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Can doubling down on aligned advice pay off for IOOF?

In the biggest week for industry corporate actions of 2020 so far, IOOF has positioned itself as the last man standing in advice while AMP signals its commitment to reinventing wealth management may be flagging. As the old institutional model fast becomes obsolete, questions remain over whose strategy will be proven right.

The announcement on Monday that IOOF would acquire MLC did not come as a complete surprise to the market. Media reports in previous weeks had flagged the transaction was imminent, and advisers within the respective groups indicated the purchase had been talked about internally for some time.

Announcing the transaction, IOOF chief executive Renato Mota referred to MLC as “a natural fit” with the existing IOOF business, with the wealth management institution having been on an undoubtedly aggressive acquisition spree in the advice space over the past few years. 

The purchase of MLC for $1.44 billion adds to the acquisition of Bendigo Financial Planning’s client book by IOOF-aligned dealer group Bridges for $3 million in early 2019, and the purchase of ANZ’s four aligned dealer groups for $975 million in 2017. 

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What was perhaps more surprising than news of the sale itself was that as the major institutions look for a speedy exit to advice following the reputational damage of the royal commission and seemingly endless historical remediation bills, IOOF is seemingly the only one of its peers looking to double down on institutionally-aligned advice.

This was further underlined by the news on Wednesday that AMP had appointed a team of consultants from investment banks Credit Suisse and Goldman Sachs to conduct a full portfolio review of its assets, with a view to selling off any and all of its businesses.

AMP chair Debra Hazelton, who stepped in last month after a protracted scandal over former AMP Capital chief executive Boe Pahari’s appointment forced previous chair David Murray’s resignation, said the review would “ensure we appropriately assess all options to maximise shareholder value in a considered and disciplined manner”.

Despite chief executive Francesco De Ferrari affirming the group’s commitment to the wealth management space in the face of industry disruption, the lack of shareholder enthusiasm around holding onto AMP’s advice business as compared to the more lucrative AMP Capital could see a sale as a foregone conclusion of the review.

IOOF shareholders also did not take kindly to the MLC announcement, with the group’s share price tumbling 22 per cent as it came out of the associated trading halt around the transaction on Wednesday.

However, with responsibility for advice remediation remaining with NAB, as it did for IOOF’s purchase of the ANZ dealer groups, the group may be banking on acquiring all of the upside of a larger stake in the advice market – an experienced advice force with a substantial existing client base and none of the downside.

In a recent interview for a feature in ifa’s September issue, IOOF chief advice officer Darren Whereat underlined the importance to the group of contemporising the advice process, with a strong focus on using technology to reduce the cost of advice.

“What we need to do to make advice more accessible is recognise it needs to stay contemporary, it needs to be relevant for each generation. That means a regime that aligns to the needs of future clients and can change the way advice is delivered,” Mr Whereat said.

“If we’re building a solution with the client in mind, new and innovative ways to engage around technology makes sense for most clients. If it's going to be accessible, we need to bring down the cost and therefore tech has got to play a role in that.”

With a focus on technology to leverage more growth, modernise client outcomes and reduce the costs of its now swelling adviser base, it’s possible what appears to be a risky and counterintuitive strategy for IOOF could still pay off.

Can doubling down on aligned advice pay off for IOOF?
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