Australian Ethical has commenced a comprehensive review of its product suite with a focus on pricing and creating engagement with Australia’s self-managed superannuation fund (SMSF) market.
Company managing director Phillip Vernon said the review comes in response to substantial regulatory change across both the funds management and superannuation industries through the Future of Financial Advice and Stronger Super reforms.
“These [the reforms] are being driven by the demands of an ageing population and other demographic changes as well as the government’s desire to develop a long term, sustainable and self funding super and retirement industry,” Vernon said.
The changes together with lower market values are creating a more competitive environment with “significant” downward pressure on fees, he said.
“This new operating environment is a long term reality and in order to adapt to this new environment it is important that our business evolves in order to remain agile, competitive and sustainable,” he said.
Vernon said the company is working on a number of developments to adapt to the change, one of these being the product review.
Australian Ethical is considering four elements as part of its review: number of products; key trends; pricing; and features.
“We are a complex business for our size and much of this complexity is driven by the sheer number of products we manage. We are reviewing each of our products for their contribution to the overall business,” the company said.
“We need to ensure that we have products to meet key market trends. One such area of focus is ensuring our products are appealing to the SMSF market.”
News of the review follows the company announcing net profit after income tax expense of $284,115 for the half-year ending 31 December 2011.
The result represents a 31 per cent decrease on the adjusted result of $414,479 for the previous corresponding period.
“The operating environment for financial services firms over the period has been challenging due to general market uncertainty, shift of funds to cash and term deposits due to lack of confidence in equity markets and looming regulatory changes,” company director Phillip Vernon said.
The firm attributes the fall in profit to a decrease of 2.6 per cent in the average group funds under management and a 5 per cent drop in fund inflows.
As at 31 December 2011, the group FUM stood at $599 million, before distribution. The figure compares to FUM at 31 December 2010 of $654 million, before distribution.
“The decrease is reflective of the broader markets laboring under the uncertainty of Eurozone financial markets,” the company said.
“Since 30 June 2011 group FUM has decreased $41 million due to market movement and $3 million due to net outflows. This has resulted in less management fee revenue.”
The company said while superannuation inflows remain strong, increasing by 3.6 per cent, managed fund inflows suffered a substantial drop of 25 per cent.
“[The drop reflects] the experience in the broader managed fund market as investors transition to cash and term deposits,” the company said.
“Despite the decrease in inflows, up-front fee revenue improved based on the superannuation performance.”
Conversely, the company’s operating expense levels have improved by 1.3 per cent.
“This cost control has been achieved in the midst of business model realignment and cost structure reviews,” the company said.
