Is RAIZ / ACORNS just missing too many tricks?

Great article today from Graham Hand on Cuffelinks.

I’ve always thought RAIZ’s business strategy is muddy. In trying to boost their FUM, I think they’ve missed a trick in releasing a superannuation product that is, whilst reasonably cheap, not competitive with the cheapest in the market. And I think they could have taken the initiative and distinguished themselves by addressing an elephant in the room (there are several) of the ongoing Royal Commission, and walking away from percentage‑based fees, beyond a cap. What precisely is the marginal cost to RAIZ of managing $100,000, rather than $10,000 or even $1000? I am guessing something very close to zero.

But perhaps the biggest trick I think they have missed is to not recognise all the possibilities their (unique?) platform opens up with fractional share ownership. Imagine a “round-up debt-recycler”: the 50c rounded up from your morning coffee comes out of your current account, pays down a non-deductible debt (eg.,a PPOR mortgage), simultaneously redraws against a deductible line of credit (LOC), and then invests that 50c in fractional ownership of a broad‑based, solid dividend paying ETF or LIC. The fractional dividends would be channelled back to pay down the non-deductible debt… rinse and repeat. All happening essentially instantly, with the money flows visible, but ringfenced, in a smartphone app. Perfect product for the millennials once they get older and become first home buyers. And isn’t the time about right for a product that helps Australians get themselves off the world’s debt leader boards?

Now, to be clear, RAIZ would have to partner with banks or other retail lenders to do this. But banks are having enough challenges with, um, banking right now - so they would want a third party to handle the complexities of fractional share ownership. But look at the size of the prize here, from RAIZ's perspective: for the last three years there has been about $60 BILLION of new or refinanced mortgage lending in Australia, per year. Assuming only 10% of that is captured and paired with a debt‑recycling product, it would pipeline $6bn to be recycled through RAIZ over the (much shortened) lifetime of the non-deductible loan. That makes RAIZ’s current FUM of only $200mn look like birdseed.

As I understand it, only RAIZ currently has the technological platform to facilitate fractional share ownership (am I right about this?), and make something like the above a reality. Surely they should focus more on the potentially huge opportunities they have here and now in Australia, and stop wasting their time trying to capture the loose Thai Baht, Singapore Dollars and whatever else the third country’s currency was in their grandiose Asian expansion plans.

 

RAIZ Custom Portfolio

The Custom Portfolio will only suit customers who are a bit more sophisticated and understand investment risks and their own risk tolerance – it won’t be suitable for all Raiz investors. You must read the PDS carefully to understand the risks and determine if a Custom Portfolio is suitable for you.

The Management Costs for a Custom Portfolio is $0.00 p.a. for an account balance of less than $20,000; and 0.275% p.a. for account balances equal to or greater than $20,000. The Maintenance Fee for a Custom Portfolio is $4.50 per month for account balances less than $20,000; or $0.00 per month for account balances equal to or greater than $20,000. But there are no extra fees or limits on switching, depositing, withdrawing, or changing the target allocation inside your Custom Portfolio.

 

RAIZ 12 months report

 

Just looking at their last 12 months' ETF (and Bitcoin) updates