Superannuation members are often unable to clearly articulate their financial needs, and it is an ongoing challenge for super funds to figure out what is best for them, an expert panel told the 2018 Investment Magazine Post Retirement Conference, held in Sydney on March 20.
This can be a difficult balancing act for fund managers, said Ben Hillier, Sunsuper’s manager of superannuation and retirement products. The answer lies somewhere between the “arrogance” of thinking they know what’s best for their members, and the “naivete” of expecting their members to show them the way, he said.
“Time and time again interviewing our members, we find they have their heads in the sand,” Hillier said during a panel discussion on engaging clients in product innovation, chaired by Ross Kent, NAB Asset Management global head of institutional distribution.
“Especially those on lower balances, when we’re talking about ‘What are your plans? What are your aspirations? What are you planning to do?’ They have a sense of foreboding that they don’t have enough, and because of that, I think they just avoid the question.”
Hillier gave the example of the enormously popular iPhone. Few consumer groups would have instructed Apple to develop a phone for which they couldn’t replace the battery, upgrade the memory or customise the operating system. But by focusing on what customers would be willing to trade in exchange for something better, Apple has managed to “get rid of the stuff that people say they want but they aren’t really using anyway”.
In a previous career in retail banking, Hillier was involved in developing online savings accounts, and consumers initially rejected this concept, he said, despite them later becoming a ubiquitous product.
“No research said ‘I want an account where I can’t go into the branch, and I don’t have a card, and I can’t pay my bills out of’ ” Hillier said. “But when you put the proposition to them to say ‘Hey, you can get this much more interest if you are willing to trade off these other features…’”
The superannuation industry could learn from this by doing conjoint analysis with customers, which involves putting choices to members and trying to figure out what they would be willing to trade, he said.
One area where the superannuation industry can show some leadership is encouraging members to have the confidence to draw down more from their balances, said David Carruthers, principal consultant and head of member solutions for asset and investment consultancy Frontier Advisors. About half of retirees draw down at the minimum rates, he said.
“A retiree should be spending more money at 65 than they are at 85 because they will get more enjoyment out of the money at 65 than they will at 85,” Carruthers said. “So how can we create a system such that gives them the confidence that they will be fine in the future, such that they can spend a higher rate now?”
Retirement solutions will differ from person to person and funds need to help customers find the best fit, said Jeremy Duffield, co-founder of superannuation advisory service SuperEd.
Default solutions can help nudge customers, but members also “ought to have the best chance of understanding what their super fund is recommending they do,” Duffield said.