Corporate superannuation outsourcing began as a trickle in Australia nearly five years ago and, with the advent of choice of superannuation fund and trustee licensing, it promises to become a flood.
But if you are a member of a trustee board looking for advice on outsourcing where do you go? The answer is a small number of specialist consultancy firms specifically geared towards guiding you through the regulatory maze.
What are those firms? While a number of the major accounting firms such as PricewaterhouseCoopers have been involved in corporate superannuation outsourcing, the best-recognised specialist companies in Australia are Rice Walker, Chant West and the Heron Partnership.
What the spokesmen for all these companies acknowledged is that they have been particularly busy over the past 12 to 18 months and they expect to be no less busy moving forward.
According to Rice Walker principal Wayne Walker, a major driver for these activity levels has been the looming choice of fund environment but also trustee licensing.
“There is no doubt that these factors have caused trustee boards to review their positions,” he said.
There was a time a few years ago when trustee boards considering their options came to consultants asking for assistance in assessing whether outsourcing represented an appropriate option.
Walker said that is less and less the case, with a majority of clients having already made up their minds and requiring that the consultants handle the process.
“Some, of course, come to us asking whether they should outsource and the answer is not always ‘yes’,” he said. “Outsourcing is largely driven by efficiency issues and you would be surprised how many stand-alone funds run at much lower costs than master trusts.”
Walker said that the outsourcing of a corporate super fund was not a simple process and that it was ultimately important to meet the needs of the people affected.
“It represents an extremely powerful exercise and there is a requirement to be extremely thorough in identifying all the options and requirements,” he said.
Chant West principal Warren Chant said he expected the pace of corporate superannuation outsourcing to be maintained over the next 18 months after which it was likely to taper.
However, he said he expected no diminution of work for specialist consultancies with on-going roles in terms of reviewing default funds in the new choice environment, as well as playing a greater role with respect to the personal superannuation market.
Chant said the strength of firms such as Chant West was that they had been involved in the market for a long time dealing with real clients as opposed to doing desk-top research.
“That represents a real strength,” he said. “Our close involvement in clients means we have been doing ratings for a long time, we’ve just never been in the business of publishing the results.”
Chris Butler from the Heron Partnership said there was no doubt that choice of fund and trustee licensing had been the major drivers for corporate fund outsourcing.
“And notwithstanding the introduction of choice from July 1, many funds are still getting their house in order,” he said. “For that reason I see outsourcing continuing right through the next 12 months.”
Butler said he expected some slowing in the second half of 2006 because, by that time, most of the remaining funds would have obtained their licences.
“I expect, therefore, that we’ll see some pick up in two or three years time when the funds look at the complexities involved with renewing their licences,” he said.
Like both Chant and Walker, Butler acknowledges that clients are increasingly coming to his firm having already decided to pursue the outsourcing route.
He said that thereafter, it was a case of the Heron Partnership “following a pretty well-structured methodology” involving assessing the needs of the client and then developing a short-list of appropriate providers.
“To some degree it is a bit of a beauty parade, but we try to focus on the things that really matter and most often that is the culture and people,” Butler said.
“When it comes down to a short-list, we regard it as being particularly important that the clients meet the people who will be servicing them,” he said.
“What we tend to say to the client is that we have prepared a short-list of providers who can adequately meet their needs but that, after meeting the providers, there will be one that emerges as the best cultural fit.”
So what happens when, ultimately, there are no longer corporate superannuation funds wanting to pursue the outsourcing route?
Butler, Chant and Walker all maintain that there will always be a certain amount of churn with respect to the funds and master trusts servicing the needs of corporate superannuation funds but that, in any case, each of their companies have other strings to their bow.
In the case of Heron it is the provision of strategic advice and its links to the separate, but allied, Heron Private Client company. In the case of Chant West it is an on-going role in asset consulting and the launch of a new project.
