After the Banking Royal Commission made its report in the not so distant past, I read several of the books published by finance journalists with morbid curiosity.
The way that major banks and leading financial institutions had behaved, particularly to honest business loan holders and to trusting mum & dad investors, showed a degree of unnecessary ruthlessness and lack of compassion (not to mention sharp practices more than bordering on the unlawful) that will leave a long stain on the reputations of the big four banks.
That Macquarie Bank, a ruthless investment banking machine which has become known for its sharp practices in finance (take the Brisbane Connections float for example), came out of it looking ethical in comparison says something about how bad the retail banks had been behaving.
AMP and IOOF, long standing wealth management companies, came out of it looking even worse than the banks. That AMP’s board had arranged for a supposedly independent review by a law firm of some of its conduct to rewrite its report several times in a self-serving manner regardless of the facts was a serious smoking gun which caused several senior heads to roll. The damage to AMP’s reputation has been almost fatal, and I do not see AMP surviving long term.
Soon after the Royal Commission, legal action was started against several senior managers in IOOF due to their involvement in some supposed illegality with their administration of the superannuation funds under management did not do IOOF the same degree of reputational damage. This is only because one would need both an accounting degree and a law degree specialising in commercial law to understand what they had done wrong, and the rest of us go a little cross eyed trying to follow the accusations.
Reading the Financial Review this morning, I noted a prominent story about how a significant number of superannuation funds administered by AMP and Insignia Financial (IOOF’s recently adopted new name) have significantly underperformed in the past year, triggering mandatory letters to policy holders suggesting that they look elsewhere to invest their super. There was some commentary that the underperformance may be partly caused by the administration fees charged on those funds.
This does not suggest that AMP or IOOF have learned the bitter lessons from the Banking Royal Commission and similar scrutiny of a few years ago.
What is sad is that not all that long ago, AMP and IOOF were both mutual societies, rather than listed companies. They were owned by the policy holders rather than by shareholders. AMP demutualised in 1996 and IOOF in 2002, giving their existing policy holders shares in exchange for the change in governance.
I have been following IOOF closely, because my mother invested my late father’s superannuation in IOOF insurance bonds in 1986. We had been advised that IOOF was good for widows and orphans, and it might well have been then, when it was a ‘friendly society’ trying to do the best for their policy holders rather than being run to benefit its share holders. I have not done a deep dive into their performance since that time, but I do hope and trust that when it was a mutual, it did the best by its members.
Performance since the demutualisation in 2002 has not exactly been overwhelming. The shares were valued at $3.15 when they demutualised, and they are currently trading at about $2.65, meaning that they have been about as good for people like my mother as Telstra shares have been (not that my mother has any interest in share ownership beyond the shares she was given at demutualisation).
In late July this year, Insignia Financial announced that they were planning to sell the IOOF Insurance Bond business to Australian Unity. I made some unsuccessful attempts at that time to get more information from Insignia about this, and I note that Insignia has neither published any further information on its website about this matter, nor written to insurance bond holders like my mother to notify them of this move and what it all means.
The lack of information on this matter just goes to show how far Insignia Financial has evolved from the mutual ‘friendly society’ who was there to look after widows and orphans.
Given all that I have observed about the corporate entity now known as Insignia Financial in the 21 years since demutualisation, I strongly welcome the sale of the IOOF Insurance Bond business to Australian Unity. Australian Unity is the largest surviving mutual society in Australia, being a merger in the 1990s of Manchester Unity (who built that neo-gothic skyscraper on the north west corner of Swanston and Collins Streets) and the Australian Natives Association (which was rather inappropriately named, given it was intended to benefit white men born in the colonies).
That Australian Unity remains a mutual society means that it is going to work primarily for the interests of its policy holders rather than its share holders. That probably means that IOOF insurance bond holders like my mother are going to be members of a mutual society again, and I think that, given the track record of Insignia in the past couple of decades since demutualisation, that is a very good thing.
Lost For Words! 