Insignia Financial has announced an extra $135 million in remediation ahead of its full financial year results due next month, marking the first hurdle under new CEO Scott Hartley.
In its update for the final quarter of FY24 to the ASX, Insignia said the remediation provision will increase by an estimated $135 million after tax ($188 million pre-tax), driven by failures in advice and APRA intervention on OnePath Custodians.
There is a $58 million after tax increase related to completed assessments for self-employed advisers which exhibited a higher failure rate than expected based on past experience, along with another $41 million after tax estimate for a “small number of advisers” where assessments were not yet finalised and will be completed internally.
“We acknowledge the impact these historic remediation programs have had on shareholders; however, it is important that clients are fully remediated,” Hartley said.
“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.”
Outside of advice, another $23 million (after tax) has been provisioned for an enforceable undertaking from APRA to OnePath Custodians covering client remediation, and infringement notices totalling $10.7 million for failing to direct default member contributions to an appropriate MySuper product.
OnePath, which IOOF has owned since early 2020 after acquiring it from the big four bank ANZ, has approximately 700,000 members and over $37 billion in funds under management.
The OnePath remediation was acknowledged by the prudential regulator in a separate announcement on Monday morning.
“These MySuper changes came into effect ten years ago,” APRA chair Margaret Cole said.
“Our patience for entities who are still struggling with foundational issues, with the potential for serious impact to members, has run out.”
APRA had previously applied additional licence conditions on several Insignia trustees, including OnePath, in November 2022 over concerns about governance, accountability and risk management deficiencies.
Just over a year ago, OnePath was required to pay a $1.5 million fine for failing to direct 125 default member contributions to a MySuper product from mid-2022 onwards.
The regulator noted OnePath continued to identify more members that have failed to be defaulted correctly into a MySuper product but is still “highly concerned” that new cohorts of members continued to be identified.
Along with the advice and OnePath remediation costs, there is a further $20 million bill after tax related to historic product remediation, but all of this is partly offset by GST refunds on remediation payments of $8 million, hence the $135 million after tax figure.
Despite the added remediation costs, Insignia expects to exceed the upgraded FY24 net revenue and EBITDA margin guidance provided in February and is on-track to achieve the upper end of the $60-70 million range for gross in-year optimisation benefits.
Underlying NPAT is expected to be in $212 million to $218 million range, citing stronger revenue from higher average funds under management and advice and a net reduction in operating costs of $20 million to $25 million.
