Insignia Financial unveils $188m advice blowout with plan to deliver turnaround

Insignia Financial has unveiled a $188m blowout in provisions to cover bad financial advice, telling investors a cost-cutting plan and new inflows will deliver a profit turnaround.

Insignia Financial chief executive Scott Hartley. Picture: Arsineh Houspian

Insignia Financial has unveiled a $188m blowout in provisions to cover bad financial advice, telling investors a cost-cutting plan and new inflows will deliver a profit turnaround.

In a market update on Monday, the ASX-listed company formerly known as IOOF said it had increased provisions for legacy remediation programs by $135m, after tax, after being fined $10.7m by the prudential regulator over its OnePath Custodians business.

Insignia told investors the ballooning provisions were linked to a $58m after-tax charge related to completed assessments for self-employed advisers, “which exhibited far higher failure rates than expected”, as well as a further $41m from advisers where assessments were not yet finalised.

The company also said it would book a $23m charge after signing an enforceable undertaking with the Australian Prudential Regulation Authority over its OnePath Custodians business.

It will remediate clients and pay a $10.7m charge after APRA found it breached superannuation laws.

Insignia was fined $1.5m in 2023 for similar conduct.

APRA deputy chair Margaret Cole said OnePath’s fine sent a clear message. “This action shows that APRA is willing to take strong enforcement action where it is warranted,” she said.

“Our patience for entities who are still struggling with foundational issues, with the potential for serious impact to members, has run out.”

Insignia chief executive Scott Hartley said the increase to provisions was expected to be the final increase relating to legacy advice remediation, “which is now substantially complete”.

Insignia’s fourth-quarter update comes as the company prepares to reveal its full-year performance in August.

In the update to investors Insignia said it would focus on profitable growth, noting its underlying results, to be published on August 22, would show “upgraded guidance supported by higher average FUMA and benefits of the cost optimisation program”.

Insignia said it was expecting to reveal an upgraded 2024 net revenue margin.

The company said it was on track to achieve the upper end of the $60-70m range, plus a $20-25m reduction in net operating costs compared to last year.

Insignia Financial said underlying profits after tax were expected to be in the range of $212m to $218m.

The company said it was returning to positive net inflows, with $189m flowing to its platforms in the three months to June 30.

However, funds under management and administration were down $1bn in the period to $311.3bn as of June 30.

Mr Hartley said funds under management were “resilient in a quarter of mixed markets”.

He said the migration of the MLC Wrap platform to Insignia’s Expand system would provide the business with “scale and focus to drive future growth”.

Insignia said it had hived off the self-employed licensee business Rhombus Advisory but maintained a 37 per cent equity share of the operation. Insignia’s professional services advisory businesses Shadforth and Bridges remain part of the group.

Citi analyst Nigel Pittaway said the sale of Rhombus was “perhaps larger than expected”, but noted the expected profits were ahead of consensus estimates.

“The sizeable beat of guidance versus prior consensus is likely to see the stock trade significantly higher, with estimates for future years also likely to be lifted,” he said.

But UBS analysts warned the $135m in provisions would “not only deliver a large stat loss for FY24, but will also weigh heavily” on cashflow.

Shares in Insignia climbed 5.04 per cent to close up 12c to $2.50 on the news.