Financial advisers to tackle personal problems under IOOF’s radical plan

IOOF is hoping its advisers can help people with non-financial issues.

I can smell a new boom. No, it’s not technology or mining; they’re old hat. The new boom is in personal counselling and advice.

Traditionally, advice is about finance. But in this boom, finance comes second to the aims of achieving overall personal happiness, an increase in peace of mind, fewer arguments with loved ones and reduced stress and anxiety.

I was stunned to discover that Australia’s first institutional advice organisation – the combination of IOOF and MLC – aims to achieve the above goals for its customers first. Financial planning comes second.

I fully recognise that there is a vital segment of this market related to preventing suicides and serious mental breakdown. That’s sadly a growing sector. But my boom discussion is not about that area.

IOOF is currently refining its adviser training after the acquisition of the ANZ wealth business, which is a mirror image of MLC, only smaller.

The ex-ANZ advisers have just over a year left of their three-year training course. It’s designed to base their advice on first achieving the above social aims, with financial advice coming second. IOOF will duplicate the process at MLC.

Traditionally people went to wealth advisers to be told what to do with their money, but in the new era we start with lifestyle, personal feelings and goals. I am always fascinated by new ideas and the changing generations.

Nevertheless I was taken a back over the weekend when The Sydney Morning Herald and The Age economist Jessica Irvine openly discussed her seeing a psychologist, saying she sees it as “being like a gym workout for my brain – the mental equivalent of a check-up at the dentist”.

She suggests readers consider getting a “Mental Health Treatment Plan” from their GP which entitles them to 10 government subsidised mental-health sessions a year.

If they live in Melbourne they are entitled to 20 sessions because of the lockdown. Irvine’s aim of being “a better mother, better employee and an all-round better human” is not that different to the aims IOOF chief executive Renato Mota wants to achieve for his clients

Clearly, psychologists use different techniques and have different skills but, at least in my mind, the government subsidised psychologist and Mota’s advisers have a similar role in many areas (but not all) of the advice market.

Suddenly we see the IOOF’s ANZ Wealth and MLC takeovers in a different light.

We are looking at the creation of a new industry that has the potential to substantially change the way Australians manage their affairs.

A radical plan

I touched on this subject but I had not fully grasped the radical nature of the IOOF plan, which has been conceived by Mota and his chairman Allan Griffiths.

Traditionally bank, life office and other financial advisers were about recommending a series of “in house” investments. Usually about three quarters of the client’s portfolio ended up “in house”. It was a horribly conflicted system often infected with secret commissions.

The IOOF plan is to take these financial advisers and train them to advise on family matters and be rewarded in part for that advice. And so if an Adviser was talking to a young couple, the discussion would be about their personal goals and relationships, as well as the government benefits that were available. Older couples’ advice might involve the handling of a second spouse or other family difficulties that have arisen. And of course, with older people the non-financial and relationship issues involved in retirement and government benefits. In each category the actual financial strategies are the last part of the advice not the starting point.

And although IOOF also makes investment products, on average only about a quarter of the IOOF adviser recommendations involve IOOF products. Both the ANZ and MLC acquisitions include investment product manufacturing operations and the MLC is bigger than IOOF and ANZ combined. The MLC operation is also based around a captive market so fundamental change will be required.

The plan is that these product manufacturing businesses will have to learn to market to advisers outside the IOOF/MLC group.

The MLC structure is very similar to the ANZ structure, but it doubles the combined IOOF-ANZ group so not surprisingly the market is nervous that IOOF is taking on too much.

The IOOF counter is that both at ANZ and MLC, the Adviser communities have been neglected. Suddenly they find themselves at the centre of a corporate strategy so are “wanted”. Although MLC ran its own race under NAB, it usually lost the bid for funds and so its technology fell behind. Accordingly, the promise of proper systems helps the process.

In the combined operation, more than two thirds of the advisers are independent contractors. They gain their revenue by charging people for their advice and they pay a commission to IOOF for training and material including acquiring new customers. All customers must be given the opportunity to end the relationship at the end of each year and fees are discussed as part of that annual renewal.

Can advisers who have grown up telling where to invest widen the scope of that advice into personal matters? That will determine the outcome of the takeovers.