Why the Super industry is ripe for disruption

Industry Moves is featuring a series of articles from Stone & Chalk chief technology officer, Simran Gambhir, on the topic of super fund disruption, with particular focus on the need to engage with millennials, the increase in ideology-based investments, and the impact of crowd-funding. In this week's piece, Simran suggests the industry is "ripe for Uberisation".(Recently he likened start-ups and corporate organisations to "mating mice with elephants". You can read that piece here!)

by Simran Gambhir

The problem with superannuation is that it's big, boring, and a very long way off, at least if you're a millennial.

Engaging with millennials is the biggest challenge for the super industry. But apathy is high when you've got no real involvement or say in what's happening with your money, other than to tick a "low", "medium" or "high risk" box. This shouldn't be the case. While the average person doesn't have the money, time or ability to set up and run a self-managed fund, most people are interested in how and where their wealth is being invested. But there's not a lot they can do with their super, except leave it sitting there.

As Jason Andrew, co-founder of SmartBooks Online , puts it: "Superannuation has forever been perceived as this boring, stale, low return, mandatory thing. 9.5% of my salary is deposited into some war chest which I can't touch for another 30 years. It's for old people. I'm a millennial, I want to spend my money now, dammit!"

Despite being a chartered accountant, Jason had never felt motivated to do anything with his super, which was spread across four different accounts and costing him duplicate fees. Then he found himself interested by one new option, the sexy-looking fintech startup Spaceship. Unfortunately, when Jason analysed the underlying fund, he found it to be "very average". But it still woke him up to more exciting possibilities.

"What Spaceship has successfully done is make super cool. It has raised the profile of a rather boring, complacent industry and is encouraging millennials to take control of their future. If their goal is not to disrupt super, but rather raise the profile and highlight the importance of super amongst dis-interested and uninformed millennials, then they have nailed it," Jason writes.

Young people in particular feel strongly about ethical and ideological issues. They may want to actively avoid their money being invested in a particular stock. They may wish to be more creative with their savings: for example investing in a friend's business.When it comes to equity funding as a form of investment, Australian regulators have been very slow to respond to the surging market. Unlike New Zealand, in Australia such investment has been restricted to sophisticated, high net-worth individuals. SMSFs can invest in them, but the average super fund member cannot.

"Superannuation has forever been perceived as this boring, stale, low return, mandatory thing. 9.5% of my salary is deposited into some war chest which I can't touch for another 30 years. It's for old people. I'm a millennial, I want to spend my money now, dammit!" - Jason Andrew, co-founder of SmartBooks Online

Transparency is another issue. At present the whole super industry is like a black box. People have no idea where their money is being invested, and can't even find out if they want to. A recent analysis of Australia's 50 largest super funds found that 83% of assets are undisclosed, equating to nearly $1 trillion. Average disclosure is just 17% of a fund's portfolio. All these restrictions into what people can do with their own money, and the lack of transparency, make super an industry ripe for Uberisation. It's no wonder that several startups are already planning ways to invade and disrupt the space.

H2-backed Goodments aims to create a more sustainable future by making it easy to invest in good business, by adding independent sustainability ratings to financials. SuperAlbert, also backed by H2, is a free platform designed to help individuals and employers manage their superannuation when starting a job. Then there's Recreo , a new platform for the super industry, and Zuper, which offers more control and choice of where your super goes.

Regulatory issues may at first appear to be a barrier to disruption, compared to ride-sharing. If the taxi industry accounts for a single volume in the ATO's library, superannuation likely takes up several shelves of weighty tomes on intricate tax legislation. Startups may initially face tough barriers in establishing themselves and getting licensed. But there are two markets open to a new wave of super fund. First, salary sacrificers. These are people who choose to sacrifice more money every pay cheque to make extra contributions to their super fund. There's no requirement that this money goes into their regular super fund, so it could easily be invested elsewhere if a more attractive option became available.

The second market is the fast-growing self-employed sector. According to ABS data, this rose from 8.5% in 2013 to 11.2% by 2015. Upwork estimates that around one in three Australian workers carried out freelance work in 2015. Over half of people who quit traditional employment say they have no plans of going back.

Currently if you're a sole trader you don't have to make super payments for yourself. You're free to save (or not save) what you want, and invest it wherever you like. If you do put it into regular super you still get certain tax benefits.

"All these restrictions into what people can do with their own money, and the lack of transparency, make super an industry ripe for Uberisation." - Simran Gambhir

But you might well prefer to try a more interactive, consumer-friendly form of investment. Macrovue, for example, is a trading platform that makes it easy for retail investors to access global shares, and invest in "vues" - portfolios of stocks that reflect a particular investment theme, such as the Internet of Things, Clean Tech or Luxury Goods.

Why can't such options be available for super funds? Instead of low, medium and high risk, why can't different themes be available?

Creating more interesting and flexible products, and giving people more input and control over their savings, would be a great first step to re-engaging with apathetic and disempowered customers.

If incumbents don't do this, new competitors will.

At Stone & Chalk, Simran is a technology innovation and advice resource to over 100 startups. Simran is the founder of Ganemo Group and a consultant to KPMG Australia's High Growth Ventures arm and mentor-in-residence for H2 Ventures where he's responsible for identifying some of the most innovative startups around the world the accelerator can invest in. He is a founding member of The Australian Transformation and Turnaround Association and was formerly chief technology officer of News Corp's digital arm.