Royal Commission fallout: smallcap financial stocks escaped largely unscathed
Link copied to
The fallout from the financial services royal commission has reverberated loudly across the big end of town on the ASX today.
As far as markets are concerned, the focus was on mortgage brokers, who are facing a ban on the receipt of trailing commissions revenue for brokering home loans.
Shares in Australia’s major bank stocks roared ahead, while listed mortgage brokers got hammered.
On the smaller end of town though, the response from investors was more muted.
Stockhead spoke to some key players in the sector to get a gauge of how the commission’s recommendations affected their business.
Arthur Naoumidis, DomaCom CEO
DomaCom (ASX:DCL) is a listed financial services company which facilitates managed investment schemes to help investors get into the property market.
Mr Naoumidis told Stockhead that if anything, the Hayne report was a net-benefit because of the clarity it provided.
“Broadly I think it’s a good thing, because the uncertainty’s over. I think the fear was generally worse than the reality, particularly round the impact on lending restrictions,” he said.
For property investors, “a lot of the damage was done last year,” he said, citing the tighter regulatory controls on bank lending. Commissioner Hayne took no additional view towards home lending standards in his report.
“The uncertainty is over, so broadly speaking I’m happy,” Naoumidis said. But as for the mortgage broking industry, “I wouldn’t want to be in that area”, he said.
The company counts financial planners among its client base. However, the proposed removal of trailing commission “doesn’t affect our clients, because they’ve moved to a fee-for-service model,” Mr Naoumidis said.
Domacam shares were unchanged at 10c in afternoon trade, having climbed from around 5c in early January.
Tony Leibowitz, Ensurance CEO
ASX minnow Ensurance (ASX:ENA) is an insurance underwriting agency with a focus on the building and construction industry.
Was Mr Leibowitz concerned by anything in yesterday’s report?
“Absolutely not,” he told Stockhead. “What we cover in terms of our insurance offering is largely related to property, plant & equipment.”
Therefore, “in no way does the RC have any bearing on what our offering is.”
“We underwrite groups – we don’t deal direct with the end consumer, like an insurance broker,” Mr Leibowitz said.
As a result, he’s not concerned about changes to the broking industry as it pertains to financial services. Shares in Ensurance were unchanged at 3.2c in afternoon trade.
George Lucas, Raiz Invest CEO
Listed fintech Raiz (ASX:RZI) provides a vehicle for subscribers to invest in simple investment products such as exchange traded funds (ETFs). The Raiz app also allows users to round up the difference on small daily transactions and invest the difference.
Lucas says the Royal Commission hasn’t been great for consumers so far, but there’ll be opportunities for smaller players such as Raiz now the report has been released.
“The outcome of the average consumer has not been great so far with the RC contributing to a credit squeeze, which in turn is contributing to low house prices,” Lucas told Stockhead.
“It is likely that over 30 per cent of advisors will leave the market, making it harder and costlier for the average person to get advice.”
However, “the findings create opportunities for Raiz and products like Raiz, as they have the potential to fill the gap in terms of offering financial services advice.”
More broadly, “there is a definite need for the financial services law to be simplified, so that ASIC can pursue allegations of wrong doing or misconduct against large institutions more efficiently in the courts”, Lucas said.
Diana D’Ambra, Australian Shareholders Association chair
Perhaps as a reflection the report was as tough as some had feared, the ASA industry body was also broadly supportive.
“We welcome the overall findings which will lead to better protections for consumers, and stronger enforcement of existing regulation,” Ms D’Ambra said.
“Retail shareholders expect ethical behaviour as a gateway to generate sustainable returns — profit achieved any other way is illusory.”
The ASA was particularly supportive of the Commission’s view that no new laws are required to police the sector. Rather, effective application of existing laws is the best way forward.
“Only time will tell that the companies are consistently delivering constant ethical behaviour and outcomes,” Ms D’Ambra said.
“The ASA will be assessing our support for directors as they come up for election or re-election in light of these lessons.”