One in three self-managed superannuation funds established over the past year were set up by investors under the age of 45, creating an opportunity for traditional wealth platforms to collaborate with the discount brokers favoured by the bulging ranks of young investors.
Wealth management platform provider Hub24 has repeatedly ruled out launching a Robinhood-style direct-to-consumer offer, preferring to stick with its legacy customer base of financial advisers and stockbrokers.
But the 14-year-old firm will profit from the proliferation of self-directed discount brokers by providing SMSF administration services to the next generation of investors via the Class Limited business it acquired last year.
According to the Australian Securities and Investments Commission, more than 20 separate platforms are being used by retail investors, from large bank-owned incumbents to hyped fintechs and offshore entrants.
Some, such as share-trading and super start-up Superhero, are understood to have been inspired by the incredible growth of Hub24 and fellow adviser-facing platform Netwealth.
Class chief executive Tim Steele, a former executive within National Australia Bank’s wealth arm who joined the Hub24 subsidiary last month, said the rise of neo-brokers and strong demand for SMSFs from their core target market presented a commercial opportunity.
“We think there’s a [clear] demand, and we will support those platforms in enhancing their propositions, including SMSF,” Mr Steele told The Australian Financial Review. “We think our core capability extends nicely to that segment of the marketplace.”
Class has already signed neo-broker Stake as a client of its administration software. The broker, which initiated the controversial zero brokerage fee model in Australia and claims to have almost half a million customers, launched its Stake Super SMSF business in November 2020. Other brokers are believed to have similar SMSF establishment projects in development.
Hub24 in June told shareholders that a new SMSF product aimed at “aspirational accumulators” was in the works, which would leverage its newly acquired Class technology. The product – which would combine Class SMSF administration with Hub24’s investment trading capability – is expected to be piloted with select wealth advisory firms in coming months.
The pivot to younger SMSF trustees comes as new data released by Class on Tuesday found Australians aged 35 to 44 were the largest cohort of new SMSFs established in the financial year ended June, accounting for 30 per cent of all new accounts. Trustees aged under 35 accounted for about another 6 per cent. The average age of people establishing SMSFs has fallen from 51 to 46.
The finding follows the Financial Review’s revelation last week that 700 people under the age of 40 have more than $2 million each in their superannuation accounts.
Jo Hurley, general manager of growth at Class, said the increasing “visibility” of the SMSF structure thanks to Stake Super and similar initiatives was helping change trustee demographics and encourage more young Australians to become self-managed.
Millennials are seeking greater engagement with their super, says Class CEO Tim Steele.
“They are using these online platforms to be investing and taking control of their wealth in a more direct kind of way … [so] SMSF is coming to the forefront in that as an option,” Ms Hurley said.
Mr Steele speculated that the previous federal government’s superannuation early release scheme during the first waves of the COVID-19 pandemic may have played a role in attracting some young investors to manage their own super.
“The COVID factor is a really interesting point,” he said. “I wonder whether, particularly for millennials, [the scheme] caused them to think very differently about super as their asset, and something that they wanted to be far more engaged with.”
Though he added that the Class research did not make any finding about the early release scheme, industry projections estimated that people under 45 were well-represented among the 3.4 million Australians who collectively withdrew $36 billion from their super during the pandemic.
Stake co-founder Matt Leibowitz said about half of the customers setting up SMSFs via his platform were in the 35 to 44 age bracket.
“While SMSFs have traditionally been set up by older Australians, we continue to see significant growth in fund establishments among younger, self-directed investors who want more control over their superannuation,” he said.
“We’re seeing first-hand that younger people are more active in making decisions relating to their super compared to previous generations of the same age. They feel empowered to make their own investing choices for the benefit of their retirement.”
But some critics have said the convenience offered by products like Stake Super – which describes itself as “Australia’s most hassle-free SMSF” provider and allows customers to sign up within five minutes – made it too easy for inexperienced and low-balance investors to leave their prudentially regulated funds.
Ms Hurley said it was important to note that while the average age of SMSF establishments was being pushed down, that the vast majority of Millennial trustees have been in the workforce for at least 10 years and have a “mature” understanding of their personal finances.
Mr Steele added that Class has a house view that prospective trustees would benefit from professional advice. “If we can help [advisers] run their businesses more effectively, then we give them the capacity to engage a broader range of clients,” he said.
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