Geoff Lloyd is a man who seems as comfortable with the uncertainties in life as he is does with the certainties.
It’s not clear what the ownership of MLC Wealth will look like 12 months from now, the company Lloyd was brought in by National Australia Bank’s since departed CEO Andrew Thorburn to lead in September last year. NAB, MLC’s current owner of 18 years, has announced plans to exit the business via a sale or initial public offering, but whether the wealth manager ends up listed separately on the ASX, in the hands of private equity, or under the wing of another financial institution, remains anyone’s guess at this stage.
What’s also not clear is whether all of MLC’s aligned dealer group brands will continue on, or if some will be amalgamated. A decision on the future of the aligned dealer brands, which include GWM Adviser Services, Godfrey Pembroke, Apogee Financial Planning and Meritum Financial Group, is expected by the end of July.
Uncertainties have become a feature in the business structures and still evolving strategies that underpin the ‘post-Hayne’ advice movement across the local financial services industry. Far from being an exception – as the first bank wealth spinoff since the Hayne royal commission findings and recommendations were handed down – MLC could prove to be the rule on how scaled advice models take shape from here.
“What we have now is a blueprint. You can’t predict the future, we are taking this blueprint now to our network before we make our own view,” Lloyd says, describing the process the business has taken under his leadership to evaluate opportunities in the group’s aligned dealer group businesses.
MLC’s so called “self-employed” aligned dealer groups have a place, alongside the salaried advice model in the new version of MLC Wealth which is still taking shape, Lloyd confirms.
Lloyd highlights he believes strongly in the employed advice model.
“I’m not talking bank planners, I’m talking employed advisers,” he emphasises. Employed and self-employed advisers will have access to similar services within MLC’s “advice centers” under the new model the group has created.
Pieces of the puzzle
Lloyd announced the framework for MLC Wealth’s new operating model internally in March, built around four “pillars”: advice, platform, retirement & investment solutions and asset management, with each pillar responsible for their own separate profit and loss statements. The internal announcement in March also confirmed NAB Financial Planning and NAB Asset Management would be rebranded to MLC Advice and MLC Asset Management, respectively.
While there are clearly some uncertainties in Lloyd’s plans, there are also some certainties, which appear to providing an anchor at this advanced stage of MLC’s re-emergence.
MLC Wealth will exit its current ownership arrangement with something that resembles a commercial umbilical cord with NAB. Lloyd describes this is an ongoing “commercial alliance” that will afford the spun-off entity an exclusive relationship with bank customers in a certain segment. Details of this agreement will likely emerge as the separation progresses.
“One of the things that attracted me to MLC was its plan to separate [the wealth business from the bank] for success, but also the bank’s commitment to deliver good advice from MLC,” Lloyd tells Professional Planner, in the first sit-down interview to discuss his leadership plans for MLC Wealth since he took the CEO role towards the end of last year.
Another certainty Lloyd seems to have filed at the front of his mind is the viability of the vertically integrated model, something MLC has bet its future incarnation on.
In his final report and recommendations, Commissioner Kenneth Hayne stopped short of recommending product providers be forced to offload their wealth businesses, suggesting that amendments already made to product design and distribution laws, along with the new intervention and enforcement powers given to the regulator, should go a long way towards ending conflicted advice practices. Banks’ slated divestment of their wealth businesses in the lead up to Hayne’s final report were justification that conflicts at the big end of town were being sorted out by the free market.
“The lawyer in me has read that [Hayne’s remarks on vertical integration] many times and Hayne is very clear that the law is fine here and that conflicts are conflicts and they need to be recognised and they need to be managed,” he says.
“The lawyer in me has read that [Hayne’s remarks on vertical integration] many times and Hayne is very clear that the law is fine here and that conflicts are conflicts and they need to be recognised and they need to be managed."
“It’s not new to me [conflicts need to be managed], that’s not new to businesses I’ve run. That’s why our business model is about four independently strong businesses: advice, platforms, retirement, asset management,” he says.
Charting a new course
Lloyd left a leadership position within BT’s advice and private banking business in 2010 to head what is still probably the country’s best known private client business, Perpetual Private Wealth, before he got a tap on the shoulder to become Perpetual’s CEO in 2012, where he remained up until mid-last year. Perpetual’s trustee, wealth and asset management business are run as separate units and the company maintained a distance between itself and the conflicted advice practices at institutionally-owned wealth management businesses which were called out during the Hayne royal commission.
Lloyd will certainly be drawing on his experience at Perpetual to run MLC, but the wealth offering at NAB’s offshoot will likely have a broader footprint than the high networth and ultra-high networth category where Perpetual Private focuses its attention. Lloyd includes ‘mass affluent’ in MLC’s target market, that is, people with complex financial needs 45 years and older. He points to NAB’s extensive business banking network as a potentially valuable source of ongoing client relationships for MLC Wealth advisers.
But it is somewhere between the certainties and the uncertainties where Lloyd’s mettle will be tested the most, and perhaps where a new advice paradigm could sprout.
“Great professions focus on deep segments and sub segments, knowing where their profit pools are and knowing what services they have to deliver to those individuals and clients and they build out their services to match that,” Lloyd describes, responding a question around how large scaled advice models can be sustained in the absence of product subsidisation.
Mud at the wall
In terms of the target market, Lloyd highlights the retirement segment as where the biggest opportunity lies for MLC Wealth.
“In the next decade, every baby boomer will be retired and they’re the wealthiest generation ever. Over the next 15 to 20 years there’s $2 trillion of value being generated in intergenerational wealth transfers. Forty-five year-olds are inheriting more than any other generation.
“Their needs and lives are complex. They are helping mum and dad do age and health care and they can see the money coming. We just saw in the election this group voted to keep their mum and dad’s franking credits because they see them as theirs. It’s their complex needs where we are targeting,” Lloyd explains.
MLC Wealth has a created a dedicated retirement category as one of its four business pillars, a segment Lloyd says will be given a blue sky thinking mandate to come up with solutions beyond investment products crossing over into the healthcare realm.
In terms of what is the right model to deliver advice to this segment, Lloyd seems less clear – beyond his belief that quality advice is worth investing in – although it appears he’s not adverse to throwing some mud at the wall; Lloyd recently engaged PwC’s ‘The Difference’, a subset of the Big Four’s broader consulting group that brings behavioural and design thinking to complex problems.
“We are committing very deeply to the future of advice and we are making a significant investment in the employed and the self-employed model and we are doing it at a time many others are exiting,” he says.
"We are committing very deeply to the future of advice and we are making a significant investment in the employed and the self-employed model and we are doing it at a time many others are exiting.”
In contrast to Westpac’s plan to exit advice in with a limited contingency for its aligned and salaried advice businesses – a plan it announced in May – NAB through MLC has devised its wealth exit with little expected disruption to its 1100 adviser contingency, Lloyd says.
“The belief I have is that a community of advice is really important… that the people who run it are responsible for who can come in, what people do and how they do it when they’re in there, and if they need to exit, how and when they exit,” he says.
Remediation programs being undertaken by the banks are an essential component of the advice industry’s restoration, Lloyd believes.
“I prefer the word restoration because part of the process is trying to make our clients whole, build their confidence in us and also make ourselves whole,” he says.
Since the findings of the Hayne royal commission, each of the big four banks have spent or allocated close to a billion dollars each on remediation and contingencies to make amends for their wayward advice models.
While all of the major banks and financial institutions were the subject of intense criticism during the royal commission misconduct investigation, NAB was singled out in particular for the governance models used within its wealth business and the trustee of the MLC funds where the models’ ability to manage conflicts was called into question.
Restoration in progress
It was Hayne’s strong criticism of NAB chairman Ken Henry and CEO Andrew Thorburn’s acceptance of the flaws in these models, outlined on page 411 of the royal commission’s final report, that led to the pair’s removal following intensifying public and shareholder scrutiny.
Lloyd confirms MLC Wealth now employs some 700 individuals dedicated to the process of remediation, describing the investment as “significant”.
But while the Hayne royal commission focused its attention on the misconduct at the big end of town – AMP, IOOF and the four major banks – Lloyd is more worried about the evolution of business models outside of the major institutions.
“We have to ask, how did the whole profession get FoFA [Future of Financial Advice] wrong? Because it’s not the banks, AMP and IOOF, it’s all dealer groups and licensees in one form or another,” he says. “I worry about clients in a world where there’s not enough capital.”
Lloyd believes strongly in the need for the advice industry to come together to address some of the challenges that lay ahead, challenges he reckons could easily derail current efforts to restore trust.
He is leveraging his leadership role at MLC as well as his position as chairman of the Financial Services Council to shed light on capital requirements across the industry as discussions are progressing around what a compensation system of last resort would look like.
Lloyd says he believes many licensees and advice businesses are incorrectly putting their faith in professional indemnity cover to insure against worst case liabilities.
“PI insurance is not providing any cover because these aren’t PI related issues; they’re not about quality of advice issues per se, they’re about service… We know there is a lot of regulatory activity at the middle and smaller end dealer groups, and we also know there are a large number of breaches reported there. Where is the capital in those systems?,” he asks.
Scale will reign supreme in the future advice world, Lloyd reckons, a world where he also believes conflicts can be managed.
Lloyd points to his early decisions at MLC Wealth as evidence he’s moving towards the kind of progressive advice model where financial institution can manage conflicts in the eyes of an emboldened regulator.
In his first month as CEO, MLC turned off grandfathered commissions in its employed channel, hot on the heels of Westpac’s decision to do the same with BT Financial Group. Lloyd then moved quickly to change its salaried advisers’ ongoing service fees to annual contracts. In early February MLC cut some of its wrap fees by 50 per cent, turned off exit fees and announced favourable changes for customers in its MySuper product. In addition, Lloyd points out MLC has published its approved product lists.
“We think the transparency of open APLs is important and we’d encourage others to follow,” he says.
Housing the asset management business alongside platforms and advice within the same business structure makes the business collectively stronger, Lloyd argues.
“Collectively, because of the profitability of the group, we can invest in the future of advice,” Lloyd points out.
“Before we recommitted to the self-employed model we did 6 months of work on our own, we are we are working with a design thinking team about what the future of advice under the employed or self employed model looks like. That’s a significant investment that no one else is even thinking about today,” he says.