Speaking to the House of Representatives standing committee on economics yesterday, Mr Mota noted when he became acting chief executive in December last year, the group undertook an analysis of its issues.
Around half of the company’s reserve for remediation has been allocated for inappropriate advice, with the other 50 per cent being said to be for “fees for no service”.
The costs of processing and paying out refunds, included in the total remediation provision of $223 million, has been estimated to be approximately $40 million.
But IOOF is yet to repay a cent to its customers, with Mr Mota saying it is still working through its analysis, assessing advisers within the group who were likely to have problems.
“One of the things very early on in my time as acting CEO was, we wanted to get to the bottom of this issue for our business,” Mr Mota said.
“We undertook an analysis, using similar methodology to the large banks, which typically starts with key risk indicators where you get a whole bunch of data across a whole bunch of metrics for your advisers.
“You assess those, you identify high risk advisers, even do sampling around that. And that came up with a quantum. You then extrapolate that across the broader population.”
He added the group alerted the market it is doing “further analysis” around the assessment it has already completed, before it starts giving refunds.
Labor MP Daniel Mulino challenged Mr Mota, saying the process has been “not fast”.
But the IOOF boss defended the group, saying relative to the major banks, the group “started lighter” and completing its analysis within six months has been “relatively swift”.
IOOF has used two external consultants to evaluate its issues, with the first being engaged in February and the second coming on in the last few months.
Mr Mota told the committee the group has also allocated around 250 staff to work on remediation and governance matters, more than a tenth of its total workforce of 2,000 employees.
“We had very small capabilities, but I would say we created it from scratch because I think we wanted to apply a different lens on remediation,” Mr Mota said.
“Not only did we create a new team, we lifted the standard as well. I think one of the challenges for us is, as an organisation, we have 2,000 employees. We’ve probably got in excess of 250 currently working on governance and remediation related matters, so it’s in excess of 10 per cent of our workforce.
“There is a limit as to how much we can expand quickly. We’ve chosen to rely on third parties and we’ve actually separated – we’ve used two third parties, one for the investigations, one for the remediation to ensure we minimise conflicts. And I think that’s the best way for us to scale up quickly.”
Speaking on the method, Mr Mota said IOOF will be evaluating advisers and their operations. The remediation process, which looks at past issues, does not relate to complaints, with IOOF receiving an estimated 275 claims about its advisers annually.
It is unclear how many cases constitute the group’s total remediation.
“There’re a process where you collect the available data to make an assessment,” he said.
“And then you make an assessment, if it is a one-off incident, if it is systemic. If it’s systemic, you dig further and go through the entire advisers’ business.”
Mr Mota has been the official chief since June.
IOOF is very different to the banks. The banks have paid out billions to customers who were never adversely affected in the first place. In most cases it wasn’t remediation. It was PR to improve their tarnished banking brands. And it was funded from banking profits.
Without a banking brand to promote and banking profits to fund it, IOOF’s remediation is more likely to be targeted only at those clients adversely impacted. That’s why it’s taking much longer and will cost much less.
You can’t calculate a payment for loss due to blatantly poor advice where no loss occurred; remediation programs will often determine advice to be poor, calculate no financial loss, and subsequently pay nothing.
Funded by banking profits? Yes. PR? Partially, but mostly to keep their licenses.
I wouldn’t normally defend IOOF but I have some sympathy for their timeframes. Anyone who has been involved in remediation will know that it’s a bloody difficult job. It takes a long time to unearth all the facts and the clients are generally unresponsive or uncontactable. You can’t resolve cases until clients provide their side of the story and agree to findings. The clients normally have a new advisor and they typically create obstacles to resolution. Once you conclude on one area advice you then find other areas that need investigating etc… It’s a mess that they made, but they can’t resolve it without client help.
Mr Mota speaks like he is a brand new employee at the group. Only been with IOOF for 16 years so it’s understandable that things may not be moving as fast as one would like.
“There’re a process where you collect the available data to make an assessment,” he said.
“And then you make an assessment, if it is a one-off incident, if it is systemic. If it’s systemic, you dig further and go through the entire advisers’ business.”
One must wonder why this exact same thought process wasn’t in place with a lot of the major staff signing’s over the 12 months or so.
all smoke’n’mirrors at IOOF … changing CEO has made plenty of difference to talking the talk BUT no change to NOT walking the walk !!
if Renato thinks the total provision is for remediation is 223mill then he is delusional
if they walk away with 4 times this amount then this would be a good result
Both CBA and NAB were about $1.3 million per adviser or about $130,000 per adviser per year. IOOF had 104 Consultum advisers in 2007, Bridges had 213 advisers then, though not part of IOOF but IOOF may have taken over the previous owner and could be responsible. Say 500 advisers, 10 years, $650 million give or take?
These numbers are mindboggling.
So will IOOF advise ASIC of the problem advisers??
It’s mandated by law for particular conduct so yes; general incompetence, carelessness, laziness, and systemic operational error however are a different matter.