August 7, 2018 / 12:41 AM / 10 months ago

UPDATE 2-Australia's IOOF gains from no-strings-attached fee for advisers

* IOOF underlying FY profit A$191.4 mln vs A$169.4 mln

* Advice inflows up 48 percent to A$4.4 bln

* Company says open fee structure is attracting advisers (Recasts, adds shares, updates CEO comments)

By Byron Kaye

SYDNEY, Aug 7 (Reuters) - Australia’s second-largest wealth manager IOOF Holdings Ltd booked a record underlying annual profit on Tuesday, as its system of paying advisers regardless of whether they sell its own investment products led to a wave of new business.

The results suggest IOOF is unlikely to be hit hard by any curbs on the way wealth managers reimburse their independent adviser networks, which may be imposed following embarrassing revelations of sector misconduct in an ongoing public inquiry.

The so-called Royal Commission into Australia’s financial sector, just over halfway through, has heard wealth managers are paying commissions to planners for selling in-house products even when they were not the best product for the customer.

“On balance the result quality looks good,” JPMorgan analyst Siddharth Parameswaran said. “IFL gave a strong denial on the impacts expected from regulatory reform, although those concerned about the issues may still not be convinced.”

Shares of IOOF rose as much as 2 percent before turning down by mid-session, in a weaker overall market.

IOOF said its “open architecture” system, which does not reward advisers for selling the products of any particular institution, was paying off with funds generated from its adviser network up by nearly half in the year to end-June at A$4.4 billion ($3.25 billion).

Underlying net profit rose 13 percent to a record A$191.4 million for the year.

“Our organic flow is starting to supersede the contribution from M&A,” said IOOF Managing Director, Christopher Kelaher, referring to a host of acquisitions in recent years.

Its latest deal, the A$975 million buyout of Australia and New Zealand Banking Group Ltd’s pension and wealth unit, will be completed in October.

Costs associated with the ANZ deal, plus other one-off expenses, drove down IOOF’s net profit to A$88.3 million for the year, from A$116 million a year earlier.

While IOOF says its commissions do not force planners to sell products of any particular vendor, it has also said it will continue handing out trailing commissions that are paid over the life of a loan - a practice the Royal Commission may recommend banning when it reports to the government in February.

“We run our business in accordance with the law, so if there’s a discussion or debate about grandfathered commissions we’re happy to participate,” Kelaher said, using an industry term for trailing commissions.

He added trailing commissions were a minor income source and “we’ve made a practice of constructing a business that’s diversified”.

Other wealth management giants like Macquarie Group Ltd and Westpac Banking Corp’s BT have stopped paying the trailing commissions. ($1 = 1.3528 Australian dollars) (Reporting by Byron Kaye in Sydney; Additional reporting by Ambar Warrick in Bengaluru; Richard Pullin and Himani Sarkar)

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