Australian Ethical upgrades despite sector in flux

Australian Ethical upgrades despite sector in flux

Sarah Simpkins
— 1 minute read

Australian Ethical has updated its expected underlying profit after tax for the full year, despite operating in what others have called a challenging environment with heightened regulation.

Its forecast UPAT is now in the range of $6.4 million to $6.6 million, which would see its profit increase by 30 per cent year-on-year.

The earnings guidance is based on unaudited management accounts, and is subject to finalisation, including an after-tax performance fee of $450,000 paid to Australian Ethical as responsible entity of its Emerging Companies Fund.

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Without the performance fee, the forecast profit would be between $5.95 million and $6.15 million, a midpoint increase of 21 per cent over the previous 12 months. This would still be at the upper end of the range Australian Ethical forecast in April.

Australian Ethical’s results will be revealed in late August.

But its upgrade is interesting, given the contrast of other wealth managers who have struggled: AMP Wealth, for example, recorded $1.8 billion in net outflows in its first quarter for 2019.

The super industry is also in a state of flux right now, with new legislative reforms in the Protect Your Super Package having taken effect last week.

As a result of the royal commission, ASIC will be the primary regulator of the sector, working with APRA in a dual regulation “twin peaks” model.

ASIC deputy chair Karen Chester called the body’s new role in overseeing super a “game-changer”, while commissioner Danielle Press commented: “For us it’s really important to say it is as important to regulate a superannuation fund as it is to regulate a bank, and why would it be regulated any differently.”

ASIC also recently released its indicative industry levies for the 2018–19 financial year, baring that the investment management and superannuation sector could be paying total costs 32 per cent higher than the prior year.

In wealth regulation, ASIC chair James Shipton noted there has been a 166 per cent increase in enforcement investigations in the last month compared to February last year.

APRA has also kicked up its regulation of the super sector, with it now being able to decide who can become a major stakeholder of a fund.

Around a month ago, fund administrator Mainstream downgraded its full-year guidance, fearing the superannuation segment is being challenged by amplified regulation and the industry-wide trend of consolidation.

It dropped its expected revenue from its Funds Services business from its previous range of $50 million–$55 million to $46 million, as well as reduced its expected earnings.

Combined Super Fund had terminated its contract with Mainstream for its administration in September, before merging with the Prime Super Fund and moving its administration over.

Mainstream said it was conscious that the super industry’s consolidation will continue to challenge growth opportunities.

Likewise, financial services provider Link Group reduced its anticipated profit, citing a competitive pricing environment.

The group had also expected regulatory change in the super industry to affect its fund administration earnings, having had to invest in additional resources to meet demand for member communication programs.

The provider said it was expecting a NPATA in the range of $195 million to $205 million, slipping from its prior full-year result of $206.7 million.

 

Australian Ethical upgrades despite sector in flux
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