One of the first tasks facing Matt Drennan, appointed last week as group head of research and portfolio construction for IOOF, is uniting two research teams that have come together following the acquisition of SFG Australia by IOOF in May last year.

“It brings together two key responsibilities,” Drennan says.

“One is the research team under Peter Hilton, and that includes research on managed funds and direct equities.

“The other is my existing team, which covers a lot of things we were doing at SFG, including MDA [managed discretionary account]-style models. So it’s all of those functions. The key challenges in the early days are bringing the teams together, and making sure people understand their roles, and how they work together.”

Drennan says that “with the takeover of SFG, IOOF has become a much bigger group”.

And it’s done a lot of [other] acquisitions as well, over a number of years,” he says.

“So that’s meant that when you bring groups together, the approved [product] lists have grown enormously. One of the first challenges I will have is how we can trim that down, but clearly we want to ensure we maintain the [identity] of each of the dealer groups in IOOF and what their value proposition is.”

The licensees under the IOOF umbrella include Bridges, Consultum, Lonsdale, Ord Minnett, Plan B, Shadforth and Western Pacific.

Drennan says another challenge will be to rethink how the group constructs its model portfolios.

He says regulatory changes have led to “a proliferation in the use of model portfolio solutions, especially MDAs”, setting the scene for a rationalisation of the line-up across the IOOF group.

“Financial planners, with legislation and ‘know your client’ and all that type of thing, have been required to spend more time with clients and think more deeply about what their value proposition is,” Drennan says.

“More and more have come to the conclusion that model portfolios that deliver on the client’s needs are an efficient way of structuring things, so they can focus on the relationship with the client, focus on what their needs are, and broaden out the [range of services].”

A model portfolio solution “delivers efficiencies and frees the planner up t oadd value to the client, so long as the [models] are structured carefully and there’s enough choice there”, Drennan says.

“But clients’ needs each are different,” he says.

Drennan says the model portfolio construction approach has to shift from an asset-class focus to an investment objective or outcome focus.

“What has concerned me about the industry in certain respects in the past five or six years it you still have, in my view, too much focus on what asset class a particular investment sits in,” he says.

“In my view the focus should be what does it deliver to the client in terms of outcomes?

“So you want to structure your portfolio around the clients’ needs, first and foremost, and so that means you use funds to structure a portfolio to deliver an overall piece of a puzzle, in terms of protecting in down markets, or for yield, without focusing on what traditional asset class it sits in.

“What we’re saying is…by and large, we’re not really focused on what asset class that sits in, it’s more about what is the outcome it’s delivering, and is that appropriate?”

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