AM Corporation takes the path least trodden

AM Corporation is one of the last surviving independently owned financial services groups in Australia. STUART ENGEL examines the impact of one of the biggest revamps in its 25-year history in the context of the evolution of the financial services industry in Australia.

AM Corporation chairman David Smith has no fear of change. In his 25-year tenure at the helm, AM Corporation has been at the forefront of some of the big movements in the financial services industry.

Smith was there at the birth of the master trust boom in Australia. In fact, he contends that AM had its master trust product developed before Graham Morgan had put the final touches on what was to become the giant Asgard master trust.

Smith was there when allocated pensions went from the drawing board to the marketplace. He was one of the party who went to Canberra to negotiate with the newly formed Insurance and Superannuation Commission (a forerunner to ASIC) on how such a product could work without abusing the pension system worked out by the Federal government.

Smith was also there at the birth of what has become one of the mainstays of the funds management industry - the manage the manager style of funds management - when the group pioneered it in 1986.

AM Corp was also the first multi-manager style fund manager to introduce boutique fund managers into the investment mix - a strategy that has been copied by a number of other players since. Its boutique manage the managers fund has been a hit with advisers and grown from a standing start to about $280 million in a very short time.

As Smith explains, AM Corp has always travelled down a different path to its competitors. Not every new strategy has worked but those that do work are pretty quickly adopted by other financial services groups.

AM's latest ventures in Internet technology applications and unlisted property trusts are also outside the dominant paradigm but only time will tell if they become as common as the master trust or the manage the manager fund.

The changes that have swept through AM Corp over the past six months have not altered that culture of innovation, which Smith says is "driven from the mail room up".

The first signs of change came about a year ago when AM signalled it would exit its 50 per cent share in burgeoning financial services group Fiducian when the group listed on the Australian Stock Exchange.

Smith says the decision to redeem its investment in Fiducian was to concentrate on AM's core businesses of investment and superannuation.

"It was important for Fiducian to break away and run its own race," Smith says.

"Our role was always administration support for the Fiducian master trust while (managing director) Indy Singh developed the vision for the business."

Concentrating on its core business has been the theme running through all the recent changes at AM Corp. It was the primary reason cited by Smith on the announcement that it is to dismantle its life company and transfer its risk business to Lumley Life.

"We have chosen to focus on our core business - providing superannuation and investment to independent financial planners," he says.

So where is all the extra money and energy being diverted to now the company has divested the Fiducian and life insurance assets?

National sales and marketing manager Graham Davison says most of the focus has been on Internet technology and the development of a wrap service to complement its master trust business.

"But this is no 'me too' sort of wrap," Davison says. "It is not simply an administration service, but wraps up all the services offered by AM Corporation. It is the next step in our ambition to deliver true straight through processing across our entire business."

Of course the technology spend to develop the wrap (or IDPS) service and the Internet delivery system has been enormous. In fact, 82 of AM's 300 staff are IT specialists and the group has spent $7 million to support its information technology platforms.

Stage one of the wrap service, which is provisionally called the Bureau service, is scheduled to be rolled out in the first quarter of next year.

On top of the Internet and wrap service development, AM has been quietly developing what it reckons will be a groundbreaking investment product in coming years - an unlisted property trust called Property Plus.

"This is a new category of property investment," Davison says. "It takes the best of the old system of property trusts but fixes the problem of liquidity."

On top of all the structural changes at AM Corp, there has also been a tweaking of the manage the manager investment products run by investment boss Deon Joubert. This has involved changing the mix of managers in its local and overseas equities funds and merging the Australian equities fund with the enhanced passive Australian equities pool.

Despite the scale and scope of the changes undertaken at AM Corp, Smith emphasises the strategic vision of the company has remained consistent since the company was formed. One of the reasons AM sold its stake in Fiducian, albeit a minor reason, was to ensure there was not any perception that AM was developing an adviser network or a direct distribution business.

"Advisers can work with AM with no fear that the group will poach the planner's clients for our own distribution group," Smith says.

"We have chosen to work with smaller independent financial planners and that strategy will always remain."

And that approach appears to be paying dividends. AM's funds under management have tripled in the past three years to an expected $4 billion under management by Christmas.

Smith also remains proud of AM's heritage as an independently owned company, dispelling any notions that the group might be preparing for a sale.

"AM's independent status will be worth even more as the market consolidates around integrated groups that blur their parentage and the provision of independent advice to clients," Smith says.

"If you look at some of the other family-owned groups in the industry like Rothschild, Fidelity and Lumley, they share a long-term outlook on the industry. Too many CEOs of listed companies have to deal with the pressures of next quarter's profit figures to really develop a long-term vision."