ASSET 1 - FEBRUARY 2021

Lessons from FADC case Tips to succeed in the new world Reducing insurance fraud

ASSET 01 | 2021 | WWW.GOODRETURNS.CO.NZ

What lies ahead in 2021?

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Nikko Asset Management New Zealand Limited (Company No. 606057, FSP22562) is the licensed Investment Manager of Nikko AM NZ Investment Scheme, Nikko AM NZ Wholesale Investment Scheme and the Nikko AM KiwiSaver Scheme. This material is for the use of researchers, financial advisers and wholesale investors (in accordance with Schedule 1, Clause 3 of the Financial Markets Conduct Act 2013 in New Zealand). This material has been prepared without taking into account a potential investor’s objectives, financial situation or needs and is not intended to constitute personal financial advice, and must not be relied on as such. Recipients of this material, who are not wholesale investors, or the named client, or their duly appointed agent, should consult an Authorised Financial Adviser and the relevant Product Disclosure Statement or Fund Fact Sheet (available on our website: www.nikkoam.co.nz).

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UP FRONT | EDITORIAL

2021: Interesting times

T

his year has a few knowns. But I suspect many unknowns and unexpected twists and turns will emerge as we journey towards Christmas 2021.

An easy known is what happens next month. A new regime for financial advisers. Hopefully, everyone is prepared for what lies ahead but I have a sneaking suspicion that as the year goes on

advisers will change their minds and be reconsidering their business.

Advisers are being lulled into this idea that the new regulatory regime will be pretty straightforward. Over time it is likely to get more complicated and burdensome thanks to the regulators and conditions imposed by product providers and the likes of professional indemnity insurers – we have seen that already.

The worry is good advisers will leave (many have already) and advice will get more and more homogenised.

While adviser firms may get together it will be interesting to see who emerges as the true voice of financial advice. It seems like the Financial Services Council is gradually inching its way into the territory of Financial Advice NZ.

Investment advisers face a unique challenge at the moment. Where do they find income and how do they build portfolios in the world of low-interest rates and ballooning asset prices.

I'd suggest modern portfolio theory does not work in this environment.

For risk advisers, it seems their challenge will be keeping life companies happy around their advice process and conduct.

These are only a few issues of what lies ahead. Suffice to say 2021 is going to be interesting.

Philip Macalister Publisher

CONTENTS | ASSET 1

LEAD 14

WHAT LIES AHEAD IN 2021?

After the disruption that was 2020, what do the experts from AMP Capital predict for investment markets this year?

22

INSURANCE Seize the moment, for yourself and your business, writes Naomi Ballantyne.

07

10

05

EDITORIAL It's going to be an interesting year for advisers.

STRATEGI Need to upskill as the new regime approaches?

Strategi Institute can help.

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1448A Hinemoa Street, Rotorua PO Box 2011, Rotorua P: 07 349 1920 F: 07 349 1926 E: philip@tarawera.co.nz

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PEOPLE New appointments for Cigna; Mint adds an investment analyst; plus changes at Saturn Advice, Perpetual Guardian and nib.

12

24

26

PROFILE What makes Milford’s CEO Mark Ryland tick?

Daniel Smith finds out.

A North Island adviser's Code breach in detail.

REGULATION

INVESTMENT COMMENTARY David van Schaardenburg discusses short-termism and client risk exposure.

32

PRACTICE MANAGEMENT Russell Hutchinson on insurance fraud and how it can be reduced.

34

KIWISAVER MJW survey shines light on funds.

Moved offices?

Photography Credit

ASSET is published by Tarawera Publishing Ltd (TPL).

TPL also publishes online money management magazine Good Returns GoodReturns.co.nz and TMM – The Mortgage Mag.

Naomi Ballantyne, Greg Fleming, Andy Gardner, Russell Hutchinson, Vicky Hyde-Smith, James Maydew, Rosewill Consulting, Altaf Shaikh, Daniel Smith, David van Schaardenburg, Michael Taylor, Joseph Titmus

Jill Lewis P: 07 349 1920 E: jill.lewis@tarawera.co.nz

Samantha Garnier

30

Contributors

Subeditor

Design 4 | ASSET NOVEMBER 2020

Michelle Forster’s globetrotting career has set her up well for a NZ-focused future.

Compliance experts Rosewill Consulting with their top tips for the year ahead.

Josh Rose, Luca Bravo, Christian Perner

Dawn Adams

ADVISER PROFILE

REGULARS

FADC

Editorial Manager Joanna Mathers

28

FEATURES

UP FRONT 04

NEWS FADC finds agains AFA; reaction to NZI PI decision.

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ISSN 1175-9585

UP FRONT | SPONSORED CONTENT

Closing the gaps: Licensed to advise Need to learn more as the new regime approaches?

Strategi Institute can help with that.

BY ALTAF SHAIKH, HEAD OF STRATEGI INSTITUTE

O

ne of the biggest changes taking effect as we move towards the new financial advice environment is the installation of a licensing regime.

In practical terms, that means anyone giving regulated financial advice to retail clients must operate under a financial advice provider (FAP) licensed with the Financial Markets Authority (FMA).

This requirement goes for financial advisers who must be registered on the Financial Service Providers Register (FSPR), as well as nominated representatives (NRs) – individuals giving advice but with the FAP determining the sort of advice being provided and how it is provided.

Financial advisers can work for more than one FAP at a time, but NRs are tied to one only. It is worth noting that sole traders applying for a licence become a FAP themselves, and then need to adhere to the rules relevant to FAPs, rather than just those for financial advisers.

Duties for financial advisers and nominated representatives Financial advisers and nominated representatives in the new advice world are required to adhere to certain duties.

When dealing with retail clients, these include: • ensuring clients understand the nature and scope of the advice being

given, including any limitations (such as only being able to advise on certain products) • complying with the Code of Professional Conduct for Financial Advice Services • meeting competence, knowledge and skill standards • prioritising the client’s interests if there is a conflict of interests • complying with the new disclosure regulations • exercising care, diligence and skill • only recommending financial products that comply with the Financial Markets Conduct Act or regulations.

Obligations for FAPs FAPs are required to take all reasonable steps to make sure anyone operating under their licence meets the duties listed above.

However, FAPs with NRs have extra responsibilities. They must have processes and controls in place to control the NR’s advice and the circumstances it is given under. They need to make sure the advice provided is in line with the NR’s competence, knowledge and skill, and monitor that advice to ensure compliance.

FAPs and financial advisers both need to be registered on the FSPR, while FAPs also need to be members of dispute resolution schemes, as well as having

standard conditions of their licence they must meet. It is important to note that the penalties for failing to meet legislative requirements as a financial adviser, FAP, or NR are more severe in the new regime than the old.

A note about authorised bodies An authorised body (AB) is simply an unlicensed FAP. It will usually be a company that employs advisers and operates under the licence of a FAP. ABs are required to register on the FSPR as a FAP and both the licence holder and the AB are responsible for the AB’s conduct, advice and actions, and for meeting all its obligations.

Need to learn more?

Strategi Institute’s half-day Closing the Gaps course is designed to provide all those who provide regulated financial advice to retail clients with the competence, knowledge and skill required to understand and apply the legislation, regulation and code that will be applicable from March 15, 2021. Perfect for closing your knowledge gaps. A For more information, please contact the team on 09 414 1300 or support@strategi.ac.nz Strategi Group is the leading provider of compliance and training services for the New Zealand financial advisory industry.

WWW.GOODRETURNS.CO.NZ | 05

SPECIAL REPORT

OMNIMax Software Solutions

Making Software Solutions Work for Our Clients & Theirs OMNIMax Software Solutions offers an array of out of the box products, for financial advisers, that are cost effective and quick to setup. But there are times when these solutions don’t suit and custom modifications or developments are required.

“We’ve greatly reduced the time associated with each client due to the automation and digitalisation of our workflows. The solution is a great asset to us and gives our advisors the tools to visually show the benefits of the products and services that we offer.”

In these circumstances OMNIMax develops a bespoke solution to match a client’s workflow and vision. Strategic is one of OMNIMax’s clients that falls into this category.

Michael Taylor is founder of Strategic Financial Planning Ltd, he has been a Financial Adviser for over 30 years and was one of the first 10 advisers in New Zealand to be granted an AFA License by the Securities Commission in 2010.

Strategic was the first adopter of the OMNIMax advice solution and Michael was integral to the development of this initial offering.

Strategic sees great importance in continually measuring progress towards a client’s goals and making tactical changes to portfolios to meet those goals. Being a provider of bespoke portfolios, reviews account for 90% of what Strategic does, so it made sense that their financial advice software should handle reviews to facilitate client interaction and to keep clients informed.

“We make tactical changes to portfolios to meet market conditions, add new products or change existing ones to get the best outcomes. The OMNIMax solution allows us to communicate these to clients to gain their approval”.

As Strategic does not have a DIMS license, each improvement they make to a portfolio needs to be approved by the client, they do this through a custom email template in the solution.

Michael Taylor, Principal Adviser & Managing Director, Strategic Financial Planning Ltd

The bespoke solution also has a client portal where Strategic clients can log in, view their portfolio details and track their investments. Clients can access a full history of their portfolios and the breakdown and value of the funds over time. The portal is user friendly with an abundance of charts and graphs, plus Strategic advisors can keep clients up-to-date with market conditions by adding commentary within the portal.

Strategic approached OMNIMax about expanding their offering, which resulted in a revised workflow and modified Statement of Advice document to review a clients current investments.

“We meet the client, we give the advice, but it doesn’t stop there! We maintain a relationship, making sure our clients are on track and progressing towards their goals. Our bespoke OMNIMax

Strategic credits the OMNIMax solution with saving them time - up to 50% per client. Michael states, “we’ve greatly reduced the time associated with each client due to the automation and digitalisation of our workflows. The solution is a great asset to us and gives our advisors the tools to visually show the benefits of the products and services that we offer.”

OMNIMax 06 | ASSET 1

solution helps us to do that”. Michael talks about how Strategic are continually measuring progress and re-balancing portfolios. They track selected investments and have built up their own database of funds, within the solution, to fuel their advice process.

UP FRONT | NEWS

FADC finds against AFA in Code of Conduct case The Financial Advisers Disciplinary Committee (FADC) has published its decision regarding a case brought by the FMA. The case relates to alleged breaches of the Code of Professional Conduct for Authorised Financial Advisers.

It says that "this is a case about breaches of the Code". It is not about the integrity of the financial adviser. "There is no suggestion that she has improperly benefited at the expense of her clients, or that any client has been disadvantaged."

"But, the provisions of the Code are fundamental and adherence to them is always required."

The financial adviser still has interim name suppression, but the decision says she registered as an AFA on the FSPR in 2011. She offers a range of services including financial advice, financial planning, investments, mortgage broking, KiwiSaver, retirement planning, residential property management and personal and small business tax advice (as a tax agent) through her business.

She trades under three businesses, one of which is registered on the FSPR from 2011 as an employer or principal of a financial adviser and/or Qualifying Financial Entity.

After an unrelated complaint in January 2018, the FMA took an interest in the

AFA, which culminated in a monitoring visit to the premises in May 2019, and a desk based review in July 2019. As a result of these two visits, the FMA began an investigation on August 23, 2019.

The investigation found that the AFA breached standards 12 and 15 of the Code, which relate to keeping information about personalised services for retail clients, and the requirement to have an adequate knowledge of Code, Act and laws.

The court briefing says that "The breaches are established in respect of three clients, whose identities are permanently suppressed; it consists of the adviser having failed: a. to record in writing adequate information about a personalised service provided to a retail client b. to demonstrate adequate knowledge of the relevant legislative obligations which result from the term ‘personalised service’."

There are three alleged breaches of Code standard 15, relating to financial advice, personalised services, and client relationship management. In regard to these the court concluded that "The Respondent had a somewhat idiosyncratic approach to record keeping and generally did not respond to the requirements of the Code with sufficient rigour."

The picture of the proceedings that the documents paint is illustrated when the FADC documents state, "As the oral hearing progressed, and we were able to get beyond the avalanche of words, it became apparent that the Respondent was of the view that she was not providing financial advice by a personalised service unless and until she had received and documented the entire circumstances of a client.

"The Respondent’s records were less than straightforward. The task for us is whether in each of the individual circumstances which have been put under the microscope a personalised service was being provided on a sensible objective basis. The perception of the Respondent of what she was doing is not conclusive. The records which she is required to maintain must in and of themselves provide a comprehensive picture of the relationship and what was occurring. They are not merely for her benefit, but have a wider purpose under the Code."

The FADC reviewed four separate client files in which failure to establish adequate records was established.

No penalties have been handed down at this stage and the committee has asked for dispositions from the parties.

More on page 24, Adviser Code breach >

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WWW.GOODRETURNS.CO.NZ | 07

UP FRONT | NEWS

Industry shaken by NZI PI decision One of the biggest stories of 2020 continues to develop into 2021, with the adviser industry as a whole watching closely as to the repercussions of NZI’s decision not to offer PI insurance to smaller FAPs. When NZI, which is understood to have around 60% market share, said it will no longer cover financial advice firms with three or less advisers the transitional licensing numbers issued by the FMA showed that this decision was likely to affect the majority of the industry.

This made many advisers assume that the reality of the new regime may be more difficult than the picture that MBIE and the FMA had been selling, that all

advisers would get a seat at the table, no matter the size of the FAP. FMA director of market engagement, John Botica, said that although NZI is refusing to provide PI insurance to small FAPs comes as a surprise, he does not believe it is the end of the line for these advisers.

“To be honest it was a surprise. As part of our consultation period around PI insurance we spoke to a lot of the brokers and they did tell us at that point that they would continue providing cover for advisers. To then turn around and come to market with this is a change that I didn’t expect.”

Botica told ASSET that although the announcement was surprising he does

not see it as heralding the doom of the single adviser FAP. “Well run businesses that understand the psyche of their clients should not have any great levels of fear from these changes. There are no hurdles here that can’t be overcome.”

Although there has been a lot of fear in the industry around operating without PI, Botica says that under the previous regulations PI claims have not been a huge issue.

“In the past 10 years there have not been a significant number of PI claims.

From what I can find out from most of those cases, advisers were actually able to pay out those claims themselves.

So you didn’t really get many situations

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If 2021 rings a bell for change then please send a covering letter with your CV to

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in which an advice business was not able to stand behind itself.”

Botica thinks that under the new regime we may see PI cover shrink further in importance.

“I feel very confident that the new regime has quite a few things built in to protect consumers. Reliance on PI cover in itself is minor in comparison to the other protections and benefits there are across financial advice.”

Regarding moving forward in these uncertain times, Botica believes that the advisers behind these smaller FAPs are smart enough to think their way through it.

“I encourage advisers to think quite widely. Think about who you are, how your businesses connect with your clients.

“When it comes down to it PI cover is only one factor of your business.

They should be talking to their product providers that they engage with about what this means.

“Take the bull by the horns.”

While advisers struggled to realise what this means, the industry’s insurance experts said that this move had been on its way for a long time. One of these people was Steven Burgess, director of the Compliance Refinery. Burgess says that PI has been an area of scrutiny for insurers.

“In talking to PI providers, they have been telling us that the market is just changing, there just isn’t any appetite for PI any longer.”

Burgess believes that rising risk is causing many providers to consider exiting sections of the market, not just NZI whose announcement last week shook the industry.

“It’s my understanding that it's just not palatable to take on the level of risk that PI requires. It’s a sector of the market where risk is going up exponentially for those that insure.”

Although rising risk is an issue affecting the entire market in this period of global uncertainty, Burgess says that financial services are feeling the particular brunt of the levels of fines that face those in the industry who get something wrong.

Burgess says that advisers need to make sure they understand the complexity of the new regime.

“The thing is nobody goes out and purposefully writes bad business. It also could be down to luck, you could have an unmeritorious complaint that cost you $25,000. Advisers need to be thinking, ‘Can you float that kind of money?’ ‘Can your business sustain that?’ and ‘Can you manage that stress?’.

“The biggest thing that PI offers an adviser is that they [the insurer] defend the claim so that you don’t have to.

We live in an environment when all small business costs are going up. I think we tend to forget that advisers are businesses, even the smaller FAPs. So they have to assess their risks and determine if it is worthwhile.”

While many are concerned about the direction that the industry is heading in, Burgess wants to remind people that there is more to the shape of the industry than the regulator. “The regulators have made a space for small businesses to operate, but there are other things at play here that are going to determine how those businesses operate.

In terms of the industry’s reaction, Burgess is hopeful that smaller FAPs will find a way forward from this.

“The industry is going to come up with solutions here, it always does. Advisers will decide if they want to be advisers or if they want to run businesses, and go and find homes if they don’t want to do both. I think the industry is going to be fine.”

Burgess even believes that there is a clear path forward for advisers to retain PI insurance under the new regime.

“We suggested that the Government start up a fund to guarantee remediation of clients in financial services. Advisers would pay into that fund and settlements would come out of that. This is relatively common, we have seen this system be quite successful in Canada.” A

WWW.GOODRETURNS.CO.NZ | 09

UP FRONT | PEOPLE

Cigna’s adviser network strengthens with swathe of new appointments Focusing on growth in the adviser market, Cigna New Zealand has announced its expansion across the country with several key appointments.

Mike Doherty will join Cigna in the new year as regional manager – South Island. Mike brings a wealth of firmly established relationships and industry experience to the role. This includes 20 years in sales management roles with Sovereign.

Christine Laverty will move to a newly created role overseeing distribution services and group strategy.

Chris Hand will take up the role of regional manager – North Island. Chris is a well-known face in the industry having joined Cigna in 2019.

Cigna New Zealand general manager – distribution David Haak says he’s excited to be expanding his team as the company prepares for 2021.

“I’m thrilled to be making these key appointments to our firmly established and talented distribution team. I look forward to welcoming Mike and Steven to the team and to further growing and supporting our adviser relationships as we continue to build momentum in the market.”

Mike and Steven joined the team in January 2021.

To support advisers in the lower North Island Steven Hillary will join the Cigna team as a business partnership manager based in Wellington. Steve spent the last seven years at AIA/ Sovereign as business development manager and will bring valuable experience to the team.

‘I’m thrilled to be making these key appointments to our firmly established and talented distribution team.

I look forward to welcoming Mike and Steven to the team and to further growing and supporting our adviser relationships as we continue to build momentum in the market’ David Haak

Are you looking to sell a book of Insurance or Kiwisaver Business?

You might know John Schell from his involvement with the PAA or Financial Advice NZ. He would like to speak with you if you are looking to exit the industry over the next couple of years.

John Schell 021 644 621 john@getsure.co.nz

10 | ASSET 01 | 2021

Saturn Advice adds two stars to their constellation Saturn Advice has started off the year with two new hires to their advice team.

2021 is shaping up to be an exciting year for the company with the appointment of two financial advisers to help service existing clients and grow its financial advice business.

"We are delighted to welcome Joyce Yu who joins us from ASB and Martin du Buisson who joins us from BNZ," says Peter Dine, Saturn Advice' general manager.

Joyce Yu holds a Bachelor degree in Economics and a Masters in Finance.

Yu has worked in the financial service industry for over 14 years. Her professional background encompasses foreign exchange, business banking and wealth management.

New guard to helm Perpetual Guardian Group The largest trustee service provider in New Zealand, Perpetual Guardian, has announced a new CEO to lead the company.

Patrick Gamble has been named CEO of the Group.

Gamble joined its parent company Complectus in 2014 as general counsel and has been integral to the strategic direction and growth of the group over the past six years. He was named a 2019

nib appoints new adviser partner manager Dirk Labuschagne will be joining nib's team of adviser partner managers.

Labuschagne will be known to many who have interacted with nib through his role as account manager for nib Group Health.

He brings a wealth of experience relating to nib health insurance,

Newly Minted analyst joins the ranks

Mint Asset Management has appointed a new analyst to their investment team.

Henry Morrison-Jones will be supporting the Diversified Funds range

Martin du Buisson has a Bachelor of Business, Finance and Financial Management and a Graduate Diploma in Business Studies and Financial Planning.

He is an authorised financial adviser with a background in investments, mortgages and insurances.

In-house Leader by NZ Lawyer along the way.

“The Perpetual Guardian Group is a unique organisation I have been privileged to know and be part of for many years,” says Gamble.

“We are an organisation that really does make a valuable difference for our clients. That is why I put up my hand to lead the Perpetual Guardian Group – to build on our heritage, to work closely with the people who have contributed to our success and, together, to make an even greater impact for New Zealanders.”

The Perpetual Guardian Group is New Zealand's largest statutory trust company.

promoting the benefits of private health insurance and creating opportunities for both individual and group health cover.

Whilst announcing the new appointment, nib took the opportunity to farewell and give thanks to Mike Sweeney who has resigned from his adviser partner manager role at nib, effective November 20.

Sweeney joined nib in July 2019 and has played an important role in the business.

that Mint Asset Management has on offer to their retail and wholesale clients.

Henry has previously worked at ANZ Wealth and most recently as an Associate (Market Valuations) at PricewaterhouseCoopers.

He joined the ranks of Mint in January 2021. A

WWW.GOODRETURNS.CO.NZ | 11

FEATURES | PROFILE

From accountant to fund manager Milford Asset Management CEO Mark Ryland’s constant focus on improvement has always been a driving force.

F

rom a high-rise boardroom inside Milford Asset Management, CEO Mark Ryland gazes out at the Waitemata Harbour. Observing the calm, there is a quiet restlessness in his eyes.

This restlessness is what Ryland credits as the driving force behind his career success and is closely tied to what he tries to impart to the company he leads, “A restlessness to improve.”

Ryland’s career in finance began through a keen interest in mathematics leading him to become an accountant in the UK. Although he began in the banking sector Ryland quickly saw himself drawn in by the excitement of investment.

“I was working as an accountant for a large insurance company called Eagle Star which had a sister company called Allied Dunbar. Both companies had 12 | ASSET 01 | 2021

BY DANIEL SMITH

substantial investment wings and shortly after I joined, they decided to create a new business that could run all of the asset management functions for all of the group [of] companies.”

That company would become Threadneedle Asset Management, and it took over the care of the combined investment assets of Eagle Star and Allied Dunbar.

Soon after Threadneedle was formed, Ryland had an opportunity to come on board the fledgling investment group.

“I was still using my accounting skills, but more in the space of the general operations of an investment manager.

They were looking for somebody who knew Eagle Star, but who could go and work in Threadneedle and oversee the transitions.

“What I ended up doing in this period of my career was shifting from a pure

technical accountant to branching out into broader fund management activities. Unit pricing, fund accounting, performance attribution. Slowly but surely I was getting deeper and deeper into how a fund management business actually runs. I began to develop much broader business and operational skills in a very fast growing company.”

As Ryland grew deeper into this role, the numbers-focused accountant became an intensely driven fund manager. When Ryland decided to make the move to this part of the globe he brought with him years of fund management and executive experience. He says, “Initially I joined a company called Guardian Trust. It was a more junior role than I had had at Threadneedle but it was a foot in the door in financial services in this part of the world.”

‘I think that the modern leader recognises that it is not about [them] at all, it’s about building a great team of people that can continue to drive a business forward long after you have gone’ After a short stint of nine months, as luck would have it, ASB were looking to do a very similar transition to what had been achieved with Threadneedle. And as it happened the man with the ideal experience for the task had just moved to their neck of the woods.

“At ASB they had an investment team and at Sovereign, which was part of ASB at the time they also had a big investment team. And what they were looking to do was create ASB Group Investments that would pool the two internal teams together and create what I call a ‘centre of excellence’.”

For Ryland, this job was almost a case of “here we go again”. He found himself in a senior role in a newly formed group that effectively had to carve out a new business model from the cobbled together parts of the previous two groups. The growth of this new business came hard and fast for Ryland, “I started with a team of ten and ended up with a team of about 70 inside the space of two to three years.”

This saw Ryland again being part of a company navigating a fast period of growth, managing assets from multiple sources and attracting further assets in their own right.

The next major shift in Ryland’s career journey came in 2006 when he became the CEO of Aegis, which was at that time the largest wrap platform in New Zealand. Of that time Ryland says, “This was the first chance to actually lead a business as opposed to leading large divisions.”

The extra responsibility raised some questions for Ryland around the way that he worked, “I guess the big thing was that being an accountant at heart, I was

thinking ‘Can I make the jump to thinking about possibilities of the future?’. You have to be careful that you don’t just sit there looking at things from a risk and control perspective. Companies need to grow, they need to have ideas, they need to have challenges. The big question in my head was ‘Could I make that transition?’.”

Once Ryland settled into his position he found that the adaptation was easier than he had thought. His previous experience leading businesses through fast, and often tumultuous transitions put him in a perfect position to flip things around from an operational perspective.

This change from operations into a leadership role came to play a big part in Ryland’s achievement of becoming the CEO of Milford. He joined the company in May 2014, as the manager of risk and compliance systems. His position put him right in the company’s central nervous system during an expansive period of growth. As one can note through Ryland’s career trajectory, fast paced periods of growth suit his skill set well and after a two year stint as Head of Product and Operations, in February 2019 Ryland became the CEO of Milford.

Ryland doesn’t credit this meteoric rise to himself. He says that what gave him the right experience to take on the role was “working with a lot of very talented people over the years, and having a very varied background”.

Ryland believes it is key for the leader of a company to have a clear idea of where they sit in the business, not to over-centralise themselves, but also not to underestimate their role.

“I think it is vital for a CEO to sit down and understand what the role is about.

Things are very busy and it is easy to get into a state of constant doing. But just as vital is standing back and being veryvery clear about what you are bringing to that business, looking at your strengths and what you can directly contribute.”

When Ryland sits back and considers his own role he says, “To me the critical thing with a business is, ‘What is its purpose?’. I think that what great businesses wrap themselves around is ultimately their purpose. You can be doing a lot of things but you need to consider ‘Why are we here?’.”

This focus on purpose is a key element of the way that Ryland runs a business, and plays no small part in the way he approaches his leadership of Milford. “If you take Milford today, its purpose is to grow the wealth of our clients, while also making a positive contribution to the community. You have to have a passion around that purpose.”

For Ryland it is not enough to have a clear purpose, and a passion to see that purpose realised. He says that you also need to have a strategy that sees that purpose delivered in a way that respects the goals of the business.

“You need to have clarity from the top.

‘Why are we here?’, ‘What are we trying to do?’. I think that a lot of businesses just drift. If you have a purpose and a passion then the question for the business is not just ‘Can we function?’ it is “Can we be great?’.”

In his tenure as CEO of Milford, Ryland has certainly answered that question.

2020 has seen Milford pick up a swathe of awards including the INFINZ and Morningstar Fund Manager of the Year awards, the Canstar KiwiSaver of the Year award and Consumer NZ People’s Choice award.

Although Ryland has led Milford to award after award in a tumultuous year, he keeps his head squarely on his shoulders.

‘If you have a purpose and a passion then the question for the business is not just “Can we function?” it is “Can we be great?”’

“Without sounding too cynical I believe that if you, as a leader, get a great group of people around you, then they make you look good. You have got to get in your head that it is not about you. You are there to lead the orchestra and to get the right people in and get some great engagement, have some good discussions and to get things done.

“The old fashioned leader was all about them. I think that the modern leader recognises that it is not about [them] at all, it’s about building a great team of people that can continue to drive a business forward long after you have gone.”

But the point at which Milford will function without Ryland at the helm is a long way off. The CEO has big plans for the future. Digital advice aiding consumer education and bringing sections of the industry together to better serve their customers are two of them. And when Ryland speaks about these future plans that same restlessness enters his gaze. A WWW.GOODRETURNS.CO.NZ | 13

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14 | ASSET 01 | 2021

What lies ahead in 2021?

The AMP Capital team give us their investment forecast for the year.

J

ust as 2020 was dominated by the pandemic and this determined the relative performance of investment markets and stocks, 2021 is likely to be dominated by the recovery. This in turn will have a profound effect on investment markets.

While coronavirus continues to wreak havoc in much of the world, the end result for economies hasn’t been as bad as had been feared back in March and April 2020. This reflects a combination of:

• an unprecedented and rapid fiscal stimulus that protected businesses, jobs and incomes • debt forbearance schemes that headed off defaults and bankruptcies • massive monetary stimulus that saw interest rates plunge and asset prices rebound • social distancing which helped contain the virus and enable some reopening – albeit better in some countries (New Zealand , Asia, Australia and) than others.

This enabled economic activity to bounce back faster than expected as restrictions eased, even though it wasn’t always smooth and we still have a way to go to full recovery. As a result, investment markets also performed far better than had been initially feared.

This has created an unusual divergence between fragile economies and frothy asset prices, with certain stocks and sectors attracting substantial inflows from investors. Members of the AMP Capital investment team give their views on key economic and investment themes for 2021.

Image caption After a tumultuous year last year, can we hope for blue skies ahead in 2021?

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‘Looking through the inevitable short-term noise, the combination of improving global growth and low interest rates augurs well for growth assets generally in 2021’ Greg Fleming

Asset markets in 2021

BY GREG FLEMING HEAD OF INVESTMENT STRATEGY

Shares are currently performing extremely strongly, and this may well continue, at risk of a short-term correction after having run up so hard recently, although 2021 is likely to see a few rough patches along the way – much like we saw in 2010 after the recovery from the GFC. Global shares are expected to return around 8%, but expect a continuing rotation away from growth-heavy, highly-valued US shares to more cyclical markets in Europe, Japan and emerging countries.

Looking through the inevitable short-term noise, the combination of improving global growth and low interest rates augurs well for growth assets generally in 2021. In particular, we are likely to see a continuing shift in performance away from investments that benefited from the pandemic and lockdowns – like US shares, technology, healthcare and “stay at home” stocks, and safe-haven bonds – toward investments that will benefit from recovery – like resources, industrials, and eventually tourism stocks and financials.

There is a non-trivial risk that a “market euphoria” phase may develop in early 2021, with flows of cash moving out of low-yielding fixed interest into topical stocks, and in some cases into speculative momentum trading. The duration of euphoric periods varies historically, but they are usually ended 18 | ASSET 01 | 2021

by reductions in excess liquidity. It is important to closely monitor the liquidity factors currently supporting markets.

New Zealand shares are also likely to be a relative outperformer in line with global equities, helped by better virus control, enabling a stronger recovery in

the near term, strong fiscal stimulus, domestic sectors like resources, industrials and financials benefiting from the rebound in growth and as investors continue to drive a search for yield, benefiting the share market as dividends are increasingly sought after.

Ultra-low yields and a capital loss element from any rise in yields are likely

to result in low or even negative returns from sovereign bonds. Cash and bank deposits are likely to provide very poor subdued returns, given the ultra-low cash rate of just 0.25%. The real return from cash and deposits will be negative, or close to zero at best.

Unlisted commercial property and infrastructure are ultimately likely to benefit from a resumption of the search for yield, but the hit from the virus to space demand and hence to rents will continue to weigh on near term returns. However, easy money financing usually finds its way into property assets eventually, and this may well be the case later in 2021.

House prices are being boosted by record low mortgage rates, government home buyer incentives, income support measures and bank payment holidays, but high unemployment, a stop to immigration and weak rental markets will likely weigh on inner city areas. Outer suburbs, houses, smaller cities and regional areas will see stronger gains in 2021.

Although the NZ dollar is vulnerable to bouts of uncertainty about coronavirus and China tensions, and periodic RBNZ bond buying will keep it lower than otherwise, a rising trend is still likely toward around US$0.75 over the next 12 months, helped by rising commodity prices and a cyclical decline in the US dollar.

‘NZ Inc. appears to have dodged a bullet with the economy bouncing back much quicker than expected’ Vicky Hyde-Smith

NZ fixed income outlook

BY VICKY HYDE-SMITH HEAD OF NZ FIXED INCOME

2020 was a remarkable year for markets and NZ fixed income was no exception.

Returns were in excess of 5% over the year, a similar level to the average return seen over the past five years.

We began the year thinking global bond yields had seen their lows. Instead, the year panned out in a way few could have foreseen.

Bond yields fell to fresh record lows as central banks squeezed what was left from the monetary policy sponge and uncovered new tools to shore up liquidity and force interest rates lower in response to the Covid crisis. Domestically the Reserve Bank of New Zealand (RBNZ) took the official cash rate (OCR) lower by 0.75 basis points (bps), implemented its own Large Scale Asset Purchase (LSAP) programme, and added other unconventional tools to get retail rates even lower. The resultant increase in liquidity spilled over into the corporate bond market, driving credit spreads tighter to near preGFC lows.

Heading into year-end and we detected a change in tone. NZ Inc. appears to have dodged a bullet with the economy bouncing back much quicker than expected. The housing market is on fire, fuelled by record low borrowing costs, and helping underpin consumer spending growth such that domestic activity appears to be completely offsetting lost output from Covid-impacted sectors. Strong

demand from China is also helping our export receipts despite closed borders.

A significant infrastructure pipeline will also help underpin the economy in coming years.

While it remains to be seen whether this recent momentum can be sustained – and we wouldn’t discount the chance

of a further rate cut should New Zealand return to lockdown – the bar to further rate cuts had continued to rise in our view. Front-end rates will remain anchored at around current levels through 2021 as the RBNZ stays on hold.

In terms of the global outlook, our base case is for an uneven recovery in the first half of 2021 as Covid runs rife

in the Northern Hemisphere. For now, the inflation outlook remains muted and global central banks are expected to keep the money printing presses running through much of 2021. But markets are forward looking, and the odds of a more upbeat synchronised recovery have increased in recent months on the hopes for a successful vaccine and herd immunity as we progress in 2021. This should see longer-dated global bond yields continue their grind moderately higher, taking longer NZ bond yields with them as the RBNZ continues to slowly taper bond purchases. We expect inflation-linked bonds to do better in this environment.

An environment of stable-to-improving growth, low inflation and accommodative monetary policy is typically good for credit securities, although we would caution that the ability for some sectors to perform strongly from here is more limited given their strong performance in 2020. Nonetheless, falling term deposit spreads and reduced senior bank issuance – as banks tap the RBNZ’s Funding for Lending Programme to refinance maturing bonds – should continue to underpin demand and corporate bond yields for now. With the deferred bank capital changes not likely to come into effect until 2022, we expect some of this demand to be met by BBB and unrated issuers seeking to lock in low yields.

WWW.GOODRETURNS.CO.NZ | 17

Transportation and energy infrastructure were adversely affected, utilities less so and communications infrastructure on the whole looks to be a beneficiary of the disruption’ Joseph Titmus

Infrastructure investment

BY JOSEPH TITMUS PORTFOLIO MANAGER/ANALYST, GLOBAL LISTED INFRASTRUCTURE

2020 will long be remembered for the Covid-19 pandemic and the associated and unprecedented decline in economic activity around the world. However, it will also be remembered for the size and speed of the response from central banks and governments globally to soften the impact on workers, companies and the population at-large.

The impact on our infrastructure, fundamental to the smooth operation of society and the economy, has varied from sector to sector and country to country.

These nuances will determine the nature of the recovery not only for each asset but for the respective populations they service.

Without doubt, the significant further loosening of monetary policy and the direct or indirect lowering of interest rates was a positive development for a long-life asset class like infrastructure.

The expectation that central banks will maintain such an accommodative stance well into the future – potentially beyond inflation reaching their respective targets – we believe is also supportive. Should this eventuate, the various inflation linkages in contracts and regulation provide a useful hedge for infrastructure owners.

Within the asset class, the evolution of customer demand as a result of the pandemic was more differentiated.

18 | ASSET 01 | 2021

Transportation and energy infrastructure were adversely affected, utilities less so and communications infrastructure on the whole looks to be a beneficiary of the disruption. The ongoing degree of fiscal stimulus, whether directed towards consumers through the provision of income support or targeted at specific industries that may have been hard hit such as airlines, will be crucial to the strength of the recovery.

Major themes we are following that will be key to the outlook include: • Secular trends such as e-commerce penetration, video streaming, working from home and the continued rapid growth in data usage have only been accelerated by the pandemic. This has changed how we work, relax and interact and are a key driver for investments in the communications infrastructure sector (ie towers, datacentres and fibres’ network).

• Utilities around the world generally have little exposure to volumes though, given the economic downturn, demand from commercial and industrial customers was meaningfully lower. With fossil fuels often the swing producer, the share of energy produced by renewables hit record highs in many parts of the world. Investments supporting

this trend are only likely to continue and perhaps even be accelerated by political developments like the US presidential election outcome.

• As well as the pandemic, a market share war between two of the world’s largest oil suppliers also caused significant turmoil in the energy infrastructure sector. This volatility focused attention on those sources of supply with long-term structural advantages and highlighted the infrastructure providing connections to the point of consumption as even more strategic.

• Transportation was at the forefront of the impact from the pandemic while also being a key player in the recovery.

Subsectors less dependent on mass transit (such as freight rail or toll roads) are likely relative beneficiaries of economies reopening. Whereas other subsectors (such as passenger rail or airports) will see their recovery more dependent on the success of a vaccine.

As fundamentals continue to evolve positively across the different sectors, and with collectively supportive valuations, we remain optimistic on the outlook for the asset class.

‘We are therefore very bullish on the outlook for the global listed real estate market’ James Maydew

Buy straw hats in winter

BY JAMES MAYDEW HEAD OF GLOBAL LISTED REAL ESTATE

2020 was extremely difficult for any asset class whose very existence is predicated on the gathering of people. As we all know, real estate is very much that asset class.

For a period in the second quarter the fundamental landlord and tenant relationship was challenged more than ever before as the vicious circle unfolded.

Tenants couldn’t occupy their space to conduct their business, putting the responsibility of the rent into question and landlords therefore not getting what they are contractually entitled to, but for very good reason.

Needless to say, this has been a black swan event for the real estate market, but the light at the end of the tunnel is getting much closer and brighter as we migrate into 2021. The thing is, Covid will be transitory in nature for most real estate sectors. Yes it will change the dynamic of some, or pull forward structural changes in others, but not all.

This means that as we push the difficulty of 2020 into the rear-view mirror and focus on a return to more normalised activity, the real estate fundamentals and earnings will also snap back, and the market is currently not capturing this in continued dislocated market valuations.

We are therefore very bullish on the outlook for the global listed real estate market for the following five key reasons.

1 Interest rates are low and being guided by central banks to remain lower for longer. This is positive for a capital-intensive asset class like real estate.

2 We are likely to see further stimulus under a Biden administration, this will support the economy, but also add liquidity into risk-chasing capital markets. We will likely also see continued stimulus across the world, as all nations need to support their economies as they heal from the Covid dislocation.

3 With stimulus, there is a growing risk of inflationary pressures becoming a real consideration for investors for the first time in many years. Listed real estate is an inflation hedge, increasing its importance in investors’ overall portfolio strategy.

4 We are seeing an increasing number of very attractive deals to participate in. These are coming in one of two forms. i) The strong getting stronger, issuing equity to take advantage of others’ weakness and strengthen their overall position in the market accretively. ii) Recapitalisation of balance sheets where higher-leveraged companies, or those with a cashflow challenge

due to Covid, need to issue equity to help them through what we see as a transitory period of earnings weakness, as we start to see a return to more normal times in a post-Covid world. Providing this liquidity to these companies is rewarded by a healthy margin for the risk (lower deal price).

5 Due to Covid, listed real estate is fundamentally cheap relative to all other asset classes. It has not yet fully recovered from the Covid drawdown like other sectors that were less impacted, but fundamentals and rental collection are starting to return to more normalised levels.

Covid has accelerated a number of key trends we are aware of in real estate but it’s also transitory in nature for most sectors. Given the drawdown it has seen, this has firmly moved listed real estate into the “cyclical value” style bucket of the equity market. This is an area we believe will continue to see support in 2021 given the upside potential in the reversion of fundamentals (and therefore valuation) back to the norm and as investors look to add some inflationary hedges to their portfolios.

Buy straw hats in winter when no one needs them and sell them in summer when everybody needs them. This is that winter buying opportunity.

WWW.GOODRETURNS.CO.NZ | 19

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‘Winners in this environment need to first survive the current crisis and then thrive in the aftermath’ Andy Gardner

Uncertainty and disruption

BY ANDY GARDNER INVESTMENT MANAGER, GLOBAL EQUITIES

The sheer variety and complexity of challenges thrown at investors in 2020 is a valuable reminder that uncertainty and disruption are not the exception but the rule when it comes to economics and markets. While 2020 has been remarkable and devastating on many levels, it is the latest in a long line of crises that investors have had to contend with over time.

While we all look forward to a return to normal life, from an investment standpoint it is prudent to assume that we need to be building sustainable and resilient portfolios that can withstand the vast majority of shocks. Major “one time” events like Covid or progressive structural changes like technological disruption – both of which we have witnessed in 2020 – not only widen the gap between new trends and old practices, they also increase the disparity between good business models and bad ones. Therefore, it is crucial to understand how they play out between various sectors and from company to company.

Winners in this environment need to first survive the current crisis and then thrive in the aftermath. Surviving requires a strong balance sheet and the ability to earn positive cash flows to avoid depleting capital in a challenging and highly restricted demand environment.

Low return, highly leveraged companies are much more exposed to these risks, particularly where demand for their products and services is more discretionary and cyclical in nature.

Those that thrive longer term are likely to be the companies able to expand 20 | ASSET 01 | 2021

their cashflows, even in an environment of impaired economic growth, and with predictable sources of new demand that are supported by structural rather than cyclical shifts.

Covid-19 will likely change the way we do things and some longer-term pathways to growth are now clearer as a result. This includes areas such as

healthcare technology, enterprise cloud and software deployments, automation, e-commerce, online learning, remote working, digital technologies and electronic payments, to name just a few.

While many of the second and third order impacts relating to the pandemic remain hard to predict, we believe one thing is certain: Covid will serve to accelerate or reinforce many of these structural changes and profit pool shifts that were already underway. From a long-term perspective, and when

combined with the pillars of disciplined capital allocation and strong competitive advantage, we continue to believe that these enduring trends are a more durable source of attractive long-term investment returns.

In contrast, many mature cyclical sectors face structural challenges, low returns and higher than average debt levels, and are consequently more exposed to the risks of recapitalisation and capital erosion. The costs of pivoting to address structural change – for example, taking an old economy company online – can be enormous and assets like these rarely offer more than a temporary home for capital. Investors should instead seek out the relative safety and support of long-term structural trends that allow highly profitable companies to compound their cash flows at above average rates over the long run, regardless of the economic climate.

We believe the growing gulf between winners and losers favours a targeted and active approach. One thing that the experience of 2020 has taught us is that individual company fundamentals matter more than the index, classification or label that a company has been assigned.

It is important to stress that structural growth trends (or themes) are not sufficient to drive value creation in isolation. Indeed, they can on occasion be a quick route to value destruction.

Growth is only valuable if it is met with the other pillars of wealth creation: enduring competitive advantage, disciplined and aligned capital allocation and predictable business models. A

Your journey to sustainable income starts here.

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Part of the goals-based investing range, the Fund aims to provide a reliable and stable monthly income that compares favourably to current term deposit rates, while allowing for some capital growth over time.

- Pays a fixed distribution each month - A sustainable and stable source of income - Potential for capital growth over time To find out how we can meet your income needs visit

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Investors should read the relevant Product Disclosure Statement (PDS) before investing. The PDS contains important information on the Fund including specific risks.

A copy of the PDS can be obtained from the AMP Capital Investors (New Zealand) Limited website www.ampcapital.com, by contacting the Client Service Centre on 0800 400 499, or by visiting the Disclose website www.business.govt.nz/disclose. The Manager and the Issuer of the Fund is AMP Investment Management (NZ) Limited, Meridian Building, Level 1, 55 Lady Elizabeth Lane, Queens Wharf, Wellington. While every care has been taken in the preparation of this advertisement, AMP Capital Investors (New Zealand) Limited makes no representations as to the accuracy or completeness of any statement in it. Past performance is not a reliable indicator of future performance. This advertisement has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this advertisement, and seek professional advice, having regard to the investor’s objectives, financial situation and needs.

WWW.GOODRETURNS.CO.NZ | 21

INSURANCE

22 | ASSET 01 | 2021

Has Covid-19 killed the “round to it”?

Don’t wait for “one day” to make those aspirational business and life changes, writes Naomi Ballantyne.

BY NAOMI BALLANTYNE

Y

es, you can be hit by a bus, and yes you can be struck by lightning, and yes earthquakes can still happen, and YES a pandemic can, and has, changed life as we know it!

It has to be impossible for anyone in the world today to think that they have all the time in the world ahead of them to get around to living life.

One day I am going to be my own boss.

One day I am going to grow my small business into a bigger business that is not reliant on my sweat equity alone. One day I am going to buy up lots of other people’s businesses to become a large business. One day I am going to sell my business for enough money to allow me to retire into the sunset.

The truth is that there is only one day and that is today.

Tomorrow has never been guaranteed and boy has this last 12 months proven that to be true. Two of my staff, just yesterday, separately told me about a friend and a cousin (both young with no health issues) who died, that morning, overseas from Covid-19. They will never see their faces or hear their voices ever again. Those poor people never made it to their ‘’one-days’’.

In my line of work I see families facing this reality every day and I hear about their regrets even though I am a complete stranger – if only I spent more time with them, if only I had more time with them.

It’s heart breaking.

The same is true with businesses.

Covid-19 and response from

governments to keep people medically safe, has altered forever our ability to reach our ‘’one-days’’.

We have today to think about what we can do, what is possible to do and what we aspire to do. And we have only the foreseeable future (counted in days rather than years) to do what is needed to get there.

What are we now waiting for? For the pandemic to be over? For someone else to tell us what to do? For divine intervention?

For me and Partners Life, we face the same uncertainty about the longer-term future as everyone else. Not just from the economic fall-out from the pandemic, but also from the potential medical risks that are still a significant possibility. We also have regulatory uncertainty as an insurer, and uncertainty about how the adviser regulations will impact on our distribution strategies. It would be easiest to just stay still and wait to see what the world is going to do to our business.

But that is simply not us and we certainly encourage it to not be you either. We believe well managed businesses that have momentum are going to be the businesses that not only survive the current turbulence, but that thrive once the storm calms down. Looking forward as far as possible and doing the things that keep the business moving forward, provide that momentum.

So, for Partners Life, we intend to continue with our strategies of best customer value proposition, excellent

‘I don’t think Covid-19 has killed the “round to it”. It has just sped up the urgency for getting “round to it” because the only “one-day” any of us can count on is today’ service, effective efficiency, and innovation despite all of the uncertainties we face. After all, there is one thing that hasn’t changed, and that is the fundamental need for New Zealanders to have access to life insurance products that deliver the best outcomes to them when unexpected disruptions happen, and to have great advice about how to use those products to meet their personal needs.

I don’t think Covid-19 has killed the ‘’round to it”. It has just sped up the urgency for getting ‘’round to it” because the only “one-day” any of us can count on is today. A Naomi Ballantyne is the founder and managing director of Partners Life.

WWW.GOODRETURNS.CO.NZ | 23

FEATURES | FADC

Adviser Code breach A North Island adviser’s record keeping, and whether she had provided personalised advice to four clients in question, was reviewed by the Financial Advisers Disciplinary Committee in December.

T

he Financial Advisers Disciplinary Committee (FADC) has fired a warning shot about record keeping over the heads of advisers on the eve of the new financial advice regime.

The adviser caught in the crossfire was monitored in 2020 regarding her business practices in 2017 and 2018. In a hearing in December, she was found to have breached standards 12 and 15 of the outgoing code of conduct. The committee was composed of Judge Bruce Robertson, Tracey Berry and SarahJane Weir.

In question was whether, by having knowledge of a handful of circumstances of each of four clients in question, the adviser had been in the business of providing “personalised advice”, and if so, whether her records were adequate.

For the FMA, Simon Chapman introduced excerpts and analysis of the adviser’s notes in relation to the four clients. Much of the hearing was spent discussing the definition of “personalised service”, “client”, and types of advice – including “class advice”, “limited advice and “no advice”.

With an office in a North Island city, the adviser is also an insurance agent, tax agent, certified financial planner and chartered life underwriter as well as running a residential property service.

Her 35 years in the wider industry may 24 | ASSET 01 | 2021

have motivated the opening statement in the decision; “This is a case about breaches of the Code. It is not about the integrity of the [adviser] and there is no suggestion that she has improperly benefited at the expense of her clients, or that any client has been disadvantaged.

But, the provisions of the Code are fundamental and adherence to them is always required.”

The adviser was represented by Wellington barrister Lisa Hansen.

The decision summarised Hansen’s defence; “As the oral hearing progressed, and we were able to get beyond the avalanche of words, it became apparent that the [adviser] was of the view that she was not providing financial advice by a personalised service unless and until she had received and documented the entire circumstances of a client, including their existing financial position and its makeup and she had an appreciation of their goals and aspirations.”

Chapman read from Section 15 of the Act that the definition of personalised service is if the adviser takes into account the personal financial situation or goals of the client, but the adviser reiterated that her threshold for personalised service related to completion of a financial questionnaire and signing up for financial advice.

The fact that she was aware of occasional circumstances or ambitions

of casual clients did not, in her view, amount to personalised service.

Client file one A couple holidaying in the US were beamed into the hearing to discuss whether they had received personalised service from the adviser, whom they had known for 15 years. After a series of emails in 2017 regarding KiwiSaver, life insurance, and a potential family property, there were a number of meetings which failed to result in the couple filling out the necessary financial questionnaire in order to receive personalised service.

The FMA’s Chapman pointed out that the adviser had noted a long-held insurance policy should be retained, and that this represented personalised service. All the adviser's notes pointed to this circumstance: “They needed little or no advice, (the client’s name) has it all in her hands.”

While the adviser acknowledged some of the circumstances of the blended family and their “wider and older” health status, she did not believe that this advice to keep a “gold standard” insurance policy was personalised service.

In this case, the defence provided satisfied the committee, who found that the note accurately recorded the situation.

‘Overall the quality of records supplied for the clients are convoluted and incomplete. It would seem that the [adviser] has relied on the longstanding nature and inherent information understood on the clients, rather than retention of adequate records to evidence this’ FADC

Client file two Chapman introduced the case of a couple who were long-standing clients of the adviser’s residential property service, and had opted to leave the home loan account on their family home active, although it had been paid off and had retained an insurance product.

Appearing by video link, the client explained the decision to leave the mortgage open was their own, and it happened to have been confirmed and noted by the adviser. The adviser said she hoped the clients would complete a financial questionnaire, after which she would have been able to provide them with a full financial plan. This did not happen.

Judge Robertson questioned the relevance of the example, asking: “What’s the financial service in advising to leave a mortgage document open, what is financial at all about that activity?” The committee, in its decision, confirmed that there was nothing financial about the “class” advice to leave the account open.

Chapman had raised the example in order to argue that the adviser was giving personalised service outside of the definition in the Act. “When you say you had discussions with them that are very

abstract that’s not the case is it?”

He also referred to notes made by the adviser including, “Buy the other unit if/ when she dies,” regarding a neighbouring property to one of the client’s rental properties.

The committee was unimpressed with the records kept and decided that personalised advice had been given: “Overall the quality of records supplied for the clients are convoluted and incomplete. It would seem that the [adviser] has relied on the longstanding nature and inherent information understood on the clients, rather than retention of adequate records to evidence this.”

Client file three This client was a retirement aged woman, signed up for advice in 1993.

Here, Chapman asked questions around the records kept by the adviser in relation to changes to the client’s NZ Funds investment risk profile. The adviser explained that tweaking the portfolio to account for changing circumstances, including a planned wedding and a large increase in spending, did not warrant a new financial questionnaire.

“Can I just clarify the squiggly lines [in the notes]?” asked the adviser. “That’s my demonstrating volatility to the client, that’s explaining the risk.”

The fact that it took four approaches with mock-ups of newly balanced portfolios to get the client’s agreement that a conservative risk approach was necessary, simply illustrated the client being slow to make decisions, she said.

This defence of “pink sheets” with notes, drawings and risk analyses did not satisfy the disciplinary committee however, especially the squiggly lines which were “insufficient to meet the [adviser’s] Code obligations”.

Client file four An older gentleman who enjoyed risk and liked to maximise gains, had been visiting the adviser since 1988. She was reluctant to call him a client under her definition of the term, as he had never completed a financial questionnaire, and simply visited her downtown office for casual advice.

“I have been talking to this gentleman for a number of years about his need for personalised service, but people want high returns,” she said.

However, she provided what she termed “limited advice”, and documented it this way, when assisting him with choosing replacement investments after a forced sale of a shareholding. Had she been able to

provide personalised service to the client, the adviser believed that she could help him with the wise placement of about $700,000. As it was, he only wanted advice on the investment of $150,000, into three opportunities he learned about through public disclosure statements he picked up at the adviser’s office.

In her 2020 interview with the FMA, the adviser agreed that discussions around this client’s Rio Tinto shares were “personalised”, because she happened to know a singular circumstance relating to the man’s life. She regretted the admission, she told the hearing, as well as the inability to withdraw it.

In this case file, the committee again disagreed with the defence, saying she did not do enough to record her interactions with, and advice to the man.

'Can I just clarify the squiggly lines [in the notes]?

That’s my demonstrating volatility to the client, that’s explaining the risk' Adviser

“The [adviser] did provide the client with what she called a ‘limited advice record’. The [adviser’s] evidence was that it was difficult for her clients to understand the terminology ‘class service’ and she preferred this term.

However from the evidence presented at cross examination, it appears clear to us that actually the [adviser] intended to provide the client limited personalised service. It was also apparent from evidence that the [adviser] believed she was close to providing him a ‘complete’ financial plan, and we find that her recommendations assumed the client’s future goals. We find that the [adviser] provided personalised service.”

The committee’s conclusion was that the adviser maintained an idiosyncratic approach to legal definitions and record keeping. She was found to have breached Sections 12 and 15 of the Code, which required understanding of the Financial Advisers Act 2008. A WWW.GOODRETURNS.CO.NZ | 25

FEATURES | REGULATION

Regulation Focus 2021 2021 is set to be a year of changes for financial advisers.

While change can be unnerving to some, it can also present new opportunities.

To help you succeed in the year ahead, the compliance experts at Rosewill Consulting have put together some of their top tips to tackle the new regime with ease.

Demonstrating the new Code in the advice process It will no longer be enough to stick to the fundamentals outlined in the six-step financial advice process. The time has come to analyse each of those steps and determine how you can demonstrate the new Code of Professional Conduct for Financial Advice Services.

For example, you cannot demonstrate Code Standard 1 to “treat clients fairly” without understanding the client’s financial literacy and previous experience with the specific financial product(s) you are advising on. Be sure to identify any vulnerabilities that could be lurking beneath the surface and develop a 26 | ASSET 01 | 2021

strategy to manage them. Above all, be sure that you can document how you are putting the client’s interests first.

By delving deep into the client’s current situation and their risk tolerance, you will be able to demonstrate Code Standard 3 and “give financial advice that is suitable”. A common issue we see is where the adviser jumps straight to “solution mode” without spending enough time analysing the client’s existing circumstances against their goals and objectives. One adviser we visited in 2020 always calculates the client’s growth in their equity and plots this against their long-term goals.

In most of the adviser files we review, the actual financial advice given needs

to be clearer. There is a big difference between providing product information and giving competent financial advice.

It should be completely clear what the recommendations are and why they have been given. Too often, an adviser will recommend a new product provider but not demonstrate their analysis of existing cover and its strengths and weaknesses.

Educating your clients (actual and potential) While you have been giving ample time and attention to the regime change over the last couple of years, the public at large will be blissfully unaware of the significant changes to financial advice

‘It should be completely clear what the recommendations are and why they have been given’ legislation. We recommend that you develop a simple marketing plan to inform your existing clients about the changes. You will also want to include a brief update in any marketing materials aimed at potential clients, such as your website or other non-targeted advertising.

Professional development From March 15, 2021, anyone providing financial advice will have to meet the updated standards for competence, knowledge and skill as determined by the Code. While there is a two-year transitional period to obtain a full FAP licence and achieve the relevant qualifications (ie the NZ Certificate in Financial Services Level 5) or proof of equivalent qualifications, financial advisers must comply with all requirements of the new regime from day one.

All advisers should have a robust professional development plan (PDP) to ensure they are meeting their obligations under the new legislation, regulations and Code. Although you technically have two years to meet the new competency requirements, the “good conduct” obligations begin straight away. As such, failure to prioritise upskilling will certainly be putting your business (and your clients’ best interests) at risk.

The FMA will expect financial advisers to devote an appropriate amount of time to upskilling themselves such that they are compliant with the requirements of the new regime. Depending on your prior experience and qualifications, this could mean that you will have to set aside a significant amount of time for professional development in the coming months. In self-managing your professional development, it is vital that your PDP is sufficiently detailed and tailored to your business model whilst also being achievable in the time you have allotted.

Be sure to identify the best sources for professional development – in practice, this means that you should seek out sources that are reputable and suitably qualified. You will need to decide where best to spend your time, effort and money. We recommend using a variety of sources and formats to ensure that you are getting a broad view of industry best practices. If you find that you need help, we can offer you a PDP template and individual guidance to get you started.

Regulator relations Those of you who have been in the industry for a while will be familiar with the heightened regulatory scrutiny that can accompany significant legislative change. While it may be tempting to rest on your laurels during the two-year transition period, you should instead use this time to build a positive relationship with the FMA and ensure that your business is “regulator ready” at all times.

As a first step, make sure you are aware of all legally mandated notifications required of your business (eg notification of a material change).

You should already have these recorded in your compliance obligations register, but we see many businesses who do not have a process for how those notifications should be made. Determine who will be responsible for the actual communication with the FMA as well as the internal reporting that needs to be completed both before and after the notification is made.

Conversely, how ready is your business to respond to a request from the FMA? Your business information should be in a format that can be quickly and easily accessed and provided to the regulator.

The more complex your business structure is, the harder it may be to provide a timely and robust response.

Appropriate record-keeping is an area of interest to the regulator, so make sure that your business records are in order, backed-up and cyber-secure.

Don’t forget to review your data privacy arrangements and make any necessary changes to comply with the Privacy Act 2020. The FMA is also focussing on cybersecurity, so educate yourself on the rise in cyber-crime and ensure that you always know where your data is held, stored and how it is being used.

Larger businesses can benefit from having their compliance function run a “mock FMA request” scenario to check response times and identify areas for improvement. These same principles

will help you prepare for a monitoring engagement, whether it be onsite or desk-based.

Full licensing Unlike previous market services licence applications, the FAP full licensing process will be completely electronic.

Applicants should thoroughly prepare the information required to be in place for the full licence application before going online to apply through the FMA portal. This means carefully reading the FMA full licensing guide and reviewing the detail of the requirements. It’s not enough to have a policy in place, it needs to be documented, address the requirements, be approved, reviewed and maybe tested. Ensure that your submission has sufficient detail to address each area outlined in the application.

‘Appropriate recordkeeping is an area of interest to the regulator, so make sure that your business records are in order, backed-up and cyber-secure’ Your business should go through a formal internal review process before signing any declarations required as part of the application process. The FMA will want to see that your business has an advisory board or other oversight body suitable for the size and scale of your organisation. All meetings should be formalised to ensure that it provides sufficient value and that appropriate records of internal decision-making are available if needed.

If you have already been through an FMC licensing application process, you know that it can be a time consuming and stressful endeavour. Depending on the size or complexity of your business, you may feel more comfortable engaging outside compliance expertise to conduct a “readiness review” of your arrangements (ie policies, processes and procedures) and draft application. A

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FEATURES | ADVISER PROFILE

From Africa for love For SBS’ Michelle Forster improving financial literacy is a key focus.

And marrying a Kiwi means that NZ is benefiting from this goal.

F

rom Africa to the Channel Islands, Michelle Forster’s career has spanned the globe.

But it was a Kiwi bloke who lured her to New Zealand, and the years of international business experience have been invaluable in her career down under.

“They always bring you back,” Forster laughs when speaking of her husband.

“I was so lucky to come to this side of the world.”

Forster’s globe-trotting journey was not the result of a strict, unchanging plan, 28 | ASSET 01 | 2021

BY DANIEL SMITH

but was guided by a core focus on values.

Those values have been an insatiable drive for education, combined with the desire and focus on building strong interpersonal relationships.

This, and a hefty dose of business acumen, have taken her to her current role as general manager and head of advice at Funds Administration New Zealand. Forster’s widely varied career had its beginnings in Africa.

“I was born in Zimbabwe and I grew up in South Africa. My father was very

entrepreneurial and our family valued education. Once I left school my family encouraged me to get a good foundation on which I could do many career paths, for me that foundation was finance.”

After graduating from the University of South Africa with a Bachelor of Accounting and Science, Forster began cutting her teeth in the world of investment banking.

“I was very lucky to get a role at Investec when I was fresh out of university. My impression was that the

‘Going forward I think advice is trending towards a hybrid between personal touch, as well as digital interfacing. It’s all about maintaining that balance’ company was very progressive and dynamic. I was able to see more areas of finance; banking, private banking, lending and investing. This gave me a good exposure to different areas at a really young age. It allowed me to have time with managers and individuals that I would later call my mentors.”

After her time at Investec, Forster found herself overseas, working in the Channel Islands in offshore finance with Swiss Bank. After this she travelled home to South Africa and began to realise “that what I enjoyed the most was the investing side of finance more than the lending side. So I gradually began to hone my skills into [the] investment and financial planning side of things.”

Forster says that her career journey “has been driven by a number of things.

But the thing that gives me most satisfaction was helping build a portfolio with people. Because you go on that journey and you build up a relationship.

And that is where I began to see the value of advice really come through.”

Forster says that the other milestone during this period in South Africa was when she met her husband, who just happened to be a Kiwi.

When reflecting on the past year, Forster approaches it with a positive disposition that makes you forget that financial services has faced massive regulation changes, an election cycle and the fallout of a global pandemic.

“Every challenge is an opportunity,” says Forster. “I think that over the last couple of years we have seen some major changes in legislation and compliance regulation. That has

presented challenges for businesses.

For us at SBS we have always had the philosophy ‘do right by the client, and everything else will look after itself’.”

For Forster this philosophy has allowed her to help guide her clients through Covid the same way she has guided them through the ups and downs of the marketplace in a regular year.

“From our perspective the compliance regulation that is coming into place will always be there, it’s about ensuring your processes are correct. But from an advisory perspective we do goals-based financial planning and advice, and what we have seen in the past year is that what you get from advisers giving good quality advice is truly invaluable.”

The reason for her belief in the invaluable nature of an adviser goes back to Forster’s key focus on maintaining positive interpersonal relationships.

Forster says that “over this volatile time, the value of being able to actually talk to an AFA, and for them to discuss your needs, wants, goals and challenges, has helped to keep people invested in the market.

“With uncertainty people make decisions that are not necessarily correct.

If you have the ability to talk to advisers, then long term the value of that is just incredible.”

The period of Covid has had a substantial effect on the financial services industry, and that has meant that the period of market volatility and economic uncertainty has provided key lessons to those willing to listen.

For Forster the key takeaways from the period have come from having lengthy discussions with clients and finding out what was important to them.

“What we found was that clients really appreciated the personal connections over the period of stress.

People forget that financial services is about relationships. After that comes investment and financial advice, but it all starts with the relationship and the trust within that.”

If the lessons in what the client values have been important then the lessons for what businesses can do to change have been equally so. Forster says that “the way we do business has changed, and the changes have come quite quickly.

Even though SBS had digitally interfaced with clients before, clients are far more accepting of using digital platforms than they had been previously.

“Although there was a lot of uncertainty there are also a lot of positives that have come out of this

period. From a business perspective there is the digital engagement, there’s also flexibility around working from home. [This] period has shown that the quality of a portfolio and how it is set up does add value over the long term for clients.

“Going forward I think advice is trending towards a hybrid between personal touch, as well as digital interfacing. It’s all about maintaining that balance.”

Forster says that what she is most proud of during the time of Covid is that “while all of us have had stresses to deal with, within SBS I have seen people banding together to achieve great feats of teamwork. I have felt very proud and humbled to be a part of that.”

‘For us at SBS we have always had the philosophy “do right by the client, and everything else will look after itself”’ The lessons that this year has brought about have highlighted areas in the industry in which Forster hopes to offer real change: “A real issue which this period has brought to light is the value of financial advice is not reaching as many people as it should. As an industry, as we grow and move forward, we really need to try and improve financial literacy across the board. And we also want to ensure that good financial advice can be offered at a reasonable cost. This could come in many guises, from using digital platforms to give information, to investing more in financial education.

There are many levels that this change needs to occur on but one of these levels needs to be ensuring that generations have access to assistance [and] to good quality advice.

“At the end of the day what you want is a financial services industry which provides the best possible outcome for the client. That starts with making sure that as many people as possible are having those good quality conversations.”

When not working Forster says that she is probably running around after her eight-year-old. If she can find a quiet moment she enjoys spending it on the golf course or exploring the outdoors surrounding Auckland. A WWW.GOODRETURNS.CO.NZ | 29

REGULARS | PRACTICE MANAGEMENT

An opportunity to reduce insurance fraud In times of financial hardship insurance fraud increases.

Russell Hutchinson looks at how a co-ordinated approach could help improve efforts to combat this type of crime.

BY RUSSELL HUTCHINSON 30 | ASSET 01 | 2021

‘In a period where economic conditions have worsened for some sectors it seems likely that these incentives will rise’

‘Insurance fraud is not a victimless crime and the effect of dishonest claims are felt by everyone’ Peter Radcliffe

I

n the UK the Association of British Insurers (ABI) and police forces have acted together to highlight the extent of insurance fraud and better co-ordinate their response. That co-operation includes a memorandum of understanding on the exchange of information between insurers and police as well as media events to highlight fraud as a part of a campaign against economic crimes. Here in New Zealand, the Insurance Council of New Zealand has highlighted the issue as well. In October the ICNZ ran a webinar offering insight into fraud in times of recession. ICNZ estimates fraud costs at around $680 million over the last year.

Although most fraudulent claims were for property, and the single largest category was related to motor vehicle claims, a substantial category was for personal injury. The ABI reported that 75% of fraudulent claims in the motor vehicle category contain some element of personal injury claim. The following are some examples.

•

Pet shop ploy. A man was convicted after he was caught on CCTV staging "slip and trips" at a pet shop and a discount store which would have netted him £11,000.

•

Caught by camera. A man was sentenced after CCTV caught him purposely banging his knee several times on a paving stone to make a fake injury claim. On spotting the camera, he started to hop on one leg to authenticate the injury. He claimed that the footage had been misinterpreted and that he was testing the paving stones to prevent injury to others.

It would be strange if New Zealanders were completely immune to the same types of incentives and pressures. Life, health and income protection claims can be the subject of fraud as well. A good local example includes the case of insurance broker Peter Taylor who was insured by Asteron Life, where the Court of Appeal backed Asteron Life’s view on statements that were made about the extent to which Taylor worked while on claim.

A significant proportion of the highlighted claims made in the UK were for personal injury. Claims can be more generous with personal injury in the UK than they are typically in New Zealand.

However, for clients that hold income protection insurance, the incentives to make a fraudulent claim are similar. In a period where economic conditions have worsened for some sectors it seems likely that these incentives will rise.

The ICNZ offers a service to co-

ordinate activities to report, identify, and reduce fraudulent claims: the Insurance Fraud Bureau. The Health Funds Association has a project called the Integrity Register to help identify fraud in health insurance claims.

The importance of this activity was perhaps made clearest by Detective Superintendent Peter Ratcliffe, Head of the City of London Police Economic Crime Funded Unit, who said: “Insurance fraud is not a victimless crime and the effect of dishonest claims are felt by everyone. As well as bogus insurance claims inevitably increasing premiums for honest customers, certain tactics used by fraudsters, such as ‘crash for cash’, put the lives of innocent members of the public at serious risk.”

Should the FSC build on the work of the Health Funds Association now that they are to be merged and develop more capability to identify and manage insurance fraud in life and income protection insurance? The benefits of a co-ordinated approach can include: •

better information sharing – more quickly identifying insurance cheats that may move from one company to the next

•

structured co-ordination with law enforcement services

•

better deterrence of fraud through increased awareness. A

Russell Hutchinson is director of Chatswood Consulting and Quality Product Research, which operates Quotemonster.

Further useful reading: https://www.abi.org.uk/news/news-articles/2020/09/detected-insurance-fraud/ https://www.abi.org.uk/globalassets/sitecore/files/documents/publications/public/2014/acpo-abi-mou-exchange-of-info.pdf https://www.goodreturns.co.nz/article/976517358/court-of-appeal-backs-asteron-life-in-battle-with-former-broker.html https://www.icnz.org.nz/about-us/events/icnz-speaker-series-2020/webinars/insight-into-fraud-in-times-of-recession/

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REGULARS | INVESTMENT COMMENTARY

The long and the short of it David van Schaardenburg takes a critical look at short-termism, the lower returns being achieved and forecast in low volatility assets, and how advisers can best help clients achieve their investment goals.

BY DAVID VAN SCHAARDENBURG

L

ike most investment professionals my first discipline each working day is to scan the news on financial issues then check key market and security movements.

Daily my colleagues and clients will ask me, “What happened in markets today (or overnight)?”

It pays to have a good answer, but I do wonder, “What’s the point?” and “Does it really matter?”.

Why? Because the investment industry’s focus on short-term trends and news is in contrast to the investment horizons of the vast bulk of our clients. For example, if you are turning 65 today, you’ll have on average between 22 and 25 years of investing life left. So what happens day to day is unlikely to have a material impact on your investment success over that horizon.

With KiwiSaver, the increasing proportion of the advice industry’s clients are below 65 so with investment horizons for most getting longer why not screen out “the white noise” and consider longerterm issues.

32 | ASSET 01 | 2021

Where can short-termism limit the quality of advice?

In this time of lower forecast returns from mainstream investment types, especially low volatility assets, I do wonder if some of the aspects of a conventional advice and fund selection process can leave clients worse not better off.

A prime example of this is the use of return volatility as the key definition of investment risk.

Volatility of returns in both client risk profiling and risk assessment of a financial product is usually expressed in annualised timeframes over the last five years. Fine in theory, but where investments in liquid assets or asset classes which are priced daily inevitably will end up being deemed and labelled more “risky” – including by the processes prescribed by the industry regulator. So instruments like shares that are traded daily are deemed “more risky” than a subordinated loan which typically has stability in its value until a credit event occurs, often leading to a sharp decline in value.

When using volatility measures in a risk profiling process, the greater risk may be that we reduce the potential for clients to achieve their financial goals not improve them as potentially risky assets could be deemed “low risk” by virtue of time gaps in valuation and vice versa. When we add in potentially distortionary labels to client risk profiles or investment funds we may further exacerbate this problem. For example most of my clients prefer being termed “conservative” or “balanced” not “high risk” or “aggressive” without fully understanding the potentially negative investment implications of this.

A suboptimal outcome from the above has been the preponderance of KiwiSaver members investing in lower return default, conservative and balanced funds notwithstanding that their investment horizons are over many decades.

By using short-term return volatility measures in the client risk profiling process and investment product risk categorisation processes, many investors are shying away from higher return asset classes and a range of potentially high quality investments. For example

‘Many investors probably need to take on more investment risk than they presently do’

What client risks am I more focused on?

‘Using only one measure of risk to define risk can be risky itself!’ a portfolio of successfully growing companies in dynamic industries (IT, healthcare) will appear more risky than investments that have other types of risk, which I maintain may not be effectively incorporated into the product risk assessment process. These risks include: structural risk, credit risk, liquidity risk, low return risk.

Using only one measure of risk to define risk can be risky itself!

Why are client risk scores based on (short-term) volatility?

There has been plenty of behavioural finance studies which support the view that investors do not like their investments fluctuating in value (downwards in the main) and require an extra payback in terms of higher returns to compensate for this perceived higher “risk”.

Such studies conclude that the more your investment goes up and down in value over the short term the more risky (worse?) it must be. So if you can cope with that then you are “aggressive” or if not, you are “conservative”.

However what might be more useful is for investment advisers to spend more time educating our clients to accept the cyclicality of economies and markets (risk and volatility is therefore ok) and be more focused on what they can do and be aware of to help better achieve their financial goals.

My number one concern is the probability that a client will not achieve their retirement financial goals which either start several decades away or are spread over multi-decade periods.

While some clients have sufficient wealth that the probability of goal achievement is very high no matter what the level of risk they take, most clients will increase the probability of goal achievement by sacrificing shorter-term return stability for higher average longterm returns.

This conflicts with the traditional client risk profiling and fund risk categorisation processes.

By being based on relatively shortterm risk measures, these processes encourage clients towards investing in less volatile lower returning investments.

And by investing in such, reducing the probability of clients achieving their longer-term financial goals.

Why am I more worried than normal?

As of today, long-term future returns from low risk assets like bonds and cash are forecast to be at record low levels. Not much above nil and probably below the rate of inflation. In the US the traditional 60/40 growth asset to income asset retirement portfolio formula is now regarded as redundant. A 100/0 growth to income portfolio for retirement investing is now increasingly favoured.

In the same fashion, most New Zealanders building up their retirement wealth will need to accept a climb up the risk (volatility) ladder above what has been historically required. It is important this step up is done in an educated fashion ie not taking on risks they are not aware of.

How can advisers help?

Many investors probably need to take on more investment risk than they presently do. There’s a proliferation of financial products being developed to satisfy this need, each having risks which are often difficult to assess.

As we’ve experienced in the past this combination can be a formula for disaster.

There’s the increased promotion of unlisted property products which promote high versus bank returns.

Additionally we see the launch of a number of high “income” funds.

On the surface the returns offered look appealing. Short term these investments have the appearance of stability and relatively low risk. Longer term they carry a mix of liquidity, credit and lack of diversity risks.

In this environment the role of the adviser is highly important in two ways.

First, managing expectations of clients investing in areas they may be unfamiliar with. Second explaining the unique risks a financial product may have and the potential implications if these are realised.

Through their adviser, being “forearmed is forewarned” will help steer investors away from taking on higher risk in a naive fashion as well as clients better appreciating the periodic bumps in the value of their investment portfolio. A

Note Fund risk indicators must be based on annualised standard deviations, calculated using the change in week-to-week returns or (if not available) month-to-month returns over five years.

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KIWISAVER

KiwiSaver survey shines a light on funds A survey by MJW Investments looking at the performance of KiwiSaver funds over the last ten years reveals a large overlap between balanced and growth funds.

With KiwiSaver now at $62 billion FUM, the superannuation scheme has enough data behind it for the numbers to tell an interesting story when analysed.

The MJW Investments survey has reflected on the past ten years of the scheme, analysing the performance of various scheme providers and the differing levels of returns across balanced, growth and conservative funds.

The report says, “As we would expect, fund category (or equivalently,

34 | ASSET 01 | 2021

allocation to growth assets) is the most obvious determinant of return.

Over the long term, investors can generally expect growth assets to provide a boost to return and this is indeed the pattern we see here.”

Although this is illustrated by the high collection of growth funds towards the top of the returns graph (see below), possibly the most interesting group of data is the number of funds which highlight an overlap in the returns in balanced and growth funds.

The report explains that “there is a relatively large overlap between the growth and balanced funds.

Risk and return for the conservative (and moderate) categories are fairly

tightly clustered but the spread within categories becomes more pronounced in the balanced and growth categories.

The range of returns for balanced funds is around 4% while for growth funds it is over 5%.

“Thus, choice of provider is perhaps relatively more important for the more aggressive funds and relatively less important for the more conservative funds.”

At the top end of the return scale over the decade is the Milford balanced and growth funds which are each outliers with high returns relative to their respective categories.

By contrast, each of AMP’s funds find themselves at the lower end in terms of returns.

TOP 10

As usual it has been a busy month on Good Returns. Here is a list of the top 10 most read stories over recent weeks.

01 Adviser appears before FADC on record keeping charges A financial adviser with 35 years' experience appeared before the Financial Advisers Disciplinary Committee in Wellington last week, facing allegations she didn’t understand her profession’s legislation and code.

02 Partners snares BNZ Partners Life has achieved its biggest milestone since the business started nine years ago – the acquisition of BNZ Life.

03 PI cover in doubt for small adviser firms MBIE and FMA have been at pains to assure small advisory firms that they will be able to operate under the new licensing regime, but professional indemnity insurer NZI, has quashed those assurances.

04 FADC finds against AFA in code of conduct case A financial adviser who breached the Code of Conduct by skimping on client medical histories in insurance applications has learnt their fate.

05 Nikko AM disrupts KiwiSaver market with high-performing ARK fund The latest offering from Nikko AM provides exclusive KiwiSaver access to the ARK Disruptive Innovation Fund.

06 FMA: Advisers without PI should take the bull by the horns NZI surprises FMA with removal of PI cover for small advisory firms but says it is not the end of the line for these advisers.

07 Good Returns fund manager of the year 2020 winners announced The results of the Good Returns Fund Manager of the Year awards can finally be revealed.

08 Travel agents get their financial advice wings Covid-19 has wrecked international travel and agents are now looking to become financial advisers through a new scheme.

09 Ponzi perpetrator Barry Kloogh not forced to pay reparations The former financial adviser who stole $15.7 million from his clients will not be forced to pay over $5 million in reparations.

10 No appetite for PI any longer compliance expert says After NZI’s announcement regarding PI, compliance expert Steven Burgess says that PI is on its way out the door for smaller businesses, but that might not be the end of the world..

Keep up with the news at

GOODRETURNS.CO.NZ

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