Welcome back to the Rate of Change with York Wealth Management.
The Rate of Change is a podcast which explores the ever shifting momentum of financial markets
through the eyes of some of the brightest minds in wealth management.
I'm your host Murdoch Gaddy and in today's broadcast we're speaking with Grant Hackett,
the CEO of Generation Development Group.
Prior to Grant's corporate career, he was a multiple Olympic champion representing Australia
in swimming and has held numerous world records.
We dive into detail about Grant's formative years, what lessons of life he's carried
over from his Olympic career into the world of financial markets, the challenges he has
faced and how he has overcome them.
Grant discusses Generation Development Group's two core businesses.
Firstly, Generation Life, which offers clients and advisors access to two key services being
investment bonds and retirement income products.
Secondly, the Strategic Investment Arm, in which GDG owns a 49% stake in Longsec.
Longsec is a leading provider of investment research, portfolio construction and consulting
services in Australia.
For me, I found Grant's thoughts on how important it is to surround yourself with great people,
mentors, coaches both in the pool and in the investing world to be so insightful.
I was also intrigued by how GDG's search for long term tax effective investment structures
to support the management and transfer of intergenerational wealth quite interesting,
especially now with the changes to superannuation being at the forefront of people's minds.
So before we get into the podcast, I'd like also like to encourage you to listen to the
disclaimer at the end of this cast and to keep your feedback coming.
You can reach me at mgatty at ywm.com.au.
With that being said, I hope you enjoyed this conversation as much as I did.
So sit back, relax and enjoy.
Grant Hackett, welcome to the rate of change with York Wealth Management.
Thanks very much for having me Murdoch.
It's great to have you on.
I'm looking forward to running through a few things today, sport and business.
It's a bit of fun.
Someone's got to do it.
Many of you may be familiar with Grant and his many accolades in the pool, but many of
you may not be familiar with his achievements out of the pool.
So Grant, why don't we kick things off and tell everyone a little bit about yourself,
about your formative years and what lessons of life you have carried over into the world
of finance.
Look for me, I mean, yeah, just I guess a brief overview of my life.
Got into the pool when I was very young because my brother got beaten in a surf race by a
couple of girls and wanted to do swimming lessons and therefore I just tagged along with
him.
He was six and a half years older than me.
He went off to the Uncle Toby Super Series, the Ironman Series with the likes of Trevor
Handy for a few years.
I went into the pool lanes, wanted to go to the Sydney Olympics and that sort of became
a dream for me.
Went through my swimming career, always made sure I was studying at the time.
I was doing commerce law at uni post high school.
I grew up on the Gold Coast and then transitioned into finance after 13 years on the national
swim team and three Olympic games.
Always keen on business, finance.
Like I said, I was studying, went into my master's degree after sport, after being in
Westpac for a few years.
Yeah, that's kind of been, I guess, the evolution of me.
Fast forward probably 15, 16 years later now since I finished my sporting career and now
I'm CEO of a business called Generation Life.
I also run our listed entity which is called Generation Development Group and we've got
two businesses that sit underneath that, one being Lonsec and the other one being the Life
Company.
So yeah, it's been a fun journey.
Loving everything that I'm doing.
Married, fourth child on the way in August as well.
So yeah, life's full of...
Congratulations.
Thank you.
Very excited.
So what challenges did you face in the transition out of the pool into the world of financial
markets and how did you overcome them?
Yeah, I guess some of the challenges, I mean, they're vast, right?
They're many, they're little ones, they're big ones.
I think for me, coming out of the pool into the business world, it's a massive transition
because the first thing that you realize is that you were kind of like almost the global
CEO of what you did.
You were the best of the world of what you did and for a long time.
And then all of a sudden you go into Colin's street on a Monday morning and you're not
the best at the table.
When I was first going into banking and finance and that realization came around pretty quickly
and then I got to, I guess, a point through that process where I thought, well, I can
either just try and stay in sport for the rest of my life or I could really focus here
and bed down and do something different, which is what I really wanted to do and what I was
passionate about.
So I just put my head down and focused on that, but it's a big transition.
It's hard emotionally going through all of that.
It's a transition of identity as well.
The thing about sport is if you've been doing it from such a young age, I started when I
was four when I was swimming.
Everyone knew you as an athlete.
That's how you were identified.
You walk down the street.
People know you as the swimmer or the Olympian.
And so, you know, to be able to train and they still do today, but then you transition
out of sport and all that's left behind you and all the accolades that obviously come
with that.
And then, of course, you go through life in a very different way through your formative
years.
You're not going out and partying.
You're not doing the normal things.
You're actually going training at, you know, quarter to five in the morning.
You're missing all the sort of things at high school that you'd normally be doing or going
into university and having the fun experience.
For me, I was doing most of my university studies on a plane traveling around the world
competing.
You know, our sport, we compete or race for 49 weeks of the year and have three weeks
off.
That's the way it works for me from about the age of 15 or 16 all the way to age 28.
So, yeah, there's heaps of challenges that come with that.
But the one thing that I really learned through the pool was that high performance structure.
Being around a bunch of athletes that were all trying to be the best of what they did
and not only the athletes, but the coaches, they're all trying to be the best at what
they did, too.
And the management we had around the team, you know, your physio, your massage, your
nutritionist, everyone was there focused on being the very, very best.
And so from that point of view, it was great because you learned that psychology and that
psychology was really embedded in you around high performance and doing whatever it took
to get the outcomes you're looking for, regardless of the adversity or challenges that you might
have had through your way.
And I swum the Olympics with a partially collapsed lung in 2004 because I had pneumonia at the
start of the year and blocked my lung for so long with mucus that it was actually sitting
in a ball, the bottom half of my left lobe.
So, you know, all those sorts of things teach you a lot for business.
And then when you go into business, you've got to obviously learn the skills of what
you're doing and the dynamics of that market, your products and how to run the teams effectively
and all the things that come along with that.
But in terms of the overarching principles of success, they're exactly the same, regardless
of what field you're in.
And I think that's the fortunate thing that I had through sport and going through those
adversities.
I definitely had a different question asked, but I really want to come back to the psychology
of this because I've got a lot of friends as we were discussing off air that, you know,
sport either made it or didn't make it or something equivalent.
But the one thing that everyone discusses that I've known they've gone into property
or finance or something equivalent like yourself, it's kind of having to retrain.
I'm sorry, how do I say this?
An athlete's body is the tool, right?
But now essentially your mind is the tool.
And you said it correctly that I think the process is exactly the same.
You get up, you did the same thing over and over again and essentially builds, right?
But how did you find and you mentioned coaches before.
So was there anyone specifically that helped you with that particular transition, essentially,
you know, taking your tool from being your body to just your mind when essentially your
mind, as you said correctly, you're preparing yourself psychologically to go through these
battles and come out the other side when essentially now it's just all your mind.
Yeah, it's funny.
I understand what you're saying, but I almost slightly disagree with it in some respects
because it's definitely more swayed towards the mental aspect and the aptitude side, obviously,
when you go into business versus the physical side.
But I think they're all important in all fields.
The balance and sport, of course, it's mostly physical, but you have to have a certain level
of aptitude strategically to do what you need to be able to overcome the pressure, the stress,
the nervousness and everything that you've got to go through.
So it's not just, you know, sort of straightforward physical preparation.
So the psychology is very important in that.
Obviously, that balance then shifts when it comes into business and trying to be successful
in a different field.
So I do think that the physical attributes are really important, like good sleep, good
nutrition, not drinking too much, all those things that you should do to make sure that
you're actually in the best mental state to be able to execute and deliver and deliver
consistently.
Consistency is the most important thing.
Being able to show up every single day and have those day to day disciplines that actually
lead to the success and sort of parting you against the rest of the field.
So yeah, I mean, as much as you have to go through a rebalancing of that sort of mental,
emotional and physical kind of approach towards whatever you're doing, at the end of the day,
you do need all three.
In terms of that transition that you just spoke to Murdoch, sort of coming out of the
pool, I actually wish I used a lot more psychologists through my career because it's one thing where
I could have probably sharpened up a little bit more in terms of my approach.
I thought it was a weakness, if I'm being totally honest.
I thought if you needed someone to be able to help you out like that, that was a weakness.
That was me through my teen years.
And that's me not having enough worldly experience to appreciate that I'm training every other
muscle.
Let's train that muscle to the absolute maximum as well.
And I wish I did more of that because I've done a lot more of that since my sporting
career just to understand who I am, what makes me tick, what drives me, how do I have to
get the balance in my life, what are my strengths, what are my weaknesses, et cetera, to be able
to refine all that around myself.
But there's certain aspects that we all look back on where I thought, you know what, I
probably thought I was a bit too good there through my sporting career.
And I probably could have even been better if I adopted some of these things and actually
had a bit more of an open mind to it.
So I think as I get older, I kind of sit more on the edge of my seat and question myself
more and more and get more curious because I could have done that better back then.
And that's probably some of the challenges when you have success at such a young age.
You think you've got the formula mastered, but really you're just starting out.
Isn't that the joys of being young and the lessons of experience?
Correct, correct.
When you're young, of course, you think you know it all.
And the older you get, the more you realize you know nothing.
We all need a Yoda in our life to essentially show us the pathway or Mr. Miyagi.
Well let's talk about generation life, right?
So for many people that aren't familiar with generation life, as you were saying before,
it's broken up into the generation development group and then essentially the services and
entities underneath.
Do you want to give a bit of color around how that works and operates?
Yeah, sure.
So really exciting business that I got involved with back in 2017.
So we first kicked off that back then.
It was named a different business.
We changed it to generation development group, which is a listed entity, GDG.
We then had the life company that's underneath it that we renamed and rebranded Generation
Life, which had one product at the time called an investment bomb, which is an after tax
paying structure with a maximum tax rate of 30%.
However, the average tax rates for a lot of our funds sit between 12 and 15%.
So that was a product we knew that would be hugely popular because in 2017, that's where
those initial big changes in superannuation took place.
And we wanted to be able to capture a lot of those flows that necessarily wouldn't
be going to the superstructure anymore or we used as an alternative.
On the other side, back in what was it when we completed the deal with Lonsec, we bought
37% of Lonsec.
So Lonsec is a qualitative research firm, but also asset management firm through SMA
in the MDA space.
And we saw a great opportunity there post-Royal Commission where the portfolio construction
probably wasn't going to be done directly by practices or dealer groups anymore.
They're probably going to go to more independence like a Lonsec business.
So when we bought that business, it was still researching a lot of products, probably about
12 or 1300.
It's closer to 1700 plus today, but it had 659 million worth of funds under management.
Fast forward less than three years later, it's now sitting at 8.2 billion.
So it's grown significantly and we've taken that equity stake from 37 up to 49.2%.
So yeah, so you sort of look at us as three businesses, listed entity, life insurance
company, generation life, and then the research business, Lonsec Holdings.
It's almost like a FinTech essentially.
It's a research entity.
It's not really advisor driven, is it?
It's essentially like SMAs or ETFs, essentially risk adjusted portfolios.
And then you have that community and then they're looking where to go and where to allocate.
Is that how that Lonsec business has been restructured?
Yeah, it's obviously driven by advisors, comes through the platforms, through the dealings
with the groups and they help with the portfolio construction.
I've got several different types of portfolios there that you can choose from in the SMA
space.
Obviously, they've got the MBA space, which is even more tailored, probably for more sort
of highly affluent, high net worth individuals.
So yeah, I mean, and that business has done extremely well.
Then we sort of flip back on the life company side with the investment bond.
We've gone from when we, back in 2017, it was sitting a touch probably under 700 million
in funds under management.
Fast forward to today, that's 2.5 billion.
And we've introduced a new product, which is an investment linked lifetime annuity called
Life Income.
That's the first of its kind.
So many of those baby boomers obviously going into retirement, longevity risk, sequencing
risk being significant things.
So we thought what a great way to address that market instead of just having the traditional
lifetime annuities that are fixed interest linked.
Let's have an investment linked product that you can switch around with different investment
options, but know that you never get to run out of money because it's an annuity stream.
So yeah, we kind of look at ourselves as a bit of a disruptor in the product space.
So we're always looking for new opportunities, growing markets, and then trying to be able
to address that market with best in class products and strategies.
Yeah.
And especially adapt to the changes with what the government likes to throw at us.
So specifically, and a lot of people are familiar with what's happening with Super.
I think this is a very good pivot into this particular conversation.
So do you want to give a bit of clarity around the changes in Super, what this means and
why that insurance bond may be a good option for people looking to allocate outside of
the Super framework, but still want similar benefits to what they're receiving in Super?
Yeah.
I mean, it all took us by surprise, I think a couple of months ago.
They were talking about potential changes in Super and trying to define what is Super
all about?
What does a dignified retirement actually look like and what's an equitable retirement
look like?
And then all of a sudden they came out and they said, for balances above 3 million, it's
going to have an extra 15% tax.
So effectively doubling the tax that's already there for those amounts that exist today.
And also it doesn't matter if those gains are realized or unrealized, they're going
to be taxed anyway.
And that $3 million threshold is not going to be indexed.
And they said, this is only going to affect half a percent of the entire population.
So 99.5% of people aren't affected.
It's only going to be 80,000 people.
And this is a material change because this obviously changes Super and the use for it
and how people viewed Super too.
So even though it might only affect 80,000 people today, obviously not being indexed,
that'll creep up quite a bit more over the next few years.
But at the end of the day, people that were just putting money inside Super, putting it
in assets that were kind of sort of land banking or direct property and stuff like that, now
the fact that you're going to be taxed on those assets, whether they're realized or
not, you're not necessarily going to have the cash flow.
People are going to be looking for alternative structures.
And it's when really the investment bond structure starts to come into its own, particularly
for balances above that, where effectively for a lot of our funds, our tax rate is less
now.
We have greater state planning features because we've got binding nominations.
So therefore you can determine how and when your funds will be transferred.
So a lot of our wind flows are just for estate planning purposes, not for the tax arbitrage
that exists in there.
And it's also credit to protect too.
So a lot of people utilize trust structures, of course, to make sure they protect their
assets.
You can do all three things inside a trust.
You can do estate planning, you can get your tax arbitrage and you can get your asset protection.
So we're really starting to come into our own and we're trying to develop more features
all the time for the advisors and their clients that use it because we see from an estate
planning point of view, the complexities and blended families or people wanting to bypass
a generation because their kids might be divorced and they still want to look after the grandchildren
and they're not worried about how the money will flow out if we'll actually get to the
beneficiaries.
So we're solving a lot of common problems for families.
And we're looking at legislative change and looking at, well, how do we actually become
part of the solution around this and help people support in their wealth management
and wealth accumulation and being able to distribute their funds how and when they'd
like to.
So there's been a number of changes in Super, but essentially, can you give me a bit of
color around that?
So the investment bond is within the Life Act, right?
So some people might be going, okay, there's lots of changes in Super.
We're looking at potentially trying to benefit in a different vehicle and different structure
that's in the Life Act.
What if there's changes in the Life Act?
If I move from A to B and then there's a change, what do you think is going to happen there?
I think from our perspective, I mean, none of us can predict exactly what's going to
happen in the future.
We'd love to be able to have that crystal ball.
But really, when you look at the legislative risk around our product, it would seem relatively
low.
We've had one change in the last 22 years, which linked us to the corporate tax rate,
the headline tax rate of 30%.
In terms of, I guess, the overall industry, you've got to look at the size of the pie.
And we sort of sit in that 12 to $14 billion pie.
And you look at superannuation, and that's a $3.5 trillion pool of money that you've
only got to tweak slightly to be able to make a significant amount of revenue off, which
the government is obviously looking for, given how much our debt has grown over recent years.
So and the fact that we're trying to actually get back into surplus in the budget.
Also when you look at the other potential reforms that were in place, you know, we remember
the federal election back in 2019 when Shorten was going for election and Chris Bowen was
looking to be the treasurer.
Some of the proposed changes that they had there was the franking credits inside super.
So again, another change to super, there's increasing the highest marginal tax rates
from 47 to 50.
There was taxing trusts at the first dollar of distribution.
There was looking at negative gearing.
So there was a whole heap of other areas of the pie that are much more significant than
investment bonds that they look at changing.
So I think if they made a change to us, they wouldn't really drive much revenue out of
it because it's not that big yet.
Let's fast forward maybe, you know, in a decade or two's time.
And if it was, you know, four or five hundred billion dollar industry, that could be a very
different conversation, but it's just not in that realm yet.
So we see it as relatively low legislative risk and to change the life act, changing
life insurance and, you know, all the products that sit within that category.
That is a significant piece of work.
And so we just can't see a government finding that attractive right now.
And the other aspect, too, you've got to remember the money that comes here has had the money
that the tax paid on it as well.
So they've already been able to, I guess, clip the tickets, so to speak, on the on the
way through.
And then, you know, we're just a structure to be able to help people accumulate their
wealth from there on.
Well, let's let's talk about that.
So it's a structure to help people accumulate from wealth from there on.
Many people may be familiar with, you know, the the kids bond, so to speak, you know,
putting the bond for the kids for education purposes.
Right.
But can you use that as an example to compare and contrast with the life insurance investment
bond vehicle?
Right.
The differences.
Yeah.
So it's it's interesting.
Yeah.
With it, with an education bond, you know, people always looking ways to tax effectively
save for their kids education, particularly if they're going to be sending to expensive
private schools.
So it's a great introduction into the category, I guess you could say of investment bonds.
Really when I when I talk to people about an investment bond, as I say, just think of
it as another legal structure.
I mean, we all use different legal structures for different different things.
You know, we use our own personal name when it comes to a principal place of residence.
We obviously have a superannuation legal structure when it comes to our retirement, when people
start to really accumulate wealth, they look at their trust structures or looking at bucket
companies.
Really just another legal structure to be able to invest through.
So a lot of people initially will dip the toe in the water with a product that's a future
savings plan, such as one of our child builder bonds, to be able to save for their kids high
school, private school fees.
And then on the other side, when people start earning significant amount of money through
the pay as you go and get on a high marginal tax rate, but they've got discretionary surplus
capital coming out of that, they'll they'll look at one of our other products like a life
builder investment bond, where they'll invest through and be able to make a significant
tax arbitrage.
Or a lot of the time, if it's people on a lower marginal tax rate, they won't get bracket
credit because they're not getting distributions from their investment every single year to
put them up on a higher marginal tax rate as well.
So yeah, there's a diversity of strategies.
But at the end of the day, it's it's a very, very simple structure, because we're a tax
paying structure, you choose your investments as you would normally.
We've got all the major asset classes in there and multiple options within each.
You can construct your own portfolio or just go into diversified options.
So it's very, very easy once once you're able to understand and get your head around it
and start investing.
Really want to get into the investment menu, because that's the juicy bit.
But I before we get there, can we just discuss the specific mechanics?
Right.
So, you know, you have to hold it for 10 years.
And a question we get quite often is, what happens if I get out before 10 years?
What happens if I pass away before 10 years?
Just some of the mechanics would be great to dive into.
Yeah, like any of these legal structures, there's certain rules that apply to it.
So for us, a lot of tax benefits inside 10 years.
So you maximize the tax benefits after 10 years because there's nothing to declare on
your tax if you take a partial or full redemption, regardless of what that amount is, whether
it's a dollar or, you know, 10 million dollars.
So nothing to declare on your tax return as part of your overall income for that particular
year.
Inside 10 years, if you were to take, say, a partial redemption because you needed the
cash flow, say it's a year five, you've obviously had five years of tax deferral.
So you've been able to accumulate more paying a lower tax rate, because we all know tax
is the biggest expense on any investment.
So you've had that benefit.
And also the fact that it's a portion.
So the way the A2 looks at it, if you've taken a partial redemption, they look at a portion
as capital and a possible as accessible income.
And on the accessible income, you always receive a full 30 percent tax offset.
Even if your tax rate inside the products only set at 11 or 12 percent, you always get
that full 30 percent offset.
So you can see inside the 10 year time frame, there's a lot of tax benefits post 10 years,
you maximize those tax benefits.
And if you were to pass away in the meantime, these are 100 percent tax free upon death,
regardless of who the beneficiary is, a dependent or a non-dependent, doesn't matter.
And if you've held it for five minutes or 50 years, the same rules apply.
So that's why it's such an effective estate planning vehicle.
Yeah, that's that's one of the things that really surprised me.
Like I had a client in the 90s, and he said to me, you know, if something happens, you
pass away, you know, my kids get it tax free.
I'm like, what are you talking about?
Let's have a conversation many years ago.
But then when we are dug into it, I was just quite stunned about, you know, a tool for
transition of wealth, like, you know, that preparation before, because, you know, we've
all had, you know, family pass away and grandparents, et cetera.
And if you don't do that, potentially the taxes are huge in that particular thing.
But that preparation beforehand, I just found kind of blew my mind that this tool was available
and not many people know about it.
Any thoughts around that?
It's it's quite remarkable.
Well, I think, you know, what people say, what I don't know more about this, if it's
such a great structure and it's like, well, the other structures have been sort of too
good for too long, almost, you know, people just used superannuation as the vehicle to
accumulate their wealth.
And most of the money, obviously, in the country sits with the baby boomers.
You know, they've got a lot of the real estate, the big super balances, they're all sort of
heading into retirement now.
They've had, you know, sort of 40 years of working life.
And you look at that and then there was no caps in super.
We could put as much money as you wanted to in there.
You know, back in the 2000s, sometime you could put that extra million dollars in there
too.
So there was all these incentives to accumulate your wealth in one particular area.
And that kind of party has stopped now.
And they're like, whoa, whoa, whoa, this is going to a little bit too big.
The tax incentives are a little bit too generous.
And we've got to start putting the brakes on this.
And look, we've always been outside of super because you've got full liquidity, access
your funds at any time.
We've always been a great vehicle and it's always been very popular.
And in fact, this was the quarter of the size of superannuation once until they made all
those attractive super changes and the super guarantees came in back in 1992.
So I think this sort of product structure has just done a full circle and where it's
our job as being number one in market share and inflows in this space and being the biggest
innovator is to go out there and educate the market on this.
And we're very, very clear.
We can see a lot of strategies.
We deal with close to 2000 advisors on an annualized basis now and their clients.
And we've got tens of thousands of customers.
And we're always looking at new strategies all the time for financial advisors.
And we're the first ones to say, hey, no, what you're looking for and the outcome that
you're trying to get this strategy or the investment bond doesn't work.
Or in this one, it does work.
It's fantastic.
It's way better than the alternative.
And we show all the numbers and crunch all the numbers around that through our distribution
team and our technical team.
So from that point of view, it's just the other structures have just been so attractive.
But now times have changed.
And we're seeing a lot of legislative change, not just in recent times, but over the past
few years.
And then this is where clients say to me that this structure sounds fantastic.
But what investment options can I choose from, which we were discussing before?
So what is available?
How often does that get updated?
And the reason why I say this is like any fund manager is like a great empire.
It rises for a long period of time, then something changes.
And then essentially you get the drift.
So a lot of investors, I think now for myself, the people that we look after are thinking
more tactically these days.
Like the ability of this.
We've never seen anything like this current market in the past five years.
It's gone from peak Goldilocks boom, March 2020 pumping money into essentially a completely
drying up potential credit crips recession.
So essentially the capacity to move like I would love more than anything to use a strategic
portfolio and let it go for 30 years.
But I'm finding that people were talking to kind of want a bit more flexibility.
So I suppose long winded question, but what choices are available that clients can invest
in?
And secondly, what's the process to potentially add more things onto the menu?
Yeah, good question.
So for us, when I first joined the firm, we had 33 options on the investment menu covering
most of the asset classes.
Fast forward to today, we've got 65 options that sit on the investment menu.
We've got, you know, model portfolios on there.
We've got tax effective options on there.
We've got a thing called the tax optimized series that we've worked with a lot of the
major fund managers that allows us to use our full tax rules and actually lower our
effective tax rates quite materially.
And we're always looking at new strategies all the time.
So basically, we try and offer, you know, to be very simplistic about the menu is we
try and offer all the asset classes or we try and make it easier and offer you diversified
options in there if that's what you want to do, you know, going to your conservative up
to your high growth funds.
Or we look at, you know, the other aspect of the menu and go, OK, how do we how do we
actually make it more tax optimized?
We're an after tax paying structure.
And we really invested heavily in that that area.
So 20 out of our 65 options sit in what we call the tax optimizer tax aware series, which
have an effective tax rate that generally sit below 15 percent below the headline rate
of superannuation, regardless of whatever your marginal tax rate is.
So and you've got plenty to choose from there.
The other aspect of the menu, too, is we've got to make sure that these are high quality
fund managers that we do a lot of qualitative and quantitative research on and that there's
financial advisor and client demand there as well.
So we make sure we work with the industry to compile an investment menu that works.
And we're always assessing it.
We've got a full investment team, a full product team here that oversee the menu.
We've got an investment committee that oversees that menu that both has internal and external
people that sit on that committee will update the menu when we need to will add to the menu
when we'll need to.
We realize that financial markets, to your points, Murdoch is very dynamic and changing
all the time.
And we've got to make sure that we're doing that.
If we call ourselves innovators, that's something that we need to be conscious of.
And we've also got to make sure that we're very much a scale business.
We've got to see these funds.
They've got to be popular for financial advisor amongst financial advisors and their clients
as well.
There's got to be that certain level of demand there because then we can do more tax optimization
around it.
We can help support more around those funds to be able to deliver the best outcomes for
the clients, too.
So you said this is heavily demand driven, which I really quite like.
So if an advisor or an investor comes up and says that we're looking at this particular
vehicle, we'd like to allocate a particular amount of money.
What's actually the process and how long does it take for you to consider a particular investment
vehicle and then for that to be added to the menu?
Usually for us, if there was someone who wanted their own investment options sitting on our
investment menu, it's a little bit of a process behind it because we have to go to APRA.
We're regulated by APRA being a life company.
So we have to go get a thing called the benefit fund, which is where we see every single investment
has its own benefit fund.
What I call a benefit fund, it's a trust structure for a life company is effectively how you
would think of it.
So they all sit individually in their own benefit funds, which we get approval for MAPR
on to do.
And then we put it on the investment menu.
And usually getting to scale for us per investment option is about $50 million.
So it's quite a significant amount of money.
But when you look at it, you've got billions of dollars sitting on the menu.
You're able to do it when you've got enough demand there.
So from that point of view, if we start talking through our distribution team, these new investment
options are becoming quite popular.
They've got good research ratings around them.
They've got a good stable team.
There's no staldrift amongst their strategy.
That fund manager is sticking to what they said that they would do.
So we make sure we go through a strict due diligence process to make sure that that investment
option is doing everything it's supposed to be doing.
So we don't just put anything on there.
We do our homework on it.
And look, if it was for a single financial practice or for a single dealer group, we
realize that if they've got enough funds under management themselves that they'll be able
to get to scale, we will enter into some sort of negotiation with them to potentially look
at putting that on the investment menu for them.
But we might necessarily put it on a main menu.
We might sit at what we call below the line for a supplementary PDS that's just for their
client base as long as we sort to get to that scale so we could run it properly.
Because as you can imagine, there's a lot of resourcing that goes around these things.
We're an after-tax paying product.
We've got actuaries that sit around it.
We've got a product team that sits around this, an investment team that sits around
this.
We've got all our administration and back office teams as well.
So we basically do the management from end to end.
So we've got to make sure that there's enough money in there to be able to satisfy the costs
that sit around those things.
So what is the main inquiries you're finding come from the interest?
Do you find us mainly coming from the advisor community or the estate planners or people
coming directly?
Where do they find out about this process?
How it works?
Yeah.
So it's funny, just to give you the breakdown of that.
So 92% of our inflows do come through financial advisors.
To the point that we were making before, it's not that the structure, the legal structure
of an investment bond is not known about as mainstream as superannuation for argument's
sake.
It's not that many people could tell you much about superannuation and how all the rules
works and the nuances, but they know about it because it's in the media all the time.
That's the big difference, I think, between us and something like super.
In terms of the demand and the way it's driven, we're always working with the financial advisors
in terms of what they want to see on the investment menu in terms of those inflows.
If we can educate them at the same time, you're usually educating one or 200 clients.
So for us, a lot of our business is constructed to be able to support financial advisors and
their practices because they're the ones at the end of the day giving the holistic advice.
And look for our other product, our investment linked lifetime annuity called Life Income,
we only distribute that through financial advisors because going into retirement, and
this is just a firm belief, it's just so complex.
You've got to consider everything from how is my income going to last?
How am I going to leave a legacy from an estate planning point of view?
How am I going to get more access to the age pension?
All these sorts of things, how long am I going to live for?
All these sorts of things that you've got to consider.
And one of the other aspects, we did $639 million worth of inflows last year.
And funnily enough, 55% of that was actually for estate planning purposes.
So the tax arbitrage or alternative to super wasn't the big driver of the farm flow that
year.
It was actually estate planning is the primary use where coming into 2025, once we see these
changes implemented around superannuation, that could flip on its head and we could see
a lot of money coming outside of super once people are in pension phase and able to take
it out and coming into it to a structure like the investment bond.
So let's talk more about the income earner.
We've done quite a bit on the generation life of the investment product.
Any more color you want to give around that particular product, how it works?
If you put in a million dollars, how does it actually operate?
How do you say this is the payments that are coming out?
How does it actually work on the income?
So the way the lifetime annuity, life income works is basically when you've looked at it,
just to give a short history lesson on these products, annuity products have been around
the world forever, very popular in different regions of the world.
Here in Australia, we've mainly just had traditional lifetime annuities.
And the reason that was the case, and they would just fix interest linked products.
So not a great return over the last decade, given how low interest rates have been.
But people liked them because they gave you additional access to the age pension, because
that capital that you would be put in there is discounted on your net assets.
So therefore it gives you an uplift in age pension because of the way the assets test
work.
So they were very popular because of that, but the return profile wasn't great because
like I said, they'll fix interest linked products and the government legislation only allowed
it to be fixed interest products.
They then introduced the innovative income strengths back in 2017.
Now this meant you could actually have a lifetime annuity that could have income that could
rise and fall from one year to the next, which meant it could be investment linked.
And generally investments grow a lot more than what fixed interest products do over
time.
You look at all the different asset classes over the last hundred years and global equities,
Australian equities, et cetera, et cetera.
Equities have always grown a lot more.
So this presented a great opportunity for a product manufacturer like us to be able
to introduce a product that's got guaranteed income for life.
So our product is 100% reinsured with Hanover Re, which is a double A minus credit rating,
the same as that big four banks.
So that's the first thing.
So no matter how long you live for, you're always going to be paid at income.
Just say you invest a couple of hundred thousand dollars into it, you'll receive depending
on how old you are and whether you're male or female, that'll determine your starting
income for that first year of that investment.
And from there on, your income is linked to the unit price.
So if it grows from a dollar to a dollar, 10 net unit products, your income obviously
increases by 10% the following year.
And then that's basically the way it works.
But what the flexibility of our product is so good around compared to the traditional
lifetime annuities is you can change at any point in time.
So if you want to keep it the same as your superannuation or your pension in terms of
a balanced fund that you might be investing in, you can invest in a balanced fund for
your lifetime annuity.
If you go, you know what, I've got enough sitting in my account based pension.
I actually want to have a bit more growth in my lifetime annuity.
You can go into a high growth product or if the opposite's happening, you want to be more
conservative, you can go into more of a fixed interest product, but you can switch out of
that at any point in time too.
So we've got a product that guarantees income for life.
It gets you that discount on the assets test.
So therefore you can access age pension for a lot of the clients depending on what their
financial means looks like.
But the flexibility of it is remarkable in the fact that you've got investment choice
that you can switch in at any time.
So yeah, it's been really, really exciting to bring such an innovative product to the
market.
We don't call it the silver bullet.
We say this helps with longevity risk and sequencing risk.
And of course, sequencing risk mean when markets fall off a cliff like the GFC.
So when you're account based pension and you're forced to take a combination of capital and
income that year and it declines quite quickly, that you know you still got to have income
for the rest of your life because you've got this product in place.
So yeah, we just see these types of products sort of forming part of the puzzle for retirement
to be able to address all your needs and enjoy your retirement.
A lot of people go into retirement and don't spend their money because they don't know
how long they're going to live for.
And they're afraid they're going to run out or they're afraid their medical bills are
going to be ridiculous as they start getting older.
Where we can say with confidence to say, hey, if you allocate a portion of your retirement
savings to a product like this, you know you're not going to run out of money.
So why don't you enjoy the part of retirement that you can when you're physically healthy
enough to be able to go and travel and tick off all the bucket lists.
And in the back half, know that you've got the security of a guaranteed income for life
and you can pay for the necessities that you need to live the lifestyle and standard of
living that you'd like to have.
So yeah, I get super excited about this sort of stuff and our innovations because I just
think they're changing people's lives and the way we can live retirement here in this
country.
Nothing better than peace of mind in this very, very expensive economy we're currently
dwelling in.
So you touched on that before.
Let's discuss what's the future essentially in this space.
My understanding of the business is you've got GDG, which is essentially the umbrella
and then you're an innovative company which looks for essentially the right structure
to essentially help and evolve with what's coming down the park.
So where do you think the future is for GDG and what's next?
We've got not to go too deep in a strategy given we're a listed company.
We really look at, if I was looking from an acquisition point of view, if I'm just talking
from a GDG perspective, we kind of look at three or four key elements when we're looking
at acquisitions.
One, we like investments that are barriers to entry.
So how do you get a life license?
A research business takes 30 years to build up.
So high barrier to entry.
Good legislative tailwinds.
So we're looking at what is the thematic, what is the government looking to do, what's
the state of the economy, what's the demographic shift?
Baby boomers obviously going into retirement, post-retirement assets doubling from 800 billion
to basically 1.5 trillion by 2030 in the next six and a half years.
So what are the legislative tailwinds and what's actually going on more broadly in terms
of any demographic shift that we're seeing?
The other aspects, reoccurring revenue and great growth opportunities.
So that's what we look for when we're looking at potential acquisitions as a group.
In terms of products, when I sort of take it down to a step level and to both of the
businesses that we oversee is that we're really looking at products that are innovative in
the space.
So it could be an old industry.
It could be anything from traditional lifetime annuities.
It could be life insurance.
I'm not saying we're doing anything like that in that space.
It could be the investment bond, which has been around for a very long time.
We're going, well, how do we actually innovate in this product category to adapt it to what's
required today?
Because we feel like the construct and the basic bones of this product is really, really
good, but there's just been no innovation.
So how do we actually come to the space, disrupt it a little bit, bring it up to speed where
we see markets actually shifting and going?
And we're looking at stuff like that all the time.
We're always going through sort of think tanks or due diligence with different products and
seeing what we can do, testing it with financial advisors, talking to financial advisors where
I'm always out there too talking to the coal face, understanding what's going on.
What are their problems?
What are their challenges?
How do we better address and adapt those, whether that's a small or a large innovation,
such as a new product like the life income product.
So yeah, there's always plenty of opportunities coming around the corner, but it's just a
matter of picking the right one.
And also becoming that brand too.
We've really started to become a brand that people do see as an innovator.
Last year, the AFR BOS Awards, we were the seventh most innovative company in the country
there.
So because of our new lifetime annuity product life income.
So those sorts of things get us really, really excited.
And we just love working with the coal face too.
We love being able to build products and strategies that people will use and see a lot of benefits
out of.
That drives our entire team.
Is the focus predominantly just nationally in Australia or does what you're doing and
looking to achieve can be done offshore internationally?
Look, it's too difficult with the legislation changes in other countries.
Well, I mean, it's predominantly in Australia.
Obviously, when you're talking things like Life Act legislation, superannuation, obviously
it's all here in this country.
It doesn't mean from a GDG point of view.
If I step up one from the operational businesses into the holding company, are there other
investments offshore that we would potentially look at?
Absolutely.
If I'm talking from a group point of view.
There's been one business that we owned called Ascalon that had minority stakes and multiple
hedge fund managers that were based here in Sydney, Hong Kong and Singapore.
So we had that business for a while that we originally purchased off Westpac.
So we're always looking at different opportunities where, like I said, we sort of see those three
or four characteristics that we're looking for around high barriers, reoccurring revenue,
great growth prospects or opportunities there and legislative tailwinds.
That doesn't mean it's isolated just to Australia, but most likely the stuff that we will purchase
will be here.
And in terms of products that we're doing with the existing companies, they're certainly
here in Australia.
Yeah, right.
That's been really interesting.
Is there any thoughts you want to leave our listeners with, like anything that comes to
mind?
The one thing that I always like to share, you know, when I'm having a chat in a podcast
and you're sort of talking to a variety of people is, you know, when you're thinking
about your finances, I always think it's just so important like sport, like in business,
when you have a mentor, in sport, you have a coach, when you're trying to build your
wealth and you're trying to look at your retirement and have the best retirement and lifestyle
possible, you need a coach or a financial advisor in there too.
You know, it doesn't matter if you're one of the best athletes in the world.
Michael Jordan had a coach.
So you can always be better.
It's always great to have someone who keeps you accountable.
It's always have someone there who's at the coalface of all of these new products that
we've been talking about over the course of this conversation to be able to steer you
in the right direction, to meet your objectives and keep you really, really accountable if
you're in that phase of wealth accumulation, to save and for your retirement or wanting
to pay off your house or wanting to send your kids to private schools.
It's just good to have someone in your corner.
So yeah, whenever I'm sitting down talking to people, we're big, big firm believers of
having great financial advice around you and pulling on all those resources to meet your
objectives and your emotional goals that you're trying to achieve throughout your life.
So that's probably the only other thing I would add.
As we currently see, everyone knows about super, right?
As you said, it's everywhere.
But if people want to learn more about generational life, the structures you offer, the specific
products, what's their best path to learn more about what you guys and girls do?
Well it's easy.
I mean, you can either jump on our website and then contact one of our team members,
contact our client services.
And like I said, we always encourage people, go talk to your financial advisor, go into
the referral from one of your friends that's had success with a good financial advisor,
go and have a chat to them, talk about these sorts of products, and then get the financial
advisor to reach out at us, test it with us.
What are your objectives?
What are you trying to achieve?
Well, help me with the strategy to be able to try and deliver that outcome.
And yeah, take it from there.
We often find, when I go back on this business back in 2017, we were working with about 450
advisors on an annualized basis.
And like I said, that's gone up almost five times now.
So the reputation through the great sales team and marketing team, product team, and
investment team that we have has really, really grown quite significantly.
And like I said, the opportunities to be able to utilize this structure have as well.
So yeah, certainly look at it whether we called ourselves, I'll just leave this last point,
we called ourselves Generation Life because there is a proposition for each generation.
So whether it's just a newborn child that you're trying to do a savings plan for a child
builder to save for private school fees one day, whether it's someone for estate planning
on the other end trying to distribute to lots of wealth, complicated family situation, or
it's someone right in the middle of their working career and a high marginal tax rate
of 47% wanting to invest but not pay all that tax.
We've got a solution for you.
So yeah, that's what Generation Life's about.
I often actually wonder that, like why a company is called a name.
Like I run my own business as well.
Like why I call it a specific name.
Like I call my business, this podcast, the rate of change, because we're trying to find
essentially the rate of change when market's going up.
At two week period, we start losing money, it goes the other way.
It's like the game's changing, where are we going next?
It's the entire point of speaking to different people in the wealth management ecosystem.
But yeah, right.
So that's why Generation Life was called.
It's the idea that we're trying to help someone in each particular generation and what might
be coming in 50 years, 100 years is going to be completely different to the environment
today.
Is that what you guys are doing?
Is it actually, you're trying to find essentially the right vehicle for the right time and the
right place for that specific generation so you're not tied to one specific thing as legislation
changes?
That's right.
I mean, our product can be so tax effective from a structural point of view.
You could actually set it up so you could just keep it for the next four or five generations
if you wanted to inside our structure.
So that's what you could do if you wanted to use it to that extreme.
But yeah, we like simple names too.
We're kind of simple in our approach to everything because in financial services, things are
complicated enough.
It feels like a different language to people.
It's already intimidating.
So simplicity, particularly when it comes to complicated structures, when you're talking
super, talking trusts and companies and investment bonds, we just try and make everything simple
and that includes the way we name everything because we want to be able to connect with
the market as best we can.
We didn't want to, when we did our rebranding, people come up with Latin names and all sorts
of weird things and we actually just kept coming back to generation because we're like,
yeah, we're a solution for each generation.
So let's do that.
And we've innovated like that over the years as well.
So it's nice to be closely aligned to exactly what you want it to be.
Well Grant, it's been a pleasure.
I've learned a lot.
I hope everyone else has as well and I would like to thank you for your time today.
No worries.
Thanks for having me on Murdoch.
Enjoy the chat.
Absolutely.
Thanks, Em.
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