IOOF reveals MLC, advice strategy

The group reported a $124 million underlying profit after tax from its continuing operations for financial year 2020, a 34.9 per cent drop from the prior corresponding period.

Chief executive Renato Mota commented the result had reflected COVID impacts for the group, with market movements dragging earnings. The board and management team decided to take pay cuts as a result, including a six-month 20 per cent slash in base pay for Mr Mota and chairman Allan Griffiths.

While IOOF’s revenue was up by 10 per cent on the prior year, to $1.1 billion and total funds under management, administration and advice (FUMA) had grown by 46 per cent to $202.3 billion from a prior $138.5 billion, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) came to $177.1 million, a 7.4 per cent drop.

However, the $1.4 billion acquisition of MLC confirmed on Monday will see the group become one of Australia’s largest retail wealth manager, as it adds MLC’s businesses across advice, platforms and investment management.

The transaction will double IOOF’s total number of clients to 2.2 million, boost its funds under administration, advice and management to $510.4 billion and more than triple its advisers.

According to the group, the move will place it ahead of AMP as the largest advice provider in terms of its number of advisers, at 1,884 – assuming all MLC advisers transition over.

The MLC platforms would also push IOOF to the top in terms of funds under administration, with $196 billion, ahead of BT, AMP and Colonial First State’s platforms.

Meanwhile, in superannuation, the $103 billion in funds under administration it would gain from MLC would see it grow to $173 billion, placing it ahead of AustralianSuper’s $172 billion and second only to QSuper and Sunsuper’s $188 billion when they merge.

The deal is still subject to regulatory approval from APRA and the ACCC. IOOF has signalled it expects to complete it before 30 June next year.

Mr Mota said the transaction will not only transform IOOF, but it will hold broader ramifications for an already fluctuating wealth and superannuation industry.

“The expectation is Australia’s largest super fund in five years is likely to have about half a trillion dollars. And I think there’ll be a handful of others with $2 billion to $300 billion,” he said.

“And in many ways it’ll be those funds that will set the scene for the value equation for clients and challenging the rest of the industry to deliver better client outcomes.

“In that construct of five or six funds that are … leading the industry, this [acquisition] will ensure that IOOF is in that five or six-pack, and in fact, we are the advice lead player in that pack and I think that certainly puts us in a strong place in that environment.”

Mr Mota was careful to mention in the company’s results briefing that IOOF has not acquired MLC’s AFSLs and any associated remediation obligations.

Instead, the NAB company’s advisers will be transitioning over to IOOF’s licensees. IOOF has also sought protections against any pre-transaction conduct, in the form of indemnities and warranties.

The company is currently on the hunt for a new executive to overlook its transformation and integration of the MLC business, which it already had a structure and team in place for following the January acquisition of the formerly ANZ-owned OnePath Pensions and Investments business (P&I).

Advice 2.0

The MLC acquisition has come as IOOF is rolling out changes across its own advice licensees.

The Advice 2.0 transformation has seen the group change the business models across its licensees, from Tuesday – including the closure of the FSP brand. Mr Mota reported the brand was the smallest of the licensees, “falling between” value propositions from the other businesses.

He added the FSP advisers will be given the opportunity to move across to one of the other licensees.

Bridges is also being converted into a wholly employed adviser model, from its previous hybrid of employed and self-employed advisers. It will sit as one of two salaried advice businesses alongside high-net-worth specialist Shadforth Financial Group.

“We’ve been committed to the expansion, if you like, or the growth in our employed salary business models,” Mr Mota said.

“We think that’s a really important way of not only investing into advice but extracting the economic benefits from that investment, through the employee salary business.”

The remaining four self-employed licensees, which had four different business support pillars, are being consolidated into two models. Lonsdale, which focuses on integrated advice outcomes with accountants, and Milennium3, which offers advice around insurance, are being housed under a specialised model, while RI Advice and Consultum Financial Advisers are being described as holistic advice providers.

“We remain committed to a multi-brand, multi-AFSL strategy,” Mr Mota said.

“However, it’s really important that those brands and businesses are supported with specialist skills that are contributing to the value creation in those businesses… and ultimately to investors.”

IOOF has also recently acquired financial advice technology provider Wealth Central – which Mr Mota said will create the “cornerstone” of the group’s proprietary advice technology capability.

The group’s remediation provisions for IOOF Advice remain at $223 million.

The company also reported it is still trekking along on the integration of P&I, which it said was largely reliant on system separation. Its completion is forecast for early 2022.

The board declared a fully franked final dividend of 11.5 cents per share, 28 per cent lower than the previous year.