What will be the hot issues in 2005? Well if you believe the IUS/Super Review Super Outlook Update survey and the industry pundits contacted by Super Review over the past eight weeks then the list is as follows:
1. Choice
2. Regulation
3. Fund performance
4. Consolidation
5. The economy
The remarkable thing about the views of the industry leaders contacted by Super Review throughout January was that they all pointed to the Choice of Fund legislation as being the big issue for 2005. What was interesting, however, was that each of them had a slightly different take on what it might ultimately mean for financial services sector.
Analysis of the IUS/Super Review Super Outlook Update Survey tended to suggest that while there would be a good deal of activity surrounding the implementation of choice of fund — including high levels of advertising — the underlying fabric of the industry would not particularly change.
In fact, the survey suggests that big marketing campaigns mounted by retail funds in a bid to attract new members, will be strongly countered by the equally big marketing campaigns run by industry funds aimed at retaining members.
If anything, the consensus view seems to be that the biggest losers from choice of fund will be the remaining corporate superannuation funds, thus continuing the consolidation which is occurring in that arena as funds outsource to master trusts.
Indeed, January’s announcement that the big News Limited superannuation fund had decided to fully outsource to Russell is regarded as being symptomatic of what is likely to happen in 2005.
The chief executive of the Association of Superannuation Funds Australia, Philippa Smith was in no doubt about what she sees as being the hot issue in 2005 — choice, choice and more choice.
But Smith does not believe choice is a one-dimensional issue for the industry. While she acknowledges that it will cause a good deal of marketing activity as funds compete to attract and retain members, she believes it also represents an opportunity to focus consumer attention on the benefits of superannuation and the importance of retirement incomes.
With choice meaning that superannuation funds will be placing increased reliance on the reliability and effectiveness of their administration providers, the chief executive of KAZ, Stuart Korchinski believes member communications will be a crucial element.
“Creating targeted and personalised marketing campaigns with highly relevant information will be critical,” he said.
Interestingly, remarkably few of the industry pundits contacted by Super Review placed strong emphasis on the performance of the global economy.
One of the exceptions, however, was the chief executive of Tower Australia Limited, Jim Minto, who cautioned that superannuation fund members should not assume that 2005 would generate the bullish returns experienced in 2004.
“The year just completed was highlighted by bumper investment returns. It wasn’t so long ago that everyone was saying the era of double digit investment growth was a thing of the long-distant past,” he said.
“2005 may be a year of significant adjustment in the global economy. Most commentators believe growth assets will struggle to produce net double digit returns. It may be that a period of low returns or even negative returns on the horizon — hopefully not in 2005 — but it may come soon.”
Minto said the industry therefore needed to start thinking about choice and how it might affect consumer prospects for achieving their longer term savings objectives.
“Relating fund returns to benchmark leaves the average investor cold. In a tough investment year, there is no consolation in the information that you have lost less than the benchmark,” he said.
Consumers tend to think in terms of absolute returns. Those with larger sums and thereby greater economic power could see the chance to move to do-it-yourself funds. I would expect that trend to continue to be strong.
