Why the likes of Netwealth Group Ltd (ASX:NWL) could beat the big banks at their own game

Wealth management player Netwealth Group Ltd (ASX: NWL) may only have a $2.2 billion market cap – small fry when compared to the likes of $101.2 billion market cap Westpac Banking Corp (ASX: WBC) or $83.5 billion market cap Australia and New Zealand Banking Group (ASX: ANZ).

But according to an article in The Financial Review a “once in a lifetime shift” in the wealth management space could see disruptive up-and-coming players steal customers from the big guys.

According to the article, Netwealth has achieved a good deal of its growth so far on the migration of financial planners away from the big banks towards self-licensing and smaller dealer groups.

The exodus has likely been helped, in part, by the outcomes of the Royal Commission, the effects of which are far from over, and Netwealth has certainly captured the attention of investors since its ASX debut in November last year, with its share price up 69.5% from its IPO of $5.32 to land at $9.02 at the time of writing.

Netwealth handed down a quarterly business update on July 13 – lifting its profit guidance 6% above FY18 pro forma NPAT prospectus forecast.

The update showed funds under administration (FUM) was at $17.96 billion – up $1.95 billion for the quarter and a rise of $5.2 billion for the 12 months to June 30, 2018.

Netwealth co-founder Matt Heine told The Financial Review a focus on gaining share of the high net wealth investor market has been helping to bump up its FUM.

“Over the last 12 months, we have spent time building out our high net wealth offerings. While it’s by no means the only part of the market we’re working with, it’s an increasing opportunity for us given the breadth of our product offering,” Mr Heine told The Financial Review.

The wealth management space has burgeoned over the past couple of years as investors have taken notice of emerging players in the sector while larger institutions have gone out of favour.

The likes of Praemium Ltd (ASX: PPS) has seen its share price rise 138% in the last 12 months, from just 42c per share at this time last year to $1 at the time of writing – up 5.2% in early morning trade alone.

Praemium last week released a FUM update detailing record annual gross inflows of $3 billion – up 50% from the previous financial year with Morgan Stanley selecting Praemium’s SMA platform to run its managed accounts solution from this month.

Still in the space, it’s been hard to ignore fast-growing fintech player Hub24 Ltd (ASX: HUB) which is expecting an underlying EBITDA of $11.8 million for FY18 with strong growth plans for FY19 and beyond.

Less well-known is wholesale provider of services to wealth management clients Onevue Holdings Ltd (ASX: OVH) which has logged share price gains of 43.5% over the last 12 months after being awarded the third best platform overall by Investment Trends with strong organic growth pipelines.

One thing is for sure, these smaller players are sharpening their focus to continue to rake in market share from the large banking institutions, and with financial planners on their side and the ability to be flexible with their offerings, they could just have the winning formula.

Investors who are yet to get on board should do their due diligence here, opportunity abounds.

Netwealth is a definite "disruptor", and it's in good company.

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