The competitive landscape has shifted in the past 12 months as industry funds now routinely appear alongside master trusts on tender shortlists for corporate business.
But despite their best efforts, even the industry fund sector concedes that anti-union, and, by association, anti-industry fund values are hampering their efforts to win major corporate clients.
Managing director at Industry Fund Services Sandy Grant notes that industry funds remain at a significant disadvantage because of an ideological bias, and because they don’t pay commissions to advisers.
Grant says the corporates that have maintained their company funds until this point have usually done so because of an ideological aversion to paying member contributions into an industry fund. And naturally, when these companies outsource their super, industry funds are not considered.
Managing director of Phillips Fox Actuaries Michael Rice agrees. He says Phillips Fox usually puts an industry fund forward for tender shortlists, but the recommendation is not always accepted.
“Sometimes companies see them as associated with unions,” Rice says. “You can argue whether that is morally right given it is the member’s money, not the company’s. But nonetheless it does happen.”
Despite these ideological obstacles, Rice believes that industry funds will eventually win some big funds.
JUST Super’s current effort to lure members from the Fairfax Retirement Fund (after Fairfax decided to outsource to William M. Mercer’s master trust) suggests that the market is heating up.
JUST fund secretary Claire Woods says this pioneering pitch to members will be the first of many by industry funds.
“The environment has become increasingly competitive over the years and part of our marketing strategy is to increase our membership amongst the employers we have,” Woods says.
The Australian Retirement Fund (ARF) has been one of the most successful industry funds, with recent wins including the University of Sydney Union fund. The fund is currently waiting on decisions in about 15 more tenders.
CEO Ian Silk admits to being surprised by the large number of consultants that have begun approaching the ARF for tender submissions, although he concedes industry funds are not yet winning in the larger end of the market.
“I think it reflects the fact that most larger industry funds are seen as bona fide players in a market that was hitherto solely the preserve of master trusts,” he says.
Grant attributes this increase in interest to success on two fronts: costs and investment returns.
Grant says industry surveys repeatedly confirm that industry funds are cheaper than master trusts, and that members receive a better earning and crediting rate than they would in retail master trusts.
Interestingly, as Rice notes, industry funds are as professional as master trusts from a marketing perspective, but have a different target, being more member centric than company centric.
“In some respects their offering isn’t as flexible but if you look at them today compared to two or three years ago it is surprising how much they have,” he says.
Rice’s only reservation is that industry funds tend to be a little behind in terms of technology and communications, which is a function of their size.
“When you have a million members any software development is difficult,” he says.
On the issue of choice and flexibility Grant counters that master trusts merely offer the appearance of choice, while industry funds offer real choice.
“If you go into a shop and they have got seven vanilla ice creams, what choice have you got really?” he asks. “When a master trust lists five or six managers who are interchangeable, it’s not an effective choice that helps you change the return you get.”
