IOOF profit up, advice margins down

IOOF profit up, advice margins down

Although IOOF saw its profit increase by 6 per cent for 1H19, it experienced a drop in its advice segment’s margins, flows and profit, with the firm enacting regulatory changes following the royal commission.

IOOF generated an underlying net profit after tax (NPAT) from continuing operations of $100.1 million for the half, a 6 per cent increase from 1H18.

The firm’s underlying EBITDA decreased by 10 per cent from the prior year, at $116.5 million while statutory profit tripled going from $45.2 million in 1H18 to $135.4 million in the past half.

Funds under management and advice (FUMA) increased to $137.8 billion, up 14.8 per cent from the pcp, with IOOF citing its acquisition of ANZ’s Wealth Management ADGs.

IOOF is also expecting to spend $20-$30 million in compliance and regulatory costs going ahead, investing in a review of its advice sector.

Revenue for the advice segment came in at $195.9 million, a 4 per cent increase from the year before while underlying NPAT was $37.1 million for the half, a 4 per cent drop.

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Total net flows fell by 88 per cent from the pcp to $193 million for the half. 

While platform net inflows were up by 12 per cent to $688 million from the pcp, financial advice net flows came to -$176 million, while net flows in IOOF’s financial advice and investment management were -$320 million.

IOOF said competitive pricing initiatives from a third-party administrator impacted flows and gross margins in the advice segment.

IOOF acting CEO Renato Mota said the company delivered a solid financial result in a difficult first half, and is aware of the challenge ahead to restore trust.

“The royal commission has identified some serious failings within our industry and given us cause for reflection and a catalyst for change,” Mr Mota said.

“We are listening to our clients, members, advisers and the communities in which we operate. We’re resetting our relationship with APRA, setting higher standards in governance, and considering the recommendations of the royal commission’s final report.”

The firm says its compliance costs will include a review into advice quality as well as tightening of existing compliance and regulatory frameworks in line with ASIC audit standards and remediation protocols across all IOOF licenses.

“Our review of advice to date has not highlighted any systemic issues but we are committed to ensuring our advisers are providing high quality advice outcomes consistently and meeting all of their obligations to clients,” Mr Mota said.

“Therefore, we will undertake a further review and aim to have it completed by September this year.”

He added that IOOF meeting its licence obligations remains priority for the company, with it looking to reset its relationship with APRA.

“IOOF is fully supportive of the royal commission recommendations that lead to a better, stronger financial services industry for the benefit of all Australians,” Mr Mota said.

“We are committed to our advice led strategy and will assist our advisers in working through these changes.”

The firm also declared a fully franked dividend of 25.5 cents per share, with IOOF reverting to a payout ratio policy of 60-90 per cent.

IOOF said the return to policy is reflective of economic completion of the ANZ wealth management acquisition.

With the sale came 661 advisers and $17.3 billion of funds under advice (FUA). 

Both companies had agreed to accelerate the transaction, with IOOF receiving 82 per cent of the profitability of the underlying P&I business.

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