Who wants to be the biggest dinosaur in Australian financial services? It looks awfully like IOOF which is now asking its unfortunate shareholders to stump up in a big way for NAB’s unwanted wealth subsidiary, MLC.
To finance the deal, IOOF has launched a jaw-dropping $1bn equity raising.
To get it over the line the non-bank wealth manager is to offer its shares at a 24 per cent discount, which tells you how badly IOOF wants this deal to fall into place.
Market analysts had not expected IOOF would have to stretch quite so far over to get the cash. Most estimates were closer to a 15 per cent discount.
It’s worth recalling that when NAB originally bought MLC - from Lendlease, two decades ago - at least it did not turn around to its shareholders and demand they bankroll the exercise.
And all for what exactly? IOOF aims to create a major integrated financial advice and funds management group.
But financial advice in this market is so badly damaged you have to wonder if any integrated model could ever again be convincingly profitable.
When this deal is signed, IOOF could have around one in 10 of the entire financial adviser population of the country.
“IOOF sees an opportunity here, and it is using other people’s money to go for it - the timing is good and the price may ultimately be reasonable, but the model of selling financial products is in extreme difficulty. Big sales teams can no longer push product as they did in the past,” says Elio D’Amato, CEO at Daylight Financial.
We know banks are fleeing the area, that’s why these assets are for sale. Less obvious is the fact that customers and professionals are fleeing the sector, too.
The financial advice industry is quite literally shrinking.
In the first quarter this year 678 financial advisers departed while just 12 new entrants joined the sector.
Don’t think customers are oblivious to the damaged reputation of integrated financial services either.
In a recent survey of Self Managed Super Funds, the Investment Trends group found that the number of self directed investors using financial advisers had fallen from 215,000 to 190,000 in 2020.
Put simply, financial advice from large institutions selling products is deeply tainted and the wider public is increasingly less disposed towards paying for it.
Then there is the funds management side of the enterprise where again there is a real squeeze, especially on middle of the road operators that are neither specialists or low cost giants.
MLC, which was one of the first operators in financial advice to move away from commission-based models, has been fading in recent times.
As stockbroker Credit Suisse suggests in the wake of the deal: “MLC has been the fastest shrinking platform over the past decade and has seen net outflows in the past three years.”
All up it looks like IOOF does not have the track record or reputation to mount an exercise at this level but it’s trying anyway.
IOOF CEO Renato Mota may surprise everyone and remodel wealth management successfully in the years ahead but any such reward is too far off to even contemplate.
As Mota put it during the deal announcement, the MLC opportunity has been too good to pass over.
Just now though, the opportunity may be for NAB to pay a special dividend and reward its shareholders for what has been an exceptionally difficult period.
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