Their acquisitions included acquiring advisers. There have been retention strategies in place that ensured advisers were retained and the underlying funds and margins were retained. Eventually the advisers who benefited from the retention deals on acquisition retire or the benefit ends and advisers leave and often take clients and funds. Alternatively, to stop this, IOOF has to share more margin with the advisers. The effect is that value/profit of acquisitions in the early years following the acquisition - usually 3 to 5 years - looks very good but then declines. On top of this, the value depended on them getting value out of clipping the ticket from funds under advice becoming funds under admin as well as funds under investment as well as trustee services. The ability of all players to do this is going to reduce. The margins are also going to decline. IOOF tried to increase fees.
Thanks.
So, to be clear: based on the above there are two issues that will preclude IOOF from being able to make further acquisitions:
1. Advisor "leakage", and
2. Declining ability to make multiple clips of the ticket
But surely in the case of Item 1, if that was the lived experience, it would have been factored into the valuations of the businesses that were acquired by IOOF in the past, and will therefore continue to be the case going forward? So, no change there, from what has already been happening.
As for Item 2, which might possibly be a new factor, to some degree, post-the Royal Commission recommendations. But in that case, it just means that the fundamental value, of the sorts of businesses IOOF seeks to buy, is reduced.
But I can't see how it means that the ability to acquire is lost to IOOF; rather, acquisition terms get revised downwards, commensurate with reduced valuation of wealth management assets across the board, surely?
"On the second point, while there are questions and concerning answers about how well the other major players have handled being an integrated player as a trustee/admin/investment/advice business, based on the CEO’s answers, IOOF does not seem to know there are any questions. How does a trustee sell to the IOOF business now with and look those whose interests they protect and assure them that IOOF will act with the client’s best interest?"
The issue for which IOOF was in trouble at the Royal Commission is that an IOOF trustee that used a fund's reserve account to compensate members after it reduced had distributions to members to compensate for an erroneous over-distribution in a prior period. The quantum involved was $8m.
What other transgressions have IOOF made that will cause its customers to cease doing business with its various entities?
(20min delay)