Financial Standard Volume 18 Number 08

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27 April 2020 | Volume 18 Number 08

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Matthew Rowe CountPlus

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Balanced options

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Matthew Rowe CountPlus

Fintech

Marsha Beck AMP Capital

Product showcase:

Opinion:

Adviser fears over ASIC relief Harrison Worley

hile backed by major industry associaW tions and advocacy bodies, those that actually provide financial advice fear new temporary relief measures offered by ASIC may push Australians towards conflicted advice.

On April 14 ASIC announced a raft of measures aimed at assisting the industry with providing affordable and timely advice during the COVID-19 crisis, namely the early release of super. As part of this, ASIC issued a temporary no-action position for superannuation trustees to expand the scope of personal advice that can be provided under intra-fund advice.

The other key measure sees the requirement for advisers to issue a Statement of Advice lifted, so long as they provide a Record of Advice and don’t charge more than $300 for the advice.

Here in lies the problem, with advisers concerned Australians may be driven to accessing compromised advice from super funds.

Evalesco Financial Services director Marshall Brentnall says the initiative - taken as a measure designed to accelerate the issuance of information for clients - is “great”, but won’t help with the onboarding of new clients.

“Let’s say someone you know is in financial distress and they want to have access to their superannuation and they’re a new client, we still have to go through the new client process to be able to issue documentation in that area,” Brentnall says.

Brentnall says the cost of setting up a new client - including a 75-minute consultation - would cost him a multiple of the $300 maximum fee advisers are allowed to charge, leaving him to wear the difference.

“The reality is the due diligence that you have to do prior to the meeting, within the meeting and then post-meeting… If I’m charging myself out of several hundred dollars-plus, that’s not a very long meeting,” he says.

TWD director Cara Graham agrees, saying even with the temporary measures advisers are still required to abide by the FASEA Code of Ethics.

“It’s not as if that’s [the Code] gone out of the window,” Graham says.

“All the steps in the onboarding process are there to make sure that we’re still understanding their [client’s] situation and making the right decisions for them.

“I think this helps for a very specific pur-

pose…But certainly for the more strategic and full onboarding process, I don’t feel like there is a way to get around that.”

According to Brentnall, the measures appear best suited to the capabilities of large organisations.

“I think the initiative is really designed around supporting major institutions - perhaps superannuation funds - that have either customer service officers or financial planners within them, to rapidly issue documentation to support their existing client,” he says.

With super funds willing to absorb the difference, concerns about the quality of advice provided by super funds has become a central issue.

Super Consumers Australia director Xavier O’Halloran believes it is “pretty clear” there is a disconnect between the quality of advice Australians need and what they end up receiving from super funds, pointing to ASIC’s Report 639 released last December which found just 49% of the personal advice provided by 21 super funds was compliant.

SCA is concerned funds will provide Australians with yet more poor advice because of its competing responsibilities: to act both in the best interests of the fund’s members, and the individual seeking advice.

“While they [super funds] have an obligation to act in the best interests of their members, that’s also often interpreted as growing the size of the fund as much as possible and maintaining as much FUM as possible,” O’Halloran says.

Likewise, Graham says ultimately super funds probably don’t want their members to withdraw their funds, adding that not withdrawing - if there are other options - is probably the better choice for many Australians.

However, $59 billion industry super fund Rest rejected the suggestion, pointing out it has been using SCA’s own modelling as a resource to help members make informed decisions and demonstrate the potential impact of the early release measures.

“The Rest Advice team’s remuneration structure does not include bonuses or commissions – there are no incentives to grow or retain funds under management,” a Rest spokesperson told Financial Standard.

“We will continue to do everything we can to support our members in financial distress, including making early release payments to those who are approved by the ATO as quickly as possible.” fs

27 April 2020 | Volume 18 Number 08 www.financialstandard.com.au 20 January 2020 | Volume 18 Number 01

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Major regulatory efforts delayed Harrison Worley

Marshall Brentnall

director Evalesco Financial Services

ASIC has been forced to delay several major pieces of its regulatory workload in order to effectively deal with the challenges of COVID-19.

The corporate regulator has deferred several significant regulatory projects which were set to shake up financial services in 2020, including its reviews of managed discretionary accounts and insurance in super.

The regulator’s new reality will see it pivot towards ensuring its regulated entities survive the winter. As a result, the regulator has redistributed its staff to issues “of immediate concern”, starving key projects of the resources required to meet their original timetables.

Some projects, such as ASIC’s RG97 consultation paper on platform fees, will continue to be worked on in the background, but will not be published “until further notice”.

The long-awaited managed discretionary accounts policy review consultation paper won’t see the light of day “until further notice”, while Continued on page 4

APRA to publish payment times Eliza Bavin

APRA is set to name and shame the superannuation funds that straggle in releasing member’s money to them as part of the early release scheme.

APRA has launched new data collection to assess the progress and impact of the government’s temporary early release of superannuation scheme.

From May, registrable superannuation entity (RSE) licensees will be asked to complete and submit the regulators new Early Release Initiative (ERI) data collection form each week until further notice.

“The ERI reporting form will gather a range of information from RSE licensees, including the number and value of early release benefits paid to superannuation members and the processing times of those payments,” the regulator said.

“It will help the government, APRA and other stakeholders monitor the take-up of the new scheme among superannuation members, and ensure licensees are processing eligible applications in a timely manner.”

Continued on page 4

2

News

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

ASIC provides relief around early super access advice

Editorial

Jamie Williamson

Jamie Williamson

T

Editor

Imagine you have worked as a financial adviser for several years – possibly decades – and after all those years demonstrating your capabilities, you are asked to re-educate to continue doing what you are doing.

Loving what you do, you oblige.

You give up weekends with the family to study, forfeit the annual holiday (the only time you might get a break all year) to instead pay for university, and maybe you even sell off part of your client book to ensure you’ve got the time to effectively service your most high-touch clients while all this is happening.

You’ve also spent potentially thousands of dollars on reinforcing your compliance processes on the back of increased regulation and struggled over how best to charge for the advice you give in a way that is both affordable for your client and sustainable for your business.

Now imagine, with a few weeks of lobbying from industry bodies and the stroke of a pen, the same regulator that pushed through those reforms makes it legal for people who aren’t even financial advisers – don’t even have an AFSL in some cases – to provide personal financial advice.

It shouldn’t be too hard to imagine, because it’s what’s happened to just about every adviser out there.

Earlier this month, ASIC set out three relief measures to enable Australians to receive timely advice around the early release of super scheme.

As part of the relief, registered tax agents are now able to provide advice to existing clients without an AFSL. The move is completely at odds with the FASEA Code of Ethics which clearly states that those providing financial advice must maintain a high level of relevant knowledge and skills. But then, accountants aren’t subject to the Code of Ethics either.

And then there is the issue of cost.

Under the relief, financial advisers cannot charge a client more than $300 for advice pertaining to early release of super.

We all know there is rather little an adviser can do at all, let alone well, for just $300.

For that reason, many Aussies will be forced to turn to their super fund for advice (which can also now be given thanks to the no-action position provided by ASIC).

But as super funds reportedly face liquidity issues due to the scheme, there is reason to question whether the advice they receive will be in their best interests.

Don’t get me wrong – we are certainly in extraordinary and unprecedented times and greater access to financial support and help is a positive. But for all its good intentions, I can’t help but feel like these measures undermine much of the work the advice industry has done of late on its journey to professionalism.

Do you agree? Share your thoughts with me at jamie.williamson@financialstandard.com.au. fs

The numbers

$300

The most an adviser can charge for advice related to the early release of super.

o assist the provision of advice around the government’s early access to super scheme, ASIC has allowed advice providers to not give a Statement of Advice (SOA) when doing so; permitted registered tax agents to give advice to existing clients about the scheme without an AFSL; and issued a temporary no-action position for super trustees to expand the scope of personal advice that can be provided under intra-fund advice.

The relief is temporary and comes on the back of stakeholder consultation, including with industry associations, consumer groups and related regulators. It is also subject to strict conditions.

Conditions include providing clients with a Record of Advice and capping the advice fee at $300. The adviser must also establish that the client is entitled to access their super early and the client must have approached the advice provider for advice, not vice versa.

The timeframe for providing time-critical SOAs has also been extended on the back of increased demand for urgent advice.

Advisers will have up to 30 business days (instead of five) to provide an SOA where the advice is time-critical.

ROAs will also be allowed to be provided to existing clients where their personal circumstances have changed due to COVID-19 and the client sees an advisers from the same licensee or practice, not their usual adviser.

ASIC will conduct surveillance on the advice provided under the new measures to ensure consumer best interests are being met.

ASIC will monitor the ongoing impact of COVID-19 and provide 30 days’ notice to the industry before revoking the relief measures.

The no-action for super trustees will expire when applications for early release can no longer

be made, but ASIC noted that super trustees can provide considerable assistance to members without needing to rely on the no-action position.

The regulator confirmed that it will reduce the regulatory burden on advisers by delaying its work on life insurance advice and grandfathered conflicted remuneration until further notice.

ASIC will not request client information or client files from advisers, and will not ask product issuers for data.

That said, ASIC said it still expects product issuers to turn off their arrangements as soon as possible and by no later than 1 January 2021.

In regards to life insurance advice, ASIC said advisers should be cautious about recommending replacement cover to clients as most consumers that currently hold retail policies would be covered for pandemics. The warning came on the back of work ASIC is conducting around the possible introduction of exclusions for pandemic cover in new policies.

ASIC is also allowing additional time to respond to ASIC notices. Those that receive a notice must contact the regulator to request an extension.

The regulator sought to remind advisers of the importance of keeping records of the services they provide during this period, not just a fact find and SOA. In relation to ongoing consultation around advice fee consents and disclosure of independence, ASIC has said it will accept informal feedback and grant extensions to those still wishing to make a submission. Submissions were originally due on April 7.

CPA Australia, Chartered Accountants Australia and New Zealand, the SMSF Association, Financial Planning Association of Australia and the Institute of Public Accountants were all involved in the consultation process. fs

ERS can be drawn from multiple funds: ATO Eliza Bavin

The Australian Taxation Office has clarified the rules for the Early Release Super scheme, allowing members to withdraw super from multiple funds.

The ATO said while a member can only apply for one determination per financial year, they are able to request withdrawals from multiple funds so long as it is in the same application.

This allows individuals who hold multiple super accounts to withdraw $1000 from one account and $9000 from another, for example.

This could pose a problem for funds who had not planned for the release of super from low balance accounts.

Interestingly, the ATO has excluded itself from releasing members super if it holds the account.

“An individual cannot apply for a determination to release super under the coronavirus early access arrangements where the super amount is held by the ATO,” the organisation said.

“If the individual is not eligible for a direct payment of ATOheld super, they will need to request a transfer of the ATO-held super into an account held by a super provider on their behalf before requesting its release.”

The ATO also said the liability to determine eligibility rests on the individual applying, and while evidence will not be required in the application process, it should be retained.

The regulator said super cannot be released from a pension account under the ERS arrangements as anyone receiving an account-based pension is not eligible.

“A member is receiving an account-based pension (that is not a TRIS) they would have met a condition of release with a nil cashing restriction,” the ATO said.

“This type of condition of release converts any preserved and restricted non-preserved benefits the member had in their superannuation fund into unrestricted non-preserved benefits.

“As the coronavirus early access arrangements do not apply to unrestricted non-preserved benefits, amounts supporting the pension cannot be accessed under the arrangements.”

However, the regulator noted that unrestricted non-preserved benefits can be cashed at any time by a member outside of the COVID-19 early release measures.

For TRIS members, the ATO said they must meet the requirements of ordinary account-based pensions, additional requirements of the SISR that apply to annual payments from the pension account and the restrictions on when a superannuation lump sum resulting from the commutation of a TRIS can be cashed.

“No amounts in excess of what are already allowed to be cashed from a TRIS can be released under the coronavirus early access arrangements,” the ATO said.

The regulator said funds will be notified about early release through an electronic file that they will need to download and check each day.

The payments will be subject to proportioning rules and funds are required to make the payment tax-free. fs

News

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

BAS agents to give financial advice

01: Margo Lydon

chief executive SuperFriend

Elizabeth McArthur

A new legislative instrument aimed at helping Australians to navigate the COVID-19 stimulus measures will allow BAS agents to offer financial advice to businesses.

BAS agents can now legally advise businesses about their entitlements to the new JobKeeper payment and cashflow support under the government’s extraordinary stimulus package.

The Tax Practitioners Board registered the new legislative instrument on April 16 and announced it to members.

TPB chair Ian Klug said that the new instrument will allow BAS agents to advise on JobKeeper without fear of where they stand legally.

“This reflects a sensible and appropriate outcome to support the government’s initiatives,” Klug said.

“The TPB is working to support the extraordinary efforts of all registered tax practitioners acting professionally and ethically to assist Australian workers and businesses, especially in understanding these stimulus entitlements.”

The JobKeeper payment will allow businesses that have lost significant revenue as a result of COVID-19 and the subsequent lockdown measures to access up to $1500 a fortnight per employee.

Financial advisers and registered tax agents also recently won a battle for regulatory relief from the government in order to better help consumers work out which stimulus measures they qualify for and whether they should access superannuation early. fs

3

SuperFriend bolsters support offerings as demand peaks Harrison Worley

T The quote

The way we work has shifted significantly this year without giving us much time to adjust to the ‘new norm’.

he organisation has updated its “most popular and impactful” training, and created new training in an effort to help the financial services industry through the mental health impacts of the COVID-19 pandemic.

According to SuperFriend, the pandemic has caused a spike in inquiries from super funds, insurers and other workplaces within the sector.

The organisation said call centre staff working across superannuation accounts are heavily impacted by the crisis, particularly as they deal with a flood on inquiries from super fund members aiming to gain early access to their retirement savings through the government’s Early Release Scheme.

“The way we work has shifted significantly this year without giving us much time to adjust to the ‘new norm’,” SuperFriend chief executive Margo Lydon 01 added.

“The pandemic has impacted the mental health and wellbeing of the vast majority of Australian workers, either from losing their jobs or being asked to work from home or in different ways. With so much rapid change for most people and businesses, we felt it was paramount to address the new demands on the industry.

“After listening closely to our partners, we have updated and adapted our mental health and wellbeing training solutions and resources to address the challenges that have emerged from COVID-19.”

SuperFriend’s virtual training - which it conducts either by Zoom or Microsoft Teams - is designed to be interactive and inclusive, and cover psychological first aid, workplace mental health fundamentals, and specific training for claims management. fs

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News

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

01: Damian Graham

Major regulatory efforts delayed

chief investment officer First State Super

Continued from page 1 the corporate regulator’s review of compliance with changes to fees and costs disclosure for superannuation has also been temporarily shelved.

Additionally, the regulator confirmed that it would delay its work on grandfathered conflicted remuneration and life insurance advice, alongside its introduction of three temporary measures to assist the superannuation industry with providing affordable and timely advice during the COVID-19 crisis.

“ASIC is committed to working constructively and pragmatically with the firms we regulate, mindful that they may encounter difficulties in undertaking their regulatory work due to the impact of COVID-19,” ASIC said.

“ASIC has delayed a number of activities not immediately necessary in light of these significantly changed circumstances, including consultations, regulatory reports and reviews.”

While no longer able to conduct onsite supervisory work, the regulator said it would continue to monitor regulated entities remotely, particularly through its information sharing arrangements with prudential regulator APRA. With major projects delayed, the regulator will instead continue to provide an increased level of market supervision work in order to ensure the fair and orderly operation of markets.

Additionally, ASIC said it would “heighten” its support for consumers vulnerable to scams, and receiving poor advice, and added it would “identify other actions needed to support firms”, including providing regulatory relief where appropriate.

The regulator will continue to take enforcement action, but admitted that too would be delayed.

Shipton clarified that ASIC’s new priorities do not reflect an “abrogation” of its regulatory work, but instead recognise that some existing activities and new tasks “must take precedence over work we would otherwise be doing”.

“In fact, COVID-19 has increased the workload of our organisation as there is a heightened risk of significant consumer harm, the possibility of serious breaches of the financial services laws, and challenges in ensuring market integrity and the continued funding of companies.” Shipton said. fs

APRA to publish payment times Continued from page 1 APRA said it intends to publish the data at both industry and fund level.

“Reporting this data using the ERI reporting form is expected on a best endeavours basis, and APRA will implement reporting through a legally binding reporting standard if the response from industry does not meet the objectives of the data collection,” APRA said.

The regulator has given RSE licensees until April 29 to complete the first ERI collection form.

The announcement comes after the regulator said funds will be given five days to pay members through the ERS scheme.

In exceptional circumstances, APRA acknowledged that the process for making a payment may take longer, however still expects the RSE licensee to make payments as “expeditiously as possible”.

The ATO has been placed in charge of the early release scheme. fs

Never say never to RBA help: First State Super Harrison Worley

O The quote

It’s hard to predict exactly how it will play out over the next two to three years, but we feel very comfortable in our liquidity.

ne of the nation’s largest superannuation funds believes now is not the time for the RBA to step in with liquidity support, but said it’s a solution which shouldn’t be ruled out.

First State Super is confident it does not need specific liquidity support from the Reserve Bank, however the fund’s chief investment officer Damian Graham01 said the uncertain economic future means the option should remain on the table.

Speaking to Financial Standard, Graham said the fund doesn’t feel that it is short of liquidity at the moment, meaning it doesn’t need the RBA’s help.

However, he did say “you never say never” when asked about the prospect of future support, noting the fallout from the pandemic could last for years.

Graham’s comments come as solutions to the super sector’s alleged lack of liquidity make headlines. University of Melbourne professor and Super Consumers Australia director Kevin Davis suggested super funds should consider borrowing from the RBA in an arrangement that we see the fund’s assets used as collateral.

“It’s hard to predict exactly how it will play out over the next two to three years, but we feel very comfortable in our liquidity,” he said.

“But if we thought the broader system was becoming more challenged around liquidity then it may be that more funds need access to RBA support.

“It’s not something that we feel like we’re likely to need, but again I think as a backstop or an option at some point, if it’s something that became relevant then we’d certainly support the RBA doing that.”

Not only does the fund have enough liquidity to deal with the early release scheme, but it’s still looking to take advantage of any opportunities which come its way.

“We also want to actively look at opportunities at the moment. That’s something we have been going through a process of over the last few weeks, around what’s starting to be the opportunity areas of interest and the opportunities that we want to be able to take advantage of with additional liquidity that we have,” he said.

Specifically, the fund is keen on a selection of companies that the fund believes are creating additional value, through the strategic equities approach embedded within its portfolio.

“We’re starting to see some of those opportunities really come to fruition. So that’ll be a gradual process over the next 12 months, but we’ve already started to initiate some in that area,” Graham said As some investors look for more liquidity, Graham said the fund wants to be prepared to pick up additional unlisted assets as they “come back to market”, despite First State having recently repriced its own unlisted assets, like other super funds, out of cycle. fs

Industry recruitment, salaries slide Elizabeth McArthur

“What a difference a pandemic makes,” Kaizen Recruitment noted in an update on the state of recruitment activity in Australian financial services.

Kaizen found that while clients pushed ahead with filling essential talent gaps and some have attempted to soldier on with long term business strategies, the vast majority have re-prioritised “non-essential” recruitment.

“Some of our clients have taken a conservative approach during March and suspended recruitment activity even for processes that were in very advanced stages,” Kaizen director Matt McGilton said.

The update was in stark contrast to an earlier update.

On January 31, McGilton said he could not recall a busier time for recruitment than the end of 2019 and found the pace of hiring increasing still in January 2020.

“We had jobs being filled on Christmas Eve, clients calling in work on December 31 and more roles to fill as soon as New Year’s kicked over,” he said.

“We forecast increasing demand in the first half

of 2020 due to skill gaps, regulatory pressures and further business growth.”

Of course, COVID-19 changed all of that.

For the period of January to March the average salary of all positions Kaizen delivered was $115,000.

At the end of 2019, the average salary was $145,000.

The highest salary Kaizen delivered so far in 2020 was $220,000. That was down compared to the end of 2019 when the highest salary delivered was $300,000.

Women have so far been recruited more than men this year with 61% of Kaizen’s placements female. At the end of last year just 40% of placements were female.

LinkedIn released its new Workforce Confidence Index research, also finding a slide in salaries due to COVID-19 the government’s action in shutting down industries.

A poll of Australian LinkedIn users found that 36% had experienced a drop in wages or salaries and that 52% have reduced personal spending since the crisis took hold. fs

News

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

Former Wallaby banned

01: Phil Kingston

chief executive Sargon

Elizabeth Mcarthur

Simon Poidevin has been banned from financial services for five years, with the Administrative Appeals Tribunal upholding ASIC’s action.

Poidevin was banned along with Damien Rodr following an investigation into trading in shares of DirectMoney in 2015.

Rodr was a trader at Bell Direct and Poidevin was Bell Direct’s managing director of corporate broking at the time.

ASIC first banned Poidevin in November 2017, but the banning order was stayed by the AAT pending an appeal decision in February 2018.

According to Poidevin’s LinkedIn, he maintained his position at Bell Direct until last month and is now the president of Total Brain Limited (a mental health and wellness platform) for Australia and New Zealand.

ASIC’s investigation into DirectMoney trading found Poidevin took part in transactions carried out by Rodr that were likely to create or maintain an artificial share price for the company.

Bell Potter had been the manager and underwriter to a capital raising, resulting in DirectMoney being admitted to the ASX on 13 July 2015.

On 16 November 2017, Bell Potter paid a penalty of $358,000 to comply with an infringement notice given to it by the Markets Disciplinary Panel.

The infringement notice related to trading in DirectMoney shares in 2015. fs

5

Sargon to be liquidated Kanika Sood

T The numbers

$97m

The amount owed to Sargon’s various creditors.

he creditors of Phil Kingston’s 01 Sargon voted unanimously to wind up the company, starting a liquidation process that could last 12 months.

Taiping Trustees, which is Sargon Capital’s only known secured creditor for about $97 million and other unsecured creditors all voted in favour of Sargon Capital’s administrators Wexted Advisors’ advice on winding up the company.

Wexted Advisory’s Andrew McCabe and Joseph Hayes, whom Taiping appointed as voluntary administrators for Sargon Capital and two Trimantium companies on March 6, have now been appointed to act as the liquidators in winding up Sargon Capital.

Wexted has previously indicated that only Taiping, as the secured creditor, may be able to receive a dividend from Sargon winding up.

While the extent of claims against Sargon Capital is well known by now (except a claim

from Kingston-related Growth Ops for intellectual property which is still being decided), the assets of Sargon Capital are still being worked through by Wexted.

Sargon Capital had about $109 million in net assets at December end, and $61.7 million in total equity. It reported $121.6 million in total income from FY16 to first half of FY20. During this time it made seven acquisitions and total operating expenses increased significantly, resulting in net loss of $38 million over the period, according to the administrators report to creditors.

The liquidation process may take 12 months, depending on any potential litigation or court action on disputes.

Earlier this month, OneVue indicated that its preference is to recover amounts owed to it at subsidiary-level (referring to eight Sargon subsidiaries which own assets like Diversa Trustees and CCSL, and is currently in a sales process run by EY). fs

6

News

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

IOOF trims operations

01: Michael Wyrsch

chief investment officer Vision Super

Harrison Worley

IOOF has sold the client rights to the IOOF Integral Master Trust it operates in New Zealand, the centrepiece of the firm’s operations in the nation.

Auckland-based diversified wealth management firm Britannia Financial Services has purchased the client rights to IMT, in a move that will see IOOF retire as manager of the trust.

The trust had around $553 million in funds under administration across more than 5000 client accounts at the end of March. Given operating the IMT was the main responsibility of the NZ business, IOOF has decided to shut down its local operations, with the lights officially going out on April 15.

“The divestment of IOOF’s business interests in New Zealand reinforces our focus of simplifying the business around our advice-led strategy and opportunities,” IOOF chief executive Renato Mota said.

The sale of the New Zealand business comes hoton-the-heels of a restructure to the firm’s leadership team, which saw it promote three general managers to the c-suite after it finally acquired ANZ’s Pensions and Investments business in February.

At the time, Mota said IOOF’s new-look leadership was designed to better align its teams and reflect the deal finally crossing the line.

“We are building solid foundations for IOOF’s future success. Through a purpose-led culture we continue to challenge ourselves to deliver better outcomes for clients and members,” Mota said in March. fs

ETF demand boosts gold Eliza Bavin

A strong demand for ETFs coupled with the world’s original safe haven has driven gold ETFs to record highs.

Rainmaker research shows that assets under management in gold ETFs has increased around 45.8% in the period from December 2019 to March 2020.

Net inflows for the same period rose 574%, from $31 million in December last year to $209 million in March 2020.

The data suggests that gold in general has kept its safe haven label as Australian investors flock to it.

Kris Walesby, chief executive of ETF Securities, told Financial Standard the rush to invest in gold began back in July last year.

“One reason for this was the general view by many investors that the market was overextended and therefore if there was a correction there was an expectation it would be quote aggressive,” Walesby said.

“Another reason is because real interest rates were going negative globally, across the developed world, so even though the yield on gold is zero it is still higher than a negative yield.”

Walesby said that despite interest in gold arising before COVID-19 hit, it is still the Black Swan event that caused the rush we have seen.

This rush to gold, being a safe haven, is not new and certainly this can be seen from past events.

During the GFC gold was up 35% on equities, during the 9/11 terrorist attack it was up 22.2% against equities and during the Yom Kippur War in 1973 the gold price was up 103%. fs

Tail-risk hedging pays off for super fund Elizabeth McArthur

A The quote

This is a great result for our defined benefit em­ployers and means peace of mind for members of the plan.

$10 billion industry superannuation fund has managed to lock in gains from a tailrisk hedging strategy during recent market volatility amid the COVID-19 pandemic.

Vision Super has had tail-risk protection in place for its defined benefit plan for a few years.

Chief investment officer Michael Wyrsch 01 told Financial Standard that the strategy paid off during recent volatility.

“We have now monetised it and locked in a 3% gain. This was the result we had hoped for,” Wyrsch said.

“Employers fund defined benefit plans, so this is a great result for our defined benefit employers and means peace of mind for members of the defined benefit plan.”

Internationally, tail-risk hedging has been making headlines after a tail-risk hedge fund advised

by Nassim Taleb returned 3612% for March.

Bloomberg reported that the Universa Investments fund returned 4144% year-to-date at the end of March.

Following news of the hedge fund’s eye watering returns, Taleb told Bloomberg Television that a pandemic like COVID-19 was entirely predictable but almost impossible to time.

Taleb’s book The Black Swan focuses on extreme and rare outlier events and argues that it is futile to attempt to time such events and that banks and trading firms may be more vulnerable

to these events than their risk models suggest.

Vision Super’s tail-risk strategy is managed

by PIMCO. The strategy is designed to protect investors against extreme market volatility, situations in which traditional diversification strategies break down.

Tail-risk hedging is often described as a type of insurance as it promises to deliver when equity markets don’t.

PIMCO describes tail-risk hedging as giving a little bit of return each year to purchase protection against a market meltdown.

The usefulness of this kind of “insurance” is clear in defined benefit plans.

Recent data out of the UK revealed that the aggregate deficit of the 5422 schemes in the Pension Protection Fund 7800 Index is estimated to have increased to £135.9 billion at the end of March 2020, from £124.6 billion at the end of February 2020.

Out of the 5422 occupational defined benefit schemes Pension Protection Fund looked at in the UK just 1816 are in surplus.

In explaining the volatility, Pension Protection Fund said: “The value of scheme assets is affected by the change in prices of all asset classes, but owing to the volume invested and the volatility, equities and bonds are the biggest drivers behind changes; bonds have a higher weight in asset allocation, but equities tend to be more volatile.” fs

Funds have five days to hand over cash: Australian Tax Office Once the Australian Tax Office approves a superannuation fund member to access up to $10,000 of their super early the fund will only have five days to hand over the money.

As part of the government’s economic stimulus package, those who have lost income as a result of COVID-19 and the subsequent shutdown will be able to access up to $20,000 of their super over two years.

APRA announced funds will be expected to make early release payments to members “as soon as practicable”.

However, the regulator has now said in the vast majority of cases this should be no longer than five days.

Assistant Minister for Superannuation, Financial Services and Financial Technology Jane Hume welcomed APRA’s approach.

“Given the importance of cash flow for many people at this critical time, the Morrison government expects super funds to be paying members their money as quickly as possible, and within five business days,” Hume said.

“We understand this is a very challenging time for all

Australians. These measures will ensure that Australians impacted by the COVID-19 pandemic will receive this vital financial support as quickly as possible.”

Australians can access up to $10,000 of their super before 1 July 2020, and a further $10,000 from July 1 until 24 September 2020.

Approval for early release will be decided by the ATO. So far, well over 600,000 Australians have applied to the ATO for early release.

Early estimates from the government indicated 1.3 million people could be approved for early release.

APRA asked super funds to model the impact early release is likely to have including how many of their members are likely to take advantage of the scheme.

So far, funds have not made this modelling public despite multiple reports questioning whether some funds have the appropriate liquidity to implement the government’s plan.

Financial Standard previously reported that fund administrators acknowledged implementing early release would be a challenge. fs

Product showcase

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

7

01: Charles Hamieh

senior portfolio manager RARE Infrastructure

Building sustainable, growing income In times of uncertainty, investing in infrastructure might just be the perfect play. s the saying goes, you often don’t realise ANever what you’ve got until it’s gone. has this theory been more apt, as nations around the world have locked down in an attempt to flatten the curve and stave off the spread of COVID-19.

Another concept that has risen to the fore in all the uncertainty is that of essentiality, particularly essential services.

This is what RARE Infrastructure deals in.

Founded in 2006, RARE specialises in investing in the physical assets that provide an essential service to society.

Now, some of these have certainly not been immune to the ongoing market volatility – think airports and toll roads.

“The current environment is certainly volatile and uncertain and what we’ve seen is a lot of indiscriminate selling, it’s fair to say that infrastructure has also suffered as a result,” RARE Infrastructure senior portfolio manager Charles Hamieh 01 says.

“What we are confident in however, is the fundamental, long-term value of the asset class.”

And the good news is that there are plenty of essential services that stand to gain from the virus-induced shutdown.

RARE ensures diversification by investing in both user-pays and regulated assets.

For context, user-pays assets are those that move people, goods and services throughout an economy and, as the name suggests, are paid for by the user. This can include airports, toll roads, rail networks and telecommunications towers.

In contrast, regulated assets are those whereby the price is set by the regulator and if a service provider earns more revenues than the regulator allows, those revenues are then passed back to the customers by way of cheaper pricing. Water, electricity and gas transmission and distribution all sit within this category.

Because these assets provide an essential service to the economy, they in turn provide very predictable and resilient cashflows, Hamieh says.

“And that generally translates into very predictable dividends which typically grow well above inflation,” he adds.

RARE’s investment process is designed to leverage the observation that, over time, asset valuations reflect long-term cash flows. As a result, RARE focuses on the infrastructure assets that display more predictable cash flows.

Therefore, with traditional sources of income such as cash and bond yields declining sharply over recent years due to very – now historically – low interest rates, and a weakening economy

placing pressure on many companies, the income provided by infrastructure investments is understandably attractive.

And despite the scale of the assets RARE invests in, ESG and ensuring the investments are sustainable is always top of mind.

ESG has been a pillar of the RARE process since inception, Hamieh explains, with the firm having been a signatory to the United Nation’s Principles of Responsible Investment since 2010.

This is because RARE believes ESG will likely be a key driver for the infrastructure sector going forward. This is evidenced by governments setting targets for electricity sourced from renewable energy and the increasing amount of capital being spent to mitigate the effects of climate change, to make infrastructure more resilient to major climate events and to increase efficiency.

Playing its part, when selecting and monitoring its investments RARE considers ESG in three key areas.

The first looks at the cashflows of a company, specifically the opportunities that companies are presented with.

“For example, an electricity utility may invest significant amounts of capital expenditure in renewable energy and earn a return for a long period of time on that expenditure,” Hamieh explains.

The second component RARE looks at is the required return of a company.

“As it relates to required returns, we are looking at how companies’ ESG profile fits into the broader universe,” Hamieh says.

“This means we are penalising companies that are underachieving and rewarding those that are overachieving.”

Finally, the third means by which RARE ensures its own ESG and sustainable investment standards are being adhered to is via its engagement with all entities involved in an investment.

“We engage with companies frequently, but it’s not only companies. We also engage with other stakeholders whether it be regulators, governments or independent experts,” Hamieh explains.

This process is undertaken for all RARE’s offerings, including the RARE Infrastructure Income Fund.

The RARE Infrastructure Income Fund aims to provide investors with long-term inflation-linked capital growth over an economic cycle to deliver reliable income.

The strategy invests in a range of listed infrastructure securities and sub-sectors across both

The quote

What we are confident in is the fundamental, long-term value of the asset class.

developed and emerging markets, targeting a 5% dividend yield to investors.

“It seeks to achieve that by investing in the more defensive parts of the infrastructure universe, such as water, gas and electricity and transmission,” Hamieh explains.

“These companies are more defensive because they provide an essential service, meaning you have more resilient cashflows making your dividend yield typically higher than with the more user-pays, cyclical parts of the universe.”

Since its inception in September 2008, to date, the RARE Infrastructure Income Fund has returned 10.4%, net of fees.

In addition, the performance history of the Fund shows that it has played a defensive role in periods where the MSCI AC World equity market has sold off sharply. In the most recent quarter, Q1 2020, the equity market fell 20%, and the RARE Infrastructure Income Fund fell a little over 12%. During Q4 2018, when global equities were down more than 12%, the RARE Infrastructure Income Fund was actually up.

Both Lonsec and Zenith rate the Fund as ‘Recommended’, while SQM Research deemed it to be ‘Superior’.

It therefore makes sense the RARE Infrastructure Income Fund has recently been made available on several platforms, including Macquarie and Netwealth.

And it couldn’t come at a better time, as investors increasingly seek to position their portfolios more defensively to protect against ongoing market turmoil while simultaneously searching for an alternative to fixed interest and cash.

For Australian investors, RARE says it’s also important to note that global listed infrastructure stocks have a low correlation to the Aussie dollar, domestic equities and global bonds, making them an ideal vehicle for diversification.

“We think financial advisers will find this fund very attractive, as will self-managed super fund trustees, as it is clearly differentiated from other income options in the market,” Hamieh explains.

“Most importantly, it has a long-term track record of consistently delivering on that 5% dividend and total return target.” fs

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News

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

Court restricts Mayfair adverts

01: Arian Neiron

managing director and head of APAC VanEck

Eliza Bavin

The Federal Court has restricted Mayfair 101 from promoting its debenture products and prohibited the use of specific words and phrases in its advertising.

The order comes after ASIC made an application to the court for an interim injunction at the beginning of April this year.

Mayfair’s use of Google Ad Words meant that when consumers searched for term deposits, bank term deposit, term deposit alternative or term investment Mayfair debenture products would appear as sponsored links.

Justice Anderson of the Federal Court made the order to restrain Mayfair Platinum and Mayfair 101, from all advertising, promotion and marketing of the debenture products.

The court also restrained the company from using phrases like term deposit, bank deposit, capital growth, certainty, fixed term and term investment in any of its advertising, promotion or marketing.

The Court ordered that Mayfair Platinum and Mayfair 101 must post a notice on its websites, and give a copy of the same notice to each prospective new investor in the Mayfair debenture products.

Among other things, the notice states that Mayfair 101 is not regulated by APRA; there are risks associated with investing in the products; investing in the products is not the same as investing in a term deposit and is actually riskier; and that Mayfair, in some instances, reserves the right to suspend some or all redemptions.

The court did not restrain Mayfair from issuing and accepting new investments in its Mayfair debenture products. fs

NAB remediation bill grows National Australia Bank has seen another $268 million added to its bill for customer remediation.

The increase in customer-related remediation costs for the big bank comes to $188 million after tax.

NAB says it expects the additional costs to reduce the group’s Common Equity Tier 1 capital (CET1) ratio by approximately six basis points.

Of the $188 million, $184 million relates to additional provisions required for existing remediation matters.

Adviser service fees charged by NAB Financial Planning salaried advisers were highlighted by the bank as a driver of remediation costs.

The assumed refund rate for these customers has increased to 40% (or approximately 56% including interest costs) compared with 28% at 30 September 2019.

NAB also flagged increased wealth-related remediation program costs. NAB’s total expected remediation bill was already sitting at $2.09 billion before this announcement.

In October last year NAB flagged an extra $1.18 billion in remediation and the bank’s remediation team ballooned to 950 people last year.

The announcement came ahead of NAB’s first half results for 2020.

The 1H20 results will see some severing of NAB’s wealth business, which will be reported as a separate segment called MLC Wealth and no longer form part of consumer banking. fs

Quality stocks lose less, recover faster in stress Kanika Sood

C The quote

Importantly too, quality provides defence against volatile markets.

ompanies with stable earnings growth, low debt and high return on equity have fared better in the five most recent market crashes including COVID-19 so far, according to a new paper from VanEck. The ongoing COVID-19 market correction pushed down the benchmark (MSCI World ex Australia Index) to a lowest of -23.71% fall while quality stocks (as measured by MSCI World ex Australia Quality Index) fell less, a maximum of -19.61%.

Compared to the benchmark, the quality index reported lower maximum drawdowns in previous crisis, including the dot-com bubble in March, 2000 (-45.02% for quality vs -48.74% for benchmark), the stock market sell-off in October 2007 (-21.95% versus -34.93%), Lehman Brothers’ bankruptcy in April 2008 (-14.76% vs -24.73%) and the European debt crisis in April 2010 (-19.61% to -23.71%).

VanEck’s research also found the quality in-

dex recovered nine to 16 months faster than the main benchmark during these crisis.

“Our whitepaper reveals that quality companies have demonstrated outperformance during periods of economic slowdown, such as the period we are now in, and over the long term.

Quality companies boast stable earnings that are uncorrelated with the broad business cycle, helping to explain their outperformance,” VanEck managing director and head of Asia Pacific Arian Neiron said.

“Importantly too, quality provides defence against volatile markets. When the CBOE Volatility Index, or VIX, is rising, Quality outperforms. This has never been truer than during the current crisis.

“During March 2020, the MSCI World Quality Index outperformed the MSCI World Index by 4.81% when the VIX soared. Its drawdown was, in other words, much less than for global share markets generally.” fs

What could happen next Elizabeth McArthur

Global consulting firm McKinsey & Company has issued a new report on how the COVID-19 pandemic will impact wealth management in the Asia Pacific region, including what might happen if the virus continues to spread.

“Past epidemic crises have had sharp yet temporary effects on the markets. However, COVID-19 may mark the end of an extended bull run since 2009,” McKinsey said.

The MSCI World Index has dropped approximately 30% from peak value in less than a month.

For comparison, the tech wreck of 2001 saw a 44% drop over four years and the Global Financial Crisis of 2008 resulted in a 40% drop in six months.

The speed at which the impact of COVID-19 and governments’ reactions to the virus in the shape of lockdowns have been felt across the world is part of what makes the crisis so unique.

McKinsey now envisions two possible for scenarios for what might happen next.

Either there will be a global slowdown in COVID-19 cases - and therefore an economic recovery - or the pandemic will continue to worsen.

In the event that cases of COVID-19 continue to rise, McKinsey predicts that global GDP growth for 2020 will slow to between 0.5% and 0.9%.

A slowing of the spread of the virus over the coming months, alternatively, could see the economy recover in the late second quarter but global GDP growth would still slow to between 1% and 1.6% for 2020.

Either way, the environment will force wealth management firms to change how they operate.

“In the immediate term, the priority is to sustain investor confidence and protect business through continued engagement and communication with the customers,” the report said.

“Over the short- to medium-long term, the industry might witness consolidation and the overall strategy may need to adapt to more frequent merger and acquisition activity and muchneeded agility in the business model to ensure faster adoption of digital tools across the entire wealth-management value chain.”

McKinsey predicts increased operational risks in relation to business continuity, employee safety and client confidentiality.

“Additionally, firms must be prepared for worst-case scenarios in which key personnel are unavailable because of illness or quarantine. This is especially critical for relationship managers at private banks,” McKinsey said.

To cope with either scenario, McKinsey said wealth management firms must be prepared to address client concerns and to curb panic.

One way to do this, the report found, is to up-skill relationship management in terms of the specific client concerns they will be facing.

Business continuity, in terms of technology to allow people to work from home and mitigation of key person risk, was another (more obvious) key concern for wealth management firms the report identified.

Clients will also have to be pushed towards adopting digital communication channels to cope with pandemic.

And finally, McKinsey warns wealth management firms will have to prepare for consolidation.

“A significant variation in economics exists between large organisations (assets under management above $80 billion) and small organisations (assets under management below $20 billion) with average profit margins of 37 basis points and three basis points, respectively, suggested through a survey of 21 private banks active in Hong Kong and Singapore,” McKinsey said.

“This indicates a need for scale which may become more prominent in these challenging times.” fs

News

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

Vale Ted Evans

01: Don Hamson

Eliza Bavin

Tributes are flowing for former Westpac chair and Treasury secretary Ted Evans, who passed away over the Easter long weekend.

Evans, who had been battling cancer, joined the Australian Treasury in 1968 and devoted 43 years of his working life to public service, including eight years as Treasury Secretary from 1993 until 2001.

He then served 10 years on the board of Westpac from 2001 until his retirement in 2011, including four years as chair, seeing the bank through the Global Financial Crisis.

Prime Minister Scott Morrison paid tribute to Evans, calling him one of Australia’s great public servants.

“Ted has left an indelible mark on Australia. As Treasury Secretary, Ted advised the Keating and Howard governments on balancing the budget, major tax reforms, including introduction of the GST, and establishment of the key economic frameworks that continue to serve Australia well to this day,” Morrison said.

“He was renowned for his sharp intellect, modesty, integrity and the quiet fearlessness and forcefulness of his advice, earning the respect of Prime Ministers and Treasurers on all sides of politics.

Former Liberal treasurer Peter Costello said Evans believed in serving the public and had left “an enduring legacy to Australian economic policy”.

“The balancing of the budget, the introduction of the GST, microeconomic reform,” Costello said.

“He was a source of great strength and he believed in freeing up the economy.” fs

9

managing director Plato Investment Management

Big four urged to pay up dividends Ally Selby

The quote

Destroying the major income stream of thousands of Australians, many of whom are retirees, will put further strain on the economy.

A

n Australian investment manager has urged the big four banks to continue paying dividends, propping up APRA’s suggestion to use underwritten dividend reinvestment plans (DRPs) to meet the needs of the nation’s retirees.

Plato Investment Management said underwritten DRPs would help address concerns on the ability of the big four to maintain capacity while still paying investors dividends.

“We know many of Australia’s traditional income stocks have dividend re-investment plans,” Plato managing director Don Hamson 01 said.

“These companies can choose to underwrite those plans, which effectively means that new shares will be issued matching the dollar value of all the dividends that they pay.

“For all those investors electing cash rather than the DRP, the company will still issue new shares which a broker will sell on market during the DRP pricing period. This allows the company to completely preserve its capital as well as paying dividends to those who rely on the income to make ends meet.”

Hamson urged APRA to encourage the big four banks to use DRP’s, arguing this option would ensure Australia’s retirees and investors are not “hung out to dry”.

“Destroying the major income stream of thousands of Australians, many of whom are retirees, will put further strain on the economy, which we believe will fall into a deep recession in the June quarter of 2020,” he said.

The investment manager said the big four banks paid 30% of gross dividends of the entire S&P/ASX 200 index last year. fs

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www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

AustralianSuper premiums rise

01: Andrew Bragg

senator

Jamie Williamson

Australia’s largest superannuation fund is bumping up insurance premiums from May 30, less than a year on from the last increase.

In a communication sent to members, AustralianSuper said the annual review of the fund’s insurance offer was conducted earlier this year and determined the need for premiums to go up.

From May 30 death cover will increase by an average of 2.3%; TPD will go up by an average of 17%; and income protection will cost, on average, 19.3% more.

“Whilst there is never a good time for an increase in costs we do understand that in the current environment this is difficult news,” the fund said.

“Please be assured that you still only pay for what it costs for us to provide your cover.

“AustralianSuper doesn’t make any profit from the insurance we provide to you.”

The fund said the increase is the result of “implementing a range of required changes” and an increase in the number of claims made and paid.

“The rise in number of claims paid means that the cost of cover needs to increase,” AustralianSuper said.

The communication to members mentions the fund was able to reduce premiums in May 2018, but premiums were also then increased from 1 June 2019 on the back of the Protecting Your Super reforms by an average of 17% for death, 38% for TPD and 9% for income protection.

The fund also moved to assure members that the increases have nothing to do with COVID-19. fs

APRA questioned on super fund liquidity Eliza Bavin

T The quote

Superannuation is so opaque. We need to know how issues will be handled if any arise.

he prudential regulator has been questioned over super fund liquidity concerns by the Senate Economics Committee.

Senator Andrew Bragg01 issued a letter to APRA putting the regulator on notice to answer a number of questions related to super funds.

“I have sought reassurance from APRA that all the super funds have their houses in order as they have publicly stated,” Bragg said.

“Superannuation is so opaque. We need to know how issues will be handled if any arise.”

Bragg put the regulator on notice to answer how it monitors and assesses the liquidity management plans of RSE licensees.

APRA will also need to explain the how it monitors stress-testing compliance as well as the regulators scenarios for stress testing.

“What sort of scenarios are assumed for stress tests such as, magnitude of market falls,

levels of unemployment, magnitude of switching between options, and magnitude of switching between funds,” Bragg said.

The questions come after ongoing concerns about super funds ability to release members money through the Early Release Super scheme in response to COVID-19.

Bragg said he wants to know when the regulator last asked funds to self-assess their liquidity and what portion of funds have conducted stress-tests in the last month.

“The confidence of the individual funds contrasts with the subterranean industry campaign for a bailout some weeks ago. This appears to have been an ambit claim.”

ATO figures show that over 880,000 Australians have registered their interest in accessing the government’s ERS scheme.

Funds have been given five days to release a member’s money once they receive the request from the ATO. fs

ETPs suffer, inflows remain

QSuper takes AFCA to court

Elizabeth McArthur

Kanika Sood

The ASX’s latest ETP data shows that even as the market was losing money, cash was flowing in.

Rainmaker analysis shows the Australian ETP market lost $6.7 billion in market value in March, ending on around $57 billion from $64 billion at the end of February.

Despite losing about 10% in market value, there were net inflows into the ETP market in March of $360 million.

However, Rainmaker head of investment research John Dyall pointed out this was only a quarter of February’s net inflows of $1.5 billion.

“There was a lot more turnover of ETPs, however, with reported traded value being two and a half times the size of February’s traded value ($17.8 billion versus $7.2 billion),” Dyall said.

Suffering the highest net outflows was the BetaShares Australian High Interest Cash Fund, which lost $257 million or 13%.

The product with the greatest increase in AUM was ETF Securities’ Physical Gold, which increased by $189 million on net inflows of $135 million to end the month with $1.6 billion.

Australian equities ETPs in general seemed popular during March, with net inflows of $1.2 billion.

“One would have expected fixed interest products to be popular in this period, but the reported dislocation in fixed interest markets obviously had an effect,” Dyall said.

“Fixed interest had the highest net outflows, losing $770 million, a significant turnaround from the $488 million it gained in February.” fs

QSuper has appealed against an AFCA decision favouring a member complaint seeking a refund on insurance premiums in the Federal Court.

QSuper member Tommy Lam last year successfully complained to the Australian Financial Complaints Authority (AFCA) that he was entitled to a refund on overpaid premiums for about two and a half years because he had been eligible for lower “professional” occupational rates that the fund introduced on 1 July 2016.

QSuper refused to refund Lam, saying on 27 May 2016, it sent Lam sufficient information to allow him to apply for changes to his insurance cover and qualify for a reduced premium. On 1 August 2019, AFCA decided the complaint in favour of Lam. QSuper appealed against the AFCA decision in Federal Court on the grounds that: AFCA in the case had impermissibly exercised the judicial power of the Commonwealth, and that AFCA’s decision had involved an error of law if it was authorised to make the decision.

The court, on April 9, dismissed QSuper’s appeal and ordered it to pay costs. However, it gave it leave to come back with additional grounds.

“The central issue in this appeal initially appeared to be whether AFCA’s decision was invalid because the powers purportedly exercised by it under s 1055 of the Corporations Act 2001 (Cth) (CA) contravened Ch III of the Commonwealth of Australia Constitution Act 1901 (Cth) (the Constitution) by conferring the judicial power of the Commonwealth on a nonjudicial body,” according to court documents.

“However, QSuper clarified its primary position in its written submissions in reply to those of the intervener, the Attorney-General (Cth), saying that it did not assert CA s 1055 was invalid, but merely that, in this case, AFCA impermissibly exercised the judicial power of the Commonwealth.”

The court said the above response tended to obscure more than it revealed, and it was unclear whether the applicant’s position was that AFCA’s decision was or was not within the scope of CA s1055.

“If the former, the Constitutional issue would necessarily be raised. If the latter, the question was merely one of the construction of the scope of that section,” it said.

QSuper also made an alternative argument that if AFCA was authorised to make the decision, the decision involved an error of law – namely that in making a determination about the adequacy of disclosure under CA s1017B(4), it applied an incorrect test – which this Court is entitled to, and should, review.

“However, an essential foundation of QSuper’s initial two grounds of appeal is that AFCA made a decision which determined that the notice issued

by QSuper did not comply with CA s1017B(4), which required it to provide Dr Lam with information that was reasonably necessary for him to understand the nature and effect of any proposed changes to his insurance cover,” the court said.

“As appears from the discussion below, that foundational premise was not established and, for that reason, those two grounds of appeal must fail. Even if the necessary premise had been established, the appeal would otherwise fail.” fs

Opinion

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

11

01: Matthew Rowe

chief executive CountPlus

The economics of financial advice oFA, FASEA, Hayne and COVID-19. It F is as though a perfect storm of change — some within our control, and some outside of our control — is amassing to smash the supply side of financial advice.

Yet, as we have seen in the here and now, the demand side of the equation for financial advice has never been stronger, or the value in the work we do more evident.

If we were selling ‘widgets’ then supply and demand pull against each other until the market finds an equilibrium price. But we do not sell widgets, and supply/demand equilibrium does not determine the price we charge for our services.

Financial advisers provide a service — I would argue an essential service — and we should set our price based on the value we deliver.

I am reminded that price is only an issue in the absence of value — something to think about when someone offers you a service that costs ‘nothing’.

A client will value what we do through a range of financial and emotional indicators.

At its most base, the financial indicator will be about a sense of alignment with the interest of the client. The emotional is more nebulous and most likely is about the peace of mind achieved when we help navigate the day-to-day complexity that is a client’s own financial affairs. These will, collectively, determine the willingness to pay.

We should not confuse the price of our service with a client’s willingness to pay for what we provide. We create value through our experience, professional judgement, ethics, and technical expertise.

We should think about our economics in terms of a ‘value stick’ – about how value is captured and divided.

The difference between willingness to pay and willingness to sell is the total value markets create. It is the total amount of money on the table in financial advice.

Your firm’s value capture is the difference between price and cost – it is the value you create.

Price is set by you, and in theory is bounded by competition from rival firms in the same market you operate in.

Cost is also set by competition and will be different for each of the other players.

Willingness to pay is the highest amount people are willing to pay – it is the price point that a client will drop out. The difference between price and willingness to pay might also be a proxy for client satisfaction.

Why isn’t price always equal to willingness to pay? It is driven by many factors – examples are brand, function, and client perception of trust. We are never really sure of the client’s willingness to pay.

How do you increase willingness to pay? You

The quote

We should not confuse the price of our service with a client’s willingness to pay for what we provide. We create value through our ex­perience, professional judgement, ethics, and technical expertise.

go after customers not already in the market – and we know that only two out of five Australians receive financial planning advice.

The supplier margin is the difference between willingness to sell, and cost to you.

Willingness to sell is the lowest price a supplier can accept before they would drop out of the market. This is often referred to as the opportunity cost, ie they would be better off doing something else. An example right now is the exit of licensees from our space.

Employees are the major cost of professional practice – some would argue it is 50% to 60% of revenue.

We know that in financial planning there are new education standards being put in force, including university degree requirements, and so employee costs will likely rise over time.

You only get willingness to sell labour close to being equal with cost when talent differentiates your firm from others – you are an employer of choice for reasons other than only money.

This is the holy grail in professional services.

Or the other option is you can offer jobs to people that have no other opportunities. In other words, you employ people that can’t get a job elsewhere – probably not something you would advertise.

In reality, if you wish to play at the bottom on the value stick you need to have a pool of people willing to work for low wages as they don’t have any other opportunities.

This is not normally reflected in the skilled labour market unless there is an oversupply of graduates continually coming through and

VALUE

outstripping demand. We are not seeing this in financial advice.

Offshoring has been bandied about a lot in both accounting and financial planning. It may be a solution to narrowing the opportunity cost of labour, but in my opinion in professional services it is hard to capture value focused only on the bottom of the stick.

I believe that in financial advice as a professional service, if you only focus on the bottom part of the value capture then your only focus is on operational effectiveness. If this is you, then you are running the same race as your competitors – but trying to run it faster.

While operational effectiveness is important, I believe that to truly create value you need to think about running a different race.

Think strategically and tactically about how you capture value at the willingness to pay end of the value stick.

Willingness to pay is determined by client satisfaction and of all the things we are facing in financial advice client satisfaction is one of the very few things that are within our control. fs

12

News

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

01: John McMurdo

02: Megan Motto

chief executive Australian Ethical

chief executive The Governance Institute

Time to step up or face the music Ally Selby

A

lthough it is impossible to predict exactly how the next few months will pan out; how many people will lose jobs, how many lives will be lost, how many businesses will crumble; it’s likely a company’s response to the coronavirus, whether it be good or bad, will be remembered for years to come.

And now, for the first time since ESG really turned up on our radars, companies are being put to the test, in a truly unprecedented, universal way.

No matter whether you are a supermarket conglomerate, an airline, or a super fund, this crisis will take its toll. And investors, who are increasingly aware of the importance of ESG factors, will demand answers.

Australian Ethical chief executive John McMurdo 01 said its time for leaders to consider the long term implications of poor – and good – governance for not only the corporate world, but for people and the planet too.

“If ever there was a time for fresh thinking, it’s now,” he said.

“COVID-19 has shown us how operating in silos and paying attention to only a few stakeholders can lead to vulnerabilities.

“And so success – or even just survival – will depend on how companies manage the wellbeing of their stakeholders during the crisis.”

As businesses activate their contingency plans and Australia’s workforce shifts to working from home, companies with authentic stakeholder relationships will thrive, McMurdo said.

“It’s likely that those with the strongest and most wide-reaching stakeholder relationships will prosper as they leverage trust and draw on goodwill to get back to business,” he said.

“Meanwhile, civic engagement and social responsibility will go from ‘nice-to-have’ to ‘must-have’ as the crisis makes the corporate world’s role in solving global problems clear.”

And that it certainly has, with Victorian Funds Management Corporation head of investment stewardship Talieh Williams agreeing the crisis has brought several issues to the fore.

“This crisis has brought a number of key ESG issues into focus, ranging from labour standards and workforce management, the potential need for a universal basic income (and consideration of what role companies have to play in this at times of crisis), through to ecosystem resilience and animal welfare,” she said.

The focus on ESG was already growing prior to the spread of COVID-19, and will continue to do so in the future, Williams said.

“When things settle down, investors will not only examine which companies contributed positively (and the insights that this provides

regarding overarching governance and culture) but also focus attention on those companies that could have acted in a more responsible manner,” she said.

“These factors in turn will impact how companies are perceived by investors and the ESG ratings firms.”

Discern Sustainability managing director Niall O’Shea also believes companies that do not act ethically during this period will face backlash.

“It is certain that companies that press the eject button on their employees while hauling up any support bridge or those that are profiteering or nakedly gaming the system will be called out,” he said.

“Already, some investors are calling for strings attached when it comes to bail-outs for companies that have availed of excessive financial engineering or bonus-feathering share buybacks.”

However, O’Shea argues, there’s no virtue in being the most ethical business to go out of business.

“Longer-term, ESG ratings will need to reflect how companies crucial to meeting policy objectives like the Sustainable Development Goals and the Paris Accord gather themselves to do business in a different way, re-setting course for a habitable, more equitable planet.”

The Governance Institute of Australia chief executive Megan Motto 02 said it is important for a company’s response to be both proactive, yet considered.

“This is a very fast moving issue; its almost every day that the government announces something new,” she said.

“Companies that demonstrate the sophistication and processes to be able to move quickly but in a considered way will create a huge degree of trust with staff.

Motto said it is also important for companies to consider not only the technical elements of working from home, but also the impacts on mental health.

“Organisations that are taking all of that into consideration are going to be really well placed to be the organisations that thrive in the postCOVID-19 world.

She believes that COVID-19 will forever change business as we know it.

“COVID-19 will cause a business revolution which will see the fast tracking of the success of some business models and the failure of others,” she said.

“It will mean a fundamental change to the way that we work, and for how many industries operate.

“Everyone in business at the moment needs to be thinking about how they deal with the issues of the immediate, that is, protect their staff, take care of health and safety, gear their business so that it can survive and thrive, but

The quote

It’s likely that those with the strongest and most wide-reaching stakeholder relationships will prosper as they leverage trust and draw on goodwill to get back to business.

they also need to think about how their business can pivot to be more responsive to the new world on the other side.”

Australian Ethical head of ethics research Dr Stuart Palmer said although there is no single picture of what a responsible or irresponsible business looks like, its important for all Australians to step up during this crisis.

“There’s great uncertainty about the shape and duration of the infection curve, about its short and longer term implications, about government action and about appropriate business responses,” he said.

“What’s clear is that all of governments, companies and citizens have a responsibility to contribute to the crisis response. What is less clear are our specific responsibilities when our circumstances, resources and stakeholders are so varied.”

Credit Suisse head of ESG research Phineas Glover said now is not the time to ignore other challenges facing the global community.

“At a time when we face an unprecedented surge in premature deaths of vulnerable citizens, it would be ill-advised to ignore a whole series of other major thematic challenges that themselves, are equally going to create huge pressure on the system and potential costs to life,” he said.

“So, for me, this crisis actually sheds light on the need to actually build better resilience within systems to deal with these kind of major systemic challenges, because the cost of not tackling them is huge.”

For example, the World Health Organisation found that seven million people prematurely died from air pollution each year, Glover said.

“There are multiple challenges that society has to respond to and many of those are ESGrelated,” he said.

“Not to diminish the loss of life and future loss of life from COVID-19, but I think it would be very dangerous to bury our head in the sand of the potentially emerging systemic risks at this time.”

McMurdo believes the pandemic has shown us what can be achieved with coordinated, global effort.

“While a global pandemic where so many have died certainly shouldn’t be a way of bringing about change, it has shown us what can be achieved at a national and international level when we need to,” he said.

“COVID-19 may be a story with an unclear ending but these are not the end times.

“When it is over we will still have a climate crisis to tackle.”

And if the global effort to control the spread of COVID-19 is anything to go by, we clearly have the capability to face the climate crisis head on. fs

News

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

13

Executive appointments 01: Blake Briggs

FSC appoints deputy chief executive The Financial Services Council (FSC) has appointed a former Westpac head as its deputy chief executive.

Blake Briggs01 nabbed the role after spending two years as Westpac’s head of government affairs, and will rejoin the FSC in May. Briggs previously served as the body’s superannuation senior policy manager.

FSC chair Geoff Lloyd welcomed Briggs to the industry body, and acknowledged the uncertain time at which he joins the FSC. “Blake joins at a challenging time for the financial services sector, which is at the forefront of delivering much needed services to Australians as we all work together to help mitigate the economic consequences of the COVID-19 crisis,” he said.

Prior to Briggs’ role with Westpac, he served with the FSC for more than six years. During his career he has also worked for the Department of Workplace Relations NSW and with the NSW Business Chamber.

FSC chief executive Sally Loane said she was excited to soon work alongside Briggs.

“I am delighted to welcome Blake back to the FSC in this senior role,” she said.

“His depth of experience in financial services policy and government relations will strengthen the FSC’s excellent policy team both now during the current period and into the future.”

The FSC has over 100 members representing Australia’s retail and wholesale wealth management businesses, which Loane said had all done their part in assisting Australians during the COVID-19 crisis.

“Our members in financial services across the board - advice, superannuation, funds management and life insurance - are all playing a critical role in helping Australians, and more broadly in the economy, as the Government applies a raft of unprecedented financial measures to assist Australians during the COVID19 emergency,” Loane said.

HESTA appoints general manager HESTA has appointed Luke Galloway as general manager of strategic tilting at the $50 billion industry fund, as it continues to evolve its investment capabilities.

Galloway has worked with the fund since November, when he was appointed as an investment advisor.

HESTA chief investment officer Sonya SawtellRickson said she was “thrilled” to add Galloway to the fund in a permanent role, pointing to how the former VFMC man has helped the fund through the current period of market volatility.

“I’m thrilled to welcome Luke permanently to the team as part of our push to build out our internal investment capability and deepen relationships with key partners that will help us continue to deliver strong, long-term returns for our members,” Sawtell-Rickson said.

“Since joining us Luke has demonstrated his extensive experience and skills in supporting the

Vanguard boosts superannuation team Vanguard has created a new head of operations role for its burgeoning superannuation offering, hiring from an industry fund.

Rachel Reynolds has stepped into the role of head of operations, superannuation at Vanguard.

Reynolds spent almost five years as executive manager – operations at $17 billion industry fund CareSuper.

She left the super fund in December last year, telling Financial Standard: “I am taking a short break, spending time with my family before exploring opportunities in the New Year.”

Prior to her time at CareSuper, Reynolds was head of operations at Guild Super.

Vanguard has been moving ahead with a planned super offering for Australia, with several key appointments made in recent months.

Garry Caldow was brought on as product lead, insurance in January.

He joined Vanguard from Mercer after a decade long career at Colonial First State.

Michael Lovettt returned from Vanguard’s US head office to Melbourne to lead the super offering.

team with derivative trading and dynamic asset allocation decisions through a period of significant market volatility.”

Galloway will report to the head for portfolio design, a role the fund is still looking to fill. His new remit will see him manage dynamic asset allocation, as well as the fund’s rebalancing and overlay processes.

“Luke will work closely with our trading partners and our Investment Execution team to manage and minimise execution risks, while ensuring portfolios are responsive to market conditions and opportunities,” Sawtell-Rickson added.

Before joining the fund, Galloway was director of multi-asset solutions at Deutsche Bank, in a role that saw him lead the build-out of a custom crossasset alternative risk premier portfolio.

Galloway said he had enjoyed his time at the fund so far, and was excited to take on the new role.

“It’s exciting to join the fund at this early stage of its program to build out internal capability and embed a total portfolio approach that focuses on strong collaboration across various teams,” Galloway said.

Asset manager hires new chief executive Australian Standfirst Asset Management has named its new chief executive, with a specific focus on family office.

Michael Barnes has been appointed to the role, following a history of working as an ultra-high net worth and family office accountant.

Australian Standfirst AM chief investment officer Stirling Larkin said Barnes brings a wealth of knowledge, acumen and experience to the role.

“As one of Australia’s preeminent ultra-high-networth (UHNW) and family office accountants, Michael leads with steady hands and a total commitment towards providing forward looking and strategic investment advice for Australian clients,” Larkin said.

The company said Barnes will ensure the due diligence portfolio management team maintains a total commitment to providing advice that is designed to protect existing assets, create wealth and reduce risk and uncertainty.

“At Australian Standfirst, his central focus is on enhancing client advice and ensuring this is specifically shaped to take into account each client’s unique environment, predilections and desired goals, whilst operating with the utmost discretion,” the company said.

Prior to taking on the new role, Barnes held a number of director roles at Barnes Partners, Strategic Accounting Australia, and MCS Accounting Melbourne.

He has also held roles at Moneywise Accountants, Marin Accountants and WSC Group.

Australian Standfirst is a global investment firm with around 300 staff, based in Australia.

Man Group hires from BlackRock Andrew Swan will join Man GLG from Q3 this year and will be based in the Sydney office.

Swan was most recently head of Asia and global emerging market fundamental equities at BlackRock.

02: Natalie Cameron

He’s had an almost decade-long career at BlackRock, joining its Hong Kong team in 2011.

Prior to that, Swan spent 17 years at J.P. Morgan in equity portfolio management and research roles.

“We have been looking to expand our Asia offering for a number of years, but have been patient as we want to ensure that whenever we build out strategies in new areas, we do so with individuals we believe to be exceptional portfolio managers,” Man GLG chief executive Teun Johnston said.

“Andrew is very experienced and has demonstrated real skill in managing portfolios for his clients over a number of years. We feel that he will be a good fit both within Man GLG and the broader Man Group business.”

As at 31 December 2019, Man GLG had $31.6 billion in funds under management.

“I am keen to return to focusing on investing for clients and Man GLG’s dual focus on autonomy and collaboration, coupled with Man Group’s reputation for having a culture of innovation and an exceptional technology platform, made this role a really compelling opportunity for me,” Swan added.

“I look forward to working with Teun and the team to develop the new strategy and build out a new team.”

MLC Life executive joins AFCA MLC Life Insurance chief of customer operation Natalie Cameron02 has been appointed as lead ombudsman for investments and advice, alongside former Legalsuper director Heather Gray who takes on the role of lead ombudsman for superannuation.

Cameron, who joined MLC Life in June 2017 as chief claims officer before being appointed chief of customer operations in February 2019 will link with the authority in June.

She is also the former chief executive of AIA New Zealand, and has previously worked as a lawyer for ASIC and Clayton Utz. Meanwhile, Gray will join the authority in May after leading the national superannuation practice of law firm Hall & Wilcox, where she has been a partner since 2013.

She brings more than a decade of experience on the Law Council of Australia’s Superannuation Committee to AFCA, including a stint as chair.

AFCA chief executive and chief ombudsman David Locke said the appointments would add a wealth of experience to AFCA. “Together, Natalie and Heather bring considerable experience and exceptional knowledge in insurance, superannuation and investments to AFCA. I am delighted to see them join the team and look forward to working with them more closely over the coming months,” Locke said.

“Heather is well recognised as an expert in superannuation law and practice and a leader in her field. She joins an already strong superannuation team at AFCA. I am delighted that Heather has chosen to join AFCA at this exciting time.

“Natalie also joins AFCA with a wealth of experience in law, customer relations, disputes and complaints resolution – operating at a senior level across large financial services businesses.” fs

14

Feature | Fintech

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

THE DIGITAL PLAYBOOK

As financial advisers adapt to operating in isolation, technology has emerged as their saving grace. Ally Selby writes.

Fintech | Feature

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

I

t was the perfect storm. Already facing heightened compliance pressure, then a market which at its lows fell nearly 40%, and now, a country in lockdown – financial advisers, notorious for their reliance on pen and paper, have been forced to adapt lest their businesses crumble.

Australia’s once bustling city streets have, for weeks now, been eerily empty, its skyscrapers vacant, its cafes and businesses shuttered for the foreseeable future. And, as a result, claims of an all-powerful NBN are truly being put to the test.

The financial advisers who shifted to digital models years ago are finding themselves called upon to lend a hand to those who still hold a penchant for paper, as the industry transitions to embrace the new digital normal.

If anything, this crisis has galvanised those previously reluctant to give up their ways to adapt to digital. And, in some sweet relief, those who work tirelessly to secure the financial freedom of their clients, will now also discover some freedom and flexibility themselves.

It’s come at a time where every Australian is under financial pressure - but advisers have faced a deluge twofold.

“Just like every other business in Australia, financial planners have had to consider business continuity measures,” Financial Planning Association of Australia (FPA) chief executive Dante De Gori says.

“But at the same time, they have been completely inundated with emails and calls from their existing clients (as well as the general public) for support and help during this period where markets are plummeting and the economic situation is increasingly uncertain.”

While this shift may prove difficult for some, AustralianSuper head of advice and education Shane Hancock01 says it will enable more Australians to access financial advice at a time when they need it most.

“Continuing to embrace technology and investing in systems and training will allow advice delivery to become more efficient and, most importantly, make advice more accessible to more Australians regardless of where they live,” he says.

01: Shane Hancock

02: Jessica Brady

head of advice and education AustralianSuper

co-founder Fox & Hare

“Using technology creates opportunities to provide more quality advice to more Australians - and that can only be a good thing.”

Doing it and doing it well As much of Australia bids farewell to ‘business as usual’, for a handful of financial advisers the transition has been relatively uncomplicated.

One such financial adviser is Fox & Hare co-founder Jessica Brady02 whose almost completely digital advice offering has meant the transition to working from home has been relatively painless.

“I basically told everyone to grab their monitors and go home, and because we do use quite a lot of tech we were able to be back online and operational that afternoon,” she says.

But she is likely in the minority and she puts that down to increased regulatory requirements.

“I think for a long time the advice community has been coping with a significant amount of regulatory change, which has presented various challenges,” she says.

“That’s left them feeling quite tired and they may not necessarily have the time or the capacity to consider their tech stack and what they could do to create a more tech-based experience.

“COVID-19 is going to push some of those businesses to think quite strategically about how they use tech and they will no doubt come out the other side of this crisis more tech-friendly and hopefully more efficient.”

Pivot Wealth founder Ben Nash says smaller, new entrants have led the way for digital advice solutions.

“Some pockets of the industry have been slow in adopting tech, and part of this I think is due to bigger businesses being less flexible,” he says.

“But to me it seems like the smaller businesses and newer entrants are leaning into tech which is a win for everyone.”

Establishing his practice in 2015, Nash invested in a completely digital and cloud-based model.

“It’s been a fairly smooth transition for Pivot as a business, we sent our team home at 11am on a Friday six weeks ago after hearing someone

Using technology creates opportunities to provide more quality advice to more Australians and that can only be a good thing.

Shane Hancock

15

in our building was confirmed with COVID-19, and by 2pm we were doing meetings from our respective corona-bunkers,” Nash explains.

Despite this, Nash recognises there are still challenges ahead.

“I think we’re struggling a bit with the monotony of every day being almost identical, but from a work perspective it’s making us more productive and effective as a team, and has pushed us to accelerate the development of team flow initiatives,” Nash says.

Similarly, Sydney-based practice LeapFrog LIFE made the switch to a digital advice model four years ago, in a bid to both improve staff lifestyle and limit commuting times for clients.

“I was finding that we were falling behind, as we were waiting on that six monthly or annual meeting, but I also wanted some flexibility myself; I really wanted to travel the world and work from anywhere,” founder Dominique BergelGrant 03 says.

Now, Bergel-Grant works between picturesque Lake Wanaka on the South Island of New Zealand and Sydney, with all her meetings taking place online.

“I actually think business efficiency has dramatically increased from the switch, but compliance has too. I record all of my client meetings, and I’ve been doing that for that whole four-year period,” she says.

Digital tools also provide the time to focus on clients instead of administrative requirements.

“It was clear to me that our team was smart and resourceful, and we realised many years ago that integrating technology would allow them to focus on doing the things that add the most value to their clients rather than doing things that are manual, administrative and repetitive,” Cardena Private Wealth managing director Ray Djani04 says.

When Djani and his team considered how clients sign documents, how tasks are managed in-house and files are accessed, the issues had simple solutions that in turn improved the client experience.

However, while COVID-19 may appear – at least for now – to be a temporary issue the world is facing, the consequences for the advice industry may be more permanent.

Award-winning* technology that goes wherever you do.

With BT Panorama you can take your business with you. bt.com.au/panoramamobile * BT Panorama was named Winner of the Investment Trends 2018 & 2019 Platform Competitive Benchmarking and Analysis Report: Best Mobile Platform. © Westpac Banking Corporation.

18

Feature | Fintech

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

03: Dominique Bergel Grant

founder LeapFrog LIFE

“The industry has already lost a lot of advisers through the Royal Commission. They didn’t want to complete the requirements to remain in the profession,” Dalton Financial Partners director Josh Dalton says.

“COVID-19 is likely to reduce adviser numbers further.”

Early indicators seem to back this theory.

In the last week of February there were 23,226 advisers on ASIC’s Financial Adviser Register.

By April 23, 493 names had dropped off.

“There’s still plenty of ‘old school’ advisers who are great at what they do, but they have not been so quick to embrace technology,” Dalton says.

“They will have no choice but to embrace tech if they are to survive this period.”

Solutions at hand Despite the plethora of products available, there is still no single perfect solution and there remains several gaps within the market.

“Advisers do adopt technology, the question is - is the technology actually available?”

HUB24 chief executive Andrew Alcock says.

“Advisers are using financial planning tools, they’re using platforms, they’re moving to the best of breed providers. Yet there are gaps in things like how we deliver compliance and regtech.”

But products that provide flexibility can come very close to meeting the needs of most clients, he says, coupled with good advice and investment management.

Video conferencing tool Zoom is one such solution, with nearly every adviser interviewed for this article using the software to conduct client and internal meetings.

Bergel-Grant was the only outlier, who made the switch from Zoom to Google Hangouts just a few weeks ago.

“I’ve actually ditched Zoom having used it for a couple of years and moved across to Google Hangouts, because I found Zoom has become really slow thanks to the extra demand,” she said.

“For me, it’s about finding a platform which has got the least resistance; if a client doesn’t have to download a piece of software onto their computer then that is a massive advantage.

Bergel-Grant also recommends Acuity Scheduling, which allows her clients to bookin their own meetings, and automatically links these to set up a Google Hangout meeting.

“Particularly in periods like this; where there is so much market volatility and advisers may feel quite distant from clients because we can’t see them, I think it’s really, really critical to make yourself as visible and available as possible,” she says.

She also uses BurstSMS, which allows her to send multiple messages to her clients, Facebook to share informative YouTube videos and product provider updates, spreadsheet-database Airtable to track customer interactions, and Skype to keep connected with her team.

04: Ray Djani

05: Kathy Vincent

managing director Cardena Private Wealth

general manager of platforms, investments and operations BT

Meanwhile, Dalton uses a variety of tech solutions to improve his firm’s efficiency.

“CRM software like AdviserLogic lets us assign, track and manage workflows for each team member. Instant messaging platform Slack allows us to keep office conversations going, Dropbox allows us to share access to documents,” he says.

Dalton recommends advisers consider adopting email-marketing software like Mailchimp, which allows him to communicate with his clients at scale.

“Mailchimp has been vital during these volatile times. I have been sending my clients regular communications to explain the situation, provide guidance and also keep them focused on the long-term,” he says.

Brady recommends advisers use Loom to record ‘how-to’ videos, as well as DocuSign so that clients can sign-off on their SoAs, but her favourite tech tool is FileInvite.

This software provides Brady’s clients with a secure portal to upload all their required documentation, while her team can see what the client has filled out, any notes they have made, and they receive a notification once all the documents have been completed. Then, it’s just an easy download to the cloud, she says.

While Djani’s firm uses various digital solutions, he argues that platforms and managed accounts are often overlooked.

“One very important innovation that I think is not that well understood is the notion of managed accounts backed by great platform technology,” he says.

Djani realised it was possible to rebalance client portfolios and execute changes in a smart and time effective way. However, that was only possible because the necessary legal structures were already in place.

Particularly considering the volatility of markets over the last few months, advisers need to be able to act quickly, Djani says.

“When we make a decision, for those clients that are in a managed account, we can press a button and execute those changes instantly,” he says.

“Particularly in a crisis situation like we are in now, without managed accounts it would be near impossible to make all the necessary changes for clients if financial advisers need to prepare hundreds of advice documents.”

Help is out there Despite advisers experiencing a few roadblocks with some providers during the COVID-19 crisis, including an insistence on paper documentation, there is also plenty doing all they can to assist the adviser community.

BT, through its flagship Panorama platform, has made helping advisers a key focus, with BT general manager of platforms, investments and operations Kathy Vincent 05 revealing its mobile app usage had increased by 57% among advisers during the crisis, and doubled for their clients.

Advisers do adopt technology, the question is is the technology actually available?

Andrew Alcock

“The mobile app allows advisers to interact with their clients in real time and provide much deeper access for their clients,” she says.

“Using the app, advisers can implement transactions and authorities between themselves and the client without a phone call, without needing the client to come in.”

BT has seen the use of its digital consent feature increase by 80% since January.

Consistent digital interaction, like the mobile app provides, is paramount in times of market dislocation, she says.

“Enabling efficient interaction and managing the client’s circumstances during these times is just so important,” Vincent says.

“And we see that time and time again, in terms of market correction, the more contact and engagement an adviser can have with their client, the more they can carry them through the tough times.”

Vincent says managed accounts, made possible by platform technology, are crucial for advisers during this period of market volatility.

“The reason for their popularity with the adviser community and their clients is very much about the transparency that sits underneath the investment portfolio,” she says.

She explains managed accounts make the total investment portfolio transparent to their clients and help their clients understand holdings right across their portfolio.

Acknowledging managed accounts can make an adviser’s life dramatically easier during periods of market dislocation, Milliman Actuary practice leader Wade Matterson 06 argues there is still work to be done.

“There’s so much possibility in what an adviser can achieve down to an individual client level just with that managed account functionality - but part of the challenge with that however, is the implementation, the sophistication and the way that people can implement managed accounts is already very, very high,” he says.

“So the challenge is then building the tools, the approaches and the solutions that take full advantage of that and can give the adviser a really compelling story and ultimately provide a better outcome for their clients.”

Tech providers are rising to thatchallenge with many quickly implementing updates to their offerings in order to provide capability for which there was previously little or no demand – or need – for.

For instance, similar to Panorama, Netwealth also accepts digital signatures but during the crisis will also accept KYC Consent forms (to verify a client using GreenID) and Australian Companies and Australian Regulated Trusts (including SMSF) AML/CTF verification forms. In addition, Netwealth’s systems have now been optimised to send and receive digital communications, while its contact centre has now shifted to the cloud.

Despite these changes, Netwealth joint man-

Fintech | Feature

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

aging director Matt Heine 07 says the shift has been more cultural than technical.

“While the ‘tech stack’ has definitely been important, it has been the cultural change and engagement model with both staff and clients that has been an important focus for many firms as they adjust to the new norm,” he says.

HUB24 has also introduced digital signatures to make adviser’s lives easier, but Alcock says there has been an increased focus on educating advisers on the tools the specialist platform already provides.

“We’ve been spending a lot of time explaining to advisers how at this time in the cycle they should use our tools; tools to maximise their client’s tax outcomes, tools to manage their client’s pension income given the government’s changes, and tools that allow them to help preserve capital as they’re selling down,” he says.

Iress has also introduced new features, including a self-service security question feature in Xplan, which allows users to administer their own login details. It has also been working to turn around the government’s stimulus package changes within 24 hours so that advisers have the modelling tools to support clients.

Iress wealth management product executive Emily Chen08 says the software provider has been working to help its clients understand the options available to them as they shift to remote working.

“Our client portal has enabled advisers to stay in touch with their clients in a more cost effective way; there’s instant messaging, they can broadcast news to all of their clients through the portal, there is secure document and messages functionality, and also a digital signature tool and they can do that 24/7,” she says.

Meanwhile, Macquarie has introduced a new advice tool called the ‘digital portfolio manager’, to help advisers deliver scaled investment advice to their clients.

It’s an end-to-end portfolio management engine that sits within the Wrap platform and can be configured to an individual firm’s investment philosophy and product menu. It also has the ability to generate bespoke investment advice and can align to a firm’s model.

“At a time when there is an unprecedented amount of change taking place and a significant focus on the ongoing availability and cost of financial advice, this solution provides advisers with a cost effective way to do this while managing their risks through a controlled, consistent and auditable process,” Macquarie banking and financial services head of wealth product and technology, Michelle Weber said.

Likewise, AustralianSuper has been quick to review its processes, Hancock says.

“Some quick wins that were implemented have included clients, where possible, being encouraged to self-serve and open accounts online with the financial advisers providing guidance either over the phone or video conference, and

06: Wade Matterson

07: Matt Heine

08: Emily Chen

practice leader Milliman

joint managing director Netwealth

wealth management product executive Iress

we have also published to our adviser resources page a complete list of our adviser facing documents and those that we can accept digital signatures,” he says.

Despite all these changes to improve access and ease for clients, Allianz Retire+ head of product Jacqui Lennon argues technology providers should try to introduce more friction in a time of increased panic.

“The challenge with technology is we’ve made information really accessible and we’ve reduced the friction in the way people can move money around in the system, which sounds great but actually at times like this for fearful people you’d wish that they would stop checking,” she says.

“We talk about how maybe now’s the time to put in some friction into the process.

“It sounds counterintuitive, but actually taking away some of the ease that technology has enabled, taking some of that away from clients who are particularly anxious at this time, could be quite helpful.”

Moving forward With both software providers and advisers embracing technology, it’s difficult to imagine processes returning to the pre-COVID-19 era.

Hancock agrees, arguing a digital advice model will endure long after the pandemic passes.

“The current forced new way of working has shown more advisers and clients that technology is our friend,” he says.

“While some advisers previously have adapted to the use of technology quicker than others the delivery of face to face advice in the past has been highly dependent on advisers and clients being in the same location making advice not as accessible and affordable as it could be.

“Going back to not using this technology seems improbable and counter-intuitive.”

Heine argues the advice industry will change as both clients and advisers become accustomed to digital tools and services.

Myths around client internet usage and capability have been dispelled as clients of all ages opt for ‘interface to interface’ meetings, sign and witness documents digitally and stay connected via social media chat groups and forums.

“While the novelty will no doubt wear off as restrictions persist I believe how we work as an industry and society will change forever, for the better, as digital tools previously discounted or dismissed increasingly embed themselves into our daily work practices,” Heine says.

There is one other long-lasting positive the recent turn of events has had, Vincent says, is that this shift will open up the advice industry to more Australians.

“Embracing technology will enable advice practices to broaden their advice proposition to different segments of the market, making advice far more cost-efficient for Australians,” she says.

She predicts data and artificial intelligence

While the novelty will no doubt wear off as restrictions persist I believe how we work as an industry and society will change forever.

Matt Heine.

19

will continue to mould the industry over the coming years.

“Data gives advisers the power to gain real insight around the behaviours of their clients, and predictive analytics and AI will help them understand their clients a lot better in terms of what they’re viewing and their interactions with their investments,” Vincent says.

“This will empower advisers to change their way of working and predict when they should contact clients, what their client’s fear, their concerns, their interests and so on.”

Australians, who increasingly live more digital lives, will start to expect the same from their advisers, Chen says.

“I have a lot of confidence in where the advice industry is heading - key for advisers will be data analytics, which will provide better insights and automation which will cut out some of the manual tasks,” she says.

“The younger generations of Australians have much higher expectations of technology, so the investments and the adoption of client related software, complementing what the intermediary advisers have access to, will be quite important.”

Weber agrees, arguing advice firms will continue to shift to better meet their client’s digital demands well after the COVID-19 pandemic.

“Clients are increasingly comparing the service provided by their advice firm to that of their last digital experience, regardless of industry,” she says.

“In this time, clients increasingly live and operate through digital mediums, so we expect advice firms will need to continue innovating, developing and enhancing their digital capabilities to remain competitive and thrive in this environment.”

And while there is opportunity ahead, they don’t come without challenge.

“Unfortunately, even before the crisis we’re in now, the financial planning industry in Australia was under so much pressure and upheaval that most organisations were fighting just to maintain value and adapt in the face of changing ownership structure, increasing regulatory hurdles, and educational requirements,” Matterson says.

“Even with all the software tools that exist at the moment, it’s been a struggle for advice businesses to get their head above water long enough to begin adopting them.”

The current model of advice is prime for disruption, he says.

“We are seeing this shift; call it a changing of the guard if you will, and I think it will accelerate as people adopt new practices off the back of what we’re experiencing right now,” Matterson says.

“Advice will become much more technologically savvy and ultimately it will do that to the betterment of its clients.” fs

20

International

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

Chile bolsters pension funds The Central Bank of Chile agreed to increase the maximum investment limits on alternative assets for four of the nation’s five public pension funds. It comes as Chile seeks to stave off the damage to its economy by COVID-19.

The move is designed to ensure diversification across investment portfolios, with 60% of Chilean pension funds traditionally invested locally.

The bank has the right to extend investment limits by between 5% and 15% of the corresponding fund’s value, but it opted to stay below the maximum level of that range – increasing Funds A, B and C by 3% and Fund D by 1%. The Solidarity Unemployment Fund (Fund E) was left unchanged.

For context, Fund A is considered the most risky option, while Fund D is more conservative.

Fund E is most conservative.

Since the end of 2019, Chile’s pension funds under management have dropped from $341 billion to about $271 billion at March end.

“This decision is adopted considering that eventual adjustments in the investment portfolios of the pension funds can be carried out without affecting the normal operation of the financial system, and maintaining the criterion of gradualness in the implementation of these limits that has guided the actions of the central bank in this matter, since this investment alternative was introduced to the current legal framework,” the bank said.

In terms of private pensions, in the early 1980s Chile switched to a defined contribution system, replacing the public pay-as-you-go model.

Protests have been ongoing in the country since 2013 as those who have made contributions the bulk of their working life and are now ready to draw on their pension have found them unsustainable.

Most pensioners are now receiving between 20% and 30% of their wages, believing they would be retiring on 70%. It is estimated about 80% of pensioners in Chile receive less than minimum wage. fs

UK pension deficits rise Latest data shows the combined deficits of UK defined benefit schemes has risen by more than $22 billion (£11.3 billion) during the COVID-19 crisis.

The April iteration of the Pension Protection Fund’s 7800 index, which includes 5422 schemes, shows the deficit rose from $247 billion (£124.6 billion) at the end of February to $269 billion (£135.9 billion) by March end.

This is on top of an almost $200 billion (£100 billion) surge since the start of the year when the deficit sat at just $69 billion (£35 billion). In April 2019, the deficit was just $25.2 billion (£12.7 billion).

Total assets fell by just over 2% over the month, while liabilities decreased by 1.6%.

Of the 5422 schemes in the index, 3606 are in deficit while 1816 are in surplus. This equates to about 66% in deficit, up 2% on February end figures. A year ago, 56% of funds covered by the index were in deficit.

For those in deficit, the deficit was $504 billion (£254 billion), up about $19.8 billion (£10 billion) month on month. fs

01: Peter Sanderson

chief executive GAM Investments

GAM cuts jobs, reviews pay Jamie Williamson

G The quote

Making GAM fit for the future is a clear strategic goal and in view of the current industry headwinds we are accelerating our plans.

AM Investments has announced it is accelerating its efficiency program, confirming it has completed a round of voluntary redundancies while another is ongoing. It is also reviewing remuneration arrangements across the group.

Earlier this year GAM announced it would look to save about $123 million (CHF63 million) by 2022. Now, as a result of COVID-19, GAM will look to cut about $105 million (CHF65 million) in 2020 alone.

The investment manager is accelerating its efforts as its assets under management fell from $214 billion (CHF132 billion) at the end of 2019 to $181 billion (CHF112 billion) at March end.

GAM said it completed a voluntary redundancy programme in March, while another targeted redundancy programme is ongoing. The manager said it expects its headcount to drop to 680 FTEs at end of 2020, compared to 817 FTEs at 2019 end.

GAM is also reviewing fixed compensation levels across to group, particularly for those in senior, non-investment roles.

“These measures are intended to manage costs while ensuring that the impact of our continuing targeted compulsory redundancy programme is minimised during the difficult COVID-19 environment,” GAM said.

The manager will also continue to align

bonuses to company performance and investment teams will continue to benefit from existing contractual compensation arrangements, GAM said.

GAM said it maintains appropriate liquidity in all its funds to meet client redemptions.

“Making GAM fit for the future is a clear strategic goal and in view of the current industry headwinds we are accelerating our plans in order to bring forwards some of our longer term efficiency targets,” GAM chief executive Pete Sanderson01 said.

“We remain committed to the breadth of our distinctive investment management capabilities, our strong client service proposition and our PLF platform, which we believe are particularly well positioned to help clients actively navigate these uncertain times.”

It caps off a tumultuous 18 months for the global investment manager, having barely recovered from the scandal surrounding one of its investment directors, Tim Haywood.

In late 2018 Haywood was investigated and ultimately let go by GAM for gross misconduct which resulted in a range of absolute return bond funds being liquidated.

Following that, GAM’s full-year 2019 results - released in February this year - showed the firm’s profits dropped 90% on the back of the scandal, leading to the efficiency program that has now been expedited. fs

Financial services exec embroiled in bribery scheme Ally Selby

A former financial services executive in the US has been charged with orchestrating a bribery scheme that saw him funnel at least $4 million to the Ghanaian government to gain their approval to build and operate an electrical power plant.

The Securities and Exchange Commission charged former Goldman Sachs executive Asante Berko with orchestrating a bribery scheme to help a Turkish client win a government contract to build the power plant in violation with the Foreign Corrupt Practices Act. On behalf of the Turkish energy company, Berko funnelled at least US$2.5 million to a Ghana-based intermediary to pay the bribes to the country’s government.

The SEC alleges that Berko helped the intermediary pay more than US$200,000 to various government officials, with Berko personally paying more than US$60,000 to members of the Ghanaian parliament.

The SEC alleges that Berko took deliberate measures so his employee would not detect the bribery scheme, and even misled his employer’s compliance team about the true role of the Ghanabased intermediary company.

SEC Enforcement Division’s FCPA Unit chief Charles Cain said Berko acted alone and Goldman would not be charged.

“As alleged in our complaint, Berko orchestrated a scheme to bribe high-level Ghanaian officials in pursuit of firm business and his own enrichment,” he said.

“Berko’s misconduct was egregious and individual accountability remains a key component to our FCPA enforcement efforts.

“The firm’s compliance personnel took appropriate steps to prevent the firm from participating in the transaction and it is not being charged.”

The SEC will be seeking monetary penalties against Berko in addition to other remedies. fs

Products

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

21

Products 01: Olivia McArdle

AMP Capital rejigs property fund AMP Capital’s wholesale Australian property fund is moving asset valuations from quarterly to monthly, has fixed the distribution payouts for this year and is altering withdrawals during the COVID-19 pandemic.

The fund, which currently allows monthly redemptions, will now allow only 5% of the funds’ total net asset value for withdrawals every quarter. It has also deferred its April 15 withdrawal date to May 15.

The fund’s constitution allows it to widen payment times beyond the 12-month processing time.

“It’s not considered in the best interests of all investors to maintain monthly redemptions in the current economic environment. However, the changes we have announced provide investors with an ability to redeem up to 20% of their holding in the short term, with full payment made for any redeemed units over and above this threshold within 12 months,” AMP Capital said.

“Accommodating investors who may be experiencing financial distress or who wish to rebalance their portfolios was an important consideration in taking this approach. We’ve also had regard to feedback from investors and advisers who would prefer to remain invested in the fund but are concerned about the prospect of elevated redemptions if monthly payments are maintained through this crisis. For some investors, these changes will bring peace of mind.”

AMP Capital said it will not be raising its sell spreads (it’s not allowed by the constitution), and is committing to a distribution of 1.81 cents per unit in the fund for rest of 2020 which equates to 5.7% distribution yield based on March end unit price, which it says reflects its best estimate of short-term income impacts.

The fund has about $460 million in liquidity across $325 million in undrawn debt, $101.4 million in Australian REITs and $33.4 million in cash. It also owns interests in 26 properties and said may choose to sell one or more of these to enhance liquidity.

Midwinter launches product comparison tool Midwinter Financial Services has launched a new product comparison tool that automates the selection of comparison portfolios while helping advisers meet their best interest duty.

Midwinter said the tool reduces the time it takes advisers to conduct in-depth product research to under 30 minutes.

The tool, called Product Comparisons, uses a proprietary algorithm to create hypothetical models based on a client’s risk profile.

Midwinter said the results are populated into a best interests matrix where advisers can easily compare existing, recommended and alternative products.

Advisers will also be able to generate a report to demonstrate like-for-like research and support their recommendation.

The tool works across superannuation, pension and investment products and will soon support superannuation to SMSF comparisons as well as scenarios around non-individual comparisons including companies and trusts.

Telstra issues 10year bond Telstra has issued an $860 million 10-year bond as it moves to further strengthen its balance sheet.

The bond, issued at €500 million, has been priced under Telstra’s debt issuance program, and was issued on April 23.

Telstra said it would use the funds from the note for general corporate purposes, including pre-funding of future debt maturities.

“Since mid-March Telstra has also secured an additional $940 million in bank facilities, and Telstra now has a total of $3.6 billion of committed bank facilities,” the telecommunications company said.

“The bank facilities and the company’s latest bond issue are both well below Telstra’s current average cost of funds.”

Telstra chief executive Andrew Penn said credit facilities demonstrated the financial strength of the company amid the COVID19 crisis.

“The bond issue and the additional bank facilities [demonstrate] the company’s financial strength and attractiveness to global capital markets, while further strengthening its strong liquidity position during a volatile period in global financial markets,” Telstra said.

“Product Comparisons aims to provide clear and concise analysis to help advisers generate SOA aligned to their client’s objectives,” said Ivon Gower, head of product at Midwinter.

“Using Product Comparisons, advisers can run a like-for-like comparison across a range of product replacement scenarios in minutes, and generate comparisons based on matching portfolio balances and composition across platforms.”

Gower said advisers can also run a simple balance projection on each of their existing and proposed portfolios to show the impact of fees over time.

“We have designed Product Comparisons to support the safe harbor provisions so advisers can be confident they are recommending products that are in their clients’ best interests,” Gower said.

Gower said for advisers running pension comparisons, the new legislative changes to reduce the minimum required pension payment introduced in relation to COVID-19 are already reflected in the tool.

Macquarie cash offering soars A Macquarie Bank cash offering has seen record interest as financial advisers look to safeguard their client’s wealth amid the COVID-19 crisis.

Speaking to Financial Standard, Macquarie head of payments and deposits, banking and financial services Olivia McArdle01 said the bank decided to lift the interest rate on its cash management (CMA) accelerator account to 1.2% following the Reserve Bank of Australia’s interest rate reduction.

“Given the historical lows of the official cash rate, we think it’s never been more important for advisers to actively manage their client’s cash portfolios to achieve a healthy rate of return for an acceptable level of risk,” she said.

The change to Macquarie’s CMA offering will help advisers generate profit on their client’s cash holdings.

“We wanted to offer advisers a savings account linked to the CMA designed to securely hold clients’ cash reserves at a higher interest rate,” McArdle said.

“This also gives advisers the option to still attain all the benefits of the CMA, including data feeds, online account opening, Adviser Initiated Payments and bulk transacting.”

As other platforms reduce their cash rate to lower or at most, RBA rates, McArdle says the 1.2% cash rate has garnered adviser interest.

“Recently, we’ve seen record numbers of Macquarie CMA applications as more advisers and their clients look towards the months ahead and setting themselves up with the tools they need to make smart investment decisions,” she said.

“We’re also seeing interest in the CMA Accelerator Account grow steadily as we speak to more advisers about our competitive interest rate on the Accelerator Account and how easy it is open one.”

ASI funds downgraded International equities funds offered by Aberdeen Standard Investments in the local market have been downgraded to neutral at Morningstar on the back of a style drift.

02: Will Davidson

In January ASI announced its head of equities Stephen Docherty would leave the firm for personal reasons, and Dominic Byrne was appointed to the role.

Morningstar was positive on the potential impacts of the change in leadership, but noted the portfolio’s style drift as it cut the rating of four funds to neutral.

“While Byrne’s promotion brings additional people management and commercial development responsibilities, it’s important to note he will not be assuming portfolio management duties here, alleviating concerns that this “long-term quality” investment approach will undergo further near-term changes,” Morningstar said in a note.

It also said the team’s nine-strong manager lineup with an average 18 years of experience would help mitigate the key-person risk.

However, it was concerned about the portfolio moving towards a more growth approach, which has played out in recent years.

“While the approach’s quality tenet remains intact, we now have concerns over how closely the team is adhering to the value tenet,” Morningstar said.

“Not only has the portfolio drifted to the growth area of the Morningstar Style Box from the core area during the past five years, but there was also a significant increase in the portfolio’s price multiples throughout 2019.”

Morningstar pointed to the positions the fund has initiated or topped-up in US growth stocks. “…the portfolio’s trailing P/E of 22.7 sat well above the MSCI All Country World ex Australia Index’s 17.3 as of February 2020; it was also higher than the portfolio’s 18.0 measure a year prior,” it said.

“While the team remains experienced and wellresourced, the evolving approach provides sufficient reason to seek better options.

Powerwrap adds Chi-X offering All 30 of Chi-X TraCRs products and Chi-X funds will now be available to Powerwrap customers.

Chi-X’s TraCRs allows Australian investors to access the benefits of owning US shares, while its funds have been trading on the exchange since October 2019.

Powerwrap chief executive Will Davidson 02 said the addition would provide new investment opportunities to financial advisers and their clients.

“Chi-X TraCRs are the perfect addition to the vast suite of investment products available on Powerwrap,” he said.

“We have a bespoke-style platform service that offers the broadest range of products in the market across all asset class and utilises the best of breed execution capabilities for all securities.”

The platform caters to specifically high net worth clients, who are keen to explore opportunities outside of Australia, he said.

“High net worth investors look beyond the Australian market and are keenly aware of the value to be found in US equities,” Davidson said.

“By bringing some of these US-listed mega cap companies to Australian investors, Chi-X is fulfilling an important gap in the high net worth investor space.” fs

22

Roundtable| Balanced options Featurette

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

Will COVID-19 kill the balanced option?

Elizabeth McArthur

As consumers saw their superannuation balances nosedive when the COVID-19 pandemic began wreaking havoc on the market, many were surprised to learn their retirement savings weren’t quite as safe as they thought, reigniting the debate around ‘balanced’ investment options.

The argument isn’t particularly new, the term ‘balanced’ as it relates to a super fund’s investment option has never been clearly defined and for many years commentators have noted that balance options can vary greatly from fund to fund.

XY Adviser chair Andrew Rocks took to LinkedIn to share his thoughts on the state of super’s balanced options, saying: “As a Certified Financial Planner - if I had recommended 60% of a client’s portfolio in illiquid investments, under the guise of a balanced portfolio, I would be currently incarcerated.”

Speaking with Financial Standard, Rocks says the issue of whether super funds and their balanced options are really serving consumers comes down to the fact that terms like ‘balanced’ and ‘conservative’ are not defined in a way that the average Australian really understands.

As Rocks sees it, the issue comes down to whether anyone with a super account really knows what to expect when an event like COVID19 happens.

Core Private Wealth director Trevor Geffin agrees and sees many balanced options in super that he thinks could be serving consumers better.

Hostplus’ balanced option has a 0% allocation to cash and fixed income, Geffin says, and 25% defensive disclosed.

He also points to Rest’s core option with 13% in cash and bonds and 35.50% defensive disclosed.

According to Geffin, it’s these kind of allocations that should have people worried in the current climate.

“Many argue liquidity is an aspect of defensiveness, as we have seen over the last month, everything all of a sudden became correlated and the only true defensive was really cash,” Geffin says.

Geffin sees the common theme in super funds’ disclosures of the asset mix within balanced options as having a low allocation to cash and fixed income.

The funds he says, particularly industry super funds, allocate to infrastructure, alternative credit and property and classify these as defensive.

Research would suggest that industry funds have a higher allocation to illiquid assets including infrastructure and property than retail super funds.

Rainmaker analysis of the cash holdings of super funds found that retail funds do tend to hold a higher proportion of cash to total funds under management.

Data from the end of last year indicated the funds holding the most cash by percentage of FUM were Crescent Wealth, ING Super, Lutheran Super and ClearView.

Cash holdings by dollar amount also sees retail

As a CFP - if I had recommended 60% of a client’s portfolio in illiquid investments, under the guise of a balanced portfolio, I would be currently incarcerated.

Andrew Rocks

funds at the top of the list, despite industry fund AustralianSuper being the largest in the country.

MLC Super held approximately $14.87 billion in cash at the end of last year, followed by Colonial First State with $14.81 billion.

AustralianSuper had the third largest amount in cash with $14.3 billion.

As part of the Australian government’s COVID19 response package, those who have suffered financially as a result of the virus will be able to access up to $20,000 of their super over two years.

The government has so far estimated that $27 billion of super money could end up being accessed this way. At the time of writing more than 800,000 Australians had already applied for early release of super.

Rainmaker analysis indicates super funds hold approximately $397 billion in cash and a further $549 billion in fixed interest bonds.

But those numbers haven’t put minds at ease, or convinced everyone that each super fund has the liquidity required to meet early release.

Hostplus updated its Product Disclosure Statement on 9 April 2020 amid speculation the fund would be one of the hardest hit due to many of its members working in the hospitality industry which has been largely shutdown as a result of COVID-19.

“The trustee may suspend or restrict applications, switches, redemptions and withdrawal requests, for all or a particular investment option at its absolute discretion,” the PDS now reads.

“In such circumstances, transactions may

Balanced options| Featurette

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

not be processed or may be processed with significant delay.”

The other Hostplus’ liquidity was up for questioning was because, as Geffin points out, it has a 0% allocation to cash in the balanced option.

The idea that you might not be able to get your money out of a super fund as you wish to is understandably alarming to many consumers.

Financial literacy is often pointed to as the answer to these conundrums, but the issue may actually stem from an industry stuck in its ways of using deliberately obtuse terms.

Rainmaker executive director of research Alex Dunnin agrees that terms like ‘balanced’ are so ambiguous that the issue of what a balanced option should look like becomes almost unresolvable.

“For example, I’ve read experts say defensive assets are those you can easily sell for cash,” Dunnin said.

“If that was the case it would include equities.

But equities are defined as growth assets.

Similarly we have other experts tell us you can construct defensive income producing portfolios from equities. Then we have other experts tell us you can invest using bonds and credit to produce equity-like returns.”

Dunnin points out that even for people very familiar with how super works, there’s no way of knowing what to expect from a balanced option without looking into the asset mix and PDS more deeply.

What the average person really understands about investment risk is the other part of this equation.

Geffin thinks that over a long bull market people have become at once over-confident because they are used to spectacular returns and also comfortable with risk, because many have not experienced significant investment loss.

However, Geffin is adamant that the consumer is not to be blamed on this issue. In fact, he thinks super funds have actively hidden the reality of risk from their members.

Calling strategies which he perceives as “risky” balanced is one of the ways Geffin says funds have done this.

“The thing about liquidity risk is that it’s somewhat binary, its hunky dory 99% of the time, until it’s not, and it dramatically changes in the blink of an eye,” Geffin said.

“All of a sudden you can’t sell an asset for anything other than a fire sale price during a liquidity crisis and others selling similar assets to you at fire sale prices cause a death spiral.”

He takes issue with super fund league tables that use investment returns as the only measure of success.

APRA’s MySuper heatmap grades MySuper products based on investment performance, fees and costs and the sustainability of member outcomes.

Even amid the current crisis, APRA has said it will push ahead with the publication of an updated heatmap in June.

01: Andrew Rocks

02: Trevor Geffin

03: Alex Dunnin

chair XY Adviser

director Core Private Wealth

executive director of research Rainmaker Information

“Mean reversion is a well-known financial theory which says that prices and historical returns revert to a mean (or average) over the long-run,” Geffin says.

“In practice, the thing that made you successful is often what comes back to bite you and then another factor becomes the new hero overnight.”

Understanding that risk is something investment professionals understand in a vastly different way than consumers do, APRA has attempted to cut through the confusion around risk with its Standard Risk Measure (SRM).

Although, according to Dunnin, even this effort is flawed.

“These have only added more ambiguity because their definitions seem even less consistent than the problem they are trying to fix,” Dunnin says.

For Geffin, the issue is that the SRMs have never been made clear to the average super fund member and are often buried deep within lengthy super fund PDSs. He also sees a conflict of interest in the fact that trustees assess their own SRM. Geffin wants to see the SRM for every super fund assessed by APRA and put on a register that consumers can easily access.

Putting risk front and centre in a way consumers can understand could solve the problem of the ambiguously “safe seeming” balanced investment option, he thinks.

“We have seen absurd examples of this problem with super funds white labelling Vanguard’s Growth Index Fund as ‘balanced’ and another industry fund simply changing the name of an option from ‘growth’ to ‘balanced’ without changing their strategy,” Geffin says.

“These are signs something is broken, who is this benefiting? Is this in the interest of members?

Or in the interest of the investment manager in their asset gathering endeavours?”

Rocks agrees, suggesting a risk labelling system could better help consumers see the reality of how their investments are going to perform.

He envisions risk ratings being advertised in the way that past performance is advertised now - giving those with impressive risk management some bragging rights.

“Importantly, a risk based framework doesn’t preclude any investment manager from any particular strategic asset allocation, trustees will be free to offer their members a wide range of risk levels, because we still want a wide variety of choice,” Geffin adds.

“But the difference is the consumer is going to be better empowered to differentiate between the risks and do so within the correct context.”

For Dunnin, now might be a bit of a sensitive time to criticise funds on the nuances of asset allocation and the naming of investment options.

“Let’s acknowledge that this issue has raised its head again not because of the market correction but because the government has shut down specific industries and changed the objective of superannuation from a long run investment to a

The thing about liquidity risk is that it’s somewhat binary, its hunky dory 99% of the time, until it’s not, and it dramatically changes in the blink of an eye.

Trevor Geffin

23

short term cash management one,” he says.

“It is perfectly entitled to do so in this time of crisis. But to say super funds should have planned for this is disingenuous.”

The super sector - like everyone in the world it seems - didn’t see COVID-19 coming.

Dalton Financial Partners director Josh Dalton agrees, and says perhaps some are kicking super funds when they’re down.

“Mass job losses in certain industries, contribution inflows stopping and then potential $20,000 per member withdrawals; it’s hard to imagine a scenario like that, but here it is,” Dalton says.

“So I’m not sure there’s necessarily an issue with the investment strategies given that superannuation is long term and illiquid assets are generally associated with longer term investment timeframes.”

He does join Geffin on one criticism though too much of super fund’s advertising has focussed on returns.

The obsession with returns has come at the expense of educating consumers about what that oft-uttered phrase - “past performance is not an indicator of future performance” - really means.

“Maybe advertising should be more focused on the long term benefits of super, the potential tax savings and the interesting projects they are investing in,” Dalton says.

As for what the future might hold for super in the coming years as the COVID-19 pandemic rolls away, Dalton strongly suspects funds will never forget the liquidity lesson.

Geffin, on the other hand, sees regulators grappling with the issue of consumer education after this period. He also hopes the role of financial advice in super and retirement planning might get a profile boost from the crisis.

Financial advisers have recently been granted regulatory relief, in order to offer cheaper and faster advice to people who are thinking about pulling their money out of super, in what is a possibly a sign that the government realises people need support on financial decisions right now.

“The people who can least afford advice are actually those with the biggest need, how are we going to serve them at scale AND provide quality advice to them? This is an intractable problem at the moment,” Geffin says.

“I think the attitude prior to this was that most people don’t need advice, they just need an investment option and to save money into their mortgage.”

That might have been fine in the good times, but it’s those unadvised people who could be doing immense damage to their nest egg by making the wrong choices now.

Dalton adds that he has been warning his clients for a long time that all bull markets end.

Now that time has come he’s encouraging them to think long-term... and maybe turn off the news. fs

24

News

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

Regal Atlantic fund down 58.6%

01: Alastair MacLeod

managing director Wheelhouse Investment Partners

Kanika Sood

Regal Funds Management’s Atlantic Absolute Return Fund, which has a stellar long-term track record, fell 58.6% in March as COVID-19 affected markets.

The fund has posted 23.1% in net annualised returns since its inception about 16 years ago. But performance has struggled during the COVID-19 crisis.

The Atlantic Absolute Return fund has now lost 70.3% of its assets since the start of the calendar year, after accounting for its March and April performance.

“Portfolio performance for the Atlantic Absolute Return Fund has undoubtedly been challenging this month,” Regal said Regal said it has since repositioned these exposures, but its initial positioning going into March impacted the short-term performance.

It said it shorts positions in the education, financial and consumer discretionary names made a positive contribution to the portfolio but were not enough to offset the long holdings’ large declines during the month.

“However, we do feel the longer term track record of the business, strength of investment team and current opportunity set will serve to provide investors well over the longer term. The broader Regal business remains in excellent shape and the team remain highly motivated to earn strong returns on your and our capital over the years ahead,” Regal said.

The Atlantic fund has reported and recovered from periods of steep underperformance in the past. In 2008, its returns for the year were -68.21% followed by +191.66% the next year. In 2016, it reported -44.53% followed by +72% the next year. fs

Boutique buys out Bennelong Eliza Bavin

W The quote

We look forward to leveraging our track record and momentum to pursue new opportunities.

heelhouse Investment Partners has acquired Bennelong Fund Management’s stake in the business after a three-year partnership.

Wheelhouse said under its independent ownership structure, it will continue to focus on delivering purpose-built investment solutions that target income and protection for Australian retail and wholesale investors.

Alastair MacLeod 01, managing director of Wheelhouse, said he is excited to take full ownership of the business and extremely grateful to Bennelong for its support.

“We remain fully committed to delivering defensive income for Australian investors challenged by today’s ‘lower for longer’ equity growth environment and historically low interest rates,” MacLeod said.

“We look forward to leveraging our track record and momentum to pursue new opportunities.”

Bennelong chief executive Craig Bingham said Bennelong are proud to have partnered with Wheelhouse, and look forward

Rainmaker Mandate Top 20

to seeing them “continue to flourish”.

“Over the past three years, Wheelhouse has focused on its objectives of generating income, protecting capital and lowering volatility – timely offers for today’s market,” Bingham said.

“We wish them well as they enter their next phase of growth and development.”

Bingham said that whilst this is a challenging time, there are a raft of new prospects on the horizon.

“Across the industry, this is a time of change and undeniable challenges, but we’re also seeing the arrival of new opportunities,” he said.

Wheelhouse has agreed terms with new distribution partners and has appointed a new responsible entity for its offerings, which will be announced later this month.

The team also plans to launch an Australian equities focused fund, which will apply the same rules-based and disciplined derivatives strategy used for the global fund.

The buyout and transition arrangements will be finalised by 31 July 2020. fs

Note: Selected alternative investment mandates appointed last 2 quarters

Appointed by

Asset consultant

Investment manager

Mandate type

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Partners Group Australia

Private Equity

42

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

IFM Investors Pty Ltd

Private Equity

4

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Wilshire Australia Pty Limited

International Private Equity

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Wilshire Australia Pty Limited

Private Equity

AustralianSuper

Frontier Advisors; JANA Investment Advisers

Other

Alternative Investments

AustralianSuper

Frontier Advisors; JANA Investment Advisers

Other

International Infrastructure

57

Christian Super

JANA Investment Advisers

AMP Capital Investors Limited

Infrastructure

29

Christian Super

JANA Investment Advisers

Triodos Investment Management

Alternative Investments

22

Christian Super

JANA Investment Advisers

Stafford Capital Partners Pty Ltd

Alternative Investments

7

Christian Super

JANA Investment Advisers

Brookfield Australia Investments Limited

Infrastructure

6

Christian Super

JANA Investment Advisers

IFC Asset Management Company

Alternative Investments

6

Christian Super

JANA Investment Advisers

Other

Alternative Investments

4

Christian Super

JANA Investment Advisers

MicroVest Capital Management

Various

3

Christian Super

JANA Investment Advisers

The Abraaj Group

Alternative Investments

2

Christian Super

JANA Investment Advisers

Credit Suisse Investment Services (Australia) Limited

Alternative Investments

1

Hostplus Superannuation Fund

JANA Investment Advisers

Other

Alternative Investments

38

Hostplus Superannuation Fund

JANA Investment Advisers

Other

International Private Equity

13

Sunsuper Superannuation Fund

Aksia LLC; JANA Investment Advisers ;

PineBridge Investments

Alternative Investments

530

Mercer Investment Consulting; StepStone Group LP

Sunsuper Superannuation Fund

Aksia LLC; JANA Investment Advisers;

Affirmative Investment Management Partners Limited

Alternative Investments

152

Mercer Investment Consulting; StepStone Group LP

WA Local Government Superannuation Plan

Willis Towers Watson

Other

Alternative Investments

36

Amount ($m)

418

Source: Rainmaker Information

News

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

Seek financial advice: Hume With the government now expecting close to two million Australians to apply for early access to super, assistant minister for superannuation, financial services and financial technology Jane Hume has urged those who are confused to seek financial advice.

In an interview with Sky News, Hume said the government now expects up to 1.7 million Australians to apply to access up to $20,000 of their super early.

Asked whether people should consider accessing super as a last resort, Hume suggested some of the numbers about what $10,000 could amount to in retirement are overblown.

“There are some pretty wild numbers floating around about what taking $10,000 today means for you,” Hume said.

“We would suggest that people either talk to a trusted financial adviser if they’re confused or a registered tax agent or there’s also a very handy calculator on [the Money Smart -] ASIC’s Money Smart website that will tell you exactly what taking out money from superannuation means for you.”

The suggestion that speaking to a financial adviser may be necessary for some consumers grappling with the fallout of COVID-19 comes has the government implements regulatory relief for financial advisers.

The relief will allow advisers to give clients guidance on early release of super without doing a statement of advice but advice fees on the stimulus measures will be capped at $300.

The early release of super for those who are suffering financially as a result of COVID-19 could see up to $27 billion wiped out of the super sector. fs

Managed accounts use broadens Harrison Worley

Latest research on financial advisers’ use of managed accounts shows their increasing popularity among advisers with lower-balance clients.

Once reserved for wealthy clients, managed accounts are proving popular for financial advisers with lower-balance clients, according to new research from Investment Trends and State Street Global Advisors.

The second SPDR ETFs/Investment Trends Managed Accounts report shows managed account use shot up by 14% over the last year, as their use case broadens.

Speaking to Financial Standard, Investment Trends chief executive Michael Blomfield said managed accounts’ increased adoption could be pinned to multiple drivers, including how both advisers and their clients benefit from managed accounts.

“When you can find a product that makes both of them [adviser and client] have a better experience, then it’s pretty hard to see that it won’t grow,” Blomfield said.

Blomfield said that as ETFs also become more utilised within managed accounts, the applicability of the structure is increasing.

“We’re going to lower balances and younger people right through to SMSFs and older people,” he said. fs

25

01: Jai Singh

head of business development and distribution Fiducian

Fiducian acquires advice practice Elizabeth McArthur

The quote

We continue supporting our trusted network of Fiducian financial planners to expand, even when most of Australia is in an unfortunate lockdown situation.

Fiducian Financial Services has acquired a financial advice business with $56 million in funds under advice.

The unnamed advice business is located in Gippsland, Victoria and will see Fiducian’s offices in Sale and Traralgon merge.

The acquisition is a continuation of Fiducian’s plans to expand and consolidate its financial advice network of franchises.

The company says the expansion plans are expected to add $7.1 billion in funds under management, administration and advice total.

“We continue supporting our trusted network of Fiducian financial planners to expand, even when most of Australia is in an unfortunate

lockdown situation,” Fiducian head of business development and distribution Jai Singh01 said.

“Following this acquisition, our Sale and Traralgon offices will merge and with greater scale be able to continue to provide high quality strategic financial planning services much needed in the Gippsland region at this time.”

Fiducian said that all its advisers are able to work offsite, servicing clients from home during the COVID-19 pandemic.

The cost of setting up work from home protocols with secure IT systems was estimated at $435,000 which Fiducian said it funded from internal cash holdings.

Fiducian did not disclose the name of the practice or how much it paid for the acquisition. fs

Hostplus responds to criticism Hostplus has responded to a series of reports suggested the fund does not have ample liquidity to handle the government’s plan to allow people to access their super early and claims it updated its PDS in preparation for mass redemptions.

As part of the Australian government’s plan to keep the economy afloat during the COVID-19 pandemic, those who are having a hard time financially as a result of the crisis will be able to access up to $20,000 of their super over the next two years.

Hostplus is likely to have many members – the bulk of which work in the hospitality and tourism industries - who have been thrust into unemployment.

On 9 April 2020, Hostplus updated its Product Disclosure Statement including a clause in its terms and conditions stating that it can freeze redemptions and prevent cash switching.

“The trustee may suspend or restrict applications, switches, redemptions and withdrawal requests, for all or a particular investment option at its absolute discretion,” the PDS reads.

“In such circumstances, transactions may not be processed or may be processed with significant delay.”

It is understood Hostplus is not the only super fund to include such a clause in its PDS. However, the timing of Hostplus’ PDS update prompted media queries.

“Hostplus recently updated its PDSs in accordance with our program. This ensures alignment and uniformity (where appropriate) between Hostplus’ core disclosure documents,” a spokesperson for Hostplus said.

“Hostplus confirms that no amendment to the governing rules of the product has been made.”

However, no specific clause in relation to suspending applications, switches, redemptions and withdrawal requests for investment options appears in the 7 February 2020 version of the PDS.

Hostplus denies the update to the PDS resulted from the government’s early release initiative.

The spokesperson for Hostplus said all super fund trustees have discretion to suspend or delay unit pricing in extraordinary situations to ensure fairness across members.

“In Hostplus’ case, this trustee power is not new. It is not unique. It is not exceptional,” the spokesperson said.

“As part of its recent update, Hostplus highlighted elements of the fund’s long-standing governing rules and discretions as these relate to investment pricing and transactions.”

These governing rules were not previously stated so clearly in the PDS. The spokesperson hit out at “misinformed media speculation”, saying that reports have unnecessarily concerned members.

They also reiterated that the fund does support the government’s early access to super plan. “[Hostplus] has ample liquidity available to support members undergoing financial hardship,” the spokesperson said.

The media scrutiny of Hostplus’ liquidity has occurred after years of the fund publicly spruiking an allocation as high as 40% to unlisted assets.

In 2018, Hostplus chief investment officer Sam Sicilia was reported saying: “We have a zero allocation to fixed interest and a zero allocation to cash.”

Hostplus chief executive David Elia has been consistent in assuring members and the media that the fund has ample liquidity to meet early access to super demands, including in an interview with this publication.

More than 360,000 Australians have already applied for early access to their super. Hostplus did not provide an estimate of how many of its members are likely to apply when asked by Financial Standard. fs

26

Managed funds

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08 PERIOD ENDING – 29 FEBRUARY 2020

Size 1 year 3 years 5 years

Size 1 year 3 years 5 years

Fund name

Fund name

Managed Funds

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

AUSTRALIAN EQUITIES

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

COMBINED PROPERTY

Australian Unity Platypus Aust Equities

147

18.5

4

17.4

1

12.5

2

Australian Unity Diversified Property Fund

Bennelong Australian Equities Fund

571

16.0

7

15.1

Bennelong Concentrated Aust Equities

869

18.6

3

15.1

2

11.0

4

Investa Commercial Property Fund

3

15.2

1

Quay Global Real Estate Fund

279

7.3

37

15.6

1

5955 177

16.4

1

14.5

6

15.2

2

15.1

2

13.4

10

13.8

3

10.6

12

Alphinity Sustainable Share Fund

100

11.9

15

13.4

4

9.3

10

AMP Listed Property Trusts Fund

138

16.9

2

13.4

4

11.1

10

Greencape High Conviction Fund

600

13.9

9

12.9

5

9.2

12

UBS Property Securities Fund

190

17.7

1

13.2

5

11.3

8

5111

10.0

28

13.0

6

13.7

3

378

15.5

5

13.0

7

9.3

19

Hyperion Australian Growth Companies Fund Greencape Broadcap Fund

1084

19.0

2

12.6

6

9.6

8

Lend Lease Aust Prime Property Commercial

692

12.9

12

12.4

7

9.7

7

Resolution Capital Global Prop Securities Fund (Unh)

Macquarie Australian Shares Fund

140

9.4

33

11.8

8

12.2

3

Pendal Property Securities Fund

471

15.7

4

12.5

8

10.6

11

AB Managed Volatility Equities Fund

875

11.9

14

11.4

9

9.8

6

Dimensional Global Real Estate Trust

589

16.6

3

12.3

9

9.0

25

Wavestone Australian Share Fund

245

9.1

37

11.3

10

9.3

11

Lend Lease Aust Prime Property Industrial

1050

12.0

18

12.3

10

12.2

5

Sector average

740

7.4

8.0

6.5

Sector average

1448

9.4

9.1

8.4

S&P ASX 200 Accum Index

8.6

8.6

6.2

S&P ASX200 A-REIT Index

11.8

9.9

8.8

INTERNATIONAL EQUITIES

FIXED INTEREST

Loftus Peak Global Disruption Fund

83

23.1

8

22.4

1

3432

19.7

16

21.4

2

585

27.7

2

21.3

3

65

27.7

1

20.7

4

Franklin Global Growth Fund

272

23.9

6

20.4

5

Zurich Unhedged Global Growth Share Fund

386

20.4

13

19.3

6

Zurich Global Growth Share Fund

197

20.1

14

19.2

7

12.5

10

91

18.5

18

19.0

8

13.3

5

Apostle Dundas Global Equity Fund

949

22.2

9

19.0

9

11.6

18

Intermede Global Equities Fund

120

27.1

3

18.8

10

13.1

6

Sector average

936

15.0

14.6

10.5

MSCI AC World ex AU Index

15.4

14.2

10.4

T. Rowe Price Global Equity Fund BetaShares Global Sustainability Leaders ETF Evans and Partners International Fund

Nikko AM Global Share Fund

14.5

15.1

3

Ardea Australian Inflation Linked Bond Fund

587

11.8

2

6.9

1

4.0

34

Macquarie True Index Sovereign Bond Fund

332

10.1

9

6.8

2

4.7

12

Pendal Government Bond Fund

903

9.9

10

6.6

3

4.6

17

32

10.4

6

6.5

4

3.8

37

1

Macquarie Inflation Linked Bond Fund

14.8

2

Macquarie Enhanced Global Bond Fund

226

15.0

1

6.5

5

5.3

1

12.5

9

Nikko AM Australian Bond Fund

144

9.2

18

6.5

6

4.9

6

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

Macquarie Australian Fixed Interest Fund AMP Capital Wholesale Australian Bond Fund CC JCB Active Bond Fund QIC Australian Fixed Interest Fund Sector average

203

9.3

16

6.4

7

5.0

3

1075

9.5

14

6.4

8

4.9

7

634

10.3

7

6.3

1692

9.3

17

6.3

9 10

4.7

889

7.7

5.0

4.1

Bloomberg Ausbond Composite

9.0

6.0

4.4

9

Source: Rainmaker Information

ETPs show maturity in face of COVID-19 ike a gangly teenager that takes control when all the adults are panicking, COVID-19 was just the L tonic Australia’s exchange-traded product market

Dial tones

By John Dyall john.dyall@ financialstandard .com.au www.twitter.com /JohnDyall

needed to show just how grown-up it has become.

Losses were across the board in March, with Australian listed property down 34%, Australian equities down 21% and international equities down 13% (currency hedged) and 9% (unhedged). And this was on top of a negative return February.

There were places where safe havens could be found. High quality fixed interest returns were close to zero, while the Australian dollar continued its depreciation (good for unhedged international investments) and gold continued its price rise, particularly in Australian dollar terms.

Meanwhile, investors in the ETP market traded harder than they ever had before. This is testament to the liquidity, pricing and ease of use of ETPs as tools for quickly repositioning portfolios in a world that was changing day by day, sometimes minute to minute.

First of all, investors continued to put money into ETPs. The flows for the March quarter were $3.8 billion and for the month of March they were $350 million. Down, but still positive.

Investors clearly had other things on their mind.

They were repositioning their portfolios to sectors that had fallen significantly (such as Australian

shares) and trading the volatility for short term gains.

The turnover in the assets managed by ETPs in March was phenomenal. The historical (since 2012) monthly average of traded value as a proportion of assets under management is 9%, and it’s pretty stable. In March this figure was 31%, which is more than three times as high.

As spreads widened on individual stocks and other financial assets, what happened to ETPs? Well, taking the 10 products with the highest traded value in March, we see that the assetweighted spread between what it cost to buy versus sell an ETP itself tripled, from 0.05% in February to 0.14% in March. This was still pretty skinny in such a volatile market.

Investors clearly thought it was more important to trade at this time rather than wait for cheaper transaction opportunities. The net flows showed investors were still investing for the long term but the traded value showed they were acting rapidly in response to fast changing prices, both intra and inter trading days Normally, traded value is a function of the size of the product, but not this time. The product with the highest turnover was the BetaShares Australian Equities Strong Bear Fund.

This product is designed to move in the opposite direction to the sharemarket, but at twice

the rate. If the sharemarket falls by 10%, this product is expected to increase by around 20%.

It’s not just for market bears expecting the market to fall, it’s a great hedge if an investor has a portfolio of shares with embedded capital gains (that they obviously do not want to realise through selling) but needs to protect from market corrections. If markets are rising it can be hard for a fund like this to keep pace in terms of assets, since every market rise leads to a decrease in assets in the product.

The product really started to take off around 12 months ago when assets doubled from around $70 million in December 2018 to $142 million in May 2019. It kicked off again in January this year when assets hit $158 million. By the end of March assets had more than doubled again to $366 million.

Traded value, however, was even more impressive, rising to $1.9 billion in March – eight times the traded value of February - while net flows increased by only four times to $85 million (increasing assets by 40% in a single month).

In March the Australian ETP market demonstrated just what an efficient mechanism it is for investors during volatile times. It demonstrated the maturity Australia needs in a time of crisis, which is liquidity and price discovery. fs

Super funds

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08 PERIOD ENDING – 29 FEBRUARY 2020

Workplace Super Products

1 year

% p.a. Rank

3 years

5 years

SS

% p.a. Rank % p.a. Rank Quality*

MYSUPER / DEFAULT INVESTMENT OPTIONS TASPLAN - OnTrack Build

27

* SelectingSuper [SS] quality assessment

1 year % p.a. Rank

3 years

5 years

SS

% p.a. Rank % p.a. Rank Quality*

PROPERTY INVESTMENT OPTIONS

10.7

2

9.3

1

AAA

Prime Super (Prime Division) - Property

10.9

5

16.0

1

19.6

1

AAA

AustralianSuper - Balanced

9.8

4

9.3

2

7.8

3

AAA

AMP SignatureSuper - AMP Listed Property Trusts

14.0

1

10.6

2

8.6

9

-

HOSTPLUS - Balanced

9.2

8

9.2

3

8.3

2

AAA

Rest Super - Property

9.0

15

9.8

3

10.0

4

AAA

UniSuper - Balanced

8.9

9

8.8

4

7.2

8

AAA

CareSuper - Direct Property

6.5

24

9.8

4

10.8

2

AAA

QSuper Accumulation - Lifetime Aspire 1

10.9

1

8.8

5

7.8

4

AAA

Intrust Core Super - Property

1.2

45

9.4

5

9.3

6

AAA

Australian Ethical Super Employer - Balanced (accumulation)

10.5

3

8.8

6

6.7

19

AAA

Telstra Super Corporate Plus - Property

8.2

18

9.4

6

10.7

3

AAA

smartMonday PRIME - smartMonday - Age 40

8.4

16

8.6

7

6.5

27

AAA

Acumen - Property

8.4

17

9.2

7

9.4

5

AAA

Mercy Super - MySuper Balanced

7.2

34

8.6

8

8.8

1

AAA

First State Super Employer - Property

6.9

21

9.1

8

9.1

7

AAA

Media Super - Balanced

8.2

17

8.5

9

7.1

11

AAA

Sunsuper Super Savings - Australian Property Index

11.0

3

9.0

9

7.9

12

AAA

First State Super Employer - Growth

8.6

12

8.5

10

6.7

17

AAA

REI Super - Australian Property

10.9

4

9.0

10

7.9

14

AAA

SelectingSuper MySuper/Default Option Index

7.5

SelectingSuper Property Index

6.7

7.4

6.2

AUSTRALIAN EQUITIES INVESTMENT OPTIONS UniSuper - Australian Shares

7.3

7.0

FIXED INTEREST INVESTMENT OPTIONS 8.1

28

10.5

1

6.6

20

AAA

Australian Catholic Super Employer - Bonds

9.4

1

5.8

1

4.3

2

AAA

11.5

1

9.8

2

7.1

9

AAA

GESB West State Super - Mix Your Plan Fixed Interest

9.0

2

5.5

2

4.1

3

-

ESSSuper Beneficiary Account - Shares Only

9.9

5

9.7

3

7.0

11

AAA

UniSuper - Australian Bond

8.1

4

5.2

3

3.7

8

AAA

AustralianSuper - Australian Shares

9.0

8

9.2

4

7.0

10

AAA

Mine Super - Bonds

7.7

9

4.9

4

3.5

12

AAA

Media Super - Australian Shares

9.0

11

9.0

5

6.6

18

AAA

First State Super Employer - Australian Fixed Interest

7.5

13

4.9

5

3.6

9

AAA

AMP SignatureSuper - Responsible Investment Leaders Australian Share 10.5

2

9.0

6

5.7

42

-

AMG Corporate Super - AMG Australian Fixed Interest

7.3

15

4.9

6

3.4

18

AAA

AMG Corporate Super - AMG Australian Equities

StatewideSuper - Australian Shares

7.5

42

9.0

7

7.6

3

AAA

Intrust Core Super - Bonds (Fixed Interest)

7.7

11

4.7

7

3.7

7

AAA

Mine Super - Australian Shares

8.2

24

8.9

8

6.7

14

AAA

Vision Super Saver - Diversified Bonds

8.2

3

4.5

8

3.5

13

AAA

Media Super - Passive Australian Shares

8.7

14

8.9

9

7.1

7

AAA

HESTA - Your Choice Global Bonds

6.3

26

4.4

9

3.8

5

AAA

legalsuper - Australian Shares

7.9

30

8.8

10

7.1

8

AAA

WA Super - Bonds

7.0

19

4.4

10

3.5

11

AAA

SelectingSuper Australian Equities Index

7.6

7.8

5.7

SelectingSuper Australian Fixed Interest Index

INTERNATIONAL EQUITIES INVESTMENT OPTIONS Integra Super CD - OnePath Global Shares

17.7

1

AustralianSuper - International Shares

16.0

FES Super - International Share Option

14.0

First State Super Employer - International Equities

1

10.2

1

-

2

13.8

2

9.7

2

6

13.2

3

14.8

4

13.1

4

9.1

Media Super - Passive International Shares

14.8

3

13.0

5

Equip MyFuture - Overseas Shares

10.3

39

13.0

6

Virgin Money SED - Indexed Overseas Shares

14.6

5

Intrust Core Super - International Shares

10.4

Sunsuper Super Savings - International Shares Index (unhedged) 13.2 13.8

SelectingSuper International Equities Index

9.2

3.2

AMG Corporate Super - Vanguard Cash Plus Index Fund

1.8

AAA

GESB West State Super - Cash

1.6

4

AAA

Intrust Core Super - Cash

1.7

2

7

AAA

NGS Super - Cash & Term Deposits

1.6

3

8.8

10

AAA

AMG Corporate Super - AMG Cash

1.4

8.6

17

AAA

Virgin Money SED - Cash Option

12.8

7

AAA

38

12.5

8

8.5

20

15

12.4

9

9.4

9

12.2

10

8.8

9.8

3.7

AUSTRALIAN CASH INVESTMENT OPTIONS

14.2

Mercer CS - Mercer Passive International Shares

2.1

1

1.9

1.8

2

2.0

1

-

1.8

3

1.9

3

AAA

1.7

4

1.8

5

AAA

11

1.7

5

1.9

4

AAA

1.5

7

1.7

6

AAA

Sunsuper Super Savings - Cash

1.4

9

1.6

7

1.7

8

AAA

AAA

Maritime Super - Cash Enhanced

1.5

8

1.6

8

1.8

7

AAA

4

AAA

State Super (NSW) SASS - Cash

1.2

23

1.6

9

1.7

11

-

9

AAA

Energy Super - Cash Enhanced

1.3

16

1.6

10

1.7

9

AAA

SelectingSuper Cash Index

1.0

7.2

Notes: Investment options are sorted by their three year net performance results. All performance figures are net of maximum fees. * Indicates constitutionally protected superannuation funds and therefore untaxed. ^ represents interim results.

The 2020 ratings are in Are you working with AAA rated super funds?

For more information visit www.selectingsuper.com.au

1

1.9

1.3

2

AAA

1.4 Source: SelectingSuper www.selectingsuper.com.au

28

Economics

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

COVID-infected Aussie stats trickling in Ben Ong

o-hum. Financial markets widely expected H the Reserve Bank of Australia’s (RBA) decision to keep monetary policy settings unchanged at its April meeting especially so soon after announcing a comprehensive accommodation package the month before, which included: • A reduction in the cash rate target to 0.25 per cent.

• A target for the yield on three-year Australian government bonds of around 0.25 per cent.

• A term funding facility for the banking system, with particular support for credit to small and medium-sized businesses.

• Exchange settlement balances at the Reserve Bank will be remunerated at 10 basis points, rather than zero as would have been the case under the previous arrangements.

As well as continuing “to provide liquidity to Australian financial markets by conducting one-month and three-month repo operations in its daily market operations until further notice. In addition, the Bank will conduct longer-term repo operations of six-month maturity or longer at least weekly, as long as market conditions warrant.”

However, unlike a few months back, the RBA didn’t have to plead its fiscal counterpart for a helping hand. Scott Morrison is on the ball.

The federal government had been spending … big time — $17.6 billion on March 12; $66.1 billion on March 22; and, $130 billion on March 30 — so far.

So much so that RBA governor Philip Lowe is confident that: “The coordinated monetary and fiscal response, together with complementary measures taken by Australia’s banks,

will soften the expected contraction and help ensure that the economy is well placed to recover once the health crisis has passed and restrictions are removed.”

For sure and for certain! Economic stats and surveys at the same time that the RBA Board met show the extent of the challenges Australia faces. The ANZ job ads index dropped by 10.3% in the month of March (following a 1.2% gain in Feb) – the fastest rate of decline since January 2009 that indicates further deterioration in the labour market going forward.

Similarly, the Australian Bureau of Statistics’ (ABS) “International Trade in Goods and Services, Australia, Feb 2020” report underscores the trade effect of the coronavirus. Australia’s trade surplus decreased by $384 million to $4.4 billion in February.

Good news as Australia’s trade account remains in surplus.

But details show this was because of a 5% drop in exports over the month and a 4% decline in imports.

International lockdowns have practically closed down export markets for Australian products, no matter how cheap the Australian dollar has gotten.

In the same way as domestic lockdowns – and trepidation over future revenues, earnings and employment — are inhibiting expenditures… on local and imported goods and services. And that’s before factoring in the disruptions to supply chains around the world.

To paraphrase governor Lowe’s statement, Australia may not be able to avoid a recession this time, but the coordinated monetary and fiscal response would keep it shallow. fs

Monthly Indicators

Mar-20

Feb-20

Jan-20

Dec-19 Nov-19

Consumption Retail Sales (%m/m)

-

0.45

-0.35

-0.63

1.02

Retail Sales (%y/y)

-

1.82

1.99

2.62

3.22

-17.85

-8.22

-12.52

-3.76

-9.75

Sales of New Motor Vehicles (%y/y)

Employment Employed, Persons (Chg, 000’s, sa) Job Advertisements (%m/m, sa) Unemployment Rate (sa)

-

26.71

12.88

29.23

35.67

-10.35

1.21

-1.74

-0.35

-1.64

-

5.10

5.29

5.06

5.17

Housing & Construction Dwellings approved, Tot, (%m/m, sa)

-

-0.83

0.42

1.06

5.22

Dwellings approved, Private Sector, (%m/m, sa)

-

19.87

-15.10

4.27

9.93

Housing Finance Commitments, Number (%m/m, sa) - Housing Finance Commitments, Value (%m/m, sa)

-

Survey Data Consumer Sentiment Index

91.94

95.52

93.38

95.10

97.00

AiG Manufacturing PMI Index

53.70

44.30

45.40

48.30

48.10

NAB Business Conditions Index

-

0.37

2.00

3.04

4.46

NAB Business Confidence Index

-

-3.55

-1.03

-1.99

-0.07

Trade Trade Balance (Mil. AUD)

-

4361.00

4745.00

4950.00

Exports (%y/y)

-

-6.86

-1.19

7.35

5.30

Imports (%y/y)

-

-5.61

-1.55

5.54

-2.45

Mar-20

Dec-19

Sep-19

Jun-19

Quarterly Indicators

5590.00

Mar-19

Balance of Payments Current Account Balance (Bil. AUD, sa)

-

0.96

6.50

4.58

-1.88

% of GDP

-

0.19

1.29

0.92

-0.38

Corporate Profits Company Gross Operating Profits (%q/q)

-

-3.45

-0.61

4.46

2.07

Employment Average Weekly Earnings (%y/y)

-

3.24

-

3.02

-

Wages Total All Industries (%q/q, sa)

-

0.53

0.53

0.54

0.54

Wages Total Private Industries (%q/q, sa)

-

0.45

0.92

0.38

0.39

Wages Total Public Industries (%q/q, sa)

-

0.45

0.83

0.46

0.46

Inflation CPI (%y/y) headline

-

1.84

1.67

1.59

1.33

CPI (%y/y) trimmed mean

-

1.60

1.60

1.60

1.50

CPI (%y/y) weighted median

-

1.30

1.30

1.30

1.40

Output

News bites

(PSI) dropped by 8.3 points in March to 38.7 points – the lowest reading since March 2009 and the fourth straight month that the sector had been in contraction territory. According to AiG:, “Local responses to the global COVID-19 pandemic are already decimating large segments of the services sector ... Restrictions on human movement and gatherings means closures for many businesses in hospitality, retail, transport, recreation, personal services, education and even community services. Businesses that remain open face falling sales and increasing operational restrictions.”

Real GDP Growth (%q/q, sa)

-

0.53

0.55

0.60

Real GDP Growth (%y/y, sa)

-

2.19

1.82

1.62

0.50 1.75

Industrial Production (%q/q, sa)

-

1.53

0.48

1.37

0.39

Survey Data Private New Capex, Total, Chain, Vol, (%q/q, sa)

Financial Indicators

-

-2.79

-0.44

-0.93

-1.76

09-Apr Month ago 3 months ago 1Yr Ago 3 Yrs ago

Interest rates RBA Cash Rate

0.25

0.75

0.75

1.50

1.50

Australian 10Y Government Bond Yield

0.90

0.79

1.26

1.87

2.58

Australian 10Y Corporate Bond Yield

2.28

1.83

1.97

2.75

3.17

Stockmarket

US labour market Employment decreased by 701,000 in the month of March – the first decline since September 2010 – following a 275,000 increase in February. The US Bureau of Labor Statistics (BLS) notes that: “About twothirds of the drop occurred in leisure and hospitality, mainly in food services and drinking places. Notable employment declines also occurred in health care and social assistance, professional and business services, retail trade, and construction.” The unemployment rate rose by 0.9 percentage points – the sharpest monthon-month increase since January 1975 – to 4.4% in March from 3.5% in the previous month.

Australian service sector The Australian Industry Group’s (AiG) latest survey of the country’s services only confirmed what everyone was expecting. The Performance of Services Index

China new bank lending The People’s Bank of China’s (PBOC) stimulus measures are flowing through into the economy.

Liquidity injections, lower borrowing costs and reduced reserve requirement ratio have increased new yuan loans to CNY2.9 trillion (US$405 billion) in March from CNY0.9 trillion in the previous month.

Loans extended to households (mainly mortgages) grew to CNY1.0 trillion while corporate loans nearly doubled to CNY2.1 trillion in March from CNY1.1 trillion in February. Total social financing – a broad measure of liquidity and credit – surged to a record high of CNY5.2 trillion last month from only CNY0.9 trillion in February. The annual growth in China’s M2 money supply – cash in circulation plus deposits – accelerated to 10.1% in the year to March versus 8.8% in February and expectations for an 8.8% increase. fs

All Ordinaries Index

5439.4

-9.28%

-22.76%

-13.89%

-8.56%

S&P/ASX 300 Index

5341.5

-9.39%

-22.44%

-13.50%

-8.80%

S&P/ASX 200 Index

5387.3

-9.30%

-22.25%

-13.44%

-8.89%

S&P/ASX 100 Index

4469.8

-9.32%

-22.18%

-12.79%

-8.99%

Small Ordinaries

2255.1

-10.01%

-24.61%

-19.17%

-6.45%

Exchange rates A$ trade weighted index

54.70

A$/US$

0.6309 0.6478 0.6905 0.7144 0.7499

57.00

60.30

60.50

66.20

A$/Euro

0.5767 0.5710 0.6214 0.6349 0.7075

A$/Yen

68.45 67.20 75.66 79.25 83.34

Commodity Prices S&P GSCI - commodity index

276.41

318.91

430.12

453.84

398.84

Iron ore

83.35

90.15

93.56

92.60

73.00

Gold WTI oil

1680.65 1655.70 1553.60 1305.45 1250.05 23.19

34.47

59.02

64.62

Source: Rainmaker /

53.06

Sector reviews

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

Australian equities

Figure 1: Australia real GDP growth

Figure 2: A$ exchange rate

6

1.1000

PERCENT

CPD Program Instructions

A$/US$

INDEX

70

0.9000

65

0.8000

2

60 0.7000

55

0.6000

0

Prepared by: Rainmaker Information Source: Thompson Reuters /

80 75

1.0000

4

Quarterly change

0.5000

Annual change

-2 1989

1993

1997

2001

2005

2009

2013

2017

A$/US$

50

A$ TWI -RHS

45 40

0.4000 1995

2000

2005

2010

2015

2020

This time is different Ben Ong

A

ll good things must come to an end and this ‘Lucky Country’s’ luck appears to have run out after enjoying 28 years and a bit without an economic recession.

Australia has survived economic and financial market upheavals over the past three decades (or just about) chiefly thanks to the floating Australian dollar that helped restore economic equilibrium.

The Australian dollar’s depreciation during times of turmoil has kept the domestic economy afloat.

Recent history shows the effectiveness of the AUD depreciation in shielding the domestic economy from worries galore.

The AUD/US sank from US$0.80 to below US$60 during the Asian financial crisis in 1997, that was quickly followed by the Russian debt default and the collapse of Long-term Capital Management (LTCM) in 1998; it fell from around US$0.65 to US$0.49 during the US recession in 2001 following the September 11

International equities

attacks of the same year; and, it dropped from US$0.91 to US$0.62 at the onset of the GFC in 2007- when most major economies went into a Great Recession.

The coronavirus crisis has so far taken the A$/US$ exchange rate to as low as US$0.5821 from this year’s high of US$0.7029.

Central banks’ race to the bottom (in terms of policy interest rates) that transpired in response to the GFC was aimed at cheapening their respective currencies to gain competitive advantage in the global markets.

As any currency warrior would tell you, this is good for the domestic economy. Exporters would find their wares more competitive in the world market (even with higher tariffs). Not only that, exporters would receive an extra boost from their foreign currency-denominated earnings when they’re translated back into home money.

There’s more! Domestic import-competing industries would also get a bump up as prod-

ucts sourced overseas become more expensive in local currency, encouraging consumers to buy local produce.

Wait there’s one more. The cheap local currency also makes domestic assets attractive to foreign eyes.

Not this time though. The coronavirus health emergency that’s virtually frozen most economic activity around the planet showed us the limits of currency depreciation.

A cheaper currency cannot gain the upper hand against others. One nation cannot gain a competitive advantage against another when trade’s at a virtual standstill. Nor will it induce import-substitution when social isolation and lockdowns limit domestic spending – as would the negative wealth effect from the sharp decline in the financial markets.

That’s why no one’s mentioning a currency war these days. We’re all in this together.

This time is really different. fs

Figure 1: Markit Economics Eurozone PMI

Figure 2: Euro Stoxx 50 index

65

4000

INDEX

INDEX

3800

60

3400 3200

45

3000

40 35

MAR17

Manufacturing

2800

Composite

2600

Services

30 25

2400 2200

JUL17

NOV17

MAR18

JUL18

NOV18

MAR19

JUL19

NOV19

MAR20

2015

2016

2017

2018

2019

2020

Different contagion, same fiscal divide Ben Ong

I

solation and social distancing works and stops the spread of the bug because, to quote Professor Nigel McMillan — an infectious diseases and immunology expert at the Menzies Health Institute in Queensland — “Viruses need a host and to pass on, so if you isolate then you deny the virus that opportunity.”

Whereas doubt remains over China’s early lockdown and reported early recovery, fresh reports out of Europe provide proof that lockdowns work.

As at April 20, the number of cases and deaths each day in Italy have been described as “broadly stable”. The government closed all nonessential businesses and restricted unnecessary movement of its population on March 9.

Spain’s lockdown started on March 14. It has now clocked more than 20,000 deaths from close to 200,000 infections.

The French were put under house arrest on

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].

Australian equities CPD Questions 1–3

1. Which crisis has the Australian dollar’s depreciation helped shield the domestic economy from? a) Asian financial crisis b) Global financial crisis c) September 11 d) All of the above 2. How does currency depreciation help the local economy? a) It makes exports more competitive b) It makes foreign earnings worth more when translated back into home currency c) It makes imports more expensive encouraging purchases of local goods and services. d) All of the above

3600

55 50

Prepared by: FSIU Sources: Factset Prepared by: Rainmaker Information Source:

29

March 17 and within three weeks it began recording lower daily death tolls but, as at April 20, approaches 20,000.

Hope for the best…

Certainly, a swallow doesn’t a spring make but these early signs that these nations are getting the spread of the virus under control should help restore optimism … or more bluntly, prevent further drops in sentiment — household, business and investor.

Consumer confidence dropped by five points — the largest on record — to -11.6 in March from -6.6 in the previous month. The IHS/Markit Eurozone composite index dove to an all-time low of 29.7 in March from 51.4 in February, paced by the near halving of the services PMI to 26.4 (from 52.8) and continued falls in the manufacturing PMI to 44.5 (from 49.2), which had been in contraction territory for the 14th straight month.

This year to date, the Euro Stoxx-50 has dropped by 28.9% , giving up all

its 2019 gains (24.8%), and then some.

While the European Central Bank (ECB) has kept policy interest rates unchanged to date, it has announced several accommodative policy measures, including increased QE. ECB assets have grown by 8.5% in the three months to March to €5.1 trillion.

In the meantime, fiscal authorities from member nations continue their gabfest. There’s familiar discussion we’ve witnessed during the time of Grexit, with problem countries arguing for increased deficit spending and fiscallyresponsible Germany refusing.

The ECB fought the threat of contagion from Grexit and won. Eurozone member governments must band together to win against the coronavirus contagion if they are to preserve the unity of the single-currency grouping.

After all, the virus doesn’t distinguish whether or not a member country has breached the Maastricht criteria limit of 3% deficit to GDP ratio and 60% debt to GDP. fs

3. The AUD’s recent depreciation is again shielding Australia from the economic fallout from the coronavirus. a) True b) False International equities CPD Questions 4–6

4. Which indicator provides positive signs for the Eurozone? a) Number of deaths from the coronavirus b) Euro Stoxx-50 index c) Consumer confidence index d) Purchasing Managers’ Index 5. The ECB announced which major measures? a) It cut interest rates b) It increased QE c) Both a and b d) Neither a nor b 6. The IHS/Markit Eurozone composite index rebounded in March. a) True b) False

30

Sector reviews

Fixed interest CPD Questions 7–9

7. How many cases of coronavirus infection has Japan had when the BOJ announced its stimulus measures on 16 March? a) Less than 1,000 b) More than 1,000 c) More than 10,000 d) More than 100,000 8. How many basis points did the BOJ cut interest rates by in March? a) 0 bps b) 50 bps c) 75bps d) 100bps 9. Japan has the highest debt-to-GDP ratio in the world. a) True b) False Alternatives CPD Questions 10–12

10. What was Bank of Korea’s decision at its April 9 meeting? a) It cut interest rate by 50 basis points b) It cut the Bank Intermediated Lending Support Facility by 50 basis points c) Both a and b d) Neither a nor b 11. Which indicator/s point to a slowdown in South Korea’s economy? a) Retail sales b) Consumer confidence c) Business confidence d) All of the above 12. Bank of Korea still expects the economy to grow by 2.1% this year. a) True b) False

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

Fixed interest

All answers can be submitted to our website.

250

INDEX

50

200

45

150

40

% OF GDP

100

Services Composite

30

50

Manufacturing

35

Prepared by: Rainmaker Information Prepared by: FSIU Source: Trading Economics Sources: Factset

0 2017

2018

2019

JAPAN

2020

GREECE

ITALY

US

SPAIN EUROZONE

UK

CHINA AUSTRALIA

Abe and the anti-COVID arrow Ben Ong

T

he Bank of Japan (BOJ) acted quickly in response to the coronavirus outbreak.

In an emergency meeting on March 16, the Japanese central bank announced it would buy ETFs at an annual pace of ¥12 trillion, double its J-REIT purchases to ¥180 billion and set aside ¥2 trillion for additional purchases of commercial paper and corporate bonds ... until financial markets stabilise while at the same time, stressing that it would implement more stimulative measures if necessary.

Looking back the Abe government could be forgiven for its confidence that it could quarantine Japan from the bug that’s exponentially infecting people around the globe – it had only around 780 cases of infection on the day the BOJ increased monetary largesse. This compares with 142,823 cases in China, 21,157 in Italy, 12,729 in Iran; 8162 in South Korea and even lower than the 1678 reported cases in the US … at the time.

Alternatives

covidjapan.com data shows that, as of April 6, there were a total of 4107 confirmed cases of coronavirus disease in the country. Still relatively low, but multiplying.

Perhaps it’s the 4000 mark that pushed Prime Minister Abe to declare a month-long state of emergency in the country on April 7.

Then again, as Al Jazeera reports: “The type of lockdown seen in other countries is not possible because the government’s powers to control the population are restricted by the constitution, which was effectively imposed on Japan by the United States after World War II” and, according to The Guardian: “…stems in part from bitter memories of civil rights abuses during the days of militarism and the forced isolation of leprosy patients.”

So Prime Minister Abe can only invoke the Japanese’ sense of community spirit and asked to limit social contacts by 70%-80%, for nonessential workers to work from home and com-

3000

panies to reduce shifts for workers who cannot work online.

This would put further downward pressure on the domestic economy which had already been slowing significantly even before Abe’s declaration of a state of emergency, underscored by the au Jibun Bank Japan PMI survey released a few days before (April 3) – the composite PMI dropped to a reading of 36.2 in March from 47.0 in February, driven by the dive in the services PMI to 33.8 while the manufacturing sector’s 10-month contraction deepened further to 44.8.

Ergo, despite having the highest government debt-to-GDP ratio (238% as at 2018) in the world, the government has been pushed into spending and borrowing some more – it announced a stimulus package worth ¥108 trillion yen or 20% of GDP. Japan’s credit rating will certainly take a hit but its increased fiscal measures could save the economy. fs

Figure 2: Korean Won/US$ exchange rate

Figure 1: KOSPI Index

700

INDEX

WON/US$

900

2500

1100

2000

1300

1500 1500

1000

Prepared by: Rainmaker Information Prepared by: FSIU Source: Sources: Factset

1700

500

1900 2100

0 1995

2000

2005

2010

2015

2020

1995

2000

2005

2010

2015

2020

BOK holds as infection cases ease S

Submit

Figure 2: Government debt as a % of GDP

55

latest available

Ben Ong

Go to our website to

Figure 1: au Jibun Bank Japan PMI

outh Korea’s KOSPI index has rebounded by 26.5% from the coronavirus-induced plunge to an 11-year low of 1457.6 points recorded on March 19 this year – reducing its 2020 year-to-date loss by more than half to -16.1% from -33.7%.

Similarly, the South Korean won has more than recouped its 5.2% depreciation versus the US dollar, rebounding by 5.4% from the March 19 low.

These, perhaps factored into Bank of Korea’s (BOK) decision to keep monetary policy settings unchanged at its April 9 meeting. So does the fact that the Korean central bank announced policy easing measures only less than a month before.

At its March 16 emergency meeting, the BOK cut is base rate by 50 bps to 0.75% -- the first in over a decade – and reduced the Bank Intermediated Lending Support Facility rate by 50 bps to 0.25% to support SMEs affected by the virus,

as well as broadening the eligible collateral for open market operations.

Positive developments in the country’s fight against the spread of coronavirus infections may have also eased the Korean central bank’s sense of urgency. As at April 10, South Korea reported only 27 new cases of infection, down from 125 cases on March 31 and a peak of 851 on March 3.

But make no mistake the coronavirus will impact on economic activity. Already, retail sales declined by 2.3% in the year to February following a 1.8% increase in the previous month.

Plunging consumer confidence suggests continued falls in consumer spending. South Korea’s Composite Consumer Sentiment Index dropped to an 11-year low reading of 78.4 in March from 96.9 in February and 104.2 in January.

Business confidence has also fallen to its lowest level since the GFC to 56 in March from 65 in February and 76 in January.

As such, the BOK expects GDP growth “to fall considerably below the February forecast of 2.1%, and uncertainties around the future path of GDP growth are also judged to be very high” while at the same time promising that, “The board will continue to conduct monetary policy so as to ensure that the recovery of economic growth is sustained and consumer price inflation can be stabilized at the target level over a medium-term horizon, while paying attention to financial stability. In view of the mounting economic impact of the COVID-19 pandemic, the board will conduct monetary policy in an accommodative manner in order to mitigate downside risks to the economy and ease volatility in financial markets. In this process it will judge whether to adjust the degree of monetary policy accommodation, while thoroughly assessing the severity of the COVID-19 outbreak, its impact on the domestic economy and financial markets, and changes in financial stability.” fs

Sector reviews

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

31

Property

Property

CPD Questions 13–15

Prepared by: Rainmaker Information Source: National Cabinet and Gilbert + Tobin

n April 7, the federal government introduced O the Mandatory Code of Conduct which will apply to commercial leases of certain eligible small to medium enterprise (SME) tenants.

It is incumbent upon individual states and territories to introduce legislation and regulation to adopt the code; most have already moved to do so.

Under the code, eligible tenants will be entitled to rent reductions in the form of either waivers or deferrals, providing some relief during COVID-19.

It will apply to all SME tenancies that are suffering financial stress or hardship due to the pandemic; that being in the inability to generate sufficient revenue as a result of COVID-19 and thereby making it unable to meet its financial and/or contractual arrangements.

In addition, the tenant must be eligible for the government’s JobKeeper programme and have an annual turnover of up to $50 million.

Where the tenant is not, the government has said the code should apply in spirit to all affected businesses.

Relief for commercial tenants, landlords offered Jamie Williamson

The code imposes a set of ‘good faith’ principles that apply to commercial tenancies (retail, office and industrial) and will remain in place so long as the government’s JobKeeper programme is operational.

Under the code landlords must not terminate a lease for non-payment of rent during COVID-19 and the recovery period, and tenants must comply with the changed terms of the lease. If they don’t, they forfeit the protections of the code.

Landlords cannot draw on the tenant’s bond or guarantees of any kind to cover any nonpayment and they must offer proportionate rent reductions – waivers or deferrals – up to 100% of the usual amount charged and cannot be recouped down the track. Any rental waivers must constitute at least 50% of the total reduction.

Further terms of the code include a ban on any fees or interest charged in respect to waived or deferred rent; a need for landlords to pass on any savings such as a reduction in land tax, council rates or insurance; and landlords are prohibited from applying any penalty if a tenant reduces opening hours or ceases trading.

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With respect to the code, Gilbert + Tobin said tenants should commence discussions with their landlord as soon as possible.

“Tenants should ensure that any approaches to landlords are framed under the guiding principles of the code, as a request to agree a rent waiver or deferral, without any suggestion that they intend to stop paying rent. This is important to avoid the possibility of anticipatory breach or their actions being considered a repudiation of the lease,” the law firm said.

For landlords, Gilbert + Tobin noted the “largely tenant friendly” nature of the code.

“There will be flow-on issues and practical issues for landlords to carefully consider in the coming months,” the firm said.

Landlords should request comprehensive information and evidence to prove tenants are eligible for relief under the code, speak to their bank and request landlord relief, and get on the front foot by preparing a pro forma variation to the lase or side deed to protect their own interests while complying with the code, Gilbert + Tobin said. fs

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14. Which of the following describes the nature of the code of conduct for commercial tenants and landlords? a) While the code is not mandatory, observance is encouraged b) The code imposes a set of good faith principles c) The code is facilitative but is not mandatory d) The code imposes black letter law requirements 15. It is incumbent on the states and territories to introduce legislation and regulation to adopt the code of conduct. a) True b) False

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32

Profile

www.financialstandard.com.au 27 April 2020 | Volume 18 Number 08

ANYTHING IS POSSIBLE For AMP Capital managing director, Australia Marsha Beck the only limits to what can be achieved are those we create in our own minds.

Elizabeth McArthur writes.

MP Capital created the new role of managA ing director for Australia last year, amid a tumultuous period for the broader AMP brand.

The new role was no small ask, Marsha Beck would look after all the money AMP Capital manages on behalf of Australian investors – a cool $160 billion.

In the role Beck’s diary can become precariously overfilled. With 55 people in her team alone, face time with Beck is a hot commodity.

But, despite being pulled in many directions she takes a refreshingly simple approach to time management. Beck knows exactly where her attention needs to be.

“I make sure there is an external client meeting or external stakeholder meeting every week,” Beck says.

“One of the best pieces of advice I got when I started in the industry is: If you’re too focused on showing your face internally then you end up showing your back to your client.”

The voice of the customer is paramount, she explains, and while that might be a simple message it remains the most important one.

It’s become clear, especially through the Royal Commission, that sometimes there is a risk of that voice becoming very small inside monolithic institutions.

“I always think about the ANZAC campaign.

Douglas Haig was sitting in a rowboat with a cup of tea while the ANZACs were storming the cove. That is not leadership,” Beck says.

At AMP Capital, Beck insists her team sees her doing all the things she would ask them to do.

“It’s important they understand that we’re all in it together. We need to make sure our clients are treated in the same way we would want to be treated,” she says.

It helps that Beck herself rose through the ranks in the industry in the very way she sees the young professionals in her team striving for more in their careers.

Beck says she knows what it’s like to do client services, client reporting, marketing, performance and analytics, product and public relations – and she knows how important all those roles are.

“I came into the industry in my early 20s. I came from the western suburbs, I didn’t go to a private school,” Beck says.

“I’m a second generation Australian. I spoke another language at home. I never thought that I belonged.”

Beck’s grandparents immigrated to Australia with their family when her mother was eightyears-old in 1962.

She says her grandparents had “functional” English but mostly they spoke Polish and certainly they ate Polish food.

Beck’s mother went back to work after she was born, out of practical necessity, leaving Beck’s grandmother to care for her every day.

“My grandmother was the complete matriarch, no one ever dared to cross her,” Beck says.

“My first word was baba, which is Polish for grandmother. I said that before I said mum, which should show how dominant she was in my life.”

Beck’s mother worked in retail and still does work in a local pharmacy. Beck herself had a retail job for a time and looks back on it fondly, saying it taught her some lessons she leans on to this day.

“My mum gets personally involved in her customer’s stories. I think I do that as well, I get involved with the stories of our staff and our clients because it helps me understand their purpose and what motivates them,” Beck says.

Coming into the finance industry and feeling like she didn’t belong because of her background didn’t faze Beck – actually, she positions it as something that could even be an advantage.

When asked whether being a woman in finance poses any unique nuisances, Beck explains: “I never thought that I belonged. And so therefore, I don’t think I’ve ever noticed that I was treated differently.”

That said, now that she’s in a leadership role Beck is passionate about promoting true diversity, equality and flexibility.

“Now that I’m hopefully in a role of a tiny bit of influence I hope I can start to make the lives of families that work within AMP Capital a little bit easier, because both Mum and Dad have the flexibility that they need to be great at work and great at home,” Beck says.

“That for me actually would be a really cool legacy.”

Beck says her belief that flexibility for everyone, not just women with young children, can create a more positive culture across a whole organisation has led to her broaching some subjects others leave alone.

“I think often what happens is when a woman comes into the office and says she’s going to have a baby everyone goes, ‘When are you coming back? What flexibility do you need? How can we make this work for you?’ But when a man says he’s expecting a baby with his partner there’s just back slapping and high fives,” Beck says.

“So, I asked some awkward questions.”

She happily reports that fund managers will often come to client meetings straight from the school drop off, having to pause to change into a suit on hot days.

And of course, Beck enjoys that flexibility herself too, picking up her seven-year-old son multiple times a week.

It’s clear that for Beck, a career should be something that enriches life. Life shouldn’t be relegated to happening outside business hours.

“When you’re raised by people who experienced World War II, as my grandparents did, and built an entire life for themselves in Australia with basically nothing you’re constantly told ‘I came to this country to give you a better life’,” Beck says.

She admits she often asks herself how she can honour that.

What was instilled in Beck from a young age by the women in her family was a sense that anything is possible.

One of the best pieces of advice I got when I started in the industry is: If you’re too focused on showing your face internally then you end up showing your back to your client.

Marsha Beck

But Beck, who practices mindfulness herself, is aware that our beliefs and anxieties can hold us back.

When Beck got her law degree she excitedly told her grandmother, only to have her reply: “Why do you set yourself up to fail all the time?”

“It shocked me because it was against everything she’d ever shown me,” Beck says.

When Beck’s grandmother was in her late teens she was taken out of Poland into Nazi Germany to work on a farm.

Beck had always seen her grandmother as the head of the household and a strong woman who, she notes, got her driver’s licence at 60 years of age and never seemed to let anything stop her.

This reaction to the law degree was out of step with everything Beck’s grandmother had raised her granddaughter to believe. But, it was also understandable. She had never had such opportunities herself.

“It was astounding to me that the woman who said, ‘We came to this country so you could have a better life’ didn’t see that a better life for me included education’,” Beck says.

“Having said all that, she was also the one who came to my graduation ceremony and stood right up the front.”

In the end, once again, actions spoke louder than words.

So what is Beck’s advice for anyone else who might feel a little out of place in the industry?

“Hard work is no guarantee that you’ll get to where you want,” she says.

“But if you don’t work hard you can bet your bottom dollar that you won’t get there.” fs Editor’s note: This interview was conducted prior to COVID-19 being declared a pandemic and the subsequent government shutdowns and market volatility.

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