The finance protector

Andrew Penn FCCA, CEO of AXA Australia & New Zealand, talks to Colette Steckel about the financial services industry in Australia and how AXA transformed itself from no-hoper to potential market leader

The next time you gaze longingly at that super-size home cinema, that latest must-have gadget, or even that pair of tottering designer heels (yes, you at the back), spare a thought for your retirement fund. I know. How can the excitement of acquiring a little piece of consumer heaven possibly compare with the less appealing alternative of investing money in a savings pot? And therein lies the problem. We’ve become a “I want it now” generation that gratifies its shopping habits while accumulating a tidy sum of debt.

Over in the Melbourne headquarters of AXA Asia-Pacific, part of the global financial services AXA group, CEO Andrew Penn is lamenting the sky-high level of credit card debt in Australia. “Over the past few years there has been an unhappy trend away from saving. I ask our financial advisers: who is your greatest competitor? It’s not the financial adviser down the road, but Harvey Norman (a leading retailer in Australia) selling plasma screens with nothing to pay for two years,” he rues. “Sadly, we don’t always do sensible things. And when it comes to the decision of whether to put money aside for retirement or put a plasma screen on your living room wall, I’m afraid the plasma screen wins.”

So it would seem. In a recent report issued by The Reserve Bank of Australia, consumers in Australia spent A$1.3bn on their credit cards in 2004 while outstanding balances reached A$30bn, with the upshot that personal bankruptcies, once seen as something of a rarity, are becoming more commonplace. Couple that with the nose-dive in the national savings rate, which was at 9% in 1990 and currently hovers around -3%, and you get a picture of how retail therapy has triumphed over thrift.

Strain

That’s not to say that Australians aren’t savvy about saving for their retirement. They are. And that’s in no small part down to compulsory superannuation, which was introduced in 1992 by a government alarmed at an ageing population it would be unable to support. But despite the fact that employees are now putting 9% of their earnings into a company pension plan, their spending continues to strain at a very long leash. As Penn puts it: “There’s an awareness of the need to save but that’s compromised by consumption. By the time people reach retirement age, some will use their lump sum to pay off their debts and then they’ll be back on state pension. And that’s going to put a greater strain on public resources and government funding.”

His answer is to educate and advise people better about managing their wealth. “The only way to influence people from putting off spending today is to get them to come up with a financial plan with an adviser and then, through support and counselling, stick to it.” Which, frankly, is rather stating the obvious, but the point Penn makes is that the financial services industry has spent too much time coming up with innovative products rather than supporting and advising clients on how they might improve their financial positions in the long term.

Sound advice is all the more critical this summer with government legislation on choice of pension fund, which took effect from 1 July. Previously, the decision of pension fund provider rested with the employer, but now employees are able to choose to which fund their contributions are made. This, of course, means that financial services providers in Australia have the tantalising prospect of winning more business (potentially a A$650bn pot according to an accounting & business article published in March 2005). Penn argues that few employees will opt out of the employer pension plan because of the benefit of volume and scale but for those who are interested in transferring their contributions to a retail scheme, financial counselling is key. “It’s important that people are properly advised about what options are available. The industry has a responsibility to help individuals make the right choices,” he says, alluding to the infamous mis-selling debacle that brought severe criticism on the financial services industry in the UK.

Penn’s familiarity with the UK industry dates back to the early 1990s when he joined the corporate planning department of what was then National Mutual in Britain. It was his first stint in financial services after spending his “youth” at shipping company P&O, where he started work at the age of 16 without a qualification to his name. “I wasn’t particularly well applied at school,” he confides. He spent the next several years working days and studying nights, which he notes isn’t a route to financial prowess that he’d recommend. Still, it gave him a handful of qualifications, including his ACCA, and a wealth of financial experience, which set him on a fast track career at National Mutual.

He joined the company at a time when the industry was undergoing substantial change. A raft of legislation on financial services saw the industry introducing new products and services while companies consolidated to protect their positions and remain competitive. “Early on in my role at National Mutual, it became obvious that consolidation within the industry meant that companies would have to stump up some big investments or get out entirely. I was involved in some work that led to an exit strategy for the UK,” recalls Penn. He sold the British and Irish businesses for National Mutual to Friends Provident shortly after.

International experience

Also exiting the UK was Penn who left in 1992 for National Mutual in Australia to focus on the international business of the company, specifically operations in Asia, which were performing well. From a base in Melbourne, he commuted throughout Asia for the next seven years and was ultimately appointed chief executive - international, overseeing the development of the company (acquired in 1995 by AXA and renamed in 2000) in the region. Although he rates his international experience as “tremendously interesting”, and also exhausting from clocking up all those air miles, his greatest challenge arose when he packed away his passport and stayed permanently at his desk in Melbourne, tasked with the somewhat tricky role of heading up a turnaround programme for the Australian and New Zealand arm.

While the operations in Asia were thriving, the same couldn’t be said for business in Australia, which was floundering. “You have to have lived in Australia to understand just how badly AXA was performing back then,” remarks Penn. The company’s reputation and its products were lagging well behind the market leaders. Even the financial press had written the company off, so when new group chief executive, Les Owen, announced their transformation programme at a press launch in 2000, one leading broadsheet sniffed that AXA in Australia was beyond redemption, with the headline “it’s a pig and this one won’t fly!”

Penn, of course, thought differently. “Turning around our operating performance was not perceived to be an easy thing to do but the thing is, when you are in a situation where you have to act in order to survive, you can create that sense of urgency and that need to change within the company.” The K5 programme, which measured five key indicators including value of new business and quality of service to advisers, saw AXA tick all the right boxes in its transformation programme: new products to rival those of its competitors, improved customer service, slashed costs. And crucially, according to Penn, a honed execution policy. “Knowing we had to do something wasn’t hard, nor was getting people on board. The most difficult thing, and the reason why many companies fail in turning around their businesses, is seeing through the implementation of the right strategy. Building a strong execution capability was the real focus of this programme,” recalls Penn.

Credibility

In FY 2004, AXA Australia and New Zealand recorded operating earnings of A$192.3m (a 30% hike on the previous year), funds under advice of A$52.5bn and net retail inflows of A$2.9bn. Such results put AXA squarely among the local leading competition, ranking as a medium sized financial services company, although some way behind industry behemoths Commonwealth/Colonial First State and National Australia Bank/MLC. “Four years ago we weren’t a credible player. Today we’re well respected and we’re growing faster than the market average,” says Penn. Fait accompli? Hardly. “The thing about being a credible player is that you earn the right to be a leader.”

Penn was appointed CEO, Australia & New Zealand in 2004 (after two years in the Group CFO seat) and his focus now is seeing through a new three-year aspirational performance programme, AXA 6, which ups the ante from K5 and sets AXA on a path to leadership within the industry. Although the programme was launched last year, Penn is satisfied with the progress made: a 10% increase in new business, a top five ranking for net retail fund flows (it was fourth in FY 2004 with A$2.9bn) and a 22% increase in funds under advice. Penn is resolute: “This is where we want to be. But it’s early days, so I won’t be declaring victory just yet.”

Whatever the outcome of AXA’s aspirations, Penn feels a sense of achievement for just how far he and the company have come. “I think it’s important to feel proud about the organisation in which you work and your own contribution to its success,” he reflects. “I enjoy working in an industry that makes a difference. We help people understand their long term lifestyle aspirations and match them with their financial resources, while providing a lot of financial protection for them along the way. Ultimately, we enable people to get on financially with their lives. To my mind, that’s a good thing.”