Virgin chases super baby - Does the Australian super industry need to worry?

How important is a name? That is the question being asked by superannuation fund executives as they examine the impact of Virgin Money’s bid to capitalise on the advent of choice of superannuation fund to establish Virgin Superannuation.

Stripped of all the publicity and hype, Virgin Superannuation represents a start-up master trust and many superannuation industry commentators would argue that late entrants into the master trust space may well have missed the boat.

The difference is the Virgin brand and the reality that when employees, particularly younger ones, are asked by their employer to nominate a superannuation fund, the Virgin brand will come first to mind.

Perhaps that explains why the companies who have been contracted by Virgin to service the master trust have been so keen to trumpet their success. Those firms include Macquarie Funds Management as investment manager, SuperPartners which will be handling the administration, ING which will be handling Group Risk and TeleTech Holdings which will be providing the so-called customer acquisition platform.

Commenting on ING’s appointment to provide Group Risk to Virgin Superannuation, the company’s group risk manager, Paul Trigg acknowledged the reality that Virgin was, in essence, a start-up master trust.

The difference, he argued, was the Virgin brand and the amount of traction it was likely to deliver in the choice environment.

Trigg said that ING was often asked to quote on the provision of group risk to start-up master trusts but the difference in the case of Virgin had been the number of insurance companies that had been actively competing to secure the contract.

“There is no question that Virgin has looked to put together a best of breed list with respect to its service providers,” he said.

Maintaining profile in the choice environment appears to be the underlying weapon in Virgin Super’s approach, with the company’s launch of the master trust being carefully media managed in early April to have its founder, Sir Richard Branson, claim that it would “shake up superannuation” in Australia.

He said Virgin had established an aggregator model to bring Virgin Superannuation to market, selecting best of breed partners based on operational scale and expertise.

However, it was the managing director of Virgin Money, Rohan Gamble who set the tone by playing on the complexity of the current superannuation regulatory regime and perceptions that rapacious financial advisers may be the ultimate beneficiaries of the new choice of funds regime.

“The Australian superannuation industry is classic Virgin territory, being absolutely rife with funny stuff,” Gamble said in the press release distributed to coincide with the company’s launch announcement.

“Our research suggests that consumers are sick of high fees, confused by complex documentation and often duped by financial planners who pretend to provide impartial advice when in reality they are on the payrolls of the super funds,” he said.

It was a theme taken up by Branson at the launch proper when he suggested that financial advisers were likely to be driving expensive imported cars — something which earned him a rebuke from the Financial Planning Association (FPA).

The FPA’s chief executive, Kerrie Kelly said Virgin’s announcement that it intends to take a position in Australia’s super arena was “a typical Richard Branson approach, swanning into town to promote his self-interest and product of the day in a way to maximise attention regardless of the wider interest.

“This commercial self-interest, and the way it has been promoted this week, will be harmful if it discourages Australians from seeking financial planning advice in an area of critical importance if they are to achieve their retirement goals,” Kelly said.

“A wide range of superannuation approaches and choices are essential with the Australian approach, and new products that are appropriate and relevant must always be welcomed, but the real issue for retirement savings is long-term performance, not just fees,” she said.

“Financial planners are not there to promote Virgin products or any others — the service provided by members of the FPA is valuable advice — developing approaches to suit their clients’ particular circumstances and to give them the results they are looking for,” Kelly said.

She said Branson’s comments took no account of either the disclosure now required under the financial services regime or the steps that had been taken by the FPA and its members to raise professional standards above those required by law.

“Australia’s financial services regime is now arguably the best in the world and arguments based on what is happening in the UK are irrelevant here,” Kelly said.

The FPA pointed out that contrary to Branson’s claims, fees and charges in the superannuation sector were actually falling and quoted Rice Walker Actuaries recent data showing that overall fees across the industry, expressed as a percentage of assets, fell from 1.36 per cent in June 2002 to 1.29 per cent in June 2004.