Speaking to the House of Representatives standing committee on economics, IOOF chief executive Renato Mota was questioned on the group’s Pursuit platform, which operates under three models: Focus, Core and Select.
As pointed to by the committee’s deputy chair and Labor MP Dr Andrew Leigh, the Focus model, which offers access to only IOOF funds, charges fees that are around half that of Select, which includes external products in its suite.
“Doesn’t that suggest that you’re charging customers more if they want to have access to external products?” Dr Leigh asked.
Mr Mota defended the price divergence, later going on to point out that Focus gives access to around five or six products that are managed internally, in contrast to the Select’s suite which holds more than 400 funds.
“What we are in fact doing there is passing on the benefits associated with having a smaller menu and IOOF is managing both the administration and the investment menu, which is cheaper to run,” Mr Mota said.
“Those benefits of that lower cost structure are being passed on to the member. Having more funds to manage, adds greater complexities, adds greater risk and we do charge more.
“We charge in line with the market but it is higher than what we call our ‘mini wrap’. And that is a function of us passing those benefits, those efficiencies to the client through lower prices.”
He would later add that the group has obligations to manage each of the 400 products available on the Select menu, with daily administration and consolidated reporting.
“This is far more complex than doing it with six or seven options,” Mr Mota said.
“Those increased costs [do] translate to a higher price. What we would like to think is that we’re giving people informed choice.”
But Dr Leigh had earlier pushed back, questioning if the pricing signal is consistent with pursuing best the best interests of the consumer.
“It seems that you’re charging higher fees for something that includes external products,” he said.
“You’re effectively steering consumers towards staying within your stable.”
Mr Mota also confirmed that IOOF has recently commenced payments on its remediation program for fees for no service, poor documentation and instances of inappropriate advice, 18 months after it initially began a review into quality of advice at the group.
It is expected to complete the refunds within the next 12 to 18 months.
Mr Mota also revealed the group had terminated 40 advisers in the last year and a half for poor advice.
Don’t blame IOOF Mr Leigh. Hayne was the one who gave vertical integration the green light when everyone expected it to be banned.
You need to get that old fool and his showpony assistants into the witness box to ask why they wasted so much taxpayers money on a media circus that entrenched existing problems and created a lot more new ones.
Now for some questions about how much the Industry Super Funds send off to their favourite unions. Projected to be approx $30 milion every year, within 10 years.
Damned if you do damned if you don’t. Offer consumers lower fees and it is not good enough?? How does this MP expect IOOF to control what external fund providers charge and does he expect IOOF to absorb the additional cost? Seriously how do these people have a job!
40 down, 2,000 to go…
And Industry Funds have been doing what, exactly?
Now the politicians are complaining that funds are too CHEAP?
Really, what has this got to do with Industry funds. Let it go. This is about IOOF charging people more to access external funds. Surely this is a fair enough question.
Industry funds typically only offer 5-6 options that are generally managed in house – pretty much an identical model to IOOF’s Focus product that Andrew Leigh was questioning.
Anon, you need to make a better arguement because Anon E Mouse nailed it.
Ah don’t Industry Fund run very limited Investment options, effectively shoving 80% + of members into the single default Balanced Fund [i] (that is actually a High Growth Fund – but that’s another story) [/i][i][/i] and then have the investments managed by their own in house Industry Fund Managers.
Ah seems to be a very similar model and thus highly relevant to also ask same questions to Industry funds.
Ifa giving Renato a little too much credit here. Blatant flog!