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Cuffelinks Newsletter Edition 266

  •   10 August 2018

Okay, we get it, please move on. The Royal Commission is doing great work uncovering poor practices in financial services, but after nearly three days on superannuation, it had interviewed only one company. The witness list has 16 entities on it. We already know from Round 2 in April that there is a systematic problem with advice fees. I have listened to a dozen hours of the Commission this week and we have run around in circles with two MLC/NAB witnesses, and one has returned for more questions today on Day 4.  

It started well. Counsel Assisting, Michael Hodge QC, summarised the trustee problem in his opening address:

"Trustees are surrounded by temptation, to preference the interests of the sponsoring organisations, to act in the interests of other parts of the corporate group, to choose profits over the interests of members, to establish structures that consign to others the responsibility for the fund and thereby relieve the trustee of visibility of anything that might be troubling. Their duties require them to resist all of these temptations ... What happens when we leave these trustees alone in the dark with our money? Can they be trusted to do the right thing?"   

The Royal Commission will issue an Interim Report by 30 September, only six weeks from now. There's so much else it should address: performance reporting, fee calculations, rates paid on cash, valuations of unlisted assets, definition of 'defensive' assets (credit, property, alternatives), performance fees, active managers hugging the index, risk versus return, bid/offer prices, etc. And what about the dubious banking practices which have changed little in the 20 years since I wrote Naked Among Cannibals?

These issues will have more long-term impact on the vast majority of customer returns than charging fees for no advice or to dead people. I hope the Commission does not run out of time. 
Notwithstanding, we look at the findings of the Royal Commission so far this week.

Test yourself on the HILDA questions

The HILDA Survey, now in its 13th year, is a longitudinal study of Australians. It asks five simple financial literacy questions, and the majority of people cannot answer all five correctly. Leisa Bellsummarises the results, and we reproduce the survey questions to check our readers' knowledge.

ME Bank issued a report on Monday showing half of all Australians don't have any savings left at the end of the week after paying their bills. Financial literacy is a critical issue. 

Cracker selection on investment topics  

Alex Pollak and Anshu Sharma explain a new phenomenon in large tech companies, a 'runaway return to scale' that beats the old economies of scale models. At the other end of the scale, Jaren Nichols gives five tips on picking the best tech startups.  

Damien Klassen
 writes a gem of a quote in his essay addressing the dangers of preferring tax-shelter and debt-inspired investments:

“Debt can make a good asset great. But, debt can never make a bad asset good, and it can make an average asset bad.”

Campbell Dawson, in reviewing a 2017-18 bumper year, cautions against complacency that can set in when managers and equity classes perform well. He takes us back to a lesson learnt from 2007-10 when a large super fund had extreme asset allocations to illiquid assets.

Don Ezra illuminates the financial journey that everyone takes in five stages, from early in their careers to age 75+. Lessons on life's journey for all.

And Tim Carleton returns to the Royal Commission, with a focus on whether the Commission will finally cause a fall in excessive household debt, with adverse implications for property prices.

In our White Paper, Shane Oliver, Chief Economist at AMP Capital writes his nine simple rules for good investing, the sort of checklist that every investor should know regardless of experience. In Additional Features, BetaShares provides a quick-to-read market update, the ASX gives its Monthly Report on listed products and Ashley Owen updates his Monthly Top 5 insights.

We have also redesigned our Previous Editions section, where past newsletters and editorials are stored. In addition to our search function, it's easy to check for subjects we have covered. 

Graham Hand, Managing Editor


Edition 266 | 10 Aug 2018 | Editorial | Newsletter



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