A new report from Morningstar has predicted a grim future for IOOF’s advice business, as it continues to suffer from the reputational fallout of the royal commission and new adviser numbers are impacted by the implementation of the FASEA regime.
Analysts at the research firm have tipped profits in IOOF’s advice business to decline by 18 per cent per year over the next two years, reaching just $40 million in the 2021 financial year.
“We expect IOOF’s adviser numbers to shrink and inflows to be permanently lower, as the royal commission has created lasting reputational effects and stricter operating guidelines,” the report stated.
“IOOF was growing its number of advisers even during the royal commission, but we think this was partly due to its acquisitions and active poaching of non-aligned advisers.”
The report suggested reputational damage to aligned dealer groups as a result of the royal commission could drive more advice clients towards privately owned advice groups, while growth in the group’s adviser footprint would be disrupted by tougher industry education standards.
IOOF’s adviser headcount fell from 1,900 in April 2019 to 1,443 in December 2019.
The research firm adjusted its annual growth projections for IOOF’s funds under management, advice and administration from 4.9 per cent to 2.1 per cent over the next four years, and said it expected all the group’s business divisions including advice to see high single digit market losses and net outflows for both the 2020 and 2021 years.
“Ongoing margin compression is likely, as innovation and competition continue to drive down prices/fees across all divisions,” the report stated.
It said while the acquisition of ANZ’s wealth management and pensions and investments businesses would help to broaden IOOF’s distribution reach and scale, the wealth management business was likely to remain loss making until at least 2024.
In addition, the research firm flagged that the $223 million IOOF had set aside for advice remediation payments may increase over time, despite the fact that ASIC had stated no further investigations were pending against the group following royal commission referrals.
However, the report projected a more positive long-term future for the advice business, with profits expected to improve to $51 million and funds under advice to recover to $67 billion by the 2024 financial year.
“We believe higher education and compliance standards [in advice] should help reinvigorate client confidence, hence cash flows, over the long term,” Morningstar said.
Don’t be so negative Morningstar. Hayne gave IOOF two extraordinary gifts. Firstly a green light for vertical integration. While everyone who understands the industry knows vertical integration is the root source of most problems, and were fully expecting it to be banned, that vain old fool completely missed the obvious.
Secondly, he gave licensees even more scope to weaponise adviser compliance. This allows IOOF and other big vertically integrated groups to throw advisers under the regulatory bus for contrived breaches, if those advisers don’t recommend enough inhouse product.
Thanks to Hayne’s failure to understand the industry whose frameworks he was setting, the future for IOOF is much brighter than it ever should have been.
The advice industry is a minefield of compliance and litigation which is no place to invest in. It isnt possible to be compliant and profitable while looking after clients best interest on scale. It is impossible sorry. It’s near impossible to do it in a private practice but at least you can work like a drone and make a living. Shareholders have no place in advice firms as they will never get a return that is viable.
I don’t think it’s impossible, i just think it hasn’t been done right.
More and more technology is never the answer to an unsustainable business model. The model needs to be fixed at source, by reducing the excessive regulatory burden. If a business is so weighed down by regulation that it needs to spend valuable funds on “RegTech” to stay alive, there is something seriously wrong.
It would also be interesting to see a graph of the average ages of financial advisers within the group. Many are in the older age brackets, and seeking retirement in the post FASEA environment.
The measure of this type of business is not the number of advisers. Its clearly the number of profitable & sustainable advice businesses with a proposition that resonates with their client community. Measuring AR’s is as helpful as measuring FUM.
I’d disagree. If you’re a IOOF Bridges firm, than Bridges management is sitting around thinking how can we get more FUM. They’re not thinking how do we make’s Old Bob’s business more profitable. They’re thinking what ways do we brainwash the adviser into using our platform. We’ll 1) restrict competition by turning off external emails and communication, restricting visits from external BDM’s etc 2) Increase support from the home team. 3) the combination of 1 and 2 will make competing platforms seem worse. 4) Provide technical support to increase FUM. 5) introduce a compliance regime that supports FUM into the platform of choice. 6) lower support costs for those advisers using our platform. I can get to at least 15.
Hey old bob, getting to 15 would be pretty easy ….. its such a terrible dealer group that rips off every planner who BOLR’s; often who have provided 20+ years plus funneling all clients into their their overpriced internal platforms because they would never add an external more competitive platform on their APL (unless they get a slice of the Admin fee as well).
Agree. Not just Bridges. It is also true of Millennium 3, Elders and FSP. It is called ‘supporting in-house product’ . Not sure when ASIC and other regulators will look at this conflicted behavior.
And Shadforths will progressively move in that direction as well. The only reason IOOF owns advice businesses is to distribute inhouse product. Product is where they make profit.
It’s why they constantly quote “funds under advice” as a performance metric. “Funds under advice” means client money they don’t currently make a profit on, but will in the future when they convert it to “funds under management”. You can be sure that IOOF exec bonuses are strongly tied to their ability to turn “funds under advice” into “funds under management”.
And the most important one of all Bob – if you leave we keep your revenue.
I’m ex bridges also. Best move I ever made, even though I had to leave my client base behind and start again.