Netwealth was founded in 1999 by Michael Heine, and his son Matt Heine, who is currently CEO and Managing Director, joined as the fifth employee. The business, which develops wealth management technology for financial advisers, stockbrokers and their clients, is an interesting case study of how an ASX listing can unlock value for founders and their family.
From a business perspective, while Netwealth initially focused on offering an online platform for direct investors, including a discount broking service, it has gradually expanded its services to include a broad range of award winning wealth management, superannuation and investment solutions. Despite strong competition from the banks and institutions the company, which now has Funds Under Management and Administration (“FUMA”) in excess of $150b, has continued to evolve and innovate, adapting to changing market conditions and regulatory environments, while maintaining a focus on delivering value to its clients and stakeholders.
After the founder considered a range of options, Netwealth listed on ASX in 2017 with an issue price of $3.70 a share and a market capitalisation of $879 million. Today, Netwealth’s share price is around $30 with a market cap of circa$8 billion
Listed@ASX recently sat down with Netwealth CEO and MD, Matt Heine, to learn more about his vision for the future.
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Listed@ASX: How has being listed enabled Netwealth’s growth and aspirations and how will your inclusion in the S&P/ASX 100 further support this growth?
Matt Heine: Netwealth was founded at the peak of the dot com era with a vision and aspiration to grow to 30 staff, $3 billion under management and a pinball machine. The original idea was to provide simple investments solutions to Australians. While an ASX listing was never the objective and we have never raised any capital, as the business grew to be more successful, my uncle, who was a major shareholder, was exploring liquidity options. We met with a range of investors, including private equity, but it became apparent that none were a good match for us.
Dad and I were very committed to the business, which had been running for about 15 years at that stage and still saw considerable growth and opportunity.
While private equity would provide liquidity, we believed it would have sent the wrong message to our clients that we were not committed to the long term. Also, we didn’t want to lose control of the business or the strategies that underpin our growth.
One of our directors, Tim Antonie, who has just recently retired as Chair, was previously at UBS, and suggested we talk to a couple of the investment banks about what a listing might look like. It quickly became apparent a listing was not only a viable option but the right solution.
Listed@ASX: Why did you think a listing was the right path?
Matt: There where a number of important outcomes that ultimately led us to a listing. The most important outcome was that the listing enabled our family to maintain majority control and ownership of the business, which we believed critical for our long-term success. It sent a strong message to our clients, many whom where able to participate in the listing, that we were committed for the long term.
One of the unintended benefits was that prior to our listing, being an unlisted, privately owned, family-run company, had made it extremely difficult for us to work with some of the larger banks and institutions that we now work with. The visibility a listing, along with its transparency of disclosure and financial reporting, changed the perception and understanding of our business and opened some key doors.
As we operated in a highly regulated industry, the additional financial, compliance and regulatory requirements of the listing weren’t particularly significant, which definitely made the process and decision easier.
Ultimately, the listing provided an opportunity to create a liquidity mechanism for family members and also many long term staff. It was incredibly rewarding to see the positive financial impact this had on many of them.
Listed@ASX: How do you approach capital management?
Matt: As a high growth company, we’re extremely fortunate to also have incredibly high EBITDA margins, strong operational leverage, and strong cash conversion. So we’ve been able to self-fund our high growth without ever having to raise capital – either equity or debt – whilst delivering a continuously growing dividend to investors.
When it comes to capital allocation, we’re disciplined in investing free cash flow in future-focused innovation. As a result we make strategic decisions each year to either accelerate product development, pass on strategic pricing to our customers, or increase our margins. It’s really important we maintain a very profitable business with good margins, but also that we continue to invest heavily for the future.
When we’re allocating capital or creating a budget, we actively debate whether we have the right balance between increasing our dividend and investing in the future and being able to maintain our margin on a debt-free basis. This year we made the active decision to accelerate our technology investment at the slight expense of EBITDA margin, as we have a broad range of attractive investment opportunities that will drive future growth. We have a growth-oriented shareholder base who’ve been very supportive of this strategy, and we make sure to actively communicate our strategy and plans with them and the market.
Listed@ASX: How do you approach investor relations (IR) with your ownership structure?
Matt: About 50 per cent of our register is institutional, and 5% retail, with our family owning the remaining shares. Being included in the ASX 100 was a fantastic milestone for the business, especially given the relatively limited free float, and reflects a huge amount of work from the Netwealth team over a very long time. We’ve worked very closely with our investors since listing and whilst the register will change in the coming 12 to 18 months it’s pleasing that many of our long term supporters will be able to continue to hold our stock as we move into the S&P ASX 100.
As a family-led business, our CFO, Hayden Stockdale, and I do IR. We don’t have an IR team, but we’re very well supported by our incredible group finance function.
We believe it’s particularly important for new investors to meet the management team and hear the story and the strategy first hand from the CFO and the CEO. This approach has been important from the beginning. Our inclusion in the ASX100 does mean we are going to spend more time overseas speaking to offshore investors. This year for the first time, we’ll be attending the Morgan Stanley conference in Singapore to start educating larger, offshore investors who may not have been able to invest previously or might not be aware of what we do. We will also look to expand our relationships into the US next, being conscious it typically takes a number of meetings before institutions make a decision to invest.
Listed@ASX: What trends will shape wealth management and how is Netwealth positioning itself to capitalise on those trends?
Matt: We constantly monitor the big macro trends locally and internationally and look for signals as they relate to wealth management but also consumer expectations and behaviours. Whilst there are numerous tailwinds currently, there are a number of major trends we see driving our growth. At a high level, it’s about working very closely with financial intermediaries to assist them in servicing a significantly greater number of clients than they are able to now.
The ageing demographics of Australia suggest that by 2050, ten million Australians will be retiring, many of them with complex advice needs, who will be seeking support and advice from a financial adviser in the coming years. As it currently stands, there are only 10,000 to 11,000 financial advisers in Australia and this creates a serious supply and demand issue.
The opportunity for us, and also for the financial advisers and intermediaries we work with, is to help them service a much higher number of customers without reducing the quality of the advice or the service they provide. Without additional efficiency and scalability, there is no way we’re going to be able to service the needs of Australians retiring in the next decade.
Listed@ASX: How has your founder-led structure influenced your culture and decision-making?
Matt: For a business scaling as rapidly as ours, it’s really important to be clear on our values and culture. We have been very focused on understanding and “codifying” the DNA of our business and making sure what made us successful in the early days continues to underpin our future success. This comes down to living, breathing and role modelling our values on a daily basis. We embed our values in everything we do from recruitment, decision making to performance reviews and to how we interact with each other on a day-to-day basis.
Our values are really important to us and while they’re quite different to what you would expect from a financial institution, they have set us up to make sure that as we grow and as we recruit new people into the business, everything is grounded in the values and our culture that is so important to us.
Listed@ASX: How do you strengthen client engagement and retention, especially in light of competition from fintechs?
Matt: When we started 26 years ago as a very small start-up, we didn’t have a lot, other than the relationships we had. We’ve always been very product focused and customer focused, making sure the solutions we build solve real problems. It’s been really vital as we’ve grown that we keep close contact with our customers.
I still spend lots of time with our clients, to make sure I’m hearing feedback directly and that there are no surprises. We spend time listening and trying to understand what the biggest challenges are and the problems we can solve firsthand. As you grow bigger, this becomes more difficult. We’re currently reorganising around being more of a product-led organisation, which enables our team, across the business, to engage with customers on a more regular basis.
Listed@ASX: How does the business approach ESG and sustainability?
Matt: At Netwealth, we take our responsibility as a business very seriously, recognising the significant impact we can have on the community. Our mission is to improve the financial futures of one million Australians through our superannuation and investment solutions. This commitment is at the heart of our culture and drives everything we do. We strive to operate with genuine transparency and integrity, ensuring that our actions align with our values.
In addition to our core services, we believe in giving back to the community. We actively support financial literacy initiatives, having fully funded and sponsored programmes in schools that have reached over 150,000 children in the past five years. Our goal is to accelerate the adoption of these programmes across the country, empowering the next generation with essential financial knowledge.
Moreover, we are proud to partner with various organisations that align with our mission, some focusing on financial literacy while others address pressing social issues in Australia. Through these efforts, we aim to create a lasting positive impact on the lives of Australians.
Listed@ASX: What are your priorities over the next three to five years? And how do you plan to navigate the challenges you will face along the way?
Matt: The world we live in changes every day and each day brings new challenges and opportunities. We have a medium- and long-term strategy, but the reality is that many tactical plans we make are likely to evolve or change in the coming months in response to market and technological advances. That said, we remain focused on our strategic goal of rapidly expanding our presence in the retail market, as well as increasing our share among high-net-worth individuals and in the stock broking sector.
We are confident our product offerings and features position us well to achieve growth. While the path to our goals may shift over time, and our strategy will adapt accordingly, given the current market environment, the huge number of opportunities available, and the demographic trends in our favour, we believe we are incredibly well equipped to continue our strong growth trajectory.
https://www.asx.com.au/blog/listed-at-asx/netwealths-ambitions