Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Bank funds making inroads against not-for-profits
Pictured: Salvador Saiz
It’s not just the attraction of SMSFs causing membership leakage among not-for-profit super funds. The commercial funds, led by the major banks, are making inroads through their drive for membership growth, according to research by CoreData.
The research firm’s latest “Member Growth Report” from its Superannuation Intelligence Unit, says that 19.7 per cent of survey respondents are happy for bank-employed advisors to contact them to discuss super. At the moment, most contact is by email or hard-copy mail but, the report says, the next challenge for the not-for-profits will come when bank tellers are trained for face-to-face sales of super products to customers.
Salvador Saiz, CoreData head of advice, wealth and super, says: “The growth in low-cost super products by the banks in particular and efforts by these in poaching industry fund members by leveraging their banking networks appears to have had some success given that a large number of industry funds regularly name at least two low-cost retail funds as main leakage points. Of particular concern is that bank-employed advisors are the main trigger for this.”
The report notes that the largest catalyst for members to either switch or consider switching funds is when those members change jobs. More than one-third switch when they change jobs, often unaware that they may not need to.
A related aspect of the research, based on a survey of 1,008 working-age respondents, is that either fees or returns would have to be significantly better than that offered by the existing fund to entice the member to switch.
Saiz said that, on average, fees would have to be at least 31 per cent lower before members “seriously consider” switching. The survey also showed members were aware that the figure which mattered was the return after all fees and costs. On average, they expected a better return of 19.3 per cent a year over five years in order to switch.
He said: “Of relevance, particularly to low cost super product providers is that beyond the attraction of low headline fees, members are actually interested in knowing what they are actually going to finally get despite low fees”, with more than three quarters of members in the study indicating that they are most interested in investment returns after all fees and charges, ahead of fees alone.
Interestingly, the respondents also wanted their super funds to adopt a higher profile, providing media commentary about markets, for instance, alongside the more common commentary from banks and brokers.
The report says: about 70 per cent of members believe that the superannuation industry should raise its profile and more than one in six say that super funds should play a leading role in discussing investment and market issues on the news and other television programs.
