In a trading update on Thursday (13 June), Challenger noted that “significant financial advice market disruption” had impacted the sale of annuities, which have contracted 12 per cent domestically between Q2 2018 and Q2 2019.
However, IFAs bucked the trend and accounted for 38 per cent of sales in Q2 2019, up from 25 per cent the previous year. ‘Major hubs’ – which include AMP, IOOF and the major bank-owned advice groups – saw a 25 per cent contraction while IFA sales were up 26 per cent on combined second and third quarter comparative figures.
As a result, Challenger is working to mitigate adviser disruption by building relationships with IFAs and leveraging platforms such as Netwealth and HUB24.
“As expected, the disruption to Australia’s financial advice industry, which is Challenger’s major distribution channel when selling annuities in Australia, is continuing,” Morningstar analyst Chanaka Gunasekera said.
“However disappointingly, management indicates that market disruptions intensified in the fourth quarter of fiscal 2019.”
Over the coming years, Morningstar expects large advice groups owned by the major banks will be less focused on writing news business, including Challenger annuities, and more focused on exiting their wealth management businesses and remediating customers.
“Regulatory changes, including stronger educational requirements for advisers and the removal of grandfathered commissions, is also likely to see more advisers leave the industry and higher levels of adviser churn in major advice hubs,” Morningstar noted.
Welcome to the new world. Advisers have been the distribution to the fund managers and annuity providers and received trailing commissions to cover their ongoing costs. What business expects their distribution to do it all for nothing ?
Challenger – 1/ yes why invest when interest rates are the lowest ever .Jeremy Cooper when interest rates are 7% , a great buy , lock in at a high rate , now great buying at 1.5% ? 2/ I asked them years ago how they get more than the term deposit rate ? its extra risk they have to take to pay the likes of Jeremy Cooper ? Tell that to your conservative mum and dad investors that want a guarantee Answer lies in the pool ( It invests in shares and property without any guarantees albeit small but dont tell anyone , safe as chips ASIC )
The real question is why would anyone invest in an annuity when we have historically low interest rates.
This is symptomatic of a broader issue. As a result of all the disruption, fewer Australians are getting good quality financial advice.
Cynics, “journalists”, and union fund officials will probably crow that’s a good thing. No doubt constructive change was needed in some areas. But the deceptive media hysteria and expensive regulatory burden is ultimately doing consumers more harm than good.
What a wonderfully naïve article, Bank planners provided the bulk of Challenger business as they could charge an upfront fee within the annuity as well as other fees to reach sales targets. Sales targets for bank planners versus Best Interest Duty! And you wonder why the banks are leaving.