Plenty of work needed to turn the slow Insignia ship

Insignia’s departing chief executive, Renato Mota. Illustration: Sturt Krygsman

On paper, Insignia Financial ranks on any reading as a top-tier wealth manager, a top-10 fund manager and the biggest single provider of wrap platform services and corporate super. But its stock price performance over the past six years is abysmal, losing 80 per cent of its value, or $5.5bn.

Some of its issues are sector-wide concerns but more are due to the slow pace of action within the company.

Insignia now boasts more financial advisers than AMP, that doyen of the industry which many had said served as the model for Insignia’s expansion.

The trouble is the advice model is still not settled and the federal government still hasn’t landed on its final position.

John Wylie’s Tanarra Capital has emerged with just under 15 per cent of Insignia and is now effectively calling the shots with chair Allan Griffiths, as shown by the departure last week of long-term chief Renato Mota.

Mota will stay until the new year, until an as yet unnamed external replacement is installed.

A long-term investor, Tanarra has tripled its holding this year.

It would also not surprise if a Tanarra-backed director is appointed to the board.

Griffiths faces plenty of questions at next month’s annual meeting given the continued slide in funds under administration and adviser numbers revealed this week.

This week’s quarterly funds statement shed no further light on the reasons for Mota’s departure but the stock price performance says it all; its price is down 19 per cent this year to date in a flat overall market.

The fact Mota’s outing rated little general media comment tells you how, despite its quality assets, it has fallen out of the spot light.

Morgan Stanley’s Andrei Stadnik noted Insignia “saw larger-than-expected outflows in the September quarter and outflows will likely get worse before they get better”.

He added “the CEO transition is adding to the uncertainty” but many of these risks are in the price, as the stock is on a price to earnings ratio of 6.5 times expected earnings.

The trouble is that right now, even with the axing of the chief executive, Insignia is perceived to be lacking near-term catalysts.

Funds under advice and management declined and adviser numbers fell to 1385, from 1413 stated in the annual report.

Tanarra would hope its intervention might change market sentiment.

Insignia, or IOOF as it was known, hit the spotlight in Ken Hayne’s royal commission when its former boss Chris Kelaher did not impress the commissioner.

Hayne also attacked APRA for sitting around while its client base was charging dead people commission and other outrages – and no sooner had Hayne handed down his final report in 2019, APRA took legal action again IOOF.

APRA embarrassingly lost the case – which centred on IOOF using emergency funds to pay client remediation – but Kelaher quit soon after, to be replaced by Mota.

He continued his predecessor’s spending spree, adding the $1.4bn MLC purchase from NAB in 2019 to its $975m ANZ wealth management division acquisition.

Prior to the ANZ deal IOOF’s cost-to-income ratio was 55 per cent but it now stands closer to 75 per cent, when scale should result in lower costs per head.

The slow pace of integration is one issue holding Insignia back.

Like many, especially in the for-profit wealth management space, IT spending has not been great, even before you start looking at customer remediation and start thinking about growth.

That, no doubt, is front of mind for the folk at Tanarra because the assets in question should be a perfect platform for growth.

Kelaher was a controversial character who built the company through acquisition but more corporate tombstones were not matched by follow-through work, which is crucial to leverage the benefits.

Mota has followed through on some of Ken Hayne’s concerns by placing the adviser network under one roof with an independent board, but the pace of change has not impressed at a time when external sentiment is also negative.

Much top-tier financial advice is over hyped; most outside the very rich only need its services two or three times in their life.

Federal Financial Services Minister Stephen Jones has flagged changes, but like Insignia’s Mota, could not be accused of moving too fast.

The government is expected to soon unveil legislation to simplify the process by cutting demands for pages of documentation and has flagged allowing super funds to provide members with more advice.

But with talk overwhelming actual decisions, the market is left confused.

Wealth managers tend to trade on sharemarket sentiment which self evidently is not great right now amid a slowing economy, rising interest rates and multiple geopolitical concerns.

For a turnaround bent, Insignia Financial is a perfect opportunity for Wylie’s Tanarra to shop its skills.

Microsoft’s slick presentation

Microsoft’s $US2.4 trillion market value is built on many strengths, with just one being a superb corporate marketing function.

This week’s joint announcement of a $US5bn investment in Australia was a masterclass; Prime Minister Anthony Albanese unveiled the news together with Microsoft’s corporate relations guru, Brad Smith, ticking almost every box.

It doesn’t get much better than a corporate decision being announced in glowing terms by the country’s political leader.

This followed more media grooming with special in-house briefings to selected media on just what a great company it is.

Foreign investment in Australia is welcome any day, especially at a time when it is relatively weak and also helping out on cyber crime and boosting cloud capacity, where Microsoft lags Amazon by a considerable stretch globally but by less in the $2.7bn Australian market.

It comes as the federal government is working through at snail pace on just how to regulate artificial intelligence.

Microsoft is now a national hero, so how could the government do something which may upset the company by ensuring its partners at ChatGPT don’t denude the country of creative content by escaping copyright controls and commercial compensation?

Pitfalls of social media speculation

Bitcoin’s value bounced back above $US35,000 earlier this week, up from $US26,000 on October 13, based on speculation a proposed BlackRock exchange-traded bitcoin fund was finally to be approved by the US SEC.

The swing in values is perfectly timed for the latest ASIC warnings about speculative investments.

“Invest in facts don’t get burnt in the hype” is the message of a short advertisement ASIC is running ahead of the new film Dumb Money, about the 2021 retail investor campaign boosting US video retail store company GameStop.

The company’s stock rose from $US31.40 in January 2021 to $US347.51 in May that year based around a successful social media campaign from so called finfluencers.

At the time ASIC responded with its own social media campaign warning the folk involved they risked prosecution for promoting shares without a licence.

ASIC surveys have showed 50 per cent of people under the age of 25 invested in shares and 33 per cent in cryptocurrencies.

By attaching its advertisement to the film ASIC is aiming to drive the message home.

The warning to investors who use social media to ramp stock prices or engage in other forms of market manipulation they face prosecution.