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 hope the business will benefit from the consequences of the royal commission, as industry players, such as financial advisers and pension funds, increasingly demand software that can create efficiencies, minimize costs and mitigate operational risks,” the analyst said.
Mr James said Iress’s wealth management division would likely benefit from the change in financial adviser in Australia and its strong market share in the UK. He noted that Iress will be able to defend its position in the market and increase its share of the wealth management software sector from 65 percent today to 80 percent in the long term.
“Following the financial services royal commission, the financial advice sector has seen major reforms, including the phasing out of grandfathered commissions, the withdrawal of big banks from the sector and higher requirements for training and compliance for advisors,” the Morningstar analyst said.
“Iress is well placed to benefit from these trends as advisors who were previously aligned with major Australian banks are likely to have used Xplan and we expect they will continue to favor this software with their new licensees or practices.
Xplan is also the market-leading financial advisor software in the UK. Morningstar expects this to continue.
Mr James also expects Iress to benefit from changes in the Australian superannuation industry. The royal commission found poor administrative and risk management practices within some of the country’s largest super funds, the majority of which run internal administrative services.
In October 2019, Iress signed an agreement with ESSSuper to provide automated pension administration services.
“We expect this division to continue to grow as retirement funds aim to minimize costs, maximize investment fund returns and remain compliant with an increasing regulatory burden,” Mr James said.
