Company Interview / Hub24 banks record inflows

Andrew Alcock, CEO of wealth management platform, Hub24 (ASX: HUB), shares his company's recent financial performance. The firm reports an underlying annual profit of $67.8 million, indicating a 15% increase in the previous year. The total revenue stands at 327.3 million, marking a 17% rise and it has announced a fully franked dividend of 19.5 cents per share. Andrew particularly underscores the success of their asset-focused approach, citing inflows into their business, customer satisfaction, and exceptional business outcomes. He mentions that the profit record sets the company at an advantageous position, emphasising their commitment to customer service and forward-looking innovations.

Addressing feedback revolving around operating leverage, Andrew underlines the company strategy as the predominant focal point rather than market excitement. Indeed, despite acquisitions and client preferences influencing their operating leverage, Andrew stresses the company's commitment to maintain balance in the business operations. He then elaborates on their acquisition-based growth strategy, highlighting the integration of businesses such as My Prosperity and Class into their platform. The approach anchors on building a client-centric system, ultimately resulting in substantial inflows into the platform business and potential profit emergence in the future.

Andrew touched on the productivity enhancements that have been brought in. This includes a reporting tool which advisers can use real time with their clients, saving them time in the process. Other productivity enhancements are focussed on bringing together comprehensive views and data feeds for their customers. Andrew states that despite the shrinkage in the industry, Hub24 (ASX: HUB) continues to gain access to the market, with an addition of about 500 net new advisors in FY 24. He vows to continue investing in technology, reducing compliance burdens, and fulfilling the fundamental need for financial advice in Australia by making advice easily accessible.

Full unedited transcript below:

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Wealth management platform hub 24, has reported underlying full year profit of $67.8 million, which is up 15% on the previous year. Total revenue for the financial year coming in at 327.3 million. That's a 17% increase. The company will pay out a fully franked dividend of 19.5 cents a share. To take a look behind the numbers, hub 24 chief executive Andrew Alcock joining us now Andrew welcome. Congratulations on the results. Thank you. What are the highlights for you. I think the highlights are assets. We've had a remarkable year in terms of uh hitting our goals in terms of inflows into the business, delighting our customers, winning awards and delivering some record breaking flows into the business. But of course, the profit achievement is great for us as well. So we're in a great position. We're balancing it right in terms of looking after customers at the same time as investing and innovating for the future. When there's such a gap in this market, I'm just taking a look at some of the broker notes. Um, off the back of your results, saying broadly in line, they were

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positive but lacks the operating leverage to get the market excited. What do you make of that? Oh, look, I think that we're not necessarily focused on how we get the market excited as much as how we deliver on the strategy. We've always balanced our investment and emergence of operating leverage with what is the strategy for the future? Uh, hidden in the results, though, there is the operating leverage in underlying EBITDA is up 1.2%, but it is offset by an acquisition and it's offset by client preferences with cash balances. So we have actually had the, uh, emergence come through, but offset by some other and organic factors. But we're absolutely focused on that. Moving ahead. Can you tell us a bit more about your acquisitions and how that's actually growing the business? If you like what it's what it's brought to the business? Uh, look, I think from the point of view of buying my prosperity and having had class in the stable for a number of years, class for 2 or 3 years in my prosperity for one year, uh, the market and our client groups and advisors are seeing or understanding our strategy about how do you build a better integrated system or ecosystem, if you like,

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for clients and advisors? Because in this country we haven't done that. We've been product centric, not client centric. So those acquisitions and the stated strategy are actually underpinning the flows into the platform business. So whilst we're spending some coin building those out and doing the integration, and it does slow down your profit emergence, the flow levels hitting 15.8 billion of net flows is unheard of in our industry. So the results with the sales are there. The profitability results will come through over time, but there's excitement about what we're doing. We really are trying to change the landscape and reduce friction, make advice more accessible and build integrated products, if you like, that haven't been done in this market before. Yeah. You talk about, um, increased productivity. Um, you've brought in a number of enhancements. Can you just elaborate on that, particularly as far as, I guess, providing, um, advisors with more tools? Sure. If you think about clients wanting a full view of their wealth and not looking at what's on their particular platform and that particular account. The ability to bring data feeds together, to bring together that whole comprehensive view

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is key to what we think is the future. And there was certainly building those out. So, for example, we've got a reporting tool that advisors can use with their clients real time to look at their balances across not only their portfolio and hub, but other products and services they might have as well. And we'll build that over time. So it's saving time for an advisor doing a review with a client, which means they can spend more time doing what counts, which is engaging the customer and their goals. And they can hopefully see more clients that I think is really important for us in our business and in Australia. Given the demand for advice and the lack of availability, how much growth is there in that in those terms, then, particularly with a number of CEO active advisors, you see a platform up around 4500. That's 13% up

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on the previous year. You've got new distribution agreements in place. Are they continuing to come? Yeah, it does continue to come. We're actually delighted that we had about 500 net new advisors in FY 24. That's our long term run rate. And when you think about it, if you're picking up 4 or 500 new advisors each year when the industry has been shrinking, we really are getting that access to the marketplace. Uh, and when you look at the number of customers advisors speak to, though over the last few years it went backwards to less than 120 to about 100 customers per advisor, it's now up above 120. But the compliance burden and the inefficiency built into the system from the old world needs to change. We're going to have advisors see 200 clients. That's good for us and our shareholders. It's good for them and it's good for Australians. And that's what the goal is. How do we use that technology, that reporting tool or the other features. We have to reduce that compliance. But whether it be fee consent and so forth, which helps advisors out, we're focused on making it easier to do business so you can spend more

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time with the client and hopefully more Aussies can get advice. You say that industry is continuing to shrink. What's where's that going to wind? What's the sort of sweet spot, I guess, for advisors and the client ratio? The interesting thing well, I really do think that, you know, it's very poor that this industry is at at 120 clients. Technology can unlock value. The challenge is where do you invest that technology and how do you get to that sweet spot? The Shah advice reforms. We still don't have clarity on tranche two and the timing of that. Will there be a change in government or an election before that occurs? So some of the things the that Michelle Levy's report set out to do haven't yet been delivered to help ease that burden? Uh, in terms of the sweet spot, you do have, uh, many advisors who do service more than 120 customers, but they've got an industrialized back office. They think about their investment process and their advice process, and they've invested in technology to help them get there. I think it's up to us and beholding us to make that easier across the board. Um, and at the same time, you do have shar potentially growing the number of

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advisors, if we can get those regulations through superannuation funds, will potentially hire financial advisors to deliver advice, which incubates a growing industry. And that's a fundamental need in Australia as well. Andrew operating expenses up 18% to $209 million. What's the attributable to? There's a couple of things in there, and we're forecasting less expense growth in the next period. But when you've added $20 billion year on year to your funds under administration and you've had a record year, you need to put fuel in the tank, so to speak. There was softer labor markets in the first half of the year where we didn't have the vacancy rate we normally have in our business, which means we inched ahead on the expenses. Um, it's also about my prosperity. It's also about some of the innovation we do. But moving ahead, we're probably thinking low teens for the next 12 months, which is less than the 18% we've had. Uh, that's us leveraging the cost base and doing more with what we've got and delivering automation, which actually pays back benefits in terms of customer service and lowering the cost to serve as you get larger,

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which is key for a business of our size now. So funds under administration are close to one and a half or $105 billion at the end of June, 30% up on the previous year. Can you continue that growth? Uh, well, percentage wise it's hard to. But in a lot of sense, we've, uh, guidance out that we expect on our custody platform to get between 115 and 123 billion by 26. And so that's currently it was at 84. So the 105 you've got is including a non custody service. But I think we can continue the growth. The competition in the market hasn't resurged. We really are focused on the right proposition for clients. And that's paying dividends in terms of customers are getting great value. We're winning almost every award. You could win at the same time as growing at record levels. I don't see why we can't continue to increase our market share. It's gone up three times in 3 or 4 years. Why can't we do that again? Over time, we'll certainly give it a shot. And in terms of your client base. Is there a particular demographic where you see yourself doing very well, perhaps you're

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focused on, or perhaps a demographic where you're lacking that you want to see growth in? It's fascinating. Andrew. We, uh, tend to win very much in the retail superannuation space compared to some of our peers. We have the highest, uh, net inflows into retail or a rapid count product in the marketplace into retail. Super. In fact, we've got the second highest in terms of across industry funds as well as who is choosing to move. If you're choosing to move super, your second most likely to move to hub 24, in a market that has been dominated by large industry funds. So we've done better there than we thought, and we don't target to do that. That's the power of advice and clients seeking advice and going to a great platform. Having said that, we do touch other parts of the the of the client segments. We've got high net worth clients and we've got products for those who are starting out. We intend to broaden that reach very much in the future. So it has been concentrated in the retail, uh, space in terms of that mass affluent client group. But that's part of our heritage. We're only ten years old. We are broadening it out into high net wealth and others, and we do have

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great, compelling offerings there. So overall, you said you're well positioned to extend your market leadership. How are you actually going to deliver on that then? It's about listening to the client. It's about focusing on that. It's about delivering on strategy and not dropping any balls. We've done really well to grow at the levels we have and win the awards and get the operational execution right Uh, it's about understanding what the market is after. And I think that's testimony. What we've done today, if we keep doing that and we keep prospecting the right way, it should just happen. And Andrew, overall, how would you describe the wealth management space at the moment in Australia, given, I guess, particularly the pressures that Australians are under at the moment with those elevated interest rates, cost of living and the like, how has that actually affected the broader industry? Sadly, it's great. Our industry works for us because we're we work with financial advisors and there's such a demand for them. When you think about the social issues we have in the country, there's real challenges. Uh, you've got interest rates up, so retirees are happy, but accumulators aren't. Um, it's industry that does require the reduction of

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friction to help with that. So, um, there's a lot to do to give Australians access to advice. There's a lot to do to get the regulatory burden, the regulatory framework, thinking about strategic goals for the industry, not about how we look back and fix things that we think are broken. How do we build for the future that's going to take industry, government and regulators to work together? I look forward to that day We've got a role to play, but my comment is I think it's not there yet.