The tech-focused super fund’s regulatory wrist slap shows the need for fund managers – and their marketing advisers – to speak plainly and honestly.
In late 2016, a new superannuation player named Spaceship announced its intention to disrupt, backed by a $1.6 million capital injection, in part funded by Aussie billionaire and Atlassian founder Mike Cannon-Brookes.
The starry-eyed tech start-up and venture capital world salivated at the thought of a new saviour who would engage Millennials in the financial system and increase the options for Australians to invest in technology equities via their super.
But the traditional funds management industry – which has lived through many a bubble – was not swayed by the hype, but instead was alarmed by what they found under the bonnet of this particular aircraft.
At conferences and events, many an experienced fund manager or executive has spoken to InvestorDaily about their concerns regarding the new entrant’s fee offer, investment philosophy and marketing claims — concerns echoed by a number of professionals to sister title SMSF Adviser this week.
The questions were especially free-flowing at the 17th Wraps, Platforms and Masterfunds conference in the Hunter Valley last year, when Spaceship’s captain Paul Bennetts suspiciously dropped out of speaking at the last minute just weeks after a critical article that appeared in the CuffeLinks newsletter.
In that article, former Colonial First State executive Graham Hand took Spaceship to task for its offer, explaining that he would advise his Millennial daughter to look beyond the hype.
Unfortunately for Spaceship and its trustee, a small Adelaide-based AFSL holder and APRA fiduciary called Tidswell Financial Services, the corporate regulator did not take Mr Hand’s advice to ignore the uppity new super fund.
This week, ASIC penalised both Spaceship and Tidswell for making false and misleading statements in relation to the GrowthX fund, explaining that the two market participants “prioritised marketing over accurate disclosure”.
Specifically, ASIC took umbrage with claims on Spaceship’s website that read:
'We will fight to get you the very best assets in your portfolio…. We will measure companies in our portfolio based on their ability to provide defensibility of profits and high levels of product differentiation.'
On face value, the marketing copy might not seem too out of line with superannuation industry standards. The only problem is that 79 per cent of the fund was invested in index-hugging funds with “no qualitative analysis” of underlying companies.
In other words, it was falsely promoting itself as an active manager despite running a portfolio that was almost entirely passive.
The deception is particularly heightened considering Spaceship’s target market of younger consumers, many of whom have a worrying lack of financial literacy.
Granted, ASIC’s punishment of $12,600 each is relatively paltry – particularly compared to the $100 million funds under management Spaceship claims to have amassed.
But for a player that is seemingly so obsessed with marketing and image, the wrist slap and accompanying bad press will no doubt rattle the aircraft a little.
At the time of writing, InvestorDaily had not received any response to a request for comment from Spaceship in relation to the ASIC intervention. Mr Hand, meanwhile, has been waiting half a year for a response to his takedown of the super fund’s marketing activity and is no doubt no longer holding his breath.
It is a case study in what not to do when it comes to media relations strategy.
But more importantly, it is a case study in the need for honest and straightforward marketing in the best interests of consumers.
Of course, the problem of annoyingly – or perhaps deliberately – verbose, jargonistic or misleading product information is not confined to the new breed of high-tech super funds.
The major financial institutions will next week appear before the royal commission to answer for their own brand of confusing and possibly deceptive product and ownership disclosure.
Even the ETF providers – who, as I have previously argued, are winning the marketing game in the funds management culture wars – are not immune from the behaviour.
Speaking at an event in Sydney this week, American ETF pioneer Jim Ross – chairman of State Street’s SPDR business – said manufacturers and marketers need to do better to ensure their product terminology is not misleading, including in the listed space.
“Transparency is your friend,” the veteran passive investor said.
Speaking to InvestorDaily this week, Mr Hand said that he has not revisited his analysis of Spaceship since his critical article and is loathe to provide the super fund with any more “free publicity” but added that the “Spaceship newsletter has improved”.
Let’s hope Spaceship has learned the lesson the institutions will be learning the hard way over the coming weeks and is ready to make transparency a friend.
Aleks Vickovich is the managing editor of InvestorDaily