AM brand to go as IOOF flexes its muscle

TheAMbrand will become the next casualty of the inevitable industry rationalisation set to continue over the next few years.

IOOFmanaging director Rob Turner confirmed the brand will go, but some sub-brands such as Life Track personal superannuation will probably remain.

“We will be integrating AM into IOOF and, as a result, the AM brand will disappear, although we will keep some product names,” he says.

IOOF has bought the major assets of AM including the products, clients and the platform. A few minor parts of the business and the company have not been purchased.

“We have bought all the operating parts of the business, including staff,” Turner says.

“One of the benefits of the deal is that IOOF will have a substantial base in Sydney with a couple of hundred people in the office.”

There are no plans to integrate IOOF joint venture fund managerPerennialinto the new organisation, with Turner stating the integration process will only apply to IOOF and AM.

“We will integrate the two management teams and AM will not be kept as a stand-alone business. There will be a review of all operations and some IOOF and some AM parts will remain,” Turner says.

It is understood duplicate positions in the senior management teams of both companies will result in one person being selected.

The merging of the two retail operations will be overseen by IOOF general manager retail funds management Richard Nunn. The merger of the two back offices will be overseen by IOOF general manager operations Darren Booth.

“We will rationalise areas such as call centres into one operation, as we are aiming to have a fully integrated company.”

However, none of the AM board will be invited to join IOOF, he says.

A probable survivor of the merger could be the Bureau platform, although it will need further investment to cover future developments.

Turner says IOOF, with almost $2 billion in wholesale funds, has the capital to develop services such as the Bureau platform, and the strong wholesale superannuation business within AM was another key factor in the purchase of the group.

“AM has more than $2 billion flowing into wholesale funds. It is a growing market and this purchase gives our wholesale operations scale,” Turner says.

AM has gained some good corporate superannuation accounts such as Optus and Flight Centre.

Turner says another attractive part of the fund management business was AM’s MIM (Managed Investment Manager). This manage-the-manager approach has attracted $2.4 billion of funds under administration.

“While we will rationalise some products quickly, we see MIM has given first class returns and is a best-of-breed product,” he says.

However, none of the AM fund management products are going to be given to Perennial to manage, Turner says.

“Products such as Life Track will be integrated into IOOF, with staff reporting to the company’s respective general managers,” he says.

AM has a preferential service offering for its top independent advisers, referred to as the Chairman’s Club. IOOF has a similar offering called the Managing Director’s Club and both will be merged.

However, not all AM products come with such glowing recommendations. The AM Traded Policies have been under a cloud recently.

Turner confirms IOOF will take over the remaining traded policies and will run them until they expire but no more will be sold.

In a report on the options facing investors in the traded policies, researcher Lonsdale has recommended that investors stay, as an early exit would be costly.

Investors redeeming the policies could lose between 10-15 per cent of their investment, although recent redemptions have seen actual losses of between seven and nine per cent.

Staying in the investment will allow investors to redeem three per cent of funds each quarter, which Lonsdale says will not impact on the capital invested.

“AM has advised Lonsdale that investors who remain in the [traded policies] will not be adversely affected by the significant draw-down in the fund’s assets,” the report says.

Despite this, Turner admits there are a lot of synergies between the two organisations.

“It is a time of consolidation in the financial services industry, with pressure on margins due to falling returns. This move, acquiring AM, will augur well for us listing in the near future.”

IOOF will now have $11.5 billion of funds under management and administration.

It’s a big step forward for the former friendly society, which had slightly less than $4 billion of funds under management in 1994.