final ppt bennett
TRANSCRIPT
Re-e
valu
atin
g In
-house In
vestm
ent R
esearc
h
“How
regula
tory
refo
rms d
rive fin
ancia
l advis
ers
to s
trength
en th
eir
in-h
ouse fu
nds m
anagem
ent s
kills
”.
Patric
k B
ennett
Septe
mber 2
012
Re
gu
lato
ry R
efo
rms
What re
form
s
Implic
atio
ns fo
r Govern
ance
3
Re
gula
tory
Refo
rms
“When
sorro
ws
com
e,
they
com
e n
ot s
ingle
sp
ies b
ut in
batta
lions!”
Willia
m S
hakesp
ea
re 1
60
2H
am
let, A
ct 4, S
cen
e 5
4
FO
FA
•F
ee
Dis
clo
sure
Sta
tem
en
ts
•B
an
on
Conflic
ted
Rem
une
ratio
n
•B
an
on
Volu
me
Bon
use
s
•B
an
on
Soft D
olla
r Be
nefits
•B
an
on
Asse
t Ba
sed
Fee
s fo
r Gea
red
Fu
nd
s
AS
IC
•K
no
w yo
ur p
rodu
ct
•K
no
w yo
ur c
lien
t
•Q
uality o
f ad
vice
•E
nfo
rcem
en
t
•R
egu
latio
n o
f Re
sea
rch H
ou
ses
Re
gula
tory
Refo
rms
Re
ve
nu
e
Liab
ility
Govern
ance
•B
uild
an in
dependent, q
uestio
nin
g a
nd ro
bust g
ove
rnance s
tructu
re.
•E
nsure
a c
onsis
tent in
vestm
ent ‘s
tory’
acro
ss e
ntire
Gro
up.
•O
vers
ight a
nd m
anage ris
ks to
clie
nts
and th
e b
usin
ess.
•T
he m
ore
movin
g p
arts
in yo
ur b
usin
ess –
the h
ard
er it w
ill be.
Inp
uts
:E
xtensive
du
e d
iligence o
n fu
nds
Ass
et C
onsulta
nt a
dvic
e•F
und re
se
arc
h•S
ecto
r researc
h•A
sset a
llocatio
n
Ou
tpu
ts:
Pro
cedura
l and IP
rigour
Inve
stm
ent P
hilo
sophy
Inve
stm
ent O
bje
ctive
sS
AA
and ra
nges
Monito
r & re
view
Ensure
consis
tent o
fferin
gs
Ex
tern
al A
ss
et C
on
su
ltan
tS
trate
gic
Inv
es
tme
nt C
om
mitte
eR
isk
an
d M
an
ag
em
en
t Au
dit
Co
mm
ittee
CE
O
External D
irector
Head of R
esearch
Chief Investm
ent Officer
Inv
es
tme
nt C
om
mitte
e A
Inv
es
tme
nt C
om
mitte
e B
Inv
es
tme
nt C
om
mitte
e C
Govern
ance
De
fine
an
d d
ocu
me
nt th
e w
ay yo
u w
ill do
bu
sin
ess:
•A
sset a
llocatio
n p
olic
y
•R
eb
ala
ncin
g p
olic
y
•A
PL
ma
na
ge
me
nt p
rocess
•O
pe
ratio
n o
f the S
trate
gic
Inve
stm
ent C
om
mitte
e
•O
pe
ratio
n o
f de
ale
rsh
ip In
vestm
ent C
om
mitte
es
•C
om
mu
nic
atio
ns a
nd
ad
vise
r train
ing
•R
esp
on
sib
ilities a
nd
pote
ntia
l con
flicts
•C
he
cks a
nd
ba
lance
s o
n d
ecis
ion m
akin
g
•R
ep
ortin
g a
nd
mon
itorin
g
Stre
ng
the
n th
e m
an
ag
em
en
t of ris
kT
ypes o
f Ris
k
Advis
er R
isk
Asset A
llocatio
n R
isk
Pro
duct R
isk
8
Ris
k is
a m
ulti-d
ime
nsio
na
l co
nce
pt a
nd
vola
tility of re
turn
s is
an in
co
mp
lete
me
asu
re o
f risk.
Lo
ss o
f ca
pita
l and
failu
re to
mee
t fina
ncia
l ob
jective
s
Va
lua
tion R
isk –
RE
IT fu
nd
s in
20
07
Asset R
isk
–P
rop
erty s
ynd
ica
tes, W
estp
oin
t
Ma
na
ge
r Ris
k–
45
2 C
ap
ital
Le
vera
ge
Ris
k –
Ge
are
d S
hare
Fu
nd
s, B
asis
Ca
pita
l Yie
ld
Liq
uid
ity Ris
k
–A
PN
Pro
perty fo
r Inco
me
, Mo
rtgag
e T
rusts
, SS
gA
fun
ds
Vo
latility R
isk
–P
M C
ap
ital A
bso
lute
Pe
rform
ance
Cu
rren
cy R
isk –
Pla
tinu
m In
tern
atio
na
l
Pro
du
ct R
isk
–G
reat S
ou
the
rn &
Re
wa
rds G
roup
agri-s
ch
em
es
Cre
dit R
isk
–C
ha
lleng
er H
igh
Yie
ld
Un
ders
tan
din
g R
isk
9
Advis
er R
isk
Ma
na
gin
g id
iosyn
cra
tic a
dvis
er ris
k.
•R
isk in
the
stra
tegic
ad
vice
pro
ce
ss
•R
isk in
the
asse
t allo
ca
tion
de
cis
ion
•R
isk in
the
inve
stm
en
t se
lectio
n
An
ima
l sp
irits -
how
mu
ch
dis
cre
tion is
rea
lly ne
ed
ed
?
Are
you
imm
un
e fro
m d
oin
g th
ings lik
e d
ou
ble
gea
ring, a
gri-s
che
me
s, e
xo
tics, o
r an
y oth
er
du
mb
‘ide
as d
u jo
ur’?
Incre
asin
g A
SIC
scru
tiny a
fter m
an
y h
igh p
rofile
dis
aste
rs –
ne
w re
ality
En
forc
ea
ble
Un
derta
kin
gs e
xact a
ve
ry hig
h c
ost in
$, m
an
ag
em
enttim
e a
nd re
pu
tatio
n
“It take
s o
nly o
ne c
ow
bo
y ...........”
Asset A
llocatio
n R
isk
•T
his
are
a n
eeds re
al fo
cus a
nd c
lose m
anagem
ent.
•Im
plic
it mark
et m
ove
ment +
Asset A
llocatio
n P
olic
y accounts
for ~
88%
of a
portfo
lio’s
tota
l retu
rn
•O
pportu
nity fo
r majo
r clie
nt d
isappoin
tment if n
ot c
ontro
lled.
Wh
ere
do
re
turn
s c
om
e fro
m?
Ma
rket
Mov
em
ent
74%
Activ
e
Man
agem
ent
12%
Asse
t
Allo
ca
tion
Polic
y 1
4%
Xio
ng J
am
es X
, Ibb
ots
on R
oger G
., et a
l., “The E
qual Im
porta
nce o
f A
sset A
llocatio
n a
nd A
ctive
M
an
ag
em
ent”, F
inancia
l Analy
sts
Journ
al V
olu
me 6
6, N
um
ber 2
, 20
10
11
Asset A
llocatio
n R
isk
•Q
uestio
nable
consis
tency o
f valu
e-a
dd
from
TA
A, g
iven ra
ndom
ness o
f short-te
rm
asset c
lass re
turn
s.
•A
ssum
es yo
u c
an g
et b
oth
the d
irectio
n
and
timin
g rig
ht.
•T
rack re
cord
in b
ala
nced fu
nds is
pre
tty dis
mal. M
any in
consequentia
l move
s.
•U
rge to
“do s
om
eth
ing -
anyth
ing”
is
stro
ng.
•Im
ple
menta
tion o
f frequent c
hanges in
the
reta
il world
is d
ifficult.
•M
ore
com
ple
xity, extra
cost
Lesson: D
on’t g
o th
ere
H
ighest R
etu
rnLow
est R
etu
rn
2000
Com
moditie
sA
-REIT
sA
ustra
lian
Fix
ed In
tere
st
Glo
bal F
ixed
Inte
rest
Cash
Aust S
hare
sIn
tern
atl
Share
s
Aust S
mall
Caps
Em
erg
ing
Marke
ts
2001
A-R
EIT
sA
ust S
hare
sG
lobal F
ixed
Inte
rest
Em
erg
ing
Marke
ts
Austra
lian
Fix
ed In
tere
st
Cash
Aust S
mall
Caps
Inte
rnatl
Share
s
Com
moditie
s
2002
Com
moditie
sA
-REIT
sG
lobal F
ixed
Inte
rest
Austra
lian
Fix
ed In
tere
st
Cash
Aust S
hare
sA
ust S
mall
Caps
Em
erg
ing
Marke
ts
Inte
rnatl
Share
s
2003
Aust S
mall
Caps
Com
moditie
sEm
erg
ing
Marke
ts
Aust S
hare
sA
-REIT
sG
lobal F
ixed
Inte
rest
Cash
Austra
lian
Fix
ed In
tere
st
Inte
rnatl
Share
s
2004
A-R
EIT
sA
ust S
hare
sA
ust S
mall
Caps
Em
erg
ing
Marke
ts
Com
moditie
sIn
tern
atl
Share
s
Glo
bal F
ixed
Inte
rest
Austra
lian
Fix
ed In
tere
st
Cash
2005
Em
erg
ing
Marke
ts
Com
moditie
sA
ust S
hare
sA
ust S
mall
Caps
Inte
rnatl
Share
s
A-R
EIT
sG
lobal F
ixed
Inte
rest
Austra
lian
Fix
ed In
tere
st
Cash
2006
Aust S
mall
Caps
A-R
EIT
sA
ust S
hare
sEm
erg
ing
Marke
ts
Inte
rnatl
Share
s
Cash
Glo
bal F
ixed
Inte
rest
Austra
lian
Fix
ed In
tere
st
Com
moditie
s
2007
Com
moditie
sEm
erg
ing
Marke
ts
Aust S
mall
Caps
Aust S
hare
sC
ash
Glo
bal F
ixed
Inte
rest
Austra
lian
Fix
ed In
tere
st
Inte
rnatl
Share
s
A-R
EIT
s
2008
Austra
lian
Fix
ed In
tere
st
Glo
bal F
ixed
Inte
rest
Cash
Inte
rnatl
Share
s
Aust S
hare
sEm
erg
ing
Marke
ts
Com
moditie
sA
ust S
mall
Caps
A-R
EIT
s
2009
Aust S
mall
Caps
Em
erg
ing
Marke
ts
Aust S
hare
sC
om
moditie
sA
-REIT
sG
lobal F
ixed
Inte
rest
Cash
Austra
lian
Fix
ed In
tere
st
Inte
rnatl
Share
s
2010
Aust S
mall
Caps
Glo
bal F
ixed
Inte
rest
Austra
lian
Fix
ed In
tere
st
Com
moditie
sC
ash
Em
erg
ing
Marke
ts
Aust S
hare
sA
-REIT
sIn
tern
atl
Share
s
2011
Austra
lian
Fix
ed In
tere
st
Glo
bal F
ixed
Inte
rest
Cash
A-R
EIT
sC
om
moditie
sIn
tern
atl
Share
s
Aust S
hare
sEm
erg
ing
Marke
ts
Aust S
mall
Caps
Pro
duct R
isk
The m
isuse o
f the B
asis
Capita
l Yie
ld F
und
•It was o
n th
e d
eale
rship
’s A
PL
•Researc
h h
ouse ra
ted it “H
ighly R
ecom
mended”
•Advis
er u
sed it a
s a
fixed in
tere
st p
roduct fo
r a
Modera
te c
lient
Mora
l of th
e s
tory:
•Each a
dvis
er
must k
now
the p
roducts
they
recom
mend, a
nd th
eir s
uita
bility fo
r each c
lient.
•Advis
ers
must u
nders
tand a
llthe p
roduct ris
ks.
•Keep th
e A
PL ve
ry tight.
“The
Pan
el, a
fter c
on
sid
erin
g th
e su
bm
issio
ns a
nd
e
vide
nce
of th
e p
artie
s, find
s th
at ..... M
r B’s
asse
t se
lectio
n w
as o
nly a
n a
sse
t allo
catio
n m
ad
e o
n a
ge
ne
ric b
asis
with
ou
t an
y rea
l un
de
rsta
nd
ing o
f th
e B
asis
Yie
ld F
un
d p
rodu
ct, th
e p
rodu
ct
mana
ge
r’s d
iscre
tion
s a
nd
the
influ
en
ce o
f tho
se
dis
cre
tion
s o
n th
e p
ossib
le o
utco
me
of th
e
pe
rform
an
ce o
f the
pro
du
ct .
FO
S fo
und
the
pla
nne
r had
bre
ach
ed
his
du
ty of
ca
re a
nd
ob
liga
tion
s u
nd
er th
e C
orp
ora
tion
s A
ct
20
01
, dire
ctin
g h
im to
pa
y $103
,382
toh
is c
lien
t to
ge
the
r with
inte
rest o
f 5 p
er c
en
t pe
r an
num
co
mpoun
ded
from
15
No
vem
be
r2007
to th
e d
ate
of p
aym
en
t.”
“The
Pan
el, a
fter c
on
sid
erin
g th
e su
bm
issio
ns a
nd
e
vide
nce
of th
e p
artie
s, find
s th
at ..... M
r B’s
asse
t se
lectio
n w
as o
nly a
n a
sse
t allo
catio
n m
ad
e o
n a
ge
ne
ric b
asis
with
ou
t an
y rea
l un
de
rsta
nd
ing o
f th
e B
asis
Yie
ld F
un
d p
rodu
ct, th
e p
rodu
ct
mana
ge
r’s d
iscre
tion
s a
nd
the
influ
en
ce o
f tho
se
dis
cre
tion
s o
n th
e p
ossib
le o
utco
me
of th
e
pe
rform
an
ce o
f the
pro
du
ct .
FO
S fo
und
the
pla
nne
r had
bre
ach
ed
his
du
ty of
ca
re a
nd
ob
liga
tion
s u
nd
er th
e C
orp
ora
tion
s A
ct
20
01
, dire
ctin
g h
im to
pa
y $103
,382
toh
is c
lien
t to
ge
the
r with
inte
rest o
f 5 p
er c
en
t pe
r an
num
co
mpoun
ded
from
15
No
vem
be
r2007
to th
e d
ate
of p
aym
en
t.”
13
Un
ive
rse o
f fina
ncia
l pro
du
cts
with
ma
instre
am
rese
arch
Un
ive
rse o
f fina
ncia
l pro
du
cts in
trad
ition
al D
ea
ler A
pp
rove
d List
Ou
r AP
L
Ma
nd
ate
d F
un
ds
Co
st, Co
mp
lexity
an
d B
usin
ess R
isk in
crea
se th
e w
ide
r the
cov
era
ge
.
Ha
rd fo
r rese
arch
staff to
be
acro
ss it.
Imp
ossib
le fo
r ad
vise
rs to b
e a
cross it.
Pro
duct R
isk
Un
ive
rse o
f fina
ncia
l pro
du
cts
Pro
duct R
iskR
atio
nalis
atio
n
Legal / In
sura
nce R
easons
Can n
ot p
roperly k
now
500+
pro
ducts
, as d
efin
ed in
Corp
ora
tions
Act s
945A
PI ra
mific
atio
ns c
an b
e h
uge.
Pra
ctic
al R
easons
‘Open a
rchite
ctu
re’A
PL m
odel is
an in
vitatio
n to
dis
aste
r
How
much c
hoic
e d
o w
e re
ally n
eed to
pro
vide?
Do w
e re
ally n
eed
80 A
ustra
lian s
hare
funds,
49 fixe
d in
tere
st fu
nds,
98 m
ulti-s
ecto
r funds?
Need 1
core
+ a
few
good s
ate
llite o
ptio
ns in
each p
roduct typ
e
Ma
na
gin
g P
ortfo
lios
Portfo
lio m
anagem
ent
Investm
ent m
anagem
ent
16
Portfo
lio M
anagem
ent
“At n
o tim
e in
our m
em
orie
s h
ave th
e o
ld w
ays o
f doin
g th
ings, o
ld ru
les o
f thum
b, o
r backw
ard
lookin
g
assum
ptio
ns o
n th
e ris
ks to
our c
lients
’m
oney b
een a
less u
sefu
l guid
e to
what w
e s
hould
be d
oin
g.
We a
re n
ot in
Kansas a
nym
ore
……
..”
17
Portfo
lio M
anagem
ent
Fe
we
r fun
ds in
portfo
lios
De
fine
d S
AA
and
tighte
r rang
es
Re
se
arc
h d
irecte
dIn
tern
al c
ore
fun
ds +
exte
rna
l sate
llites
Ma
na
ge
d p
ortfo
lios
Go
als
Ba
se
d In
vestin
g
Ma
ny fu
nd
s in
po
rtfolio
sV
aria
ble
SA
As a
nd
wid
e ra
ng
es
Ad
vise
r dire
cte
dE
xtern
al p
rod
ucts
on
lyE
xtern
al b
ala
nce
d fu
nd
sT
rad
ition
al fin
ancia
l pla
nn
ing
An e
volu
tionary
pro
cess
18
A c
ohere
nt in
vestm
ent fra
mew
ork
Elim
inate
:
•Weak in
vestm
ent c
oncepts
•Dogm
atic
anchore
d o
pin
ions
•Specula
tive in
vestm
ents
•Poor c
om
munic
atio
ns
•Poor im
ple
menta
tion
Portfo
lio M
an
age
me
nt
Ide
ntify
inve
stm
ent p
rincip
les
tha
t yo
u b
elie
ve
are
robust
Evid
ence
ba
se
d in
ve
stin
g -
no
sa
cre
d c
ow
s / d
ogm
a
Be
ve
ry c
lea
r abo
ut th
e
so
urc
es o
f retu
rns a
nd ris
ks
Build
a n
arra
tive
aro
und it
whic
h a
dvis
ers
ca
n a
rticula
te
to c
lients
Ma
ke it a
ll Imple
me
nta
ble
19
Portfo
lio M
an
age
me
nt
The R
isk:
Will th
e a
dvic
e b
e a
ppro
pria
te?
The G
oal:
Ge
t consis
tency o
f clie
nt e
xperie
nce
A w
ell u
nders
tood in
vestm
ent s
trate
gy –
unde
rsto
od b
y th
e c
lient!
Institu
tionalis
e th
e p
rocess:
–S
AA
s c
learly
defin
ed a
nd u
niv
ers
ally a
pplie
d
–R
anges c
onstra
ined –
no a
dvis
er d
iscre
tion to
do
TA
A
–E
fficie
nt im
ple
menta
tion v
ia d
iffere
nt s
tructu
res a
nd
pla
tform
s
–A
uto
mate
d m
onito
ring a
nd e
xceptio
n re
po
rting
–M
onth
ly pe
rform
ance a
ttributio
n a
nd re
po
rting
20
Portfo
lio M
an
age
me
nt
Diffe
rent le
vels
of d
iscre
tion a
nd ris
k in
portfo
lio c
onstru
ctio
n
•A
dvis
er d
irecte
d (‘a
la c
arte
’)
•C
ore
-only
portfo
lios
•C
ore
+ s
ate
llite p
ortfo
lios
•S
ate
llite o
nly
portfo
lios
•D
irect s
hare
s p
ortfo
lios
Lim
ited
nu
mb
er o
f inve
stm
en
t optio
ns
21
Investm
ent M
anagem
ent
A s
epara
te In
vestm
ent R
esearc
h a
nd P
ortfo
lio M
anagem
ent te
am
•D
evelo
p in
tern
al fu
nds –
Responsib
le E
ntity
capability
•A
lign p
roduct s
ele
ctio
n &
portfo
lio d
evelo
pm
ent w
ith c
lients
’obje
ctiv
es
•M
anage re
latio
nship
s w
ith a
sset m
anagers
•D
evelo
p a
nd m
anage p
ortfo
lio s
tructu
res
•M
onito
r and
repo
rt to In
vestm
en
t Com
mitte
es
•In
tern
al a
nd e
xte
rnal a
ttributio
n a
nd a
naly
tics to
ols
22
Investm
ent M
anagem
ent
Acce
pt w
e d
on
’t kn
ow
it all
Acce
ss to
aca
de
mic
and
oth
er c
red
ible
third
party re
se
arc
h
Exte
rna
l asse
t con
su
ltan
t su
pp
ort (b
rea
dth
, insig
hts
, cre
dib
ility)
•G
lob
al a
sse
t allo
ca
tion
•M
an
ag
ed fu
nd
s
•D
irect e
qu
ities
Inte
rna
l and
exte
rna
l attrib
utio
n a
nd a
na
lytics to
ols
Acce
ss to
hig
he
r leve
l da
tab
ase
s a
nd
sys
tem
s
23
Investm
ent M
an
ag
em
ent
RE
of o
wn fu
nds
•F
lexib
ility in p
rod
uct d
esig
n to
suit o
ur in
vestm
ent s
trate
gie
s
•G
enuin
e in
dependence in
the s
ele
ctio
n o
f investm
ents
•C
ontro
l over a
sset m
anage
rs (w
ho a
nd fe
es)
•B
ette
r access, re
portin
g a
nd s
upp
ort
•P
rote
ctio
n o
f ma
rgin
s
Pla
tform
s, c
osts
and fu
nctio
nality