All roads lead to HUB24 as Productivity Commission flags $6 Trillion wealth transfer

With Australia’s aging population, the Productivity Commission on Tuesday released its first report into upcoming intergenerational wealth transfers where it forecasts $6 Trillion will be handed over in the next 30 years. While the report set tongues wagging across the public policy sector, wealth administrators HUB24 (ASX: HUB) and Class Limited (ASX: CL1) is well placed going forward having foreseen this trend and the likely ramifications of regulatory changes. 

HUB24 stands to be one of the biggest beneficiaries of intergenerational wealth transfers having acquired Class in October, just 12 months after Class launched Class Trust – their first-to-market trust administration platform. 

One of the key points of interest within the 176-page Productivity Commission report is that Australia is one of just eight developed countries that do not tax inherited wealth, after federal death duties were abolished in 1979. Because of this, Australia’s tax mechanisms accelerate wealth inequality whereby rich Baby Boomers will hand down their inheritance to their already rich adult-aged children. 

While this is the first report of its kind published, Class CEO Andrew Russell and his team have been talking about it for the past three years as part of the Company’s Reimagination Strategy. 

Due to regulatory limitations on SMSFs, trusts will be the most effective vehicle for Baby Boomers to transfer their wealth even with the possibility of Australia re-introducing inheritance taxes in the future. 

With the structure of Trusts enabling their control to be transferred rather than inherited, they have become increasingly recommended by financial advisors. Courtesy of the high barrier to entry where Class owns the industry-leading tech stack, Class Trust users have reported time savings of up to 67% by using the platform. Prior to its launch, the primary means of Trust administration and reporting had been via cumbersome Excel spreadsheets. 

While Class Trust is one valuable asset within the Class portfolio, HUB24’s takeover is likely to also target the $291 billion in Funds Under Administration (FUA) using Class products, seeking to transition them onto the HUB24 platform. 

In FY21 when HUB24 reported to have $58.6 billion in total FUA, the Company reported a 36% increase in revenue to $101.1 million and 18% increase in NPAT to $9.7 million. 

Since then, HUB24 has increased its total FUA to $63.2 billion as of 30 September 2021 with synergies from their Class acquisition still to come. 

Given the public debt situation that has been created by COVID-19, there will be Government pressure to review inheritance tax policies which would also aim to reduce the wealth gap in Australia while re-filling coffers. Subsequently, with Gen X at the peak of their working capacity and Gen Y getting there over the next decade, the need for sophisticated financial advice will have all roads leading to Trust creation. 

Being the most effective vehicle to manage intergenerational wealth transfers, Class’ expansion into legal docs via acquisition has allowed them to emerge as the leader in the space with 18% market share. By taking their docutech division and wealth administration software, and combining it with HUB24’s investment platform, it has become increasingly clear why HUB24 had no hesitation acquiring Class at a 71.6% premium. 

The acquisition is expected to settle by March 2022. 

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Alfred Chan

Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.

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