Advice gives financial services giant an edge
The latest set of results from one of South Africa’s leading financial services groups led with an unexpected punt for the value of financial advice. In fact, PSG Konsult CEO Francois Gouws went as far as crediting the group’s ‘advice-led business model’ as among its key competitive advantages. “The performance of our key financial metrics under [challenging economic] conditions highlight the competitive advantage of our advice-led business model,” he said. PSG Konsult reported a 5% increase in recurring headline earnings per share and a return on equity of 22.7% for the year to end-February 2023.
Strong asset growth despite sluggish JSE
Total assets under management (AUM) in the business increased by 13% to ZAR354.1 billion, with ZAR305.5 billion managed by PSG Wealth and the balance by PSG Asset Management. For context, the market capitalisation of the JSE/FTSE All Share index increased by just 2% over the period. “This impacted performance fees, which constituted 6.5% of headline earnings in comparison to 10.6% for the previous financial year,” Gouws said. For those who are not aware, PSG Konsult is also a big player in the South African non-life insurance market thanks to its PSG Insure division, which weighed in with a 9% increase in gross written premium in the 2023 financial year, to ZAR6.2 billion.
This segment of the business was adversely impacted by natural catastrophe losses in the reporting year, with the April 2022 KwaZulu-Natal (KZN) floods singled out for eroding underwriting margins and contributing to a 4% decline in recurring headline earnings from the division. To illustrate, Western National, PSG’s wholly owned insurer, saw its net underwriting margin fall from 18.5% in 2022 to just 13% in 2023. “From a cost perspective, our insurance division was adversely impacted by the KZN floods; but Western National’s comprehensive reinsurance programme cushioned the effect on underwriting results,” explained Gouws. There was some other good news for PSG Insure, which links back to the advice-led theme introduced in the opening paragraph.
Non-life insurance division well-positioned
“Western received the Product Supplier of the Year: Non-Life Commercial award at the FIA Intermediary Experience Awards during September 2022,” noted the Annual Report. “The [insurance] division continues to focus on profitable growth with an emphasis on commercial lines business that requires adviser expertise”. On 28 February this year, PSG Konsult had 357 insurance advisers out of 947 advisers group wide. The non-life insurance advisers are benefiting from ongoing investments into claims and administration functions, with the hope that building scale and unlocking operational efficiencies will enable them to focus on client relationships. Going forward, PSG Insure will focus on providing simple and cost-effective short-term insurance solutions to clients, protecting them from unforeseen events.
The media release accompanying the results announcement did not offer much background on the PSG Asset Management and PSG Wealth divisions, so we turned to the investor relations page online to download a full copy of ‘Results for the year ended 28 February 2023’. Per the results, the asset management division’s strategy “consists of investment excellence, operational efficiency and effective sales and marketing initiatives [with the aim to] generate the best long-term, risk adjusted returns for investors. “A differentiated investment approach adds diversification to a blended client solution, helping clients to achieve better outcomes over time,” wrote PSG. An ongoing focus on increasing brand awareness in the retail investor market was also noted.
The Think Big series a proven ‘hit’
And this writer has no doubt that financial and risk advisers will have attended one or more of the group’s 170 in-person events and in excess of 60 webinars held during the period under review. PS, the group’s Think Big webinar series has provided fantastic thought leadership content over the period and is something this writer has frequently covered for FAnews. “The series has proven popular over time; in the past fiscal alone, the series received almost 30 000 unique registrations,” noted PSG. They add that more than two thirds of the prospects reached by the initiative are non-clients. To further illustrate the power of marketing, the group shared that its retirement annuity / tax-free investment product campaign at tax year-end saw a record-high 2.2 million website events!
Turning to PSG Wealth, the strategy was summarised as offering an innovative and all-inclusive end-to-end client proposition [by offering] a complete range of discretionary and non-discretionary investment products with competitive fees. As is customary, the Wealth and Asset Management divisions scooped their share of Raging Bull Awards, with a combined haul of three trophies and four certificates at the annual event. Product excellence aside, the advice-led model remains order of the day. “Management is proud of the experience and reputation of the advisers in the business, who play a key role in providing us with client feedback to continuously enhance our platform and product capabilities,” the group wrote.
There was one aspect of the annual results that caught this writer’s attention, being the rather thin coverage of the regulatory environment. Under the heading ‘regulatory landscape and risk management’ the group merely commented that it “continues to maintain good working relationships with the regulators in the markets in which we operate”. And that was all. There was also little mention of employment equity legislation or the transformation challenges that could cause significant disruption to financial services firms in coming years. Instead, Gouws offered a few generic skills-focused comments in the media release.
Skills, technology to ‘trump’ depressed economy
“We remain confident about our long-term growth prospects, and we therefore continued to invest in both technology and people; compared to the prior year, our technology and infrastructure spend increased by 13% while our fixed remuneration cost grew by 10%,” Gouws said. “We are also proud of the progress made in growing our own talent, with 141 newly qualified graduates, 96% of whom are ACI candidates, joining the business during the financial year”. He added that the group remained confident that resourceful South Africans will build a better future for themselves and their children. However, there was no escaping the depressed economic outlook circa 2023, with both business and consumer confidence flagging.
“Irrespective of the short-term challenges, we believe that conditions are ripe for change,” concluded Gouws. “Ordinary hardworking and honest South Africans have had enough, and significant job losses have further created an alignment of interests for labour and the private sector to work together”. He pointed out that the private sector had a significant pool of skilled resources and capital “which can be used to create forward momentum and uplift the public mood through a credible package of measures aimed at remediating the country’s networked industries”. As for PSG Konsult, the group will ensure growth by investing in its businesses in line with its long-term strategy.
Writer’s thoughts:
The JSE-listed PSG Konsult has delivered value to shareholders for many years. This value, it seems, is generated from the group’s consistent focus on providing advice-led insurance and investment products to local consumers. Do you agree that advice-led models remain the ‘best value’ proposition for both adviser and client? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].
