It's been a difficult 12-18 months for ASX wealth managers with the Financial Services Royal Commission applying a blowtorch which has seen a string of outflows from the biggest names in the country.
But for how much longer will we see investors head for the exit from the likes of AMP Limited (ASX: AMP), IOOF Holdings Ltd (ASX: IFL) and Platinum Asset Management Ltd (ASX: PTM)?
2019 hasn't been great so far for wealth management…
Despite a lighter-than-expected punishment and fallout from the Royal Commission in the early part of the year, AMP and Platinum share prices have fallen 10.2% and 4.1%, respectively in 2019 amid continued net outflows.
On the other hand, while the news has been similarly bleak for IOOF its share price has climbed 17.7% which in my view is largely due to the lighter than expected punishment and compensation requirements imposed on the wealth manager.
Further abroad in the sector, wealth management platform providers including the likes of Praemium Ltd (ASX: PPS) have struggled so far this year as headwinds have continued to build in the short- to medium-term.
Are wealth management shares cheap or falling further?
In my view, I think there's too much risk in the wealth management space largely from the looming mountain of potential class actions and the change of government in the coming months.
The regulatory risk remains an ever-present threat to the banking sector, particularly if a Labor and/or Greens government comes into power and could look at further reforms in the sector.
There's been a big influx of offshore money to fund potential class actions arising from the Royal Commission and particularly around the issue of shareholder value destruction, which could have a domino effect if one of those manages to gain a big payout.
While there is a strong argument that there has been an overreaction amongst the ASX wealth managers, I think these risks are too relevant for my liking and the market is likely pricing in the potential impact in the medium-term.
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