Super funds see light in retail strategy

Public offer superannuation has long been considered within the realm of retail financial services and packaged alongside a raft of other financial services and advice in a bid to keep consumers dealing with one advice giver or product provider.

This has stood in contrast to the many large industry and public sector funds that have been regarded as either on the verge or even outside mainstream retail financial services because they offered a limited scope of services to fund members.

This is changing. For some time now industry and public sector funds have been pitching financial planning services as well as home loans and insurance at members in a bid to ensure members stay beyond the age of retirement.

State Super Financial Services marketing general manager, David Carter, says the move into the provision of retail financial services, such as life and income protection insurance, financial planning seminars and financial advice, has been driven by member demand.

“In the late 80s we set up our financial advisory service for the main reason that our members were saying they wanted us to provide financial help beyond the age of 65, when they were due to take their lump sums and leave the fund,” Carter says.

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“This has continued on and since we only provide services to current and past members of the NSW public service our motivation has been not to capture funds but rather provide other services for those members who want them.”

However Carter says the reasons for providing retail style financial services also has to do with ensuring the funds stay relevant in a competitive market, which is a more pressing concern for those non-industry specific superannuation funds.

Michael Dwyer is the general manager of Asset Super, a fund that is not centred around a single industry and says that Carter’s comments are close to the truth.

“There is always movement in the retail funds market and other providers are offering ideas, but we ask members to consider the reason for these funds existing,” Dwyer says.

“When we started it was to supply low cost superannuation for members, and the services are there because members want them and are keen to stay with us because we supply the superannuation they seek as well as the auxiliary services.”

According to Dwyer, industry funds can no longer refrain from providing such services. However, he says in adding them, it makes sense to provide the best possible retail-style services in the market, even though they are not being designed to generate profit.

The Australian Retirement Fund chief executive Ian Silk says his fund has even gone so far as to roll out products that members have not asked for but that they feel adds greater service to members.

“These have been related to wealth management and retention, such as wills or insurance products, and where they have advantaged members they have been developed and enhanced,” Silk says.

“It is a supply lead idea and where they have not been taken up they have been withdrawn.”

The addition of these services does have extra advantages that can be seen as a bonus instead of a core feature. Dwyer says due to the large size of the fund, members get reduced fees on other services and products as well as being able to tap into the abilities of product providers.

In Asset’s case, members can access a master trust style facility through the super fund, which uses Intech research for the portfolio model — research which was originally supplied as part of Intech’s role as asset consultant to the fund.

This push to stay pre-eminent in the minds of members is also the driver behind the rollout of extra services within the Australian Retirement Fund according to Silk.

“There is a push to maintain clients in a competitive market and we look at providing service on its merits, but still remain committed to what we do at the core,” Silk says.

However, Silk says the overarching issue of costs is something that is always close to any discussion about adding retail style services to a superannuation fund. Dwyer and Carter also see this as an area where super funds can slip and attract criticism from members.

“These services have to be profitable and self sustaining. The dilemma in running a large industry super fund is the cost issue and whether these are charged to the members or taken out of the superannuation fund itself,” Carter says.

However Dwyer says despite offering retail financial services industry superannuation funds are not a threat to other financial services groups.

This is because while they have a number of attractive services adding value, the funds are still focussed on providing low cost superannuation with the extra services as a second tier for members and not designed to attract new members to the fund.

Silk also says that using the retail style services to attract members is a marginal play at best and well outside the scope of the funds.

“We are primarily a super fund and our job is to ensure members have as much money accumulated for retirement. We feel any other products must be suitable and promote the core attributes of the super fund,” Silk says.

In adding these services Silk does not feel that large scale super funds are experiencing a shift into retail but rather that the industry has progressed to allow the space to offer a wider range of products across the board.

“It is not a case of wholesale and retail merging but rather a maturation of the market. When industry funds were set up 15 years ago they had very little infrastructure and few investment options and now they have strong performance and a range of investments and services.”

Silk says this change offers mixed blessings for financial planners who may be considering trying to tap into the market that the super funds are carving out for themselves.

He says for those planners who offer fee for service there are opportunities. This is evidenced in the fact that Asset Super uses third party planners with Investor Security Group and ARF uses planners with Industry Funds Services (IFS) to provide advice on a strictly fee for service basis.

He says the benefit for some planners is less because the funds do not pay commission and may therefore not be recommended by commission-based planners.

“The issue then becomes one of artificially limiting the universe of options because of the issue of financial gain. If the client views a major super product as not being offered or even mentioned, their impression of the advice giver is reduced,” Silk says.

“This could become a massive issue for planners if the regulatory bodies decide to take it a step further and conduct a test case on that basis.”