(February-2002) The dot.com world of super

Users of superannuation administration software that is not built on open technology or Internet-based are living on borrowed time and are unlikely to remain competitive.

Today the name of the game is Internet-based systems that enable users to transact online and do almost everything from changing investment options to exiting and rolling over existing accounts and making super contributions.

Internet-based administration systems that use open technology — which come with a raft of useful features including integrated imaging and workflow facilities, triggered e-mail and specialised user interfaces for call centre staff — are fast becoming part of the standard make up of administration packages offered by the major software vendors.

According to Financial Synergy marketing manager Ryan Sinnott: “Facilities such as online access to real time account data together with online transaction capabilities and educational services are becoming more common, as price reductions make the technology cost effective for even the smallest funds.”

The Internet has eliminated the higher labour costs, longer lead times and the risks of data entry errors that were associated with traditional manual processes.

Because the Internet allows people greater access to their accounts and gives them the opportunity to make changes online, it is allowing funds to outsource administration tasks to members — a trend that is increasing as members take more interest in their super as account balances grow.

This outsourcing also extends to employers.

John Parrent, Synchronised Software business development manager, says: “Traditionally, all the administration has been done in the back-office and we are seeing the need for this to be moved to the front office. Corporate personnel or payroll departments are handling such things as contributions processing, rollovers and exits over the Internet, rather than the traditional scenario where the fund administrator did it manually.”

The technology is called Straight Through Processing (STP) where the data is entered correctly once into the system and does not need to be re-entered again.

DST International managing director Ian Mathieson says the STP model — if fully implemented and not used sparingly to just offer document scanning to assist call centre staff — can significantly reduce costs that can then be passed on to members. It will also produce more consistent customer service in the future.

One advantage of STP is that should a member fail to correctly provide all the necessary information, the request will not be processed. Instead, the user will be notified of the error and can take steps to correct it.

Another advantage is that if the information is entered incorrectly into the system, a warning will be triggered and a customer service officer will respond to the user, either by e-mail or from the call centre.

“The days of stand-alone super administration software are numbered, because individuals now need access to a consolidated view of their super and direct investments,” Mathieson says.

He expects open Internet facilities to produce more information at greater frequencies, allowing current member annual statements to be produced daily, as the fund management industry moves to provide daily or intra daily updates.

In the future, Mathieson also expects superannuation to be incorporated into the broader wealth management facilities, making systems more meaningful.

“Full Internet transaction capability will allow people to view personal wealth and better plan for tax and future investments from a variety of sources,” he says.

Parrent adds: “The systems that will survive in the new world of the Internet are those that can provide a new interface layer, this time in a Web browser that can be accessed over the Internet. These Web browser interface systems integrate to the existing application layer and database layers to provide the same level of integrity and robustness as the back-office systems that have been in operation for some time.”

Sinnott notes that while the take-up rate of the software was previously limited to larger administrators and historically expensive, costs have come down, and now smaller funds are developing a business case for implementing the technology.

“With the take-up rates of electronic commerce increasing and as the number of people [using the Internet] increase, it is more cost effective to make these facilities available,” he says.

Sinnott uses the example of a 10,000 member fund, which had five per cent of its members using the Internet in 1998 for member benefit updates. By now, this usage would have grown to over 20 per cent, making the facilities more cost effective.

“Traditionally, members would have communicated and transacted with a fund by telephone or in writing, but now more and more members are communicating and transacting over the Internet, using facilities like Bpay, direct debit or direct credit to make their contributions,” he says.

Beacon Funds Management executive director Peter Petersen, who advises super funds on what system would best suit them, also notes an increasing trend in the industry to outsource part of the administration to a third party, taking either the Application Service Provider Principle (ASP) or the Third Party Administrator (TPA) routes.

Parrent says the TPA model — which has gained popularity among industry funds — involves a specialist super fund administrator taking on the business on behalf of a number of smaller organisations but, at the same time, protecting the individual branding of the outsourced company or fund.

On the other hand, the ASP model is hosted by a third party over the Internet, but the processing is still carried out by back-office staff via connection to ASP. The ASP model often works on a pay as you go basis where clients dial into a provider’s system and pay only for what they use.

Challenger Corporate Superannuation director Joseph Battaglia says Internet-based ASP models, such as the one offered by his group, eliminate the need for a fund to commit to a particular software provider.

They also avoid the need for, and costs of, customising and upgrading the software and hardware. Users can upgrade their systems cheaply and quickly by dialling into one central location.

Nonetheless, Parrent cautions that the ASP model is still evolving and although it has a lot of attraction and potential for the smaller funds, it is yet to fully mature.

He says the Internet may well be the last nail in the coffin for applications that have not been well architected.

“There is a saying in the industry that simply putting a browser interface onto an old system that is not well architected is simply putting ‘lipstick on a pig’.”