Insignia Financial’s profit falls amid market volatility as it looks to complete MLC integration

The insurance advice group expects margins to shrink as it enters the final year of its MLC integration program, that it says will allow it to benefit from the Quality of Advice Review.

Insignia Financial will look to unlock the full potential of its MLC acquisition in the coming 12 months as it nears the end of a three-year process of merging the two companies.

The group, formerly known as IOOF, said the final phase of three-year program — including unification of technological programs and a new advice partnership model — will set the company up for financial years 2025 and 2026.

Underlying profit from continuing operations fell 15 per cent from the prior year to $191m in the 12 months to June, which was less than some analysts had expected. The decline in profit was attributed to a lower average in funds under management and administration and strategic repricing decisions.

Net profit after tax though rose 39 per cent from the 2022 financial year to $51m, thanks in part to the $135m sale of Australian Executor Trustees to Equity Trustees.

Revenue fell 7 per cent to $1.38bn in the 2023 fiscal year and funds under management and administration were up 1.5 per cent over the year to $295bn.

The company however faced a rocky day on the sharemarket, diving 10.7 per cent to $2.60 after shares earlier hit the lowest level since 2009 of $2.45. Investors were disappointed after Insignia’s final dividend of 9.3c came in less than the 10c analysts forecasted.

Insignia expects that group net revenue margins will decline up to 2.5 basis points per share as a result of a $17m hit from portfolio changes including the sale of Investment Bond business, IOOF Ltd, and platform transitions as part of the final year of its MLC Separation and Integration program.

“With the acquisition of MLC we’ve always said it was a three-year program to create one group so we see 2024 about unlocking the potential that fiscal years 2025 and 2025 offer,” Insignia Financial chief executive Renato Mota said.

“We have made significant progress, delivering on what we set out to do. As a result of all we have achieved, we are looking ahead with greater confidence and clarity.”

To capture the opportunities stemming from the final year of the integration MLC, Insignia has refreshed its strategy to focus on four pillars of improving clients’ financial wellbeing, deepening partnerships with advisers and employers, simplifying the business and building a safe and trusted company.

This will also see the creation of a new Client Wellbeing division to enable greater focus on pursuing opportunities to provide financial help, guidance and advice through all stages of life, and improve client engagement.

Mr Mota said that Insignia was positioned to take advantage of the federal government’s Quality of Advice Review, which looked to improve the accessibility and affordability of quality financial advice.

“In the Australian industry we have the broadest and deepest advice of any company which means we are well placed to exploit opportunities from changes and to be able to deliver to the community by serving more,” he said.

“The changes we announced last month demonstrate that we are prepared to act differently to add value. Not only does this allow self-employed advisers to grow, but it will also allow us to focus on our professional services business to grow that and make it efficient.”

Those changes include a new partnership ownership model for self-employed licensees, which will allow Insignia to concentrate on the professional services channel and opportunities to expand the scope of advice through superannuation and also technology.

The Quality of Advice Review also looked at addressing a severe shortage of financial advisers available. Mr Mota said there was a lot of demand for talent in the finance advice space and the company had invested into creating a graduate program to entice more people into adviser space.

“Importantly technology plays a role in this by looking at how we make existing advisers more efficient to allow them more time to see more clients and offer more advice,” he said.

UBS analyst Scott Russel said that evidence of ongoing margin pressure will require strong cost execution ahead.

“Market will debate midterm margin outlook and execution risk associated with the simplification program,” he said.

Originally published as Insignia Financial’s profit falls amid market volatility as it looks to complete MLC integration