When the Russell Investment Group earlier this year struck a deal with global information technology company IBM for the sale of Russell’s member administration service centre, it generated ripples throughout the Australian superannuation administration industry.
The reason for those ripples was simple. The sale of Russell’s member administration service centre introduced a major new player into superannuation administration in Australia. Moreover, the size of the Russell business meant IBM had established a foothold rather than a bridgehead in the industry.
With IBM having a long track record of gaining dominance in markets, there is an expectation that once it beds down its acquisition of the Russell business it will look for growth by way of further acquisition — something that has given rise to speculation about the future of both the Telstra-owned Australian Administration Services (AAS) and the jointly-owned Citistreet.
But according to those with experience in superannuation administration in Australia, a background in information technology and management does not guarantee success in the legislatively complex area of super administration.
That is certainly the view of the chief executive of Australia’s largest administration company Superpartners, Frank Gullone, who said that those looking to enter the superannuation administration arena in Australia needed to adopt a long-term view and to understand that success would not necessarily flow from simply buying market share.
Perhaps more importantly, Gullone said companies looking to enter the market or expand existing operations needed to understand that superannuation administration and technology platforms did not necessarily represent the same thing.
Gullone, as chief executive of the largest administration entities, understands well that it is a high turnover, narrow margin business and argues that this is something that the new entrants also need to understand.
“Penetrating the Australian superannuation administration market is going to be a difficult ask for any new entrant and, inevitably, they are going to have to hit the acquisition trail,” he said.
Whether he likes it or not, managing director of KAZ, the Telstra subsidiary that owns AAS, Stuart Korchinski, has found himself at the centre of the speculation about Telstra’s intentions towards superannuation administration as the Government moves to float the Commonwealth’s remaining interest in the large telecommunications company.
However, Korchinski argues that AAS is doing well in a highly competitive market and that there is no underlying financial imperative for Telstra to sell off the business.
Indeed, Korchinski seeks to put the role of IBM in Australian superannuation administration into perspective by claiming that IBM might well be construed as mimicking a strategy implemented by AAS, but arguably coming into the market five years’ too late.
What is more, he points out that the foothold gained by IBM by way of its transaction with Russell represents the acquisition of a highly specialist platform for managing corporate superannuation funds and, as such, represents only a very small part of the total superannuation administration market in Australia.
“Superannuation administration has become immensely more complex and requires a lot of learning and understanding,” he said.
“In terms of AAS, you need to understand that we’ve been at it for 20 years,” Korchinski said.
What all the major players in the superannuation administration market agree upon is that a range of factors, including acquisitions, will lead to consolidation in the market.
Pillar Administration marketing and business development manager Mark Luciano said consolidation was a continuing fact of life for a whole range of service providers within the superannuation industry.
He said factors such as trustee licensing were continuing to drive consolidation in the corporate superannuation fund arena and that even amongst the industry funds there was a trend towards mergers.
“In those circumstances you have to ask yourself why anyone would be wanting to enter the industry right now,” Luciano said.
What is more, Luciano believes that while the major superannuation administrators are continuing to compete strongly for the business of the remaining superannuation funds, there has been something of a lull in activity as the funds themselves concentrate on becoming compliant within the new trustee licensing environment.
“Everyone has been concentrating on getting a Registrable Superannuation Entity licence,” he said.
Gullone believes that fund consolidation means that, ultimately, there will be just a few major players left in the superannuation administration arena.
“The simple facts of the matter are that a lot of clients are consolidating and fewer funds mean there are fewer pickings for superannuation administrators,” he said.
“Ultimately, those that survive will be those that can deliver the scale and capability,” Gullone said.
For his part, Korchinski agrees that those administrators with scale and capability will survive and points out that AAS is still managing to extract productivity gains for its clients in terms of workflow, imaging and benchmarking.
What is more, Korchinski points to the future and the ability of organisations such as AAS to act as a platform for the delivery of financial advice to members.
