Some members are excited for retirement, while others approach it with a “real sense of shame and fear”. Funds are going to have to figure out how to cater to both groups or risk failing them all.
If there’s one lesson for investors from the past five years, it’s that chopping and changing their strategy – even in the face of massive market turmoil – doesn’t always pay.
Funds don’t have to be big to get scale benefits in admin
While espousing the benefits of scale in super fund administration, as you would expect from Australia’s largest single administrator, Suzanne Holden is reticent about suggesting that size is the issue that some, including APRA, say.
“There are some very successful boutique funds out there,” according to the chief executive of fund administration at Link Group, which handles nearly 10 million accounts, including 80,000 in New Zealand.
She says: “You can still benefit from scale advantages while maintaining an efficient management and relatively small membership base… If a fund is not performing then you have to examine the scale aspect, but that won’t necessarily be the cause [of the underperformance].”
One of the problems for APRA and organisations such as the Productivity Commission and industry advisors and commentators is that, with administration, which is a significant cost for any fund, it is difficult to compare like with like.
“When you are able to do so you find that outsourced super admin is cheaper than when funds self-administer – even quite big funds,” Holden says. “They can’t get the benefits of scale and because the industry is not standing still, they struggle to keep up with technological advances and changing regulations.”
About 55 per cent of the admin spend in the big fund market – APRA regulated funds – is still self-administered. These are primarily the big retail and some public sector funds, but also a handful of industry funds.
But in making an assessment on whether funds should merge, the headline figures tend to be funds under management and membership size. Holden believes APRA should also look at a fund’s capabilities and track record in providing new products and services, at its tendency to be innovative, its investment in technology and its investment in improved security.
“Spending on greater security is an increasing burden and not something you would have seen 10-15 years ago,” she says. She likens it to the airline industry, where she spent about 20 years in the UK and Australia, ending up as general manager airport operations for Qantas, before joining Link in 2010. “Security is increasingly a major risk.”
Interestingly, while Link does not offer admin services to the SMSF market, it does administer some small funds. There are, for instance, about 2,000 remaining APRA-regulated small funds, which did not go over to ASIC and ATO oversight but outsourced their trustee instead.
Holden says: “Our smallest fund has only two members and we have quite a few which have fewer than 20 members. We’re able to support them. They couldn’t exist if they had to self-administer… At the other end, our largest two funds [by members – REST Super and AustralianSuper] have more than two million members each.
“No two funds are the same. We want to make sure that we deliver the benefits of scale and the ability to fashion the customer experience. They are all unique, so we’re making sure we have an open-architecture system to allow a full range of capabilities and services.”
She believes that the industry is likely to see an uptick in costs in the next few years because of increasing complexity and demand for bespoke services and better service delivery. This will put increasing pressure on funds to deliver value.
Link is shutting down a small admin business in India, which it inherited through the 2013 alliance with Russell Investments, which included transferring admin of the $5 billion Russell mastertrust and other clients. About 50 new jobs in Australia have been created as a result. “We’re bringing those jobs back to Australia because our platform is more efficient,” Holden says.
On another positive note for big super funds, she believes, is that “the tide has turned” in the leaking of members to the SMSF market. “The outflows have definitely slowed and some funds are reporting more inflows. People have discover that [SMSF admin] is more complex than they thought and a lot of big funds are providing sufficient individual control through their MDIO offerings. There’s definitely less SMSF pressure now than a couple of years ago.”
On the other hand, funds are under pressure to provide suitable retirement options and services for members who remain with the fund.
“Funds are making it very easy to transfer and remain under the fund umbrella. We probably manage about 140,000 pension accounts now compared with about 40,000 four years ago.”
NOTE: Link Group is one of two major sponsors for the upcoming Chant West Awards for superannuation and pensions, to be held at the Ivy Ballroom, Sydney, on May 24. The other sponsor is AIA Group. Details: www.chantwestawards.com.au
– Greg Bright
