The seismic shifts that have been brewing in superannuation administration are now starting to break ground.  

In an area traditionally dominated by a handful of key service providers, the playing field is changing quickly. 

In January, the $14 billion NGS Super abandoned Mercer to select tech start-up Grow as its outsourced administrator, following the $77 billion fund HESTA’s switch from Link Group last year to the same provider. 

Some funds have also started to absorb services themselves and adopt a hybrid model, including mega-fund AustralianSuper which recently brought death claims and complaints processes in-house, while continuing to with Link Group as its outsourced core administrator.  

While there’s not necessarily a right or wrong path, the wide range of industry sources canvassed by Investment Magazine found some critical philosophical discrepancies are starting to emerge in different funds’ approaches to member services. And it’s an issue with significant regulatory and public trust implications. 

Poor administration – such as members’ calls not answered, transactions taking too long to process, inaccuracies in information – severely undermine trust in the fund. And APRA has reminded the boards that they have ultimate responsibility for the outsourcing policy of their fund. 

So, it’s not only the quality of administration under scrutiny, but the long-term commercial viability of administrators will also come into the picture as the ground shifts and administration arrangements change. No super fund wants to be the last one out the door. 

Make money out of waste 

The Japanese term muda translates loosely as “wastefulness”. It’s a term that Grow chief executive officer Mathew Keeley believes describes the current state of the typical superannuation fund’s administration.  

Keeley believes administration of super funds is ripe for a shake-up as it faces a perfect storm of rapidly rising consumer expectations, creaky underlying technology, and the outworking of poor strategic decisions by incumbent providers. 

Mathew Keeley

Granted, as an ambitious challenger, he would say that, wouldn’t he? But there is some evidence to support the claim.  

Keeley says super fund members are no longer comparing the experience they have with their fund to other funds or to other financial services providers, but to a range of technology and app-enabled businesses as disparate as Uber Eats or Amazon.  

“If we buy something today we expect to get confirmation that has been bought and then we can track it being distributed,” Keeley says.  

That’s not the case in the world of superannuation, he says, and the reason is not a lack of will or desire on the part of fund trustees and executives to offer that level of interaction to members, but the fact that their funds are built on technology that just can’t do it.  

And to make it worse, Keeley says, fund administrators “make money out of muda” 

“They cross-subsidise all of the pieces that sit there,” he says.  

“For example, they’ve all gone out and bought call centres. They’ve also gone out and bought analytics; they’ve gone out and bought financial advice software; they’ve gone out and bought a CRM, rebadged that has their own [and] take it as a mark-up.”   

If the trustees of a fund want to create a new member service – say, a member portal – cutting off the revenue from any one of those existing administration functions can expose the inefficiencies of all the others and in fact make it impossible to provide them profitably.   

New kid in town 

Keeley contends that the issues funds are facing today is caused by the fact that many of the technology providers funds use were not originally set up as technology providers in the first place but have been forced to become tech businesses, and have bought and bolted-on new services as customers demand them. 

What protects the incumbent administration providers is a moat created by “sticky clients, long contracts [and] high resistance to change”, Keeley says. 

“But if they do start to change, your costs don’t fall the same as your revenue does,” he says. 

“That is because you have welded [together] pieces that are not flexible, they’re not elastic. And there comes a tipping point, where if enough funds do leave, the ability for that [administration business] to remain [viable is jeopardised].” 

This not to mention that administrators need continuous investments to develop and consolidate their technology and process, but many are scrambling to find the capital to do so and some of their corporate woes only exacerbated the problem.  

The most prominent case being Link Group, whose Link Fund Solutions operation was entangled in the high-profile demise of the $6 billion Woodford investment fund which caused heavy losses and a messy run-in with the UK Financial Conduct Authority.   

A series of botched takeover attempts and due diligence added more uncertainties to its operations. These include US private equity giant Carlyle Group’s $3 billion offer with Pacific Equity Partners in 2020 and $2.8 billion offer on its own in 2021, as well as Canadian company Dye & Durham’s proposal which was eventually trimmed to $2.5 billion at the end of 2022.   

Link Group’s share price plunged close to 70 per cent in the last five years. Although it finally locked in a deep-pocketed suitor Mitsubishi UFJ in a $1.2 billion deal last year, which appears ready to invest over the long-term.  

Link did not respond to a request for comment. 

Just as in any industry, newcomers to the space have the advantage of not being hobbled by inefficient legacy systems, such as Grow’s launch partnership with Vanguard Super last year. 

Managing director of Vanguard Australia Daniel Shrimski says despite a lot of handholding during the build phase, the operational experience with Grow has been “very, very good” so far.   

“[Grow’s] ability for us to leverage data on a as needed basis is very appealing,” he says.  

“With some of the incumbents, you’ve got to wait 30 days to get a data feed sent to you. And then you’ve got to pay more if you want to get additional fields being sent – We don’t have to worry about that.  

“The other thing is it’s an integrated workflow. If there’s an urgent request that we need to expedite, we can insert that into their workflow on a fairly simple basis.”   

“I’d say there’s a bigger risk in doing nothing,” – Mathew Keeley, CEO, Grow Inc

Members notice poor service or inflexible systems usually when they need good service and flexibility the most – at the point of retirement and moving from accumulation to decumulation, for example. And super funds are facing a growing wave of members moving into retirement and likely to demand great service. 

Funds need to be ready to deliver that service then, and brave enough now to make the move to systems that will support it, Keeley says.  

Getting ahead of itself? 

While the eager new administrator is bullish on its chances, history would suggest the ARPA-regulated superannuation market is a difficult one to crack.  

Given so many of the major players do not have a profit motivation, the normal rules do not always apply and the incentives for competition can be lower. There are decades of personal and professional ties, industrial relations and union-negotiated arrangements to contend with, and Grow’s ambitions have gotten ahead of itself in the past.  

The fintech set out to be a ‘neo-super’ fund itself for savvy millennials when it was established in 2017. Alongside an array of funds with offerings in a similar vein (Spaceship, Zuper and GigSuper alike), Grow Super was touted to be a serious disruptor in the market.  

By the time the super business folded in May 2022, it has less than $50 million assets under management. A lack of scale, according to its trustee Diversa at the time, made it difficult to operate the fund under increasing regulatory pressure.  

While its high-profile pivot to focus on fund administration is clearly moving to solve a big problem, Grow needs to remember its past lessons.  

It’s also one thing to supply new technology to a newcomer, but another scenario altogether to do the same thing for a fund that already has systems and processes in place that are often interdependent and cannot be easily pulled apart. 

Paul Giles

A year ago, when AustralianSuper launched a new portal, the experience was seamless for 99 per cent of its members.  

But one per cent of AustralianSuper’s members is close to 30,000 people, and it seemed like almost all of them took to social media to complain about not being able to access fund details and account balances, and so on. Although rectified, the short-term damage to AustralianSuper’s reputation was not trivial, and it serves even now as a warning to others. 

So when it comes to switching admin providers, Iress’ superannuation CEO Paul Giles says it really comes down to trustee board and fund executive teams to do their due diligence and figure out their risk tolerance.  

“When you move a superannuation fund, there’s always enormous inherent risk,” he says.  

“[They need to determine] the investment to undertake the work and make sure they’re comfortable with… what they are signing up to through the administration agreement.” 

Speaking of recent admin contract movements, Giles says it’s a good thing funds have the appetite for improving efficiency and the market is responding accordingly. But moving forward, administrators’ ability to provide “plug and play” solution for clients is going to be crucial for securing new contracts.  

“If they have a growth trajectory, what these organisations don’t want…is for technology to stand in the way of completing mergers and SFT [successor fund transfer], growing their pool of members and actually achieving efficiencies,” he says. 

“Both the administration and the software had to be able to move at speed, and more importantly, deliver a high-quality outcome.” 

The sticky clients 

With that said, some funds are still bucking the switching trend, finding comfort in the fact that their incumbent administrators know their needs well and never give them a reason to look elsewhere.  

Brendan Daly

The $80 billion retail workers fund REST has been outsourcing to Link Group since 1992 and has extended the contract for another five years in 2023, marking one of the longest partnerships in the industry.  

REST chief service officer Brendan Daly concedes “the role of an administrator today is vastly different to what it was three decades ago”, in that it’s sitting at the centre of a “fast-paced, highly regulated, componentised, and tightly integrated model”. 

“With increasing levels of cyber and fraud risks, our administrator now needs to present and support a seamless member and employer experience across various digital channels, working with other providers in an increasing complex service ecosystem,” he says.  

“This is in addition to some of these more traditional services, such as record-keeping, paying benefits and answering queries from members, which has also grown.” 

REST now responds to over a million contacts from members a year and processes over two million transactions, says Daly, and it simply makes sense to leverage the relationship and history with Link Group to reduce complexity.  

“When testing the market, Link were competitive and had all the capabilities we required to put us in a good position to execute on our strategy.” 

The path ahead 

It’s been a year since Minister for Financial Services Stephen Jones officially put funds on notice to improve the quality of their member services. However, superannuation-related complaints have actually risen by 32 per cent during the 12 months to July 2023, and has been climbing in the second half of the year, according to AFCA 

National sector leader for asset and wealth management at KPMG, Linda Elkins, says we need to remember this kind of operational transformation takes time. 

“Things like managing complaints and having proper services for vulnerable customers, was significant uplift work,” she says. 

Linda Elkins

“If super funds are not facing it in a transformative mindset, then there’s a risk that they won’t meet the standard expected.” 

Between in-housing, outsourcing and hybrid administration models, Elkins says she’s “not a fan of thinking that one works better than the other”. But funds that want to lift their standards in the area must be prepared to do one thing. 

“Using an outsourced service provider, you need to be comfortable that they’ve got the capability, but then if you’re bringing it in house, you need to make sure you’ve got the capability,” she says. 

“You think about the need to digitise, automate, have 24/7 access and make things very transparent – all those sorts of things we expect from the services we receive – that takes a lot of investment to do that. 

“The issue going forward certainly will be the amount of capital that funds have to invest to keep their services in line with member expectations and with best practice.” 

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