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Your 2-minute guide to Netwealth (ASX:NWL)

Wealth platform Netwealth Group Ltd’s (ASX: NWL) share price has rocketed over 170% in the past five years.

Founded by the Heine family (who own 53% of the business) back in 1999, the business is now the industry leader in net inflows and satisfaction.

Let’s dive in and see what makes it such a quality company.

Bring advice into the 21st century

Netwealth operates in the Australian wealth platform market, estimated to be worth around $915 billion each year. Previously, the market has grown about 7% per annum.

Historically, the industry has been occupied by legacy advisory firms like AMP Ltd (ASX: AMP), IOOF Holdings Limited (ASX: IFL) and the big four banks.

Advisors would house clients funds on platforms and recommend products from their respective advisory firms.

However, the Future of Financial Advice reforms in 2012 and the Royal Commission in 2017 resulted in many advisors either going independent or leaving the industry altogether.

Subsequently, this opened the door for independent platforms such as Netwealth and Hub24 Ltd (ASX: HUB) to grab market share.

Netwealth offers a user-friendly interface, a range of investment options and better functionality illustrated by its number one rating for overall satisfaction by Investment Trends.

The hunter becomes the hunted

Netwealth has wasted no time capitalising on the evolving financial advice market.

It leads the market in net inflows at the expense of incumbents, AMP and IOOF.

The business now has $49.7 billion in funds under administration (FUA), $10.5 billion in managed accounts and $12.4 billion in funds under management (FUM).

Incumbents are racing to update their platforms to keep up. But it doesn’t look like growth will slow down with Netwealth expected to achieve another $10 billion of FUA net inflows in FY22.

Netwealth market share and net inflows. Source: NWL FY21 presentation
Netwealth market share and net inflows. Source: NWL FY21 presentation

Growth? Tick. Profit? Tick.

Often businesses that are scaling rapidly bleed cash. Not Netwealth.

The business achieved revenue of $142 million in FY21 with profits of $54.1 million. It even paid an 18.56 cents per share dividend.

Netwealth makes money in several ways including:

  • Administration fees for holding funds on behalf of clients
  • Transaction fees when a client buys or sells
  • Management fees on its in-house funds
  • Ancillary fees from earning interest on clients cash held on the platform

Adding the four revenue streams together, Netwealth earns about 0.36% on its FUA.

Currently, the business has a net margin of 37.3%. In other words, for every $100 Netwealth makes in revenue, $37.30 is profit.

Thesis killers

The biggest threat to Netwealth is competitors cutting prices and starting a bidding war.

Given incumbents still hold the lions share of FUA, their scale may allow them to squeeze Netwealth’s revenue margin.

Further, if the Heine family were to leave this would be a big red flag.

Also, a slip in industry awards for satisfaction would be an amber light that the business is losing its technology advantage.

Final thoughts

With only $49 billion of a $915 billion market (about 5% market share), I believe Netwealth has a long runway for growth.

The company remains on my watchlist and I’ll be looking to buy shares in the near term.

Are you stuck wondering where to invest right now? Have you got cash 'sitting on the sidelines'? Are you looking for dividend income AND growth but don't know where to start? Rask's expert ASX analyst team has just released a full report, detailing where we'd invest $10,000 right now.

Not only are we offering these 11 investment ideas completely FREE, we've also released an in-depth podcast to go with the report!

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Unsubscribe anytime. Read our TermsFinancial Services GuidePrivacy Policy. We’ll never sell your email address. Our company is Australian owned.

Are you stuck wondering where to invest right now? Have you got cash 'sitting on the sidelines'? Are you looking for dividend income AND growth but don't know where to start? Rask's expert ASX analyst team has just released a full report, detailing where we'd invest $10,000 right now.

Not only are we offering these 11 investment ideas completely FREE, we've also released an in-depth podcast to go with the report!

So, whether you have $2,000 or $50,000, our brand new analyst report could help transform your watchlist. Right now, you can get the full analyst report emailed to you for FREE by CLICKING HERE NOW.

At the time of publishing, Lachlan does not have a financial or commercial interest in any of the companies or funds mentioned.

Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

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