CommSec Pocket’s coffers have likely been hit by the downturn in financial markets. About a third of its total investor inflows ($403 million) has gone into the “tech savvy” investment option – twice that of its second most popular Aussie Top 200 theme ($206 million) and third most popular Sustainability Leaders ETF ($197 million).
The global tech sector-focused option is understood to feed into the BetaShares Nasdaq 100 ETF, which tracks the performance of the top 100 companies listed on the US Nasdaq exchange. The underlying Nasdaq 100 index, which is dominated by tech giants like Meta and Apple, is down 25 per cent year-to-date, but up 116 per cent over the past five years.
A CBA spokesman said the bank does not comment on “customer returns” but that it provides Pocket users with a monthly newsletter that outlines underlying ETF performance. It also provides investor education as part of the CommSec Learn portal on its trading platform.
In an audio recording posted to the bank’s website on Tuesday, CommSec managing director Richard Burns said adding Pocket to the main CommBank app would provide a “frictionless experience” for customers to manage wealth alongside savings and deposits.
He said the launch of Pocket in 2019 was well-timed given the influx of young investors into financial markets for the first time during the pandemic – a trend dubbed the Robinhood phenomenon after the controversial US trading app.
“We’ve launched at the right time,” Mr Burns said. “There’s been a real interest in retail investors starting their journey and Pocket has helped so many.”
Australia’s online investor community has doubled to about 1.5 million since 2020, according to researcher Investment Trends. The research house also estimates that about 866 digital wealth management applications are now operating in the market and targeting consumers aged 15 to 35.
The number of fintechs targeting this niche has quadrupled from about 164 in 2019. Online investing and cryptocurrency trading apps are the dominant categories, accounting for more than a third of the market.
Mr Burns said many Pocket users were motivated by wanting an alternative to the low interest rates on offer on savings accounts and the desire to save for a home deposit. But he also said the dearth of affordable, professional financial advice was a factor driving customers to micro-investing.
“We know that financial advice has become more inaccessible … [and] more expensive than previous generations have experienced,” he said.
The median fee for financial advice increased from $3256 to $3529 a year last year, representing an 8 per cent spike, or 40 per cent over the three years to December 2021, according to researcher Adviser Ratings.
Micro investors, macro market
CBA was once among Australia’s largest providers of financial advice under its Commonwealth Financial Planning banner and subsidiaries including Financial Wisdom and Count Financial. But it began selling and shutting these businesses after the Hayne royal commission in 2018.
Analysts have tipped the major banks to return to the financial advice market in the future, most likely providing services in a digital format rather than licensing or employing professional financial planners.
Globally, the micro-investing and digital advice market is estimated to be worth about $1.8 trillion, with major financial institutions including Goldman Sachs, Barclays, HSBC and Bank of America experimenting with apps and platforms aimed at entry-level investors.
Investment administrator Cache has said a number of major banks in Australia are in discussions with fintech partners to enter this market and catch up to CBA’s popular early mover. About 1.29 million Australians have accounts with local micro-investing fintechs such as Spaceship and Raiz Invest, according to Cache.
CommSec Pocket is now considered a major contributor to inflows for commercial partners BetaShares, State Street-owned SPDR and BlackRock-owned iShares, which run the underlying ETFs across the seven investment themes, according to Finder analysis.
A BetaShares spokesman said: “In our experience, CommSec Pocket has proven to be a hit with newer investors seeking to start, or conveniently continue, their investment journey. Australian investors from all walks of life are using ETFs as building blocks for their investment portfolio.”
Some market sources have criticised the narrow investment menu for omitting other key providers such as Vanguard and VanEck.
The CBA spokesman said: “A wide range of potential ETFs were considered using investment criteria that suit the seven themes selected. We review these ETFs and their peers regularly, including customer feedback.“