The upcoming implementation of choice of fund legislation is set to push the corporate superannuation industry further into consolidation mode and will trigger an explosion in marketing and education spending, despite most consumers expected to be too apathetic to bother switching funds.
These are some of the views expressed by executives representing retail and industry funds in the latest research conducted by Intech Investment Consulting.
REI Super chief executive Mal Smith said there will be a significant amount of short-term marketing ‘noise’ generated as various players attempt to compete for members’ attention.
“The new environment will require all funds to add to their marketing and member research budgets and to constantly engage their members’ attention and understand their needs,” Smith said.
But how effective this marketing will be is another matter, according to all three executives contacted by Intech, who also included BT Financial Group national manager of corporate super sales Simon Donohoe and First State Super chief executive Michael Dwyer.
BT’s Donohoe predicted that the vast majority of superannuation members will not know enough to make an informed choice.
“As such, a degree of apathy will prevail and there will be a substantial proportion of members who initially will do nothing,” he said.
But First State’s Dwyer predicted that more members would be likely to switch funds as education promotes the benefits of choice.
Dwyer warned that funds should take care not to cross the barrier between education and advice.
“All our staff have PS 146 staff training so they have a firm understanding of what constitutes education and advice and where it can potentially cross the line,” he said.
“The key is to have appropriately licensed, trained and remunerated people talking to the members to avoid any problem in that area,” said RIE Super’s Smith.
For those who do choose to switch funds, all three executives contacted by Intech agreed that fund performance and levels of fees and charges would be a key motivator.
“Other factors will include fund reputation, range of services and ancillary benefits, and financial strength of the provider,” Dwyer said.
As for the future of the superannuation industry as a whole, Intech said there was little doubt amongst the executives that smaller funds will eventually be absorbed by larger players.
“The key to ongoing sustainability in the corporate superannuation market is scale and coverage. As such, the long-term will see consolidation of small master trusts into large ones and small industry funds merging into larger industry funds,” Donohoe said.
