Morningstar is confident that financial services software provider Iress will be able to grow its market share from 65 per cent to 80 per cent as advisers and super funds look to software to mitigate risks and drive efficiencies following the Hayne royal commission.
In a research note, Morningstar analyst Gareth James noted that Iress is a scalable, capital-light business with a high proportion of recurring revenue.
“We expect the company to benefit from the aftermath of the royal commission as industry participants, such as financial advisers and superannuation funds, increasingly demand software that can create efficiencies, minimise costs and mitigate operational risks,” the analyst said.
Mr James said that Iress’ wealth management division is likely to benefit from the changing financial adviser landscaper in Australia and its strong market share in the UK. He noted that Iress will be able to defend its market position and grow its share of the wealth management software space from 65 per cent today to 80 per cent over the long term.
“Following the financial services royal commission, the financial advice industry has undergone major reforms including phasing out grandfathered commissions, the retreat of large banks from the sector, and higher educational and compliance requirements for advisers,” the Morningstar analyst said.
“Iress is well positioned to benefit from these trends as advisers who were previously aligned with the large Australian banks likely used Xplan and we forecast they will continue to favour this software at their new licensees or practices.”
Xplan is also the market-leading financial adviser software in the UK. Morningstar expects this to continue.
Mr James also expects Iress to benefit from the changes in the Australian superannuation industry. The royal commission uncovered poor risk management and administrative practices at some of the largest super funds in the country, the majority of which operate in-house administration services.
In October 2019, Iress signed an agreement with ESSSuper to deliver automated superannuation administration services.
“We expect this division to continue to grow as superannuation funds aim to minimise costs, maximise investment fund returns and remain compliant under a growing regulatory burden,” Mr James said.
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