Financial planning groups and individual planners exclusively servicing the corporate superannuation market face significant challenges going forward, as an ever increasing number of funds continue to take the outsourcing route and cease to exist as stand-alone funds.
The rising level of complexity and costs for employers providing their employees with a corporate super plan is forcing many to reconsider such offerings, and fuelling a dramatic decline in the size of the corporate super fund market.
According to theAustralian Prudential Regulation Authority(APRA), in 1997 there were 4,118 corporate super funds in Australia — at the end of the financial year five years later, this figure had fallen to 2,495, representing a 60 per cent drop.
However, APRA’s most recent statistics indicate an acceleration in the rate of decline. At the end of December 2002, the number of funds in existence had tumbled even further, down to 2,045 — an 18 per cent drop in the size of the market in only six months.
So what is happening to these funds, their members and their assets?
Statistics compiled by industry research houseDexx&rimply most funds are rolling into master trusts, and the trend is unlikely to abate. Dexx&r predicts the corporate super master trust industry will grow at a rate of 22 per cent a year between 2001 and 2009 — equating to growing, in financial terms, from $40 billion to $132 billion by 2009.
However,Watson Wyattmanaging director Andrew Dillon is quick to note that while the decline in the number of corporate funds appears dramatic, 90 per cent of those winding up are at the small to medium end of town.
“At the very big end of town there are only a handful of funds that have decided to outsource. There’s no denying that corporate funds are dwindling in numbers but it tends to be at the smaller end of the market,” Dillon says.
This makes the situation even more worrying for corporate super focused planners, as the small to medium end of the market is where the majority provide services.
However,Norwich Uniongeneral manager product distribution Shaun Williams sees the ongoing evolution of the market as a positive for planners.
“There’s a huge opportunity for planners to offer member services to employees if their fund rolls into a master trust, as there is a huge gap in the market to educate members at the small to medium end of the market,” Williams says.
Perth-basedGodfrey Pembrokemanaging director Greg Devine agrees that there is enormous opportunity for service provision once a fund has outsourced.
“We aim to provide quality services that are institutionalised [provided through a master trust] to employees. Most employees will be requiring additional services going forward and we want to be right there in front of them when they do. It’s all about relationships,” Devine says.
However, the opportunities do not extend to all planners and practices, according to Dillon. He says master trusts are only really interested in aligning with good independent planning firms with strong international connections and good research.
MLC Corporate Solutionsgeneral manager John James reinforces Dillon’s notion but goes even further by identifying the spawning of a new breed of adviser.
“A new breed of adviser is being successful in the corporate market because they don’t focus on the tender process. Instead, they actually focus on delivering an ongoing proposition to corporates and the employees of a corporation.
“[Therefore] the really good adviser practices are moving into this [master trust] market and are being successful. The threat faces those advisers or firms which fail to adapt,” James says.
According to James, the transformation taking place across the market now means that once a corporate fund opts to outsource, an adviser has to position themself alongside the fund and walk it ‘hand-in-hand’ through the tender process, whereas previously advisers would run a tender process by simply selecting a product on behalf of the employer.
“In terms of value added service it was pretty superfluous,” James says.
New breed of super advisers snaring larger plans
The complexity of corporate superannuation means that the majority of financial planners tend to shy away from offering corporate super services to clients. However, as Norwich Union general manager product distribution Shaun Williams found after launching Norwich’s consulting group collective, Quantum, there is a hardcore section of the planning industry which offers specialised services to the corporate super market.
Quantum was initially set up as a group of 20 planning firms specialising in offering services to corporate super funds, but expanded to include 70 such firms after Williams realised there were more companies offering specialised services to that part of the market. The 50 additional firms to join the initiative were termed ‘Super Achievers’.
“We don’t have any distribution. In most instances the members are independent advisers, so it’s an independent forum of service provision. Our members tend to focus on the small to medium end of the market but some are now catering to the larger corporate funds in the market, which to date had been occupied by asset consultants,” Williams says.
Though Williams believes for planners in general, the biggest problem they face in catering to the corporate super market is that while they know they provide good service, articulating that value proposition to clients is a big challenge.
SMF Funds Managementcorporate super specialist Charles Kneale agrees with Williams when he says it is imperative for advisers to clearly articulate to clients the services they offer.
“[For instance] whether he or she is going to provide a purely consultative role, whether it will be fee-for-service based, whether they will work independently of the platform provider, whether they will run tender processes for clients [employers] – including its implementation, and management of the relationship with the preferred supplier going forward,” Kneale says.
Tenders aside, while James believes planners are suffering client ire due to weak investment markets, those selected to service corporate clients or master trusts are benefiting from the global uncertainty.
“Obviously, with investment markets performing as poorly as they have, there’s a huge demand for advice in the workplace, and one of the challenges for employers is to select an adviser firm that can best provide such service to its employees,” James says.
According to James, his group’s sales in Master Key Super are up 50 per cent for the financial year to date.
“The reason sales are up is that there is a new breed of adviser winning larger plans, so in the past 15 months we’ve won eight plans ranging from $7 million up to about $50 million in assets. I’d say there’s definitely been a dramatic change, with planners now competing for the business of larger plans.”
