Insignia Financial has shifted to an external administration service provider for its $180 billion superannuation arm, redeploying more than a quarter of its headcount in the process.
The decision stands in stark contrast to peers such as Aware Super, which recently internalised its fund administration and took significant direct ownership of its member service processes.
In an ASX announcement, Insignia said it has entered into an initial agreement with SS&C Technology to provide administration services, but some functions, including claims, complaints and member engagement, will be retained in-house.
SS&C will absorb 1300 Insignia employees and modernise Insignia’s existing technology and processes, which chief executive Scott Hartley admitted is “a mess”.
Hartley said he is confident that Insignia has landed on the right solution.
“Insourcing is a very expensive exercise, and who pays for that? Members,” Hartley told Investment Magazine. “Aware [Super] could tell you that’s a very expensive exercise, and they’re the most recent fund to have done that.
“You don’t necessarily get to the cost to serve that we believe you need to get to, to be a sustainable superannuation fund in the long term.
“I’m not saying you can’t, but it’s more challenging to do so.”
The company weighed its administration options in a review, and Hartley said it considered other options such as acquiring and implementing an existing technology like Bravura. However, that was deemed a less attractive option after adding up the costs to serve and implement.
An in-house approach would also have a greater impact on Insignia employees, Hartley said. A new technology platform would require significantly fewer people to implement and operate, which would lead to around 800 people being let go.
Hartley rejected the suggestion that the mass redeployment of Insignia workers to SS&C is another form of redundancy – the latter has committed to retaining these employees for 12 months, he said.
“Our people will have great career opportunities in that regard of – once we are transformed – being able to work across other clients but also globally,” Hartley said.
“People who do want to have a career overseas have that opportunity…so it’s pretty exciting from our people’s perspective as well.”
No systemic risk yet
Insignia’s partnership with SS&C is part of a series of sweeping changes Hartley has marshalled since he replaced Renato Mota to lead the wealth conglomerate in March this year.
In July, Hartley installed a dedicated superannuation CEO in former Australian Retirement Trust executive David Woodall, and made clear his intention to complete the “unfinished business” of consolidating its master trust arm.
The move to outsource administration comes at a time when funds are under pressure from regulators to address member service issues.
Market watchdog ASIC took the $94 billion Cbus to court in November over delays in handling insurance claims and labelled the fund’s actions as “systemic failure” by trustees. Cbus blamed its external administrator MUFG Pension & Market Services (formerly Link Group), for causing the bulk of the delays.
Swiftly following the announcement, the $355 billion AustralianSuper said it would voluntarily hand out a total of $4.2 million in compensation to members who had experienced delays in death claims processing. That fund’s external administrator is also MUFG Pension & Market Services.
Hartley said he is “not sure” if administration can be treated as a systemic risk yet, but the lack of capability, capacity and capital among external administrators is certainly “a problem”.
“We feel that the Australian market is underserved from a fund administration and technology perspective,” he said.
“The full-service model is particularly not well served in the market. SS&C have ambitions to become the leading provider in the Australian market and they already serve Mine Super today.
“We feel very comfortable…partnering with them as their beachhead client in the Australian market.”
Insignia is expected to sign a final binding agreement with SS&C and start the transition in 2025. The transformation to a new operating platform is expected to take three years from then.
Hartley said both parties have conducted extensive due diligence on each other. Both companies will now work together to tease out a detailed service level agreement, including things such as standard call answering time, and to ensure trustee and regulatory approvals.
“These are long-term relationships, so it’s like a marriage,” he said.
“Like any marriage, you can have a contract.
“But you don’t want to rely on the contract – you want to rely on the partnership you have these organisations. We feel very good about that.”
