Netwealth Group Limited (ASX: NWL, Netwealth or the Group) is a rapidly growing financial services business founded in 1999 that listed on the ASX in November 2017. Netwealth considers itself to be a technology company, a superannuation fund, and an administration business. Netwealth employs its own technology team which has built its proprietary digital platform that has market-leading functionality, giving Netwealth a durable competitive edge over many of its competitors. The Group’s financial products include superannuation, investor directed portfolio services, managed accounts and managed funds, as well as self-managed superannuation funds administration services.

Record quarter for Funds Under Administration growth

Netwealth continues to win market share with its innovative, ‘adviser-friendly’ investment platform that is attracting Funds Under Administration from existing Financial Intermediaries’ legacy platforms. 

Funds Under Administration (FUA) at 30 September 2024 was $95.4 billion, an increase of $7.4 billion for the quarter. Net inflows were a record $4 billion, which was supplemented by a positive market movement of $3.4 billion. FUA inflows for the 12 months to 30 September of $24.5 billion was also a record amount. This annual increase is 34.8 percent up on the FUA amount of $70.3 billion at 30 June 2023 and follows FUA increasing by 22 percent during the 2023 financial year.

Industry figures reveal that for the year to March 2024, legacy platforms lost 6.5 percent market share while Netwealth gained 0.9 percent. On a 5-year basis, Netwealth gained 5.2 percent industry market share, compared to legacy platforms that lost 16.4 percent. This disruption appears to be a structural shift as advisors look to specialised, sophisticated, and streamlined platforms that provide straight through processing, that delivers superior service and regulatory compliance outcomes and enhances advisor productivity and efficiency.  

FUA are spread across 3 key market segments. Wholesale Investment mandates account for 40 percent of FUA, while Superannuation Retail represents 34 percent and Retail Investment 26 percent. Institutional client holdings are generally more than $100 million and so do reflect higher funds flow volatility than Retail Investments clients. FUA net inflows for the September quarter were diversified across the three market segments, although one institutional account inflow was for $110 million.   

The quarterly positive market movement of $3.4 billion contributes to higher administration fee revenue, however the tiered and capped administration fee structure can dilute the impact of such favourable market movements.   

Focus on ‘Emerging Affluent’ segment

Netwealth is extending the current reach of its products and services to advisors and licensees looking to deliver new services to younger clients. This is the strategic rationale behind its recent acquisition of Flux Corp Pty Ltd for $2.46 million. Flux Corp produces digital content, mobile app and financial tools targeting the Emerging Mass and Emerging Affluent market segments.  

The Future

The Australian Platform industry has total FUA of $1.1 trillion and has grown at a compound annual growth rate of 8.2 percent over the past 10 years. At $95.4 billion of FUA, Netwealth currently has 8.7 percent industry market share, and this implies considerable growth potential ahead.

However, investors should not extrapolate Netwealth’s 34.8 percent FUA growth to forever outpace industry growth measures. If you do, you get into certain mathematical problems, and so a moderation of FUM growth after a period of stellar growth is normal and to be expected. A constant and continual push for significantly higher-than-market FUM growth rates can lead to mis-placed ambition and poor judgements, creating sector underperformance.  

In the medium-term, the high conversion rates of new advisor and licensee relationships looks set to continue and the new business pipeline is strong and diversified across all client groups and segments. New larger advisor groups have begun transitioning their clients to Netwealth and several of these transitions remain in the early stages, implying a strong net inflows outlook for FY25.    

Higher platform user numbers on Netwealth’s highly scalable business model indicates continued earnings and dividend growth from this stable and predictable cash generative business, at least in the medium term.