Super disruptors have been disrupted

In the space of just a few years, almost all the superannuation disruptor products purpose-built for young fund members have either collapsed, been shut down or failed to resonate with their target younger audiences.

At end the last year, 2022, there were only 14 superannuation disruptors still standing. In just the first few weeks of 2023 several more closed their doors as well.

“The threat to shake-up incumbent superannuation funds posed by the businesses and promoters behind these disruptor products largely appears to have passed,” said Alex Dunnin, executive director of research and compliance at Rainmaker Information.

At its peak, there were 30 challenger brands that had entered the market, hoping to take on the established industry and retail funds.

Despite their aggressive intentions, even at their peak they amounted to only $3.8 billion in superannuation funds under management (FUM), being just 0.12% of the market.

“The segment began in 2014 with the launch of products such as Future Super and Virgin Super, which were followed by Grow Super, Spaceship, Crescent Wealth, Human Super and Zuper,” said Dunnin.

While the number of funds in the disruptor space has more than halved, their overall FUM has increased by 124% since 2017, growing from $1.7 billion at the time.

The surviving disruptors comprise Future Super, Virgin Money, Spaceship, Crescent Wealth and Verve Super.

“These five funds account for 82% of the market’s FUM, with Future Super currently growing at the fastest rate,” said Dunnin.

“The major characteristic of these surviving disruptors is a clearly delineated product theme - four of the segment’s five largest products are heavily identified with ESG with others heavily focused on technology investments,” said Dunnin.

Disruptor products closing their doors through the past few years included Grow Super, Zuper, BrightDay, GigSuper, Max Super, Good Super, Super Prophets and FairVine (Human Super).

The COVID-19 pandemic was a major factor in some of these products closing during their early days.

Emergency measures by the government in 2020 to allow fund members to take up to $20,000 out of their superannuation accounts made these products especially vulnerable.

Policy initiatives known as Stapling, that started in 2021, tied young members to the first superannuation product they ever joined also made it harder for disruptors to attract new members.

“But poor product design didn’t help either,” said Dunnin.

“The median expense ratio for disruptor superannuation products being 1.15%pa was 10% higher than the Rainmaker 2022 MySuper fee benchmark of 1.06%pa. Their high fees were a symptom of their lack of scale,” he added.

“More surprising, however, was that the highest fees were associated with superannuation disruptors that emphasised ESG investing. As important as ESG is as an investment theme, there’s no reason why it should cost more.”

“But what was most disturbing about the superannuation disruptor segment was how few of them regularly published accessible, comparable performance information,” said Dunnin.