Starting a five-year journey
It is important to get the right people on the bus, says CEO, and the mix of skills among employees is improving
It is not surprising that Alexander Forbes points the market towards the normalised operating profit over the year to March.
At a 5% increase to R986m, it is an improvement on the 1% increase the year before.
The accounting profit, though, was down
80% to R327m, after several write-offs — R317m from AF Life alone — and a hefty 50% effective tax rate. Not that there weren’t some good trading results.
There was a 20% increase in the profit of the core retirement division. The umbrella fund, in spite of increased competition, with Allan Gray entering the market and Discovery coming in a few weeks, increased membership by 12% to 352,000.
In the short term the decision to bring its asset manager Investment Solutions in-house and rename it Alexander Forbes Investments is paying off and profit, which had been stagnating, was up 29% to R398m.
It increased the overall margin by bringing in alternative investments in housing development and infrastructure. And it launched an incomefocused product branded Clarity, though it had to look outside the group, to specialist asset manager Colourfield, to develop this.
It does, however, plan to develop exchangetraded funds and other index or quantitative “smart beta” products in-house through a team recruited from Ashburton.
Alexander Forbes group CEO Andrew Darfoor says international investment can be offered much more cost-effectively now that it is outsourced to Mercer, the giant international asset consultant that owns 34% of Forbes.
Investments used to have a clumsy topheavy structure with separate asset-consulting and multimanager teams, and even a third team, Caveo, researching hedge funds.
There have been a few highprofile departures from this team, including research kingpin Muitheri Wahome and Rob Southey, head of asset consultants. But Darfoor says he believes that in general the mix of skills at Forbes is improving.
“More than 90% of those scoring 3, 4 or 5 in their assessments (the better performers) are staying on while the proportion of 1 and 2 scorers (the worst performers) leaving has increased from 3% to 13%. I would like to increase that to 50%.”
Darfoor makes no apology for employing some high-cost expatriates on his executive committee. They include John Mather, head of IT, and Christian Schaub as head of HR (not that there is any transparency on their packages).
“We have just started a fiveyear journey,” says Darfoor, “and we need to have the right people on the bus.” No less than R32m has been set aside for the retention of such employees.
But he says that over two years there has been a cumulative R308m reduction in costs. The group has just sublet a floor of its Sandton head office, which will save R70m over the balance of the lease.
Forbes has been a highly regarded player in the retirement consulting and administration sector, though with a high-cost structure. It has also built up a profitable investment business by aggressive cross-selling.
But it has been something of an also-ran in retail insurance products and financial planning. It is trying to change this through the cheesily titled “financial wellbeing for a lifetime” programme, as if competitors such as Discovery and MMI don’t use similar slogans.
And the proportion of institutional clients who own a Forbes retail product has increased from barely 3% to 8.7%
Historically, Forbes used to cherry-pick its
Alexander Forbes
financial planning clients from the boardrooms of its institutional clients, and it has a sizeable R67.3bn under advisement. It is getting some traction in middle management, with more than a third of people earning R500,000 or more buying a retail product such as an in-fund annuity or preservation fund.
Darfoor is taking a small step towards opening up the Forbes product suite to outside distribution. But so far just three financial advisory firms have been approved to sell the range.
Alexander Forbes has anaemic operations in the rest of Africa, which make Liberty’s look dynamic. In Namibia Forbes is a solid business which made a profit of R54m but there were losses in Nigeria, Zambia and Uganda.
Darfoor told analysts the group would not be so patient about its investments in future. It has invested R28m in an African head office infrastructure to strengthen its legal and compliance backbone.
But Darfoor says that if the underperforming businesses in Nigeria, Uganda and Zambia cannot be turned around within 18 months they