Corporate super holds its own in sea of choice

Corporate superannuation fund members are not being lured to industry funds with the promise of low fees and no commissions, corporate funds say. Instead, they are happy to remain in a fund where advice is part of the landscape. However, there are still plenty of challenges to retain and inform members. In a tight employment market, the pressure has never been greater to provide transition-to-retirement advice, quality education, competitive prices and additional services. Further, many members have not taken advantage of choice of fund and they are still not exercising investment choice within their super funds. These are areas crying out for client education from advisers, Zurich Financial Services head of technical services Jennifer Brookhouse says. The new Better Super rules appear to have boosted superannuation balances and encouraged people to take a greater interest in their retirement savings.

Australian Prudential Regulation Authority (APRA) figures reveal that in the March quarter, there was $1050 billion invested in superannuation in Australia. Of that, $344 billion was in retail, two-thirds in personal accounts and one-third in group-employer arrangements; $250 billion was in small funds; $183 billion in industry funds; and $70 billion in corporate funds, the bulk of which was in large funds. The Association of Superannuation Funds of Australia (ASFA) expects these figures to be up by 8.5 per cent for the June quarter. ASFA director of research Ross Clare says it is unsurprising members wish to stay in corporate funds because they are a good deal for most of their members. “They have relatively low fees and charges and their investment performance is eminently respectable. In some cases, employers are picking up some of the costs,” Clare says.

For Russell Retail Investment Group national strategic development manager Patricia Curtin, the main theme for corporate superannuation in the post-choice arena is how to retain members from the cradle to the grave. Curtin says the real value proposition for funds is ensuring that when members leave their job, they don’t leave their super fund. “It is pretty important to all funds to retain their members. Now when people start a new job they give can give two accounts to their new employer; their bank account and super fund details. That in itself is something to be aware of,” she says. She says there are well-embedded benefits in the accumulation stage, such as flexibility, portability, life insurance and income protection insurance, but this is not the case when members transition through to retirement.

“If you don’t have a retirement solution for someone in that position, they literally have to leave your fund and find a pension solution for themselves. To retain members, corporate funds have to provide a flexible solution as members transition through to retirement,” she says. Other main themes post choice are the pressure on fees and the cost of administration and service, she adds. As a result of choice and legislative change in the corporate super market, many funds have moved from an in-house to an outsourced model, with master trusts the main beneficiaries. This movement has driven a lot of competitive activity through a tender process. As a result, fees have dropped dramatically.

“Members are getting a sophisticated product solution at a very competitive price. While we see cost-effectiveness in the investment solution, service demands in funds have actually increased. The service demand is increasing but the fees are reducing, so you have a conundrum there to try to reconcile,” Curtin says. “Most of the time and cost is spent in the administration of a fund yet most of the value is in providing services, including education and advice to members. So how do you reconcile those two issues? Education forums and the use of technology to increase touch points with members have worked for the most successful funds. Yes, this comes at a cost, but without this members will become dissatisfied and eventually drift away.” Where there is an adviser to a fund, they have a duty to work with the corporate fund to ensure the membership is well educated on the financial benefits and choices they have with their superannuation, she says.

“Generally, as members, we tend not to think too deeply about our financial affairs, unless there is an event in life that triggers a need for financial advice. This is when a financial adviser can be of assistance. However, it’s important for the adviser to define and demonstrate the value of advice so even if a member does change jobs they don’t change their fund or adviser,” she says. “Here the theme is for advisers to educate members on the importance of spending time on getting their financial affairs on track and for members to understand the value of advice. “With education, the issue for advisers is in the delivery. Some people are happy to get information in a newsletter, others in a group forum, while some prefer a one-on-one with an adviser. “There is a challenge for advisers to make sure they deliver member education as broadly as possible and also help members understand when and where advice is appropriate.”

Colonial First State head of corporate superannuation John Clothier believes there is a need for adequate choices rather than an exhaustive list of options. “We see about 70 per cent of all money going into multi-sector options in the corporate super space. The remainder of the money goes into a very broad array of products from our geared options,” Clothier says. When asked about the impact of industry funds, he says price is an issue but it is more a matter of value. “We see a lot of industry funds trying to state that price is everything. What they tend to forget is the importance of advice. The fact all our business comes intermediated means that the client, that is, the employer, has the confidence they have access to a quality adviser,” he says.

AMP director of corporate super Greg Healy agrees advice is critical in the choice of fund environment. Members need to be given access to advice and AMP sees it as a competitive advantage, Healy says. “What we find is employers are looking for advice as to where and what they should do with their fund and how they can benefit their employee,” he says. “What that really means is super retains its value as an employee benefit. Post choice, individual members have freedom of choice and that is something that is considered by both of those parties.” He says industry funds are not draining away AMP members. “The members of our fund value the proposition we put forward and that would be driven by advice and the relationship the employer has with AMP and the delivery of those services. The one thing industry funds have brought to market is that providers of super services have the sharpest offer for members of funds,” he says.

It’s the same story at Plum, which says it is actually increasing its corporate super membership. Since the start of the Plum financial year – October 1, 2006 – to June 2007, its member base has climbed from 123,439 members to 128,544 members. Plum head of member and client services Michael Mulholland says financial advisers come into their own when people have a reasonable asset base. They can then offer advice and link in with their other investments. “To a certain extent that isn’t the market for industry funds. Where there is complexity in individual finances then advisers will get involved there. Fees depend on the individual. Someone starting off is probably extremely fee conscious, but people with substantial assets will be prepared to pay fees at an appropriate level depending on the quality of advice they receive,” Mulholland says.

He says education is a key theme and should be specifically tailored to the individual. It needs to demystify the jargon by putting it in plain English. People also want to understand their super online and want access to details 24/7. The more information you can have and the more interactive you can make it, such as pod casts, the better it is. Plum regards itself as a pioneer in this area. Its value proposition was around member services and education in 1999. “If you haven’t got good education, good financial advice, a great website and communication in plain English then I think you are going to lose market share in the post-choice of fund environment,” Mulholland says.

“Advisers who understand education is paramount to members and [funds with] a value proposition that supports that coupled with strategic advice are the ones who are going to do well. Choice of funds will help them. You have got so much more access to people. The state of the market and the recent legislative changes have demystified super and made it simpler. All this is helping advisers in the super space. I think the confusion is lifting for members. People are starting to trust super and are investing more into the super environment.” In the tight employment market, Clothier is seeing more employers viewing super as more than a legislative requirement. “We are seeing employers doing things like paying for insurance premiums,” he says.

“We have a client in Perth who pays more than the 9 per cent SG [superannuation guarantee] contribution. We have a relationship with MBF so our members have access to discounted health insurance rates. So there are a number of ancillary benefits.” ING head of marketing and product for employer super Mark Pankhurst agrees that to attract and retain good staff, employers are looking for super to be a workplace benefit and are reviewing their offerings to ensure they are appealing and competitive. “From our perspective, this is forcing us to continually enhance and make sure our products’ fees and features are competitive. We are also spending more time in helping people get a better understanding of super. We are seeing more engagement from members, who are looking for more education,” Pankhurst says.

“We see ourselves as partnering with advisers to support them and add extra value to the corporate super funds they manage. Many advisers are spending a lot of time with employers, ensuring they have the right plan and that members are aware of the full range of services a super fund can provide.” ING is enhancing its existing products in the corporate super arena to make it easier for people to know what they have in their super plan so they can make the most of it. The communication strategy will have a fresh interactive focus and a separate super-only website. Legalese documents will be a thing of the past. Education will also be dramatically improved by becoming more proactive. Pankhurst says ING will take the time to give members a call, thanking them for choosing the fund. It will ensure they have received all the information, provided their tax file number and, if they are seeking advice, furnish them with adviser details.

“A lot of our employer clients have said they wanted us to do this because they were having to do this. In the interest of employers, they want to have an easy, pain-free, hassle-free super plan so anything we can do will make life easier and make us more competitive in their eyes,” Pankhurst says. Plum is also busy working on a new product in conjunction with its parent company, MLC, for the transition-to-retirement sector. Mulholland says those over 55 should seek advice, while advisers also need to do their homework and understand what is the most appropriate vehicle for the member to achieve their lifestyle goals. Nationally, Plum has more than 60 advisers, with the vast majority certified financial planners who work on a fee-for-service basis with no commissions. Mulholland says that has been beneficial to members.

“They have really supported that. They understand the corporate super market and they understand the difference between corporate super versus traditional master trusts. If they can understand the differences and get really good details and incorporate that into financial planning recommendations that is a real bonus for members and consumers,” he says. “The corporate super plan is specifically for medium to large organisations and it has been tailored to them and it is personal. There is a reasonable amount of investment choices and individual insurance within that plan and in some cases there are defined benefits as well. For advisers, to get the detail before they can get recommendations out – and appropriate recommendations – if they do their homework and know the market, the members will buy into it.”

For Brookhouse, insurance remains a key issue. She says advisers need to look at the level of cover provided in the fund and the terms and conditions of the policy. “Some employers have corporate super which offers reasonable levels of cover while others only offer what is required in the legislation,” she says. Mulholland believes corporate super will continue to grow. “I think the providers that have those member services that are focused on the members and continually spend money in that area will be the successful ones. Advisers need to analyse each person’s circumstances in line with their financial goals and make appropriate recommendations. It is a cliché but that’s what needs to be done,” he says.