Australia’s major superannuation administration companies are gearing up for another round of changes forced by the implementation of SuperStream and MySuper but, as Damon Taylor reports, cost efficiency is the main game.
As the Australian super industry moves through 2011, the backdrop to all of the industry’s activity is the legislative change of the Government’s Stronger Super reforms. This is, without doubt, significant change, and yet change is nothing new for trustees and fund executives.
From Choice of Fund to Simpler Super and now on to Stronger Super, Darren Stevens, global head of product for Bravura Solutions, believes this industry has seen it all. But if change is a constant for the super industry, Stevens says that administrator and technology provider support is too.
“The industry has had continuous change imposed on it since day dot,” he said.
“Historically, we had RBLs [reasonable benefit limits] brought in and then RBLs went, we had contribution surcharges come and contribution surcharges go, and then there was Simpler Super as well.
“All of those had similar impacts to what we’re about to see with SuperStream and MySuper, so from my perspective, change has always been there and this is going to be little different to what we’ve seen over the last five to ten years,” he said.
However, Stevens said that what was slightly different to years gone past was the industry’s increased focus on costs and efficiency.
“We’re definitely seeing increased interest there,” he said.
“But I also think that industry consolidation is pushing towards TPA [third party administration] models, and what that leads to is those TPA providers needing to have a flexible solution that can cater for a wide range of products, but that is also generic enough that it can handle that in a way that doesn’t create internal complexity.
“To respond to that, Bravura has done everything from looking to enhance their existing solutions to new solutions with increased flexibility and increased integration,” Stevens continued.
“But each player has their own differing environments and their different sets of requirements, and they come from a different perspective.
“And what we’re finding is that very few of them want to do a full system, big bang replacement. They’re actually looking for a step-by-step improvement and moving towards that new end goal,” Stevens said.
Step by step superannuation reform
Of course, it should not be surprising that funds are opting for incremental changes to their administration and technology platforms.
After all, if cost is a focus when it comes to the day-to-day running of a superannuation business, it must also be a focus when it comes to system change.
Yet when asked what the cost of technology and administration system changes (as a result of both MySuper and SuperStream) would be, or even be comparable to, chief executive of SuperPartners, Greg Camm, said that it was an impossible question until the legislation was finalised.
“The best comparison you could probably make is to the changes a few years ago in Simpler Super,” he said.
“So it’s likely to be a medium impact proposition without being world shattering.
“From an administrator’s point of view, SuperStream is the one that will require the most changes because where MySuper revolves around members and their investment choices, SuperStream is about the back office stuff that is very much our domain,” Camm continued.
“But I think a lot of funds, like us, are waiting to see just what comes out of the legislative pipeline.
“There’s no question that they’re all asking us how they can get savings out of these changes, particularly out of the use of TFNs [tax file numbers], but the immediate cost of that change is difficult to quantify,” Camm said.
On that same question of cost, chief executive of Pillar, Peter Beck, said that in this instance his view of the world was simple.
“If you take SuperStream, it’s about efficiency, so if it really does drive efficiency, the business case should stack up for us as administrators,” he said.
“If it’s going to lead to efficiencies, then we should be prepared to invest money in that to drive those efficiencies because we’ll get the benefit of those — and the same applies to funds.”
“If, however, it’s not about efficiency, then what we will regard this as is just compliance with regulation, and we’ll be charging the fund who will be charging the members for it,” Beck continued.
“So I think the critical issue is for the Government to come out with the right rules that drive efficiencies, because then I think it can and will be implemented very efficiently into the system,” he said.
Back-office administration
But while SuperStream and MySuper are a current focus for the super industry and, by extension, administrators and technology providers, there are other debates in back office administration that are as constant for administrators and technology providers as impending legislative change is for the wider industry.
One such debate is whether the right administration and superannuation system approach is an integrated, end-to-end solution or the joining together of multiple best of breed specialist products, but according to Stevens, service providers in this area are starting to reach common ground.
“My personal take is that the majority of people are looking for something akin to a best of breed approach,” he said.
“What we look to do is provide an end-to-end capability for the core components of an administration solution, but do it in a way that’s flexible and can be integrated in.
“So what we’re seeing is larger wealth management organisations or providers that have had multiple solutions through acquisitions. They tend to want to have enterprise-wide solutions such as workflow, CRM [customer relationship management], OCR [optical character recognition] solutions and, as a result, they don’t want this fully integrated solution,” continued Stevens.
“They find that if a provider comes in and looks to push their integrated solution on them, they end up with duplicate components that can lead to inefficiency in their business and the exact opposite of what they were looking for.
“So my personal opinion is that we’re seeing IT shops of these providers turning into best of breed integrators rather than development shops.”
Also an advocate of the best of breed approach, Stephen Mackley, chief executive of administration and technology provider, Financial Synergy, said that it was his business’ belief that while they did super administration really well, producing a tier one, world class CRM or workflow management system was not necessarily possible.
“So what we’ve done is actually use web services to seamlessly integrate them,” he said. “So if our Acurity product needs stuff from workflow or CRM, it comes on the screen and you don’t need to go into the other products, so to speak.
“And it’s the same thing if you were in any other product and you needed some information to complete your workflow; the information would be there,” Mackley continued.
“So we’re essentially using modern technology and web services to totally integrate the products, but it also means that if someone says ‘we don’t want to use Pivotal CRM, we want to use Microsoft’s product,’ well the interface points are already there and we can use the web service to integrate whatever product,” Mackley said.
According to Camm, the reality is that both super funds and administrators don’t necessarily get the best answer from a full end-to-end solution.
“Think about CRM, just as an example,” he said.
“There are probably 20 CRM solutions out in the marketplace, and all of those CRM providers are competing with each other to produce the best system.
“It’s a global market — CRM is CRM wherever you go in the world, and you want to be able to choose the very best that this competitive process gives you,” Camm continued.
“Another example is general ledger — there’d be 20 different finance packages out there and, again, you’ve got big players and small players all scrambling and competing with each other to produce the best.
“So, to my mind, you’d be a pretty arrogant organisation if you believed that you could build a better CRM or general ledger than 20 specialists competing against each other could build.”
Camm said that his preferred approach was to always take best of breed packages, provided there was, in fact, a breed that could be chosen.
“There’s breeds in CRM, there’s breeds in general ledgers, there’s breeds in payroll systems,” he said.
“But when it comes to a core superannuation administration system and when you’ve got 6 million members and $100 billion of funds under management, you discover that there aren’t 20 packages you can choose from around the world; there are none.”
“So the answer in that case is that you build it yourself,” Camm continued.
“The solution that we’ve gone with is building the core administration platform ourselves, so in that sense we’re building an end-to-end system, but we’re bolting on best of breed satellite systems like CRM and finance because we think that’s the short road home.”
Legacy systems
Yet the reality is that favouring a best of breed approach to administration can also lead to retaining those core legacy systems that do represent a significant cost to replace.
But though innovation in the satellite systems around that core may promote efficiency in the medium term, Mackley indicated that the replacement of legacy products would eventually become a necessity.
“There’s no doubt that there are still a lot of people out there using what you might call legacy products and there’s also no doubt that that can inhibit where they go and being able to get the palpable cost efficiencies and integration that you need,” he said.
“But whether it has an effect on their overall service to their members, it depends on how they cobble things together.”
“I do think that if you’re sitting on a legacy platform, then they’re not really getting supported,” Mackley continued.
“And that means they’re not really using modern technology to get the member the experience they want,” he said.
Alternatively, Stevens said that one could argue that legacy systems were part and parcel of the super industry and that they didn’t necessarily hinder a fund or administrator’s pursuit of back office efficiency and cost reduction.
“What we’ve found is that people will have and use a core, tried and tested registry system and then have, over time, either used ourselves or internally have developed solutions around the outside of it,” he said.
“And this particularly happens with the e-business solutions; they can use one of our solutions or they bolt over the top an e-business solution that provides the efficiency gains that they need,” Mackley said.
“They can then use that as a workbench for their administration team and, underneath it, the core registry systems have remained there, and just power the underlying functionality,” Stevens continued.
“So you’ve got a core group of people that understand and use that, it’s tried and tested, it’s been audited and rather than take the risk of moving holus-bolus off of it, what we see is a gradual move towards the consolidation of systems.
“Realistically though, they’re always inclined to do that in a risk averse manner.”
Regulatory change
In commenting that there remained a number of older legacy systems on the retail side of superannuation, Beck said that one of the very real consequences of legacy system retention was the cost of legislative change.
“Each time that happens, they have to change a heck of a lot of systems and it becomes a huge maintenance overhead,” he said. “Your cost of upgrades, the complexity around that and the speed at which you do that can become quite an obstacle.
“There is, in my view, scope in the industry to look at those legacy systems and realise that while you might have to invest money in transitioning them from an old platform to a new platform, you’ll get your money back very quickly,” Beck continued.
“And that’s just in terms of the reduced ongoing maintenance costs of those older legacy systems,” he said.
Beck said that the problem was that such a fix did require investment, and that many larger institutions saw it as an investment in the past.
“They want to invest their money in the future rather than the past, and so it’s a difficult sell,” he said.
“But, for us as administrators, we see that as an opportunity to do the investment and give them the payback over a period of time.
“It might only be break-even on a contract for the first five years, but thereafter they’re on a modern platform and the costs go down,” Beck said.
Indeed, one of the unfortunate realities about driving back office efficiency either through technology or improved administration or both is that the difference that it makes cannot be seen or experienced by fund members directly.
Nine times out of ten, these are behind the scenes improvements, but according to Stevens they should, at the very least, be visible in reduced fees and in increased competition.
“I think they’ll also see it through improved ways in which the funds communicate and the speed of the various customer services they provide,” he said.
“You’ll see where rollovers between institutions have sometimes taken a month or more, that will be brought down to a matter of days.
“They’ll see real-time where their funds are online, their customer service representatives will be able to answer the majority of questions because the system consolidation or the single view of a customer that’s going to be put into place will allow them to more rapidly answer questions and understand exactly what’s going on across multiple accounts or multiple products,” Stevens elaborated.
“But ultimately, from a fund’s perspective, it’s going to be that it provides that same or better level of support at reduced costs that can then be ploughed back into enhanced benefits for clients or reduced fees,” Stevens said.
For his part, Beck said the fact that back office improvement did not yield a tangibly improved service for members was undoubtedly a challenge.
“The issue is that you’ve got to invest in the automation and it takes a while before we get our money back and are prepared to reduce the costs,” he said.
“Unless one of our clients comes to us and says ‘here’s the money, drive efficiency,’ then we can’t do anything but increase efficiency, pass it back to our clients once we see its rewards and then they can pass it on to members.”
“But realistically, they don’t invest in efficiency so much as they invest in service improvements and chasing market share,” Beck continued.
“So when we talk to funds and other big managers out there with all their legacy problems, the obvious question is why don’t they invest in transitioning those systems on to modern platforms?
“And it’s because the payback may be three to five; the benefits take time to manifest and so, to a large extent, the current membership has to pay for an investment that will only come through years later,” Beck said.
Along similar lines in terms of end user visibility, comparisons are often made between the super industry and Australia’s banking industry, where it is said that with all but real-time access to balances and transactions, everything just works.
Yet for Beck, the super industry and the systems behind it haven’t been positioned in that way simply because it hasn’t had the opportunity to do so.
“You’ve got to think about the reason why the super industry isn’t perhaps positioned in the same way as the banking industry,” he said.
“And the reason, in my view, is that if you look at bank products, they haven’t been changed in years.
“There’s been no, or very little, regulatory change for 30 or 40 years; savings products are still savings products, they’ve got the same tax structures, and so on,” Beck continued.
“So what that means is that banks have been able to invest in efficiencies and in service improvements, whereas for the super industry, every year there’s a change in the rules.
“We’ve got to make huge investments virtually every year in compliance,” Beck said.
Federal Budget 2011
And according to Beck, this year’s budget was a perfect example.
“We only had three small changes out of this budget, but they were still changes,” he said.
“And that means we’ve got to dedicate resources to making those changes rather than driving efficiencies.
“It was tiny this year, but these changes come every year,” Beck added.
“So yes, we are striving to be able to provide the sorts of services that the banks are providing, but the only way we’re really going to get there is if governments of either persuasion can actually try and find a set of rules that they will agree on.
“Then perhaps systems won’t have to be changed all the time and we can get the kinds of tangible services that members are looking for.”
For Stevens, the silver lining to the cloud of legislative change is that there was currently a lot more cooperation within the wider super industry.
“Yes, it’s probably being forced by the new regulations and things like the Government coming to the party around the use of tax file numbers for identification between funds, but it all helps to streamline the process,” he said.
“And yes, like the banks where they all use similar formats to communicate with each other and they’ve had these electronic facilities in place for many years, super is slowly heading down that path.
“Super may be one of the last to actually start to adopt this, but it’s doing so now, and I think it’s because the industry is starting to pull together as a single unit to cope with these changes,” Beck said.
