Investing complexity is a massive industry failing


I hate paperwork. Although I originally trained as an accountant, and I’m happy to bury myself in spreadsheets and annual reports, I have too many other priorities to be bothered filling out lengthy application forms. Yet I want to invest with some fund managers who only offer their products through unlisted managed funds with application processes which have changed little in 20 years. These may include boutique Australian equity funds, international funds, unlisted private offers, property trusts and private equity deals which cannot be accessed another way. Investing in some of them feels like a visit to the dark ages, not much better than quills and scrolls.

Why has the wealth management industry made the application process so complicated and time-consuming and devoted relatively few resources to solving the regulatory requirements imposed on it? When I think of the thousands of hours and millions of dollars spent on self-interested lobbying against, say, the Future of Financial Advice (FOFA) proposals, to little avail, resources could have been much better spent addressing a major consumer need.

Industry groups, especially the main body representing the major retail funds, the Financial Services Council (FSC) have not developed solutions. Instead, a gap has been left in the market which products like ETFs and LICs have been rapidly filling through listed products.

What is the problem?

Let’s say a property group acquires a large, iconic building and launches an attractive new property fund product following months of structuring and negotiation. They prepare marketing materials, webinars, presentations and advertisements. Investors are invited to onsite inspections. It’s all very exciting. The property group sends its Business Development Managers far and wide meeting advisers and investors, and the launch date comes with much fanfare. The Product Disclosure Statement with the application form is sent to registered investors and other names on the mailing list, with brochures showing the steel and glass structure and its spectacular location.

Eagerly, the applicants read through the offer, and impressed by the long lease to national tenants, they reach the application form.

Sigh! Here comes the slog.

Section 1, Type of Investor, Individual must fill in sections 2 and 5. Trust or super fund, such as an SMSF, fill in sections 2, 4 and 5. Each different type of applicant fills in different sections. Is it the section for an Individual or an Individual Trustee? What if there are two trustees? OK, let’s take a guess.

Identify both trustees, including Tax File Numbers (TFN). Then it says, “You must attach certified copies of documents to this application form.” Is that all documents? Choose Option A, or Option B Category 1 PLUS Option B Category 2 as forms of identification.

Now, identify the corporate trustee. Who are the beneficial owners? Which TFN does it mean? Identify them as well. Then identify the SMSF itself, including a certified copy of an 80-page trust deed. What! Is that the entire document or the cover page, and is it every page that needs certifying? And do they need any deed amendments too or just the original deed? What’s the name of the regulator, is it ASIC (for the trustee company) or the ATO (for the SMSF). And the TFN for the SMSF. That’s disclosure of four TFNs. Now, here comes FATCA. Is this a Managed Investment Scheme? Adviser details, payment details, contact details …

Still excited? I don’t think so. I gave up a long time ago. Life is too short. Some fund managers with an online application process admit to a 90% drop out.

How did the industry allow it to come to this? The property company has spent hundreds of millions of dollars on a six-star building then laid out a one-star application process.

According to Investment Trends, 58% of Australian investors do not intend to use managed funds in the near future, and when asked why, the top two reasons are cost and the complex application process. Hard to believe the industry has tolerated this for so long.

Is anyone processing applications well?

A few companies have taken some of the hassle out of the application process, and automated as much as possible. However, I am reluctant to identify them because, in my experience, there is often a breakdown in a step along the electronic process. These more advanced systems tailor the questions for the type of entity and link customer details to a range of electronic or manual verification options. It is up to the fund manager to decide the level of verification required based on their interpretation of the law.

Many fund managers still require the delivery of certified copies into an office or by post, and they seem especially clunky with SMSFs, where the individual members, corporate trustee and trust have different identifications. Each application process seems to have a variation on requirements.

Of course, wraps and platforms go some way to addressing the problem, as one application gives access to potentially hundreds of fund managers. But these only work if the product required by the investor is listed on the platform, and it is usually not worth a one-off fund or a small boutique manager going through the platform approval process.

The ASX might argue that its mFund service addresses this problem by allowing order execution (but not real-time pricing) by clients already identified by their brokers. However, some fund managers will not fulfil mFund orders on global investments until a detailed FATCA report is completed, which somewhat defeats the purpose of eliminating paperwork.

What is the source of the problem?

There are technology companies marketing fund application solutions, claiming their entire process is automated and online. Some fund managers have designed their own online solutions. The limited adoption of these services goes to the heart of the problem. Just because a company has a lawyer willing to sign off on a process does not mean we have reached an industry-wide solution.

Within the offices of each fund manager, lawyers design application processes to comply with their own interpretation of laws and regulations. Many remain apprehensive that a totally online application process fulfils legal requirements relating to Know Your Customer (KYC), Anti Money Laundering (AML) and even privacy requirements. There is little comfort in a software company telling the marketing person (who wants simple applications to maximise fund flows) that their process complies with all relevant laws when there is an in-house lawyer with a different opinion. That’s just lawyers at 10 paces. The in-house lawyer’s job is to protect the fund manager, not the software provider.

The ongoing dispute between AUSTRAC and the Commonwealth Bank has increased caution. No fund manager wants to be the next target for accepting money from a client without sufficient identification. Imagine the lines of enquiry when a regulator is told the fund manager accepted an electronic facsimile of a signature which anyone could have signed.

“Does anybody know or has anyone even met the customer?”

“Have you seen a copy of the SMSF Trust Deed to know the trustee even exists?”

“Did you obtain a certified hard copy of the identification form of everyone involved?”

A lawyer confirmed to me there is no legal requirement for a ‘wet signature’, but there remains “apprehension that electronic identification is sufficient, leaving the reporting entity to decide whether to accept the risk”. He said it’s an “evidential thing”.

What is the solution?

The industry will not accept a ‘solution’ from a software provider who hopes its process will become widely adopted by all participants. I’m not saying these companies cannot find clients, but overall, it will not become the industry standard required.

I believe there are two roads forward to solve this inefficiency dogging the industry.

First, a company or body that carries government support and the confidence of the industry should develop an industry standard. Ideally, an applicant would be approved once, given a code or PIN, and this would be accepted by all fund managers. Such a body might be under the auspices of the FSC or the Australian Securities Exchange or even Australia Post, with the support of ASIC and the ATO. An industry group would interpret the law and gain agreement across the industry.

Second, it should work off the APIR standard which has been used for identifying and coding data for unlisted products since 1993. The Superannuation Product Identification Number (SPIN) is an APIR code and with a fund’s ABN, is accredited by the ATO for Superstream.

Make it easier to invest

With fintech, regtech, roboadvice, AI, machine learning, blockchain and a thousand other technologies flying into the funds management industry from all directions, it’s inconceivable that applicants should fill in 12 pages every time they invest with another fund manager. The industry must work to a common solution for the sake of everyone’s efficiency.


Chris Cuffe is Co-Founder of Cuffelinks, Founder and Portfolio Manager of the charitable trust, Third Link Growth Fund and Chairman of Australian Philanthropic Services. He was the previous Chairman of UniSuper and the CEO of Colonial First State. He is also a non-executive independent director of many companies. The views expressed are his own.

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15 Responses to Investing complexity is a massive industry failing

  1. David Lunn April 8, 2018 at 7:53 AM #

    This insanity writ large is 100% the governments fault. I too want to catch international terrorists, money launderers et al but that’s what I pay my taxes for. I fail to see why 1/3 of my labour costs are for government red tape plus I’m STILL paying taxes like everyone else.

    This country is dying a slow asyphiating death of strangulation by regulation. It’s imposed by bureaucrats who measure productivity by the volume of paperwork generated.

    The facta/AML process is an extreme example and an absolute parasite in the productivity of the country.

    Illl tell you why it can’t be made electronic!!!!

    The muppets who run the system change the forms every 6 months and new sets have to be completed. You can only make systems electronic that have a stable process.

    Despite us telling our clients when their licence or Medicare card has expired so we can roll a term deposit, and having certified deeds etc on file and having 2 JP’s in the business this garbage is killing us.

    And the government tells us via ASIC that advice provision cost $X and that’s why the LIF reforms work.

    We are being regulated by Bill and Ben the flower pet men.

  2. Graham Hand April 7, 2018 at 3:56 PM #

    Hi Col, So you feel in some circumstances “I would not be given a complete picture through your publication”. And we should challenge “the major spending projects eg Pink Batts, School Halls, NBN, NDIS and Submarines, to name just a few”. For our humble little publication! Cover everything on all these issues? Next, climate change and world peace?

  3. Col April 7, 2018 at 3:43 PM #

    Dear Chris,

    As a new subscriber to your publication I appreciate the informed inputs. As a 70+ yo fully self funded retiree, I understand the logic and common sense of your commentary. What I completely fail to understand is your inability to provide a wholesome and complete summary of this situation. Equally concerning is that whilst in this case I know and can understand the entire picture for my self, I would now be concerned that in other situations where I was not so fortunate, I would not be given a complete picture through your publication.

    In the specifics of what you have described re Retirees, the Govt and Franking Credits, it seems there are 3 very key and separate issues. By far and away the most significant is (would be) the ability of any Govt. to make such significant (in %age terms up to 30%) short terms decisions about such a long term issue. It seems as though there has always been a very sensible assumption, that transitional changes to super match the savings and delivery phase, thereby making the planning, implementation and delivery phases solid.

    The second major issue is that the very tax status of Franking Credits under the proposal will (would) deliver different tax rates benefits to different tax payers, depending upon their taxable income level. This arguably smacks of significant discrimination and should be called out for what it is.

    The third and for me very significant issue relates to the Government’s insatiable desire for ‘other people’s money’ in support of a rapidly rising and, in my view, uncontrolled budget management whereby their spend as a %age of GDP has risen alarmingly. Within this spend and across the past 25 years of any/all Govts, the major spending projects eg Pink Batts, School Halls, NBN, NDIS and Submarines, to name just a few, represent major failures that should not be allowed or funded by the tax payer, and to the tune of billions and billions of dollars. Govt authority to raise money and spend on this basis is quite wrong and should be actively challenged – by you, your colleagues and the entire community. This is called Leadership and I look forward to recognising yours into and across the future.

    Thanks and sincere regards,

  4. PL April 6, 2018 at 5:11 PM #

    Hear hear! When you ask the fund manager whether your entity is an FFI, an NFFE or an NFE for example, or whether it is an Active NFE or a Passive NFE, you are told fund managers are not permitted to give financial advice…….

  5. CarolL April 6, 2018 at 3:39 AM #

    Plain Legal English (or at least it’s incarnation in the modern era – its history goes back to not long after the Norman Conquest) launched with customers (and Ralph Nader) voicing the concerns you’ve voiced about insurance policy application forms in the 1970s. The same spark ignited the movement in Australia soon afterwards.
    So don’t back down, Chris. Marshall allies far and wide, and call in some of Australia’s best Plain Legal Language experts early in the piece to advise the effort. Sydney University is a good place to start – long history of cutting the claptrap and mess out of legal documents.
    Commonsense will prevail – this has been a priority of all arms of government for a long time now so you will be preaching to the converted. Everyone wins – applications will contain fewer errors, be processed faster and there will be more of them filed – the application forms will be easier to amend, shorter to print, simpler to litigate on, faster to read – the list goes on. These outcomes are commercially irresistible.

  6. Bill April 5, 2018 at 7:26 PM #

    Agree totally, Citibank will not accept corporate term deposits without the directors appearing in person.

    Is this the 1800s or 1900s?

  7. Stefan April 5, 2018 at 7:15 PM #

    And…….. what happens in shock and horror, you may dare need to change the trustee. Entire process again. Insanely inefficient

  8. Gen Y April 5, 2018 at 2:19 PM #

    You are correct Chris, it is a disgrace that this is still the case in 2018. Unfortunately the AML/CTF rules (in particular) have placed this burden on everyone to comply in the efforts to inhibit the minority. There’s more paperwork involved in a $10,000 investment to a managed fund than there is to buy a $5m unlisted property. I’ve got no doubt the popularity of LICs and ETFs is because they require this archaic signup process to only be followed once (at the time of setting up a brokerage account).

    I suspect the industry has been slow to innovate as it is in their vested interest not to. Navigating these complexities is part of the value proposition of advisers. A one click sign up form would erode this value.

    However, times must change. My generation no longer accepts a poor User Experience, and we will soon hold a large chunk of the wealth in Australia. Unfortunately for the industry we will have moved onto something else and unlisted managed funds will die a slow death.

  9. Allan April 5, 2018 at 1:36 PM #

    Great article – I’m glad someone else feels the same way I do.
    Do you think nothing changes because the fund managers don’t feel the need to change? As long as the funds keep coming in, they’re happy. If an online application could have a 90% abandonment rate, imagine what the rates could be for an investor trying to complete a paper application by themselves. But you can’t track this rate, so it doesn’t appear on the fund manager’s radar screen as something they should look at.
    And have you ever tried to get a certified copy of an SMSF trust deed when the original was an emailed pdf?
    Our industry is incredibly inefficient and I can’t see things like this changing any time soon. Maybe if there were more options available via listed investments, the unlisted managers would start to feel the pressure to become more competitive and consider things like the user experience.
    Until that moment, we’ll just keep on doing things the same way we’ve done them for the past 30 years.

  10. Andrew April 5, 2018 at 1:17 PM #

    Couldn’t agree more. This would be a game changer for fund managers (positive), investors (positive) and platforms (negative)!

  11. Donna G April 5, 2018 at 12:16 PM #

    I wonder why we can’t just provide an ABN and TFN to identify an entity? After all, we have provided enough information for the ATO to issue a TFN so why can’t this be used rather than providing certified copies of trust deeds and other paperwork. For a SMSF, the entity and the trustees would all have a TFN, as well as a SPIN.

  12. Janice Sengupta April 5, 2018 at 11:15 AM #

    I agree that applications could and should be far more simple to complete. I would go further and suggest that setting up a SMSF itself should be easier. For those investing only in managed funds and listed securities (ie products already regulated and clearly for investment purposes only) establishing a trust and engaging in the absurdity of holding committee meetings, sending reports to yourself etc is an unnecessary replication of the machinery in running an large APRA regulated fund. I would go even further and suggest that taxation of super members should be at the individual level, not at the fund level. This change would enable all super finds to be managed more efficiently.

    • Gen Y April 6, 2018 at 10:19 AM #

      There’s a number of ‘SMSF lite’ products starting to appear that are APRA regulated funds with more flexibility. Unfortunately they all pose some restrictions that SMSFs don’t have, with the key one in my opinion being the inability to set them up as a ‘household’ account. It’s crazy that households can treat the rest of their finances jointly (house, mortgage, bank account, shares), but in an APRA fund must treat their super separately. I think if a Super Product was able to crack that nut and provide the broad investment list (all ASX shares, a large managed fund list, TDs, cash products) it would be a huge success and as you say remove the mind numbing paperwork associated with a SMSF.

  13. Gary M April 5, 2018 at 10:47 AM #

    Thank goodness someone has raised this. It drives me crazy and I’ve told many fund managers I won’t invest while they have a crazy application form.

  14. SMSF Trustee April 5, 2018 at 8:54 AM #

    Excellent solution, Chris.

    I had just that experience late last year. I had to rush into the city office of the listed property trust we invested in, just before all the staff went off on their Christmas party last December, to submit an application form and a signed cheque for $100,000. This despite the fact that this was the 3rd investment our Trust had made with them and they know us well.

    Until your solution is adopted, I’ll just have to keep requiring my Adviser to fill out the paperwork for me, as I had done on this occasion. They have their uses after all 😉

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