The swathe of regulatory changes is leading to superannuation funds heading into a “battlefield” for members, according to KPMG’s Linda Elkins.
Elkins, the consultancy’s national sector leader for wealth and asset management, tells Investment Magazine disruptions to the sector could be expected to see more advertising and promotions by super funds, as well as more investment in providing better services for members including digital services.
She says choice of funds, stapling, and the Your Future Your Super performance test are disrupting the default award system.
Additionally, the declining number of financial advisers meant people who may have been encouraged into retail funds by planners in the past are now having to make their own decisions.
The long-standing model when members chose the default super fund and stayed with it for life was “not going to be fit for purpose in this far more competitive environment,” Elkins says.
“It’s going to be a battlefield when it comes to member acquisition – whether it be attracting and maintaining new members or retaining members on retirement, whereas historically people have been more default (fund) orientated.”
Elkins says before Your Future Your Super, industry funds typically gained their members through the default award system.
“Funds in the retail sector would typically gain their members through advisor recommendations. Those things have been significantly disrupted.”
Elkins says many employers, particularly smaller companies, are now preferring to let new employees choose their own super fund rather than encouraging them to join the traditional company default fund.
She adds the jury was also out on whether members of funds which are merged with larger funds would stick with the new fund or look for alternatives.
“The question with consolidation is what the onboarding experience, or the welcoming experience, is like. What sort of loyalty or trust or brand affinity the funds are creating at the moment of truth?” she says.
“It’s going to be interesting to track how many people stay with the merged entity or do they see it as an opportunity to consider the choice of a new fund.”
Elkins says there was already increased marketing by super funds, including advertising campaigns, to pitch their products to fund members.
“Funds who have not typically been default funds are going to want to significantly increase their marketing and advertising to tell people that they can make a choice,” she says.
Elkins says people were most likely to consider choosing another super fund at “life-changing moments” such as changing jobs and on retirement.
“Changing jobs is a time when people consider their choice of superannuation and entities will be increasingly marketing to them,” she says.
She adds the role of the employer is critical when a new employee joined.
“In the small business sector, you are seeing employers more likely to insist on choice as much as they can. It’s like ‘no, tell me your fund’,” she says.
“Some employers will feel paternalistic and tell their new staff about the quality of their default fund, but increasingly others are saying: ‘it’s up to them to choose. It’s not my role anymore [to tell employees what fund to choose]’.”
She said many funds were now working harder to build up their brands as they appealed to a broader range of potential members.
“In a far more competitive environment, it is going to be important for funds to have strong brands, so they build trust with their members or prospective members and they know what they stand for and what they offer,” she says.
Elkins adds retirement was a key time when people reconsider their choice of super fund.
Getting the right advice
Funds are now looking at their options to help members on retirement with some offering advice and others partnering with outside organisations to offer services to members.
While retail funds in the past had more products for retirees, the retirement income covenant, which came into force in 2022, meant that industry funds were having to develop their own retirement income strategies.
While the superannuation and wealth management sector is now waiting for the Federal Government’s response to the report into the quality of financial advice by Allens partner Michelle Levy, Elkins says it would be several years before any recommendations for change made any long-term impact on the availability or affordability of advice.
“Funds need to think about the current legislative environment and what they can do (in terms of providing advice to members) or what partners they might need,” Elkins says.
“We are seeing funds form partnerships with advice providers to provide intrafund advice or advice on critical issues like retirement.
“AustralianSuper and the Australian Retirement Trust now have very extensive referral networks with external advisers, while Aware Super has its own advisers and is doing a lot of work with their Catalyst program with a digital transformation to make advice more accessible and affordable.
“We’re going to see funds really need to think about the transformation and digitisation they need to meet members’ expectations and the competitive pressures in the market.”
Elkins said the rise of the gig economy had also slowed the growth of new superannuation fund members.
“I don’t think you would want to be a super fund relying on new workers as your source of new members,” she says.
She adds there would continue to be more consolidation in the super fund sector. “There are still 140 odd super funds out there.”
Funds need to have the capital and the financial capability to attract and retain members.
She says last year’s merger between Sunsuper and QSuper to create the Australian Retirement Trust was an example of a merger which was not forced by outside circumstances but by funds wanting to have more resources to invest in their operating models in the more competitive environment.
But she says there would continue to be a role for small, specialized super funds. “I’m 100 per cent certain there will be more consolidation,” she says.
“There will also be viable, small funds which survive for members who can’t be served by these emerging mega funds, but just not as many as we have now.
“Those that do survive will need to have a very clear niche. They’ll need to be very clear about what they are doing and why they are different.”