Peeyush Gupta wants to forge strategic referral relationships with industry and corporate super funds, hire more advisers, open new offices, and see it lead the debate on post-retirement in Australia. The group has also commenced a research project on managing longevity risk.
According to Gupta, the high and rising cost of providing ongoing personal advice to members is a problem facing many industry superannuation funds. The recent deal between the $20 billion construction and building industry superannuation fund Cbus and the Financial Planning Association, he cites as an example of how industry funds could outsource the provision of advice to lower costs.
Under this arrangement, Cbus will provide client referrals to FPA advisers who meet professional and geographic location criteria. “It costs a lot to offer advice, especially in the beginning when there are licensing and infrastructure costs to cover,” he says. In the last 12 months, SSFS opened new offices in Canberra-Woden, Liverpool and Perth. Gupta predicted it will take at least three years for these new offices to break-even.
The SSFS model provides free intra-fund advice and a free initial consultation for holistic personal advice. “Upfront advice fees inhibit the take-up of advice so our model offers free initial advice and access to our call centre,” Gupta said. “After that, members can elect to pay for ongoing advice.” He believes the firm’s “best in class” operating methods will help it win the trust and referral business from industry funds. “We want to work with other funds to provide their members with access to quality advice,” he said.
There are many similarities between State Super Financial Services and ipac, the firm which Gupta founded as a 25 year old and then sold to Axa 28 years later. Both are multi-faceted advice businesses which offer multi-manager solutions and platforms and are passionately fee-for-service. But while the ipac model fits nicely into the retail world, State Super Financial Services is an anomaly.
Gupta describes SSFS as “an advice business with a superannuation fund bolted on”. It’s the for-profit advice business and superannuation fund owned by the non-profit $37 billion SAS Trustee Corporation (STC), which is the trustee of the State Authorities Superannuation Scheme; State Superannuation Scheme and the Police Superannuation Scheme.
STC established SSFS 23 years ago to provide financial planning services to current and former public sector employees and their families. It employs 165 financial advisers in four states and has
over 55,000 clients. Around 80 per cent of its assets under advice and management are in decumulation phase.
The fee structure of SSFS and retail advice firms are also worlds’ apart. SSFS charges a maximum of 0.75 per cent on assets under management for ongoing advice with an average investment management fee of 0.65 per cent, while retail advice fees can soar to over 2 per cent for advice, administration and investments.
Five investment options
He rejects suggestions that ipac had a cookie cutter approach to advice, which channels client monies into expensive in-house
multi-manager funds. He explains by dividing the advice process into two parts: strategy and implementation.
“At the strategic level, everyone is different. They have different goals and objectives, different tax situations, different financial positions and different income needs but once strategy is set, there’s not a lot differentiating clients in the implementation stage other than their risk profile. Basically the needs of 90 per cent of the population can be satisfied by one of five or so different pre-mixed investment options.”
SSFS has five core investment options, which are overseen by chief investment officer Damian Graham and his team of five professionals. The fund does not invest in alternative asset classes like private equity or infrastructure because the overwhelming majority of its members are retirees in draw down mode.
“Our members require liquidity so our fund is designed very differently and the way we think about risk is different,” Gupta says. “The long term performance of the fund is competitive but we are obsessed with reducing volatility and risk for our members because they’re in, or close to, retirement and they don’t have the time to make up any potential losses.”
Three bucket approach
The SSFS advice model has a “three bucket approach” to structuring and investing money. The first bucket must hold enough money, in liquid and defensive assets, to cover a member’s cash flow requirements for one to three years. The second is for “core family wealth” and should provide enough money for a member to live comfortably on for the rest of their life. The third is for “aspirational wealth” and is invested in high growth assets such as emerging markets and alternatives.
Gupta estimates members need at least $500,000 before they can start thinking about investing for aspirational wealth. The average SSFS account balance is $200,000 for older clients and approximately $450,000 for newer clients.
Gupta is not threatened by the exponential growth of the self-managed superannuation fund sector and its ability to lure members with large account balances. He admits SSFS has lost clients to the SMSF sector, however, the leakage is small.
“Of the clients and money we compete for and don’t get, it tends to go to the SMSF sector but sometimes an SMSF is the right vehicle for the member,” Gupta says. “If a client has sufficient assets, sufficient time and sufficient knowledge then an SMSF could be right for them but they need all three at the same time.”
Gupta maintains that super funds with the ability to keep members engaged and which offer innovative investment solutions will not lose out to SMSFs. “Funds that want to compete with SMSFs must give members the same level of control and flexibility as an SMSF and that means direct investment options and the ability to tailor their investments to maximise their tax benefits at the time of transition to retirement and death,” he says.
“Super funds need to get better at providing certainty around estate transition and removing unknown outcomes.”