The reputation hit from IOOF’s appearance at the Hayne royal commission may make it more difficult to attract advisers and funds, and may prompt class action lawsuits against it, according to a new analysis.
Morningstar’s analysis also revealed it expects more proactive regulation of the dealer group by ASIC and APRA, leading to higher compliance costs and reducing the competitive advantage of its distributional reach gained from its extensive network of advisers.
However, it also noted IOOF’s open architecture model on its platform business has enabled it to attract new advisers, especially compared with the big four banks and AMP. Further, the model allows some of IOOF’s advisers to recommend investments on third-party platforms.
“IOOF has entered into arrangements with third-party platform providers such as Colonial First State, Macquarie Group and others, where IOOF earns part of their administration fee for funds originated by IOOF’s advisers,” Morningstar said.
“These platform fees are lower than if the funds had flowed into IOOF’s Pursuit platform, but the operating costs for administering these funds are also lower.
“We also believe the firm’s open architecture model could be part of the reason it has attracted new advisers unlike competitors such as large major banks and AMP who have been losing them.
“However, we believe its disastrous royal commission appearance may make it difficult to attract advisers in the future.”
IOOF likely to complete ANZ P&I acquisition
IOOF will successfully complete its proposed acquisition of ANZ’s pension and investment (P&I) business after it has been boosted by approvals for the transaction from both the big four bank and the trustee of the P&I funds, a new analysis finds.
The transaction is likely to cost IOOF around $125 million less than initially expected, subject to future completion adjustments, Morningstar said.
“The lower price drives a modest 4 per cent increase in IOOF’s fair value estimate to $7.30 per share. At the current price, the stock screens as fairly valued," it said.
Further, Morningstar expects earnings from the P&I business to be the key driver of IOOF’s underlying net profit after tax (NPAT) growing by about 25 per cent to $213 million in fiscal year 2021 from $171 million in fiscal year 2020.
“This is based on our forecast that the P&I acquisition will complete by 31 December 2019,” it said.
“The P&I business is the profitable part of the businesses IOOF is proposing to acquire from ANZ Bank.
“Based on ANZ Bank’s most recent update on the P&I business on 1 May, we estimate the P&I business is currently generating $96 million underlying NPAT.”
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