AMCIL has invested in Netwealth Group (ASX: NWL) for a long period of time. The company’s ability to consistently increase their market share while also consistently delivering profits through reinvestment and good management has resulted in AMCIL being a long-term investor. In this article, portfolio manager, Kieran Kennedy explains why AMCIL believes Netwealth Group is a great company and remains a good long-term investment.
Netwealth Group is a leader in financial platform technology. They provide software solutions to financial advisors to manage their clients’ records, tax documentation, and investment tracking. Netwealth Group’s platform helps advisors reduce administrative work, allowing them to focus on servicing clients—a significant advantage as advisors increasingly seek independent solutions over traditional bank-affiliated platforms.
While its current share price may be fully valued, we see Netwealth Group as a strategic long-term holding due to its strong market position, disciplined management and commitment to innovation, factors that are critical in today’s financial landscape.
Growth and market leadership in a shifting market
Following Australia’s Banking Royal Commission in 2017, new legislation was introduced to reduce conflicts of interest in financial advice and unbundle services. This meant advisors were more able to select independent, high quality platforms that best served their business and clients, opposed to being forced to use platforms aligned with the ‘big banks’. In this new environment, Netwealth Group further emerged as one of two key industry challengers and leaders, driven by their focus on delivering innovative technology and advisor-focused solutions. This commitment to evolving and improving their software platform to support the advisor industry has continued to strengthen.
ince listing on the ASX less than a decade ago, Netwealth Group has expanded its market share from around 2 to 3 per cent to 7 to 8 per cent, largely by capturing new inflows. This consistent market share growth is more significant in context of the fact that once an advisor has their clients on a platform, it’s difficult to switch them. Also, the demand for financial advice in Australia continues to grow. This creates an environment for attractive and reasonably consistent year-on-year growth, which gives us confidence as an investor.
Steady management through volatility
Founded by Michael Heine in the early 1990s, Netwealth Group remains a family-led company today. The Heine family has maintained majority ownership, with Michael's son, Matt Heine, serving as sole managing director from 2022. The leadership transition was well-managed and brought the advantages of experience and fresh technological insights, as Matt brings an approach aligned with the company’s digital focus.
Netwealth has consistently operated without debt, relying on consistent profit and reinvestment to grow rather than using external funding. This long-term approach of balancing reinvestment with sustainable growth is key to AMCIL’s confidence in Netwealth Group as a quality company.
Netwealth Group’s share price can be more volatile than its profits due to cyclical shifts in market sentiment and expectations. During positive market conditions, growth can accelerate as more clients seek financial advice. Conversely, in quieter periods, growth may slow but remains steady due to consistent new business flows; share prices can fluctuate with such cycles. As a long-term investor, we invest in companies that reinvest in their business and focus on sustainable growth rather than prioritising short-term profits.
As a platform managing sensitive financial data, we monitor the quality of Netwealth Group’s risk management. Netwealth Group has demonstrated a proactive commitment to re-investing in technology, which provides confidence in their ability to manage key risks like cybersecurity.
hy Netwealth Group is an attractive investment
Netwealth Group’s disciplined approach, advanced technology, and strong leadership give us the confidence that the company is poised for long-term success.
We continue to own it in the AMCIL portfolio because we believe it will continue to be a fantastic company for the next 10 to 20 years. However, we are also cognizant of the fact that it is currently at a point in the financial market cycle where it is highly valued. As all cycles do, this may reverse potentially providing an opportunity to add to the holding.