.2
3
11.3
7
9.8
6
AAA
GESB West State Super - Mix Your Plan Fixed Interest
-3.2
30
2.6
7
3.1
3
AAA
9.5
39
11.2
8
9.0
13
AAA
Vision Super Saver - Diversified Bonds
-2.3
17
2.5
8
2.6
8
AAA
AustralianSuper - Australian Shares
13.9
2
11.1
9
9.6
7
AAA
NGS Super - Diversified Bonds
-0.8
5
2.5
9
2.5
11
AAA
Hostplus - Australian Shares
13.2
4
11.0
10
9.2
9
AAA
Media Super - Fixed Interest
-1.7
12
2.2
10
2.4
17
AAA
Rainmaker Australian Equities Index
10.2
Rainmaker Australian Fixed Interest Index
-3.1
CBA Group Super Accumulate Plus - Australian Shares
9.9
8.3
INTERNATIONAL EQUITIES INVESTMENT OPTIONS
1.6
2.0
AUSTRALIAN CASH INVESTMENT OPTIONS
Vision Super Saver - Innovation and Disruption
-11.7
65
24.3
1
AAA
ANZ Staff Super Employee Section - Cash
0.6
1
1.0
1
1.1
7
AAA
UniSuper - Global Environmental Opportunities
-4.5
64
21.0
2
16.4
2
AAA
LUCRF Super - Cash
0.5
2
0.8
2
1.1
9
AAA
UniSuper - Global Companies in Asia
21.7
11
18.4
3
16.5
1
AAA
AMG Corporate Super - AMG Cash
0.1
10
0.8
3
1.2
2
AAA
AustralianSuper - International Shares
16.6
28
17.7
4
14.7
3
AAA
AMG Corporate Super - Vanguard Cash Plus Fund
-0.3
40
0.8
4
1.2
3
AAA
Virgin Money SED - Indexed Overseas Shares
25.2
2
16.7
5
13.9
7
AAA
Rest Super - Cash
0.3
3
0.8
5
1.1
8
AAA
Aware Super Employer - International Equities
24.3
6
16.5
6
13.9
6
AAA
Energy Super - Cash Enhanced
0.2
4
0.8
6
1.2
5
AAA
Vision Super Saver - International Equities
15.6
35
16.4
7
14.2
4
AAA
NGS Super - Cash & Term Deposits
0.0
12
0.7
7
1.2
6
AAA
Mercer CS - Mercer Passive International Shares
24.8
3
16.3
8
13.6
9
AAA
EISS Super - Cash
0.2
5
0.7
8
1.1
10
AAA
LUCRF Super - International Shares (Active)
15.3
39
16.3
9
13.6
8
AAA
GESB West State Super - Cash
0.0
14
0.7
9
1.2
4
AAA
Hostplus - International Shares - Indexed
24.5
5
16.0
10
AAA
Spirit Super - Cash
0.2
6
0.7
10
1.1
10
AAA
Rainmaker International Equities Index
15.3
Rainmaker Cash Index
-0.2
13.3
11.4
Notes: T ables include Australia's top performing superannuation products that also have a AAA SelectingSuper Quality Assessment rating. Investment options are sorted by their three year net performance results. All performance figures are net of maximum fees.
0.4
0.8 Source: Rainmaker Information www.rainmakerlive.com.au
Leading intelligence, market opportunities and SPS 515 compliance for super funds
www.rainmaker.com.au
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28
Economics
www.financialstandard.com.au 04 April 2022 | Volume 20 Number 06
13%
17%
22%
26%
Ukraine
2%
10%
US
14%
11%
13%
16%
Russia
Ukraine
EU
CORN
Australia
Russia
Ukraine
WHEAT
US
South America
Australia
Russia
EU
grains supply chain, even temporarily, could thus dent global wheat supplies by 26%, global corn supplies by 16% and global barley supplies by 30%. The economic catastrophe is not just the reduced supply but what this could do to world prices, especially for nations in the Middle East and Asia that rely on these nations as their major food suppliers. That’s why this disruption to the global supply chain could be a once-in-a-generation boom for Australia’s farming sector. All this highlights how little awareness, let alone involvement, Australia’s institutional investors have in the agricultural sector. The most definitive study into this, conducted way back in 2017 by Industry Super Australia stated that at the time super funds had an estimated $330 billion invested into agriculture. This converted to 14% of total super assets at the time. If this same ratio applied today, Rainmaker estimates total super agriculture investments could be around $500 billion. Yet the contemporary profile of Australia’s $80 billion agriculture sector is miniscule, no doubt because nay-sayers focus too much on its 5% GDP share rather than its 13% share of total exports. But if institutional investors are to seize the investment potential of agriculture, the core question is remains: how and through what structures? fs
18%
O
ne of the side stories of the Russia-Ukraine War is that it will force us to confront what could be major global shortages in agribusiness commodities, that is, food. Sure, rising petrol prices might be inflationary, but the global economic crisis will rise to a whole new level if countries can’t buy enough food at affordable prices. To get a sense of how big a role Australia plays, think of it this way: Australia is like the Saudi Arabia of global grain exporters. To see the comparison, Saudi Arabia holds about 15% of global oil reserves but, according to the US Department of Agriculture Foreign Agricultural Service (USDA) March 2022 report, Australia accounts for 26% of global barley exports and 13% of global wheat exports. But what is so disruptive about the RussiaUkraine War is that those two nations are even bigger, meaning that if the war stops Ukraine’s agricultural production and the crippling sanctions against Russia block its exports, the impact on global of grain supplies could be a calamity. Illustrating this, the USDA report notes that Ukraine accounts for 10% of global wheat exports, 14% of global corn exports and 17% of global barley exports. Russia’s share of these markets is just as big being 16%, 2% and 13% respectively. Taking Ukraine and Russia out of the world’s
33%
Alex Dunnin and Sanjesh Pinnapola
Figure 1. Country shares of global grain exports, 2022
39%
Grow food and new investment markets too
BARLEY
Source: US Department of Agriculture Foreign Agricultural Service
Figure 2. Australian agriculture, 2021
Fisheries And forestry, 7%
Fruit and vegetables, 16%
$80 billion 72% of which was exported
Livestock and meat, 42%
Grains, 35%
Source: Australian Department of Agriculture, Water and the Environment
Financial aggregates Market implication
The Reserve Bank of Australia (RBA) publishes the country’s financial aggregates monthly, with data on lending and the broad money supply. The RBA defines broad money as “M3 plus borrowings from the private sector by non-bank financial intermediaries (including cash management trusts) less their holdings of currency and bank deposits. This measure is generally used to estimate the entire supply of money within an economy.” Once an important economic indicator, money supply started fading in relevance in the early 1990s. To quote: “…since 1990, the RBA has announced the desired stance of monetary policy in Australia in terms of a target for the interest rate on overnight funds borrowed and lent in the money market; this interest rate is known as the cash rate. It is the interest rate the RBA's domestic market operations directly affect. When changing monetary policy, the bank announces a new target level for the cash rate.” However, the financial aggregates report remains widely followed for its readings on the state of credit growth in the economy. The RBA disaggregates credit to the private sector by financial intermediaries into housing, personal and business. Changes in private sector credit indicate the state of the private sector’s finances and portend future spending patterns by consumers and investment by businesses.
Growth in private sector credit can hold positive or negative implications for the economy and markets. Economic activity is stimulated when consumers borrow within their means to buy houses, cars and other major purchases. However, if consumers pile up too much debt relative to their income levels, they may have to stop spending on new goods and services just to pay off old debts. Similarly, borrowing by businesses also has implications for the economy. Typically, an increase in business demand for credit signifies corporate optimism and generally leads to higher investment spending. The demand for credit has a direct bearing on interest rates. If the demand to borrow money exceeds the supply of willing lenders, interest rates rise. If credit demand falls and many willing lenders are fighting for customers, they may offer lower interest rates to attract business. Financial market players focus less attention on this indicator mainly because of the tardiness of the information relative to other consumer and business surveys and statistical releases. However, longer-term investors who monitor credit activity will have a greater understanding of the direction of monetary policy and its consequent impact on various investment assets. The global financial crisis (GFC) of 20072008, followed by the European debt crisis, appears to have altered Australians’ attitude towards credit. This is understandable given that excessive lending and borrowing precipitated these crises.
Despite record low interest rates, the annual growth rate in total private sector credit (around 5%-plus in the current cycle) still has plenty of catching up to do before it returns to the annual growth pace of between 13% and 17% recorded between 2003 to early-2008. This observation can be seen in all categories — housing, business and personal. On one end of the spectrum is the continued deterioration in personal credit — blamed on record high household debt and stagnant wages. At the other end, credit to the housing sector remains buoyant — up around 6.5% in recent times — but this, too, is below the 14% to 22% annual growth rates recorded in the years prior to the GFC. fs Disclaimer: This is part of Financial Standard's 'Back to basics' for financial advisers and their clients. To read more, you can find the 2021 Good Economics Guide online.
Figure 1. Credit to the private sector 30 25 20 Annual change %
Definition
15
Housing Total Business Personal
10 5 0 -5 -10 -15
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
News
www.financialstandard.com.au 04 April 2022 | Volume 20 Number 06
Home ownership gap widens
01: Kerry Craig
global market strategist J. P. Morgan Asset Management
Jamie Williamson
A survey of more than 1000 Australians by Finder sought to find out how old they were when they reached major life milestones. The survey shows the number of people buying a home before 30 has almost halved over the generations, finding just 34% of Millennials had bought their first home by the age of 30, compared to 62% of Baby Boomers and 42% of Gen X. It also found that while 92% of Baby Boomers were no longer living with parents by their 30th birthday, only 72% of Millennials and 75% of Gen X can say the same. The analysis shows that those living in New South Wales don’t buy their first home until 34 years of age, on average. Meanwhile, the average West Australian gets into the property market by around age 27. It comes as little surprise as Millennials are paying close to five times more for a home than Baby Boomers did, Finder said. Supporting this, the average price of a home in Sydney increased by 25% last year – wages only increased by 2.2%. When it came to taking out life insurance for the first time, 36% of Baby Boomers did this by age 30, while 26% of Gen X did. Interestingly, 31% of Millennials reported having taken out life cover before turning 30. It should be noted that Millennials are those aged between 26 and 41 and therefore some may yet reach the milestones mentioned in the survey by age 30. fs
Digital economy inches closer Chloe Walker
The Morrison government is seeking public feedback on regulatory frameworks for automated decision making (ADM) and artificial intelligence (AI). Minister for superannuation, financial services and the digital economy Jane Hume said it’s estimated that AI alone could contribute more than $20 trillion to the global economy by 2030. Hume said it’s important that outdated regulations don’t see Australia miss out on the benefits of innovation. “AI will continue to bolster other digital technologies and elevate human knowledge and capability to new levels, thanks to AI it’s estimated there could be 1.2 million new technology jobs created by 2034,” she said. “Modern regulatory settings are an essential foundation to grow these jobs and the digital economy. “We’re asking innovative businesses and interested parties to share their views on improving Australia’s regulatory settings and systems through the opportunities presented by ADM and AI.” The government is seeking to clarify the application of existing regulations, address inconsistent or overlapping regulation, ensure existing and new regulations are technology neutral, identify where new regulations may be required, and ensure best practice. Consultation closes on April 22. fs
29
US, UK hike interest rates Elizabeth McArthur
T
The quote
The committee now anticipates hiking rates seven times this year...
he US Federal Reserve and the Bank of England have increased interest rates with the US pulling the trigger on rates for the first time since 2018. Effective from March 17, the US Federal Reserve increased interest rates by 0.25% to 0.40%. The US unemployment rate is reportedly hovering at around 3.8% and inflation is 7.9%. “The least interesting thing about today’s rate hike, was today’s rate hike. The committee now anticipates hiking rates seven times this year, and almost half the committee members would like to see more,” J.P. Morgan Asset Management global market strategist Kerry Craig01 said. “This is some departure from the three hikes expected back in December and would push the Fed Funds rate to 2.0% by year end. Moreover, a further four hikes in 2023 could see the Fed Funds rate rise to a level above the Fed’s long run view of where interest rates
should be and put policy firmly into restrictive territory.” The Bank of England also raised interest rates this week by 0.25%, moving from 0.5% to 0.75%. CPI inflation in the UK is at 5.5%. While the US has held off on rate hikes until now, this is the third consecutive increase from the Bank of England since December. For the first time, rates in the UK are now at a pre-pandemic level. The Bank of England Monetary Policy Committee said the invasion of Ukraine by Russia has led to further large increases in energy and other commodity prices including food prices. It acknowledged the war was also likely to exacerbate global supply chain disruptions and has increased the uncertainty around the economic outlook significantly. This will add to global inflationary pressures over coming months, and growth in economies that are net energy importers, including the UK, will likely slow as a result. fs
Morningstar bets on active fund managers Karren Vergara
As market sell-offs continue to pummel ASX-listed active fund managers, Morningstar is betting big that Pendal, Magellan, Pinnacle and Platinum will deliver past the short-term noise. The fund managers' “compounding potential" for larger assets under management means there is likelihood of improved returns notwithstanding periodic outflows, an equity research note reads. Pendal for example, delivered extended outperformance, which help support future mandate wins - but might experience inhibitors to its net inflows. “For example, outflows from institutional investors in-housing their investment management or diversifying their fund manager exposure, and platform consolidation activity. Pendal is vulnerable to these developments given its maturity relative to newer managers like Pinnacle or Fidante. We forecast Pendal to remain in net outflows at the group level throughout our forecast period,” Morningstar said. Despite the troubles at Magellan and Morningstar downgrading several of its strategies, the research house is upbeat about the future of the embattled fund manager. It expects Magellan’s underlying net profit after tax to decline just 9% per year over the next three years to $315 million from $413 million in fiscal 2021. FUM is anticipated to grow to $99 billion by 2026, driven by market returns averaging 15% per year. The market, Morningstar said, is pricing in ongoing decline in FUM to $53 billion in 2026, net outflows of $90 billion and below-index returns of 8% per year. “We don’t think this is likely as it assumes Magellan will keep underperforming and fail to attract any new money over the
next five years,” Morningstar said, given that its global fund has beaten the peer average 89% of the time between June 2007 to February 2021. “But it has suffered with the market's rotation to deep value/ cyclical stocks, which started around early 2021. This coincided with isolated but acute stock mis-steps, notably on Alibaba and Tencent, which fell afoul of a government crackdown on technology firms in China,” the researcher said. Morningstar reasoned the underperformance was “oneoff (but damaging) disruption, and do not believe Magellan's investing acumen has diminished”. “Until Magellan Global outperforms its benchmarks again, ongoing institutional redemptions and chief investment officer Hamish Douglass' leave of absence could see more redemptions. This is undeserved in our view, as we believe there is no fundamental breakdown in Magellan's investment process,” Morningstar said. As for Pinnacle, investors seem to be overlooking the earnings potential of affiliate Hyperion and the performance improvement of Antipodes. “We believe Pinnacle can continue gaining market share from competitors. Pinnacle affiliates are highly competitive, both in performance and fees. It has an expanding product suite that can be tailored to suit varying market conditions. Operating leverage is strengthening as FUM grows,” the research found. The substantial undervaluation in Platinum’s portfolios, meanwhile, is expected to support higher future investment returns. “But it is the only no-moat asset manager under our current coverage. Its contrarian investment style suggests future performance can be patchy,” Morningstar said. fs
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Sector reviews
www.financialstandard.com.au 04 April 2022 | Volume 20 Number 06
Alternatives
Figure 1. Number of ACCUs on issue
18 Prepared by: Rainmaker Information Source: Clean Energy Regulator
ACCU spot price up 208% Alex Dunnin
A
12 10 8 6 4 2 0 DEC-22
SEP-22
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DEC-20
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Figure 2. Share of ACCUs on issue owned by financial intermediaries
30% 25% 20% 15% 10% 5% 0% DEC-21
SEP-21
JUN-21
MAR-21
DEC-20
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JUN-20
MAR-20
DEC-19
SEP-19
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Source:
Risky business
3% 2% 1% 0% -1% -2% -3% -4% BLOOMBERG GLOBAL AGGREGATE TOTAL RETURN
BLOOMBERG GLOBAL AGGREGATE PRICE RETURN
BLOOMBERG GLOBAL AGGREGATE YIELD CHANGE
Figure 2. Fixed interest market Jan-Feb 2022
16% 14%
US CPI % y/y US Bond 10 Year Yield
12% 10% 8% 6% 4% 2% 0% -2%
JAN-22
JAN-20
JAN-18
JAN-16
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JAN-98
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JAN-84
One of the main drivers of interest rates is inflation, which is currently at 30-year highs in the United States. In February this year US inflation was 7.9%. At the moment, most experts around the world aren’t sure whether the current inflation is transient or will become embedded in the economy. The argument for inflation being transient is that it is based on supply shocks. Supply is the cost of all the fundamental elements that go into the economy to make it work. These are things like the cost of energy (such as oil and gas), food (such as grain) and even the efficiency of the global transport system (which has become severely disrupted by the global pandemic). Clearly, how quickly inflation resolves has a lot to do with how quickly the ongoing conflict between Russia and Ukraine ends. Russia and Ukraine are both large exporters of grain and Russia is a large exporter of energy, particularly natural gas to Europe. But even if the war ends today, it is only one of the factors that have shown the fragility underlying much of global trade. fs
JAN-82
here are basically two major returns drivers in the fixed interest market: interest rate risk and credit risk. So far in 2022 the main risk has been interest rate risk. Interest rate risk is the risk that interest rates rise. When interest rates rise, the price of bonds fall (leading to capital loss). The main index for the world’s fixed interest market is the Bloomberg Global Aggregate, which consists of government bonds and highquality corporate bonds. There is very little chance of actual default, so the main risk is that the overall level of interest rates might change. So far this year its capital return has been -3.3%. This doesn’t include income from coupons paid, so the actual return was slightly less at -2.9%. What brought on these negative returns were changes in the yield. At the end of December 2021, the yield from this index was 1.31% pa and at the end of February 2022 it was 1.76% pa. This 0.45 percentage point increase in the yield, or 34% increase, was the main contributor to the capital loss. A widening of the spreads on corporate bonds also contributed but to a lesser extent.
Forecast
4% Prepared by: Rainmaker Information
T
Actual
Figure 1. US bond yields vs US inflation 1982-2022
Fixed interest
John Dyall
14
MAR-19
t 2021 end there was a net balance of 11.5 million Australian carbon credit units (ACCU) on issue, according to Australia’s Clean Energy Regulator’s (CER) latest quarterly carbon market report. With the spot price reaching $51, up 208% through the calendar year, it is estimated the crude total value of these ACCUs was an aggregate of $561 million. It has since fallen almost 40% to about $30 by mid-March 2022 thanks to a government intervention that distorted the market. By way of comparison, the European carbon price equivalent, known as European Union Allowances (EUA), increased just 125%. Helping explain what drove carbon prices during the calendar year was high energy demand in the European winter that saw gas and coal demand surge much faster than anticipated, meaning there was a sharp increase in demand for carbon credit offset units. Each ACCU represents one tonne of carbon dioxide equivalent that is stored or avoided by a project that has been approved by the CER. For a project to be approved it must demonstrate
to the CER that it has a viable emission reduction methodology and must report regularly to CER. People operating ACCU schemes must satisfy Fit and Proper Person tests. There are three main types of ACCUs: those held in existing Emissions Reduction Fund (ERF) projects, those issued through new and expanded Emissions Reduction Fund projects and those already held in the Australian National Register of Emissions Units (ANREU). While at face value the ACCU market appears to represent 561 million tonnes of avoided greenhouse gas emissions, this overlooks that ACCUs are constantly being issued for new projects and surrendered for projects no longer still active. In 2021 almost one million ACCUs were surrendered after projects had run their course. The ACCU market is experiencing rapid growth. The number of ACCUs on issue increased 43% from the eight million that were on issue at end 2020, an increase of 3.5 million. The CER forecasts that the number of active ACCUs will climb one-third to 16 million this year. About one-quarter, 26%, are now held by financial institutions, triple the proportion they held three years ago. fs
MILLION
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CPD
www.financialstandard.com.au 04 April 2022 | Volume 20 Number 06
CPD Program Instructions 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].
Alternatives
Fixed interest
CPD Questions 1–3
CPD Questions 4–6
CPD Program Instructions
1. During 2021 the spot price for Australian Carbon Credit Unions rose: a) 15% b) 25% c) 51% d) 208%
4. What are the two main types of risk that drive the fixed interest market? a) Interest rate risk and inflation risk b) Inflation risk and credit risk c) Interest rate risk and credit risk d) Interest rate risk and political risk
Each fortnight the Financial Standard will provide you with a selection of CPD questions. You do not have to undertake the CPD program each fortnight. You can do it as often or as infrequently as you require. A CPD Activity Statement will be generated and is accessible from our website.
2. An Australia carbon credit unit represents 10 tonnes that has been stored avoided as a result of an abatement project? a) True b) False
5. Inflation is the US is at 30-year highs of almost 8%. a) True b) False
3. Financial intermediaries own what proportion of ACCUs? a) Nil b) 10% c) 26% d) 56%
6. The major index used to benchmark fixed interest investment is the: a) S&P 500 b) Bloomberg Global Aggregate c) Global CPI d) United Nations Average World Interest Rate Index
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www.financialstandard.com.au 4 April 2022 | Volume 20 Number 06
MOVING THE NEEDLE As Willis Towers Watson's head of sustainable investment Tim Unger shares how he is helping asset owners turn lofty goals into long-lasting, meaningful action. Karren Vergara writes.
R
oger Urwin, Willis Towers Watson's global head of investment content, once described the environmental, social and governance investing space as a “slow moving but unstoppable train”. Over the last few years, however, that train has become “turbocharged”. Urwin couldn’t be more correct. The Global Sustainable Investment Alliance estimated that the sector has grown to US$35.3 trillion as of July 2021, marking a staggering 62% jump from nine years ago when just US$13.6 trillion of assets incorporated ESG concerns into investment selection and management. For asset owners, it can be challenging to pick which of the three pillars of sustainability should get their attention. Climate change, which perhaps has a more palpable effect, has struck a deep cord with investors, many of whom now seek a meaningful impact behind returns. The recent floodings in southeast Queensland and New South Wales smack of the devastating effects of climate change that decimated communities and reportedly left 22 people dead. The Bureau of Meteorology estimates that 2021 was 0.56°C warmer than the average temperature between 1961 and 1990. The nation’s average rainfall was also 9% higher over the same period at 509.7 mm. A growing body of research highlights investors putting more emphasis on environmentalthemed strategies to help combat erratic climate patterns. Tim Unger says that trying to convince people of the need to do something about climate change is no longer necessary. “What’s critical now is making sure that what gets done is meaningful - to get to the net-zero commitments that we and lots of asset owners and consultants have now signed up to,” he points out. When Unger put his hand up to become the newly appointed head of sustainable investment for Australia, a role which incumbent Louise Lew vacated last September, he saw it as an opportunity to make a difference: to help push the needle on sustainability and ESG issues. His responsibilities cover a gamut of issues which incorporate ‘E’, ‘S’ and ‘G’ into portfolios, as well as undertake stewardship activities, corporate engagement, and proxy voting tasks. The role also involves keeping abreast of the 17 UN Sustainable Development Goals. Given that climate action is the most-pressing issue among investors, it will garner most of Unger’s immediate attention under his new remit. “But at the same time, it's fair to say that as funds get more confident and comfortable with where they are on the environmental aspect there will be greater focus on the ‘S’ and the ‘G’ aspects as well, with actions being taken on the broader range of the Sustainable Development Goals,” he says. The sustainability investing sector has now
reached an inflection point whereby asset owners’ talk of lofty ambitions must translate into action. Regulators are also cutting through the fog by cracking down on greenwashing. Unger’s goal as the local head of sustainability is to try and effectively marshal the considerable resources and intellectual capital within WTW, which has about 100 global full-time staffers working on various aspects of ESG investing, to make that action possible. “Doing so will help to reduce real world carbon emissions, so that we can achieve the goal of limiting global warming to about one-and-ahalf degrees, so the world is more inhabitable,” he says. “That makes sense from a financial perspective because we believe the investment returns we need are only likely to be achieved in a world that does limit global warming. And the benefits that get paid out to our members are going to be worth more in a world that's worth living in.” This also involves, among other things, investment consultants helping clients channel capital in ways that find better sources of renewable energy. Over the next few years, Unger sees the establishment of certain frameworks that will enable funds to demonstrate the effectiveness of their ESG journey and show that they're actually making a positive difference. A global citizen, Unger has spent time living and working in the UK, Africa and Australia. Upon embarking on educational qualifications in actuarial studies, he then spent more than two years as quantitative analyst at ING Barings in the UK before moving back to his hometown of Zimbabwe where he worked as a pension fund actuary for another two years. He then decided to apply for an investment consultant role with Watson Wyatt (as it was known back then) based in Sydney. When he accepted the role, he also migrated his family down under. Unger recalls Urwin as one of the first people who interviewed him for the job. “He’s a very humble person, but also an incredibly hard-working person who's persevered and fought the good fight for a long period of time. He is also someone who's empathetic and personable. Roger, I would regard as not just a role model, but as somebody who I would certainly try and aspire to be more like,” Unger says. Unger won the position nearly 21 years ago and has since held senior roles in leading investment research and then rose the ranks to become the senior director of investments. The consulting side saw him take on clientfacing responsibilities while the investments side led to gaining expertise in strategy and portfolio construction. With an extensive understanding of both the technical and qualitative aspects of what it takes to build a portfolio, it’s only fitting that the next stage of Unger’s career will see him incorporate ESG and sustainability more fully into that process. “The longer that I have been in investment consulting, the more I
The longer that I have been in investment consulting, the more I realise that I want to see real change and have a real impact. Tim Unger
realise that I want to see real change and have a real impact,” he says. From his global work experience, Unger truly appreciates Australia’s unique work ethic and culture: that Aussies tend to strike the right level of balance between work and life. Balance, he says, is important in his own life, work, family, and recreation. “Australians do work hard but I think that their outlook on life is balanced. That’s partly helped by the fact that we have such a wonderful diversity of cultures and nationalities in Australia,” he says. “Many immigrants have to work really hard to establish themselves in Australia. But the diversity and different outlooks on life that they have does help create that elusive balance.” Last year, Australia boasted four capital cities in the Global Liveability Index’s annual top 10 list, which assesses the quality of life based on a country’s stability, healthcare system, culture and environment, infrastructure and education. Unger does not take for granted what it means to live in a country like Australia. And in his own way, he wants to give back to the country that welcomed them with open arms. “We're in a very privileged position and I'm very grateful that 20 years ago I was able to come to this country as it has been very good to me and my family,” Unger says. “So, in some small way, through this role, I hope to make a positive impact not just on the future for Australians but for everyone. I think we all want to make a difference but I'm lucky enough to be in a position to try and make that possible.” fs