IOOF head of advice Darren Whereat

IOOF’s decision to leave behind MLC’s Garvan, Apogee, Meritum and Godfrey Pembroke licensees in its $1.4 billion acquisition was driven by risk mitigation, says Darren Whereat, but the group’s head of advice readily admits that more factors came into play.

Steering clear of the four licensees may have been as much about avoiding remediation exposure and messy BOLR contracts as it was about streamlining the business.

Like his CEO Renato Mota, Whereat identifies MLC’s ongoing remediation programs as the “big driver” for leaving the licensees behind. IOOF could have written liability clauses into the contract – like it did in the ANZ deal – but the risk of exposure would have remained.

“It can be managed through the contract,” says Mills Oakley lawyer Mark Bland, “but it still represents risk around whether it’s drafted properly or it leads to disputes over indemnities.”

Speaking to Professional Planner, Whereat downplays the risk of exposure. Instead, he emphasises that bringing the licensees across could have interrupted the ongoing remediation programs and stopped people getting their payments.

“They’re well advanced in their remediation and this would be disruptive to that,” he says. “I think both organisations want speedy remediation so the clients can get their money.”

IOOF also needs to remain focussed on its own remediation program rather than bringing on others’; remaining provisions stand at $223 million, including costs.

Simple and sustainable

Aside from remediation concerns, Whereat says the decision to leave the licensees behind was about keeping IOOF’s advice business as simple and pared back as possible.

Two of the three pillars that comprise the group’s Advice 2.0 program, increasing advice efficiency and ensuring AFSL sustainability, speak to this drive for simplification. IOOF is looking to rationalise its licensing offering – as evidenced by the shutdown of its FSP, Actuate and Executive Wealth Management licensees – so bringing three legacy brands on board wasn’t palatable.

IOOF will be taking on the Godfrey Pembroke brand –  a move Whereat links to the group’s successful history – but even then, the license itself will stay behind.

“We’ve just announced a set of changes that does streamline our business, and if you think about AFSL sustainability, complexity equals cost and that equals other decisions that need to be traded off,” Whereat explains. “We’re trying to make sure our AFSL structure remains as sustainable as possible.”

The need to streamline the business is tied into IOOF’s recent push to operate to a single set of advice standards.

“We wouldn’t have got to this part of the journey if we didn’t make the decision to operate to a single set of standards, making it easier to continue to fulfil our monitoring and supervision obligations,” Whereat says. “You can’t manage seven different businesses seven different ways.”

Getting everyone following the same processes and using the same systems is good governance; for IOOF, adding three new licensees into the mix was never on the cards.

Brushing off BOLRs

According to lawyer Bland, another reason a deal of this nature might theoretically exclude the licensees is that it means the acquirer wipes the slate clean of any BOLR (buyer-of-last-resort) or BEV (business equity valuation) contracts. “This means the acquirer can negotiate new deals,” Bland says.

Whereat acknowledges this, and doesn’t shy away from IOOF’s desire to avoid bringing on legacy buy-out deals. “They’ll be signing new contracts and new agreements,” he says.

Watching AMP wrestle with its advisers over contentious contract arrangements that will probably end up in court would have likely reinforced IOOF’s desire for a clean adviser slate. For Whereat, it all goes back to making IOOF’s advice proposition as streamlined and simple as possible.

“We want to concentrate on clients and their best interests and making our business easier,” he says. “When we make a decision, we ask ourselves: does this complicate our business or make it better?”

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning. Contact at [email protected]
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