A new report “from the coalface” of super fund investing has gone some way to quantifying the cost of shonky investment management, with members potentially losing out on hundreds of thousands of dollars.
Surging equity markets have driven the Future Fund’s return higher, but its prediction that inflation will be stickier than expected has been born out and it “remains conscious of the potential for significant deterioration”.
How to tell when members are ‘at risk’
(Pictured: Darrell Ludowyke)
Thanks to the internet and some fundamental changes to the way people communicate, the database business – forever the poor cousin of sales and marketing – is finally gaining acceptance as an area to invest serious capital. Darrell Ludowyke, a database veteran, says the business is moving away from being part of the IT sector and into the area of “knowledge building”.
Ludowyke, who runs the Empirics company under the Link Group umbrella, alongside administrator AAS, says funds are now seeing that they can overlay behavioural evidence on their member data to predict occurrences, such as the contemplation of a rollover or the results of a ‘life event’.
“People in this space are developing an understanding of the business drivers as well as the data itself and the more technical stuff,” he says. Empirics is calling it “advanced analytics” and is providing behavioural modeling for its funds to better exploit the information they have.
One of the problems facing both funds and Empirics, however, is that the data available is not universally robust. For instance, of AAS’s 4.5 million member accounts administered on behalf of funds, an average of 52 per cent of the active members have provided their email address. An average of 75 per cent of active members have provided their mobile phone numbers. The rest need to rely on snail mail for communication and there is increasing evidence this mail often does not even get opened.
Empirics says the numbers vary greatly from fund to fund and it has greater confidence in the data from industry funds with whom it has been working for a long time. Suzanne Holden, who heads up AAS, says that the administrator has a major focus on improving this data and the numbers have improved significantly over the past couple of years.
Empirics is not the only firm which can help funds in this regard – Deloitte, for instance, has a big database analytics unit – but it does have an enormous advantage of being able to analyse large swathes of AAS information to help with its models and data marketing systems.
In fact, Empirics can present individual funds with an updated list of members who are at risk of leaving. Increasingly, Ludowyke says, client funds are doing this work themselves using the Empirics system solution. A common example is for the funds to be warned when a member checks his or her account balance on line several times in a short space of time. This would normally signal an interest in making some sort of change. Another is to be warned when a “third party”, such as a financial advisor, has been appointed by the member as an authority on the account. Age signals, such as turning 60, are clearly very important.
“Predictive analytics may sound like just another buzz word, but funds are seeing what it can deliver,” Ludowyke says. “Previously, analytics used to mean identifying and segmenting members, however, today we can accurately predict behaviour, inform business and marketing strategies and then track and measure direct causal outcomes.”
He was speaking after Empirics had announced, earlier this month, that it had added the $900 million, 20,000-member, Australian Ethical Investments as a new client.
