Transcript

Matt Heine (MH):

Welcome to the show. I'm really pleased today to have Danielle Press join me. Thanks for coming on.

Danielle Press (DP):

Happy to be here.

MH:

I'm really interested to hear about your career because you've done everything from running a industry super fund to being a commissioner at ASIC and also a family office. So can you just tell us a little bit about how you ended up in the industry and some of the jobs that you've done?

DP:

Started my career as an economist at the Reserve Bank, which was a very long time ago. Why economics was sort of interesting when I was at school, didn't know what else to do. If you had said to me, then you'll be a commissioner of ASIC and you'll run a super fund and you'll have run a family office, I probably would've said firstly, what is superannuation? Secondly, who is asic? And thirdly, what the hell would I do running a certain family office? So it was never ever planned, but I spent a couple of years at the Reserve Bank, then I went to UBS for 17 years. So I spent 17 years in big banking, asset management organisations. Was lucky enough to have time in Sydney, Chicago, Singapore, predominantly in the asset management business. And I'd been there for 17 years and got tapped on the shoulder and said, how do you feel about a super fund?

And I sat back and looked at that and went, well, it's sort of interesting, right? Because it's a CEO role. I've consulted essentially to the super funds for the last couple of decades. And at the time, which is going to seem really strange now, the risk was that the wealth of the country would be in the hands of the big four banks and Australian Super if the industry super funds didn't change the way they competed and the way they offered product. And in my own head I went, well, actually I'd rather be on the inside of that problem than the outside. So I took an opportunity to go and run a Quip Super, which was a mid-sized profit for member fund. We used to look after the state electricity of Victoria, so a large DB component, which also was fascinating because of a very different way to look at the world.

So very much about the public interest I guess in super. Learned a lot about being a CEO when I was doing that. Did a few mergers, which was interesting in that space because there is no such thing as a merger actually in superannuation. It's a buyout of a fiduciary trust. Interesting and really important I think conversations around how do we move Australians into a place where adequacy is right, but also where there are good retirement products. And strangely enough, I left there in 2016 and we're still having those conversations now, which is a little disappointing I think. But somewhat to go, I moved at that point to Myer. Myer was just an interesting opportunity. My family office, that is my family office, sorry. Yes. Joined that organisation, looked at it and went, really, this just needs to be bigger. How do we make it bigger?

The easiest way to make it bigger is to merge it. And we merged that with Mutual Trust, which happened to be cousins, so it sort of made sense. The two organisations did essentially the same thing for a similar client base, so why wouldn't you bring them together and get the scale? And then the move to ASIC was one that was a little bit outside the square I guess, and I was an avid watcher of the Royal Commission, the Hayne Royal Commission. And I remember thinking at the time, we've lost our way as a financial services sector, and I used to be really proud to be a banker. I was really proud to be part of this industry, and I kind of lost that pride and I sort of became a little bit more reluctant to say at neighbourhood barbecues that I worked in finance. When I had an opportunity to work with asic, it was a great opportunity to work on the industry, not in the industry.

And I also think a really important part of the asset commission's roles are to bring real life experience into the regulator because it's very easy to look at the law and go, oh, that's terrible. But if you actually know the industry really knowing where the harm has been caused, you've got to kind of know the players and you've got to think about what levers you pull to make the right answer work. And one of the things that when I went into asic, I thought working in the industry, you never really understood how ASIC worked. A R was like going to your bank manager, you would, you know who to talk to, what you need to do, you know how to get the answer. ASIC is sort of like going to the ATM. You put your card in and you hope to God the cash comes out and that the card spits out with it.

Normally it does, but not always, and the process behind it is harder. And so I think for me, the opportunity of going into ASIC was about saying how do we communicate differently with industry? How do we bring industry along on a journey and actually make this a joint on how do we get better in finance as opposed to actually this us and them conflict that sits within the regulator and industry all the time. I sort of used to argue that if the regulator is in the business of behavioural change, which it is, then you've got to actually tell the industry what you want changed. You could talk to them, talk to people about what the problems are. You'd

MH:

Be hard pressed to find someone with such a diverse career. You really have done it all. Yeah,

DP:

It is a little weird,

MH:

A little weird, but I think fascinating at the same time having gone from large investment bank, global bank through to asic, I'd love to hear particularly your observations on leadership change management. It sounds like you've done a lot of that through those different businesses and some of the key learnings. I think

DP:

Leadership is so personal and how somebody leads is how I lead is very different to how others will. I think it's changed a lot as well over the last three decades that I've been in industry and when I first started in investment banking, it was slam the table and yell and scream at people. That doesn't work. Just doesn't, that's not how you're going to get the best out of people. I think engaging with people, being really honest with them about what the challenges are and I think that the biggest lesson I learned was actually to say, I don't know. I don't know. Let's work this through and work out what the answer is. Because I think there is a tendency to, as a leader, want to have all the answers and want to be able to fix it. And I think half the time you can't by yourself, so you need to be able to say, I don't know.

For me, change management, leadership, bringing people along on the journey is about being authentic and I hate the word because everybody uses it, but I haven't found a better one about being honest, about being humble, about being vulnerable and all of those things and about bringing all of the parts of you to the workspace, right? I mean, my colleagues who if you talk to any of them will probably tell you I'm a little bit nuts. I run an animal rescue on the weekends because it's actually, that's my passion, but I bring that into the way I think about work as well, and it's about managing those priorities and managing what matters. I think one of the biggest lessons I learned was when I was trying to merge the two super funds and I can't even remember what it was, something went horribly wrong and the chair at the time looked at me and said, has anybody died? No. It's like, okay, well we can probably fix it. And so being able to sit back and say, okay, well how do we fix this? How do we take it step by step I think is really important.

MH:

I can imagine the work you do on the weekends with the animal rescue might fact be harder in some ways.

DP:

Yeah, well often it is. The pigheaded comes from somewhere, although there's a lot of parallels as well. It's cleaning up bullshit during the week and same on the weekend.

MH:

Thinking about some of those leadership lessons and authenticity, vulnerability, being honest, clearly very important in the workplace these days. How did you then extend that though to get the best out of your people?

DP:

I think it's about making a safe environment for people to be able to expel all of those things as well. And I think sometimes your immediate reaction is that's just a dumb idea, but you can't say that, right? You've got to actually say, hang on, let's talk about this a little bit. How do we twist it? How do we shape it? How do we make sure that people have a voice and actually feel like they've been truly heard, not just talking because they're talking. And so I think there is a skill in that and I think that there is a need to take time and a need to give people time and people space, and I think making sure that people have accountability and authority is really important. I want people who work for me to feel like they're accountable, but also that they actually have enough rope to do what they need to do.

So creating that environment is, do I get it right every time? Absolutely not. I try really hard to when I think it's crazy or when I'm frustrated by it to say, that's interesting. Thank you for the feedback. That's a better answer than blowing up and then going away because they're never going to come back to you otherwise. I think the other thing is surround yourself by good people. Understand where I'm very clear in my own mind where my strengths and weaknesses are and particularly my weaknesses, and I make sure that within my leadership team I have people that have those skills that plug my holes, so make sure that I've got the balance within my teams to ensure that everybody does have a role to play. Everybody does have a really important part to bring to the table to make sure that the industry, the organisation that you're working for is actually going to succeed.

MH:

One of the interesting conversations we had recently on the show was with Blake from the FSC and talking about how you managed so many different stakeholders through regulatory change and when you think about your career and what you've learned leading up to your time at ASIC with the Royal Commission going on, how did you find that experience and how did you manage some very noisy voices from both sides?

DP:

Yeah, very noisy. Again, I think it's about listening and being really clear about, I want to hear the voices from both sides and I want to hear the negative as well as the positive, but also when a decision's been made, being able to articulate why it's been made the way it has and why some of those stakeholders are not going to be happy. You can't square a circle and make everybody pleased with an outcome because if you could do that, we would've done it already, right? There is always going to be part of the industry or a stakeholder or a group within the organisation even that are disappointed with the outcome. I think being able to articulate why the outcome is where it is is really important and being prepared to do that is important. I think the stakeholder management is hard and it takes time and it takes I think a humility that says, I don't have all the answers and I need to learn the answers from the people around me to be able to get the right synthesis of ideas and concerns. I think often it's about stakeholder management's, about actually understanding what the concern is because often it's not what you're told. There'll be a, we can't do this because, and then you dig a little deeper and you realise that it's not because of that, it's actually something quite different that's solvable in a different way.

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MH:

I want to come back, I've got lots of questions about some of the more current regulatory change that we're facing into general comments on the industry and where you think we're at as a profession, whether the Royal Commission and the result of that went too far, if we need to wind some of it back. Where do you think we're at as an industry?

DP:

I mean I think the outcome of the Royal Commission was predictable banks for financial advice in that space I'm assuming is what we're talking big banks went, well, this is all too hard. We haven't actually priced risk properly. We can't manage this in a way that is profitable. We're out. Interestingly, that looks, the industry now looks like it did 30 years ago actually, where there were a whole lot of independent financial advisors and the big guys, but there was a lot more choice around where you could get your advice from, what type of advice you got. So it feels to me a little bit like back to the future and in this future it's the super funds that are taking the position of the banks. They don't look unlike the old Tide insurance agencies particularly when you start looking into and facing into their retirement space and thinking about longevity products which are truly long-term lock-in products in a completely 100% vertically integrated business.

I really hope that as an industry we've learned some of our lessons and we don't go back to some of the poorer behaviours that we saw before from that tiredness and the vertical integration doesn't worry me. Vertical integration for me is absolutely fine actually as long as you understand what it is, manage the conflicts and your customer knows what it is. What worries me is when you go into Ford and you're given a Toyota, but you think it's a Ford, right? That doesn't work. You've got to be really clear about what you're selling. I do think we're a little bit back to the future. I think the pendulum on the regulatory side swung too hard and I think it's swung too. We've got to protect the consumer at all costs. These big, bad, terrible financial advisors. The industry is broken. I don't think the industry was ever broken.

I think were parts of it that were broken, but again, I think it was predictable that it was going to swing that hard, and I think some of the unwinding that we are now seeing is pretty important. I think the quality of advice review, again, that feels a little bit like back to the future to me, let's replace an SOA with a record of advice well before fofa. Isn't that what we actually all did? Let's make sure we've got the interest of the client, but it doesn't have to be ticking off all of these very specific duties. I think all of that stuff is important and I think there's a balance here. I do think the industry is professionalised and I think that was really important, but again, if you cast your mind back 30, 40 years ago, financial advisors were absolutely pillars in our community. They were people that could sign statutory declarations. They were clearly thought about as professional people. Somewhere we lost our way and I think we're now getting back into that. Biggest concern for me is are we ever going to have enough advisors to service the country? The answer is probably not, which means we're going to have to rely on technology.

MH:

And I was going to ask you about that. It's a bit of a theme that's run through the last couple of conversations. If we look at the need, well, there's a supply and demand issue and as an advisor in many ways it's a golden age to be advising, got more clients looking for advice and not enough advisors. Technology can solve part of it. Business model can solve part of it. Do you think the regulatory environment post QAR is actually going to get us to where we need to be or is there still work to reduce some of the overhead?

DP:

Yeah, I think there is still work to reduce the overhead. I think the quality of advice review was a really important step for those that know there are things in there that I don't agree with and that's fine, that is life. But I think at the end of the day, if you look at the regulation as in its own right, if you look at chapter seven of the Corpse Act, it's a hot mess. Quality of advice is not going to fix the QAR recommendations is not going to fix the hot mess. That is the legislative change, and I think until that's actually fixed, it's going to be very hard. That's my concern, right? The problem is fixing the Corporations Act is very, very challenging and I'm not sure that we have the time or the wherewithal to get that done. I think at the end of the day there is room in sector for all of the players here, and I often get asked, well, what about the client that's got a small pool of money that's not economic for a financial advice group.

How are they going to be served? Let the superannuation funds have them, right? Let them have those clients. They're the ones that are actually, the super funds are perfectly placed to service and service really, really well. There's a place then for what I think of as really true advice around how do I structure my affairs properly? How do I make sure I don't do dumb things? How do I make sure I'm being tax efficient? How do I make sure I've got the right beneficial ownership within my structure for my kids? All of those things. How do I manage that? That's what a true advisor is really good at. Superfunds are never going to be able to do that. Superfunds just aren't placed to do that. Focus on those clients, those ones will be profitable and that's where we can actually all make a difference. I think there is a segment of the Australian economy where good advice is going to be critical and the difference between having a comfortable and relaxed retirement to being probably actually having enough money but riddled with anxiety, let's not rid our clients with anxiety.

MH:

Probably a great segue to some of the work that you're doing today. So you are consulting at IAM and I guess the first question I have for you before we delve into the world of fixed interest and bonds, a lot of discussion at the moment around the sophisticated investor test top of the list for some time and seems it might've been dropped.

DP:

Yeah, I think there was obviously an announcement last week in the A FR that Minister Jones has put it back on the shelf. I think it was a very hard piece of legislation to get through and it had a lot of supporters, but it had a lot of proponents to it as well. I think they've run out of room in their regulatory, in their legislative agenda. If you think about we've got an election coming next May at the latest, there's not a lot of time to get anything through at the moment. There is an awful lot of other legislative change around financial advice that I think the minister will be prioritising, which seems to be what he's done. And I think without coalition support for this, it was just going to be too hard to get through. I mean, I think there needs to be some changes to the wholesale investor test, but I think we need to be careful about not burning the house down on the way out to those changes. And I think that's the bit that for me, it's still a very blunt test. It's not necessarily any test of sophistication in whether you've got a lot of assets or not particularly when you can include your house.

MH:

Which these days is a one bedroom apartment in Sydney.

DP:

Correct, which is insane. Just as an aside,

MH:

Is this something that you see coming back onto the agenda in a couple of years, four years? When do you think it's going to stick its head up again?

DP:

It'll come back on the agenda when someone who is not acting in the best interest of clients creates a product that does a huge amount of harm, sells it to people who are technically under the wholesale investor test but aren't really sophisticated that they lose all of their money, probably their farm and their house, and then it becomes a political nightmare again, that is when it comes back onto the agenda. So it sort of feels like the same old, same old, and I think we're going to have to have, unfortunately, I think it's going to take a crisis or something really quite bad happening to Australians before it will change again. Well,

MH:

Let's hope that doesn't occur, but let's hope. I tend to agree with you on that and any regulation. I think part of the challenge is what might seem like a simple test like removing the family home. The actual implications for clients, advisors, and the industry are huge.

DP:

Are huge and I think one of the big concerns that I have is what do you do with those people that were wholesale who are now no longer wholesale, that can't get the advice that they've enjoyed and are potentially in product that they don't really understand and now they're no longer advised at all. That's not a great position for those people to be in.

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MH:

One of the products that's got a little bit of attention at the moment is hybrids. It's sort of sitting somewhere between a sophisticated asset and a retail asset, obviously accessible by retail investors. Where do you see the future of hybrids?

DP:

Yeah, so obviously APRA are currently consulting on the 81 capital that's alternative tier one capital. I suspect there will be a change, and again, I'm not privy to what A is thinking, but asic, if we go back and think about it from first principles, ASIC has never liked hybrids in the hands of retail and it doesn't like hybrids in the hands of retail because they are complicated investments. They are not bonds, they are not debentures. They are complicated assets. They have a really important role to play in a stress environment for a bank. They are the swing capital that gets written off. They should be the thing that buffers and protects depositors when they're in the hands of retail investors. It's very hard for them for that pool of capital to do the work that it is supposed to do. That's what concerns I think a and the regulator, the Credit Suisse position last year, I think really scared regulators, treasury government to a degree that you could possibly bail them in. They were all of a sudden worth nothing, and I think there was a little bit of an aha moment when we all sat back and went, that would be disastrous if it happened in Australia because it's in the hands of moms and dads.

MH:

What's the current size of the hybrid market in Australia?

DP:

That is a question that I don't have off the top of my head. It's very significant, but it's significant and it's more significant in Australia than it is in other markets and it is unique in Australia that it is owned by retail. So the financial regulator in the UK actually changed their regulations a few years ago now to say that they couldn't be held by retail and it's not held by retail in many of the Europeans as well. So I think if you look at the international experience would say we're an outlier. I suspect that APRA would like to not have it as an outlier and that would make ASIC pretty happy as well because it just means that that issue of it being held by retail and being misunderstood and mis-sold as well quite regularly will go away.

MH:

So presumably the easiest way for them to do that is just to stop new issues and just let the current issues work through the system?

DP:

Yeah, I think that's right. They would be very highly unusual for them to change past issues. They'd let the past issues work through and probably limit where new issues could be sold to. And then I think the question is can you list them? Right? Because obviously as soon as you can list them, they become open to everybody and open to retail and that's one of the biggest challenges with the hybrid market in Australia. APRO have said that they will come down this year with those changes. I'm not sure where they're at, but we're six months out from the consultation, so one would expect it will be coming soon.

MH:

I mentioned earlier on in the discussion that you are consulting now for a group called IAM or Income Asset Management, which is effectively an issuer of bonds and are also looking at some new retail products. Can you just talk a bit about what you're doing there and what IAM is up to? So

DP:

IAM, as you say, an issuer of bonds at a broker of bonds, the work that I'm doing is really thinking about how can we make bonds more accessible to all investors and not just the wholesale investors or the ultra high net worth space. I think fixed income has a really important role to play in portfolios. I've got to declare, when I first started my career in portfolio management, I was a bond manager, so it's where I live, it's where I come back to this core asset that should be, I think in most people's portfolios they're pretty hard to access actually as a retail investor unless you want to have a managed portfolio of all bonds and I'm not sure that that's what people necessarily want or need. So I think we are working towards providing a way for retail investors to get single name exposure. So how do I buy Commonwealth Bank sub debt, for example? It's a nice yielding asset. It's a relatively, it's certainly not risk free, but it's a good risk return outcome, but at the moment it's only available to wholesale investors and institutions. That seems unreasonable actually to me. So how do we democratise it a little bit more like the share market is more democratised where anybody can go and buy a share.

MH:

So if hybrids are removed from the retail market, obviously a retail style bond through, I think the ET b structure could fill that void.

DP:

I think that's right. So through a listed vehicle where there is a bond that sits behind it that is, so you've got the liquidity of the market, you've got the accessibility through the stock market, but ultimately your economics is the bond behind it, but it's a single name. So I know that I'm buying Commonwealth Bank or Westpac or a NZ, I'm not buying, so I can be more particular about where my investments go and I think people increasingly want to be particular about where their investments go. People want to have some ability to control their flow of capital at the moment, that's very hard in the debt market. Do you

MH:

Think though that there's still a level of a need for education? Bonds on face value seem simple, but as we know they're quite complex depending on the market conditions.

DP:

Absolutely. I mean fixed income is anything but fixed, and I think that's the biggest challenge is how do you explain a bond to a retail client? How do you explain that you've bought something that you think is a fixed income, you're going to get a series of coupons, but you might get a capital loss at the end that's really complex. So I think there is a big education piece that needs to happen about what these instruments are, how they economically work, but also where they form what part of your portfolio should be in them and why do they form such an important part of a truly balanced portfolio and that buffer the income. I think as people search for income assets will be important, but again, you've got to understand that there's a capital component of these things as well

MH:

As, and hopefully many of our listeners now know, we recently launched a small bond parcel service with IAM, which has been really successful and we're seeing great take up. Why would an investor look at going direct into these single names rather than buying a bond portfolio or an ETF?

DP:

Yeah, so the direct name I think gives you a control over who you're investing in. It also gives you a control over your income so you know what your coupon is going to be and you know what your capital is going to be at the end pretty much as well. So that for me is really important. I think when you buy a portfolio of bonds, the yield is going to shift. What you get in income is going to shift. You can't necessarily plan for that. Whereas if you've got a bond that earns a five and 5% coupon, you know that every six months you are going to receive five and a half percent of that capital back so you can plan and you can budget for that. In a bond fund, you can't do that, right? Your yield to maturity will change. The investment managers will be doing a great job sitting underneath managing that portfolio to give you the best possible return, but it doesn't necessarily mean you're going to get income. And I think at the moment there is a need for products that provides good income flow and cashflow so that people can manage their cashflow management.

MH:

Wonderful. Before we move on to some closing statements, you mentioned before, APRA's, looking at hybrids at the moment, end of year, a financial year, calendar year.

DP:

I suspect given that we're now in early June, it will be the end of the calendar year, which I think is what they promised was sometime in 2024

MH:

And some of these newer products that you are talking about, sort of listed bonds.

DP:

Yeah, so I'm hoping that we can get our listed products up early in the financial year, next financial year. So we're looking probably July, August by the time we get approval from the listed, the SIBO and from the regulator to make sure that we can actually do these things.

MH:

And the best place for people to find out more information

DP:

Through Netwealth actually and or directly through IAM's website.

MH:

Okay, excellent. Before we go, just love to hear your thoughts on what's exciting you about the next couple of years from an industry perspective outside of fixed interest.

DP:

I think there is so many opportunities for the advice industry at the moment. I think there is a great need for people to get help in that wealth transfer. We've all talked about the massive amount of money that he is going to transfer from one generation to the next. How that happens in a way that is equitable, fair, reasonable, how the next generation actually gets their head around some of the complexities of wealth management, I think is really interesting. I think retirement is a challenge and I've talked about the silver tsunami a lot in my career around there is this wave of people retiring and we need to do better for them actually. We need to do better for them as a country. We need to do better for them. We need them confident and spending. We need them to be consumers, not savers. I think there's some really exciting things happening in the retirement space and as we talked before, it is a time when more Australians want advice. I think people are recognising the value of advice. So that is a great time to be an advisor and we've just got to get our models right.

MH:

Danielle, congratulations on an incredible career. Thank you for sharing your thoughts.