Managing partner Andrew Baker said in a blog this week that the super industry is beginning to look “less like the yellow brick road to Emerald City, and somewhat more like a low-growth road to hell”.
This negative outlook raises fundamental questions about why growth matters and where to find it in an industry in which the growth of member numbers and organic AUM growth are barely positive, Mr Baker said.
“Growth is an assumed pre-condition for success for retail competitors, but in fact it is integral to every collective fund seeking to deliver optimal outcomes for their stakeholders, whether that is just members, or members and shareholders,” he said.
Mr Baker stressed that now is the time to “get to grips with growth” while conditions remain favourable and before “the tide goes out”.
When looking for growth it is tempting to let investment markets do the work for you, Mr Baker said.
“When you’ve assumed equity returns of 5 per cent in your annual budget and you get 15 per cent, you look like a hero – so long as your revenues are based on AUM (this doesn’t work for most not-for-profits of course),” he said, adding that this approach works both ways.
“When equity returns are [minus]-15 per cent, you look more zero than hero. Incidentally, this is going to create a dilemma for some for-profit competitors.
“As wealth starts to look low margin, low growth, more capital intensive, with increasing revenue volatility, it’s not exactly the annuity-like, capital-lite, earnings play that was promised to boards.
“Some wealth business owners are going to be asking why they are in this game.”
Mr Baker suggests one source of growth is net member cash flows: “This also is getting harder as memberships mature. Some cash flow factors are largely outside the control of the fund – there’s only so much a fund can do about the growth rate of employer contributions for example,” he said.
As a result, it becomes important to be as effective as possible where a fund does have influence over cash flows – member roll-ins, member contributions, and outflows, particularly at retirement, Mr Baker said.
“Some of this is about harnessing technology to make account consolidation as simple and paperless as possible – ANZ’s Grow app being a good recent example,” he said.
“Some is really hard – building a quality, scaled-up advice capability for retiring members being a case in point.”
Mr Baker believes growth is often a “game of inches” in which disciplined marketing and operational processes and implementation make the difference.
“When member numbers and cash flows are finely balanced, picking up an extra 100bps of growth from better harvesting of members’ super balances held elsewhere, or better retention of retiring members, can make all the difference,” he said.
