When market volatility is not dominating the headlines, investors can take their pick from any number of stories about disruptive technologies to help feed their sense of anxiety about investing in an uncertain world.
Disruptive technologies by their nature bring with them both a threat to the status quo and the opportunity for investors to benefit.
The smart phone revolution, Uber, Airbnb and Netflix have all dramatically disrupted or challenged established industries like music, media, taxis, video stores and hotels. Today, no successful industry – particularly one where healthy profits are being made – would be so complacent as to suggest it could not happen to them.
Financial services – including banks, super funds, asset managers, financial advisers and accountants – naturally fall under that category.
So it should not have been any surprise that at this month’s annual SMSF Association conference the topic of disruptive technologies was a major and ongoing theme across the forum’s three days and among the 1500-plus attendees.
Last year the World Economic Forum (WEF) published a major study into disruptive technologies and how they may impact financial services globally. This in-depth report of more than 180 pages summarised the major impacts under five categories.
The five categories are:
- Accessibility – more sophisticated wealth management services available to a broader customer base
- Transparency and control – investors get greater visibility into their financials and how their money is invested
- Convenience – online and mobile channels providing access on demand
- Personalised – algorithims offering more sophisticated and greater levels of customisation
- Low cost – cost of receiving advisory and management services will decrease as automation lowers operating costs
At the heart of the report’s findings was that – just like with travel, taxis and music – it was the rising power of the individual consumer that was both driving and benefiting from this technology disruption.
Using the World Economic Forum criteria it can reasonably be argued that self-managed super funds themselves are a form of disruptive technology.
When you consider the WEF categories, self-managed super funds (SMSFs) tick almost all the boxes; from accessibility to transparency, and control to personalisation and lower costs.
Critics of SMSFs may argue some of those – costs for example – may be more illusory than real but what they cannot dispute is that Australian investors are voting with their feet. There are now more than one million investors as trustees of their own self-managed super fund and collectively that represents $557 billion* which is the largest segment of the entire $2.2 trillion super savings pool.
The SMSF disruption has been aided and abetted by two other key changes. First there is the revolution in technology and online services that places so much computer power and accessibility in the hands of individuals. The pace and flexibility of technology developed within the SMSF industry is driving competition among administration providers while at the same time allowing more personalised services to be provided at lower cost levels.
Second has been the greater access to investment markets that individual investors via their SMSFs now have. Online brokerage services and products like ETFs and indexing more generally have provided investors with the tools to build portfolios across the full range of asset classes at much lower costs.
Low member engagement is a challenge across the superannuation system due in no small part to its mandatory nature. While larger institutional funds and low cost MySuper options will remain the dominant vehicle for employer default contributions, what the SMSF growth is showing is that there is an increasing number of Australians wanting to be directly engaged with their super and retirement savings.
The accepted wisdom is that the SMSF market will plateau and its growth will slow in the years ahead as almost 50 per cent of the assets are either in or approaching pension phase.
The interesting challenge to that status quo will be whether younger workers empowered by mobile technology and social networks will emerge as a new generation of rewired investors who embrace self-managing their super as the norm rather than the exception.
Institutional super funds are not ignoring this challenge. Just as technology is making the SMSF path increasingly easier to tread, large super funds are making advances in using digital platforms to get members more engaged with their retirement savings and giving them the ability to personalise their asset allocation through products like ETFs or direct shares, while also developing new retirement income solutions.
Regardless of what direction disruption takes, what does appear clear is it will mean greater flexibility and options in how Australians save for their retirement.
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Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment. |
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