The year of living cosily, hopes ING Australia

By Michael Bailey

It’s official. After three years living together, ING and ANZ have signed the papers and will this year get hitched for real through their joint venture company, ING Australia.

The three trustee companies currently governing the corporate super products will be reduced to one. The hundreds of unit trust duplications previously required by the parent companies’ separate structures will, under a tweaked joint venture agreement, be at least halved in number. The three divisions of old have already been split up and entrenched as six.

“I guess when ING and ANZ first put this together, they were more worried about the pain of a divorce than the benefits of the marriage,” ING Australia’s chief executive of almost two years, Paul Bedbrook said.

“It was designed so they could walk away relatively quickly and painlessly. But now we know we’re in it for the long haul... this entity rationalisation will realise the last of the one-third of the joint venture’s benefit we thought would come from lower cost structures. It clears the way for us to start enjoying the two-thirds that will come from economies of scale and broader business opportunities.”

Like just about any business exposed to the investment markets of the past two years, ING Australia is already in the black. Last week it announced a net profit after tax of $327 million for the year ended December 2004, up 52 per cent on calendar 2003, a year which itself saw a 50 per cent improvement.

But Bedbrook is realistic about the chances of such a profit jump being repeated in the cooling markets of 2005. Indeed, he expects funds management to take a back seat to insurance as the biggest profit driver for ING Australia in the medium-term.

“Life insurance is still sold predominantly to the wealthiest 10 per cent of the population. Like ordinary people in most countries, Australians are underinsured and I see a big opportunity for us in that mass market.”

The company’s internal forecast for 2006 has the life risk division contributing 30 per cent of the profit, and the direct insurance business a further 10 per cent, although the insurance divisions are expected to drive half of the bottom line in future. They are certainly under no threat from ING Advice, which is currently close to breaking even and forecast to begin making a modest profit in 2006.

“It’s not the point for it to be really profitable, it’s the opportunities it presents for the other businesses,” Bedbrook says.

The limelight must be something the chief executive wants to keep ING Australia’s major aligned dealer group, RetireInvest, well away from in 2005.

The franchise group was in the headlines throughout last year, as it shook off an Australian Securities and Investments Commission enforceable undertaking on its compliance procedures, and suffered the defection of several Victorian planners as it sought to implement a single franchise agreement across the group.

Bedbrook says all but eight of the 89 RetireInvest franchisees have now accepted the new deal. It provides better commissions, more flexible exit terms and better services from ING in return for relieving head office of its buyer-of-last-resort obligations, and the imposition of performance hurdles so that ING can reassign territorial rights if a particular franchisee is not being ‘productive’ enough in some of its patch.

Sweeping aside the “spaghetti bowl of 10 or 15 franchise agreements” that reigned before, Bedbrook hopes the simpler arrangement will allow RetireInvest and its ING Advice stablemates, Millenium 3 and Tandem, a greater share of the group’s retail inflows in future.

The stated aim at the birth of ING Australia was for ANZ Financial Planning to bring in one-third of inflows, the aligned ING Advice dealer groups to attract another third, and boutique independent groups to be convinced to provide the other third.

Bedbrook admits the split was more like 50:25:25 for the $5 billion inflow of 2004, and he doesn’t expect the ANZ channel to diminish in importance. Rather, he thinks the aligned groups will gradually push their share to 35 per cent, helped by a more streamlined structure and mostly organic growth.

“We’re certainly not trawling the market for [dealer group] acquisitions anymore, all the major groups are way too expensive,” Bedbrook smiles, acknowledging the fact that ING Australia was also much in the news last year as a suitor for Professional Investment Services.

“We’ll consider approaches from smaller dealer groups on an opportunistic basis.”