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What big super can learn from small funds

Bigger isn’t always better when it comes to member services. Megafunds might be able to mass customise, but when you’ve got two million members it’s tough to bring the personal touch.

It will not come as a surprise to observers of the superannuation industry that small funds are an endangered species. That’s for several reasons: regulatory pressure applied by APRA, cost pressure applied by consolidation and membership pressure applied by the fact that funds like AustralianSuper and ART can spend enormous sums on marketing.

Sitting down with those who ran the small funds that have merged, there’s always talk of their innovative investment teams, the culture of collaboration that came from hundreds of funds growing up together, and the joy of discovery as the superannuation system developed around them. But the topic that always comes up is not just their desire to serve their members but their ability to do so.

One example, offered to me by the former chairman of a now merged small fund, was that of a member reaching out on behalf of the widow of another, who believed she’d been left almost penniless following her husband’s passing. As a result of having worked in the industry the fund served, the chairman knew the member personally, as well as the deceased member, and what might otherwise have been an intractable problem was quickly solved. The formerly ‘destitute’ widow discovered that she was actually the beneficiary of a balance of more than half a million dollars – and quite comfortable as a result.

  • Other small funds still in existence boast of their in-house administration and the compressed time it takes for a member to get another human on the phone, or of the fact that members know their staff on a first name basis.

    The fear from some of those old hands – some now superannuated themselves – is that superannuation will become an increasingly impersonal experience, and funds faceless financial services providers so large that members can and will slip through the cracks.

    Of course, providing some of these services quickly and efficiently isn’t always possible, and that’s nobody’s fault. Getting somebody on the phone is somewhat easier when you’re one of four thousand members, and much harder when you’re one of two million. The superannuation system was always going to grow because it was so successful, and the funds that have gotten to the $300 billion mark haven’t gotten there by sitting on their hands. The key now is that it not become a victim of that success.

    There is the assumption also that the very large funds are the obvious providers of retirement solutions: after all, they have the expertise and cost base to manufacture products (if they choose to), the data to customise them, the reach to distribute them. But it’s the small funds – with their unglamorous in-house call centres, full-time financial planners and roots in the industries they serve – that would seem better placed.

    It’s solutions like these that will likely be more useful for a member agonising over what to do with their retirement balance, solutions that are fast disappearing from an industry growing at a rate of knots and which will inevitably cost to implement effectively at scale. On that front, they’re also solutions that are to some extent in the hands of those keeping a close eye on fees or who are responsible for sorting legislation around the provision of advice. But just because super is no longer a cottage industry doesn’t mean it can’t have a cottage industry mentality – one that questions whether scale is always the cure for what ails it. After all, every big fund was once a small fund too.

    Lachlan Maddock

    Lachlan is editor of Investor Strategy News and has extensive experience covering institutional investment.

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