If you can’t beat them, join them! That’s what the industry funds have been doing over the past year with several launching master trust-like products — in addition to the their traditional low cost, no frills offerings — to gain a bigger share of the employer super outsourcing market.
REST and Statewide Superannuation Trust were the first to enter the fray, but they have since been joined by the likes of Sunsuper and most recently, Superannuation Trust of Australia. And the Australian Retirement Fund (ARF) and HOSTPLUS have flagged plans to launch their offerings later this year.
In a market where scale is all important, these new offerings are able to piggy back off the huge scale already enjoyed by their traditional industry fund base. But one of the problems industry funds have is marketing themselves, without the slick well funded marketing departments of their for-profit counterparts.
Statewide CEO Frances Magill believes that her fund’s master trust, Auswide, which currently has assets of around $75 million, is probably the only industry fund-owned master trust that pays advisers commission.
“It’s a totally different market when dealing with financial planners who have far more education and sophistication than the average industry fund client… There are lots of lessons to be learnt,” she says.
She concedes that brand awareness is a key issue at present. “Probably, our number one challenge is trying to get our products on recommended lists,” she says.
Other industry funds like Sunsuper, REST and ARF are adamant that they will not pay commissions.
ARF CEO Ian Silk says: “The ASIC/ACA survey that was released earlier this year demonstrated the flaws in this model – in particular that many (though not all) commissioned financial planners make recommendations based on their financial interests rather than those of their clients.”
But he adds: “This opposition to paying commissions does limit the fund’s growth because financial planners are important links in the distribution chain for superannuation funds. At the moment we will live with this constraint, and seek to build the ARF brand through performance, and demonstrated success in the market.”
Industry fund players have been putting effort into educating the tender consultants about their offerings and have been relying their value propositions to get them onto the short lists.
Sunsuper general manager of marketing Teife Whatley says: “We don’t have the marketing budget that retail funds have but we do already have a strong position and brand in Queensland.”
But more importantly, she believes Sunsuper has a strong value proposition which will be noticed by the market. The challenge, she says, is educating the tender consultants about the master trust, which already has assets of over $100 million.
REST CEO Neil Cochrane has a similar response, noting: “We think that the product that we have, our investment performance, pricing, flexibility of product, gives us a big competitive advantage.”
REST’s master trust, Acumen, already has 14 clients with assets of around $150 million, which “is well ahead of what we had expected”.
REST communications manager Jennifer McSpadden adds: “It is our experience that it generally comes down to a not-for-profit and a profit forming the final shortlist.
“We have seen a greater preparedness for larger funds to consider and accept Acumen as a highly competitive offering. Our rate of invitation to tender and our success rate is increasing all the time, further proving that Acumen’s flexible, low fee, high service proposition is answering the market’s needs.”
A number of the industry fund master trust products do cater for defined benefit plans, a factor that is becoming increasingly important in the competitive outsourcing market. These funds also have long established relationships with employers in the market segments that they focus on. But they do have some perceived disadvantages too.
One is lack of a brand. “It easier for a consultant to recommend a big-name commercial product even if it’s performance/service offering/fees aren’t on par with a soundly performing industry fund,” says Silk.
Another is that employers see them as union-backed, but Cochrane says: “The union association is a hurdle only in isolated cases.”
He also points out that 50 per cent of his fund’s sponsoring shareholder is the Australian Retailers Association. “We are as much supported by the unions as we are by employers. Arguably, we could be branded as being a employer fund,” he says.
