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JUNE 2019
Time to
get active?
Income protection's Is KiwiSaver really Get set for
big problem working? licensing
CONTENTS
ACTIVE VS
PASSIVE
Mixing active and passive
14
investment strategies: the best of
S O PH IS TICATE D
both worlds.
20 INCOME PROTECTION:
I NVES TIN G INSURANCE
How do we help those with a genuine need
without creating long-term beneficiaries?
M ADE EASY
UP FRONT FEATURES
FOR OVER
04 EDITORIAL 10 GRTV
20 Y EARS . What the licensing changes will mean. Adrian Orr on interest rates, investment
and insurance.
05 OPINION
Investment lessons from a 15-year-old. 18 REGULATION
RFA's to consider their business
processes as licensing looms.
26 INVESTMENT
The impact of 5G for telecoms
investors.
06 NEWS 08 PEOPLE
Since 1998, Select has been one of
New Zealand’s leading investment THE SELECT WEALTH
Updates from the
New Zealand market.
ASSET rounds up the
main people stories
from the past month. 24
and administration platforms for MANAGEMENT DIFFERENCE: 12 PROFILE
AMP Capital's Grant Hassell talks about ADVISER
financial advisers and their clients. > Access to best in breed investment funds. his new global role. PROFILE
Select is designed to cater for the differing > The ability to tailor and customise 22 OPINION How Martin
Hawes became
needs of investors, and we do this by offering portfolios to your clients’ different needs. Time for a KiwiSaver rethink? an "accidental
adviser" and never
a choice between ‘ready-made’ and tailored looked back.
portfolios. For both portfolio choices, we
> Across the board experience and advice.
REGULARS
employ the investment research services > Unparalleled and comprehensive service.
of sister company JMI Wealth Limited > Proven and consistent returns. 28 MIKE MOORE
(JMI Wealth). JMI Wealth constantly monitors How not to become a victim of hubris.
performance and actively makes adjustments,
To find out more call us on 0800 653 000 30 RUSSELL HUTCHINSON
where necessary, to ensure your clients’ The challenges of advice strategy
or visit www.selectwealth.co.nz development.
investments are well-positioned.
34 KIWISAVER
Watch out for exit fees. 03
UPFRONT OPINION
From the editor James Walker
Licensing will mean
big change What a 15-year -old
for some can teach us
about investing
HEAD OFFICE
records, high client-care standards and 1448A Hinemoa Street, Rotorua
strong processes and systems. Many hold PO Box 2011, Rotorua
several qualifications. P: 07 349 1920
F: 07 349 1926
But there is also a significant number of E: philip@tarawera.co.nz
advisers who are working in a much less
structured way. They might be part-time, PUBLISHER
or working in “lifestyle” businesses, fitting a Philip Macalister
small number of clients around other things,
A few years back a 15-year-old but [at the AGM] there’s barely enough to fill that investing becomes less of a turn of a
EDITOR half a ballroom at a hotel,” Natalie said. roulette wheel and more of an intelligent
or entering semi-retirement. Susan Edmunds girl, Natalie Clark, got up at the All investors would do well to take a allocation of capital.
Many don’t have good business systems
in place – sometimes this only becomes SUBEDITOR annual general meeting of one of leaf out of the then 15-year old’s book (or Unfortunately, many investors have
Dawn Adams phone, or iPad). Although not all of us want moved in the opposite direction to Natalie
evident when a complaint is made and there USA’s biggest companies. to be activist investors, we can maximise Clark. Rather than taking an active interest
is no record of the communications with CONTRIBUTORS our returns by being active, attentive and in their investments, they have moved to
the client to back up the adviser’s version Daniel Dunkley, James Walker, Mike Others – adults – would have been sure
to have been asking BoA’s board in depth interested investors looking at the long term. invest in index funds. These index funds
of events. Moore, Russell Hutchinson, Kevin
Bennett, Andrew Bascand, Shane Solly, questions about net interest margin, capital According to Benjamin Graham, in the themselves do not take an active role in
But under licensing, all this will have Michael Lang, Michael Littlewood and short run the sharemarket is like a voting markets, but match market movements
to change. From what we know so far, it requirements, bad debt ratios. Perhaps
Michael Chamberlain. machine, preferencing popular companies through machine trading.
appears that before an adviser business can because she didn’t feel the need to impress
her compatriots, her question was a little over less popular ones. However, over the With so much capital now tied up in
even get a transitional licence, it will have to DESIGN
Amy Bennie more simple and pointed: long run the sharemarket is more like a backward-looking index funds, and liquidity
show that it has good record-keeping and so relatively small because of it, it becomes
“What is the bank doing to raise the weighing machine, measuring how solid
complaint-handling systems. To proceed in ADVERTISING SALES even more important for human investors
share price?”, Natalie asked the Bank of a company is – return on equity, growth,
the new regime, advisers will have to show Amanda Ellery
to take an active role in the future of their
P: 027 420 2083 America board .
1
dividends – and ranking companies
that they are managing well-run businesses investments. Just like a 15-year old.
E: amanda@tarawera.co.nz She had a vested interest – 5,000 shares appropriately.
as well as giving solid advice. James Walker is the head of
she was given as a baby. Similarly, we do not look
In the future, for those who want to SUBSCRIPTIONS marketing at PM Capital.
The next AGM she got a little more at investment in companies
continue to operate independently, being a Jill Lewis
P: 07 349 1920 specific�, considering whether she should because they may win
competent business operator will be almost
E: jill.lewis@tarawera.co.nz use her shares to pay for her college a short-term popularity
as important as having good relationships
education, asking the CEO what the bank is contest. We weigh
with clients. ASSET is published by Tarawera
doing to improve its cost structure. them up over the
Those who do not want to take on those Publishing Ltd (TPL). TPL also
New Zealand’s financial advice responsibilities will need to find another publishes online money management The point from Natalie is that she is taking long term.
magazine Good Returns an active interest in how her money is being Being an active
sector has been talking for years FAP to take them over. That will come www.goodreturns.co.nz investor means
with obligations for the FAP, and so those spent by the company in which she has
about the need to move from advisers can still expect greater scrutiny
and TMM – The Mortgage Mag
invested. She has taken being a shareholder taking a keen
seriously, thinking about her own interests – interest in how the
being an “industry” to becoming on their own behaviour to ensure the FAP’s All contents of ASSET magazine are
copyright Tarawera Publishing Ltd. if the BoA shares will pay for college – and business model of a
requirements are met.
a “profession”. An advice profession has been a goal for
Any reproduction without prior written then overlaying that with the performance company is travelling
permission is strictly prohibited.
of the company. When she didn’t know the and how solid it
I’ve heard many theories about what is years. Now it seems it’s coming, whether the
ISSN 1175-9585 answer, or was unhappy with the answer, will be moving into
likely to be the defining factor that forces entire industry is quite ready for it or not.
she asked more questions. the future. It is
the change.
“There’s a lot of people who own stock … only in that way
Some argue it would take a degree
requirement for all advisers. A level five MOVED OFFICES?
qualification. A ban on commissions. A Make sure you
client-first requirement. don't miss an issue
From what I can see, the thing that could by changing your address.
finally cause the change could be entity
licensing. And it’s just around the corner. Go to
Transitional licensing starts later this year. tarawera.co.nz/coa
At the moment, there is a core group of
professional, full-time financial advisers Susan Edmunds
who operate businesses with well-kept Editor
04 WWW.GOODRETURNS.CO.NZ � https://www.wsj.com/articles/the-latest-activist-investor-at-bank-of-america-a-ninth-grader-1461866806 05
� https://dealbreaker.com/2016/04/9th-grader-holds-brian-moynihans-feet-to-the-fire
NEWS
AMP advisers
Call to ensure break free Surge in AFA
efficient advice numbers pre-FSLAA
Advisers aligned to AMP have finally
reached an agreement to break free from
their long-standing relationship.
Under a new deal the AMP advisers who
formerly were within AMP's QFE are setting
up a new financial advice provider (FAP)
licensing
which will be autonomous from AMP.
The FAP, Wealthpoint, will offer Authorised financial adviser The highest concentration per head of
population remains around Auckland,
compliance and support services to numbers grew in the last Wellington and Otago.
independent advisers.
AMP no longer writes new life insurance year for which data will There were 160 AFAs aged
business and it has sold its in-force book to over 65 in the latest data,
Resolution Life. be kept on them. and 497 aged between
“We note there is no definition of ‘complex’. This AMP's adviser group, which operates 56 and 65. Just 187 of the total
Government has been warned there under The Association brand, currently has
The Financial Markets Authority
1,800 were aged under 35. A
leaves open the risk that the licensing fee proposal has released its latest snapshot
will need to be systems in place to about 58 AMP-aligned member businesses third had been providing financial
will fail in its objective of limiting uncertainty to and 52 of them will shift to Wealthpoint. The of the AFA market. It will be the
applicants as to the likely total amount of the fees last one published because the advice on category one products
ensure that financial adviser licensing businesses represent nearly 200 advisers.
for more than 20 years.
they will be required to pay. The new agreements will see them Financial Services Legislation
costs do not blow out to the same “We understand anecdotally that existing operating as independents, with distribution Amendment Act removes the AFAs were predominately
Financial Markets Conduct Act licence-holders agreements with AMP. AFA designation. dealing in KiwiSaver and
extent that some FMCA market Wealthpoint will use an approved “other category one products”,
were charged materially more than Advisers who were AFAs before
licences did. the stated licence fee when products list with suppliers selected the new regime comes into force in although 12% said they were
by a product committee made up of authorised but did not provide
hourly rates were included. June 2020 will be deemed to have
The Ministry of Business, Innovation and adviser representatives and supported by
It is important that fees independent specialists, when required. met the competence requirements of the financial advice services to clients.
Employment has provided more detail about the
represent what will New chairman David Gyde, of Amicus new code. Just under a third were employed by
new licensing regime. actually be charged, a business that was not a QFE and 22%
Financial Group, said this was a key part of The AFA data shows 140 advisers
The cost of a full licence will range from $612 so they do not the Wealthpoint offer. were shareholder or director of a firm with
became AFAs in the year to the end
to $922, depending on the size and structure of a mislead applicants.” "Decisions in this area will be driven by more than one adviser. Another 14% said
of June 2018, the highest number in
financial advice provider. Chief executive advisers and for the best interests of advisers the three years the FMA has collected they were a sole adviser practice and 8%
The FMA will also charge an hourly rate when Richard Klipin said and their clients. Maintaining independence that data. a sole practitioner. More than 90% said
assessing a licence application that is more his members wanted and being able to effectively manage
potential conflicts of interest was critical to Ninety allowed their authorisation to they had received no complaints in the
complex than would normally be the case for a it to be possible to lapse, from 110 a year earlier. past year.
the group."
particular business type. proceed straight
There will also be FMA levies to pay. to full licence
In submissions received before the fees were set, application, if a
the Financial Services Council warned the hourly
fee model could be risky.
business was
ready. Richard Klipin ARE YOU READY FOR LICENSING?
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06 WWW.GOODRETURNS.CO.NZ 07
PEOPLE
Prior to Gallagher Bassett she held various service areas, including Consilium Wrap AMP, and sales director at Proposition,
senior operations management roles Platform, Synergy and partner firm services, a specialist marketing agency servicing
For the latest with Sovereign. offering support, guidance and knowledge to financial advisers.
people news go to Johnson will report to Nadine and join the
executive team.
help grow their businesses.
“I started working with financial adviser
CHIEF OPERATING OFFICER
www.goodreturns.co.nz Johnson will oversee the offer, businesses in 2008 and in that time, I’ve
FOR CASTLE POINT FUNDS
Fund manager Castle Point has revealed its
underwriting, new business, customer learned what they need to succeed for their
new chief operating officer.
services and claims teams, replacing Neale clients, and how I can add real value. I’m really
Anna Ong has joined the business.
Watling who’s retiring after a 17-year stint at looking forward to working exclusively with
She was previously with Smartshares,
If you have a new appointment email details and a picture to editor@goodreturns.co.nz Fidelity Life. advisers again with Consilium,” said Grigg.
where she was head of risk and compliance.
“Neale’s a legend here and hugely “Consilium’s commitment to the growth
Before that, she was finance manager with
respected throughout the industry,” and support of independent financial adviser
SuperLife.
Tereora said. clients means finding the right people to fit
COMPLAINTS BOSS MOVES ON is committed to investing in a highly skilled
“I’d like to thank him for all he’s done at with our company values is an important
FairWay Dispute Resolution Service’s and experienced investment team.
Fidelity Life, but it won’t be goodbye just part of the recruitment process,” managing
client director is moving to a new role. “The addition of Joll, along with our recent
yet as Neale will continue working in the director Scott Alman said.
Trevor Slater said he had resigned his hires of Paul Turnbull and Stephanie Mitchell
business, albeit in a part-time capacity for the “With the considerable growth of our client
position and taken a role as the New Zealand adds significant depth and firepower to our
coming months.” base, especially in the Auckland market, and
general manager of the Resolution Institute. research and reflects Salt’s determination
ongoing investment in our services, we are
He has been with FairWay Dispute to continuously improve our investment CONSILIUM APPOINTS NEW excited to bring on new appointments such
Resolution since 2017. capability and add to our strong long-term AUCKLAND BDM as Marc, who will enhance Consilium’s ability
Before that, he was general manager of track record.” Independent financial services specialist
to support the quality, reputation and reach of
IDS and, earlier, FSCL. Joll has experience in the aviation and Consilium has a new Auckland-based BDM,
financial advisers. Our people are the key to
Resolution Institute describes itself as telecommunications industries before replacing Helen Robertson.
our success.”
the largest dispute resolution membership working for Goldman Sachs, JBWere, UBS The Christchurch-based firm says it is
Reporting to Consilium head of partner
organisation across Australia and New and more recently Jarden (First NZ Capital). growing its management and client support
firm services Ben Brinkerhoff, Grigg
Zealand, promoting the use of EDRs and He is a former winner of the INFINZ Analyst resources by appointing Marc Grigg as new
joins Consilium with more than 10 years’
advocating for the sector. of the Year Award. Auckland-based BDM.
experience in the financial industry as Anna Ong
He has replaced Andrew Bolland, who Grigg will work with clients across all
business development manager with
recently left Salt for an opportunity at
another investment management firm. Adam McKenzie
MERCER APPOINTS LOCAL know-how to help clients achieve their
WEALTH investment goals while managing risks If you're looking to recruit go to www.goodreturns.co.nz/jobs
Mercer has appointed a new head of and resources."
wealth for New Zealand. McKenzie joins Mercer on July 1. FIND YOUR IDEAL CANDIDATE
It has handed the role to financial services
professional Adam McKenzie. NEW CHIEF OPERATING
Having worked with Mercer for 13 years in OFFICER FOR FIDELITY LIFE
Melbourne and the UK, McKenzie was most A former Sovereign manager, Katherine
recently a sales leader for the institutional Johnson, has been appointed to the role of
chief operating officer at Fidelity Life.
it’s a
wealth business across Australia. Pronounced
He brings to Mercer New Zealand Chief executive Nadine Tereora said
Johnson's wealth of experience made her an [rap]
more than 20 years’ experience in
ideal candidate for the key role. Examples
financial services.
wrap
verb (used with object), wrapped or wrapt, wrap·ping.
Prior to Mercer, he worked at AMP, “Kath’s passionate about putting
National Australia Bank and Aviva. customers first and has proven experience 1. Wrap account: a financial platform which administers for custody, tax,
and performance reporting of global shares, property, bonds and cash
Mercer New Zealand chief executive running large, complex operations teams in
the financial services industry. I’m delighted 2. Wrap support: the customer service experts supporting
Martin Lewington said his expertise would New Zealand’s leading financial advisers
be invaluable for Mercer’s clients locally. to welcome her to the team.
Trevor Slater “In Australia, Adam has played an “She’ll play a pivotal role as we continue
important role in partnering with key clients to set the business up for a sustainable and
to help them tackle their wealth challenges, successful future, with the customer at the
SALT ADDS TO RESEARCH and achieve the best outcomes for their centre of everything we do.”
TEAM She will join Fidelity Life in August 2019
Salt Funds Management has added
investments,” Lewington said.
from her current role as executive general World leading technology
“In his new and expanded role as Head
another senior investment professional to its
of Wealth, New Zealand, Adam will develop manager claims at Gallagher Bassett. and outstanding service
research team.
and execute our wealth business strategy, support have made
Tristan Joll has been appointed as a
senior analyst/associate portfolio manager,
lead our team, work with clients and pursue Consilium Wrap
replacing Andrew Bolland who is joining
business development opportunities across New Zealand's fastest
Institutional and Consumer Wealth,” he said.
Generate KiwiSaver.
McKenzie said Mercer New Zealand’s
growing platform.
Salt managing director Paul Harrison
Wealth business was growing, with clients
said it was staking out its position in the
looking to Mercer for its global expertise.
research-driven active investment segment
“Our clients are increasingly looking to
of the market.
us for our insights on a global, regional Visit us to find out why leading independent financial advisers are using the Consilium Wrap platform.
“We are in a rapidly changing world where
and local level to gain confidence in their
the investment landscape is evolving at
investments while we navigate a volatile
an exponential pace. More than ever, we
investment outlook.
believe that active investment will add
“As the largest implemented consulting
www.consiliumplatform.com
significant value over time to the financial
provider and largest investment consultant
outcomes of our clients. To deliver this, Salt Katherine Johnson
in the world, we have the scale and the
08 WWW.GOODRETURNS.CO.NZ 09
GRTV
Orr faces into
interest rates mean that you would be
incentivised to save less, spend more and insurance, it was worse. The whole concept sustainability. It's not economic growth at people do things, well then that ends up with
vice versa. I would always say, "Think hard of frameworks, measures, activities for the cost of it, and it's about getting those corner solutions, quantity targeting, quality
about your form of saving." understanding what an appropriate conduct virtuous circles growing, and it's simply about targeting. Why do you have to play as if it's a
GRTV: SO THEY SHOULD BE THINKING behaviour was were absent, largely. thinking the horizon. kindergarten and kids can only do something
challenge
ABOUT OTHER ASSET CLASSES? GRTV: IS THAT PARTLY BECAUSE A LOT GRTV: AND SO JUST NOT ENOUGH OF in the sandpit? So I meant weakest in that
Orr: Absolutely. They should always be, OF LIFE INSURANCE IS SOLD THROUGH THAT HAS BEEN GOING ON? way. I don't mean it's ... it is powerful. We're
New Zealand[ers] are terrible savers. We THIRD-PARTY DISTRIBUTION? Orr: I would say very little. It's this, again, busy at the moment thinking very hard
save in one form which is leveraging equity Orr: It's a big part of the problem, or versus that. I mean, what is it, "Why are on the background of this about how to
in the housing market, more recently we've challenge I would say. But you can, what do diamonds expensive and water is free?" used bolster out people on the ground and how
been kind of semi-coerced into having you say, you can outsource the activity. You to be the test. And it was meant to be, "Well to do activities. By the way, you know, CBL
KiwiSaver funds and so we're starting to see can't outsource the responsibility, and this diamonds are scarce and water is plentiful." collapsed, so how much abuse did we take
that shift. has been a gap. The way that a lot of the third Now, you know, diamonds are controlled by through that process?
GRTV: IS THAT SHIFT HAPPENING parties have been incentivised is through a cartel, and water never had property rights. GRTV: QUITE A BIT.
QUICKLY ENOUGH? the volume of sales, the churn. Not through So the question is the same. The answer Orr: And how much, "Oh, wow. I didn’t know
Orr: I'm very impressed how quickly it the outcome for the customer through has changed. all that was happening in the background,"
is happening. I think we've now got $40 their lifetime. GRTV: YOU TOUCHED ON COMMISSIONS have we heard since? None. And so you never
billion to $50 billion in those type of savings GRTV: I THINK THE ADVISERS WOULD AND STUFF LIKE THAT, YOU HAVEN'T get applause from the regulator. You get,
[KiwiSaver]. I'm not as impressed with DISAGREE WITH YOU IN THE SENSE THAT BEEN SUPPORTIVE OF UP-FRONT "What are you doing in my face?" And then,
how effectively those savings are being THEY ARE TRYING TO BUILD A CUSTOMER COMMISSIONS, I THINK IS A CORRECT "Why didn't you do more?" So it's about trying
utilised. There's a lot of passive, simple BASE OF LONG-TERM CUSTOMERS WHICH INTERPRETATION FROM THE CONDUCT to get that balance.
global investment. THEY'RE GOING TO LOOK AFTER THROUGH REVIEW. GRTV: THE REPORT WHICH YOU DID WITH
GRTV: THERE'S NOT A LOT GOING INTO THE PROCESS, SO THEY'RE NOT GOING Orr: That was one of the challenges. Again, THE FMA, YOU SORT OF CALLED FOR
THE NEW ZEALAND ECONOMY. TO GO OUT THERE AND NOT LOOK AFTER a global challenge. URGENT CHANGE IN THE LIFE SECTOR.
Orr: Yeah, so it's about deepening our THEIR BEST INTERESTS. GRTV: YEAH. SO HAVE YOU ANY IDEA OF HAS THAT BEEN MOVING QUICKLY
capital markets, and providing opportunities Orr: Well they can build customers, but if HOW YOU THINK THAT COULD CHANGE? ENOUGH?
for investors to be able to plug and play in there's asymmetries of information, if there Orr: Well what we're hoping, we've received Orr: Yes. So we've got a lot of conversations
asset classes here in New Zealand. And that are new products coming in that may or may the reports back from the various insurance to have ahead. You know a lot of this, you
was my continuous challenge at the ANZ not be suited, if your lifestyle is changing companies. We're working through those have to remember that we're so heavily
super fund, where, if you gave me $100, or your needs are changing through time, at the moment. We did banking first, and Australian dominated that our interviews
where could I allocate it in New Zealand? We how do you break down that asymmetry of when I say we, us and the Financial Markets with banks, the equivalent to that in
information to say, "Is this the best product? Authority. And what we want to do is hear Australia was a Royal Commission. An up
Reserve Bank Governor Adrian Orr sat down need to create those opportunities.
GRTV: I'D LIKE TO SWITCH TO A Is this the best time?" How do you do this? from them about how they can have better front blamestorming, period. We got there
And if people are being incentivised to sell the structures or more sustainable structures
with GRTV to discuss the OCR cut, investing, DIFFERENT TOPIC NOW, LIFE INSURANCE quick because we wanted to have a real
AND THE CONDUCT REVIEW WHICH YOU latest, greatest, or different, you can have the because we want them to run the business. conversation to see what was under the
and why New Zealanders are “terrible” savers. DID EARLIER THIS YEAR. THIS CONDUCT
THING HAS BECOME A BIT OF A FAD,
same customer but you could've changed
their product many, many times throughout
You know we're talking about ...
GRTV: YOU DON'T WANT TO DICTATE TO
hood. Is this necessary or not? In banking
we said there are lots of things you need to
SUDDENLY IT HAS APPEARED OUT OF their life. THEM HOW TO ... do better, and they understood. A lot of them
GRTV: HOW HARD WAS IT TO COME UP possible outcomes. NEARLY NOWHERE AND WE'RE HEARING GRTV: SO YOU'VE TALKED ABOUT Orr: ... market discipline, self discipline, and had had the panhandle anyway in Australia.
BEFORE THE RESERVE BANK COMMITTEE GRTV: SO IF WE DID GET A CRISIS, WE'VE ABOUT IT ALL THE TIME. LONGER-TERM THINKING AND SOCIETAL then regulatory discipline, that's us. That's In insurance there's a lot more work to
TO MAKE THE OFFICIAL CASH RATE CUT STILL GOT ROOM TO MOVE? Orr: I think it's correct in terms of if you've CHANGES AND THE WAY THINGS LIKE LIFE the third cousin and the weakest of all. If be done.
DECISION? Orr: Absolutely. I mean we don't expect to been looking at headlines, certainly culture INSURANCE ARE DISTRIBUTED. DO YOU you get market and self discipline done, say GRTV: BUT THEY'RE MAKING PROGRESS?
Orr: Yeah I have to say it was fun, because be doing that but there is the interest rate and conduct, but wrong if you think about HAVE ANY IDEAS OF WHAT IT COULD LOOK "How can you be more transparent to the Orr: I hope so.
it was the first time we've done it through this channel as I mentioned, negative to a point. how we as consumers have confidence and LIKE? public? How do you reduce the asymmetries
new committee structure. And dare I say it, There’s buying assets directly which many faith in that what we are being delivered Orr: I mean I think it is a conversation of information? How do you make people
a problem shared is a problem halved. Our central banks, including us, did during the is what was on the package. So culture that's happening globally and New Zealand think longer term about what they actually
collective analysis was that lower interest GFC. and conduct is a key critical part to having is awakening to it slowly, very similar to do or don't need? How could you make it
rates were needed for us to be most certain GRTV: THERE'S BEEN TALK OF WHAT trust in the capital system. And the way the environment challenge that we've had, far simpler for people to understand what
of getting inflation back to the midpoint, 2%, A CUT MIGHT DO FOR THE PROPERTY it's embedded is really through the boards the climate change challenge. We tend to is the value of what you just bought?" The
keeping employment around its maximum MARKET AND PROPERTY INVESTORS, and the senior management of institutions, interview each other. We don't tend to look complexity of these products is immense. To
sustainable level. Once you spent a week WHAT'S YOUR TAKE ON THAT? DO YOU and that's why we put a lot of emphasis on outside of our little small world that often. pretend that people will read the background
thinking about the economy, the decision THINK IT WILL FUEL THAT MARKET? self-discipline. The companies themselves, Globally, particularly post the GFC, is a material, that they understand the nesting of
itself became quite straightforward. Orr: In part I kind of hope it does. But I don't the banks, the insurance companies have fundamental challenge to what I would say the different issues is wrong. We know we
GRTV: HOW LOW CAN YOU GO WITH THE [think it will] actually. Our projections are the disciplines, have the culture that is is capitalism's traditional behaviour. When don't.
CASH RATE? that the property market remains incredibly necessary to take money, someone's money, you think about capitalism, you know, I'm GRTV: IT'S A VERY DIFFICULT ISSUE TO
Orr: Well a nominal rate stops at zero but subdued. Our forecasts are based on very and to put it into long tail agreements, which a huge fan of it, totally dedicated, but it will BREAK DOWN FOR A CONSUMER THOUGH,
you can actually have negative interest rates. low house price growth, positive but in the are very complex. So try and drive the snake fail at times. And often it fails through a ISN'T IT? SO HOW THEY DO THAT IS GOING
And many countries around the world have 1 to 2% range over the projection horizon. oil out of it and make sure that what you see series of incentive structures that end up TO BE THEIR CHALLENGE.
been doing that. That's become quite normal, A lot of that is because of the starting point is there. defeating itself. Orr: But that's not an excuse for not trying.
not extreme around the world. You can also of house prices, the level of household debt GRTV: IS THERE A LOT OF SNAKE OIL IN IT A lot of that is, for example, if I have a I mean, a jar of peanut butter just used to
do things other than using the interest rate to being very high, net immigration having THOUGH? 30-year strategic plan to build an amazing, say "Peanut Butter" on the front in the 1980s.
stimulate the economy. That's no prediction slowed a lot, the pressure coming off and Orr: Well with the insurance, life insurance sustainable company I have to provide a five Now we know on the back of the jar no one
of ever having to use those, by the way, I new building coming along. And then the area. I mean the banking we didn't find any year strategic plan to start implementing, was killed in the making. There's certain To watch the full
mean it's kind of an interesting topic because bright-line test for investors, the investors real sense of widespread misconduct. We and I have to provide an annual update allergies, and what other sugars, fats, and
we're now at low levels of interest. have got a bit spooked, I mean capital gains did find a real lack of systems in the way of to show where it's going. I have to do the carbos went into it. interview, download an
quarterly reporting. Then I have to do real- GRTV: ALL THOSE SORTS OF THINGS ARE
GRTV: DO YOU HAVE TO START THAT is off the table but many other factors are still being proactive and making sure that the
time disclosure. I'm looking here, and I've ON THERE. YOU SAID THAT THE WEAKEST
audio podcast or to read
DISCUSSION NOW TO ENGAGE PEOPLE? on the table. products and what they're doing are what
Orr: I never hope to try and enable people GRTV: SAVERS AREN'T THAT HAPPY, was written on the packet, and that their been driven there by a series of well-meaning PART WAS THE REGULATION I GUESS the full transcript, visit
to understand this stuff, it's kind of like me WHAT'S YOUR ADVICE TO THEM? staff are incentivised to be selling the right interventions all the way through, to the AROUND THE CONDUCT. WHERE SHOULD
trying to understand how a car works, I'm Orr: Well I agree. I mean monetary policy point where I'm here. Economic growth is THAT SIT?
just confident that I can drive one. But we always has a relative impact. It's either
thing to the right people. It was very reactive
and piecemeal. sustainable when it's consistent with cultural Orr: I mean weakest in terms of its goodreturns.co.nz/grtv
have to make sure that we are ready for all debtors versus savers and the idea is lower For the insurance companies, the life inclusion, when it's with environmental influence because if you have to just make
010 WWW.GOODRETURNS.CO.NZ 011
PROFILE
By Susan Edmunds
Moving up,
AMP Capital’s head of fixed back on with pride.” relying on high term deposit rates from
But Hassell says while he enjoyed savings are over.”
income Grant Hassell is tackling the experience of leading the business, He said people were more cautious these
a new, global challenge this he was still an investor at heart and days than in the lead-up to the GFC, when
loved investment markets. So, when the many tried to get “juicier and juicier returns”,
year, all without leaving his opportunity came up to go back to fixed taking on more risk.
Wellington office. income in a global role, he jumped at it. Hassell said the new role still allowed him
but not
AMP Capital was rethinking its to have input into the overall performance
At the start of 2019, Hassell moved to organisational structure and creating a new of AMP Capital – so anything he thought he
the role of global head of fixed income public markets business, which its former might have been giving up by moving out
for the fund manager, after three years head of global fixed income went on to lead. of the managing director role, he had not.
as managing director of the New Hassell said the position again looked “I’m still involved in the direction of
Zealand operations. like a chance to “get out of the way of good the business.”
The switch sees him take on a bigger people” and progress more candidates
mandate – the New Zealand business through the ranks of the business. Bevan
manages about $20 billion but AMP Capital
overall has a global fixed interest portfolio of
Graham took over as New Zealand
managing director.
The industry
moving on
more than $50 billion.
His new team of 35 people is based
You might expect that after three decades
working for one business, he could have I’m working in is
around the world: 30 in Sydney, four in
New Zealand, one in Hong Kong and three
pondered a switch to a different fund
manager when the time came to move on. changing dramatically
in Chicago. It’s a group of people roughly But Hassell says he has never seriously
the same size as that he led as AMP NZ been tempted to look elsewhere for a role. and AMP as a
managing director. AMP Capital has proven to be flexible
Hassell started with AMP in 1987 after with policy and practice and has been a business is changing
finishing a degree at Victoria University and “fantastic employer” over the years, he says,
has focused on fixed income throughout including allowing him to step up without to adapt to that.
his career. Through the years, he’s been leaving town.
involved in AMP’s demutualisation, mergers “I think the business has been very
and acquisitions including that with AXA. generous to me allowing me to work out of Hassell says he aims to act as a sounding
Now there’s more change with the sale of Wellington in a global role.” board for portfolio managers to bounce their
the AMP Life insurance portfolio. Not that there haven’t been attempts to ideas off.
In the early 1990s Hassell became a get him to move – Hassell says one of his “Protecting them from the noise going
portfolio manager managing fixed income few career regrets is not taking up some on in the industry around them so they can
money on behalf of AMP Life. In 1993 he of the global opportunities he was offered focus on the job they’ve got to do which is
went to the Reserve Bank on secondment earlier. But the lifestyle offered to him and to manage client outcomes. Supporting
for two years; managing international fixed his family by New Zealand always won out.
and protecting them is a key part of what
income as part of a push for the bank to get Now, while the new role involves some
I’m doing.”
more exposure to private sector expertise. travel, he’s committing to staying in New
Compared to when he stared in the
Hassell still rates the experience as a career Zealand for at least the next 18 months until
business, Hassell said the market as a
highlight, working alongside people such as his youngest daughter finishes school.
whole had become more transparent and
Paul Brownsey and Simon O’Grady. While Hassell says there are probably
more open about what decisions were
Grant Hassell says
In 1995, he returned to AMP Capital and more existing, volatile or lucrative areas of
worked in senior portfolio manager roles made and why. “The industry I’m working
the investment world that he could dabble
in is changing dramatically and AMP as a
lots of things remain until 2006 when he became the head of the
New Zealand fixed income business. “A year
in, he is committed to fixed income.
Fixed income needed a broad skill set, he
business is changing to adapt to that.”
the same as he takes and a half from the global financial crisis – it
was a fascinating time to manage money
said – an equity analyst might look at one
stock and become very intimate with what
The way active managers manage money
was also changing, he said.
on global role. … fascinating because of what we were that company operated. But a fixed income “Active managers need to do two things
– take bigger positions in the funds they
facing into.” analyst had to do that but also understand
How the business performed through the macro factors that might affect the manage and keep those positions for longer.
those years was another career highlight, decision to lend money. The reason I say that is there’s less volatility
he said. “Our fixed income returns were “It’s very rewarding, stuff I really love. You and you need to make the most of what
outstanding through that period.” get to fold in economics, regulatory and there is. To get the same return from active
He only moved out of that role when the fiscal issues, individual company balance management you will need larger positions
top local job beckoned. Feeling a need to sheets and wrap it up to make a decision.” away from benchmark. Managers with
“get out of the way” to let others progress Most people did not even realise how proven processes and teams will continue to
through the fixed income ranks, it looked like significant a proportion of their own do well in this environment.”
a chance to further hone his management investment portfolio was made up of fixed Hassell says, while he has no plans to
and leadership skills. income, he said. move on yet, he wants to see someone from
From when he took the managing One of the biggest challenges was how to within the business ready to step up when
director position in 2015 until he stepped get a good return when interest rates were the time does eventually come.
down at the end of 2018, the business’s so low, he said. “It might encourage people “One thing I really enjoy is growing
funds under management grew from $3 to take a bit more interest in what they are people. People are as important as assets
billion to $10 billion. “That’s something I look doing with their investments. The days of under management.”
012
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012 WWW.GOODRETURNS.CO.NZ
LEAD
By Daniel Dunkley
Active and
The global debate between costs associated with human stock pickers.
active and passive fund
As die-hard active managers and passive
funds argue their case, investors have
The sooner the
management has raged for been happy to stick to trusted investment
strategies that have served them well
proponents of
years, as traditional active for decades. active accept that
managers make their case Both active and passive strategies have
passive is a good
passive:
performed well since the GFC, with equities
against the proponents of newer,
passive strategies. As new and
markets riding high here and overseas.
But with another downturn expected in idea and advocate
old jockey for survival, the debate
the next few years, active managers say
passive strategies might take a significant
50-50, the better for
has polarised opinion in the hit. Defenders of passive funds say there is everybody.
growing evidence they can outperform when
investment world. markets dip.
As the average investor becomes savvier As advisers ponder the mountain of Brent Sheather
with the rise of technology, and investment evidence, should they have to pick one side? outperforms active, and the reason they can
decisions become more transparent with Or can a core-satellite approach, comprised do that is because of the low fees.”
KiwiSaver and direct investment platforms, of both passive and active funds, deliver the Despite his strong views, Sheather
more money has begun to flow into low- right mix of alpha generation, low volatility, says advisers should take a balanced
the best of
cost passive funds in recent years. ASB, and cheap market access? As passive approach. He allocates 50% of his money
for example, has built its KiwiSaver offering becomes more popular, how can advisers to active strategies. He believes investors
almost exclusively around index funds, while show their value to clients? should back active managers to unearth
InvestNow reports significant flows into Brent Sheather, an adviser who believes inefficiencies, particularly in smaller and
Vanguard and Smartshares ETFs. strongly in passive funds, says a growing emerging markets. “Increasingly, people
Yet New Zealand is widely regarded as body of evidence suggests they can are going all passive, and I think that’s
both worlds?
being slower in the uptake of passive funds outperform active managers. “Years wrong because we should all pay for price
than investors in bigger markets, such as ago, people would criticise you and say discovery. Passive funds rely on markets
the US and UK. Active management remains ‘why are you paying for mediocrity?’ But being efficient. If everyone went passive,
popular in New Zealand despite the higher it’s becoming well known that passive markets wouldn’t be efficient. It’s fair
Rather than taking a one-sided approach, advisers
could back both active and passive strategies.
015
LEAD
By Daniel Dunkley
that everybody pays higher fees for some Passive performs well in moments of Its NZX-listed US 500 ETF, for example, Another major player in passive-style Dimensional products, including its core world of investment management capability
active management, to make markets more tranquillity, but I’d suggest we are not in provides access to Vanguard’s flagship US strategies is Christchurch-based platform funds, style-specific funds geared towards that exists is a pretty tall order ... You can
efficient.” a tranquil market now. Active arguably 500 ETF. It allows investors to access the business Consilium. The firm offers New value companies, and regional funds. “They access the market reliably and cheaply with
Sheather said he would not adjust his 50- becomes more important now because of its Vanguard fund and avoid costly currency Zealand advisers and clients access to encompass the full suite of portfolio options. well-specified funds that target risk factor
50 portfolio split even if market conditions superior risk controls.” and brokerage costs, ownership fees, and passive-style funds from US investment giant [Dimensional’s] business has been driven exposure,” he said.
changed. “I don’t believe active outperforms Coplestone said advisers faced a “big administration costs. Dimensional Fund Advisors. Dimensional’s by academia, and they build funds that Advisers faced a challenge picking the right
passive in a downturn. If you look at the challenge” to identify the top best active Thom Bentley, client director at co-founder David Booth is said to be one make sense. We are looking to access the active manager that could justify their fee: “I
SPIVA analysis, in the US, about 90% [92%] managers among tens of thousands of Smartshares, said it was significantly of the pioneers of passive investing, and is best vehicles to deliver robust returns to wouldn’t want to take the risk of appointing
of [large] active funds underperformed candidates. “The [adviser] industry tries cheaper to invest and hold Smartshares credited with working on the very first index our clients. These funds tend to tick a lot of the wrong manager but
the index.” to figure out which funds are going to ETFs than invest directly in an overseas listed fund in 1971. those boxes.” still paying a high fee
He adds: “The sooner the proponents of outperform, but selecting the correct asset ETF. “Many investors and advisers don't do Dimensional funds are designed with the O’Brien favoured the “systematic, for the pleasure. If
active accept that passive is a good idea, and the calculations when deciding whether to help of leading economists and academics. analytical, measured approach” I were an adviser,
advocate 50-50, the better for everybody, invest in Smartshares or through an offshore Damon O’Brien, chief investment officer at demonstrated by the likes of Dimensional, I’d be thinking very
I think. The rationale for active is not that
you’re going to get alpha, you’re paying to I’d be thinking ETF provider.”
With an emphasis on low-cost international
Consilium, says the funds “lean on academic
evidence”. He added: “We like to lean towards
“rather than a forecasting approach”. Overall,
Consilium likes to “blend some aspects of
carefully about
what I could
make the markets more efficient.”
Sheather says he could be prompted
very carefully and domestic funds, Smartshares ETFs can
be accessed online, on market via advisers,
sources of higher long term expected return
that meet three criteria; they have been
active and passive”.
He said well-researched, widely-diversified
defend.”
to buy more active funds if they traded at
a discount to net asset value. He prefers
about what I could and through direct retail channels such
as InvestNow. Smartshares’ funds under
debated and academically proven, we can
see them in the data in markets today, and we
funds with a value factor were sound
investments for long-term success: “If I
investment trusts and closed-end funds for defend. management have risen from about $500 can implement them in a cost-effective way.” was looking to plot a course over a 20 or
his active exposure. million in April 2012 to more than $3 billion, O’Brien said: “Dimensional had their 30 year period, and to deliver that with
Clayton Coplestone, director of Heathcote according to a recent presentation.
Investment Partners, prefers active to Damon O’Brien Rather than spreading allocation across
genesis from academia, and they are in
the business of designing funds which are
reliability, I would be looking at the sorts
of strategies we recommend.
passive strategies. He believes passive an entire index, Smartshares funds are highly consumer-friendly, low cost, widely- We have a reasonable
investing is a “low-cost, commoditised option class is probably going to be tenfold more customised to be weighted to different diversified, and have clear mandates, so basis for our
to give you exposure to markets that are productive than choosing active or passive. segments of the market. Its NZ Dividend as an investor, you know what to expect expected returns.
technically efficient, or where you can’t add Advisers need a screening mechanism fund, for example, covers the 25 highest in any market conditions. These are very “The ability
any meaningful value”. to take the volume down to a more yielding NZ shares in the top 50, while its valuable when you’re building portfolios for to continually
He adds: “The solution in those markets is workable number.” NZ Mid Cap fund is weighted to the 40 retail clients.” out-guess or
the cheapest option, so it’s a price game.” He warned against the “complacency” stocks below the top 10. Its NZ Top 50 fund Consilium provides access to several out-forecast the Damon O’Brien
“I don't have a negative view of passive of going all-in on passive strategies and meanwhile has a 5% cap on individual stocks.
per se, Coplestone said. “The issue is, it’s a abandoning active altogether. “If you’re Smartshares is launching eight new ETFs in
matter of perspective. Supporters of passive seeking a beta of 1, in other words, top 100 June, including five ESG equity funds, two
tell me it is the be-all and end-all, US stocks, that is largely a price argument. “megatrends” funds and a low-cost passive
and that usually comes with Find the cheapest way to access that global aggregate bond fund.
a chosen data set. It is universe. But use your fee budget in Bentley admits New Zealand has been
usually oblivious to other areas of the portfolio where slower to adopt ETFs than other countries,
the fact the equities you might need some help. To but predicts rapid growth from investors
market has enjoyed carte blanche and put everything allocating their savings and pension fund
the strongest bull in passive, you’ll end up with investments. “Uptake is growing quickly as
run since 2008. mediocrity, and in the environment more people become aware of the global
“To be candid, we are heading into, clients could adoption of passive strategies.”
it was probably be challenging the role their Bentley said New Zealand’s perceptions
best to be adviser plays.” about passive investing were starting to
overweight in Despite his strong views in favour change: “New Zealand is seen as a market
passive and of active, Coplestone believed that has favoured active managers, it is a
have a low- passive and active could coexist as small and inefficient market, so there’s a
cost option part of a strong portfolio. He says perception that active managers have a
during that advisers need to identify strong active better chance of outperforming here. To an
time. funds to sit alongside their passive extent, that has been true in the past. But
investments. “We advocate that if you’re now, with the range of funds we have, we can
seeking beta, it’s a price option. We will have provide cheap access to specific parts of the
a core position in low-cost beta positions, market that have performed better than the
and active funds around the edge index and active managers.”
that cost a bit more, and have a He downplays the idea that passive is not
different risk profile.” suited to more volatile markets. “What we
For advisers looking to build provide is pure access to the markets, and
out their passive portfolio, you take the ups and downs,” Bentley added.
which products offer broad “But Q4 last year was the first significant
market access here and downturn in the equities market for some
overseas? time. The NZ market was down 6% in Q4.
NZX Smartshares Only two of 19 NZ active equity funds beat
operates ETFs that provide the market [according to Morningstar], but all
access to international of our funds did. So the fears about passive
Thom Bentley and domestic markets. funds didn’t play out.”
017
REGULATION
By Susan Edmunds
Licensing
Advisers who are currently be standard to all and others specific to a not worth going through years of change
particular business. only to want to scale down their businesses,
working as RFAs are being The FMA is considering two standard anyway, Vidler said.
told to think about their conditions for transitional licensing: Application fees for full licences will range
Requiring adequate written records and an from $612 to $922 plus an hourly rate for
business processes as internal process for resolving complaints. complex applications.
licensing approaches. These are two aspects of a financial advice “The FMA will be required to consider a
looms
business that are currently covered by the wider range of factors, including whether an
Transitional licensing will open later this code of conduct for authorised financial applicant is capable of effectively providing
year for those who want to operate as a advisers but will not be in the new code. financial advice services,” MBIE said.
financial advice provider (FAP) under the It is likely there will be additional standard "In addition, the application process will
new advice regime. conditions for full licences. vary depending on the business model
All financial advisers will need to work The record-keeping standard would adopted by the applicant. For example,
for a FAP as an adviser or a nominated require businesses to demonstrate how the Amendment Act introduces additional
representative by the time the new regime they gave regulated financial advice to retail requirements on financial advice providers
starts mid next year. clients, had complied with the FMC Act, the that engage financial advisers or nominated
Adviser coach Tony Vidler said licensing Financial Markets Conduct Regulations and representatives, so those firms will need to
would not be a major hurdle for AFAs but the new code. go through additional assessment during
could be a significant step up for some RFAs Records would have to be kept for the licensing process. While the process
who did not have the business processes seven years. will be more robust than that used during
in place. "This is to ensure licence-holders (and transitional licensing, applicants will still
He said people would need to think any authorised bodies) continue to meet use a streamlined licensing system, leading
about their strategic objectives for their the requirements assessed at licensing and to an efficient process and relatively low
businesses and the degree of control they so we can effectively monitor compliance estimated average processing times."
wanted to have in terms of such business with their obligations. In addition, this MBIE said the model of a flat application
decisions as branding and products. requirement will ensure adequate fee and hourly rate wold be most cost-
information is available for retail clients effective for the FMA. If the hourly rate was
about the financial advice services provided not an option, the flat fee would have to
There’s a fair to them," the FMA said. be higher.
The complaints process standard would The FMA receives an annual appropriation
amount of RFAs out require an internal process for resolving of $36 million, the majority of which is
there who have a heck complaints from clients.
FMA said this would mean a process that
funded through a levy charged to financial
service providers.
of a lot to do. meant complaints were acknowledged as
soon as practicable; retail clients were given
MBIE said all financial service providers
would continue to pay $460 plus GST on
As the new licensing regime comes into
information about the process and how it initial registration under the new regime.
Tony Vidler worked; complaints were resolved and a Financial advisers would be
play some advisers will step up and thrive response provided as soon as possible; and
a written record kept of all complaints.
levied independently.
Its preferred option is then to introduce a
while others may hang up their hats. Those who had been part of a QFE or
were AFAs would have appropriate systems
"This will ensure client complaints
are adequately dealt with and there is a
base annual levy for FAPs with an additional
amount for every nominated representative,
already, he said. But that was not true for record of any issues arising in relation to or when the FAP gave advice on its
everyone, particularly people who had been the financial advice service. It will also own accord.
operating as a “lifestyle practice” or part- enable us to effectively monitor whether That would start at $225 a year then $137
time. licence holders and authorised bodies are per nominated representative, or $737 if the
“There’s a fair amount of RFAs out there complying with their obligations. Having this FAP gave its own advice.
who have a heck of a lot to do.” as a licence condition (even though external Advisers would pay $265.
The FMA said it would ask transitional dispute resolution schemes may also require
licence applicants for information about the it) means we can take appropriate regulatory
types of services and products they dealt action against the licence holder and any
with and who was providing advice. authorised body if they do not comply," the
It would consider whether directors and FMA said.
senior managers were fit and proper for "An internal process for resolving client
their roles, whether there was any reason complaints does not have to be complex or
to believe obligations would not be met and expensive. However, it must meet the four
whether the business was registered on requirements in the proposed condition.
the FSPR. How you comply with this condition will
"Transitional licensing provides us with depend on your personal preferences and
a better sense of who is operating in the the nature and scale of your business.”
market – enabling us to anticipate the The Ministry of Business, Innovation and
number of full licence applications and Employment expects 900 RFAs and AFAs
resources needed for ongoing monitoring to drop out as part of the transition to the
and supervision." new regime. Vidler said that number could
Full licensing would be more robust. be too low.
Conditions of licensing would be imposed Many older advisers would decide it was Tony Vidler
by the legislation or the FMA. Some would
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