Companies and trustees that have recently decided to retain their stand-alone funds in the face of Financial Services Reform Act (FSRA) related challenges are now facing another dilemma. Further compliance hurdles, such as future APRA licensing requirements, and the retailisation of the industry have meant that not only have the risks associated with managing the core functions of trusteeships increased, so have the costs.
As the super industry experienced significant consolidation, the options available to those considering the merits of outsourcing have expanded. Outsourcing, once considered a one-size-fits-all alternative, has evolved to the stage where many trustees now have the luxury of outsourcing as many or as few of their requirements as they wish.
Contemporary super plan design has become more member-centric, offering members the choices, education and access to enable them to take control of their super. Many of Mercer’s Super Trust clients with assets of up to $100 million made this choice because of its ability to deliver leading-edge member services — as well as an appropriate balance between control and costs.
Larger funds considering outsourcing generally need to explore the outsourcing spectrum and consider the appropriateness of outsourcing to a master trust, or outsourcing only certain functions. Most corporate super funds now outsource many services.
Those that are gaining in recognition as alternative approaches to master trusts are implemented investment consulting and approved trustee services, which can be bundled with a master trust-style administration platform.
Outsourcing to an implemented investment consultant enables institutional investors, such as super funds, to outsource components of their investment arrangements. Investors retain responsibility for strategy, using advice from an investment consultant. Unlike purely advisory investment arrangements, trustees delegate manager selection and implementation and gain the practical benefits of implemented multi-manager portfolios.
Implemented consulting services may be used in a variety of ways. Trustees may outsource only particular asset classes or investment styles, or increasingly more commonly, entire portfolios.
One of the key benefits to super funds in appointing an implemented consultant is the organisational efficiency achieved by outsourcing the time-consuming, and often complicated, investment tasks. Another benefit is the performance efficiency achieved through increased diversification, efficient implementation of investment decisions and the potential cost reduction benefits of scale.
The recent introduction of FSRA and the potential future introduction of APRA licensing requirements mean the burden of compliance and licensing requirements will grow with renewed vigour.
By outsourcing to an approved trustee, clients can reduce the overall time spent managing superannuation and outsource legal responsibility. Ongoing involvement continues by way of a policy committee.
Much has been documented and debated on the benefits of master trust arrangements. While there are significant benefits to be gained from economies of scale, we recognise that a standard master trust arrangement is not always the most attractive option for many larger funds.
A case in point is Coles Myer, who in 2002 was contemplating the appointment of an approved trustee. They wanted to retain the existing fund by keeping the trust deed, but at the same time reduce the risks and time spent on managing the fund. With more than $900m in assets, they were large enough to outsource as much or as little as they required, without being overly constrained by cost-related considerations.
Coles Myer contemplated the Mercer Super Partner model, as it allows easy outsourcing of operations, liability and risk. It also enables clients to access the process efficiencies of a master trust-style platform, including daily unit pricing, while retaining their own trust deed.
After full consideration of all the alternatives, Coles Myer decided to bundle the majority of services under the Mercer Super Trust. InTech were also appointed to provide investment related services. This has enabled Coles Myer to partner with both organisations and achieve the greatest choice, service and, most importantly, cost efficiencies for members.
Trustees are looking for flexibility in the way a tailored fund meets the best interests of the members, employer and trustee. This may involve outsourcing as little as the investments to an implemented investment consultant, the trusteeship to an approved trustee or the bundling of all services in a master trust structure. For each company, this can be different, depending on its particular needs.
Proactive companies are now looking to embrace a new future — one that allows them to reap the benefits of outsourcing while retaining the advantages of their current arrangements. Whether they achieve this via a bundled or unbundled arrangement will depend on the unique circumstances of each fund.
