The advice and investment week in focus - 14th November
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1) It's been a challenging era for active equity managers, with the consistent run of equity markets over the past 15 years – broken only momentarily by the pandemic – coinciding perfectly with the popularisation of exchange-traded funds to make ETFs the investment vehicle de jour for a generation. That trend continued in the financial year to 30 June 2024, according to Vanguard's latest S&P Indices versus Active (SPIVA) Mid-Year 2024 scorecard, with 66 per cent of actively managed Australian equity general funds underperforming the ASX. It's a result that's had Vanguard's chief investment officer for Asia Pacific, Duncan Burns, touting ETFs as a "much better alternative" than active equity managers, which are "highly likely to underperform the market".
Twisting the knife, Burns said it was a "dismal result" for the active equity investment teams trying to beat the market. Burns might be right, but his commentary doesn't serve Vanguard particularly well. There's conviction, and there's hubris. One is an asset, the other's usually a warning.
2) Financial services minister Stephen Jones has announced an immediate upgrade to the Consumer Data Right (CDR), which is designed to make the framework easier to use and help increase take-up from the public.
The new changes will, according to the federal government, improve the CDR's functionality and ease-of-use in three ways:
3) After a long and relatively protracted process, CBA has found a buyer for its high-net-worth advice business, with LGT Crestone emerging as the new owner of one of the last vestiges of bank-owned financial advice. On Monday morning LGT Crestone put out a release stating that it had signed an agreement with CBA to acquire Commonwealth Private Advice's $5 billion, 500-client book and welcome 20 investment advisers and around 20 support staff into the fold. The news comes after several months of negotiations between CBA, with the help of independent advisory Gresham Partners, and a host of prominent advice groups including Viridian Advisory, Macquarie Private Wealth, Escala Partners and its main wholesale advice competitor in Koda Capital. The acquisition is a neat bolt-on due to the congruence of clientele; Crestone's growing book of wholesale advice clients is relatively analogous with the HNW clients at Commonwealth Private Advice. With this alignment and Crestone's solid reputation as an investment advice group, the tie-up probably won't result in a great deal of client arbitrage.
4) Cbus is having a terrible, horrible, no good, very bad year. And it’s about to get worse. To recap: Cbus has found itself embroiled in explosive corruption claims against the CFMEU as a result of the presence of CFMEU-appointed directors on its board, and has raised eyebrows around the industry for the significant turnover in its senior investment staff and executive branch. That’s seen it become the poster child for everything the mainstream media finds suspicious about industry super funds: their unique governance structures, their investments in unlisted assets, their close ties to the union movement. And the fund has now stumbled into even more dangerous territory. It (allegedly) failed to process death and TPD benefits within reasonable timeframes, which saw them paid out late and resulted in members and claimants now wearing a $20 million loss. It (allegedly) failed to assess the scale of the delays, and the systemic nature of the problem, and then (allegedly) failed to take action to reduce the delays. ASIC also alleges that it made false and misleading statements by failing to make sure that its report of the issue contained all the information it was supposed to. It’s now possible to put “Cbus” next to dead people in the headline, to invoke the “grieving” and to use phrases like “super-sized betrayal”, as?The Australian?(somewhat predictably) did. It’s Hayne royal commission language – the kind of language that industry funds have so far largely avoided.
5) The Council of Life Insurers has made an impassioned plea for the government to push through the second tranche of its Delivering Better Financial Outcomes package, arguing that Australian consumers will face "generations of financial uncertainty" if they're not completed before the federal election and a possible new government. The second phase of the DBFO reforms, which is still being drafted, is set to modernise the best interests duty, remove the safe harbour steps and reform advice documentation. Most importantly for the insurers, the reforms are also set to create a new class of adviser that will provide a stripped back, "simple and safe" version of financial advice according to Financial Services Minister Stephen Jones.
Under current legislation, the life insurers that make up CALI's membership – groups like TAL, Clearview, AIA, MLC, Metlife, Challenger and Zurich – are restricted from providing any meaningful degree of advice to customers who ask questions, and are limited to providing the most general information.
The new class of advice will sit somewhere between general advice and personal advice, which takes into account the full breadth of a client's financial situation (unless scoped). It's this level of advice that CALI believes will help boost consumer access to the life insurance industry, which is challenged by increasing lapse rates due to a confluence of factors, including a steady decrease in the number of registered advisers providing life insurance advice.