Netwealth Group Limited (NWL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Netwealth Group Limited Half Year Results Fiscal Year 2026 Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Matt Heine, CEO and Managing Director. Please go ahead.

Thanks, Jamie, and good morning, everyone. My name is Matt Heine. I'm the CEO and Managing Director of Netwealth, and I'm joined here today with our CFO, Hayden Stockdale. Thank you for joining, as mentioned. Today, we are very pleased to present our half year results for 2026. And in many ways, the last 6 to 12 months has been a tale of 2 cities or as Charles Dickens famously said, it was the best of times and it was the worst of times. On the one hand, we delivered record results, which I'll walk through shortly. And on the other hand, as many of you would be aware, we worked through a very challenging regulatory environment. We're particularly pleased to be able to settle that particular issue at the end of last year and give the members and victims of the First Guardian collapse clarity going into Christmas and also to reach agreement with the regulators to start this year with a fresh start. For the purpose of today, however, we are going to focus on the financials and the adjusted financials. So the numbers that we'll work through in a moment's time have all been adjusted to remove any impact of First Guardian. So that is the compensation payment and any one-off direct payments related to that. Please note that, that is the only adjustment to these numbers and otherwise, they are as we have delivered. Turning to Page 7. As you can see, we delivered incredibly strong metrics across FUA, net flows, income and EBITDA. And we've also started off this year very strongly with FUA currently sitting as of the 16th of February at $127.3 billion and net flows year-to-date, calendar year-to-date of $1.6 billion. So good momentum coming into the year. The last 6 months to the end of calendar year was a record from an inflow perspective with $16.6 billion received, resulting in net flows of $8.2 billion. Our FUA for that period increased to $125.6 million, an increase on prior corresponding period of 23.6%. Our total income of $193.8 million was a 24.7% increase to PCP. Our EBITDA of $96.7 million was a 23.9% increase to PCP. And our EBITDA margin of 49.9% was marginally lower than the prior corresponding period as guided previously as we took operational efficiencies and reinvested them back into our technology and product, and I'll go through that in a little bit more detail in a few slides time. Importantly, though, on Slide 8, you can see as per previous results, we have got a strong track record in delivering consistent growth and also operational leverage across the business. In the first half '26, as mentioned, we saw fuel growth of 23.6%, which resulted in income growth of 24.7%. The EBITDA, as I touched on, 49.9% and EBITDA growth of 23.9%. So really pleased with that set of metrics and the growth in the business. Also particularly pleasing, which you see on Slide 9, is that a lot of the investment that we've been talking about and have indicated in previous results sessions is actually now starting to result in real growth across a number of really key ancillary areas. The managed account, which is a key driver of growth and a real engine room of the business, saw fantastic growth during the period of 32.3% and even our managed fund growth of 20.2%. The managed accounts as they continue to scale rapidly and are the chosen method of implementation for many financial advisers across the country, was an important focus for us over the last 18 months or so. And during that period, we completely rebuilt our managed account infrastructure, which gives us excellent scalability moving forward as well as a range of new capabilities and features that we know are requested and needed in the marketplace. So in a really good place to continue to grow that part of the business and to make sure that we grow that in the broader context of the platform. Equally, we've been investing heavily into our FX and trading capabilities, and that's across both domestic and also international. FX is an important revenue driver, and we've seen a very big uptake of international trading over the last 12 to 18 months. And you can see there the volumes continue to grow with a 40.8% increase on the international volume, all contributing to a very diversified and growing income base. Equally, as a result of further investment into our cash functionality, we've seen our cash balances increase to 6.2%, which was a significant step-up from this time last year. Some of the new features included additional payment facilities and the ability to set regular payments. So increasingly, the cash account capability and functionality is aligned to what you would expect from an everyday bank account. On Page 10, equally important is that throughout the course of the year, we've added a significant number of new advisers. So for the first -- sorry, for the 12 months to the end of the period, we saw a 7.3% increase in the number of financial intermediaries using the platform and across all of our advisers, so 4,089 advisers, a significant jump in the number of accounts added of 13.7%. Total account holders now is 172,221, so starting to be extremely meaningful. As per previous results, you can see the trend is very consistent where the bulk of our business throughout the course of the year each year actually comes from existing customers or those that have come in over the last 3 years. Throughout calendar year '25, 91.7% of inflows were from existing customers or those newly joined the platform with 8.3% coming from those that have joined in the course of the 12 months. Those that have joined recently in the last 12 months will really hit strides and start to contribute meaningfully to flows in the next year and years beyond. So very strong thematics, great growth across those key drivers that really do underpin not only our FUA growth but also the absolute growth on the platform. From a strategy and product perspective, clearly, there's a lot of focus at the moment, emotion and potentially noise around the potential impacts of AI. So I will spend a little bit of time on that in the coming slides. But it's also really important, I think, to understand, and you see this on Slide 12, which is a chart that many of you would have seen before, that the changes or the acceleration of AI in the last 6, 12, 18 months hasn't fundamentally changed our strategy. The business is a technology-first company. We have been adopting and implementing AI across the business for many years. And the current advancements, particularly with generative AI and agentic AI, in many ways, actually underpin and further support what we believe is a very exciting future. Netwealth, particularly, having been across this trend and investing into these areas now for some time, actually believes that we are uniquely positioned to drive adviser efficiency intelligence across our products and services that leverage data, technology and connectivity, importantly, in a very heavily regulated market. And I'll delve into some of these themes a little bit more on the following slides. It's also important to understand that Unify, which was a business that we bought a number of years ago, Zeppo, which should be across, actually is a key advantage and provides a huge moat for our business as we continue to implement it and integrate it into every part of the platform. Through Unify and also the broader business, we have now the largest data set of any platform in Australia. And ultimately, those with the most data are best positioned to benefit and really leverage and win in the AI world. The ecosystem that we've built across the platform is incredibly powerful. Not only we've got proven scalable and market-leading technology and financial products, but our insights, analytics and also our partners and integrations put us in a great place to really leverage and take advantage of what's going on. Moving to Slide 13, and there's obviously a lot of text here. I don't propose to go through each and every item other than to say we really do believe that from an AI perspective and from a technology perspective, that we are in a very good position to deliver future solutions on today's data and infrastructure. Some of the key areas, and if I summarize maybe the 4 top ones in my mind, is that AI actually amplifies advisers. The beauty of AI, and we're seeing this being adopted already across many of our customers is that it removes the mundane tasks from the advice process. The more that advisers that amplify, the more that they're able to deliver productivity across their teams, the more productive those advisers are. So the advisers that are using us, as I mentioned, many are using AI increasingly in their practices. This means that they can see more clients and therefore, Netwealth is a net benefactor from that. Our scale also turns AI into a moat. As I touched on before, we have one of the biggest data sets in the industry, and there is a lot that we can do with that data to really start delivering incredible intelligence and insights across the business as well as to drive significant adviser efficiency. And in many ways, our scale actually turns AI into a moat moving forward. The bigger we get, the larger our data set, the more that we invest into AI, the bigger our moat. It would also be remiss not to mention that Netwealth and our peers operate in a heavily regulated market, and we've seen the impacts of that in recent times. Netwealth is regulated by basically everyone across Australia, whether that's ASIC, APRA, AUSTRAC, ATO. And it's important that platforms continue to be a key gatekeeper in the industry. As one of the analysts [indiscernible], I think it was very clearly stated, APRA is not handing out licenses to 5 coders. And I think that's really important. The regulatory environment that we operate in also provides a huge moat, and we see it as a benefit moving forward. We need to make sure that we comply with very sophisticated laws and requirements, and that is not easy to replicate. And we also think that AI really raises the barriers to entry. It's difficult for new players to come in and do what Netwealth does. It's not that challenging to build a robo-adviser if we're talking about an automatic tool that rebalances the client's portfolio. What is difficult is to put that on top of the infrastructure and the client relationships that we have built out over many, many years. And so as we continue to adopt and embed AI across everything that we do, not only do we expect internally to get huge internal efficiencies, and we're starting to see really good outcomes in that regard already, but we believe it allows us to also provide very strong customer service propositions as well, which makes our clients more efficient, which enables them to see more customers, which allows them to put new accounts onto the platform. No doubt we'll spend more time chatting about this over the next couple of days, but that is a good list. And clearly, there's more to come. But again, without over emphasizing it too much, we really do see the AI advancements as a huge net benefactor to our business, and we're excited about the future that it can deliver. Moving on to Slide 14. Just quickly. I also touched on the fact that we have market-leading products and services. So this is a very heavily regulated aspect of our business. We continue to deliver very tailored solutions to our key market segments. So we believe that we can and will win in the affluent advice segment and that our range of accelerator products, both the wealth and Super Accelerator, continue to be enhanced and evolved to meet the needs of affluent advisers. We're also really excited to be launching our new high net worth and ultra-high net worth products into the market with the launch of Netwealth Private and also the pending release of our new individual HIN service to which we're already starting to onboard customers in a soft launch phase. I won't go through all of our developments over the last 6 months that are listed on Slide 15. But you can see there, as indicated, we have been investing heavily across the board. There is always elements of maintenance need to be done on the platform. But more importantly, we are delivering real value to our customers, both from an efficiency perspective, but also from a new product and access perspective. On Slide 16, again, great growth across all of our core segments. I touched on the fact before that we are focused on the affluent advice and high net worth advice parts of the market. And you can see that, that is really nicely split across the inflows and the makeup of the platform. Great growth across all of those segments and our newer products that have been released directly for the affluent and also high net worth being our accelerated core product and our noncustodial are seeing great adoption across the country and through our adviser base. Looking forward, it is very much more of the same. However, I did just want to talk about the growing and expanding opportunity in our target markets. Clearly, we continue to grow and expand within our platform sector. The system growth of that continues to grow and Netwealth is taking share from incumbents. Last year, for the 12 months to September, we had inflows of $15.5 billion, which put us in the second spot, and we increased our market share by 1%. We believe that there is still a huge opportunity to continue to grow the business and the platform within our direct market, but we also recognize and understand that there is huge opportunities outside of it. On Slide 18, you may have seen this recently. There's a lot of commentary in the press just around the change in competitive net flows or inflows across retail and industry funds. We've been talking to this trend now for some time, and it's becoming increasingly apparent that this trend is only going to accelerate as we move forward. The superannuation industry is not only very significant, but it is growing rapidly. And in 2030, the numbers would suggest that we moved from the fifth largest pension pool in the world to the second with over $6 trillion in the system, up 50% from today over the next 4 years. As the demographics get older and again, a trend that we've been seeing for some years, we're seeing more and more Australians with complex advice needs that are looking for advice outside of their super, whether that's investment, estate planning, or other aspects, seeking advice at which point they're looking for a holistic offering that covers both super and non-super capabilities. This is the opportunity for the retail sector, and this is the opportunity for Netwealth, and this is what is driving significant flows from industry funds across into Netwealth and some of our peers. Again, huge opportunity. And we think that on Slide 19, now we are moving into more greenfield opportunities where the broking and private wealth space continues to be largely untapped. We're really pleased to be bringing our new product or our individual HIN offering into the market in the next month and are already soft launching with a number of key groups and clients who have been collaborating on the design of the product with us. We believe this is a very significant market of around $600 billion, which is spread across 55 brokers that are of meaningful size and scale. As a quick recap, this really leverages the best of Netwealth, that is everything that we offer from the retail platform but also provides brokers the ability to add in their individual HIN offerings, whether that's sitting on their own HIN or through the partnership that we have with FinClear, where they'll be able to trade individual HIN directly off the platform through their own broking systems and settle back to Netwealth or hold it in their own HIN registry. It's a very flexible solution that really has been designed and built to offer optionality for the clients that we are working with. It really solves a problem for many of these firms as they look to adjust or change their business models from a transactional broking model to a true holistic private wealth offering and means that advisers and the brokers can scale up and down their offering depending on the sophistication of their customers, either to provide better reporting, online access and mobile access on their HIN-only portfolios, all the way through to very sophisticated accounts that are looking for international exposure, FX accounts, bonds. and private markets. So we'll have more to say on this, but fair to say that between the current opportunities within the direct platform market, the shift from industry funds to retail and the private wealth, we've got plenty of opportunity ahead, and we'll continue to make sure that we invest into all of our core products, technology and obviously, AI to leverage the opportunities that we see in front of us. In regards to the regulatory update and response, I believe everyone will be well and truly aware of what's transpired. I don't necessarily want to dwell on the past other than to say, as I did at the start that we're incredibly pleased that we were able to compensate our members and look after our members and also start to look forward. From a response perspective, there is considerable uplift that will be done across the business. Again, we see this as a benefit. There is no doubt that the bar has been raised across the industry. This applies to all platforms and not just Netwealth, and we are very progressed in changing our ways of working to ensure that we can make sure that any investment options that go to the platform not only meet members best financial interest, but we've got appropriate onboarding and monitoring in place to avoid any further issues such as those that happened in both the Shield and First Guardian. We're working very collaboratively with the independent expert. And we believe, again, moving forward that this puts us in a fantastic position to really deeply embed these new ways of working into what we're doing and to meet any potential regulatory requirement in the future. So on that note, I'm going to hand over to Hayden Stockdale, our CFO, to provide a little bit more color and information on the financials. Over to you, Hayden.

Wonderful. Thanks, Matt, and welcome, everyone, to the financials part of our results presentation today. And I want to acknowledge upfront, as Matt did too, that this has been both a strong half from an operational and financial perspective, but also a period where we took important steps to resolve the First Guardian matter for impacted members, and that's clearly had an impact on our results too. So as Matt said, all numbers we're presenting here are on a normalized basis with expenses associated with First Guardian being excluded. Okay. Well, let's get straight into those numbers on Slide 24. I think the headline story for this half is that our broad-based momentum continues to just roll on across every part of the business. We delivered almost 11% growth in custodial FUA inflows, which were $16.4 billion, a record half year. Total FUA grew 24% to $125.6 billion. And that growth pushed our market share, as Matt pointed out, to 9.2%, which is up 100 basis points. In turn, that FUA growth translated into total income of $193.8 million, up 25% and EBITDA as well of $96.7 million, up 24%. Importantly, it's a bit of a recap of what Matt had said earlier, too, we added over 20,000 accounts in a 12-month period for the first time ever. So that takes us to over 172,000, which is up almost 14%. And our adviser network grew 7.3% to over 4,000 for the first time. Now that ratio of accounts expanding faster than advisers is actually quite an interesting one, proving that we are delivering strong productivity improvements to our customers with each adviser now on average, managing 6% more accounts than a year ago. On the next slide, we can see that our platform revenue hit $189 million, up 25.3% year-on-year. But what I want to draw your attention to here, as I said earlier, is the continued broadening of our revenue base. Transaction income grew 22% and now represents 13.7% of platform revenue. Management fees were up 30% to 6.3% of the mix. Ancillary fees grew 36.5% to represent 41.2% of the total and admin fees grew 15.8% to just under 39% of the total. The key message here, obviously, is that our revenues continue to be highly recurring, more diversified and expanding across customer segments, products and revenue sources, and that's exactly where we want to be. Turning now to Slide 26. On this slide, we see the effects of both price and volume growth on our financials. So from a volume perspective, what we saw a couple of slides ago is that we're getting more accounts per adviser. So we're getting good leverage from our adviser base driving growth for us, generating productivity in our account numbers. But for each account, we're also getting more FUA, which has grown by 13.6% to $720,000, as you can see on the left-hand chart there. What's really interesting here, though, is that this FUA per account is all coming from existing accounts. So the new accounts we've been adding are on average at lower FUA balances. Now this is great as we'd expect those new accounts to grow over time, but it also means that our existing accounts are sitting at balances that are higher than what we are showing here. Now overlaid on this is the price impact in the middle chart. Here, we managed to contain pricing compression to 0.3 of a basis point on our revenue margins, so 31.1 basis points versus 31.4% a year ago. And there are 2 items worth noting here. First, the increase in our cash margin from 1.35% to 1.5% back in April last year. That added 1.3 basis points to our current revenue margin compared to the 0.9 of a basis point you'll see in the chart there. And then secondly, and I think this is very, very important, the 1.1 basis point contraction in our admin fees was virtually entirely due to market movement and the impact of pricing tiers and PAs. So virtually none of it was due to pricing pressure. And the net impact of all of this, you can see on the right-hand side, and that's the ultimate key performance metric here of revenue per account, which expanded 10.3% from a year ago. We now turn to Slide 27. Here, you'll -- here, we're reporting today operating expenses of $97.1 million for the half, up 19.7%, and that was done on over $38 million of higher revenue. So as the business continued to scale during the half, we made a very deliberate choice to reinvest operating leverage back into the business, which we've been actively communicating to the market about. And I want to be very clear on this. These costs -- these additional costs are good costs, not bad ones. They're strategic decisions to drive future growth. So specifically, we made investments in all areas of the business as we calibrate to scale. From an operating leverage perspective, on a net basis, we yielded about 10 basis points in efficiencies from each of our G&A as well as sales and marketing functions. So that's 20 basis points total. And from an investment perspective, we added 20 basis points to our delivery activities as we added capability to support the rollout of our broker opportunity as well as other process improvements. And just to put that in a little bit of context, 20 basis points is less than $400,000. So we're not talking massively large numbers here. And then we also invested 30 basis points in product and tech on a range of items that Matt touched on very briefly before. But just to reiterate here, our operating leverage is real. It hasn't changed, and it's being generated by strong revenue growth. We're just choosing to reinvest it to support that future growth, and that's a strategic decision, and we're very privileged to be in a position to do that. The net impact of this investment, we can see on the next slide, Slide 28, with EBITDA up 24% to almost $97 million, as I've said earlier, and an EBITDA margin sitting at almost 49% -- sorry, almost 50%. I do need to point out, though, that we did record $1.5 million in extraordinary income during the half. And if you adjust for this, our EBITDA margin was 49.5%, and that supports our guidance for the full year. We're also converting, as you'll see here, virtually every dollar of EBITDA to cash, which is a quality hallmark we're very proud of. And this means we can deliver strong returns to our shareholders, as you'll see on Slide 29. In line with our P&L, EPS is up 22.2%. And today, the Board declared an interim dividend that's 20% higher than a year ago at $0.21 per share, and that's a 75% payout ratio. Finally, I'm told that we have the second highest Rule of 40 in the ASX 200 at 74.6%, which is a strong testament to both our growth and our margins. Briefly on Slide 30, we hired just over 80 employees in the half with that investment following the pattern of OpEx in the P&L. Although we did actually make some additional investment in sales and marketing late in the half, which hasn't actually shown through the P&L yet. Okay. Thank you. I won't go through Slides 31, 2 or 3, but I will close out on Slide 34. So just bringing it all together, we're scaling, diversifying, investing and earning. We've got strong momentum and growth of approximately 25% across all key metrics, which we're driving ourselves through productivity initiatives with advisers and assisted by long-term structural tailwinds. Our revenue is growing through strong FUA expansion from existing accounts, but we're also adding newer accounts at lower balances, which we know will grow over time. We have proven our operating leverage over many years now and have delivered that again this half with deliberate and well-flagged investments in growth. We convert virtually every dollar of EBITDA to cash and have increased our dividend despite some of the other challenges we faced during the period. And all up, we score extremely highly on that balanced scorecard of growth and margins, which is the Rule of 40 metric. So on that note, I'll pause and hand back to Matt.

Thanks, Hayden. Getting to the end of the presentation, I'll just reiterate all of Hayden's key comments. And also as a result, we reiterate our guidance for FY '26. That is that our FUA net flows are not going to differ materially from FY '25, that we expect our EBITDA margin, excluding First Guardian expenses to be approximately 49%. Investment capitalized software is going to be approximately $12 million and our FY '26 final dividend to be based on the FY '26 earnings, excluding First Guardian expenses. So with that, thank you for taking the time to listen, and we will open up to questions.

[Operator Instructions] Our first question comes from Elizabeth Miliatis from Macquarie.

Apologies if you've mentioned this on the call, but just a couple -- a few results actually. Just firstly, on the margin outlook and CapEx as well. Any comments there on just the medium-term outlook there and particularly on the CapEx side, I think you made it fairly clear on the margin, but just on CapEx, that restated number for '26, is that sort of the status quo going forward?

Elizabeth, Look, it's very difficult to give you any guidance beyond what we've actually publicly stated and in writing. So 49% is the margin that we expect for FY '26. We're yet to go through the budgeting process for FY '27. So watch this space, but we will communicate that to the market at the appropriate time. But I would like to say, just reiterate 2 things. One is we do have very strong operating leverage. So naturally, our EBITDA margin should be edging up over time. But equally, we have extremely significant growth opportunities that we are very keen to invest in. And so it's really just about getting the right balance there. And we have a very active conversation with, I think, investors in the market around this. So we're very grateful for the feedback that we get on this. And that feedback to date has been extremely supportive of the stance that we've taken.

Okay. Got it. And then just on flows, obviously, you've given us the quarter-to-date number. It does look weak, but obviously, January is always fairly weak. Is it sort of tracking in line? Obviously, you've reiterated the full year number, but just sort of any comments around seasonality? And is it tracking in line with where you would typically expect it to be given January is a bit weaker?

Yes. There is a lot of seasonality in these numbers. I mean we do not get flows between Christmas and New Year. You can take that as a given. And likewise, that early parts of January through to Australian Day are typically fairly soft. So...

Tracking in line and slightly ahead, I believe, of last year.

Yes.

A linear line from that through to 30 June, that would not be right.

Our next question comes from Siraj Ahmed from Citi.

I have 3 questions. Just first one, maybe for Hayden. Just on the cost, right, it seems like you're investing an incremental $14 million this year. Can you just confirm that? And just on that, I mean, that's -- I think at the start of the year, you had said sort of $13 million. There's a $10 million uplift here, right? Just trying to understand where this investment is going. Is it really compliance regulatory driven? Or how should we think about this?

Yes. Siraj, the way we think about costs is we think about margins. So as our revenue grows, our costs will naturally grow. There is very much a variable component to that. And we have actually achieved, I think, higher revenues in the half than we were expecting. And as a result, we have higher costs associated with that. I think you would have seen the guidance we gave for FY '26. If you roll back the clock 6 months or so ago, we gave a sort of some breadcrumbs to lead you to sort of a margin outcome, but we -- yes, we've given a very specific sort of cost number. And I think the reality is we do look at margins instead of costs. So those -- the actual dollar costs have tracked well with what our expectations are. Part of it is to do with the fact that revenue is higher and part of it is to do with what we've well flagged and that is the additional investment that we've very deliberately made in the half.

I might just add to that. So clearly, because revenue was ahead of expected, we did bring forward or accelerate some of the investment into the initiatives, which we've talked about and which are certainly converting and generating good opportunities. In relation to your comment about is that the cost of regulatory, no. So the headcount that we expect to add as a result of any regulatory response is captured in our normal headcount growth. So I certainly wouldn't draw a line or any parallels between the 2.

Got it. Second one, just on -- good color on the broker or the individual [indiscernible] opportunity. Matt, you're saying you're onboarding clients already. Is this -- I mean, you talk about a large opportunity here, right? Are these clients related to the large brokers and secondly, in terms of the split between -- one of the key questions is the revenue profile here. The split between individual HIN versus custody, like how should we think about it? Is that like 20- 80? Or is it 50-50? Something that would be quite helpful.

Yes. I won't specifically talk to the customers at this stage, but fair to say, as per the pack, we are starting to onboard clients from groups that have come on board as a result of the new offering. The key to the HIN offering is that it really unlocks the market without that particular feature or capability, it's not fit for purpose when speaking to this new segment. So that's the first part. The second part is that the platform margins will be the same. So as these private wealth firms and broking firms look to adopt and utilize all of our capability, the margins on the platform will be the same as they were for any other segment. The incremental cost of the broker or the HIN, we're still working through, and there will be sort of variable pricing based on scale, but it might be between sort of $300 and $800 per account. So it's incremental, but covers costs and more importantly, unlocks this part of the market.

Sorry, Matt, but the custody part, do you think that's the larger chunk? Or is it really the HIN part, which is a large chunk.

No we would expect over time that -- whilst there's revenue from HIN, it really is about unlocking and bringing the custody solutions to the broking and private wealth market. So it opens up far more streamlined international equities, bond trading, private markets, et cetera. So it's the whole package. And therefore, the margins that we would expect as we sort of grow into the segment would be similar or improved upon what they normally would be.

Great. Last one, just quickly. Just on the flows, just following up. I mean it sounds like it's what, 5% up year-on-year based on your disclosure last year. It -- I know it's pretty early in the quarter and it's seasonal, but it does seem like momentum could have slowed a bit versus your -- the gross inflows you saw in the second quarter. Anything to read into it? And especially given you have hired sales staff, et cetera, should we expect better momentum for the rest of the year?

Yes, I wouldn't read any -- it's the 18th of February. The year is only just getting started. The new team has been on board for getting close to a month. We put guidance out there, and we've got confidence in hitting those numbers.

Yes. Just bear in mind that it's a single data point. It's actually a very good data point. Despite that, I wouldn't read too much into it. 90% of our flows come from long-standing existing customers. So there's a growth engine that just sits there. But look, momentum is very good at the moment.

Our next question comes from Nick McGarrigle from Barrenjoey.

Just a couple of questions around flows and potentially where you're seeing optionality and further growth this year. I understand that there's a large competitor that you've hired a number of distribution people from. And we've obviously seen some good data points out of retail super winning share of industry super, but just how you think about those 2 opportunities?

Yes. I think as per sort of brief discussion, we believe that the TAM or our addressable market is expanding by the day. The platform market continues to be incredibly lucrative from a new business perspective, both from an organic perspective, but also shifting share from some of the legacy and incumbent platforms. The industry fund dynamic is only going to grow. The demographics are a huge tailwind. Australians are getting older. And over the next 5 to 10 years, you've got many millions of Australians looking to retire with complex advice needs that are seeking advice. So we would expect that trend to not only continue, but to accelerate. And we think that's a pretty exciting thematic. And the third one, as we've touched on, is the broking market. So still in its infancies, but the pipeline is starting to look very attractive with a number of small, medium and large opportunities underway.

And then on the additional OpEx and the margin that you flagged, can you just talk about the medium-term expectations on what those reinvestments back into the team you think can deliver in terms of product and offering?

That's a pretty broad question. So the tech team is pretty sizable these days. And so they are working across a whole range of initiatives. Clearly, the broking offer we've talked about, that will be sort of largely complete as far as the first phase in the next month or 2. There will be follow-up work. We're also doing a lot of work on our data and AI strategy, which we've touched on, and we think that's pretty exciting from, I guess, adviser intelligence and efficiency perspective, particularly as we start to build out that ecosystem and look at the various jobs that need to be done across an advice firm. And also just broader platform efficiency internally. So we're starting to see really good benefits from a lot of the AI investments that we're making across the business, whether that's across our engineering team, our operations team, where we're reducing headcount and replacing sort of quite manual workarounds as well as just within the contact center and broader administration. So there is investment across the business. I've tried to highlight some of the recent wins where we've made investments and how they're converting into a return on investment. And moving forward, we believe we'll continue to grow market share, but also to continue to grow those ancillaries.

Our next question comes from Tharan Jeyathasan from JPMorgan.

Just the first question on revenue margin compression. So you only saw 30 basis points of revenue margin compression. And I think earlier, you provided some color with 1.1 basis points from fee cap and tiering being offset by 1.3 basis points from cash margins. Can you speak to perhaps some of the other drivers that you've seen and what you expect into 2H? You have noted some new capabilities such as FX, I think, in trading and cash management as example. So yes, how should we think about the impact of this into 2H?

Yes. Look, I think it's fairly straightforward, Tharan. On the cash side, the margin we have is effectively fixed. It does move around a little bit at the edges depending on some currencies and the like that we hold, but largely fixed. So the key driver there is really just percentage of FUA that's held in cash. And there's some seasonality around that, but there's sort of a large degree of predictability to it as well. One point to note, though, is that as you get market movement, clearly, the market doesn't move cash balances. So that does have sort of a softening effect there. The 2 smallest lines that we have transactions and management fees, largely stable. There was a little bit of contraction in the transaction fee half-on-half. You might recall a similar time last year when we had Liberation Day and a fair bit of volatility around that. We didn't get to repeat that effectively. But on the whole, fairly consistent. And we are sort of certainly trying to grow the management fee margin with our managed accounts, and we are doing that, but it's off sort of a relatively small base. And that leaves sort of the other one, which probably gets most focused, which is the admin fee. And that's why I was very specific about giving the insights as to what the movement has been there. And it's all market movement. and it's all pricing tiers and caps, which I think is a very pleasing thing to know. We do see a little bit of pricing pressure in the market from time to time, account to account. But on the whole, it's got a negligible effect here.

Okay. So just to clarify, moving into 2H in that case, given the impact of the higher cash margin rate is now in the base, the main impact you expect coming through into 2H would just be that cap and tiering interaction with market. There's no other offset [indiscernible].

Yes. But look, what I'd encourage you to do is not just focus on the pricing component, but focus on the volume component. And the volume component is obviously very, very strong. And as Matt points out from time to time, too, I think since the date of the IPO, our admin fees have contracted by 70%. But we found a lot of alternative revenue sources to replace that. And our EBITDA margins are still sitting around 50%. So there are macro trends that we can't swim against the tide on. But despite that, there are macro trends which are giving us very, very significant tailwinds. And net-net, we're in a very, very strong position here.

And we'll continue to look for revenue opportunities of which we still believe there's a number.

Okay. That's helpful. Perhaps just a second question around some of these initiatives to address the regulatory issues that you've had. You've announced the RSE program. There's reviews into investment options and things like that. What has the feedback been like from the regulator in your engagement so far? And how should we think about -- I imagine there's going to be uplift to platform governance and risk management and the like. How should we think about impact on cost? I think you previously mentioned it's incorporated in your existing headcount. So should we expect no further cost growth from this issue specifically?

No, there will be cost growth, but there will be cost growth across the business. And as I said, we are calibrating to scale. So that will be part of it. But the important thing to note, as Matt said, is that we will accommodate that cost growth within our planned headcount.

I understand in terms of feedback from the regulator in the conversations you've had?

We're not going to comment on that specifically. But yes, certainly, we've got a program. We've agreed to certain milestones, and we're working through those milestones. So I think the reality is that we are entering as an industry, a new era where there is much higher expectations across all platforms, not just Netwealth. And it's very clear now what the expectations are to ensure that we continue to keep the industry and the system safe. So we will continue to work an uplift as per required. But again, it's part of our headcount and it's part of how we do business.

Understand. And maybe just a final question. I know there's been a few questions on flows already, but just wanted to get a little -- I just wanted to get your thoughts on this. Some of your -- one of your peers in particular, has seen their flows momentum accelerate. So just curious, to what degree do you think these first guiding issues may have impacted your flows either in terms of reputational impact or just in terms of the distraction to yourselves in terms of running as hard on sales and engaging with advisers? And how should we think about these issues are, I suppose, partially resolved. So are you more optimistic about your outlook over the next 6 to 12 months?

Yes. Look, clearly, as we talked about a number of times, I don't think anyone wanted to see what occurred nor sort of had to work through it. It was really important that we worked very closely with the regulators to maintain the relationships there as well as ultimately come to the agreement to compensate clients from a reputation perspective and also to ensure that they had the security of their future going into Christmas. But ultimately, it was an issue that we were dealing with. And you can see from the numbers that the business has not suffered any issues from a momentum perspective. We continue to win considerable new customers and clients throughout that period. Yes, there was points at which we need to just explain to customers why they weren't impacted or why this wasn't going to impact them, and I'm not talking about the end customer. But advisers largely understand that a big part of their job and their role is to actually filter the funds that they invest their clients into. So whilst it was unfortunate that occurred, we don't believe that it's had any long-term reputational impact. And certainly, we remain very optimistic about the flows and believe that we've got great momentum going into -- certainly into the next half and for future.

Our next question comes from [Indiscernible] from MST Financial.

Just to kick off first with Macquarie Wrap and 2 parts to it. One thing they did do was quite aggressively cut a lot of products off their menu and there's quite a bit of backlash. I was just wondering whether you can comment on that aspect of it. But more particularly, a lot of industry participants are saying that there's a lot of advisers moving money away from Macquarie Wrap now, and it's not necessarily caught up in the data yet given that it only really happened in -- towards the middle of the December quarter. So can you -- have you guys got a strategy? Are you seeing heights and outflows coming out of Macquarie Wrap? And what do you think about their approach of cutting -- mass cutting products off the menu?

Thanks, [Indiscernible]. And also well done on a great piece that you released a couple of weeks ago on AI was excellent. Look, I won't necessarily comment on Macquarie specifically. But in relation to our investment menu, we remain very committed to choice and offering a broad choice to our investors and to advisers. Clearly, there will be some change in the investment menu, but it's really going to be focused on those funds that are maybe older, not particularly well supported or aren't investing into their governance. And we think that there will be some changes around the edges, but we're certainly not expecting a major reduction in the options that we offer. Choice is important, but we want to make sure that we've got a very high-quality and diversified menu.

And so not specifically targeting or seeing outsized flows or opportunity there or you prefer not to comment?

I prefer not to comment.

Yes. Fair enough. Fair enough. Just one other question, moving on to AI. And I get the colors and priority that you gave and the road map, but it has accelerated a lot in the last 6 months. And so just broadly speaking, over the next 3 years, like if -- are you looking to run faster deploying it? Are your teams using it more in a more integrated way? Or do you think there's cost savings on the horizon? How should we think about sort of the 3-year view and how you guys deploy AI?

Yes, probably all of the above. So we've consistently talked about, I guess, our AI adoption over the last couple of years and certainly been implementing machine learning well before then. What's really changed is really the, I guess, the Agentic AI and also generative AI, and that has opened up huge opportunities for us both internally and externally from a client perspective. So we're building a good capability. Hayden can probably attest to it. The business gets sick me asking them every day about what and how they're using AI in their day-to-day lives. But we're seeing really good progress from the engineering team. And very simplistically, just to sort of, I guess, paint a bit of a picture, if we've got circa 300, 400 engineers and we can get 25% to 30% efficiency from the AI toolkits that we're implementing, that gives us huge capacity and the equivalent of another 100 engineers. So we don't necessarily see this as a cost reduction strategy when it comes to new development. We think that it will allow us to slow down headcount growth ultimately in the tech team and across the business. But more importantly, it actually allows us to ship and develop more product more quickly. And we see that, again, the scale is a real benefit. So we should be able to develop at a rate of knots given the additional efficiencies that we're already seeing from an engineering and product perspective. And that's everything from product design to actual engineering, testing and code release. From an operations perspective, clearly, there's huge opportunities. We're continually rolling out programs across the business. We're using a lot of AI for data extraction and data -- sorry, document automation. There's a project, for example, that went live this year where we were able to remove 4 people from our tax project because all of the data from circa 3,000 or 4,000 tax [indiscernible] was automatically taken from the documents and processed into our systems. So that's 4, but you multiply that by very many similar use cases across the business. The contact center is benefiting massively through AI search and summaries and response. We've got chatbots going live in the coming months. And broadly across the business, we're seeing people using it more and more in their daily lives as they use sort of agentic AI within sort of our environment to automate a lot of their day-to-day tasks. So the internal efficiencies, I think, going to continue to accelerate, and we see big benefits there. From an external perspective, clearly, looking around the market, whether we build by partner for different parts of the ecosystem, that will sort of be a strategy that evolves over the next 3 years. But as I touched on, we are in a really good position. We've got great internal capability. We've got great data sets to deliver great tools for advisers, but more importantly, also to integrate with the tools that advisers are already using. And I think that combination ultimately really just accelerates adviser efficiency and provides far more capacity for them to see more clients and ultimately to put more business with Netwealth.

Our next question comes from Anthony Hoo from [indiscernible].

First question, just on the margin outlook, just for the short term for the remainder of FY '26. I mean, your full year guidance is about 49%. First half was 49.5% on an adjusted basis. So mathematically, we're implying that the second half margin will be below 49%. I guess, is that due to you continuing to invest in your cost base? Is that a fair way to look at it? And then that sets the base going into FY '27 as well? Is that the right way to look at it?

Anthony, yes, that is correct. So just to do the math in very simple form, 49.5%, 48.5%, second half might give you 49% overall. Not that that's exactly what we're guiding to, but that would be the math. Now what I would say is I wouldn't necessarily at the moment, extrapolate 48.5% into FY '27. As I said earlier, we haven't made a decision yet as to what operational investment stance we take into next year. But you can imagine that with fairly strong top line growth that even if we were to do 48.5% in the second half of this year, that, that would naturally be incrementing up into FY '27 in any event.

Second question, just following up. I just wanted to follow up on an earlier question around regulatory costs and the impact from the APRA undertaking. Maybe another way of asking is if we think about -- you talked about your -- the cost involved in that is already incorporated into your current outlook or current growth investment plans. But can you give us some insight into as you work through the program, how quickly is there visibility as to how quickly these costs might fall off?

I'm not too sure whether these things will fall off. As Matt said, the RSE program, this is an investment that we are making. And look, it's partly in response to the First Guardian issue. But I think more broadly, First Guardian and Shield are highlighting is that the industry is going to change. ASIC and APRA's requirements on the industry will be different in the future to what expectations were in the past. And so that will result in some higher costs. We don't think we're going to be unique in that situation. But the point that we made about they will form part of our planned headcount. I think underlying that, you can take away that as we grow, we would just be naturally investing in this area. And because the regulatory moat is actually quite a good comparative advantage to have. It's not necessarily a reaction. It's actually -- this becomes an area of strategic investment as well.

And our next question comes from James Bales from Morgan Stanley.

Just a follow-up to an earlier one on inflows and how you're positioned there. You basically said that First Guardian issues hadn't impacted the performance of the business. But I guess that flows are sort of very backward looking. When you think about -- when you look at what your sales team are seeing in terms of prospects, conversions, et cetera, on their most forward-looking metrics, is that still holding up the way you hope?

The short answer is yes, absolutely, and went through it again with the team last night and was very pleased with not only the size of the pipeline, but also the recent conversion rates. So we still remain, as per outlook, very optimistic about the future, including, I guess, the new opportunities and the new markets that we're pushing into or getting the benefit from existing customers. Unfortunately, we do have a hard stop. We did have a hard stop at 10:15. So we won't be able to take any more questions. But by all means, feel free to reach out if you do have follow-up questions.

And ladies and gentlemen, that will conclude our conference for today. Thank you for participating. You may now disconnect your lines.