Out of the board room and into the front line

Australian Unity’s new group managing director Ian Ferres is no stranger to running a mutual financial services company.

In the late 80s he was head of National Mutual’s investment arm and tipped for the top job, but lost out to Gill Hoskins.

This time around the mutual is smaller — Australian Unity has $1.6 billion of funds under management — but there are plenty of challenges ahead for the new managing director.

The appointment of Ferres raised a few eyebrows, given he has served on the Australian Unity board for the past three years as a non-executive director.

Since becoming managing director in July, Ferres has conducted a complete review of the operation. Australian Unity is now focusing on four core areas of business. These are: lifestyle protection, which includes risk and insurance products; investment services, including fund management and property investment products; and healthcare services, which cover Australian Unity’s pharmacy, medical and retirement operations.

The fourth, and most recent addition to the core of businesses, is financial planning. The fund manager is setting up its own group of planners to sell Australian Unity products.

Outside the square is property management, mortgage management and a micro-cap boutique fund manager — Acorn Investments — of which Australian Unity owns 50 per cent.

“The core strength of the organisation is the health fund. However, we are reviewing our healthcare services to look at the retail exposure of this sector,” he says.

“We want to expand into a co-ordinated healthcare business, and we need to look at how the health fund and areas such as pharmacy fit together.”

Ferres says he has no intention of incorporating financial planning into the pharmacies, although the planners will be able to sell lifestyle products.

“When somebody walks into one of our pharmacies, they are not going there to seek investment advice. They will seek professional advice from our financial planners separately,” he says.

“Our planners will be looking after Australian Unity clients’ investment needs, together with some health and risk protection needs.”

While Australian Unity planners will be selling the complete range of products, the company is also undertaking a push to get its superannuation and property funds onto master trusts.

Ferres says this is not a move designed to abandon its own master trust, Freedom of Choice, but to expand distribution of its products on other master trusts that do not have super or property funds.

According to Australian Unity’s annual report, the funds have performed in line with industry figures. Its Property Securities Growth Fund showed a total return of 22.37 per cent while, at the other end of the scale, Australian Unity’s International Sharemarket Fund produced a negative 23.92 per cent return.

The company’s fund management operation now has $136 million of funds under management, up from $71 million in 2001, while property investment products are valued at about $500 million.

However, the cost of running these funds is rising, Ferres says, and the company is looking to outsource the back-office.

“There are funds with small amounts of funds under management, so we are looking at outsourcing areas such as compliance and custody. However, we will retain control of distribution,” he says. “With our size, compliance is complex for all the different products we have.”

Australian Unity is also looking to expand its list of boutique fund managers, Ferres says.

Acorn Investments was the first venture of this kind and has almost $3 million of funds under management, the bulk coming from wholesale mandates. It returned 21.38 per cent in its first year and is available to investors with a minimum investment of $50,000.

“We are talking to other boutique fund managers, such as a listed property trust manager, about joining us,” he says.

“The aim is to form a group of boutique managers that can work off each other while we help them with areas such as distribution.”

Ferres says the boutiques do not have to go directly to retail clients because Australian Unity can offer the products through its own master trust.

The client base of Australian Unity is also going to become a significant part of future sales efforts. Ferres says the membership, which comes from a broad base, has never been subjected to serious cross-selling of products.

“If we have a member that has general insurance policies with us and is a member of the health fund, we will look to offer additional services such as financial planning,” he says.

“We think the member will be more willing to use a product offered by us rather than go to a bank for their needs.”

Ferres says there is a sense of community among Australian Unity members and the company is aiming to capitalise on this.

“It is about building loyalty and trying to build a consolidated business for Australian Unity, rather than a series of separately run businesses,” he says.

“And we have found that some of our products are used by the top 50 per cent of the population, so there are opportunities to sell products such as general insurance or investments to that group.”

Ferres says the company has a good, dependable reputation among its client base and it is time to try and sell other products to the client base.

The company has found 40 per cent of investors in a property unit trust are using another Australian Unity product and Ferres sees no reason why this figure could not double in time.

“We have found a niche and we should use this to improve our cross-selling, which will improve inflows into other areas of the business,” he says.

The company has not ruled out acquisitions to expand the business. It was recently runner-up in the sale of the IOR Friendly Society health fund, which Ferres admits would have boosted Australian Unity’s client base.

“In the last two years, we have seen 40 health funds reduced to 20 and we want to remain part of that industry,” he says.

“We have also seen rationalisation in general insurance and we have acquired some businesses in that area.”

According to the Australian Unity annual report, the company is committed to being in the top five health insurers and the top 20 fund managers.

Ferres is only the second managing director of Australian Unity — his predecessor, Mark Sibree, held the job for more than eight years — but he is already putting his stamp on the 162-year-old mutual.