Netwealth cuts prices as profits rise

Super and wealth management firm Netwealth has cut prices on its wealth platform products as its net profit hit $20.5m.

Netwealth’s Michael Heine, left, and son Matt. Picture: Stuart McEvoy

Superannuation and wealth management firm Netwealth has cut prices on its wealth platform products but claims it will still be able to maintain healthy profits despite some concern about the move eroding margins.

Netwealth on Tuesday announced a 22.8 per cent increase in underlying EBITDA to $30.5m in the six months to December 31, and a 26.3 per cent rise in net profit to $20.5m, but its share price suffered falls on the market during the day as analysts forecast lower revenue margins and higher costs in the second half.

The firm’s billionaire joint managing director and founder Michael Heine told The Australian that while Netwealth was changing some of its pricing, he believed it was still well positioned to maintain its growth levels. “We are pretty happy with the results and the business is growing strongly. The market is dramatically changing but we still have only got 2.9 per cent of the market in a $900bn industry so we’ve got a bit of runway ahead of us.”

Netwealth shares closed down 5.2 per cent at $7.72 on Tuesday, hitting the range it was trading at back in August last year. “The reality is the share price is not our focus, our focus is building a long-term sustainable business. Ours is a fairly volatile stock and we have seen that decline and rise over time,” Mr Heine said.

He said the fee cuts, the first time Netwealth had changed its pricing since 2012, were to ensure “we aligned our rate card close to the market and also recognised you can’t leave old clients sitting on higher rates”.

“We have been writing business at market rates which are well below those rates for many years. The reality is rates have come down over the years and we are very comfortable with our continued profit growth,” he said.

Netwealth’s funds under administration continued surging, thanks to a big lift in money flowing its way from rich clients and financial advisers leaving the big four banks in the wake of the banking royal commission.

Funds under administration rose 50.2 per cent to $28.5bn as of December 31. Mr Heine said last year the firm was targeting FUA of $30bn by June 30 this year.

Netwealth is not aligned with banks or other financial services groups, something that has helped it grow its business as the banking royal commission has kept competitors in the headlines for negative reasons.

Operating expenses rose 20.5 per cent to $28.2m, but Mr Heine said Netwealth was committed to spending to upgrade its technology systems. “With an EBITDA margin over 50 per cent we can afford to continue to invest. We are investing as we scale up, we have to make sure the platform is robust and scalable and we constantly innovating.”

Netwealth declared a fully franked dividend of 6.9c per share.