Spaceship stalls on the launch pad

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Yeh, no, yeh. Like, you know, whatever. Bro, that other super was so last year. OMG, check out the shop @SpaceshipAU. #theseguysarecool #supertechnology #newinvesting.

Anyone who follows superannuation must be living in outer space not to have heard about Spaceship. It is superannuation for millennials, or ‘our generation’, with technology investments at its core. It aspires to become the Amazon of super, offering lower prices as it redesigns an entire industry. It is ‘Australia’s fastest growing startup’ and winner of the Best Startup at the #FinTechAwards 2017. And the difference between Spaceship and the incumbents is “the amount of thought given to the details”.

Spaceship recently said it had almost reached $100 million under management, an incredible amount for a startup. On 1 June 2017, The Australian Financial Review reported that the value of Spaceship based on a $19.5 million issue of convertible notes was $70 million, backed by a who’s who of local and international venture capitalists. Over 20,000 people have registered with them.

At the risk of being the old fart rather than a blast from a rocket ship, this baby boomer’s analysis of Spaceship will be as objective and dispassionate as possible. But passion, enthusiasm and marketing are at Spaceship’s core, and it is difficult not to have personal biases.

I admit I had no idea who Ariana Grande was until a nutter walked into her Manchester concert, I can barely sit in the same room when MasterChef or The Voice is on television, I do not wear my underpants down below my bum crack and I prefer test cricket to Twenty20.

But I run an online business, I invest in fintech companies, I smash my avocado, I visit fintech hubs like Stone & Chalk, I attend fintech pitches, my new iPhone is amazing and I expect to live forever. I love much of the techie stuff.

So here are the boring details of the Spaceship #assetallocation, #stockselection and #feesandexpenses and then we will uncover the secret sauce, the #customerexperience.

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#assetallocation

Spaceship offers one investment option, called GrowthX, with investments “where the world is going, not where it’s been”. Spaceship’s asset allocation is compared below with an industry super fund, Hostplus Balanced Index. Although it has a typical strategic asset allocation (SAA), this fund is chosen because both funds use index exposure and this Hostplus fund has the lowest public offer superannuation fund fees in Australia (as far as I am aware). Such incumbent funds are the ones from which Spaceship needs to grab clients. Cuffelinks has no arrangements with either fund.

Spaceship GrowthX v Hostplus Balanced Index Fund, Strategic Asset Allocation

Source: Spaceship and Hostplus Product Disclosure Statements, 2017.
*Range is 25% to 55% plus 0% to 10% in emerging markets.

What conclusions can be drawn?

  1. Spaceship has a larger allocation to global shares to accommodate its technology focus, but in the breakdown of its portfolio (see below), the technology allocation in the overall portfolio is 34%. For a fund which pitches its technology emphasis, a one-third allocation is barely true to label, although it is overweight compared with most balanced funds. With 40% in Australian shares, Spaceship will have a decent exposure to the old-world shares like banks, mining companies and retailers.
  2. Both target returns are after fees, and despite the claim of a growth focus, Spaceship’s return target is a modest CPI+2.5%. As we will see later, Spaceship is more expensive so it has a significant performance drag to overcome.
  3. Even a balanced fund like this from Hostplus has a 75% growth allocation, and in theory could have as little as 10% in defensive, although this is unlikely.

Many in Spaceship’s target market are already working in the technology industry. Some advisers would argue their superannuation should be a hedge against the loss of a job or decline in value of the equity in their own company or employer.

#stockselection

The diagrams below show how $100,000 placed with Spaceship is invested, company by company. “Know exactly what you own,” the website says. Spaceship prides itself on investing transparently.

Why is it crazy to send it to someone, somewhere. Isn’t Spaceship someone, somewhere?

Source: Spaceship website. Representative portfolio as at 21 April 2017.

On the Spaceship website, under the ‘Info’ tab, there is a page headed, ‘Investment Portfolio’. It says: “We believe you should know where your Super is invested. It’s time to start becoming more informed about your Super.”

Take a closer look at the portfolio, and three questions surface:

First, does the Australian portfolio (‘The Rest’) look familiar? The big banks, the large property groups, BHP, Rio, CSL, Wesfarmers. Are the allocations the Australian S&P/ASX300 index weights?

Second, the investments in the diagrams add up to about $60,000, meaning $40,000 is invested in other companies. What else is in the portfolio?

Third, if they are managing a small portfolio and disclosing the stocks, as implied by the diagram, who is doing the stock selection and how are they managing the implementation costs on many small holdings?

Answer: there is no stock selection. Spaceship is investing in index funds or ETFs. As far as I can see, the website and the PDS fail to mention this.

How is the index exposure achieved? In a document called the Reference Guide, there is this:

“The exposure will be obtained through a mix of index funds and exchange-traded funds (ETFs) (directly or through a Depository Interest) which seek to replicate, as closely as possible, the price and yield performance of a reference index in different ways.”

And then under a list of risks, is this:

“Swap counterparty risk: the risk that the counterparty to the True Index swap may not be able to pay for the potential underperformance (i.e. short-fall) between index performance and net asset value of a fund.”

True Index is a product of Macquarie Bank, used by many other wholesale and retail investors and an explanation of the fund is linked here. There is swap risk to a counterparty, Macquarie Financial Holdings Pty Limited. There is not enough space here to reproduce the relevant terms of the PDS, except this on Termination Risk:

“If True Indexing ceases, investors will no longer receive the Index return and may also be required to pay higher management fees.”

Investors then become “exposed to the risk of the underlying investments”. On the ‘underlying investments’, Macquarie says True Indexing seeks to achieve index returns by investing in shares and derivatives (including options, futures, warrants and forwards). There is nothing inappropriate about this way of constructing an index, but it’s different to most other index funds. On a direct investment with Macquarie in the Macquarie True Index Linked Australian Share Fund, the management fee is 0.103%, with no administration fee, exit fee or other expenses.

Index funds and ETFs have experienced massive growth in recent years, but that is overwhelmingly due to the low cost, and not all index funds and ETFs are the same. While Spaceship mentions the True Index funds, there is no detail on the exact funds used and the ETFs, and True Index does not cover all sectors.

So I rang Spaceship to find out which index funds are used. I was told that information was not available to the public. When I said that does not meet the ‘transparency’ and ‘know what you own’ beliefs espoused by Spaceship, I was told, “If people knew the funds, they could invest directly in them.”

I was told to put my request in writing, which I did, asking exactly which funds and ETFs are used and who issues them. I am still waiting for a reply.

#feesandexpenses

There are two ways a disrupter can steal significant market share from incumbents in superannuation: cost and customer experience. The performance undertaking is nothing more than an aspiration that will only play out over a long-term cycle, perhaps 10 years or more.

Spaceship GrowthX v Hostplus Balanced Index Fund, fees and expenses

Source: Spaceship and Hostplus Product Disclosure Statements, 2017.

Where is the Amazon of super? At this point the rubber fails to hit the road, or in the case of Spaceship, the rocket stalls. It is very expensive, with multiple fee levels. It is aimed at millennials with little in super, but the fixed cost of $78 on $10,000 is 0.78% pa. Are their clients checking the overall costs versus the fees on the funds they are leaving?

While the cost implications of the fixed fee are similar for many super funds, including Hostplus, there are other funds with no fixed administration fees. For example, Colonial First State offers balanced funds for as low as 0.65% with no additional administration fee and a minimum investment of $1,500.

(For an example of a tool which compares fees across a range of retail and industry funds, and explains the fees, see Virgin Money’s comparison page).

Quoting from the Spaceship PDS, page 3:

“For example, total annual fees and costs of 2% of your fund balance, rather than 1%, could reduce your final return by up to 20% over a 30-year period (for example, reduce it from $100,000 to $80,000).”

Exactly. And the difference in fees on Spaceship compared with competitors is more than 1%. Putting aside buy/sell spreads and ignoring exit fees, a young person with $10,000 in Spaceship would have an annual fee of 1.6% plus 0.78%, or 2.58% pa.

If this were my millennial daughter making an investment, I would tell her to wait until they do something with their fee structure, even if it is an amazing customer experience.

So what is the customer experience?

#customerexperience (or as the techies say, CX)

A successful disrupter or tech company does not need to be cheaper than others to be successful. The iPhone is expensive but it is such a great device supported by the best ecosystem that people queue overnight to buy it. The first CX with a new iPhone is amazing. It becomes the centre of our lives, the first and last thing we check every day. Same with Tesla. Not cheap, but great CX.

But this is superannuation, yawn. You cannot touch it until you are older than Granny. Most people want a house, house, house before they care about super. Even if they think they can never afford a home in Sydney, they will not want to save where they cannot touch the money until 40 years hence. Life is about experiences, holidays, gap years and yes, smashed avocado.

Wait, that is old thinking. Nobody has succeeded in engaging young people with super due to these baby boomer beliefs. And that is the very point of Spaceship’s success. They have redefined CX in super and thousands are flocking to them.

The online application process is pared back to the minimum required and is relatively easy, although identification based on the tax file number has become reasonably common in the industry, with no ‘wet signature’ required. There is disagreement in wealth management about whether this is sufficient identification and compliance, but Spaceship has taken a user-friendly rather than legalistic approach.

The process then finds the applicant’s existing super, giving a choice from which fund to transfer money. There appears to be no way to make a new contribution as it only allows for rollover. Then this box appears:

I found this confusing. If every transaction is a rollover, there should be only two choices: roll over the entire balance, or roll over a portion of the balance.

Soon after application, an email arrives with the subject, ‘Spaceship: Forward to Your Employer’. The content says,

“Attached is your Employer Superannuation Guarantee Contributions form. Your employer needs this to make contributions to your Spaceship Super account. You can forward this email directly to your employer.”

Anyone who applies to invest into Spaceship is asked to instruct their employer to direct all future SGC payments to Spaceship. It is likely that many of Spaceship’s young clients are coming from default options at industry funds, and these are usually cheaper, with an average ICR across the industry of about 0.6%. How many investors know they will add at least 1% to their investment cost, which as Spaceship says in its own PDS, could result in 20% less over 30 years? And Spaceship does not currently offer life insurance, which the customer may be leaving behind (although Spaceship warns about this).

The Welcome Letter makes its target market clear: “You probably won’t be retiring for decades and your portfolio should reflect that.” Stay away, boomer.

What about their other communications, such as their regular newsletters? There is good engagement material about winning awards, drink sessions to meet other clients and speakers at breakfast events. This regular email is more frequent than from other super funds.

But what insights do they give into how to manage superannuation? How is this from the CEO of Spaceship on 23 June 2017:

“Regulatory update: The Government will introduce a $500,000 lifetime cap for non-concessional contributions. The lifetime cap will limit the extent to which the superannuation system can be used for tax minimisation and estate planning.”

This update was given at a critical time, one week before the end of the financial year, when many people were planning last-minute contributions. It is incorrect. This proposal in the 2016 Budget was replaced by the $1.6 million Transfer Balance Cap and Total Superannuation Balance. Big difference, and a major reform change. Superannuation rules are complex and most people struggle to recall the detail but this was a significant oversight. I immediately wrote to Spaceship advising of the error, and as far as I know, no correction has been issued.

(Update: subsequent to the publication of this article, Spaceship issued a correction in its weekly email).

Other Spaceship communications contain spelling errors that I could nit-pick about, but there’s something else that matters far more …

What about a transaction and performance report?

Assume you were designing a new super fund from the ground up. An essential requirement from the start should be to show the client how their fund is performing and what transactions have been made. Surely every super fund should provide details of investments, fees, withdrawals, unit prices and fund performance in an online statement.

In the personal dashboard for its users, after the login page, Spaceship provides an ‘approximate account balance’. There is no list of transactions or unit prices. The client does not know the impact of fees or market movements on the balance. When asked about this basic transaction feature, Spaceship responded by email:

“This is not currently a feature of the web portal. We’re working on adding it in, in the future. If you like I can send you an account statement that will show the net gain/loss of your portfolio since it has been in Spaceship?”

A copy of a piece of paper? Didn’t expect that on a spaceship.

A friend opened an account with Spaceship in February 2017 but did not fund it until May 2017 with $100 to test the experience. His current balance is $72 as Spaceship backdated the weekly fee to February.

Why Spaceship is popular with millennials

The success of Spaceship is not about anything described above: not the fees, the product, the asset allocation or the customer experience. It is the marketing.

Spaceship is backed by one of Atlassian’s founders, Mike Cannon-Brookes, and other high-profile executives in technology companies. Cannon-Brookes is arguably Australia’s most successful fintech entrepreneur, which makes him a huge influencer. His success draws a crowd. His @mcannonbrookes Twitter account has made 8,000 tweets to 22,000 followers. Thousands of people listen when he writes about and praises a product. They forward and like the Facebook posts and spread the word quickly among like-minded people.

The CEO of Spaceship, Paul Bennetts, is a successful fintech entrepreneur and an Advisor to Daniel Petre’s Airtree, a leading Australian venture capital company with holdings in successes such as Canva and Prospa. Clearly, Paul knows his way around social media and marketing in a VC world.

Spaceship hosts events, creates a community, shares trendy content on its blog called ‘The Dish’ and does engagement with younger people better than incumbents. It talks their language to drive lead generation.

Speaking to two millennials who work in investment management demonstrated why Spaceship has attracted so much attention. One said that judging from her Facebook feed, it would be easy to think that Spaceship is the only super fund available. Incredible! The other told me she was bombarded with Facebook ads for Spaceship, and her friends regularly forward articles to her.

A third millennial told me, “I was a little disappointed that what feels like a young team didn’t make sustainability of investments (contended a concept though it may be) a priority.” That’s because they use broad indexes, they do not select stocks.

What do other market professionals say?

Spaceship has received more publicity than any other superannuation, roboadvice or digital advice fintech, and let us focus on three commentators.

Michael Rice of actuarial firm Rice Warner told The Australian Financial Review:

“It doesn’t sound like a good proposition to me. Spaceship appears to be charging more and taking on more risk with a lower objective of projected returns than a MySuper product.” He later added in a more general context: “The fee levels on many of these products are outrageous. We don’t need greater control but we do need some rules to stop poor value products being marketed to gullible people.”

Jordan Eliseo, Chief Economist at ABC Bullion, jumped to Spaceship’s defence, writing in The Australian: “That comment regarding the gullibility of young Australians is almost offensive.”

But not all the millennials are convinced. Chris Brycki of Stockspot told Business Insider:

“They get full marks for the use of flashy marketing and celebrity endorsers to distract people from the underlying financial product being sold. Look under the covers and you won’t find a tested process behind their investment strategy (to buy tech stocks), and no track record to support their high fees. Just clever marketing.”

Will Spaceship succeed financially over the long term?

I meet regularly with fintech startups and attend pitch fests, and there are some great ideas in with the rubbish. Most of them will not survive long enough to become commercial, and they hope a large business will buy them before the money runs out. Check the ASIC registers of many startups, and they show regular rounds of funding as costs exceed revenues. Many are a punt on a dream or solving a problem that does not exist. Forbes Magazine claims 90% of startups fail, but clearly, there are spectacular successes among the survivors.

I do not know whether Spaceship will be a winner, beyond the success they have already achieved. I am not in their target market, but I cannot see serious disruption in this model.

In my view, the current offer is not strong enough to match the competition. It is expensive, and despite the impressive design backgrounds of their staff, the sign-up process and communications are not engaging or exciting. There are unexpected shortcomings. They are not transparent about their investments, refusing to reveal in which index funds and ETFs they invest. It is hard to believe there is no online report of transactions, fees charged or unit prices.

Spaceship illustrates a common startup Catch-22. They do not have the critical mass of say a billion dollars which allows competitive pricing, and the fees will restrict the build-up of the critical mass.

The other factor is whether their returns will justify the costs. This article is not the place for a full analysis of the potential of technology stocks, but the NASDAQ index of technology stocks has already had a great run in recent years. The index has fallen about 5% in the last month at the time when many Spaceship clients have been onboarding.

NASDAQ index from 1985 to 4 July 2017

Source: Yahoo Finance

If millennials are checking their balances regularly, they will be impatient and will be expecting success. There are many wonderful technology companies, but consider this analysis of the so-called FANMAG (Facebook, Apple, Netflix, Microsoft, Amazon, Google) stocks from the US firm that originated the smart beta concept, Research Affiliates:

“Consider the FANMAG stocks. Based on a few common metrics, this group collectively exhibits steep valuations. On a weighted-average basis, the group currently trades at a price-to-earnings multiple of 56 times, more than twice that of the S&P 500. In aggregate, the six are currently trading at a price-to-sales multiple of 6.9 times, a 67% premium to the market. Finally, with all but two generating no dividends, the group is now delivering a weighted dividend yield of 0.85%, 56% lower than the S&P 500. Are these lofty valuations justifiable? That is, can we expect popular expensive stocks to reliably deliver excess returns in the long run?

A look at the historical evidence over the last 60 years suggests poor odds of the popular pricey stocks outperforming in the long run, even if they are shares of large, growing, and profitable companies.”

There is no doubt the FANMAGs are great companies, and they have driven US equity markets to all-time highs. Anyone who wants to invest in an index or smart beta fund that is dominated by these companies can use an ASX-listed technology ETF for a fraction of the cost, such as NDQ (issued by BetaShares, management fee 0.48%) or TECH (issued by ETFS, management fee 0.45%).

This will not be the first or last battle in an intergenerational, intergalactic war for superannuation, with millennial rivals like Zuper and Grow Super on the horizon. This rebel Spaceship aspires to become the (New) Emperor, but it has stalled on the launch pad. It will need to improve its offer significantly and the most likely outcome is The (Old) Empire Strikes Back.

Footnote added 24 August 2017

The Australian newspaper reported this week:

“Millennial superannuation fund Spaceship has removed all references to Atlassian CEO Mike Cannon-Brookes from its marketing, as two of its co-founders were reportedly pushed out of the venture. The Australian understands the tech-focused super fund, which had used Atlassian co-founder and one of Australia’s wealthiest entrepreneurs Mike Cannon-Brookes heavily in its social media and website marketing, was asked to remove his image.

Spaceship’s website previously featured quotes from Mr Cannon-Brookes and splashed his face across advertising on Facebook and Twitter, imploring millennials to “invest your super where Mike Cannon-Brookes invests his super”. Spaceship has since rebranded its marketing to remove all references to Mr Cannon-Brookes.”

Footnote added 5 October 2017

Spaceship announced on 2 October 2017 changes to its product pricing and asset allocation. The fees on GrowthX will lower from 1.60% to 0.99%, and the allocation to technology stocks will increase from 34% to 50%.

Graham Hand is Managing Editor of Cuffelinks. If any company mentioned in this article, including Spaceship, wishes to correct or comment on any matter, Cuffelinks will publish the response.

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66 Responses to Spaceship stalls on the launch pad

  1. Ashley July 6, 2017 at 1:35 PM #

    They seriously target CPI+2.5% as a long term return goal? and they call that a “GrowthX” fund? Offering CPI+2.5% you would need delay converting to a pension to at least 85 years old, and then die before 95 – otherwise it will run out of money
    It looks like a static allocation fund of ETFs – but charges more than 2% (more for low balances, which probably all are).
    Overall a great story – but the target audience won’t read it so it will be wasted.

    • Carlos July 6, 2017 at 2:48 PM #

      Great article and analysis of the Fund.
      As a millennial I was bombarded with marketing for this flashy new super fund so I decided to attend their first meet up. Before hand I was interested and excited about them but I left feeling less convinced and less certain of their value proposition… Not usually the goal of a pitch.
      Most concerning was some of the language used, for those not familiar with finance this could be tricky to understand.

    • Kevin October 27, 2017 at 12:40 PM #

      It is a great story and as a member of the target audience (millenial, working in tech, intrigued by Spaceship’s marketing), I did read it, and I am grateful that this was written.

      Thanks Cuffelinks.

  2. BenP July 6, 2017 at 2:03 PM #

    I almost attended a Spaceship evening as I was curious as to what they invested in and assumed a very large bias towards international domiciled Tech companies….think 60-70% Intl exposure. On further research and as outlined in this article…Spaceship is just another fund where the investment process is all about the Index.

  3. Pete Lucas July 6, 2017 at 2:11 PM #

    Great article. Thank you.

    Out of interest, some months ago I went through the same process of: 1. joining the mailing list; 2. trying to ascertain how my money would be invested, i.e. into which ETFs…; and 3. speaking to an “astronaut” at Spaceship who didn’t seem to understand what an ETF was.

    To pay above market fees to people who buy a few off the shelf ETF’s is for fools. I’m still surprised the media lets this ride.

    Although, as you say, one or two years of dreadful relative returns after fees will likely see a reality check.

    Pete Lucas

  4. Tatiana Goldflower July 6, 2017 at 2:13 PM #

    This is why I’m waiting for Zuper to launch.

  5. Graham Hand July 6, 2017 at 2:29 PM #

    For anyone wondering why this article is not receiving more comments – although we encourage a spirited debate, some of the feedback is not expressed in a way we can release.

    • Chris July 7, 2017 at 12:52 PM #

      Graham, can you allude to ‘how’ exactly ? I’m intrigued. Was it more ‘personal’ in nature or at the extremes of ‘this is great’, ‘this is rubbish’ ?

      By the way, I’m a voracious reader of the financial press and a Gen Xer, but I’ve never heard of this until I read Cuffelinks, so go figure ?!

      I’m personally sceptical of a lot of these “millennial” things because like the dot.com startups, they sound great but are not actually making any money, nor can I see where they would and why I would want to therefore pay over the odds to a ticket clipper.

      • Graham Hand July 7, 2017 at 1:09 PM #

        Chris, the reason we have not released all comments is not because they were ‘personal’, but the criticism of Spaceship expressed in an unconstructive way. We want the debate to be progressive and as factual as possible.

      • Chris July 7, 2017 at 1:36 PM #

        Very good Graham. All products have limitations, but if it was still a good product, they should have the conviction to say “That might be so, but…” to any criticism.

        You play the ball, not the man, and so they should not make things personal in their reply, especially in business, which is cut-throat at the best of times. If they think that your column is too tough on them, wait until they get out into the real world of business!

  6. David July 6, 2017 at 2:35 PM #

    I’m rather disappointed that you didn’t interview Spaceship for this article and included their position. Certainly, don’t want to take away from your analysis which is solid. You could have also reviewed the rest of the new Super funds: GROW, Zuper, Student, Future, Good, Human, etc

  7. Anthony Saliba July 6, 2017 at 3:24 PM #

    Great article.

    We all agree the product has significant limitations in its current form and that most of the “success” to date has been been borne out simply by aggressive and well-targeted marketing.

    I like the concept raised of the “startup Catch-22”. It would not surprise me at all if the marketing (including the talk about a tech focus) is purely a mechanism by which Spaceship are using to reach critical mass. At that stage, they will be able to offer competitive fees on an index-based investment strategy, potentially even moving their primary investment option away from tech. Combine that with their engaging CX – which will only get better – and then we have a legitimate discussion, that I think can only be good for the industry.

    Will they get there? That depends on how many people will subsidise their growth (knowingly or not).

  8. Mike July 6, 2017 at 3:24 PM #

    This is a great article. I’d love to see more articles on the other “ground breaking” super funds too. It’s sad to hear the younger generation have been targeted for such a fund. Winning the awards for marketing & sponsorship is not really the awards that I’d like to win as a super fund. I don’t see any real innovation here, no efficiencies have been made. More hot air criticising the old world of super funds but going ahead & charging a multiple of what you’d get from that old world.

    • Anthony July 6, 2017 at 4:25 PM #

      I agree Mike- a great piece that shows we’re not there yet in terms of a true challenger to the existing super players. Maybe they aren’t so bad after all?

      Would be great to see the same breakdown done across all of the new challengers.

  9. John July 6, 2017 at 3:59 PM #

    I was asked to review the product by a young person not in the Finance industry and couldn’t believe it. Thank you for fleshing it out in great detail.

  10. Ned July 6, 2017 at 4:20 PM #

    A millennial I know told me they joined because SpaceShip was “high-tech”.

    But at launch, you could only join – they didnt have a member portal working at launch. Seriously.

    You joined on day one, and they couldn’t even display your balance. Just wow for transparency…

    And they still havent launched an app. Low tech company. Sprinkles on a…

  11. hank July 6, 2017 at 4:34 PM #

    Passive management at active fees …. will be interesting when the market turns and investors get 100% downside capture -2.5% p.a. fees !

  12. Jonathan Hoyle July 6, 2017 at 4:47 PM #

    A great piece of journalism, Graham. I would love to hear from the company. They should be given a right of reply.

  13. John Farrington July 6, 2017 at 4:55 PM #

    Great article. I’ll be sending it to all my adult children.

  14. Chris Cuffe July 6, 2017 at 5:41 PM #

    To me, the three things required for a really great publicly offered superfund are:

    1. economies of scale;
    2. a material amount of directly managed money (so a variable cost is turned into a fixed cost); and
    3. simple, clear and timely communications to members.

    I have just stepped down as Chairman of UniSuper (after more than 10 years on the board), the $60b superfund that manages more than 50% of its assets with its own staff, has simple/transparent communications to its members, and produces a solid investment outcome for around 50bpts. I believe this is the type of benchmark that new innovators need to be confident of exceeding if they are to truly have a breakthrough product.

  15. Paul Salmon July 6, 2017 at 5:47 PM #

    Excellent article Graham, not just your analysis, but your almost comical turn of phrase which made me smile, unlike most Cuffelinks articles. Keep it up.

  16. Gen Y July 6, 2017 at 6:03 PM #

    Whilst the high fees are a little sickening, Spaceship (and the other new ones like Zuper, etc) have nailed the user experience , including the onboarding. Many of the incumbents still require paper forms, have poor online experiences (if at all) and communication is either non existent or watered down so much by legal and marketing teams that it doesn’t resonate with this audience.

    I really hope Spaceship & some of the others succeed if only to give a wakeup call to the rest of the industry that to capture this market they need to do things differently. Put user experience first, remove friction and improve the online experience.

    Graham, if anything by not focusing on these aspects you have shown that you lack understanding of what is important to the millennial market. It’s not all about fees and performance for everyone. If price was the most important thing then the iPhone would not have succeeded, but it is the most successful product in history in part because they have nailed their user experience.

    • hank July 7, 2017 at 8:30 AM #

      Price is what you pay, value is what you get – user experience might make you feel all warm and fuzzy but last time i checked you can’t retire on that

    • Mario July 7, 2017 at 10:27 AM #

      The net returns of the fund over a long period of time is the money you will retire with and ultimately that’s what counts the most in a persons life.

    • Chris July 7, 2017 at 12:59 PM #

      “It’s not all about fees and performance for everyone. If price was the most important thing then the iPhone would not have succeeded, but it is the most successful product in history in part because they have nailed their user experience.”

      Well, if it’s not all about fees and performance, I don’t know what it is about. As a Gen-Xer, I see my super as there for one reason – to make me money, not so that my fund manager can ring me and we can go out dancing. That might sound brutal, but my money works for me and that’s that.

      P.S. The iPhone might come at a price and provide a great user experience, but I think I’d rather have something that appreciates in value and that I can retire on later, rather than feel good about how many trees or dolphins I saved as the efforts of a tiny drop in a big ocean. That’s why you can keep your ‘sustainable’ investment option and ‘deep green’ funds, I’ll go coal, tobacco, uranium, firearms and alcohol.

  17. Graham Sammells July 6, 2017 at 6:15 PM #

    Thanks for the article. Clever product marketing trying to justify a high price, but the opportunity cost here is potentially very significant, and is unlikely to be understood by the target market. That is my big concern for products like this.

  18. Arian Neiron July 6, 2017 at 9:20 PM #

    Excellent article Graham. This should get syndicated with the consumer press but most importanlty on FaceBook!

  19. Liam July 6, 2017 at 9:34 PM #

    I love that someone is trying to engage Millennials and to get them focused on superannuation but if the attraction is based on a false promise and heavy marketing leads kids to think it is “the latest” then without delivering on promises it’s doomed to fail once the “next big experience” arrives. I am waiting for “Residential Super” with its PropertyX offering! 100% geared into Aussie Property with double gearing on Mining towns!

  20. Sam Henderson July 7, 2017 at 11:51 AM #

    What a great expose Graham! Well written and assessed. Like all good marketing, perception is the key to success even if reality differs. Spaceship are having a go and breaking new ground but as Chris said, gaining economies of scale will be difficult to deliver a cost effective successful long term solution. Keep the Facebook marketing engine going and they may exceed all expectations purely on the basis of unique advertising where traditional super funds are absent.

  21. AO July 7, 2017 at 2:40 PM #

    Unfortunately I didn’t make it passed the 7th paragraph when you claimed: “Hostplus has the lowest public offer superannuation fund fees in Australia (as far as I am aware).”

    For the record, HostPlus is on the expensive end of super funds (industry and retail included) at 1.20% + $78.00p.a.

    Maybe a little more research next time. Don’t worry, SuperRatings has you covered.

    https://www.superratings.com.au/top-tens/fees

    • Graham Hand July 7, 2017 at 3:58 PM #

      Hi AO, I am not discussing Hostplus generally, I am highlighting a specific index fund as a comparison to the Spaceship index fund. This is clearly not the one you mention at 1.20% plus $78pa. I lay out the fees and expenses taken from the PDS. If you want to show I am wrong, you have to inform us on the correct cost for the Hostplus Balanced Index Fund, not advise that Hostplus has another fund that is more expensive.

  22. kevin July 7, 2017 at 3:15 PM #

    Well done Graham, advertising seems to overrule common sense.

    I’m really surprised that Scentre group has almost equal weighting with CBA,and a greater weighting than ANZ and WBC.

  23. Paul U July 7, 2017 at 7:59 PM #

    Great article and analysis. Get through the marketing and look at underlying.To quote a key player in the Superannuation sector ” all tip and no iceberg”.

  24. PWS July 7, 2017 at 9:54 PM #

    I don’t have a view on the merits or otherwise of Spaceship, but doesn’t this article ignore the elephant in the room, that the Australian super industry is ripe for disruption.

    The government-guaranteed revenue streams have created a level of complacency in an industry that thinks it is about funds management but should actually be thinking much more in terms of how to give Australians security and flexibility in their years after 65 (the time we used to call retirement..) (and no, funds management and secure older years are not the same thing)

  25. PA July 8, 2017 at 9:42 AM #

    Well done Graham, very good analysis. If nothing else it might spark young millennials to give more thought about their supper.

  26. Suellen Hughes July 8, 2017 at 10:48 AM #

    Brilliant article, great analysis and good humour to boot.

  27. James McFarland July 8, 2017 at 10:50 AM #

    A must read for any HR/Benefits managers as i am sure a number of queries will be made from employees not in the know.

  28. Liam Shorte July 8, 2017 at 10:51 AM #

    Chasing CPI+2.5% is a sad target when young Millennials need CPI+5% to get benefit of long term compounding in early years so they can take less risk later

  29. Jonathan Hoyle July 8, 2017 at 10:51 AM #

    I don’t get the pitiful 2.5% target. Surely the whole point of a tech focused investment strategy is higher returns!

  30. Victoria Kuok July 8, 2017 at 10:52 AM #

    Common sense question for millennials – if they spent so much on marketing, where did the money come from? How much was it spread across per members? What return did they receive this year, compared to the APRA 5-year trend of 8% across all funds over the last 5 years?

  31. Sarah McGavin July 8, 2017 at 10:54 AM #

    Cannot rate this article higher!

  32. Cassy Bezeruk July 8, 2017 at 10:55 AM #

    Brilliant article. Let’s hope the millennials do their research before moving their super to Spaceship

  33. Stephen Thompson July 8, 2017 at 10:56 AM #

    Danger Will Robinson!
    https://www.youtube.com/watch?v=fJrw6imp7f8
    Raising awareness should be applauded – however – surely the transparency needs to be exemplary.

  34. Scott Barlow July 8, 2017 at 10:57 AM #

    We’ve been making this point to those who will listen for some time now…”diversification” is about risks, not asset classes and if you convert the Spaceship asset-weighting to a risk-weighting you discover a single risk (equities risk) accounts for 95% of the portfolio. It means their portfolios are far from “diversified” as they claim. Further, over half the risk allocation has a very high probability of delivering zero to negative returns over the next decade or more, which means the CPI +2.5% is pure delusion.

  35. Regan Welburn July 8, 2017 at 11:11 AM #

    Great analysis Graham

  36. Rob Alexander July 8, 2017 at 5:49 PM #

    The creator and product manufacturer will pocket a fortune. The members will lose. So much of the Future of Financial Advice in Australia protecting the people. All you have to do is fabricate an offer then flog it to the masses.

  37. richard goers July 9, 2017 at 4:39 PM #

    A couple of observations :
    Spaceship won the Fintech of the year awards recently, but I am not sure why it is considered a fintech company [that just may be is me ] but as an analogy, Australian Fintech is ‘hype’, especially by the accelerators and VC’s [funnily enough Spaceship CEO is an ex VC manager ] and so perhaps hype is what wins the Fintech awards

    Also I think disruption in Super Funds would be the ‘downside ‘ protection program [example is Hedgeable.com], and as mentioned above, the option for direct management of some or all of your money in Superannuation [without the need to run a SMSF]
    [for me I like motifinvesting.com options – Macrovue.com.au is the Australian replication = so you can put together a themed investment]
    – but this would all hang around having tools and education on how to create, monitor and manage a fund => hence Superannuation investors in Super funds can be like a mini fund managers

  38. Waheed Rahman July 9, 2017 at 6:49 PM #

    This is a great summary. Thank you for this.

  39. Craig Bailey July 9, 2017 at 6:50 PM #

    Such a good article. Interesting from two perspectives:
    1. Glad I haven’t put any money into Spaceship
    2. Amazing how much of an impact clever marketing has

  40. Patrick Clarke July 10, 2017 at 8:56 AM #

    An outstanding article. Old school PDS dissection – that’s where the facts lie! A 1.6% fee is so 1990s.

  41. Xand W July 10, 2017 at 5:43 PM #

    This is indeed a good article and well timed. I think the irony of the piece is that the so called “fintech” has to print off statements and mail them. The lack of transparency on the “secret sauce” of market ETF mix is poor and the fees for following markets should have been confined to the past. Marketing spin, high fees and investment risk regularly end well for investors.

  42. Esteban Rodriguez Casey July 11, 2017 at 2:22 PM #

    I wonder if the other recent disruptors http://www.zuper.com.au and https://www.growsuper.com are in the same boat.

  43. Greg Einfeld July 12, 2017 at 12:18 AM #

    Graham – awesome article as always. Will be fascinating to see if Spaceship’s marketing hype succeeds in the long term. Hopefully some more affordable super funds will offer access to a tech tilt option to attract the Gen Ys.

  44. Tim Whybourne July 12, 2017 at 12:18 AM #

    Great read, Graham

  45. Il Falco July 12, 2017 at 6:25 PM #

    Saw all the hype on Facebook, for someone with a modicum of investment knowledge it’s quickly revealed as a marketing company masquerading as a super provider. Will get some support from the gullible youth, include some cryptocurrency exposure and they will do even better. It’s all about the story after all.

  46. Henry Stewart July 12, 2017 at 10:48 PM #

    For anyone who constantly gets served ads spruiking Spaceship, this is an excellent note breaking it down, making a pretty good argument that you’re paying well out of market fees for a pretty basic index product where most of your costs are actually going to marketing.

  47. Kim McDonald July 13, 2017 at 12:15 PM #

    Certainly an excellent article, and a valuable contribution to the broader issue of super fund fees per se.
    As yields continue to come/remain under pressure for super funds (and not just super funds!) the focus will inevitably shift more and more onto fund expenses and fees. Already this is a hot topic in regard to the cost of insurance cover within funds.
    And I believe therein lies the main problem confronting the viability of Spaceship if their business model is only sustainable within their current cost structure.

  48. JP July 13, 2017 at 5:46 PM #

    You hit the nail on the head!

    I presume that you have seen that Spaceship has listed a whole lot of investment and compliance roles on their website. One of the responsibilities of the compliance manager is to review copy for compliance.

    https://www.spaceship.com.au/careers/?utm_source=newsletter&utm_medium=completedprofile&utm_campaign=14

    Keep up the good work, JP

  49. Geoff July 14, 2017 at 10:09 AM #

    Brilliant article on Spaceship – and it seems to have brought forth some interesting responses. Me? I want great long-term post-tax and net-of-costs returns, I couldn’t give two hoots about fantastic marketing. Yeh bro, like, you know !

  50. AFR article July 14, 2017 at 1:55 PM #

    ASFA CEO says there’s a reason why millennials will pay more for super

    Millennials will pay more for superannuation if the branding reflects their values and ideals.

    by Alice Uribe

    Criticism of new youth-focused superannuation funds like Spaceship on the basis of their higher-than-normal fees ignores the fact that millennial investors prioritise brand identity over value for money.

    Martin Fahey, the chief executive of peak super body the Association of Superannuation Funds of Australia, said millennials have different “utility functions”, which mean they place more importance on how a brand is aligned to their values, its sustainability or the amount of control they have over their investment decisions.

    “I think older people look at millennials and say they pay too much in fees and they get taken in by these offerings where the fees are high,” Mr Fahey said.

    “They realise the fees are high, but what they’re saying is that they want to be associated with that brand and ‘we want to be aligned with those beliefs and those behaviours and we are prepared to forgo lower fees’.”

    Spaceship, the tech-focused fund backed by a string of start-up luminaries including Atlassian’s Mike-Cannon Brookes and billionaire Trump ally Peter Thiel, has seen detractors criticise the higher fee, low-return target, single investment option that if offers superannuation investors.

    But this does not seem to have deterred users, with the fund amassing $100 million in funds under management, and 20,000 registrations since its launch earlier this year. It’s Facebook page has 11,936 likes while its Twitter has less traction with 2272 followers.

    Fee levels ‘outrageous’

    Another youth-oriented fund, Grow Super, made a splash with a marketing campaign hosted by the satirical website The Betoota Advocate that was viewed over 150,000 times. However, it charges members a flat fee of 1.85 per cent per annum, higher than an industry average of 1.03 per cent and this has angered some financial industry experts.

    According to the corporate watchdog, a 1 per cent difference in fees can lead to a 20 per cent difference in the value of a superannuation benefit over 30 years.

    “The fee levels on many of these products are outrageous. These products are heavily marketed to the young and gullible,” Rice Warner, chief executive Michael Rice, told The Australian Financial Review in June.

    But Mr Fahey said millennials, aged between 18 and 35, have different priorities to older generations who see bang for buck as a key differentiator.

    “I think they’re [millennials] very sophisticated consumers, they get a lot of offers in the marketplace and a lot of information, in particular on social media platforms,” he said.

    “I don’t think they’re easily marketed to or are taken in by superficiality over substance. I do think they require to be marketed to in a different way, in that there has to be a mechanism to justify superannuation and investment in saving as a priority over other things like lifetime experiences or purchasing a home outside super.”

    Hard sell

    While the Australian retirement sector is sitting at $2.3 trillion, millennials still only account for 8 per cent of superannuation funds under management as they funnel money into holidays, socialising or saving for a house deposit.

    Australian Bureau of Statistics data suggests that only a small proportion of millennial salary earners put extra money into their super – for the 25-34 age group, only 1.8 per cent of employees made salary-sacrificed contributions.

    “Delayed gratification in terms of a better living standard some decades on can be a hard sell,” said Mr Fahey.

    Despite this, 2017 should see more youth-oriented funds opening up their doors. A former executive from payments company Tyro is setting up a product called Zuper and Mobi Super, which shares its trustee Tidswell Financial Services with Spaceship, promises “simple, smart superannuation” and is already up and running.

    “ASFA considers the emergence of new players or new products is a feature of a healthy superannuation market. Most of the recent products aimed at millennials make use of a ‘for hire’ public offer trustee,” Mr Fahey said.

    “The promoter is responsible for developing the superannuation products and for promoting it to new members. However, the trustee still has responsibilities in regard to safeguarding the interests of the fund members concerned.”

  51. Anthony Saliba July 16, 2017 at 4:52 PM #

    Definitely the most thorough review to date. A must read for millenials contemplating the switch.

  52. Msuper July 20, 2017 at 8:50 PM #

    Nice and honest review Graham!
    I suggest you to check Mobisuper and write a detailed review about them too.
    Mobisuper reached 100mil in a half year.
    Without all this hype marketing Spaceship is using.
    Lost super is their angle and they are after another spectrum of gullible people.
    People who submit various surveys and competitions or even by cold calling.
    If lost super is found then call centre staff “suggests” to rollover all super funds into Mobisuper.
    The mention of the high fees is buried under ton of disclosures.
    They are trying to avoid publicity as much as possible.

  53. Fredrick Miked July 30, 2017 at 7:17 PM #

    I was contacted by my Niece recently, she was quite worried that she had lost all her super. She had just watch a video all about GROW super about how there was this FREE super app so she downloaded it and little did she know that she had just rolled over all her super into the GROW super fund and closed her current 3 funds and had no idea that she had even joined a super fund. I checked their Facebook page and there seemed to be many more victims of this technique. I tried to contact GROW super on her behalf only to find they don’t even have a phone number on their website. How can a super fund not have a contact number then I started to get worried. Then I dug a little deeper to see their fees are 1.85%.
    I watched the video a little more, the founders looked very young and my niece’s future was now being looked after by these guys.
    Grow then claim to have 50 million under management in a month. I wonder how many of these people realise they are now a member of GROW super. This is a serious concern buyer beware.

  54. Jarmo October 5, 2017 at 11:19 AM #

    LOL… they have just dropped the fees to 0.95% … from 2% (Oct 2017). Wow I wonder what changed? perhaps a reality shock!

    To me, Super is more about performance not so much about how warm and fuzzy you feel while “on boarding”. Young guys, wake up don’t fall for hype and hot air Fintech is a buzz word now and agreed some good things are coming out as technology changes but look at the CORE if it is not good the glitzy cladding wont do you any good … be very careful when it comes to money.

    The pitch that young ones can take more risk because they have more time to recover if things go wrong does not wash with me… no matter when in you life a Financial product should be scrutinized for its contents not for it’s packaging!

  55. Campbell October 6, 2017 at 3:21 PM #

    Spaceship also released another investment option called Global Index which is priced at 0.65% + $78 p.a.

    https://www.spaceship.com.au/products/super/global-index

  56. Hamish October 11, 2017 at 10:24 AM #

    I don’t see why we are referring to Spaceship as a Fintech. It’s just a regular super fund with fancy marketing, and not new finance technology in any sense of the imagination.

    In my view their describing themselves as fintech is just more fancy marketing.

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