The superannuation industry remains at a crossroads. With reviews into tax, financial advice and the super system coinciding with one of the most volatile and destructive periods in global financial history, it can be difficult to keep track of exactly where the industry seems to be going. It is important for funds to occasionally take a deep breath, step back and take stock of the situation from macro and close-up perspectives. SuperRatings has identified a number of key trends during the past 12 months and developed some guidance about opportunities for funds moving forward. Reports and Reviews The industry’s eyes continue to be firmly focused on government policy. Deliberations that began more than two years ago with the Ripoll Report on financial products and services and the Cooper Review of superannuation are now beginning to take shape in the form of the Future of Financial Advice (FoFA) and the Stronger Super reforms.
Despite steady progress, the lack of any real clarity coming out of the Government and regulators has made life difficult for funds over the past year. While working and consultation groups abound, real legislative change has been scarce. In this sort of environment it is not surprising to see many funds refusing to commit to any particular course of action. Instead, they make preparations. We’ve seen funds conducting internal reviews of a number of areas, including administration and financial advice, and perhaps implementing small changes around the edges to be better positioned for the eventual legislative requirements. We have no doubt that the Government’s reforms will present the biggest shake-up the industry has seen in a long time and we expect to continue discussing their impact over the next 12 months. Consolidation Continues Eleven months ago we warned that funds which failed to recognise market trends and reinvigorate their strategies were in danger of disappearing. Through the SuperStream working group, the Stronger Super reforms subsequently added momentum to the industry’s push for consolidation as they targeted a number of administration efficiencies that in many cases require economies of scale to be successfully implemented.
It’s no surprise that 2010-11 was a bumper year for fund mergers: First State Super and Health Super; AustralianSuper and Westscheme; ESI Super and SPEC; NGS Super and cuesuper; Equipsuper and Vision Super; Statewide Super and Local Super; and ASSET Super and Care Super. These funds either completed mergers or announced their intention to merge in the coming months. This behaviour is by no means restricted to the notfor- profit sector. Retail funds fought to increase market share through strategic acquisitions of dealer groups: AMP acquired AXA Australia; wealth manager IOOF targeted part-owned financial advisory group DKN Financial; and the Commonwealth Bank made an offer for financial planning dealer group Count Financial. Competition for new members in the superannuation industry is becoming far more serious. This environment poses questions of survival for many funds, particularly those medium- and smaller-sized players who do not service a particular niche market or membership base. Yet survival for survival’s sake is not the outcome we think is in the best interests of anyone involved in the industry. Funds must ensure the value they deliver to members remains the driving force behind any negotiations.