Australia | 11:30 AM
After materially and persistently underperforming Hub24, Netwealth is turning to AI-powered adviser productivity through its Paradino acquisition.
- Netwealth Group’s Paradino acquisition potentially a game-changer
- Potential for growth in funds under administration (FUA) to accelerate
- Risk from Guardian-related class action remains
- Shares are trading at a huge gap to price targets
By Mark Woodruff
Shares in Australian wealth-management platform companies have come under pressure since mid last year, but for shareholders in Netwealth Group ((NWL)) the ugly fact remains that main ASX-listed competitor Hub24 ((HUB)) has materially outperformed over just about every short and longer-term timeframe.
Both provide services allowing advisers to manage clients’ superannuation and non-superannuation investments through a single platform, providing access to Australian and international securities, managed funds, managed accounts, cash and other investment products, alongside administration, reporting and portfolio-management tools.
Over the past year, Netwealth shares have fallen -38.5% to $18.77, compared with a -30.2% decline for Hub24 to $70.16.
The relative underperformance is even more pronounced over three years, with Netwealth shares delivering a capital gain of around 19%, excluding dividends, while Hub24 shares have more than doubled.
Hub24 has benefited from a much stronger valuation re-rating as investors rewarded its market-share gains and adviser ecosystem, while Netwealth's equally strong underlying growth was increasingly offset by fee compression, higher investment requirements and, most recently, substantial costs from the First Guardian demise and associated regulatory risk.
Industry benchmarks and feedback suggest to the analysts at RBC Capital that Hub24 currently leads competing platforms in adviser efficiency.
Aiming to improve adviser workflows, Hub24’s myhub ecosystem already offers tools such as the adviser reporting and presentation tool Engage and client portal myprosperity, with functions including document sharing and signing, digital forms, reporting and secure communications.
A looming change of fortunes?
RBC believes Netwealth’s acquisition of Paradino, an AI-powered software platform for financial advisers (allowing workflow automation), could close the gap with Hub24 in terms of efficiency tools, and potentially move it ahead of Hub24 once fully integrated.
Netwealth administers more than $135bn in funds under administration (FUA) and serves over 4,000 active financial advisers.
Bell Potter explains Paradino offers three pricing tiers ranging from $149 to $349 per adviser each month, with revenue growth indicating increasing adoption of higher-priced plans.
Impressively, management outlined a scenario in which full utilisation of Paradino could lift Netwealth’s revenue by 38%.
Competitors are pursuing similar strategies, yet Ord Minnett notes Paradino gives Netwealth an AI-focused product that appears to lead the market.
Morgan Stanley believes the acquisition can help close the gap that Hub24 has recently opened up in terms of net flow momentum, partly by accelerating Netwealth’s share of new advisers with a more compelling productivity and platform offer.
Overall, the acquisition is viewed as strategically compelling, with the potential to create additional value for both advisers and Netwealth.
Not only is Paradino seen as providing a material improvement in adviser productivity and profitability via significant time savings, but this broker also anticipates deeper client relationships.
All of the above is not to suggest management at Hub24 is becoming complacent.
RBC notes Hub24 is starting to roll out integrated AI prompts drawing on data from its myhub ecosystem and has partnered with Australian wealth/advice technology business InvestStream to provide compliant advice workflows and advanced financial scenario modelling.
InvestStream is also proposing to partner with Japan’s Mitsubishi UFJ Financial Group (MUFG) Pension & Market Services to deliver next-generation digital advice.
RBC highlights Hub24 holds minority stakes in both InvestStream and Australian financial-advice technology develop Finura Digital, with the latter helping advisers rapidly prepare Statements of Advice (SOAs) and implement AI tools.
Improving adviser efficiency
UBS highlights a broader shift by wealth platforms into adviser workflows as providers move further down the technology stack to improve adviser efficiency.
While Netwealth’s acquisition of Paradino aligns with this trend, this broker expects many lower-tier subscription AI tools to become increasingly commoditised.
Higher-value AI tools that streamline the preparation of Statements of Advice (SoA) should prove more valuable to advisers, though UBS notes established providers could ultimately replicate these capabilities.
Taking a more positive view, Ord Minnnet highlights the acquisition further expands Netwealth’s role beyond platform provision into broader adviser workflows.
Netwealth may capture some productivity benefits, yet Ord Minnett expects more upside from greater adviser goodwill and higher retention.
Additionally, increased adviser productivity is expected to lift clients per adviser and accelerate funds under administration (FUA) growth from the existing base.
All these potential benefits exclude cross-selling opportunities between Paradino and Netwealth customers, with only 20% of Paradino customers currently using Netwealth.
Ord Minnett’s scenario analysis suggests converting existing Paradino subscribers to Netwealth’s platform could eventually generate around $27m of additional revenue, equivalent to 6% of the broker’s FY27 forecast.
In a more measured assessment, Citi views the Paradino acquisition as incrementally positive.
The transaction is expected to modestly dilute near-term earnings, reflecting the high acquisition multiple of around 18 times revenue and plans to offer advisers the basic product free.
Nevertheless, the relatively modest initial outlay of around -$30m is seen as limiting Netwealth’s financial exposure.
Sequence of acquisition benefits
Benefits from the Paradino acquisition should emerge progressively, Morgan Stanley suggests, led by sales of statements of advice (SOA) and other automation tools to Netwealth’s existing clients.
This could lift group revenue margins, followed by efficiency gains that increase funds under administration (FUA) per adviser.
Equally important: the integrated offering could strengthen Netwealth’s platform appeal and accelerate adviser growth.
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