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SMSFundamentals: Reality Tough For Super Disruptors

SMSFundamentals | Feb 15 2023

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The superannuation disruptor segment has shrunk to half its peak size, with funds exiting the market in recent years having failed to resonate with the target audience. 

-Superannuation disruptors have failed to pose serious threat to incumbents in Australia
-Surviving disruptor funds have benefitted from an overall increase in funds under management
-With several disruptor funds shutting up operations since the beginning of 2023, less than fourteen remain in the market 

By Danielle Austin

Superannuation ‘disruptors’ have failed to create a lasting impression, with more than half having left the market since the peak in fresh market entrants. According to industry watcher Rainmaker, the threat posed by these newcomers to legacy superannuation funds has largely passed, with many collapsing, shutting down, or failing to resonate altogether with their target audience. 

A wave of disruptor funds entered the market in 2014 offering superannuation options targeted at younger savers, with thirty challenger funds on the market at its peak. Even then, these funds accounted for just 0.12% of the market, with combined funds under management of $3.8bn. 

Recent years have seen Grow Super, Zuper, BrightDay, GigSuper, Max Super, Good Super, Super Prophets and Fair Vine (Human Super) all close doors. Despite the falling number of disruptor funds, funds under management held by the sector have grown 124% since 2017, leaving more funds for the few remaining.

Surviving disruptor funds share key characteristic

The remaining disruptor funds, which include Future Super, Virgin Money, Spaceship, Crescent Wealth and Verve Super, all offer a clearly differentiated product theme. Rainmaker points out four of the sector’s five largest products heavily identify with ESG, while other top performers are focused on technology investment. 

According to Rainmaker, the introduction of ‘super stapling’ in 2021 did few favours for the disruptor sector. With the implementation of the policy, employers are required to pay superannuation funds into an employee's existing fund if that employee fails to nominate a fund, rather than into the employer's preferred fund, effectively tying younger members to their first fund. 

Similarly, the implementation of emergency measures during covid that allowed fund members to access up to $20,000 of their superannuation savings had a major impact on disruptor products still in infancy, making them particularly vulnerable. 

However, Rainmaker Information points out part of the problem simply boiled down to product design.

“The median expense ratio for disruptor superannuation products being 1.15% per annum was 10% higher than the Rainmaker 2022 MySuper fee benchmark of 1.06% per annum. Their high fees were a symptom of their lack of scale,” said Rainmaker Information executive director of research and compliance, Alex Dunnin.

Dunnin explains the highest fees were associated with disruptor funds emphasising a focus on ESG investing, which, while an important investing theme, should not cost more to invest in. He also noted a lack of visibility from the disruptor segment, with few funds regularly publishing accessible, comparable performance information. 

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