Dan Miles

Innova Asset Management has won the multi-asset award at this year’s IMAP Managed Account Awards with the judges noting the firm’s standout competence in asset allocation expertise, risk management and manager selection.

Dan Miles, managing director and co-chief investment officer of Innova Asset Management, said Innova has been a finalist for several years, but won the award this year with its unwavering pursuit of excellence in investing and a diligent team effort.

“Success in the IMAP Awards demonstrates to the investment industry, our advisers and clients that our investment services excel in delivering results,” he said.

“This achievement reflects how we have continued to evolve, improve and dedicate ourselves to client investment outcomes over time. I’d like to give an enormous thanks to all our supporters: our  clients’ capital continues to remain in safe hands,” he said.

“I would also like to recognise the contribution of the Innova team – this achievement was made possible through team effort. Innova has an extraordinarily talented team, and we could not have built the robust, institutional-grade offering for clients without the tireless hours dedicated to improving what we do and helping more Australians invest successfully every day,” Mr Miles said.

“We also thank the Institute of Managed Account Professionals (IMAP) and especially the independent judges for investing time and effort to these awards – it is a monumental undertaking on their part.”

The IMAP Managed Account Awards are selected by a panel of experienced investment professionals, who understand portfolio construction and the investment selection process through their experience on investment committees, in running managed accounts and fund portfolios and through their hands on involvement in the development of managed account portfolios.

IMAP’s chair Toby Potter said that managed accounts have become one of the most significant components of retail financial services, as advisers adopt them as a principal way of implementing their advice service offering.

“Successful portfolio management for multi-asset class managed accounts is amongst the most challenging as it requires a wide range of competences – asset allocation expertise, risk management and generally manager selection. We felt Innova demonstrated competence in all of these areas,” he said.

“Innova demonstrated a clear intellectual underpinning to their approach to portfolio management, built on their risk framework and sensitive to the impact of current value on potential investment outcomes,” Mr Potter said.

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Dan Miles

Investors often rely on mental shortcuts and biases to manage their investments but these can result in poor decision-making and behaviour that can have a long lasting impact on their finances; advisers have an important role in helping clients  overcome these biases and improve decision-making, according to a new research paper from Innova Asset Management.

Dan Miles, Managing Director and Co-Chief Investment Officer of Innova, says decisions grounded in biases can be very problematic for investors, especially when they’re related to important issues such as managing money.

“Behavioural biases often translate into poor investment performance, and this paper, Portfolio construction: avoiding bad behaviour, A new era approach to defining and aligning risks to individual investment goals, uncovers the important role financial advisers have to play in helping Australians better manage their money in a more objective way and to not be overcome by their emotions or biases,” he said.

Despite how practiced we are as decision makers, most of us are notoriously bad at them, straying away from the rational, fact-based frameworks of textbooks, and instead being influenced by a range of factors, including our emotions, our biases, and our mental bandwidth, the research paper finds.

“Financial advisers can and do play a vital role in coaching and mentoring their clients to help them make better decisions and avoid value destructive behaviours.”

One of the biggest drivers of poor decision-making is sheer mental overload, and the short cuts people adopt to make decisions, according to the paper. The paper reveals that investors can often be overloaded with information and decision-making. Humans make around 2,000 every hour.  While many of these decisions are low level decisions of little consequence, such as what to wear or what to eat, some decisions are much more serious, and can have a significant impact on relationships, careers or investments.

“Scientists estimate the human body sends 11 million bits per second to the brain for processing, yet the conscious mind can only process around 50 bits per second. And the mental load is only increasing. Scientists estimate we process at least five times more information today than we did 40 years ago. The digital age may have its upside, but it also creates a state of almost constant distraction and struggle to focus,” the paper says.

“The only way we can cope is to use mental shortcuts or heuristics to make decisions amongst this deluge of data. These are our behavioural biases.”

Amateur investors, in particular, or those who rely on their own resources, are particularly prone to making poor decisions, and these can result in consistent investment underperformance.  “Sometimes investors overestimate their own abilities, believing that they are smarter or more informed than they really are. Associated effects can include poor stock selection, increased risk taking, and more frequent trading of stocks, all of which can drag down portfolio performance. Various studies have shown men are more likely to exhibit overconfidence than women,” the paper reveals.

Other common biases include the anchoring bias, which causes investors to rely heavily on the first piece of information they are given about a topic and interpret newer information from the reference point of our anchor instead of seeing it objectively. “In a broader context, investors can also be anchored around other reference points, including individual stocks, regions, performance benchmarks, and even individual CEOs, all of which can undermine objective decision making,” the paper says.

According to the research paper, by better aligning individual goals with an investors’ risk tolerance levels and constructing differentiated portfolios to reflect these goals and risk tolerances, clients gain more ownership and understanding of their investment strategies, helping to avoid nasty surprises and minimising the likelihood of value destructive behaviour.

“Creating better investment behaviours among clients requires financial advisers to use a framework that is robust, repeatable, and scalable,” Mr Miles said.  “Best practice analysis has identified three key elements in such a framework. First, aligning and prioritising investment goals around client values, second, applying risk benchmarks that better reflect client behaviours and market dynamics and are tailored to individual goals, and finally, promoting client financial literacy,” Mr Miles said.

The paper stresses that using a broader range of risk metrics when constructing portfolios beyond volatility is important. “Volatility has traditionally been the most common measure of risk used by advisers. But for all its merits, it also has its limitations. Although volatility can be positive or negative, it treats all outcomes the same. Volatility doesn’t reflect all the risks that can face an investor, such as the risk of not generating enough capital growth and due to misconceptions in the way volatility is calculated, many people falsely believe that two investments with the same standard deviation are equally risky,” the paper finds.

“As well as utilising a more comprehensive view of volatility – which reflects its limitations, a broader range of risk metrics could include the maximum drawdown a portfolio could bear; the average magnitude of drawdown, and the frequency with which a significant drawdown might be expected. Using such a range of risk benchmarks would allow scope to build portfolios more closely aligned to the way investors cope with risk in the real world and build portfolios that maximise growth potential without breaching risk comfort zones,” the paper says.

Setting investment goals aligned with an investor’s values are important too. “In an investment context, we are likely to be more disciplined and focused on pursuing goals that are grounded in our values, where the emotional link is stronger. From an adviser’s perspective, determining a client’s values is therefore critical.”

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Dan Miles

Millennials are firmly locked out of the Australian property market and with average dwelling prices in NSW sitting above $1.2 million, now is time for younger Australians to consider other investment options, including devoting more to superannuation and allowing superannuation funds to use leverage to boost their returns, according to Dan Miles, Managing Director and Co-Chief Investment Officer of Innova Asset Management.

Australian Bureau of Statistics Total Value of Dwellings^[1] data reveal that the average residential dwelling price in NSW rose 1% in the March quarter to $1,212,000 from $1,200,300 in December 2023, to be the highest in the country. Nationwide, the average price of residential dwellings rose by $14,300 or 1.5% to $959,300, during the quarter.  The second most expensive state or territory in which to buy a home was the ACT, where the average dwelling price was $950,500, then Victoria at $914,300.  The average dwelling price in Brisbane was $853,900.

Rising residential property prices have created unprecedented wealth for Baby Boomers thanks to the power of leverage, lucrative tax breaks, constrained supply, and strong population growth, according to Mr Miles.

“Unfortunately, a generation of younger Australians have become the collateral damage to rising property prices. Many younger people who can’t rely on parental wealth or an inheritance have been effectively locked out of the property market, without the funds to be able to afford a deposit for a home or maintain a mortgage,” he said.

“This has deep implications across society. Younger Australians are in desperate need of solutions, but there are no politically simple ways to tilt housing back towards being a human right rather than a speculative asset class.  There will always be sound reasons to own a home that stretch far beyond the financial realm, but many younger investors will also need to consider new ways to accumulate wealth, including through superannuation.”

According to Mr Miles, several factors have driven up residential property prices but one that is rarely given its due is leverage, or the use of debt to buy residential property.

“Loan-to-valuation ratios regularly stretch beyond 80 per cent while some governments have backed schemes allowing up to 98 per cent of a property’s value to be borrowed.  That amount of debt can turbocharge even nominal price gains given the median house in Sydney is now valued at almost $1.4 million,” Mr Miles said. “It’s no surprise then that the next generation is turning to more accessible investments such as shares and even cryptocurrencies.”

According to Mr Miles, allowing superannuation funds to take advantage of leverage would potentially offer more attractive returns for savers. “While there are strict rules that prevent super funds from using leverage, perhaps it’s time to reconsider those rules given the superannuation system has been established for decades. Superannuation is a 40-plus year investment where volatility, which can be amplified by moderate leverage, can be managed.

“Most superannuation funds have met their long-term return goals: leverage could power up that wealth creation. The average super fund has posted a 7.3 per cent annual return (or a real return of 4.5 per cent) over the 30 years ended June 30, 2023, according to ASFA.

“The scale of super funds means they could borrow at very low cost. Applying a moderate amount of leverage combined with a greater allocation to equities or a more aggressive investment profile should generate similar or greater return than a leveraged property investment,” Mr Miles said.

“It may not be enough to solve the housing crisis on its own, but it deserves further consideration as a generation of young Australians face a long wait for political solutions to the current housing crisis. The common saying that ‘your home will be your largest investment’ may need a recalibration, with superannuation potentially being the biggest asset future generations will have,” he said.

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[1] https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/total-value-dwellings/mar-quarter-2024

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Dan Miles

An analysis of APRA data reveals that about 60 per cent of MySuper accounts held by pre-retirees, or those aged 60 to 64 years, had low savings balances below $100,000 – or around 800,000 accounts  – not nearly enough to fund a comfortable twenty or thirty years in retirement, even with the age pension, according to Dan Miles, Innova Managing Director and Co-Chief Investment Officer of Innova Asset Management.

Innova’s analysis of the APRA data reveals that 46.4 per cent of the near 1.7-million-member accounts held by 60- to 64-year-old Australians were invested in MySuper funds at June 30, 2023.  But a closer breakdown of account balances reveals many had low balances, while 174,000 accounts had superannuation balances above $200,000.

“About 60 per cent of pre-retiree MySuper accounts had low balances of below $100,000, which means many people on such low balances will fall short of what they need to live comfortably in retirement,” Mr Miles said.

“With around 800,000 accounts having a balance of less than $100,000, many older Australians risk having to go without luxuries in what should be their most comfortable years, given the high cost of living and inadequate savings in MySuper funds. A 65-year-old Australian woman today can expect to live another 23.0 years and 65-year-old man another 20.3 years longer^[1] Many pre-retirees need higher savings and stronger investment returns to help fund such a long time in retirement,” he said.

According to Mr Miles, the typical advice for a person this age is to lower portfolio risk as retirement approaches, which is something that lifecycle funds do automatically. However, lowering exposure to growth assets may not be good advice for many pre-retirees with low balances. Ironically, those with lower balances may be better served allocating more aggressively because of the security the age pension brings, and their need for better long-term results.

“They need strong returns to help fund decades in retirement, but are more exposed to sequencing risk, or the risk that a market downturn can significantly dent their retirement savings. Investors should seek personal advice on how they can best build their super to meet their needs. The advice doesn’t need to be all-encompassing financial advice. It can be limited to particular areas, such as retirement. This approach can more than pay for the cost of advice,” Mr Miles said.

Australia’ default MySuper funds are among the most aggressive pension investors in the world, allocating 60-70 per cent in growth assets such as equities.  But even with such aggressive allocations, older investors with lower balances may be able to invest even more aggressively than default MySuper products with backup from the Age Pension if markets fall.

“However, these are complex calculations that require financial advice. Pre-retirees with substantial savings above $500,000 are more likely to need to protect those assets from the risk of a market downturn. It’s those on lower balances, which are many, as shown by the chart below, who are equally in need of advice.”

Recently released wealth data, ABS Household Wealth Data^[2] reveals that household net wealth sat at a record $15.66 trillion in the December 2023 quarter, with wealth boosted by a record level of superannuation assets, which totalled $3.74 trillion, boosted by rising asset values and contributions into pension funds following legislative changes to compulsory superannuation and strength in the labour market.

The chart below reveals the extent of the ‘taper trap’ – the region where higher balances actually lead to less income because of the aggressive drop in the age pension. As super savings grow, the value of the government Age Pension is cut by an even greater amount thanks to a quirk in Australia’s retirement system, as shown in the graph below.

————

Notes:
[1] https://www.canstar.com.au/life-insurance/whats-your-life-expectancy/
[2] https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-finance-and-wealth/dec-2023#households

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Dan Miles

An equity portfolio built with shares displaying value, momentum, low volatility and quality characteristics will likely outperform a traditional portfolio tracking a market-capitalisation weighted index over the long term, according to new analysis from Innova Asset Management.

While equity portfolios offer significant returns over the long term, they also come with substantial risks given the inherent volatility in share markets. These can be mitigated by targeting equity factors or characteristics that can boost returns over time, according to Dan Miles, Innova Managing Director and Co-Chief Investment Officer and co-author of the  research paper, Better Equity Investing^[1].

“Our research has found that an equity portfolio built using the four factors of momentum, quality, value and low volatility and invested in either the Australian or Global share market delivered significantly higher returns between 1982 and 2023 compared to the share market benchmarks in both markets,” Mr Miles said.  The graphs below highlight this outperformance.

The graphs below highlight this outperformance, of 1.74% p.a. for an Australian multifactor portfolio and 1.57% p.a for a global multifactor. Different factors drive equity returns depending on financial or economic fundamentals. Value stocks have low prices relative to their financial fundamentals such as earnings. Momentum refers to investing in companies with strong price trends where strong past returns are associated with strong future short-term returns.

Source: Bloomberg and Innova, as at 31/03/2024

Source: Bloomberg and Innova, as at 31/31/03/2024

Quality involves investing in companies that exhibit stable earnings, low leverage and high profitability while companies with low volatility typically enjoy defensive earnings and more stable share prices.

“These factors are now available to investors through low-cost exchange-traded funds (ETFs), which can have management fees as low as 0.25 per cent,” Mr Miles said. “The US market is the most advanced in the world, where ETFs represent 12.7 per cent of all US equity assets^[2] compared to 4.4 per cent across the Asia-Pacific. US-focused ETFs can cover value, momentum, low volatility and quality factors, as well as many others. While the Australian market is not quite as advanced, there are still ETFs for many factors available. Investors can still create Australian equity multi-factor portfolios using a combination of ETFs and other investment structures, such as managed funds; while there may not yet be a momentum or value Australian equity ETF, there are still momentum and value managers offering factor-based investment options,” Mr Miles said.

While a multi-factor can reasonably be expected to deliver a higher return over time, the approach may require fine tuning as different factors perform differently over the economic cycle.  “Innova takes an active approach to portfolio construction, rotating into and out of these factors as market conditions change. This approach increases the chances of delivering higher returns while managing the extra volatility and size of drawdowns associated with equities,” Mr Miles said.

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Notes:
[1] https://innovaam.com.au/portfolio-insights-better-equity-investing-part-two/
[2] https://www.ishares.com/us/insights/global-etf-facts

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Dan Miles

Analysis conducted by Innova Asset Management of more than 100 Australian equity managers reveals that the two strongest factors driving share return variability in Australia are momentum and valuation and most active managers are not generating extra returns for their investors through management skill.

Innovas’s analysis reveals that the performance of even the best active managers doesn’t persist over time^[1] and many fund managers are only delivering ‘naïve alpha’. Naïve alpha is alpha derived from being invested in a particular style or exploiting a particular factor over time, meaning that is the style or factor they are exposed to that generates the ‘alpha’ not manager skill (true alpha).

“Our research has found evidence that factors explain around 90 per cent of fund managers’ return variability and the way that their performance wanes over time,” said Dan Miles, Innova Managing Director and Co-Chief Investment Officer and co-author of the whitepaper, Factors, Funds and Performance Chasing^[2].

All investors focus on some type of fundamental characteristics when investing, such as ‘value’ or ‘growth’. There is increasing evidence to suggest that these factors are the key driver of the outperformance of equity managers, or ‘alpha’.

“Innova’s analysis of more than 100 Australian equity managers shows the impact of two of the strongest factors – momentum and valuation – on performance. It also helps explain why most active managers don’t deliver consistent alpha over the long term. Over the short term (12 months), managers who have a style or factor bias, have positive momentum behind them and therefore tend to do well the following year. However, if they have performed very well over five years, the valuation of that exposure has become expensive, and we see performance mean-revert back down again.,” said Mr Miles.

“This should prompt investors to think of better options that can deliver higher returns. A better understanding of these two factors and others such as company size, quality, and volatility can identify fund managers delivering naïve alpha and help investors avoid paying excess fees for a style bias that that they can access at a lower price through style or factor-based systematic strategies such as ‘smart beta’ offerings,” Mr Miles said.Innova’s whitepaper discusses the role of investment styles and factors in driving manager performance and how understanding these factors can lead to a better evaluation of a manager’s true performance. Different factors drive equity returns depending on financial or economic fundamentals. Value stocks have low prices relative to their financial fundamentals such as earnings. Momentum is a well-known factor that refers to investing in companies with strong price trends. Being sentiment-based, strong past returns are associated with strong future returns (but only in the short term). Quality involves investing in companies with healthy balance sheets including strong earnings and low debt, while size refers to small or large companies.

The diagram below shows the impact of one-year past performance (higher past performance suggests strong momentum) and five-year past performance (higher past performance suggests the valuation is becoming more expensive) on fund manager performance.

“Most fund managers’ performance over time shows that if they’ve performed well over the past 12 months, they’re likely to over the next 12 months. However, if they’ve performed well for 5 years, their particular style of investing has likely become expensive (has a high valuation) and is likely to perform poorly as future returns have been priced into the style they are following.”

Innova believes there is merit for investors to rotate in and out of different styles using these two and other factors as market conditions change to suit them.

“Factors that have performed well over the last few years will still likely cycle back to underperforming over the medium term.  The challenge is to understand why and then implement this factor rotation in a systematic, rules-based fashion. This approach is one of Innova’s key competitive advantages, and we continue to research and refine our approach to delivering factor-adjusted alpha rather than naïve alpha,” said Mr Miles.

“This can help equity investors, as well as those investing in other asset classes, extract the most outperformance from their strategy.”

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Notes:
[1] ASIC Report 22: A review of the research on the past performance of managed funds. September 2002 – (revised June 2003). Retrieved from https://download.asic.gov.au/media/1337666/FMRC_Report.pdf.
[2] https://innovaam.com.au/news-and-insights/

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Dan Miles

More than 5.2 million young Australians are missing out on higher superannuation returns by investing their retirement savings in default MySuper accounts, rather than investigating other investment options, according to an analysis of APRA data by Innova Asset Management^[1].

The analysis reveals that an all-equities portfolio^[2] spread across Australian shares and unhedged international shares outperformed the typical MySuper ‘balanced’ fund by 13.6 percentage points over the decade ended September 1, 2023, and by 16.8 percentage points over the multi-decade period from January 1, 1995, to September 30, 2023. It is important to note that data on MySuper offerings is not available back to 1995, so Innova developed a simulated model and ran it from 1995 to test the longer-term outcome.

Innova’s analysis of the APRA data reveals Australians under the age of 40 years hold more than 10 million MySuper accounts, so they typically face a 25 to 45-year investment time frame before their superannuation is accessible. It has compared their performance to an all-equities portfolio consisting of Australian and international shares.

Dan Miles, Innova Managing Director and Co-Chief Investment Officer, said: “MySuper funds which default to a ‘balanced’ type of portfolio typically were found to underperform an all-equities portfolio because insufficient risk was being taken given the time horizon of investors, many of whom can afford to take on more risk given their relatively young age.

“MySuper products were designed to cater for a largely disengaged customer base given superannuation’s distant payoff. Those least likely to be engaged – and so invest in default MySuper products – are young people with lower education, those on lower incomes and people with lower financial literacy. However, even younger Australians on higher incomes with relatively higher levels of retirement savings remain invested in lower-returning MySuper products,” said Mr Miles.

“The problem of being allocated to a superannuation offering that is not in line with an investor’s long-term goals is growing and suggests there is a great opportunity for financial advisers to expand into a younger client base to advise younger Australians on taking on higher equity risk investment options, which are more likely to deliver superior long-term returns,” said Mr Miles.

“This is another window into the ongoing issue of financial advice accessibility. Younger Australians who are by default investing in MySuper products would be better off with financial advice. This represents an opportunity for financial advisers to offer more affordable and scaled financial advice to young Australians.”

Innova’s analysis of the APRA data reveals that almost 250,000 Australians (or 233,000 people) aged 30 to 34 years hold between $100,000 and $499,999 in MySuper accounts. Meanwhile, more than half a million (597,000) Australians aged 35 to 39 years also have the same amount invested in MySuper accounts.^[3] There are currently around 61 MySuper products which are intended as low-cost, simple products suitable for most investors. Most are balanced funds, with a static 70:30 growth-defensive asset portfolio allocation, though a small number are lifecycle funds, in which investors’ exposure to defensive assets increases as they approach retirement age.

“Younger investors will need to generate more wealth through superannuation to allow them a comfortable retirement income. While younger investors have the benefit of longer working lives and a rising superannuation guarantee, they will need stronger long-term returns,” said Mr Miles.

“Many currently rely on property to build wealth, but for many, especially younger investors, allocating to a property is out of reach as the cost to buy a property is too high. They would be financially better off investing more of their savings to assets such as equities – and importantly for superannuation, appropriate investment options.”

Household wealth in Australia rose 2.6 per cent in the June quarter 2023, to a record $15.1 trillion, up 3.9 per cent from a year ago. Property holdings drove the increase in household wealth in the third quarter and in recent years. Wealth per capita grew 2.1 per cent or $11,442 to $567,632 per person, data from the Australian Bureau of Statistics (ABS) reveal. Most household wealth is held in property; a total $10.3 trillion – or around 68 per cent of household wealth –was stored in property, compared with $3.6 trillion in superannuation. Australians held just $1.3 trillion directly in shares and $1.6 trillion in cash deposits.^[4]

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[1]  There are 5,229,000 MySuper accounts held by investors up to 29 years of age. Quarterly Superannuation Industry publication | APRA. (2023, December 04). Tables 7 and 8. Retrieved from https://www.apra.gov.au/quarterly-superannuation-industry-publication.
[2] 50% S&P/ASX200, 50% MSCI ACWI unhedged.
[3] Quarterly Superannuation Industry publication | APRA. (2023, December 04). Tables 7 and 8. Retrieved from https://www.apra.gov.au/quarterly-superannuation-industry-publication. The APRA data refers to the number of MySuper accounts. While legislation has largely eliminated many duplicate accounts, in reality, a small number will still be held by some investors in these age brackets.
[4] https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-finance-and-wealth/jun-2023

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Mr Younger will work closely with Fortnum Financial Advisers managing director Joel Taylor, Innova Asset Management managing director Dan Miles and group chairman Ray Miles.

“Neil is a well-regarded, experienced wealth management executive with proven skills across a range of areas and we’re fortunate to be able to attract someone of his calibre to take Fortnum to the next stage,” Ray Miles said.

“Neil’s appointment enables me to step back from the day-to-day operation of the Fortnum group to focus on my core skill set of recruiting advisers and working with our practices.”

He added that while Fortnum had established a comprehensive, award-winning licensing and dealer services’ solution, considerable growth opportunities lay ahead and the business had plans to lead the evolution of the professional services advice firms.

“We believe in a complete end-to-end solution for clients and business life stage solutions for our advisers. Neil’s brief is to lead the ongoing development and implementation of those solutions,” he said.

Mr Younger, who has held senior wealth management roles at ANZ, BT Financial Group and Commonwealth Bank, comes to Fortnum with deep expertise in the areas of licensee management and advice. He also has considerable Board and Responsible Management experience.

“Fortnum is a quality business with considerable growth opportunities and I’m excited about working with Ray, Joel, Dan and the team to take the group forward,” Mr Younger said.

“As the industry continues to respond to evolving client expectations and businesses to a very different operating environment, advice specialist businesses such as Fortnum are well placed to evolve solutions and to lead. As a licensee with a client-centric mindset, and a proven record of helping professional services firms grow, Fortnum has a compelling offer and is in a strong position to continue to attract quality advisers.”

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Titled, And the walls came tumbling down: Why the industry must build a new foundation, the paper’s authors: Ray Miles, executive chairman of Fortnum Financial Group; Dan Miles, managing director of Innova Asset Management; and leading consultant Jim Stackpool, have called on the industry to separate financial product from financial advice; abandon all sales incentives; and build a new advice culture.

According to the paper, the majority of advisers are still distributors of financial product because there has been no fundamental change or improvement to the industry’s culture and practises in the last 20 years, despite numerous parliamentary inquiries and reforms. “In the aftermath a several recent advice scandals, it’s clear culture isn’t a passing fad,” Stackpool said.

“Culture is a fundamental driver of behaviour and trusted advice which is why the latest round of government reforms won’t propel the industry forward or lead to better client outcomes. Risk commissions, volume rebates, complex buyer of last resort arrangements, and other incentives including discounted bank fees, lower insurance premiums, transition payments, discounted licensing and dealer services, and free tickets to major sporting events still exist, which perpetuate a culture of selling and not of professional, objective advice.”

While quality, client-centred advice was flourishing in parts of the industry, Dan Miles, managing director of Innova Asset Management, said a deeper public understanding of the financial planning process, and what financial advisers did and didn’t do, was required in order to help consumers more easily identify rogue advisers.

The report also called for a clear separation between financial advisers and product distributors by labelling anyone who is paid based on the sale of a product or who ties the value of their business valuation to a product manufacturer’s BOLR contract to be called a product provider.

“The new generation of professionals are reinventing the advice process so it isn’t linked to product but is purely about uncovering a client’s true goals and objectives, showing them what’s realistically achievable given their situation, what they need to do to achieve their goals, how to manage risk, and keep them on track over the long-term to maximise the chances of success,” Dan Miles said.

The new paper, which is a follow-up to the controversial ‘The sky is falling’ paper, concludes by detailing how the industry can earn the trust of consumers.

In addition to being more transparent and spearheading sensible reforms, Ray Miles, executive chairman of Fortnum Financial Group, said the advice industry needed to focus solely on solving the client’s problems, and in doing so, would ultimately solve its own.

“Trust will happen, or begin to return if you believe we ever had it, when clients believe that financial planners are working in their best interests and the industry is structured to protect them, and it isn’t right now,” he said.

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