The comprehensive income products for retirement (CIPR) framework proposed in the Financial System Inquiry (FSI) could benefit industry funds but only if they invested heavily in product design, according to Tria Investment Partners.
In a blog post, principal consultant, David Hutchison wrote CIPR would be a “strategic leg-up” for industry funds as trustees could proactively recommend a default solution to members, without members having to seek advice, which could impede prospects for their retail counterparts.
There were currently 2.1 million members in industry funds aged between 50 and 65 with a total of $179 billion in funds under management (FUM).
While that was an average balance of only $85,000, approximately 20 per cent of members in Australian Prudential Regulation Authority (APRA) funds had over $200,000 at retirement and were a prime target for financial advisers.
“Absent any change, many of these members would naturally have converted to the retail funds segment over time,” Hutchison said.
However, CIPR should aid industry funds to retain “high value” members as they transitioned into drawdown phase, and the approximately 75 per cent of members with less than $100,000 at retirement who typically cashed out their super balance.
“Clearly, this introduces a huge challenge to retail funds’ traditional competitive advantage,” Hutchison wrote.
However, Hutchison warned that while CIPR presented an opportunity for industry funds, it would not be cheap and said not all funds would reap the benefits.
“However, the outcome is far from a lay down misère – industry funds will need to achieve new heights in product design, and do a much better job of engaging and retaining their existing members, both of which require significant investment,” he said.
“Don’t expect the CIPR tide to lift all industry fund boats equally.”
Hutchison warned retail funds would defend aggressively and said their capabilities in product design and customer acquisition was more robust.
“These will be invested in and further enhanced to counter the strategic advantages CIPR otherwise delivers to industry funds,” he said.
