Monday’s announcement by IOOF that it will buy 100 per cent of MLC for $1.44 billion would make it the largest player by adviser numbers in Australia on current numbers. The deal continues the exit of the big four banks from the wealth industry. According to IOOF, the acquisition would vault it to the very top of the list of retail wealth managers by funds under administration ($510 billion) and would make it the second-largest superannuation provider, with combined assets of $173 billion. The ambitious takeover, which is still subject to regulatory approval, would certainly make IOOF a new behemoth, but not all advisers in MLC’s wealth network were happy with the announcement.
A Big Deal
The fact that the deal was “big” was acknowledged by IOOF Chief executive Renato Mota, who told the AFR, “I think it's a once-in-a-generation transaction.” If the deal goes through it would potentially see IOOF servicing over 2.2 million Australians by June next year. Mota confirmed that IOOF is positioning itself to be one of the few very big players of scale in Australia’s vast superannuation sector, with IOOF looking to dominate the retail space. Mr Mota told investors he expects to see five or six super funds dominate the industry in the coming years, with IOOF being part of that pack. However, Mota was at pains to point out the deal was not just to achieve scale for the sake of it, and that IOOF would benefit though "synergies" of up to $150 million a year within three years and add 20 per cent to the groups' earnings per share. "It’s about creating scale and driving simplification to deliver better outcomes to clients and shareholders. That’s the primary driver here," Mr Mota said.
The takeover comes after IOOF’s its acquisition of ANZ Wealth, which IOOF successfully renegotiated down $125 million from the original $975 million asking price. Mota pointed to IOOF’s success in integrating ANZ wealth over the last 18 months and explained that the group was now processing one intertwined migration, rather than two separate ones. “Much of the integration processes and systems exist already because of ANZ…the infrastructure, framework and knowledge are already there.”
Adviser Migration to IOOF Licensee’s
Under the terms of the deal, IOOF will acquire the MLC brand and that of Godfrey Pembroke. Rather than acquire MLC’s other licensee brands, it will ask over 500 advisers from the recently retired brands of Garvan, Meritum and Apogee and to cross to IOOF’s own brands. Mota said this arrangement would circumvent "exposure to liability" as NAB would legally retain liability for historic advice provided under those licences and any associated client remediation. Mota said the decision was about “de-risking the transaction from a remediation obligation perspective”.
Advisers Not Happy
The deal may be welcomed by the corporate giants, but not everyone is happy with the proposal. Platinum adviser and radio personality Scott Haywood wrote to MLC to terminate his licence agreement and implored his peers to do the same. Haywood said neither IOOF nor MLC consulted with the network of financial advisers before announcing the deal and they should not count on them voluntarily joining the combined wealth manager. He told the AFR "I can't be part of an old school conglomerate like AMP…I can't go backwards."
Mr Haywood said he was in discussion with other Garvan and MLC firms and many shared his concern over IOOF's business model and regulatory compliance track record and expected many would join him in leaving the network. He believes IOOF’s "multi-brand approach" and disparate focus on salaried, technology-based and self-employed advice models, was akin to a "conglomerate". In the article he was also quoted saying IOOF had a reputation among advisers as being "ruthless" and "interested in profits over clients".
Several other advisers from MLC brands who were contacted by Adviser Ratings voiced similar concerns, saying IOOF looked like it was just going to replace AMP at the top of Australia’s wealth sector in an almost “like for like” substitution. One also mentioned the “travesty” that after all the dislocation and regulatory change that has come about after the Hayne Royal Commission, nothing of note has been done in relation to vertical integration in the financial services sector. “The banks may be moving out of advice, but the problem still exists in the industry and this IOOF deal will just compound the issue”, they said.