Financial Planning Industry – Global Trends

Hundreds of advisers leave IOOF-MLC

AFR Article: Friday 11 June 2021. Page 20

IOOF has overtaken AMP as Australia’s largest financial adviser but fallen short of its projected headcount by about 20 per cent.

It has lost more than 300 advisers during the nine-month due diligence for MLC and 44 since taking control of the discarded National Australia Bank wealth arm last week.

Since starting the MLC Wealth takeover in late August last year, IOOF has lost 533 financial advisers from the combined group’s financial services licences, according to Australian Securities and Investments Commission data analysed for The Australian Financial Review by researcher Wealth Data (formerly HFS Consulting).

Of those, at least 320 are believed to have left the organisation to join rivals, establish their own licence or retire from the industry, taking its total adviser headcount to 1493 at close of business on June 9.

The post-merger headcount makes IOOF the largest licensee and employer of financial advisers in the country, officially leapfrogging longstanding leader AMP, which had 1493 advisers on June 9, down from more than 3000 before the Hayne royal commission.

But it is 20 per cent smaller than the 1884 projected by IOOF in its MLC acquisition presentation to shareholders on August 31. The shortfall is expected to reduce the headline pro forma figure of $110 billion in funds under advice then trumpeted to investors.

The exits have continued in the first week since 406 former NAB-MLC advisers joined IOOF. The group has experienced a net loss of 44 advisers since May 26 – the ASIC reporting period immediately before the takeover’s completion date. Of those, 23 have resurfaced at rival groups, of which at least seven are from the MLC cohort.

IOOF head of advice Darren Whereat said there were ‘‘myriad’’ reasons why advisers had left the network over the period, including the industry-wide early retirement trend sparked by the Morrison government’s contentious mandatory education reforms.

‘‘We respect people’s decision about who they are partnering with. Some of the businesses have made that choice [to leave],’’ Mr Whereat told The Australian Financial Review.

But he said IOOF had exceeded its internal target of 80 per cent of the MLC firms it really wanted.

‘‘In terms of the overall success in the set we were targeting we got 84 per cent,’’ the executive, who joined IOOF following the $900 million acquisition of ANZ’s wealth business in 2018, said. ‘‘We’re very pleased at how the MLC community have landed within IOOF.’’

About 15 per cent of advisers who left IOOF since August last year had become customers of its IOOF Alliances consulting business under their own licences, he added. This allowed IOOF to extract revenue from these firms without being liable for the advice they provided to clients.

Some did not pass IOOF’s threshold for a ‘‘sustainable’’ firm and were not invited to join the network.

In addition, Mr Whereat said about half of the 44 who had been removed from IOOF’s licences since May 26 were transitioning to new licences within the group.

But industry sources said the departing cohort included a number of MLC firms ‘‘you would not want to lose’’, with annual revenue above $1 million.

ASX-listed CountPlus has been the most voracious acquirer, bringing in 30 advisers since September last year, of which 16 were former MLC practices and 14 were from the existing IOOF channels.

All had been brought in under the Count Financial licence acquired from Commonwealth Bank in October last year. It added another five IOOF-MLC advisers in the past fortnight, according to Wealth Data.

CountPlus chief executive Matthew Rowe said the new recruits were attracted to its comparatively ‘‘clean’’ business model.

‘‘We are not a vertically integrated business with product earnings streams that have subsidised the licensee offer,’’ he said. ‘‘Our model is centred on providing financial advice as a professional service, not distributing product.’’

But Mr Whereat said many MLC advisers were eager to join IOOF post-acquisition because of its ‘‘open architecture’’ policy, meaning they were able to freely recommend products manufactured by IOOF competitors to clients.

He also said its WealthCentral customer relationship software was a drawcard, with plans to roll the technology out to the MLC recruits over the next 12 months.

Hundreds of advisers leave IOOF-MLC2021-07-02T10:45:35+10:00

Future Fund warns of rising inflation

A potential significant increase in inflation is a risk for financial markets and rising interest rates would make it difficult to generate investment returns, the head of the country’s $179 billion sovereign wealth fund has warned.

Future Fund chief executive Raphael Arndt said if inflation began to rise and governments and central banks failed to unwind their extraordinary stimulus, inflation could run too hot.

To prepare for ‘‘fundamentally changed’’ market conditions, Dr Arndt said the fund would hire more than 150 extra staff to deal with the challenges of COVID-19 and following an extended period of ultra-low interest rates. This included plans to employ another 70 investment staff, almost double the current level of about 80 investment managers.

Since the Future Fund’s inception under the Howard government in 2006, high returns have been made easier by falling global interest rates inflating asset values.

But with trillions of dollars of extraordinary stimulus from central banks and governments flowing through economies and the financial system, Dr Arndt warned the days of easy returns might be coming to an end.

‘‘Policy settings continue to support markets for the time being, but this is priced into assets and unwinding these measures will be a complicated exercise,’’ he told a Senate hearing in Canberra yesterday. ‘‘Equally, a failure to reduce the stimulus at the appropriate time could fuel a significant increase in inflation, a risk markets are already starting to focus on. The ability to generate strong returns into the future is more complex and challenging than ever before given the low level of interest rates around the world.’’

The Future Fund’s planned 79 per cent increase in headcount has been approved by the government, which lifted the cap on the fund’s average staffing level to 350.

As well as investment managers, the remaining increase in staff will be in operational roles, including technology, human resources, risk, governance and administration.

The Future Fund was set up by former treasurer Peter Costello to pay for the unfunded pension liabilities of public servants and to strengthen the government’s long-term financial position. Mr Costello now chairs the fund.

Dr Arndt said lower staff levels, now about 196, had served the fund well over the past 15 years when markets were generally stable and asset prices appreciating in the low-interest rate era.

‘‘I’m certainly comfortable that we had enough staff to be successful up until last year – in other words, when markets fundamentally changed because of the COVID pandemic.

‘‘And actually we’ve performed reasonably well through that period.

‘‘But coming out of that experience our job is to maximise long-term performance and look forward a long time on a strategic basis, and our view is that the world is fundamentally changing and financial markets are changing with them. To continue to be successful and to continue to be able to meet what is an increasing challenging investment mandate with interest rates at zero around the world, we needed more staff.’’

Dr Arndt was responding to questions from Labor finance spokeswoman Katy Gallagher, who said the Coalition government was generally reluctant to increase staff levels in public service agencies.

Headline inflation in Australia rose 0.6 per cent in the March quarter to be up just 1.1 per cent a year – a key factor in the Reserve Bank projecting it is unlikely to raise interest rates until at least 2024.

Future Fund warns of rising inflation2021-06-09T13:08:05+10:00

Dear  Valued Client,

As we turn the page over and close what has been an unprecedented year, the focus is now on 2021 and 2022 given the prevailing uncertainty across all markets.

A number of new and ongoing developments bear close watching:

  • Sydney outbreak containment – this is new and has obvious consequences on the domestic front.
  • Global and domestic economies – will they continue to surprise on the upside?
  • US Covid – will the re-acceleration lead to harder lockdown and potentially an economic slowdown in the US?
  • Vaccine Data- Whilst latest data form Moderna and the China vaccines remain positive a new virus strain has been spreading in the UK. The ability to deliver effective vaccine at necessary scale remains a challenge.
  • US Fed and growth in its balance sheet continues to be strong.
  • Brexit negotiations appear to be progressing to plan.
  • Constrained world trade – China and various trading partners – could potentially result in undesirable outcomes.
  • The Australian Economy – Level of uncertainty post full withdrawal of the stimulus in March 2021.

The COVID-19 pandemic has had a stunning impact on the global economy and to a lesser extent, on the local economy.

This in turn has led to a permanent shift in the operating landscape for millions of businesses and to varying degrees, changed all our lives.

On balance, we are cautiously optimistic that progress forward is possible on both health and economic fronts, the Australian economy has maintained improvements in this respect.

In saying that, 2021 and perhaps a couple of years out are likely to experience a degree of volatility given that asset classes (in general) appear to be fully valued, high liquidity appears to have played a part in this outcome.

On reflection, history tells us that this often brings about some uncertainty.

Excessive liquidity by central banks although warranted, can over-shoot and create unintended consequences (asset bubbles). A potential outbreak in inflation, although currently with low probability, is also of concern.

At times like these it is always good to gain a perspective and focus on what we can control and ignore the uncontrollable.

Some of the controllable areas might include:

  • Review our financial, estate and personal protection plans.
  • Calculate and control our lifestyle costs ( When things don’t add up start subtracting )
  • As investments are made, consider the principle of ‘dollar cost averaging’
  • Consider Dividend Reinvestment Plan ( DRP)
  • Diversification and history are our best friends, reflect and actively rebalance asset allocations
  • ‘Cash is king’ as we accumulate wealth, not so in retirement
  • Target modest improvements and find many of them

In closing, we would like to take this opportunity and thank you for placing trust in AMCO to provide guidance and certainty during what are unquestionably uncertain times.

We wish you and your family a Merry Christmas and a happy, healthy and prosperous new year.

Danny D. Mazevski 

Chartered Tax & Financial Adviser

FIPA   CTA  FTMA  MBA (Un.NSW/SYD)  Dip.FS   JP

2020-12-22T09:27:06+11:00