Morningstar forecasts strong demand for ‘holistic’ advice

Morningstar is confident that personal holistic financial advice will remain popular despite the rise of robo-advisers and passive investment products.

In a research note on ASX-listed financial services software group IRESS, Morningstar analyst Gareth James said that the company should see significant gains as it transitions away from financial markets and focuses on its wealth management division.

“We expect the narrow economic moat, underpinned by customer switching costs, to help defend the dominant position in Australian financial markets software and enable the Australian wealth management software business to increase its market share to around 80 per cent in the long-term from 65 per cent today.”

The analyst is aware that IRESS is currently grappling with structural change in the investment management industry, including the loss of market share by active fund managers to passive and automated investment products.


“This trend is reducing demand for fees for actively managed funds, which in turn is impacting demand for IRESS’ institutional software products.”

The financial markets business has been weighing heavily on the group’s earnings for some time; EBITDA from the division fell at a CAGR of 5.6 per cent in the six years to 2016 and continued to fall in 2017.

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IRESS now looks to be moving away from what once its core business and investing more time and energy in the wealth management sector both domestically and abroad. From a revenue perspective, its UK and Australian wealth management businesses have grown from 24 per cent to 54 per cent of the group.

Morningstar's Mr James expects this to continue.

“We expect demand for holistic personal wealth management advice to remain strong despite the rise of robo-advice and passive investment products, which won’t appeal to all clients and can be incorporated into holistic advice anyway,” he said.

Morningstar forecasts strong demand for ‘holistic’ advice
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