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Scalable Investment Excellence

One of the more notable trends within financial advice over the last decade – and the last five years in particular – has been the growing adviser usage of managed accounts.

Arguably the primary driver of this exceptional growth has been their potential to deliver operational efficiencies and superior client investment outcomes.

Another likely factor in this growth is the increasing role played by investment consultants within the retail advice sector, emblematic of a trend towards increased outsourcing of investment capabilities, by advisers eager to spend more time building client relationships, and less time monitoring markets and picking stocks.

The options available to advisers seeking to outsource aspects of their investment proposition continue to proliferate and benefit from ongoing innovation. With new solutions becoming available almost on a daily basis, both existing and potential users of managed accounts are almost overwhelmed by choice.

If we think in terms of a collective ‘investment outsourcing’ space, then it is one that is undoubtedly burgeoning, and this paper sets out to provide advisers with a framework for choice within this space.

Drawing on insights from advisers and investment consultants, its role is to provide advisers with a list of considerations and criteria that can link choices around products, platforms, and professional help, back to business fundamentals, including investment philosophy, target audience, practice size, and client value proposition.

Technical Competence Client Care & Practice Regulatory Compliance & Consumer Protection Professionalism & Ethics General 0.80 CPD Pts
Impact Investing: Perspective Reset

Impact investing is a rapidly growing investment sector.

Estimated in 2022 by the Global Impact Investment Network (GIIN) to already be worth over $1 trillion USD1, and predicted to grow by as much as 9.5% per annum over the next decade2, impact investing has become well and truly mainstream, and as a topic now features more prominently in both media coverage, and in client conversations.

But notwithstanding this stellar growth trajectory, and the undoubted increased community consciousness of environmental and social issues, impact investing remains widely misunderstood. Often assumed to be the same as ESG integration and responsible investing – the reputations of which have been somewhat tarnished in recent times due to concerns about politicisation, greenwashing, and subdued performance – impact investing is in fact its own distinct category of investment.

Characterised by a more robust focus on measurability than other categories under the ESG banner, and subject to financial assessment criteria every bit as stringent and comprehensive as traditional investments, impact investing arguably solves for many of the concerns surrounding ESG investing generally.

Impact investing is underpinned by the intention to generate positive environmental or social impact, alongside a financial return. Within this context, leading impact managers are focused on finding companies and opportunities that truly represent best in class solutions to challenges across areas including healthcare, education, sustainable cities, financial inclusion, and of course clean energy. So rich is the variety of investable impact opportunities, almost every client can be catered for.

But first, it is clear that adviser perspectives on Impact Investing need to be reset.

There remains a hesitancy on the part of some advisers to engage clients on the topic of impact and responsible investing more broadly. Much of this hesitancy – about performance, about compliance, about sensitive conversations – can be put down to false perceptions about client sensitivities, performance, and client risks. As this paper demonstrates, the unique characteristics of impact investing arguably solves for many of these concerns.

This paper is a companion piece to the Ensombl/T. Rowe Price podcast series on Impact Investing. Drawing on frontline insights from 5 Australian advisers operating in the impact space, we hope to reframe the understanding of, and attitudes towards impact investing, with the aim of giving advisers the tools and the confidence to make impact a key part of their offering.

Following the overall shape of the podcast series, this paper will aim to reset adviser understanding across 7 key misperceptions:

• Impact and Responsible investing are the same
• Impact investing requires the client to accept lower returns
• Impact investing lacks transparency
• Impact investing is all about the environment and climate change
• Sensitivities around personal values make for awkward client conversations
• Limited impact options hamper portfolio construction
• Impact investing carries a high risk of greenwashing

Technical Competence Client Care & Practice Regulatory Compliance & Consumer Protection Professionalism & Ethics General 0.80 CPD Pts
Portfolio construction: avoiding bad behaviour

Now more than ever, successful investing is challenging. Investors are constantly required to make high stakes decisions on the basis of increasing amounts of complex, and sometimes conflicting data and signals. Gathering, processing, then distilling all this data to allow timely, accurate decision making can be hard enough for professional investors, let alone individual ‘mums and dads’.

As with all aspects of our lives, when faced with information overload, we rely on mental shortcuts – biases – to help us stay on top of all the decisions we must make each day. But when these biases come into play with our investment decision making, the results can be bad behaviours, and outcomes that have a lasting impact on our financial wellbeing.

The Ensombl Podcast series ‘Behavioural Investing’, addressed this very topic, and concluded that, by grounding investment goals in a client’s personal values, better aligning individual goals with variable and evolving risk tolerances, and constructing differentiated portfolios to reflect these goals and risk tolerances, advisors can create more client ownership and understanding of the investment strategy used for each goal, thereby avoiding surprises, and minimising the likelihood of value destructive behaviour.

Produced as a companion to the Behavioural Investing series, this paper explores the outcomes of the poor investment behaviour that our biases can drive, and examines the ways advisors can better connect values, goals, and risk, to drive better advice outcomes.

Technical Competence Client Care & Practice Regulatory Compliance & Consumer Protection Professionalism & Ethics General 0.90 CPD Pts
Why evolution isn’t helping us

Three basic ingredients will help make you a successful investor: a defined strategy, discipline and time. That sounds very straightforward, but like many activities, putting the theory into practice is much easier said than done.

Humans haven’t evolved into great investors. We generally follow the crowd and naturally avoid risk, which is less likely to lead to outperformance.

Why is this? Historically, it’s always been risky to be the person out on your own. In prehistoric times, for example, everyone slept together in a cave. If one caveman decided to spend a night under the stars instead, the chances are he wouldn’t be coming back in the morning – easy pickings for a sabre-toothed tiger.

Our evolutionary bias is to follow the wisdom of the crowd, escape from danger and avoid discomfort. That’s what has kept us alive, but these tendencies aren’t beneficial when investing and potentially have serious consequences. The tendency to do what other investors are doing leads to buying the same well-liked securities as others, with a ‘great story’ attached, and that have performed well recently. Humans feel comfortable holding those securities, but the downside is that when comfort bias is driving decision making, investors could overpay for the asset.

At its worst, market bubbles form, where later participants significantly overpay for assets and are the biggest losers when the bubble bursts and stocks come crashing down.

Buying and selling at the right price is paramount to investing success. Morningstar’s ‘Mind the Gap 2024’ report1 shows that most investors consistently get this wrong. The Report’s findings include that fund investors earned a 6.3% per year dollar-weighted return over the 10 years until December 31 2023, while their fund holdings earned about 7.3% per year, and that these results aren’t an anomaly, they are broadly in line with the gaps measured over the four previous rolling 10-year periods in prior Morningstar studies.

The Report’s findings also include that the 1.1% annual estimated return gap stems from mistimed purchases and sales.

Investors can fall victim to buying shares that have already performed strongly (following the crowd) then panic-selling when they fall, rather than reassessing the situation. Compounded over time, investors are giving up a substantial amount of performance.

Technical Competence Client Care & Practice Professionalism & Ethics 0.25 CPD Pts
Beyond the Mortgage: Rethinking last Century’s financing structure to Solve the Housing Crisis

Australia has a proud history of innovation, with world-changing inventions like Wi-Fi, Cochlear implants, Google Maps, and Black Box flight recorders all brought to life by tenacious Australians who reimagined problems to create solutions.

Australia has been a fertile ground too, for notable financial market innovations, including:

• The Australian stock exchange (ASX), which has been at the forefront of market innovations, including electronic trading platforms, clearing and settlement systems, and advanced market surveillance technologies.
• The superannuation system, creating one of the largest pools of retirement savings in the world.
• And within the property sector, Australia was a pioneer in developing and adopting Mortgage-Backed Securities.
With it increasingly being the case that individuals and families on a median income are unable to afford a median priced property in major capital cities, can the innovators of Australia develop a new financing model to address the housing crisis? Have debt driven instruments, like mortgages, as standalone tools, come to the end of their useful life?

In this article we’ll look at the factors that have shaped the home buying process over the last century and examine if Shared Equity could also be the next financial innovation that could enable more of the next generation to buy a home.

Technical Competence Regulatory Compliance & Consumer Protection General 0.25 CPD Pts
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