Netwealth's Costly Compensation Payout Didn't Stop Its Flow Records

A First Guardian compensation bill and AI disruption fears hit the stock hard, but record inflows and a new Morgan Stanley deal are rebuilding the growth case.

7 Oct 2026 · 4 min read

Netwealth Group fell from around $30 to a low near $20.56 through late 2025 and early 2026, hit first by a $101 million compensation payment tied to the collapsed First Guardian fund and then by the same AI-disruption panic that swept wealth platforms broadly, even as its underlying flows kept setting records and a new Morgan Stanley agreement opened a path into stockbroking.

A costly compensation payment, then AI fear compounds it

Hyperion Asset Management said Netwealth agreed in December to pay compensation to members of its Superannuation Master Fund who suffered losses through the collapse of the First Guardian Master Fund, reaching agreement with ASIC on a total payment estimated at A$101 million, with a one-off impact on net profit. Regal Funds Management initiated a position in March on the view that while the regulatory action had rattled the stock, it also highlighted the significant barriers faced by AI entrants looking to replicate a platform business with Netwealth's compliance and fiduciary capability. Pengana Capital Group said the stock fell 16 percent in March, with earnings streams derived from asset values acting as a drag consistent with the overall market's performance, while DS Capital said both Netwealth and rival HUB24 delivered outstanding half-year results with strong net inflows and 35 percent earnings growth for Netwealth, even as AI disruption concerns pressured valuations across both platforms.

The regulatory action only highlights the significant barriers faced by AI entrants that are looking to replicate Netwealth.

— Regal Funds Management, Article, March 2026

Underlying flows kept setting records through it all

Hyperion Asset Management said Netwealth's January business update showed quarterly gross flows of A$8.4 billion, up 10 percent on the prior corresponding period, and net flows of A$4.2 billion, down 7 percent against a record comparison period, but once A$0.4 billion of custodial outflows from two low-revenue institutional client accounts were excluded, underlying net inflows of A$4.6 billion represented a genuine record quarter. Forager Funds said the stock rallied in March on better flows and a solid profit result, describing Netwealth as a specialist investment platform that continues attracting advisers by offering better systems, with no shortage of opportunities to add new features and improve adviser efficiency. Elston Asset Management noted Netwealth was removed from the ASX100 after only six months, having previously reduced its position in line with a mandate to exit businesses joining the ASX100 within 12 months as projected returns narrowed.

A new Morgan Stanley deal opens a path into stockbroking

Pendal Group said Netwealth reported softer FY26 flows in July, guiding to $15.4 billion of net flows and a weak fourth quarter impacted by market volatility, Middle East uncertainty and proposed tax changes, but the market focused instead on a stronger outlook, with FY27 flows guided to $18 billion to $20 billion against consensus of $17 billion, supported by organic momentum and a new Morgan Stanley Wealth Management agreement. Selector Funds Management detailed the deal, an expanded advisor platform relationship with Morgan Stanley Wealth Management Australia to provide a platform solution for ASX-listed and domestic investments, marking Netwealth's expansion into the stockbroking and private wealth market.

The market focused on a stronger outlook, with FY27 flows guided to $18-20 billion (versus $17 billion consensus), supported by organic momentum and a new Morgan Stanley Wealth Management agreement.

— Pendal Group, Newsletter, July 2026

August: early signs the FY27 flow target might be at risk

Pendal Group said Netwealth's FY26 result came in broadly in line with expectations, with most operating metrics already pre-announced in July, but the share price weakened in response to a softer first seven weeks net flow update, which on a run-rate basis is tracking behind the $18 billion to $20 billion FY27 net flow target. Netwealth attributed the issue to elevated outflows in its IDPS book tied to a small group of high-net-worth clients.

What fund managers say they are watching next is whether the softer early FY27 flow run rate, isolated to a small group of high-net-worth clients, proves temporary or a genuine risk to the $18 billion to $20 billion target, continued expansion of the Morgan Stanley platform relationship into stockbroking, whether the First Guardian compensation episode remains a one-off, and whether the AI-disruption discount continues fading as Regal's fiduciary-barrier argument suggests it should.