ASSET FEBRUARY 2016 by ASSET

FEBRUARY 2016

Financial

Forecasts

Singleton reveals her motivation

How to make 2016 great

What would Steve Jobs do?

LEAD STORY

UP FRONT 04 EDITORIAL A chance to change future 07 OPINION Increasing diversity 08 NEW ZEALAND NEWS 09 AUSTRALIAN NEWS 10 PEOPLE

Financial

Forecasts What lies ahead for the financial services industry in 2016? ASSET magazine asked industry participants to get out their crystal balls.

New appointments

THERESE SINGLETON

Therese Singleton asks why NZ can't take the lead.

REGULARS

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{OPEN TO QUESTION} { INVESTMENT }

{ INSURANCE }

{ ASSET ADVISER }

06 What do you expect 2016 will be like for your business?

30 Your guide to goal setting for the new year

26 What you need to know about the new adviser qualifications 28 Career change pays off for Simon Hassan 32 How to target your market

22 ETFs take hold in New Zealand market

34 Who has the lion's share of the market?

UP FRONT

{ FROM THE EDITOR }

EYE ON FUTURE

A FINANCIAL ADVISER I SPOKE TO at a recent lunch meeting was thinking about the future of his business. He has two daughters, both aged in their 20s. It would be easy for him to hand the firm over to them and set them up with a lifelong career, at the same time giving him a neat succession strategy. But would he do it? “No way,” he said. “There’s no way I'd recommend they get into this business.” He said things had changed so much from when he first started as an adviser that the industry was almost unrecognisable. There was so much paperwork and compliance to deal with that there was not enough time left over for dealing with the clients themselves as much as he would like to, or growing the business in any rewarding way. His daughters have pursued other career paths instead. With regulation high on the financial advice

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agenda this year, it is a good time to step back and take stock of the industry. Where are new financial advisers coming from? At the moment, it seems only the banks are bringing in anyone new. There have been some suggestions that this could eventually lead to those staff heading out to become self-employed in their own businesses later in their careers. But only time will tell whether that is the case. If the problem is that there is a hurdle for entry now, that is a good thing that will resolve itself over time. There are very few professions or trades someone can enter and start work without some qualifications to prove they know what they are doing. But if the ongoing compliance and administrative requirements stops businesses being viable, that is more of a systemic problem. Consumers need access to independent advice and someone who can talk to them about a range of products, not just those distributed by their own employer. We need more advisers, rather than fewer. Numbers are dwindling and this needs to be top-ofmind when the Financial Advisers Act is up for review. Most consumers would be happy to think that they were dealing with advisers who put their needs first, are qualified and competent and not just trying to push a product. Regulations do seem to be going some way to address that. But I hope that, in trying to create that environment, the Government and regulators do not lose sight of the importance of supporting small businesses. Any regulations need to be scalable so they are as manageable for a one-person operation as they are for a big banking operation. It would be great to think that in another year's time I might encounter another adviser facing the same dilemma but instead is excited about the future for the next generation. We can but hope. Susan Edmunds Editor

HEAD OFFICE 1448A Hinemoa Street, Rotorua PO Box 2011, Rotorua P: 07 349 1920 F: 07 349 1926 E: editor @assetmagazine.co.nz PUBLISHER Philip Macalister EDITOR Susan Edmunds SUBEDITOR Phil Campbell CONTRIBUTORS Russell Hutchinson, Nadine Tereora, Tony Vidler. DESIGN Jonathan Harding ADVERTISING SALES 07 349 1920 027 437 7527 SUBSCRIPTIONS Dianne Gordon P: 0800 345 675 E: subs@assetmagazine.co.nz ASSET is published by Tarawera Publishing Ltd (TPL). TPL also publishes online money management magazine Good Returns www.goodreturns.co.nz and The NZ Mortgage Mag All contents of ASSET magazine are copyright Tarawera Publishing Ltd. Any reproduction without prior written permission is strictly prohibited. ISSN 1175-9585

OPEN TO QUESTION

PETER DONOVAN

ANTHONY THYNE

CHARLENE OVERELL

FINANCIAL ADVISORY SERVICES LTD

AP THYNE AND ASSOCIATES LIMITED

WHAT DO YOU EXPECT TO BE THE HIGHLIGHT OF 2016?

I think it will be continuing high volatility in the markets. I think we’re in for a year of extremes. In New Zealand, I think there is still going to be some downward pressure in the market rates for the medium term. We’re close to zero inflation and that’s well outside the Governor’s brief. So I guess there is more downward pressure on the interest rate, the [January’s OCR announcement] will be interesting.

Shares generally do not look cheap, interest rates will likely remain at low, stressful levels for investors, and gains from the $NZ weakness look problematic. A highlight will be being proven wrong!

The FAA review will bring about positive changes to our industry. We believe that raising the bar for professional qualifications among advisers and providing a clearer understanding for consumers will lead to better quality advice and practices that can continue to align with good governance and international best practice.

WHAT DO YOU THINK IS THE BIGGEST POTENTIAL HURDLE FOR YOUR BUSINESS THIS YEAR? Probably increasing competition from the banks, particularly in the area of KiwiSaver; they’re very aggressive. In an area of high fluctuations in the market, there is often a slight term deposit safety. So we could quickly face some of that panic. I guess the biggest threat in continuing good levels in investment in our industry would be customer uncertainty as the market fluctuates all over the place.

WHAT DO YOU THINK IS THE BIGGEST POTENTIAL HURDLE FOR YOUR BUSINESS THIS YEAR? I think I see my key hurdle in the morning as I shave – me ! There are so many distractions (aka regulation, volatility) to crowd out what is the essence of my business – so to move forward focus on being the guide, the gladiator, or the guru as might be required by my clients.

G3 FINANCIAL FREEDOM

WHAT DO YOU THINK IS THE BIGGEST POTENTIAL HURDLE FOR YOUR BUSINESS THIS YEAR? With crazy property prices in Auckland, low interest rates and volatile capital markets, people are more aware that they need quality professional advice and are prepared to pay for it. As fee based planners, our challenge will be to continue to advocate and demonstrate the value of paying for quality personalised advice.

OPINION

{ INSURANCE }

WOMEN MAKING MARK ON INDUSTRY

Asteron Life was recently named Women’s Employer of the Year at the New Zealand Insurance Industry Awards. Asteron Life managing director Nadine Tereora discusses success as a woman, and how companies can help support women in their careers.

nsurance has traditionally been a very male-dominated field, but a lot has been done to achieve greater equality. Levelling off the gender balance still has a way to go, but having policies in place to promote a flexible and diverse workplace, and a company culture and leadership team that support it, will certainly help. When I first started my career in the insurance industry, flexible hours and breastfeeding policies were unheard of. A lot of women were successful in the industry, but many found that they’d reach a point where they felt they had to choose between a career or a family. It shouldn’t be like that. Having competing priorities and wanting to be great at everything doesn’t mean you should put a limit on your goals and aspirations.

Tears, tantrums I have two children. I’m not alone in experiencing the toddler tears and tantrums – where everything is going pear-shaped at home and you’re tired and you have pressures at work to deal with. Sometimes taking a phone call is the last thing you want to do and you think “is this worth it?” But once you’ve dealt with that call and you remind yourself you have the opportunity to make a difference in a job you enjoy, and you have a family you love, it really does make it all worthwhile. I know my kids are proud of me and the passion I have for my job. I also know they’d like me to go on more of their school trips. But along with my husband, Sei, we’ve achieved a good balance by working as a team.

Not unreachable Senior executive roles aren’t unreachable for women. I’m an example of that. It’s the first time Suncorp has had a female CEO – and to be recruited internally makes it an even greater privilege. Everyone should have the opportunity to pursue their career aspirations

{ NADINE TEREORA } while still being a great mother and partner. But it certainly helps to have a supportive employer who understands that one day you might need to arrive at work late, or leave early to be there for your family. If your employer is inflexible then it creates a strain on the balance between work and family life. Parents also need to make sure they’re focused on work only when they’re working. As hard as it may be, your kids don’t need to feel that you’re in a bad mood because of frustrations at work. Embedding gender diversity into the DNA of a company’s culture means policies need to reflect a commitment to advance and retain female talent. Incorporating equality and diversity at work shouldn’t be an aspiration; it’s a basic expectation for any modern workplace. It benefits, however, with backing from defined policy commitments and role model behaviours demonstrated by the leadership team.

Annual review At Asteron Life, one of the ways we support this is by completing an annual review of remuneration against gender to make sure we’re not unintentionally disadvantaging female employees. If there is a variation of more than

10% between an individual’s pay and the median of the opposite gender, further investigation is done to better align remuneration, or understand why there’s a variance. We have a clear and transparent process around managing flexible working arrangement requests, and we have a 50/50 gender split in our senior leadership team. We actively support individuals to return to work after parental leave by working through flexible options that work for them and their family. And part of our retention strategy for female talent is to recognise high-potential employees and actively promote them into roles that support their career development. Our focus on female talent retention isn’t at the expense of male employees. While we look through a female-oriented lens, we’re committed to gender equality and making sure men are given similar flexible employment conditions and career opportunities. We’ve been named Life Insurance Company of the Year for 2013 and 2014 by the New Zealand Insurance Awards, and this year [2015] we won Best Life Insurance Company in New Zealand at the World Finance Global Insurance Awards.

Experiences We don’t think there’s any coincidence between the success of our company and the diversity we’ve been able to achieve. Diversity encourages innovation, through bringing together different experiences and different ways of thinking. Asteron Life encourages employees to adopt the belief that leadership is a mind set. It empowers staff to question, to improve and to challenge. As a business we’re focused on supporting and developing all our people, because we know how important they are to our success. Helping to enable all staff to reach their career aspirations means we benefit from diversity and an engaged and enabled workforce. Diversity can only really be seen as a good thing.

Nadine Tereora is managing director of Asteron Life.

UP FRONT

{ NEWS FROM NEW ZEALAND }

Workplace battlegrounds for advisers Workplaces may be the key to engaging future generations of financial advice clients. Growing numbers of advice firms and product providers are providing seminars to workplaces as a way to get people who otherwise would not seek advice to start engaging. Richard James, of NZ Funds, said his firm was working with about 150 companies and would deal with about 5000 employees a year, offering its MyWealth platform. NZ Funds would monitor the number of clients it picked up through the workshops, he said, but it was product neutral and did not promote any KiwiSaver scheme. He said it was designed to get people thinking about their financial situations and how they could accumulate wealth. “Once they do, we hope they choose to do it with us,” James said. He said employers had a strongly growing role in helping people switch on to products such as KiwiSaver. “It’s part of a wider programme... built around an idea that workplaces are the battlegrounds of the future.” Wealth Works is an advice firm offering workplace seminars. Amy Wilkes, managing director, said workplace seminars were something that the company’s advisers liked doing. “People take the information on board. Whether they do anything about it is another story.”

Draft new code revealed

Providing limited advice to clients should become easier, under changes to the Code of Conduct for Authorised Financial Advisers. Consultation was launched late last year on a draft revision of the Code. An exposure draft of the revisions has now been released. The Code Committee wants to replace the “transactional advice” concept with a wider “limited advice” idea, with relief from the need to assess suitability when advice is requested on a particular product, without a transactional element. The client must either initiate the identification of the financial products, or already hold them. AFAs would then have to satisfy themselves as to suitability of any financial product recommended to address any stated goal, so suitability relief under this heading would be restricted to assessing suitability in light of a client’s financial position and circumstances. AFAs would need to confirm to the client, in writing, that the financial advice provided could have been different had advice not been requested on a limited basis.

We would welcome the opportunity to help you sell part or all of your client base. We have many more buyers than sellers, all keen to provide those clients with a high level of service. CALL US NOW

Soft-dollar tempters not a good look New Zealand’s insurance industry is focusing too much on soft commissions, which will not do anything to improve its standing in the eyes of consumers, it has been claimed. Soft commission components of rewards could significantly alter the overall package given to advisers but were hard to get a clear gauge on, AIA's Graeme Edwards said. How important trip offers were to advisers varied a lot. Fidelity Life chief executive Milton Jennings agreed there had been a strong emphasis on soft dollar incentives at recent events. “Maybe people saw it as their last opportunity. But the government is not saying it is looking to get rid of them so there may be a bit of life in them yet.” He said companies had to promote what was attractive to advisers. “They work pretty hard during the year and deserve some good benefit.”

{ GRAEME EDWARDS }

Maree Porter

021 874 231

maree@mikemoore.co.nz

UP FRONT

{ NEWS FROM AUSTRALIA }

Where are the financial planners?  Finding suitably qualified staff is likely to be one of the biggest hurdles for Australian financial services firms that want to expand their teams this year, a report says. Data from recruitment consultants Robert Half's Australian hiring survey showed more than 50% of chief financial officers and finance directors planned to create new roles in the first six months of this year, Australian media reported. But Robert Half Asia Pacific senior managing director, David Jones, said the survey found 89% said it was a challenge to find skilled finance professionals. More than a third said specialist technical expertise was a problem. Financial planners were one of the most difficult to find, with 18% citing difficulty in finding the right staff. That was behind business analysts, at 23%, and accountants, at 21%.

Hold on to staff  A human resources firm is warning that advisers need to embrace new methods of employee engagement if they want to hold on to their younger staff. Diffuze HR founder and director Barry Lehrer told Australian media many advisers found attracting and retaining staff difficult, but were not willing to change their methods of engagement to suit them. “People that tend to own financial services businesses are a bit older and have their ways of doing things, and they don’t necessarily understand the ways of the new world,” Lehrer said. Lehrer said employees from

generations X and Y expected their employers to be more creative and hands-on in their engagement and had more complex needs and expectations from their career than just financial reward. He said employers should be innovative in the way they dealt with their staff. “Younger workers don’t expect employers to take everything they say on board and do it, but they want to be made to feel part of the process and like their employer is helping them to get to the next step.”

Midwinter appointments Financial planning software firm Midwinter has hired a new head of distribution and is expanding as it prepares to deliver its roboadvice offering to the market. Helen Thom, previously a senior business development manager for Midwinter, has been promoted to lead its distribution division. Evan Polos and Robert Koorey have also been promoted internally as head of support and business development manager respectively. Midwinter managing director Julian Plummer said the group was well on track for its first quarter deadline for the rollout of its roboadvice service.

ASSET UPDATA FRONT ADVISER

a new appointment email details { PEOPLE } Ifandyoua have picture to editor@goodreturns.co.nz

ANZ GETS NEW HEAD OF WEALTH ANZ has made some changes to its management team which sees current head of wealth, John Body, promoted to a new role. Body, who is currently the managing director Wealth and Private Bank, has been promoted to Retail and Business Banking managing director. He replaces Fred Ohlsson, who has been promoted to the role of Group Executive, Australia Division. He will join ANZ Group Chief Executive Shayne Elliott’s newly formed Group Executive Committee. Nigel Scott, who is general manager Private Bank and Bank Distribution, replaces Body as head of Wealth in an acting Managing Director capacity. Current ANZ New Zealand chief executive David Hisco will take on new responsibilities as CEO New Zealand and as a Group Executive to include ANZ’s operations in the Pacific and International Retail. “ANZ New Zealand continues to be a great breeding ground for international executives,” Hisco said in statement. “I am very proud of these promotions for Fred and John because much of it is a direct result of the great work everyone in the New Zealand business has been doing since the merger of the ANZ and National Bank brands and technology systems in 2012.”

Trevor Slater

IDS HIRES KEY INDUSTRY FIGURES Compliance and adviser business consultancy firm Independent Development Solutions (IDS) has appointed two well-known industry figures. The company, run by Barry Read, has hired Trevor Slater as general manager. Slater was until recently general manager of Financial Services Complaints Ltd. Read said: “IDS specialises in supporting financial advice businesses with compliance support and process development, which often involves assistance with issues, complaints and investigations. IDS will be extending these services to the financial services industry and helping businesses develop robust processes that prevent escalation of the issues.” Angi Mann has been hired as adviser relationship manager. She is known to advisers for her work with the PAA, handling adviser training and education. Mann will expand IDS training and workshops.

NZIER ECONOMIST APPOINTED BY WEALTH MANAGEMENT FIRM John Body

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Financial planning firm Stewart Financial Group has appointed NZIER economist Aaron Drew as its chief investment officer. He will maintain his connection with the New Zealand Institute of Economic Research (NZIER) as part of the role.

Drew first joined the Hawke's Bay wealth management company's investment committee in November last year and, in his new capacity as chief investment officer, will oversee the $265 million of committed funds SG has under management across its Boutique Advisers Alliance business. He says his new role involves working across the business on wealth management, KiwiSaver and adviser to adviser services. “I’m looking to bring on board the industry knowledge I have to add value to all those areas,” Drew said. “Stewart Group runs a very credible wealth management operation and it’s an exciting opportunity to be part of that. SG is one of the few organisations in New Zealand to have Centre for Fiduciary Excellence (CEFEX) accreditation, which indicates they are running a best practice organisation in the global sense.” Director Nick Stewart said Drew would add value for investors. SG’s investment committee oversees the design of portfolios for its wealth management clients as well as the two asset class KiwiSaver funds it manages in association with Grosvenor Investment Management Limited. More than $38 million is invested in these funds. Stewart said Drew’s appointment would also benefit advisers who use the firm’s Boutique Adviser Alliance. This arrangement offers the firm’s back office function to other fee-only New Zealand advisers. Six firms are using the service. Stewart Group recently received a discretionary investment management services licence.

SBS REPLACES CHIEF EXECUTIVE SBS have announced the appointment of an interim chief executive. Chief risk of innovation officer, Mark McLean will step into the role following the death of Wayne Evans. “Mark is a capable individual who currently holds an executive position with us. In addition to his five years in executive management with SBS Bank, he has previously held financial services leadership roles in the United Kingdom, Singapore, the Netherlands and New Zealand,” SBS chairman John Ward said. “Over the past 18 months the SBS board and executive team have been working hard on achieving their long-term strategy, which endorses the vision of SBS becoming New Zealand’s Member Bank. This strategy, which centres on bringing the theme of mutuality to life, is now firmly in execution mode." Evans died recently of natural causes. The 49-year-old was appointed chief executive of the Invercargill-based bank in July 2014, replacing long serving chief Ross Smith. Before that, he ran the bank’s personal lending subsidiary Finance Now.

BREWIS-WESTON RETURNS TO AUSTRALIA Former Sovereign chief executive Symon Brewis-Weston has finished with the company and returned to Australia. Sovereign chairman Gavin Walker said the company was "well under way" in the search for a suitable replacement chief executive and good progress was being made. "In the meantime, the board and I have appointed Sharron Botica, Chief Officer People and Community, as the interim CEO." He said she was "leading the charge with the support of a strong and experienced executive leadership team to implement the great work Sovereign is set to deliver in 2016 along with a continued commitment to implement the strategic plan we have in place."

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LEAD PROFILE STORY

{ INSURANCE AND INVESTMENTS }

A personal

connection

Why can't New Zealand solve all the big problems facing the global financial services sector? Susan Edmunds discovers what drives AMP's Therese Singleton.

father while she was still a teenager. The insurance payout she and her five siblings received from his employer’s group life scheme was transformative. “Every aspect of my education and my siblings’ education was looked after, as was every aspect of our financial wellbeing, really, right up into our early 20s,” Singleton remembers, sitting in the Auckland offices of AMP.

LOOKED AFTER

ost members of the insurance industry can easily recall a “good news” story of a time when a payout has really helped a family suffering through a tragedy. But few probably have as first-hand an experience as Therese Singleton.

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“From a personal perspective, I have seen from a very young age the value that life insurance brings to a family in the event of a tragedy. It can be the difference between being fully educated and having children that are looked after and have a roof over their head and ... not. “It’s really the driver behind why it fits in very nicely with where I want to be in my career and how I see there's a real value in what we do. I've always had this innate social respect for what life insurance brings to families.” Although she graduated from law school in Ireland hoping to be a legal aid lawyer, wanting to spend her career fighting for the downtrodden, Singleton says life insurance also provides her an opportunity to combine both the legal and financial sides of law. “I thought I’d be defending the underdog and spending the rest of my life doing legal aid cases, defending someone who was not guilty. The general manager of investments and insurance at AMP knows only too well how a timely injection of cash from an insurance company can make the difference between the start of a real struggle and the equivalent of a financial life raft. The Irish ex-pat’s parents both died when she was young, her mother first and then her

WRONGLY CONVICTED “I was brought up in the time of the Birmingham Six and IRA members who had been wrongly convicted so I had that dream it would be me.” Work experience in legal aid changed her mind but she says what she is doing now is

LEAD Y RPROFILE OTS STORY DAEL

not too dissimilar from what she imagined she might end up doing. “I always hoped I'd be in a position of leadership and influence, even when I was in school I naturally tended towards a leadership-type of role. From that perspective I always hoped that was where it would come out. I didn’t quite picture it would be in New Zealand, of course, in Auckland.” Singleton came to this country after meeting her husband, who is from Masterton, in Australia while she was there on her OE. She returned to Ireland, to work at life insurance giant Irish Life, before deciding to emigrate down under to his home country – initially planning to stay for a year. That was 12 years ago. Singleton says it’s not bad for someone who did not even know what a kiwi was when she left university.

KIWI CLASSICS Before she arrived, the only brush she had had with this country was a teacher who taught her class of seven-year-olds Pokarekare Ana, leaving family members with an indelible memory of a young Singleton instructed in the Kiwi classics by nuns. She was warned the move away from Ireland would be “career suicide” but says now it was perfect timing. It was the start of KiwiSaver and Singleton has been able to make her mark indelibly on the retirement savings scheme. Singleton was last year promoted from general counsel to general manager of investments and insurance at AMP. She remembers: “I was pushing Jack [Regan] to give me some broader opportunities within the business. Especially as a general counsel, you always think you can do things better than anyone else. He moved me into the product space to allow me that opportunity to broaden myself out further beyond just the legal aspect and to try to make the differences I was striving to make.” The technical aspects of the life insurance business appeal and offer an opportunity to flex her intellectual commercial muscle. “It’s very challenging financially in terms of how you make margins out of a product and how you assess risks.”

WITHIN REMIT Singleton still has oversight of a lot of the changes that AMP will have to make to keep up with regulatory progress. The Financial Markets Conduct Act and AMP’s response to its requirements are within her remit; she is closely involved with the distribution

"A lot of our

customer testing around KiwiSaver shows they are asking their providers to reach out and talk to them." -Therese Singleton

of AMP’s products. The company has the country's largest intermediated advice force but only about a quarter of its KiwiSaver members access advice of any sort. The shake-up of the Financial Advisers Act this year has received a lot of attention and Singleton welcomed, in particular, the move to simplify adviser designations and sort out some of the anomalies created by category one and two products. But she says the insurance and investment industries are in thrall to many of the same issues around the world, in the face of changing consumer demand. “The whole insurance industry is facing massive digitalisation and changing consumer behaviours, there is a need for product simplifications. “The fact is that consumers are shopping around and demanding lower-priced products; I don’t think New Zealand is all that different to the rest of the world.” Singleton says AMP is strongly supportive of consumers accessing advice, regardless of their level of savings or the channel they want to use. “We are trying to make that available to consumers at all levels.”

FINANCIAL ADVICE BENEFITS But she says many consumers do not even know which product provider they are with, let alone what sort of fund they are in or why they might benefit from financial advice. AMP is now focusing on contacting new KiwiSaver members with a welcome call to explain how the scheme works and the individual fund they are in and is having some success with supporting members to move to a more appropriate fund. Singleton says: “We are pushing hard to really educate people as to the impact moving out of conservative-type funds

into a more appropriate fund, even those simple messages and decisions will make a massive difference.” She says consumers still want a human touch, even in a world where more and more advice is being delivered digitally. “A lot of our customer testing around KiwiSaver shows they are asking their providers to reach out and talk to them, they are looking for that personal interaction. We’re at a really interesting stage with financial services because the whole world is moving to digital, general insurance is largely moving to digital worldwide but with the personal types of products people still want that personal touch and human interaction.” While the number of KiwiSaver members looks a success for the scheme, Singleton says it is a “crying shame” that so many are not contributing and are missing out on the guaranteed return of the member tax credit. Boosting that engagement is something that is high on her agenda to change this year. “As soon as markets fall you get that flurry of activity about, ‘What’s the impact on KiwiSaver?’. The frustration is that, yes, there’s volatility, there is always volatility, but one of the single biggest things you can do to make a difference to your retirement is contribute because of the impact of compound interest.”

WISH LIST Singleton is excited about the future and has more goals to tick off on her own career wish list. She says a recent trip to an international conference laid plain to her the fact that almost all countries are in the same boat in terms of underinsurance, too, and New Zealand is as well placed as any to tackle the challenges facing the industry. “If we don't solve it in New Zealand as an industry it will be solved somewhere else and brought in to New Zealand. It’s an exciting challenge.” Singleton says it’s likely she and her family will stay in New Zealand now because of the opportunities it offers as a place to raise her two young children. She has been given an opportunity to “push the boat out” as far as she possibly can to make a difference in the industry. “Why can’t we be the one country that manages to solve the underinsurance issue with life insurance, solve that digitalisation revolution within the financial services industry? We have as much of an opportunity, if not a greater one, than any other country in the world.”

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{ INVESTMENT } FINANCIAL FORECASTS BROUGHT TO YOU BY

Financial

Forecasts

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LEAD STORY

What will this year bring for advisers and their clients? ASSET magazine asked industry players to consult their crystal balls.

Another year of modest growth

Last year was a challenging one for investors as worries about China, the emerging economies generally and the prospects of higher US interest rates caused volatility and uneven returns across asset classes. Critical questions for 2016 are variations on the same themes. Now that the US Federal Reserve has started to raise interest rates, how high will they go and how fast? What are the risks of a “hard landing” in China? Will weaker currencies undermine or sow the seed of recovery in the emerging economies? What are the risks from politics and geopolitics?

Global GDP growth Annual average % change

Bevan Graham, AMP NZ Chief Economist, takes a look at the key economic themes for 2016.

Expect another year of modest growth in 2016. While most major advanced economies may be expected to grow either at or slightly above potential in 2016, those economies are only likely to average 2% growth. Growth among the key emerging economies became highly divergent during 2015 and will remain much the same in this year. In China the challenge for the government is to manage the pace of the slowdown and also implement challenging but necessary reforms. We expect the pace of economic contraction to moderate in Brazil this year and Russia may move out of recession. The countries likely to do well in 2016 are those that will benefit from a combination of cyclical and structural tailwinds, including India and Mexico. The biggest downside risk remains China which has the resources to avoid a full-blown economic crisis but risks a policy mistake as Chinese authorities are on a steep learning curve. More generally, the emerging economies facing dual cyclical and structural headwinds could still surprise on the downside. Numerous political and geopolitical risks may unsettle and possibly disrupt over 2016, including the increasing frequency of serious terrorism attacks, “Brexit” and the US Presidential election. There are some upsides too, with lower oil prices a net benefit to the global economy as lower prices free up income to spend on other things. Emerging economies that are net importers of commodities and are enjoying the tailwinds of beneficial structural

Source: IMF and AMP Capital

New Zealand GDP Annual average % change

Source: Statistics NZ and AMP Capital

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Bevan Graham is the Chief Economist at AMP NZ

"China is in a

challenging transition from an economy reliant on manufacturing and investment to one more reliant on services and consumption. It is not surprising then that manufacturing and investment data remains weak."

reform could surprise on the upside. In 2015 much energy was devoted to if and when the US Federal Reserve (the Fed) would begin to raise interest rates. Having now started the interest rate normalisation process, the Fed is expected to continue raising interest rates this year. There are two important considerations for how fast they go. Firstly, interest rates are not on a predetermined path higher, and secondly, each move will be dependent on the data leading up to the meeting. Another factor that will limit the pace with which the Fed can raise interest rates is that other key central banks, including the Bank of Japan, the European Central Bank, and the People's Bank of China are still easing monetary policy. In that environment, too aggressive a stance from the Fed will put undesirable upward pressure on the US dollar (USD). China is in a challenging transition from an economy reliant on manufacturing and investment to one more reliant on services and consumption. It is not surprising then that manufacturing and investment data remains weak, while retail spending and services sector indicators are more positive.

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"We think the

economy is running at a solid underlying rate of around 2.5% to 2.8% pa. At the same time, we expect inflation to remain benign as the unemployment rate moves higher over the early part of 2016."

This rebalancing in growth will lead to a continued slowdown in the pace of overall growth over time as the service sector along with consumption will be to entirely fill the gap from lower investment, which still represents around 45% of the economy. The challenge for the Government is to manage the pace of the slowdown to avoid a hard landing. We think sentiment towards the broader emerging economies is overly negative. There are some strong performers and some that are struggling, with much of the economic divergence commodity-related. In general, countries reliant on commodity income are weakest, while countries that are net importers of commodities are performing more strongly. But the recent weakness has also exposed structural challenges in a number of the key emerging economies. Emerging market currencies have weakened and this has raised concerns of an emerging market debt sustainability crisis which, again, are overdone. In general, emerging market debt levels are lower and more manageable than they have been during past crises. Longer-term we remain

LEAD YROTS STORY DAEL

optimistic on the capacity for the emerging economies to outpace the growth of developed economies. Key reasons for that include positive demographics, technology enhancing productivity growth and growing middle classes. But transformational structural change is necessary if the opportunity presented by these factors is to be fully realised. Politics and geopolitics always have the capacity to unsettle. We have already seen new geopolitical risks emerge in early 2016 with increased tensions between Saudi Arabia and Iran, along with North Korea's claim of testing a hydrogen bomb. Those are adding to existing concerns over the deepening humanitarian crisis in Syria, the increasing number and intensity of terrorism events and the Russia-Ukraine impasse. This trend, should it continue, has the potential to unsettle markets and impact on confidence and economic growth. In New Zealand, the economy appeared to be bouncing back in the second half of the year following six months of weak activity growth in the first half of the year. The rebound in September quarter growth was welcome with the strength in part recovery from the weak first half of the year, but also partly because of higher meat processing reflecting low dairy/high meat prices along with stock culling as the weather forecasters warned of impending drought. We think the economy is running at a solid underlying rate of around 2.5% to 2.8% pa. At the same time, we expect inflation to remain benign as the unemployment rate moves higher over the early part of 2016, reflecting still high growth in labour supply via net migration, combined with somewhat lower employment growth. That will continue to keep wage inflation in check.

2016 asset strategy outlook Keith Poore, Head of Investment Strategy at AMP Capital, reviews asset class performance for 2015 before providing his expectations for 2016. A quick look back at 2015

Looking back at last year’s outlook issue, a flatter and more volatile return profile for equities was one of our key calls for 2015 and that is certainly what investors got, especially over the second half of the year. Global shares still put in a positive result for the year though as expected, assisted by gains in Europe and Japan where central banks stepped up monetary easing. We also expected dividend growth to help lift domestic shares, bond yields to be modestly higher as the US Federal Reserve (the Fed) took small steps towards policy normalisation and the New Zealand dollar to depreciate further. Those themes all played out more or less.

Global equities - flatter and more volatile profile to persist

Source: AMP Capital

What did we miss in 2015? We didn’t expect another double digit gain in New Zealand shares, for the fourth successive year. While we noted commodity prices could go lower in the near term, we thought the balance of risks had moved to the upside over the medium term. We definitely didn’t foresee the extent of the commodity slump in 2015 or the impact it would have on commodity

sensitive shares, including Australian shares. We also thought the direction of China’s property sector would be crucial in 2015, but even though property prices recovered over the year, economic hard landing fears increased as the industrial and manufacturing sectors continued to weaken and the financial markets experienced significant volatility.

"The New

Zealand dollar is close to our fair value on our estimation but a few more US rate hikes, China concerns and low domestic inflation prints means NZD risks are still skewed to downside."

Keith Poore is the Head of Investment Strategy at AMP Capital

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What do we expect for 2016?

We retain a positive outlook for global equities in 2016 based on attractive valuations, reasonable economic growth and relatively easy monetary policy compared to previous cycles. But again, expect a shallow trend incline with volatility along the way. We also think bond yields will move higher in 2016, but recognise ongoing uncertainty and global spare capacity limits the upside risk to yields. The New Zealand dollar (NZD) is close to our fair value on our estimation but a few more US rate hikes, China concerns and low domestic inflation

prints means NZD risks are still skewed to downside. Therefore we retain a negative view on the NZD for 2016. Markets dislike contradictions

Volatility in China’s capital markets returned with a jolt in early 2016, contributing to a decline in global shares below September levels. As it did in middle of last year, instability in China’s markets has intensified economic hard landing fears. Even before recent events, markets were nervous coming into the New Year because they were struggling to digest some unusual contradictions. Firstly, commodity prices

Developed market equity risk premium

have fallen to levels typically associated with global recessions but the consensus expects global growth to rise this year. Secondly, the central banks of the two largest economic regions are going in different directions – the Fed is tightening policy while the European Central Bank is easing policy. We think the current pessimism on China is overplayed and expect growth will come in around 6.5% this year. A ‘hard landing’ will be avoided because the consumer and services sectors remain in good health, the full effects of recent policy easing have not been seen, and the authorities have the capacity and the will to prevent a downward spiral. We also believe global growth will hold up reasonably well on the back of trend US and Eurozone growth, and still decent growth in China. Central bank monetary policy will ultimately align one way or the other, but take it as a given that global policy will remain easy relative to previous cycles. This demand backdrop also argues for a stabilisation in commodity prices, but given much of the recent weakness has been about excess supply, we expect prices to remain lower for longer with volatility to persist. However, lower energy and commodity prices are providing a huge boost to consumers and most businesses, something that markets are overlooking at present. Global equities on sale

Source: AMP Capital

NZ shares capital prices

It has been a tough start to the year for share markets so will investors get paid for holding equities in 2016? Put another way, will they earn the required equity risk premium. One way to answer the question is to look at the expected global equity risk premium? The equity risk premium averaged 4% before the financial crisis but is staying around 6% post crisis. Investors may not earn the full 6% outperformance this year, but a higher expected premium does increase the likelihood of equities beating bonds in any one year. NZ shares – curb your enthusiasm

Source: AMP Capital

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The last four years have seen strong gains in New Zealand share prices, which put the 20-year price trend back into positive territory. Because domestic companies traditionally pay out most of their earnings as dividends, and consequently invest less for growth, capital prices have increased only 2% per year over the last 20 years with extended periods of relatively flat prices. Following recent price appreciation, New Zealand shares now trade on a forward price earnings (PE) ratio of 19 times, versus 15 times for global shares. With a dividend pay-out ratio of 90% of earnings, we shouldn’t expect strong gains in prices over the next few years. Investors should be prepared for a return closer to dividend yield plus a little bit more than inflation.

LEAD STORY

FINANCIAL FORECASTS BROUGHT TO YOU BY

Consumers need faith in life insurance

Are life insurance products more important than the house, family car and travel insurances? Naomi Ballantyne argues the insurance industry has done a poor job at educating consumers.

ew Zealanders need much

greater levels of personal risk protection and business key person protection than they have. As a nation we are woefully underinsured against the financial impacts of death and serious and/or prolonged ill health. What this says to me is that the industry has done a very poor job over many years of educating consumers about the risks they face, the likelihood of these risks occurring and the financial impact of those occurrences on families and businesses. We need to ask ourselves why consumers just don’t recognise the value that we think is so blindingly obvious. No real urgency Is it that New Zealanders still think the Government will take care of them through ACC or the sickness benefit, meaning there is no real urgency to do something for themselves? Does our culture make thinking and talking about death and ill health almost taboo? Do Kiwis truly believe ill health only happens to “other people”? Do consumers actually know how much claims monies have been pumped back into New Zealanders’ hands by the life insurance industry? Are there too many previous clients who have had poor outcomes from the advice they have received or from claims they have made, spreading that word? Is the lack of government incentive to purchase these products a significant reason for the difference in insurance penetration in NZ versus elsewhere in the world?

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{ NAOMI BALLANTYNE } Persistent issues It is very likely that all of these factors plus many more besides have resulted in our persistent chronic underinsurance issues. We need to increase consumer financial literacy so they can: ▶ Understand their financial risks in the event of death, serious, or prolonged ill health. ▶ Understand how to access advice and/ or information about which products will best protect them against these risks and how much cover they need. ▶ Understand their rights to be provided with advice that is in their best interests despite any potential conflicts. ▶ Understand their obligations in respect of correct and complete disclosures. ▶ Understand the contractual rights they have as policy holders to maintain, amend or cancel their policies while understanding the obligations of the insurer to honour the policy irrespective of subsequent changes to the client’s personal circumstances

including health. ▶ Understand how to make a claim against their policy and their rights in the event of a claims dispute. ▶ Trust that life insurers do pay claims. Until we succeed in increasing consumer literacy to this extent there will be a knowledge gap, an imbalance of power between the consumer, the advisers/salesperson, and the insurer. As an industry, I believe it is our job to prove to consumers and regulators that this imbalance of power is not being abused. I personally don’t think the life insurance industry did a very good job of that in 2015. I would summarise the year as one where industry players have displayed a tendency to try to influence regulators and industry bodies to help them diminish their own competition rather than as vehicles to aide an increase in consumer financial literacy. Encouraging regulators That is completely opposite to what we should be collectively doing. In reality we need more competent distributors of all kinds to be educating more consumers about their needs so that they buy more protection benefits. We should collectively be encouraging regulators to develop policy that does exactly that. After all, in pretty much all other industries wide and deep competition is what drives the best consumer value outcomes. Clients need choice, education, protection against conflicted or incompetent advice and against shareholder driven claims decisions. Collectively life insurers, industry bodies, distributors and regulators must deliver this. Naomi Ballantyne is managing director of Partners Life.

LEAD STORY

Building fixed interest into your portfolios Fixed interest still has a vital role to play in portfolios, in a low-rate environment. But is important to focus on quality.

s you catch up with clients,

no doubt you’re prepared for a grilling over forecast bond yields. You can hear it now – “If 3% is the best we can do, why bother?” Rather than retreating from high quality bonds, now is the time to remind clients that fixed interest securities are the rock within their overall diversified investment portfolio. In these times of historically low interest rates, it’s even more important to ensure clients have a diverse spread of high quality, investment grade bonds in their portfolio. If nothing else, these quality bonds will act as protection against negative returns. The US Federal Reserve’s decision to hike interest rates in December provoked a lot of chatter – after all, the last time the Fed increased rates was before the launch of the iPhone! While this move changed the conversation, it hasn’t changed the situation. Central banks around the world are wrestling with the issue that global interest rates are at very low levels, but they will, in our view, remain low for a number of years. It’s important to give clients a reality check on bond 10 year rates: US Treasuries bonds are offering yields of 1.9% p.a., German bonds are offering around 0.3% p.a., Japan is effectively at zero and Swiss bonds are offering negative 0.3% p.a. for 10 years! That said, it would be a mistake to try to compensate for lower returns by investing in lower grade credit. Now is not the time to be chasing yield – that could be a recipe for disaster. Any move into low-grade credit carries with it considerable risk - particularly if you are operating only within the New Zealand market.

{ IAIN COX } When investing in the low-grade credit market, you need a wide spread of investments across global markets, so if an investment fails to pay you back, it forms only a very small part of your portfolio. The remaining investments are likely to achieve a relatively higher return, which should then compensate your client’s portfolio for that loss. You need to be sure that the higher return of low-grade portfolios compensates your client’s portfolio for the greater chance of not getting your client’s money back on one or more of their investments. Clearly, that becomes a risky proposition if your client’s portfolio is constructed from just 10 or 15 company bonds within New Zealand where each bond makes up around 7% to 10% of your portfolio. Over one year your client’s portfolio needs to be paying at least 7% over a similar government bond if one of those companies goes under and

repays nothing. Fixed interest securities should generate positive returns during times of market stress – as interest rates fall, you should make gains on bonds, offsetting any lower growth in equities. In a stressed economic environment, low grade credit tends to behave like equities, with these bonds falling in value. Quality is key. We would prefer to invest in high-quality equities, rather than lowgrade bonds. Rather than chasing yield, our view is that it is even more important to focus on quality, diversity and liquidity in structuring portfolios. Our approach is to invest only in investment grade credit (BBB- and above), maintain a diversified spread of assets and stick with it. After all, there are two sure ways to lose money: ▶ investing in an asset that fails and doesn’t pay you back, and ▶ selling out when the market falls and not being there to benefit when it rises. So take a look at the bonds in your clients’ portfolios. Are they rated BBB- or better? If they don’t have an independent rating, then you need to assess what that rating would likely be – how confident are you about the quality of that investment? It’s also worth checking to see what commissions are paid on these bonds and whether they have been refunded to investors. You want to be able to reassure clients that bonds in their portfolio have been chosen on their merits. Iain Cox is Australasian Head of Fixed Interest and Cash at ANZ Wealth.

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SPECIAL ASSET REGULATION DATA ADVISER REPORT

{ EXCHANGE-TRADED FUNDS }

ETFs phone home: a stellar year for Smartshares 2015 was a bumper year for the development of Exchange Traded Funds (ETFs) in New Zealand. NZX Head of Funds Management Aaron Jenkins explains why ETFs are becoming valuable building blocks in investment portfolios. investment options. NZX’s goal for Smartshares has been to develop building blocks that enable New Zealand investors to easily construct a personalised, low-cost, globally diversified portfolio. With the new range of ETFs on offer, an investor can build their portfolio using New Zealand dollars, and benefit from the tax efficiency of the PIE regime that caps tax on distributions at 28%.

An ETF is a diversified portfolio of investments traded as units on an exchange. An ETF is an affordable way to gain diversified exposure to an asset class or investment style in a single transaction. Smartshares funds are listed on the NZX Main Board so investors can buy or sell them just like individual shares. Advisors can access Smartshares ETFs through various wrap platforms, for example Apteryx, Aegis and FNZ.

50 Fund. It achieves this by buying securities in proportion to the composition of the index that it tracks. Other ETFs include those that may be actively managed by an investment manager. For example, the Smartshares Global Bond Trust (GBF) is managed by PIMCO who aims to outperform rather than to track an index. All Smartshares ETFs are open-ended funds, and have a market maker to support liquidity and ensure that the market price closely reflects the Net Asset Value (NAV) of the underlying investment portfolio.

How do ETFs work?

Top 5 reasons to consider ETFs

What is an ETF?

{ AARON JENKINS }

n the past year, Smartshares has expanded its ETFs portfolio from 5 ETFs focussed purely on New Zealand and Australian shares, to 23 globally diversified funds across the main investment asset classes of cash, bonds, shares and property. As the pioneer of ETFs in New Zealand, Smartshares is committed to developing a market that provides investors with a range of diverse, low-cost and easily accessible

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Most ETFs are designed to track an index. For example, a 2% increase in the S&P/NZX 50 Portfolio index should result in a 2% increase (before fees and taxes) in the value of the holdings of the Smartshares New Zealand Top

▶ Diversification – with one simple purchase investors can invest in a range of securities spreading investor risk more broadly and allowing investors to build diversified portfolios with smaller holdings

SPECIAL ASSET REGULATION DATA ADVISER REPORT

▶ Lower costs – for the Smartshares ETFs the majority of funds are structured so Smartshares does not make active decisions that require investment in research, analytical and trading expertise, keeping costs low for investors relative to actively managed funds ▶ Access – ETFs have opened access to a broad range of asset classes and markets. Smartshares ETFs cover a range of geographies, sectors and strategies giving investors the opportunity to build their own portfolios, with exposure to global equity and bond markets in the US, Europe, Australia and emerging markets using New Zealand dollars ▶ Efficient – Smartshares ETFs are all registered PIE funds with tax capped at 28%, which compares to 33% for directly held securities. Smartshares ETFs avoid custody charges for holding offshore listed products and remove multiple foreign tax filings

One simple purchase lets you invest in a wide range of securities and spread investor risk. ▶ Easy to continue contributing - If you participate in the regular savings plan for the Smartshares ETFs investments can be from as little as $50 a month once you have a minimum holding, and can be started or stopped at any time, with no transaction fees

Of course, like any investment there are also risks associated with investing in ETFs. You can read more about the risks and benefits of investing in the Smartshares ETFs by reading the investment statement for the relevant Smartshares Fund, which is available at smartshares.co.nz

The perfect mix: fitting ETFs to your clients’ portfolios

Balanced portfolio Advisors can now build low-cost, diversified and global portfolios in New Zealand dollars for all their clients through Smartshares ETFs. This includes smaller clients who have not traditionally had cost effective access to global markets and multiple asset classes. Because a globally diversified portfolio can be constructed simply using ETFs, benefits for advisors can include reduced administration time and compliance costs.

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Balanced portfolio example – average asset weightings in NZ balanced PIE funds as at 30 June 2015 sourced from FundSource Ltd CASH PROPERTY AUSTRALASIAN EQUITY INTERNATIONAL EQUITY FIXED INCOME OTHER

Core satellite investing A core satellite approach allows investors to get the best of both worlds using low cost index funds or ETFs as the portfolio’s core, and satellites of active funds or direct investments, which have the potential to outperform the market. This approach reduces the reliance on picking outperforming investments or managers and increases diversification and tax benefits in some markets. It also has low funds management and trading costs. Core satellite example: 1. Determine asset allocation – the weighting allocation to ETFs within each separate asset class will differ 2. Allocate index and active proportions – once ETF allocation is completed, identify active fund managers/direct investments

ETF options for portfolio construction

Australasian Equity

International Equity

Fixed Income

Cash

Property

NZ Dividend (DIV)

Total World (TWF)

NZ Bond (NZB)

NZ Cash (NZC)

NZ Top 50 (FNZ)

US 500 (USF)

Global Bond (GBF)

NZ Property (NPZ) Australian Property (ASP)

NZ Top 10 (TNZ)

Europe (EUF)

NZ Mid Cap (MDZ)

Asia Pacific (APA)

Australian Dividend (ASD) Australian Top 20 Leaders (OZY) Australian Financials (ASF) Australian Resources (ASR) Australian Mid Cap (MZY)

US Growth (USG) US Value (USV) US Mid Cap (USM) US Small Cap (USS) Emerging Markets (EMF)

Get smart: make 2016 the year you add ETFs to your investing toolbox 2015 was a turning point in New Zealand’s ETF landscape. With the introduction of 16 new ETFs, New Zealand investors now have more flexibility than before to develop their own low-cost, globally diversified investment portfolios. To learn more about how you could use Smartshares ETFs as investment building blocks for your clients, and for a copy of an investment statement contact us at smartshares@smartshares.co.nz or visit smartshares.co.nz The information provided in this article is a guide only and intended for general information purposes. It does not constitute investment advice. None of Smartshares, NZX Limited, nor any other person associated with the offer of Smartshares units guarantees the return on the underlying index or guarantees a return on, or investment in, any Smartshares Fund. Units in the Smartshares Funds have been accepted for quotation on the NZX Main Board by the Special Division of the NZ Markets Disciplinary Tribunal that regulates Smartshares. The NZX Main Board is a licensed market operated by NZX, a licensed market operator regulated under the Financial Markets Conduct Act 2013. However the Special Division accepts no responsibility for any statement in this advertisement.

SPECIAL ASSET REGULATION DATA ADVISER REPORT

{ EXCHANGE-TRADED FUNDS }

ETFs offer economical market exposure N ew Zealand financial advisers are using exchange-traded funds in their client portfolios as an economical way to quickly get exposure to markets. Internationally, ETFs have become big business. ETF assets have increased ten-fold over the past 15 years and are now worth US$2.35 trillion, or 3.5% of the global equity market. A United States study found 81% of advisers were using ETFs with their clients, the first time that they were the preferred investment option, ahead of managed funds. New Zealand has been a relatively late adopter of ETFs. Advisers here usually access international ETFs via a broker directly or through their

wrap platforms, or providers such as iShares or Dimensional. The launch of the NZX suite of ETFs has provided a major local player. Adviser Brent Sheather said clients were best served when their advisers stuck to using ETFs for broad exposure. “A lot of people forget that and instead use ETFs to get esoteric exposure to a particular part of the market and it almost defeats the purpose of ETFs.” He said broader ETFs also offered more diversification. “The least risky portfolio is the market portfolio.” While ETFs offer a passive investment approach, some advisers are using them in an active way, moving between funds that invest

in different sectors in response to changing asset allocation goals. John Body, of Pathfinder Asset Management, which invests in 20 ETFs at one time through its World Equity Fund, said ETFs offered transparency. “You can see the underlying holdings.” Body said Pathfinder would move in and out of ETFs based on decisions around geography and industries. “Which markets do we think will be the best returning? If we think Europe is going to be the stellar performer next year, we do not try to find the best 10 stocks in Europe, we will say ‘let’s buy the German market, the Italian market…’ In the US, it’s easy to get even more granular and look not just at geography but at sectors. “

BONDS, PROPERTY, CASH OR SHARES? We now have 23 funds to choose from.

Exchange Traded Funds (ETFs) are one of the fastest growing investment products in the world. They are bought and sold on stock exchanges like regular shares. The Smartshares portfolio of funds now offers a comprehensive selection of global and New Zealand ETFs across the main investment asset classes of Cash, Bonds, Shares and Property. Visit our website or call the number below to read our investment statement and find out more. smartshares.co.nz | 0800 80 87 80

Units in the ETFs have been accepted for quotation on the NZX Main Board by the Special Division of the NZ Markets Disciplinary Tribunal that regulates Smartshares and will be quoted upon completion of allotment procedures. The NZX Main Board is a licensed market operated by NZX, a licensed market operator regulated under the Financial Markets Conduct Act 2013. However the Special Division accepts no responsibility for any statement in this advertisement.

NZX_Agri_PrintAds_156x210mm(Magazine).indd 1

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PAA NEWS

{ PAA }

Clarifying qualification confusion

ot sure what the introduction of the New Zealand Certificate of Financial Services (NZCFS) means for your qualification standing or options? In simple terms, the New Zealand Certificate of Financial Services is an updated iteration of the National Certificate of Financial Services (NCFS). Similar in name and similar in outcomes, they are both recognised as AFA minimum competency standards (of four available) but with two key differences: (1) the NZCFS incorporates new competency requirements including legislative changes both generally and for each strand of advice, and (2) the NZCFS can be completed and a full qualification awarded without completing the Financial Advice module (or Set B and C) for advisers choosing not to apply to be an AFA. See the table below.

Part way through the National Certificate? You have options, which may or may not include switching to the NZCFS. On balance, it is the

latest, most up-to-date qualification of the two, so if you have only dipped your toe in, it is likely that transferring to the NZCFS is the most straight-forward path. Here are a few options to consider and guidelines on what the transfer would involve.

1. Completed more than half of the NCFS Complete the qualification.

2. Only completed Set E insurance specialist Either continue and complete the other Standard Sets in the NCFS, or complete the bridging programme to the Insurance Life & Health or Insurance Fire & General Advice option (likely an online multiple choice test), and complete the Core Knowledge module.

3. Only completed set A core knowledge Either continue and complete the other Standard Sets in the NCFS, or complete the bridging programme to the Core Knowledge module

The old to the new: How the qualifications differ in structure *Dark blue denotes compulsory papers; light blue denotes options Competency Core Knowledge Financial Advice

Investment Advice Mortgage Advice

Insurance Advice

NCSF Set A – Core Knowledge Set B - Capstone Knowledge Set C - Professional Practise

Core Knowledge

Set D – Investment Specialist Set E – Residential Property Lending Specialist Set E – Insurance Specialist

Investment

Trustees Banking Personal Lending

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Financial Advice Compulsory for advisers who wish to apply to be an AFA (Code Committee requirement)

Mortgage Advice

Insurance Life & Health Insurance Fire & General Trustees Banking Personal Lending

(likely an online multiple choice test), and complete your specialty strand module, i.e. Insurance Life & Health.

4. Completed either set B or Set C, or both Choose between transferring to the NZCFS using a bridging programme to complete the Financial Advice module (likely an exam and review of client files to assess against additional competency requirements) and your specialty strand module; or continue with the other Standard Sets you need to complete the NCFS. . *Bridging programmes will differ between training providers – get in touch with ProfessionalIQ or Strategi for more information.

Quick takeaways to know • If you choose to complete the National Certificate (NCSF), enrol in the required papers sooner rather than later. While the qualification can be completed until 31 December 2017, it is likely that training providers will remove it from their offering before this deadline. • Compulsory for AFAs and best practice for all advisers, your CPD plan should incorporate additional competency requirements as qualifications are updated; i.e. a 2016 qualification will include new competency requirements which were not covered by the same qualification in previous years. It’s a good idea to find out about the latest updates to your qualification in order to identify areas your qualification may not have covered, and ways to close the gap. Training providers have a growing range of options for addressing competency gaps, and there are plenty of in-industry options also. Think laterally and just ask the PAA for assistance. • For existing registered AFAs, there is no need to complete the new qualification or bridging programme. However, from January 1, 2018, a calendar mishap resulting in an authorisation lapse will mean that if you want to apply again for authorisation, you will need to complete the bridging programme and attain the NZCFS. Another reason to stay on top of your AFA renewal date (the five year anniversary of which is coming up for many this year). • Similarly, after January 1, 2018 new AFAs will only be eligible for authorisation if they have attained the NZFSC. • Training providers – Professional IQ, Strategi and others – will be providing a range of bridging programmes, for both those who would like to transfer from the NCFS to the NZCFS, and for AFAs who would like to demonstrate that they have maintained their competency in line with minimum standards post 2017. For more information please contact the PAA Learning and Development team on 09 600 5174 or visit paa.co.nz.

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{ FINANCIAL PLANNING } Simon Hassan says he’s not ready to trade the buzz of helping clients for a life lived on the golf course yet. By Susan Edmunds

t might seem like quite a leap from school teacher to financial adviser but Simon Hassan says his two careers have a surprising number of similarities. The Auckland-based financial adviser has been in the industry since 1990, when he decided it was time for a change after many years teaching. He had dabbled in teaching virtually every subject you could think of and worked his way up to an assistant principal position. But he was looking for something more. “With five kids and one income life was fairly tough,” Hassan says. “I wanted to earn more money so I looked around for things I could do.” Hassan wanted to work in a profession, rather than heading for a purely sales role, such as a job selling real estate. He was even accepted for medical school but turned it down. “I realised that with five children and one income I couldn't afford several years on an even lower income.”

FORTUITOUS CONVERSATION But then a conversation in which he was told that not enough people were saving for retirement and there was good money to be made in that field proved fortuitous. Hassan admits he was a reluctant convert at first. “To make an income, you had to work within an insurance company at that time and I didn't like insurance much,” he says. After discussions with a number of insurance companies and deliberations, he decided to “recruit himself” to Prudential. Even then, he wrote “retirement planner”

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We ended up with enough critical mass to survive without having to have a year of no income... although there was a year of no spending apart from the essentials. - Simon Hassan

on his first tax return in the position, rather than “insurance agent”, reluctant to tar himself with that brush. He focused on solving people’s needs rather than selling them products and began thinking about ways to charge fees rather than take commissions. Hassan first became aware of the concept of a financial planner and the possibility of becoming one when he recommended income protection insurance to a client. She told him it was what her financial planner recommended she do. “I said, ‘who's that?’," he remembers. “I thought he might be a competitor who came up with a flash name. As soon as she left I rang him. He told me a bit about what he did and I went round to his office straight away and spent an hour-and-a-half there hearing about financial planning. It sounded exactly like I wanted to do.”

MANAGEMENT ROLE SOUGHT Almost immediately, Hassan enrolled for the Massey diploma course. “I never looked back.” Around the same time, he decided he had had enough of sales calls in the evening and the grind of working on commission and decided to pursue a job in management. He was offered a sales management position with a competitor but decided to approach Prudential to see whether there were roles available to him there. While he was waiting for his appointment with the boss, Karen Morris, who was the investment services manager for Prudential at the time, walked past. It turned out that

ADVISER PROFILE

management role in the investment side of the business was available. Hassan says: “I jumped at it.” When Prudential was eventually restructured, staff were offered the chance to move from their salary, company car and superannuation deals to collecting a share of the deeds they brought in.

CRITICAL MASS But Hassan was keen to move out on his own and he and his wife, Rosemary, set off to work with another couple, Barry and Cherie Stewart, to set up Stewart Hassan and Associates. Prudential told Hassan that he was free to tell his clients what he was doing and where he was going, and they could follow if they wished. “We ended up with enough critical mass to survive without having to have a year of no income... although there was a year of no spending, apart from the essentials.” That company launched in 1995 and operated until 2000, when the Hassans went out on their own. They have since tried to hire advisers many, a new adviser, Simon Stredder, was appointed last year and is slowly buying into the business. In the early days, most of Hassan's clients were people who were approaching or at retirement and had a lump sum to invest. Now, while that type of client is still a key part of the business, Hassan and Associates attracts more younger people because they

have been referred by their accountants or have done their own research and decided the business is the right one to help them. Many are high-earning professionals or people who have sold an asset and need advice, he says. Hassan would like to see more “professionalisation” of the financial advice industry, although he says the point at which it can really claim to have made the switch is getting ever-closer. “The regulation we work under now makes it much clearer that that's what we have to do. I've always wanted to find the most professional way to do things, solving people's needs rather than selling things. There's plenty of room for financial advice to grow. If our experience is any indication, it's really a great place to be.”

HALF AND HALF Hassan and Associates mostly operates on a fee basis, with about 5% of its revenue from commissions, half of which is from insurance and half from KiwiSaver. Investment clients pay an annual percentage-based fee and the practice also charges on an hourly basis when necessary. Fees include other services such as retirement planning and estate planning. Hassan says clients never query the need for fees. “Our fees are reasonable for what we do.” When he is not working, Hassan can usually be found on the golf course. “When I turned 60 a couple of years ago I decided to take up

golf; I love it. I'm still in the honeymoon period, it doesn't matter if I win or lose, I really enjoy it. I suppose that won't last.” Rosemary has taken up horse riding. “Our youngest is in her second year at university and is a responsible 20-year-old now so we are enjoying the freedom.”

STILL TEACHING … Hassan says he still misses the interaction of teaching. “But on the other hand I get a lot of that in my work. I taught at Massey for nine years and there has been plenty of teaching in my career since leaving teaching.” He has no plan to change his vocation again. “There is so much satisfaction in what we do. People come to me with a question or an issue, should they pay off a mortgage or should they invest, how much should they save, do they really need insurance. I can help them work through those issues and come up with a plan to achieve their objectives. It's very satisfying.” While the goal is eventually to hand the business ownership over to Stredder, Hassan say she would like to continue to work in the business as an employee or contractor even once that has happened. “There’s only so much golf you can play, even in the honeymoon phase. I enjoy the excitement and the challenge of what I do. In busy times like now when it’s hard to find time for everything, I think it might be nice to be part-time, but no, not yet.”

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PRACTICE ASSET REGULATION DATA MANAGEMENT ADVISER

{ GOAL SETTING }

{Start the year with a plan so that you end with a success.}

Competitors change. Laws and regulation change. By looking both back and ahead over long enough time-scales we can build resilience into our plans. From the minimal approach of simply recording the first idea we have about responding to each one of those potential changes to well worked-up plans with alternatives, redundant systems, and resources committed to them, whatever you choose will work, but plan ahead.

{ RUSSELL HUTCHINSON }

hether last year was good or bad, most people want this one to be better. The difference between a vague wish and the wonderful reflection at the end of 2016 on a good year will be many actions you take every day in between. To make sure those actions are carrying you toward your goal, planning is vital. The more you process your vague wish using organisation, commitment, and resources, the more likely you are to succeed. So this time of year is about planning and organising, the same in my business and for many clients. Here are the main points we look for in the planning process to get us going for a big year. By the time you read this, you should have done your annual planning, but you may consider this another challenge to the process.

PLAN AHEAD In long time-scales almost everything is predictable. Economies go in cycles. Disasters happen. Staff leave. Technology changes.

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GET IDEAS The planning process always needs something new – new information, new data, and, most of all, new perspectives. The processes that work best are the ones that focus on doing this. They invite it, they seek it out, and they don’t judge it. Your experience is valuable, vital, and may tell you that the one wacky idea someone from outside the industry just came up with “won’t work” because they “don’t understand” but if you allow yourself to rule out changes immediately then you aren’t planning, you are just playing a game. You are merely justifying the idea you have already decided on. You think you don’t do this. You know that some people are narrow minded, and some are more liberal than you, and you think you are “a bit more openminded than most”. Probably you aren’t. Think about the surveys of drivers by the AA which show that almost everybody thinks they are “above average” as a driver. First try to get new ideas. Read the articles by people you don’t like. Subscribe to the newsletters, Twitter feeds, and blogs that advocate views other than your own. Ask different people for ideas. When you ask for ideas and you get the ones you think are

rubbish practice saying “that’s interesting – I’ll write that down” and write it down and do not permit yourself to evaluate it until the next day.

CREATE OPTIONS Good decisions come from having good options to choose from. Preferably you should try to make up options which are all attractive in some way, but are all quite different. That’s hard. Often we make up long lists of small variants. It’s like my one big idea is to go and get a coffee – it could be a long-black, a flat white, filter, or cappuccino etc. But you’ve got to calibrate it right. When you write down at the bottom of your business-asusual plan “or we could go to Antarctica and do financial planning there,” I know you aren’t serious either. Invest a little in each option. Try to make the choice hard, as if you would almost like all to do these things. As if you were selling each one.

WRITTEN DETAIL I know that in many adviser businesses, there is just one manager. It was the same for me for many years, and I am glad it has changed. It can become an excuse not to create a plan in writing. Or to write one that is so basic and poorly drafted that it is almost the same as not having one. You may make a list, without priorities, costs, and requirements in order to achieve your goals. That’s a wish-list, not a plan. Each of the following steps will make your plan stronger: ▶ A list of goals. ▶ Options for achieving each goal. ▶ An overarching vision or reason for being. ▶ Prioritising and working out trade-offs. ▶ Adding resources and costs required to each item.

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▶ Spotting dependencies. ▶ Comparing the requirements of your goals with your capabilities and competencies and working out how to bridge the gap. ▶ Planning over different time-scales (one year and three years as a minimum). ▶ Identifying the key metrics and bringing those numbers in from previous years. ▶ Identifying the leading indicators (think of the sales waterfall from prospect to payment). ▶ Including key market information. ▶ Have quality standards. Using some of the many business models or proprietary business planning tools should be considered.

GET ADVICE The truth is that when you work largely on your own, putting your plan in writing is more important than ever. It means you can carry it around and re-read it. Show it to your partner, your business coach, an old friend, the person in the industry that’s retiring this year and you have always valued their opinion… The “you” who reads the plan in March will be different to the “you” who wrote the plan in January. That in itself is one way to get different perspectives. The most likely things to plan for… You will want to grow – so you must revise your marketing planning. You may need to contemplate new methods. Evaluating these against previously-employed methods will

The most likely things to plan for… You will want to grow – so you must revise your marketing planning. You may need to contemplate new methods. require you to run some numbers. If you don’t have enough data to check the numbers from last year, that suggests a goal for this year. One job remaining for many advisers (and insurers) is to get over yourself and seriously work on improving your website, blog, LinkedIn, and Twitter presence. If you are an RFA (or if you are in a QFE) get AFA ready. Of all the guesses that we can make about the future, rising standards of education and the wider application of the AFA Code look like being central to them. It doesn’t stop at getting level five, or getting authorisation – it includes having systems that help you create

compliant advice documents and records.

UNDER-REPORTING Create defences against cyber-crime. The biggest short-term risk to most small businesses, especially those in financial services, is online crime. Bogus invoices, credit card fraud, phishing, spear-phishing, staff fraud, customer fraud. This is the largestgrowing segment of crime and underreporting means it is bigger than we think. Have standards. Write them down and refer to them during the year. I know this is a low bar, but here’s a basic one: if you are acting as an adviser and you are “borrowing” someone else’s FSP number, you need to stop. Get online now and get your own registration. I am appalled at how many times I have come across this. If you want some guidance, refer to the AFA Code.

EXECUTION Doing what you plan is the next challenge. At the very least put the plan somewhere visible and set diary notes to review it regularly. Depending on what you track and how often, you should probably be quickly checking against it weekly and doing more extensive checking monthly. Russell Hutchinson is director of Chatswood Consulting and director of Quality Product Research.

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{ MARKETING }

What would Steve Jobs do? If financial services practitioners wanted to really build a great business – perhaps not achieve world domination, but just build a great business - they could do worse than to ask.

{ TONY VIDLER }

he man who launched an iconic brand was renowned for thinking differently. One of the most groundbreaking marketing campaigns of all time was the Apple “Think Different” series of ads in the late 1990s which essentially celebrated the merits of thinking differently to mainstream society. The irony was that the advertising was then placed in traditional marketing mediums, and in very traditional formats. But what was different was the focus on an aspirational message to market a product that nobody knew anything about, or even whether they needed it. It occurs to me that if anyone happens to be in a business of trying to market what is basically not-very-sexy stuff, to consumers who do not even recognise that they need the un-sexy-stuff. Then it is worth looking at how others got the market excited to begin with. That is what we in financial services do not do well: excite the market. Some readers may

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even think that an impossible goal. The thing is as individual advisers we do not have to excite the entire marketplace. We only have to excite the small sub-set of the market that we want to work with, and have the capacity to deliver fabulous value and service to. Perhaps 400500 people are all we need. Any one of us can excite 500 people with a strong and aspirational message. Apple did it initially by claiming that they designed the cool tools for geniuses, and then built a story and aspirational campaign around it. The result? Every aspiring genius thought they HAD to be part of the Apple tribe. At the risk of sounding like a recruitment poster for the industry, we do actually have incredibly great stories to tell. We have fabulous skills, products and services for aspirational New Zealanders. Financial advisers who care about their clients, and who are discerning in how they guide and coach clients through life changes and the plans to achieve the clients life goals, do something that no other industry or profession truly does: FINANCIAL ADVISERS CREATE INTER-GENERATIONAL WEALTH. Whether it is through risk management, better debt management, or the accumulation and protection of investments and estates, financial advisers help consumers to create independence through surplus. Sound financial advice is not really about making sure that the client’s last cheque bounces at the undertakers, it is about ensuring there is surplus and that dependents, beneficiaries and community interests are protected and benefit from the estate of our clients once the clients needs have been met. Advisers have a great story to tell.

Certainly there will be elements of society where the consumers are not actually aspirational at all, and our story does not move them one iota. But for a significant part of New Zealand society what financial advice can help achieve is precisely what those consumers need. Understandably perhaps there were quite a few years of investment and lending debacles, followed by regulatory overhaul and learning the new ways to provide professional advice. Those days are behind us. The best investment of time, and perhaps some money, that an adviser can make as we move into 2016 is to focus on understanding the aspirations of their target market and then building a marketing message that resonates with that target market. It does not have to appeal to everyone, just the right 400 or 500 consumers for you. Having said that, I am not suggesting that successful advisers only work with ideal target market clients. In most parts of New Zealand that is prohibitive for most advisers, as there either aren’t enough ideal target market clients locally to begin with, or that target market will take a little bit of time to create top-of-mindawareness within. For most advisers they need to have at least two, if not three, target markets. At a minimum you need: ➊ A general market segment, which is relatively broad and has fairly generic needs in terms of financial advice. These are the “bread and butter” clients where you can deliver great solutions, at reasonable price, and perform the work profitably and satisfactorily. Typically, this is not especially exciting work though. ➋ An ideal client segment, which is far tighter and has far more specific needs or dynamics. These are the ones that you

PRACTICE ASSET DATA MANAGEMENT ADVISER

really enjoy working with, and who represent either practice growth, or your professional growth. They will be high value economically to the practice, but more importantly they are the clients that you actually love coming to work for. Having determined those target markets, you then need to craft your value proposition, which will sit at the centre of your marketing efforts to drive customer acquisition. That value proposition should absolutely resonate with the ideal target market’s aspirations, but be a little adaptable. For example, if your ideal target market client was a small business owner, but you were also happy to work with non-business owners for their personal risk management, your core value proposition might be: “HELPING BUSINESS STAY SOLVENT WHEN DISASTER STRIKES” It is a reasonably good value proposition as it is focused upon the outcome your professional advice can deliver, and which generally taps into a concern, or aspiration, of the target market. After all, most business owners see their future wealth being derived from their business, and you are promising to keep that wealth intact. When marketing to business owners (which would be the bulk of your marketing efforts as they are the market segment that you are ideally after), that is the value proposition you would use, and then you can build your marketing messages around that. However, when marketing to, or talking with, the bread-andbutter clients who are not business owners, your message might be modified to: “HELPING FAMILIES STAY SOLVENT WHEN DISASTER STRIKES” The essential promise, or outcome, is the same. We are just adapting it to fit different market segments. It is that outcome, or end result of your professional advice and planning efforts, which is where the potentially exciting element is. Define the promise, build an aspirational story to support and explain it, and then you have an effective marketing message to help build your business. That’s what Steve Jobs did. Tony Vidler is an adviser to financial advisers, helping them to grow their businesses via his coaching firm, Strictly Business.

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DATA

{ INSURANCE }

INSURANCE MARKET SHARE WHOLE LIFE AND ENDOWMENT POLICIES AIA AMP Asteron Life Cigna Fidelity Sovereign

0% 80% 4% 0% 1% 15%

TERM RISK AIA AMP Asteron BNZ Cigna Fidelity

5% 17% 10% 6% 2% 10%

OnePath Partners Life Pinnacle Life Sovereign Westpac

9% 6% 1% 27% 8%

TRAUMA AIA AMP Asteron BNZ Cigna Fidelity Life

4% 13% 9% 3% 1% 12%

OnePath Partners Pinnacle Sovereign Westpac

9% 10% 0% 31% 6%

At the beginning of the December 2015 quarter, there was $1.104 billion in term risk annual premiums in force. By the end, that had risen to $1.12 billion. Only accidental death cover recorded a drop in annual premiums over the quarter, from $14.7 million at the start to $14.5 million at the end. The group market also shrank over the quarter in force at quarter's end. Source: FSC statistics for December 2016 quarter, based on annual premiums.

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WHAT ADVISERS ARE READING ON

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Here are the Top 10 stories on Good Returns in the past month.

1) ANZ gets new head of wealth 2) Investors offered new way into equities 3) FSC boss quits 4) Time to tackle issue of advice for less wealthy 5) RBNZ signals OCR cuts looming 6) Concern adviser numbers will fall 7) Mike Pero and Liberty get a new boss 8) Expect lower mortgage rates in six months 9) Sovereign holds on to market top spot 10) Stress testing better option than risk indicators - James The three most commented on stories were • Forum attendees agree changes needed • Time to tackle issue of advice for less wealthy • Investors offered new way into equities

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A NEW OPPORTUNITY. AN ENABLEME FRANCHISE. WHO ARE WE? enableMe are a team of Financial Personal Trainers who help their clients get ahead faster. Clients are either ‘Starting Out’ wanting to manage their money smarter, ‘Building Up’ – wanting to be in control, kill their mortgage and build wealth faster or ‘Sitting Back’ – where they are working towards a comfortable retirement. All are capable of achieving a better financial result and they work with enableMe to achieve their potential. After eight years, a strong trading history, and a track record of helping thousands of clients achieve their financial potential, enableMe has established a new franchise business network.

“We have developed a unique methodology to help our clients achieve and maintain financial success. Using our patented formula, financial smarts, support and a proven framework we keep our clients accountable to their goals. When you are in control of your finances you are in control of your life”.

KEY BENEFITS YOU ENJOY AS AN ENABLEME FRANCHISEE • Being part of our well-known brand with a proven track record. • A competitive advantage in a challenging industry. • A service that offers real value and changes the lives of your clients. • A rewarding business with sound financial potential. • Running your own business with our support and expertise. • An assigned marketing territory with untapped potential. • enableMe Support Office assists with management of routine sales and marketing, administration, IT, report writing, client analysis and technical support matters, giving you more opportunities to grow your business. • On-going business advice and assistance from our supportive Franchise Management Team.

enableMe are taking a very measured approach with the rollout of their franchise network, capping the number of available Franchises to four per year. Target territories for 2016 include: Waikato, Otago, Hawkes Bay, Manawatu and Marlborough. For more information on this business opportunity please email Hamish Cowan, General Manager, hamish@enableme.co.nz (Subject: Franchise Summary Request)

www.enableme.co.nz

Hannah McQueen, its founder, is excited to bring this opportunity to the market and continue to grow a national network of financial personal trainers.

FRANCHISEE CHARACTERISTICS The enableMe business would suit a top-performer looking for a new challenge. enableMe is looking for appropriately qualified team players who share our vision and passion for helping people reach their financial potential. In particular, the following attributes are important in a potential Franchisee: • Motivated self-starter, willing to work hard to develop the enableMe brand locally. • Strong reputation for high standards and professionalism. • Experience in providing consultative solutions. • Ability to build and maintain strong customer and business relationships.

Note – Position is suited (but not limited) to a CFP, AFA, RFA or Chartered Accountant