IOOF expects adviser departures

The vast majority of IOOF advisers will be self-employed or self-licensed moving into the future with the company’s chief executive, Renato Mota, making no apologies for the strategy it is pursuing in the financial advice space. 

What is more, Mota has told Money Management that while he expects that, ultimately, IOOF adviser numbers will grow “and grow actively” there will be those who choose or are forced to leave because they do not meet or like the company’s strategy and expectations. 

Releasing a strong half-year result, IOOF revealed to investors that it is expecting a fully salaried network of 292 adviser under its Shadforth license, 893 self-employed advisers under the Millenium3, RI Advice and Consultium licenses and 83 businesses comprising 361 advisers utilising its IOOF Services business. 

However with respect to the self-employed advisers, the investor pack forecast a reduction in the number of advisers of around 140 as its Advice 2.0 implementation continued in circumstances where the Advice 2.0 model is predicated in large measure upon the removal of product subsidies to develop businesses which are viable on a standalone basis. 

Acknowledging the leakage of some former MLC Wealth advisers to other licensees including Count Financial, Mota said that the reality of the advice model IOOF is pursuing was that it would not be acceptable to everyone. 

“We are removing product subsidies,” he said. “We do not believe they are acceptable and that means that we are looking to achieve the right size and cost-base. 

Mota said that once that had been achieved he believed the IOOF advice business would grow and grow actively but that the relationship between the company and its advisers, particularly self-employed advisers, needed to be a “true partnership”. 

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Can anybody please explain what "product subsidies" refers to....other than insurance commissions, I thought all other product inducements were now banned?

The market rate for Licensee's fees for you are $40,000 but let's say $5,000 under your product owned licensee as an extreme example. Software costs for you are $5,000 but for the product owned licensee it's $500. Then add in free website designs, free marketing, subsidized para planning, a client survey that costs $2,000 is provided for $200 because the product manufacturing licensee paid for it. All benefits not captured by legislation. There are lot's of licensee's that made a loss last year, but in turned financiallly supported by the product manufacturer. Of course however the adviser working for these insto's think they're "free" to use any platform and they somehow think they're independent but you're dreaming.

It means as parent company still profits from flows onto the platform ie margin through the products they own, they can use that to subsidise the costs of the AFSL they run, becasue flows are going into the product they own they can then support development and advice iniatives for the AFSL even if it means that AFSL continue to make losses

There is a myth being propagated by IOOF, AMP, and other large licensees that advice practices are not viable below a certain size.

Small advice practices can be perfectly viable for the owners of those practices. They just aren't viable for large licensees that have bloated compliance models, rigid standardisation of advice processes, large corporate overheads, and a reliance on inhouse product revenue.

Small practices should become self licensed. Don't believe the myth that scale is necessary to be viable. Most support services provided by dealer groups and large practices can be cost effectively purchased on a "right sized" basis from independent third parties.

The Licensees still run at a loss, so require funding from the parent. It's not a direct product subsidy but ultimately the product is providing the profit so that the funding can be pushed across to keep the AFSL alive. This is not only large AFSL's but also many boutiques with Managed accounts and a clip. The higher profit margins have always been and will always be in product ( some call them an investment solution, how cute) because of scale and lower regulatory hurdle. Adviser margins keep getting smashed by regulators, so I don't blame them for trying to stay afloat but it will not lead to a true profession, or at least not any time soon. A Managed Account blow up will be the next stain on the industry and bring the next wave of regulatory wrath, in my opinion.

Couldn't agree more Bozo - sadly ASIC know all about the managed accounts being run & established that some advisory groups choose to clip the ticket from. Mr Henderson opened that can of worms very nicely during his RC performance! Unfortunately if past performance is a guide it will take a managed account meltdown for ASIC to saddle up and address the issue. True professionalism will only happen when every last adviser and every last AFSL (if we must have them) is completely at arms length from the product manufacturers. You should provide advice or product but never both.

As usual, Bozo, I totally agree with your point.

It's grubby, this constant effort from ticket clippers to exploit every little loophole they can find to avoid becoming a profession.

All the post-crash tinkering the powers-that-be keep doing...none of it's really going to achieve much.

The whole system needs to be burnt down, demolished and buried. Only then can we build an actual profession from the ground up.

- No vertical integration
- No AFSLs
- High education standards
- No carve-outs, interpretations, 'clever' language get-arounds, exemptions, exceptions, free passes, or anything else that we have to deal with now. Advice is advice and is regulated as such - no matter where the adviser works.

And, finally, the dream of dreams - remove advice from the Corps Act completely, put it into a new, professional act, and leave us all to be regulated by the single disciplinary body.

A group of professionals without constant regulatory interference...can you imagine?

Anyway, that's enough pipe dreaming, I've got some checklists to complete.

Renato, why is it that you only release your intentions or strategies through the press? Which 140 advisers are you referring to? Do they know that they have been earmarked for removal?

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