The changes to super announced in the May 2006 budget had a dramatic effect on the funds management industry. One medium-sized manager, Perennial Investment Partners, seized the moment with a daring initiative to waive fees for a short period.
The move was a success, but not without many hurdles which may serve as a lesson to others who embark on temporary price-cutting – a rarity in funds management but reasonably common in other more marketing-orientated industries. Brian Thomas, the head of retail funds management for Perennial, and Lewis Bearman, the firm’s chief operating officer, presented at the 2008 Investment Administration conference a review of the process to reduce fees to zero for three months on all net new investments made in May and June 2007, which was extended to July.
Thomas said the manager had to overcome legal, regulatory and client-equity issues, with the possibility of brand damage because of the perception of discounting. “Several times during the process, it looked impossible,” he said. Thomas said that the fear of brand damage turned out to be unfounded, with the press reaction being much better than expected. In terms of gross sales, the “experiment” worked.
Most importantly, big increases in new net inflows occurred in July, August, September and October – after the zero fee period had expired. Bearman said the offer applied to 24 trusts across all asset classes. The offer was extended into July because of funds being parked in cash during year end for longer-term decisions to be made in July.
ASIC approval was required to change the fee structure for the existing PDS, with a supplementary PDS required to be issued for the life of the offer and withdrawn when the fee-free period expired. “It was essential that all investors were treated equally … No distinction could be made between existing investors contributing new funds and new investors,” he said.
Because Perennial outsources its registry (to parent IOOF), all administrative implementation requirements were beyond its control. Challenges included: identification of new money from existing investors; treatment of inter-funded money between products; treatment of fund distributions; and issues to do with the supplementary PDS.
Modifications were required in IT to automate the implementation of the offer. It was decided that distributions be excluded from the offer. Bearman said that one of the lessons learned was to ensure that any system shortfalls were identified up-front.
