The government's backing of the Financial System Inquiry recommendation that superannuation funds provide Comprehensive Income Products for Retirement (CIPRs) could be a "strategic leg-up for industry funds, says Tria Investment Partners.
According to Tria, CIPRs are a combined advice/product concept that have the "potential to disrupt the status quo".
"As currently proposed, instead of members having to seek out advice to work out what to do as they near retirement, trustees will be able to proactively recommend a default solution to members," said Tria.
"This process must address flexibility, longevity and a better income profile throughout retirement for the average member. But not necessarily each and every individual member."
Industry funds have 2.1 million members aged between 50 and 65 with a total of $179 billion in FUM. Of these members, around 20 per cent have balances over $200,000 at retirement – putting them in the "target market of many financial advisers".
"Absent any change, many of these members would naturally have converted to the retail funds segment over time," said Tria.
"However, thanks to CIPR, industry funds should have a much better chance to retain the 'high value' members as they move into drawdown phase, and the approximately 75 per cent of members with less than $100,000 at retirement who classically cash out their super balance."
This introduces a "huge challenge" to retail funds' traditional competitive advantage when it comes to retirees, said Tria – and as such, retail funds are likely to defend "aggressively".
"On balance they have stronger capabilities in product design and customer acquisition; these will be invested in and further enhanced to counter the strategic advantages CIPR otherwise delivers to industry funds," said Tria.
"CIPR creates a new opportunity for industry funds to win, but it will not be easy or cheap, and not all industry funds will be able to take advantage of the opportunity. Don't expect the CIPR tide to lift all industry fund boats equally."
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