Crown rebalance reflects
Aussie market slump
THE biannual recalculation of the FE Crown Ratings reflected a broad-based fall in the markets last year.
Only nine Australian broad cap equity funds received a fivecrown rating, compared with over four times that in the September calculation. Inversely, the global broad cap equity sector saw 25 five-crown rated funds, compared with nine at the last calculation.
And, while most Aussie broad caps battled against sentiment flowing on from the Royal Commission, a drop in house prices and a pretty tough Q4 last year, some stalwarts, like Macquarie Investment Management and SG Hiscock & Company managed to grab hold of a five-Crown rating.
Looking at style more generally, the market showed no mercy to value or growth, but cyclicals, which dominate in value styles, were hit the hardest, meaning the market worked against value more than it did growth.
Strategies that managed to encompass diversity in terms of both geography and stock selection, however, were those which shone in the period.
FE’s head of data, Australia and New Zealand, Stuart Alsop, said the equity market in general has become more volatile in recent times, and there are signs this volatility is here to stay, so now, more than ever, it is an opportunity for fund managers, portfolio managers and strategies to set themselves apart and excel in active management.
AFA object to ALP’s 2019 end-date for grandfathering
BY MIKE TAYLOR
THE Association of Financial Advisers (AFA) has issued a statement formally objecting to the Australian Labor Party (ALP’s) plan to ban grandfathered commissions on investment and superannuation products by the end of 2019.
The AFA chief executive Phil Kewin said his organisation believed that such a move would hand yet another victory to the big end of town at the expense of small financial advice businesses and their clients.
“Attempting to turn off grandfathered commissions in such a short time frame will only serve to benefit institutions who will be able to hold onto them, with no compulsion to pass any benefit on to consumers,” he said. “Many clients currently receiving advice
services for these payments will lose access to them, without any reduction in their fees.”
“If the concern is that some advisers are receiving grandfathered commissions without providing a service, then there are other options to address this issue, without negatively impacting those clients who are in grandfathered commission paying products and are happily receiving services and advice from their financial adviser,” Kewin said Kewin said the argument that grandfathered commissions have continued for too long is not reflected in the facts claiming that “there were zero cases of inappropriate financial advice as a result of grandfathered commissions during the Banking Royal Commission hearings and
Continued on page 3
13 super funds head for the exit
THIRTEEN superannuation funds have accepted they can’t cut the mustard under the Australian Prudential Regulation Authority’s (AFCA’s) member outcomes arrangements and are exiting the industry.
APRA chairman, Wayne Byres has told the Senate Economics Committee that the regulator had identified an initial group of 28 funds which it believed where delivering poor outcomes for members “across a range of dimensions”.
He said the trustees of those funds were challenged by APRA to justify how they were delivering value for members.
“Of these, 13 have looked at the evidence and have exited or are exiting the industry, and another seven have changed product pricing or fees in some way to make their offerings more competitive,” Byres said.
He said that, of the remainder, five were deemed on further exploration to have better performance than first appeared, and actions in relation to the other three were expected to be agreed shortly.
3
HAS ASIC FINALLY BECOME A WATCHDOG WITH TEETH?
The Australian Securities and Investments Commission has been wounded by the Royal Commission and is out to prove a number of important points, no matter what the cost.
IT IS NOW eight years since Tony D’Aloisio was the chairman of the Australian Securities and Investments Commission (ASIC) and was heard likening the regulator to a policeman who turned up to a motor vehicle accident to clean up the mess.
Such an attitude gels with the recollection of financial services barrister, Noel Davis who, in a column published elsewhere in this edition of Money Management recalls being told by ASIC staffers of the regulator’s reluctance to pursue litigation against financial services miscreants because of the embarrassment of losing.
Just over 10 years on from the global financial crisis and armed with a new funding regime, more powers and access to greater penalties ASIC is portraying itself as more than just a country copper on clean-up duty. It is portraying itself as having transfigured from watchpoodle to fully-fledged watch-dog.
The criticisms levelled at ASIC during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry together with the trenchant, if opportunistic criticisms of
politicians, have prompted the regulator to bare its teeth.
If any proof were needed of this it was last week’s announcement by ASIC’s new deputy chairman and resident silk, Daniel Crennan QC, that the regulator would be going to the trouble and expense of appealing the recent Federal Court decision upholding the position of Westpac Securities Administration Limited and BT Funds Management Limited with respect to the difference between general and personal advice.
ASIC’s decision, led by Crennan, to pursue the appeal will warrant being closely monitored because it will be both costly and, if successful, will establish some important precedents for the regulator not only in terms of what represents “general” and “personal” advice for the purposes of key sections of the Corporations Act but also how litigious ASIC is prepared to be.
The appeal against the Federal Court decision must also then be weighed against the reality that ASIC is currently weighing up the possibility of legal action against a number of people whose names were referred to the regulator by the Royal Commission into
Misconduct in the Banking, Superannuation and Financial Services Industry.
The names of those referred by the Commissioner, Kenneth Hayne, have not been disclosed but are speculated to include some former and current senior financial services executives giving rise to the likelihood that any charges escalated to the courts will be hotly-contested with the defendants acutely aware of the fact that the penalties available to ASIC have been significantly increased.
As a result of Government legislation passing the Parliament last week, the maximum prison penalty for the most serious offences has been increased to 15 years and for civil penalties for companies to operate under an increased cap of $525 million.
As well, the maximum civil penalties for individuals will increase to $1.05 million.
The bottom line, therefore, is that ASIC is on a mission to prove its detractors wrong and someone will be made to pay.
Mike Taylor Managing Editor
FE Money Management Pty Ltd
Level 10
4 Martin Place, Sydney, 2000
Managing Director: Mika-John Southworth
Tel: 0455 553 775
mika-john.southworth@moneymanagement.com.au
Managing Editor/Editorial Director: Mike Taylor Tel: 0438 789 214
mike.taylor@moneymanagement.com.au
Associate Editor - Research: Oksana Patron Tel: 0439 137 814
oksana.patron@moneymanagement.com.au
Features Journalist: Hannah Wootton Tel: 0438 957 266
hannah.wootton@moneymanagement.com.au
Journalist: Anastasia Santoreneos Tel: 0438 836 560
anastasia.santoreneos@moneymanagement.com.au
Events Executive: Candace Qi Tel: 0439 355 561 candace.qi@financialexpress.net
ADVERTISING
Sales Director: Craig Pecar
Tel: 0438 905 121 craig.pecar@moneymanagement.com.au
Account Manager: Ben Lloyd Tel: 0438 941 577 ben.lloyd@moneymanagement.com.au
Account Manager: Amy Barnett Tel: 0438 879 685 amy.barnett@financialexpress.net
PRODUCTION
Graphic Design: Henry Blazhevskyi
Subscription enquiries: www.moneymanagement.com.au/subscriptions customerservice@moneymanagement.com.au
Money Management is printed by Bluestar Print, Silverwater NSW. Published fortnightly.
Subscription rates: 1 year A$244 plus GST. Overseas prices apply. All Money Management material is copyright. Reproduction in whole or in part is not allowed without written permission from the editor. © 2019. Supplied images © 2019 iStock by Getty Images. Opinions expressed in Money Management are not necessarily those of Money Management or FE Money Management Pty Ltd.
ACN 618 558 295 www.financialexpress.net
© Copyright
BY MIKE TAYLOR
AFCA empowered to deal with historic complaints Futuro ends AMP link
FINANCIAL PLANNING firms with long-running client disputes should brace themselves for referral to the Australian Financial Complaints Authority (AFCA), following a key move by the Treasurer, Josh Frydenberg.
The Treasurer has announced that the Government has extended AFCA’s remit to consider financial complaints dating back to 1 January, 2008, consistent with the time-span examined by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
He said that AFCA would be able to consider disputes dating back to 1 January, 2008, that had not previously been hard and which fell within AFCA’s current monetary limits and compensation thresholds.
Frydenberg said that to give effect to the direction, AAFCA would now consult on updating its rules so that it was in a position to begin receiving
AFA object to ALP’s 2019 end-date for grandfathering
Continued from page 1
research by Investment Trends indicates that grandfathered commissions have declined from over 30 per cent of advice practice income in 2010 to just nine per cent in 2018.”
“At no stage have the objectives and potential consequences been discussed or debated,” he said. “Both Treasury and ASIC have confirmed that they have not done any research or investigation to confirm the current level of grandfathered commissions or the implications of seeking to remove it. Achieving the right outcome for clients is a much more complex proposition than is appreciated by any of the proponents for a ban.”
Kewin said the proposed ban was therefore simply an issue of political expediency, which numerous stakeholders had sought to use in order to leverage political, media and commercial benefit at the expense of small business and consumers.
“This is neither fair nor
complaints under its expanded remit from 1 July, this year.
The ANZ has already committed to allowing AFCA to examine cases dating back to 1 January, 2008.
acceptable as it jeopardises the livelihoods of professional, hard-working financial advisers. The potential financial and emotional impact on these people is profound. Forcing a transition sooner than practical also jeopardises the ability for clients to remain in an advice relationship.”
The AFA chief executive said the ALP’s proposed move was unnecessary, especially given that there were avenues for a sensible transition available to the Government and Opposition to consider, should they choose to work with the industry.”
He said small business financial advice practice owners had acquired businesses in recent years that included grandfathered commission clients and had taken out loans to fund these acquisitions on the basis of prevailing valuation methods.
“These small business owners had no expectation that grandfathered commission arrangements would come to a sudden end,” Kewin said.
BRISBANE-BASED financial planning firm, Futuro Financial Services Pty Ltd has ended its relationship with AMP Limited and is now 100 per cent privately owned and non-aligned.
The company’s executive chairman, Dennis Bashford announced that the relationship with AMP had been formally ended.
“With a 17-year track record at Futuro, we felt we were perfectly positioned to make the best of the current environment and as part of this have now formally finalised the end of our relationship with AMP,” he said.
He said that for the last 18 months Futuro had been “going through transitional change to satisfy tomorrow’s advisers”.
“We feel that the conscious move to become a non-aligned AFSL means we are looking forward to future with excitement and anticipation,” Bashford said.
13 super funds head for the exit
Continued from page 1
The APRA chairman told the committee that further consolidation in the industry was likely as a result of the regulator’s action.
“It is difficult to argue that Australia needs as many as 200 superannuation funds or 40,000 plus investment options. But that well-worn adage remains true: past performance is not necessarily a good guide to future performance,” Byres said. “We also need to ensure that new competitors to the marketplace, who will inevitably start without a track record and potentially high costs until they can generate scale, are not prohibited from entering the system.”
He said that, for these reasons, APRA continued to advocate an approach that looked at performance of trustees across a number of dimensions, and did not rely solely on measures of historical returns over a particular time horizon as the only determinant of success or otherwise.
Ken Henry excluded from NAB CEO selection committee
BY MIKE TAYLOR
OUTGOING National Australia Bank (NAB) chairman, Ken Henry will not be a member of the board committee which selects the bank’s new chief executive or his replacement as chairman.
NAB revealed Henry’s absence from the selection committee to the Australian Securities Exchange (ASX) at the same time as
confirming that exiting chief executive, Andrew Thorburn would receive a payment of $1,041,449 in lieu of 26 weeks’ notice along with accrued entitlements.
However, it said that Thorburn’s unvested deferred awards would be forfeited in accordance with plan rules.
NAB’s interim chief executive, non-executive director, Phil Chronican will receive a fixed monthly fee of $150,000 including superannuation, representing annualised remuneration of $1.8 million and will not receive nonexecutive director fees in the role.
The selection committee to recruit a new chairman will be chaired by director, David Armstrong while the CEO selection committee will be chaired by Ann Sherry.
ClearView announces premium changes
CLEARVIEW has announced new pricing arrangements for its LifeSolutions customers effective from 1 March, claiming the changes reflect the realities of underlying claims experience across the industry and the economic environment.
In an announcement released by ClearView’s general manager of distribution, Christopher Blaxland-Walker the company said that premiums had been revised across all cover types including Life, Income Protection, Total and Permanent Disability (TPD), Trauma and Business Expense Cover.
It said that for stepped and hybrid premiums the changes would, in general, reduce Life and TPD premium rates and increase Trauma, Income Protection and Business Expenses premiums.
The company’s statement said premium rates for new Level premium business were generally increasing.
“Level premium rates are sensitive to investment market interest rates (we have to invest
some of the initial year level premium to pay for the longer term claims costs). With the sustained low interest rate environment, coupled with higher Income Protection and Trauma claims costs, unfortunately overall these rates have to increase,” it said.
How IOOF leveraged its ‘self-employed advice model’
THE secret to IOOF weathering the recommendations of the Royal Commission appears in large measure to be owed to the high proportion of self-employed advisers working under its dealer group brands.
IOOF describes it as “the selfemployed advice model”.
The company’s relatively modest estimate of client remediation costs and exposure to the loss of grandfathered commissions is owed to the fact that it has 1,379 self-employed advisers working within its Financial Services Partners, RI Advice, Millennium3, Bridges, Lonsdale and Consultum dealer groups and just 176 salaried advisers working within Shadforth.
Thus, the company estimates the total net impact of grandfathered commissions received in the first half of the current financial year as being $3.4 million, while it has described the financial impact on IOOF of an end to life/risk commissions as being “not financially material”.
Describing its approach to the recommendations flowing from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry IOOF told investors that situation with respect to grandfathered commissions was very much in the hands of advisers.
“Advisers will need to consider the impact on their business including its remuneration structure and valuations, if not so already,” the company said. “There is potential contention around the date to end grandfathered commissions if Labor is election – it’s unlikely to be brought forward to any earlier than 1 July, 2020.”
On the question of life risk insurance commissions, IOOF said advisers would need to “consider their value proposition for insurance advice and how this would fit into a fee-only world in three years’ time”.
“This will also affect advice business valuations,” it said.
Accountant enters ASIC EU over SMSF advice
BY MIKE TAYLOR
AN accountant involved in the establishment of self-managed superannuation funds (SMSFs) has entered into an enforceable undertaking (EU) with the Australian Securities and Investments Commission (ASIC) after it found she had failed to act in the best interests of her clients and prioritised her own interests.
ASIC announced that the accountant, Jenan Oslem Thorne of Saber Superannuation Pty Ltd has entered into an EU which prevents her from providing financial services for a period of three years effective from 13 February, this year.
ASIC said it decided to review Thorne’s advice when it discovered, during its investigation into Park Trent Properties Group Pty Ltd,
that she was receiving referrals in relation to establishing SMSFs from Park Trent.
ASIC reviewed advice provided by Thorne when she was a representative of SMSF Advice Pty Ltd, a wholly owned subsidiary of AMP Limited, and concluded that she had advised some of her clients to establish SMSFs without taking their circumstances into account.
The ASIC announcement said the regulator found that Thorne hadn’t properly considered her clients’ existing superannuation arrangements or explored why they were interested in investing in direct residential property through an SMSF. When recommending SMSFs to some of her clients, she had inappropriately scoped advice by excluding insurance and retirement planning.
ASIC also found that Thorne did not
Former Macquarie Asian equities team launches Asia fund
BY OKSANA PATRON
FORMER members of the Macquarie Asian Equities team have set up Stonehorn Global Partners and launched its new billion-dollar Asia Equity Fund. Also the firm would be joined by co-founders Duke Lo and John Lam who previously worked for 10 years together, managing over $4 billion.
The new entity would be headed by Sam Le Cornu and backed by Australia’s Trawalla Capital.
The new fund would have a disciplined investment process and would be unconstrained (benchmark, sector, country and market-cap agnostic). It would hold approximately 30 stocks in MSCI Asia ex-Japan.
The fund would be based on-the-ground in Hong Kong to better leverage the team’s local networks, language skills and high-level access to Asia’s leading companies, the firm said.
“Our investment approach is the same as what we did in the last decade” Lam said.
“The principles behind how we organize ourselves are also the same. What will be different this time is the environment, market inefficiencies will always exist, and all it really does is further set apart the good managers from the mediocre.”
Trawalla Capital, is a private investment firm of the Melbournebased Schwartz Family Office, headed by Alan and Carol Schwartz. Trawalla Capital would be also a shareholder in Stonehorn and a significant investor in the inaugural fund.
“Stonehorn Global Partners will be Trawalla Capital’s third portfolio company complementing Qualitas, a real estate investment management firm and Armitage Associates, a growth equity firm,” MrSchwartz said.
“We are therefore delighted to be partnering with Sam, John and Duke. They are established leaders who are proven in their field, whose values and approach are strongly aligned with our own.”
The fund would initially be open to investment from institutional and wholesale investors in Asia, Europe and Australia, including high networth individual investors, family offices and institutions.
It would be expected to be open to institutional and wholesale investors in April-June 2019, the firm said.
adequately stress-test SMSF strategies and had recommended SMSFs to some of her clients despite inadequate evidence to suggest that the strategies would provide increased retirement benefits.
Furthermore, Thorne had recommended that her accountancy practice, Saber Accountants Pty Ltd, prepare the annual accounts and tax returns for the SMSF clients. This led ASIC to determine that Thorne recommended the services of a related party to create extra revenue for herself.
As part of the EU, Thorne has agreed to inform all her former personal advice clients about the EU and provide contact details of her former licensee, SMSF Advice Pty Ltd. Former clients of Thorne who have enquiries or complaints regarding her advice or conduct should contact SMSF Advice Pty Ltd.
Which global equity funds gave investors the best January?
BY ANASTASIA SANTORENEOS
GIVEN the tough Q4 all funds across the board faced last year, Money Management looked at the performance of global equities in January this year to see which funds bounced back in January and gave investors the best start to 2019.
The top fund in January, UBS Global High Conviction, returned 10.66 per cent for the month – a massive feat compared to its bottom position the previous month, with -10.84 per cent returns. It’s similarly a step up from its performance in January last year, where it returned 3.41 per cent.
In fact, the top fund for the month returned around six per cent more than the top fund for December, Fidante Credit Suisse Global Private Equity, which returned (4.10 per cent).
The second-top fund, Invesco Wholesale Global Opportunities Hedged, similarly outdid its December performance, returning 10.34 per cent in January as opposed to -6.42 per cent in December. Again, like UBS, the fund also got off to a better start this year than last, where it returned 3.50 per cent.
Perpetual’s Wholesale Global Share Hedged returned 10.32 per cent compared to -7.50 per cent in December last year, and Pan-Tribal Global Equity returned 9.83 per cent as compared to -5.35 per cent the month prior.
The last fund to comprise the top five for the month was Evans and Partners International Hedged, which returned 9.63 per cent, which again is a feat compared to its December returns of -5.51 per cent, and its January 2018 returns of 1.03 per cent.
What’s clear is that the top funds genuinely doubled returns to make back the month, not unlike the MSCI AC World ex Australia index, which returned 4.78 per cent in January compared to -3.62 per cent in December last year.
As well, where only five funds in the sector managed to stay above the line and produce positive returns, only one fund, the Stewart Investors Wholesale Worldwide Leaders fund, dropped to negative for the month, returning -2.26 per cent.
Greens would compel banks out of wealth management
BY MIKE TAYLOR
THE major banks would be made to divest their interests in financial planning and financial planners would have to be individually licensed under policy approach prescribed by the Australian Greens and revealed in a key Parliamentary Committee report.
In additional comments attaching to the House of Representatives fourth Review of the Four Major Banks, Greens committee member Adam Bandt said his party’s policy approach would require banks to divest themselves of financial advisory and brokerage services, such as CommSec and Nabtrade.
“The Greens would also ensure that the wealth management companies that the banks are selling are split so that superannuation is separated from product issuance and financial planning,” his commentary to the committee’s report said. “A failure to do so would still leave an inherent conflict of interest within essential service providers.”
Challenger feels advisers’ pain
CHALLENGER Limited has acknowledged that the negative perceptions of financial planners generated by the Royal Commission and other events are having an impact on its annuities business.
In commentary attaching to the release of its half-year results, Challenger said its Life business relied on financial advisers, both independent and part of major hubs, to distribute its products.
“Following hearings on financial advice in the Royal Commission into Misconduct in the Banking and Financial Services Industry there has been reduced customer confidence in retail financial advice and significant disruption across the adviser market,” it said.
“This includes increased adviser churn and reduced acquisition of new clients by financial advisers.”
“While there is a relatively less direct impact form the Royal Commission final report on Challenger, and Life’s customers are not questioning the quality of its products or services, the disrupted industry environment is impacting Life’s sales,” the commentary said.
“Life has a strong reputation with adviser trust in the quality of its products and services and is broadening its distribution reach by making its annuities available on platforms targeting the individual financial advisers market,” it said.
“Within the remaining complex and selective components of the finance industry, separation would be primarily on the basis of whether products are retail grade or investment grade, and whether customers are retail investors or sophisticated investors, as it currently is.”
The Greens would introduce a range of measures to increase protections for retail consumers including:
• Financial planners will have to establish an industry-wide indemnity scheme;
• Financial planners will have to be individually licenced and need to be owned and operated separate from any product issuance firms if they are to call themselves a financial planner;
• Mortgage brokers will need to be owned and operated separate from any lending institution; and
• Financial planners and mortgage brokers will no longer be able to receive commissionbased sales.
Westpac: It would have to divest its wealth management
arm, BT Financial Group, and break-up superannuation, insurance and wealth management.
ANZ, CBA and NAB:
ANZ, CBA and NAB are on the way to divesting their wealth management arms. But they will be compelled to finish the job and also have to divest their trading platforms.
Macquarie Bank:
It will no longer be able to operate as a retail bank (ADI) and investment bank.
AMP:
It will have to break-up. Currently it is an ADI, as well as offering superannuation, insurance and wealth management. It will need to choose one area to operate in.
MLC:
Currently owned by NAB, but is being sold off. In addition to this it will have to break up superannuation, insurance and wealth management.
OnePath:
Currently owned by ANZ, but is being sold off. In addition to this it will have to break up superannuation, general insurance and wealth management.
Did the RC miss the mark?
MORE research has emerged confirming financial planners and mortgage brokers rather than the major banks and product manufacturers have emerged worse off from the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
A Roy Morgan Research analysis confirmed that it is the financial services intermediaries who are being most negatively impacted.
It said that financial planners and mortgage brokers currently account or the distribution of 35 per cent of the total value of the major financial products and that this covered the combined value of home loans, superannuation, life/risk insurance and managed funds.
“A number of the recommendations of the Royal Commission relate to mortgage brokers and financial planners and, if adopted, are likely to negatively impact their usage, particularly as it relates to borrowers rather than lenders paying fees,” the research analysis said.
The Roy Morgan analysis provided a chart revealing how consumers obtained financial products and noted that the use of intermediaries was not the same for all major financial product groups, with the high level being for managed investments with 56 per cent being
owed to the use of financial planners. It said that for superannuation, employers played the major role and accounted for 60 per cent of the market, with intermediaries accounting for 32 per cent with this being mainly due to the default fund being the major fund chosen.
The research revealed that in the case of life/risk the main channel used was by going direct to the company (40 per cent) followed by employers (27 per cent) and intermediaries (24 per cent).
Commenting on the research results, Roy Morgan industry communications director, Norman Morris said a lot of the issues raised in the Royal Commission were as a result of how bank customers purchased their product and the extent to which their needs were understood and taken into account.
“Many of the problems reported were a result of consumers having insufficient financial literacy skills for the product they were purchasing and who were obtaining it through a channel not designed to focus on their best interests,” he said.
“This research shows how significant the intermediaries are in the purchasing decisions of the major financial products and as a result there is a need to understand who they are and how they are remunerated,” Morris said.
Fiducian defies volatility to post solid half
BY MIKE TAYLOR
FIDUCIAN Group has defied the Royal Commission and market challenges which have impacted other financial services groups to post a 15 per cent increase in statutory net profit after tax to $5.004 million for the half-year ended 31 December.
At the same time the company signalled no slackening in growth plans, with Fiducian telling the Australian Securities Exchange that the Board’s policy to build through structural growth by offering client administration services, sale of financial planning software and Fiducian Funds to external markets and as well through acquisition of financial planning portfolios was fully embraced by management.
It said the results were
gradually showing and that through all the recent shortterm turmoil the group had continued on growth and expansion plans and delivered a solid increase in earnings.
Looking at the current environment in Australia, the Fiducian announcement pointed
to recent market volatility and said that while it believed the market’s reactions to events had been overdone it believed such volatility would become the norm rather than the exception. The company declared an interim fully franked dividend of 11 cents per share.
AMP flags reshaping advice network
AMP Limited has reflected the full impacts of the recent Royal Commission and other events reporting a significant decline in statutory net profit of just $28 million down from $848 million in the previous year due to advice remediation and subdued performance in wealth protection.
At the same time, the company listed transforming the wealth management business and reshaping the advice networks as being part of its 2019 priorities.
It said it would be streamlining wealth management’s operating model and product offering.
The company’s new chief executive, Francesco De Ferrari described 2018 as having been a challenging year for AMP with the continued growth of AMP Capital and AMP Bank managing to offset the headwinds faced in Australian wealth management.
He described the Royal Commission as having been “a confronting but valuable experience for the financial services industry” which had served as a catalyst for change at AMP.
“We have undertaken Board and leadership renewal, accelerated client remediation and sharpened our focus on delivering better value to customers, including reducing fees on our MySuper products,” he said.
De Ferrari said that 2019 would be a transitional year for AMP as it prioritised the complex legal separation of the life insurance business and delivered on its commitments to remediate advice customers and strengthen its risk management and governance controls.
The AMP results showed that its Australian wealth management earnings declined by $28 million to $363 million mainly due to higher margin compression from the MySuper fee reduction, weaker investment markets and the transition of clients to lower-cost contemporary products.
The company declared a final dividend of four cents per share.
IOOF’s OnePath transaction gets parliamentary scrutiny
A key parliamentary committee has thrown more focus on the future of IOOF’s acquisition of the ANZ’s OnePath pensions and investments business and the now critical role of the trustee board.
The House of Representatives Economic Committee report stemming on its fourth Review of the Four Major Banks specifically traversed the status of the IOOF/ ANZ transaction and noted that it was proving to be complex.
The committee report said ANZ’s deputy chief executive, Alexis George had been asked about the status of the sale and had said that it was incomplete.
The report also noted that George had said she was “conscious of the legal requirement for ANZ to act in the best interests of the members of its superannuation fund throughout the transition process”.
“The committee pointed to failures of governance and compliance by IOOF highlighted during the Royal Commission’s superannuation hearings and questioned how the sale of OnePath P&I could be in the best interests of its members,” the report said.
“Ms George responded by stating: we’ve had multiple contacts, formally and informally, with the management and with the board of IOOF to inquire about the issues that arose and what they were doing to address those, what they had done to address those in the past.”
“In addition, Ms George noted there is an independent trustee board to provide a check and balance against ANZ’s decisions,” the report said.
The committee’s report follows on from the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry which specifically referenced the key role of the OnePath trustee board and complemented it on the independence it had demonstrated to that point.
InFocus
WHERE DID FINANCIAL SERVICES GO WRONG?
Financial services barrister Noel Davis examines the testimony given to the Royal Commission and its ultimate findings and suggests that for as much as it discovered there was plenty that it missed.
THE BANKING AND financial services Royal Commission final report identifies some of the poor behaviour and shortcomings in the delivery of financial services to customers, but does not identify all of the problems.
The Commission has already had a substantial financial impact on some of the financial institutions with large sums being taken out of their profits to compensate clients. However, clients, particularly retirees, who have been the subject of poor treatment or have received bad financial advice and have lost their savings have, relatively speaking, suffered far greater losses.
Where did it all go wrong?
Insofar as the financial institutions are concerned, the fault lies squarely with the boards of directors.
Many of those directors had little or no financial services experience. They didn’t, therefore, have the knowledge or the experience to make the enquiries to establish what the problems were in the way in which the businesses were being conducted and what the customers were being exposed to.
They did not, for example, generally establish board compliance committees which would have enabled the committee members to obtain hands on knowledge of what complaints were being made and what was happening in communications with the regulators.
Most of those institutions have problems with the way in which they are structured which result in them being riddled with conflicts of interest. They, generally, are the trustee of the superannuation and investment funds that they offer, the administrator of the funds, the investment manager of the funds’ moneys and the life insurer of the members of the superannuation funds. If the directors recognised the conflicts of interest inherit in these structures, they mostly didn’t
do anything about it.
Years ago, as a member of the Superannuation Complaints Tribunal (SCT) which dealt with superannuation cases, in a dispute over whether an insurer should have paid a disablement claim which should have been paid, I queried whether the employees of the financial institution who sat on the superannuation trustee board of directors and who agreed with the insurer’s decision to refuse the claim, had a conflict of interest given they were employees of the company that owned the insurer.
The submission to the Tribunal by the trustee was that there was no conflict of interest. There was, therefore, no recognition that there was a conflict problem.
The decisions of that Tribunal frequently identified shortcomings in the way in which some superannuation funds were administered but, in the 13 years I was a member of the Tribunal, I became aware that directors of the trustee of the fund which was the subject of a particular decision were often not told of the decision or the contents of it. Again, it appears that directors didn’t make enquiries about such decisions. Consequently, the issues identified in the decisions of the Tribunal continued to occur.
The failure of financial institutions to deal with the problems identified in the evidence to the Royal Commission was allowed to continue because of the
weak regulation that became apparent from the evidence. That has been long standing. A long time ago, when the Australian Securities and Investments Commission (ASIC) took over the regulation of superannuation from the former Insurance and Superannuation Commission, I did some training sessions for ASIC employees on regulating superannuation funds. When I and my colleagues discussed the circumstances in which ASIC would litigate or prosecute, the reaction of the ASIC officers was that litigation was to be avoided to avoid the embarrassment that would go with losing some cases. Finally, that appears to be changing. Perhaps, consequently, financial institutions and trustees will treat the regulators more seriously than they have in the past.
The Commission’s final report raised the question of whether charging clients for advice when none was provided was dishonest and, thereby, in breach of the legislation. A recent decision of the SCT required a financial institution to refund fees charged to a superannuation fund member for advice, when no advice was provided, but whether a prosecution for dishonesty will succeed is uncertain. For a successful prosecution to occur it will have to be proven, that the accused knew that no services were being provided.
An issue that did not receive much attention in the evidence
before the Commission and in its report, other than hosting employers, is the large amounts spent by industry not for profit superannuation funds on advertising and promotion.
In spending those amounts, the legislation requires that it must be in the members’ best interests. The argument often used to justify the expenditure, which of course reduces the earnings distributed to members’ accounts, is that it attracts new members which reduces the overall fees charged to members. The evidence that the members’ fees are reduced by advertising is scant. There will, of course, at some point, be a challenge by a member to this practice and the relevant trustee will have the opportunity to demonstrate that amounts spent on promotion is in the existing members’ best interests.
Performance fees and similar fees, where investment managers receive around 25 per cent of investment earnings above a minimum level, also did not receive attention by the Commission. It may, one day, be tested whether a particular investment arrangement which includes such fees is in the best interests of the affected members.
The Royal Commission did not concentrate to any extent on the millions of dollars of life savings that have been lost by investors, including retirees who can never get the money back, as a result of bad or fraudulent investment advice by a minority of financial planners. However, it may well be that the financial institutions who licenced those advisers might ultimately be held responsible for some of the losses, thus adding to their own losses.
Noel Davis is a Sydney barrister, a former director of financial services companies and a former member of the Superannuation Complaints Tribunal.
Actively monitor & optimise client’s models and managed accounts
Powerful research engine with unbiased tools, benchmarks and ratings
Demonstrate your value using best in class reporting
Ensure transparency; fee adjusted performance fully updated for RG97
Comprehensive Australian SMA, fund, superannuation and equity data
For information on how the award winning FE Analytics can help you deliver better client outcomes visit –www.financialexpress.net/contact or call 0280657187
Women in Financial Services
TECHNICAL ADVICE ACHIEVES BROADER CLIENT GOALS
Anastasia Santoreneos discusses strategic and holistic advice with last year’s Money Management Women in Financial Services Awards winner, Sunitha Chamala.
THE ROYAL COMMISSION prompted advisers to focus on enhancing the client experience, but last year’s Money Management Women in Financial Services Award’s Rising Star winner, Sunitha Chamala, is already ahead of the eight-ball, tailoring specialist technical advice for her clients to achieve their broader lifestyle goals.
Her role as a strategy adviser at Elston is to provide clients with specialist technical advice on all aspects of wealth planning that is tailored to their individual circumstances, and it’s something she says is crucial to long-term financial success.
“Strategic advice assists in maintaining a strong connection between the client’s individual circumstances and their underlying investments,” said Chamala.
It involves collaborating with professional partners like accountants and solicitors, optimising income, utilising tax structures where appropriate, taking risks, and having the right mix of assets.
It’s important, she says, because what clients need from their advisers can vary, with some needing peace of mind that they’re on the right track and others seeking a long-term relationship and a disciplined plan to accumulate and preserve wealth over time.
What’s key to technical advice, though, is that while those delivering it may only actively manage a portion of their clients’ overall assets, they must always consider these in the context of their clients’ position.
“This includes taking into consideration their other financial assets, their family situation, their personal attitudes and beliefs and
their lifestyle goals,” she says.
Looking at investments in isolation is a meaningless exercise, and alone, they’re a means to an end, she says.
“What drives good advice is a trusted relationship and a deep understanding of clients’ fears, hopes and expectations. Clients will be more successful if they are engaged in the advice process and are put in a position where they are able to make informed decisions about their own financial futures.”
Something that underpins her understanding of advice is her extensive education. Chamala is a Certified Financial Planner (CFP), a Self-Managed Super Fund Specialist, has a Bachelor of Commerce, majoring in Accounting and Finance, and has completed an Advanced Diploma of Financial Services.
“I believe that education is an important stepping stone to being a trusted adviser,” she said. “Without a degree, I would have found entering the financial planning industry quite challenging.”
While she says there’s no doubt much of what she learned over time stemmed from her experience meeting and working with clients, completing her Bachelor’s degree provided her with sound base knowledge as well as a broader understanding of commerce and economics.
“Completing the CFP Certification Program and attaining the Self Managed Super Fund Specialist Adviser accreditation has developed my technical knowledge and are powerful symbols to my clients of my commitment to education, professionalism and high ethical standards.”
And her advice to financial
“Clients will be more successful if they are engaged in the advice process and are put in a position where they are able to make informed decisions about their own financial futures.”
– Sunitha Chamala, Strategy Adviser, Elston
advice firms? Chamala says female advisers are being increasingly sought after, and firms should adapt their business models to cater to them.
“The advice that I would give to financial advice firms is to understand what drives female
advisers and cater to those needs. This will be highly dependent on the individual, but I have found that businesses with a team focus, social atmosphere, flexible working hours and both qualitative and quantitative KPIs have appealed to me in the past.”
Grandfathered Commissions survey
WILL THE END TO GRANDFATHERED COMMISSIONS IMPACT THE REMUNERATION REGIME OF PLANNERS?
Oksana Patron writes that while the ending of grandfathered commissions was touted to destroy the financial advice industry, Money Management ’ s recent online survey shows it is not the ending of grandfathering alone that will see a planner exodus.
THERE HAS BEEN ongoing debate as to what extent the Royal Commission’s final report recommendations, and the end of grandfathered commissions in particular, would change business models for financial planning groups and individual advisers.
Money Management conducted an online survey in the days following the Government’s announcement that it would back the switch-off of grandfathered commissions in 2021 to capture the sentiment of financial planners, and discover their expectations post-Royal Commission.
The respondents, of which 91 per cent were financial planners, were asked to assess to what degree Commissioner Hayne’s final recommendations would impact their businesses and how they expected this decision would translate into their future revenue streams.
SURVEY HIGHLIGHTS
According to the survey’s results, only 30 per cent of respondents said that the ending of grandfathered commissions alone would prompt them to leave the advice industry.
However, planners remained more divided when it came to assessing how a combination of switching off grandfathered commissions and the new Financial Adviser Standards and Ethics Authority (FASEA) education regime would affect their business decisions. In this case, the survey found that more than half of respondents (52 per cent) admitted that the combination of these two factors might see them leave the industry while, for the rest, an exodus remained still highly unlikely.
Money Management also asked its readers to what degree their businesses’ yearly turnover might
be affected by the end of grandfathering. The results showed that for half of them the end of grandfathering would remain insignificant and impact less than 10 per cent of their yearly turnover.
However, around 13 per cent of those surveyed admitted that scrapping grandfathered commissions would affect more than 60 per cent of their yearly turnover and another 13 per cent said that such a decision would impact around 20 per cent of their revenue streams.
According to another 11.5 per cent of respondents only 30 per cent of their annual turnover would be hit, with a further 10 per cent of respondents saying that such a decision would translate into 40 per cent of their turnover being hit by these recommendations.
Additionally, the survey found that 45.5 per cent of respondents believed that the proposed 2021 end-date for grandfathering would erode their position on buyer of last resort.
The respondents also provided Money Management with a number of indications regarding where their future major revenue sources might be coming from.
The study confirmed that the end of grandfathered commissions would see planners bracing for flat fee-for-service, with some life/risk commissions as their main new remuneration stream after 2021.
At the same time, planners said they did not place high hopes on asset-based fees and did not expect these would be their dominant revenue streams under the new regulatory regime.
The study also reiterated Money Management ’s earlier findings that the main driver for the majority of planners who considered departing the industry was the new FASEA regime.
Chart 1: Proportion of planners who would leave the industry due to the end of grandfathered commissions
Chart 2: Proportion of planners who would leave the industry due to the end of grandfathered commissions and new FASEA regime
Chart 3: What percentage of your yearly turnover would be hit by the end of grandfathering?
Chart 4: Will the proposed 2021 end-date for grandfathering erode your position on BOLR?
Source: Money Management
HOW DIVERSIFICATION AND A GLOBAL OUTLOOK PAID OFF
Mike Taylor writes that the latest recalculation of the FE Crowns has reinforced the relative success of growth strategies and global allocations amid recent volatility, but that the pendulum may be ready to swing back towards value.
DIVERSIFICATION HAS BEEN the name of the game for those fund managers who have shone through in the latest FE Crowns recalculation.
With the past six months having been a period of volatility coupled with some significant geopolitical uncertainty, strategies which encompassed diversity in terms of both geography and stock selection were those which shone in the period with the Wingate Spectrum Fund and the Bell Global Emerging Companies Fund being two exemplars.
Sitting within the Australian Unity product suite, the Wingate Spectrum fund moved up from two crowns to five crowns based on having delivered in large part on its objective of achieving strong returns, regardless of the performance of global sharemarkets.
The Bell Global Emerging Companies fund also underscored the value of a diversified approach in volatile times, moving up from one crown to five crowns. Similarly, the Dimensional Global Core Equity Trust was rewarded with a similar lift from two crowns to five. While the Crown recalculation
has served to validate growthfocused strategies bringing some relative new-comers to the fore, it has also reinforced that some of the more notable fund managers such as Fidelity, Magellan and Platinum have maintained rather than exceeded their objectives.
By comparison, funds with a strong Australian equities focus were seen to struggle, particularly those with a small-to-mid-cap focus.
Commenting on the situation, independent analyst, Stephen van Eyk said the recalculation of the crowns had served to underscore the generally positive story with respect to growth strategies over the past five years, and particularly those which had maintained a selective focus on technology stocks.
He said those managers who had astutely invested in particular technology stocks had done particularly well while the Crown recalculation had also reflected the rewards which had been driven by those managers who had pursued global exposures and who had also benefited from movements in the Australian dollar by remaining unhedged.
However, van Eyk said that while the crowns had definitely reflected the degree to which growth strategies had outperformed value strategies over the period, this might not continue to be the case as markets moved further into 2019.
“Looking ahead, there is evidence to suggest that conditions in 2019 may suit value managers,” he said.
FE Australia’s head of data, Australia and New Zealand, Stuart Alsop agreed with van Eyk’s analysis, adding that the funds that performed best over the past six
months were those that most effectively navigated downside risk.
He said it was a case of which strategies were best suited to the environment of increased volatility in terms of their risk/return metrics.
Alsop said that while there had been a lot of commentary and speculation about how markets would play out in 2019, the FE Crown Ratings reflected the reality of what had occurred over the previous six months.
“They therefore represent a solid foundation upon which to build forecasts,” he said.
AUSSIE MARKET SLUMPS AS GLOBAL SOARS
The Australian market felt the after effects of the Royal Commission and property price slump, while global markets battled against a looming US-China trade war. Anastasia Santoreneos writes that this year’s FE Crown rating recalculation reflects a rocky year for global and local economies.
THIS LATEST RECALCULATION of the FE Crown ratings saw Australian equities take a ratings hit while their global peers soared.
Just nine Aussie broad cap funds received five crowns, which is a significant drop from the 26 five-crown funds in the September calculation, with Macquiare Investment Management, SG Hiscock &
Company and Legg Mason still proving to be stalwarts in the sector.
What could have caused this drop, according to AMP economist, Shane Oliver, is a tough Q4 last year, a toll on sentiment following the Royal Commission, the slump in property prices and the flow on of that to retail stocks – specifically banks.
Wealth Within economist Dale Gillham directly attributed the fall in our market to the poor performance of just a handful of the biggest companies in the market, being the big four banks and Telstra.
The US-China trade war and worries about the US Federal Reserve similarly caused some commotion in the global market, but Oliver said global equities didn’t
struggle as much as those on home soil.
“The pressure probably wasn’t as intense [on global markets] depending on where you were looking at,” said Oliver. “Global equities also came down in value through the last six months or so though, which reflected the worries
FE Crown Ratings
Continued from page 16
of the global economy at the time.”
But to some degree, according to Oliver, having money overseas wasn’t necessarily a bad idea as the Aussie dollar fell at the same time.
“Global equity funds didn’t do as badly as Australian equity funds because the Australian dollar fell in value, which boosted the value of your offshore investment,” he said.
The February recalculation of the Crown ratings has indeed reflected this sentiment, with 25 global equity funds receiving five crowns as opposed to just six at the last calculation.
Colonial First State stood out among the managers, with four of its funds receiving a fivecrown rating, while two Macquarie funds also achieved
five crowns. Magellan’s Global fund received a five-crown rating, up from three crowns at the last calculation, and Vanguard’s Global Minimum Volatility fund received a five crowns at its first ever rating.
WHAT STYLE HAS THE MARKET FAVOURED, AND WHAT WILL IT FAVOUR?
It was tough for the economists to say which investment style suited the market more and which missed the mark, but Oliver suggested the market probably wasn’t that supportive of value.
“A lot of the strength earlier on was in growth-orientated stocks, particularly globally, with tech stocks doing very well, and while that did get hit when the
market came down, cyclicals got hit harder,” he said.
And, given cyclicals tend to dominate in value styles, Oliver deduced the while the environment wasn’t particularly positive for either side, it tended to work against value more than it did against growth.
He predicts the global economy is likely to stabilise as economic policy moves in a more dovish and supportive direction, which would see shares do a lot better across the board.
“That should benefit shares generally, and within that context I think value shares will probably do the best,” he said. “The cyclicals, as confidence returns that the world’s not going into recession and growth stocks take a back seat, will rebound.”
He also expects emerging markets to do quite well should the trade war find a resolution, as that would see Chinese growth stabilise and support the asset class.
Locally, Gillham said materials, mining, energy, healthcare, consumer staples and utilities look good in 2019, but investors should exercise caution around financials given there’s still some uncertainty with the banks.
“If the big miners including BHP, RIO, FMG and the banks move up together, this will push the All Ordinaries Index up through its previous all-time high in2007 and in doing so create a bullish sentiment that will broadly lift other sectors in the market,” said Gillham.
FUNDAMENTAL APPROACH KEY TO FUNDS’ EARLY CROWN SUCCESS
A focus on global equities and fundamental stock selection were common themes amongst the seven funds to receive a stellar five FE Crowns on their inaugural rating, Hannah Wootton finds.
IT CAN BE difficult to get off to a strong start in the competitive landscape of funds management, but seven funds have managed to do just that by receiving five Crowns on their first FE Crown calculation.
AtlasTrend’s Online Shopping Spree and Big Data Big funds, Vanguard’s Managed Payout and Global Minimum Volatility, and the Montgomery Global, Nanuk New World, and Zurich Investments Concentrated Global Growth funds all achieved this honour. They each only hit three years of investment history in the last six months, meaning they didn’t qualify for a rating at last August’s determinations.
While these funds varied in size and manager, a common theme, unsurprisingly given the asset class’ strength before last quarter’s struggles, was a focus on global equities.
Six of the seven funds were global equities offerings and the exception, the Vanguard Managed Payout fund, still sourced 48.06 per cent of its assets from the sector. Its
next two largest asset weightings, of 25.06 per cent in global fixed interest and 14.9 per cent in Asia Pacific equities, kept with the international theme.
The decision to go global was key to AtlasTrend’s success, with founder and head of investments, Kevin Hua saying that he and his fellow two founders, Jade Ong and Kent Kwan, saw a “real gap in the market as Australia has an understandable local bias”.
When you consider what their two five Crown funds invest in (the names Big Data Big and Online Shopping Spree are selfexplanatory), looking internationally was especially key to their strong returns.
“It’s overseas that has the best companies for some big, long-term structural trends, such as data and e-commerce,” Hua said, pointing to Amazon as an example. “They are bigger and better companies [than domestic options] … and are global businesses that are global leaders.”
For both AtlasTrend and Vanguard, who had the equal most
funds to earn inaugural five Crown ratings, a fundamental approach to stock selection was unsurprisingly key to their success.
“Our QEG [Vanguard’s Quantitative Equity Group] manages there two funds … they are passionate researchers who rigorously test and scrutinise ideas to ensure that only the best ones make it into their models and investment processes,” Vanguard’s head of investments, Asia-Pacific, Daniel Reyes, told Money Management
“QEG finds that by focusing on investment themes designed for the long-term investor they can systematically capture inefficiencies or target exposures in the market that can add value to clients’ portfolios.”
Hua said his team also have “very much a fundamental approach in stock selection”.
“We first pick thematics with a long-term view, seeking out structural trends that we think will last 10, 15 years or longer,” he said.
From there, they distil a large
investment universe down based on quality, valuation and sustainable growth estimates, before intensely researching each company. As a small fund manager, this usually means dialling into market updates, for example, rather than meeting with companies as large as Amazon. Both fund managers also watch risk factors closely, unsurprisingly considering their five Crown ratings and the fact that the Crown Ratings methodology considers risk.
The Vanguard Managed Payout fund, for example, seeks to make monthly cash distributions, and to keep these and invested capital apace with inflation over the longterm, Reyes says.
The manager’s Global Minimum Volatility fund minimises volatility through quantitative modelling that both identifies shares with low expected volatility and shares that are expected to have low correlations with each other.
Hua too, keeps an eye on both macro and micro risks: “A lot of it can be noise, but one has to be pragmatic as well,” he said.
FE Crown Ratings
FE Crown Ratings
SMART TECH WILL DRIVE INDUSTRY CHANGE
Technology can provide a helping hand for financial advice businesses adjusting to the post-Royal Commission industry landscape, Oksana Patron finds.
THE RECENT REVELATIONS from the Royal Commission’s final report have intensified pressure on the financial services industry, even though the sector had been already under the spotlight from regulators, and they’ve made it clear that it is now more important than ever to help financial advisers focus on what really matters for their businesses and clients.
Technology comes as a crucial part of this process and a lot will depend on how well it will handle accommodating planners’ redefined expectations and needs in these unique conditions, and how well it will underpin efforts to free up their time.
Tech providers will also need to focus on finding new ways to help planners address higher regulatory compliance requirements, enhance their usage of technology and data to help them meet their clients’ objective, and assist with the integration of information, the experts said.
In addition, tech will also need to prove its adequacy for advisers through a wider range of offerings with regards to education technology (edutech) solutions which, in turn, will be expected to support planners and their efforts to meet new professional accreditation obligations, imposed on the industry by the Financial Adviser Standards and Ethics Authority (FASEA), such as continuing professional development (CPD) requirements.
POST ROYAL COMMISSION SENTIMENT
The recent findings from the Royal Commission suggested that a lack of respective regulatory compliance
technology might seriously threaten the existence of many licensees and advisers, Samantha Clarke, a chief executive of tech start-up Advice RegTech, said.
According to Clarke, who won the Innovator of the Year Award at the 2018 Money Management Women in Financial Services Awards, the core of a professional advice practice these days revolves around regulatory compliance technology, given a number of licensees going out of business or those struggling to comply with the new laws.
“The Royal Commission has made it clear that regulatory technology is an absolute must have for every licensee and advisers. If they don’t have regulatory compliance technology then they are putting their business at risk,” Clarke said.
“What we are hearing is, the time for them to develop their statements of advice has tripled or quadrupled so it means practically that customers aren’t getting the advice issued to them fast enough and that’s impacting their customer experience.”
Clarke stressed that even though the statements of advice (SOAs) are rarely read, it is the compliance requirement that needs to be 100 per cent correct, and this should be viewed in light of the recent report from the Australian Securities and Investments Commission (ASIC), according to which, more than 70 per cent of advice was considered non-compliant.
“So there is the huge opportunity to improve that really practical side of developing and checking the
statements of advice,” she said.
“What happened in the last few months is everybody is trying to do that, and we are trying to do that in a traditional way, and the traditional way is taking weeks and sometimes months to get the advice issues to consumers. So that is not a good outcome for consumers and for the industry.”
According to Clarke, some organizations are also trying to tackle this problem by “throwing more bodies at the compliance tasks”. However, such an approach would only drive up costs of business and would not be viable into the future.
“In the short-term, licensees would be spending a significant amount of money on extra costs on human reviewers, but in the medium to longer term, regulatory compliance technology can help scale the efforts of those human compliance reviewers and make reviews more viable from the business perspective,” Clarke added.
IS TECHNOLOGY CURRENTLY LETTING ADVISERS DOWN?
One thing is certain, the industry has come to a critical point, and both licensees and advisers should reflect on future proofing their businesses. But it is not all black and white.
According to Advice RegTech, the progressive tech savvy licensees have pre-empted a lot of the Royal Commission findings even before the interim report, with a number of advisers already identifying new opportunities, in particular in the area of regulatory technology (regtech), where technology could help them in the most effective way future proof their businesses.
“The key is finding fit for purpose solutions that enable greater efficiency and effectiveness in meeting those regulatory compliance requirements,” Clarke stressed.
However, according to Jacqui Henderson, chief executive of Advice Intelligence, traditional financial planning software no doubt failed licensees, financial
advisers and consumers, and the “old world” technology that existed within the financial planning industry was not designed for today’s regulatory environment or consumer experience.
Firstly, current technology failed to provide pre-emptive controls to monitor the quality of advice upstream of the advice process.
“Without quality assurance, there is a serious risk that sits with AFSL [Australian Financial Services Licence] holders as they can only be reactive, not proactive, in the delivery of quality advice of scale,” she said.
Secondly, ongoing servicing and transparent fee disclosure for consumers was powered mainly by archaic systems and there was a massive need, according to Henderson, to move financial planning into a world that was similar to that of net-banking.
Thirdly, technology did not directly link financial advice strategies and investments back to the client’s goals and provide ongoing tracking of these goals. “Therefore, the existing technology is simply not meeting the requirements of our modern advice sector and this needs to change,” she said.
However, on a more positive note, technology can transform financial advice into an engaging and client facing experience.
“Consumers want advice that directly relates to their own individual dreams and life aspirations – they want to feel like they are part of a collaborative process that is being done ‘with them’ not ‘to them’,” said Henderson. “They want to be educated, they want to feel empowered and they want a full picture so they can control the things they need to control, like their goals and cashflow.”
More importantly, consumers should understand that the advice they paid for and paper-based SoAs that were full of industry jargon were not doing them any favours, according to Advice Intelligence’s CEO.
On the other hand, according to Troy MacMillan, a chief executive at
Perth-based financial advisory The Wealth Designers (TWD) Australia, not all is lost when it comes to technology and advisers.
“Core to the success of any advisory firm is how much they focus on the delivery of value – that is, what the client actually values,” he said. “Technology isn’t TWD’s differentiator, it’s an enabler.”
It is expected that smart technology should free up time for firms like TWD to otherwise spend it face-to-face directly with clients for up to 60 per cent of working weeks.
“These levels of face-to-face time can’t be made without technology and are in facet key measures of the success of good technology implementations for firms like TWD,” MacMillan said.
When asked if there were any particular tech solutions that were critical from advisers’ perspective, MacMillan said: “Technology is like the electricity grid – you quite simply have to be on it, as we all need it.”
“My thoughts are that technology will replace many old financial planning models that are becoming commoditized but those particular firms are not in the principal advisory space like TWD.
“We strongly believe that technology is not the differentiator, it’s critically important to drive efficiencies, but not the reason we are in business.”
At the same time, advisers would need more resilient solutions and tools when it comes to customer relationship management (CRM), portfolio and project management, financial planning software, cloud and information management software, data analysis tools and out-sourced service offerings that enhance head office operations.
Furthermore, according to him, there were four key areas that were of particular importance to the adviser firms, including error-free and time-relevant information, project management software, and better presentation support and SEO software. In case of TWD, the requirements for project management software could be broken down into client, project and strategic management, which all were its core skills.
Strap Technology
“We have found that old CRM’s have only ever provided client task management, but have lacked the integration required to quickly understand a firm’s live capacity which we call capacity planning’.”
Following this, advisers and licensees continue to feel under a lot of pressure as it was getting harder and more costly to provide advice to their clients, in the opinion of Advice Intelligence.
Therefore, compliance should be designed more as a ‘co-responsibility’ held by both the consumer and advisers in that way that advisers must tailor advice around the conversations they had with their individual clients in relations to their goals.
“In transforming financial planning into ‘real-time’, advisers can model future scenarios and demonstrate how different decisions impact their clients’ lives, as part of an advice ‘co-creation’ process,” Henderson said.
“By placing the client’s goals and life aspirations at the heart of the process, advice becomes more meaningful to them, encouraging lifelong engagement.”
TECHNOLOGY AND SOFT SKILLS
At the same time, enhancing advisers’ soft skills around the human psychology aspects of financial advice and understanding their clients better is vital to providing a better outcome for clients as well as improving education standards across the board, according to Henderson.
“Financial advice is about helping clients to achieve their life aspirations and goals. It is about understanding then as a human being, their biases, their behavior, their money language, what motivates them, what key financial challenges they’ve faced,” she said.
“The advice community needs more focus on the conversational piece, asking the right questions and having more education around the human element of financial advice.”
Henderson stressed the shift, though, needed to be accompanied by technology that fully supported the human conversation.
CHINA’S ROLE IN THE GLOBAL ECONOMY IN 2019
There are still investment opportunities in Chinese equities this year, Jonathan Wu writes, and looking at the nation’s instant noodle sales can help you understand why.
THERE IS NO doubt in anyone’s mind as to what part of the investment cycle we are in – the late part. Albeit with bouts of volatility here and there since 2009, overall, it’s been a pretty good outcome for investors in risk assets.
But where to from here given we have a rising (albeit slower) rate environment in the US, and a slowing local economy started by sharp corrections in house prices? And what will China’s role be in this environment?
The first hit we had to global confidence was in the first week of January with Apple declaring a revenue warning over its most
popular offering – the iPhone, citing a significant proportion was due to a drop in sales in China. This shook the world into the belief that we are facing the beginning of the end.
When you look deeper into the situation though, one must realise that Apple is facing tougher competition in China from the likes of Huawei and Xiaomi rather than simply demand falling off. Again – you must read into context more than simply the headline. There is always a cause and effect below the surface.
As at the time of writing, China and the US are continuing trade
talks to try to find a compromise to prevent protectionism rearing its ugly head reversing almost 100 years of globalisation and the development of free trade.
Sooner or later, when the real economy (seen via corporate earnings) weakens due to the impacts of the tariffs, leaders will be more motivated to act. One case in point is that Trump continues to use the S&P500 as his barometer of success as President and Commander in Chief. If the S&P falls in a big way, Trump will be motivated to cut a deal with China as he would have other fights he needs to take on domestically (for
example, government shutdowns and wall building).
Now to understand China’s role in 2019 and beyond in relation to the world, one must look back at what it did during the Global Financial Crisis.
China launched an unprecedented level of stimulus (the world’s largest in recorded history) in 2008/9 to the tune of $4tr RMB (A$823bn). This, in simple terms, saved the world from collapse as it was looking very dark for a period while the world’s liquidity dissipated and no one had the ammunition to stimulate.
While China saved the world, their actions caused some unintended consequences via the build-up of excesses within the economy, such as over supply from steel mills, overbuilt infrastructure, and shadow banking. So, this time round, China has learnt its lessons and will stimulate gradually.
While the current market correction reflects some of what we saw during the correction seen in 2015/16, where many global investors ‘knew’ the Chinese economy was going to succumb to a hard landing (which never eventuated), the economy is under far less pressure.
The market didn’t fall quite as dramatically and as such also didn’t trigger as much concern about the financial system state of health. The renminbi is also under less pressure and foreign reserves are also above the $3tr USD figure. So, while the Chinese government is stimulating through increased liquidity injections and cutting of the RRR rate, it is nowhere near what it was in previous years.
Whenever the next major global recession occurs, China will not be the one to bail the world out, nor do they have any incentive to.
So, in this environment and being in the late part of the
investment cycle, are there still investment opportunities in Greater China equities? Yes, there are.
What the last 12 months has shown us is that there are many quality companies that have emerged due to the correction. We believe there is only one way of achieving investment success, and that is patience and time in market. If you asked us 12 months ago what we thought about valuations, we said that while the market is cheap, the companies we want to invest in are not within our buying range based on valuation metrics. Now they are.
The instant noodle market, for which there will continue to be strong demand no matter the state of the investment cycle, is one good example. Instant noodles are considered a staple to the Asian diet and no matter which part of the income or wealth spectrum you belong to, they’re something that you will consume as a comfort food or simply out of convenience. Think of it like the humble meat pie or sausage roll here in Australia.
While the overall market is reasonably mature with CAGR in China of under one per cent in the last six to seven years, the premium market, which is defined by noodles costing more than five RMB ($0.80 AUD) per pack at the retail level, has been growing at
double digit levels over the same timeframe (11.5 per cent CAGR since 2012).
At the same time, one must also take into context the composition of the instant noodle market. As at the end of 2017, it was still 90 per cent mass market (< five RMB per packet). So, ultimately this is a consumption upgrade story (alongside many others in China). As the middleclass population grows, they are demanding higher quality goods.
This is where a company like Nissan Foods comes into view. Nissan has its history back in Japan with its flagship products well recognised in both Hong Kong and Southern China
After spinning off from its Japanese parent in 2017, management have been focusing on building their China distribution networks and now they are the second largest premium brand in China with 20 per cent of total market share. In Hong Kong, they already have a 65 per cent market share which serves as a successful case study as to how high penetration can get with a higher median income level population set.
The current valuation level is very attractive (40 per cent and 15
per cent discount to its parent and peers respectively on a P/E basis), which affords us what we refer to as a ‘larger margin of safety’ no matter what short term blips were to hit market sentiment. So, just as in this example, no matter which part of the investment cycle we are in, opportunities are there for active investors who do more underlying fundamental research to seek out stocks which are unloved by the market. While you can never time the market, you do know when markets are relatively more or less attractive to enter for the long-term.
Jonathan Wu is an executive director and the chief investment specialist at Premium China Funds Management.
Source: Premium China Funds Management
Source: Bloomberg, as at
Chart 1: China instant noodle sales value growth rate (%), 2012 – 2021E
Table 1: Nissan Foods versus peers
JONATHAN WU
INVESTORS IGNORING MARKET SIGNALS
Simon Ho writes that sensible investors will be looking to own some sort of protection strategy this year, as the risk of a period of high volatility grows stronger.
THE ECONOMIC INGREDIENTS
that precipitate extreme volatility are in place in global markets, and investors should take steps to protect their portfolios.
Despite periods of episodic volatility over the past few years, it has actually been one of the least volatile times, for realised volatility, compared with time frames over the past 50 years.
But despite there now being a number of market indicators that suggest global assets are overpriced – price earnings ratios at high levels, developed economies facing an economic slowdown, and ongoing trade war concerns – investors appear complacent about protecting their portfolios from a downturn.
Domestically the tide has turned on interest rate expectations, with markets now beginning to price in an interest rate cut, after years of anticipating the next move would be up. If this is the case, it will have a significant impact on the Australian dollar.
As well, property markets in Australia appear to have peaked, while globally Canada and Spain are also experiencing a similar peak in their property markets.
Over in the Eurozone the market is facing Brexit and its implications, while simultaneously struggling with the best way to unwind
quantitative easing. The US has already started down the QE easing path and the results remain to be seen – particularly in light of the additional trade and political discord in that market.
Add in the difficulties being experienced in China, from the trade dispute it is embroiled in focused on IP rights and theft of technology – to its economy which has been pump primed to within an inch of its life – and questions remain about how the trade war cards will fall and how much more liquidity it can realistically provide.
In short, there are a lot of indicators in markets that should have investors concerned.
But it appears they are not.
Take the options market as an example. There is a stark paradox to these economic threats that is being expressed in the options market. Using the put/call ratio metric as an example – which measures how many puts are in the market versus calls - we are seeing one of the lowest put/call ratios since we have been recording data.
Essentially, this means there are not a lot of people buying put options. Normally the put/call ratio is heavily biased towards puts because investors tend to be long equities, and they use put options as an insurance policy of sorts to protect from downside risk.
That the put/call ratio is sitting
Source: iVolatility
near its lowest levels since before the global financial crisis means that investors aren’t placing a premium on protecting their long only exposures.
Investor expectation, despite myriad economic indicators to the contrary, is that markets will not fall. And history shows it is usually precisely at the time when everyone is bullish, that markets do fall. This optimistic investor sentiment is a concern.
Differing signals from market indicators add to mixed sentiment. For instance, the realised volatility of the S&P500 in recent months has been high - in the 90 per cent quantile - and yet expected volatility as measured by the CBOE Volatility Index (the VIX) is very low – hovering around the 15 mark.
The VIX is considered the benchmark barometer of market volatility and investor sentiment. It is a measure of expected volatility on the S&P500 Index (SPX) over the next 30 days. A high VIX reading indicates that investors expect that the market will move sharply. The 20-year average of the VIX registers at just shy of 20, although it has moved as low as 10 and as high as 85. That these two measures of volatility are at odds sends another
mixed signal to the markets.
One of the reasons why investors may be so complacent is that, despite periods of episodic volatility, 2018 was in fact the least volatile market of the past 100 years.
But this complacency is unjustifiable given everything else that is going on.
Stocks are highly priced relative to various measuresincluding the Cape Shiller price earnings (PE) ratio. Often seen as a more useful indicator than traditional PE ratios, this adjusts past company earnings by inflation to present a snapshot of stock market affordability at a given point in time.
In this environment, it is somewhat surprising that the put/
call ratio is so low, and that the volatility levels as expressed by the VIX are also low. As a result now is, in fact, a good time for investors to be looking to put protective strategies in place.
One way to help protect against sharp market downturns, is to invest in volatility; while you cannot invest directly in volatility, the creation of the VIX index and the highly liquid derivatives based off it, means volatility is an investable asset class. The most common way for investors to simply gain exposure to volatility is to buy Funds that hold VIX derivatives that profit when volatility spikes.
Volatility is an asset class that is causally negatively correlated to equities; it is inversely related to equity index prices, especially when there are large moves. Typically, the more equities fall, the faster volatility (i.e. the VIX) rises. It has what’s called a ‘convex’ payoff profile – the more the SPX falls, the harder and faster the VIX tends to rise.
Volatility has negative correlation to equities – and most other asset classes – so can be used to enhance returns, manage risk and potentially provide an additional source of alpha to an investment portfolio.
Source: iVolatility
Markets
“Using the put/ call ratio metric as an example –which measures how many puts are in the market versus calls - we are seeing one of the lowest put/ call ratios since we have been recording data.”
– Simon Ho, CEO, Triple3 Partners
The opportunities to do this in the Australian market are limited without professional options trading knowledge. Many superannuation funds have adopted the solution of an optionsbased volatility overlay, and in the coming months there will be an ETF option which is expected to be particularly attractive for selfmanaged superannuation fund investors. However, for now, purchasing put options directly are the best solution.
Investors should err on the side of caution. When you look at the fact that the put/call ratio is so low, it means that the price of this insurance is also low.
The confluence of all these factors – the metrics for options as well as where we are economically - means 2019 should be a good time for owning some sort of protection strategy.
There are vulnerabilities in the market everywhere you look, and options prices are not exorbitant. The sensible investor would start to strap them on.
Simon Ho is chief executive of
Triple3 Partners.
Chart 1: S&P 500 options put/call ratio
Chart 2: VVIX is near 18-month lows
Toolbox
Superannuation has faced a plethora of legislative change in recent years. Bryan Ashenden breaks down what advisers need to understand about these to take the scare factor out of super.
NOW, I DON’T want to go all Mary Poppins on you, but by the sounds of it, it could be quite atrocious! And for some clients, this is how the world of superannuation can sound. But to take the scare factor out, sometimes it’s necessary for all of us to break it down and go back to some of the fundamental concepts. In most cases, what you get out of super is the sum of what you put in, plus the returns, less the fees. In this article, we will bring the
focus back to the first point – what you put in – or in other words, contributions. For many, the world of contributions may seem relatively straight forward, but it is worth noting there are some complications as a result of the 2017 changes to super.
WHAT IS A CONTRIBUTION?
The word “contribution” is not a defined term in either the income tax law, or superannuation law,
which means it takes its ordinary meaning. The word “contributions” is defined in the superannuation regulations, but on an inclusive basis to essentially expand the ordinary definition (and also exclude a superannuation roll-over).
As a result, the best place to start to understand the ordinary meaning of what is a contribution (in the superannuation context is with Taxation Ruling TR 2010/11 –the Australian Taxation Office’s
guide to superannuation contributions. In that Ruling, a contribution is defined as being “anything of value that increases the capital of a superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all of the members in general.”
The concept of what is a contribution is broadly understood in the context of super. Someone transfers something of value (commonly cash) to a super fund in
order to increase potential benefits for retirement. The transfers increases the capital value of the fund, and there is an intent to benefit a member by doing so.
WHEN IS A CONTRIBUTION MADE?
However, it is the way that contributions are made that sometimes causes the issues –and often this relates to the timing of when the contribution is deemed to have been made. Again, as noted in TR 2010/11, a contribution is generally made when the funds are received by the superannuation fund. For example, a cash contribution has been made when the cash is received by the fund. An electronic transfer is made when the monies are credited to the super funds account. A cheque contribution is generally made when the cheque is received by the fund and not when cleared, although if the cheque is not promptly presented and honoured, then the contribution is deemed not to have been made.
A number of years ago there was talk of the use of promissory notes to give effect to a contribution, to the extent that the ATO ultimately issued a Taxpayer Alert back in 2009 – TA 2009/10 –because of their concerns about the inappropriate use of such instruments. Neither that Taxpayer Alert nor TR 2010/1 prohibit the use of promissory notes, but do require the notes to be presented for payment “promptly”, or in other words within a few days. Provided this is done, then the contribution is deemed to have been made at the time the super fund received the promissory note. If payment is not promptly demanded but is subsequently honoured, then the date of the contribution will be when the note is subsequently honoured.
What is important to focus on here is the requirement to demand payment of the note. If this demand is not made, then there must a question of whether a contribution has actually been made.
Consider this example to illustrate the issue. On 28 June, Fred issues a promissory note to his super fund, being his selfmanaged super fund (SMSF) for the amount of $100,000. This is purported to be a non-concessional contribution for the year. On 1 July, the SMSF endorses the promissory note in favour of a Fred as payment for the purchase of an asset by the fund from Fred (for market value of the asset.
The effect of this transaction is that the fund has now increased in value by $100,000, represented by assets worth $100,000 acquired from a related party of the fund. But has a contribution been made? Is the intent of Fred to increase the capital of the SMSF via this arrangement? You would have to think the answer to that is yes, but the way it has been approached may be an issue. For example, if the intent was to increase it, then why wasn’t an in-specie contribution of the asset made back on 28 June (let’s assume that was permissible).
It may have been because Fred wanted to delay the sale of the asset until the new financial year for capital gains tax purposes, but wanted the contribution reflected in the prior year. The in-specie transfer of the asset may not have been recognised as a contribution until the new financial year, therefore acquiring a different approach.
In this example, would you argue that the promissory note was never presented for payment? This could be a fair conclusion, given it was instead endorsed. Whilst endorsement of a promissory note is legally permissible, it has the
effect of transferring who is eligible to be paid upon presentation. Whilst the SMSF receives value for the endorsement, being the transfer of the asset, it hasn’t actually received value for the original contribution. And looking at these facts, it may not be unreasonable to conclude there was never an intent to present the original promissory note for payment.
Whilst this example may well be at the extreme or aggressive end of contribution strategies, it does highlight the need to ensure that all elements of the ordinary meaning of a contribution have been met for a contribution to have occurred –an increase in the capital of the fund, and the purpose of increasing the capital of the fund.
Other examples to be cautious of, particularly where an SMSF and related parties are involved, are improvements made to rented properties owned by the SMSF. In the absence of a lease agreement providing otherwise, an improvement to a building would result in an increase in the value of the building when the improvement becomes a fixture. With an unrelated tenant, it may be more difficult to argue that the intent of the tenant was to increase the value of the building (ie the capital of the fund). However, with a related party, it may be easier to infer this outcome. This could then cause issues if the related party was a member of the SMSF and has already maximised their contribution caps for that year.
ADDITIONAL CONSIDERATIONS FROM 2017 SUPER CHANGES
Whilst a lot of focus from the 2017 super changes has focussed on the pension limitations, transfer balance cap considerations and the reductions in the contribution caps themselves, it is important
to consider some of the flow impacts that arise when considering contribution strategies for your clients.
The three year bring forward no longer exists
Not necessarily true, but the three year bring forward opportunity for non-concessional clients under age 65 is no longer an automatic process. Whilst many of the qualifications in place before 1 July 2017 remain, and the annual cap has reduced to $100,000, the impact of the total super balance concept and limiting non-concessional contributions once the total super balance cap (currently $1,600,000) has been reached has impacts on the bring forward operation.
As an example, if a client has a total super balance within $100,000 of the cap, there is no bring forward available. If they are within $100,001 to $200,000 of the cap, then a two year bring forward is available. It is only where they are more than $200,000 below the cap that a three year bring forward is available. However, if their contributions and market return on their super investments takes them above the total super balance cap by the end of the financial year, then they can’t ,make further non-concessional contributions in the following year, even if they have some of their bring forward cap available.
Managing timing of contributions is now more important
For clients who are considering the use of the bring forward cap, timing of contributions becomes even more important. This is because the assessment of the ability to make a non-concessional contribution is based on a total super balance calculated as at the
Toolbox
Continued from page 29
previous 30 June.
Consider the situation of someone who is eligible for small business CGT relief and has the ability to contribute additional funds to super under these provisions (or could be required to do so as part of the relief). The benefit of small business CGT contributions (or rollovers) is that while the contributions are essentially non-concessional contributions, they are not assessed against the non-concessional contribution cap, and you are not prevented from making these contributions even if your total super balance at the last 30 June exceeded the $1.6M total super balance cap.
However, once the small business CGT contribution has been made, it will count as part of the total super balance for determining eligibility to contribute in the next financial year. To illustrate, assume Joan currently has $1.2 million in super (at the previous 30 June) and is eligible for small business CGT relief, with the ability to roll $500,000 to super under the applicable CGT cap. If she were to roll that $500,000 in before the end of the current financial year, she could still utilise a three year bring forward this year (as her total super was only $1.2M last 30 June). If she did this, and ignoring any market adjustments etc, her total super balance at the end of the year would be $2M.
However, with careful planning, it may be possible for Joan to only make a non-concessional contribution this year of $100,000 (taking her total super balance to $1.3), and then in July she could roll the $500,000 across and still access the bring forward for an additional $300,000, taking her total super balance then to $2.1M.
Similar issues arise with the new downsizer contribution, and the ability to have an additional $300,000 contributed to super. Whilst there is no ability to trigger a bring forward after age 65 (being a requirement to access the downsizer opportunity), for clients with cap space available and the ability to make non-concessional contributions, care needs to be taken to ensure that the timing of a downsizer contribution doesn’t adversely affect other options to maximise super. Like small business CGT contributions, a downsizer contribution is not assessed against the non-concessional contribution cap and can be made irrespective of the existing total super balance. But once the contribution has been made, it will then form part of the total super balance calculation that impacts non-concessional contributions in future years.
Of course, it is also important to remember there are timing restrictions that affect when a small business CGT contribution or a downsizer contribution can be made, and not adhering to these requirements could result in the amount being assessed against the non-concessional contribution cap and possibly causing excess contribution issues.
CONCLUSION
When discussing superannuation opportunities with clients, it is always important to remember that whilst the changes to contributions have largely focussed on the lowering of contribution caps, it is important to ensure that a contribution is validly made in the first place.
With a client’s end goal of a superannuation funded retirement (in whole or in part) the ability to maximise the contributions made will go a long way towards maximising the amount available in retirement.
CPD QUIZ
This activity has been pre-accredited by the Financial Planning Association for 0.25 CPD credit, which may be used by financial planners as supporting evidence of ongoing professional development.
1. To determine what is a contribution, you need to refer to:
a) Taxation law
b) Superannuation law
c) Superannuation regulations
d) The ordinary meaning of the word
2. An improvement to a building made by a tenant could be regarded as a contribution where:
a) The lease agreement states that the tenant can remove the fixture at the end of the lease
b) Where the tenant is not a related party of the SMSF that owns the property
c) Where the tenant is a related party of the SMSF that owns the property
d) The improvement is valued at more than $10,000
3. The bring forward rule:
a) Is available to clients with a total super balance of $1.5M or less at the previous 30 June
b) Is not available in the second or third year of its operation if the client’s total super balance is above $1.6M at the previous 30 June (even though it was below that when the bring forward was triggered in the first year)
c) Is available in the second or third year of its operation if the client’s total super balance is above $1.6M at the previous 30 June (even though it was below that when the bring forward was triggered in the first year)
d) No longer exists
4. The downsizer contribution is available:
a) If the client is aged at least 65
b) Only if the client has less than $1.6M in super at the previous 30 June
c) Only if the client can trigger the bring forward provision
d) Is not subject to any timing restrictions
5. A small business CGT contribution to super will count towards a client’s total super balance at the next 30 June
a) True
b) False
TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/ features/tools-guides/ it-supercalifragilisticexpialidocious
For more information about the CPD Quiz, please email education@moneymanagement.com.au
Bryan Ashenden is head of financial literacy & advocacy at
Send your appointments to anastasia.santoreneos@moneymanagement.com.au
Appointments
Move of the WEEK
Natixis Investment Managers
Harald Walkate
Head of CSR and ESG
Natixis Investment Managers appointed Harald Walkate as its new head of corporate social responsibility (CSR) and environmental, social and governance (ESG), where he would be responsible for driving the firm’s ESG commitments across its distribution network and affiliate managers.
Walkate joined the firm from Aegon Asset Management, where he was a senior vice president and global head of responsi-
Janus Henderson appointed Tal Lomnitzer as its new senior investment manager within the global natural resources team.
In his new role, Lomnitzer would be based in London where he would focus on the strategies and mandates domiciled in both the UK and Luxembourg.
He had more than 20 years’ experience and joined from Colonial First State Global Asset Management/First State Investments in London where he was most recently the deputy head of global resources.
Prior to First State, Lomnitzer was a partner at N ewSmith Capital and ORN Capital in the UK where he was in charge of global resources and energy funds.
The company also announced the promotion of Daniel Sullivan to cohead of the global natural resources team, alongside David Whitten.
ble investment. Prior to this, he worked on new business initiatives within the firm, and has worked as an advisor to Aegon’s Impact Management Project since 2018.
Deputy chief executive officer, Beverly Bearden, said CSR was a key philosophy at the firm, and was the cornerstone of its 2020 ‘new dimension plan’.
“Harald’s appointment as our first head of CSR and ESG demonstrates our ongoing
commitment to drive initiatives that deliver long-term sustainable solutions for clients,” she said.
Christophe Lanne, chief transformation and talent officer, said the firm’s own industry research had shown that clients were more cognisant and vocal about investing in companies that had a positive and social impact and a good environmental record, which led to Walkate’s appointment to the role.
“As Janus Henderson Investors continues to expand in Australia, with solid growth from both and retail and institutional channels, we will continue to be forward-looking and invest in our business,” Matt Gaden, Head of Australia, said.
“Tal’s appointment is another indication of that, and of our longterm commitment to the Australian market.”
Boutique fund manager, Copia Investment Partners, appointed Matt Roberts as its new distribution manager, where he would join the firm’s Sydney office.
Roberts had more than 10 years’ experience in the wealth management industry with roles spanning distribution and financial advice.
Prior to that, Roberts worked at IOOF as a senior business development manager and was
in charge of the retail advice market. He also worked at Tynan Mackenzie and BT Financial Group as a business development manager, platforms.
“With our suite of investment partners represented on most major platforms, it is important we have an experienced team to drive distribution through these channels and continue to expand our network,” said Copia’s general manager distribution, John Clothier.
AMP Capital appointed Marsha Beck to the newly created position of managing director, Australia.
The firm said the role was created to strengthen resourcing in Australia and bring all the retail and institutional client teams for the Australian region under one role.
Since November, 2015, Beck
has led AMP Capital’s global consultant and account management strategy for the Asia Pacific client division.
Prior to that, she worked at Fidante Partners (Challenger Group) and Perennial Investment Partners, where she was responsible for managing Australian and global client relationships and developing and executing business, marketing, client services and sales strategies.
“I am delighted Marsha will be leading the Australian client teams. While we reset and refocus our efforts domestically, it’s important that we have the right leadership in Australia to navigate this period, ensure that we put clients at the centre of our business and set us up for future success,” AMP Capital’s director Asia Pacific, Craig Keary, said.
OUTSIDER
A light-hearted look at the other side of making money
High cost of putting writing on the wall for ASIC
OUTSIDER is prepared to bet that when the team at the Australian Securities and Investments Commission (ASIC) were ticking off their 2018 unfinished business list just before Christmas, they thought it possible that no-one would notice a particular response to a question on notice from the Joint Parliamentary Committee on Corporations and Financial Services.
I mean the question, directed at the regulator’s chairman, James Shipton, was asked on a Friday in mid-October and involved something very mundane – graphic design and the ASIC logo. Providing the answer on 27 November would surely go unnoticed.
Sadly, for Shipton and the ASIC team, someone noticed. Because apparently the cost of changing the font on the ASIC logo is up there with changing a light bulb on the international space station and delivered the regulator some not very sympathetic publicity.
Stage 1 – Creative development
- $43,426 (ex GST) for:
• Assessment of current visual identity and branded materials;
• New visual identity guidelines;
• Updated brandmark.
Stage 2 – Design and asset development
- $59,480.00 (ex GST) for:
• Electronic and print stationery templates (noting existing printed stationery stocks are to be used up);
• Updated ASIC banners;
• New Microsoft Office templates;
• Corporate digital and social media assets;
• Corporate website homepage design updates;
• Set of standardised icons for use in reports, social media and online.
Stage 3 – Web design update
- $2,790.00 (ex GST) for:
• Updating of asic.gov.au website homepage and templates.
Outsider asked Money Management's graphic designer and international man of mystery, Henry, to undertake the same exercise.
• Stage 1 – OK, boss
• Stage 2 – 15 minutes later - Finished
• Cost – a long black.
Dear Mr Shipton, Henry is busy right now.
Is FASEA the opportunity that knocked?
EVERY cloud has a silver lining, it seems. Even when that cloud takes the shape of the Financial Adviser Standards and Ethics Authority (FASEA) regime.
While many financial planners of Outsider’s acquaintance have been grumbling over the time and effort they are going to have to spend to ensure they meet the new FASEA requirements, your humble correspondent has noted that some other parties have been far less grumpy.
Because, it seems to Outsider, that where planners see challenge others see opportunity and thus, he has been counting the number of players who have started targeting financial planner education as a growth area.
OUT OF CONTEXT
Ken’s lista club no one wants to join
SO who is going to be named first?
Outsider has a list of people’s names on his desk which he believes may be similar to a list provided to the Australian Securities and Investments Commission (ASIC) by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Indeed, when providing its update on implementing the recommendations of the Royal Commission, ASIC noted that it had received “11 specific referrals in relation to eight entities” which was in addition to two referrals made during the course of the Royal Commissions hearings.
The question is, who within those eight entities will be held to account?
According to ASIC it has prioritised work on those referrals, but before anyone gets too excited the regulator has said that it will not comment on actual or potential investigations and is unlikely to do so until it actually commences proceedings.
So, for now, Outsider is left to contemplate his list while wondering whether some well-known financial services institutions have factored into their balance sheets the cost of funding the defence of current and/or former executives?
Perhaps, though, financial services operatives who are pursued by ASIC as a result of Royal Commission referrals will not be as fortunate as those Federal politicians who have their legal bills either paid by their party or the Commonwealth taxpayer.
The conventional wisdom may have been that it was the likes of Kaplan and the universities which would financially benefit from the new FASEA regime, but Outsider notes that others clearly have their eye on the prize.
Connie McKeague’s OneVue acquired Evolution Media’s No More Practice and is now offering services to planners, while the ever-ebullient Graham Rich has added to his successful Portfolio Construction Forum by adding “Finology” with an eye to meeting planner needs.
There will of, of course, be others because when opportunity knocks someone has to answer, don’t they?
"If not now, when? If not, why not?"
- Bill Shorten discussing legislating the Royal Commission recommendations, or perhaps why Scott Morrison has not called an early election.
"I think they resented the whole compliance system, period,"
- Swinburne University Law School's Helen Bird discusses the leniency by the Administrative Appeals Tribunal in reducing two former Macquarie advisers' penalty.