Daniel Needham

Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment research, has completed its acquisition of Praemium’s operations in the United Kingdom, Jersey, Hong Kong, and Dubai from Praemium Limited (ASX: PPS) for £35 million, subject to completion adjustments.

Across its U.K and international business, Praemium offers proprietary, friction-free technology and services that enable advisers to outsource key elements of the advice workflow. Its platform–which Morningstar plans to rename as the Morningstar Wealth Platform – is used by nearly 500 independent financial advice firms to better serve their clients. Wealthcraft, a full-service, end-to-end adviser practice management support tool, which includes digital factoring, engagement, and risk profiling, is also part of Praemium’s international offerings.

“We are excited to welcome more than 100 new colleagues to Morningstar and expand our ability to offer advisers technology-enabled flexibility and choice,” said Daniel Needham, president, Wealth Management Solutions, Morningstar. “The Wealth Platform and Wealthcraft are powerful tools that reduce friction and save time so advisers can serve more investors – and in more extensive ways than they do today.”

The end-to-end Morningstar Wealth Platform adds to the data, research, portfolio analytics, and investment management capabilities offered to advisers by Morningstar and its subsidiaries, creating a complete experience designed to help advisers empower investor success at scale.

“We are excited to have found a home with a long-term vision and commitment to our best-in-class platform experience,” said Mark Sanderson, Praemium U.K. and international managing director, who now reports to Needham. “Morningstar understands that our fast growth has come from a relentless focus on delivering for our customers, and as part of Morningstar, we will only accelerate our existing road map. We are dedicated to a disruption-free customer experience—with no plans to re-platform—and the work to separate our technology has already been completed without any impact to our clients, which is a testament to that commitment.”

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Australian fund investors also suffer from a below average regulation and taxation framework when compared to global peers.

Fees in the managed funds industry continue to fall, yet there is room for improvement, according to Morningstar’s Global Investor Experience Study.

The published first chapter, Fees and Expenses of the biannual GIE report evaluates an investor’s ongoing cost to own managed funds compared to investors across the globe.

The report, now in its seventh edition, assesses the experiences of managed fund investors in 26 markets across North America, Europe, Asia, and Africa

Morningstar’s manager research team uses a grading scale of Top, Above Average, Average, Below Average, and Bottom to assign a grade to each market. Morningstar gave Top grades to Australia, the Netherlands, and the U.S., denoting these as the most investor-friendly markets in terms of fees and expenses.

This is the fourth study in a row that these three countries have received the highest grade in this area.

Conversely, Morningstar again assigned Bottom grades to Italy and Taiwan indicating these fund markets have amongst the highest fees and expenses.

Exhibit 1 of the Global Investor Experience report on Fees and Expenses shows the scorecard for the markets covered in the study. The arrows indicate whether a market experienced a change in grade since the last study in 2019.

Australia earnt a Top grade for Fees and Expenses, based on investor-friendly practices such as investors paying for advice outside of commissions, banned front loads and low asset-weighted median expenses, according to said Grant Kennaway, head of manager selection at Morningstar and a co-author of the study.

“Australia’s fee-based financial advice and the dominance of the Independent Financial Adviser has spurred demand for lower cost funds like passives as advisers have increasingly opted against costlier fund vehicles,” Grant says.

“Australian investors benefit from the effect of economies of scale and competition that is prevalent in a fund market underpinned by an ecosystem buoyed by compulsory superannuation savings,” he added.

According to Grant, however, outside low fees, the Australian retail investor experience is poor, when compared with global peers.

Regulatory failures

Grant again highlighted Australia’s current disclosure laws as outdated, and do not serve the interests of investors, a view highlighted in a previous Morningstar report on Australia’s portfolio holding disclosure laws^[1].

“Until recently, Australia was the only major fund market with no implemented portfolio holdings disclosure regime,” he said.

“Put simply, Australian retail investors had no regulated right to know what securities (stocks and bonds) their investment and superannuation funds held in their portfolios.

“Unfortunately, the government has recently introduced regulation that is a watered-down asset-allocation requirement, not true portfolio holdings disclosure that is prevalent globally.”

Grant highlights that the only asset class where portfolio disclosure really occurs is in the listed equity section.

“Listed equities holds many of the most well-regulated (lowest risk from a disclosure sense) assets on Earth and is the least problematic area for these regulations to focus upon,” he said.

“There is no way Australian investors can use the now required data for portfolio comparison, nor is there a way you could use this data to understand the true risks of a portfolio. Important, basic information, like does my managed fund have exposure to Russian bonds, is not required under the government’s current regulations”.

“Australia’s portfolios holdings disclosure regulations are retrograde and do not serve Australian investors’ best interest.”

He added that Australian fund investors also suffer from a below average regulation and taxation framework when compared to global peers.

“While the Australian regulators have a long legacy of running well-functioning and efficient markets, that is not enough to get even an Average mark in an environment where many markets have made great strides in delivering regulation that encourages investors and adds more protections for them.”

Read the full report.

———-

[1] Australia blows opportunity to improve portfolio holdings for retail investors: Morningstar view

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Peter Malekas

Moneysoft has appointed eight new staff in response to growing demand for its suite of personal financial management solutions.

This expansion boosts Moneysoft’s frontline account management and client service teams including increased support capability.

It follows strong uptake of the company’s core cashflow as a service software and the recent launch of its Round-ups solution. The new appointments are in account management, product development and support, as well as new hires in the sales team.

Moneysoft’s Australian team now numbers 18 full time staff.

In addition, Moneysoft has increased its offshore capability with nine additional staff in Europe dedicated to mobile application design, development and testing.

“Moneysoft has grown rapidly over the past 24 months, which has allowed us to make this significant reinvestment in the business,” Moneysoft managing director and founder, Peter Malekas, said.

“This will support our growth, and more importantly the growth of our customers, by continuing to develop market-leading technology, solutions and capability over the coming years.”

“Our industry is being transformed as a wave of technology changes the way we work. It can empower the public and provide significant productivity gains to businesses.

Moneysoft is committed to helping financial advisers, mortgage brokers, and super funds meet these challenges.”

The launch of Round-ups, which allows superannuation and investment funds members and clients to boost engagement by easily investing their spare change, builds on the company’s growth trajectory over the last 12 months.

Moneysoft’s cashflow as a service solution is already used by 15 dealer groups, distributors and resellers and is the only such service that integrates with iress XPLAN, a leading CRM and financial planning tool.

The company’s growth strategy is supported by a significant investment made in October 2016 by Link Group, a global fund administrator and share registry service provider.

Moneysoft plans to continue adding new resources which will allow it to continue providing superior and innovative products and enhancing market-leading customer service.

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The Australian Institutional Sector Survey is designed to enable institutional investors, superannuation trustees, asset consultants, and other market participants to meaningfully compare Australian investment strategies.

Key Findings

Australian share fund managers generally posted poor results in August. The median Australian share manager fell 1.2 percent for the month, but was up 10.8 percent over the year to 31 August 2016, ahead of the S&P/ASX 300 index’s 9.7 percent. Longer-term annualised returns from the median manager were 7.8 percent over three years, 10.9 percent over the five years, and 6.5 percent over the 10 years to 31 August 2016. The best-performing Australian share strategies over the year were Allan Gray (33.2 percent), Bennelong Concentrated (32.4 percent), and Hyperion (28.4 percent).

Global share strategies lagged Australian shares in aggregate over the year to 31 August 2016. The median manager returned 0.8 percent on an unhedged basis, individual results ranging from 11.2 down to -5.1 percent. Longer-term median results were 14.2 percent over the three years, 18.1 percent over the five years and 5.4 percent over the 10 years to 31 August 2016. Orbis (11.2 percent), Antipodes (10.6 percent), and CFS (7.9 percent) were the best-performing global share funds over the year.

The median Australian property securities manager gained 26.5 percent over the year, slightly above the index’s 25.9 percent. Folkestone (30.9 percent), Morningstar Investment Management (28.7 percent), and Ironbark Paladin (28.1 percent) were the best performers.

Growth assets produced mixed results over the month. Global equities was the best-performing growth asset class (1.3 percent), followed by Australian equities (-1.6 percent), global listed property (-2.6 percent), and Australian listed property (-2.8 percent).

Growth Australian share strategies did better than their value counterparts over the year. The S&P Australia BMI Growth Index returned 12.3 percent compared to the S&P Australia BMI Value Index’s 7.6 percent.

Information technology (4.6 percent) was the standout sector of the Australian sharemarket in August 2016, followed by energy (2.4 percent), and consumer staples (1.9 percent). Poorer-performing sectors included telecommunications (-6.5 percent), utilities (-5.7 percent), and industrials (-4.3 percent).

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Ibbotson is also providing TFS with investment consulting and advice capabilities including investment committee and governance oversight, investment advice including asset allocation, and dealer group and practice support.

Ibbotson has developed a comprehensive suite of managed account portfolios for TFS designed to meet investors’ needs across all life stages and risk profiles. Combining Ibbotson’s asset allocation, portfolio construction, and investment selection with Morningstar’s equity research capabilities enables TFS advisers to focus on building their business and client relationships.

“By selecting Ibbotson as investment manager for the Privilege Portfolios and investment consultant, TFS recognises the strong cohesion between our approach of growing and preserving wealth and the goals and objectives of end investors,” Chris Galloway, Ibbotson Associates Australia Managing Director and Head of Investment Advisory, said. “Leveraging our capabilities in capital markets research, asset allocation, portfolio construction, and managed accounts enables us to help TFS advisers create better outcomes for their clients.

“We offer advisers and advice practices a genuine alternative to bank- and insurance-owned dealer groups, and a home for advisers seeking cultural independence, strong referral opportunities, and a commitment to innovation,” Phillip Aris, Chief Executive Officer of TFS, said. “By working with Ibbotson, we’re able to provide our members with a comprehensive, differentiated service that enables them to be more efficient and enhance their client value proposition and best interest obligations.”

The Morningstar Investment Management group, through 11 investment advisory subsidiaries, creates custom investment solutions that combine award-winning research and global resources with proprietary Morningstar data and research. With approximately US$169.0 billion in assets under advisement and management at 30 September 2014, the Morningstar Investment Management group provides comprehensive retirement, investment advisory, and portfolio management services for financial institutions, superannuation funds, and financial advisers around the world. In Australia, Ibbotson Associates Australia Limited provides these services. Ibbotson Associates Australia is regulated by the Australian Securities and Investments Commission.

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They will be responsible for undertaking research on Australian and New Zealand managed funds, listed investment companies, and exchange-traded funds. Both report to Tom Whitelaw, Director of Manager Research Ratings.

“We’re very pleased to have Daniel and Matthew on board,” Whitelaw said. “Their appointments signal our continuing commitment to resourcing our team to provide our clients with insightful, timely manager research.”

Daniel Cheang worked most recently as Investment Manager, Manager Selection at the British Telecom Pension Scheme in London for three years, where he was responsible for long-only and fund-of-fund manager selection, portfolio construction, and maximising the benefits of manager relationships within the private equity and infrastructure allocations.

Before that, he was a Senior Investment Analyst at EFG Asset Management for three years, responsible for selection and monitoring of equity, fixed income, and property funds. He has also worked in assistant portfolio manager and analyst roles at Schroders, Credit Suisse, and Goldman Sachs Asset Management in the United Kingdom, and BT Financial Group.

Daniel has a Bachelor of Science degree from the University of Sydney, a Graduate Diploma of Applied Finance & Investment from Finsia, and is a CFA charterholder.

Matthew Wu worked previously in junior equity analysis roles at The Intelligent Investor and Microequities and as a property analyst at the University Network for Investing and Trading. He has a Bachelor of Science degree with honours in financial mathematics from the University of New South Wales.

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Lill will be responsible for leading the investment management teams in the Asia-Pacific region. He will also contribute to Morningstar’s global investment management committees, policies, capabilities, and thought  leadership. Based in Sydney, he reports to Daniel Needham, Morningstar’s Global Chief Investment Officer.

“We’re pleased to have Andrew on board,” Needham said. “His extensive background in investment  management, consulting and advice, asset allocation, portfolio construction, and related fields will enable him  to make a major contribution to our goal of building a leading global investment management business.”

Lill has 20 years’ experience in advising and managing institutional funds and investment teams in Australia, Asia, and the United Kingdom. He worked most recently at AMP Capital Investors as Head of Investment Solutions in the Multi-Asset Group, and before that, Head of Investment Specialists, Listed Assets.

He previously spent seven years with Russell Investment Group, as Director of Consulting – Asia-Pacific and ultimately as Director of Investment Strategy. His experience in the United Kingdom included roles in manager research with investment consultant Lane Clark & Peacock and as an investment analyst with Watson Wyatt. He has bachelor’s and master’s degrees in economics from Cambridge University and is a Fellow of the UK Institute of Actuaries.

“I look forward to contributing to Ibbotson and Morningstar Investment Management’s goal of creating better pre- and post-retirement investment outcomes for institutions, advice groups, and their clients in Australia and the Asia-Pacific region,” Lill said.

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Morningstar® Australian Superannuation Survey, 2013

Morningstar today published results of the Morningstar^® Australian Superannuation Survey, providing comprehensive coverage of the performance of Australian-offered retirement savings vehicles to 30 June 2013.

The Survey includes both commercial for-profit and industry superannuation options. Morningstar classifies funds according to a proprietary classification system created to facilitate meaningful peer-relative comparisons.

Key Findings

• Superannuation funds produced strong returns over the financial year to 30 June 2013, despite recent market performance. The median fund in the Morningstar Multisector Growth universe ended the month of June down 0.8 percent but still managed to return a healthy 16.7 percent over the financial year.

• The financial year started with a run of eight months of consecutive positive performance, resulting in a 13.7 percent return over that eight-month period. The median growth fund only dipped into negative territory on two occasions throughout the year: March (-0.3 percent) and June (-0.9 percent). The month of January provided the highest median performance with 2.8 percent.

• The past financial year produced the highest median result for growth superfunds over the past 16 years, only beaten by 1997’s 19.9 percent.

• Multisector options benefitted from the robust performance of growth assets over the financial year. International shares achieved the highest result with 33.1 percent over the year, followed by Australian property (24.2 percent), Australian shares (21.9 percent), and international property (15.5 percent).

• Multisector growth superfunds’ average allocation to equities at 31 May 2013 was 57.5 percent, 31.2 percent Australian and 26.3 percent global, while the average property exposure was 7.7 percent. Defensive assets totalled 23.6 percent on average (10.5 percent domestic bonds, 6.1 percent international, and 7.9 percent cash). Legg Mason Growth had the highest allocation to Australian shares (48.6 percent), followed byLegg Mason Balanced (42.6 percent), and Equip Balanced Growth (40.0 percent).

• Multisector growth superfunds’ asset class exposures only moved slightly on average over the past financial year. International equities was up 0.8 percent and Australian equities exposure up 0.3 percent on average. Domestic property exposure was lower, direct property down 1.2 percent and listed property 0.2 percent. Growth superfunds’ investment in global listed property increased 0.4 percent over the same period.

• The best-performing growth superfunds over the year to 30 June 2013 were Legg Mason Growth (27.0 percent), followed by Legg Mason Balanced (24.8 percent),Maple-Brown Abbott (21.0 percent), Perpetual Balanced Growth (19.2 percent), and REST Super Diversified (18.7 percent). Schroders (6.9 percent) came out on top over the five years to 30 June, followed by REST Super Core (6.0 percent), andREST Super Diversified (5.6 percent).

• Among the options in the Multisector Balanced category (40.0 – 60.0 percent growth assets), the best performers over the 2012/13 financial year were REST Super Balanced (14.1 percent), followed by State Super Balanced (13.5 percent) and CFS Moderate (13.4 percent).

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Guy Callaghan – Business Development Manager – Morningstar

Morningstar Australasia has appointed Guy Callaghan as Melbourne-based Business Development Manager to further enhance the firm’s sales and client relationship management efforts.
 
“We’re very pleased to have Guy on board,” said Morningstar Australasia Head of Sales Nigel Crampton.

“We’re working with an increasing number of dealer groups, brokers, institutions, and other organisations to provide integrated solutions in research, software, and data. I’m confident that Guy will make a significant contribution to these efforts and to our broader mission of helping investors make better decisions.”

Guy will be responsible for the sale of Morningstar’s solutions and building and managing relationships with clients in Victoria, South Australia, Western Australia, and Tasmania.
 
Guy has worked extensively in business development, relationship management, project management, and marketing with extensive exposure to the financial services industry. His previous positions have included director of 2integrity, a business consulting to financial planning and accounting practices; strategy consulting with Foxrock Consulting and Zest Wealth Advisers; and working in business development/wealth advice with Fordham Investment Management. He has also worked in business/management consulting with SMS Management & Technology and Ultradata Australia.
 
He has bachelor’s degrees in commerce and education from the University of Canterbury, New Zealand, and a Diploma of Financial Planning.

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The aim of the report is to encourage dialogue about global best practices for managed funds from the perspective of fund investors.

Morningstar researchers evaluated and scored countries in four categories: regulation and taxation, disclosure, fees and expenses, and sales and media, based on a combination of factual research and interviews with Morningstar analysts in each country.

Each country was then graded on a scale from A to F for each of the four topics, and these grades were then combined to form an overall grade. The report is not a commentary on a country’s managed funds industry, as there are many factors besides industry behaviour that can affect an investor’s experience.

“We launched the first Global Fund Investor Experience Report in 2009 to examine the treatment of managed fund investors in 16 countries, with the goal of advancing a dialogue about best practices worldwide. Since that time, we’ve had numerous conversations with regulators and fund managers in multiple countries about their existing policies and ways to improve,” said Morningstar Australasia Chief Executive Officer Anthony Serhan.

“Working with our analysts around the world, we expanded our survey to 24 countries this year. We hope our findings will help fund managers and regulators around the globe continue to focus on improving the environment for investors.”

Australia
Australia scored a C+. Australian investors enjoy low costs and favourable sales practices from a global perspective, but disclosure practices are comparatively weak and tax costs relatively high.

Australia fares very well with respect to fees and expenses. Australian share, multi-sector, and fixed income funds are some of the least expensive globally.

Australia also fares well in the area of sales and media, benefitting from open architecture platforms and a variety of sales channels. The Future of Financial Advice (FOFA) regulations place a fiduciary standard requiring financial advisers to place investors’ interests ahead of their own. This protection is stronger than found in most of the world.

Australia is the last country in this report without any form of mandated, periodic portfolio holdings disclosure presently or in proposed regulations for managed funds. With global best practices being mandatory quarterly disclosure, Australia is very far from the mark. There have been positive steps, however, with voluntary disclosure standards well-advanced and a mandated requirement due to be introduced under the MySuper regulations.

Australia’s product disclosure statement misses some marks as a simplified prospectus. Nowhere in the disclosure is portfolio manager information available. The document also lacks standardised returns, and poorly describes investment strategy and risks.

Australian managed fund investors suffer some of the highest investment taxes of any country in the report. Australia is one of only a handful of countries in which capital gains are passed through to fund investors annually, rather than deferred, and accumulated in the gains in the fund unit price. Fund investors also pay consumption taxes on the investment management service.

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