SAFAAMONTHLY 2021: Getting your portfolio out of lockdown
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SAFAAMONTHLY February 2021
2021: Getting
your portfolio out
of lockdown
ETHICS, FINANCIAL ADVISERS AND
REGULATION – can they live together?
SUPER SNIPPETS Building a privacy
What happens to compliance program
super when you die?
Stockbrokers and Financial Advisers Association | www.stockbrokers.org.au
CONTENTS
FEATURES
10 Ethics, financial advisers and regulation – can they live
together? | Thanks in part to the work of SAFAA, the date for
passing the FASEA exam has been extended an additional year.
13 Building a privacy compliance program | Of every industry
sector in Australia, the financial sector is the second-worst
10
performing for privacy compliance, judging by the number of
data breaches that have occurred since new mandatory reporting
requirements commenced.
15 2021: Getting your portfolio out of lockdown | Imagine you
had fallen asleep in January 2020 and woken up in January 2021,
and before watching any news or taking a walk around your suburb,
you looked at the levels of a few financial markets around the world.
19 Managing business risk - tips for your business | Warren
13
Buffett said “High returns with low risk is the key”. He clarified
further that “Risk comes from not knowing what you are doing”.
REGULAR
3 Message from the CEO
5 Policy & Regulatory issues
8 Committee news
18 Super snippets: What happens to your super when you die?
The 2020 Retirement Income Review showed that many retirees are
18
not spending all their money in retirement. In fact, some are even
dying with more money in super than they had when they retired.
Stockbrokers and Financial Advisers Association Limited ABN 91 089 767 706
Level 5, 56 Pitt Street, Sydney NSW 2000
+61 2 8080 3200 | info@stockbrokers.org.au
www.stockbrokers.org.au
DISCLAIMER: This Newsletter is provided solely for the information of members of the Stockbrokers
and Financial Advisers Association. It does not constitute advice. The Stockbrokers and Financial
Advisers Association nor any of its officers or agents accepts no liability or responsibility for the
accuracy, reliability or completeness of any information contained in the Newsletter, and readers
should rely on their own enquiries and analysis in making any decision or taking any action that
affects them.
p. 2 SAFAA Monthly | February 2021
MESSAGE FROM THE CEO
A new year, but many familiar challenges await us, from the ongoing
pandemic and its uneven impact on the economy as well as from a range
of regulatory issues affecting our industry. I trust that members had the
opportunity to take a break, so that we can all face these challenges with
Judith Fox, CEO renewed vigour and fresh ideas.
FASEA exam at this stage so does the deadline of feedback to exam candidates who
the end of 2025 for the completion of fail. We hope this is the case and will
I would like to stress that while we
the FASEA education requirements. keep a watching brief on this.
welcomed the news at the close
FASEA has also introduced pre-
of 2020 that FASEA would be
disbanded, it is very important to Content of exam and exam webinars for candidates.
feedback to advisers Candidates are invited and receive a
understand that the new structure
link once they register. The webinars
is highly unlikely to commence until SAFAA met with FASEA in January cover exam construct and prepara-
the start of 2022. That means that to discuss our concerns about the tion; what the exam is testing; ques-
the FASEA exam requirement and content of the exam and the lack of tions to expect; how to plan study;
deadline remains in place. feedback to those who fail it. In the and exam day tips. I encourage all
The FASEA exam must be com- November 2020 exam, two-thirds candidates to register for the FASEA
pleted in 2021 if advisers are to of the questions were on insurance, pre-exam webinars — any assistance
continue to provide advice. This has an area in which most stockbrokers on how to prepare for the exam is
not changed. Importantly, financial do not provide advice. While the welcome. SAFAA is also holding
advisers need to take into account questions are geared to applying an another webinar on 24 February for
that: ethical lens, an exam that includes our members covering tips on how
• the exam requirement must be a majority of questions on matters to prepare for the exam. You can see
completed by the end of 2021 such as insurance discriminates information about that on page 4 and
— there will be no further exten- against stockbrokers and investment on our website.
sion of time advisers. SAFAA has asked for the SAFAA also continues to advocate
• there are only six exam sittings exam content to be recalibrated to for FASEA to approve degrees in
scheduled for 2021 the spectrum of advice services so commerce, business, finance and
• however, because results are that it is relevant for stockbrokers and economics, rather than only those in
not available until after the next investment advisers. financial planning.
exam sitting, if an adviser fails FASEA has not released any infor-
the exam, they can’t register for mation on the number or percentage
the next exam sitting, but only the of stockbrokers or investment advis-
SAFAA 2021 conference
one after that ers who have failed the exam, but Our conference this year is being
• in reality, that means there are SAFAA hears from its members that held over two days on Thursday 20
only three opportunities to sit the experienced stockbrokers who have and Friday 21 May 2021, so save
exam before the deadline. sat the exam have frequently failed the date. In 2021 we will be holding
While the Minister intends, early in it at their first sitting. They advise our conference in a hybrid format.
the new year, to introduce the legisla- us that it is because so many ques- We hope you will be able to attend
tion giving effect to a single, disciplin- tions are geared to financial planning the face-to-face event, which will
ary body within ASIC and moving the and that even while the exam is not be at the Hilton Sydney. Of course,
standard-setting functions of FASEA meant to be about technical detail, government restrictions in relation to
into Treasury, the draft legislation the focus on matters on which they the pandemic may hinder that, and
could well be referred to committee. do not provide advice (insurance, so you will be able to attend virtually
Therefore, it is highly unlikely that it Centrelink benefits, aged care etc) if needs be.
would pass in time for a commence- derails them and causes them undue Have a look at the program, which
ment date in 2021. That means that stress. FASEA does not provide any is on the SAFAA website. We had
1 January 2022 would be the most feedback on which questions the great feedback on the program last
likely commencement date. adviser failed and so these stock- year and we aim to make sure that
It is therefore an imperative to take brokers have no idea what they the 2021 program is equally thought-
on board that the FASEA regime need to study in order to achieve provoking and relevant. Registrations
will not be dismantled in the short success in a second exam sitting. are open and we look forward to
term. The deadline of end 2021 for FASEA informed us at our meeting seeing you at the conference, either
completion of the exam remains and that in future it will provide detailed face-to-face or online. n
Stockbrokers and Financial Advisers Association p. 3
SAFAA ACCREDITED
CPD webinars
Stay on top of your CPD with these SAFAA-accredited
CPD webinars – FREE for Practitioner, Affiliate and
employees of Principal Members.
Are you ready for DDO?
Wednesday 10 February, 1.00pm to 2.00pm AEDT
Whilst the new Design and Distribution Obligations are not coming into effect until 5 October 2021, ASIC has already
flagged that it expects full compliance on day one. With the regime applying to products such as ETF’s, ETO’s and
some warrants, stockbrokers will be impacted by the changes. Corey McHattan, Partner, Ashurst will outline what
brokers will need to consider, how the DDO will affect licensees and more.
FASEA CPD: 1.00 hour Regulatory compliance and consumer protection | RG146: 1.00 Generic Knowledge
Strategies to pass the FASEA exam
Wednesday 24 February, 1.00pm to 2.00pm AEDT
The most effective way to prepare for the FASEA exam is to understand the proposed question format of the exam,
the concepts and ideas that will be examined, be mindful of where other participants have struggled, and then use
this information to reverse engineer a Personal Exam Strategy. Joel Ronchi, Principal Consultant with myIntegrity in
Practice, will share this knowledge to help you prepare for the exam.
FASEA CPD: 1.00 hour Client care and practice | RG146: 1.00 Generic Knowledge – Financial planning
Not-for-profit and charity investment
Wednesday 10 March, 1.00pm to 2.00pm AEDT
Jodi Kennedy and Grant Mundell from the Equity Trustees Charitable Trusts and Philanthropy Team will be joined
by Thomas Klein, Head of Business, to present the latest innovations in investment strategies to hedge against
evolving market conditions. Investors must adjust their approach toward risk, asset allocation, impact investment, and
alternatives. Protecting capital to maintain mission is more critical than ever.
FASEA CPD: 1.00 hour Technical competence | RG146: 1.00 Generic Knowledge
Property credit and income
Wednesday 24 March, 1.00pm to 2.00pm AEDT
Income investing continues to dominate investor discussions as yields everywhere fall flat. Michael Watson, Head of
Distribution – Asia Pacific, will discuss key issues, plus the strength and resilience of the La Trobe Australian Credit
Fund for income investors, having operated through many economic cycles over nearly seven decades.
FASEA CPD: 1.00 hour Technical competence | RG146: 1.00 Generic Knowledge
Practitioner & Organisation Members: FREE Thanks for supporting
SAFAA’s webinar program
Non-Members: $55.00 during 2021
FOR MORE INFORMATION OR TO REGISTER: 02 8080 3200 | education@stockbrokers.org.au
p. 4
www.stockbrokers.org.au/education/cpd-webinars
SAFAA Monthly | February 2021
POLICY & REGULATORY ISSUES
SAFAA provides feedback on how to
improve affordability of advice
I
n its response to ASIC’s consulta- advisory firms that can be best de-
tion paper on promoting access scribed as a regulatory ‘blizzard’ and
to affordable advice for consum- highlighted how this has impacted
ers, SAFAA has called for ASIC and the affordability and accessibility of
the government to move away from personal advice to retail clients.
a ‘one-size-fits-all’ approach to the And of course, we voiced our con-
provision of personal advice to retail cerns about how the FASEA exam
clients. The ASIC reports that SAFAA and education requirements are
SAFAA’s comprehensive submis- viewed cause us considerable con- leading to an exodus of experienced
sion lodged on 18 January 2021 cern about ASIC’s approach to the advisers from the industry.
emphasises that consumers want provision of scaled advice to stock- SAFAA’s recommendations for
different advice for different needs broking clients, and in particular, the change are:
and the regulatory environment level of enquiries ASIC asserts stock- • ASIC reconsider its conflicting
needs to accommodate consumer brokers must make and the records views on limited advice and en-
preferences and requirements and that are required to be maintained sure its reports to licensees are
not seek to shoehorn all consumers to comply with the Corporations Act consistent with the provision of
into one advice service. provisions on scaled advice. limited advice.
The consultation paper asked for Worryingly, the reports we have • ASIC develop educational mate-
feedback on what SAFAA consid- viewed do not take the scaled advice rial aimed at investors that dis-
ered to be impediments to the ad- model into account, but presume that cusses the distinctions between
vice industry providing good-quality each client should receive a full ad- personal and general advice as
limited or scaled advice. vice service when this is not the case. well as what constitutes limited
Our submission highlighted two We are advised that most of the files advice.
major impediments – ASIC’s incon- reviewed by ASIC related to clients • ASIC provide additional guidance
sistent approach to scaled advice seeking transactional advice relating on the provision of limited advice
and the FASEA code and educational to stockbroking services where there for stockbrokers in RG 244 and
requirements. was no need to undertake the depth develop examples that are simple,
It has come to SAFAA’s attention of enquiry, provide the level of detail concise and effective and reflect
that at the same time ASIC is looking in disclosure documents or maintain how stockbrokers provide limited
to encourage the implementation of the level of detail in client files or or- advice in practice.
scaled advice, our members have re- der records that ASIC stated in the • Remove standard 6 of the FASEA
ceived reports from ASIC relating to reports as being necessary. code
personal advice reviews conducted While SAFAA does not consider • Redraft standard 3 of the FASEA
by it in 2018 and 2019 that conflict that changes need to be made to code
with the law on scaled advice. the law concerning limited or scaled • Include commerce, economics,
The reports relate to a surveillance advice, ASIC must reconsider its business and finance degrees
ASIC conducted on the retail finan- conflicting views on limited advice from established Australian uni-
cial advice business of eight AFS and ensure its reports to licensees versities to the FASEA list of
licensees who are ASX market par- are consistent with the provision of approved courses - financial
ticipants. The purpose of the reviews limited advice. We have also asked planning qualifications must not
was to understand the participants’ ASIC to develop sample statements be the only approved courses for
advice businesses, to the extent it of advice that are simple, concise financial advisers
involved the provision of investment- and effective and reflect how stock- • Recalibrate the FASEA exam
related personal advice to retail cli- brokers provide limited advice in content to the spectrum of ad-
ents. An area of focus was the steps practice. vice services so that it is relevant
the participants had taken to comply We took the opportunity to detail for stockbrokers and investment
with their obligations under Chapter the increased regulatory burden im- advisers.
7 of the Corporations Act regarding posed on stockbroking and financial Our comprehensive submission is
the provision of that advice. available on our website here. n
Stockbrokers and Financial Advisers Association p. 5
POLICY & REGULATORY ISSUES
Reference checking and information
sharing
T
he bill that adds the reference legislative instrument and informa- As this is a function that FINRA
checking and information tion sheet in June 2021 ahead of carries out effectively in the US
sharing provisions to licence the 1 October 2021 implementa- market, we consider that ASIC could
conditions is now law. These new tion date. do so as an adjunct to the FAR in
obligations will apply from 1 October As advised in our December the Australian market, particularly
2021. ASIC will be making a legisla- update, SAFAA wrote to ASIC in in light of the government’s recent
tive instrument giving effect to the November last year voicing our con- announcement that it is to be new
reference checking and information cerns on the proposed framework disciplinary body.
sharing protocol. The draft legisla- and urging it to look to the US model SAFAA is currently developing
tive instrument (including a template of a central register of information a response to ASIC’s consultation
consent form and reference request) about the compliance record of an paper and will update members on
together with a draft information adviser which is capable of being its response in next month’s news-
sheet are subject to consultation checked not only by prospective letter. n
with feedback due by 29 January employers, but also by members of
2021. ASIC anticipates issuing the the public.
SAFAA ONLINE WORKSHOP
A Day in the Life
of a Trade
Tuesday 16 February 2021 | 1.00pm – 3.15pm
Presented by Robert Talevski MeSAFAA
An excellent refresher for experienced ROBERT TALEVSKI is the Dates & Time (includes 15 min break)
staff and perfect for those in auxuliary Responsible Manager and Tues 16 February, 1pm–3.15pm AEDT
roles (eg legal, IT, HR and other leads the trade execution
supporting roles associated with business of Australian Cost
stockbroking), this workshop delves Investment Exchange Members $125 | Non-members $175
deep into the day of a life of a trade. (AUSIEX), a multifaceted
FASEA CPD Area
You will walk away with a solid business responsible for the execution
understanding of client onboarding and management of all listed security Regulatory compliance and consumer
processes, the process of share and products across ASX and CHI-X. With protection 1.0 hour
derivative trades from order placement over 18 years’ experience across retail, Technical competence 1.0 hour
through to execution to settlement, wholesale and institutional channels
To register
sponsorship/HINS, CHESS messaging, Robert will provide great insight into a
registries and more. day in the life of a trade. Call 02 8080 3200
Email education@stockbrokers.org.au
Register online @ www.stockbrokers.org.au
p. 6 SAFAA Monthly | February 2021
POLICY & REGULATORY ISSUES
Breach reporting
T
he bill containing the new provisions in the Corporations Act with the Government’s initiatives to
breach reporting regime is that apply to AFSL holders (for ex- reduce ‘red tape’.
now law with the provisions ample, a failure to provide a client Licensees will be required to notify
coming into effect on 1 October with an FSG) may well result in ASIC breaches to ASIC via an online portal
2021. being bombarded with information on containing mandatory information
One matter of concern for mem- minor breaches. Creating a new level fields. Staff will need to be trained on
bers is that a breach of a civil penalty of reporting of matters that are not how to collect the required informa-
provision is ‘deemed’ by the legisla- relevant to a licensee’s core obliga- tion to populate the required fields.
tion to be a significant breach and tions increases the regulatory burden We will continue to monitor how
gives rise to an obligation to report. on licensees and is in direct conflict the new breach reporting regime
The large number of civil penalty impacts on our members. n
Forward fee disclosure and independence
T
he bill including the forward fee Future of Financial Advice reforms
disclosure and independence were implemented.
requirements was introduced There is a lot of potential complex-
to Parliament on 9 December 2020 ity around the forward fee disclosure
with a proposed implementation requirements. Estimating fees based
date of 1 July 2021. We expect on funds under management can
the bill to be debated in the House be challenging. What comprises a
of Representatives early this year. reasonable estimate of fees will be
Assuming it goes through in its cur- impacted by the movement of funds
rent form it will then need to pass in and out of an account and the per-
through the Senate to become law. formance of different assets. There
SAFAA provided a submission to may be practical issues, particularly
ASIC in response to Consultation for organisations with large numbers
Paper 329 on advice fee consents of accounts, ensuring consents are
in April 2020 when the legislation collected from all parties on a joint or
was in draft form. trustee account. Changes will need
Changes made to the bill from to be made to systems to accom-
the draft version allow for both the modate these requirements.
fee disclosure statement and the The Bill also contains provisions
ongoing service agreement (or fee handed to the client. If a client has requiring a licensee to give a written
renewal notice) to be provided in one not signed the renewal within a disclosure of lack of independence
document on an annual basis. This further 30 days – 150 in total – the if they are in receipt of commissions,
document will include a summary of client fees must be switched off. volume-based payments or ‘other
the previous years’ fees as well as an If legislated, the new rules will be gifts or benefits’ from product issu-
estimate of fees for the coming year. subject to a 12-month transition ers. The disclosure is to be provided
The document must be provided to period from the start date of 1 July in the Financial Services Guide.
the client within 60 days after the re- 2021. They will apply to all clients, We will keep members advised of
newal ‘anniversary date’, after which even if their original advice contracts the progress of the bill. n
civil penalties may be levied. are pre 1 July, 2013 – when the
A 120-day ‘renewal period’ for the
client to sign the annual agreement
will begin on the anniversary date, SUBMISSIONS: Members can view submissions here
regardless of when the renewal is
Stockbrokers and Financial Advisers Association p. 7
SAFAA committee news
Recent and upcoming meetings of the Stockbrokers and Financial Advisers Association – Committees, Working
Groups and Advisory Panels:
Profession Committee Meeting, Tuesday 2 February 2021
Chair: Andrew Fleming MSAFAA, Morgans Tynan Partners
Audit Committee Meeting, Thursday 4 February 2021
Chair: Michael Tritton MSAFAA, Crestone Wealth Management
Compliance Sub-committee Meeting, Thursday 11 February 2021
Chair: Melissa Nolan MSAFAA, E.L & C Baillieu
Board Meeting, Monday 15 February 2021
Chair: Brian Sheahan MSAFAA, Morgans Financial Ltd
Broking Committee Meeting, Thursday 18 February 2021
Chair: Jane Tandy MSAFAA, Canaccord Genuity Financial
DTR Working Group, Tuesday 23 February
Chair: Silis Key MeSAFAA, Chi-X Australia Pty Ltd
Master Practitioner Member MSAFAA application approved:
– Felicity Cooper
– John Curtin
– Peter Morrison-Dowd
– Brett Waller
SAFAA 2021
SAFAA 2021 Hybrid Conference
Thursday 20 & Friday 21 May 2021
Hilton Sydney & online
SAVE THE DATE!
p. 8 SAFAA Monthly | February 2021
NEXT COURSE COMMENCES MONDAY 22 FEBRUARY
Designed to help advisers comply “Despite being a FASEA ‘must do’ education requirement, the QUT Ethics
with the mandatory FASEA ethics subject has genuinely enhanced my ethical consideration and thinking,
subject requirements, this 12-week allowing a more holistic approach to business and decision making.
online course will commence Regular touchpoints with lecturers kept me moving through the content
Monday 22 February 2021. Benefits with confidence making this delivery approach ideally suited to those
include weekly opportunities for who have not undertaken tertiary study in a long time. Highly supportive
one-on-one consultations, two and real world experienced lecturers made the content practical.
assessments including a 1200-
About 200 Morgans Financial advisers have completed this subject so
word assignment and a video
far. If you are wanting a highly supported study experience, which also
presentation, followed by a two-
prepares those needing to do further FASEA post graduate study… then
hour open book exam.
this is the course for you!”
Tailored for those working in John Clifford, Managing Director, Morgans Financial
the stockbroking industry, the
FASEA approved program is fit for
purpose. Successful candidates
will gain credit towards QUT’s
post-graduate diploma in financial
planning. Over 200 SAFAA
members, the majority from
Morgans, have already completed
the course.
COURSE DETAILS
Assessment 1
Assessment 2
Workshop 1
Workshop 2
Exam date
start date
due date
due date
Online
date
date
22 February 2021 28 March 2021 31 March 2021 25 April 2021 30 April 2021 15 May 2021
Optional weekly consultations are available every Wednesday aftermarket and Assessment overview webinars are presented on a Tuesday
aftermarket at the start of each Assessment task.
Further information and details of how to enrol are available on the SAFAA website
www.stockbrokers.org.au
BY STEVE MARK AM
Director of Creative Consequences Pty Ltd
Ethics, financial advisers
and regulation – can they
live together?
Thanks in part to the work of
SAFAA, the date for passing
the FASEA exam has been
extended an additional year.
Much controversy has swirled
around the FASEA Code
of Ethics, and statements
suggest that some changes
will occur, but under the
auspicious of Treasury.
The purpose of this article
is to give a brief overview
of ethical theory and some
practical application. While
the article might appear
somewhat academic, it is
designed to assist advisers
to approach ethical decision
making (and the ethics exam!)
with some tools other than
simple ‘gut feeling’.
What do we mean by Dictionary ‘moral principles that gov- ourselves as more fair, unbiased,
“ethics”? ern a person’s behavior or the con- competent, and deserving than aver-
ducting of an activity” or “the moral age; and to be overconfident about
For centuries, scholars, philosophers
correctness of specified conduct.” our abilities and prospects.”1
and professionals have struggled
The problem is that my experience Self-interest tends to trump ethical
with the concept of ‘ethics’ in at-
as both a regulator and educator has principles when principles conflict
tempting to reach a simple defini-
shown me that simply telling people with practical reality. Therefore, for
tion, though general agreement now
that they have to be “good” doesn’t stockbrokers and financial advisers
seems to have been reached that
work. the challenge is threefold:
‘ethics’ falls within the philosophical
study of morality. At its most basic,
“Each of us tends to believe that • How can we recognise ethical
we see the world objectively; to see issues in our decision making?
‘ethics’ are, according to the Oxford
p. 10 SAFAA Monthly | February 2021• How can we ethically comply with
the regulator’s requirements?
• How can we align individual self-
interest with organizational com-
mercial interest and the public
interest?
The difficulty we face in making
ethical decisions tends not to be at
the extremes of good and bad, right
and wrong, but where our options are
in the grey area - where the choice of
action may be just a little more cor-
rect, or a little more wrong, and we
sometimes struggle with what tools
to use in helping us to choose.
The German philosopher, Immanuel
Kant (1724-1804) for example, be-
lieved that certain types of actions
(including murder, theft, and lying)
were absolutely prohibited, even in
cases where the action would bring
about more happiness than the alter-
native. In other words, we are mor-
ally obligated to act in accordance to maximize profit, for example by in- ‘special role’ played by stockbrokers
with a certain set of principles and vesting in something which produces and financial advisers in relation
rules regardless of the outcome of great harm to the community? to their clients and the community
so acting. This school of thought is generally as professionals.
formally known as a “deontological” A simple model for ethical Step three requires us to use ‘moral
imagination’ and develop a practical
or “rule-based theory.” decision making
Kant believed that moral principles implementation strategy. This could
A basic three step model for ethical mean that we try to imagine moral
should be seen as laws that issue
decision-making states that we must: alternatives to the issue faced, what
from mankind’s reason. According to
Kant, these moral principles should 1. Be aware of the ethical issues is feasible and practical, and what
be based in laws, codes and rules that arise in practice, and of our are likely to be the consequences
and that the moral principles should own values and predispositions; of different alternatives. Practical
be absolute and focused on fairness. 2. Make a choice between the range implementation also requires us to
Another school of thought, or of standards and values that are consider what resources and skills
theory about ethics, is utilitarian- available to help resolve those needed to put the strategy into
ism, who’s best known proponents ethical issues; and action.
are John Stuart Mill (1806-1873) 3. Implement that resolution in
and Jeremy Bentham (1748-1832). practice3. What are some ‘blockers’ to
Utilitarianism is “the moral theory that In relation to awareness of ethical ethical decision making?
an action is morally right if and only issues we should question:
In all three steps it is important that
if it produces at least as much good • Who are the stakeholders, whose
we try and recognize our own biases
(utility) for all people affected by the interests are affected?
and rationalizations, such as;
action as any alternative action the • Wh a t i n t e r e s t s o r v a l u e s
person could do instead.”2 In this the- • Affinity bias: The tendency to
are at stake for each of the
ory, in contrast to the deontological warm up to people like ourselves.
stakeholders?
theory discussed above, answers to • Halo effect: The tendency to
• Are there any conflicts between
questions about the ends we ought think everything about a person
the interests or values of the dif-
to pursue determine the principles of is good because you like that
ferent stakeholders?
right and wrong. In other words, the person.
• What are your own interests and
ends justify the means. This theory is • Perception bias: The tendency
values in the matter?
known as a teleological theory. to form stereotypes and as-
• What are your different options sumptions about certain groups
There are of course difficulties with
as to what you should do? that make it impossible to make
either theory mentioned above. For
In step two, we need to look to an objective judgement about
example, how do we set rules to deal
the regulatory environment for any members of those groups.
with ambiguity? If the ends justify the
professional conduct principles that
means for the greater good, what • Confirmation bias: The tendency
could apply (including the FASEA
about the individual client’s needs for people to seek information
Code of Ethics) and consider the
Stockbrokers and Financial Advisers Association p. 11that confirms pre-existing beliefs what works and what doesn’t. From with staff on providing a ‘client fo-
or assumptions. this process will emerge a number of cused’ slant on the elements created.
• Group think: This bias occurs ‘elements’, uniquely focused on the Senior staff and management may
when people try too hard to fit organization at hand. also be involved at this stage.
into a particular group by mim- At this stage we will undertake an Stage four will see the implemen-
icking others or holding back analysis of the organization’s policies, tation of the resulting elements, and
thoughts and opinions. This guidelines, codes and procedures, the evaluation process that will be
causes them to lose part of their and relevant data collected, along utilized to monitor the new ethical
identities and causes organiza- with any regulators requirements, infrastructure. n
tions to lose out on creativity and which will enable us to perform a
innovation4.
So far this article has explored the
ethical issues for the individual ad-
viser. Is it possible to embed ethics
into organizational structure? In my
experience the answer is ‘absolutely!’
Embedding an ethical culture
in your organisation
As the regulator of the legal profes-
sion, I developed a model for embed-
ding ethical infrastructure in legal
practices that reduced complaints
against them by two thirds while im-
proving management. I also designed
a model for legal practices that re-
duced complaints against them by
two thirds, improved management
and aligned individual self-interest
with organizational objectives and the
public interest. This model has now
been adapted for financial services
organizations.
Our model has four stages: At its most basic, ‘ethics’ are, according to the Oxford Dictionary ‘moral
1. Data collection and Staff survey; principles that govern a person’s behavior or the conducting of an activity”
2. Focus group/workshops devel-
or “the moral correctness of specified conduct.”
oping the necessary areas for
ethical system development;
3. Client engagement; and
4. System implementation, review
and evaluation.
Data collection includes an analysis
of external regulatory requirements, gap analysis, to uncover any disparity
any complaint history, including any between what is expected of staff,
relevant professional indemnity in- and what actually occurs.
surance data and any internal data Stage two brings together focus
relating to compliance with policies, groups of those who had been
codes or procedures. involved in the survey process to
The staff survey is designed to in- workshop a range of solutions to
volve all staff, including support staff, the ‘elements’ raised, and any gaps
in a conversation and exploration of identified.
findings from the data collection, Stage three, will bring in selected Steve Mark can be contacted by email
and any strengths and weaknesses client or customer groups to work steve@creativeconsequences.com.au.
1 Jennifer K. Robbennolt & Jean R. Sternlight, ‘Behavioral Legal Ethics’ (2013) 45 Arizona State Law Journal 1107, 1116
2 ‘The Cambridge Dictionary of philosophy’, edited by Robert Audi, second addition, 1999, Cambridge University Press, 942.
3 Based on Kenneth E Goodpaster, ‘The Concept of Corporate Responsibility’ (1983) 2 Journal of Business Ethics 1, 7-9.
4 Horace McCormick, The Real Effects of Unconscious Bias in the Workplace, https://www.kenanflagler.unc.edu/~/media/Files/
documents/executive-development/unc-white-paper-the-real-effects-of-unconscious-bias-in-the-workplace-Final
p. 12 SAFAA Monthly | February 2021BY ANNA JOHNSTON
Principal, Salinger Privacy
Building
a privacy
compliance
program
Of every industry sector in Australia, the financial sector is the second-worst performing for privacy compliance,
judging by the number of data breaches that have occurred since new mandatory reporting requirements
commenced1. This points to a need for more robust compliance-focussed practices.
This article offers a checklist for building a privacy compliance program within a professional advisory services
practice.
Know your data and who has stewardship of or Your Privacy Policy must outline:
Regardless of whether you believe
responsibility for each database • the kinds of personal information
or set of records that your practice collects and
the adage that data is the new oil, or
• why the information is collected, holds
the new gold, it is inescapable that
and the purposes for which it is • the purposes for which personal
every business needs good data to
used and disclosed, and information is used or disclosed
operate effectively. And with data
• whether information is held by • whether your practice is likely to
management come privacy risks, and
third parties on your practice’s disclose personal information to
privacy obligations. But do you even
behalf, including by contractors overseas recipients
know where all your data is?
and service providers, and where • how a client, staff member or
Start by conducting an inventory
those third parties hold the data. other person may access personal
of personal information held by your
practice. Include personal information information that your practice holds
about staff, contractors and others, Draft a Privacy Policy about themselves, and seek cor-
as well as clients. It is a legal requirement to maintain rection if warranted, and
Identify and document the following, an up-to-date and publicly accessible • how an individual may complain
for each area of the practice: Privacy Policy. Ensure your Privacy about a breach of privacy, and
• what personal information is held Policy is available from a link on every how the practice will deal with
• where the information is held, page of your website. their complaint.
1 See regular reports from the Office of the Australian Information Commissioner, at
https://www.oaic.gov.au/privacy/notifiable-data-breaches/notifiable-data-breaches-statistics/
Stockbrokers and Financial Advisers Association p. 13Think about where privacy • what information is being collected, information held by your practice,
risks come from • if providing the information is or which hold personal information
mandatory, on your behalf. This should include
Privacy risks can arise from multiple
• how you will use it, everything from large-scale technol-
directions. A data breach might involve
• to whom outside the organisation ogy procurement processes, to small
a malicious intruder cyberattack but
it might be disclosed (especially companies hired to perform a specific
could also include the wrong de-
if overseas), and function, to advisers, consultants or
identification methods being used to
• how the person may access or individual contractors who might have
treat data before sharing it.
correct it. access to personal information as part
Privacy risks can also come from
Nor should Collection Notices of their role with your practice.
more simple things, like CRM systems
be confused with consent forms.
which expose client data beyond
a strictly ‘need to know’ basis. The
Collection Notices are a one-way form Data breach response and
of communication. The person does notification
development or configuration of new
not need to indicate their agreement;
databases or apps should be properly Under the notifiable data breach
they are simply being put ‘on notice’.
assessed for privacy compliance. scheme, a ‘data breach’ means any
(Asking for a person’s consent is a
Using existing client data for a incident in which personal information
separate process and should only
new purpose is also a key risk area. has been lost, subject to unauthor-
be necessary if the APPs say you
Trigger reviews of your privacy com- ised use, or part of an unauthorised
need the person’s consent to lawfully
pliance when you are planning a new disclosure.
collect, use or disclose their personal
marketing campaign, a data analytics Data breaches which are likely to
information.)
project, or planning an event to create result in serious harm to one or more
new leads. individuals must be reported to the
Australian Privacy Commissioner, and
to the affected individuals. A failure
to meet the notification requirements
can lead to penalties of up to $2.1M
Privacy risks can also come from more simple things, like CRM systems which currently, but these penalties are ex-
expose client data beyond a strictly ‘need to know’ basis. The development pected to increase to around $10M
in 2021 once approved by Parliament.
or configuration of new databases or apps should be properly assessed for Develop a Data Breach Response
privacy compliance. Plan, to ensure your practice is ready
and knows how to quickly and effec-
tively respond in the event of a data
breach. A Data Breach Response Plan
should include clear responsibilities
and procedures to follow, as well as
Review privacy compliance by mea- Focus on data security template notification letters.
suring your practices against the 13 risks posed by staff and
Australian Privacy Principles (APPs), contractors Conclusion
which regulate how your practice can
(and can’t) handle personal information Data security is not just about cyber Privacy compliance is far more
throughout the information life-cycle, security controls to keep out hack- complex than just respecting client
from the point of collection through ers; you also need to think about confidentiality. Increasing penalties
to disposal. accidental or deliberate misuse by for non-compliance, as well as the
In particular, check your Collection staff and contractors. loss of client trust in the event of a
Notices and consent forms. Employees need to be actively data breach, suggest professional
APP 5 requires you to provide engaged in good privacy practices advisory practices should become
people with a Collection Notice at for a compliance program to be ef- more proactive in their management
each point where you collect their fective. Staff need training to be able of privacy compliance. n
personal information. Not to be to understand their obligations, know
confused with your Privacy Policy, a how to implement those obligations
Collection Notice must be specific in practice, and know where to go for
to the personal information being advice. Your practice should also have Salinger Privacy offers Compliance Kits
collected at that point. Collection a plain language Privacy Manual for which include templates of the privacy-
Notices should be concise and in plain staff; and ask staff to sign an under- related policies and procedures mentioned
taking specifically about their privacy in this article, such as a Privacy Policy,
language, while also offering enough Data Breach Response Plan, privacy risk
detail about how you propose to col- and confidentiality obligations.
assessment questionnaire, contractual
lect, use or disclose the individual’s Also review and revise the con- terms, staff undertaking and a staff
personal information. tractual requirements for third par- privacy manual. See more at www.
You must tell people: ties which have access to personal salingerprivacy.com.au/compliancekits/
p. 14 SAFAA Monthly | February 2021BY JUSTIN ARZADON
Director – Adviser Business, BetaShares
2021: Getting your
portfolio out of lockdown
N
Imagine you had fallen ot so bad for the portfolio - but Innovation and disruptive
asleep in January 2020 and you wouldn’t have realised technology
woken up in January 2021, that the economy and financial
Given COVID-19 is highly infectious
and before watching any markets have just been through one
and easily transmissible through hu-
of the most turbulent years in history,
news or taking a walk around man contact or exposed surfaces,
the world is still in the midst of a global
your suburb, you looked at the use of artificial intelligence (A.I.)
pandemic and the way the world travels,
the levels of a few financial and robotics can help reduce human
shops, works and is entertained has contact and the potential of transmis-
markets around the world. been changed forever. sion, protecting frontline healthcare
You might conclude that However, with such dramatic change workers, administrative staff and the
it was a fairly uneventful often comes tremendous opportunity. public at large.
A focus on underlying investment A.I. and machine learning are
year, in which U.S. markets
themes that we believe will drive so- speeding up the development of
continued to be dominated ciety, the economy and the markets medical treatments to fight the virus.
by technology, whilst Aussie over years, rather than on fads that A.I. has helped map the spread of
markets lagged. As of 17 last a few months, is a sound way to the pandemic, forecast the effects of
January 2021, the S&P 500 ensure your portfolio is well-positioned different public health strategies, and
was up 13.2%, the Nasdaq regardless of what 2021 may hold. In trace contacts of confirmed cases. It
this article I look at some of the key can also facilitate earlier diagnosis by
100 had risen 39.5%, and the
investment themes that experts are helping design rapid virus detection
ASX200 was down 5.4% from focusing on, that offer the potential for and analyse medical imaging data
a year ago. growth within investment portfolios. from suspected cases1.
Stockbrokers and Financial Advisers Association p. 15The pandemic has also increased ESG reaches a tipping point
the use of robots. As new information
According to Nasdaq’s 5 Five Bold
is learned about the spread of COVID,
Predictions for the 2021 stock mar-
there comes a demand for robots to
ket3, ethical and sustainable investing
take over tasks from humans in high-
will accelerate.
risk areas, in order to limit human
While global warming took a tem-
exposure and flatten the curve for the
porary breather in 2020, as economic
benefit of employees and customers.
activity and consequently carbon
As most of the world continues to go
emissions slowed dramatically, the
through rolling lockdowns, hundreds
climate crisis remains as urgent as
of millions of people will continue to
ever. In addition, many governments
work, shop, receive an education
have included spending on sustain-
and socialise from home in 2021
ability in their billion dollar plans to
as the world waits for vaccines to regained confidence and are spending
support growth and jobs, raising
be distributed. The merger of home, at levels seen before the outbreak of
hopes for a green recovery4. A solid
school and workplace is a nightmare the COVID-19 pandemic6.
ESG performance has been found
for IT departments as activity is done Not only is China likely to remain
to contribute to long-term sustain-
through home computers and con- the fastest-growing large economy
able returns, making it an important
nections that are less secure, leaving in the world, its equity market offers
building block in security selection.
systems more vulnerable. numerous innovative companies
This should make ESG investing a
This year will also see an explosion and a host of opportunities. In many
long-lasting and durable trend for
of new devices added to the internet, international investors’ portfolios
years to come.
as 5G networks expand coverage, and China remains underweight, but in
Investors seeking to invest ethically
as the ‘Internet of Things’ (sensors, the post-pandemic world, investors
can consider:
cameras, home entertainment and seeking growth may want to consider
• the BetaShares Global
other devices) grows. There is cur- an allocation to Chinese assets.
Sust ainability Leaders ETF
rently no broadly-accepted industry The BetaShares Asia Technology
(ETHI) – in one trade, get diver-
standard for ensuring these low-cost Tigers ETF (ASIA) offers exposure
sified exposure to a portfolio of
devices are secured and maintained to the 50 largest Asian technology
large global companies that meet
to protect against hacking. This ex- companies (ex-Japan) in a single
strict sustainability and ethical
panded network of connected devices ASX trade.
standards
is a rich pasture for cybercriminals. A lot of these themes for 2021 are
• the Bet aShares Australian
In its Top Risks of 2021 report2, not new. They were starting to become
Sustainability ETF (FAIR) – in one
the Eurasia Group (a world leader in popular before the virus took hold,
trade, get exposure to a diversified
political risk analysis) goes as far as however COVID-19 has accelerated
portfolio of Australian companies
saying that “cyber conflict will create these themes to the forefront, creating
that meet strict sustainability and
unprecedented technological and growth opportunities. And whilst it is
ethical standards.
geopolitical risk”. They believe that difficult to predict what 2021 will hold,
2021 may be a “cyber tipping point.” COVID-19 has changed the world
Investors can gain exposure to these Allocating to China and the way we do things forever. n
themes via: Unlike the rest of the global economy
• the BetaShares Global Robotics which saw growth fall, the Chinese
and Artificial Intelligence ETF economy grew by almost 2.3% in Investing involves risk. The value of an
(RBTZ) – a simple and cost- 2020. Despite being its worst year investment and income distributions can
effective way to invest in the since 19765, China managed growth go down as well as up. Before making an
companies leading the Robotics investment decision you should consider
without the government having to
the relevant Product Disclosure Statement
and A.I. megatrend, in a single suppress interest rates through (available at www.betashares.com.au) and
ASX trade. quantitative easing or increase the your particular circumstances, including
• the BetaShares Global government’s debt burden by stimu- your tolerance for risk, and obtain financial
Cybersecurity ETF (HACK) – a lus spending. And whilst most of advice. An investment in any BetaShares
simple and cost-effective way to the world is still trying to contain the Fund should only be considered as a
component of a broader portfolio. Actual
gain exposure to the world’s lead- COVID-19 virus, Chinese consum- events may differ materially from those
ing cybersecurity companies in a ers, one of the key drivers powering reflected in any opinions or other forward-
single ASX trade. China’s economic rebound, have looking statements contained in this article.
1 https://www.weforum.org/agenda/2020/05/how-ai-and-machine-learning-are-helping-to-fight-covid-19/
2 https://www.eurasiagroup.net/files/upload/top-risks-2021-full-report.pdf
3 https://www.nasdaq.com/articles/5-bold-predictions-for-the-2021-stock-market-2020-12-19
4 https://www.oecd.org/coronavirus/policy-responses/making-the-green-recovery-work-for-jobs-income-and-growth-a505f3e7/
5 https://www.reuters.com/article/china-economy-gdp/wrapup-chinas-q4-gdp-growth-beats-fcast-ends-2020-in-solid-position-after-covid-19-shock-
idUSL1N2JT039
6 https://www.mckinsey.com/featured-insights/china/china-still-the-worlds-growth-engine-after-covid-19
p. 16 SAFAA Monthly | February 2021SUPER SNIPPETS | by Peter Grace
What
happens to
your super
when you
die?
The 2020 Retirement What happens when you die? element is derived from after-tax con-
tributions, like non-concessional con-
Income Review showed • A death benefit must be paid out of
tributions. The taxable element makes
superannuation and the ATO expects
that many retirees are not up most of the death benefit and comes
it to happen within six months of
spending all their money from taxable contributions and invest-
death.
ment earnings. If the death benefit is
in retirement. In fact, some • The SIS Act requires it be paid
paid to a child over aged 18, the tax-
to a spouse, your children, some-
are even dying with more able component is taxed at 15% plus
one financially dependent on you
the Medicare Levy of 2%.
money in super than they or someone in an interdependent
There are two ways to avoid or reduce
relationship.
had when they retired. this tax. One is a super re-contribution
• Australia does not have death or
strategy. This can be used once you
inheritance taxes but there may be
It seems retirees are have access to your super and it can
tax payable on a death benefit. The
be paid out tax-free (after age 60). You
frightened of running out Tax Act defines when tax is payable,
can take money out of super and then
and the rules are different to those
of money and want to leave pay it back in as a non-concessional
in the SIS Act.
a legacy to their families. contribution. This will reduce the tax-
Superannuation is tax free if paid
able element. Note that the cap on non-
They skimp on spending in to a spouse, a child under age 18,
concessional contributions is $100,000
someone dependent on you or some-
retirement and have a lower per year or $300,000 over three years
one in an interdependent relationship.
using the bring forward rule.
quality of life than they For example, take a typical family of
A second strategy is to cash out
Mum and Dad and two kids. When one
need to. Currently death spouse dies their super is paid to the
your superannuation before you die.
It is tax-free after age 60 and cash or
benefits are about $17b a surviving spouse tax free. When this
investment assets can be transferred
year but they are expected spouse dies, their super is paid to the
through your estate in the usual way
kids who will usually be over age 18.
to be around $100b a year with no tax payable. n
This payment is taxable.
by 2050. Most death benefits comprise a tax-
able and a tax-free element. The tax-free
Stockbrokers and Financial Advisers Association p. 17ETF workshop series
Most ETFs are passive THE WORKSHOPS
funds, aiming to track
Using ETFs to build a scalable advice business
an index, or taking a Tuesday 16 March, 1.00 to 2.00pm AEDT
rules-based approach, In this session you will learn about the advantages of using ETFs as the cornerstone for
enabling them to charge your clients’ investment portfolios. Topics covered include:
9 Using ETFs as a scalable platform to access all asset classes
significantly lower fees
9 How to minimise portfolio management and administration leaving you time to focus
than most unlisted on clients
funds, and LICs, which 9 How to get your strategic asset allocation right and build portfolios for the long term
9 Scale your investment service offering to suit each client segment.
typically employ an active
approach. Blending ETFs with other investments to increase diversification
Recent years have seen and lower portfolio costs
particularly strong growth in Tuesday 20 April, 1.00 to 2.00pm AEDT
ETFs. In the three years from Approaches to portfolio construction that blend ETF and other investment exposures to
September 2017 to September enhance overall investment outcomes will be discussed. Topics covered include:
2020, assets under management 9 Building out a core and satellite approach using ETFs, stocks and other investments
in ETFs increased from $32 billion 9 Ways of blending active investments with low-cost passive exposures
to $71.1 billion, growth of 122%.
9 Using factor, smart beta and risk management strategies that can enhance portfolio
robustness
With market observers predicting 9 How to use tactical low-cost allocations to achieve outperformance.
that by 2022 FUM will reach $100
billion, and ETFs now traded on Global market investment options
virtually every major asset class, Tuesday 15 June, 1.00 to 2.00pm AEDT
commodity and currency in the
Approaches to portfolio construction that blend ETF and other investment exposures to
world, they provide investment enhance overall investment outcomes will be discussed. Topics covered include:
advisers with convenient and 9 Building out a core and satellite approach using ETFs, stocks and other investments
cost-effective access to all asset 9 Ways of blending active investments with low-cost passive exposures
classes and sectors. 9 Using factor, smart beta and risk management strategies that can enhance portfolio
robustness
FREE for members and 9 How to use tactical low-cost allocations to achieve outperformance.
accredited for CPD, these three
upcoming virtual workshops THE PRESENTERS
will provide practical strategies Cameron Gleeson, Senior Investment Specialist
you can apply to your client’s Peter Harper, Executive Director – Capital Markets and Institutional Business
portfolio. Adam O’Connor, Director – Capital Markets & Adviser Business
CPD available for each workshop Cost Supported by our Education Partner
FASEA CPD 1 hour Technical Practitioner Member . ..... FREE
competence
Organisation Member . ... FREE
RG146 1 hour Specialist knowledge –
Securities Non-Member ................ $55.00
FOR MORE INFORMATION OR TO REGISTER: 02 8080 3200 | education@stockbrokers.org.au
p. 18 SAFAA Monthly | February 2021
www.stockbrokers.org.au/education/cpd-workshop/etf-workshop-seriesBY FARREL DATT
Sen Associate, ANZIIF
MANAGING BUSINESS RISK
- tips for your business
W
arren Buffett said “High It is a shortage of capital that is caus- resulting in more questions than
returns with low risk is the ing challenges. answers. Ordinary submissions
key”. He clarified further that The good news is that we are often result in insurers declining
“Risk comes from not knowing what expecting an injection of capital into to quote. Building a list of insurers
you are doing”. the insurance market in 2021 which who have previously declined your
Buffett’s advice here seems clear will open new markets. business, in the long term, is not a
but sometimes forgotten, particularly great strategy.
after investors have had some suc- Transfer of risk 8. Rather focus your upgraded com-
cess. The temptation to believe that prehensive submission on particular
success in one area you know well, It is sometimes not possible to transfer insurers.
allows you to easily analyse another 100% of your business risks to your
insurer. Our top tips to managing risk:
area, is much greater once you’ve had
1. Use an insurance advisor who Cyber remains a number 1
some good returns. exposure
Buffett strongly advises that this understands what you do and
should be resisted with vigour. Buffett understands deeply the risks and Cyber is broad term used in the mar-
himself has kept out of the technol- challenges in managing a financial ket. Cyber refers to your businesses
ogy sector for the most part, given services business. This reduces the data, data network and media. There
his lack of knowledge of the sector. risks that something important is are very strict rules around keeping
Buffett said it best: “Never invest in overlooked. client data confidential, falling foul of
a business you cannot understand.” 2. Your advisor understands the insur- legislation can have a major impact on
There is so much we can learn from ance industry, particularly what is a business and its reputation. Putting
this inspirational person. covered and what is NOT covered. aside the regulatory requirements,
So let your advisor negotiate com- there are many business reasons to
prehensive coverage. ensure your data is not accessed by
Managing risk should be a 3. Your advisor should assist you to those who seek to do damage to the
business’s number 1 focus Identify uninsurable risks and then business. Examples include competi-
Successful businesses are not always ringfence residual exposure by put- tors, extortion, and criminals.
about chasing every last dollar from ting in place business monitoring. We are fortunate that cyber insur-
your clients. Rather growing your busi- 4. Review your strategy at each ance policies allow a significant por-
ness in a way that risks are managed renewal. tion of the data risks to be transferred.
should be front of mind for all business Risks transferred include privacy
leaders and all employees. One of Our top tips on renewing liability, network security liability, media
the most important ways to manage your insurances: liability, cyber extortion, data asset
risk is to transfer risk to insurers. The loss, business interruption.
insurance programs often include 1. Start early, 90 days prior to expiry Cyber is generally not covered by
some of the following: Professional of your current insurance policies professional indemnity policies. Having
Indemnity Insurance, Directors and 2. Work with your insurance advisor said this some professional indemnity
Officers / Management Liability, Cyber to understand coverage and risk insurance policies may cover claims
Insurance and Business Insurance. outsourcing to insurers. by third parties against your business
Sourcing Professional Indemnity 3. More importantly understand what arising from a breach of privacy.
and Directors and Officers Insurances is NOT covered and why. We have frequently seen that cyber
at a competitive price appear to be a 4. Manage residual risk – build a means nothing until it suddenly means
challenge for some financial service framework, regularly communicate everything. Not even a significant PI
businesses. The main factor is lack this to all employees. or D&O claim has this impact. n
of insurance markets which in turn 5. Review the framework.
in are fuelled by shortage of capital. 6. Continually improve the framework.
7. Try resist flooding the insurance Farrel Datt is an Actuary and specialist
Each time an insurer writes a policy in the professional risks insurance
they need to have capital to support market with an ordinary submis-
space. He can be contacted by email
claims that may arise from that policy. sion which lacks depth information farreld@pimanagers.com.au
Stockbrokers and Financial Advisers Association p. 19You can also read
