The merger will see AustralianSuper create a new Public Sector Division, which will capture and build upon AGEST’s position as a fund of choice for current and former public sector employees, and enhance AustralianSuper’s size, scale and national presence.
 
Both AGEST and AustralianSuper expect that the merged fund will result in improved retirement outcomes for members of both funds, adopting the best from both funds.
 
AGEST CEO Cath Bowtell said today: “This is good news for AGEST members.  The Board of AGEST has identified around $13 million per annum in savings through the merger.  These savings, which are a result of lower administration and investment costs, will go straight to members’ accounts.”
 
“We have also been able to secure changes to AustralianSuper’s offer to reflect the current features of AGEST that our members value.”
 
 As a result of this merger, AustralianSuper will expand its member services in Canberra and Darwin, introduce daily switching, and roll out a very competitive pension fee.
 
“AGEST members have told us that they value these services and I’m pleased that AustralianSuper quickly recognised the benefit to their members of extending these to all members of the merged fund” said Ms Bowtell.
 
However, the merger is not guaranteed, with both funds approving the merger only if the government grants the merging funds relief from realising capital gains and losses when assets transfer from AGEST to AustralianSuper.
 
“The AGEST Board has approved the merger, subject to receiving Capital Gains Tax rollover relief.  Without rollover relief, the merger will not occur” said Ms Bowtell.
 
“Having identified savings for our members, we are keen to get on with the merger and deliver those savings into members’ accounts.  For every month of delay, we fail to realise $1 million worth of savings” said Ms Bowtell.
 
Ian Silk, Chief Executive of AustralianSuper agrees that the uncertainty is preventing mergers from occurring and disadvantaging members. “AustralianSuper firmly believes that members of funds in a merger, must not be placed in a worse tax position after a merger then before the merger.”

“This is a revenue-neutral policy for the Government, because if this change is not made most trustees will simply not proceed with mergers whilst there is a financial disadvantage to their members.”

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The GFC, Cooper Review and Stronger Super have increased focus on cost efficiencies and member benefits, resulting in industry fund mergers becoming an inevitable conclusion for many trustees looking to achieve scale.

While merging arguably improves member outcomes for many funds, alternative options do exist which not only address the scale issue but may indeed deliver superior member outcomes.

In this first of a series of papers, Russell Investments focus on better analysis of fund cost dynamics and long term solutions which provide a base upon which to deliver enhanced member services.

To read the paper, click here.

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Russell’s Managing Director of Industry and Government Funds Michael Clarke argues while some mergers can deliver economies of scale, industry funds should carefully consider whether a merger is the right course of action for its members.

“As complexity grows with ongoing reform, many funds are grappling with how they can best achieve cost efficiencies while enhancing investment returns and member services. We’re not saying mergers are never appropriate, but rather funds should be aware alternatives exist that have the potential to deliver better member outcomes,” he said.

Some of the challenges of the merger process raised by the Russell paper range from ensuring member equity in addressing differing exposures to liquid and illiquid assets between the merging funds, handling varying member balances and managing questionable transparency and accountability principles.

“It’s puzzling the merger process does not follow the same rigorous principles of transparency, disclosure and stakeholder engagement as those found in public company mergers. Members are not given a detailed analysis of expected costs so don’t have the means to hold trustees accountable for managing costs and achieving the forecast benefits over the medium term,” Mr Clarke said.

Creating mutually beneficial partnerships
The emergence of vendors able to expertly provide outsourced super services means a broader depth of resources is within reach and Russell is encouraging funds to consider tailored outsourcing partnerships as an alternative. By selectively combining the individual strengths of the fund and the outsource provider, member interests are maximised and access to resources is strengthened.

“These relationships can relieve governance pressures, reduce risk and increase access to markets and research,” Mr Clarke added.

Future proofing tools
The new paper follows the launch of Russell’s future proofing service in May this year which is already receiving positive interest from funds and trustees. The service offers dedicated advice and solutions to assist industry and government funds in retaining members while still maintaining their customer value proposition against a backdrop of regulatory change.

“Future proofing is as much about efficient business management recognising the real objectives and positioning of the fund as it is about achieving optimal investment outcomes. With this superior toolbox, trustees will be able to assess how to respond to regulatory change, understand the consequences of growing scale in assets and members, better evaluate the benefits and costs of merger proposals, develop partnership sourcing strategies and identify what cost strategy they should be pursuing,” Mr Clarke said

The post Russell sounds warning bell on fund mergers appeared first on AdviserVoice.

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The Beaton IFA Market Pulse is a quarterly survey among financial advisers in Australia. The survey provides a platform for participating insurance providers to get feedback from advisers on topics of interest and gives advisers the opportunity to share their views and opinions on topical industry issues with their peers.
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Participating insurance providers are Asteron, AIA Life, CommInsure, Macquarie Life, OnePath and Zurich.
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The first wave of the survey was conducted between 21 March and 30 March 2011 with 528 advisers across Australia completing the survey.
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Advisers were asked to comment on the impact of the ban on their advice businesses, clients, and the insurance industry.
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Click Adviser Sentiment Report to read the full report, including some comments from financial advisers who participated in the survey.

The post Beaton Consulting: adviser sentiment on the banning of risk commissions appeared first on AdviserVoice.

“The union-backed industry superannuation funds are attempting to do what should be the Government’s work – that is, formulate policy, control legislation and police regulation,” said AFA CEO Richard Klipin.

“Evidence of the fact can be read daily in the finance press.”

Mr Klipin said union-backed industry funds and consumer advocate groups have been issuing regular “warnings” to the financial advice industry, via the finance press, that the FOFA reforms will become even more onerous if the advice community continues to contest them. The AFA has been lobbying the Opposition and Independent MPs in an effort to have proposals which are not in the consumer’s best interests changed.

“Clearly, the industry fund movement’s “warnings” tell us two things,” Mr Klipin said, “that members of the industry funds movement are trying to influence FOFA outcomes so that they can assume complete control of Australia’s superannuation savings; and that they are trying to silence our fundamental right to speak.”

Mr Klipin said the financial advice industry is now looking to the Government to see past the hysteria being stirred up by the industry funds and consumer advocate groups and provide independent modelling which proves FOFA reforms will result in better outcomes for consumers.

“This is what should be the fundamental focus of FOFA,” he said.
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Mr Klipin said that financial advice is a highly valued partnership between adviser and client.
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“As Back to Basics research revealed, financial advisers are the third most trusted profession amongst those consumers who receive advice, after doctors and dentists,” he said.
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“This is no accident: AFA advisers have a 65 year history in successfully helping everyday Australians build, manage and protect wealth.”
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Mr Klipin called for a level playing field for all who operate in the financial advice space.
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“At the moment it is not a level playing field. In the interests of fairness and equality, and in the interests of consumers, we are calling on the industry funds to step up.”
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Mr Klipin said that it is time for industry funds to come clean and disclose, in dollar terms, how much their anti-adviser propaganda campaign is costing members.
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“We also believe they should disclose and fully unbundle their fees so that their members understand what they’re paying for and what they’re getting in return and can “opt-in” or “opt-out” of services they don’t want and/or don’t get.”
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Mr Klipin said the AFA would not fall victim to industry fund attempts to silence the advice profession.
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“In the interests of our advisers and the clients they serve, the AFA will continue to raise its concerns about proposed reforms which we believe run counter to the best interests of consumers, including opt-in and the banning of commissions on insurance within superannuation,” he said.

The post AFA: speaks out on FOFA, industry funds and fees appeared first on AdviserVoice.