With the Cooper Review still on foot and with the Henry Tax Review findings yet to be implemented, Damon Taylor writes that administrators fear it is just the calm before the storm.
The last 12 months have undoubtedly been a period of recovery for Australia’s super industry, and not just with respect to investment markets.
Despite various reviews set to have a significant impact on superannuation, continued discussion on fees associated with financial advice and a constant need to monitor investments, the focus for most funds has been getting the house back in order and, according to Peter Beck, chief executive officer of Pillar, that focus is one shared by administrators.
“We [are] on a change program here at Pillar and despite the events of the last 12 months, that program hasn’t really changed,” Beck said. “We still have to do the things we have to do.
“But what has changed within the industry is the amount of discussion,” he continued.
“With Henry [Australia’s Future Tax System Review led by Secretary to the Treasury Ken Henry] and Cooper [the Super System Review led by former Australian Securities and Investments Commission deputy chairman Jeremy Cooper] and various submissions, there’s been a lot of contribution going on and it’s almost as though we’ve reached the point where it’s the calm before the storm.
“Of course, the thing is — it’s not really that calm.”
For Beck, discussions being prompted by both the Cooper Review and the Henry Review were more about change that would take place in the future rather than change set to take place in the here and now.
“As administrators, we’re at the end of the chain, so it’s a bit of a waiting game,” he said.
“Hopefully all the changes that come through will be positive for the industry and for Pillar as well, but in the meantime, we’ve been doing a lot of productivity work and a lot of project work seeking to improve our service and efficiency.
“Despite what else may be going on, our focus and priorities remain the same.”
Asked whether the last 12 months have been unique compared with years past, Greg Camm, chief executive officer of SuperPartners, said every year was unique in Australian superannuation.
“This time around, it’s been unique in the amount of public discussion and scrutiny around super,” he said. “And that, of course, is courtesy of Henry and Cooper.
“For administrators though, it’s probably been a less unique year,” Camm continued. “In the aftermath of the global financial crisis [GFC], it was exciting — there were lots of member enquiries about investment options, about switching and so on, but in the 12 months just past, it’s been much more peaceful.
“Anyone worried about their investment options has worried already and anyone wanting to switch [would have] done so by now — it’s really been a fairly typical and peaceful year.”
Interestingly, Phil Campbell, chief executive officer of technology and administration provider Financial Synergy, saw the experiences of the GFC continuing to have an impact on superannuation and the administration business.
“The GFC seems to have made trustees far more cautious than they needed to be,” he said. “Revenues were down for those funds which live on asset-based fees, rather than a cocktail of fee types that can protect a fund on the down as well as upside.
“Fortunately, some trustees saw the light and invested to reduce ongoing costs by way of process improvement, and that’s something we just love doing.”
As a consequence of trustee caution, Campbell said administration tender activity was also down.
“In our view, the number of tenders was down,” he said. “Any decisions tended to be conservative or not thought through regarding what is long-term value for money as distinct from short-term cost savings.”
However, for Camm, reduced tender activity was not in evidence.
“I’d say it was a normal year in that respect as well,” he said. “The only thing different there is probably continued quiet discussions around potential or proposed mergers.
“The whispers have been around for a while but they’ve probably accelerated since the GFC and some of Cooper’s announcements.”
Beck agreed that tender activity had been about the same for Pillar as well.
“We’ve seen a fairly continuous flow of tenders,” he said. “Some have been for corporate governance reasons and others for people who genuinely want to move.
“But stemming from that, our view is that the super industry is over-serviced with respect to administration,” Beck continued. “We feel there is definite room for consolidation, and while we can’t see it happening right away, we’re aware that when it happens, it tends to happen quickly.
“We’re hopeful that these reviews will create the right environment for it to occur though because we have no doubt that a degree of consolidation would be good for members.”
Intra-fund advice
Yet outside of what might come from Cooper and Henry, the administration business has had other changes within the super industry to deal with.
The Australian Securities and Investments Commission’s (ASIC’s) intra-fund advice relief has been significant for a number of parties, but while many trustees have chosen to fall back on their existing financial planning services, Beck believes this is a key area in which administrators could add value.
“I’d point out that the offer of intra-fund advice is an exemption only trustees can get at the moment,” he said. “So what we’re offering is single-issue advice, and I think it’s a gap in the market that administrators can fill very well.
“As things stand, fund members go to financial planners for full financial advice and to contact centres for information,” Beck continued.
“But there’s a gap there where people want information or advice on one issue at a time — so things like how much money to save when they’re younger, what insurance cover to have when they’re older and how best to deal with the pension when they’ve reached retirement.”
For Beck, there’s a kind of logic to people having questions they’ve wanted to ask and phoning in for the information that answers those questions.
“But when that happens right now, they’re handed on to financial planners when they quite often don’t want full-scale financial advice,” he said.
“There’s a great opportunity there.
“Pillar has probably been a bit slow in delivering this kind of service, but in some ways that’s been beneficial,” Beck added.
“It means we can leap frog the offerings already in the market and provide members with what we hope will be an improved single-issue advice service.”
Campbell said Financial Synergy currently works with both financial planners and software designed to support existing call centres.
“We don’t offer advice to members but we do work with the financial planners who sponsor a fund which we administer,” he said.
“For other funds the trustees are in the process of implementing wealthsense, which offers support to call centres in responding to member enquiries.
“Wealthsense will enable their members to access a level of information, at their leisure, without requiring the administrator to detract from their core service, and call centres can refer members to the appropriate section,” continued Campbell.
“It is a licensed, web-based software product comprising online financial information and supporting tools designed to assist users to understand, plan and enhance their financial security towards improved outcomes.
“It could be used to help provide ‘limited advice’ and should result in more satisfied members, who will help to grow the fund, and thus enhance the value or profitability of the fund.”
Adding to indications that an advice-delivery platform is rapidly becoming part of the core services super funds are looking for in their administration, Camm said SuperPartners currently offers single-issue advice solutions for two of its largest clients and it had a third client’s service ready to go.
“We stick to single-issue intra-fund advice, and once it goes beyond that we refer members to Industry Financial Planning,” he said.
“We have approximately 30 people in our call centre dedicated to that service and it’s been excellent to hear that one of Cooper’s recent proposals mirrors what we already have in place.
“Efficiency and cost-effectiveness are cornerstones of everything we do but beyond that, we are very focused on member interactions,” Camm continued.
“We’re in the business of volume phone interactions with members already, so doing it with a higher level of content and professionalism is simply an extension of that business.”
Superannuation clearing house
Also on the radar for administrators in the last 12 months has been the Government’s superannuation clearing house initiative.
The common view seemed to be that it would have limited direct impact, but according to Beck, administrators remained very interested in its longer-term repercussions.
“In my view, the entire initiative is around e-commerce, or what they used to call business-to-business,” Beck said. “And clearly super is ripe for improving efficiencies in those areas.
“As an administrator, we’ve taken the view that rollovers are something that we should be able to develop e-commerce solutions for easily,” he continued.
“And getting together with the other two large administrators in SuperPartners and AAS (Australian Administration Services), we think we’ll have the size and traction to get those solutions happening.
“The clearing house is similar but at the same time, it’s much more complex.”
Beck said with so many players and so many options involved in the superannuation clearing house, it was imperative that the final offering satisfied all parties involved.
“At that point, we’re going to want to look at all the clearing house offerings out there and then recommend the best solution for our clients,” he said.
“I’d say we’re taking a considered view on the clearing house because when all is said and done, we want to back a winner here.”
Alternatively, Campbell said that while he approved of the efficiencies that a national clearing house could provide, the jury was still out on how effective the final solution would be.
“In theory, having a central repository for superannuation contributions is a good thing and has the potential to create administrative efficiencies,” he said.
“However, as the scheme is still in its infancy, there is a long way to go before the results can be assessed.
“There is also the risk that by adding another party into the process it increases the scope for administrative error,” Campbell continued.
“If employers can deposit employees’ net pay into their exact bank accounts, why can they not deposit employees’ various contributions into their superannuation bank accounts with the appropriate information attached?”
Campbell pointed out that financial technology company Payment Adviser was already able to provide such a solution.
“At Financial Synergy we’ve developed Translator and Acurity Online, which interfaces with numerous payroll systems, can edit contributions as they’re made and make important corrections on the spot,” he said. “On the other hand, training employers is like herding cats.
“A clearing house will have difficulty unless it operates in real-time and can provide real-time edit facilities, and they’re only really available if you link to back-office systems.”
More optimistic about what a national clearing house could deliver in terms of ‘knock-on’ effects, Camm said that it was a very good thing that employers could only deal with the superannuation clearing house electronically.
“What I like about it is that it’s sending a huge signal to the whole market that electronic dealings are the way to go,” he said. “They’re certainly the only way employers are going to be able to deal with this clearing house.
“Here at SuperPartners we receive nearly 100 tonnes of paper every year and we bank between 5,000 and 10,000 cheques every day, and it simply isn’t necessary,” Camm continued.
“The signal that the clearing house is sending is that the industry doesn’t want to be doing that.
“We simply have to stop using paper in this game.”
Tax file numbers
At this stage in proceedings, it seems clear both Cooper and Henry remain on the periphery of the superannuation operating environment. For the time being, the business of super remains unchanged.
Yet while the reviews’ findings might take months, if not years, to be put in place, some of the more topical discussions have related directly to super administration, and for Camm, the use of the tax file number (TFN) as a member identifier is chief among them.
“In my opinion, this is the single most positive development to come from the entire Cooper Review,” he said.
“The issue of lost super, of money floating around the super system, is huge, and it’s ridiculous that as administrators we’re provided with members’ tax file numbers [but] aren’t allowed to use [them].
“At the moment, there’d be an average of three super accounts for every Australian, and in most cases that would be an accident,” Camm continued.
“Even at SuperPartners, we have 6 million accounts that we administer and 100 people across our business whose only function is chasing up lost money and lost members.
“I doubt those 6 million accounts belong to unique individuals, so being able to positively match people would be a huge boon.”
Echoing Camm’s thoughts, Beck said it was absolutely critical for administrators to have a unique identifier for fund members and that the use of the TFN was undoubtedly the most logical solution.
“When someone joins a fund, if we have their TFN then we can identify them immediately,” he said.
“It helps track their contributions, their rollovers, any lost super they may have — it helps everything.
“If the industry has use of the TFN, we don’t end up with lost members and we can do so much more,” continued Beck.
“And it makes sense — super is already a tax-advantaged system, so it is logical to have the TFN, a number generated by the ATO [Australian Taxation Office], attached to it.
“This could be the one factor enabling a quantum leap forward for the super industry.”
Less enthused about the gains to be had from use of members’ TFNs, Campbell said that while an industry standard was required, privacy remained a concern.
“Clearly there is the need for an industry standard, unique identifier by which all administrators can identify members,” he said.
“However, this needs to be weighed up against the privacy of members and the resulting increase in risk of identity theft and fraud.
“We don’t have a problem identifying members as we have enough information to connect to them,” added Campbell. “Tax file numbers would simply be another identifier.
“For us there would be minor gains.”
However, according to Camm, the privacy concerns causing reluctance in TFN implementation are fast disappearing.
“I think those concerns are historical and I think they’re fading away,” he said.
“It’s probably the ghost of the Australia Card of a few years ago, but the fact that you can jump on Google and find out just about anything about anyone is proof people are getting over it.
“It may also be a political concern with respect to associating the superannuation guarantee with taxation, but I think people are over that as well.”
Providing a sideline to TFN discussions has been a joint submission to the Cooper Review by Pillar, SuperPartners and AAS.
Calling for an administration licensing regime and standards of minimum competency, the logical question is whether the points raised — professionalism, risk management and capital adequacy — were ever in any doubt.
However, according to Camm, its intent is more practical.
“It’s more about recognising the reality of what we already have,” he said.
“As administrators we’re not regulated by APRA [the Australian Prudential Regulation Authority], but in spite of that they visit us on a regular basis because we’re effectively an outsourced arm of our client funds.
“They come in and they ask questions, but without them being a regulator it’s an informal process.”
Camm explained that administrators could even go so far as refusing to answer APRA’s questions, at least until directed to do so by a client fund.
“That doesn’t happen but we do think we’ve been presented with a good opportunity to formalise what goes on,” he said. “Hopefully, if we formalise what already happens informally then everyone will have a more complete understanding of where they stand.”
According to Beck, the fundamental issue is that APRA has a need to review the work done by administrators and yet has no framework with which to do so.
“The funds we administer are all APRA-regulated,” he said. “And they often ask if they can come in to review our work, but at the moment there’s no framework with which to conduct that review, let alone regulation.
“There’s a need to define APRA’s interest in administration at a regulation level.”
Beck said it was also necessary to recognise the role administrators played in carrying risk for super funds.
“And if we’re carrying that risk, our capital adequacy requirements need to be made very clear,” he said.
“But the most important thing is clearing all of this stuff up so that trustees understand their responsibilities and we understand ours as well.
“It’s imperative because the failure of an administrator could be disastrous for the industry.”
Efficiency
Related to both the Cooper Review and an ongoing need for industry efficiency, early March saw the same three players in super administration announce a set of principles and protocols that would govern certain electronic transactions.
Commenting from the sidelines of this initiative, Campbell said any gain in efficiencies through technology was a good thing.
“Historically, the superannuation industry has been very ‘paper based’ and therefore electronic solutions should be actively sought,” he said.
“This is a start, but the problem could also be in funds efficiently releasing members account balances and data to new funds in a timely fashion, and in members not using automatic rollover facilities available for some funds.”
As an orchestrator of the initiative, Camm said that the development of these electronic standards had been prompted by a desire to be proactive.
“We decided that instead of everyone saying ‘we’ve got to do something’, we’d get about the doing,” he said.
“There are an awful lot of members and money held between the funds SuperPartners, Pillar and AAS administer and the whole idea is to prove this concept across three funds administered by three different administrators.
“We’re restricting our view to superannuation rollovers, but if successful, the move could be widened to all funds before inviting other funds and administrators to join,” Camm continued.
“It’s all about getting rid of the paper, really.”
More recently, the change that seems to be in the wind for Australia’s super industry has also impacted administrators, but according to Beck, keeping up with that change is just part of the challenge.
“I think the answer is that as the market shifts, we need to ensure our service offering keeps up with it,” he said.
“Limited advice, for instance, I think that kind of service is pretty innovative, but it has almost become a basic requirement.
“At one point, clearing houses were also considered ‘nice to have’ and yet they have also become fairly critical,” Beck continued.
“Innovation is likely to continue to come from e-commerce and business-to-business technology that has been around for years, but the hard part is getting the right protocols in place and agreeing on the rules and regulations around them.”
For Campbell, innovation is the key.
“I believe technology and innovation are the two key priorities going forward,” he said.
“There are three key questions which can be addressed by both in what we can do to offer a better service to our members [and] superior points of differentiation to our competitors in a cost effective manner.
“We regularly review processes to achieve even greater efficiencies, reduce risk and improve service to members,” Campbell continued.
“For example, straight-through processing.
“Just as other administrators think they are reaching the pinnacle of our success, we’ll roll away the clouds to reveal an even higher peak.”
Looking to what SuperPartners’ priorities would be moving forward, Camm said that its first focus would be service.
“Firstly, we’ll be focusing on what it is we do best and what it is we want to do — servicing funds,” he said.
“And once we get that good platform in place then we’ll start worrying about innovation.
“Innovation will come in a range of areas and be a combination of what members see and what products are available,” continued Camm. “And the final thing is having our compliance requirements covered.
“With more and more money in super, the risk of fraud and identity theft is only getting greater, so keeping risk management and security up to scratch is vital.”
For Beck, the big unknown for the super industry and super administration is change.
“Productivity and efficiency is always the name of the game but the unknown quantity is how much change we’re going to have to implement going forward,” he said.
“When regulations change, and with these reviews that certainly seems possible, that change becomes a priority and everything else goes on the back burner.
“The key question is what change and when.”
