In a report, Morningstar analysts noted that IOOF representatives had avoided being asked to front up to the “royal commission blow torch”.
But closing remarks made by senior counsel assisting Rowena Orr QC had called into question the vertically integration model, which Morningstar pointed out was the “foundation of IOOF’s strategy”.
“Although IOOF has so far not been implicated in the royal commission, we think it will still be impacted,” the report said.
“IOOF would also be adversely impacted by a required break-up of its vertically integrated business model.
“Notably, IOOF is doubling-down on its vertically integrated strategy by acquiring ANZ Wealth,” the report added.
In IOOF’s case, the risk of a break-up would be amplified as it would be shouldering extra debt incurred by the acquisition of OnePath’s pensions and investments business.
“IOOF is currently in a strong financial position with no debt, with a net cash position (cash plus certificates of deposit) of AUD 507 million as at Dec. 31, 2017.
“However, this strong balance sheet will deteriorate after it pays the AUD 975 million consideration for ANZ Wealth on the completion date scheduled for early November 2018.”
However, even if the model was not dismantled, a heightened level of regulatory scrutiny seemed likely to be on the horizon.
“Following the royal commission, ASIC could more proactively regulate vertically integrated wealth managers, especially given IOOF’s increased size after the ANZ Wealth acquisition,” the report said.
“A required separation of its advice business from its other businesses would be even more damaging.
“If required, it would not only negatively impact its advice business but also likely to lead to lower fund flows into its platform, investment management, and trustee businesses.”
Beyond the royal commission, there were also a number of other factors that could impact IOOF, according to the report.
“IOOF’s business is also highly sensitive to market performance, investor confidence, unemployment and wages growth, making it a high beta business.”
Morningstar issued a report on AMP on 4 May, declaring the royal commission's “shocking revelations” had resulted in the major non-bank lender’s “material reputational damage”.
