Conflict of interests are endemic in many providers business models. How can Trustees manage these conflicts?
The Trusts Act 2019 and What Trustees Need to Know
This paper discusses the new Trusts Act 2019 and its implications for trustees’ obligations and duties. The new Act will come into force in February 2021. Under the new legislation, beneficiaries will have the right to access information such as the financial performance of their assets, trust distributions, and trust administration. The Act’s approach to information disclosure paves the way for increased awareness of beneficiaries’ right to be informed and hold trustees to account. This is in-line with the transparency and accountability focus of the new Financial Advisers Amendment Act (2019), which regulates advice provided to retail investors, and increasing transparency in larger scale ‘wholesale’ investment entities, such as KiwiSaver providers and New Zealand Community Trusts.
Practical Advice for Preparing an Investment Policy Statement
This paper sets out what should be included in an Investment Policy Statement (IPS) for an any organisation with a pool of investment assets to manage. This includes charitable trusts and foundations, Māori and Iwi investment organisations, superannuation and provident funds, and other board-governed investment entities. It provides helpful tips for Stewards who are preparing the IPS internally or adopting an IPS prepared by a financial adviser or fund manager.
Socially responsible investing (SRI) has become part of mainstream over the last few years as evidence has mounted SRI at least does no harm and can improve returns, and as more investment choices have come to the market. The vast majority of KiwiSaver providers have responded by at least excluding investments in companies that cause harm. However, our analysis shows that there are still only a few options for investors that want a comprehensive socially responsible approach across all their investments.
The Australian Royal Commission and its Implications for New Zealand
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in Australia has revealed a number of concerns around the way advice is provided and insurance and assets are managed in Australia. Much of this reflects structural conflicts of interest in ‘vertically integrated’ providers, and in Australia banks have been selling out of their wealth and insurance divisions to avoid these concerns. Technological disruption is also rapidly changing value propositions. These forces will all hit our shore in time, and we are already seeing some of the effects. But no matter how they exactly they play out the fundamental principle is that providers need to put a higher focus on their clients and customers. In turn, investors from Mums and Dads through to larger scale foundations, charities and Iwi Trusts have a huge opportunity to benefit from these changes by selecting providers who are transparent across their fee structures and costs, who operate at a higher fiduciary standard, and who can demonstrate they put your interests first.
What You Need to Consider when Evaluating Objective-Based Funds
Objective-based asset allocation (OBAA) funds were born in the ashes of the GFC and target an absolute return. Their appeal is that they offer investors a one-stop solution and better potential management of downside risks through dynamic asset allocation and risk protection overlays. However, our analysis shows most have under-performed conventional balanced funds since inception, and they have not, in general, meaningfully used the asset allocation ranges permitted by their investment policies. They are also yet to be truly tested in a bearish market environment. Our findings show that the actual investments made differ markedly between OBAA funds. This highlights that the need for comprehensive due diligence by Advisers, Trustees and other fiduciaries is just as material for OBAA funds as conventional funds. Finally we argue that the ongoing monitoring requirement is even higher with OBAA funds because the asset allocation and fund selection decisions they make still remain the responsibility of the fiduciary – they cannot be delegated away. Click here to download paper
Better Management of Body Corporate Maintenance Funds
Body Corporate committee members are entrusted with management of a Body Corporate to the benefit of all unit title holders. Part of this obligation includes development of a long-term maintenance plan, and potentially a long-term maintenance fund, to meet expected future capital expenses, or liability streams, from the building.
At present, many Body Corporates in New Zealand do not have an established fund to help meet their long-term liability needs, and even for those that do, the investment strategy may be sub-optimal. This means that unit title holders are at risk that their liability streams are not as well identified or managed as well as they could be.
In this paper we argue that applying sound investment governance disciplines to the management of Body Corporate plans can potentially reduce the burden of funding maintenance and capital requirements, and increase the value of unit titles to owners.
Socially Responsible Investing and What Boards Should Know
Socially responsible investing (SRI) is becoming the mainstream. It offers investors the opportunity to ensure that their investments align with their mission and values, and is part of a wider movement to make the global financial system more effective in mobilising capital towards an environmentally sustainable and socially inclusive economy.
As SRI is becoming better understood and more widely accepted, the historic barriers to SRI, such as the belief that it is inconsistent with the fiduciary obligation of loyalty to beneficiaries because it has a negative impact on returns, are being dismantled.
This paper aims to help those boards charged with overseeing investments for the benefit of others (i.e. fiduciary boards) in the Pacific sovereign fund, philanthropic, charity and Māori sectors understand what SRI is, and how it fits in with their fiduciary obligations and investment governance practices.
This paper explains what investment governance is and its importance to community foundations and charities. Community foundations have the potential to hold a special, privileged position by virtue of their structure and community role in defined geographic regions and that this privileged position heightens the level of fiduciary obligations they owe to their communities. We argue that the scrutiny of their investment governance practices and investments is likely to increase, as will the scrutiny of charities and foundations more broadly. Such scrutiny can be withstood by putting in place sound investment governance procedures, that can be outwardly demonstrated to those on whose support they rely - their communities, donors, and other stakeholders. Click here to download paper
Trustees - Now's the time to recalibrate your provider radar
Financial service providers including brokers, advisers, banks and investment managers have had to re-think business models, re-train, even decide whether they want to continue. They are now wrapped in new regulation, designed to protect investors and inform. They lose their ticket to attend the game if they fail to meet requirements. Providers might claim, “If we meet compliance, surely any client should be satisfied. What other scrutiny could possibly be necessary?” Actually – quite a lot!