Investment platforms showdown: independent players vs. big banks

Independent investment platforms, such as Netwealth (ASX: NWL) and HUB24 (ASX: HUB), appear to be reaching maturity, as demonstrated by their recent H1 FY 2025 results. It’s been a long journey, dating back to The Ripoll Inquiry in 2009, which exposed widespread issues with commission-based financial advice and adviser conflicts of interest. This raised early questions about the dominance of bank-aligned investment products and vertically integrated operations by banks and large wealth managers.

In turn, this led to the ‘FOFA’ reforms in 2012. While it might not have been obvious at that point, this marked the beginning of the end for the big investment platforms and an opportunity for the smaller, independent players.

While it’s difficult to find data going back that far, for anyone watching the industry, the signs were already clear by 2018 at least. Netwealth’s first half-yearly update after listing on the ASX in 2017 should’ve alarmed the big players and excited small-cap investors. This slide in particular:

This slide has appeared in every half-year and full-year update since then. Though the change has been gradual, the contrast to today’s market make-up is staggering, as shown in the most recent presentation pictured below. (Note: IOOF, ANZ Wealth, and MLC Wealth have all since merged into a single entity – Insignia. OneVue is now owned by Praemium.)

If IOOF, ANZ Wealth, and MLC are all viewed as a combined entity, Macquarie is the only one of the legacy players who’s gained market share over this period. And the bulk of that market share has gone to just two players – HUB24 and Netwealth.

With Netwealth and HUB24 both looking ready to overtake AMP and potentially even BT/Westpac on the FUA leaderboard, it’s a watershed moment for the industry, and seemed like an opportune time to look at the industry as a whole. I’ll also share which of these operators the team at A Rich Life believes offers the best long-term opportunity, as well as discussing an interesting short-term trading opportunity.

The Economics of Platform Businesses

From an investor’s perspective, investment platforms are some of the most attractive business models on the ASX – if they’re run well. They scale beautifully, generate massive operating leverage, and enjoy remarkably sticky clients. Add in a strong network effect, and you’ve got a recipe for an entrenched, high-margin business (albeit only once they achieve a certain scale).

But these advantages don’t appear overnight. Platforms need the right mix of technology, service quality, and adviser adoption to fully realise their potential. Let’s break down the four key economic drivers of these businesses.

Scalability

Investment platforms have a distinct advantage over many other businesses – growth doesn’t come with a proportional rise in costs. Once the core technology is built and regulatory approvals are in place, large investments aren’t necessarily needed to grow the business.

A new investor signing up doesn’t require building a new bank branch, generating a stack of paperwork, or undergoing a lengthy onboarding process – they’re plugged into an existing system. This means platforms can expand rapidly, capturing Funds Under Administration (FUA) without ballooning their expense base.

For the more tech-savvy platforms, scalability is further enhanced by automation. Adviser portals, digital reporting, and advice tools reduce the need for human intervention, ensuring that growth in FUA doesn’t require an army of new staff.

This is why platforms like Netwealth and HUB24 have been able to outgrow the legacy players – their technology was better designed for scale, than the old guard.

Operating Leverage

Once a platform reaches scale, the real magic happens – operating leverage kicks in.

Unlike fund managers, who charge performance fees, platforms generate most of their revenue via administration fees linked to FUA. These fees are typically tiered, meaning revenue grows as client balances increase, but costs stay relatively stable.

The result? A profit acceleration effect. When FUA rises, the bulk of that revenue drops straight to the bottom line. This is why rising markets – or strong net inflows – can have an outsized impact on platform earnings.

Of course, operating leverage works both ways. In a down market, when investment values fall and advisers pull back on new client acquisition, revenue can dip, but fixed costs remain. This is where cost discipline and the ability to attract net inflows become critical differentiators between platforms.

Sticky Clients

One of the biggest advantages of investment platforms is the sheer stickiness of their clients. Unlike a bank account, which can be switched in minutes, moving investments between platforms is a complex and often painful process.

For investors, switching can involve fees, paperwork (even if it is often ‘digital paperwork’ these days), and potential tax consequences – making them hesitant to move unless they’re deeply dissatisfied.

For advisers, the hurdles are even greater. Changing platforms means migrating client data, reconfiguring reporting tools, and retraining staff on new software. If a platform is doing a reasonable job, there’s little incentive to go through the hassle of switching.

This is why platform revenue is so stable. Even in tough market conditions, investors tend to stay put – and the revenue from administration fees keeps rolling in.

Ironically, the best example of this is the legacy platforms that are being replaced. Despite a clear technology advantage and larger inflows, it’s taken a decade for the leading disruptors to catch up to the scale of AMP and BT.

Network Effect

While scale and stickiness make platforms resilient, it’s the network effect that makes them dominant.

As more advisers and investors use a platform, its value grows exponentially. This happens in a few key ways:

This is where the legacy platforms – despite their declining market share – still hold some advantage. BT Panorama, Macquarie Wrap, and CFS FirstChoice still have entrenched relationships and deep integration with major advice groups. But the independents are catching up fast.

The Virtuous Cycle of Platform Dominance

These four factors – scalability, operating leverage, sticky clients, and the network effect – don’t operate in isolation. They reinforce each other.Scalability drives lower costs per user, making the platform more competitive.

Get this cycle right, and you have a high-margin, capital-light, long-duration business – the holy grail of investing.

The trick is spotting which platforms truly have these advantages – and which are just riding short-term trends. But we’ll get to that later.

Industry Tailwinds

Even with the best business model, no platform can thrive without the right industry conditions. Fortunately for investment platforms, they operate in a sector with some of the strongest long-term tailwinds in the market. The combination of rising markets and consistent superannuation inflows provides a steady stream of new money into the system – and platforms are well-positioned to capture it.

Rising Markets

When markets go up, so do platform revenues. Unlike fund managers, platforms don’t rely on outperformance to justify their fees – they simply charge based on FUA. If an investor’s portfolio grows by 10%, the platform collects more fees without doing anything extra.

Bullish market conditions also bring higher confidence and more inflows. Advisers are more active, investors are more willing to commit capital, and platform providers benefit from both organic growth (rising asset values) and net inflows (new client money coming in).

Of course, this works both ways. In a downturn, platform revenue can fall as asset values decline – though it should be noted that funds on platforms are generally diversified among a range of asset classes, not just in equities. But in the long run, markets tend to rise and platforms are structured to capture that upside.

Superannuation Contributions

Australia’s superannuation system is a gift that keeps on giving for platform providers. With the Super Guarantee requiring employers to contribute 11.5% of wages (rising to 12% on 1 July), there’s a continuous, mandated flow of capital into investment markets.

A portion of this money inevitably finds its way to investment platforms. While industry funds dominate the default superannuation market, investors who seek more control, tailored portfolios, or professional financial advice often move their balances into wrap accounts or managed portfolios on platforms.

For platform providers, this means a structural, recurring source of new funds every year, regardless of market conditions. Unlike brokerage firms, which rely on trading activity, platforms benefit from a steady accumulation of assets, even in quieter periods.

Could An Ageing Population Shift to Advice?

As Australians retire, they often seek more tailored investment solutions. While younger workers tend to leave their super in default industry funds, retirees are far more likely to engage a financial adviser – and advisers overwhelmingly use investment platforms.

Retirement planning is more complex than accumulation. Investors need strategies for income drawdowns, tax efficiency, and capital preservation, which many industry funds aren’t designed for. This is where platforms step in, offering customisation, flexibility, and managed accounts tailored to retirees’ needs.

This shift isn’t slowing down. The last of the Baby Boomers have just hit retirement age, and Generation X is close behind. Right now, there are nearly 1.6 million Australians aged between 60 and 64, but there are more than 1.9 million aged 54-59, ready to retire in the years ahead. With Australians retiring in record numbers, the demand for advice-led investment solutions will continue to grow – and platforms are the primary beneficiaries.

Tailwinds Pushing Investment Platforms Forward

The big three – rising markets, superannuation flows, and the potential shift to advice – are the key structural drivers for platform growth. But there are a few additional tailwinds worth noting:

• Post-Royal Commission restructuring – The exit of banks from wealth management has left a vacuum that independent platforms are filling.

• Digital transformation – Advisers and clients increasingly expect a seamless, tech-driven experience, favouring platforms with automation and advanced reporting.

• Regulatory push for transparency – Platforms with clear, low-cost fee structures and strong compliance tools have an edge as advisers move away from legacy providers.

Between these structural and cyclical trends, platform providers are operating in one of the strongest tailwind environments on the ASX.

Of course, not all platforms are created equal. Some are positioned to dominate the next decade, while others are clinging to a shrinking share of a growing pie. Next, we’ll look at which ones stand out.

The Players

It should come as no surprise that the team at A Rich Life are not excited about the prospects for legacy players. Given that all are losing market share, or even seeing outflows, these are not attractive businesses to own for the long term. This allows us to rule out AMP, Insignia, CBA/Colonial, and BT/Westpac.

While Macquarie is the clear standout among the legacy platforms, their platform business isn’t even significant enough to be classed as its own segment within the larger Macquarie Group. Additionally, given our focus is on small caps, it’s not a company we’ve devoted significant resources to covering.

Among the smaller players, neither Centric nor DASH are listed companies (note: Bailador Technology Investments has invested a total of $30 million in DASH for an undisclosed percentage of ownership in the company), so we can put those aside too.

Among the top 10 players in the industry, that leaves us with just three options:

Praemium In Name, But Not Premium In Nature

Though Praemium is a lesser-known and smaller name, it could arguably be grouped in with the ‘legacy’ players above. PPS listed on the ASX in 2006, though the share price is still below its pre-GFC highs.

PPS is not a bad business per say. In a vacuum, it may even be worth closer consideration. But given the competition it's up against, and the share price appreciation over the last year, it’s not a business we favour.

HUB24 – Harvesting Scale Advantages

HUB24 may be smaller than Netwealth, but it is growing market share more quickly, as the slide below from its H1 FY 2025 presentation demonstrates.

HUB’s market share has risen to 7.9% (up 1.3%), and it now tops the list for inflows. The business has reached a scale that now allows for the network effects and operating leverage discussed earlier to kick in, making it an attractive proposition.

The main argument against HUB24 is that the share price has gotten a little ahead of itself, given the significant re-rate over the last year. This must be offset against the positive tone of the HUB24 CEO Andrew Alcock on the H1 FY FY 2025 earnings conference call when he said: “...the pipeline is really strong, and the positive sentiment that we're seeing come from the distribution network is really strong. And equally, the market seems to be very strong as well.”

By way of disclosure, A Rich Life recommended clients buy HUB24 in January 2024, and the editor of this article, Claude Walker, owns HUB24 shares.

We recently published coverage of HUB24's H1 FY 2025 results for A Rich Life Supporters, but have made this article free for Livewire readers:

• HUB24 (ASX: HUB) Share Price Gains On Record H1 FY 2025 Results

Netwealth – The Market Leader

As the largest of the disruptors, boasting leading technology and a great company culture, Netwealth is a company that demands attention. It is a family-owned and operated business, with the Heine family still controlling ~49% of the company. They clearly have a focus on the long-term.

Like HUB, however, this quality does attract a premium valuation.

The nature of these kinds of businesses means that valuation is somewhat relative. We are not the first to observe the quality inherent in the model.

While Netwealth is not one of Claude’s official recommendations at A Rich Life, it is one that I plan to add to my portfolio (but not for at least 2 days after this article is published).

We recently published coverage of Netwealth's H1 FY 2025 results for A Rich Life Supporters, but have made this article free for Livewire readers:

• Netwealth (ASX: NWL) Posts Record Inflows, But Can It Maintain the Momentum?

A Possible Trading Opportunity?

Finally, though we are not traders, nor do we take bets on potential takeovers, it would be remiss not to mention the activity at Insignia. Currently three private equity firms, Bain Capital, CC Capital, and Brookfield, are lobbing competing bids for Insignia. MUFG, the recent buyer of Link Administration Services, has also been quietly building a position, but has not made any indications that it intends to bid for a takeover. For those with a shorter term mindset, this could be an opportunity worth investigating, though it remains outside our remit.

Owners of other companies in the industry should pay close attention though, as a successful turnaround of this business could cause a shakeup in the industry.

In Conclusion

Both the quality and the high valuations of Netwealth and HUB are standout. I myself have long underestimated Netwealth, despite briefly working at the company before it listed, and therefore having a good insight and knowledge of the business, and its excellent culture.

For long-term focused investors who can stomach the valuations, a ‘basket’ approach might be considered, with a view to add to positions on any pessimism, especially if that were to be caused by a general bear market rather than company-specific issues.

While I don’t currently hold a position in Netwealth (ASX:NWL) I intend to buy shares at least two days following the publication of this article. A Rich Life recommended clients buy HUB24 in January 2024, and the editor of this article, Claude Walker, owns HUB24 shares. 

Access our coverage of NWL and HUB's H1 FY 2025 results here (free for Livewire readers):

• Netwealth (ASX: NWL) Posts Record Inflows, But Can It Maintain the Momentum?
• HUB24 (ASX: HUB) Share Price Gains On Record H1 FY 2025 Results

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