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Netwealth, HUB24 inflows slow as investor sentiment wanes
Inflows into disruptor wealth platforms such as HUB24 and Netwealth continued to decelerate in the December quarter as uncertain economic conditions and volatile markets weighed on investor confidence.
HUB24 recorded net inflows of $2.8 billion in the second quarter of fiscal year 2023, a marginal fall from the first quarter but a 23.6 per cent dip compared with the same period in fiscal 2022.
Netwealth’s net inflows fell to $2.1 billion, down from $2.9 billion in the prior quarter and a 42 per cent decrease from the prior year. Praemium, a smaller investment platform, had net inflows 61.9 per cent below last year.
“Investor sentiment has been very subdued in the wake of three successive previous quarters of negative markets and high volatility,” Praemium CEO Anthony Wamsteker (pictured) said.
The S&P/ASX 200 has had a peak-to-trough fall of 16.5 per cent over the past year against a backdrop of soaring inflation and the Reserve Bank of Australia increasing interest rates for eight consecutive months.
Today, the benchmark index is within 2 per cent of its all-time high.
Netwealth said the uncertain economic environment and low investor sentiment had affected the timing of transactions and subsequent inflows. It also led to above-average withdrawals from high-net-wealth and institutional clients.
The two primary drivers of funds under management (FUM) for wealth platforms are net inflows from clients and movements in the price of underlying assets, such as bonds or equities.
When markets fall − as most equity markets did over the past year − the value of FUM also declines.
Falling markets also affect client sentiment, with investors subsequently withholding from adding to existing and new investments. This is in addition to disposable income decreasing as interest rate hikes bite into household wealth.
Structural shift toward disruptors
Plan for Life’s latest analysis revealed Netwealth, HUB24 and Praemium as the only notable wealth platforms of size to record positive FUM growth in the year to September 30.
Conversely, market leader Insignia Financial, formerly IOOF, saw assets fall 9.1 per cent. And FUM declines of greater than 10 per cent hit the next three biggest platforms: BT Financial, AMP and Colonial First State.
Since the Hayne Royal Commission in 2017, disruptor wealth platforms have taken market share from predominantly bank-aligned providers as advisers have become free to choose which platform holds client assets.
Notwithstanding the recent slowdown in net inflows, Ord Minnett believes HUB24 and Netwealth remain well positioned in the structural shift away from incumbents and toward independent platforms.
This thesis is echoed by analysts at UBS, who believe the success of Netwealth and HUB24 is underpinned by superior technology.
In the latest quarter, HUB24 launched an environmental, social and governance functionality to help advisers better cater to the needs of ethical investors.
It also piloted a self-managed super fund offering, the first HUB24 product to leverage the capabilities of the company’s recent acquisition of Class.
Netwealth piloted its new multi-asset portfolio service and an integration that allows advisers that use several platforms to consolidate data via its mobile app.
“We remain strong believers in the structural shift of the Australian platforms market, of which HUB should be a major beneficiary,” Ord Minnett said in a note to clients.
“Looking through the near-term volatility, we believe the net flow and market share growth opportunity for [Netwealth] is intact”, a separate Ord Minnett note said.
Based on second-quarter data, it’s expected HUB24 will overtake Netwealth as the market leader for annual net inflows, the first time it would hold the number one spot.
