With the latest APRA estimate of super funds to survive post July 1 dropping to 320, the ramifications of the structural changes occurring in the industry are starting to bite. And what better place to discuss this than at the CMSF conference on the Gold Coast last week?
The issue of mergers and acquisitions permeated almost all sessions at the conference. Should we merge or shouldn’t we? What are the implications for the industry’s infrastructure? What are the implications for the trustee system? What are the implications for members? Early in the conference the Australian Institute of Superannuation Trustees held an information session after its annual meeting which discussed the possibility of merging with CMSF. The main driver of this, according to the speakers Susan Ryan, AIST chair, and Fiona Reynolds, CMSF convenor, and Mavis Robertson, CMSF’s founding convenor, was the reduction in the number of trustees. By merging with CMSF, AIST will be able to alter its funding model from a heavy reliance on trustee membership dues to a sliding scale membership fee structure for funds. It will also be able to offer full voting membership to fund executives. Late in the conference the issue of mergers was dissected by a panel which provided advice for how mergers should be handled but also sounded a cautionary note about the likelihood of success. JP Morgan’s New York-based head of securities, Conrad Kozak, said a fund merger was no different to a corporate merger. He urged the audience to heed the lessons of some corporate merger disasters such as Time Warner/AOL. Kozak had witnessed six large corporate mergers from his position at JP Morgan. He said, if done properly, mergers could deliver competitive advantages and operating and financial leverage. But, if done poorly, the results could be cultural and financial damage. Deborah Jackson, the chief executive of Finsuper, which is merging with STA/ARF, provided some detail of the advantages to members of being with a much larger fund: Finsuper members will now have 15 investment options compared with four previously, and administration costs will fall by 30 per cent. A crucial question which trustees need to think about in this context is whether their members regard the fund as a community savings vehicle which is tailored to their needs, or whether they think it is just another form of bank account. If it is the former, then the cultural rift which follows a merger may mean the members wander off to other funds over time. If it is the latter, then the cold hard facts of lower costs and more options stand more chance of retaining members in a competitive environment. Fiona Reynolds told the AIST audience that even after July 1, when the new licensing system which has been a catalyst for fund amalgamations takes effect, further merger activity was likely. If that is the case, the remaining funds will start to look very much like the big mutual institutions they have long criticised, which, some say, operated more for the benefit of directors and management than their policyholder members. Perhaps funds will even eventually follow suit and turn themselves into listed companies.
The Coalition is reportedly considering a proposal to reduce the superannuation guarantee to 9 per cent if it wins the election. Many in the industry would understandably view any such move as a partisan effort to weaken the system, but they must also be open-minded about the evidence and accept that improving quality of service is the best response to critics.
Colin Tate AMJanuary 15, 2025
