Finance & Investment

Small Business Ombudsman welcomes CBA announcement on least cost routing

THE Australian Small Business and Family Enterprise Ombudsman, Bruce Billson has welcomed the announcement by the Commonwealth Bank (CBA) that it would automatically lower costs incurred by small businesses and family enterprises with a turnover of less than $250,000. 

The Ombudsman has repeatedly called on banks and other financial institutions to adopt what is known as least cost routing to slash the high and hidden costs associated with electronic card payments for small operators and family enterprises.

“I congratulate the Commonwealth Bank for hearing the feedback from the small business community and taking this first step which will help a section of the small business community. There is a lot more to be done though, and I urge all banks and financial institutions to address this critical issue,” Mr Billson said.  

“I also welcome the Commonwealth Bank’s announcement that it will waive three months of merchant fees for those small businesses hardest hit by COVID-19 lockdowns. This is a terrific early Christmas present.

“The use of cashless transactions, particularly tap-and-go payments, has dramatically increased due to COVID-19 and it is vital to ensure that all small businesses are being offered the lowest cost options from their service provider or financial institution," he said.

“Many small businesses and family enterprises already operating on tight margins and battling the disruption to their businesses caused by COVID-19 can’t afford the added burden of paying higher than necessary fees for their financial transactions.

“The cost of these higher and hidden charges across the economy is many millions of dollars – money that could be better put to work to grow business and employment prospects.”

www.asbfeo.gov.au

 

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FSC applauds new 'Your Future, Your Super' initiatives to help consumers

THE Your Future, Your Super regulations released by the Federal Government yesterday are the "final piece of a significant reform package" that recently passed parliament and will improve the superannuation system for Australian consumers, according to the Financial Services Council (FSC).

FSC CEO Sally Loane said the centerpiece of the reform package was the implementation of ‘stapling’, which ensures superannuation consumers take their account with them from job to job, preventing the creation of duplicate accounts and protecting consumers from unnecessary fees.

Stapling was a recommendation from the Hayne Royal Commission and a reform the FSC has consistently supported.

“Every Australian with superannuation will benefit now that the regulations make stapling a reality. FSC analysis shows that stapling will save consumers up to $1.8 billion in fees in the first three years,” Ms Loane said. 

“The focus of the Your Future, Your Super reforms is to lower superannuation fees. The stapling reform and inclusion of fees in the performance assessment will ensure that superannuation funds not only have to lower their fees to attract new members but keep their fees low to pass the yearly assessments.

“The government’s approach incentivises all superannuation funds to be competitive on the key things that matter for consumers, fees and performance.

“The government has also recognised superannuation industry wide concerns with the design of portfolio holdings disclosure, and we welcome the decision to consult further to determine the best approach.

“We are pleased the release of the regulations will allow important Royal Commission recommendations to commence, benefitting all Australians with a superannuation fund,” Ms Loane said.

The FSC has more than 100 members representing Australia's retail and wholesale funds management businesses, superannuation funds, life insurers, financial advisory networks and licensed trustee companies. The pool of funds under management of FSC members is larger than Australia’s annual GDP or the capitalisation of the Australian Securities Exchange and is the fourth largest pool of managed funds in the world.

www.fsc.org.au

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Can super make Australia a renewables superpower?

By Leon Gettler >>

AUSTRALIA’s $3 trillion superannuation industry could turn Australia into a renewable energy powerhouse and steer the country closer to net zero emissions before 2050, it has been claimed.

Simon Sheikh, the founder of fossil-fuel-free super fund, Future Super, said the scope for super was immense.

Mr Sheikh said climate change was a major problem that needed to be addressed on a ‘warlike footing’ which meant using every lever available – whether that is the money in super accounts investing in renewable energy, or governments directly building projects and setting the regulatory frameworks for markets.

“A warlike footing means it all needs to happen and not in 2050,” Mr Sheikh told Talking Business

He said superannuation would play a big role. With $3 trillion worth of assets under its control, Australia’s superannuation sector was one of the largest pools of capital in the world that Australians actually control – as it is “their money and their super”.

SUPER CAN POWER RENEWABLE BASELOAD

Mr Sheikh said research from the University of Technology Sydney found that just 7.7 percent of Australian superannuation savings, between now and 2030, could fully fund the transition to a 100 percent renewable energy powered electricity grid.

“Clearly, superannuation is the pool of capital that needs to be unlocked to take action on climate change,” Mr Sheikh said.

“Starting now, we all switch our super to those providers that are investing in renewable energy.

“The big opportunity here of course is for governments to set the policy settings to such that they are attracting and pushing superannuation funds to invest in nation-building infrastructure.

“The investment community sees great opportunity in making money from the transition. Big transitions of whole economies and whole societies, moving from one energy system to another, create huge opportunities to deploy capital and so the investment community broadly I think is up for the challenge.”

Mr Sheikh said business was now clearly getting behind the push towards net zero emissions.

“Right now, I don’t think you can name any businesses in the ASX 100 that aren’t working feverishly on how they’re going to change their business model to work in a net zero world,” he said.

“You’ve got farmers lobbying out there and the farming community making big changes, you’ve got the business community out there making big changes, you’ve got individuals making big changes but at the moment, it’s happening without any co-ordination.”

SUPER FUNDS MAKE THE CLIMATE CASE

What’s needed he said, was for super funds to make their case for zero emissions, a price on carbon and the government to show some clear leadership on this issue.

Mr Sheikh said financial markets and superannuation funds create a space for the government to play a role. The companies and the super funds could put pressure on the government to adopt its net zero pledge ahead of 2050.

“When you’ve got the business sector taking action on climate change. The business community are a core constituency for the Liberal Party and the reality is, we can drive what businesses do,” Mr Sheikh said.

“That’s the power of our money. If we move our superannuation and demand our superannuation funds make investments in progressive causes like climate action, it means those super funds go and pressure the companies they’re investing in to say, ‘We’ve made a net zero pledge, where is your net zero pledge?’”  

www.futuresuper.com.au

www.leongettler.com  

Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness.

 

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SMSFs help develop NDIS accommodation

By Leon Gettler >>

THE NEW area of investment for self-managed super funds (SMSFs) is National Disability Insurance Scheme (NDIS) accommodation.

The SMSFs are investing in purpose-built accommodation for disabled people, with the government offering massive financial incentives for their investments. And the rent is paid by the Federal Government.

“Financially, it provides a yield that you cannot find with any other type of properties in Australia at the moment – and it’s a very ethical investment as you provide a much-needed type of accommodation which, most often, extracts young people out of retirement homes or wherever they had to live in the meantime,” Yannick Ieko, founder, CEO and senior lending strategist of the SMSF Loan Experts told Talking Business.

Mr Iecko said the yields were double digit and “north of 10 percent” and – depending on the accommodation, the structure of the investment and the disability concerned – it could be as high as 15 percent. 

A 20-year agreement with the Federal Government was also backing these investments, with 90 percent of the income paid by the government, making it an enticing investment.

 

UNDERSUPPLY OF DISABILITY HOUSING

Mr Iecko said there was a dramatic undersupply of NDIS accommodation.

“If you look at it from an investment perspective, you’ve got a massive pipeline of potential tenants or participants in the NDIS scheme that have been approved for housing and financial support. There are thousands of them,” Mr Iecko said.

“Those people at the moment are living with elderly parents who are not able to care for them in a way that would be ideal. They find themselves in retirement homes.

“That’s a common scenario, where you have young people who have suffered disability who find themselves in a retirement home environment – which is pretty depressing.

“There are a lot of sad stories that this is addressing alongside those massive returns.”

He said there had been tremendous progress on the lending front over the last six to nine months as valuation experts were now understanding more about these properties.

The key for the SMSF was to invest in a property located where there was an undersupply. Then, the moment participants move in, the government payment covers the loan repayment and any costs associated with the property.

“People are using this to deleverage aggressively, using the cash flow from these properties or to re-invest aggressively, depending on what stage they’re at in the investment cycle,” he said.

 

MATCH ACCOMMODATION TO DISABILITY

Mr Iecko said the specificity around the property purchase really came down to the type of disability of the participant.

Usually, people at the extreme end of the spectrum were those suffering a mental health disability, who had their own sets of challenges to deal with, such as rage and bipolar conditions – and these came with certain protocols.

On the flip side, participants tended not to move houses very often, which means they tended to be long term tenants. And there was income from the government.

That makes it a triple-A investment, according to Mr Iecko.

The scheme is also structured to help investors deal with challenges. Some houses, for example, were built with a break room, where a participant could have an episode, and the furniture might be bolted to the floor so that it could not be thrown around and hurt someone.

The additional costs for dwellings to be built to such specifications is around $50,000. And the properties need to be certified.

Mr Iecko said this was now a growth market for self-managed super funds and interest was growing.

“The level of interest is tremendous and it’s growing month to month,” he said.

www.smsfloanexperts.com.au

www.leongettler.com

 

Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness

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Praemium takes the guesswork out of tracking company investment

By Leon Gettler >>

PRAEMIUM is changing the world of finance and it has an enormous potential market.

Praemium is a platform and ­financial-planning software provider that also conducts portfolio services. With banks retreating from wealth services in the wake of the Hayne Royal Commission, the market for Praemium is growing.

Praemium started as an off-platform service in 2001. From the earliest days, it had data feeds with all the stockbrokers in the country and, using optical character recognition software in those days, it could see what the transactions would be and construct the portfolio, what it was worth, what its unrealised capital gains were and the level of franking credits.

“That is why we are the best at corporate actions and tax and finance reporting,” Praemium CEO Michael Ohanessian told Talking Business.

“One of our greatest strategic resources is we have every corporate action on every listed company in Australia since 1985. We’ve actually configured all those corporate actions from every Australian company into our system.

“And because we service the last two international investment banks that still do wealth here, and that’s Morgan Stanley and Credit Suisse, we also do that exact same thing for about 5000 international securities, all those American companies and European companies and so on. And with a data base of all their information, all their corporate actions automatically configured into our system, so that is how we started.” 

‘UNIVERSAL’ INVESTING

Mr Ohanessian said Praemium did the reporting on 300,000 investor portfolios, including three of the four big banks.

He divided the investment landscape into Universe A and B.

Universe B was where the company would provide the information and the investor would take it to their accountant to work out what the tax was. Universe A was where companies like Praemium provided investors with the tax report that they provided for their clients.

Mr Ohanessian said working out what portfolios were worth was always a challenge, which is where Praemium has a distinct competitive advantage in the market place.

Praemium gave its clients the software to determine all the holdings and corporate actions. But for that to be correct, they needed to do the administration work to reconcile the data. That meant checking everything at all sources, from the registry to the bank.

“That’s the admin work that our clients have to do themselves to make our software 100 percent accurate, and therefore investment grade, and 100 percent right from a tax perspective,” Mr Ohanessian said.

“Then back in 2017, we started realising maybe we could do this for some of our clients and it’s just taken off.”

REMARKABLE GROWTH CURVE

Mr Ohanessian said in the last three and a half years, Praemium had gone from one client with a few portfolios to the market today, where 15 firms are using the Praemium service, with over 6000 portfolios and covering more than $16 billion worth of assets.

“For all those firms, we are taking away all of that pain of reconciliation and making sure it’s right,” he said.

Mr Ohanessian said this was a “game-changer”.

“We think the future potential is massive because every advice business out there has this pain and it’s inefficient for them – it’s not a good use of their time and it distracts them from what they need to be working on. And we are the best at operating our own software because we know it best,” he said.

Mr Ohanessian said because Praemium started out as an off-platform business 20 years ago, it’s in the firm’s DNA.

www.praemium.com

www.leongettler.com

Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness

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ESG investing taking a ‘front row seat’ now

By Leon Gettler >>

THE GROWTH of impact or ESG (environmental, social and governance) investing is changing markets and, while much of it has been driven by climate change, the coronavirus pandemic has thrown a new force into this trend.

Adam Rein is president and chief operating officer (COO) of CapShift, a US impact investing firm that empowers philanthropic and financial institutions, along with their clients, to mobilize capital for social and environmental change. He said impact investing is now taking two forms.

One is the broader set of public market investors putting their money into the largest companies in the world and declaring that they are not just looking at the financial forecasts but also at ESG principles, because those factors can present a long term risk for the company or simply because it’s the right thing to do.

A separate group of investors is more focused on private markets, investing in venture capital, private equity, micro-finance and small business lending and seeking to change the world by investing in small businesses. These investors are focused on specific sectors like renewable energy, affordable healthcare or education technologies.

ESG CAPTURES ALL COMPANIES

Mr Rein said the ESG market covers all public companies, focusing on issues such as how the company treats its workers and suppliers, the environmental footprint of its operations and whether the products and services do good or harm.

He said there had been some standardisation for these investors, with one type focused around carbon and climate and the second focused around workers, suppliers and products.

“That data is growing and there’s a whole eco-system of rating agencies and analysts trying to look at the largest corporations in the world,” Mr Rein told Talking Business.

He said there are two driving forces behind this movement. One is financial and the other is around ‘purpose’.

The research showed that funds and analysts that looked at non-financial factors did better at predicting which companies would generate long term returns. Examples of that included Volkswagen and its emissions scandal and Facebook and privacy sandals.

SOME FOCUS STRONGLY ON CLIMATE CHANGE

The second is captured by investors like Larry Fink, the CEO of Black Rock, the world’s largest funds management firm, who sent a blunt warning to the world’s biggest companies at the start of this year telling them that if business can’t play a role tackling climate change or coronavirus, then all economies would suffer, so investors needed to push businesses to have better practices.

Mr Rein said for the last few years, mutual funds had been at the forefront of pushing companies to report on their greenhouse gas emissions, to have sustainable palm oil use and forcing them out of sweat shops.

Now hedge funds are moving in, he said, buying companies with bad practices, replacing the board and positioning these companies with a future based not just on shareholder capitalism but on stakeholder capitalism, treating their workers and communities well.

He said one of the key issues brought up by the coronavirus was supply chains.

“A year ago, you saw a lot of companies shutting down and a lot of companies that didn’t have a lot of transparency in the health practices of their suppliers – and companies that were more proactive on protecting workers were able to stay open,” Mr Rein said.

“Companies where workers were getting sick were shutting down.

“We saw this shake out as an example of practices on how you care for your workers in the middle of a pandemic,” he said.

www.capshift.com

www.leongettler.com

Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness

 

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Float CEO urges business leaders to insist on ‘real time’ financials

By Leon Gettler >>

THE COVID-19 crisis has shown businesses the importance of getting real time information and adapting their business models to keep customers on board.

Colin Hewitt, the founder and CEO of Float, a Scottish cash flow startup that opened an office in Sydney in 2019, said this had become absolutely critical.

Mr Hewitt said there were cash flow implications for businesses on government support such as JobKeeper in Australia, and similar programs overseas.

He said schemes such as JobKeeper left businesses struggling to understand needs around their staff. As companies look at the future of JobKeeper and whether it will be removed, they need to conduct scenario planning about what they could afford and what paths they need to plan for.

“We’ve seen a huge surge in demand in our product from accountants and book-keepers who are needing to do this en masse for 50 to 100 of their clients, because they are all asking the same questions: what happens if the JobKeeper scheme runs to an end,” Mr Hewitt told Talking Business.

WORKING ON SCENARIOS

Scenarios include putting people back on the payroll along with depleted and uncertain sales over the next period.

Mr Hewitt said he had “never seen anything like this before in business”. 

He said COVID-19, with its differing impact across different regions and cities had created enormous cash flow implications for national businesses.

“From a cash flow point of view, we’re seeing people running different promotions in different parts,” Mr Hewitt said

He said this saw companies running schemes in which they approach customers ‘doing it hard’ in certain regions and cities and cutting special deals with them, offering their service at reduced rates to give them the chance to survive as a business.

“Those schemes will need to be rolled out differently for different locations because everyone is going through different things,” Mr Hewitt said.

“More than ever now we’re seeing the need for businesses to get their financial reporting cycle in a much faster loop from when they’re recording their sales and expenses, getting those plugged into their accounting software and getting real time cash flow reporting as soon as they can because things are changing so fast.

“Traditionally we’ve had spreadsheets which have had forecasts that are made up of maybe 12 to 24 months and you’ve had your management accounting which is sitting somewhere else,” he said

“Really we’re seeing the opportunity for those to come together so the management accounts are impacting the forecasts in real time and people can actually make faster responses.

“That opens up possibilities for businesses. Instead of having a financial report that many business owners don’t understand hit their desk a couple of months out of date, what they can now expect is, if they are using the tools now available to them, they are getting management information almost to the day and that’s then able to inform their forecasts.”

 

HELPFUL FOR GLOBAL MARKETS

Mr Hewitt said this method would be particularly helpful for businesses in global markets.

He said companies will need to assess how COVID-19 has, and will continue to, affect their businesses. Some of the issues may not be related to COVID.

“We’re not out of this yet,” Mr Hewitt said.

The uptake of digital accounting will make businesses more robust to cope with the next pandemic, he said.

“It’s now absolutely critical that businesses have that real time dashboard of what is happening in their business and using these data capture tools, the online banking, the accounting software and the reporting and forecasting software.

“This is absolutely going to help to know your tax liability, to be able to understand which clients are not paying and how much cash you’re sitting on that is receivable.

“So all that information is there to help come together and make better forecasts.” 

www.floatapp.com

www.leongettler.com

 

Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness

 

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