HostPlus has won the SuperRatings fund of the year award for the past three years in a row, and topped the Chant West ratings for the past two.
When we called chief executive David Elia with the idea of a profile piece, he told us that if we really wanted to understand the fund’s success, we should visit its call centre and see the executive team at work.
STEPHEN SHORE spent a day with the fund at its Melbourne HQ, and found out why HostPlus members are sticking with their fund.
“We’re not a cult,” Elia says on a tour of the HostPlus call centre, which sits a few floors below the fund’s executive office on William Street. “But we do make it very difficult for our members to leave.”
Until recently the HostPlus call centre, like those of many industry super funds, was outsourced to its administrator, SuperPartners, to save on costs. The frontline communications team was brought back in-house, Elia explains, to put the fund more in touch with its members’ needs, and help it understand the motivations of those that were trying to leave.
The move has also allowed the fund to run the call centre in the way it believes will improve its chances of holding on to members. For example, it has done away with the big electronic boards typical in most call centres that show the number of calls waiting in queue, removing the pressure on staff to wrap up conversations quickly and get to the next caller.
“It is a competitive market out there, and we understand our members can choose to leave at any time. We want to make that difficult for them, and we do that by trying to give them the best possible experience,” Elia says.
HostPlus has fully embraced the Choice Legislation and the competition that it brings (although it will also enjoy default fund status under the simplified Hospitality Industry General Award, to be effective January 2010).
“We’re not a cult, a religion, or a club,” Elia says. “We’re a real business. And I think if more industry funds realised that, it would open up a wider scope for them to do a lot more things.”
And like any good business, HostPlus has plans for growth. Elia reasons that if he is able to provide the best service to his membership, more people will be inclined to stay, which in turn will give the fund greater scale, allowing it to provide even better services again.
So far this focus has been successful: the average member now stays with the fund for seven-10 years, up from two-three years not long ago. “Despite the introduction of choice, people are staying with the fund,” Elia says. “People are taking HostPlus with them to their next jobs.” And, the emphasis on improving members’ experience has attracted the attention of the ratings agencies, bringing the fund a string of awards.
But HostPlus has not always had such a clear sense of purpose. In 2003, less than 12 months after Elia had taken over as chief executive, a board room stalemate saw the employer representative directors resign. The Australian Prudential Regulation Authority was forced to step in and appoint Ernst & Young as acting trustees.
“That was a very tough time,” Elia recalls. “We had other funds trying to undermine us, people going on the radio and saying things like: ‘if your money is with HostPlus you should be worried’.”
Nevertheless, in that same year, HostPlus managed to deliver a 4.1 per cent return, which was, incidentally, the best performance for an Australian superannuation fund. That result, Elia says, confirmed what he and others close to the fund already knew; that despite the negative publicity, the fundamentals of the fund had always been sound.
The following year, Elia was awarded the Fund Executive of the Year by the Fund Executives Association Limited (FEAL). Michael Baldwin, chief executive at FEAL, says there was no doubt that David’s nomination was the “stand out” for 2004.
“Given the turmoil that the fund had been through in its preceding years, the progress that Host Plus made under David’s stewardship was truly phenomenal,” Baldwin says. “David’s commitment, professionalism, energy and persistence were clearly big factors in his success. He quickly earned the respect of his industry peers and the loyalty of his staff – and that has continued to this day.”
That award gave Elia the chance to study strategic and competitive strategies at the Harvard Business School. “I came back with a whole host of ideas about what we needed to do, largely underpinned by the notion that this fund needed to adopt a competitive position,” he says. “The underlying strategy we have today all started from there.”
There are only two competitive positions any organisation can take, Elia explains. “You can compete on price, by being the lowest cost provider of widgets, or you can compete on differentiation, with a value-based proposition. It was clear to me that HostPlus needed, and in some respects was already positioned, to take advantage of differentiation.
“I used to have a view that we needed to grow by becoming a multi-employer fund like an AMP, AXA, or an AustralianSuper. But it soon became abundantly clear to me that one of the competitive advantages we had was that we dominated our sector, and it was a rapidly growing industry. If we could hold on to the members we already had, and tap into growth opportunities that the sector offered us, then the fund would naturally continue to grow,” he says.
And grow it has. Over the past three years, HostPlus has added about 100,000 members to the fund every year.
“Ourselves and REST Super have what I have often called ‘first fund advantage’,” Elia says, referring to the tendency for most young Australians to enter the workforce through the retail or hospitality industries.
Because so many young hospitality workers naturally enter their employers’ default fund, the challenge for HostPlus was to become the default fund for as many employers in its industry as possible.
In trying to build its membership, both through securing big employers and holding on to existing members, Host Plus undertook the most aggressive marketing campaign yet seen by an industry fund, sparking much criticism from competitor funds that believe member money should not be ‘wasted’ on advertising.
“It’s interesting that the focus [of criticism] is always entirely on marketing,” Elia says. “It is not on investment fees, it is not on administration fees, it is not on trustee fees. Are they arguing the principle, or are they arguing the quantum? Saying that funds cannot spend on marketing is a nonsensical argument in a choice environment where competition is widely promoted and encouraged. Advertising works, that is why so many companies do it. Our competitors have sought to deny us the chance to market ourselves through various forums, including most recently the Grant Chapman inquiry into superannuation.
“Clearly we are mindful that at the end of the day it is the members that ultimately pay for everything we do. But if you have a look at our fee structure, we increased our fees from a $1 to $1.50 in December 2004. Since that time we have been investing heavily in terms of services back to members, but we have not needed to increase our fees [shortly after this interview, HostPlus announced it was placing a moratorium on raising fees for at least two years]. Because the fund has continued to grow, and because we are now keeping members longer, we have been able to achieve economies of scale,” Elia says.
In an environment where investment returns are anything but certain, Elia says the ability to announce a two-year fee freeze was an important message of stability and consistency to members.
The administrator of HostPlus, Superpartners, is about to spend around $100 million replacing its outmoded systems, but Elia says its existing contract will stay in place while that work is carried out, and upon completion the greater levels of straight-through processing achievable will place further downward pressure on costs.
“Other funds have since introduced percentage-based administration fees, in addition to their flat fees, and you could argue that they have not pursued the types of expansive strategies that we have,” Elia says.
Indeed it is difficult to criticise the marketing campaign’s effectiveness.
The name HostPlus is not only well known inside the industry, but is also one of the few funds to have a high level of recognition amongst the general public.
Even the taxi driver from the airport showed a faint familiarity at the mention of HostPlus’ name when he asked what had brought this reporter to town.
Jeff Bresnahan, chief executive at SuperRatings, says that one of HostPlus’ most outstanding achievements was to attach a recognisable brand to something most young people don’t want to know about.
Elia shrugs off suggestions that the fund could be lower cost. “’Profit for members’ does not mean that funds cannot spend money on marketing and services,” he says.
“I’ve often said to myself that if this business that we are in was entirely about the lowest cost and the best investment performance, then a select few industry funds would dominate. Yet the retail funds continue to prosper. How is it that more expensive, and often poorer performing funds continue to attract customers?
“I think it has a lot to do with brand: brand is basically about credibility, about building trust, and giving your members confidence.”
Another reason HostPlus does not aim to be the lowest cost provider is its wish for sustainable, long-term partnerships with its service providers, Elia says.
“When we sit down with our service providers, our focus is not on screwing them to get the lowest possible price at the lowest common denominator. If you can do that and it is sustainable, then that is fabulous. But I think in any business you want your partners to be able to generate a return and continue to reinvest in their own organisation. That is really important. We’re not about to bleed a company out of existence and then shop around for another service provider.”
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