Morningstar review questions future of Advance

By Fiona Moore

Morningstar’slatest business and management strength rating report of the St George Bank ownedAdvanceAsset Management has placed significant question marks over the business’ ability to maintain its market position.

According to the report, the failure of Advance to leverage offSt George’sdistribution capacity and customer base had meant that it had earned only a weak stability and profitability rating.

While Advance’s growth in funds under management has improved since stagnating in 2000, its pre-tax operating profit in 2001 was down 28 per cent on the previous year.

According to Morningstar, the lack of an integrated relationship with St George’s internal distribution channels, has created a lack of desire by the bank’s internal distribution network to do business with Advance.

“Currently, only 25 per cent of Advance’s funds flow comes from St George, with the other 75 per cent from independent financial advisers,” the report says.

While Advance’s investment manager relationships with MapleBrown Abbott,Morgan Stanleyand Goldman Sachs Asset Management were highlighted as key strengths in the report, Morningstar says the fact that the group’s Imputation Fund accounts for approximately one-third of Advance’s funds under management is a key business risk.

Other issues addressed in the report were Advance’s relatively low level of brand awareness with the end customer and the relatively high attrition rate in the fund manager’s executive team.