A case of déjà vu
Much like the extension of the COVID-19 pandemic and lockdowns into this year which felt like déjà vu for many Australians, there was no let-up for advisers either as the volume of compliance continued unabated. Meanwhile, the ASX 200 returned 16% but lagged global markets and rates were held at 0.1%.
There was also a rush by advisers to pass the Financial Advisers Standards and Ethics Authority (FASEA) exam by the end of the year, even with the welcome introduction of an extension until 30 September, 2022, for those who had failed twice.
Here, Money Management examines some of the key events to have taken place this year.
FASEA CEASED AND TAKEN OVER BY ASIC
It was all change at FASEA when it was announced it would be wrapped up and management taken over by the Australian Securities and Investments Commission (ASIC) at the end of 2020, three years after it was launched.
During its tenure, the body had seen multiple chief executives in the shape of Stephen Glenfield, Mark Brimble, and Deen Sanders.
The organisation had been criticised by politicians for its organisation, management and delays to measures such as the code of ethics with Labor’s Julian Hill declaring in the Senate that it had a “litany of stuff-ups” and was a “stunning admission of failure”.
The last exams run by FASEA were held in November but advisers were left confused by whether this was the actual deadline.
In June, Treasurer Josh Frydenberg announced there would be limited exemptions available to people who had sat and failed the exam twice. It was later clarified that this deadline would apply until 30 September, 2022, as advisers rushed to book for multiple sittings by the end of the year.
However, it was expected advisers taking the exam again in 2022 would likely have to pay more for it when it was run under ASIC. Within Better Advice Bill legislation, it stated the exam would cost $948 to sit compared to $540 plus GST under FASEA, and candidates would need to pay $95 to be registered as a relevant provider.
As of 26 October, 2021, there were still 4,213 advisers on the ASIC Financial Adviser Register (FAR) who were yet to pass the exam. Overall, 88.5% of advisers who had sat the exam had passed.
CONTINUED EXITS BY ADVISERS
As the industry bedded down recommendations from the Hayne Royal Commission, this led to the introduction of yet more regulatory measures for advisers to understand and comply with.
These included the single disciplinary body, independence disclosure, ongoing fee arrangements and fixed term agreements then breach reporting requirements, complaints handling requirements and design and distribution obligations (DDO).
Unsurprisingly with all this compliance, combined with the FASEA exam requirements, there was no let-up in the loss of advisers during the year as a result.
According to Money Management’s TOP Financial Planning Groups data, the number of advisers had fallen to 12,000 from 16,140 in 2018. The overall number of current advisers, as listed on the FAR, also slipped below the 20,000 threshold this year.
The smaller numbers of advisers led to higher costs for consumers to access advice, coinciding with the largest transfer of intergenerational wealth in history, while the end of grandfathered commission was another prompt for advisers to exit the business or change their operating model.
At the same time, there were fewer entrants coming to the market with firms reluctant to take on entrants for a professional year and graduates unaware of the benefits of financial advice and deterred by the industry’s reputation.
The industry was encouraged to do more to show it had rebuilt its reputation and made improvements since the Royal Commission if it wanted to be recognised as a professional industry.
YOUR FUTURE, YOUR SUPER
In one of the widest shake-ups of superannuation sector, the Government passed reforms under the Your Future, Your Super banner in June 2021.
This introduced a performance test for MySuper funds, a comparison site called YourSuper, stapling measures which attached members to a chosen fund for their lifetime to prevent the creation of multiple accounts and increased transparency of how funds were using member’s savings.
In the first round of performance test results released in August, there were 13 MySuper funds which failed the performance test including funds from AMG Super, Colonial First State, and Maritime Super. Failed funds were required to notify their members of the performance result in order to offer them the opportunity to switch fund.
There were also calls from the Australian Institute of Superannuation Trustees (AIST) and other organisations that the performance test was extended to all types of super funds.
AIST chief executive, Eva Scheerlinck, said: “While it’s important to be performance testing MySuper funds, we need to recognise that this is the sector that generally outperforms other types of super funds where millions of members currently languish.
“More than one-third of super savings are currently excluded from scrutiny and disclosure and these members have no way of knowing whether their fund would have failed the test.”
Regarding stapling, there were criticisms that members, particularly in certain jobs which required insurance or younger members, could be trapped in underperforming super funds for life if they were not engaged to move.
MARKETS
While 2020 saw a market crash in March as the world went into lockdown, markets this year were steadier thanks to the global vaccine rollout. As of 18 November, 2021, the ASX 200 rose 16% since the start of the year but it lagged other markets with the S&P 500 rising 34% and the FTSE 100 up 22%, according to FE Analytics (see Chart 1).
Shane Oliver, chief economist at AMP Capital, said: “Markets continued to rise this year, led by the US, and have been more steady than 2020. Were it not for the vaccine, they would have lagged but the vaccine was the single biggest factor helping markets”.
The best-performing sectors were telecoms, financials and consumer discretionary stocks while the ASX 200 Value index rose 6% and the ASX 200 Growth index rose 14%.
“The big stand-out sectors this year were telecoms, financials and consumer discretionary. Finance is a big driver of returns and as people look for income then the strong dividends they pay out has helped,” Kerry Craig, global market strategist at J.P. Morgan Asset Management, said.
“I have a decent outlook for 2022, there will be rebound in growth, elevated savings levels, increased wealth from house prices and corporate capex is strong.
“2021 was a record year for merger and acquisition activity because of private equity activity, they have dry powder which is yet to be spent as it was hard to make deals in 2019/2020 due to the pandemic uncertainty. Now there has been a release of pent-up demand and I expect that positive trend will continue into 2022.”
However, in the bond space, the Reserve Bank of Australia (RBA) held interest rates at 0.1% for the duration of the year and indicated they would remain at this position until 2024. However, it did move to taper bond purchases which led economists to expect a rate rise could happen earlier.
Oliver said: “The RBA reckon rates could rise in 2024 but we think it will be 2022 and the money markets think this as well, they are more hawkish so there is a tug of war between central banks and money markets”.
Craig said the employment rate and wage growth would be a big factor for the RBA in deciding when to raise rates depending on how long it took for the unemployment rate to fall. Latest statistics from the Australian Bureau of Statistics state the unemployment rate was 5.2% in October.
“Any rate rises will be slow and gradual, the RBA is in no hurry, it would rather make a dovish mistake than a hawkish one,” it said.
Craig added he expected the big rise in equities could see investors rebalancing their portfolios to include more bonds in order to avoid an overly-high equity weighting from a risk perspective.
RETAIL TRADING
Still confined by the pandemic thanks to NSW and Victoria’s second lockdown in the middle of the year, the trend for retail consumers becoming interested in stocks and trading continued unabated.
This year, there was particular interest in cryptocurrencies, often led by social media information, which led the regulator to take a look at both.
On TikTok, the hashtag #personalfinance received over four billion views as users logged on to find out the latest about investments and cryptocurrency.
While Senator Jane Hume, minister for financial services, superannuation and the digital economy, said she was pleased that young people were becoming engaged with finance, ASIC warned they were watching to see if creators were giving unlicensed advice which could incur harsh penalties. ASIC also warned it had noticed ‘pump and dump’ schemes which were being driven by social media.
Meanwhile, ASIC carried out a consultation into cryptocurrency covering good practice by providers, pricing and risk methodologies which was seen as a green light for firms to launch cryptocurrency exchange traded funds.
BetaShares chief executive, Alex Vynokur, said: “ASIC has taken a significant step in providing a clear path for established cryptocurrencies such as bitcoin and ether to be made available to Australian investors via a familiar ETF structure. This is a welcome development for those investors and financial advisers who are seeking crypto exposure, but are uncomfortable with buying and selling cryptocurrencies on unregulated exchanges”.
Following the announcement, VanEck and BetaShares both announced plans to launch spot-based ETFs in the future. In the meantime, a Crypto Innovators ETF launched by BetaShares traded almost $40 million on its first day of ASX listing, indicating a burgeoning demand.
Advisers were hopeful the potential launch of these types of products on platform would enable them to discuss cryptocurrency with their clients as they were currently restricted by the fact it was an unregulated asset.
AUTHOR
Laura Dew
Laura Dew is editor at Money Management. Prior to joining MM, she spent five years working at Investment Week in the UK, covering asset and wealth management.
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