Insignia ups legacy advice remediation in Q4 update

Insignia has announced it has completed the separation of Rhombus Advisory but flagged it needs to increase its remediation provision by an estimated $135 million.

In a quarterly update for the three months to 30 June, the licensee said it has 1,086 financial advisers in its network comprising of 200 advisers in professional services (employed) and 866 across advice services.

The firm said numbers in the advice services channel “saw relative stability” in numbers ahead of the launch of Rhombus Advisory. 

Rhombus, which comprises the Consultum, RI Advice and TenFifty self-employed advice businesses, was successfully separated on 1 July 2024; advisers and key management at those firms took ownership stakes. Insignia retained 37 per cent of equity, but it is expected to be deconsolidated from the group in FY25.

Insignia Financial’s professional services advice businesses, Shadforth and Bridges, remain wholly owned and “the new operating model will allow improved focus on unlocking the growth potential of both businesses”, the firm said.

VIEW ALL

View all

Funds under administration decreased by $1.4 billion driven by pension payments of $994 million and negative market movements of $585 million, partly offset by net inflows of $162 million.

Funds under management increased by $464 million to $89.4 billion driven by market movement of $437 million and $27 million in net inflows. It particularly saw strong inflows of $200 million into its MLC managed account offering.

Insignia chief executive, Scott Hartley, said: “We have seen strong progress on our FY24 strategic initiatives during the year including successful migration of MLC Wrap to Expand, and delivery of targeted cost optimisation. 

“FUMA remained resilient in a quarter of mixed markets with platforms returning to net inflows following the successful wrap migration in the previous quarter. Post-migration, Expand provides the Wrap business the scale and focus to drive future growth.

Remediation provision

However, the licensee has also announced its FY24 remediation provision will increase by an estimated $135 million after tax. This is partly offset by GST refunds on remediation payments of $8 million.

The increase is driven by: 

• An increase of $58 million after tax related to completed assessments for self-employed advisers which exhibited far higher failure rates than expected based on past experience. Assessments for these advisers have been completed. 
• $41 million after tax estimate for a small number of advisers where assessments are not yet finalised and will be completed internally. This assessment is based on assumptions updated for the recent Quality of Advice detriment experience. 
• $23 million after tax, related to the enforceable undertaking to APRA from OnePath Custodians Pty Ltd (OPC) including client remediation, and infringement notices totalling $10.7 million, in respect of a failure to comply with APRA’s direction relating to the time taken to remediate breaches of “accrued default amounts” requirements and related alleged contraventions of “default” contributions requirements. These steps resolve APRA’s concerns in respect of these matters. 
• $20 million after tax related to historic product remediation. 

Hartley, said: “Disappointingly, we have had to take up a further provision to address a significant increase in remediation for legacy quality of advice and product compliance issues. We acknowledge the impact these historic remediation programs have had on shareholders; however, it is important that clients are fully remediated. 

“Importantly, we expect this is our final provision increase related to the legacy advice remediation program which is now substantially complete, and that funding the advice and product remediation increases announced today will not require a capital raise from shareholders.

“Looking forward, the operating model changes announced earlier this month will provide clear lines of accountability, enhancing our focus on improved risk governance and management, driving profitable growth, and enabling each of our businesses to focus on competing in their respective markets.”

OnePath fine

In a separate statement, prudential regulator APRA announced it has agreed to accept a court enforceable undertaking from OnePath Custodians (OPC) Pty Limited pledging to rectify compliance deficiencies and compensate members.

OPC has also paid $10,704,600 under infringement notices issued by APRA for alleged breaches of the Superannuation Industry (Supervision) Act 1993 (SIS Act) for failing to invest members’ default superannuation contributions in MySuper products. This amount is in addition to the $1.5 million paid by OPC in June 2023 for similar conduct.

OPC is one of four superannuation trustees owned by Insignia Financial Ltd (formerly IOOF Holdings Limited) and has approximately 700,000 members and over $37 billion in funds under management.

APRA deputy chair, Margaret Cole, said: “This action shows that APRA is willing to take strong enforcement action where it is warranted. These MySuper changes came into effect 10 years ago. Our patience for entities who are still struggling with foundational issues, with the potential for serious impact to members, has run out. 

“We expect trustees to adhere to the law and to have robust governance, compliance and risk management frameworks embedded and operationalised to prevent, detect and swiftly remediate potential breaches of their obligations.”

A statement from OnePath Custodians said: “OnePath Custodians (OPC) confirms APRA has accepted its enforceable undertaking in relation to accrued default amount and default superannuation contribution issues. OPC acknowledges APRA’s concerns as set out in that undertaking and will complete various steps including the engagement of an expert to review remediation and rectification work. It has also paid infringement notices totalling $10.7 million. The enforceable undertaking and payment of the infringement notices resolves APRA’s concerns on these issues. OPC remains committed to the ongoing work to uplift its governance.”