Majors squeezing Netwealth and HUB24 says Morningstar

Platform providers Netwealth and HUB24 did well in the aftermath of the Royal Commission but the major platforms are reasserting themselves, according to new analysis from research and ratings house, Morningstar.

In an analysis of Netwealth, Morningstar has pointed to the state of the overall Australian platform market and suggested that despite falling over 7%, Netwealth shares remained over-valued due the commoditised nature of its product and strong competition.

It said there were challenges for Netwealth to keep meeting market expectations for simultaneous gains in market share and margins, stating that “fees may compress materially from current levels due to the commoditised nature of its product”.

“Netwealth has recently introduced a cost-effective ‘Core’ platform and will be launching a cash fund that offers higher interest rates than its platform cash account. Moreover, it has continued to expand the number of investment options, most recently including private market funds and term annuities,” Morningstar said. “These efforts closely resemble recent endeavours by its peers—for example, Hub24, which will be launching a cheaper ‘Discover’ platform and distributing Allianz’ retirement income product.

“We also note AMP launched its own retirement income product in late 2022, MyNorth Lifetime which is accessible via its My North platform,” Morningstar said. “These industry developments will likely prevent Netwealth from building a durable competitive advantage, underpinning our no-moat rating.”

“Therefore, progressively lower fees are needed for customer acquisition and retention. This puts Netwealth at a disadvantage as it remains subscale relative to major institutional platforms. For us to reassess our thesis, Netwealth would need to accelerate its market share gains in a maintainable manner, while most major platforms experience faster share losses. This is unlikely in our view.”

“While Netwealth has reaccelerated its market share gains in the recent June quarter, most larger institutional platforms have similarly regained lost ground. Firms like Insignia and the Commonwealth/Colonial Group appear to be regaining market share—a noticeable reversal from their previous losses, while Macquarie continues winning share at a faster pace than it has over the past six quarters.”

“Should the major institutional platforms continue to slow their rate of market share losses or even regain lost share, this would further enhance their economies of scale. AMP, BT Financial, Commonwealth/Colonial Group, Insignia, Macquarie, and Mercer together make up close to 80% of the platform market compared with about 7% for Netwealth,” it said.

“This scale advantage affords headroom for bigger players to lower product fees and improve product features, weakening Netwealth’s ability to gather assets over the long term.”