From now on, it will probably be near impossible to open Facebook, Twitter, or Instagram without coming across an advertisement for Danske Bank's new investment platform, June, which was recently launched in Denmark.
June was developed in an downturn Copenhagen courtyard by Danske Bank's digital unit, Mobilelife. The new product aims to give the average Dane the opportunity to invest in financial markets.
The idea with June is to make investing as easy and intuitive as possible. The user enters their name and email address, answers 10 questions about risk appetite and personal economy, and uploads a picture ID if not already a registered customer of Danske Bank. That is all the user needs to fill out to be ready to invest anywhere between a minimum of DKK 100 (EUR 13.40) and a maximum DKK 300,000.
But nothing is simple in the financial world. Behind the smart and well thought-out user interface is a slightly more complicated reality.
Requirements for customers
The machine behind June is basically a standard balanced mutual fund, in this case located in Luxembourg. Through Danske Invest Allocation SICAV, five different risk profiles are offered, from low risk to high risk. It is a product that all larger mutual funds in Denmark offer.
There is, however, one major difference. Danske Bank requires that those who invest through June become customers of Danske Bank. This requirement is not set when buying investment shares in Danske Invest or any other mutual fund.
But to invest through June, the user must accept that the bank may contact you like any other client – also with bank offers. According to Mobilelife chief Simon Haldrup, it is not the purpose of June to pull clients from other banks. But he acknowledges that it is an opportunity.
Already at this stage, Danske Bank has not only prepared for a major brawl with other Danish banks, but also chosen a somewhat old-fashioned strategy – attempting to bind customers to the banks – which is not exactly far-sighted.
The bank can, however, argue that it is the easiest solution for June customers, because June primarily seeks out Danes who are not already investing, and as such do not yet have a securities account. But it will be interesting to see whether Danske Bank can resist he temptation to coax June's customers to buy other products from the bank.
Inexpensive – but then again
Next are the expenses. June's business model is fundamentally simple. 22 passive Exchange Traded Funds in the five risk classes are chosen from traditional suppliers like Blackrock, Vanguard, and Deutsche Bank, and then allocated.
There is no hocus-pocus in this. Anyone who has worked with passive investing knows that it is crucial to have as low of a cost structure as possible. In its nature, a passively managed fund will always yield market returns minus expenses.
And this is where Danske Bank's situation is fundamentally different from Mobilepay's. Mobilepay became a huge success because it was easy to use, met what turned out to be an obvious need for monetary transactions, and, not least, it was and is free to use. This has cost Danske Bank a weighty million sum in coverage of card redemption fees and other expenses for bank transactions.
But June is a traditional banking product, which Danske Bank will profit from. In addition to the direct investment expenses, which, according to FWAM's calculations, are between about 0.16 percent for the risky portfolio, and 0.21 for the least risky one, come the running trading expenses of about 0.05 percent, an administration fee for Danske Bank of about 0.2 percent, and a management fee to the bank of about 0.35 percent. In total, according to Danske Bank, this equals about 0.8 percent.
Head of Wealth Management and executive chairman at Danske Bank, Tonny Andersen, thinks that this is a good and attractive price. It is about half of what a traditional mutual fund would typically charge for a balanced investment fund, only with the substantial difference that a balanced fund is usually actively managed, not passively, and thus the price includes the potential additional returns.
However, customers of June will never know if Danske Bank's portfolio management allocates money efficiently. The funds have no benchmark to compare with.
What about taxes?
Danske Bank deserves praise for making June a so-called 'no-load fund'. This means that customers neither have to pay redemption fees, nor emission surcharge. In practice it means that all customers pay for those who bustle in and out of the fund – something that Danish legislation has otherwise always tried to prevent.
The bank is not eager to mention that the same fund that June's customers invest in offers completely identical investment shares that cost about 27% less and only cost 0.4 percent in annual fees to Danske Bank. These are only offered to "qualified investors".
On top of the price, there is the tax. Passively managed ETFs have been around for almost 40 years, but they never truly caught on in Denmark due to disadvantageous tax regulations in relation to investments in personal assets, which means that private investors are continuously taxed by the mark-to-market principle.
In practice, this has prevented ETFs from properly catching on in Denmark. But according to Danske Bank's Simon Haldrup, it is actually an advantage for customers to be taxed by the mark-to-market principle. The bank is not likely to find many mutual funds, not to mention tax experts, who would endorse that.
Then there is marketing. During a press conference on Thursday, located in what Tonny Thierry Andersen called "Mobilelife's temple" in central Copenhagen, he stated that Danes have DKK 819 billion in savings deposits in banks – hereby implied that some of this fortune could be placed in June.
Danske Bank might have to be careful with this comparison to avoid getting on the wrong side of the rules for misleading advertising.
Then comes the risk
Money in a deposit account is always safe, although inflation hollows out its value over time. But even in the most conservative June fund, about 18 percent of the money is in equities, and another approx. 17 percent is in junk-bonds and risk-filled bonds from developing countries.
So the risk of losing money is definitely real, which probably requires more than an average-length passage about the risky nature of investing. Especially if Danske Bank markets June as an alternative to traditional deposits.
The bank states that it has no target level for June's success. It is definitely difficult to predict, but it is unlikely that June would be the next Mobilepay success, although less will obviously do in this case.
The truth is that June is, behind a demonstrably smart user interface supported by an indubitably massive marketing campaign, fundamentally just an average mutual fund, although less expensive than other options currently available on the market. However, it is not distinctly inexpensive, and it is far from ideal for private investors in terms of tax.
On top of this, Danske Bank is unable to solve the problem that Mobilepay successfully did. Danes would undoubtedly appreciate higher returns on their investments, but most are not willing to run any major risks.
No Money Market Account
A new product became a huge success upon its invention in the '70s in the US: the Money Market Account. The invention made the best of the American central bank's set limits to interest rates on savings accounts, prohibiting interest rates on checking accounts.
With a Money Market Account, average Americans could put their capital to work on the money market while still writing checks on their accounts – with a product that was, by any measure, equal in safety to a normal bank account.
June bears little resemblance to that.
Although customers can deposit and withdraw from June at will, the risk is very different from a deposit account or a Money Market Account.
If Danske Bank informs customers honestly and unambiguously of the risks, it seems unlikely that June will become an everyday commodity to the average Dane like Mobilepay.
English Edit: Marie Honoré