Industry sales by Challenger’s retail distribution partners are the lowest they have been in 15 years, due to a wave of fluctuation through the financial advice sector, the annuities provider has said in its annual meeting.
The group copped a 5 per cent drop in statutory profit to $308 million for financial year 2019, with the company’s fund management and life businesses both feeling the effects of volatile investment markets.
The group’s normalised profit came to $548.3 million, a slight increase from the prior year.
However in Challenger’s first quarter update, it recorded a 3 per cent incline in assets under management year-on-year, while the group saw a plunge in the performance of its annuities.
Local annuities sales dived by 42 per cent from the prior corresponding period to $842 million. But the business has expanded in Japan as the company has extended its relationship with local insurer, MS&AD.
Addressing shareholders at the company’s annual meeting, chairman Peter Polson commented the company’s financial performance reflected lingering impacts from the Hayne commission.
“In particular, our distribution partners have been affected by the large number of advisers leaving the industry, reduced customer confidence in financial advice, regulatory and compliance changes, increasing adviser educational standards and a number of major business restructures at large advice businesses,” Mr Polson said.
“As a result, industry sales in 2019 by our retail distribution partners were the lowest they had been in the past 15 years.”
More than 3,000 advisers have left the industry since December (a 12 per cent reduction).
As a result of changes to the company’s remuneration structure, Challenger’s board has reduced its variable reward pool to the lowest it had been in five years, Mr Polson added.
Key management personnel had seen the bulk of the reductions with their short-term incentives being shortened by more than a third (36 per cent) compared to the year before.
Challenger chief executive Richard Howes also noted the company is operating in a disrupted “wealth industry,” commenting the shake-up presents opportunities as well as challenges.
“This is why this year we are investing up to $15 million in a range of new distribution, product and marketing initiatives to support a deeper integration with the advice process,” he said.
“This involves providing tools, education and marketing collateral that helps advisers develop high-quality advice to retirees that directly addresses the unique risks and challenges of retirement.
“We are also adjusting our service strategy to reach a wider range of advisers, partnering with platforms like Netwealth and HUB24… and making it easier and more efficient for advisers to do business with us.”
He added the company has seen its annuity sales increase tenfold over the last 11 years, despite interest rates dropping significantly over time.
Earlier this month, Challenger launched a joint venture between its multi-boutique manager Fidante and Ares, US global alternative asset manager.
Challenger has not changed its previous outlook for financial year 20: expecting its normalised net profit before tax to stay flat from 2019, having given a range between $500 million and $550 million.
It expects to maintain the same annual dividend of 35.5 cents per share in 2020.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].
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