While imposing widespread change for employers, trustees and members, choice of fund is a welcome circuit breaker for the superannuation industry, as it will force more funds to focus on strategic issues. With pressure to deliver competitive returns at lower fees, we believe administration will play an ever-increasing role in funds getting their overall value proposition right.
Funds that can work in close partnership with their administrators to achieve their desired strategic positioning will have an ongoing advantage over those that maintain traditional, static service relationships.
Providing administration services in a dynamically changing market place requires both capital and technology. Administration is complex and demanding. Will this ever change? It’s highly unlikely. In the past price was, to some people, the principal concern on the decision-making list. These days, technology, flexibility, access to capital, quality of people, and continuous investment and risk transfer are all paramount.
Value will also become more important as trustees and consumers demand more than high processing service standards. With the introduction of fund choice, education and the ability to segment, plus the choice of communication channel, will become a competitive differentiator.
That said, the fundamentals will always underpin sound administration practice. It is not important if a benefit payment is processed in six days as opposed to five; what is critical is that the administration service is making continuous improvements in service delivery, identifying opportunities to streamline processes and minimise the opportunities for errors to occur.
For funds to compete effectively, they need to ask a number of questions about their administration procedures:
* Does your administrator use workflow and imaging tools to monitor work in progress?
* How robust are the disaster recovery protocols and how often are they tested?
* What compliance and governance measures exist to ensure regulatory requirements are met?
* How often are the assets reconciled to members’ balances and what procedures exist around unit pricing and cashflow management?
* How does your administrator interact with your custodian or insurer?
* How often are these concerns audited?
Technology demands increase
A continuous investment in both technology and people is now a necessity. From a technology perspective, core processes need to be changed to meet regulatory needs on a regular basis.
New legislation needs to be interpreted and then applied, often in a limited timeframe. Competition demands that new products and services are introduced, with demand often based on sentiment rather than sound business needs.
Other important questions relate to how funds will communicate with members under a choice environment. For example, within your member profile, how flexible is your technology in terms of segmenting the database? Are you able to channel your key messages through the call centre or tailor letters to identified groups? How well does your web technology interface with your core administration system?
All of these issues will form an increasingly important part of each fund’s competitive offer.
New marketing challenges
Under choice, trustees will have to grapple with new marketing challenges. Each fund will need to understand who their competition is and how to position their fund offering in the market. Funds with low average balances will need to be more creative in competing against funds with high average balances and scale. CitiStreet’s experience in the US market indicates that education will become increasingly important in a choice environment. Essentially, it could be seen that trustees are not meeting their fiduciary responsibility if the right education is not provided to members in assisting them in the accumulation phase of retirement planning.
Australia has a natural advantage in that our trustee system has a strong focus on investment outcomes and a balanced strategy as the default for most members. But is this enough? My answer is no. The next step is to project the likely level of retirement income based on a member’s current balance, contribution rate, age to retirement, and asset allocation.
Members will welcome further education in assisting them to plan for the retirement. Whoever can work through the licensing and advice issues first will be best positioned to build strong brand loyalty. While high-net-worth individuals are more likely to pay an experienced financial planner for advice, this would only apply to a small percentage of members in any fund. The challenge is how to deliver education to more people in a tailored and cost effective manner.
To be a survivor in the new choice environment, super funds will need their administration service provider to be actively involved in their strategic positioning — to deliver the people and technology to assist funds in their strategy execution.
When you next evaluate how to deliver administration services to your members, think strategically.
Gary Cox is managing director of Citistreet
