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Innovation in superannuation sounds like an oxymoron. In an industry with funds under management of almost $2.9 trillion and powerful vested interests, change comes slowly even in the best of times.
And these are challenging times for the super industry.
“The pace of innovation has slowed down over the last 12 months post-Royal Commission. Regulatory changes are sucking up a lot of bandwidth,” says SuperRatings executive director, Kirby Rappell.
Disruptors seize the moment
While the big funds absorb recent legislation, it’s perhaps not surprising that some noteworthy innovation is coming from entrepreneurial outsiders hungry for a slice of that $2.9 trillion pie.
At the SuperRatings 2019 Fund of the Year awards, financial disruptors such as Raiz and online retailer Kogan (yes, you read that correctly!) were finalists in the Best New Innovation category.
So, what were some of the leading innovations over the past year and what does it tell us about where super is headed?
Targeting Millennials via their mobiles
For new entrants like Raiz and Kogan, the focus is on convenience. Their mobile platforms are skewed towards the under-35s – super members who want to do the right thing with their money but lack the time or expertise to manage their own investments.
It’s too early to tell if there will be a trade-off in long-term performance.
Raiz Invest Super (launched in July 2018) is an extension of its mobile-based app, which rounds up your purchases and invests the small change in indexed funds. Its super product offers the same six investment options based on your risk appetite. Fees are in the bottom 25% of funds and are currently around $425 on a $50,000 balance.
Kogan Super, launched in April 2019, is a simple, low-fee, online super product in partnership with Mercer, which handles the admin and investment management. It offers five investment options (mostly indexed funds) based on your risk tolerance and default death and TPD insurance. Its fees of around $335 on a $50,000 balance are among the three lowest on offer.
Member engagement? There’s an app for that
It’s not just digital disruptors using technology to connect with members.
“For all super funds, next to investment performance the focus now is on member engagement,” says Rappell.
Industry funds First State Super and Intrust Super emerged from a crowded field of new apps designed with members in mind.
While the push is on for fewer, bigger super funds to take advantage of economies of scale, Rappell says the inclusion of Intrust, a small industry fund based in Queensland, is proof that even small funds can bring innovation to the market.
Intrust Super SuperCents is a savings app to help members invest their spare change into their super account. Like Raiz, it rounds up everyday transactions and removes the need to fill in voluntary contribution forms.
First State Super Explorer is a retirement income calculator. As well as your projected super balance, it allows you to include non-super investments, the Age Pension and your partner’s super. While open to the public, the member version pre-fills your information.
Keeping advisers and members in the loop
Post-Royal Commission, the quality and transparency of financial advice has come under the spotlight. Australians have voted with their feet, with many members switching from adviser-mediated retail funds to better-performing, lower-fee industry funds.
Ironically, one of the challenges facing industry funds is a largely unmet demand from members for personal financial advice.
Rappell says more industry funds are trying to improve their engagement with financial advisers as a way of better engaging members. One notable innovation in this area over the last year came from SunSuper.
“SunSuper is using digital smarts to help close the loop between member, adviser and fund,” he says.
SunSuper Adviser Online Transact allows advisers to monitor client super accounts, access research reports and help clients implement transactions. It has also digitised the eight transactions most commonly used by the fund’s advisers. Members receive a text message when their adviser interacts with their account, allowing members to authorise changes.
HostPlus welcomes SMSFs aboard
SuperRatings gave its top gong for innovation to industry fund HostPlus, which has opened its doors to SMSF investors.
Rappell says most funds are looking at how to grow scale. By tapping into a new source of funds (SMSFs), HostPlus increases its ability to reduce fees and provide other benefits to retain and attract members.
For SMSFs, it addresses the challenge many of them face gaining access to bulky and expensive alternative assets such as infrastructure and unlisted property.
HostPlus Self-managed Invest allows SMSFs to invest in HostPlus investment options. This helps SMSFs build a more diversified portfolio at low cost in areas they might not otherwise have access to. It includes listed and unlisted assets with a unit price structure that provides liquidity. Pre-determined costs include investment administration, compliance and reporting.
Industry funds have pioneered direct investment in unlisted alternative assets, a factor that has helped them ride out periods of market volatility and smooth returns.
“Over the next ten years we will see more diverse asset allocation. A significant focus for all investors will be how to get access to alternative assets at a reasonable access point,” says Rappell.
The next frontier
Rappell says innovation in coming years will come from two areas of focus within super funds.
“A huge amount of time and effort is being spent on data to better understand their members and then using that information to help engage their members.”
The other focus is retirement income products. This is an area where innovation has been sorely lacking, stymied by government regulation and the challenge of finding a balance between more predictable income, cost and complexity.
“It’s a tough time for retirees. The big challenge of low interest rates is that it’s difficult for retirees to generate the returns they need to live day to day.
Rappell says product launches are in the works but some funds are holding back until they receive more government direction.
Watch this space.