Paul Dunn

Superannuation funds that fail to engage their members through digital advice could find their products are no longer competitive as rivals increasingly build a more holistic suite of services.

The need to deliver quality financial advice at scale is growing as superannuation funds strive to close the advice gap for young members and offer accessible advice options to a larger percentage of their member base.

“Super funds’ have an important and fundamental role underpinning the retirement lifestyles of all Australians,” according to Bravura Client Relations and Sales Director – APAC, Paul Dunn.

“Offering greater levels of support delivered through scalable digital advice is becoming an important way for funds to engage and educate members. We are currently working with major super funds to ramp up their digital advice offerings.”

As well as helping members plan for retirement, digital advice can also help funds improve member retention.

“Older members with higher balances naturally seek financial advice, often prompting them to switch to a new fund or a self-managed super fund. This undermines the scale of the fund they are leaving, which is critical to keeping fees and other costs low. Digital advice delivered at scale is part of the solution.”

Rising scale underpins digital advice

The prudential regulator is driving a new wave of consolidation across the $3 trillion super industry as a way to lower fees and improve retirement outcomes.

About eight super funds merged last financial year and about 15 more mergers are in progress, APRA Deputy Chair Helen Rowell told a Senate Estimates hearing in March^[1]. The mega scale of these funds has created a new impetus to offer digital advice at scale.

There are now at least seven super funds that each serve more than 1 million members, and more are likely to be created by mergers over the next 1-2 years. The relationship between funds and their members has largely been passive, partly because retirement funds are historically locked away for decades, but the situation is changing.

Midwinter Head of Professional Services Annie McCabe says its digital advice tools are becoming increasingly popular.

“The digital channel can help meet the significant unmet demand for financial advice in the community, particularly for those who would not otherwise seek advice due to its cost or because of inertia,” McCabe said.

Midwinter’s AdviceOS advice platform is used by financial planners and also integrated into Bravura’s registry system, Sonata Alta, which is used by super funds.

“AdviceOS powered advice delivered to more than 170,000 individuals across multiple channels in the last year. Digital advice is helping financial planners become more efficient and deliver high-quality strategic advice – now the same underlying advice engine is also helping super funds deliver advice to their members.”

A 2019 ASIC report on what consumers think about financial advice found that only 1% of survey recipients had received digital advice yet 19% were open to it^[2]. About 20% of Australians had considered getting financial advice in the last 12 months but had not gone ahead. Of those people, 37% were open to using digital advice.

“Those who expressed some interest in digital advice saw it as a potentially convenient, lower cost option,” the report found.

Why scalable financial advice is now a reality

Major super funds are now using their size to seamlessly integrate digital advice with their administration system, which needs to process member transactions quickly and accurately. However, this isn’t a major competitive differentiator between funds unless they can leverage it to also offer scaled advice to members when they need it.

“Funds should be the go-to destination for members during their ‘moments that matter’, such as approaching retirement. The technology now exists to integrate intuitive digital advice with an administration platform, creating quality advice at scale,” said Dunn.

“The advice is immediately executable by the member and produces a compliant Statement of Advice. A member’s relationship with their super fund could ultimately become as seamless and self-directed as the relationship they have with internet banking.”

This combination sets the foundation for straight-through-processing. It creates efficiencies and also allows members to track the status of any advice, such as an investment switch or change to life insurance.

Integrated digital advice is also highly customisable by super funds. For example, a fund can create triggers targeting advice towards certain member cohorts (such as those nearing retirement or those with large balances).

A number of major super funds are currently on this digital advice journey.

Rest Advice Online has been powered by Midwinter’s AdviceOS system since 2016 and gives members retirement advice that automatically generates a Statement of Advice. Rest Online Advice reported a 252% year-on-year increase in interactions over the 2019-20 financial year, with particularly strong take-up from younger members and women^[3].

Aware Super is also implementing an integrated ecosystem of Bravura products, underpinned by Sonata Alta and encompassing AdviceOS, Babel Superstream messaging and member and adviser digital offerings.

Bravura acquired Midwinter and its popular AdviceOS platform in August 2019, which has been integrated into Bravura’s broader wealth solutions.

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Wade Matterson

The prudential regulator has warned super fund trustees to provide concrete evidence that they understand what their members want before making decisions on their behalf.

The call was made by Australian Prudential Regulation Authority (APRA) deputy chair Helen Rowell at a Financial Services Council Leaders Summit panel.

While Rowell acknowledged that super fund directors believed their decisions were made in the best interests of members, she said that was not enough.

“The question is, how are they making that judgement, and are they doing enough to actually really understand what their members want?” she asked. “And that’s where we see the gap… but we’re not seeing the concrete evidence of how trustees are turning their minds to that and translating that into an objective assessment.”

It’s a gap that the regulator is currently targeting. New draft legislation aimed at giving Australians more power over their retirement savings will provide it with greater impetus.

The changes include an annual MySuper outcomes assessment, aimed at ensuring funds have the scale and ability to meet members’ needs, as well as more transparent reporting standards and the introduction of annual general meetings.

APRA will also be given stronger powers to take preventive and corrective action, including cancelling a MySuper authorisation, where funds are not acting in the best interests of members.

Meeting members’ needs requires more than strong investment returns

The regulator’s Insight publication accompanying the legislation announcement makes it clear that focusing on investment returns is not enough to deliver quality outcomes for members.

“It is not just investment performance and fees or costs that should be considered, but also the nature and quality of the benefits and services being provided and the adequacy of the RSE licensee’s governance and risk management frameworks and practices,” according to the regulator’s guidance.

There are several ways that funds incorporate these quantitative and qualitative criteria into their business plan to demonstrate they understand—and can then meet—the needs of members.

Funds already have the core building blocks: name, age, address, super balance, insurance coverage and an income estimate (based on employer contributions). This core information is bolstered by other data sets, such as industry analysis by APRA, population analysis by the Australian Bureau of Statistics and other industry surveys.

This leaves a huge gap for big data to help reveal the actual retirement needs and desires of members.

While many funds have valid concerns about collecting more personal data due to privacy concerns, engagement issues and cost, there are ways to fill in the gaps about how members are behaving and what they need.

It is becoming an expectation rather than an option. The Productivity Commission’s How to Assess the Competitiveness and Efficiency of the Superannuation System report has already noted “there is likely to be significant scope for improvement in the system” regarding the way funds are collecting member data.

“The Commission will examine ‘best practice’ behaviours employed by funds to gain more relevant information about their members and how they are using it in product design,” its draft report said.

Milliman Retirement ESP: A more accurate portrait of members and how their needs are changing

While the super system now holds more than $2.3 trillion in assets, it is not yet the central hub for most retirees. Funds are rarely privy to the substantial assets that many members hold outside of super— whether they own their own home (and may still be paying it off in retirement) or rent—and what their qualitative lifestyle expectations are.

These are just some of the major factors that should have a substantial impact on funds’ member communications, advice and product development.

Milliman’s quarterly Retirement Expectations and Spending Profiles (ESP) service is a classic example of big data—it is based on 300,000-plus retirees’ spending data—combined with actuarial analysis that finally turns a spotlight on to these areas.

The Milliman ESP reveals what retirees really spend from all income sources, segmented by wealth bands, age, singles versus couples and location as well as shows their essential versus discretionary spending and how it changes through retirement.

Funds can use this information in many ways to bridge the divide highlighted by APRA: taking action in members’ best interests without demonstrably understanding what they want.

For example, overlaying the Milliman ESP real world data about customer behaviour can radically change “optimal” portfolios based on limited surveys about retiree preferences. In some cases, the level of portfolio risk needed may be overstated if retirement goals are well out of reach and based on limited surveys about needs rather than real world behaviour. Location provides another crucial element—knowing just how much the actual cost of living is in different cities and regional areas can radically alter default investment portfolios.

Greater insight leads to better products and member engagement

Funds with more accurate information about the behaviour of retirees can also create better products. The industry is littered with retirement income products that have never attracted significant inflows because they were based on incorrect assumptions about member behaviour.

There is often a huge divide between what members say they want (such as retirees who say they want guaranteed income) and what their actual behaviour shows they want (such as more flexible retirement products). Accurate big data combined with analysis can help discern the differences between members’ stated preferences and revealed preferences.

Funds can interpret this in a variety of ways. For example, some funds may use the Retirement ESP data (which also breaks down expenditure across several categories and tracks how it changes over time) to create retirement income streams based on discretionary versus essential spend.

Member engagement through general advice, communications and marketing is one of the most crucial areas that can be bolstered with more accurate data about members.

The early success of tech-focused super fund Spaceship, which has targeted younger investors, shows the power of understanding and engaging with members. Pointing out the shortcomings of the product, no matter how warranted, is unlikely to have any impact when its customers feel understood.

This should serve as a wakeup call to all super funds. Now is the time to use big data such as the Milliman Retirement ESP to understand how members are behaving in the real world if communications are going to resonate with them.

We are now in an era where it is commonplace for organisations to deeply understand customer behaviour—companies such as Facebook, Google and Amazon have been built on this ethos. APRA is demanding that super funds also understand their member behaviour at a more fundamental level and funds which ignore that advice will do so at their own peril.

By Wade Matterson, Australian practice leader and Jeff Gebler, senior consultant.

The post Super funds: Learn more about members or risk regulatory intervention appeared first on AdviserVoice.

Wade Matterson

The prudential regulator has warned super fund trustees to provide concrete evidence that they understand what their members want before making decisions on their behalf.

The call was made by Australian Prudential Regulation Authority (APRA) deputy chair Helen Rowell at a Financial Services Council Leaders Summit panel.

While Rowell acknowledged that super fund directors believed their decisions were made in the best interests of members, she said that was not enough.

“The question is, how are they making that judgement, and are they doing enough to actually really understand what their members want?” she asked. “And that’s where we see the gap… but we’re not seeing the concrete evidence of how trustees are turning their minds to that and translating that into an objective assessment.”

It’s a gap that the regulator is currently targeting. New draft legislation aimed at giving Australians more power over their retirement savings will provide it with greater impetus.
The changes include an annual MySuper outcomes assessment, aimed at ensuring funds have the scale and ability to meet members’ needs, as well as more transparent reporting standards and the introduction of annual general meetings.

APRA will also be given stronger powers to take preventive and corrective action, including cancelling a MySuper authorisation, where funds are not acting in the best interests of members.

Meeting members’ needs requires more than strong investment returns

The regulator’s Insight publication accompanying the legislation announcement makes it clear that focusing on investment returns is not enough to deliver quality outcomes for members.

“It is not just investment performance and fees or costs that should be considered, but also the nature and quality of the benefits and services being provided and the adequacy of the RSE licensee’s governance and risk management frameworks and practices,” according to the regulator’s guidance.

There are several ways that funds incorporate these quantitative and qualitative criteria into their business plan to demonstrate they understand – and can then meet – the needs of members.

Funds already have the core building blocks: name, age, address, super balance, insurance coverage, and an income estimate (based on employer contributions). This core information is bolstered by other data sets, such as industry analysis by APRA, population analysis by the Australian Bureau of Statistics, and other industry surveys.

This leaves a huge gap for big data to help reveal the actual retirement needs and desires of members.

While many funds have valid concerns about collecting more personal data due to privacy concerns, engagement issues, and cost, there are ways to fill in the gaps about how members are behaving and what they need.

It is becoming an expectation rather than an option. The Productivity Commission’s ‘How to Assess the Competitiveness and Efficiency of the Superannuation System’ report has already noted “there is likely to be significant scope for improvement in the system” regarding the way funds are collecting member data.

“The Commission will examine ‘best practice’ behaviours employed by funds to gain more relevant information about their members and how they are using it in product design,” its draft report said.

Milliman Retirement ESP: A more accurate portrait of members and their changing needs

While the super system now holds more than $2.3 trillion in assets, it is not yet the central hub for most retirees. Funds are rarely privy to the substantial assets that many members hold outside of super; whether they own their own home (and may still be paying it off in retirement) or rent; and what their qualitative lifestyle expectations are.
These are just some of the major factors that should have a substantial impact on funds’ member communications, advice and product development.

Milliman’s quarterly Retirement Expectations and Spending Profiles (ESP) service is a classic example of big data – it is based on 300,000-plus retirees’ spending data – combined with actuarial analysis that finally turns a spotlight on to these areas.

The Milliman ESP reveals what retirees really spend from all income sources, segmented by wealth bands, age, singles versus couples, location, as well as showing their essential versus discretionary spending and how it changes through retirement.

Funds can use this information in many ways to bridge the divide highlighted by APRA: taking action in members’ best interests without demonstrably understanding what they want.

For example, overlaying the Milliman ESP real world data about customer behaviour can radically change ‘optimal’ portfolios based on limited surveys about retiree preferences. In some cases, the level of portfolio risk needed may be overstated if retirement goals are well out of reach and based on limited surveys about needs rather than real world behaviour.

Location provides another crucial element: knowing just how much the actual cost of living is in different cities and regional areas can radically alter default investment portfolios.
Greater insights leads to better products and member engagement

Funds with more accurate information about the behaviour of retirees can also create better products. The industry is littered with retirement income products that have never attracted significant inflows because they were based on incorrect assumptions about member behaviour.

There is often a huge divide between what members say they want (such as retirees who say they want guaranteed income) and what their actual behaviour shows they want (such as more flexible retirement products). Accurate big data combined with analysis can help discern the differences between members’ stated preferences and revealed preferences.
Funds can interpret this in a variety of ways. For example, some funds may use the Retirement ESP data (which also breaks down expenditure across several categories and tracks how it changes over time) to create retirement income streams based on discretionary versus essential spend.

Member engagement through general advice, communications and marketing is one of the most crucial areas that can be bolstered with more accurate data about members.
The early success of tech-focused super fund Spaceship, which has targeted younger investors, shows the power of understanding and engaging with members. Pointing out the shortcomings of the product – no matter how warranted – is unlikely to have any impact when its customers feel understood.

This should serve as a wakeup call to all super funds. Now is the time to use big data such as the Milliman Retirement ESP to understand how members are behaving in the real world if communications are going to resonate with them.

We are now in an era where it is commonplace for organisations to deeply understand customer behaviour – companies such as Facebook, Google, and Amazon have been built on this ethos. APRA is demanding that super funds also understand their member behaviour at a more fundamental level and funds that ignore that advice will do so at their own peril.

By Wade Matterson and Jeff Gebler

The post Super funds: learn more about members or risk regulatory intervention appeared first on AdviserVoice.

Sally Loane, CEO of the FSC said: “As APRA Member for Superannuation Helen Rowell has served with distinction.

“The FSC has appreciated the consultative approach Ms Rowell has taken in her dealings with the industry and for her efforts in implementing significant reforms in superannuation arising from the Cooper Review. We wish her well in her new role as Deputy Chair of the country’s prudential regulator.”

Mr Summerhayes was a director of the Financial Services Council from 2010 until September 2015 and co-chair of the FSC’s Life Board committee from 2011 to 2015.

Ms Loane said: “Geoff made a significant contribution to the life insurance industry through his role as CEO of Suncorp Life and as a director of the Financial Services Council board, and as co-chair of our life board committee.”

“His leadership during the life insurance reform process over the past 12 months was outstanding and his long experience in the private sector in financial services will be valuable as he takes up his APRA position.”

The post Statement from the Financial Services Council on new APRA appointments appeared first on AdviserVoice.

FSC Annual Conference begins July 31 in Brisbane.

Following a period of significant change and enormous workload for APRA and ASIC with the introduction and implementation of the Stronger Super and FoFA reforms, at the upcoming FSC Annual Conference in Brisbane the regulators will be asked to look ahead and discuss what the future might hold for financial regulation in Australia and across the Asia-Pacific region.

Panelists

Greg Medcraft, Chairman – ASIC

Helen Rowell, Member – APRA

Facilitator

Martin Codina, Director of Policy and International Markets, Financial Services Council

Event Details

FSC Annual Conference Beyond 2013

July 31 – August 2 Brisbane Convention and Exhibition Centre

To register for the conference click here.

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Mrs Rowell is currently the Executive General Manager of APRA’s Supervisory Support Division. Mrs Rowell joined APRA in 2002 and has been employed in a number of senior roles including General Manager, Diversified Institutions Division and General Manager Policy Development.

Mrs Rowell has represented APRA at various subcommittees of the International Association of Insurance Supervisors. She also represents APRA on the FSB’s Supervisory Intensity and Effectiveness Group and co-Chairs the Joint Forum Financial Conglomerates Committee.

APRA Chairman John Laker welcomed Mrs Rowell’s appointment: ‘Helen brings a wealth of experience and knowledge to the position of APRA Member from her 10 years in senior roles within APRA and also from her extensive experience in the private sector.’

Prior to joining APRA, Mrs Rowell was a partner at the international consulting firm Towers Perrin (now Towers Watson), and she is also a Fellow and past President of the Institute of Actuaries of Australia.

The announcement can be found on the Treasurer’s website.

Today’s announcement follows changes, announced in April this year, to APRA’s Executive Group. It was announced APRA’s Deputy Chairman Ross Jones would not be seeking re-appointment and would leave APRA on 30 June 2013 after serving two five-year terms, and that APRA Member Ian Laughlin would be appointed Deputy Chairman for two years from 1 July 2013.

It was also announced at that time that Wayne Byres, former APRA Executive General Manager and currently Secretary General to the Basel Committee on Banking Supervision, will commence as APRA Chairman on 30 June 2014 with John Laker continuing to serve as APRA Chairman until that time.

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