ANZ completes simplification of Wealth Australia

ANZ today announced it has completed the simplification of its Wealth Australia division with the sale of its life insurance business to Zurich Financial Services Australia. The sale is comprised of two transactions with total proceeds of $2.85 billion, inclusive of $1 billion of upfront reinsurance commission from Zurich.

This follows the sale of its OnePath pensions and investments (OnePath P&I) and aligned dealer groups (ADG) business to IOOF Holdings Limited (IOOF) in October for $975 million. Total proceeds from the simplification of Wealth Australia is $3.83 billion.

Following completion, Zurich will be Australia’s largest retail life insurer as measured by in-force premiums with more than 1.5 million customers, while IOOF will have a top-five superannuation platform with the second largest aligned financial advice network.

Here is an interview with CEO Shayne Elliott and Andrew Cornell.

Life Insurance Transaction Scope:

  • 100% of One Path Life Australia Holdings Pty Limited (OPL)
  • As at 30 September 2017, total life in-force premiums were $1.7bn
  • Transaction does not include New Zealand and ANZ will retain Lenders Mortgage Insurance, General Insurance distribution and Financial Planning

Life Insurance Transaction Summary:

  • Total proceeds of $2.85 billion include $1 billion of upfront reinsurance commission from Zurich to ANZ and $1.85 billion for 100% of the life business
  • Annual profit of business is $189 million on a 2017 pro forma cash NPAT basis
  • Equates to a 2017 Price/Embedded Value of 1.0×3, 15.1x 2017 Price/Earnings on a pro forma cash NPAT basis
  • Carrying value of $3.38 billion. Estimated accounting loss on sale of ~$520 million post separation and transaction costs of ~$75 million post-tax and release of available for sale reserve
  • Expected to increase ANZ’s consolidated CET1 capital ratio by a total of ~$2.5 billion or ~65 basis points4 (~25 basis points upon completion of the reinsurance arrangement and a further ~40 basis points on completion)
  • The transaction would be broadly EPS and ROE neutral if capital released is returned to shareholders

Combined Transaction Summary:

  • Total proceeds of $3.83 billion for combined sales
  • Equates to 16.8x Price/Earnings on a pro forma cash NPAT basis
  • Combined sales to increase ANZ’s consolidated CET1 capital ratio by ~80 basis points

Capital released following reinsurance and completion of the life insurance sale is expected to increase ANZ’s consolidated CET1 capital ratio by ~65 basis points and largely be surplus to ANZ’s unquestionably strong requirements.

The sale is another step in ANZ’s strategy to create a simpler, better balanced bank focussed on retail and business banking in Australia and New Zealand, and Institutional Banking supporting client trade and capital flows across the region.

As part of the agreement, ANZ and Zurich will enter into a 20–year strategic alliance to offer life insurance solutions through ANZ’s distribution channels.

With a long history in Australia and a presence in more than 210 countries and territories, Zurich is a highly regarded insurance company with global capability in providing life insurance solutions to more than 60 million customers in partnership with 70 banks in 17 countries, including Santander, Citibank, HSBC, and ING.

ANZ Group Executive Wealth Australia Alexis George said: “From the outset we’ve been focussed on partnering with a high-quality organisation culturally aligned to ANZ and we’re pleased we will be able to provide our customers with access to wealth products from one of the world’s leading and most respected global insurers.”

“Zurich’s experience in working with banks around the world to provide insurance solutions, combined with its commitment to innovation and strong presence in Australia is a good outcome for our customers, shareholders and distribution partners.

“Partnering with Zurich is the best outcome for ANZ customers given it will become Australia’s leading life insurer with the scale to invest in product and digital innovation.

“This transaction will complete the simplification of ANZ’s Australian wealth business, however we will continue to work hard to minimise any disruption to our customers during the transition,” said Ms George said.

There are no changes to any current insurance policies as a result of today’s announcement, including general insurance products provided via QBE.

ANZ expects completion to occur in late 2018 together with the recently announced sale to IOOF of the Group’s Pensions & Investments and Aligned Dealer Group businesses. The transaction, including the reinsurance, remains subject to regulatory approval.

AMP launches custom-built financial advice modelling technology

AMP has today launched a new goals-modelling engine, creating the most sophisticated and contemporary advice experience in the industry.

The engine represents a majorstep forward in AMP’s goals-based customer strategy.

Now part of AMP’s Goals 360 experience delivered through AMP Advice, the engine provides customers with clarity on how the choices they make today impact their ability to achieve their goals over time.

Purpose-built stochastic modelling, developed with leading analytics and technology firm Milliman, factors in economic and market conditions to generate advice strategies to provide customers a projected achievability of their goals.

Tailored cashflow, debt, wealth protection and other wealth management advice strategies are generated in real-time and presented through a seamless, interactive digital experience, developed using human-centred design.

AMP’s Group Executive Wealth Solutions & Chief Customer Officer, Paul Sainsbury said the launch of the modelling engine is a landmark moment for the financial advice industry and the latest step in AMP’s transformation of the goals-based advice experience.

“The engine is the culmination of a multi-year investment program to build AMP’s advice capability of the future,” commented Mr Sainsbury.

“We’ve custom built the engine around goals because we know that when delivered well, goals-based advice transforms the lives of our customers.

“The engine now forms an integral part of AMP’s Goals 360 – a contemporary advice experience for advisers and their customers.

“Underpinned by the latest in financial modelling capability, the engine demonstrates to customers in a visual and engaging way how the choices they make today impact the ability to achieve their goals over time.

“For advisers, it supports richer conversations and helps build stronger relationships with their clients. The engine also creates a more efficient process for advisers – reducing their cost to serve and allowing for ease of compliance.”

The goals engine is being progressively rolled out to AMP Advice practices from this week.

An overview of AMP’s Goals 360 experience, including the goals-engine, follows.

The Goals 360 experience – overview

Explore

The first step in Goals 360 is goals exploration.

Guided by a goals coach, customers talk about what really matters to them and what they’d most like to achieve. The result is the goals summary.

At the next meeting with their adviser, planning becomes much more comprehensive. Customers are asked to reconfirm their goals and discuss them in detail.

Plan

Customers and advisers then start to model different paths to achieving their goals, and it’s this conversation that has been radically transformed by the new modelling engine – in a highly visual, personalised and interactive way.

Different scenarios can be modelled in front of the client in a way that’s easy to understand. For example, if no changes are made to current behaviour, customers can immediately see the effect on the ‘achievability’ of their goals – represented visually by the bar chart in the top right corner of the goal card.

By selecting different advice strategies that align with the unique goals of the customer the adviser can efficiently model scenarios – enabling a better conversation with customers as they work through options in real time.

The modelling engine can project a client’s balance sheet and cashflows, both stochastically and deterministically, accounting for Australian tax, superannuation and social security rules and regulations, with the flexibility to incorporate multiple future goals of a client.

Track

The engine supports ongoing conversations to track goal achievability as goals evolve and financial circumstances change.

 

Banks Pay More Than Half Of All Dividends In Australia

Data from the latest Janus Henderson Global Dividend Index  reveals that Australia’s banks pay $6 out of every $11 of the country’s dividends each year but dividends are growing slowly given already high payout ratios.

Leading is Commonwealth Bank which raised its per share payout 3.7 per cent on the back of steady profit growth, but National Australia, Westpac and ANZ all held their dividends flat.

CBA and Westpac were identified in the report as the world’s fourth and sixth biggest dividend payers respectively, with Chinese and Taiwanese technology and manufacturing companies taking the top three place.

Overall, Australian dividends typically peaked in the third quarter and this year was no different. Payouts jumped to a record $22.8 billion, up 17.0 per cent on a headline basis, boosted by a stronger Australian dollar. But resources apart, dividend growth in Australia was  sluggish.

More broadly, the headline growth of global dividends in Q3 2017 jumped by 14.5 per cent to US$328.1 billion and underlying growth was 8.4%, the fastest in nearly 2 years. Data is to 30th Sept 2017.

The Asia-Pacific region led with dividends up 36.2% to $69.6illion, equivalent to an underlying increase of 121%.  China Mobile accounted for almost half of the region’s headline increase and three-quarters of Hong Kong’s with a huge $8.4 billion special, the largest single payment in the world in Q3, helping Hong Kong’s total dividends reach a record $25.2 billion.

While every region saw global dividends increase, payment records were broken in Australia, Hong Kong and Taiwan.

They say that after record second and third quarters, the world’s listed companies are comfortably on course to deliver the highest ever annual total this year. They expect 2017 dividends of $1.249 trillion, an increase of 7.4%, which is $91 billion higher than their previous estimate.

Note all figures are in US$.

Charles Schwab Re-enters Australian Market

From Investor Daily.

American wealth management giant Charles Schwab Corporation has re-opened an office in Sydney after exiting the Australian market in 2000.

The San Francisco-headquartered financial advice firm, custodian and brokerage has “re-established” its presence in Australia following the acquisition of Chicago-based “broker-dealer” optionsXpress.

Charles Schwab Australia managing director JP Drysdale told InvestorDaily the decision to re-enter the Australian market was due to growth of SMSFs in Australia that exhibited the “clear demand for self-directed investment opportunities”.

“The acquisition and integration of the optionsXpress business presented opportunities in both the Australian and Singapore markets,” Mr Drysdale said.

“The time was right to enter both, to give investors in both markets the ability to trade in US markets through a platform that’s cost effective, secure and time-tested.”

Prior to 2000, Charles Schwab had an Australian presence but decided to physically exit the market due to a “range of market circumstances at that time”.

Where optionsXpress only offered an online trading platform, Charles Schwab had the capacity to cater to the needs of Australian investors more broadly, Mr Drysdale said.

“Globally, Charles Schwab is a wealth management and advisory firm that focuses on helping clients invest for their future,” Mr Drysdale told InvestorDaily.

“This is a far broader approach to customers investing needs than optionsXpress.

“Charles Schwab Australia is now in a position to assist many more Australians who need to manage they investments and diversify in the US, but don’t see themselves as short-term traders.”

Through its electronic trading platform, the broker firm will offer Australian investors access to US-listed equities, offshore mutual funds, ETFs, fixed income, options and futures at US$4.95 per online equity trade.

He added that local investors, through a variety of channels, were now able to have cost effective access to the US market.

“Typically, access to US markets for self-directed investors, including SMSFs, is expensive compared to the costs of transacting in the Australian market,” he said.

“However, we believe there need not be trade-offs between price and customer service.

“From the high-quality research content mentioned above to the ability for clients to pick up the phone and talk to a financial consultant, Charles Schwab provides many ways for clients to access investment experts.

“We see our role as working with clients to help them develop a strategy for increasing the diversity of their investments and therefore managing the risk in their portfolios.”

Global Wealth Higher, But More Uneven

According to the eighth edition of the Credit Suisse Research Institute’s Global Wealth Report, in the year to mid-2017, total global wealth rose at a rate of 6.4%, the fastest pace since 2012 and reached USD 280 trillion. This reflected widespread gains in equity markets matched by similar rises in non-financial assets (home prices), which moved above the pre-crisis year 2007’s level for the first time this year.

Wealth growth also outpaced population growth, so that global mean wealth per adult grew by 4.9% and reached a new record high of USD 56,540 per adult.

House price movements are a rough proxy for the non-financial component of household assets, and here most countries experienced a rise in values last year, although Japan (–1%) and Russia(–5%) were among the exceptions.

This year, the report includes a focus on Millennials’ wealth position and provides a comparison with earlier generations. They are not faring well, “Millennials are not only likely to experience greater challenges in building their wealth over time, but also greater wealth inequality than previous generations.”

Australia

Household wealth in Australia grew at a fast pace between 2000 and 2012 in US dollar terms, except for a short interruption in 2008. The average annual growth rate of wealth per adult was 12%, with about half the rise due to exchange-rate appreciation against the US dollar. The exchange rate effect went into reverse for three years after 2012 and, like other resource-rich countries, Australia was badly hit by sagging commodity prices. Despite that slowdown, Australia’s wealth per adult in 2017 is USD 402,600, the second highest in the world after Switzerland.

The composition of household wealth in Australia is heavily skewed towards non financial assets, which average USD 303,200, and form 60% of gross assets. The high level of real assets partly reflects a large endowment of land and  natural resources relative to population, but also results from high property prices in the largest cities.

Wealth inequality is relatively low in Australia, as reflected in a Gini coefficient of just 65% for wealth. Only 5% of Australians have net worth below USD 10,000. This compares to 19% in the UK and 29% in the USA. Average debt amounts to 20% of gross assets. The proportion of those with wealth above USD 100,000, at 68%, is the fourth highest of any country, and almost eight times the world average. With 1,728,000 people in the top 1% of global wealth holders, Australia accounts for 3.5% of this top slice, despite being home to just 0.4% of the world’s adult population.

Global Summary

We further saw an increase of 2.3 million US-dollar-millionaires, almost half of whom reside in the United States. Partially due to a 3% rise in the value of euro against the US dollar, we also note 620,000 new dollar-millionaires in the main Eurozone countries Germany, France, Italy and Spain. Another 200,000 joined in Australia and about the same number appeared in China and India together. We have seen a decline in millionaire numbers in very few countries, mostly associated with depreciating currencies: the United Kingdom lost 34,000 and Japan lost over 300,000.

Our home market Switzerland has seen wealth per adult increase by 130% to USD 537,600 since the turn of the century and continues to lead the global rankings. Again, we note that a large part of the rise is associated with the appreciation of the Swiss franc against the US dollar between 2001 and 2013. Nonetheless, measured in Swiss francs, domestic household wealth rose by 35% since 2000, which corresponds to an average annual rate of 1.8%. Switzerland today accounts for 1.7% of the top 1% of global wealth holders and over two-thirds of Swiss adults have assets above USD 100,000. 8.8% of Swiss are US-dollar millionaires and an estimated 2,780 individuals are in the ultra-high net worth bracket, with wealth over USD 50 million.

Financial assets continue to make up 54% of gross wealth in Switzerland, which is less than in Japan or the United States and debts average USD 140,500 per adult, which is one of the highest absolute levels in the world, although we continue to believe that the debt ratio reflects the country’s high level of financial development, rather than excessive borrowing.

On the worrying end, among the ten countries for which long series of wealth distribution are available, Switzerland is alone in having seen no significant reduction in wealth inequality over the past century.

Looking at the bottom of the wealth distribution, 3.5 billion people – corresponding to 70% of all adults in the world – own less than USD 10,000.

Those with low wealth tend to be disproportionately found among the younger age groups, who have had little chance to accumulate assets, but we find that Millennials face particularly challenging  circumstances compared to other generations.

Although relatively less severe in some emerging markets, capital losses during 2008–2009, high unemployment, tighter mortgage rules, growing house prices, increased income inequality, less access to pensions and lower income mobility have dealt serious blows to young workers and savers and hold back wealth accumulation by the Millennials in many countries. With the baby boomers occupying most of the top jobs and much of the housing, Millennials are doing less well than their parents at the same age, especially in relation to income, home ownership and other dimensions of wellbeing assessed in this report. While Millennials are more educated than preceding generations (we see an increase of more than 20% in tertiary education across OECD countries), we expect only a minority of high achievers and those in high-demand sectors such as technology of finance to effectively overcome the “millennial disadvantage.”

We also note that entrepreneurship, as measured by the fraction of self-employed workers, has been declining across OECD countries since the turn of the century, including Millennials who are generally touted as a generation of entrepreneurs.

Top 20 Fund Managers By Country

Following this mornings data on the top 500 Fund Managers, which has passed US$80 trillion under management in 2016 (contained in the 2017 report) and which helps to explain the inflated asset prices of property and the stock market; it is worth looking at the country break down by percentage of funds under management, all stated in US$.

More than half of assets are held by managers in the USA, followed in descending order by UK, France, Germany, Canada and Japan. Australia has 1.39% of assets, but that may be overstated as this includes Macquarie who has more business off shore than on shore.

Here are the top 20 globally, by manager. Black Rock is by far the largest.

Here are the top 20 from the USA.

Here are the top 20 from the UK.

Switzerland is dominated by funds managed by UBS.

Here are the Australian top 20.

Finally, here is the China footprint – given the wealth accumulation there, I have little doubt they will be overtaking Australia, and moving well up the rankings in the years ahead.

 

Assets of world’s largest fund managers passes US$80 trillion for the first time

Total assets under management (AuM) of the world’s largest 500 managers grew to US$ 81.2 trillion in 2016, representing a rise of 5.8% on the previous year, according to latest figures from Willis Towers Watson’s Global 500 research.

Looking at the Australian players in the global list, Macquarie Group was in 52nd place with assets of US$362,511m, Colonial State was at 102 with US$147,154m, AMP Capital was at 120 with US$119,476m, BT Investment at 182 with US$60,699 and QIC at 193 with US$57,455m.

The research, which takes into account data up to the end of 2016, found that AuM for North American managers increased by 7.7% over the period and now stand at US$ 47.4 trillion, whilst assets managed by European managers, including the UK, increased by 2.8% to US$ 25.8 trillion. However, UK-based firms saw AuM decline for the second consecutive year, falling by 4.5% in 2016 to US$ 6.3 trillion.

Although the majority of total assets1 (78.4%) are still managed actively, its share has declined from 79.7% from end of last year as passive management continues to make inroads.

Luba Nikulina, global head of manager research at Willis Towers Watson, said: “It is encouraging to see a return to growth in total global assets, suggesting that managers are finding success in attracting investors towards innovative solutions to achieve superior risk-adjusted returns. Whilst passive assets remain significantly smaller than actively managed assets, the proportion of passively managed assets has grown from 16.5% to 21.6% over the last five years alone. We expect that this trend will continue to put downward pressure on traditional fee structures, particularly amongst active managers seeking to remain competitive and to maximise value to investors.”

The 20 largest asset managers experienced a 6.7% increase in AuM, which now stands at US$ 34.3 trillion, compared to US$ 26.0 trillion ten years ago and US$ 20.5 trillion in 2008. The share of total assets managed by this group of 20 largest managers increased for the third year in a row, rising from 41.9% in 2015 to 42.3% by the end of 2016. Despite this, the bottom 250 managers experienced a superior growth rate in assets managed, rising by 7.3% over the year.

As with previous years, equity and fixed income assets have continued to dominate, with a 78.7% share of total assets1 (44.3% equity, 34.4% fixed income), experiencing an increase of 3% combined during 2016. Continuing from the strong growth they experienced in 2015, assets1 in alternatives saw a 5.1% increase by the end of 2016, closely followed by equities at 4.1%.

Luba Nikulina said: “Alternatives continue to grow in popularity, with investors remaining under pressure to find effective means of diversification in an environment of lower expected returns from traditional asset classes. These strategies often come with greater complexity and require superior risk management. We see this as linked to the growth in assets managed by managers in the bottom half of our list, suggesting that investors favour smaller investment houses with specialist investment skills.”

“Our research has also highlighted awareness in sustainable investing, with 78% of the firms surveyed acknowledging a growing interest from their clients for these sorts of strategies as they continue to look for ways to add value for clients,” said Luba Nikulina.

Whilst BlackRock retains its position at the top of the manager rankings for the eighth consecutive year, further insight shows the main gainers, by rank, in the top 50 during the past five years include, Dimensional Fund Advisors (+31 [76 to 45]), Affiliated Managers Group (+20 [52 to 32]), Nuveen (+16 [36 to 20]), New York Life Investments (+15 [55 to 40]) and Schroder Investment Management, (+15 [59 to 44]).

The world’s largest money managers

Ranked by total assets under management, in U.S. millions, as of Dec. 31, 2016

Rank Manager Country Total assets
1 BlackRock U.S. $5,147,852
2 Vanguard Group U.S. $3,965,018
3 State Street Global U.S. $2,468,456
4 Fidelity Investments U.S. $2,130,798
5 Allianz Group Germany $1,971,211
6 J.P. Morgan Chase U.S. $1,770,867
7 Bank of New York Mellon U.S. $1,647,990
8 AXA Group France $1,505,537
9 Capital Group U.S. $1,478,523
10 Goldman Sachs Group U.S. $1,379,000
11 Prudential Financial U.S. $1,263,765
12 BNP Paribas France $1,215,482
13 UBS Switzerland $1,208,275
14 Deutsche Bank Germany $1,190,523
15 Amundi France $1,141,000
16 Legal & General Group U.K. $1,099,919
17 Wellington Mgmt. U.S. $979,210
18 Northern Trust Asset Mgmt. U.S. $942,452
19 Wells Fargo U.S. $936,900
20 Nuveen U.S. $881,748

Source: P&I/Willis Towers Watson World 500

Financial advice firm to pay $1 million penalty for breach of best interests duty – ASIC

ASIC says the first civil penalty has been imposed on a financial services licensee for breaches of the best interests duty under the Future of Financial Advice (FOFA) reforms. The focus on the matter was on the “best interest” provisions and the remuneration model. This is a significant development.

The Federal Court has imposed a civil penalty of $1 million against Melbourne-based financial advice firm NSG Services Pty Ltd (currently named Golden Financial Group Pty Ltd) (NSG) for breaches of the best interests duty introduced under the Future of Financial Advice (FOFA) reforms.

The penalty relates to financial advice provided to retail clients by NSG advisers on eight occasions between July 2013 and August 2015. The clients were commonly sold insurance and advised to roll over superannuation accounts that committed them to costly, unsuitable and unnecessary financial arrangements.

The Court found that the failures by NSG to ensure compliance by its representatives were systemic in nature and in his reasons, Justice Moshinsky said, “I regard the contraventions as very serious ones”.

In March 2017 NSG consented to the making of declarations against it and after a hearing on 30 March 2017 the Court was satisfied that declarations ought to be made.

The Court found that NSG’s representatives breached:

  • s961B of the Act by failing to take reasonable steps to ensure that they provided advice that complied with the best interests obligations; and
  • s961G of the Act by failing to take reasonable steps to ensure that they provided advice that was appropriate to its clients.

Those breaches formed the basis of 20 contraventions in total by NSG of s961K(2) or s961L of the Act, which provides that a financial services licensee must take reasonable steps to ensure its representatives comply with the above sections of the Act.

The Court made the declarations based on a number of deficiencies in NSG’s processes and procedures, including the following:

  • NSG’s training on legal and regulatory obligations was insufficient to ensure clients received advice which was in their best interests;
  • NSG did not conduct regular or substantive performance reviews of its representatives;
  • NSG’s compliance policies were inadequate, and did not address its representatives’ legal or regulatory duties, and in any event, were not followed or enforced by NSG;
  • There was an absence of regular internal audits, and the external audits conducted identified issues which were not adequately addressed nor recommended changes implemented; and
  • NSG had a “commission only” remuneration model, which meant that representatives would be paid by way of commission for sales of personal risk insurance products and superannuation rollovers.

ASIC Deputy Chairman Peter Kell said, “This outcome makes clear to the industry the serious consequences of financial services licensees failing to comply with their FOFA obligations.  ASIC will continue to pursue licensees who fail to do so.”

NSG, who agreed with ASIC on the amount of the penalty immediately prior to the hearing on penalty, and made joint submissions as to the orders, was also ordered to pay $50,000 in costs to ASIC, and will also pay $50,000 towards ASIC’s costs of its investigation into NSG under s91 of the ASIC Act.

ANZ to sell pensions and investments businesses to IOOF

ANZ today announced the sale of its OnePath pensions and investments (OnePath P&I) and aligned dealer groups (ADG) business to IOOF Holdings Limited (IOOF) for $975 million. Meantime, the bank continues to review options for its Life Insurance business.

As part of the agreement, ANZ will also enter into a 20–year strategic alliance to make available IOOF superannuation and investment products to ANZ customers.

  • Sale price of $975 million represents a multiple of ~25x FY17 NPAT.
  • Aggregate P&I and ADG annual profit is $39 million.
  • Equates ~17x FY17 NPAT after separation and transaction costs.
  • Estimated accounting loss on sale of ~$120 million5 includes sale proceeds of $975 million, separation and transaction costs of ~$300 million post-tax, and an accounting adjustment of ~$500 million for Treasury shares.
  • Expected to increase ANZ’s APRA CET1 capital ratio by ~15 basis points on completion.
  • EPS and RoE impacts are not material to ANZ.
  • Small ongoing payments through the 20 year Strategic Alliance Agreement.
  • Completion is expected in around 12 months subject to certain conditions including regulatory approvals and the completion of the extraction of the OnePath P&I business from OnePath Life Insurance.

The sale of the pensions and investments and ADG businesses is consistent with ANZ’s strategy to create a simpler, better balanced bank focussed on retail and business banking in Australia and New Zealand, and Institutional Banking supporting client trade and capital flows across the region.

ANZ Group Executive Wealth Australia Alexis George said: “Financial services such as superannuation, investments and advice are a core part of the support we provide ANZ customers now and in the future.

“By partnering with IOOF, we are able to create greater value for our shareholders while also providing our customers with access to quality wealth products from a specialist provider with the right cultural fit, financial strength and digital capability.

“The sale of our P&I and ADG businesses provides ANZ with greater flexibility to consider options for the life insurance business including strategic and capital markets solutions,” Ms George said.

 

ISA accuses banks of dodging FOFA

From InvestorDaily.

The industry super lobby has accused the major banks of attempting to evade the FOFA regulation within their superannuation products.

Industry Super Australia (ISA) recently posted a submission to the Productivity Commission’s inquiry into the efficiency and competitiveness of Australia’s superannuation system.

ISA called for a crackdown on big banks and other for-profit entities who, it said, have been allowed to exploit superannuation fund members in the name of increasing sales.

The lobby group said the current superannuation system is like FOFA – where for-profit companies like the big four banks have been able to circumnavigate or “work around” legislation and exploit consumers for increased sales and insurance commissions.

“From inception, FOFA has been subject to substantial lobbying efforts that seek to weaken it, and for-profit entities have immediately sought to ‘work around’ and adapt to FOFA in a way that maintains as much of their lucrative businesses as possible,” ISA said in the submission.

“For so long as the superannuation system allows participation by entities that have a strong culture of prioritising themselves rather than serving others, this will happen. The inquiry’s proposed default [superannuation] models will certainly be subject to the same dynamic.”

ISA pointed to exemptions in FOFA which currently “allow bank staff to earn volume-related bonus for selling superannuation under general advice”.

FOFA also “allows the payment of commissions on individual life and income protection insurance on policies paid for out of choice superannuation products which provides strong financial incentives for advisers to switch members out of default superannuation products,” ISA said.

ISA pointed to research from the Roy Morgan Superannuation and Wealth Management in Australia 2011 and 2015 reports which showed the big banks shifting away from selling products via financial advisers and an increase in direct sales to consumers instead.

“This activity has almost doubled across the four major banking groups from 10 per cent in the 2011 Report, compared to 19 per cent for the three years to December 2015,” ISA said.

“[This takes] advantage of the lower levels of consumer protection outside personal advice to aggressively sell super directly.”

ISA said regulation and further competition are not the answers for cracking down on misconduct from for-profit entities in the superannuation sector.

“Regulation alone has never been enough to ensure good behaviour. Regulation is particularly unreliable in relation to the finance sector because that sector is especially vigorous in its efforts to influence policy makers,” ISA said.

There is a concern that “each of the inquiry’s proposals seeks to remove superannuation from the industrial system, and envisions private sector, for-profit financial institutions bidding for and winning pools of default superannuation members,” the submission said.

“Such an outcome will deliver to the for-profit part of the super system a ready-made, government-sanctioned, and generally disengaged customer base at a very low acquisition cost.”

Instead there needs to be a focus on culture and values within organisations ISA said.

“The reason why some funds tend to consistently perform well, and prioritise members, is an amalgam of culture, values, institutional objectives, and governance.”