News & Insights Archives - Page 30 of 34

Managed accounts can’t fly under the regulatory radar

Vertical integration in the advice sector has been a point of discussion within the financial services industry for many years. There are obvious conflicts that can potentially arise when advice is owned by an investment product manufacturer, and these have already been the subject of extensive scrutiny. Despite attempts to manage conflicts under vertical integration, the issue is still a concern for the industry and a key topic of the Royal Commission’s report.

However, while everyone would agree that conflicts can be better managed, government and regulators have stopped short of full structural separation between the provision of advice and the manufacture of investment products. The Royal Commission report, while highlighting the tendency of advisers among the ‘big five’ financial institution advice businesses to recommend in-house products, nonetheless baulks at the idea of forcing a separation of advice.

The Royal Commission’s view is that structural separation would be a “very large step to take” and that it is unclear whether the benefits of separation outweigh the costs. Ultimately, the issue comes down to how conflicts are managed and how a vertically integrated model aligns to the client’s best interest duties.

Vertical integration has become increasingly topical in the area of managed accounts. In recent years we have witnessed significant growth in managed accounts as a means of implementing holistic investment solutions. A catalyst to this growth was the Future of Financial Advice (FOFA) reforms, which took effect in 2013 and led to many financial advice groups seeking greater efficiencies in their businesses, and in some cases alternative sources of revenue, by creating their own in-house managed account portfolios.

While the Royal Commission has not mandated separation between product and advice, best interest obligations and conflicted remuneration are certainly areas of focus. There will be increased scrutiny on the governance structures overseeing in-house managed portfolios, including the composition of the investment committees and the range of qualified and experienced professionals involved in investment decisions. There will also undoubtedly be increased focus on remuneration structures within managed accounts (e.g. margin that financial advice groups might receive on fee rebates from the underlying fund managers, as well as model management fees and how these are used).

Finally, where financial advice groups are building internal managed portfolios and recommending them to their clients, the client’s best interest will need to be considered. This means advisers will need to ask themselves if an in-house solution is truly in the client’s best interest, and under what circumstances an alternative solution would be more appropriate.

Ultimately, a strong governance framework, careful management of any potential conflicted remuneration and a focus on the client’s best interests fall well within the spirit of the Royal Commission’s findings and are certainly relevant to the sphere of managed accounts. For advisers implementing managed account solutions, this is a topic that will continue to be raised as government, regulators and industry participants work to improve the quality of advice and bring it in line with community expectations.

As platform technology leads to further growth in the popularity of managed accounts, don’t be surprised if the vertical integration debate quickly changes to how advisers are using managed accounts and how conflicts are being managed.

February 6, 2019/by Lukasz de Pourbaix

News & Insights

The Royal Commission and the complex task of reforming super

The Royal Commission report will likely be seen as a key fork in the road for the superannuation industry. It highlights a number of issues, many of which have been known to the industry for some time, but more importantly it creates a clear imperative for industry players to take meaningful action to address them. The report and its recommendations cover both historical and structural issues that have been endemic to the industry, such as grandfathered commissions and duplicate accounts, but they also raise potential challenges that if not properly addressed could pose significant risks to sustainability in the future.

The solutions may involve a degree of complexity, and certainly they will not be implemented overnight, but they will be necessary to the future health of the system. Australia’s retirement industry is growing rapidly, and this is bringing greater sophistication but also inevitably additional layers of complexity that is not always easy for funds, members and regulators to navigate. Maintaining as much simplicity as possible while allowing members to benefit from greater innovation and a more dynamic retirement sector is the key challenge. Progress is being made but more needs to be done.

In particular we expect to see structural changes within many retail fund providers as they evolve their models for the future. MySuper product quality filters are expected to be lifted, which should help provide a more effective safety net for disengaged members. At the same time, with the changes in trustee expectations, we will undoubtedly see continued rationalisation in the number of providers in the market through fund mergers.

For consumers, the Royal Commission has highlighted the cost of not being engaged with your super. For many Australians, failing to engage and check in on their retirement savings may already have had an impact on their future retirement outcomes, whether through below-average returns, high fees, duplicate accounts, or inappropriate insurance. For every super member, getting engaged and taking an interest in how your retirement savings are managed is the best thing you can do. Ultimately, the success of superannuation depends on members having a stake in their own retirement.

On the financial advice side, the Royal Commission is proposing some important structural changes that should help create a better deal for advice clients. Combined with new education standards for advisers there should be an ongoing shift in quality, but a key challenge remains the high cost of providing advice, which is ultimately passed on to clients. Will financial advice become a luxury that only the few can afford, or can the industry evolve so that all those exposed to capital markets through their super can access affordable advice? This is a critical question and one that will require a balanced approach to ensure that members can get the certainty and comfort they need in retirement.

With a federal election due this year, and an early budget pegged for early April, the path to implementing these changes should become increasingly clear. The Royal Commission has revealed the deep desire Australians have to fix the system, but it is up to us to work through the changes. We have an opportunity to make real and lasting improvements that will make super more sustainable and hopefully create a better value proposition for members. But we cannot ignore the complexity of the task ahead. Success will mean balancing a number of competing goals – including cost, sophistication, choice and simplicity – while ensuring members understand what they need to do to get the most value from their super.

February 6, 2019/by Kirby Rappell

News & Insights

Superannuation in a post Royal Commission World

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services industry is mandatory reading for all super funds and their Trustees. It provides clear guidelines about the sale of financial advice and the purpose of MySuper products, as well as the simplification of insurance and more stringent benchmarking of service providers. This will result in a sweeping focus across organisations to ensure that strategic plans and KPIs are appropriately aligned and managed. The report clearly reinforces organisational responsibility as front and centre in the solution.

The impact of the Royal Commission for many in the industry will be lasting. The key takeout for many industry participants should be that most providers face challenges in some shape or form. We believe the true test of an organisation will be; if another commission (hypothetically) were to be held in 5 or 10 years’ time, will providers have had the foresight to seek out the issues of tomorrow and solve them, or will they be doomed to repeat the mistakes of the past.

We have identified three key areas highlighted in the report, which we believe will substantially shape the industry going forward.

1. Greater accountability for Trustees

With further consolidation across the industry inevitable, Trustees will need to have the processes in place to appropriately consider potential merger opportunities and ensure they are making decisions from a position of “best interests” and not “power/control”, or face being held accountable.

Further to this, the issue of appropriately assessing service providers, whether they are related to the entity or not, and holding them to account will also be vital in delivering optimal member outcomes. This will require ongoing uplift and oversight of service providers, to ensure that value is being delivered at all times.

For those Trustees that fail to adhere to their best interest duties, the Commissioner recommends the application of civil penalties. The challenge for funds, and their Trustees, will be on how to structure appropriate KPIs and remuneration structures, especially at Board and senior management levels, and whether they will have the capacity to deliver services with reasonable care and skill.

2. The challenges of assigning one default account

The report highlights the strong need for the industry to converge to its true membership base. SuperRatings remains supportive of one default account being created upon entry into the workforce, which we also highlighted in our submission to the Productivity Commission’s review. However, this is a deceptively complex challenge.

The report does not explicitly state what ‘machinery’ would be developed to ‘staple’ a person to a single default account. We believe there are three main approaches that could eventuate and note that each is not without substantial administrative and implementation challenges. Thus, it is not surprising that despite broad agreement across the industry, this initiative is yet to be executed. We envisage that an:

1. Employee could be defaulted into a fund attached to their first employer, with that becoming their superannuation fund for life. This could result in significant concentration of default flows to a handful of providers;

2. Employee could elect a superannuation fund when they apply for a TFN. Employees at this age may lack the skills to make an appropriate decision, so advice or guidance would be paramount;

3. Employee could continue to be defaulted into a fund attached to their employer, but a rollover of their existing accumulation account to the new super fund would need to occur each time their employment changed. This would increase the administration burden borne by superannuation funds but could expose employees to different superannuation providers throughout their working life.

Options 1 and 3 would still see the corporate play a role in determining a default super fund when arguably they don’t want the burden. Option 2 removes corporates from the decision-making process, but this option could spell the end of corporate super as we know it, and with it, the benefit of tailored solutions which are in the members’ best interest.

3. Key implications for Corporates

The report recommends ‘no treating’ of employers, this is effectively the corporate version of no hawking. As such, funds will need to examine how to appropriately attract and service employers.

If corporates continue to nominate a default fund, the selection of this fund will need to be based on a robust framework. In lieu of set guidelines from the government, an assessment in-line with the member outcomes framework would be a potential minimum standard. We remain focused on the importance of reviewing investments, fees, advice, administration and governance arrangements as the pillars of a strong assessment of any fund.

The pricing models in this area should also give corporates pause for thought. Reflecting on the commentary about the charging models for advice and mortgage broking, a range of pricing structures also exist in the corporate tender management space. Evidently, we believe best practice pricing in this space is an up-front fixed fee model. While this is a cost for corporates, we believe it brings significant long-term benefits for their employees that outweighs the initial cost.

Final thoughts

While the report may have lacked the theatre of the hearings, it has been clearly designed to address key issues identified by the Commission. As noted at the outset, we believe the key takeout for many industry participants should be that most providers face challenges in some shape or form. What providers do about them is the true test.

We are seeing providers act in advance of legislative change wherever practical, which is pleasing to observe. However, the path ahead for some will be more challenging than others. As historical issues are addressed, it will hopefully also provide an industry less divided across historical battlelines. Given the path forward in advice remains one of the most tricky to foresee, we hope that this will provide a key opportunity for these sectors to more effectively work together.

February 6, 2019/by Kirby Rappell

News & Insights

Japan’s output gap is narrowing, but price pressures are still non-existent

Despite the longest economic expansion in the country’s post-war history, few at the Bank of Japan would be celebrating. While official statistics indicate that the output gap is improving, inflation remains stubbornly low, forcing the Bank to maintain its stimulus program for longer than expected. Members voted in January to maintain the short-term interest rate target at 0.1% and lowered its inflation forecast for the fiscal year ending March 2019 from 1.4% to 0.9%.

Underlying price pressure is still weak despite an improving output gap

Source: Bank of Japan, Lonsec

Japan’s September quarter GDP growth was revised down to a contraction of 2.5% annualised from an initially reported fall of 1.2%. The downturn has been linked to a string of natural disasters, including flooding in July, a typhoon in September, and an earthquake in Hokkaido, all of which has affected exports and tourism.

The rise in the sales tax from 8% to 10% is due to come into effect in October 2019, and while it might provide an initial boost in consumption it is likely to prove crippling to consumer demand in the medium term and risks pushing the economy into recession (which is exactly what previous increases achieved). If there is any good news, it is that a rebound in business investment is likely to contribute to a recovery in the March quarter of 2019, but even a recovery could be vulnerable to the global slowdown.

February 4, 2019/by Lukasz de Pourbaix

News & Insights

How new technology is facilitating the implementation of more advanced portfolios

In the not-to-distant past, managed accounts were seen as a single cog in a client’s overall investment solution. While offering advantages for certain clients seeking a more personalized approach, advisers and model managers were limited in their ability to provide diversified, multi-asset model portfolios using a managed account structure.

Fast forward to today and the situation is very different. Developments in platform technology have meant that managed account solutions encompass a variety of portfolio structures, from single sector equities to holistic multi-asset portfolios. This has made managed accounts far more relevant to financial advisers as they seek portfolio solutions that can meet different client objectives and risk characteristics. Instead of offering an alternative for clients with sufficient knowledge of how managed accounts work, advisers can now use managed accounts to provide a full, actively managed investment solution that meets their clients’ needs.

This flexibility has led to improved implementation and greater efficiency compared to the traditional notional (paper-based) model portfolio structure. Today’s managed account structure enables effective implementation of a range of different investment philosophies and portfolio construction approaches. A good example of this is dynamic asset allocation, which under a notional model portfolio structure is impossible to implement responsively due to the administrative complexities involved.

There has also been an evolution in the composition of portfolios within managed accounts whereby multi-asset portfolios are becoming increasingly investment vehicle agnostic, with portfolios increasingly including a mix of Separately Managed Accounts (SMAs), Exchange Traded Funds (ETFs) and traditional managed funds. Greater flexibility and the ability to implement dynamic asset allocation views in a timely manner will become more important, especially as we move into a market environment characterized by increased volatility and potentially lower returns.

Along with this increased flexibility, there is of course a greater requirement for the model manager to be sufficiently equipped to manage, implement, monitor and report on the managed portfolios. As the managed account sector matures, with large institutions increasing their presence in the market, the barriers to entry from a platform, responsible entity, and superannuation trustee perspective have increased. This means that financial advisers need to conduct appropriate due diligence on their model managers to ensure they have not only the right research and investment expertise but also robust governance structures and reporting processes.

The trend towards multi-asset managed portfolios will only continue to grow as financial advisers recognise the efficiency that managed accounts can bring to their businesses. The ability to construct and implement dynamic, multi-asset portfolios has enabled advisers to enhance the value of their offering and provide clients with better portfolio communications and a superior advice experience. Technology platforms supporting managed accounts have already made significant advancements, and this will undoubtedly continue as model managers are able to access an ever-expanding range of investment products, allowing advisers to implement more sophisticated model portfolios.

As technological barriers are removed and managed accounts become more central to the way advice businesses operate, the challenge for advisers is to partner with the right model manager to ensure that solutions are aligned with their investment philosophy and that the manager is able to meet the needs of the adviser’s clients. For the model manager, the challenge is to offer the right mix of capabilities while remaining competitive. This inevitably requires both parties to adapt, but the reality of change is impossible to ignore. In this new world, success starts with acknowledging the change and creating a strategy that anticipates the growing power of managed accounts and their revolutionary impact on the advice industry.

January 29, 2019/by Lukasz de Pourbaix

News & Insights

Volatility the new normal as super returns take a hit

Super members suffered sharp declines in December 2018, pushing many into negative territory for the year, with the likelihood of further losses over coming months as market volatility and political risk continue to challenge the outlook.

The latest data from superannuation research house SuperRatings, reveals major fund categories all suffered declines in December 2018, contributing to an already horror fourth quarter. The median return for the Balanced option in December was -1.2 percent, contributing to a loss of nearly 5 percent for the quarter (-4.7%) but keeping members just above water for the year, with a gain of 0.6 percent.

Interim results only. Median Balanced Option refers to ‘Balanced’ options with exposure to growth style assets of between 60% and 76%. Approximately 60% to 70% of Australians in our major funds are invested in their fund’s default investment option, which in most cases is the balanced investment option. Returns are net of investment fees, tax and implicit asset-based administration fees.

Members in the median Growth option or exposed solely to domestic or international equities were not as fortunate. Growth option members suffered a -1.7 percent decline in December and -0.3 percent for the year, as heavy losses in the fourth quarter clawed back earlier gains. Members in the median Australian Shares option experienced declines of -0.9 percent in December and -3.4 percent for the year, while the median International Shares option recorded a loss of -3.9 percent for December and -1.7 percent for the year.

SuperRatings Executive Director Kirby Rappell believes the latest data will be a cause for concern for many super members but argues it’s important to keep a long-term perspective. “For many super members 2018 will be remembered as a turning point”, said Mr Rappell. “Volatility is likely to be a feature of markets over the coming months and members can expect ongoing fluctuation in returns”. “However, it’s important to keep a long-term perspective and recognise that super returns have been overwhelmingly positive over the last decade.”

Despite the declines, super members remain well ahead over a ten-year period, with $100,000 invested in the median Balanced option in December 2008 now worth $204,264, while the median Growth option is worth $215,051 over the same period. Those invested in domestic and international shares have performed even better over the last ten years, despite a more volatile 2018 with $100,000 invested in the median Australian Shares option in 2008 now worth $227,120 and the median International Shares option rising to $233,166 over the same period. Meanwhile, $100,000 invested in the median Cash option ten years ago would only be worth $130,306.

Growth in $100,000 invested over 10 years to 31 December 2018

As we enter a more challenging investment environment, the importance of reviewing your superannuation fund to ensure it is in line with your retirement objectives is paramount.

Release ends

January 22, 2019/by Kirby Rappell

News & Insights

Why following the winner might make you a loser

An all too common mistake in investing, is to simply back last year’s winner. On the face of it, it seems appropriate to follow what worked last time and all too often investors pile into the best performing asset class of the last year in the hope that success will be repeated. However, as the below table shows, very rarely do asset classes consistently outperform and backing last year’s winner could very easily end up making you a loser.

This table reveals the best performing asset classes for each financial year since 2008, and shows that, on a very regular basis, one year’s winner fails to repeat its outperformance in the following year.

Chasing last year’s winner (financial year returns)

Source: Lonsec, Bloomberg, FE

Conversely, the table reveals that avoiding asset classes that performed poorly in the previous year can cost investors in the following year. For example, if investors had reduced their exposure to Aussie shares following a negative return in 2012, they would have missed out on one of the better performing asset classes in the subsequent two years (+21.9% and +17.3% respectively).

It’s a reminder that a well researched, diversified portfolio is better over the long term than chasing last year’s winners. Identifying your long term goals and building a portfolio to achieve that aim, rather than just chasing an immediate performance ‘sugar hit’ is more likely to deliver the desired outcome.

Lonsec portfolios utilise our extensive manager and equity research knowledge to build portfolios that aim to perform over the medium and long term. Reducing the volatility of the portfolio is a key goal of our selection process and asset allocation decisions.

January 21, 2019/by Veronica Klaus

News & Insights

SuperRatings’ views regarding the Productivity Commission’s final report

Synopsis of SuperRatings’ views regarding the Productivity Commission’s final report Superannuation: Assessing Efficiency and Competitiveness:

SuperRatings supported the need for a review of the current system and we engaged with the Productivity Commission by providing data and insights, including a formal submission regarding the draft report at that time.

Our submission focused on areas where we foresee implementation issues that could potentially present challenges. As a general principle, we support initiatives that:

ensure unintended multiple accounts are consolidated;
make it easier for members to engage with their superannuation;
provide simple, easy to use tools and information to help inform members;
improve member outcomes;
require funds to demonstrate how they are providing quality member outcomes; and
improve MySuper requirements.

Our responses to the key recommendations and findings were as follows…

Recommendation 1: Defaulting only once for new workforce entrants

SuperRatings supports the recommendation of creating a default account only for members who are new to the workforce or do not already have a superannuation account and do not nominate a fund of their own.
We note that the proliferation of member accounts has been the catalyst for a number of issues, which persist within the superannuation system such as balance erosion due to multiple insurance policies and account keeping fees.
We agree that a centralised system is needed to facilitate this change. A centralised system will remove some of the administrative burden for members seeking to consolidate their superannuation accounts and improve efficiency of the process.

Recommendation 2 and 3: ‘Best in show’ shortlist for new members and independent expert panel for shortlist selection

We do not believe that the overall approach covered by recommendations 2 and 3 is workable in practice.
One of the key considerations is the role of government in directing the superannuation system. We believe that there would be clear risks involved if the Australian Government, either directly or indirectly, were seen to be endorsing specific products for selection by consumers.
SuperRatings has more than fifteen years of experience as one of Australia’s leading providers of information about superannuation funds to fund members, employers and trustees. During this time, we have gradually evolved a sophisticated approach to rating and comparing a range of superannuation products.
As a result, we also have an appreciation of the practical challenges involved in creating lists of rated products and explaining our ratings to consumers, product providers and other interested parties.
The “Best in Show” shortlist recommendation also has unintended consequences for employer-sponsored corporate funds. We assume that the intention of the Productivity Commission’s recommendation is to publish a list of funds that could be joined by any new employee in any occupation or industry, i.e. those classified as “Public Offer” funds.
However, based on SuperRatings data, we note that in the past some of the best performing funds have been “Limited Public Offer” funds.

Recommendation 4: Elevated MySuper and Choice outcomes tests

SuperRatings support the Productivity Commission’s recommendations for strengthening the MySuper authorisation and have long held the view that the emphasis placed on size alone should not be the key determinant when assessing the viability of a fund.
Our in-house analysis suggests there are examples of good small funds delivering quality member outcomes in a cost controlled manner, helped in part by their ability to know and understand their demographic.
Conversely, there are examples of larger funds for whom demonstrating quality member outcomes may not be as easily attainable despite the potential size benefits.

Recommendation 5: Cleaning up unintended multiple accounts

We are supportive of legislation to ensure that unintended accounts are sent to the ATO once they meet a definition of ‘lost’. Policies that aim to reunite members with any existing superannuation accounts are a positive step towards reaching the true level of membership across the industry.
Whilst we support auto-consolidation of the aforementioned accounts by the ATO, a framework addressing trustee reporting requirements is essential to ensure that any unnecessary processing delays are avoided and that funds are allocated into the member’s most appropriate account.
In relation to the transfer of accounts from Eligible Rollover Funds (ERFs) to the ATO and prohibiting further accounts from being sent to ERFs, we believe further information would be useful regarding investment of ATO-held super, fees and charges for ATO-held super and governance of ATO-held super.

Finding 3.7: Association between fees and returns

SuperRatings does not ascribe to the view that higher fees are clearly associated with lower net returns over the long term. Superannuation products levy a variety of fees and charges, some of which may ultimately add to retirement balances.
For a number of providers with a high investment fee, it can be attributed to allocations to higher cost asset classes, which have been a key reason for their consistently strong performance outcomes for members.

January 18, 2019/by Kirby Rappell

News & Insights

When to let it go

Thankfully my kids have moved on from their ‘Frozen’ phase and the tunes of ‘Let it go’ are well and truly buried away in the back of the DVD cabinet. As professional investors, one of the biggest challenges we face is when to ‘let it go’. When we make an investment into a stock or managed fund the investment rationale is clear, attractive valuations, positive earnings growth, solid investment team, appropriate investment style. However, what happens when our investments don’t follow the course we anticipated and perform poorly? An even more difficult decision is when to let go of a ‘winner’?

Behavioural factors play a big role in terms of how people react to events and the subsequent decisions they make. The belief that things will turnaround, the comfort of the pack (we all go down together), ‘falling in love’ with an investment. Such emotions impact all of us even the most experienced investor. The main line of defense to minimise the impact of behavioural factors in a decision making process is to always point back to your investment philosophy and the underlying process which underpins that philosophy. If your overall philosophy is one of generating returns with lower downside risk than the market do the underlying investment align to this philosophy? have they provided downside protection? if not, why? (are there cyclical reason for this or is there something structural impact the return profile). If an investment has provided this type of return profile what have been the factors contributing to this e.g. certain sector or country exposures, and do you expect these factors to work in the future? If we use a managed fund as an example it is important to look out for any changes to how the manager is managing money which may be reflected in a change in the risk and return profile of a fund. Is there a change in how the manager positions their investment approach to what they communicated a few years ago?

The main forum for our manager and stock decisions for our managed portfolio are our Manager and Security Selection Investment Committees. The committees are made up of senior members of our Research and Investment Consulting teams, our CIO as well as our external experts. Decisions to ‘let an investment go’ are made via the committee process. Investment recommendations are supported by qualitative and quantitative analysis. If we use managed funds for example this would include meeting with the manager (outside of the formal annual review process) focusing in on the issues at hand and targeted quantitative analysis which may provide a clue as to where the problem rests, an example being where a manager has taken stock-specific risk which is uncharacteristic of the manager.

January 16, 2019/by Lukasz de Pourbaix

News & Insights

Super Funds Must Learn to Embrace Third-Party Advice

There has always been an element of tension between super funds and financial advisers. From the super fund’s perspective, the adviser is a possible threat to member retention and can disrupt the fund’s engagement process. For the adviser, the super fund can sometimes seem like a closed shop, unwilling to give up control of the advice experience or shed any real light on its investment process, structures and strategy. At face value, the two should be natural enemies.

While there will inevitably be some antagonism between the two, the reality is that both funds and advisers need each other – now more than ever before. In a post-Royal Commission environment, the most successful super funds will be those that actively engage with third-party adviser networks, giving their members the flexibility to choose how they access financial advice. For advisers, success means rising to the challenge of ever higher standards and increased scrutiny, which requires them to have the information and tools to justify investment decisions based on their client’s best interest.

Finding a common path will require a big shift in thinking but the rewards will be more sustainable growth for funds and advisers, as well as better member outcomes. With the median fund currently providing one financial adviser for every 14,230 members, the ability to access scale is crucial for future growth. Third party advice networks facilitate greater reach through their advice channels, while concerns over quality control can be managed through the delivery of accurate and timely information to advisers and dedicated monitoring.

While funds must be prepared to give up some control, advisers will need to work harder than ever to ensure their advice is in their clients’ best interest. The limitations of many advice businesses have been laid bare by the Royal Commission. There will likely be significant turnover in coming years, with more advisers distancing themselves from aligned groups. This provides a significant opportunity to support and build traction within the new advice landscape.

Overcoming the ‘us vs them’ mentality

SuperRatings found that funds with a dedicated strategy focused on servicing third party advice networks have been rewarded with improved member retention, which can aid membership growth. These relationships can be mutually beneficial for funds and advisers, with funds able to service and engage with more members, and advisers able to access a broader client base and a more diversified pool of funds.

Which is why it’s surprising that many funds are yet to fully take advantage of these opportunities. According to SuperRatings’ data, only 53% of Not for Profit (NFP) funds have formal relationships with advisers, which have traditionally been the domain of retail funds through vertically integrated business functions. Even fewer NFPs have a dedicated servicing team for third party advisers – only 27% compared to 79% of Retail Master Trusts (RMTs) – which is essential for enabling advisers to provide a competitive service.

Third party adviser network trends (% of Not-for-Profits)

Source: SuperRatings. Data to 30 June 2017

When it comes to being open and transparent with advisers, super funds also have a lot of work to do. SuperRatings’ analysis shows that only 5% of NFP funds provide data feeds to third party advisers, compared to 73% of RMTs, while 30% of NFP funds (92% of RMTs) provide access to client reports, which enable advisers to provide timely, informed advice to their clients. Funds are also reluctant to allow advisers to transact on behalf of their members, with only 25% of NFPs offering this capability, meaning there are still significant barriers for advisers to effectively engage with funds and provide a streamlined service.

Empowering advisers means more opportunities for funds

Funds and advisers need each other, but how can they go about creating mutually beneficial and trusting relationships? The answer is by sharing information and being transparent about members’ needs. For advisers, this means having access to high quality investment product research that enables them to efficiently assess a wide range of NFP, retail and corporate funds, and ensures they have an in-depth understanding of how each fund stacks up. Equally, super funds need to support this process by giving advisers the information they need to make decisions in their client’s best interest. Transparency is no longer a radical strategy for super funds – it not only reduces friction for the adviser and their client by making it easier to do business, it means that the adviser is in a position to assess the product and consider it for their client. Communicating third party assessments, such as Lonsec’s well recognised investment option ratings, also helps advisers to easily identify and justify high quality superannuation offerings. We expect to see significant changes in funds’ external advice offerings in coming years, particularly as funds continue to report growing success in this area. SuperRatings is supporting this evolution by making its specialised superannuation research available to financial advisers via Lonsec’s market leading iRate platform, giving advisers the tools to make in-depth fund comparisons and ensure that they can fully justify their fund decision on a best interest basis.

With potential risks over default models and concerns about the sustainability of the old model, it is impossible for funds to ignore these opportunities. While funds and advisers might not always see eye to ey, they can’t afford to allow their differences to get in the way of the vast opportunity staring them in face.

January 16, 2019/by Kirby Rappell