A super opportunity at the big end of town

The changing face of superannuation has opened new markets for planners to service. While small scale super has been an easy target, Chris Kelaher examines how planners can move into the larger end of the market.

A growing number of financial planners are coming to the realisation that their current crop of high net worth clients could be masking a greater opportunity - the employees that constitutes their respective businesses.

The continued drive for employers to focus on bottom line profit, and in some cases share holder returns, as well as optimum productivity has led employers to reduce costs and maximise profits with no loss of quality in the work place.

The challenge is a juggling act between passing on the responsibility of corporate superannuation without losing the confidence of the firms' employees.

The days of the traditional corporate superannuation plan are numbered. Why should employers continue to provide superannuation services during work hours at considerable time and expense when the opportunity exists to outsource the company's superannuation without sacrificing the quality of the ultimate service?

Coming back to the initial proposition, the transition taking place within these mid-sized corporations provides an opportunity for planners to negotiate with master trusts.

For enterprising planners, the time is right to negotiate with that class of high net worth individuals that either owns or is a senior executive within a mid-sized corporation to redirect the company's superannuation to a master trust.

Most contemporary master trusts have such a diversity of investment options that generally speaking, the only bet a planner makes on the master trust is the quality of administration. The end result is that the referral to the master trust is generally without any great difficulty.

The old days of a paternalistic approach to superannuation are well and truly moving behind us. The payback for supervised employer sponsored superannuation is quite illusory.

At the same time company managers working with master trust operators are now able to offer well structured and sophisticated training programs that enable employees to make the necessary decisions to control their own superannuation.

The major assumption about historical superannuation arrangements was that

what was good for one employee would be good for another irrespective of age, disposition, personal circumstances or appetite for risk.

These days, the payback for companies providing professional services during office hours to run internal schemes just does not warrant even that amount of effort.

If the employer's system manages to get the super working right the situation is stable and that's what employees have come to expect. However if the fund underperforms it's a major criticism on the employer and the arrangements in place.

Given this set of double standards why would an employer place themselves in the role of a fiduciary with its attendant responsibilities with no economic benefit?

Modern master trust providers usually have better resources and capabilities to offer information sessions and regular follow up programs to ensure employees understand their superannuation arrangements. Hopefully this education will also include some information on risk and volatility for members so they gain an understanding of how returns are affected by market forces.

All the required resources information and training materials can be supplied by the master trust at no charge to the employer and usually can be presented during meal times or other mutually convenient times.

The introduction of a master trust and the prospect of some future financial planning support can will also expand the number of benefits available to employees.

The benefits for planners can include a rapidly expanding client base with a whole host of new requirements extending from mortgages, insurance, leasing and ultimate overall wealth management. Most planners are probably well aware that accountants have identified this opportunity already and are pursuing it aggressively.

With the increased retail thrust of superannuation, the need for individual choice at the corporate level has never been higher. However planners have been loathe to take on corporate superannuation because of the individual account size.

These accounts were generally small with some member protection. This did not justify taking on the responsibility of manually enrolling large numbers of employees, who personally knew little or nothing about superannuation, and then servicing this base throughout the tax year. This was a time consuming activity and most planners who have been involved would rate it as one of their less popular tasks.

Today there is a greater focus by planners on the annuity stream income generated by high volume clients as these are quite valuable assets. Depending on the industry, these small companies could indeed deliver larger income streams down the track. This should be considered alongside the prospect of further preparation of individual plans for general wealth creation and the need for sophisticated retirement strategies for management and staff.

The rewards can be significant then for planners who are considering adopting a long range strategy in targeting this market and through negotiations with a master trust provider a planner can oversee the relationship with management.

While this occurs the master trust will undertake the lion's share of the work that is enrolments, member education and reporting with fees set according to whatever model is settled upon.

Providing the fee split is equitable the planner is now earning fees off a wider population which can equally represent more opportunities down the track while generating a new and potentially lucrative source of income.

At the end of the day, more annuity revenue, more plans and conceivably more high net worth individuals spells a good win - win solution for planners and the master trust alike.

The master trust operation is happy to cede the retirement rollover portion of the business to the planner providing the management compensation generated by the master trust during the intervening period is adequate. It is really all about an equitable slicing of the cake for both planner and master trust.

A further offshoot to this opportunity is another burgeoning business line for master trust operators, namely badging funds for the larger dealer groups.

Provided the product broadly remains the same as the one offered by the principal master trust provider and the potential minimum total dealer base equals $25 to $50 million, this solution provides a kind of branded new product offering.

If the planner can deliver enough business to the product and provided they have entered into an equitable fee sharing arrangement based on who is doing the main servicing work, the rewards flowing from the one existing high net worth corporate client contact can be substantial.

For all purposes, the product can appear to be the new product of the dealer group and can be presented as a further way in which it and its planners are providing services to the client.

The sooner planners grasp this immediate and longer term opportunity and identify an appropriate master trust who is agreeable to the type of deal outlined above, the better.

The trend to outsourcing corporate superannuation is certainly upon us and for those planners quick to identify this opportunity, the rewards can be substantial.

<I>Chris Kelaher is the managing director of SMF Funds Management.