Commsec has come with a new app called the Commsec pocket, in July 2019. Press has been calling it as innovation targeted at millennial’s and also at people who are earning less but would like to get into investing.
I have seen lots of praises on the internet about the Commsec Pocket and its capabilities to enhance your ability to grow wealth. In his interview with CIO, Richard Burns, executive general manager at CommSec describes it as
“CommSec Pocket is our latest innovation that will help empower more Australians to grow their wealth. We will continue to listen to our customers and find new ways to help all Australians access the opportunities the share market can bring,”
What is the Commsec Pocket app?
I have to agree that Common Wealth Bank is the most innovative bank when it comes to Fintech, of all the 4 banks. They were the first to launch an online broker platform (1997) and launched their first iPhone trading application in 2008, ahead of other banks. Last year (2019) they were the first bank to launch the Commsec pocket app.
Commsec Pocket app is a micro-investing, that allows users to invest from as little as $50. Investment units that are purchased using Commsec Pocket- are purchased on the buyer’s name, similar to purchasing ETF’s from any traditional brokers.
Unlike other micro-investing apps, the pocket app doesn’t charge you monthly/yearly maintenance directly. Commsec charges you a brokerage of $2 per trade, for trades up to $1,000 and 0.20% for trades above $1,000.
The difference between Commsec Pocket and Commsec is that Pocket allows you to buy a single unit of shares that are less than $500 in value whereas in Commsec the investing value should be a minimum of $500.
Similar to Commsec you’re subject to T+2 ASX settlement days, that is, it will take 2 business days for the transaction to settle in your account for both BUY and SELL orders.
Why are micro-investing apps getting so popular?
With limited options and higher brokerage fees, why are micro-investing apps getting so popular?
Let’s unpack this.
1. First, these apps are targeted towards millennial’s and Generation Z, whose income is low and encouraging them to save.
2. Second, which most of you don’t know is the limitation with ASX. Say if you have $50 in your account, you will not be able to invest those $50 using your traditional broker.
The minimum amount needed to buy shares in the Australian Share Market.
An initial purchase of any shareholding must be at least $500 worth of shares, once this initial purchase is established investors can buy any small amount of the shares for the same company. The rule with ASX is your transaction size needs to be a minimum of $500.
Micro-investing apps take advantage of this ASX rule. The way Commsec Pocket works is, it pools all the money from different investors and buys the ETF’s in one transaction from ASX also has a special agreement with ASX on trade value. Post the transaction, they will distribute the shareholdings to each account holder.
ETF’s that you can invest using Commsec Pocket
You cannot purchase all ASX listed companies are ETF’s. The Commsec pocket offers a range of hand-picked ETF’s to invest. These 7 Exchange Traded Funds (ETF’s) that you can choose to invest are selected from the specific theme and investment strategies.
However, the industry experts believe that the selection of ETF’s based on unit price is not investor focused. Moreover, Commsec argument that selection of ETFs based on Unit Price is questionable as there are many other ETF’s whose Unit Prices are comparatively low.
As an investor, you must consider the underlying ETF management fee. Since ETF’s are a composition of underlying shares, you can shop around the same composition for a lesser management fee.
|ETF Name in pocket||Ticker||Underlying ETF|
|Aussie Top 200||IOZ||iShares Core S&P/ASX 200 ETF|
|Aussie Dividends||SYI||SPDR MSCI Australia Select High Dividend Yield Fund|
|Global 100||IOO||iShares Global 100 ETF|
|Emerging Markets||IEM||iShares MSCI Emerging Markets ETF|
|Health Wise||IXJ||iShares Global Healthcare ETF|
|Sustainability Leaders||ETHI||BetaShares Global Sustainability Leaders ETF|
|Tech Savvy||NDQ||BetaShares NASDAQ 100 ETF|
Comparing Commsec Pocket fee with Raiz and Stockspot
Commsec among brokers is what apple like among smartphones, they have the most expensive brokerage fee of all full serviced brokers, considering themselves as a premium brand when it comes to brokers.
While new low-cost brokers like Self Wealth are coming as a cheaper alternative, their commission for a full-fledged broker has remained the same for 10 or more years. When you compare Commsec with other 3 other big banks (ANZ, NAB and Westpac) they still stand out with their fees
When they launched the Commsec pocket app they aren’t competing with other micro-investing apps like Raiz and Stockspot, they stand out with their own brand pride.
Now, it’s logical that we compare the Commsec Pocket fees with RAIZ and Stockspot.
While we can’t compare the return on investments (ROI) between Commsec, RAIZ and Stockspot but we can easily look at the cost of investing through these apps.
These apps do have a different dimension when it comes to investing.
With Commsec Pocket you can start investing at $50. Whereas RAIZ connects to your bank account and rounds off your transactions for your portfolio. You can configure your portfolio type based on your risk appetite, but the end of the day it invests in ETF’s as well, it doesn’t invest in individual shares.
Stockspot is a bit different, you need to transfer a minimum $1000 when you decide to transfer. They will manage the portfolio based on your risk selection. Their PDS document doesn’t reveal what they invest, this is product is like a managed fund with low fees.
|Monthly fee||Transaction Fee||Total|
|Commsec Pocket App||$4||$2||$6|
Let’s assume that you are Generation Z or someone with low-income bracket, that’s where these micro-investing apps are the target.
When I checked the numbers on fair work today, the minimum earning is 408/week fulltime, this translates to $1632 per month. Your take-home pay will be less than $2000 per month.
Commsec doesn’t allow you to invest with the pocket app using CDIA account, it has to be a normal bank account. So, on top of the $2 fee for your investment you also need to pay the $4 monthly account fee. The only way you can get away with that fee is by depositing a minimum of $2000 in your account every month, based on the minimum salary calculation you will struggle to satisfy
So, adding all up both the Monthly bank account fee and Transaction fee it will cost you $6 per month to do one minimum investment of $50. Some of us might be able to satisfy the minimum deposit criteria for bank account and get a waiver of $4, but this analysis is wholly to validate the cost of investing with the Commsec Pocket.
Since Commsec pocket app is the only app with a transaction fee and rest are all based on a monthly fee, for our calculation, we are limiting to one transaction per month.
Based on these fees, if you invest $50 per month for a year, it will cost you $72 and RAIZ will cost you $30 and Stockspot costs you $66.
Is it worth it?
Apart from the drawbacks of limited ETF’s and the performance of your portfolio is solely based on the selected 7 ETF’s in Commsec Pocket, the only attractive value addition seems to be the advertised $2 fees.
If you go on minimum deposit route then you are paying 12% in commission. In a good bull market, your portfolio will do anywhere between 7%to 12% average. This means that you have to wait at least 2.5 years of the bull market before you see any profit, first 1.5 years gain on your investment is used to recover commission fees and then you have to wait for one more year to see any returns on your investment.
So how do you make your investment worth through the Commsec Pocket?
If you are still loyal to the brand and decide to invest using the Commsec Pocket then the only way to get the best bang for your buck is by invest the maximum amount of $1000.
But then I can’t imagine someone coming out of university and working as an apprentice to be able to invest that amount, so I suggest for Generation Z to steer away from using the Commsec Pocket as there is no value, in fact, you will lose the significant value of your investment.