Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
Insignia and the $9 trillion tailwind
Insignia Financial (ASX:IFL), previously known as IOOF, delivered a solid profit result last week, reporting a 79 per cent increase, hitting $117.9 million for the half. The company remains a rare, outside of the industry fund sector, vertically integrated financial services business, with operations spanning platforms, asset management and most importantly financial advice.
It has been a difficult few years for every part of IFL’s business, with advice seeing several hundred million in remediation costs, platforms facing significant disruption from more nimble competitors and asset management fighting the move to passive, low-cost strategies.
In delivering the result, CEO Renato Mota highlighted the strong progress the group has made in every part of their business, but particularly in the ‘corporatisation of advice’ or Advice 2.0. This strategy was a key driver of the $1.4 billion acquisition of MLC’s Advice business, which took the group to the largest employer of financial advisers in the country.
“Our advice offering continues to transform under the new advice model to improve the efficiency of advice practices, reduce our cost-to-serve and support the path to break-even of the Advice business” said Mota.
The group is relying on technology and simplification in an effort to return both their ANZ and MLC businesses to profitability, which they expect to occur in 2022 and 2024 respectively. The starting point has clearly been a reduction in their ‘headcount’ or number of advisers within their practices, with the FASEA professional standards, combined with a tighter compliance regime by management likely a key driver in the reduction in numbers.
Commenting on the losses, Mota said “Inevitably we are seeing some adviser losses, particularly as smaller practices are challenged by the new industry settings. Pleasingly, we are retaining significant amounts of advised clients from advisers that are retiring or leaving the industry within our advice network.”
“Our strategy for growth centres on scale, economic diversity, and a sustainable business model that delivers accessible and affordable products and services relevant to all client life-stages. While our name has changed, our ambition remains to improve the financial wellbeing of all Australians”.
As is typically the case, the initial focus is on cost and ‘resetting’ the levels that had spiralled out of control for many years, with the group’s Evolve21 platform, similar to Panorama’s reinvestment, a key plank of this strategic opportunity. The aim of course, being to ensure the products recommended by in-house advisers are actually market leading, or very close.
One of the more important questions is what the group will look like five, ten or even 15 years from now. With operations spanning every aspect of advice, but most major groups selling out of their platform, wealth management or other divisions, with significant interest from private markets there may well be some interest in the coming years. This is likely to be supported by fact highlighted by Mota, being that the superannuation market is set to grow from $3.4 trillion to $9 trillion by 2041.
