As superannuation funds grapple with their obligations under the Retirement Income Covenant and how to integrate financial advice into a solution, Brighter Super says it will capitalise on the expertise it inherited via a fund merger to create advice capacity by working with external advisers.
More than one in four Brighter Super members have received information, guidance or advice from the fund’s internal superannuation specialists or from external financial advisers over the past two years.
As chief executive Kate Farrar seeks further economies of scale and member service improvements from the merger of three predecessor funds, she says Brighter’s plan is to be “the best fund for external financial advisers to deal with”.
Brighter was formed when Energy Super and LGIAsuper merged, and a subsequent merger with Suncorp Super. Each predecessor fund had distinct characteristics – Energy Super was a profit-to-member fund, LGIAsuper a public-sector fund, and Suncorp Super a retail fund – and brought different strengths to the table.
Farrar says Energy Super was particularly strong in managing domestic equities with an ESG slant, and a very clear focus on employers. LGIAsuper had “really excellent infrastructure assets, really fantastic infrastructure managers” and a strong tech platform; and one of Suncorp’s great strengths was its relationships with external advisers.
“Twenty-seven per cent of our [members have received] advice in the last two years,” Farrar says. That figure is high compared to other funds – UniSuper chief executive officer Peter Chun told the Advice Policy Summit, hosted by Investment Magazine sister publication Professional Planner, this month that, through various channels, around 8.5 per cent of UniSuper’s members have received advice.
Farrar says not all advice to Brighter Super members can be delivered by its internal advice force, which is comprised of four intrafund advisers, 11 offering comprehensive advice and 27 that provide general advice.
“One of the things that we’ve really focused on over the last year is building up our capability to support external financial advisers, because we want members to have choice in the way that they seek advice and the way that they get advice,” Farrar says.
“In our mind, if we want every member to retire with advice – which is what our aspirational goal is – then fundamentally, we know we can’t do that on our own with our internal team.
“So, we have a good understanding of the circumstances in which our internal team are right for advice. We have a good understanding of when it makes sense for us to use intra fund or general; but we also recognise that people sometimes have more complex situations and needs than we can provide [for], and so we are welcoming of external financial advisers in supporting our members, and we do everything we can facilitate them.”
Brighter Super is not among the 23 member funds of the Superannuation Members Council (formed from the merger of the Australian Institute of Superannuation Trustees and Industry Super Australia), but is a superannuation fund member of the Financial Services Council as a legacy of Suncorp Super’s FSC membership.
This places it among a mix of members that is mostly retail and wholesale asset managers, investment platforms and advice networks.
In February Farrar told the Advice Policy Summit, hosted by Investment Magazine sister publication Professional Planner, that that fund was “able to observe the offering that the FSC brought us through Suncorp Super, because we actually held it whilst we were part of AIST as well as FSC.
“Obviously, AIST then no longer existed, and we really loved what FSC offered,” Farrar told the summit. She said it provided “opportunities for us to learn and to engage with people who are thinking in a completely different way”.
She said this helped Brighter Super develop its independent financial adviser capabilities, and that it has “helped me to understand some of the trade-offs that you’ve got when you have an internal advice business, which we do, as well as serving external advisers, where you’ve got scarce resources”.
A steep learning curve
Farrar says Brighter’s understanding of how to interact with external advisers was turbocharged by the Suncorp merger and it was a steep learning curve.
“It is interesting how much effort is required,” Farrar says.
“There’s a whole lot of learning that is required by the executive. We have to look at our forms, we have to look at our letters. We have to look at our journeys to make sure that we’re intervening in the right way where members are advised. We have to understand how we’re interacting with when it goes to internal, when it goes to external. There’s so much work, and there’s a lot of learning.”
Farrar says it’s been “a bit of a experience for me, I have to say,” in coming to terms with the intricacies of dealing with advisers. She says Brighter has focused on thinking about advice “not just from the perspective of the member, but also from the perspective of the stakeholder”.
“We are introducing a third stakeholder after the member, the employer and the [internal] adviser, into our ecosystem,” she says.
“So it’s been a very comprehensive change process for us, and I do think we’ve got to a stage now where we understand how it’s going to play out and what we want to do.
“We’re in a good position, from an industry fund perspective, and we know what we have to do over the next couple of years to just really make it fly.”
When LGIAsuper and Energy Super came together in mid-2021 the funds had assets and members of $16 billion and 73,000 and $8 billion and 50,000, respectively. The merger with Suncorp Super added $7 billion and 127,000 members. Today, Brighter Super has assets of $34 billion and 280,000 members.
Fees down by 40 per cent
An obvious and oft-cited rationale for fund mergers is the supposed economies of scale they result. While there’s debate about the precise benefits of scale, at least from a member’s perspective, and whether greater scale necessarily leads to better services or lower costs, Farrar says since the completion of the mergers in 2022 Brighter Super’s administration fees have declined by 40 per cent.
On 1 January this year – the third tranche of fee reduction – the fund reduced its administration fee from 18 to 14 basis points, with a fee cap reduced from $900 to $650.
“Importantly, we have not made any cuts to frontline education and guidance,” Farrar says.
“We were very intentional about ensuring that we have the same level of capability of serving members at the end as we had at the start. The efficiencies that came from scale in the investment portfolio was a really important part of that. Obviously, they’ve come from only having to do one set of accounts, and all that sort of thing.”
Farrar says the merger was a complicated piece of work.
“There was one point at which we had, I think, 16 subsidiaries,” she says.
“[That] put a lot of pressure on the back-office team, the finance team, the risk team. But the team have been fantastic about actually slimming that down, making sure that we’ve only got the corporate structure that we need, and just bringing all the accounts together.”
Farrar says the efficiency that came from scale in the investment portfolio was a key factor in reducing costs to members, and she says the fund also realised scale benefits in its relationship with its administrator, Tech Mahindra.
“That was built into the arrangement that we established with them in 2019 and has been great, for both them and for us,” Farrar says.
“It’s about taking [efficiencies] where you find them. You actually have to look, I think, in pretty much every process.
“We are at the stage now of refining processes. In some cases the processes were not ideal, but we’ve adopted one of the three, and so we’re now going back and doing a lot of work to ensure that we digitise the processes where possible, that we make sure we have proper transparency over those processes.”
Greater scrutiny
Farrar says a fund’s members services will only come under greater scrutiny as community and regulatory expectations ramp up.
“That is a recognition of the scale of the sector,” she says.
“We’ve had a lot of consolidations since I began at LGIAsuper in 2018 – an awful lot of consolidations, including by us through that period. And in addition to that, obviously we’ve had outstanding returns as an industry, and so the combination of the two have meant that we’ve got very significant assets and a very significant sector.”
Like all funds, Brighter is working to be compliant with APRA’s CPS 230 Operational risk management from 1 July this year. In a sense the timing is fortunate, because as the mergers are bedded down the prudential standard has acted as a sort of roadmap.
“We’ve been on the journey for a couple of years, just because it made sense if we were redoing things, because from an integration perspective it didn’t make any sense to do them twice,” Farrar says.
“So we’ve been sort of trying to do them consistent with CPS 230 for quite a long period of time now. It has been helpful to us in understanding our operational risk and resilience, and in our relationships with managing our external service providers, understanding where we have to invest from a tech perspective, all of those things.”
Other developments besides member demands and regulatory scrutiny will also place greater emphasis on operational efficiency. Pay-day super, for example, if it is enacted, will test funds’ operational capacities.
“The volumes under payday super are likely to be very high and that means that you can’t have manual or clunky processes,” Farrar says.
Farrar says that as Brighter continues to manage the merger of three funds, the main task it now faces is “making sure that that members choose to stay”.
“We have put our members through a bit over the last couple of years, but we recognise it, we take accountability for it,” she says.
“We’ve worked really hard to make it better and I have to say, we’re definitely starting to see some of the benefits of the work that we’ve done and the efforts that we’ve made into scale and a really good experience for members.”
