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Challenger takes hard knocks from financial advice disruption

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Challenger is warning investors it is still struggling with a challenging financial advice environment and it doesn’t expect any improvement in domestic local sales next financial year.

The group recorded a $15 million drop in statutory profit in FY2019, according to its end of year results. The $308 million profit includes an $88 million investment loss on Challenger Life’s assets and liabilities. Domestic sales in the life business was marginally down.

Total life sales – including overseas – declined 18% ($4.6 billion) compared to last financial year. Total sales for its annuities and Other Life sales have declined $500 million each. Domestic annuity sales have dropped by $140 million to $3.3 billion.

Lower sales by the big banks are being offset by sales from independent financial advisers, it says.

Challenger has been warning since April of a disrupted advice market. It recorded a $508 million drop in its six-month annuity sales in June, with the biggest falls occurring among the major banks, AMP and IOOF.

Japanese annuity sales are also falling due to higher US interest rates relative to Australia, reducing the demand for Australian-dollar products. Sales have dropped by 54%.

CEO Richard Howes says the company is responding to the difficult environment with a range of initiatives aimed at addressing adviser disruption. Its $15 million investment in new distribution, product and marketing initiatives is aimed at making annuities more mainstream, driving bottom-up customer demand, and helping more advisers write annuities.

Challenger is also increasing the availability of its annuities via super and investment platforms, including BT Panorama, Hub24 and Netwealth.

It is targeting a before-tax profit of $500 million next financial year.