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IOOF misses bank exodus opportunity


“The movement is away from the largest dealer groups to the smaller independent boutiques, and what is driving it is clients’ best interests and fiduciary care,” – Steve Prendeville


IOOF has reported $123 million in quarterly net outflows from its financial advice business, dashing market hopes that the company would benefit from mass exits by bank-owned competitors.

The listed wealth manager announced total funds under management, advice and administration of $142.7 billion as at September 30, 2019, up 3.1 per cent or $4.2 billion on the June quarter.

IOOF chief executive Renato Mota told the Australian Securities Exchange it saw $33 million in net inflows for its financial advice business over the September quarter.

“Maintaining positive inflows with the significant range of external pressures on [financial advisers] is an exceptional outcome,” Mr Mota said.

“Client retention rates have been extremely pleasing, with our advisers demonstrating the value they deliver to clients.”

He pointed to headwinds facing IOOF’s core business of financial advice, including the introduction of the federal government’s educational standards and ethics regime, and the ban of grandfathered commission payments. Research house CoreData has projected that as much as 42 per cent of the financial adviser contingent could exit the industry.

Outflows ignored

However, the reported financial advice net inflow figures do not take in  $156 million in outflows in the form of pension payments to financial advice clients.

Analysts said the quarterly results for IOOF’s financial advice business could more accurately be read as $123 million in net outflows, rather than $33 million in net inflows, as reported by the company in its statement to the ASX.

“The $123 million net outflows for advice are not surprising, given the challenging market,” Morgan Stanley analysts said in a note to clients.

“However, we expected this would largely be offset by the opportunity for IOOF to potentially capture displaced bank-aligned advisers seeking new advice dealer groups.”

According to data from research house Adviser Ratings, IOOF has 1669 financial advisers across its dealer group network at September 2019, down from 1749 in January 2019.

IOOF has this week inked a partnership with human resources tech start-up Striver to recruit high-performing financial planning tertiary graduates into its network.

Independent insurgency

The big four banks are in varying stages of divesting from wealth management, with many financial advisers formerly licensed by bank-owned groups searching for new licensing arrangements.

Forte Dealer Solutions managing director Steve Prendeville, a former Deloitte partner and expert on financial adviser licensing and M&A, agreed that IOOF has not been successful in recruiting bank-aligned advisers, but said this is primarily due to a broader industry trend and not a specific failure on the part of IOOF.

“The movement is away from the largest dealer groups to the smaller independent boutiques, and what is driving it is clients’ best interests and fiduciary care,” Mr Prendeville said. “They are looking for competitive advantages in terms of the platforms and asset managers they can access and are also concerned about brand damage.”

Mr Prendeville said the September quarter results for IOOF’s financial advice business were positive considering major disruption in the market and compared with the $1.9 billion in net outflows from wealth management experienced by its primary competitor, AMP.

IOOF’s portfolio and estate administration business saw $396 million – or $165 million if you factor in pension payments – in net inflows, beating Morgan Stanley’s expectations.

The inflows were largely driven by internal business from advisers in the IOOF-owned Shadforth Financial Group subsidiary.

IOOF announced it is shutting down its Elders Financial Planning venture this month, with the bulk of advisers expected to transition to other IOOF licensees.