Master trust providers have flourished on the back of a seemingly endless stream of corporate funds taking the outsourcing plunge, but some experts warn that this easy ride is almost over.
Stephen Moore, managing principal of Australian Superannuation Advisory Services, believes that the market has gone through the first wave of penetration where the smaller corporate plans have rolled into master trusts as the result of marketing and sales pitches.
“We are now in a more discerning phase and the easy part for vendors is finished. There is far more scrutiny of what they have to offer. Those corporate funds that remain are more thorough in their review processes and much more demanding about what they can get for their money,” says Moore.
But Moore also believes there’s a shakeout looming in the market based on their capacity to adequately provide the services employers need.
He says: “We rate about 30 master trust products for the small, medium and large sized corporate market. It’s far too many.”
He calculates that there are about 2,000 to 2,500 companies with a payroll of over 100 members out there. Of these, close to 1,000 company plans have already been outsourced to master trusts.
“This means that a large part of the market has already converted and many of those that remain will not want to take the plunge,” he says.
The bottom line is that there will be a diminishing supply of potential customers. The market cannot be expected to maintain the same spread of product suppliers and some kind of rationalisation can be expected.
Anthony Lowe, a principal at William M. Mercer, believes that some of the smaller players will not survive. “They don’t have the scale. We believe that you need over $500 million in assets in a master trust to make it.”
What could make it tougher is a stage when master trusts start competing for each other’s clients.
Andrew Proebstl, a director at Arthur Andersen, says this may come when those funds that have taken the master trust leap are happy with their decision, but want to fine-tune their arrangements.
“They will want to be in a master trust, but will be asking whether the one they are in offers the best in terms of technology, performance, benefits or member communication,” he says.
