After years of management upheaval and restructuring, the changes made by Australia’s leading retail superannuation funds over the past few years are seeing a stabilisation of their role in the competitive world of superannuation.
While industry funds continued to dominate the superannuation sector, with assets of $1.3 trillion and 13.7 million members, compared with the retail funds assets of $753 billion and 6.2 million members, changes at the big retail players are paying dividends.
Insignia, AMP, and Colonial First State are showing the rewards of new management, increased digitisation, ongoing cost reductions and improved investment performance.
Industry observers say the big outflow of funds from the retail sector in recent years, as a result of members or corporate super funds moving to industry funds, is slowing. As millions of Australians move into retirement, the domination of retail funds in the retirement and advice space is also becoming an important feature of the superannuation landscape.
Changing landscape
AMP has been restructured under the leadership of former ANZ executive Alexis George, who took over as chief executive in August 2021.
In a recent broker’s note, investment bank Citi declared that it was optimistic that AMP had turned a corner. It noted positively that the company has significantly increased its investment in its North platform following a period of underinvestment.
Citi says the MyNorth Lifetime product, which combines the flexibility of an account-based pension with the lifetime cash flow features of annuities and which was launched by AMP’s platform business on 22 October, is gaining traction among advisers.
That section of the business is now run by Edwina Maloney, group executive platforms, who took over in July 2023.
Former KPMG executive Melinda Howes returned to AMP in January this year to take charge of its superannuation and investments business, a division with assets under management of $54 billion.
AMP was dealt a blow with the loss of the management of the Woolworths corporate superannuation account in 2022, but cash outflows for competitive reasons (as opposed to pension payments) from the company’s super business have been reducing.
Howes argues that AMP’s investment performance under Anna Shelley, who took over three years ago, is showing some good returns.
In media interviews, Howes argues that the combination of improved investment returns, lower fees, better service and a new retirement income product to be launched early next year – similar to the one launched in 2022 by the AMP platforms arm – will help turn its business around.
At Insignia, Scott Hartley, the former chief executive of AMP Australia Wealth Management and former chief executive of SunSuper, took over as chief executive in March this year, and in mid-July announced a major shakeup of his executive team, bringing in some of his former colleagues at AMP to help him turn the organisation around.
His new team includes a new head of superannuation, Dave Woodall, who joins Insignia from Australian Retirement Trust and starts on November 1. Insignia manages $311.3 billion of funds, with $192 billion held in superannuation funds, both institutional and retail.
Colonial First State’s new wealth platform, CFS Edge, has amassed $1 billion in funds under advice in its first 10 months after its launch in August last year – with the wealth manager describing it as – debatably – the quickest wealth manager to reach that milestone.
Comparative details on fund outflows will await figures from APRA, but the retail funds argue that the era of big outflows for competitive reasons is now behind them.
After years of being outperformed by industry funds, retail funds have reported strong performances for the year to June 30, 2024 – partly due to their lack of exposure to unlisted assets.
While some point out that the better investment performance could be cyclical, boosted by market forces favouring share market investors and not unlisted assets, the retail funds are making the most of their improved performance to tell the world.
Cyclical matters
KPMG Australia’s national sector leader, asset and wealth management, Linda Elkins is cautious about any predictions that the retail super sector is turning around, preferring to use the word “stabilised.”
“It might be too soon to say it is turning the corner, but we can use the word ‘stabilise’,” she says in an interview with Investment Magazine.
“Outflows from the sector have reduced as the funds have made big investments in systems and structures.”
“We are seeing a stabilisation of the outflow in relation to members leaving or advisers moving to other platforms.”
Elkins – a former senior CFS executive herself – points out that the better performance is coming as a result of changes that have been “happening over a long time.”
“They have dealt with the issues from the Royal Commission [into misconduct in the financial services sector] and they are now in a more stable position,” she says.
She points out that changes at Insignia, for example, were already well underway under its former chief executive, Renato Mota.
Elkins says the retail funds are benefitting from their long-time investment strategy, which has had more focus than industry funds on listed assets.
“This is a cyclical issue as the retail funds have always had a lower allocation to direct investments than industry funds,” she says.
“The cycle is preferring the investment allocations they have.”
“The years of outperformance of industry funds was partly due to asset allocation differences which are switching in favour of retail funds.”
Elkins points out that as more Australians retire, the retail funds are well placed given their long time dominance of retirement income products and already strong links to financial advisers.
“Going forward, they have a very significant competitive advantage in the retirement space and in providing support to advisers,” Elkins says.
Insignia, for example, is the largest private provider of pensions in Australia, and it boasts two strong employed-adviser licensees in Shadforth and Bridges. AMP owns AMP Advice, which authorises more than 800 advisers in more than 200 practices, and is undergoing a resurgence under executive director Matt Lawler.
And when CFS’s Edge platform passed the $1 billion mark, CFS superannuation chief executive officer Kelly Power pointed to partnerships with advice practices as a key driver of inflows.
Industry funds are also facing competition from a new breed of retail funds, such as US investment giant Vanguard, which now has more than $1.3 billion in its superannuation business and is moving into the retirement product area.
The company has already moved to cut the fees on its super fund products, making a point of publicly focusing on its low fees and calling for more public discussion on super fund fees.
While investment cycles can swing around, the retail funds are enjoying the better news on performance and products.
“The gap between industry funds and retail funds in terms of performance and fees has closed substantially,” Insignia’s Scott Hartley says.
“If you look at the 10 largest industry funds as a group over the last 10 years, their fees have gone up by 40 per cent on average.
“If you look at the retail funds as a group, their fees have come down substantially.
“There has been a huge reduction in fees. The gap is closing.
“Yes, the industry funds still have the momentum, but we have the opportunity to turn that around and I’m sure we can.”
