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Vol.25 No.19 | May 26, 2011 | $6.95 INC GST
The publication for the personal investment professional
FUND MANAGER OF THE YEAR: Page 11 | FOFA ROUNDTABLE: Page 26
Schroders takes a hat-trick Schroder Investment Management named Fund Manager of the Year By Angela Faherty THREE successive wins in a row make it a hat trick for Schroder Investment Management, which has once again beaten its peers to take the coveted Fund Manager of the Year crown at the 2011 Money Management/Lonsec Fund Manager of the Year Awards. It’s been an amazing year for the investment house, which has shown a high quality offering and achieved outstanding performance across a number of asset classes, Lonsec said. The research house praised the fund manager’s superior product offering and disciplined risk management focus. “Schroders is a quality investment house offering investors superior product across a number of asset classes. The manager has a strong risk management focus and advanced portf o l i o c o n s t r u c t i o n t e c h n i q u e s. Schroders’ underlying sector capabilities are rated highly across the board by Lonsec analysts,” Lonsec said. The win comes on the back of three t r i u m p h a n t ye a r s i n t h e Mo n e y Management/Lonsec Fund Manager of the Year Awards, and securing the top s p o t o n c e a g a i n c o m e s a s n o re a l surprise given Schroders’ dominance in a number of this year’s categories. The firm has secured the top spot in three of its four nominated categories and has featured more than any other fund manager. It added two further strings to its bow by also taking out the Asset Allocator and Multi-Sector categories. The fund manager was also a finalist in the Fixed Interest category. Greg Cooper, chief executive officer a t S c h r o d e r s , c re d i t e d t h e f i r m’s success to its long-term approach to investing which has enabled the manager to think through the investment cycle. Explaining the manager’s strategy, Cooper said: “We have not been thinking for the hills. Instead, we have adopted an approach that we hope will stand the test of time. There has been lots of volatility in the market so standing back and observing what is going on is a process that serves us very well.” Co o p e r a d d e d t h a t w i n n i n g t h e coveted Fund Manager of the Year title for the third year in a row was testament to a steadfast team and its multifaceted approach. “It would be a great honour to win three in a row, but to just be nominated is an amazing achievement. To win
AUSTRALIAN EQUITIES (BROAD CAP) Fidelity International AUSTRALIAN EQUITIES (LONG SHORT) Perpetual AUSTRALIAN EQUITIES (SMALL CAP) Perennial Investment Partners FIXED INTEREST (GLOBAL AND DIVERSIFIED) PIMCO GLOBAL EQUITIES (BROAD CAP) Independent Franchise Partners GLOBAL EQUITIES (LONG SHORT) Five Oceans Asset Management GLOBAL EQUITIES (REGIONAL AND EMERGING MARKETS) Aberdeen Asset Management ASSET ALLOCATOR Schroder Investment Management GLOBAL PROPERTY SECURITIES AMP Capital Investors
Fund Manager of the Year
Schroder Investment Management Finalist: Finalist:
two previous awards in different financial cycles and differing extremes is fantastic,” Cooper said. The other two finalists in this categ o r y w e re G o l d m a n Sa c h s A s s e t Ma n a g e m e n t a n d Ab e rd e e n A s s e t Ma n a g e m e n t . B o t h f i r m s s h owe d commitment to client ser vice and performance consistency. In other cate-
Goldman Sachs Asset Management Aberdeen Asset Management
gories, relative newcomer, Alphinity Investment Management was named Rising Star. Industry stalwart, Gwen Fletcher AM, was also presented with the inaugural Money Management Lifetime Achievement Award for her tireless dedication in promoting the financial planning profession in Australia.
AUSTRALIAN PROPERTY SECURITIES Cromwell Property Group ETHICAL/SRI MANAGER Hunter Hall ALTERNATIVE INVESTMENTS (HEDGE FUNDS) Winton Capital Management MULTI-SECTOR Schroder Investment Management RISING STAR Alphinity Investment Management
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Time to end the uncertainty
he Federal Government may have handed down its Future of Financial Advice (FOFA) proposals but that has not served to end uncertainty in the financial services industry. As the roundtable published in this edition of Money Management makes clear, a great deal of uncertainty will continue to impact the industry until such time as the Assistant Treasurer and Minister for Financial Services, Bill Shorten, finally tables his draft legislation. Australian financial planners have been made to live with uncertainty for nearly three years and it is now beyond question that it is not only adversely affecting their sentiment, but the valuations being applied to the businesses they have built. According to Radar Results, the valuations being applied to financial planning businesses have declined by up to 10 per cent in just the few weeks that have passed since Shorten announced the Government’s FOFA position late last month. And while Shorten’s announcement certainly answered some of the questions relating to the two-year opt-in and the Government’s intentions with respect to a best interests test and the banning of commissions on all risk products within
2 — Money Management May 26, 2011 www.moneymanagement.com.au
There are few industries that would tolerate the prolonged uncertainty that has been endured by the financial planning industry.
superannuation, it has left a good many other questions up in the air. As the roundtable participants made clear, questions remain to be answered with respect to the grandfathering provisions and the actual requirements around volume rebates. While there is a good deal more horsetrading to take place around the FOFA
proposals, there are few industries that would tolerate the prolonged uncertainty that has been endured by the financial planning industry. It is in these circumstances that the Government owes it to the industry to bring the uncertainty to an end and to deliver some certainty. With this in mind, it is to be hoped the legislation resulting from the FOFA changes can be introduced before the Parliament ends its sittings for 2011. With the Ripoll Inquiry having taken up most of 2009-10 and with the resulting FOFA proposals having dominated 201011, the industry should not have to wait until 2012-13 to know its ultimate fate. The sooner the proposals are brought forward for debate within the Parliament, the better. On a positive note, our congratulations to Schroders for being named Money Management Fund Manager of the Year for a third successive year. In the long history of the award it is the first time a manager has succeeded in securing a hat-trick. Perhaps just as importantly, that achievement was recorded across the full range of market conditions: the global financial crisis, the recovery, and the present day. – Mike Taylor
Further FOFA consultation needed By Mike Taylor THE Federal Government needs to go further in removing uncertainty and clarifying key settings around its Future of Financial Advice (FOFA) proposals, according to senior financial services identities attending a Money Management roundtable last week. Financial Planning Association (FPA) chief executive Mark Rantall pointed to continuing uncertainty relating to last-resort compensation scheme arrangements and the parameters of the proposed CP153 educational requirements. He said an argument existed for the Government to extend the FOFA consultation period to comprehensively encompass these issues. Other roundtable participants
included Association of Financial Advisers chairman Brad Fox, Fidelity Investments chief executive Gerard Doherty, Colonial First State general manager of advice Marianne Perkovic, and TAL chief executive of retail life Brett Clark. The participants also pointed to the fact that considerable uncertainty remained about the manner in which the Government would handle the grandfathering provisions of the intended legislation. However, it was Rantall who pointed to the fact that a number of issues had not been aired in the debate process around FOFA, notwithstanding the fact they were currently the subject of Government discussion papers. “A couple of by-products of FOFA that none of us have touched on are subject to different sorts of discussion
papers and are out there for consultation now. They are: the last-resort compensation scheme, and the educational and testing regime housing CP153,” he said. “It’s interesting that they weren’t actually captured in the announcements and yet are going to have a major impact, both financially and time-wise, on an adviser’s business. “If you roll those into it, potentially they can be positive initiatives, but once again the detail hasn’t been seen,” he said. “We’ve still got a lot of work to do; whilst we thought we were nearing the end of the consultation period, perhaps that consultation period needs to be opened up and continued,” Rantall said. For more on FOFA, see the roundtable on page 26.
Opposition could block FOFA: Cormann By Milana Pokrajac
THE Federal Opposition will be well placed to block the Government’s proposed Future of Financial Advice (FOFA) reforms from passing through the Parliament next year, according to the Shadow Minister for Financial Services, Senator Mathias Cormann. Speaking at a function hosted by the Association of Financial Advisers in Sydney, Senator Cormann said the Coalition had 74 out of 150 members of parliament in the House of Representatives, creating a real chance for the Federal Opposition to block the proposal. The Coalition would need to win over one other crossbencher – from Tony Windsor, Bob Oakeshott, Andrew Wilkie or Adam Bandt – for this plan to be effective, Cormann said, calling upon financial planners to contact their own members of parliament and do their fair share of lobbying. “We've got the opportunity to put forward our ideas and hope that our arguments are going to be so strong and so compelling that we will be able to convince people on the crossbench to go along with our view of what is good and what is bad public policy,” Cormann said. The Senator had reassured advisers that the Coalition would not support the FOFA package as it currently stood, calling it a “bad public policy” and accusing Minister
Mathias Cormann for Financial Services Bill Shorten of “looking after the vested interest of his friends in the industry super fund movement”. The Government had presented the FOFA reforms as a way to stop future collapses of companies such as Storm Financial, Westpoint Group or Trio Capital, but the most controversial reforms in the package had nothing to do with these types of collapses, according to Cormann. He referred to the banning of risk commissions within superannuation and the introduction of the opt-in requirement, which he said were unnecessary. “There is absolutely no need for the Government to get itself involved and mandate the requirement that people have to re-sign contracts with their adviser,” he said. “Don't think the FOFA in its current form is an inevitability, there is still debate to be had in the parliament and there is opportunity for us to pull what is currently the wrong piece of legislation,” he said. www.moneymanagement.com.au May 26, 2011 Money Management — 3
Agri-MISs focus on winning back investors By Milana Pokrajac
THE remaining players in the shrinking agribusiness managed investment scheme (MIS) sector appear to have ramped up investor protection, providing more clarity about the structure of their products in a bid to win back investor and adviser confidence. As reported in Money Management earlier this month, the managing director of researcher Adviser Edge, Shane Kelly, has noted the trend, saying product providers were working towards ensuring the projects actually reached their conclusions regardless of the financial situation of the manager. One such player is Macquarie Agricultural Funds Management, which introduced the so-called security accounts as well as the direct ownership of assets such as trees and land. Executive director Anthony Abraham said it was up to fund managers to engage retail clients and provide them with confidence that their investments were sustainable, due to their long-term nature. He added investors needed to regard agribusiness managed funds just like any other financial products. “They have to look at the product structure and investor security
… how it works and whether the outcomes are achievable,” Abraham said. The introduction of Macquarie’s security accounts is the first major development in its agribusiness funds management business since the collapse of companies such as the Great Southern and Timbercorp over two years ago. Abrahams said accounts would be set up on day one with the money remaining there for the duration of the project. He said fund managers could not force their clients to insure their investment, although the Australian Taxation Office highly recommends insurance for agri-MISs. “You’ve got to know who owns the land, you’ve got to know what rights the investor has, you want to know how the land is funded … and be comfortable,” Abrahams added. Another player in the market that has been offering and advocating for direct ownership of assets is Almond Investors. However, executive director Wayne Overall predicted the retail inflows would not go back to pre-2009 levels any time soon. A certain amount of time needed to elapse before retail investors started considering agri-MISs again, he added.
Synchron lambasts industry funds Caroline Munro SYNCHRON has lashed out at the Government, the industry funds and what it sees as the ‘socialist’ agenda behind the Future of Financial Advice (FOFA) reforms. “There is a lot of talk in the media about ‘conflicted’ financial advice,” said Synchron director Don Trapnell. “And yet, no-one is prepared to tackle the elephant in the room and ask the obvious question: Are the FOFA reforms, announced by a minister who used to be a director of one of the largest industry funds in the country, an example of conflicted governance?” Minister for Financial Services and Superannuation Bill Shorten was a former director of the Superannuation Trust of Australia and the Victorian Funds Management Corporation, and Trapnell stated that many of the reforms Shorten announced last month took a socialist approach to financial advice that unfairly favoured the industry funds movement. “Our reading of the reforms – particularly around scaled advice, bans on life insurance commissions within superannuation
Don Trapnell and opt-in – is that they are skewed in favour of industry funds at the expense of the financial advice industry and ultimately consumers,” said Trapnell. “In our opinion this is not surprising given Mr Shorten’s experience with superannuation has been solely with the industry funds movement, the very group that this legislation favours.” Trapnell asserted that scaled advice was actually elitist and presumed that ‘near enough was good enough’ for ordinary
Australians. He said the “bargain basement” prices associated with scaled advice would force the cost of tailored advice up and out of the reach of everyday Australians. The ban on commissions on life insurance within superannuation did not make sense given that commissions on general insurance in super and on life insurance outside super were to remain, Trapnell added. He said that insurance was about the transfer of risk of loss, not about the accumulation of retirement savings. He said the “ludicrous” ban was a further illustration of the Government deferring to the industry funds movement. “The eradication of brokerage on general insurance has not been on their agenda because, as yet, they don’t have fingers in those particular pies,” said Trapnell, referring to the industry funds. Synchron stated that if the Government was serious about reform it would first simplify complicated superannuation rules, adding that tinkering over the last 20 years had led to widespread disengagement, apathy and suspicion about the benefits of superannuation.
Commerical property tipped for strong growth By Chris Kennedy RENTAL rates and values in commercial properties are tipped for strong growth on the back of huge demand for office space in the Sydney and Melbourne central business districts (CBDs). Australian Unity Investment head of property Martin Hession said there was likely to be $22 billion of capital chasing Australian commercial property assets in Australia in 2011, compared to just $12.7 billion in 2010 – which in itself was the fourth highest demand year on record. Hession said that capital values had increased across the office, retail and industrial sectors, with too much money – including from overseas investors – chasing too few assets, while super funds will be among the most significant local investors. Office valuations will increase by around 20 per cent in the Sydney CBD and 33 per cent in the Melbourne CBD by 2014 on the back of strong demand from the financial services sector, he said. National prime office rent rates would rise by around 6.5 per cent annually, he added. Hession tipped slower growth rates in the industrial sector although supply in the sector is also very low, and will take a long time to clear because new properties have to be approved and built. Retail rental growth would increase only in line with inflation as the sector was impacted by lower consumer confidence, online shopping, and rising inflation and cost of living, he said.
New rules for SMSF collectibles Ignore bond benchmarks By Ashleigh McIntyre
THE new rules for selfmanaged superannuation funds (SMSFs) investing in collectables and personal-use assets have been revealed by the Government. The Minister for Financial Services and Superannuation, Bill Shorten, has released draft regulations outlining tightening rules around how collectables are stored and valued. Changes include new rules prohibiting the leasing of assets to related parties, the use of assets by related parties or the
storage of collectables in the private residences of related parties. There must also be a written record of the reason for the storage of an item in a particular location, which must be kept for at least 10 years. Assets must also be insured in a fund’s name within a week of acquiring the item, while the transfer of assets to a related party now requires independent valuation. The rules are set to commence on 1 July 2011 for all new assets, with a transitionary period applying to existing assets in place until 1 July 2016.
Shorten said the regulations would allow SMSF trustees to continue to invest in collectables in the wake of the Super System Review recommendation that these investments should be prohibited due to the risk investments would be made for current-day benefits. “The new rules will ensure that these investments are genuinely made for retirement income purposes and not for trustees’ personal enjoyment,” Shorten said. Written submissions on the draft regulations close on 14 June, 2011.
4 — Money Management May 26, 2011 www.moneymanagement.com.au
By Benjamin Levy INVESTORS should ignore bond benchmarks if they want to avoid bad investments, according to Brandywine Global Investment managing director and portfolio manager of fixed income, David Hoffman. While the best run equity companies with the best products grow to encompass a larger share of the equity market, bond indexes were made up of countries that issued the most debt, and that won’t tell an investor anything about whether the debt of a particular country is a good investment, Hoffman said. “Bond indexes are structured in such a way that it’s not necessarily to the advantage of the investor,” he said. “A country that has a 30 per cent weighting [in the index], that weighting might be very rich or might be very cheap, so the weighting itself should not be a guide as to how you allocate your portfolio,” Hoffman said. Bond benchmarks have misguided a lot of people into investments, and can hide a lot of activity in the bond market, he said. “Investors need to look at where they can get a higher real yield, because the higher the real yield, the less likely inflation will evolve in the economy,” Hoffman said. Brandywine was increasing to an overweight position on the US dollar and moving out of “commodity currencies” such as the Australian dollar, which had a lot of popular investment in the commodities sector, Hoffman said.
Wellington investors seek to oust management team By Caroline Munro INVESTORS in the distressed Wellington Income Fund have approached Castlereagh Capital to take control of the fund and eject its management team. The PIF Action Group, which represents 27 per cent of investors in the fund, stated in a letter to investors that it believed the continuing poor financial performance of the fund would be improved with the replacement of the current responsible
Avoca wary of resouces
against the fund’s former auditors, responsible entity and some of its directors. The group stated there was also no explanation regarding the 74 per cent discount between the trading price of units and their value as reported in financial statements, and why no strategy had been articulated to reduce the shortfall. There was also inadequate explanation as to why Wellington recently sought to raise $33 million in an environment where it had advised half of the assets of the fund or in
excess of $120 million were to be taken to market later in the year; and why Wellington raised $11.3 million from unknown third party investors without unit holder approval, and was doing so at a 70 per cent discount to the value of the fund. “The issuance of units at a discount of more than 74 per cent without our consent, and in breach of the Constitution and the Corporations Act, astounds us,” said PIF Action Group president, Charles Hodges.
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Performance 30 April 2011
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AVOCA Investment Management, the new small cap boutique that is the brainchild of former UBS small cap managers Jeremy Bendeich and John Campbell, will not be relying on a predictable bet on resources to generate alpha. “When the benefits of the resource boom are behind us and terms of trade have normalised, what industries are we left with [to invest in]?” asked Campbell. Campbell said valuations had dropped considerably in markets such as domestic industrials, including retail and consumer discretionary. When conditions do normalise, the value should still be there in those sectors, he added. The Avoca fund, which has the backing of Bennelong Funds Management, will target the universe of stocks outside the ASX top 50. It will have a fairly concentrated position, generally holding between 35 and 40 stocks, and will target returns in excess of 3 to 5 per cent above its benchmark, Bendeich said. The fund has had considerable interest from several parties but will not start seeding capital until 1 July. The main investors being targeted include selfmanaged super fund trustees, high-net-worth individuals and other advised investors, although there will be room within the fund for at least one institutional mandate in the vicinity of $50 to $100 million, he said. Because there will be limited capacity within the fund, and a lot of the high quality small cap funds are already full, Bendeich anticipated strong demand for the fund.
entity and manager, Wellington Capital. It added that Castlereagh had the necessary combination of experience, independence and skill to produce the best outcome for investors. The action group sent investors an information booklet that outlined reasons as to why it believed Wellington was unsuitable. The reasons included the assertion that Wellington failed to help fund members pursue claims for up to $400 million (over 50 cents per unit)
Growing trends such as China’s increasing hunger for luxury goods, the emergence of smart phone and mobile internet technology are resulting in strong performances by global equity funds. K2 has identiﬁed and tapped into these trends via stock selection and selective currency hedging. Consider the outstanding results for our K2 Select International and K2 Asian Absolute Return Funds. We believe now is the time to take advantage of these opportunities. For more information go to: www.k2am.com.au or telephone: 03 9691 6111
Past performance is not a reliable indicator of future performance. Fund returns are annualised compound rates, net of all fees, exclude individual taxes, assume dividends are reinvested, and consist of income and capital return. K2 Asset Management Ltd ABN 95 085 445 094 AFSL 244 393 (“K2”) is the issuer of the K2 Australian Absolute Return Fund ARSN 106 882 302, the K2 Asian Absolute Return Fund ARSN 106 882 384, and the K2 Select International Absolute Return Fund ARSN 112 222 465. K2 is not licensed to give ﬁnancial product advice and recommends you read K2’s product disclosure statement (available from K2), and consider whether these products are appropriate for you, before deciding to acquire an interest in any K2 fund. K2 and its related parties do not guarantee the repayment of capital or the performance of any K2 fund. The K2 funds’ portfolios can diverge signiﬁcantly from underlying market indices.
www.moneymanagement.com.au May 26, 2011 Money Management — 5
Insto planners to avoid fiduciary duty By Milana Pokrajac THE Government has established framework that would allow statutory fiduciary duty to be circumvented by some financial planners, while promoting this reform to be meaningful and worthwhile, according to the Boutique Financial Planning Principals Group (BFPPG). This statement, written by BFPPG president Claude
Santucci, came as part of the group’s response to the recently released Future of Financial Advice (FOFA) information pack, in which the Government officially announced the anticipated changes, including the introduction of a statutory fiduciary duty. The information pack included a paragraph indicating an adviser would not be required to “broker the entire market …
to find the best possible product for the client, unless this service is offered by the adviser or requested by the client and agreed to by both parties”. Referring to the paragraph, Santucci questioned whether it meant to limit the requirement to acting in the client’s best interest “within an institution’s limitation”. “How w i l l c o n s u m e r s b e made aware that the advice
may be limited by an adviser’s inability to consider alternatives that may include going outside the institution?” Santucci asked. Santucci claimed the reform would not improve the quality of advice unless the conflict between acting in a client’s best interest and the best interest of the Australian Financial Ser vices Licence holder is resolved.
The BFPPG launched a further attack on institutions while addressing the ban on volume rebates, by proposing a complimentar y refor m: a ban on cross subsidies from institutions to their advice arms. “The two very separate activities of product manufacture and distribution, and the provision of advice must be kept apart,” Santucci wrote.
Bundle advice with MySuper Multi-brand continues for AMP/AXA LOW-COST, simple financial advice should be incorporated into MySuper and the costs bundled along with overall superannuation costs, according to Mercer. The latest Mercer Superannuation Sentiment Index revealed that when looking for advice, most of the 1,078 working Australians surveyed considered approaching their superannuation fund (40 per cent), their financial adviser (42 per cent) or their fund website (24 per cent). It also found that 43 per cent of those who had sought financial advice felt confident they had enough retirement savings, compared to 30 per cent of those without an adviser saying the same. Those who sought financial advice were also generally more positive towards their main superannuation fund, and 82 per Jo-Anne Bloch cent of those were also confident in their knowledge about superannuation. “The more people are engaged with their superannuation fund, the more secure they are with its performance, regardless of external factors,” said Mercer financial advice leader Jo-Anne Bloch. “They will take a longer-term view of superannuation which is the right way to look at it. Advice is the crucial link.” But she said that in the context of MySuper, a high-cost, fully-fledged advice service was not needed to engage members. She added that members also do not want to pay more for simple advice in relation to their current superannuation account, or pay for advice separately. “Where the costs of simple superannuation advice are built-in to the cost of superannuation, more members access this advice,” said Bloch.
6 — Money Management May 26, 2011 www.moneymanagement.com.au
By Caroline Munro
NO NEW licensee arrangements have been discussed following the AMP/AXA merger, said AMP Financial Services managing director, Craig Meller. AMP announced its integration plans regarding product and platforms last week. But when it comes to AMP and AXA-aligned financial planners it appears to be business as usual. “In advice and distribution we are maintaining our multi-brand approach, and we are going to continue to work with our planners and advisers to ensure they have the support to grow their businesses,” said Meller. “We haven’t changed the terms and conditions of any of the financial advisers in any of the AXA or AMP licensees.” Meller said when AMP looked at the offers available to planners from the two different groups there were a number of aspects that could easily be made available across licensees. “The practice finance capability that we developed within AMP Bank has been very successful in helping AMP financial planners grow their business,” he said. “In looking at that offer we found that it is much more attractive than what the AXA plan-
ners have been able to source for themselves.” He said AMP had a ‘broad’ line of credit assigned for financial planners to help with their growth strategies, although he would not provide any figures. Another area to which AMP hoped to add value was helping AXA planners grow their businesses through the recruitment of higher quality financial advisers. He said recently one of the adviser graduates from AMP’s Horizons Academy agreed to join up with an AXA practice rather than an AMP practice. “We think that is an area where we’ll be able to help the AXA planners grow their businesses much more into the future,” said Meller. Meller said that while the market for financial planners was ‘noisy’ at the moment, the number of planners leaving the AMP group was not out of the ordinary. “There are always a small number of planners moving from AMP and AXA, but also from the competition into AMP and AXA,” he said. “I would describe the market environment at the moment as ‘noisy’, but the movement is well within what we would call ordinary movement in the course of an ordinary year.”
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Disclosure not addressed in FOFA
ASIC emphasises merger disclosure
By Chris Kennedy
THE Australian Securities and Investments Commission (ASIC) has reminded superannuation trustees of changes to disclosure requirements regarding fund mergers. Super funds are required to inform members about any merger of funds and provide transferring members with a new Product Disclosure Statement (PDS) that explains the new product the member will hold following the merger, ASIC stated. Super funds are also required to update PDSs explaining the merger to prospective members, it added. The reminder to super funds came about as a result of ASIC being aware that merger and consolidation activity was occurring in the superannuation industry, ASIC stated.
THE key issue still not being addressed in the Government’s recently announced Future of Financial Advice (FOFA) reforms package is disclosure, with the potential remaining for a client to walk into an institutionally-owned practice believing it to be independent, according to Boutique Financial Planning Principals Group (BFPPG) president Claude Santucci. The BFPPG’s FOFA submission outlined concerns that the fiduciary duty requirement would not require planners to look beyond their own Approved Product List (APL). Santucci said there is no issue with any group or institution using their own APLs, and there is room within the industry for all business models, provided there is full disclosure. Despite the fact that there are requirements to mention within a statement of
Claude Santucci advice whether recommendations are restricted to products on an APL, clients often did not read or fully understand the fine print. It remains possible for a client to walk into a practice and believe that it is independent when that is not the case, he said. Also, an adviser in an industry fund
operating under limited or scaled advice will never recommend a client to consolidate their super out of that fund into a retail product, regardless of where the returns have been better, Santucci said. “The level of disclosure is almost nonexistent in industry funds and major institutions,” he said. Some planners run their licences independently from bank ownership while others just follow the party line, he added. When a client walks into a practice, he or she should know exactly who owns the licence, what their limitations are, what deals the practice has with which product providers and who is the end beneficiary when any products are sold, he said. That way it is up to the client whether they seek out an independent adviser or seek the strength of a practice with institutional backing, he said.
New Finsia president focuses on membership NEW Finsia head Russell Thomas has identified a renewed focus on the organisation’s membership as a key priority as he starts his term as chief executive and managing director of the association. Russell was appointed after a period as interim chief executive, and the capability he demonstrated there along with his insight into the professional membership landscape made him a compelling appointment, according to Finsia president Malcolm McComas. Thomas said that this will be a period of execution and capitalising on the work the association has done in the past three years in terms of better understanding the changing dynamics of membership organisations, and starting to bed down the new credential and regulatory framework facing the industry. The Future of Financial Advice (FOFA) reforms bring a change in focus in professional expectations and expecta-
tions of financial professionals in the front line of the industry, he said. “This has been where the reputation of the industry as a whole has been most at stake. Our credential program has been designed to fit into the Future of Financial Advice reform framework and also provide that uplift in standards,” Thomas said. The main focus will be to shift back to the essence of the two participant organisations that formed Finsia, the Australasian Institute of Banking and Finance and the Securities Institute of Australia, and to focus on what makes a good membership association, he said. The Australian financial service industry needs to make sure that it is fighting fit for positioning itself in the network of Asia Pacific economies and making sure the reputation it earned during the financial crisis can be turned into longterm success for the country, Thomas said.
Retirement system needs rethink
By Caroline Munro THE financial services industry needs to shift focus away from accumulation to decumulation thinking if it is to adequately meet the needs of those entering retirement, according to Challenger chairman of retirement income, Jeremy Cooper. Speaking at the 2011 Morningstar Invest-
ment Conference, Cooper said the massive movement of baby boomers entering retirement presented an enormous value proposition for advisers. He noted that advice had a powerful effect on investment behaviour, and could help address such issues as longevity and inflation risk in the drawdown phase. Cooper said there were currently about 20 per cent of funds in the pension phase. However, this was likely to increase dramatically as the population aged and as the retirement savings system matured. He noted that 50 per cent of retirees cashed out their superannuation on reaching retirement, but in less than 10 years industry experts expected that to change significantly – some 90 per cent were expected to stay in the system and take a pension, while only 10 per cent would take their cash as a lump sum, he said. However, contributions caps continued to be a huge issue with $27.65 billion in tax in the 2011 financial year coming out of super, said Cooper. He said policy change would be required if the Government
8 — Money Management May 26, 2011 www.moneymanagement.com.au
wanted to address the issue of retirees tending to take a lump sum. He added that there also needed to be a shift of thinking away from accumulation products and accumulation thinking that currently dominated. The industry still talked about expected returns on the retirement phase, which was not good enough, said Cooper. “We need to go further and look at what assets will do year-on-year,” he said. Cooper said the systematic and policy design around superannuation did not think hard enough about retirement. He noted that the age pension was actually the perfect retirement product, although due to means testing and other restrictions it was not enough to fund a comfortable retirement. He said lifetime annuities could copy the attractive features of the age pension, operating and behaving almost identically. Cooper said most other retirement savings systems around the world had a deferred lifetime annuity option. “It’s a good time to clear away the tax and other regulatory impediments around deferred annuities,” he said.
SMSF trustees begin borrowing SELF-MANAGED super fund trustees are taking advantage of new limited recourse borrowing arrangements to invest in both property and other financial assets, according to SMSF administrators Multiport. Around 13 per cent of funds administered by the firm are now utilising a borrowing arrangement, according to a survey of 1,400 SMSFs that represent around $1.25 billion in assets. A slight majority of these were borrowing to invest in property, with 56 per cent compared to 44 per cent borrowing to invest in other financial products. The property loans were also of larger value, at $200,000 compared to $110,000 for other assets. Average asset allocations remained largely steady over the quarter, with the biggest shifts in international equities exposure, which increased from 7.1 per cent of overall assets to 8.8 per cent in the three months since 31 December 2010; and assets in alternatives such as hedge funds, agribusiness and private trusts which dropped from 2.1 per cent to 1.3 per cent. Multiport also announced an integrated gearing package in addition to its core administration services, which takes care of documentation and loan applications through the entire process. “The rules around gearing a property in a SMSF are complex and it’s essential to tailor the right loan to suit the needs of the trustee,” said Multiport chief executive John McIlroy. “We have seen a marked increase over the past 12 months in adviser and trustee enquiry rates around gearing into SMSFs. However, there remains confusion around the process and what needs to take place in order to complete the purchase smoothly. This solution fills the void,” he said.
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What’s more, our industry-leading MoneyForLife retirement solution has recently won: • Money Magazine ‘Best of the Best’ Innovative Super Product Award 2010 • Rainmaker Excellence Awards 2010 – Best Innovation of the Year
Our superannuation solutions have also consistently been recognised by leading independent rating houses: • The Heron Partnership – Top Rated Corporate Product 2011 – 8 times running (Corporate Super) • The Heron Partnership – 5 Quality Star Rating 2011 (Integra Super, OneAnswer Personal Super and OneAnswer Pension) • Selecting Super – AAA Fund Quality Assessment Rating 2011 (Corporate Super and Integra Super) The team that made all of this possible is now even more committed to delivering award-winning solutions to ensure your business growth remains the same.
To find out more about OnePath, contact your Business Development Manager or visit onepath.com.au
Matrix denies it is seeking a buyer ahead of reforms By Mike Taylor MATRIX Planning Solutions has denied a report it has been seeking a buyer ahead of the Government introducing legislation around the Future of Financial Advice (FOFA) changes. The dealer group has declared it is neither hoping to find a buyer
Rick Di Cristoforo
before the FOFA changes nor in discussions with potential buyers. In a statement issued late last week, Matrix managing director Rick Di Cristoforo said that like any good business, Matrix regularly evaluated its strategy to ensure it stayed ahead of the pack, but any strategy it undertook would need to support and help
develop its culture and value proposition. “Matrix Planning Solutions is independently owned and profitable and we plan to be around for some time,” he said. “We agree that dealer groups of the future will need to drive even greater value to member firms, and look forward to meeting the challenge.”
Di Cristoforo’s statement said that while there were elements of FOFA that would challenge all participants, Matrix was extremely confident of its future – something evidenced by its strategic alliance with AustralianSuper and other quality platforms and its initiatives in delivering scalable strategic advice.
FOFA rhetoric doesn’t match the strategy, says AFA By Milana Pokrajac
THE original intent of the Government’s Future of F inancial Advice ( F O FA ) r e f o r m s wa s t o c r e a t e enhanced transparency and better outcomes for investors, but this rhetoric does not match the outlined strategy. That is the main point flowing from the Association of Financial Advisers’ (AFA) updated FOFA member pack, launched by chief executive Richard Klipin and national president Brad Fox. The AFA reiterated its convictions that the reforms package was against the interests of consumers, advisers,
small businesses and communities in regional Australia. “FOFA has failed to strike the right balance between improving advice outcomes on the one hand, whilst retaining access and affordability for all consumers on the other,” Klipin and Fox wrote in their address to members. The FOFA member pack had outlined the main changes announced by the Financial Services Minister Bill Shorten last month, such as the ban on risk insurance commissions in superannuation, a two-year opt-in requirement and a ban on all volume payments/sales target payments to advisers and licensees.
The document had also made clear that the debate was still in full force, but had moved from policy to a political debate, encouraging advisers to write to their local members and lobby against the FOFA reforms package as it is currently presented. The association stated that FOFA “adopts a paternalistic policy approach and signals a return to the ‘nanny state’, where the Government dictates terms of the adviser-client relationship”. Klipin had called for the Governm e n t t o u n d e r t a ke a m o d e l l i n g process that would identify the benefits and consequences of the proposed FOFA changes.
FOFA hitting valuations THE Federal Government’s Future of Financial Advice (FOFA) announcement has already had an impact on the valuation of planning practices, according to Radar Results. The company said its valuers had reduced earnings before interest and tax (EBIT) multiples by 0.5 times since the FOFA announcement, equating to a reduction of approximately 10 per cent of a practice’s value. Commenting on the situation, Radar Results principal Michael Birt said valuations depended on the style of the planning business, the products used, the client ages and, in particular, their current fee arrangements. Giving his own analysis, Birt said a concern he had with FOFA was the proposal for a two-year opt-in, but of greater concern was the Government’s inability to outline a definite grandfathering arrangement. “Grandfathering has been presumed by most advisers to be automatic, however, Shorten’s recent statement that ‘issues around grandfathering arrangements will still be subject to further consultation’ is certainly not what planners wanted to hear,” he said. “The question is whether life insurance agents, who have been building up client registers for many years, may have a part of their register rendered useless,” Birt said. “Certainly, retail risk policies written inside a personal super plan seem to be in the firing line.”
ASFA welcomes tougher reporting rules for SMSFs THE fact that self-managed superannuation funds (SMSFs) are not reporting entities for the purposes of Anti-Money Laundering/Counter Terrorism Financing (AML/CTF) regulations makes them more likely to be used for money laundering and terrorism financing purposes. The Association of Superannuation Funds of Australia (ASFA) made this claim in a submission to the Australian Transaction Reports and Analysis Centre (AUSTRAC), welcoming amendments to reporting rules ending the use of the so-called Simpli10 — Money Management May 26, 2011 www.moneymanagement.com.au
fied Trustee Verification Procedures (STVPs) by SMSFs. ASFA said that while it recognised that the majority of SMSFs were fully compliant and managed in accordance with the legislative framework in which they operated, there had been historical instances of fraud and/or criminal abuse perpetrated through SMSFs. “As such, we support the proposed amendments that will require reporting entities to conduct a full customer identification procedure when dealing with SMSFs,” the submission said.
Fund Manager of the Year
12 13 14 16
Fund Manager of the Year Methodology
Australian Equities (Broad Cap) Australian Equities (Long Short) Australian Equities (Small Cap) Fixed Interest (Global and Diversified) Global Equities (Broad Cap) Global Equities (Long Short)
17 18 19
Global Equities (Regional and Emerging Markets) Asset Allocator Global Property Securities Australian Property Securities Ethical / SRI Manager Alternative Investments (Hedge Funds)
20 21 22 23
Lifetime Achievement Award Young Achiever of the Year Best Advertising Campaign Marketing Team of the Year
www.moneymanagement.com.au May 26, 2011 Money Management â€” 11
Fund Manager of the Year
It’s a hat-trick Fund Manager of the Year
Winner: Schroder Investment Management Finalist: Goldman Sachs Asset Management Finalist: Aberdeen Asset Management
hree times in a row makes it a hat-trick for Schroder Investment Management which has once again been crowned the 2011 Money Management/Lonsec Fund Manager of the Year. The investment house was praised by Lonsec for its quality offer ing and outstanding performance across a number of asset classes. “Schroders is a quality investment house offering investors superior product across a number of asset classes,” Lonsec said. “The manager has a strong risk management focus and advanced portfolio construction techniques. Schroders’ underlying sector capabilities are rated highly across the board by Lonsec analysts, with the highest possible ratings achieved in Australian equities and fixed income.” The win comes as no surprise, given Schroders’ dominance in this year’s awards. The firm has secured the top spot in three of its four nominated categories and has featured more than any other fund manager. Greg Cooper, chief executive officer at Schroders, credited the firm’s success to its long-term approach to investing. He said: “I think one of the reasons that we have been acknowledged in these awards is our approach has been to think through the cycle. We have not been thinking for the hills. Instead, we have adopted an approach that we hope will stand the test of time. There has been lots of volatility in the market, so standing back and observing what is going on is a process that serves us very well.” Cooper credits Schroders’ head of fixed income and multi-asset, Simon Doyle, and his team for successfully battling through a volatile market. “Simon and his team have done a fantastic job, particularly in ver y volatile fixed income markets. One of the beauties about Schroders is the ability to operate a multiasset approach which allows for interplay between various asset classes,” he said. Indeed, Schroders’ investment style was commended by Lonsec for its
outperformance. The research house said: “Schroders’ diversified funds have outperformed peers and benchmark over all time periods, with value added across all stages of the investment process. Key decision makers for the funds are experienced and highly regarded.” On hearing Schroders’ was shortlisted once again for the Fund Manager of the Year award, Cooper said: “It would be a great honour to win three in a row, but to just be nominated is an amazing achievement. To win two previous awards in different financial cycles and differing extremes is fantastic.” Runner-up in this categor y was Goldman Sachs Asset Management which has a long history of providing leading domestic and global investment offerings in Australasia. Phil Gardner, managing director and head of distribution at Goldman Sachs Asset Management, said the firm’s position as a finalist was down to its commitment to client service and its focused risk management approach. “Our disciplined approach to risk management and sharing insights across asset classes helps us generate strong, consistent and repeatable returns for investors. We are honoured that Money Management and Lonsec have recognised the calibre of our investment professionals and we believe the awards reflect the level of insight and strategy that we strive to bring to our investment products and our investors,” he said. Third-placed finalist, Aberdeen Asset Management, said the consistency of its approach was what made it stand out from the crowd in this category. Brett Jollie, managing director at Aberdeen Asset Management, said: “What makes us different is the discipline and consistency of our investment process across market cycles, the experience and resourcing of our investment teams both in Australia and offshore, solid long-term outperformance and the support of our global investment professionals.” By Angela Faherty
Finding the Fund Manager of the Year winners for 2011 THE process Lonsec implemented to select the winners for each award category is consistent with last year’s process and consisted of three primary components. Firstly, as an initial screen, fund managers needed to be rated by Lonsec in their category. Lonsec’s managed funds research process is qualitatively skewed. Lonsec believes that managing money is a combination of art and science and that there are a number
of critical ingredients that combine to produce a quality investment product. Lonsec’s assessment of people and the investment process they employ has the greatest impact on its rating process. From this screened universe, Lonsec utilised two equally weighted components to select the Fund Manager of the Year winners in each category. The first component was the one-year excess return for rep-
12 — Money Management May 26, 2011 www.moneymanagement.com.au
resentative funds for calendar year 2010. Since the majority of retail flows are invested in wholesale trusts via platforms, wholesale trusts were used as the vehicles for performance calculation for managers. The second component was a qualitative analyst ‘momentum’ score, which the Lonsec research team determined for fund managers in each category. Factors that were considered in this momentum score included process enhance-
ments, team stability and depth, management of funds under management (FUM) capacity and risk management. The highest scoring fund manager, from the aggregate of these two equally weighted components, was declared the winner in each category. In summary, managers who have performed well against the benchmark within their category and have strong positive qualitative momentum, as
assessed by Lonsec, are finalists for these awards. In regards to the overall fund manager of the year award and the rising star award, Lonsec used a voting process involving the Lonsec research team. Firstly, nominations were made for managers. Secondly, nominated managers were then ranked by senior members of the Lonsec research team. The highest ranking manager was declared the winner in each category.
Fund Manager of the Year
Taking the long view
rivately owned Fidelity International’s performance and established long-term track record were winning factors in its success in taking out this year’s Australian Equities Broad Cap category at the Money Management/Lonsec Fund Manager of the Year Awards. Led by Paul Taylor, the Fidelity Australian Equities Fund has taken pole position for its bottom-up, longterm stock analysis approach. Commending Taylor and his peers, Lonsec said both the fund’s research team and performance were sound examples of quality and experience in the investment industry. “The fund has established a very strong longer-term track record,” Lonsec said. “Taylor is considered to be a quality investor with prior portfolio management and stock analysis experience, both on a global and domestic level. The portfolio manager is supported by a well resourced and highly capable research team responsible for bottom-up stock analysis.” Indeed, it is the manager’s consistency of performance and
Australian Equities (Broad Cap)
Winner: Fidelity Finalist: Greencape Finalist: Goldman Sachs Asset Management Paul Taylor
aptitude for stock selection that portfolio manager Paul Taylor considers the reason for its success. Since its inception in 2003, the fund has outperformed the market by 4 per cent each year, he says, beating its performance target of 2.5 per cent above the benchmark through savvy stock selection. “As a bottom-up stock picking firm, we look for great ideas and companies and try to form a 360degree view of a company we are researching. Typically, we hold between 30 and 50 stocks in the fund, which we believe is important as above that is too close to the market, while below that is not enough,” Taylor says. He adds that the fund has a holding period of three years, which he considers important
from a bottom-up perspective as it provides reasonable market visibility without the faddish trends afforded by a shorter sixto 12-month cycle. Taylor credits the domestic equities team and a strong global network for the success of the fund as well as the stability of the team, a matter he considers a result of the private ownership of the firm. Runner-up in the category, Greencape Capital, outshone its peers following five years of solid growth. Matthew Hyland, director at Greencape Capital and portfolio manager of the Greencape Broadcap Fund, believes the firm’s consistency over extreme turning points in the market is a reason for its success in this category. He said: “A fund manager’s
ability and processes get tested when there is a sharp turning point in the market. I think our fund stands out because we have a strong commitment to capacity; it is a genuine broadcap fund and we have shown we have the capability to navigate the markets and provide consistency of performance in bull and bear markets.” Third-placed Goldman Sachs Asset Management attributes three distinguishing features to its winning Australian Equities Wholesale Fund. The first is that its team of nine investment professionals, coupled with the broader global investment team, is responsible for the firm’s US$679.9 billion in assets under management, while the team’s focus on idea-generation and
independent thinking is what the firm believes sets it apart from its peers. The manager also credits its neutral-balanced approach to stock selection and a disciplined approach to managing risk as reasons its team has been able to deliver strong performance results in both up and down markets over the long and short-term. Dion Hershan, head of Australian equities at Goldman Sachs Asset Management, said: “We believe a style-neutral, balanced approach to stock selection across stock styles and investment horizons allows for strong performance results over the short and long-term and through different market cycles.” By Angela Faherty
Perpetual’s ups and downs Australian Equities (Long Short)
Winner: Perpetual Finalist: Smallco Investment Manager Finalist: K2 Asset Management
thorough understanding of the quality of a company and its relative valuation are the reasons behind the success of Perpetual Investments’ Shares Plus Long Short Fund, according to head of equities John Sevior. The fund topped the rankings in the Money Management/Lonsec Fund Manager of the Year Australian Equities Long Short category for its fundamental, value-style approach. According to Lonsec, the fund delivered a very strong result for investors in the 2010 calendar year with an excess return versus the S&P/ASX 300 Accumulation Index of 7.7 per cent post fees. The manager’s investment style enables it to construct portfolios that take advantage of both positive and negative views on stocks, ensuring it delivers returns for its clients.
“ We believe we are often able to perceive a value of a company that is different from the opinion of the market by looking for research opportunities away from common sources,” Sevior said. “Therefore, outperformance can be achieved through a selection of securities trading at a different valuation to their inherent value.” Lonsec praised Perpetual’s review of the fund’s mandate in 2010, which it said resulted in an improved fund structure. The key changes included the appointment of Paul Skamvougeras, a dedicated portfolio manager with direct short selling experience, a revised short selling process that reflects the skill set and experience of the portfolio manager, and the adoption of a more concentrated portfolio construction approach. “These changes are an improvement
on the previous fund structure and as a result, has increased conviction in the fund’s ability to meet investment objectives,” Lonsec said. Also commended in the Australian Equities Long Short category was last year’s winner, the Smallco Investment Fund. The fund has four very experienced senior portfolio managers with detailed bottom-up fundamental research backgrounds and the firm specialises in the smaller end of the market. The fund typically holds 25-35 stocks and prides itself on being a capacity conscious, concentrated, small cap, index unaware Australian equities fund with the
potential to short sell small cap stocks, says Rob Hopkins, managing director at Smallco. “We are very conscious of capacity and will limit funds under management to ensure the Smallco Investment Fund can continue to take meaningful positions in smaller companies without investor returns being affected by the time it takes to establish or exit an investment,” he said. Hopkins added that as part of its strategy, the fund was closed in 2007 at a comparatively low level of FUM in contrast to its peers, but has since reopened to new investors. Finalist K2 Asset Management also saw its Australian Absolute Return Fund acknowledged in the Australian Equities Long Short category. Since inception in October 1999, it has consistently outperformed the market and delivered clients a 14.1 per cent return. David Poppenbeek, head of Australian Strategy at K2 Asset Management, said: “The fund is managed with an absolute return focus, achieving strong returns but also protecting capital in volatile markets. The funds are managed with the flexibility to use cash to protect capital and use shorting when and if appropriate,” he said. By Angela Faherty
www.moneymanagement.com.au May 26, 2011 Money Management — 13
Fund Manager of the Year
Good things in small packages
onsec picked first-time winner in this category, Perennial Value Smaller Companies Trust, out of the crowd of competitors thanks to its strong, sustained performance and 6.7 per cent excess returns. With a focus on capital preservation, the fund screens out highly leveraged, poor management companies, as well as ‘concept stocks’, to find quality small companies with sustainable
businesses that are trading at a discount to valuation. The portfolio managers, Grant Oshry and Andrew Smith, work closely with Perennial Value Management’s (PVM) large cap team to give them a broader depth of coverage than they would otherwise get, a relationship noticed by Lonsec in anointing the winner of the small caps category. “PVM exhibits many characteristics that Lonsec looks for in a boutique, such as equity ownership by the investment team, a strong alignment of interests, and an investmentorientated culture,” the research house said. Oshry agreed with the remark. “When we set up this boutique, we ensured that key personnel owned direct equity in the business, so our interests are clearly aligned with our underlying investors. But a number of other analysts, because they own equity in Perennial Value and Perennial Value owns equity in smaller
Australian Equities (Small Cap)
companies, they have direct incentives to the success of the fund,” he said. The support of PVM’s wider team of analysts is a key point of difference between the Smaller Companies Trust and some of their peers in the industry, according to Oshry. All the fund managers are also personally invested in the fund on a voluntary basis, and pay full performance fees for its performance, Oshry said. The small size of the fund – it has $350 million in funds under management (FUM) – allows it to move nimbly in and out of the market and react much more quickly to the flow of news. “It won’t limit us in terms of our investment choice. We invest in a company with a market cap of $50 million, whereas some of our peers running a $2 billion fund, if they own 10 per cent of a company it will give them a $5 million exposure, and that’s too small.” The fund will close off at $750
Winner: Perennial Investment Partners Finalist: Pengana Capital Finalist: Celeste Funds Management
million in FUM from retail and wholesale flows. That will leave them at one-third the size of most of their peers, Oshry said. Runner-up in this category was the Pengana Emerging Companies Fund. “Our whole philosophy is based around company contact; we have an exhaustive company visitation program,” said Pengana Emerging Companies Fund manager Steve Black. Pengana Emerging Companies Fund visits on average 400 to 500 companies a year. The fund managers look for mispriced securities, companies that are too small for large brokers to look at, or that are not well covered. “It’s about quality management with good franchise businesses,” Black said. While he admitted this was something of a ‘needle in a haystack’ approach, a target market of companies with approximately $30 million in capital made no other approach
PIMCO retains fixed interest crown Fixed Interest (Global and Diversified)
hree-time award winner PIMCO has again won first place in the Fixed Interest, Global and Diversified category in the Money Management/Lonsec Fund Manager of the year awards. PIMCO kept its place as pre-eminent fund in its category, thanks to its renewed focus in information technology infrastructure and risk measurement, Lonsec noted. The PIMCO Equity Trustees Global Bond fund has a deep and quality investment team focusing on both top-down macro themes and bottom-up research on individual debt securities, according to Lonsec. The fund is very actively managed, said Peter Dorrian, PIMCO head of global wealth management in Australia.
Winner: PIMCO Finalist: Macquarie Finalist: Schroder Investment Management
“We’re in interesting economic times with different parts of the world moving in very different directions in terms of the outlook for their economies and growth. One of the things that we always do at PIMCO is that we spend a lot of time seeing the relative outlooks across all the countries in which we can invest, and all the sectors in which we can invest,” Dorrian said. The fund is very good at avoiding those sectors that present risk to investors, and assess sectors with the best return, he said. PIMCO’s style of active management has been the real success story, he said. Dorrian warned investors to avoid peripheral European countries like Portugal and Greece, as well as the US Treasury market. PIMCO sold out of its US Treasury holdings a couple of months ago. PIMCO was favouring the emerging
14 — Money Management May 26, 2011 www.moneymanagement.com.au
markets, corporate, and the high quality mortgage sector, Dorrian said. Investors need to look foremost for a fixed income manager that assesses the risk of that investment, to return capital first and then provide a return on that capital, Dorrian said. “Now, more than ever, with the disparity that we have seen in bond markets around the world, it’s really important that we look first to assessing risk in any position we take,” he said. Lonsec also viewed favourably PIMCO’s move in recent years to broaden the focus of the fund’s senior portfolio managers to include non-US accounts, including the Australian fund. The fund was introduced into Australia in 1998. It has produced returns of nearly 13 per cent over the last 12 months to April 30, more than 5 per cent over the index return.
possible, Black said. The fund contains approximately 50 to 60 stocks. Small-cap companies only have small contracts or small numbers of customers, so the analysts need a greater understanding of the quality of management if things go wrong quickly, Black said. Runner-up Celeste Funds Management chief investment officer Frank Villante said the Australian Small Companies Fund had used a very consistent management process for a number of years. “We apply it day-in and dayout, irrespective of market mood or equity market economic cycle, so I think we’re fairly diligent in what we do, and fairly focused on what we do,” Villante said. Their success at generating excess returns was a combination of the right people and the right process, he said. By Benjamin Levy
They currently have $2.2 billion in funds under management. Taking a diversified approach without compromising the level of risk they use in the portfolio is also the secret behind Macquarie’s nomination, according to Brett Lewthwaite, head of Macquarie’s fixed interest, currency and commodities asset management business. The Macquarie Master Diversified Fixed Interest Fund, while being well diversified, has been designed to behave like a domestic or Australian bond fund, in order to achieve superior return outcomes for clients. The team of more than 25 analysts look for the best investment opportunities around the world and then modify them to replicate the Australian index from day to day. The fund has outperformed the normal Australian bond fund by 2 per cent. “We believe that the global universe of fixed income avails itself to be able to take a lot more diversified positions, that enable value to be added at a higher level, without sacrificing the level of risk,” Lewthwaite said. For Simon Doyle, head of fixed income and multi asset at Schroder Investment Management, the nomination of the Schroder’s Fixed Income Fund was a vindication of its consistency of investment performance over the short and medium-term. “The fund performed well through the recovery phase and that performance has come about through the execution of robust investment processes and the good team sitting behind that process,” he said. By Benjamin Levy
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Fund Manager of the Year
Macquarie takes the mantle
t may be relatively new on the funds management scene, but Macquarie Professional Series’ IFP Global Franchise Fund has certainly made a name for itself in the Australian market. The fund has knocked Schroder Investment Management off the top of the Global Equities (Broad Cap) category for this year’s Money Management/Lonsec Fund Manager of the Year Awards, thanks to its combination of experience, motivated personnel and delivery. Macquarie Professional Series head of distribution Adrian Stewart said he has been very pleased with the level of support the fund has received across the financial planning industry so far. The fund is managed by Independent Franchise Partners in London, a firm that was founded in 2009 by the lead portfolio manager Hassan Elmasry and four others. The investment team had been working together on the same strategy at Morgan Stanley Investment Management for a number of years prior to establishing their own firm. “The fund and group, Independent Franchise Partners, have been identified as having a very strong competitive advantage in people, process and product design,” Stewart said. According to Stewart, this value-biased and benchmark-unaware strategy uses
Global Equities (Broad Cap)
Winner: Independent Franchise Partners Finalist: MFS Investment Management Finalist: Goldman Sachs Asset Management Adrian Stewart
bottom-up research to identify quality companies with an enduring competitive advantage (such as brands, patents and licences), which are capable of supporting high return on capital. The portfolio is relatively unconstrained in relation to region or sector allocation, is quite concentrated at 20 to 40 stocks and has a turnover of less than 20 per cent per year since inception, said Stewart. “Being benchmark-unaware allows them to focus on buying quality companies. They’re not looking through a filter of a benchmark or allocations to countries, regions or sectors,” he said. According to the Lonsec judges, the fund is most suitable for investors who are willing and able to tolerate a portfolio that can vary significantly from the traditional global equities benchmark. “Moreover, IFP is committed to preserv-
ing the characteristics of the strategy and capacity is tightly managed,” the judges added. A newcomer to the category, BNP Paribas’ MFS Global Equity Fund came in as a finalist for its consistency in investment process and team, as well as its long-term outperformance of the benchmark. Co-portfolio managers David Mannheim and Roger Morley run the fund, backed by an experienced team of 50 stock analysts across Boston, London, Mexico City, Singapore, Sydney and Tokyo. The fund’s investment process focuses on identifying stocks that have an appropriate valuation and are expected to deliver aboveaverage returns relative to the benchmark. But the features of the fund that stood out most were its low turnover and the ability of managers to take a large active position in stocks that present appropriate
opportunities. Also new to the category is the Goldman Sachs International Equity Fund, which is managed by Wellington Management Company out of Boston, United States. The five-person team is led by Nicolas Choumenkovitch, with each member covering specific industries. The fund takes a “unique assets” and “pure play” investment approach, which involves looking for companies with a return on capital that is underappreciated by the market, as well as companies that have assets that are hard to replicate. The fund can also invest up to 20 per cent of the portfolio in emerging markets companies. This, along with its core, style-neutral approach, has resulted in consisted performance in both up and down markets. By Ashleigh McIntyre
A bet both ways Global Equities (Long Short)
Winner: Five Oceans Asset Management Finalist: K2 Asset Management Finalist: Platinum Asset Management
hey may have a world of stocks to choose from, but being concentrated and risk-aware has helped the Five Oceans Asset Management team over the line with the ‘World Fund’. This benchmark-unaware, long-biased fund topped the list in the Global Equities Long/Short category of the Money Management/Lonsec Fund Manager of the Year Awards, thanks to its solid performance and strong absolute returns in 2010. Chief executive Ross Youngman said his fund focuses on picking a high-conviction portfolio of well-researched international stocks that the team feels is attractive from a business sustainability viewpoint. But there’s also the risk management aspect, including active currency management that is incorporated into portfolio construction, the use of exchange-traded futures and options, as well as environmental, social and corporate governance
(ESG) factors, Youngman said. This ESG awareness, while it is difficult to quantify, has definitely contributed to the performance of the fund over the years, Youngman said. “We don’t put percentage terms on it, but it’s fundamental and is fully incorporated into our approach to selecting stocks, so it’s always considered in terms of the overall competitive positioning of the company. “It mitigates risk. Certainly from our perspective a lot of what happened in 2008 during the global financial crisis was a corporate governance issue within the finance sector,” Youngman said. Another factor that helped Five Oceans make the top of the list was the considerable investment knowledge and skill of the portfolio managers, the Lonsec judges said. Among the team is co-founder of the business Chris Selth, who manages the portfolio. He is backed by a Sydney-based team of 11, which has remained very stable
16 — Money Management May 26, 2011 www.moneymanagement.com.au
since inception in 2005. Youngman said although the team is based in Sydney, its members frequently travel internationally and bring information back to the central location for crossreferencing among the other team members. “We think that for us, that’s the best way to run money – to have a centralised approach so as to bring the full experience set of the team to each idea that we’re looking at for the portfolio,” Youngman said. Lonsec judges commented that given the absolute nature of the strategy, the fund would be suitable for investors who are seeking some downside protection via the manager’s ability to reduce net equity market exposure and its ability to exploit shorting opportunities. “Lonsec considers the World Fund to be high quality, experienced and suitably resourced to implement this investment strategy,” judges said.
Last year’s runner-up, K2 Asset Management, was again a finalist, this time for its Select International Absolute Return Fund. Head of international strategy Nick Griffin said both consistent outperformance during a volatile period and the stability of the team were factors of the fund finishing in the top three. “Put in the context of recent times, the last 12 months was actually a relatively easy investment environment. By focusing on global growth-leveraged multinationals and shunning domestic focused stocks in the developed markets, the fund was able to outperform global indices,” he said. Also in the finalist line-up is Platinum Asset Management’s Asia Fund, which took out the Long/Short global equities category last year. Director and deputy chief investment office Andrew Clifford believes the longterm track record of the fund and its proven investment process have combined to contribute to its success. Clifford said the fund’s approach to identifying out-of-favour stocks and its aim to protect against loss through managing currency risk all helped it to perform at a time when rising inflationary pressure and tightening policy in China created concern for markets. By Ashleigh McIntyre
Fund Manager of the Year
f there is one thing Aberdeen Asset Management senior investment specialist Stuart James can put his team’s success down to, it is experience. “We’ve been doing this since 1987. To a large extent you learn your most valuable lessons when things are tough, so that long-term experience really holds us in good stead,” James said. While the Aberdeen Emerging Opportunities Fund came a close third in last year’s Money Management/Lonsec Fund Manager of the Year Awards for the Global Equities (Regional and Emerging Markets) category, this year the fund has taken out the top spot. Lonsec judged Aberdeen’s approach to
have “served investors well over the long term and delivered strong absolute and peer-relative performance during 2010”, which James puts down to the team’s simple, transparent and disciplined approach. James said his clients expect true active management that provides them exposure to the growth in emerging markets, but also provides some protection from the risks – “and that’s exactly what we’ve delivered”. One of the key things that made Aberdeen stand out, according to James, is that it is completely benchmark-unaware. “We don’t believe benchmarks are a portfolio construction tool, they tell you nothing about future opportunities. So we literally build a portfolio of the best quality companies we can find,” he said. James said the fund is also very concentrated, with an average number of holdings at around 50 companies. “We simply believe that your 150th idea is not your best idea, so why put client’s money in it? Why not put more of their money in those companies in which you have the highest conviction?” Among the other traits of the fund are its low turnover at 20 per cent, its lower valuations which sit at approximately 10 per cent below market consensus, and its bottom-up approach to stock-picking. “The team is headed up by Devan Kaloo in London and we have 39 fund managers
Global Equities (Regional and Emerging Markets)
Winner: Aberdeen Asset Management Finalist: Premium China Funds Management Finalist: T. Rowe Price
around the world dedicated to emerging markets,” said James. “We also do all our own proprietary research. We have teams located across the world, from Sao Paulo, Singapore, Kuala Lumpur, Bangkok and Hong Kong.” This depth of analysis and frequent contact with company management earned Aberdeen praise from the Lonsec judges, who stated it was among the largest emerging markets teams in the researcher’s universe. Premium China Funds Management also performed well in this category with its Premium China Fund, the same fund which has been shortlisted for the last three years. Executive director Simon Wu said this was a reflection of a number of factors of his organisation, including its net afterfee performance track record of 18 years and its comprehensive information service for investors. The underlying manager Value Partners has a deep value, bottom-up, benchmarkunaware, research focused approach and is also very conscious of risk, said Wu. “Their focus is to find the right business,
run by the right people at the right price,” he said. It is this approach which has helped the fund achieve 19.1 per cent per annum net of fees since inception in 1993, said Wu. Last year’s winners T. Rowe Price have also made the shortlist for its Asia ex-Japan fund. T. Rowe Price’s director for Australia and New Zealand, Murray Brewer, said he was thrilled to be a finalist again as it was a testament to both the performance and the strategy of the fund, as well as to its portfolio manager Anh Lu. Brewer said the fund was “a little bit different to what other people are doing in this category” as it worked on the premise that the benchmark for Asia exJapan is flawed. He said that rather than investing in big manufacturing companies exporting to developed countries, as the benchmark does, T. Rowe Price’s fund prefers to concentrate on companies that take advantage of the growing middle-class of consumers in China and India. By Ashleigh McIntyre
Picking and choosing Asset Allocator
Winner: Schroder Investment Management Finalist: Perpetual Investments Finalist: Advance Asset Management
chroder Investment Management adds another accolade to the trophy cabinet by taking out the top spot in the newly created category of Asset Allocator in the 2011 Money Management/ Lonsec Fund Manager of the Year Awards. The aim of the award is to reward managers who undertake tactical or dynamic asset allocation through their diversified products and have added good value for clients. Schroders’ asset allocation capabilities were held in high regard by Lonsec, as was the manager’s strong risk management framework that focused on downside risk and the advantage of positive interaction and integration with its global multi-asset teams. “Differentiating Schroders from many assessed peers is the greater opportunity set that is available to diversify total risk across a number of asset classes, including alternatives, global property and high yield credit. This flexibility of asset classes
provides Schroders with the ability to efficiently express the appropriate views as well as tap into global multi-asset teams for broader asset allocation themes,” Lonsec said. Schroders’ tactical asset allocation process is initiated by a quantitative assessment of prevailing market valuation, liquidity and cycle, which is then supplemented by a rigorous qualitative overlay. It is this consistently applied process and access to asset classes that Lonsec considered to be a distinct competitive advantage of the fund. It also added that the key positive contributors to Schroders’ diversified funds for the 12 months to December 2010 were an overweight position in high yielding credit and the allocation to Australian small caps. Simon Doyle, head of fixed income and multi-asset at Schroders, said: “Our performance is a result of the execution of robust processes and we have done what
we said we would do. There is a good team sitting behind our investment processes and our strategy is a mixture of top-down asset allocation and bottom-up stock selection skills.” Runner-up in this category was Perpetual Investments, which has demonstrated a track record of delivering strong performance for its clients. The manager attributes this to its focus on quality assets, its active asset allocation, its commitment to continual research and its experienced asset allocation team. Commenting on making the final shortlist, Michael Blayney, head of balanced funds at Perpetual Investments, said: “Through tactical asset allocation we can selectively increase or decrease the funds’ exposure to domestic equities, fixed income and cash when appropriate. This long-term strategic asset allocation is assessed on an ongoing basis to determine if the weightings between asset classes should be altered.” Blayney said that regular assessment of asset allocation was imperative if optimum results were to be achieved. He said: “Regular rebalancing is needed to successfully maintain a diversified portfolio and is the strategy of selling better performing assets and buying poorer performing assets to maintain an asset allocation.” Also acknowledged for its asset allocation and awarded third place in this new
Simon Doyle category was Advance Asset Management. The manager places a lot of focus on the research practices that go into stock selection, said Patrick Farrell, head of Advance Investment Solutions. “Asset allocation is very important, and we place a lot of focus on it. We want to ensure the return risk trade-off is right, so our research is focused on the volatility and returns of future markets. Our team is headed up by industry veteran, Felix Stephen, and a lot of effort is put into understanding companies and coming up with significant themes. This is reflected in our asset allocation and portfolio construction,” he said. By Angela Faherty
www.moneymanagement.com.au May 26, 2011 Money Management — 17
Fund Manager of the Year
Building for the future Global Property Securities
Winner: AMP Capital Investors Finalist: SG Hiscock & Company/LaSalle Investment Management Finalist: Vanguard Investments
he high calibre of the investment team and continuously evolving team structure were two of the reasons Lonsec once again named AMP Capital Global Property Securities Fund winner of this award at the Money Management/Lonsec Fund Manager of the Year Awards. The analysts in the fund undertake a detailed review of everything that may impact on property outlook in various regions around the world, including the economic, real estate fundamentals, and valuations at both a regional and country level, according to Brett Ward, global portfolio manager for the fund. Once that review is complete, regional investment teams – based in four key cities around the world – review real estate stocks in conjunction with the fund analysts. Only then do they invest the allocated
funds to a constructed portfolio. Lonsec focused on that decentralised regional stock selection structure as one of the key reasons for the fund taking out first place in the category, calling it a repeatable and logical investment process. “The regional teams have a high degree of autonomy, because markets are alive and changing and we want our process to be responsive to change as it occurs, as well as responsive to opportunities,” Ward said. “At the same time, in the construction of the portfolio, we want to make sure that we apply quite consistently our global outlook – and indeed our regional outlook too,” he said. Ward put much of the fund’s success down to the regional teams, who are well experienced. “They are very good at what they do, and the application of our research processes and stock selection processes leads to the consis-
Swimming against the tide Australian Property Securities
Winner: Cromwell Property Group Finalist: Aviva Investors Finalist: APN Property Group
s the Australian real estate investment tr ust [AREIT ] market tanked a couple of years ago, Cromwell Property Group took a gamble and jumped into the deep end with a new fund in late 2008, according to Cromwell finance director Dale Wilson. But no investors wanted to go near the sector at the time, so they decided to put their ‘ultimate contrarian play’ on the backburner, Wilson said. That gamble paid off this year, with Cromwell Phoenix Property Securities Fund being named the winner of the Australian property securities category in this year’s Money Management/ Lonsec Fund Manager of the Year Awards. Cromwell wanted to marry Phoenix
Portfolios director Stuart Cartledge’s history and experience in AREIT, with their experience in direct property, Wilson said. “We concentrate on the Australian market, but we’re unashamedly benchmark-unaware,” he said. The fund’s benchmark-unaware approach to investing was a big reason it was appointed winner of the category. Cromwell is one of the few funds in the sector that follows such a strategy, and its approach – providing enhanced diversification and reducing risk – paid off as investors’ risk appetite increased in the sector in the past 12 months. “Our product is fairly unique in the marketplace. We’re a fairly focused business, and our product, we think, is in a sweet spot with respect to portfolio construction,” said portfolio manager Stuart Cartledge.
18 — Money Management May 26, 2011 www.moneymanagement.com.au
tency of our returns,” he said. The core of the fund’s analyst team has been working together for almost 10 years. That experience in both listed and direct property has let them navigate markets successfully over the medium to long-term. The company covers 250 companies in detail as part of its investment research. The fund also has the backing and resources of AMP Brookfield’s real estate platforms, while the interests of AMP Capital, Brookfield and investors are well aligned. LaSalle director of client services David Quirk believed it was the research team’s insight into market behaviour that led to the Equity Trustees SGH LaSalle Global Listed Property Securities Fund being named runner-up in the category. “We truly have a global platform, where we’ve got people on the group in Europe, in Asia, in Hong Kong, in the United States, and here in Australia. That combines with our parent company, and we’re a large manager of direct property as well,” Quirk said. That insight into markets makes them very competitive against other managers, he said. The fund is also a previous finalist in the category. Being a joint venture between SG Hiscock and LaSalle, the expertise needed to manage the investments is split between two teams, with SG Hiscock managing the domestic market, and LaSalle focusing on offshore investments. The fund has reached more than $US10 billion in funds under management in real
The fund was the best performing product in its peer group up to the end of the calendar year last year, according to Lonsec. The real estate investment trust sector has decided to revert the benchmark at the absolute wrong time, Wilson said. “If you’re going to be an active manager, this sort of market that we’ve had and the sort of market we’re going to keep having is really the market where you want to be in,” he said. The benchmark for AREIT in Australia is only made up of five or six stocks, but Cromwell instituted a constraint against holding a stock that comprised more than 20 per cent of its portfolio. “It also allows us to look through the cycle, ignore the index to a degree, and really concentrate on where we see value,” Wilson said. Many smaller cap stocks which have been worse off in the sector have vastly improved and stabilised their businesses and are now offering huge discounts to their real asset value, and Cromwell has leaped at them. “We have taken a series of small bets, that in totality have paid off pretty well,” Wilson said. Lonsec also applauded Cromwell Phoenix’s detailed stock analysis and ‘robust research’ which supports the fund’s high conviction approach. Brett McNeill, investment manager of the Aviva Investors Listed Property Fund, thanked his analyst team for the efforts that led to the fund being named runnerup in this category. “We’re very conscious of trying to incorporate the insights and experience that our investment team have; it’s very much a team-based approach to manag-
Brett Ward estate investment trusts, holding approximately 80 to 90 stocks. Part of LaSalle’s success is its ability to focus on property without the distraction of competing for capital or attention from management, Quirk said. Having a low-cost approach and being fully invested will allow you to gain the full advantage of any moves in the market, according to Joseph Brennan, Vanguard’s principal and chief investment officer for the Asia Pacific region. Investors in the Vanguard International Property Securities Fund, also a finalist in this category, have reaped the rewards of being fully invested in the market, despite – or perhaps because of – markets being quite volatile over the last couple of years, and currency moves. By Benjamin Levy
Stuart Cartledge ing this fund,” McNeill said. The fund is designed to be low-cost and tax-effective, McNeill said. They spend a lot of time on governance issues, seeing it as a key role as a manager, he said. The quality of the sector has improved markedly, leading to a very good proposition for investors at the moment, McNeill said. Finalist APN AREIT fund manager, Michael Doble, said the sector is in a nirvana on the risk/return scale. Doble, who is also chief executive of APN, said they were running standard risk deviation that was well less than the market, while delivering returns that were higher than the market. “You can’t but help attract the attention of people who are looking at these sorts of things,” he said. By Benjamin Levy
Fund Manager of the Year
Practical ethics P ioneering the cause for ethical investing following its inception in 1994, it is no surprise that Hunter Hall was the clear front-r unner and the first winner of this year’s inaugural Ethical/SRI Money Management/Lonsec Fund Manager of the Year Award. Taking out the top spot with the Hunter Hall Global Ethical Trust fund, Lonsec commended the manager for its strength and consistency in the responsible investing sector. “The trust holds a number of key attractions and under the leadership of founder and CIO Peter Hall, the firm continues to make a leading contribution to the responsible investment sector in Australia,” Lonsec said. Hunter Hall was hailed by Lonsec as a “deep value-style
contrarian investment manager with a long heritage of ethical investment in Australian and global equity products”. The Global Ethical Trust is its benchmark-unaware unhedged global equity product that typically offers greater exposure to smaller companies and developing economies. It is the firm’s true commitment and high ethical screening process that makes it a standout winner in this category. The manager applies a highly stable negative ethical screen that seeks to avoid investment in a range of excluded corporate activities, including companies der iving revenues from the manufacture and sale of weapons, tobacco, gambling and intensive animal farming. “Under the leadership of founder and CIO Peter Hall, the fir m continues to make a
edge funds have been knocked around in recent times, but there’s nothing like a return of 13.2 per cent after fees to make someone sit up and pay attention. That is the return of the Winton Global Alpha fund, the declared winner in the Alternative Investments category in this year’s Money Management/Lonsec Fund Manager of the Year awards. The fund, offered exclusively by
Finalist: Perpetual Investments
leading contribution to the responsible investment sector in Australia and the Trust has performed comparatively well in 2010,” Lonsec said. Michael Walsh, head of strategy and development at Hunter Hall, said the firm has worked hard to raise the bar when it comes to ethical investing. He said: “When Peter Hall started this firm in 1994, the ethical policy was a personal preference, so it is amazing to think we are now working in an industry dedicated to responsible investing.” Walsh continued: “Our performance over the last year has been consistent. It is a hard sector in which to make money and the fact that the fund made 8 per cent is creditable. We are also very proud of our charitable giving policy which means we donate 5 per cent of pre-tax
Bringing home the bacon Macquarie Professional Series, is a managed futures hedge fund that uses a statistical research approach to identify trends in financial markets. The fund has more than 100 staff dedicated to finding those trends. They search only for high quality PhD graduates and post doctorates to fill out their staff, making it a highly qualified team of analysts. “Really for us, the key was their investment in research and their dedication to research,” said Adrian Stewart, head of distribution at Macquarie Professional Series. Winton’s team leader, David Harding, has been in the CTA sector for 27 years, giving him a unique depth of knowledge around the development of the sector. Lonsec pointed to Harding’s experience as the reason for the fund’s success, saying it has competitive advantages with Harding’s quality and track record.
Winner: Hunter Hall
profits to charity. Last year we donated about $1 million to charity. Our belief is that it is important to be dedicated to the space.” Perpetual Investments was also commended for its Ethical/SRI Fund which has also performed consistently well in a volatile market. The fund invests in a portfolio of quality Australian shares of socially responsible companies and uses the same investment process as its broad Australian equities strategies as well as an additional screening process to determine suitable funds. John Sevior, head of equities at Perpetual Investments, attributed the fund manager’s success in this category to its large, stable and experienced team and research policy. He said: “Socially responsible investment research requires
Alternative Investments (Hedge Funds)
A dedication to risk management is essential in the hedge fund industry, especially for this fund, which Lonsec labels highly volatile. Despite its volatile nature, the fund still has the lowest volatility target across the CTA peer group, Stewart said. “We can still deliver a strong track record in performance by taking less risk, which is something of an achievement,” he said. The fund has produced more than 6 per cent in excess returns since it first started. Launched in May 2007, it now has more than $20 billion in funds under management, making it the 14th largest hedge fund in the world. They are well diversified, sitting across 100 different markets at any one time, including share indices, bonds, interest rates, currencies and commodities. MAN AHL Alpha Fund, runnerup in the category, takes a different approach to their analysis. The fund doesn’t rely solely on
Michael Walsh specialist skills and is aimed at evaluating a company’s per for mance in a range of socially responsible criteria which are, in general, unrelated to a company’s financial performance. “The fund has remained true to label by applying Perpetual’s time-tested process which focuses on quality stocks in order to provide downside risk protection, while our extensive internal research enables us to identify stocks at attractive valuations,” he added. By Angela Faherty
Winner: Winton Capital Management Finalist: MAN Investments Finalist: AQR Capital Management
key analysts for its returns, but has developed a computerised investment program that can sample more than 4,000 market prices a day. The program was built with the help of more than 110 MAN personnel who are dedicated to developing the program, improving its execution of trading, and coming up with new strategies. According to Lonsec, 34 personnel are devoted to developing new trading signals and models, while 27 are devoted to developing its trading systems. With this large number of experts working on the fund, it is clear why Lonsec said the high level and quality of intellectual resources underpinned the alpha fund’s prime rating. Hersh Gandhi, MAN Investments director, said the fund’s strong returns in bear markets and highly diversified portfolio made it successful in the hedge fund space. “It’s done over 8 per cent in the last 12 months. That compares
pretty favourably to Australian stocks which are just under 5 per cent.” A managed futures fund like AHL appealed to investors because they need something that provided a low correlation to the market and strong returns when traditional assets were struggling, Gandhi said. The fund has been around for two-and-a-half years. AQR Delta Fund, run by AQR Capital Management, was the third finalist in the category. The fund relies on its diversified portfolio of multiple hedge fund strategies to provide high risk-adjusted returns in excess of the UBS Bank Bill Index. The fund utilises a bottom-up dynamic investment process, and relies on more than nine different strategies. The fund’s net returns to investors over 12 months to December last year were 9.6 per cent. By Benjamin Levy
www.moneymanagement.com.au May 26, 2011 Money Management — 19
Fund Manager of the Year
Expert risk management Simon Doyle
nderpinning Schroders’ success in the multi-sector category is Lonsec’s high opinion of the firm’s underlying capabilities, strong risk management framework and strong peer relative performance. This cumulative approach has ensured that Schroder Investment Management has secured the top spot in the Money Management/Lonsec Fund Manager of the Year Multi-Sector Award. It was the stability and experience of Schroders’ multi-asset team that impressed Lonsec, which considered its ability to tap into a larger global multi-asset team a key factor in its success in this category. The fund’s outstanding performance during 2010 was also hailed as a significant contributor. “Throughout 2010, the Schroders Balanced Fund delivered solid returns of 6.29 per cent, outperforming the Lonsec peer group and the multi-sector growth bench-
Winner: Schroder Investment Management Finalist: Advance Asset Management Finalist: Mercer
mark. Importantly, Schroders was one of only a few managers in the sector to successfully add value across all stages of the investment process, across both asset allocation and stock selection,” Lonsec said. Schroders’ head of fixed income and multi-assets, Simon Doyle, said the fund has performed exceedingly well during the last 12 months, a direct result of the low-risk approach adopted by the manager. “Our multi-balanced fund performed very well throughout the downturn and recovery phase. Over the last 12 months we have achieved better returns from equities because we have stayed cautious and fairly
neutral,” he said. Indeed, Schroders’ strong risk management culture was praised by Lonsec as being “focused around meeting objectives, risk budgeting and portfolio construction”. The research house added that the manager demonstrated this through the proprietary systems development and risk tools in understanding where risk is derived. This has resulted in a good “relative performance over the medium-term, with significant outperformance against their peer group”. Second in the running for this year’s multisector award is last year’s runner-up, Advance Asset Management. The manager has
focused intensively on asset allocation during the last year, with particular attention being placed on the volatility and returns of future markets. Patrick Farrell, head of Advance Investment Solutions, said the focus on asset allocation is what drives the team and lauded praise on the firm behind the multi-sector fund and its portfolio manager, Felix Stephen. He said: “The multi-sector fund is an extension of Advance Asset Management’s heavy focus on asset allocation and research into future market performance. We have dedicated portfolio managers assigned to each asset class and we pride ourselves at getting that significant piece of information that will make all the difference.” Last year’s winner Mercer was also praised for its performance in the multi-sector category. The team is led by Stephen Roberts who is the regional business leader for Asia Pacific at Mercer Investment Management. He credits the consistency of the fund and its ‘building blocks’ approach to portfolio construction for acknowledgement in this category. “We continue to lead the market in terms of offering investors the widest set of portfolio ‘building blocks’ at the sector level. This enables investors to construct truly diversified portfolios that are better prepared for the future and more robust when the investment environment enters volatile times,” he said. By Angela Faherty
The ethical fund which outperformed the mainstream funds.
Uniting Growth Fund has been ranked #1 by Morningstar in its category over 3 and 5 years,* doubly impressive considering it was judged against funds which didn’t have the same strict ethical guidelines. To learn more about UCA Funds Management and our Uniting Growth Fund go to www.ucafunds.com.au/ugf or call toll free 1800 996 888. Uniting Growth Fund annualised total returns to 31 March 2011 6 months (actual) 10.28%
1 year 10.64%
3 year 5.05%pa
Source: Atchison Consulting
5 year 4.98%pa
Since inception^ 9.90%pa
Disclaimer – Issued by Uniting Growth Fund Limited. An Offer Document for Uniting Growth Fund is available from UCA Funds Management. Past performance is not a reliable indicator of future performance. Any general advice has been prepared by Uniting Growth Fund Limited, without reference to your objectives, financial situation or needs. You should consider the advice in light of these matters and read the relevant Offer Document before making any decision. Uniting Growth Fund Limited is not prudentially supervised by APRA. Contributions to Uniting Growth Fund do not obtain the benefit of the depositor protections of the Banking Act 1959. Uniting Growth Fund is designed for investors who wish to promote its charitable purposes. ^Inception date 7 July 2003. *The Morningstar Rating is an assessment of a fund’s past performance – based on both return and risk – which shows how similar investments compare with their competitors. A high rating alone is insufficient basis for an investment decision. The 5 Star Morningstar rating is based on 5 year risk-adjusted returns for the Multisector Aggressive category as at 31/03/11. © 2010 Morningstar, Inc. All rights reserved. Neither Morningstar, nor its affiliates nor their content providers guarantee the above data or content to be accurate, complete or timely nor will they have any liability for its use or distribution. Any general advice has been prepared by Morningstar Australasia Pty Ltd ABN: 95 090 665 544, AFSL: 240892 (a subsidiary of Morningstar, Inc.), without reference to your objectives, financial situation or needs. You should consider the advice in light of these matters and, if applicable, the relevant offer document, before making any decision. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/fsg.pdf.
20 — Money Management May 26, 2011 www.moneymanagement.com.au
Fund Manager of the Year
New kid on the block Rising Star
relative newcomer has been named the winner of the Rising Star categor y at the Money Management/Lonsec Fund Manager of the Year Awards this year. Alphinity Investment Management was born out of a close-knit team of former AllianceBernstein analysts, who left their former employer and established the new boutique under the auspices of Challenger Financial Services Group in July last year. Alphinity had the advantage of being recognised as a great investment team thanks to their track record at AllianceBernstein, said Johan Carlberg, principal and portfolio manager of Alphinity. Lonsec was ‘comforted’ by the fact that the entire team moved across from
AllianceBernstein to establish Alphinity, creating a cohesive and stable unit, the research house said. “We have brought the bulk of the team across and we have worked together for a number of years, so our philosophy and process is the same as we applied at Alliance. That’s what’s been recognised so early on,” Carlberg said. The team of five investment professionals have various backgrounds, from management consulting to pure financial market backgrounds, but with an average industry experience of 18 years. As the team at Alphinity has brought their expertise into their own business, Lonsec praised its advantage in business viability compared to other start-up boutiques in the industry.
Winner: Alphinity Investment Management Finalist: Karara Capital Finalist: Phoenix Portfolios
“A lot of people have been following us over the years and are familiar with us and are favourably disposed to the new structure that we have set up,” Carlberg said. Alphinity also draws on Challenger’s institutional resources, allowing the team to focus on investment management. Alphinity chose Challenger as a partner because of its years of experience as a financial backer of boutiques, Carlberg said. Alphinity focuses on undervalued companies that are about to enter an upgrading cycle and utilises strong fundamental research combined with quantitative factors. “We’ve found that works across the different phases of the market cycle, and we’ve outperformed with that process in strong equity markets, and during the GFC,” Carlberg said. “The way we use those quantitative factors is as just another tool in the fundamental research; we don’t take any other quantitative factors at face value,” he said. Karara Capital was named as runnerup in the emerging market category. “The most important thing is our people, our experience and our expertise,” said Karara managing partner David Slack. Karara is the third investment firm Slack has established. “It is all about the people working harmoniously together as a team, with a large amount of experience and expertise combining together with a philosophy
that is consistent with how we’ve always managed money,” Slack said. Karara follows a fundamental, styleneutral approach to stock picking. Like A l p h i n i t y, t h e y l o o k f o r w h e re t h e market is under-appreciating companies, and pick ones with sustainable profits. “From that point of view, it’s important what we don’t focus on. We don’t focus on highly speculative companies, and companies that are very difficult to value,” Slack said. One of the important elements in their stock selection is their expertise in understanding economic development and how it impacts on the companies they research, he said. “Not only do you have to have the company performing well itself, but its operating conditions need to be conducive for good profit performance,” Slack added. Phoenix Portfolios, third finalist in the category, also has a good relationship with Cromwell Property Group, which is far more meaningful than what a lot of other boutiques have with their incubators. “Our team is one that has worked in property for a long time, and in many respects, I would argue, we come at problems with very different perspectives,” said Stuart Cartledge, Phoenix Portfolios director. By Benjamin Levy
www.moneymanagement.com.au May 26, 2011 Money Management — 21
Fund Manager of the Year
Planning’s first lady
wen Fletcher AM has been awarded Money Management’s inaug u ra l Lifetime Achievement Award for her steadfast dedication and outstanding stewardship in developing and promoting the
profession of financial planning in Australia. As one of the pioneers of financial planning in this country, Fletcher is widely credited as being one of the principal driving forces behind the f o r m a t i o n o f t h e Fi n a n c i a l
Young Achiever of the Year
Winner: Finalist: Finalist: Finalist:
Tim Murphy Matthew Dellit Finn Kelly Matthew Parrella
orningstar co-head of f u n d re s e a rc h Ti m Mu r p h y h a s b e e n named Money Management Young Achiever of the Year 2011. In making its decision, the judging panel was impressed with Murphy’s tertiary qualifications and achievements within the financial services industry. In 2001, Murphy graduated with a B a c h e l o r o f Ap p l i e d F i n a n c e (Macquarie University), from where
Planning Association (FPA) in 1991-92, through the merger of the International Association for Financial Planning (IAFP) and the Australian Society of In v e s t m e n t a n d Fi n a n c i a l Advisers (ASIFA). In 1980, Fletcher was granted o n e o f t h e f i r s t Au s t ra l i a n licences to practice as a financial planner, which later led her to establish the Investment Training College in 1983. Si n c e t h a t t i m e, s h e h a s served as chair and president of the Association of Financial Service Educators, served on the FPA’s Financial Education in Schools Project taskforce, lectured at Macquarie University, presented at conferences, authored publications, successfully brokered the deal to bring the CFP designation to Australia, while all the time involved in the education of financial planners and running her own successful planning practice. For her services to the development of the financial plann i n g i n d u s t r y t h ro u g h t h e establishment of national organisations and training and education programs, and as a mentor for women in the
finance industry, Fletcher was made a Member of the General Di v i s i o n o f t h e O rd e r o f Australia (AM) in 2007. Later that year, Fletcher was also honoured with another award for services to the financial planning profession – this time from the United States. In what is believed to be a first for someone outside the US, Fletcher received the prestigious Heart of Financial Planning Distinguished Ser vice Award from the FPA USA. This award is presented to individuals, financial planning practices, organisations or FPA Chapters in recognition of their extraordinary activities and contributions to the financial planning community and public. In nominating Fletcher for this US award, Professor Tom Potts from Baylor University said she truly deserved this honour in recognition of all that she had done in advancing the financial planning profession. “Gwen is often referred to as ‘The First Lady of Australian Financial Planning’, but she has had an impact globally as well,” Po t t s s a i d . “Sh e h a s b e e n a pioneer and leader in
Morningstar’s young gun he joined Commonwealth Bank’s graduate program. From 2002-05, Mu r p h y g a i n e d e x p e r i e n c e i n a number of roles, including corporate credit analysis at Commonwealth Bank and HSBC, mortgage securitisation at Macquarie Bank, and equity derivatives trading at Optiver. During this time he also c o m p l e t e d h i s Po s t g r a d u a t e Diploma in Accounting. Murphy joined Morningstar in the second half of 2005 as a fund re s e a rc h a n a l y s t . In 2 0 0 7 , t h e company sent him to London to train a team of new analysts that had been hired for Morningstar’s expansion of fund research in Europe. Returning to Australia, Murphy was promoted to senior research analyst and in 2009 he was again promoted to co-head of fund research, which he holds today. In this role, Murphy has joint leade r s h i p o f Mo r n i n g s t a r’s f u n d
22 — Money Management May 26, 2011 www.moneymanagement.com.au
research business in Australia and New Zealand and is responsible for Morningstar’s consulting relationships with dealer group clients. In 2 0 0 9 , Mu r p h y a d d e d t o h i s qualifications by graduating with a M a s t e r o f Ap p l i e d F i n a n c e ( M a c q u a r i e Un i v e r s i t y ) , w h i c h included an exchange program at Copenhagen Business School, earning him the right to use the CFA designation in 2010. Macquarie University has also invited Murphy as a guest lecturer in its Master of Applied Finance program in the area of Equity Funds Management. In what was a tightly contested category, the judges also paid tribute to the three finalists: Matthew Dellit (Professional Investment Services), Finn Kelly ( Wealth Enhancers) and Matthew Parrella (Finovia). By Jayson Forrest
Lifetime Achievement Award
Australian financial planning and she has also been active in promoting international cooperation in the development of the profession. Gwen definitely exhibits the FPA’s core values and she is universally respected and loved.” Although now retired as a financial planner, Fletcher tries to remain active in the profess i o n by a t t e n d i n g i n d u s t r y events and conferences. By Jayson Forrest
Fund Manager of the Year
Best Advertising Campaign
Winner: BT ‘Super for Life’ Finalist: Challenger ‘Real Stories’ Finalist: Fidelity ‘Forensic Investing’
n what was a hotly contested category, the BT Super for Life campaign – Making Super Simple – has taken out this year’s award for Best Advertising Campaign. In awarding BT Super with Advertising Campaign of the Year, the judges acknowledged the quality of execution of the campaign, the campaign’s integrated media approach
A simply super campaign (comprising television, print, and online/digital), promotional activities at cinemas, and the use of the wider Westpac Group bank channels to help promote the campaign. The result was a 50 per cent increase in new accounts and a 56 per cent increase in inflows since the launch of the campaign in Febr uar y 2010, e x c e e d i n g t h e c a m p a i g n’s performance objectives. T h e j u d g e s w e re a l s o impressed by the campaign’s simple yet effective creative. However, in a narrow decis i o n , t h e BT Su p e r f o r L i f e campaign managed to hold off C h a l l e n g e r’s ‘Re a l St o r i e s’ campaign, Fidelity’s Forensic Investing campaign, and BT’s ‘Bigger Picture’ campaign. By Jayson Forrest
Meeting the challenge
Marketing Team of the Year
Winner: Challenger Finalist: Colonial First State Finalist: CommInsure
his year’s inaugural Marketing Team of the Year Award has gone to Challenger. The judging panel was impressed with the Challenger submission, which was professional, well articulated and hit the ‘sweet s p o t’ by a d d re s s i n g t h e entry criteria. The Challenger submis-
sion clearly identified how the marketing team was able to successfully launch a new retail financial services brand in the marketp l a c e by re s p o n d i n g t o b ra n d i s s u e s a n d i m p l e menting a concise brand strategy. The Challenger marketing team comprises of Stuart Barton (general manager, corporate marketing and communications), Rodney G re e n h a l g h (general m a n a g e r, p r o d u c t a n d
channel marketing), A m a n d a Ir v i n g ( h e a d o f marketing strategy and execution), Samantha Pierce (senior manager, projects), Andrew Rice (head of advertising and design) and Re b e c c a Pa y n e ( s e n i o r m a n a g e r, o n l i n e a n d communication systems). The Colonial First State and CommInsure marketing teams were runners-up in this category. By Jayson Forrest
www.moneymanagement.com.au May 26, 2011 Money Management — 23
BDM of the Year
Experience pays dividends
BDM OF THE YEAR
QUEENSLAND Michelle Woodgate, Asgard
ith over 15 years of experience in financial services, it was Michelle Woodgate’s unwavering passion and commitment to the industry that saw her crowned the 2011 Money Management BDM of the Year. An active member of the Sunshine Coast financial planning community, Woodgate held the position of secretary at the Sunshine Coast Chapter of the Financial Planning Association from 2002 to 2010. She joined Asgard in January 2008 as a sales consultant business development manager, having worked for a decade as a financial planner at a number of small and large boutique practices. Woodgate believes her experience in the industry helped her to better understand the advice process as well as the challenges and demands facing financial planners. “My financial planning experience has given me extensive knowledge, understanding and first-hand insight into the advice process and the challenges facing financial planners, their businesses and their clients,” she says. As part of her current role, Woodgate is responsible for the growth in revenue derived from funds under management on the Asgard Platform, AdviserNET. She achieves this through relationship building with an existing panel of adviser clients as well as prospecting for new clients. “I also support advisers through marketing and communication campaigns, such as seminars, that promote financial planning strategies and the value of financial advice,” Woodgate says. It was Woodgate’s passion for the people she works with and her dedication to the cause that made her a favourite with the judges. Clearly relishing her role in the
industry, Woodgate praised the people she worked with and says hers is an everevolving role. “I work with dynamic and intelligent people who are not only excellent financial planners, but brilliant business people and inspiring marketers. I see my relationship with my panel of advisers as mutual. “Not only do I get the opportunity to make a contribution to my clients’ businesses and add value by uncovering business inefficiencies, but I am also constantly learning and developing my own skills as a result of these relationships,” she adds. With the Future of Financial Advice (FOFA) reforms continuing to cause uncertainty in the market, Woodgate says she is looking forward to helping add value to her clients’ businesses. “Advisers know that change in their business is inevitable,” she says. “However, many planners still remain unsure about how to embrace the change from an operational perspective. This is where I really add value to my clients’ businesses.” Woodgate’s speciality is working with clients and providing them with the tools, know-how and expertise on how to rationalise their back-office process, improve their client interface and simplify cost structures. “I know this is going to be an increasingly important part of my role in the coming months and years, and it’s certainly the part of my role I enjoy the most,” Woodgate says. Woodgate feels her greatest achievement over the past few years has been the satisfaction she has achieved from helping advisers grow their business in tough market conditions. “I love it when advisers give me feedback on the positive difference my strategies have made to their
practice. Knowing I have helped a practice grow, or increase its profitability, makes all the hard work worthwhile,” she says. Looking ahead to the upcoming financial year, Woodgate feels the industry is well poised to handle change. She believes working together is the key to success in financial services and says educating consumers is essential. “The greatest success for our industry has been the general increase in client awareness and understanding of products, technical strategies and pricing post-GFC. While investors still have some uncertainty about ‘investing’, they have a far better understanding of financial planning concepts such as ‘transition to retirement’ and risk profiling,” Woodgate says. “Advisers tell me they are benefiting from having more informed clients, as the client can easily understand the value an
adviser adds when helping them create and protect their wealth. Clients are busy buying into an adviser’s value proposition rather than being sold into a product. This has a positive overall effect for the financial planning industry,” she says. With the BDM of the Year award wrapped up, Woodgate is looking forward to continuing with business as usual. She has a busy year ahead helping advisers embrace regulatory change and accelerate business growth. “I will continue to work with my panel of advisers by committing to deeply understand their business needs and goals. With this knowledge I can then partner with them to develop tailored practice level strategies that result in a more efficient and profitable business that can navigate change,” she says. By Angela Faherty
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BDM of the Year
State winners WA Nathan Kerr, TOWER Australia
Nathan Kerr has been the sales development manager at TOWER Australia since July 2008. In his current role he is responsible for the maintenance and growth of a client portfolio of financial advisers and the cultivation of relationships to drive reputation and revenue. He is also responsible for the acquisition of new business clients and the recruitment and management of junior sales staff. Kerr is currently the number one sales manager nationally among his peers and, as of the end of the financial year, his portfolio is at 122 per cent of budget. He believes a good BDM must be proud to be in sales and should always behave professionally. He is a keen advocate of continued professional development.
VIC/TAS Voula Makris, CommInsure
SA/NT Lisa Ng, Zurich Investments
John Negri joined Perennial Investment Partners in November 2009 and is currently an investment specialist for the Victoria and South Australia regions. Negri has over 23 years of experience in the financial services industry and was crowned the Money Management BDM of the Year in 2010. Prior to joining Perennial he was employed with ING and ANZ for 10 years, predominantly in the IFA market, and National Mutual for 11 years.
Lisa Ng has held the role of state manager for the western region of South and Western Australia at Zurich Investments since 2005. In January this year, she also became the regional manager for South Australia where she is responsible for the distribution of Zurich’s products and services via intermediaries in the SA market. She particularly enjoys the ‘people’ aspect of her role and has learnt a lot from her interstate relationships which she says have given her an insight into the different ways people work. Ng was awarded an outstanding contribution award by Zurich for her contribution to her work in WA and wants to see standards and education levels higher on the agenda in the financial services industry.
NSW/ACT Jonathan Wu, Premium China Funds Jonathan Wu started his career as a trainee accountant with Simon Wu and Co in 2000 before becoming a paraplanner at SWU Financial Planning in 2001. Following a brief stint at Investors Mutual from 2004 to 2005, Wu assumed his current role as head of distribution and operations at Premium China Funds Management. Wu joined at the company’s inception and launched the first flagship Premium China Fund. Since 2005, Wu has also been the financial planner and head of group operations of SWU Financial Planning, where he has led the group operations during the global financial crisis. Wu says the most enjoyable part of his role is the fact that he sits on both sides of the funds management industry and understands the issues facing financial planners as well as providing advice to clients.
Finding the 2011 BDM of the Year nies Australia-wide were represented in the final nomination pool, which featured a list of 20 BDMs. A voting adver tisement, which listed the 20 finalists, was published in Money Management over two issues and was also published on the Money Management website. Financial planners were
Neil Kendall is the managing director of Tupicoffs, an independent financial planning practice based in Brisbane, and has clients in Brisbane, Sydney, Melbourne and Perth. He has developed a specialist niche providing advice to high-net-worth clients. Kendall is a regular industry speaker on improving the quality of financial advice and has spoken throughout Australia and overseas. Kendall was the Money Management Financial Planner of the Year in 2006, and the runner-up in 2009.
Voula Makris’ journey in the financial services industry began with AMP in 1990 where she held a variety of roles, including account credit officer, senior customer service officer, and business development associate. In February 2005, Makris joined Colonial First State as a business development associate supporting the BDM team, where she believes she learned the necessary skills to carry out her current role at CommInsure, which she attained in late 2006. Makris says one of her main business principles is to build relationships with all advisers in order to promote growth and she relishes the challenges of finding solutions for her clients. She believes trust is the foundation for her strong adviser relationships and says a passion for the industry is integral to her work.
EACH year the Money Management BDM of the Year attracts an outstanding group of candidates, and 2011 was no exception. In February this year, Money Management called for industry participants to nominate business development managers (BDMs) they felt were worthy of the award. Compa-
Meet the judges
asked to vote for the BDM they considered most worthy of the title BDM of the Year, and score their technical skills and/or product knowledge, practice development and adviser relations on a scale of one to five. Money Management received approximately 600 voting forms, which were checked to
Catherine Robson has been delivering strategic financial planning advice and investment management services for over 14 years. Robson joined NAB Private Wealth in March 2000 after a number of years with Macquarie Private Bank. In 2010, Robson was awarded the 2010 Money Management Financial Planner of the Year Award. She was named the Australian Private Banking Council’s 2010 Outstanding Wealth/Investment Adviser.
Mike Taylor Mike Taylor is managing editor of Money Management and Super Review. He has been a journalist for over 35 years with a career spanning coverage of financial services, Federal and State politics, and industrial relations.
ensure only financial planners voted. The number of votes received for each candidate was tallied and an aggregate score calculated. A number of candidates scored very highly, making the judges’ task of deciding state winners all the more challenging. Money Management provided the judges with the BDMs’ biographies as well their responses to a series of questions. Along with this information, we forwarded their scores and number of votes received to the judging panel. Each judge individually
assessed the final contenders and offered their vote for who should be named national BDM of the Year, also voting on state winners. These votes were then tallied and, after careful consideration, five state winners were determined, as well as a national BDM of the Year. Money Management would like to thank those who nominated and voted for the BDMs, and for their overwhelming interest in the award. We would also like to extend our gratitude to the members of the judging panel for their time and commitment to making a tough decision.
www.moneymanagement.com.au May 26, 2011 Money Management — 25
FOFA reforms roundtable Left to right: Brett Clarke, Mike Taylor and Mark Rantall
The Government’s final outline of its Future of Financial Advice proposals has raised as many questions as it has answered, with participants in a Money Management roundtable looking for the answers and a more certain environment. MT The theme of the roundtable is FOFA and the Budget – but as Marianne pointed out, there wasn’t a lot in the Budget. So we’ll kick off with FOFA. One of the things we now know about the FOFA proposals put on the table by the Government is that we have risk, life risk, within all of super covered off in terms of commissions. So I will start with Mr Clarke from Tower (or TAL, as it is now known), and get his take, as someone dealing in that market full-on, and what he makes of that.
BC Through the discussions leading up to the announcement, the entire industry had given away the fact that in broadbased superannuation – particularly under the proposed MySuper arrangement – the commissions were going to be banned. The industry conceded that point, and was working towards operating fairly comfortably in that environment. One that came out of left field was the ban on individual risk and commissions on those products and that will introduce some clear complexities in the nature of
the advice and the way that the conversation unfolds with the customer, given that the conversation between the adviser and the customer generally starts with meeting a need across a number of different insurance benefits. The secondary conversation is around how those benefits are structured inside super and outside of super. Introducing this different remuneration structure within the model will create additional complexity in a conversation that most people are generally not familiar with. To make it more complex is not a great outcome, for advisers or for the industry. We are where we are and now we need to understand how we can make it work or engage further in conversations with the government. But as it’s proposed right now it’s going to introduce quite a deal of complexity into a conversation with a customer, and that’s really going against the principles around which FOFA was established – making advice less complex and more accessible for the customers.
MT Brad, I know you guys were fairly worried about this leading up to the
26 — Money Management May 26, 2011 www.moneymanagement.com.au
Mike Taylor (Chair) Mark Rantall Gerard Doherty Marianne Perkovic Brett Clarke Brad Fox
– – – – – –
Managing editor, Money Management CEO, Financial Planning Association CEO, Fidelity Investments General Manager, Advice, Colonial First State CEO, Retail Life, TAL Chairman, Association of Financial Advisers
government’s announcement. What’s your view?
BF We think they got it wrong. We can’t see how this ties to what the desired outcomes of FOFA were to be. The government keeps stating a fact that is not a fact: That half of the complaints from the ASIC shadow shopping survey illustrate – in the case of poor advice – over half involved poor life insurance advice. That is a result taken completely out of context and simply is not based on fact. There are no merits behind this decision about splitting inside superannuation away from outside superannuation by the basis of the tax world that the advice lives in. We see it as potentially providing more confusion for consumers; it puts advisers in the space of needing to change their business models which will only add to costs, and in the short-term put perhaps a lot of older advisers in the difficult spot of whether to stay in the industry to maximise the value their business is getting out. Our chief concern is it doesn’t help consumers.
MT Mark what’s your view? I know the FPA has a view that the government has laid down a framework. Do you think there can be some horse-trading around it? MR I’d hope that there can be some further negotiations around this particular issue. I think everybody would acknowledge that when the government announced they were banning commissions inside superannuation for risk products, it caught everybody a little by surprise because that wasn’t the general sense of the discussions until that point. Our concern is that this is not in the consumers’ best interest, for a number of reasons. Firstly, we have an under-insurance problem in Australia and I don’t think anybody is debating that that isn’t the case. There are many examples of people being under-insured or having no insurance; the personal catastrophe that happens at the back end of that, and as a result of that, is quite debilitating for those left behind. Where we haven’t got an effective remuneration system that really will provide a solution and a good alternative to commissions
FOFA roundtable in insurance, we don’t think that should be banned – for a couple of reasons. Number one: there’s a tax deduction provided for the commission within superannuation and generally most life insurance is well advised within the superannuation environment unless there are extenuating circumstances which have been identified by the adviser. Secondly, not 100 per cent of all commissions on insurance products are rebated back to clients in all cases, so there seems to be an arbitrage there that has not been taken away 100 per cent. The final concern is particularly for low-income earners – their ability to actually fund the advice and the underwriting that is undertaken by the adviser is going to be severely tested.
MT Marianne, you’re at the coalface; you’ve got advisers out there and life risk is also an issue for you.
trying to look after the tax side, contribution side, people getting pension payments and benefits and now this whole opt-in process is another complexity and cost to it. Great that it’s from 12 months to two years, but from a CFS perspective, we still argue there’s no need for that because the other package has progressed a lot further to increase professionalism and actually get people more access to advice. Volume bonus payments are still a bit grey in some areas, as to treatment and grandfathering and how that will be and how that manifests. You see smaller licensees coming out wanting to be product manufacturers because that’s the way they can handle that margin. If I was the government or regulator I’d look back and ask if that is the actual intent: Are we trying to change people’s businesses and then move from their core competency?
Marianne Perkovic and Gerard Doherty
MT Gerard, what’s your view? MP If we just focus on the financial planners: anything good that came out of the GFC actually helped these financial planners look for alternate revenue streams and they then turned to risk insurance to fill that gap. That’s a good thing because it has helped solve the under-insurance problem. When you’re trying to create wealth and protect it, this goes against the fundamental in trying to have people run businesses that can offer all those services. It’s already been said that we don’t agree with this and we continue to advocate to the government looking at – hopefully – relaxing the rules around the commission payments.
MT Gerard, you’re coming at it from a slightly different perspective as someone from a product side, but what’s your take on it? GD I’m concerned about under-insurance in Australia, so any good financial planner should probably be recommending insurance inside superannuation because of the tax deduction. It doesn’t make sense to have a deduction in super and not outside of super. I worry that it might be the wrong choice if we are concerned about making sure that Australians who really need insurance get it. Having worked in that industry for a long time in my younger years, I know it’s a commodity that’s sold – not a commodity that’s bought. Even if you recommend it in a plan you’re not necessarily going to sell it; I think the take-up rate is lower than it should be.
What is acceptable in FOFA? MT One of the things we did a week ago was a small, very unscientific survey in Money Management, trying to decide what our readers thought of FOFA as a whole. One of the findings was that it was almost universally disliked. In truth, there was enough positivity about fiduciary duty to suggest that it wasn’t 100 per cent disliked but I think opt-in and everything else gave it a bad odour with our readers – and the planners amongst our readers. A general question: As panellists, what are the palatable things about FOFA; what would be acceptable to the industry? BC I was going to make one additional comment on the risk in super piece but it
Brett Clarke leads into the positive aspects of the announcement as well, and that is around scaled advice. We’re yet to see exactly what the dimensions of scaled advice will be. As a concept I think in terms of access to advice, simplicity of advice, more effective conversations between an adviser and a consumer, the concept of scaled advice seems to work, or tick a lot of those boxes. As a centrepiece of FOFA I think it’s a real tick in the box. Going against that is what we were discussing a little earlier around the disconnect between risk inside and outside of super that’s actually taken the conversation the other way; to be less simple, less effective. Scaled advice as a concept and as a principle seems to be something which we should all be looking forward to.
MR We support the banning of commissions in investments. We think that’s a positive step to remove either perceived or real conflicts of interest at the investment level, particularly where commissions are embedded in product where the client doesn’t have control over that transaction. We’d also support scaled advice in principle, subject to seeing the detail of what that might look like. We support the best interest test; in fact, we’ve been instrumental in evolving our fiduciary duty into a best
interest test. That’s on the right track, although the detail is yet to be determined on that as well. We certainly support broadening and making advice more accessible and effective and we think that’s a positive thing for consumers. Moving into a twospeed system for insurance is probably a regressive step, and opt-in, albeit a twoyear opt-in – we still don’t support that it needs to be a law.
MP I’m happy with the broad principle, too. When FOFA was first talked about, it was to increase professionalism and give people more access to advice. They’re the principles when people talk about supporting FOFA – that’s what everybody in the industry wants. Only 20 per cent of people see an adviser; we want more people to get advice and we want the adviser’s professionalism to increase. The confusion, though, is when the package comes out – there’s so much that actually tries to erode some of that work. The opt-in for the best interest is great. Remuneration and commission structures have been banned, so why is there still a need to have this annual opt-in that just adds to the cost of advice? The way the industry has been formed from a product-manufacturing perspective is pretty complex – lots of systems
GD There are a lot of good things about the reforms. Removal of commissions was necessary and we probably could have done that a few years ago. There’s been nothing more frustrating to me than this very public debate about commissions, through the advertising campaigns of the industry funds against hefty commissions. It was an argument against something they weren’t really convinced with; they didn’t really understand what the advice was about, so I think removing it was a good thing. The best advice businesses I’ve seen have done a great job of transitioning to fee-based. I think their clients like it, so it’s not ultimately a difficult thing. Opt-in can be a bit clunky. I agree that if you’ve created a greater fiduciary responsibility and you’ve removed commissions, conflicting remuneration, you have to ask: Why is there a necessity to have an opt-in every two years? Two years is better than one year; however, the ability to get out at any time would have been a better solution. As long as we have the right, once a year, to stop paying for advice – and that is built into the contract –would have been a better outcome. The rebating is also interesting; you either had to allow rebates to go through to dealers or you had to stop rebates completely. Leaving it to platforms might simply make people change their business model to try and get their remuneration back to where it might be; it may be an unintended consequence but I’d suggest that’s just going to layer-up more costs. There’s an advantage to it; an integrated player, the large banks, have an advantage over the smaller player because they’ve got an integrated model and they don’t mind where the revenue comes in – whether it comes in at a dealer level or at a product level; whereas the smaller dealers who are focused more around a dealer model have to become the product manager. It’s created a slightly uneven playing field and I’m not sure that was the right outcome overall. MT What’s your feeling on it Brad? BF The parts that people agree on are consistent. We really haven’t got any closer to having the consumer at the front of the Continued on page 28
www.moneymanagement.com.au May 26, 2011 Money Management — 27
FOFA roundtable Continued from page 27 decisions. What the minister has done is put some decisions out there, some of which sound good. But in practice they just haven’t been thought through: How an advice business is going to be able to deliver, and whether there is any discernible benefit to the client. If we looked at something like opt-in, I would have thought it made more sense for a client to be able to opt-out of paying for an arrangement. A client already has that ability; I get a letter saying, “this is what you’re paying” and it gives them a stronger reminder that they’ve got that right. When it comes to choice of payment, we think that’s been taken away from the client, as are some of the tax benefits of being insured – when we’re the most underinsured of the developed nations. There’s not a lot there that says that the minister has really addressed the problems that led to FOFA. There’s nothing about better policing of the financial advice world, nothing about product failures being prevented, there’s nothing about ASIC taking action when they hear that things aren’t right in the advice space. There’s really not much there that changes – in practice – what actually led to FOFA. As a by-product, we’re just going to make it harder for people to have a financial relationship where their personal needs are taken into account in giving of the advice, rather than a broad-brush, simplified, dumbed-down style that will come with scaled advice.
MR A couple of by-products of FOFA that none of us have touched on are subject to different sorts of discussion papers and are out there for consultation now. They are: the last-resort compensation scheme, and the educational and testing regime housing CP153. It’s interesting that they weren’t actually captured in the announcements and yet are going to have a major impact, both financially and time-wise, on an adviser’s business. If you roll those into it, potentially they can be positive initiatives, but once again the detail hasn’t been seen. We’ve still got a lot of work to do; whilst we thought we were nearing the end of the consultation period, perhaps that consultation period needs to be opened up and continued.
Left to right: Mike Taylor and Mark Rantall uncertainty; there’s nothing worse in any business, waiting to find out what a government is going to do to the rules. Uncertainty, coupled with the difficult financial period we’ve all been through, has made it very inward-focused and you’d probably get that from your members, and from your financial advisers. I’ve been around long enough to have seen this sort of thing happen many times in the past. The strong guys will emerge from this quickly, they’ll make a mental decision: “I’ve just got to cope with this and I’ll rebuild my business around whatever the new rules are and I’ll go motoring ahead to get an advantage.” A lot of them are thinking, “I don’t want to be in here anymore.” If it’s only a 10 per cent drop on valuations, that’s not a bad outcome.
BC There’s been a period of tremendous instability for a couple of years really: The GFC, then, flowing out of the GFC, the regulatory debate and discussions, the consumer impacts as well. If it’s only been a 10 per cent reduction during this timeframe, I would argue that is not a bad outcome. One of the first questions advisers will ask these days is your view and assessment of the recent announcements, what you believe it means for the industry and how you can help them modify their businesses.
FOFA’s impact on practice valuations MT I saw something from Radar Results and one of its findings. I know they were pushing their case, but one of the interesting findings was that the multiples by which you value a financial planning business had actually declined 10 per cent as a result of the uncertainty around FOFA. The broader question is: Is FOFA clouding the business minds of the financial planning industry so that they’re not making the sort of decisions that they should be making? GD Decisions for their clients, or decisions for their businesses? MT Both I would think, but probably primarily for their businesses. GD Our guys who talk to financial planners would say there’s a lot of inward looking – there has to be. There’s been
GD If you were valuing a financial planning business, we now face the one unknown of no experience of what’s going to happen in an opt-in environment. So if you’ve got 100 per cent of clients today that go through the first two years of optin, is that 100 per cent going to be down to 80 per cent or 70 per cent? MR With all these changes there’s real potential to have a pre- and post-valuation mechanism. If there is proper grandfathering – and these are prospective rather than retrospective changes – then you might have a valuation model on your grandfathered portion of the business that might well differ from your going-forward situation. The two big impacts are the revenue impact and the sustainability of that impact. Also, whether or not there’ll be more clients coming to the business as a result of FOFA – and you’d have to ques-
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tion that. The second big impact is the expense line and there’s absolutely no doubt that FOFA, CP153 and, particularly, lastresort compensation scheme, is going to add to the cost – and opt-in is going to add to the cost of running these businesses.
BC A big point is the grandfathering provisions. It’s difficult to unpack that right now on the strength of the announcement but if they evolve, as is indicated in the announcement, and they’re reasonably strong, it will mean that the post-FOFA impacts will emerge more slowly over time. MR I’m still to see the fine detail. I’m a little sceptical. BC I am as well, but as it’s written today they do look beneficial. MR We’re advocating that if there is to be grandfathering, it’s at the client level – not at the transactional level. That single decision will make a big difference as to how strong these grandfathering provisions will be. BF We need to go one step further when we start thinking about business valuations and that is to the lenders who have been financing business acquisitions and succession plans. We’ve got falling business values, we’ve potentially got borrowers who are no longer meeting their conditions and then we’ve got loans being pulled in, books put on the market. The people in the best position to buy those books are the large institutions and that could lead then to greater concentration in the advice space – another poor consumer outcome. What the AFA is doing is trying to provide practical leadership, in that we’ll help people work through those issues. But none of us can draw those conclusions fully at this point because there is too much grey in what’s been put out there, so far as to how any of this is actually going to work in practice – opt-in being a key one. MP In buying businesses people are very cautious; being part of a large institution, we have lots of businesses coming to us to buy them and there’s a lot of caution
because the businesses that come have got those revenue streams that they’ve heavily relied on – commission and commission structures. If FOFA tried to eliminate the financial advisers who practice in some certain way, then it may have done a good thing to remove those businesses. But there are still some businesses out there that we’ve had a look at that people would be happy to buy because you can see the clients have been engaged; they’ve got very good review processes and they have fee-for-service models. If they’ve got the right platform structure, the client has had to have bought into that fee structure on an annual basis. There’s probably the majority that have lots of issues but I think you still have to focus. There are still really great quality businesses out there that will strengthen with these changes.
BF There are. But we had to be very careful that those advisers who have spent 30 years building up their business – and were perhaps in their early 60s four years ago – and then wore the GFC and saw business values fall because of their charging model, then they see FOFA affect the business value again. If they’re looking for a way out into retirement, it might just be getting really difficult for them to be able to afford to take that step, depending what their personal circumstances are. We need to have an eye on that when we’re looking at how the valuations are affected by any of the legislation. MP We’re the by-product of how the industry operates, and the reality is advisers use the mechanisms that have been put in place in industry, so the industry has had products that had commission in them, and facilitated that. I agree for people who have been part of the industry for a long time, who have only done what actually has been offered, it is hard to change the rules now and for those people to retire – I appreciate that. Unfortunately, businesses won’t go near those because of concern as to how the business will survive post-2012. We probably won’t get a good sense of the impact to businesses until 2012 when we start to see it all playing out. MM
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