Industry funds take on retail market

An industry superannuation fund that is recommended by financial planners - I don't think so. That is the perception of many in the financial planning community, but as Stuart Engel discovered, attitudes are changing.

"Financial services experts often recommend us to their family and friends but are often reluctant to admit their admiration for our type of funds publicly."

So says Michael Dwyer, the chief executive of Asset Super, one of the super funds at the forefront of the push by industry funds into retail financial services. Over the past few years, a number of industry funds including the Asset, Sun Super in Queensland and Quadrant industry funds have geared up their public offer funds for investors outside the industry's they represent. Some analysts say industry funds could start eating into fund manager revenue streams if the movement gains full momentum.

A move currently being considered by the Asset board could hasten the stealing of market share from the traditional strong areas of funds management. Dwyer says considering launching "a savings products outside the superannuation environment", which will most likely take a form resembling a unit trust.

But the real key to long term success in the retail market for industry funds lies, as it does for all retail financial services product producers, in distribution. There is no doubt the strong investment performance over recent years and low fees charged by industry funds make them an attractive option in the retail superannuation and allocated pension market. However, if no-one knows how good the performance and fees are, no-one will put their super payments into the funds.

Industry funds have the distinct distribution advantage of a large and loyal customer base. Asset, for example has more than 100,000 members who are all aware that the group operates on a not-for-profit basis.

On the other hand, however, industry funds have the distinct disadvantage of being prohibited from paying commissions to financial planners. While fund managers can dangle the carrot of a five per cent entry commission and a trail commission of one per cent for every year the client stays in the fund, industry funds are forbidden from offering incentives to financial planners. So distribution through financial planners is restricted to those who operate on a strict fee-for-service basis.

Despite that considerable obstacle, Asset has set itself up for distribution through independent financial planners. Asset was the first industry fund to strike a weekly unit price and has also had its funds listed with retail research house Morningstar.

And the strategy is paying dividends. Asset's funds are currently on the recommended lists a number of medium sized dealer groups and is working with these dealer groups to strengthen the relationship.

Asset has also successfully advertised its funds on television, radio and metropolitan daily newspapers seeking members though the direct channel. On top of that, the fund rubs shoulders with the funds management giants by tendering for corporate super outsourcing contracts.

But Dwyer stresses the advertising, distribution and direct marketing efforts must always be seen in the context of a restricted marketing budget. He says Asset's first priority is to offer a low cost fund that delivers consistent returns to its members over a range of superannuation and allocated pension products. All the profits go back into the fund and all those associated with the fund are paid on a salary basis.

"We have stepped in where the mutuals of old left off," Dwyer says.

Dwyer is the first to admit that the pioneering steps into retail the fund is taking have an element of a trial basis. It is new ground for the whole sector and a change in strategic direction for Asset.

Asset began in 1987 as a joint venture multi-industry fund between the Labor Council of NSW and two employer organisations, Australian Business and Employer First. Dwyer was recruited from his role as marketing manager for the State Authority Super Board to run the fund in 1995 when it had $80 million under management.

After a couple of years at the helm, Dwyer put a proposal to the board outlining his vision for the fund, which included venturing into the retail environment.

"Before we became a public offer fund in 1998, we often came across the terrible situation where people were knocking on our doors seeking to become members of the fund and we were not able to accommodate them because they were not members of any of the organisations that ran the fund," Dwyer says.

Since opening up to public offer, the fund has grown at more than 30 per cent a year to now have more than $440 million under management on behalf of more than 105,000 members. The average account balance remains low at less than $5000 which is mainly due to the part-time and casual nature of the industries serviced by the fund.

Dwyer says the fund aims to continue the strong growth rate, not just in funds under management but also in the average member balance.

"As people become more aware of their superannuation and the choices they have in terms of service providers and fee levels, people will increasingly see the benefits of industry funds," he says.