Outsourced masters the way to go

Financial planners can develop a very profitable business from selling corporate su-perannuation, but the key is using an outsourcing service like a master trust, says BT Funds Management vice-president Melinda Howes.

Financial planners can develop a very profitable business from selling corporate su-perannuation, but the key is using an outsourcing service like a master trust, says BT Funds Management vice-president Melinda Howes.

Corporates need to review their superannuation now that choice is looming, Howes says, and they are already looking at outsourcing using master trusts.

The corporate outsourcing industry is worth $25 billion and BT expects this to rise to $185 billion in the next five years.

This move to outsourcing is producing an income stream for advisers and makes their businesses more attractive if sold, Howes says.

“Advisers who have corporate superannuation clients are getting a price of two to three times income when selling the business,” she says.

Income sources would come from master trust trail fees (0.4 per cent for BT’s master trust), up-front contribution commission (0.82 per cent), rollovers from other funds (0.5 per cent) and insurance premiums with 21.6 per cent commission.

As a fund member leaves the employer, they are transferred to a personal super fund and that creates a trail of 0.35 per cent.

“There is also fee for service producing financial plans for executives in the fund. This is to be added to the potential earnings,” Howes says.

She estimates that looking after 50 funds, varying in size from $150,000 to $750,000 could produce $170,000 revenue in year one and $343,000 in year 10.

If the planner handled all the administration, it would take about 50 hours a week, which would mean work for about 1.5 staff, Howes says.

This would create a loss for the planner of $30,000 in year one and a profit of $143,000 in year 10.

“The new generation of master trusts offer significant service benefits which will cut down the administration time,” she says. These services include call centres for mem-ber inquiries, general advice and contribution collection.

The number of hours a week to look after a fund using a master trust would be cut to 12. Based on the same figures of looking after 50 funds, this would give a profit of $70,000 in year one rising to $243,000 in year 10.

Howes believes a more realistic model for planners to aim for would be 50 funds ranging in size between $375,000 and $1.5 million.

Using this model, a planner would have an income stream of $351,000 in year one rising to $905,000 in year 10. The profit would be $231,000 in year one and $785,000 in year 10.

“The things that affect the profit are the number and size of the funds,” she says. “Aim for higher account balances means less members in the same number of funds.”

Howes says there are excellent business opportunities with corporate superannua-tion. By using a master trust, the profitability of the business will improve greatly.