New Insignia Financial CEO Scott Hartley says fixing the group’s master trust business is a key priority, and that he remains bullish on the outlook for the financial advice businesses it will retain as the divestment of Rhombus Advisory draws closer.
In a wide-ranging fireside chat, the former SunSuper and AMP executive discussed the future strategy for advice under Insignia, managing conflicts of interests, the transition of the business from its previously vertically integrated structure, and why he took on the job.
“I do like a challenge,” Hartley told the Professional Planner Licensee Summit.
“I believe there is a role for retail in the industry and I thought Insignia had the size to be able to play a leading role in the industry. Recognising there was still much to do, having done a lot of this before, it felt like a logical fit for me.”
Hartley anticipates this will be his last executive gig, with a target of staying on to 2030.
His time at AMP naturally invites comparisons and whether his Insignia strategy will be similar, but Hartley said the context is significantly different.
“I’m not in a position to share how different, because that’s work going on internally at the moment and we’ll present that to market in October/November for what the vision of the company will be in 2030 and the strategy to get there,” Hartley said.
However, Hartley said large parts of the business are already in good shape, noting the work that head of advice Darren Whereat has done to prepare Rhombus Advisory for its separation from Insignia, which was announced last year and is scheduled for the start of the upcoming financial year.
“The advice business is in good shape,” Hartley said.
“Darren has done a great job of getting Rhombus in shape for separation. Shadforth is a very good business and I’m very impressed with Shadforth and Terry Dillon who runs that has done a great job and is getting back to growth in that business. Nathan [Stanton, chief executive officer] has done a great job transforming Bridges into a salaried business.”
Hartley said he initially had question marks over Insignia’s wrap business because he didn’t know much about the proprietary technology inside Insignia, but he is now impressed with it; and he described the asset management business as “not broken”.
“Dan Farmer is a great CIO getting good numbers,” Hartley said.
However, Hartley was more critical of the master trust business, noting there are still four RSEs (MLC Master Key, Plum Super, OneAnswer and Smart Choice) within Insignia that haven’t been integrated and don’t have a single operating platform.
“Master trust is the mess,” Hartley said. “That’s the heavy lifting yet to be done, but to be fair, a lot has been done.”
Avoiding conflict
Along with his former employer AMP, Insignia has had to re-engineer its business model post-Hayne royal commission to make each subsidiary function independently.
Hartley said it is possible vertical integration could be a problem in the future, but stressed the difference between that and “vertical ownership”.
“We have vertical ownership,” he said. “We have Shadforth and Bridges… and we have a super fund, a platform and an asset management business.
“Vertical ownership is okay. Vertical integration, particularly with comprehensive advisers, the old days of institutions of owning a licensee and using it as a distribution vehicle, are definitely over.
“I look at vertical integration and trends in the industry [and] I see advice firms vertically integrating back and I think that could be the source of the next issue.”
Hartley described himself as “not a fan” of vertical integration, noting the work he undertook separating advice and product at AMP, and said he was “pleased with the separation that sits within Insignia today”.
“We continue to manage those businesses quite separately and independently,” he said.
“I want to be in Shadforth and Bridges not for the value of integration; I want to be in those businesses for the value of advice profitability.”
Asked why Insignia wouldn’t sell its asset management business, Hartley dismissed the notion.
“Every super fund has an asset management business,” he said.
“If you’re going to be a super fund you’re going to have an asset management capability.”
Hartley acknowledged that scale is a necessity for licensees, but it isn’t the driving force behind his strategy.
“In a market now where vertical integration doesn’t play, why is [it] relevant the number of advisers you’ve got?”
“What’s relevant is you’ve got a compelling proposition to advisers, a compelling wrap platform that advisers want to use whether they’re ex-aligned, aligned or whatever.”
He added the days of the number of advisers being important to wealth management companies are over.
“It intrigues me that analysts and journalists carry on about the number of advisers that are moving here, there or everywhere,” he said.
“It’s sort of irrelevant. It’s about wraps being able to compete and attract advisers from everywhere in the marketplace, not whether or not you happen to own a licensee or not.”
Numbers game
Earlier this month, the Insignia CEO threw his hat into the debate over how advice fee deductions are permitted under the Delivering Better Financial Outcomes legislation. He told the summit that on the face of it the law doesn’t look like a big deal, but its wording does open trustees up to potential liabilities down the track.
“If the law is clear and the 99FA legislation is clear then the [Explanatory Memorandum] doesn’t play a strong role in a court of law,” Hartley said.
“When you look at that through the lens of trustees who don’t get paid for taking on risk…can you see them sitting back thinking it’s all cool because ASIC said we can take a risk-based approach?”
Hartley said he anticipates there will be a drift to a more literal interpretation of the law which will mean trustees start checking every SOA.
“Obviously checking every SOA is unworkable, it will be a complete mess,” Hartley said.
“It’s really taking a stand for the advice community but also the trustees. This can be fixed easily, the legislation just needs to be modified so that it’s clear that a risk-based approach can be taken by trustees.”
It’s good to see that Hartley gets it and is taking a public stance against the s99FA madness. Kudos to him. I wouldn’t have expected something like this with Renato, so it’s very encouraging to see we now have a CEO of one of the largest players in the space taking a pro-adviser position despite the political flack he might get.
We need more CEOs to do this to remind the government and the non-profit gang that the for-profit space isn’t going to be their punching bag anymore. Hartley’s recognition of the potential liabilities and unworkable nature of checking every SOA highlights the urgent need for legislative modification to ensure a clear risk-based approach. His leadership is a crucial step in pushing back against these flawed changes and protecting both advisers and trustees.