Andrew Inwood

New high-net-worth retirees are leaving super funds to manage their own retirement as they “bump up against” poor service, according to CoreData chief executive Andrew Inwood.

This comes as Australia’s $3.4 trillion super system transforms from product provider to service provider as baby boomers “decumulate” and retire, Inwood said following his presentation at Investment Magazine’s Chair Forum this week.

“The baby boomers, who were the drivers of accumulation, the youngest of these is now 57, and they’re now coming to the point where they’re starting to leave the workforce,’’ he said.

“They’re moving from being in a low interest category to a high interest category with a desire for better service and better outcomes.’’

Small to mid-sized funds impacted

Inwood said high growth in SMSFs was due to pre-retirement behaviour for high-net-worth Australians with at least $250,000 in funds.

“They can fund retirement better than any generation before but they’re bumping into poor service and this is going to significantly impact the income of smaller to mid-sized funds,’’ Inwood said.

He cited one smaller fund which had lost 300 of its top 1000 clients to SMSFs, a big hit for the fund despite big inflows from new members.

“The economics of this is substantial,’’ he said.

A 55-year-old with $300,000 in superannuation was worth more to a fund than a new member and this was not being recognised by many funds.

“At the moment members are treated the same if you have $1 million or $10,000 and that doesn’t make any sense,’’ he said.

Look to customer engagement

Inwood recommended superannuation funds to look at industries which excelled at customer engagement such as airlines, banks, travel companies and digital giants like Amazon and Alibaba.

This included frequent flier, loyalty or schemes which focused their service provision on those with long-standing ties to the business.

Super funds could also partner with firms like insurers TAL, AIA, GenLife and Challenger to provide retirement products and options, he said.

The Retirement Income Covenant (RIC), which comes into force on July 1 and requires super trustees to develop a retirement income strategy for their members to improve financial outcomes, is coming at a good time but there may still be a gap between plan and execution, Inwood said.

SMSF establishment booms

In the 2021 financial year, net establishments of SMSFs was four times higher than the previous year at 23,125, according to the Australian Taxation Office.

Inwood said SMSFs have risen rapidly in the past three years as people set themselves up for retirement and sought individual and relevant advice.

“The best possible retirement isn’t making someone wealthier but allowing them to do the best they can with the funds they have,’’ Inwood said.

“It’s a curiosity to me that price is the only driver, rather than member satisfaction.”

While mergers were shrinking the number of super funds in Australia’s system, smaller funds offering tailored services and a good member experience would compete well.

“So where are these giants going to compete? In member experience,’’ Inwood said

Chief financial and investment officers had a strong voice on the direction of super funds, but the voice of the member officer needed more of a hearing, he said.

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