Quality of Advice Review lead Michelle Levy recommended scrapping SOAs, but during the Professional Planner QAR Roadshow, Minister for Financial Services Stephen Jones only showed support for shortened versions of the advice document rather than complete obliteration.

AFCA lead ombudsman for advice Shail Singh said SOAs are important, but the 120-page versions can make it hard to understand what the advice was.

“The SOA is important, but the SOA done properly is important,” Singh said at the inaugural roadshow for the Financial Advice Association in Sydney on Monday.

If the QAR proposal is legislated, Singh said it will be “interesting” to see how the profession responds to it.

“If the dispute goes to AFCA, we’re going to have to understand what was said to the consumer and what they understood about that particular advice,” Singh said.

Tangelo Advice Consulting principal consultant Conrad Travers predicted licensees would adapt and lift the supervision and monitoring frameworks in place to make sure the advice being given is clear.

“I would recommend for new clients, even if they don’t ask for it, to give them a simple summary of the advice,” Travers said.

“That could be five pages and make the advice really clear – what are you recommending and what are the next steps to the client. Beneath that, cover off the additional scenarios that you might have considered just in summary format, then the risks and the fees. If you do that, that’s best interest.”

The Minister’s response to the QAR is expected before the Professional Planner Licensee Summit in June, where Singh will again engage licensee heads on similar topics.

Safe Harbour

Jones – with support from the consumer groups – has been open to eliminating safe harbour, with the Minister suggesting it will go.

While Jones was against doing so in the lead up the election, he has since been swayed on the issue, explaining at the QAR Roadshow he took on feedback from the advice profession that the regime wasn’t offering any regulatory protection for advisers.

Travers referred back to ASIC’s Report 515, the 2017 review of how licensees oversaw their advisers which he attributed to as strong evidence why the lawmakers felt more prescriptive oversight was needed.

“Basically, it found they disagreed with three quarters of the advice that was given at the time,” Travers said, summarising the report, adding the review also disagreed with the way advice was audited.

“That was quite a significant finding for those major licensees and that’s the reason why a lot of the perceived over-reach from licensees has come from – things like mandated like-for-like comparisons, mandated use of software, quite rigorous file requirements have come out of that.”

When it comes to how AFCA approached safe harbour, Singh said the authority is bound by what is “fair” in the circumstances as well as having regard to the law, and industry codes and practices.

“If there was a slight breach of one of the safe harbour provisions, but the advice was still good then it wouldn’t be fair to find for the consumer in that circumstance,” Singh said.

“We try to take that approach, where we have to have regard to it, but ultimately the focus is on what’s fair in the circumstances.”

Singh added a technical view of safe harbour doesn’t always lead to a “fair” outcome.

“It’s consistent with what [Financial Services Royal Commissioner Kenneth] Hayne said about the test, ultimately, it’s the important the consumer gets the right advice,” Singh said.

Low figures

Singh said advice complaints were sitting “around 45 a month”, a continuation of the drop the authority has reported in previous years. “That’s not many; that’s 500-600 a year,” Singh said.

He added the issues are what he called “systemic problems” with property in SMSFs continuing to be a major theme.

“Otherwise, other disputes are getting more complex than what they used to be,” Singh said.

“Another theme is risk, when over-insurance/underinsurance is an issue. I won’t overstate it because the numbers are low overall.”

Asked whether he still saw disputes arising over fees for no service, Singh said this was no longer the case as previous claims had “washed through”.

“Where this all came from was people charging fees [and] people not understanding what was going to be given for that fee,” Singh said.

“It’s simple in a way – if I pay you $10,000 a year what do I get for that? Investment management, quarterly reviews, whatever else it is – but just be crystal clear on what that is. I’ve heard the concerns about [Fee Disclosure Statements], about how it’s over done now but it’s worth thinking about why that came all about.”

When it came to how many complaints there have been related to the Code of Ethics, he said “not many is the truth of it”.

“We can raise it as part of a dispute… We haven’t encouraged it at the moment, mainly because of FASEA being disbanded and some of the issues with Standard 3 and 7,” Singh said.

“The credit and services panel will be applying it and considering it, so it will take a lot of prominence. It hasn’t come up a lot at the moment, but I expect we’ll see more of it as time goes on.”

ASIC senior leader for financial advisers Leah Sciacca reminded advisers at the FAAA Roadshow in Sydney on Monday the regime is in operation.

“The FSCP is in operation and has expanded powers to enable it to address a broader range of circumstances, including less serious misconduct by financial advisers,” Sciacca said.

The regulator released its reprimand parameters last year, which indicated less serious cases wouldn’t require a hearing.

Sciacca said when panel matters are completed, ASIC will publish a summary of the decisions on the ASIC website which remains in line with last year’s guidance.

“From time to time, we may also issue a media release where appropriate,” Sciacca said. “Financial advisers will not be named in the media release or on the outcomes register, unless the decision made by the panel is required to be recorded on the Financial Adviser Register.”

Although FASEA was wound up at the end of 2021, Sciacca reminded advisers the Code of Ethics still applied.

“Compliance with the Code of Ethics is a consideration for us when assessing financial adviser conduct and I’m sure it is front of mind for you and your advice licensees as well,” she said.

Sciacca noted there may be more delay to the relevant provider registration which the Minister for Financial Services Stephen Jones announced would be held off until the middle of the year.

She attributed the hold up to amendments to the Better Advice Act before Parliament that relate to the registration process which may impact timing, as well ensuring the regulators IT systems are ready.

Registration was meant to occur in two stages, with the first stage being a one-off registration process administered by ASIC using the FAR.

The second stage would commence once the FAR transitions to the ATO as part of the Australian Business Registry Service.

The achievement is even more remarkable under the current low organic growth market conditions. As referenced in KPMG’s ‘Super Insights 2023’ report, Hostplus’ net inflows in 2022 grew by 7 per cent in an environment where the overall sector lost 0.5 per cent in FUM.

Specifically, they want to enable: 

• The creation of a globally accessible common database of avoidance factors; and 
• The estimation of emissions avoided by companies over a broad investment universe of listed companies first, resulting from the application of the avoidance factor database on the activity data of the companies concerned. 

The energy transition requires moving away from carbon activities and proposing decarbonised alternatives. Although these are mostly known, no global, quantified data is available to compare them and support the redirection of financial flows to companies enabling decarbonisation. 

Estimates of the investment required to meet global net-zero emissions by 2050 range from US$109 trillion ($163 trillion) to US$275 trillion.  

Much of this investment will involve climate solutions such as renewable power generation, electrified transportation, and green buildings. While investment is needed across the board, the incremental contribution of the investment to the low-carbon transition depends on the location and the type of investment. 

It is the second merger Cbus has completed in the past 13 months, following a merger with Media Super in April 2022. 

The combined fund now manages over $80 billion in assets for 900,000 members, including over 50,000 members in the electrical sector. 

In a media release on Tuesday morning, the advice firm said the partnership will allow it to accelerate plans of expansion and create opportunities for junior partners to buy shares.

Established in 1976, a significant number of the group’s clients include HNW clients and healthcare professionals such as doctors, dentists, pharmacists, and allied health specialists.

Rose Partners provides a range of advisory services to businesses. Through the group’s Rose Health division, they assist healthcare professionals looking to buy, sell or finance including due diligence, valuations and transaction support, as well as core taxation services.

He will lead the delivery of BlackRock’s platform and global capabilities to wealth and institutional clients in these states. 

Jenkins has over 25 years of experience and most recently spent 15 years at Credit Suisse in Hong Kong and Singapore as head of equity distribution and prime sales in the Asia Pacific. Before this, he worked at JP Morgan for 11 years in a range of equity sales roles. 

In the year to April, fixed income ETFs had the strongest growth of all ETF asset classes rising by almost 34 per cent to $20.84 billion, third only to international and Australian equities.

Investment Trends head of research Irene Guiamatsia tells Professional Planner the trend also shows a “huge home bias” to domestic fixed income and was unique, compared with international biases for investors in Asian and Europe.

“I can see a couple of reasons… we may be perhaps a bit disconnected and perhaps also when overseas markets move, we are asleep, it can be hard to maybe connect and have a sense of what’s really happening when you get the information with a bit of a delay,’’ she says.

“Tax settings that exist for domestic products that may not be applicable to those global products, that may, perhaps, turn their preference. We’ve seen this time and time again and it’s always a bit puzzling. We really love our stuff.”

Reflecting that home bias, ASX data shows Australian fixed income assets under management grew to $12.72 billion in the year to April, compared with global fixed income of $14.14 billion.

“Fixed income represents the third asset class after domestic equities and global equities that Australian investors will be accessing through ETFs,’’ she says.

“You can really see that growth year on year and the information from both advisors and investors in terms of the intentions to use more fixed income going forward will also be added. The trend over recent years has actually increased quite significantly.”

Lonsec senior investment consultant Ron Mehmet expects more actively managed fixed income ETFs on offer for investors this year, most likely favoured by younger investors and financial advisers.

“What we’re seeing is, there’s a change in the demographics of the financial planning group as a whole,” Mehmet says.

“I find that a lot of the guys in their 40s and 50s and older ones are always used to using [managed] funds.”

Mehmet says younger planners coming into the profession don’t want to go directly managed funds but would rather access investment vehicles via exchanges.

“The reason being is they don’t want to pay platform fees of like, for example, 50 basis points, when they can just go to CommSec or a trade or NAB trade and buy the ETFs,” he says.

“You can buy physical bonds now on the ASX or the other exchange, the Cboe and at the end of the year, those discount stockbrokers give you the paperwork, evaluations or transactions for free.”

“What we’re seeing is last year and this year speaking to a lot of the fund managers, the active ones are now getting into the ETF space and the listed space with their funds.

Mehmet says over the previous two years, active managers are diversifying their products by using actively managed funds that are traded on an exchange as a distribution vehicle.

“If you’ve only got a traditional fund and you’re a fund manager, and a lot of people are using ETFs and they’re using a lot of listed type vehicles, you’re effectively missing out on about 37 per cent of your market because that is the growing market,” he says.

Bond markets suffered one of their worst years in decades in 2022 as central banks, including the Fed and RBA, hiked rates aggressively in their battle to tame inflation. Given the experience of 2022 and a volatile first quarter of 2023, investors are understandably wary. However, we believe that the rate hiking cycle, which contributed to recently elevated volatility across asset classes, is coming to an end in most developed markets. In Australia, we estimate that a 3.5-4 per cent cash rate in 2023 will be close to the most restrictive Australian households have experienced in terms of the percentage of their disposable income that will be required to service their debt. We think this limits the extent that the Reserve Bank of Australia can hike beyond 4 per cent without creating material financial stability risks.

We believe that recessions are likely across developed markets in 2023-2024, although we expect them to be modest. Consistent with that picture, equity markets appear more vulnerable than usual. From an asset allocation perspective, the outlook for fixed income has become much more positive. Following central bank moves over the past year, bonds now offer more attractive yields than they have in several years. We also believe that with today’s uncertainty, fixed income can act as an important building block for defence, income, and diversification, offering the potential for both attractive returns and mitigation against downside risks, particularly in a recessionary environment.

Why yield matters: Higher return prospects for bonds

In 2022, 10-year US and Australian government bond yields both rose as the Federal Reserve and RBA hiked cash rates. This recalibration to higher levels of yield may provide an attractive entry point for multi-asset investors. In addition to the higher return prospects, a higher level of yield reduces the probability of a negative return in the future. The yield creates a cushion against potential increases in the risk-free rate beyond what is currently priced into markets. Further increases in yields (beyond current market expectations) could lead to short-term losses, but they would improve the reinvestment opportunity and could lead to higher returns over the long run. In considering historical performance, analysing returns over all five Fed hiking cycles since 1988 we found that, on average, core bonds underperformed equities in the year before and during the hiking cycle. However, for the 12 months after the hiking cycle, rate sensitive sectors tended to outperform credit and equities. Hence, investors have historically been well served by increasing exposure to fixed interest towards the end of a hiking cycle.

The stock-bond correlation should remain negative in recessionary periods

For the past 20 years, the stock-bond correlation has, on average, been negative. However, in 2022 the correlation was positive in both the US and Australia. This was hardly surprising. Generally, we find that shocks to the equity market tend to be associated with a negative relationship, while shocks to real bond yields and expected inflation are associated with a positive relationship between stock and bond returns.

Importantly, bonds have typically provided positive returns and outperformed equities in recessionary periods. In fact, excess bond returns have been positive in nine out of the last 10 recessions in the US, and we expect this diversification property to remain intact in the event of a material economic downturn. With yields much higher than a year ago, the room for a potential bond market rally in a recessionary shock is much higher.

Diversification benefits of fixed income in an equity-dominated portfolio remain intact

Most Australian portfolios have a large allocation to equities. This overweight may have appeared reasonable when government bond yields were close to all-time lows, but the optimal stock-bond portfolio mix has changed materially given the repricing seen in 2022.

We analysed the risk and return characteristics of core bonds, liquid multi-sector credit, and private credit as well as a diversified portfolio combining these three assets and compared these to an equities portfolio. The diversified fixed income portfolio demonstrated an attractive expected return not far below equities with less than half of the risk.

Table: A diversified fixed income portfolio offers reasonable returns with lower risk than a diversified equity portfolio

Source: PIMCO

Bonds continue to play a key role in a diversified portfolio

From an asset allocation perspective, the outlook for fixed income has become much more favourable in recent months. Investors with long time horizons can lock in high levels of yield and benefit from the increased diversification potential in fixed income.

The fixed income universe is broad and ranges from assets that have low to negative correlation to equities, to those that are highly correlated to equities. This means diversification and sensible portfolio construction are key to meeting investor objectives.

While core bonds should remain the anchor to a traditional fixed income portfolio, complementary strategies like multisector credit, or private credit strategies may aid performance during periods of elevated interest rate volatility.

Our analysis shows that adding diversified fixed income exposure to multi-asset portfolios that are dominated by equity risk materially improves the expected Sharpe ratio even if the stock-bond correlation were to be strongly positive.

Disclaimer:

Performance results for certain charts and graphs may be limited by date ranges specified on those charts and graphs; different time periods may produce different results. Charts are provided for illustrative purposes and are not indicative of the past or future performance of any PIMCO product.

Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Forecasts and estimates have certain inherent limitations, and unlike an actual performance record, do not reflect actual trading, liquidity constraints, fees, and/or other costs. In addition, references to future results should not be construed as an estimate or promise of results that a client portfolio may achieve.

The material contains statements of opinion and belief. Any views expressed herein are those of PIMCO as of the date indicated, are based on information available to PIMCO as of such date, and are subject to change, without notice, based on market and other conditions. No representation is made or assurance given that such views are correct. PIMCO has no duty or obligation to update the information contained herein.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice. No representation is being made that any account, product, or strategy will or is likely to achieve profits, losses, or results similar to those shown.

The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. You should consult your tax or legal advisor regarding such matters. Please contact your account manager for further information.

PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246 862 (PIMCO Australia).

Past performance is not a reliable indicator of future results. Investment management products and services offered by PIMCO Australia are offered only to persons within its respective jurisdiction, and are not available to persons where provision of such products or services is unauthorised. Before making an investment decision investors should obtain professional advice. PIMCO Australia believes the information contained in this publication to be reliable, however its accuracy, reliability or completeness is not guaranteed. Any opinions or forecasts reflect the judgment and assumptions of PIMCO Australia on the basis of information at the date of publication and may later change without notice. These should not be taken as a recommendation of any particular security, strategy or investment product. All investments carry risk and may lose value. To the maximum extent permitted by law, PIMCO Australia and each of their directors, employees, agents, representatives and advisers disclaim all liability to any person for any loss arising, directly or indirectly, from the information in this publication. No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of PIMCO Australia. PIMCO is a trademark of Allianz Asset Management of America LLC in the United States and throughout the world.

This democratisation of private assets has granted investors access to a larger investment universe, which coincides with greater innovation in the way that the funds are built amid changing technology and regulations.

Overall, portfolios can be diversified by allocating a portion to private markets as their returns are driven from factors which differ from public market valuations.

However, Morningstar CIO Matt Wacher warns of significant risks of downward valuations remain this year. While private equity and venture capital are most at risk in the short to medium term, real estate also remains overvalued, with capitalisation rates relatively low.

Regardless, private debt is one area of private markets that remains of interest as assets are generally floating rate, he tells Professional Planner.

“Spreads above cash can be significant, and can give an impressive total return,” Wacher says.

“There seems to be significant deal flow in the market as solid business search for funding means that private debt managers can be quite discerning about who they partner with and can build reasonable diversification across industry groups.”

But the notion that investors can reduce volatility by exiting listed assets and investing in unlisted because they are mark to market irregularly is just smoke and mirrors, he adds.

“If investors over-pay for assets because of some artificial concept that an asset has low volatility it still means they have overpaid for an asset and we see throughout history that overpaying for assets is the quickest way to destroy wealth when the environment changes,” Wacher says.

RFS Advice financial adviser Troy Theobald also urged caution on private markets given the current interest rate cycle.

“There can be significant liquidity issues should you need access to capital,” he says.

“There is no doubt some parts of the community that are looking for longer term returns over time without the need for capital, but this is certainly not the majority. You need to remember that banks like to make profits. If they are pulling back from these areas then there is probably a reason for it.”

Of course, banks are also pulling out of private markets to reduce their risks, meaning that access to capital will tend to flow from less traditional places for funding.

Evergreen Consulting senior consultant Kieran Rooney notes that there has already been a dash for cash as investors have sought to reduce volatility. Concerns around inflation meant that both stocks and bonds sold off last year, meaning that investor cash balances are high.

“We believe most investors have been caught off guard by the resiliency of risk assets,” Rooney says.

“As there are now disinflationary forces at play, investors may now use bonds as risk management tools again in the year ahead.”

Looking forward longer term, he adds investors will need to come to terms with the fact that the volatility of inflation will be higher this decade.

“Investors may place a higher emphasis on liquidity in their portfolios over time as geopolitical tensions and impaired sovereign balance sheets present the risk of capital controls,” he says.

Rooney warns that this could have profound effects on correlations and the cyclicality of asset price returns, meaning that investors will need to ensure that their private assets are in friendly jurisdictions.

The researcher’s 2023 Adviser Technology Needs and Adviser Business Model Survey, aims to gain an understanding of issues advisers face when it comes to technology in their business. 

These insights include technology preference and gaps which gives the opportunity to influence technology providers, regulators and the evolution of business. Advisers interested in contributing to the survey can do so here. 

Digital advice featured in the Quality of Advice Review proposals with Michelle Levy which backed the expanded use of digital advice tools and creating a stable regulatory system to do so.  

Investment Trends head of research Irene Guiamatsia tells Professional Planner a distinct feature of digital advice solutions is the deliberate focus on superannuation funds or larger licensees as primary target users. 

“This is in near-perfect congruence with some of the key recommendations of the Quality of Advice Review final report,” she says. 

The Minister for Financial Services Stephen Jones announced last week the Government would announce its response to the proposals. 

Last year’s survey revealed that advisers are using an average of three platforms, the highest in the past 10 years. 

“This trend highlights their prioritisation of efficiency and reliability in the current competitive landscape,” Guiamatsia says. 

Differing value propositions and the moving around of client books due to the 12,000 advisers that have departed the industry since the final report of the Hayne Royal Commission was cited as a factor. 

Additionally, last year’s research found seamless integration is a top priority for advisers with two-thirds expressing their willingness to use an end-to-end advice solution if is available. 

Efficiency and reliable technology are key factors in advisers’ choice of providers, while advisers are also intending to move towards owning their own AFSL. 

However, the compliance burden remained a major challenge for advisers, who were seeking better integration and standardised solutions to navigate the complex regulatory environment. 

“Many of the jobs traditionally done by planning software or advice tech providers are the ones for which advisers are most interested in seeing investment platforms enhance their capabilities,” Guiamatsia says.  

“Advisers now prioritise platform providers based on efficiency, reliable technology, and seamless integration, highlighting their growing expectations for quality service support.” 

With the proliferation of AI tools in the mainstream this year, like ChatGPT, the survey will suss out adviser appetite to take on more automated tools in the advice process. 

“We do ask some back-looking questions as well, in terms of whether or not they’ve incorporated AI like ChatGPT,” associate research director Sam Alaaeddin says. 

“The 2023 report will also encapsulate a lot of the static/consistent questions that are more or less consistent in the different versions of the report that we produce over the years.” 

Shadforth Financial Group private wealth adviser Shayne Sommer says shifts in working patterns due to the Covid-19 pandemic has impacted how many Australians transition to retirement, if they haven’t delayed it.

“The prominence of flexible working arrangements and more positions being offered on a part-time basis is enabling this trend,” Sommer tells Professional Planner. “In essence, for me, retirement as a concept is all about choices.”

Hewison partner and wealth adviser Chris Morcom says the transition to retirement can be a difficult time of adjustment, particularly for those whose identity was defined by their work, and professionals often fall into this definition.

“Often clients successfully wind down their work life by reducing their days as a start, then gradually increase the number of days on which they do not work,” Morcom says.

“They gradually transition themselves to a non-work-oriented life and fill their lives with other pastimes that are meaningful to them.”

After many years assisting clients to transition to a non-working life, Morcom says does not define retirement for any person. “Everyone is different and their approach to retirement will be personal and tailored,” he adds.

Sommer says retirement is a part of our life journey, not a destination all of itself.

“It’s a part of our journey where we’ve accumulated sufficient assets to be able to fund a living [income] to allow us to reduce formal working hours, and choose to either partake in paid work or not, or volunteer more of our time to causes, activities and interests of our liking,” Sommer says.

However, Plan For Your Future founder Helen (Meihua) Nan notes for clients she has close to retirement age, they rely on the three pillars of the Australian retirement system: Age Pension, superannuation and assets outside super.

ASFA suggests Australians need $68,000 p.a. to live comfortably as a couple.

“To have this level of income, they only need $640,000 in retirement savings, assuming they have 6 percent investment returns,” Nan says.

“However, everyone has their own comfort level. Having enough income to maintain a pre-retirement lifestyle means a comfortable retirement for lots of Australians.”

Exit strategy

Nan says retirement isn’t the endpoint of working, but about having options for financial freedom.

“You can start planning in your 20s, 30s, 40s to lead into your early retirement or financial freedom,” Nan says.

“The earlier you start, the better the outcome. If I want to be financially free, I need to acquire income-producing assets instead of spending all my money on lifestyle.”

Nan says when passive income from her assets exceeds her expenses she will longer rely on earnings from her business – making her financially free.

“As a business owner and financial adviser, I need an exit plan,” Nan says.

“When I started my own business, I thought about and planned my exit plan, and building income-producing assets needs to be included as a part of my exit strategy.”

Morcom says retirement essentially means working when needed, not because it is a necessity.

“If you have a plan in place to build a financial resource upon which you can rely to meet your needs, then once that pot of assets is sufficient to meet your lifestyle needs you no longer need to work to live,” Morcom says.

“You might choose to continue working because you enjoy what you do, but you could stop at any time because you have built up the financial means to support yourself without work.”

Dainton has extensive experience in financial services, having worked for HBA, National Mutual, AXA, and AMP. He most recently held several senior roles in operations, finance, remediation, and transformation at AMP, including as deputy CFO. 

He will commence in his new role on Tuesday, 16 May 2023.

The fund will last for five years and then wind down over two years. It is capped at producing 40 original productions and increasing to 55 total projects, including sequels and continuing series.  

The partnership will also ensure no material exposure to the box office or other audience-related factors, offer support to producers, studios, and streamers through financing these productions, and provide them with access to industry insider oversight. 

AEP co-founder Greg Basser said in a media release on Monday that content produced in Australia almost doubled from $1.04 billion in 2019/20 to $2.29 billion in 2021/22. In response to this, the AEP Screen Fund will raise up to $100 million of equity to be coupled with a bank facility of up to A$500 million, arranged and led by the leading financial institutions in the global screen industry. 

Over the five years of the fund’s investment term, the fund is forecast to produce film and television content over $1.7 billion. The majority of this will be spent in Australia. 

GSFM Screen Investments will be the fund’s trustee. It will also be responsible for the distribution and back-office administration of the fund. 

Invest Blue will provide $2 million in seed capital, assist with the platform’s development, and roll it out to its financial advisers. 

Invest Blue managing director David Stephen will also join the Lumiant board. 

The firm’s investment in Lumiant follows its strategic partnership with out-sourcing company Virtual Business Partners in August 2022. 

It’s bad enough even when qualified advisers get pinged. But this scenario could take it to the next level: here’s someone the profession could have agreed should be asked simply to meet the same qualifications as everyone else, but didn’t. There will be questions about why the adviser wasn’t held to the same standards and why the profession and, frankly, the government, allowed it to happen.

A proposal for the ASIC Financial Advisers Register to indicate which advisers are in the industry by virtue of attaining formal qualifications and which are there by virtue of longevity is not a bad idea, as might be the idea of requiring advisers to explicitly disclose the same. Consumers have the right to be fully informed about the individual whose services they’re considering buying.

The experience pathway option is only happening because of the number of advisers choosing to leave the industry rather than comply with new education and qualification requirements. A desire to stem the flow of advisers from the industry is understandable. However, grandfathering of experienced but unqualified advisers could lead to some unpleasant consequences.

In any case, as the Minister for Financial Services Stephen Jones has said the education pathway concessions won’t make much of a difference to the accessibility of advice anyway.

It’s only a band-aid solution

Even if grandfathering advisers based on experience rather than qualifications were to succeed as an accessibility measure, it’s still only a band-aid solution and potentially carries some downside risk. A bigger question keeps cropping up: where are significant numbers of new advisers going to come from?

But rather than trying to answer that, let’s instead examine the premise underlying the question, namely, that we need more advisers – specifically, more advisers that look, behave and deliver services the way advisers on the ASIC FAR currently do.

That seems to be the conventional wisdom and the assumption upon which many other conversations in the profession seem to be based. So let’s challenge it, to see if it stacks up.

But let’s be clear here: we’re not arguing that we definitely don’t need more advisers, we’re simply putting forward an alternative view. If the argument that we do need more advisers holds up, then let’s get on with the task of figuring out the solutions.

The idea that we need more advisers is based on the belief that many more people could benefit from financial advice than already receive it. That may be so, but we’ve yet to see evidence of masses of people complaining that they want to see an adviser and are being turned away. To be fair, not having seen the evidence doesn’t mean it doesn’t exist, only that we’ve not seen it. So if it’s out there, let’s see it.

The benefits of financial advice may be real, but if people aren’t actually seeking advice that point is moot. A need for thousands, if not tens of thousands, of new advisers to meet demand therefore might be overstating things.

One of the reasons more people don’t seek advice is that they don’t trust financial advisers; trust would be greater if advisers were held to the same education and professional standards as other professionals. Grandfathering experienced but unqualified advisers into the profession isn’t going to help improve trust.

It’s also true that the kind of advice many people might benefit from isn’t economical to deliver under most current advice business models. New, mostly digital delivery models are emerging that will efficiently serve the less complex advice needs of more people. We don’t necessarily need more formally qualified advisers to deliver this advice.

Supply up, price down

From a commercial standpoint, if new advisers were added to the market at a rate that meant growth in advice supply outstripped growth in demand, there could be a few implications. In classical economic theory, increasing the supply of services or of goods in the absence of (or faster than) an increase in demand results in a fall in the price of those services or goods.

A fall in the price of advice (in the absence of cutting the cost to serve) isn’t good news for incumbent advisers. And it’s worth noting that it’s not unusual for entry to a profession to be restricted for exactly that reason – it’s one way that members of a profession protect their incomes. Until (and unless) demand for advice increases, there’s no need to rush new supply to market.

On the other hand, if we assume that not all newcomers immediately become self-licensed, increasing the number of advisers could lead to an increase in revenue for licensees. It could lead to an increase in association memberships (again, revenue-generating). Vendors of technology, platforms, and investment products may stand to benefit from a greater number of advisers using their technology and channelling funds onto their platforms and into products. But that’s only if the new advisers can find enough clients quickly enough so they don’t go out of business.

There really might be a need for thousands of new advisers to enter the industry and solve the advice accessibility issue. But there equally may not be quite the need we’re led to believe there is. And the need might not be urgent enough to justify diluting professional and education standards for a benefit to consumers that is far from certain.

Opening the door, very carefully, for other kinds of advice providers may be a more effective way to get more simple advice to more people more quickly, without undermining the professional and financial standing of existing advisers.

Around 100,000 current and former members will receive an average of $650 each after a review of its processes for managing multiple accounts held by members.

This included administration fees and insurance costs deducted by the secondary accounts, as well as lost earnings on those amounts.

“The fund regularly identifies and combines multiple accounts held by a single member to help those members avoid extra fees,” the fund said in a media release on Friday morning.

“Following our review, we identified that our processes did not cover all instances of multiple member accounts. This should not have happened, and we apologise unreservedly to members.”

The fund said it was taking “appropriate remediation actions” and has self-reported the issue to the relevant regulators.

The impacted members – current and former – will be contacted in the coming months to inform them of the issues and actions being undertaken.

“AustralianSuper’s aim is to return these members to the financial position they would be in now if this hadn’t occurred,” the fund said.

“In addition, we have strengthened our processes around managing multiple accounts for all members to help ensure instances where a member has more than one account are identified, and appropriate actions are taken in a timely way.”

The cost will be paid from the fund’s Operation Risk Financial Reserve and the fund said it would not increase administration fees to cover the remediation.

In a separate statement, Super Consumers Australia called on all super funds to review processes for multiple accounts, pointing to the requirements in the SIS Act which required super funds to annually identify people with multiple accounts and consider whether those accounts to be merged.

The law can be enforced by ASIC or APRA and the consumer group called for the regulators to take transparent action where processes are not good enough.

SCA deputy director Rosie Thomas said paying extra fees and insurance premiums for more than one account adds up, citing Productivity Commission research that found unnecessary multiple accounts can leave someone over $50,000 worse off in retirement.

“It’s important we fix this problem across the super system, and getting funds to sort out intra-fund consolidation is the first step.” Thomas said.

“The laws to encourage super funds to get rid of multiple accounts within their own fund are a decade old. We’ve never seen any public statement or actions from the regulators on this issue. It is alarming that such a major player is only discovering issues now.”

The case involves standard form contracts issued under HCF Life’s ‘Recover’ range of insurance products (‘Cash Back’, ‘Smart Term’, and ‘Income Assist’).

ASIC alleges the ‘pre-existing condition’ term in the contracts is an unfair contract term and could mislead the public because:

• A customer did not disclose a pre-existing condition before entering the contract, and a medical practitioner believes that symptoms of the condition existed before the customer entered the contract (even if a diagnosis had not been made);
• The customer is unaware of the pre-existing condition; or
• Section 47 of the Insurance Contacts Act prevents insurers from excluding coverage for non-disclosure of a pre-existing condition where the customer was unaware of the condition when taking out the insurance, and a reasonable person in the circumstances could not be expected to have been aware of the condition.

“Insurers need to ensure that all terms in their contracts, including important pre-existing condition terms, accurately communicate the rights of customers,” ASIC deputy chair Sarah Court said in a media release on Friday.

“The inclusion of allegedly unfair and misleading terms can deter customers from making a claim, which is not a good consumer outcome.”

ASIC is seeking declarations that the term is void. The regulator will also seek injunctions and corrective orders.

On 5 April 2021, the unfair contract term protections in the ASIC Act were expanded to include insurance contracts with consumers and small businesses. This was a result of a recommendation by the Hayne Royal Commission.

Wickham joined Morningstar in 2006 as part of the acquisition of equity research firm Aspect Huntley. He played a role in growing and leading the business in Australia, which grew over the years to span individual investors, advisers, and asset managers. 

Chris Galloway, who currently leads Morningstar’s wealth business, will replace him as country leader for Australia and New Zealand.  

Galloway joined the company in 2009 and led its investment management group in the Asia Pacific from 2012.

Galloway will report to US-based Morningstar Wealth president Daniel Needham.

At the Professional Planner Roadshow in March, Minister for Financial Services Stephen Jones said there would be Cabinet deliberations after the Budget was completed. In a post-Budget webinar hosted by the Financial Services Council on Thursday morning, Jones gave an update on the timeframe.

“If we didn’t have a Budget in May we’d have a Cabinet consideration of it… and that work would’ve been out in the field,” Jones said.

Unsurprisingly, the vehicle used to allocate spending for all government programs for the whole country has taken precedence.

“We had the budget and that has taken priority over everything, absolutely everything, not just our response to the [QAR],” Jones said.

“We’ll have a Cabinet recommendation of a bunch of recommendations in a few weeks’ time and I’d hope to be in a position late May, early June to come out and talk to you about the stages of work that we have proposed.”

The Minister has not shown interest in taking on QAR lead Michelle Levy’s recommendations wholesale but has expressed enthusiasm towards “quick wins” for advisers when it comes reducing red tape in the advice process.

However, during the roadshow in March hosted by Conexus Financial, the publisher of Professional Planner, Jones said the QAR and experience pathway will not sufficiently address the advice gap.

Kill the noise

The Minister has taken criticism over the past few weeks for his response to the advice review, with Levy penning an op-ed in the Australian Financial Review which was followed by the publication taking an official editorial position backing her recommendations.

Jones noted the “excitement” over the past fortnight and said his silence on the review has no correlation to his thinking on the matter.

“One of the reasons I went and did a series of roadshows around the country was to make it quite clear that we weren’t going to take a report and bury it,” Jones said, referring to the Conexus roadshow.

“If that was my objective, I wouldn’t have done any of that, but also I wanted to hear first-hand from industry and fine-tune our thinking on it. It’s a thoughtfully important job of work that has been done. It’s not going to be the only input into the government’s consideration, there are others.”

Jones said the accepted proposals will form three pillars: a “non-controversial” pillar of measures that can be implemented quickly; non-controversial measures that might be more difficult or time-consuming to implement; and a pillar of “non-burning deck” issues that will take longer.

All three pillars will be progressed starting at the same time, but the timeframe to deliver a final outcome will be dependent on the required process.

Fixed objectives

Regarding the proposed marginal tax increase from 15 per cent to 30 per cent for super account balances over $3 million, Jones said there will be no changes to what has been proposed which has received polarising responses in the financial services industry.

The government has aimed to limit how many people will be affected by the tax-concession reduction, Jones said, but the decision to change the threshold will be a decision for future governments and not via indexation.

“Even if we did nothing and left it where it is today, you probably get less than the top 10 per cent of income earners, if you did nothing between now and 2050,” Jones said.

“The default position is we don’t index tax thresholds so that future governments/parliaments can come back and look at them.”

Jones said $3 million was a solid starting point, considering 30 per cent of super balances remain unspent and that there aren’t any other changes planned for the taxation structure during the life of the current Parliament.

“That’s a bit of an indication that while we’ve done a great job on the accumulation side of things, we need to do a better on the income stream, the pension phase, the decumulation side of things,” Jones said.

The other battleground in super is the consultation on the purpose of super, which Jones remains adamant is to provide retirement income.

“It’s consistent with what I’ve been saying for the best part of 12 months now,” Jones said.

“There’s a point at which above no one can argue that it’s about retirement income, it’s about something else.”

It is also essential to recognise and acknowledge women’s contribution to society and take steps to ensure they receive the recognition and support they deserve.

Yet, despite years of progress, women in Australia continue to face significant challenges in achieving equal economic participation. Women, particularly those in health and community services, often work casual roles that are considered low to middle income.

This perpetuates the gender pay gap, ultimately leaving them with less money in super on average than men. Increasing women’s workforce participation is one of the most effective ways to improve financial security and boost the Australian economy.

Gender targets address inequality

In my view, gender targets are essential because they address the unequal treatment and opportunities women and other marginalised genders face due to gender stereotypes, biases and discrimination.

Gender targets can take many forms, including quotas, affirmative action policies and targets for representation and participation. These measures help to increase the visibility and voice of women and other marginalised genders in decision-making processes, leadership positions, and other areas where they have been historically under-represented or excluded.

HESTA’s 40:40 Vision is an investor-led initiative founded on the principle that target setting is more effective than disclosure alone to drive progress. It is now supported by investors representing more than $6 trillion in funds under management.

Closing the pay gap

Research by BankWest Curtin Economics Centre (BCEC) and Workplace Gender Equality Agency (WGEA) shows a 40:40:20 gender split (40 per cent identifying as women, 40 per cent identifying as men, and 20 per cent as any gender) in the workforces of all industries would reduce Australia’s gender pay gap by a third.

By setting targets and making progress visible, companies will be motivated to take meaningful action toward improving gender equality.

Another overlooked area is the value of unpaid care work, which is essential to Australia’s economy. Without it, many households would be unable to function, and the country’s economic productivity would suffer. Women taking time off work, or working less than they could, can result from the time spent doing unpaid care work.

According to WGEA, the value of unpaid care work in Australia is estimated to be a staggering $650.1 billion annually. Despite this enormous economic benefit to the country, this figure is not included in the calculation of GDP. Improving key productivity indicators so that the value of domestic tasks is tracked and appropriately captured will enable better decision-making by policymakers, investors, and market participants.

We acknowledge and welcome the Federal government’s commitment to an evidence-based Women’s Budget Statement and its commitment to a wellbeing budget. We believe these frameworks for budgeting should continue to build on improved economic measures that better capture the contribution of women and help close the gender super gap.

By implementing mandatory target setting for large employers, valuing unpaid care work, and investing in companies that promote gender equality, we could create a more equitable and inclusive economy that values the contributions of all members of society.

The time for action is now.

Debby Blakey is chief executive of HESTA

He replaces Jake Nilsson, who has been hired as head of private market sales, ex-North America, in London. 

Roland will report to president of Federated Securities Corp Paul Uhlman, who oversees global distribution at the firm.

In March, Professional Planner revealed that a number of disgraced financial advisers slapped with a ban by the industry watchdog continue to self-promote online to unsuspecting clients.

While the ASIC announced a renewed focus on protecting consumers from financial harm, the watchdog’s powers stop short of ordering that financial advisers stop promoting their professional services online.

Several financial advisers banned from practicing have been publicly shamed in the media, with ASIC issuing media releases in high profile cases.

However, some financial advisers who had been permanently banned from practising continue to list themselves as online on either websites or professional social media platforms like LinkedIn.

ASIC has confirmed that banning orders prohibit specific conduct, such as the provision of financial services, but they do not require banned individuals to remove online listings.

An spokesperson for the regulator tells Professional Planner that it makes its banning decisions public through ASIC Gazette notices and media releases. “We also update our publicly accessible registers with the relevant details of our administrative actions, including bannings”.

“We rely on complaints and other intelligence to inform us if someone is engaged in conduct that amounts to a breach of the banning order,” the ASIC spokesperson says.

ASIC says those seeking a financial adviser should head to the MoneySmart website to find a suitable option, which puts the onus on the client to do their own checks and balances to ensure that a financial adviser is fit to practice and reputable.

The fact that the ban doesn’t cover self-promotion activities raises serious questions about whether ASIC’s protection measures go far enough.

The ability for banned advisers to continue promoting themselves also goes against Commissioner Ken Hayne’s six principles laid out in the final report of the Financial Services Royal Commission, which was meant to guide corporate conduct.

They are obey the law; do not mislead or deceive; be fair; provide services that are fit for purpose; deliver services within reasonable care and skill; and when acting for someone else, act in their best interests. Hayne says these principles were all covered by the ‘efficient, honest and fair’ test in the Corporations Act.

ASIC says it does take action against advisers who continue to practice after a ban, pointing to a case last year in which former Queensland financial adviser, Lawrence Toledo was found to be still providing financial advice despite being slapped with an ASIC ban.

This action prompted the regulator to convict and fine Toledo a somewhat paltry $1500 after he pleaded guilty to three charges of breaching an ASIC banning order.

Meanwhile, Sydney’s Bluepoint Consulting financial adviser Todd Karamian, who has been banned from practicing by ASIC, has had his online profile removed from the company website. But the other banned advisers mentioned in the story continue to promote themselves online this week.

The Financial Advice Association CEO Sarah Abood expressed surprise that banned practitioners continued to promote their services.

“Whether or not this is specifically required in a banning order, we would consider this an ethical obligation,” she says.

Abood says that members concerned about promotional activities being undertaken by advisers can contact the FPA and it will be investigated to ensure the issue is resolved.

“[Embracing uncertainty] is the hardest part of investing,” he said at the Portfolio Construction Forum’s 2023 Finology Summit held last week, adding that investing is all about mentality and going where the crowd is the most uncomfortable.

“While our professional training is number centric, I want to stress that numeric numeracy is a language or a tool. It’s not the be all and end all.”

Isles stressed at the summit that people are more important than numbers. “I started off learning by economics, trading, and all sorts of valuation techniques, which actually makes no sense if you don’t understand the people element that goes into them,” he said.

“I spent a lot of time speaking to people born in the ’80s, asking them about financial services and what they wanted from it. You basically get two groups, you get two people who don’t care at all. They’ll take default super quite happily. And you get this other group of people who we thought were our potential customers.”

With the advent of the Internet age, however, Isles explained that young people today want to do things for themselves. They wish to learn to invest themselves rather than have others do it for them.

“This led me to think about how investing can be made easy, given that most of us have learned about investing in the wrong order,” he said.

People and resilience

According to Isles, companies are collections of people with a purpose augmented by land and capital. “It’s all about people,” he said.

“They evolve; they change; and they respond to their suppliers, their customers, their competitors, the regulators.”

Over the last 18 months, Isles interviewed 25 people for his podcast series. The topics covered were wide-ranging, from illness to sexuality, from miscarriage to boredom. “All of the people I interviewed showed that they had the resilience and the ability to bounce back,” he said.

Isles referred to the behavioural finance model, which suggests that understanding human psychology and behaviour is essential to understanding financial decision-making and can help investors make more informed and successful investment decisions.

“Not everyone [has the ability to bounce back], and that’s important, because when we take the behavioural finance model and apply it to companies, we find that not every company has the resilience to bounce back,” Isles said.

“It’s the same for industries and potentially for economies: the problems they face are different.”

Isles believes the behavioural finance model is an important factor that people must consider when trying to understand how businesses operate.

“I think it’s important to try and shift people’s thinking because, as a profession, we need to attract new talent,” he said.

Since 2022, HUB24 has been providing Striver’s tribe of students and graduates with access to education on managed portfolios.

Going forward students will now be provided access to HUB24’s Managed Portfolio Academy, which provides a comprehensive understanding of managed portfolios and how they can help advisers enhance their value proposition, provide tangible benefits for clients and grow their business.

HUB24 will also be showcasing how emerging tech like AI and machine learning can deliver better outcomes for advisers and their clients, enabling cost-effective financial advice.

As part of the partnership, HUB24 chief product & innovation officer Craig Apps will be delivering a keynote address to Deakin University students on the rise of AI within the advice industry.