A common management technique to motivate staff is to identify an enemy. The theory is that an adversary unites a team much better than an abstraction like 'efficiency' or 'lower costs'. An enemy that is an immediate threat to the business inspires a strong response.
I worked at Colonial First State from 2001 to 2012, and for much of the time, the enemy was either BT or Macquarie. We wanted more flows, better products, superior performance, more clients ... measuring ourselves against them. Nobody thought the industry funds were the common enemy. Rivals, maybe, but not a serious threat.
How times change. Last week, the peak body for the industry funds, the Australian Institute of Superannuation Trustees (AIST), held its annual conference in Cairns. They did their best to keep a lid on their successes at the Royal Commission, but they were clearly delighted. In June 2018, the size of industry funds ($632 billion) exceeded retail funds ($622 billion) for the first time, and as most major banks exit wealth management, retail will never catch up. Billions of super money will switch from retail, with some into SMSFs. To mark this milestone, we publish CEO Eva Scheerlinck's opening address at the AIST conference.
Royal Commission update
It's not well known that thousands of exhibits presented to the Commission, previously highly confidential internal documents, are now in the public domain. For a finance geek, it's a rich store of once-private material. For example, there's a 2011 Colonial First State document for 'Adviser Use Only' which defines best interests duty on product replacement advice. If only they had followed it. This week, adviser Alex Denham explains how she interprets best interests duty.
At the Commission, it's now the insurance companies being hauled over the coals, and again CBA was a target with CommInsure admitting it engaged in misconduct over medical definitions for life insurance. CBA CEO Matt Comyn will be pleased when these businesses are off his hands.
Sportsbet is accepting bets on 'Which of the Big4 parent bank owned superannuation funds will pay out the most compensation in 2019?'. The current betting for $1 outlay is: CBA $1.65, ANZ$4.00, Westpac $7.00, National $8.00. Not a race where you want to be favourite.
Clearview's Risk Officer, Greg Martin, explained life insurance is a 'grudge' purchase and:
"the life insurance sales process inevitably involves some level of customer disturbance to achieve engagement".
Unfortunately for Clearview, the Corporations Act includes anti-hawking provisions limiting such 'disturbance'. And just when it seemed it couldn't get worse, the Commission heard a tape of Freedom Insurance pressuring a young man with Down syndrome to buy insurance. Over $6 billion in commissions was paid to financial advisers by 10 life insurers in the last five years.
Saturday is a decade on from the GFC
It's easy to forget after a decade of central bank liquidity that the GFC was an existential moment for the financial system. We have previously published personal insider accounts, including hereand here. Shane Oliver brings it up to date with seven lessons from the GFC.
One significant market improvement since 2008 is the ability of retail investors to access strategies only previously available to institutions. Marcus Tuck gives a quick tour.
Three investment articles on specific sectors: Reece Birtles asks why value investing has underperformed, Gopi Karunakaran explores another way of making money from fixed interest, and Mark Tobin summarises the results from microcap managers in FY2018. Finally, Ben Hocking reports on a survey which identifies what retirees are most worried about.
In Additional Features, the White Paper is Vanguard's latest Asset Allocation Report, while BetaShares provides its ETF Review for August 2018. For the first time, ETFs now exceed $40 billion with highest flows into global equities. Two LIC updates are also attached.
Phew, a packed edition with more than a bit of weekend reading. Remember our new 'Have Your Say' section on our website, where you can set the agenda by raising relevant issues.
Graham Hand, Managing Editor
For a PDF version of this week’s newsletter articles, click here.