In this episode, we go into our archive to October 2019, when we interviewed Fiona Trafford-Walker. Fiona was one of the key consultants behind the success of Frontier Advisors and spent 25 years with the asset consultant, advising many of the largest funds in Australia.

She has been named several times among the most influential consultants in the world and was a driving force behind the fight for equitable fees in the industry.

In this interview, we delved into the changing role of asset consultants, questioned whether too much time is spent on manager selection and examined the struggles of value-style strategies.

Fiona has since retired, but is still active in the industry through various director roles, including for Victorian Funds Management Corporation, Perpetual and as a member of the IFM Real Estate investment committee.

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Overview of Episode

Overview Fiona Trafford-Walker podcast:

2:30 I'm an accidental asset consultant 4:30 You're named as one of the most influential asset consultants in the industry. What makes a good asset consultant? 5:35 You have to be willing to collaborate 7:00 Technical skills are very important, but equally important is time in the markets 7:30 The changing role of asset consultants over the years 9:30 As asset consultants have increased their senior staff, have conversations become more focused on strategy? 10:30 There is still the need to have a blend of specialist and generalist skills 11:50 Are we already heading to having a panel of asset consultants? 13:00 Is there a good balance between the time spend on manager research and that on asset allocation? 14:30 What type of data should inform changes in asset allocation? 16:00 There is not much you can do about geopolitical risk; predicting what politicians are going to do next is pretty hard. 16:30 But trade wars are a real thing that have an effect on markets 18:00 Are the struggles of active managers, particularly value managers, structural or cyclical? 19:00 There seems to be a need to tweak the value process to allow for the new capital-light business models. But at what stage do you get style drift? 21:30 Frontier Advisors took the decision to build a platform with all their research on it, quite a brave step in an era where softcopies get distributed easily. 26:00 You spent some time arguing for lower fees in the industry. Are we at the right level? 27:30 The real change has been the internalisation of asset management by some funds. 29:00 Can internalisation refocus asset management on the long term? 30:00 Bottom draw mandates 31:00 To what extent should asset owners engage with the companies they invest in? You are on a number of boards and see both sides? 33:00 Governance certainly has changed as asset owners realise they are the beneficial owners 35:00 To what degree can you divest from companies as a fiduciary? 38:00 The challenge of developing retirement products 41:00 At the moment, the willingness to do things together [as funds] isn't there. 42:00 What is next in store for you? 44:00 What issues come up in mentoring new asset consultants?

Full Transcript of Episode

Wouter Klijn 01:12

I'm here today with Fiona Trafford-Walker, who is a director with Frontier Advisors. Fiona, welcome to the podcast.

Fiona Trafford-Walker

Thank you. Walter, happy to be here.

Wouter Klijn

So 25 years of Frontier advices, has it gone quickly, or do you think it's a long time ago since you started out?

Fiona Trafford-Walker 01:28

I think the answer today is both, when I think back that it's been 25 years, I feel like, wow, that's such a long time. It's about half my life. And if I think about it like that, it feels like it's a very long time. But also, I think it's gone very, very quickly when I think of what it was like to start the organisation with Ray King, obviously he was very integral to starting the asset consulting business inside industry fund services, which became frontier. And I remember very clearly the first day walking to the office in Carleton. There were two of us in this room working out of there. And then I think of how, you know, we grew over the years. Some terrific people came on board, and then all of a sudden, it's 25 years later. So in some ways, it feels like it's a long time. Otherwise, it feels like it's gone very, very fast.

Wouter Klijn 02:13

Yeah, if I can take you back a little bit to the start of your career, I read this funny quote one time that you did an interview with The Sydney Morning Herald, where they asked you how you became an asset consultant, and you sort of made this comment where you said, yeah, it's not really something that you aspire to in university. It sort of happened. Can you tell us a bit about that?

Fiona Trafford-Walker 02:33

Yes, that's definitely true. I'm a great accidental asset consultant, I think, for a few reasons. One, it's not something back, you know, 25 years ago that people really knew that much about it was a relatively new career. Back then, the asset owners were much smaller. The system was very different. And I was interested in financial markets research, and I grew up in North Queensland, where the career prospects for that sort of thing are obviously relatively narrow. So I knew I had to move, and I knew it would have to be Sydney or Melbourne, and so just applied for a number of different jobs. I remember going for my interview again with Ray King, because he has employed me twice now, and sitting in the office at Towers Perrin in Sydney. And you know, Ray was asking me all these questions, and I couldn't answer most of them, and I thought I'd completely mucked up the interview. And next thing you know, they're offering me a role. It was a research role, and it was in the investment consulting business in towers parent, but sitting alongside that function, and my job was to do specific research that might help the consultants provide advice to their clients. And there were two of us in what we called the Global Research Unit, which I used to think was kind of ironic, given there were two people in Melbourne in a global unit. And after six months, the person I reported to Ron Bird, decided that he would move into funds management. And so I think they looked at me and said, Oh, well, we'll just move you into the asset consulting business. So I moved in, and I was there at Towers Perrin for a couple of years, and I just really, really enjoyed that work. I think what resonated with me was the chance to do research and practical research that could then be used to influence client portfolios and then outcomes for members. And I think I just not made that connection well enough before in those first six months. So I moved into the asset consulting division, and then in the middle of 1994 when Ray left to start industry fund services, I moved over with him, and the rest, as they say, is history.

Wouter Klijn 04:32

So you've been called one of the most influential asset consultants in business. What makes a good asset consultant?

Fiona Trafford-Walker 04:40

I get asked that question a lot now, and I think, I think what happens as you get older, people ask you all these questions, and so I've had to actually think quite a lot about it, because it was not something I ever thought about a lot beforehand. For me, I just did what I thought was the right thing, and it sort of happened to work out. But as I look back, I think. There's a few key characteristics. One, I think, is you have to be able to listen to people, and not only listen, but you have to hear. So listen to what they say. Sometimes their words aren't exactly what they mean. So you have to be able to read the room and understand what a question really means, and then you have to answer it and be clear in your answer, depending on the audience, use the right kind of terminology. So for example, in a trustee meeting, where you might have a lot of people who don't have an investment background, speak in very plain English so that people can understand what you're recommending that they do equally. If you're speaking to a much more technical audience, for example, internal team, then you tailor the way you speak to answer the questions and have the discussions. So listening and hearing and communicating, fundamentally, I think, is really, really important. The next thing I think you need to be really good at is collaboration, because as an investment consultant, asset consultant, you're giving advice, and a client may or may not take that advice, so you have to be willing to work with them to get a good solution that works for them. And sometimes you might go in with the best of intentions, the best advice you can possibly develop, but a client might say that doesn't work for me for these reasons, and so you have to always collaborate and move and shift and evolve your advice to make sure that you can continue to influence the clients. I think also, there are some fundamental skills around you know, the technical skills you really need to have, and they have changed over the years. So, for example, when I first started, I think we still use lotus, 123, but I'm not actually sure, because we didn't use it very much. And then we graduated to excel, and when we were interviewing people, when, for example, about 15 or so years ago, we'd interview people, and we used to do these tests in Excel, and they would have to do a VLOOKUP and those sorts of things. Whereas the technical skills nowadays, not only in the use of various pieces of software, but also the financial technical skills, are much, much stronger, and we see the young people coming through. They've clearly exceptionally skilled. And for people like me who don't necessarily have all of those technical skills, it's about other experience and skills you can bring So, experience with clients, time in the markets, I think that makes quite a big difference. And I look back now over, you know, nearly 28 years of of being in the markets and seeing things, and I think having that perspective is also something that's quite valuable. So you

Wouter Klijn 07:23

show that have there have been some changes within the essence consulted industry, and I think some of those shifts have been quite big. As the pension funds become larger and become more almost financial services companies. How does that affect the role?

Fiona Trafford-Walker 07:42

It's had a very profound influence. And if I think back over the various phases, so the first phase, when I first started, you would be the expert in the room. You would take your papers, the clients would thank you. They would pretty much do everything you said, and you would go away again, and then you would come back to the next meeting. And as those businesses became more sophisticated, they employed their own people. The work shifted. So some stuff that we used to do, they then took on. And at first it was some of the more straightforward things, for example, processing applications and letters and those sorts of things. But increasingly, you've seen a lot of skill developing in those internal teams. And so the role of the consultant now is very much to work alongside those teams in what I think is a very complimentary manner. Because if you think about it, and the way that I think about this, and I know that I'm absolutely biassed in thinking this is that I think there's always value in an external perspective. But clearly I'm biassed because that's what I've done for 25 odd years. But I look and think if you want to really kick something around, you know, getting people who are working for you, inside your organisation also working for you, but from the outside, you're all still working for the same reason, the same purpose. So I think working alongside those internal teams has meant, though, that the level of skill, the level of experience, the specialisation, has really had to change in asset consulting businesses. So your business model has gone from one which was probably a more typical pyramid, where you've got a few senior people and many more junior people, to being like an inverted pyramid where we've got many, many more senior people now who all can have a counterpart type relationship with the other people in the funds. And sometimes I go to some of those meetings, and they are talking at a level that is really, really deep. These are highly specialised people, and that's one of the most profound changes. I think.

Wouter Klijn 09:35

So does that focus in the discussion then also shift to a more strategic type of discussion where you talk more at a high level about decision making, rather than the implementation.

Fiona Trafford-Walker 09:45

Yeah, it varies. So some of those discussions, if it's specialist to specialist, they go so deep that I can't follow them, particularly on some of the newer areas, and that works for them. And that might be about a technical. Matter. It could be about implementation operations. It could also be strategic, if you sit alongside that. Though, when I think about strategy for the funds, I think that there are a group of people who can step back from that specialisation and bring what I call a truly generalist perspective. And it used to be, everybody was a generalist, and then everyone said, Oh, you've got to be a specialist to be successful, whereas now I think you can be successful and be either, or, some lucky people are actually both. That's pretty unusual, though. So people who can sit at the really the CIO type level, to sit back from the portfolio, to think about how the whole thing fits together, that's where a lot of the strategic discussions still occur. And those skills are not as common in the industry as they were perhaps, perhaps 10 years ago, as people have changed and people have left, but there's still that need, I think, to have the blend of of the generalist and the specialist, so you can have all kinds of conversations about how you make money for your investors, how you protect their returns, or, you know, whatever your goals are.

Wouter Klijn 11:01

Yeah. Now a number of years, I did an interview with Damian Maloney, who was then the CEO of Frontier Advisors, and he sketched a vision where, or a vision a future where he thought assets consultants will no longer have this exclusive role with one particular fund, it's more likely that it becomes like law firms, where there's a panel of different asset consultants and they specialise in different things. How far along are we in that? Do you think

Fiona Trafford-Walker 11:28

We haven't got in our client base many of those kinds of relationships we tend to rather than working in a panel? And it might be because there aren't that many consultants you can actually put into a panel, we tend to work with the internal teams who might then go and get specialist advice from someone for a particular reason. So for example, if they're doing an infrastructure deal, they might go and work with a traffic consultant or an airport consultant, something like that. But the concept of a panel where you have panellists who might be doing similar things. We haven't quite gotten to that, but I think broadly, there is a sense of a panel where the internal teams that are very active internally and, you know, and that's not the majority. At the moment, there's still lots of funds that are, you know, run very, very leanly with a lot of outsourcing, but those internal teams, I think, are increasingly surrounding themselves with expertise as they need it. And then, of course, the trustee surrounds itself with expertise as it needs it. So we have relationships with internal teams and also with boards and investment committees. So you're seeing a little bit of the panel approach in that sense, but not where you kind of line up and you go and get one report from one another report from another. It seems to be much more targeted.

Wouter Klijn 12:41

Sometimes, asset consultants are seen as gatekeepers, probably especially by the fund managers want to get on the approved list. When you look at the dimension of the time spent on manager selection and, for instance, asset allocation, keeping in mind sort of the research that's done on the impact of asset allocation. Do you think there's a right balance there, and to what degree, if you do focus a lot on asset allocation, can you be dynamic in that?

Fiona Trafford-Walker 13:10

Yeah, look, I've never thought that there was the right balance we you know, one of the very first papers that I did was really to try to replicate some work done in the States, about, you know, where do returns come from, and particularly where does the volatility of returns come from? And there was some early work done which showed that particularly the volatility of returns came from the asset allocation, and within that thinking about your strategic allocation, because that was the nature of that paper back then. This is what this is, 25 years ago that has evolved to being around strategic and dynamic asset allocations. That said, the role of active money management in that can still be really value additive. You know, it can be the cream in the coffee, so to speak. And so anything that helps you get you where you need to go is worth looking at. So for me, it's about the balance of time. And I think that over the years, you know, we would always have been better to have spent more time on asset allocation, like, what's going on the world? How do you position your portfolios? And for some reason, it was just never really seen by the industry as something where you should spend a lot of consulting dollars or internal dollars. I think that's changed now with some of the numbers are coming out, and you can see the difference in performance. That said, my personal perspective is there should always be room in your portfolio for good money managers who can make money over time for their clients. And I think that the time on manager research to find those firms is well spent, but probably we, collectively as an industry, spend too much time trying to find out who those firms are when. If we could deploy some of those resources into working out what's going on in the world and how to set your asset allocation, and I think dynamic is a really, really important dimension, then that probably would be better over time.

Wouter Klijn 14:57

So what should inspire some of these. Changes on the dynamic asset allocation. And I think particularly about we did a poll recently amongst investors and asked them what the top risks are from whether you're going to make your return or your liabilities. And the number one concern was geopolitics. And I can sort of understand from there could be a tail risk potential event. But then, when we asked if anybody made any changes based on geopolitical events, there were very few that actually did. How do you incorporate it and what should inspire changes in an asset allocation?

Fiona Trafford-Walker 15:35

Geopolitical risk, I think is really hard. I mean, I feel quite lucky. I work with some terrific people, and particularly the director of investment strategy, Chris Trevilian. He runs our Capital Markets team, and they think a lot about some of these tail risks, not only some of the structural changes in markets and in economies and in the world. So for example, things like demographics and climate change and others. Then you do have things like geopolitical risk. You've got quantitative easing and these sort of weird things that create enormous amounts of noise, and they do change the way that market and market participants respond to things. So we look at geopolitical risk and we think, well, we can't do much to manage that like it exists. We have to think about, how do you defend against it? Diversification is a good way of defending against it. But if you're trying to predict what politicians are going to do next, it's pretty hard. But then sometimes those risks creep into what I've loosely called real things, like the trade wars, for example, now that that is a real thing having a real impact on markets and on economies and on exchange rates and and and on people who are fundamentally affected by what happens in, you know, their own businesses. You know, small businesses in rural USA, for example, and businesses in China, and increasingly, businesses here. So we try to put the things we can understand but not control into one area so the least we know what's going on, and then we try to work out how might that squeeze out and affect the advice we give clients. And geopolitical risk has featured in a lot of the quarterly market outlooks that we do, but we try not to set portfolios based on things like that. But you have to have an eye on it these days. It's a brave new world, I think.

Wouter Klijn

Yeah, that said there's an argument that, you know, fundamentals should come to the fore at some point, like at some point, but it's been a bit of a long time now.

Fiona Trafford-Walker

So, you know, the rubber bands getting longer and longer, but we are in very unusual circumstances, and I've spoken a lot with investors about the absence of value working in the markets for at least the last 10 years, and there's a number of changes within the market that could make the argument that this is a more structural development. One is, of course, the capital life model of technology companies. There seems to be also more stricter regulations on how much management of a company can tell a fund manager without having to disclose it to the rest of the world. So there seems to be a number of elements that are not really in favour of active management.

Wouter Klijn

Are you concerned that this is a structural issue, or do you think this is mainly still a tale from QE and cheap money.

Fiona Trafford-Walker 18:21

I think it's probably the latter for the most part. But I do think that, you know, there are some structural changes going through markets, and I think technology is one of them, and understanding the impact that that will have on, for example, people who work in organisations and the work that they do, and how that might be displaced and what happens with them. So I do think there are some fundamental changes coming through, really, on the more of the social side, and that will change the way that companies operate, the way companies think, and also, I think the what asset owners and shareholders think and expect. So we did quite a big paper a couple of months ago just looking at active management, because the last 12 months was really, really terrible, and I think the worst year in the last 20 so it's really easy to look at that and go, Well, it's broken. But I think again, if you look through the fundamentals and think good active managers, if they're doing good research by good companies at decent prices, then the value style over time, to me, still is something that has a lot of merit, but, you know, maybe there's an openness to something like, you know, a new value style that does allow for some of these structural changes. And I think that technology, and, you know, machine learning, robotics, AI, those sorts of things are complicated, and they will change business models. And I think being open to that is probably the best defence.

Wouter Klijn 19:43

So there might be some changes within the investment process, within value. To what degree can you adjust that process? And at what point do you say, wait a minute, you got style drift going on here?

Fiona Trafford-Walker 19:57

Yes, the old style drift used to be something that fund managers were hung, drawn and quartered for. I don't hear people talk about style drift that much anymore, to be honest with you. I mean, maybe someone like Fraser Murray, who runs our equity research might hear that more than me, but certainly when I used to do manager research, that was something we were very vigilant to look out for, mainly because when you're putting together portfolios for clients, you have managers playing certain roles. And so if one manager you think is going to do something, but they creep to do something else, it does cause you problems with your overall portfolio, because you end up with too much of something you might not have wanted. That said, I think that it's always healthy for any firm, not only a money manager, but even our consultant as well, to say, well, is the way we do things still sensible? And so if you are going to have any kind of drift in your business, and we are drifting now, maybe called pivoting, I don't know, which is a very cool thing to do, you talk about it and go and engage with your customers and clients and say, look, we've been doing things this way for such a long time, but we think the world has changed, and we're going to evolve to do something different. And I look at the business model at Frontier, for example, and the work that was done, you know, when Damian was a CEO, which is going back to 2011 around technology, we were always way behind on technology. And He came in and sort of had a look again, the value of an external perspective coming in and saying, we need to really wrap that up. And would have been easy for us to say, well, we're a consulting firm. You know, technology is not our thing, but in fact, that's been incredibly empowering for us. But you've got to take your staff and your clients on that journey so it becomes something you can do together. And I think it's the same philosophy about money management and styles.

Wouter Klijn 21:45

Yeah, the technology platform, in a way, was quite a brave step, because I remember that when it was introduced into the market, and the idea that clients could log in and see research there, that they thought, well, if they see it on that system, then it's very easy to print it out and it gets all spread around and lose IP and but I think at the moment, it's actually turned out to work quite well. What do you think made it work?

Fiona Trafford-Walker 22:13

Oh, look, you're absolutely right. When we first talked about doing it. And, you know, back back then, the way that we used to think about consulting, and I think all the other firms would have been the same, is that you that you, you had your processes and people and everything, you developed your IP, and you protected that very zealously, and that's what you sold. You sold time, and you sold IP, and that's all you had to sell. So when Damian came in and said, you know, we should actually put this on its head, we were like, wow, we're going to be kind of giving IP away. Is that? How's that going to work? I think the philosophy that we had was that if we shared it, we would back ourselves to continually develop fresh IP and fresh ideas, and that people, in seeing how open and transparent we were, would say, well, these are good people. They do good work. I want to work with those people. So the sharing of IP was something that was that Damian drove back then in a very different way to the way that we used to collaborate and share the IP. It was one of the hardest transformations in the business, though, for a few reasons. One is we did actually have a database, which we affectionately called the prober, because we would be out there probing managers for for information about their processes. And the prober was just a an Access database. It was a very internal database. It was full of typos, grammatical area errors, inappropriate things that should never have been written. Thank you. Mike fish, and so we we decided we needed to go back at least three years to build something that people could see what they were going to buy. So we printed off all the notes for the last three years, and a number of us then went through and actually edited every note. It nearly killed us. It was just it was very difficult, but we ended up with something that has, I think, become, if I do say so myself, I think it's become the standard in the market for you know how you communicate with clients, how open you are, how how you can prove the value that you add. And I think that then led to being not only an internal system, but an external system on manager research, but now increasingly on capital markets research. So all the asset allocation we do is all done through the system, and that system is being enhanced all the time. So it was a very big transformation, and it was not easy, and it really took probably about five years from when we started to getting to the end and saying, I think this actually works pretty well now, but it was a very significant change and and it's been very, very positive, yeah, and it's enabled us to get efficiencies which we would never have been able to get before. So the concept of productivity actually is now quite a valuable one inside, inside frontier, whereas before, we just could never work out how to be much more productive, other than getting other people to do the work. Now we have this major tools.

Wouter Klijn 25:01

It's very important. So in a way, it motivates people to constantly look for new ideas and new research and produce that

Fiona Trafford-Walker 25:09

Yes, yes. And if I think back to one of your early questions about what makes a good consultant less so individually, but as a as a firm, you know you have to think of new ideas for your clients, and you don't need new ideas all day every day. You really need a couple of really great ones each year, maybe even one a year. I'm not even sure the number, but if you know you have a process that develops IP good ideas for clients, then the clients will look at you and say, Yes, I want to deal with those people because they're smart. They'll help me do my job better. So I think that that has enabled us to think in different dimensions about development of IP and ideas.

Wouter Klijn 25:47

You've also been quite active in the whole debate around fees and been driving funds to look at those arrangements. Can you tell us a little bit about how you think where we ended up is the right space? Because partly, there has also been a large unexpected impact from regulations with the introduction of my super.

Fiona Trafford-Walker 26:06

Well, not only my super but things like RG 97 and other things. So if I think back and it's 10 years since I wrote that first paper, and 10 years since Ken marshman, who was my counterpart at Jana at the time, and I sat down and had discussions about this as an industry issue, and the perspective we always took that did get a little bit lost at times, was it was always about net returns. It was just, what did you pay to get those returns? And was there a fair and transparent sharing of the, you know, the economics? So we developed six principles, which were very much around fairness, transparency, the right to commercially negotiate, all those sorts of things. And I think, though, as I look back, and I'm actually very close to finishing a paper that sort of updates on where we are 10 years on, I think on some measures, it's been very successful. It's made people think about just how much they pay for what they get, and is it worth it, and some things are worth paying for. You know, there are some terrific firms out there that do great work. It's research intensive. They deliver for their clients, and yes, you should definitely pay for that. But there are others where you sort of think, well, does that really a good sharing? And I think it's enabled a lot more discerning, I think, between firms that are worth paying for and those that possibly need to just sharpen their Proposition A little bit more or think about the products that they offer. So I think that's helped the biggest shift, though, I think that has caused real change in the funds management community is the internalisation by the asset owners, and that had sort of been flagged by a few some, in fact, some did manage money internally back then, but it wasn't a very public thing, and it's been increasingly flagged by some of these very large asset owners. And I think that as that became a lot more prevalent, I think the funds managed community look, looked and thought, well, the money is going to flow from us to them, and that's exactly what you've seen. And so that, I think, has made people sort of sharpen their thinking about, not only about their products, but about, you know, the economics, the prices they offer. But it's pretty hard to compete, in some cases, because the internal model is a relatively cheap model. I think what I would like to see in the next five years is full transparency from the asset owners who do manage money internally, just to be clear, that they're the same standard is being applied around the search for excellence. You know, by whether you're in an inside an asset owner business or you're outside, in many ways, what you're really doing is transferring risk from outside to inside. So you just want to be clear that that turned out to be a good thing.

Wouter Klijn 28:44

Do you think that there are any concerns over whether the standard might slip? You could also, because that's a discussion that's often had where you say, well, it's very hard to fire the internal team because your colleagues work with them and they have influence. But you could also think about it. Well, the industry has for a long time been focused on very short term results, and maybe this will enable to put some strategies in place that are much longer term, that look more at buy and hold type of strategies, and potentially drive also some change there.

Fiona Trafford-Walker 29:18

Yeah. Look, I really hope so. I think that you know the certainly institutional investors like super funds and other long term investors, that the one major advantage they have is time. And if you have time on your side, then that's an incredible opportunity you can exploit. And a big way to exploit time is to be a truly long term investor and to ride the cycles of business out. If you've got a company going through a tough time, understand it, but don't bail because your tracking error has gone up, or you've got a report to provide to a trustee, or something like that. And so in many ways, it's not completely fair, because, you know, that's not necessarily the way that an external money manager gets treated somewhere. I think it depends on how well they sell their story, but for the most part, the focus on the shorter term numbers, I think, has not been a positive thing here. I do think with internal money management, that it's a great opportunity to enable true long term investment to occur. And I used to call them bottom drawer mandates. And my idea, like in the mid 2000s was you would just go and buy chunks of businesses and literally stick them in the bottom drawer, good quality businesses just doing their job, performing well, clearly, if there's some kind of event, yes, you need to get it out of your bottom drawer and have a look at it. But otherwise, it seemed to me that the ability to provide capital for such long periods would be very positive, not only for capital markets, but for the community, society. For business, this flow on effects are quite significant. If businesses know they can truly invest for the long term, then it's just a win win for everybody. So hopefully we'll see that. I think increasingly we are seeing in the processes being developed by the asset owners, that definitely is something they're capturing. So that's really positive.

Wouter Klijn 31:04

So with the internal teams investing, they're closer to the market as well. And one of the things that is interesting, I think, there, is that they become much more aware of their responsibility as an owner of these assets, and engage more with the companies. To what degree do you think that that's desirable? Should they engage and try to get better outcomes in as far as they can? Or should I just leave companies to do that?

Fiona Trafford-Walker 31:32

Well, for me, it's about responsible ownership, and I think, I mean, I see these things from two perspectives now, because I'm actually on two company boards, and I'm also on the board of another investment organisation, and so I see a perspective I didn't have before, which has been really, really valuable. I think companies need to be allowed to just get on with the running of their businesses, just in the same way. Our Super Fund is a company, and should be allowed to do the same thing, but at the same time, they need to be accountable for what they do. Need to be transparent and to move with the times. So, for example, the shareholders are saying, What are you doing on climate change? Well, answer that question. Be clear about it. Commit to being responsive if if they have questions about, How do you treat your workforce? Well, answer those questions. And I think there's a bridge to be made between the asset owners and corporate Australia. I think it's they still have to work at how to kind of operate with each other. That said, I don't think that you want the shareholders kind of sticking their noses in too much, and vice versa. We have to learn to coexist. I think,

Wouter Klijn 32:47

Yeah, I think it's interesting, because in the recent years, we have seen more emphasis on governance, and sometimes it can be a bit vague in what exactly people mean by that, but at the same time, there's some real consequences to ignoring that part. So this morning, we just had news come out that some of the pharma companies are now being held accountable for the opioids in the US, and I think Johnson and Johnson has to pay more than 500 million and but there's another company, and that has apparently offered a 12 billion settlement to settle all of the cases that are against it, that's that's obviously having a real life impact on these companies. How do you look how that has developed over the course of your career? Is that really true, that there is more emphasis on it, and is there a clear way of doing this?

Fiona Trafford-Walker 33:40

Yeah, oh, there's definitely more emphasis on it. I think, I think, like when I first started, the fund managers couldn't, you know, had the relationships with companies, and they decided how they would vote and and that was something that was highly delegated. But as the the asset owners got bigger and bigger, and they realised, well, we're the beneficial owners of these shares, we ought to decide some of these things or be part of that conversation. So they started voting their proxies, but that typically was around things like remuneration, or a director standing, or something like that. Then the next wave, though, has been, I think as responsible investment has become, really quite a powerful movement, I think, for one of a better word, where they're saying, hang on a minute. There's a lot more going on in companies, and we own large chunks of them. And you know, for example, many have signed up to the United Nations Sustainable Development Goals, the United Nations sponsored principles, responsible investment. And that means you have to do something. You have to ask questions, put your money where your mouth is, literally. So we are seeing significant change, I think now, particularly by the big asset owners, to think about where they put their capital, what businesses are they supporting? We have a number of clients who think a lot about the just transition in a climate change context, because. Because clearly many of them have members and employers who might be affected by that so thinking, Well, how do they participate in that process? So might not be something that happens quickly, but something over time, and how can they help them make that transition as effectively as possible? So that is much more powerful today, and I think that's entirely appropriate when you are the trustee of multiple billions of dollars of other people's money, you have to think about, you know, how you how you invest it, where you put it, what you expect companies to do with it,

Wouter Klijn 35:32

Yeah, in the local context, we've seen a lot of emphasis being on cutting out tobacco companies from portfolios. And it seems that the next discussion is focusing more on a low carbon environment or portfolio. To what degree do you think that these types of actions align with the fiduciary responsibility as well? Because yes, there's obviously great risks attached to it, but there's also a point where you say, Okay, you can't just keep cutting out chunks of portfolio. How do you deal with that?

Fiona Trafford-Walker 36:05

I find that one really tricky. So I, I would always rather engage to help improve something. But there are some businesses. So for example, tobacco is one is they're always going to make cigarettes or vaping or whatever, and other things called so they're not going to fundamentally change their business model. You have to decide, do you want that in your portfolio or not? And some of those things, for me, anyway, get into kind of an ethical debate about whether that's good or bad. Some of it, though, is more tangible. So for example, you know you can point to, you know, things like lawsuits and, you know, future lawsuits. And so it can become quite a real thing. So it goes from being ethical to being actually something much more financial. Tobacco, I think, is in that category. But most, most businesses, it's not that straightforward. It's so for example, AGL is one I think, that got a bit of press a couple of years ago, where the easiest solution would be to say, well, we don't like what you're doing with coal, so we're just going to divest. Whereas a better solution was, which actually, I think, is what occurred, is to say, how are you going to transition? And they committed to a transition plan. And so, you know, you've made an impact there by saying, all right, you know, how do we help this company transition over some reasonable period so that we get where we want to go, and we've influenced the business. To me, that's a good use of that, of that power, and that, you know, the votes. But I think it's from a governance point of view. It used to be, it had to be, you know, members best interest, and a very fiduciary duty. And I think that has morphed a lot. So the concept of fiduciary duty, I think the lawyers would say it's still the same, but there's now community expectations, and there's a bigger overlay on that now that I think has made some of those decisions a bit easier than they might have been, but I'd always rather engage if you can, some companies don't want to engage, or if they do, they decide they just don't want to listen, in, which case you just invest somewhere else. There's plenty of companies, companies companies to invest in.

Wouter Klijn 38:03

Another problem, or more of a challenge that industry is facing today is the development of retirement products. Now, apart from sort of the product issue that there is investment challenges as well to it, why do you think it has been so hard to come to a solution to this? I mean, people have been retiring, right?

Fiona Trafford-Walker 38:22

Yes, yes. I think what I put it down to is we all got so excited building what I think is fundamentally a really, really terrific accumulation system. I mean, I think it's easy to beat ourselves up, and you could always do things better. That's definitely true. But fundamentally, the system we have here is really, really good. It's sort of one of the top three or four in the world, as assessed independently, many, many more people today retire with much more money and therefore dignity in retirement than they would otherwise have had. The coverage is much better in terms of the workforce and in terms of women. So I think we kind of got a bit excited building that that we sort of thought, well, we could just take those concepts and apply them in retirement. So, you know, the easy solution was, well, the money was small, so we'll just do a different tax assumption, and we'll put some products that work. And I think we always knew, or the industry always knew, that that was just a bit of a band aid solution. And though, as people think about it, I think the real challenge, though, is in retirement, you need to have much more fun consideration of your individual financial circumstances. In accumulation, you don't necessarily need that. You need to know a small number of things about someone. They choose the right option, they build their pool. But in retirement, you need to know, for example, any other money? Do they own their home or not? Are they in a relationship or not? All those sorts of things. And most people don't go and get financial advice. And so how do you help them in retirement? Build something that I think is the industry calls sort of mass customization. I think that's really hard. That said there. A lot of really smart minds working on this. Now, the money in the funds in retirement phase is growing rapidly, so the Critical Mass is is being developed. And so I think it will not be too long before we see some really, really good products coming out. But yes, I think you're right. It's definitely underdone.

Wouter Klijn 40:19

It's an interesting sort of issue, because we had the my super legislation come in, and so there's now this sort of legal definition of what a default option should look like. And I think sort of that concept was taken then, oh, let's do that for retirement. But you can't necessarily do that because of the vastly different circumstances that people are in. Do you think that one solution should be more that it's based on a concept or a platform that has then multiple different solutions hanging under it, or is it possible to have a my pension default?

Fiona Trafford-Walker 40:53

Well, look, I think also all those things are possible. I do think that to build some kind of platform, you do need quite a lot of collaboration to get critical mass across some of the funds, to make sure you can do things like pooling for longevity and all those sorts of things. And I think at the moment, the willingness to work collectively and to pull money doesn't necessarily seem to be there. I think the lot of the funds are trying to really do their own thing. So I think there's an opportunity to do something along those lines. I think possibly it's technically a lot more complicated than then it might first appear You're right. You should be able to have, well, we have my Super Why can't we have my pension? And I think it's probably quite technically difficult compared to an accumulation phase. Then again, as I said, so many smart people in the industry are trying to work out how to continue to look after members. I think we've looked after members really well until the point that they retire, and it's that next phase when, arguably, they actually need You more. You know, I think, because that's a can be a tricky time for a lot of people. And as they retire, then, as they age, thinking about, how do they get health care advice? How do they get aged care advice? It's this, we don't necessarily look after people at that point very well at all. I think so.

Wouter Klijn 42:10

Fiona, what's next in store for you? I think you recently have relinquished the role of director of consulting and taken on a few board positions as well. What can we see from you in the future?

Fiona Trafford-Walker 42:25

Yes, you're right. I am. My role has changed. And so I handed all of the consulting responsibilities and practice responsibilities over to Kim by water in 2017 and as I mentioned earlier, Chris took on investment strategy and and other people took on other things. And so I've been really excited to see how well they've done and how, you know, they've made their own mark, and they've thought about what the company should look like and what those roles should look like, and I think they've all done a terrific job. And so my role has moved to be more strategic. And when I can't do it on this, on this, because I'm not on a video, but whenever I say strategic, I do the bunny ears, because no one exactly knows what strategic means, but it's turned out to be things like working with clients on governance issues or investment issues or behavioural finance issues. It's helping them think about what their internal team should look like, what their delegation model should look like. I don't do a lot of can. I don't do much Consulting at all anymore. On the client front, I mentor some of the staff inside frontier, which has been great. You know, they're a fabulous bunch of people. And I'm on the investment committee, so I think more of that kind of thing is, is really interesting, and I really enjoying that corporate work as well. So that sort of you know that balance would be good, but I'm one thing I have learned over the last 25 years, it just doesn't pay to plan too much. And people often say to me, or did you? Did you plan this? And I'm like, No, I didn't plan any of it. But as opportunities come to you, be open to them. And as I say to people, you just got to be yourself and back yourself and have a go and you know, so I'm open minded to things, and I'll just see what happens.

Wouter Klijn 44:07

So you mentioned the mentoring element. Are there any specific things that you see in this new cohort of asset consultants that stand out?

Fiona Trafford-Walker 44:18

The biggest thing that I talk to the people that I mentor about is it's their own confidence. And I'm not sure if this is necessarily the people that come into the asset consulting business or whether it's just the people that you know that we attract at Frontier or not, but a lot of the younger people, I look at their CVs and their skills, and they're so, so incredibly capable, but they're also just a little bit uncertain a lot of the time. So I spend a lot of the time talking to them about how to get their capability and their confidence in line with each other. And a lot of that is just helping them think about, you know, as you do things, think, okay, yeah, I did that, and I might not have been able to do that. I. Month ago, and now it's all fine, and you sort of build this on this bedrock of capability and confidence. So that is something that I work with them on. I think that technical skills are exceptionally strong, and I think the key though will be to take those technical skills and turn them into consulting skills, because consulting is a funny thing. It's, you know, it takes time. Some people are naturally good at it. Some people it's not their thing. And in firms like frontier, now there's lots of opportunity to do lots of different things, so you can focus on consulting and research and other things. But it's you turning that capability, the technical capability, into something that you can go to a client and the client goes, Yeah, I want to hear what you have to say, because you're really smart and you've really thought about this, from my point of view. But I think they are very purpose driven. I know that that's a stereotype of, you know, the Generation Z and the millennials, but they are very purpose driven. That's it. I think a lot of people at Frontier repurpose driven as well, so we sort of blend together well, I think. But they get terrific bunch of people, and it's, it's, I really enjoy working with them, and I really enjoy learning from them as well. Because sometimes, as a mentor, it's easy to sit there and, you know, tell people I did this and I did that, but that's not that helpful. I like to hear what what they're doing, what they're worried about, what are they thinking? What's their experience, actually? And, you know, it's big difference. Sometimes the age difference is 25 years. So their world is very different to my world. Yeah.

Wouter Klijn 46:35

So next generation is ready to take on the challenges.

Fiona Trafford-Walker 46:39

Absolutely, I think they are ready, they're capable, they're willing, and I think, you know, they're excited by the opportunity, but the firm in the next 25 years will look very, very different. I think, you know, changing, evolving, continually evolving, is really, really important, and that flexibility and resilience will be important skills. And I see lots of evidence of that,

Wouter Klijn 47:01

Well, Fiona, it was great having you on the show.

Fiona Trafford-Walker 47:04

My pleasure. Thank you.