By Leon Gettler >>

GLOBAL GROWTH is expected to slow down in 2019 with the data flow from China, the US, the Eurozone and Australia, according to economist Stephen Koukoulas.

Mr Koukoulas told Talking Business that while there was no sign at this stage of a recession or hard landing, growth will be slower in 2019.

“We have got the global economy easing back a notch and the big question for economists and markets is, how slow will it get?” Mr Koukoulas said.

He said the picture in Australia was complicated with the slowdown in the housing market and the tightening of credit, leaving businesses struggling to raise money. 

He said Prime Minister Scott Morrison’s election pledge to create 1.25 million jobs over the next five years was problematic.

He said the government’s budget forecasts in December had gross domestic product growing at 3.5 percent and employment growth at 1.5 percent.

“Even with those good numbers, you only have 950,000 jobs. Maybe has something up his sleeve in terms of pump priming for the economy, but it doesn’t look likely. He won’t achieve that.”

Mr Koukoulas said the Reserve Bank of Australia would have to do an about face and cut interest rates with inflation low and the economy weaker than expected.

He said gradual deceleration in China will affect the global economy, and Australia’s.

He said China was growing at the slowest rate in 28 years and China was now easing its monetary policy because of concerns it was slowing down a lot harder than first forecast.

“The thing that’s still lingering over the global economy is the Trump tariff wars,” he said.

Another issue was the political turmoil, of the shutdown in the US, Brexit, demonstrations in Paris and France and the election in Australia. All this has an impact on investors.

 “It doesn’t stop businesses from investing and consumers from spending but it has this marginal impact,” Mr Koukoulas said. 

“When you talk about an economy going at 2.5 or 3 percent, it doesn’t sound like much but it’s actually quite important for its implications for employment, for inflation. The softening of the economy becomes a little more acute.”

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.

INVESTORS Square Peg Capital, Hostplus and AirTree have led the way in a $25 million ‘Series B’ capital raising for Australian fintech start-up, Athena Home Loans, to take the home loan innovator's total funding so far to $45 million.

The backing of Square Peg Capital, along with Australia’s biggest venture capital investor and industry super fund, Hostplus, and Australian venture firm, AirTree, is seen as an affirmation that Athena is on the right path to becoming Australia’s most innovative home loan provider and the strength and calibre of its backers is a validation of the company’s model.

Venture capitalist and co-founder of Square Peg, Paul Bassat, who also sits on the Athena board, said investing further into Athena verified the vast potential Square Peg saw in the business. 

“Having worked with Nathan, Michael and the team over the last year, I have enormous admiration for the speed at which they have navigated complex financial systems to develop a robust and customer-centric mortgage service,” Mr Bassat said.

“Athena is solving a really important problem for home buyers and is certainly one of the most exciting fintech companies in Australia. We are thrilled to back the team again and look forward to supporting them on this extraordinary journey.”

The Series B raise has come six months after the company announced a Series A fund raise led by Macquarie Bank and Square Peg Capital – and three months after announcing a strategic partnership with Resimac Group.

The company was founded by two experienced ex-bankers in the sector, Nathan Walsh and Michael Starkey, who are passionate about helping Australians “make the journey to home ownership faster, cheaper and stress free”.

Athena is built to be a very different kind of home lender to what is currently in the market and a genuine alternative to the big banks.

It is powered by what is claimed to be Australia’s first ‘cloud native’ digital mortgage platform, and Athena delivers better rates through a unique funding structure, bypassing the banks to connect borrowers to superannuation fund-backed loans.

Square Peg Capital invested in Athena in Series A and further solidified its support of the home loan provider by leading the Series B round.

Industry superannuation fund Hostplus is one of the highest-performing and most forward-thinking super funds in Australia with over 1.1 million members and $37 billion in funds under management. Hostplus has spearheaded investment in the local start-up ecosystem, with over $1 billion of its fully-diversified portfolio committed to Australian venture capital managers.

Hostplus chief investment officer, Sam Sicilia, said the industry super fund’s long-term venture strategy attracted the group to Athena Home Loans. 

“We are a firm believer in the potential for tech-led innovation to deliver future prosperity for Australians and strong risk-adjusted returns to members,” Mr Sicilia said.

“Athena is a great example of disruptive innovation delivering big savings for home loan borrowers.”

Athena COO Michael Starkey said, “We are delighted to have Hostplus and AirTree joining Athena as investors. Athena’s journey has benefited hugely from the insights and support from some of Australia’s smartest investors. It’s clear the timing has never been better to offer a fairer home loan.”

AirTree is an Australian venture capital firm that invests in world-class entrepreneurs, and most recently raised $250 million to invest in disruptive Australian technology companies.

“Athena has assembled one of the strongest teams in the Australian fintech market and are building a home loan company that is very different to anything that exists today,” AirTree Ventures partner James Cameron said.

“They have built what we believe is the most technologically advanced mortgage platform in the country – and this means a better experience and better value home loans for Aussie borrowers. We’re excited to be backing them on the journey.”

Currently in pilot stage, the Athena customer proposition is compelling.

“During our pilot, we are already seeing the power of the Athena proposition to save money and change lives,” Athena CEO Nathan Walsh said.

“A single mum who will be able to pay off her home loan 19 months earlier and save $130,000 over the life of the loan. A family with three young kids who will save $40,000 on their home loan can now take the family on the first holiday in years. It’s powerful stuff.”

“Our key priorities with the investment will be to continue to innovate our platform, invest in talent and scale the business,” he said, with the platform ready to launch in early 2019.

www.athena.com.au.

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SCOTTISH Pacific has welcomed ASBFEO’s Affordable Capital for SME Growth inquiry recommendations as a boost to flexibility for funding

Ombudsman Kate Carnell has released eight recommendations to increase the supply of capital and raise SME business owners’ awareness of alternative sources of finance outside traditional banking.

Scottish Pacific’s chief customer officer Ben Cutler highlighted ASBFEO’s plans to develop a financial products guide so that business owners know what funding options are available and best suited to them. 

“As the ASBFEO report indicates, and our own SME Growth Index research and 30 years’ experience of working with business owners shows, SMEs can become ‘rusted on’ to their banks. This means they might not be looking for, or be aware of, other credible funding options,” Mr Cutler said.

“ASBFEO’s report quotes ABS statistics that only 15 percent of all businesses apply for debt or equity finance, and 90 percent are approved – with the vast majority of SMEs not even applying for funding. They highlighted that banks say only one in 100 business owners over 30 years of age would consider changing banks.

“This finding is backed up by our SME Growth Index research, which shows that fewer than 5 percent of business owners actively keep an eye out for credit facilities that fit best with their business. Fifty percent don’t ever get around to reviewing their primary bank relationship and only 20 percent review this regularly,” he said.

Scottish Pacific consulted with ASBFEO for their Affordable Capital for SME Growth inquiry.

ASBFEO’s report claims business owners would benefit from a clear understanding of the different forms of capital, and that SMEs and their advisers need to determine how much capital they require and also what type of product best fits their needs.

The report referenced the current poor level of awareness by business owners about funding options, citing figures from a recent RBA roundtable: the total Australian market for debtor finance is about 4500 but nearly 65,000 SMEs could be utilising these products.

“Scottish Pacific has a 30-year history of funding thousands of business owners’ growth aspirations, with a style of funding that doesn’t put the family home at risk,” Mr Cutler said.

“So, it is frustrating to think that 65,000 businesses – more than 95 percent of the eligible market – could benefit from this style of finance, yet many are not aware of the option. Along with government and industry bodies, we’re trying to change this situation.

“It’s great for business owners to have wide funding choices and any effort the Ombudsman makes to put more options in front of SMEs, such as an SME Guide to Financial Products, is very welcome.”

The Ombudsman’s recommendations outline initiatives to increase the supply of capital and inform and prepare SMEs to seek capital, with a better understanding of all the funding options available.

“Recommendation Six is for business owners to work with their trusted advisers to get their enterprises finance-ready,” Mr Cutler said. “We work closely with key introducers, brokers and accountants, and we see there is a vital role for them to play in helping business owners source funding, and be funding-ready.”

The Affordable Capital for SME Growth report points out that the banks’ risk-weighted appetite, focused on real estate, limits the lending available to Australia’s SMEs.

It states that home ownership in the key entrepreneurial period of life (ages 25-34), is down by over 30 percent over the past 25 years, and with some forecasters expect housing markets to decline this could have a major impact on business owners’ ability to access funds.

“Ever since the Global Financial Crisis, banks have required enhanced levels of real estate security for SME loans,” Mr Cutler said.

“This has driven business owners’ interest in alternatives to the banks, including debtor (invoice) finance, fintech solutions and crowd-sourcing.

“Scottish Pacific is the independent market leader in providing funding options that don’t put SME owners’ family home on the line, instead it secures funding linked to the business’ accounts receivable so that the funding line grows in line with the business.”

Mr Cutler suggested business owners and their trusted advisers should talk to the different alternative lenders, as well as the banks, to find the right style of funding for their business.

“When you are talking to lenders, get a feel for who is here to stay with you in good times and in bad and who is able to make things work for your clients. It really pays to broaden your working capital horizons.”

www.asbfeo.gov.au

www.scottishpacific.com

The Affordable Capital for SME Growth Report, based on ASBFEO’s inquiry to address the funding gap for small to medium sized enterprises, is available on ASBFEO’s website.

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RESEARCH by Adviser Ratings has found financial advisers are highly dissatisfied with major incumbent technology vendors – although they rate Netwealth, AdviserNETgain and Lonsec highly.

“Technology and investment research providers to financial advisers are on notice to better serve their clients.” Adviser Ratings, managing director Angus Woods said. “Our survey clearly shows a high level of dissatisfaction with many technology players, at a time when advisers are facing other cost pressures, particularly in the areas of education and compliance. 

“Advisers are looking for more technological and phone support from platforms and planning software to free up their time and provide compliant end-to-end solutions to achieve this. In addition, with increased adviser mobility between licensees and the growth in social media, advisers are becoming more influenced by their peers’ opinion when selecting a new platform or software solution.”

It was no wonder major incumbent providers that previously drove the market for financial advisers – particularly the ‘Big Six’ of AMP, IOOF and the banks – were very much on the outer in this survey.

Netwealth was the favoured administration platform for investment functionality, with Hub24, CFS FirstChoice, CFS FirstWrap and Macquarie Wrap rounding out the top five of 17. 

Netwealth was also the favoured platform for insurance functionality, with Hub24, Praemium, BT Panorama and BT Wrap rounding out the top five of 15.

AdviserNETgain was found to have the most satisfied advisers in the financial planning software space, although it was on limited licensee coverage.

Lonsec edged out Morningstar for the most satisfied advisers in the research space, according to Adviser Ratings.

There was an extraordinary movement of advisers between licensees in the last three years, especially out of the institutional space, with a 43 percent increase in the number of small licensees.

“The challenge is understanding where advisers are going and servicing a greater volume of advice firms,” Mr Woods said. “It is not just about building a better technology solution but strengthening relationships with key decision makers in these practices who are increasingly looking for ‘plug-and-play’ software choices.

 “AMP and the banks could often afford to have technology support staff on the ground, resulting in a ‘sticky’ adviser for the incumbent technology providers. There are now over 8000 practices in Australia with less than five advisers, so it is just not feasible to have this support model in place” Mr Woods said. 

In assessing satisfaction levels of advisers, Adviser Ratings used a widely-known customer experience metric, the Net Promoter Score (NPS). NPS measures the loyalty of a user to a particular provider’s product or service.

Other qualitative questions were overlaid, including fees, provider support, adviser reporting, platform functionality, robustness of research and ease of use to help understand the reasoning behind these scores.

“With most providers where functionality or features were fairly even, we found the level of service and knowledge and helpfulness of its staff, was the most important feature when coming up with their score,” Mr Woods said. “We then split these responses by licensee and geographic area to determine which type of advisers are better serviced.”

With Adviser Ratings forecasting a significant acceleration of adviser movements and a continued shift into self-licensing, it opens the door to new players.

“With satisfaction and loyalty rates at such low levels and with advisers moving to practices where technology providers don’t have a strong influencing relationship, incoming players like Intelliflo and Advice Intelligence will present a real challenge to the market leaders, IRESS and Temenos,” Mr Woods said.

“We are seeing this in the $800 billion platform space with the emergence of Netwealth and Hub 24. Swiss-based Avaloq recently announced its intention to tackle this area. Frustrated advisers will soon have more choice. It is up to the incumbents to see if they are ready for the challenge.”

The Financial Advice Landscape report is said to be the most comprehensive snapshot of the financial advice industry and provides a unique view of the advice ecosystem in 59 regions across Australia. The report incorporates Adviser Ratings’ proprietary data, census data, and results from an online survey conducted in Nov-Dec 2017 responded to by 1,103 financial advisers. 

www.adviserratings.com.au

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