Embattled wealth manager IOOF will split its superannuation trustee business from its managed investment arm in the wake of action by the prudential regulator, but admits it will “take some time to implement effectively”.
In an announcement to the ASX on Monday, IOOF addressed the Australian Prudential Regulation Authority’s Federal Court action to ban its managing director Chris Kelaher, chair George Venardos, chief financial officer David Coulter, general manager – legal, risk and compliance and company secretary Paul Vine, and general counsel Gary Riordan from running a superannuation fund due to failing to act in the best interests of members.
IOOF said wealth management boss Renato Mota would take on the role of acting chief executive, with Kelaher and Venardos standing aside. Allan Griffiths, a current non-executive director of the company, would replace Venardos as chair.
APRA on Friday also announced it was seeking to apply additional licence restrictions on IOOF. The regulator gave IOOF 14 days to explain why it should not be subject to these sweeping license conditions.
Griffiths said IOOF would “vigorously defend” the prudential regulator’s actions.
“We maintain our position that the allegations made by APRA are misconceived,” Griffiths said in a statement. “The board believes that, in the interests of good governance, it is appropriate that Chris and George step aside from their positions.”
“We acknowledge the seriousness of these allegations. We have a responsibility to our superannuation members, shareholders, advisers, employees and the wider community to take decisive action. We are entirely focused on addressing the governance issues in the interests of all stakeholders and will do so in an orderly manner,” he said.
Separating functions
IOOF said it was working with APRA on a “managed action plan” (MAP).
This includes separating the Registrable Superannuation Entity (RSE) and Responsible Entity (RE) functions of IOOF Investment Management Limited (IIML) and Australian Executor Trustees Limited into distinct legal entities.
“Following recent discussions with APRA, the process to effect this separation has been approved by the relevant Boards and is underway,” said IOOF.
“This process involves various licensing issues and other significant work that will take some time to implement effectively and will address many of the other issues included in the MAP. We will progress this initiative with diligence and as expeditiously as possible.”
Potential conflict
Friday’s Federal Court statement raised concerns over IOOF’s structure whereby the company was both a trustee of super funds responsible for looking after the interests of members as well as a manager of investment funds which earned it revenue.
IOOF on Monday also reaffirmed its action to install an independent chair to lead a “majority independent board” of each of its APRA-regulated entities (AREs).
“An independent chair has been in place since September on these boards. The ARE Boards now also comprise a majority of directors independent of the IOOF board,” said IOOF.
“Both Mr Kelaher and Mr Venardos had resigned from the ARE Boards before APRA commenced its current action. The restructure and composition of the ARE board committees have also been completed.”
Helen Rowell, the deputy chair of APRA said it had sought to resolve its concerns with the wealth manager “over several years” but considered it necessary to take action after determining the company was not making “adequate progress”.
Griffiths on Monday said IOOF had completed “many actions” that had been requested by APRA. Further he said he and Mota would lead a review of the “situation” and work with APRA to implement what he said were “previously agreed initiatives”.
Coulter, Vine and Riordan would remain in their positions but would have no responsibilities in relation to the management of the IOOF trustee companies and would not engage with APRA.
Since news of the multiple APRA actions on Friday, ANZ said it was “assessing its options” in relation to its October 2017 sale of OnePath Pensions and Investments business to IOOF.
ANZ mulling options
“Given the significance of APRA’s action, we will assess the various options available to us while we seek urgent information from both IOOF and APRA,” ANZ deputy chief executive Alexis George said in a statement.
IOOF shares were down 36 per cent at market open on Monday.
In August the Hayne royal commission heard that IOOF counted on disengaged super members with low balances and clients with financial advisers on trail commissions not moving to a lower-fee product introduced this year.
Almost half the members of IOOF’s Super Choice Fund would be better off on the new fee regime but were considered a low “arbitrage risk” to migrate by themselves, IOOF distribution manager Mark Oliver told the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Super Choice would have suffered an $8 million-a-year hit to revenue if all members migrated to the new regime, which was expected to benefit more than 29,000 existing members, 20,000 of whom have grandfathered commissions with advisers, according to documents lodged with the court.
