Last week, Netwealth reported to the ASX a 10.8 per cent increase in funds under administration for the June quarter.
However, an analyst note from Morningstar said that despite growth in funds under management and administration (FUMA) falling 20 per cent over the last month, it believed Netwealth’s $7.64 share price is overvalued.
While it said Netwealth’s FUMA is growing quickly, Morningstar said the investment platform market is highly competitive, and that Netwealth lacks the economic moat required to create pricing power and sustain long-term profit margins.
Further, it said FUMA growth is likely to be offset by price competition to some degree and platform fees should continue falling.
“Management said pricing pressure persisted in the quarter but Netwealth is gaining market share at ‘sustainable margins’,” Morningstar said.
“This is broadly in line with previous guidance, and our forecasts, for a stable EBITDA margin between fiscal 2018 and 2019.”
Despite a 32 per cent increase in FUMA to $27 billion in fiscal 2019, Morningstar said Netwealth’s growth was largely in line with its 30 per cent forecast.
FUMA growth slowed from 45 per cent in fiscal 2018 and expects growth will continue slowing down to 25 per cent in fiscal 2020 as the business matures.
As for Netwealth’s proportion of fee-paying funds under administration (FUA), it stabilised in the fourth quarter, which is slightly below the 61.8 per cent achieved in fiscal 2018 but well below the 69.3 per cent in fiscal 2017.
However, Morningstar said this doesn’t necessarily mean pricing has stabilised and the revenue/FUMA margin is likely to fall at a compound annual growth rate of 4 per cent over the next five years.
“Despite falling revenue margin, we’re a little surprised profit margins aren’t expanding given the reasonably fixed cost base and strong revenue growth, but expect further clarification during the fiscal 2019 results next month,” Morningstar said.
The only way you can really survive as a Wealth Adviser these days is to have your own Managed Discresionary Account. This is the only way you can get paid an ongoing precentage of FUM without having to get opt in signed every 2 years.
Traditional managed funds for super are no longer going to attract advised inflows as its too hard to get paid for recommending them and Netwealth are going to crash and burn as noone will want to go to university fr 4 years to deal with mum and dad clients for the pittance they pay
Advice will only be available to the very wealthy and everyone else will be left to figure it out on their own or take the advice of their mate or their accountant who gives financial advice even though he/she is not allowed to.
Yep this darling of advisers is going to crumble. Advisers who have been enticed with the shiney bells and whistles have not done their due dilligence on the sustainability of the provider.