After years of regulatory and legislative reform, many in the super industry had been bracing for what the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry had in store.
In the end Commissioner Kenneth Hayne recommended, for the most part, a series of relatively reasonable measures to strengthen trust and confidence in Australia’s financial services industry. This is good news for super funds, who can get on with the business of serving the interests of their members without the challenges of a far-reaching and heavy regulatory reform agenda.
However, it’s wise for super funds and trustees to consider the spirit of the Hayne recommendations - as there are lessons to be learned.
Lesson 1: Being in control of your data is essential
Many of the issues highlighted through the Royal Commission related to a lack of oversight by financial institutions when it came to ensuring their customers were being treated fairly and responsibly.
Underpinning this was the fact that many institutions lacked a rigorous approach to how to manage the business challenge and opportunity that is data. Having a consistent and standardised approach to how data is captured, accessed, managed and used is critical, as is monitoring that data in real-time to pick up red flags before they become an issue.
In many cases, poor customer outcomes identified through the Royal Commission could have been identified through the use of comprehensive data analytics long before they required serious action. In a post-Royal Commission world, it’s clear what is expected of financial institutions when it comes to the end-to-end process of capturing data for comprehensive monitoring, identification and reporting of issues.
So, what does this mean for super funds?
The reality is most super funds should already have the data they need to stay across a range of key indicators - from adherence to regulatory obligations and business and product rules, to the application of the rule of common sense.
Super funds with direct access to real-time member data to analyse and quickly act on the insights generated will be best placed to achieve successful business outcomes in the new world order.
As we saw in the Royal Commission, the excuse that ‘we don’t have the data’ or ‘our systems are too complicated’ simply won’t wash with regulators or the community. If your platform or administrator doesn’t support the ability to readily access and use your data to gain insights, this needs to be resolved.
Lesson 2: Better data = better member outcomes
Having a solid data strategy enables super funds to ensure they’re meeting their regulatory and compliance obligations and can also be a competitive advantage. Indeed, those that respond proactively to this industry change will create opportunities to drive their fund forward by drawing on data-driven insights. This will allow them to increase business efficiency and enhance the experience for their members.
As identified in the Productivity Commission report, which preceded the Royal Commission in signaling the need for increased transparency and improved outcomes for members, super funds will be required to tighten business practices to ensure they remain competitive as well as compliant in the coming years.
The good news for super funds is the technology already exists to help identify opportunities to automate costly and unnecessary processes and redirect the savings towards delivering differentiated service offerings to members.
Funds have the tools readily available to ensure their technology platforms enable them to plug and play with application programming interfaces (APIs) from a wide range of third parties - from regulatory bodies such as the Australian Prudential Regulation Authority (APRA) and the Australian Taxation Office (ATO), to trustees, insurers, brokers, document management and customer relationship systems as well as external ledgers, registry and advice vendors and other relevant app providers.
The rise of open and accessible APIs is revolutionising the speed, efficiency and quality of services funds can deliver for members - so if your current platform doesn’t support it, there’s a risk of being left behind.
Lesson 3: Use data to demonstrate the value of personal advice
One of the more significant reforms in the Hayne Report was a recommendation to ban the deduction of any advice fees from MySuper accounts. At the same time, the Productivity Commission report highlighted a need for better information and advice for pre-retirees and retirees.
With intra-fund advice rules prohibiting super funds from venturing outside advice relating to investment options, contributions and life insurance, there remains a need for Australians with broad and more complex needs - i.e. those entering the pre-retirement phase - to obtain affordable and appropriate financial advice.
Super funds wanting to provide this service will then need to demonstrate the value of comprehensive advice for members to be willing to pay upfront for it. This is where the ever-increasing capabilities of data analytics present opportunities to better understand members’ needs and wants; to create targeted, relevant and appropriate advice opportunities - from the traditional fee-for-service advice model, through to automated personal and objective-based scalable advice offerings, and combinations of each of these.
One way super funds can support the adoption of advice is through empowering members with smart tools to help them understand the steps they can take to improve their retirement outcome. By integrating online member portals, automated advice services and registry - members can set savings targets, review them against desired living standards in retirement, and take advantage of automated advice services to see how they might reach their goals through adjusting assumptions, contribution levels or investment options.
Every time members return to the portal, they can track progress against their goals. What’s more, this data - including the work the member has done exploring their financial objectives - can be fed through to a financial adviser if and when the member decides they would like further assistance.
Ultimately, the post-Royal Commission world will see government, regulators and the community demanding increased transparency, experiences and outcomes from their financial institutions. Super funds are no exception.
Now’s the time to reflect on how you are using data to measure the health of the fund your organisation provides. Can you identify cost reduction opportunities, enhance customer service and improve retirement outcomes for members? These are critical factors to ensure you measure up to expectations in the post-Hayne era.
Jeff Hall is the managing director, superannuation for IRESS.