How IOOF has purchased scale and leadership

When National Australia Bank (NAB) acquired MLC Limited in 2000 it paid $4.5 billion for the business.

Twenty years later it has sold that business to IOOF for just $1.4 billion and, at the same time, has accepted continuing responsibility for the advice remediation and many of the other regulatory issues which flowed both before and after the Royal Commission into Misconduct in the Banking Superannuation and Financial Services Industry.

The bottom line for Australia’s four big banks is that their multi-billion dollar foray into wealth management has ended more in a whimper than a bang as first ANZ, then Westpac, then the Commonwealth Bank and now NAB have found their way to the exit with the common reprise that they intend focusing on their core business – the business of banking.

From all of this, IOOF will emerge as the single largest wealth management business in Australia, followed by the still-troubled AMP Limited and then a raft of mid-sized players such as CountPlus, Centrepoint Alliance and Fiducian.

What is more, the exit of the major banks has seen the incidence of vertical integration in the wealth management sector also reduced, with only the likes of AMP, IOOF, the remnants of Colonial First State and Fiducian still holding to recognisably vertically integrated models.

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And what will be the financial planning bottom line of the IOOF acquisition of the MLC Wealth business? It will be more advisers working under fewer licenses and therefore fewer brands.

That much was made clear by the new that IOOF was scaling back from five to three licenses with the closure of FSP, Executive Wealth Management and Actuate and NAB’s confirmation it will retain legal ownership of MLC’s advice entities for the purposes of advice-related remediation with other assets of the advice entities and related employees of the advice businesses being transferred to IOOF as part of the transaction.

Just as importantly, NAB said that MLC’s aligned advisers will be provided with an opportunity to transfer to IOOF’s licences at the completion of the transaction.

While the details remain to be confirmed, this leaves up in the air the future of MLC’s Godfrey Pembroke brand and that of its recently-launched TenFifty Financial Group brand which evolved out of its retirement of its NAB Wealth branding, together with Garvan, Apogee and Meritum.

Whatever the number of licenses or the branding, the key for IOOF in pursuing the transaction was the undertaking by NAB that it would “provide protection to IOOF for certain pre-completion conduct matters via a combination of provisions, warranties and indemnities.

Just as importantly for IOOF is the fact that it will pick up some significant distribution benefits from the transaction with the two companies entering into a strategic partnership covering a range of products and service.

The arrangement included the statement: “This will include a referral agreement through which NAB customers will have access to financial advice”.

For IOOF, the transaction vaults it to being the largest financial advice business in Australia but also gives it significantly more scale in the superannuation, investment management and platforms space.

IOOF’s analysis noted that MLC has 538 advisers and $40 billion in funds under advice, while noting that MLC also operates MLC Wrap and the Plum and Masterkey Business Super.

It noted that when the IOOF and MLC businesses were taken together it would give IOOF leadership in the financial advice and platforms market and second place behind QSuper and SunSuper in the superannuation space.