‘Failure rate is going through the roof’: Stockbrokers rail against

mandatory compliance test

Some of the nation’s most prominent stockbroking firms are railing against a mandatory ethics test that has resulted in mass failures, arguing it is misguided and discriminates    against the most experienced industry professionals.

Major broking firms have experienced excessive failure rates in the new compliance   exam, which was introduced following the banking royal commission and must be       passed by the end of this year. With sittings only available once every three months,   concern is mounting among brokers that time is running out to pass the test, and that failures could spark an exodus of the industry’s most experienced advisers.

A stockbroking executive said the exam is “not fit for purpose” because it tests issues      that are irrelevant to stockbroking, like insurance and superannuation. “To be honest, as a business and employer of people, I really don’t want my people who are stockbrokers, whose job is to work with the markets ... to start pretending they know about insurance. That’s more dangerous than safe.” He said the fail rate was highest among stockbrokers who had the most experience, adding it would be detrimental to the industry and            broader community if these brokers were booted out. “Stockbroking is an experiential    career. You learn more about markets everyday or every time you go through another    tech crash or GFC.”

He also said his brokers were struggling with more than just the study load. “I know the emotional side of it with people is that it’s really humiliating. We’ve got people who      have been very senior on the stock exchange, going back many years, who have              wonderful performance records, wonderful compliance records, saying it’s just               humiliating.

Another stockbroking executive said he was “lucky” to have passed the exam on his first attempt. But he said many of his colleagues have failed because the content is geared    towards financial advisers. The test is run by the Financial Adviser Standards and Ethics  Authority (FASEA) and must be taken by a wide range of occupations in the financial       services industry, including accountants, stockbrokers and mortgage lenders who are     also licensed to provide advice. The banking royal commission revealed financial              advisers were incentivised by the big banks or wealth companies to peddle in-house       products that were not in the best interests of clients. FASEA chief executive Stephen     Glenfield said the exam asked participants to apply an ethical lens to range of scenarios and did not require technical knowledge.

Source: The Age, March 12, 2021

WiseTech fights back as short seller attacks acquisitions

Local technology unicorn WiseTech Global has hit back against another short-seller           attack which has cast doubts on whether the host of acquisitions made by the $10 billion logistics software maker has added any real value to the company.

Analysis by short seller Viceroy Research obtained by The Age reveals of the 37 listed     acquisitions made by WiseTech over the past four years, many are from distressed sales or bankrupt companies with revenues falling post-acquisition. Viceroy claims WiseTech created "fake value" through dozens of non-material acquisitions, effectively buying       revenue at a lower multiple than what it trades at in a strategy known as a "roll-up".

However, WiseTech’s chief financial officer Andrew Cartledge has “serious concerns”      about Viceroy's claims that he said lacked understanding of the firm’s acquisition              strategy and the risk, cost and time involved in developing technology internally versus   acquiring it. "WiseTech has been clear that its acquisition strategy has not been about     revenue roll-up," he said. "It is about bringing in talented and knowledgeable people and critical IP, converging this IP with WiseTech’s own technology to optimise our                     development pipeline, accessing new markets and customer bases, accelerating our         geographic expansion and solidifying CargoWise as the leading integrated global logistics software solution of choice for the major players in the market."

WiseTech has been driving its growth through an aggressive acquisition strategy making  37 acquisitions for a total of $708 million since June 1, 2015. However, analysis by             Viceroy based on company reports and publicly available information, shows revenues in a majority of these businesses have flatlined or are in decline, margins are substantially   below WiseTech’s consolidated group margins and many of the businesses do exactly      the same thing in different countries.

The majority of these acquisitions are claimed by WiseTech to be "not significant"           despite the large cash and contingent payments being made to make the purchases.       WiseTech trades about 23.1 times revenue and its $708 million of acquisitions have        added about $174 million in revenue to the consolidated group. Viceroy claims                 WiseTech overpays for acquisitions through contingent factors such as a performance-   based earnouts if post-acquisition performance hits certain targets. "These earnouts are included in the purchase price (goodwill) of acquisitions, however, these performance    targets are rarely met."

Viceroy has previously exposed ASX-listed sandalwood grower Quintis, graphite miner Syrah, as well as South African conglomerate Steinhoff, German asset-leasing company Grenke and German fintech Wirecard.

While short sellers play a key role in the market, some have come under criticism for       publishing highly damaging reports designed to cause maximum damage to the targeted companies. Short sellers bet against a share price by borrowing a stock, selling it on the  open market with the view of buying it back at a lower price for a profit.

WiseTech has been a perennial target for short sellers and was hit by Beijing-based J    Capital last year which claimed the firm had overstated its profits by $116 million since