Many industry funds are losing their competitive advantage – their fees are going up while commercial fund fees are coming down because of increasing scale and technology.
“If we’re not careful, they’ll pass us in the middle,” according to Tony Lally, the chief executive of Sunsuper. “Our competitive advantage is going and for many it’s already gone,” he told the annual Fund Executives Association Ltd (FEAL) executive forum in Melbourne last month.
Lally was speaking at a panel session on unlocking the value in a fund, with Robin Burns, the chief executive of Equipsuper. The session was chaired by Michael Dwyer, the chief executive of First State Super. Lally said funds needed to look at: strategic marketing; member management; retirement income products and financial planning.
He said members valued performance, security, low fees and service and communications. “The challenge for industry funds is to provide value at least equal to the best commercial funds at half the cost. If our cost-to-income ratio is 100 and theirs is 50 [to provide a return for their shareholders], then why can’t we?” he said.
Large funds were subsidising the administration of small funds and this was unsustainable,” Lally said. “We need to invest in emerging distribution channels, member services, targeted member servicing and our brands.”
Dwyer said to him: “Well, if you’re on my side, I’m worried.” “These are the pressures,” Lally responded. “Member needs are increasing all the time. We’re under predatory attack from competitors… although we’re still net growers [of members].” Equipsuper’s Burns said that big super funds need not make the mistakes of the old mutual life offices, which lost sight of their original goals and many believe came to exist more for management and the boards rather than their members.
He said that bringing in more professionals to funds, at the risk of altering the culture, was a good thing. “We need to bring as much professionalism to running other people’s money as we can,” he said.
However, Lally added, there was no point in bringing in professional directors unless they had an understanding of where the fund had come from. On the question of providing annuities for retirement, Burns said that this required capital.
Lally said it was inevitable that APRA would require funds to have a capital base at some stage. “They’re trying to work out what to do,” he said. The FEAL forum had a record attendance of 90 chief executives and their direct reports. It was sponsored by Apostle Asset Management.