When most investors look at the ASX 200 financials sector, their minds naturally turn to the Big 4 banks: Commonwealth Bank of Australia (ASX: CBA), National Australia Bank (ASX: NAB), ANZ Group Holdings Ltd (ASX: ANZ), and Westpac Banking Corp (ASX: WBC).
And I get it. These are structurally important companies for the Australian economy that have been around for a long time, and to be fair to them, they've consistently delivered sizeable dividend income for shareholders.
CBA shares, in particular, have been the pick of the bunch over the last five years, increasing by 156% over that period; but according to Macquarie's latest research, there's not a whole lot of upside left.
Macquarie's 12-month price targets for all four major banks imply flat or negative total returns, with the broker noting that margin pressure is building as interest rates fall. So far, all four banks have fully passed on the RBA's interest rate cuts to their customers, putting pressure on their net interest margins (NIM), a key metric for the banks' profitability.
Yes, the banks still offer fully franked yields and are operationally strong. But if you're after growth in the financial sector, I think you should look beyond the big four banks and towards these two superstars.
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Netwealth Group Ltd (ASX: NWL): The platform play with momentum
Netwealth is Australia's leading wealth platform and a quietly dominant company on the ASX.
The company benefits from the long-term structural tailwind of advisers shifting client money off legacy platforms and onto modern, transparent, tech-driven solutions like Netwealth. Netwealth's model is capital-light, highly profitable (EBITDA margins approaching 50%), and scalable.
As more funds move on to Netwealth's platform, the more money the company can make, which is why net inflow of funds is a closely monitored metric.
In Q3 FY25, Netwealth posted a record $3.5 billion in net inflows, bringing total funds under administration (FUA) to over $104 billion, up 23% year on year. Despite market volatility, flows remained strong in April, and management remains confident heading into FY26.
Even with the share price trading at 50x+ forward earnings, I still rate it highly given that the structural growth story remains intact. When the product's this scalable and sticky, plus the market is this large, that premium multiple might just be deserved.
Pinnacle Investment Management Group Ltd (ASX: PNI): The fundies' fund manager
Speaking of scalable, it's easy to overlook, with software companies getting all the attention, but this funds management business has a highly scalable business model.
I am bullish on Pinnacle, which provides the backbone infrastructure that supports a stable of boutique investment firms ("affiliates") across multiple asset classes and shares in their success by getting a portion of their profits.
Similar to Netwealth, the more funds under management (FUM), the better for Pinnacle. In Q3 FY25, Pinnacle reported $6.2 billion in net inflows, with strong contributions from retail and international channels. It now manages $159.9 billion in total affiliate FUM.
Importantly, this is a diversified, performance-led model. Analysts at Macquarie noted that 88% of Pinnacle affiliate strategies with a 5-year-plus track record have beaten their benchmarks, and currently, 28% of FUM is eligible for performance fees.
With strong leverage to stock market growth (markets generally go up over time), upside from new affiliates, and up to $300 million in "dry powder" to deploy in new opportunities, Pinnacle has multiple growth levers.
Macquarie values the stock at $25.10, around 25% above current levels, and it sees the business benefiting from medium-term operating leverage as FUM builds.
Forget the banks – back the platforms
The Big 4 banks have had their run, and for income-focused investors, they still serve a purpose. But if you're looking for growth, scalability, and exposure to the long-term trends reshaping Australia's financial landscape, I'd be thinking outside the banking box.
In my opinion, Netwealth and Pinnacle are two of the most compelling financial businesses on the ASX today. They are modern, nimble, and built for this era. They're not just riding structural tailwinds. They're building the platforms others depend on.
Forget the banks. It's time to back the platforms.
