One issue raised in our Systemic impacts of ‘big super’ report where there seems near-universal agreement relates to shortcomings in industry’s operational infrastructure. Here we are referring to ‘plumbing and wiring’ of super funds in terms of systems and processes that support operational functions such as member administration.
The concern is that operational infrastructure, be it internal or outsourced, has struggled to keep up as super funds have transitioned from a cottage industry into large, complex financial organisations servicing many members. We are yet to encounter anyone who disputes that this problem exists.
While the most obvious symptom is the member service failings which ASIC is pursuing, we are concerned that shortcomings in operational infrastructure are hindering the industry from delivering high quality retirement income strategies.
Retirement requires a strong operational foundation
Addressing member differences is fundamental in retirement. Super funds need much greater capacity for personalisation in retirement than in accumulation where all members share the common goal of accumulating wealth. This requires funds to deliver a range of retirement products and solutions as well as guidance services to meet differing needs and wants.
Operational infrastructure with substantial functionality is an essential foundation in delivering a quality RIS. While operational infrastructure can help with the delivery of retirement solutions, the real benefit is how it can support engaging with members over what solution best meets their needs. To do so requires a way of understanding the member’s situation so that they can be guided towards a suitable solution. Funds will likely use multiple guidance mechanisms such as digital tools through to referrals to financial advisers, both internal and external. Member engagement and communications should also be tailored to the individual to maximise effectiveness. Without appropriate systems and processes, a super fund will find itself hindered in performing this task.
Many areas which require an uplifted operational capability
Below we list out some areas where operational infrastructure with high functionality is essential to deliver a quality retirement strategy.
- Integrated retirement solutions – An integrated retirement solution combines products and drawdown rates and is offered to members as a ‘package’ rather than as distinct components. The capacity to do so is relevant whether solutions are based around cohorts, or individually tailored as say might arise from an advice process.
- Consolidated reporting – Aggregated snapshots of income and assets should be provided to members. This requires moving beyond reporting on investments to also reporting on aggregated income. In the future these snapshots could be extended to include the Age Pension, and perhaps even assets outside super and the household level.
- Communicating with external advisors. Many retirees will use an external financial adviser. Super funds should be helping these advisers to easily access up-to-date information on the status of the member’s investment with the super fund to reduce the time and cost to service the retiree.
- Advancing engagement – Infrastructure that keeps track of member characteristics and activities can facilitate better engagement. For instance, communications may be tailored towards member circumstances, needs and preferences. Engagement programs can be facilitated such as nudging members around the point of retirement and issuing calls-to-action upon signs of a potential change in member circumstances.
- Triaging – Well-developed systems and processes can assist to triage members into an appropriate guidance channel, e.g. financial advice, self-directed choice, presenting basic solutions to members with simple needs. While triaging might be prompted through initial engagement via online services or other channels of contact, it would be more effective if supported by information on member circumstances and activities.
Big gaps exist between present state and the required future state
We see big gaps between the above list and where the industry currently sits. Very few super funds have the capability to present integrated retirement solutions (the CSC member profiles is probably the best example we see). Similarly, very few funds report income to members on a consolidated basis. Some funds are working on tailored member engagement, but most are in a development phase and hampered by incomplete understanding of members. We acknowledge that even if the capability existed funds are hindered by existing financial advice settings.
Advanced ‘customer management systems’ supported by member information, analytical capabilities and well-designed processes are required for the level of personalisation implied in the above list. A big upgrade in the industry’s plumbing and wiring is needed to get there. It will be difficult, costly and take some time. But ultimately beneficial.
What if the industry doesn’t embrace the challenge? A band-aid approach may work for a while, but will likely catch up with funds in the future. Funds would be designing their RIS with one arm tied behind their back. The quality of retirement solutions, ongoing member experience and the time and efficiency of implementation will all suffer.
Underdeveloped operational infrastructure is today’s big issue and tomorrow’s sleeper problem. We suspect it is both inhibiting reaching aspirations for what funds should deliver in retirement and slowing down the implementation. Our sense is that super funds need to bite the bullet and invest time, money and effort into building platforms for the future.
David Bell is executive director of the Conexus Institute.
Geoff Warren is research fellow at the Conexus Institute and Honorary Associate Professor with the Australian National University.
The Conexus Institute is a not-for-profit think-tank philanthropically funded by Conexus Financial, publisher of Investment Magazine.
