Aha, but long term could be a winning strategy from IOOFafr...

Aha, but long term could be a winning strategy from IOOF

afr today

Aug 26, 2021 – 5.04pm

If you squint through IOOF’s justifiably messy accounts, you can see the outline of what chief executive Renato Mota is trying to do at the group.

In a world where many of Australia’s major wealth players have left the stage, Mota is determined to be the last giant standing – in fact, size is at the heart of his strategy.

Having acquired ANZ’s pension and investments division in October 2019 for $850 million, Mota bought NAB’s MLC wealth business in June 2020 for $1.4 billion.

Wealth isn’t what it used to be, but IOOF wants to be the last giant standing. David Rowe

IOOF now has $232 billion of funds under management in its superannuation business, $221 billion of funds under advisement in its advice and platforms business, and 1975 financial advisers, 10 per cent of Australia’s much reduced planner pool.

The strategy is simple. By building scale and extracting cost savings – some $218 million in annual synergies are expected by 2024 – Mota wants to reduce IOOF’s cost to serve and withstand the growing pressure on margins in most parts of the group.

Pull that off – by redesigning processes and systems, particularly through the smart use of technology – and IOOF can thrive in a sector where demand for advice far outstrips supply.

And if Mota can crack the nut of creating a more successful model of affordable advice in a world without commissions, then IOOF should be able to develop another profit pool.

IOOF shares are a long way from the highs seen before the banking royal commission, and even a long way from where its shares sat in January 2020, but Mota’s plan has won some support this year, with IOOF’s shares up 30 per cent.

But the 8 per cent fall in the stock on Thursday says that even if the theory is good, the challenge is execution.

Mota says the integration of MLC is proceeding well, but there’s a way to go. The wholesale redesign of advice to make it cheaper and more efficient is also challenging, as is navigating the intensely competitive environment IOOF’s platforms business is operating in.

Mota warned of more pressure on margins to come in the next three years. Delivering the cost cuts promised in the MLC and ANZ deals, and potentially finding more, will be crucial.