The listed wealth manager has outlined exactly how it plans to address widespread conflicts of interest that were highlighted by the Hayne inquiry.
At its annual general meeting late week (28 November), IOOF chairman George Venardos told shareholders that the company “was not the subject of adverse findings” in the financial advice round of the royal commission hearings.
However, the group did come under heavy scrutiny over its activities in the superannuation space. Back in August, the commission heard how IOOF put its own interests ahead of 29,000 of its superannuation members earlier this year when it decided to make fee reductions voluntary rather than automatic.
During his testimony, IOOF’s general manager of distribution, Mark Oliver, accepted the conflicts of interest at the heart of the group’s business.
On the one hand, there is the interest of the beneficiaries, the members of the trust fund and having a lower pricing, and on the other hand, the interests of the trustee, IMIL, in ultimately making more profit that it can return to the group.
At the group’s AGM last week, chairman George Vernardos told IOOF shareholders that the company recently engaged professional services giant EY to “review our approach to Conflicts of Interest”.
EY’s conclusion noted that the dual regulated role of IOOF Investment Management Limited (IIML) was a key inherent conflict in IOOF’s structure.
To remedy the situation, IOOF has appointed a new chair to its three APRA regulated entity subsidiary boards, who does not sit on the IOOF Holdings Board.
“This change has been in place since mid-September and we have recently appointed two new non-executive directors, both of whom will not sit on the IOOF Holdings Board. Those Boards will be majority independent of the IOOF Holdings Board,” Mr Vernardos said.
“On first completion of the ANZ acquisition, we moved all of our advice subsidiaries under Australian Wealth Management, which is chaired by my co-director, Allan Griffiths. Ultimately, as I just noted, we will split the dual roles of IOOF Investment Management into separate RE and RSE companies. Work on this is progressing.”
However, analysts have their doubts over whether a vertically integrated institution like IOOF can survive in an environment plagued with scrutiny.
Morningstar analyst Chanaka Gunasekera described IOOF’s time in Hayne’s witness box as the “blow-torch hearings” and warned that major changes to the Australian wealth management industry could see the group dismantled.
Australia’s wealth industry is poised for change after revelations of misconduct at the 2018 financial services royal commission,” Morningstar analyst Chanaka Gunasekera said.
“We expect that vertically integrated businesses like IOOF will be more proactively regulated by ASIC, incur higher compliance costs, and may find it harder to attract funds and advisers.
“If regulators ultimately require the dismantling of vertically integrated models, this would be even more damaging.”
The analyst noted that “the potential for a breakup has increased” following the IOOF’s appearance at the Hayne royal commission, although Morningstar does not think this will be the most likely outcome.