Industry funds throwing their weight around

Large industry funds are increasing their footprint in the financial services landscape and beginning to look like diversified financial services businesses, according to the Association of Financial Advisers’ (AFA) chief executive, Richard Klipin.

Klipin said the power delivered through scale was becoming increasingly apparent in light of the heightened consolidation taking place in the aftermath of the financial crisis, with medium and smaller players now “in danger of being marginalised”.

“On the retail front, the banks and the ‘big six’ are starting to dominate,” Klipin said, pointing to the acquisition of ING by ANZ and the subsequent part-acquisition of Elders Financial Planning by ING-owned Milliennium3.

“On the industry funds side, obviously we’ve seen intra-product advice [introduced], and with the recovery of markets, you’re starting to see the big industry funds flex their muscles.”

Klipin believes the road has been paved for larger industry funds to develop and diversify their business models.

“Their power and size is obviously derived from their superannuation business but they’re branching out into insurance, they’ve branched out already into banks with Member’s Equity Bank ... The big industry funds are starting to look like the big financial services institutions,” Klipin said.

Last week Australian Prudential Regulation Authority executive member John Trowbridge pointed to the growing use of life insurance and salary continuance insurance by superannuation funds, including industry funds.

Industry funds are continuing to use their scale to negotiate heavily for lower insurance premiums and policy conditions for members. At the same time, some industry funds, which have traditionally opted for vanilla policies, are now recognising the benefits of adding some of the policy features traditionally only offered by retail funds.

ChantWest head of research Ian Fryer said while industry funds are still wary of complicating superannuation for members, some are warming up to adding features that can be activated by members at a later stage.

For example, Fryer said some industry funds are now including guaranteed insurability clauses and ‘own occupation’ definitions for total and permanent disablement insurance. But while there is some movement in this space, Fryer said at this stage it’s “not much”.