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News that JPMorgan is launching a free investing app is a case study in the cadence of technological disruption when it occurs in mature, regulated industries. If you haven't seen the particulars of this ... News that JPMorgan is launching a free investing app is a case study in the cadence of technological disruption when it occurs in mature, regulated industries. If you haven't seen the particulars of this announcement, here are the highlights: Starting late August, anyone currently using the Chase banking app or website will be able to open a brokerage account. There are no balance minimums and funding from Chase checking/savings will be instantaneous. The whole account opening process should take three minutes; Customers will be able to execute 100 trades for free in the first year. After that, trades will cost US$2.95 apiece. Accounts over US$15,000 will have no-commission trading past year one; and Users will also have free access to JPMorgan stock research and a portfolio-building tool. No, none of this is exactly "new" to the brokerage industry. Startups like Robin Hood offer web/app enabled free trading. Robo-advisors (think Wealthfront and Betterment) run a similar model, with low cost tech-enabled investment platforms delivering advisory services and no/low minimum investments. JPMorgan will have one of those early next year as well, according to today's news. Imagine for a moment if Walmart had launched a robust Amazon competitor in 1996; this is the closest analog we can think of to JPMorgan's move today. That would have been a year after Amazon started shipping books, but a year before its IPO. No doubt the world would look very different today had executives in Bentonville chosen to aggressively pursue online commerce rather than stick primarily to brick and mortar retail. At first blush, JPMorgan might look late to the party with its new service in the same way Walmart has struggled to catch up to Amazon. One difference is that financial services are more heavily regulated than online retail, so fresh-faced competitors tend to grow more slowly. Then there is the inherently single-point and conservative nature of consumer banking/brokerage. You may try out a new shopping site to see if you like it, but you are much less likely to shift your IRA to a startup or open multiple trading accounts with app-based trading services just to check them out. So now that the floodgates are open, what can we expect next? A few thoughts: When it comes to retail brokerage commissions, the race to zero is over and consumers won. Expect to see major online brokers match JPMorgan's pricing structure soon; Other retail banks will have to consider adding a similar service, even if they are not in the brokerage space currently. We suspect the typical consumer will see merit in consolidating their banking and brokerage accounts in one place, especially when that location is a smartphone app; and JPMorgan's move also means the opening of M&A season on fintech companies (and perhaps online brokers as well) that offer app/web trading, as retail banks search for technology partners to offer this service rather than build it on their own. You might be wondering how JPMorgan (or any other financial institution) plans to make money NOT charging for their services. Just consider: Integrating a customer's entire financial life, from their credit/debit cards to mortgages and (now) investments gives a financial institution the chance to collect an entire data-driven picture of what other services they might want. That allows for more intelligent cross selling and new product development; Banking is a mature industry, which means market share drives growth. Customer acquisition costs are high, but switching costs are low. Giving consumers an end-to-end financial solution should make them stickier and more likely to migrate to your platform; and Younger customers - think millennials - have been slow to enter the investor class since they are often burdened with student loans. A no-minimum brokerage account that conveniently links to their bank account on one app is an appealing offering to this important cohort. Our summary: JPMorgan has shown it will not willingly be "Amazoned." How much the rest of the US banking industry responds to the news remains to be seen. Written by Nick Colas, co-founder, DataTrek Research.Read more

Infrastructure: Financing Australia's future

JAMIE WILLIAMSON | In Investment

It's hard to ignore the appeal of infrastructure as an investment option with chronic under investment in the asset class and the world's population booming. Offering a diverse range of assets ... It's hard to ignore the appeal of infrastructure as an investment option with chronic under investment in the asset class and the world's population booming. Offering a diverse range of assets and attractive levels of defensiveness, as an asset class infrastructure presents huge growth potential. It is also seen to be an attractive investment opportunity throughout a market cycle, with relatively high barriers to entry and the monopolistic nature of typical infrastructure assets making them less susceptible to downturns in the economic cycle. National Australia Bank's latest infrastructure report, Reimagining Australia's Future Infrastructure 2017, says Australia's population growth is about three times that of China and expected to hit 40 million by 2055 - almost three quarters of which will occur in Sydney, Melbourne, Brisbane and Perth (see Figure 1). In the 2017 Federal Budget, the Government committed $75 billion to infrastructure, almost $70 billion of which was allocated to funding transport services, including Sydney's second airport in Badgerys Creek. Globally it's predicted that an investment of US$60 trillion will be required to meet the need of building and upgrading the world's infrastructure over the next 15 years, with much of that money anticipated to come from the private sector. Despite the immense scale of most projects, infrastructure is not just the domain of institutional investors. While still a relatively new phenomenon, individual investors can also diversify their portfolios by investing in listed infrastructure companies such as Transurban and Sydney Airport. Further influencing the infrastructure sector is the emergence of the middle class in evolving economies, which is driving need for infrastructure development in emerging markets and also in Australia. Although less than 10% of Chinese nationals own a car, car sales in China have outpaced the United States since 2010, requiring significant investment in roads. Further, while just 5% of Chinese nationals hold a passport - Sydney, Auckland, Bangkok and some European airports have seen record numbers of Chinese passengers in the last 12 to 18 months. Tourism Australia estimates that by 2025, about 3.2 million Chinese tourists will be arriving each year, accounting for 26% of all inbound traffic. To see the full article, click below.Read more

Taking control of your SMSF

JAMIE WILLIAMSON | In Administration & Management

Advisers and SMSF trustees are gearing up for the changes facing the industry. Jamie Williamson discusses the key issues ahead of the SMSF Association National Conference. Read more

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New super fund targets millennials ELIZABETH MCARTHUR \| 12:27PM A newly launched sub-plan of Aracon Super has officially launched, marketed to millennials with a PDS revealing relatively high fees, expensive insurance and big ambitions.	Opt-out super to hit workers: ISA HARRISON WORLEY \| 12:09PM New Industry Super Australia research claims to show plans to make superannuation optional for low-income workers is nothing more than a tax grab.

ISA slams ANU research as SG debate rears its head again HARRISON WORLEY The peak body for industry superannuation has forcefully rebuked new research from the Australian National University which questions raising the superannuation guarantee to 12% as scheduled.	New super fund to launch ELIZABETH MCARTHUR A new superannuation fund is set to launch next week focused on sustainable investing.

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JO-ANNE BLOCH
HEAD OF INDUSTRY AND PUBLIC SECTOR FUNDS
MERCER (AUSTRALIA) PTY LTD

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