Morningstar delivers HUB24 a sobering assessment

HUB24 may be riding high after producing a strong half-year result but research and ratings house, Morningstar, has predicted tougher times ahead for the platform provider including margin compression and declining fund flows.

On top of that, the new Morningstar analysis has pointed to declining adviser numbers impacting the platform provider.

“We forecast fee margins will compress to around 0.29% of funds under advice (FUA) by fiscal 2027, from 0.37% in fiscal 2023. We also assume Hub24’s share of the platform industry’s net flows will decline to 27% by fiscal 2027 from 46% in September 2022,” the analysis said.

“The slowdown is evident. Growth in advisers using Hub24 and net inflows per adviser slowed to 9% and negative 24% over the 12 months to December 2022, versus 24% and 3% over 12 months to December 2020, and 40% and 7% over 12 months to December 2018,” it said.

“On a positive note, while competition among platforms should even out, for example, be less skewed in favour of specialty platforms like Hub24, this will take time and we still expect Hub24 to win a sizeable share of industry flows over the near to medium term.”

“The major incumbents remain in a period of restructure. There is still room for net inflows from relatively newer Hub24 users (advisers), which made up 25% of net inflows over the half, versus 19% in the prior half, and 15% in first-half fiscal 2021. Twenty-three per cent of all advisers in Australia (3,692) currently use Hub24, and it will work on promoting to an additional 47% of the market (7,500) that are currently covered by its licensee agreements but not yet using Hub24,” the Morningstar analysis said.

“Regardless, we don’t expect all of the 7,500 will turn into hot sales leads, while some of its existing 3,692 advisers may also drop off.”

“Unlike moat-rated software businesses that can build switching costs through product upsell and integration into mission-critical processes, Hub24 operates in a regulated industry that perennially advocates lower fees for customers—meaning it could lose out to another peer with similar functionality but lower fees.”

“More broadly, efforts to build switching costs are unlikely to succeed due to the replicability of its efforts by peers, the inessentiality of certain parts of its offerings, and the sheer variance in client needs and preferences.”