Insignia Financial Ltd

ASX:IFL

Earnings Call Transcript 2018-Q4

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the IOOF 2018 Full Year Results Conference Call. [Operator Instructions] As a reminder, this is a conference call for investor and analyst. Media questions will be responded to after the presentation. I must advise you that this conference is being recorded today, Tuesday, the 7th of August 2018.I would now like to hand the conference over to your first speaker today, Mr. Chris Kelaher, Managing Director. Thank you. Please go ahead.

[Christopher Francis Kelaher, MD & Director]

Thank you, Desmond, and good morning, ladies and gentlemen. My name is Chris Kelaher. I'm the Managing Director of IOOF Holdings. With me this morning, I have David Coulter, our Chief Financial Officer. And I'm pleased to present to you our full year 2018 financial results. First thing I'd say about our results, it's a reflection of the consistent execution of an advice-led strategy. And as you can imagine, contributing towards this has been a strong underlying profit of $191.4 million, up 13% on prior comparative period. In concert with this is a final fully franked dividend of $0.27 per share, and I think most of you would appreciate now that this record of delivery of dividends has been quite consistent over recurring periods. In order to contribute to this or to build upon this profit number, we have net inflow for the period of $5.8 billion. There's a separate slide coming up disaggregating how that flow comes about, but that's up 28% on prior recurring comparative period. As you can imagine, and I think this is something that comes as no surprise to most of you, we have an enviable cost management record, and this continues for the period. Operating expenditure for the period reduced by $9.4 million. Our cost-to-income ratio is 53.1%, which improved 5%, and I guess ultimately, it's a confirmation of our ClientFirst strategy that we introduced several years ago. Margin for the period has remained unchanged. Group net operating margin, 23 basis points. The other item that I'll talk about, but not go into any detail until the final slides is we've accelerated the economic completion of the ANZ Wealth Management. And for those of you who've been following the company closely, you'll note that we made a separate release about this, about 10 days ago. But I will speak again to that announcement. Finally, we probably ring the bell on the NATL acquisition, meaning that it's now fully integrated and delivering synergies. The synergies have actually exceeded our expectations. I think we're 100% ahead as we speak. There've been further M&A activity in that space, and I'll talk to those under the next slide heading.Turning now to the individual sectors, and you would appreciate that we divide the company into 4 segments: financial advice, platforms, investment management and trustee services. And each of them have been delivering positively for the period. Turning firstly to financial advice. This is, for the period, $78 million, up 2%. And importantly, the components that sit in there, for example, Ord Minnett, very strong year for them. And I think it's a confirmation for us of the advice-led strategy and the open architecture through which we run our business. We offer choice with open architecture across a number of different platforms, and each of these have been performing very strongly during the period. The final thing I would say about our adviser group is that Barron's run a survey of advisers in Australia, and we're pleasingly featured in the top 12 out of the 50 advisers in those grouping. Once again, a confirmation of the caliber and the quality of our service and how it contributes to our overall performance outcome. Secondly, platform, which is probably a chief contributor to our outcome. This is $80.9 million UNPAT for the period, up 5% on prior comparative period. And as I've mentioned in the headline slide, certainly, cost reduction of $6.3 million here has been a contributor to this outcome. Certainly, the other thing has been $1.6 billion of net inflows through IOOF proprietary platforms. We also are able to launch an MDA on our IOOF Pursuit platform first thing or 2nd of July this year. And fundamentally, the practice of the group to continue to simplify and consolidate its products overall has led to this profit outcome under our platform heading. Lastly, I think it's important to once again confirm 2 years ago, we changed our processing to a ClientFirst process, and this certainly is paying dividends. One operator and one of our operations staff takes inquiries and transactions through to completion, and the added efficiencies of this has contributed significantly to this particular outcome. Certainly, it confirms our view of best interest for our members.Turning now to Investment Management. $36.7 million UNPAT for the year, up 12%, once again. And most importantly from our perspective, the MySuper product, which is really going to start to become the key comparator product or fund that we'll use to compare against other members in the industry, whether they be industry funds or otherwise. Certainly, from our perspective, over 1 and 3 years as measured by SuperRatings, we're in the first quartile. So certainly, the award-winning nature of our investment management -- manage the manager series has continued to perform strongly. And importantly, the manage the manager mechanism of investment management certainly obviates the problem that you have associated with key personnel risk. The business is highly scalable. And as I said, I think this is the important issue, that it basically announces that the MySuper product is going to be the product where we are trying to get an apples-and-apples comparison across the board for different superannuation funds. There's been a lot of media about some of these comparisons. And to date, some of them being quite challenging, basically because they're incorrect in terms of their interpretation of data. But the MySuper one does provide a mechanism for this comparison going forward. And we've now had 3 years, but at least it's an apples-and-apples comparison. Finally, the trustee services business, up $9 million underlying profit for the period. Whilst this is relatively modest in terms of the concept, the context of the whole group, it's up 34%. And certainly, it's been a particular personal challenge of mine to see this growing the group. Certainly, it fits strongly in terms of our vertically integrated model, and it's a reflection of the successful acquisition strategy that we've been implementing. It still has further to come in terms of generating synergies, in terms of the underlying M&A activity that we've introduced. More importantly, the Ability One transaction that was introduced in June 2018. As I said, the NATL transaction is now concluded. But certainly, there's more M&A, and it does represent us now or leaves us at the end of the period as the largest compensation trustee in Australia. I still think there's more to come in that space, but certainly pleased with the positive momentum they're now generating.Looking now at the flows. And when we talk about our business and some of the key performance indicators, we're talking about number of advisers, we're also talking about net inflows, so it's a significant key performance indicator. In this chart, we attempt to show you the disaggregation between platform and advice net flows. So platform flows, up 34%. Advice net flows, up 48%. Giving us a total flow number of $5.8 billion. This is particularly pleasing to the management group here, first and foremost, because for many years, the company had been regarded as fundamentally an M&A example of business. And I think this is now starting to demonstrate that our ability to generate organic flow, I think, is now superseding the contribution from the M&A activity. So very pleasing from us and a confirmation that we're on the right track. We've had 6 consecutive years of net inflows, so open architecture does work, and I think we're a shining beacon for that particular business model. Finally, as expected, yield is a significant appeal to our shareholders and investors alike. And it's pleasing to see once again that we've been able to hold the $0.27 per share dividend, fully franked. The company goes x on the 20th of August and payment on the 4th of September. And once again, represents a 98% payout ratio for the period. But in many respects, outside of substantial transactions, the retention of small amounts for aggregation, I think we all would agree, doesn't make a lot of sense. But certainly, our dividend record, and as I said going back, well back to 2012, is exemplary versus the industry. I'll now hand over to David and come back with some concluding remarks about the landscape and our view about how we see things and in particular, the ANZ transaction.

[David Coulter, Chief Financial Officer]

Thank you very much, Chris. I'll just pertain this to those key financial metrics that Chris commenced the presentation with. They're up here on our record result highlights slide, that's Slide 7. So as you can see here, as Chris announced, the $191.4 million underlying net profit after tax. That represents a 13% increase on the prior year. The underlying earnings before interest, tax and amortization this year are $263.3 million. Similarly, that represents a 9% increase on the prior year. When you take into account, and I will present this on successive slides, that has been driven by both revenue and cost, you are going to get an outstanding cost-to-income ratio result. In particular, in this most recently elapsed half, 52.5% and 53.1% for the current year. So that's a 3 percentage point improvement and a 5% improvement overall on the 2 years shown. Our net operating margin of 23 basis points has been relatively stable over the 4 periods shown here or the 4 half years. And that's very important because that is what drops through to shareholders in terms of value when you're delivering an increased pool of funds year in, year out. I'll talk to our longer-time series on the gross margins and the net operating margins on successive slides as well.Finally, we have our statutory profit after tax for the half of $43.1 million and $88.3 million for the full year. You'll understand, as has become conventional in reporting periods, that there are nonrecurring, nonoperational items that are taken, as we say, below the line. We have detailed appendices both to this pack and in our Appendix 4E that's been released to the market. I'd point out that, that result does include the plaintiff settlements on the Provident matter that was disclosed earlier today.Just breaking that result down a little further into its constituent parts. You can see, as I said earlier, that the improvements come from both gross margin and from our operating expenditure, which have both improved around $9.5 million each. And that's been complemented by a $4.2 million other revenue uplift, largely from our Ord Minnett business. So the way we look at this really is that it's a revenue-driven result with a complementary cost out. We've got both of those levers working in our favor, and that's the classic jaws that you expect in wealth managers that deliver improved profitability for shareholders, and that's what's given us our $22.1 million profitability uplift. I said I'll look at gross margins or group margins, I should say, in a little more detail over a longer-time series. And you can see here as is frequently commented on within the market, that gross margins have a declining profile overall, 52 basis points at the group level, down to 44 since 2010. Now we used that 2010 year because it was in 2009 that we largely brought this group together with a series of mergers. And although there have been acquisitions since, the nature of our business has been relatively stable over that period of time. You can see from a net operating margin perspective, we've grown from 21 basis points to 23 basis points over the same longer-time series. So whilst gross margin move, an outcome that's based on competition, product mix, shifts from higher-priced old style products into contemporary platforms, for example, if you manage your businesses efficiently and you also dynamically and actively manage the portfolio of businesses you have, you can maintain a relatively stable, indeed increasing profile of returns back to shareholders in the wealth management sector. So we are noted for our disciplined management of costs, and 2018 has been no exception. We've gone from a $318 million cost base to around a $308 million cost base in the current year. Labor, we always examine because it represents around 69% of the cost base. It's $214 million in the most recently elapsed year. So it's a significant part of what we do. It's a significant part of how we deliver processes, procedures and service to our clients. A $1.9 million increase on that $214 million base is less than 1%. So you can really look at it as a reduction in real terms when you consider that you've got the continual wage rises to deal with over successive years at roughly the rate of inflation. So we've been able to manage that number tightly down because we have offset that wage rise, and I'll talk on IT in a minute, the greater use of FTE within our IT area with a much lower complement of operational staff following the platform rationalizations that we undertook at the end of 2016 and throughout the first half of 2017. Significant savings generated there and no flow through for the full year in 2018. When I look at the IT cost, that's where you see our most material detriment to cost, around $8 million. And that's a continuation of the trend that we noted in the first half. Firstly, we had a high watermark of expenditure in prior years as we delivered our ClientFirst initiatives. In particular, we had enhanced online transacting capability. That was delivered by a succession of software development initiatives largely led by very expensive external consultants. We've managed to shift to a greater level of recurring conventional spend in 2018 using full time employees. So we have around 185 people in our IT area, whereas at the end of last year, that was around 167. That's grown significantly, but that also shows our commitment to delivering value for our clients at reasonable cost, at reasonable efficiency. There's a $4 million decrease, sorry, across the rest of our expenditure lines, most notably in professional fees and our administrative expenses. And that's just to signify the cost management, diligent, disciplined cost management that we exercise conventionally. Not too much to call out the individual items there.Chris referred to our segments earlier. I'll go through each of those 4 in a little more detail for you here. The financial advice segment is the first that we'll discuss. The layout that you'll see on this slide is the same for all 4, and that we give both year-on-year and half-on-half detail in the P&L, and asset allocation for future modeling and also an enhanced profitability and margin analysis for each of the segments. Financial advice comprises our 3 dealer groups: Bridges, Lonsdale and Consultum. Our salaried advice business in Shadforth, the broking business, Ord Minnett, but it also contains the economic outputs from third-party administration such as conducted by BT, Macquarie, Colonial and NAB. So it's quite a disparate segment in terms of the individual businesses that make it up. Its signature differentiation from the rest of the industry is open architecture and its ability to attract new advisers so that you're constantly able to reinvigorate the revenue line whereas other participants in the sector are struggling to maintain their base. Add to that disciplined cost management, that's a feature across the group, and you get an outstanding profitability result and an uplift from prior year.Platform is the second of the 4 segments. And as Chris noted, it is -- it remains the cornerstone or core capability of the group, and what happens here is generally reflective of how we're running the group overall. We've had significant funds under administration growth, and that's in average funds under administration as much as point-to-point. We do see diminution in the higher-priced transition platforms, and that comes or is offset by growth in more contemporary, competitively priced platforms, maintaining a broadly stable gross margin line. But where we've been very successful in this business is ensuring that it's delivered very efficiently and very effectively to clients and advisers, so the cost base is down significantly, and that's reflective of that IT cost as much as anything else that I went through at the group level. That therefore derives a very stable net operating margin in this business of 32 basis points. And that again is what's important as far as delivery to shareholders and drop through value on a growing pool of funds is concerned. The third of the 4 segments is investment management. We regard this as a very complementary and consistent business, particularly to the platform business that we run. Its overall outcome has improved significantly in line with buoyant markets more generally and the growth in funds that has gone here. As Chris pointed out, this multi-manager business now can be very well relied upon to scale up successfully in the event of future funds growth. It is not dependent on key personnel nor is it hostage to very volatile institutional funds flow. And as Chris said, you do have a comparable measure for what it is delivering in terms of the MySuper ratings in the first quartile performance of the product there.Lastly, the trustee segment. And again, this is another IOOF acquisition success story. So the revenue and cost increase has come largely through embedding and integrating National Australia Trustees Limited into this segment, and we've been, as Chris said, ahead of schedule and probably ahead of expectations on the synergies that we've been able to deliver. $1.6 million in the full year of '18, and we expect it to be around $5 million, around $2 million on revenue, $3 million on cost in successive years. So those are pretax synergy amounts that we expect to deliver there. Ability One will come into this segment over 2019 and years beyond. At its level of materiality, we're not flagging any forecast expectations forward, but we would note that it is a highly complementary business, and we expect to integrate it with the success that you've become familiar. Lastly, I'll talk about our cash flow. It's important to understand that in businesses like this, they're not highly intensive on asset investment, therefore cash flow should be expected and should be delivered back to shareholders in the form of yield. We've separated into the capital -- sorry, the cash flows from the capital raising and then other cash flows just to distinguish that which was quite unusual in terms of preparing for the ANZ Wealth acquisition. The cash flows from the capital raising are as they were presented at the half year with the exception of the amount we put towards deposits where we've put away about another $60 million in surplus capital towards deposits just to generate an optimal return in the face of having to provide certain funds for the ANZ acquisition. Our conventional cash flows, $216 million of inflow from operations post tax. That's somewhat ahead of the $191.4 million that's been delivered through the P&L. You do have a lag tax payment profile when your profitability is improving at this rate, and that's what's influencing the timing differences there. $22 million out, now they're investing in financing activities, few offsets, but you can essentially say that, that is the cost of the National Australia Trustees acquisition. And then $180 million dividend payment in 2 parts, the final from last year and the interim from this year. So a step-up in dividend payment simply because we've got more shareholders. So then we have to pay dividends as a result of the capital raising. $120 million roughly in cash at the end of the period puts us in a very strong position. No debt and a transaction with ANZ that we expect to deliver very accretive EPS through an accelerated completion.I'll hand you back to Chris now. Thank you very much.

[Christopher Francis Kelaher, MD & Director]

Thanks, David. I'd like to now just cover off our view of the landscape at the moment and make some observations about some of the things that we've been doing during the period. First and foremost, I think it's important for us to record that the Australian superannuation system, for which this company stands as a significant participant, is still ranked third in terms of the Mercer survey around the world. And I guess the purpose of recording that, again, is that I think it's a time to caution the legislators that we do have a very good system. It's had a lot of change, and I think it's now time to let the system and let the changes work through rather than continue to tinker with it. Certainly, outside of this superannuation -- the SG guarantee going to 12%. And I think aging population, high complexity because of the increased legislative intervention, I think it's still a very, very attractive environment, certainly for an advice-led business like ourselves and certainly for a model that contemplates open architecture. We use that concept frequently in talking about our business. But in simple terms, what it represents is that we run our own proprietary master trust platforms, but we also work with Macquarie, we work with Colonial and we also work with BT in relation to their platforms. So certainly, from our perspective, our anticipation is that the current high single-digit growth in system is likely to continue.Turning also to adviser numbers. And I think once again, this is a strong success story for us as well. We've had good adviser growth against system and against our peers. And I guess there has been some commentary relative to the ANZ ADGs as they're referred to, meaning that there's been a diminution. And then we are happy to acknowledge there's been a diminution. But essentially, that's been a diminution sponsored by the bank itself, undertaking what we would classify as tail management. Therefore, moving out those advisers that don't meet the governance standards and also those that don't have sufficient scale. That position or that trend now has stabilized, and we think it gives us a great platform for us to grow our business going forward. Needless to say, I'm still happy to refer to our Barron's position and the confirmation of our senior position in terms of the quality and the domination of our advisers against the competition in Australia. Client satisfaction is still paramount to our business. And certainly, from our perspective, our modular approach using micro service IT has been a winner. And as David pointed out, we continue to make significant investment in that space. And certainly, in terms of our own samplings through wealth insights has us well placed in the middle of the pack in terms of adviser satisfaction. Remembering always that our business is significantly B2B, meaning that we have a significant engagement with advisers rather than members direct. Finally, we've also talked about acquisitions. And I think it's fair to say our track record in that space has been exemplary. We've been able to undertake significant transactions, whether they'd be small like the NATL ones or the Ability One that David referred to or the substantial ones that are represented by the ANZ Wealth. This is clearly a very attractive opportunity for us, and we'll seize with both hands. I think, in many respects, the consolidation in the industry is certainly bound to continue, and this would be consistent with some of the observations that have been made by the productivity commission.Also lastly but no means least, I think it's important to just record the contribution to market. We don't kid ourselves about how wonderful we are all the time. But certainly, the contribution of $7 billion in terms of FUMA in our business for the year is a great tailwind, and we expect that to continue into the new year.Certainly, there have been some industry challenges and, not the least of which is the current royal commission, which is going forward. But still, I think it's worthy of recording that our open architecture, advice-led strategy is the strategy that prevails. There's been also some discussion about APLs. And once again, with all of our AFSLs, the APL construction is expansive. So on our own master trust platforms, we're contemplating something like over 300 different managers, and certainly in terms of the APL, they're just as expansive. So I don't accept that certainly in our products, that there is any restriction. I think elsewhere, the constant reexamination of commissions and so forth, look, we have a view that we run our business in accordance with the law. So if there's a discussion or debate about grandfathered commissions, we're happy to participate. But for all intents and purposes, we basically follow the constricts of the law and the laws that were laid out by virtue of the file for amendments. So we really don't have an impact in terms of either revenue other than we're happy to have an opinion about it, but any impact if there's a negative outcome on grandfathered commissions wouldn't affect this company. The budget changes have been not material to us, saving except for the fact that it adds further expense again. And I guess it's disappointing that it's a continual sort of -- a continuation of piecemeal changes constantly occurring, and companies like ourselves being expected to continue to make the software changes that are obviated by. And I think as I said at the outset of some of these slides, that it's now time for the legislators to let the industry consolidate the changes and start performing, which I'm sure it will do.Certainly, there's been some pressure in some press, in relation to industry fee changes. And once again, the way we respond to this is by being agile and fluid. And because of our very competitive cost profile, we think we're in a very good place to be able to handle this. Furthermore, we've made a practice of constructing a business that's fully diversified, meaning that we're not dependent on exactly one line of income. And I think that sort of conservatism is going to play out very strongly for us in the future.Turning now to the ANZ Wealth matter, and I'm not going to spend too much here -- too much time here fundamentally because we made a detailed release about this, I think, sort of 10 days ago. But for those who weren't aware, we've essentially accelerated the transaction to the 1st of October, and we've done so in order to take possession of the ADGs, which are the adviser groups involved. And furthermore, we're going to pay $800 million for 82% of the economic value coming from that transaction. And as David's already mentioned, we still expect this to be single-digit EPS accretive this period and flying on the 15% accretive and 20% thereafter to subsequent periods. So by any measure, that transaction is very, very, very attractive for us. And pleasingly, in examining the performance of that business thus far, it continues to improve post our acquisition announcement last year.Finally, just concluding. Once again, strong result for the company and a reflection of the success of our open architecture, advice-led wealth management strategy. Strong dividend as people have come to expect fully franked and then platform flows, which were a standout feature. And as I said, we sort of -- if you think about how proud we are about the flows in that business, through all the years that we were sort of hailed as purely M&A experts, the fact that we're able to generate this sort of flow, $5.8 billion, I think, is a great feather in our cap. Best in sector cost management speaks for itself. And finally, I think this is a wonderful industry, and I think it's time the industry is permitted to get on with its business and free of any other intervention. So with that said, I will close the formal presentation now, and we will go to questions, Desmond.

[Operator]

[Operator Instructions] Our first question comes from the line of Daniel Toohey from Morgan Stanley.

[Daniel P. Toohey, Executive Director]

Probably just first right off the bat, the AET legal settlement. What's the likelihood of an insurance recovery against that?

[Christopher Francis Kelaher, MD & Director]

Well, you're always in the lap of the gods, but we are reasonably confident that we have a strong case. So I guess it's just the timing. The settlement's fallen over the actual announcement period, but we remain very confident of making a full recovery, but you're in the lap of the gods sometimes.

[Daniel P. Toohey, Executive Director]

You got to understand, Dan, of course, that the accounting rules don't permit us unless we have virtual certainty to bring something like that to account to offset what we've regarded as an adjusting event for subsequent events. So that's what's giving rise to that unfortunate timing mismatch.

[Christopher Francis Kelaher, MD & Director]

But it's germane to remark that the case involving all parties were set to go ahead in the next week, I think. And then all of a sudden, in the last 2 weeks, there's been a flurry of settlement activities. So I think that will gather apace, and we'll be pleasantly surprised.

[Daniel P. Toohey, Executive Director]

Okay. And just on grandfathering, the budget changes, your comments around materiality, i.e. that they're not material. If taken collectively, would they be material?

[Christopher Francis Kelaher, MD & Director]

Sorry, just say that again.

[Daniel P. Toohey, Executive Director]

Just, I mean, in isolation, as each one of those things, the grandfathering, the budget changes, immaterial, but if you were to take them collectively, would that comment still stand?

[David Coulter, Chief Financial Officer]

Yes, that comment would still stand. And there are some uncertainties as to what the eventual outcome would be because you're not doing this set in aspic. You are actually able to respond and pull some other levers. So irrespective of that, even if it was just steady-state, it would not be material, collective or not.

[Christopher Francis Kelaher, MD & Director]

And it's not the changes. Just to pick up on the benefit payments, the exit payments. I mean, that's designed for the old legacy schemes, where there are large percentile payments for exit. Our exit payments have been nominal, $75 or something, so it's not a big item, but it is a software change. So it's another exercise to complete.

[Daniel P. Toohey, Executive Director]

Okay. And your reiteration of the synergy potential for the ANZ transaction. Can you just confirm whether that reflects the potential changes to the industry as well around those 2 items, budget changes...

[David Coulter, Chief Financial Officer]

Yes, it does. It takes those into account. If anything, it's hard for me to comment on another listed entity's business and business practices. But we see very much the same absence of impact from those changes within the ANZ business as far as it's been flagged to us.

[Daniel P. Toohey, Executive Director]

Okay. And then just finally, on the financial advice margins. I was wondering if you can comment with respect to dealer group fees from some of those third-party platforms. Is there pressure or risk? Where is the greatest -- is that the greatest source of margin pressure? And what -- how do you see that rolling out in the future, particularly in light of some of BT's changes?

[Christopher Francis Kelaher, MD & Director]

Yes. Well, certainly dealer group fees are not an issue for us. Obviously, the BT move provides further competition, but that's not the only game in town. So it's certainly putting pressure on. But I think we have, first, sufficient diversification to meet that. And there are various other areas that they generate revenue from. So we'll be investigating all opportunities. But dealership profits are not something that we would countenance. That's not in what we generate.

[Daniel P. Toohey, Executive Director]

Yes. I'm just thinking more about the financial advice fee. So the fee -- I mean, I guess the spread that, say, if you were charging, getting the wholesale rate versus the packaging rate to the actual dealer group, the license advice fee.

[David Coulter, Chief Financial Officer]

Again, I think in a steady-state environment with simply fee reductions from BT, you might surmise that there is some pressure. However, we have the ultimate ace in that we run a very significant, scaled, contemporary, well-rated set of platforms ourselves.

[Christopher Francis Kelaher, MD & Director]

So I mean that's probably a good question for them in many respects. But certainly, the whole area of fees is fascinating, and some groups are moving to lower basis points but then, lots of transaction fees. So it's not actually very clear. And then there's this interesting area where people are charging spreads for cash, and I think that's something that's going to come under some scrutiny. So when you add the whole fee together, it's actually -- the reduction is not quite as challenging as it might at first seem.

[Operator]

Next question comes from the line of Siddharth Parameswaran from JPMorgan.

[Siddharth Parameswaran, Research Analyst]

A couple of questions if I can. Firstly, just around advice. Quite a few of your peers have actually set aside money for remediation of, I suppose, customers for advice provided by their advisers. You haven't taken any of those provisions. I was just wondering -- I mean, what should we infer? That you've gone through all your files and nothing has been found or that's still a potential issue out there?

[Christopher Francis Kelaher, MD & Director]

Yes, you should. If you're referring to a comment that was made yesterday, I'm not sure why we were grouped into that observation at the royal commission. But that observation in relation to this company was an observation that we had identified several advisers. I think there were 10 instances, and the remediation summed to $50,000 that have been remediated. So why we were mentioned in conjunction with the other companies and the millions that, that had nothing to do with the RSE, it had to do with our caps team identifying some isolated examples. So when I say no, I mean, obviously, you can -- your compliance team continues to observe over the group, but that experience would lend -- would lead us to believe that it wasn't necessary at all.

[Siddharth Parameswaran, Research Analyst]

Okay. So no fee for no service issues, no inappropriate advice, none of that?

[Christopher Francis Kelaher, MD & Director]

Well, it's not an absolute because it's ongoing. I mean, meaning that we have a compliance group that oversees all of our licenses. So to make the blanket, no. I'm saying as we sit at the moment with all of our audits going on, the answer is no. Can I predict into the future that no adviser will do the bad thing? Well, no, I can't. But on balance, with the scrutiny and the high effectiveness of our own compliance group, we remain confident that we have the right balance. So the answer once again is no, as we stand.

[David Coulter, Chief Financial Officer]

No. And any remediations, rectifications, make goods, whatever you want to call them, fairly minor over the last few years, and they are expensed as incurred. So we don't perceive that we have some difficulty ahead that requires some large up-front provisioning.

[Siddharth Parameswaran, Research Analyst]

Okay. And you don't perceive that you'll need -- there'll be more costs associated with scrutinizing the planners as well?

[Christopher Francis Kelaher, MD & Director]

No, the scrutinizing of planners and the audit and the compliance, I think, becomes more digitized. Therefore, there are more audits conducted. But I think advisers themselves are on notice. I mean, these are advisers that run and own their own businesses. They're on notice about behaviors, and therefore, I remain confident that that's -- there's, certainly, been some issues outside of our group in the past. But I remain confident that we have a good measure. It's never absolute, and the scrutiny will improve and continue over time, and that's why we commenced our Advice Academy, and that's contributed to a higher standard adviser. And then dovetailing into all of this is the Fraser regime to come in when it's actually settled the education requirements. There's also a standards committee coming. There are various standards coming forth. I think we're all no notice about improvements here. So I'd be very confident about the future, and that's our strategy. Whilst others are leaving, we're maintaining and growing.

[Siddharth Parameswaran, Research Analyst]

Yes. Okay. So I mean just to be clear then. So I mean, obviously, a big driver of this result has been the very strong cost management. So you don't see any pressures on that going forward? So we should be able to see that continued strong cost management continue?

[David Coulter, Chief Financial Officer]

I say continual pressure on costs. We run a very people- and process-based organization. So it's up to us to manage that through automation, through enhanced online transacting capability. We manage our costs well not because we cut corners but because we actually continually invest in the business. We run very contemporary platforms, and maybe I am giving rise to the question that I think will inevitably come later. But if we take into account that we face scrutiny for the gross margin on our platforms, for example, and that it is a declining number, that puts the onus on us to deliver for clients, advisers and shareholders in ensuring that we run automation that supports that number and continues the value drop-through. So in answer to your question, yes, I see pressure. Absolutely I see pressure because we have to do more. We don't do more with less. We do it smarter.

[Siddharth Parameswaran, Research Analyst]

Yes, okay. Just a final question from me. Just on your platform business. So I mean, we've seen quite sharp gross margin contraction 0.59% to 0.55%. Could you just comment on exactly -- I mean, could you comment on some of the dynamics that are occurring here? Could you give us an idea of how much of your FUM is on higher-margin products and what those fees are? And how that's transitioning, what it's transitioning to?

[David Coulter, Chief Financial Officer]

The day that group of CFOs gets together and agrees to put their fee schedules out, I'll give you an answer in the way that you've asked the question. I'd say well over the -- well into the majority of our FUA is in contemporary open products, open to new members and open to contributions. The differential in pricing vary significantly with what type of service you request from your adviser and from your administrator. And then our fee pull-through, if you want to call it, that is highly dependent on whether or not you are also placed into the multi-manager. And there's reasonably strong push through to the multi-manager, but it's not absolute. And that's why we say, where vertical integration potentially comes under scrutiny, we are probably the best place of any of the large institutions in that we offer a very wide selection on APL, and it's not dominated by our own multi-manager, which in fact, is not our own proprietary product in the first place. But we would be as well advanced as any large institution in the retail space, if not better, in terms of ensuring that our legacy book transition into contemporary product continues apace. And again, I'd say it's not necessarily led by us. A lot of what happens within our business is member and adviser directed.

[Christopher Francis Kelaher, MD & Director]

Sid, it's also worth noting that we're a victim of our own success here, that we've had substantial high-value inbound flow, which hits up against our fee caps, which means that theoretically, when you're doing a statistical analysis at the end of the day, it distorts the outcome, meaning that it's put pressure on your margin. So it's like saying, would you take the extra $100 million but it hits a fee cap, and the answer is yes, you would. But obviously, it negatively impacts the margin outcome. So you're a victim of your own success. And we're anticipating some material inbound flow from the Ability One purchase. And once again, that could have an impact there, but it will be nominally incremental profit-wise.

[Operator]

Our next question is from the line of Laf Sotiriou from Bell Potter.

[Lafitani Sotiriou, Senior Analyst]

I just wanted to first follow up on one of Dan's questions in relation to some of the BT pricing. But can I just get a, first, clarification. How much [ forward ] does IOOF roughly have with BT Financial Group on its platforms?

[Christopher Francis Kelaher, MD & Director]

It's something in the order of $20 billion.

[Lafitani Sotiriou, Senior Analyst]

And so my understanding is that IFL previously enjoyed preferential pricing treatment. Can you just give us an idea how the Panorama's new pricing compares to the previous preferential treatment you had?

[Christopher Francis Kelaher, MD & Director]

Well, I don't understand it to be preferential. We have fee arrangements with them, and they've reduced their fee.

[Lafitani Sotiriou, Senior Analyst]

Well, it's pretty clear. So the wholesale rate you had previously was better than what others had in the market. Can you give us an idea as to what that wholesale rate and how it compares to the new industry-wide rate that the BT Financial Group is providing?

[David Coulter, Chief Financial Officer]

There's been no change to our wholesale rate as a result of any announcements BT has made.

[Lafitani Sotiriou, Senior Analyst]

And so how does it compare?

[David Coulter, Chief Financial Officer]

Well, that's a new announcement into the market. There's no comparison point available.

[Lafitani Sotiriou, Senior Analyst]

So you're saying that there hasn't been any change whatsoever to your existing pricing, but if they choose -- but any new clients that you get into this, will they go on to the Panorama new pricing or to your historical wholesale pricing?

[David Coulter, Chief Financial Officer]

Well, that's a discussion between the client and the adviser.

[Lafitani Sotiriou, Senior Analyst]

So there's the option, so you can still utilize the -- your old pricing as well as your new one?

[David Coulter, Chief Financial Officer]

Correct.

[Lafitani Sotiriou, Senior Analyst]

Okay. And what margin does IOOF put on top of what your advisers charge? And what administration fees are charged from BT Financial Group?

[David Coulter, Chief Financial Officer]

We don't put a margin on top.

[Lafitani Sotiriou, Senior Analyst]

At all? So there's no margin...

[David Coulter, Chief Financial Officer]

We have a wholesale rate. So if they choose to levy a fee to the adviser and client, then there's a differential. It's not a matter of us taking a retail fee scale and putting something on top. So maybe it's the manner in which your question was phrased, but it's a competitive outcome for the client. It's up to BT and us as to how we determine who's delivering what in terms of scale and value.

[Lafitani Sotiriou, Senior Analyst]

But you mentioned earlier on there are some pressures that come from this pricing change. Can you explain to us what those pressures are then?

[David Coulter, Chief Financial Officer]

There's pressures alive in the market in every single activity we undertake. It's just the reality of operating contemporary set of products that you can deliver with greater automation and lower labor costs. So I think Chris has made mention of that in the presentation -- or I made mention of that in the presentation. It's not specifically BT-directed in terms of that statement. It is simply an acknowledgment that this is a very competitive industry. And more to the point, I'm speaking for Chris dangerously somewhat, I said, you make that observation when you're responding to some ill-founded media comment in particular that talks about -- uses words like gouging. Those of you who are on this call and have written reports on us for many, many years have talked virtually incessantly about declining margins. So I do not see how we can be in an environment where we have low and declining margins, but there is also instances of widespread gouging. So we're making the observations in relation to the entire product set, not necessarily a simple relationship with BT.

[Lafitani Sotiriou, Senior Analyst]

Sure. I don't think that we've got the intricacies of the relationship with you and BT and the margin that you guys get on top throughout your business. So I don't know how it's defined, but it doesn't seem clear how or what the impact is going to be, but I'll move on anyway. So in relation to when you do get the economic benefit from ANZ, can you give us a better indication as to whether the 81% that you'll get for that 6-month period will be based on ANZ's reporting of the earnings? Or will it be based on your interpretation of the earnings?

[David Coulter, Chief Financial Officer]

It will be ANZ-based.

[Operator]

[Operator Instructions] Our next question comes from the line of Annabel Riggs from Airlie Funds Management.

[Annabel Riggs]

I'm just wondering, do you think you'll be reviewing your platform pricing in response to BT and ANZ's recent changes?

[Christopher Francis Kelaher, MD & Director]

We're always looking at our pricing. It's a dynamic exercise. I think that importantly, you need to comprehend all the elements, so it's not just the headline announcement that have come out. For example, BT's come out with 15 basis points. I think you need to look across the spectrum. They also have an account fee. And there's also -- obviously, the 2 large Melbourne-based groups that have been winning flow have substantial reliance on a cash earning piece, which is not terribly clear. So when you put all those pieces together, the actual numbers start to change their complexion significantly. Both those groups have a significant percentage, double-digit percentage reliance for UNPAT on that cash piece, which is not that obvious to everyone.

[David Coulter, Chief Financial Officer]

No. It's -- we had a fantastic 2-day event with the advisers we're bringing together from ANZ and from our own groups recently. And that was held around the time that BT was making its announcements. I was speaking to advisers in the breaks there, and one in particular said that they would not move a single client to BT's new pricing regime because it was not in the clients' interest in terms of price. So relative to your corpus, the basis points is but one element of the equation, and that account-keeping fee, combined with the cash spread, can ensure that your clients are, in fact, pricing only, worse off under that repriced badge.

[Christopher Francis Kelaher, MD & Director]

And that's ignoring features of the underlying product, whether it's got 1,000 global equities in it or otherwise. I'm just giving that as an illustration. There's a range of features. We seem to be fixated today on pricing. That is not the bargain. When we're looking at -- looking after clients, we're looking after a goals-based advice, price is one component, service -- the range of services underlying investments advice. There's a whole gamut. And I would caution people who get fixated on price, because that's not the right direction.

[Annabel Riggs]

So you don't think you'll cut your prices then?

[Christopher Francis Kelaher, MD & Director]

Well, we think we will constantly and continually examine our pricing, and we'll respond to market conditions as well as price appropriately for the sort of services we offer. So I wouldn't put guarantees one way or the other into it. It's a dynamic business, and it's a competitive environment.

[Operator]

Our next question comes from the line of Brendan Carrig from Macquarie.

[Brendan Carrig, Research Analyst]

Look, just maybe a follow-up or a bit more detail just around the grandfathered commissions. Obviously, there's been a few moves by some market participants and some of your competitors whereby they'll continue to pay the commissions. However, they won't be charging the clients for these commissions. Can you just give maybe a comment on any considerations that you've made in terms of potentially implementing a similar kind of arrangement and potential impacts, if that was to be the case?

[Christopher Francis Kelaher, MD & Director]

I think we've made the point that it's not a large part of their business and therefore, for so long as the law permits them to be paid, then we'll be following the letter of the law as per contractual arrangement.

[Brendan Carrig, Research Analyst]

And so -- but even still, if you were to follow what your competitors had done, then the impact would be more material than the comment that you've made, given that as we sit here today, the commissions are being passed on?

[David Coulter, Chief Financial Officer]

The impact will be felt by the adviser, not by us. It will not only be -- if not material, it'd be neutral for us at worst.

[Brendan Carrig, Research Analyst]

Yes. But the not material comment is referring to the fact that if you were to stop charging your customers but continue charging the adviser or...

[Christopher Francis Kelaher, MD & Director]

No. I think what we're saying is it's not material to us, so...

[David Coulter, Chief Financial Officer]

I think we are also -- we're making the comment in the context of potential industry changes as observers have put them back to the market is the grandfathered commissions may be ceased, with a defined sunset date. So if that were to happen, there'd be no material impact on our business. It is something that we'd have to look to examine with those advisers who'd be affected by such a move. But as Chris has stated, as it stands, we honor our contractual obligations.

[Operator]

Your next question is from the line of Nick Burgess from Baillieu Holst.

[Nicolas Burgess, Head of Research & Research Analyst]

Just one data point I was after. What's your total adviser number roughly today? And what's the broad split between salaried and nonsalaried advisers?

[David Coulter, Chief Financial Officer]

Right. The numbers went to ASIC most recently. I think I've got them in the room somewhere. So it's 1,035 ex ANZ. Salaried advisers, around 150 of that cohort.

[Operator]

We have new questions from David Humphreys from JCP.

[David J. Humphreys, Senior Research Analyst of Financials]

I was just wondering whether you could give us a broad update on how the ANZ assets are trading, particularly through the June quarter, given I'm fairly certain you keep a closer eye on what's going on.

[Christopher Francis Kelaher, MD & Director]

The June assets are trading, was that the question? Sorry, David, it's just a bit of a muffled line.

[David J. Humphreys, Senior Research Analyst of Financials]

Yes. Sorry. I was just asking whether you could provide us with some kind of broad update on how the ANZ assets traded through the June quarter.

[David Coulter, Chief Financial Officer]

Sure. Well again, with the caution that it is another entity's data and that it's not in the market, we do receive a monthly update from ANZ, so these are unaudited results as well, is probably a good rider to put on it, but it's broadly in line with what was last released. So there's no significant diversions with their 1st of May statement into the market about the performance of the underlying assets.

[David J. Humphreys, Senior Research Analyst of Financials]

So there'll be no material shifting in flows or anything like that through the June quarter?

[David Coulter, Chief Financial Officer]

No, the experience is actually remarkably stable in terms of flows being at roughly the same profile, in that there is a small net outflow, but it's very positive for the open products, and the profitability of the set of companies that we'll be purchasing hasn't changed significantly.

[David J. Humphreys, Senior Research Analyst of Financials]

Okay. Can you also just remind us if there's any redress required from the ANZ dealer groups, whether you're indemnified for that?

[David Coulter, Chief Financial Officer]

Yes, we are.

[Operator]

There are no more questions from the line. I'd like to hand the call back to management for closing remarks.

[Christopher Francis Kelaher, MD & Director]

Okay. Well, if there's no more questions, I think we'll call it a day there. And thank you all for your interest and attendance, and good morning.