MySuper may have helped drive down superannuation fees, but most superannuation funds are vitally aware of the fact that more mature members need a full-service arrangement. This is part two of a Super Review roundtable.
Mike Taylor, managing editor, Super Review: There seems to be a dichotomy here which is that on the one hand the game in superannuation seems to be all about member retention and then dealing with people into the retirement phase and certainly MTAA super is out there in from in terms of getting product into the market on that. But on the other hand we've got MySuper sitting there with its minimalist approach in terms of what's being offered.
What is the future, Paul Cahill, in terms of where funds should be aiming? Do you aim to be low cost or do you actually aim to deliver your members a full set of services and you retain them into retirement?
Paul Cahill,CEO, ClubPlus: I suppose that's the exercise of a lot awards and this is a good direction you want to take.
You can either take a premium route which is, "I'll give you the full selection of services, but it will come at a price. If you want advice, that's fine. If you want innovative products, that'll come at a price." It'll all come through. Or you can just strip it down, bare bones it out and say, "If you want a very simple product that will provide you what you need to do and will be done at basis points cost, and I'm not talking a lot."
I think where it will get interesting is in the bank space when they start working out the margins they've got inside of that from an index perspective because the reality is they're paying nothing for indexing and charging it at 50 points. That's a lot of margin for a bank product, considering they're paying one or two at best.
For funds like us at 45 - 46 on our MER that's all active, so we're paring down every time we can to get it into a particular space on a costs basis, but also giving the active. And the active will prove itself to be valuable when markets turn.
When banks are going to find it really interesting is when markets start heading backwards because the indexed product will drive them down very quickly. Where they've had a good run is the last five years because they've had a really nice incremental rise over that period there. Where markets start getting choppy and heading backwards indexed products will get carved out because they'll go straight down. Active management will pay out in downward markets. Sorry, the theory says this.
However, if you've got your managers right and they do protect on the downside, that's where value will show through, but back to your original question--sorry to go off the topic --You can't be all things to all men. You can't run a low cost product and a premium product inside a certain fund, especially of an industry fund where you've got all the equity issues attached to it. If you want to have a premium product, you've got to charge it at a premium rate or you can have a low cost product charged at a low cost rate. How you'd do that inside an industry fund is possible, but it sort of tears at the fabric of what we're designed to do, which is treat everyone equal.
MT: Paul Rohan?
Paul Rohan, head of Sandhurst Trustees: Yeah, I come back to the customer and it's the customer's circumstances, customer's choice, method of engagement trying to provide a suite of offerings that meets their potential needs, and these [needs] change over time. So that's another thing we've got to be very conscious of, that what I need today is maybe not what I need tomorrow. We see in our membership, both in the low cost offering and the full service offering, a bias towards older members and there's more engagement at that level, but I think it's time based and customer driven.
Leeanne Turner, CEO, MTAA Super: I think that you raise a very important point and it does come down to funds and looking at the member demographics. I think the interesting thing that we are seeing, and it's probably across all funds, is obviously we've got a cohort that are getting closer to retirement age, very engaged, looking for something a little bit more sophisticated, particularly in the draw-down phase.
But equally, in our fund, we've still got also a large cohort of pretty disengaged, reasonably young people who don't want bells and whistles, so I think the MySuper product which, you know, I mean they're pretty much rebadged [funds] that have been around forever for industry funds anyway, is meeting a need there.
I think it's great [that] the one thing that has come through the reforms in MySuper is that we are seeing costs come down and that needs to have a bit of time to play out.
A really interesting thing - and I'm going a little bit off point - but particularly where some of the bank funds are at is the movement of the accrued default amount. For a lot of those that haven't been moved across yet, that's not going [to happen] until 2017, so that'll be really interesting to see how that plays in that respect.
So you've got you're a reasonable cohort of people who don't want a lot, but more and more we're seeing others who are engaged, who are looking for something else, which is why we did have a crack at bringing in an innovative product. Yes, it's been closed down. I'm on record as saying it and I'll say it till the cows come home, we don't see that as a failure at all. It does come down to very much it was a user-pays situation. You can't offer a guaranteed product without it being expensive.
PR: Great idea in theory, just hard to engineer.
LT: It's just really hard to engineer, but is that a failure? No, we've had a go and those things aren't going to go away. They are not going away, so I think we've sort of pioneered something and we'll keep looking in that space to come up with an answer.
PR: I think one of the things you said there, you know, there's this need or sense to categorise funds into you're in this group or that group. I find it unhelpful. And I find it unhelpful from the example you gave in terms of banks have done this or banks have done that. Well, our trustees took a different decision and transitioned early, so I find that part of the debate a little bit unhelpful.
If we're looking for customer outcomes, should we just look at customer outcomes in retirement? That's what the superannuation system was designed for, the one I've been in for 28 years. I don't think that's changed. I find some of these debates unhelpful.
Andrew Creber, COO, JP Morgan Asset Management: Yeah. I completely agree. I mean again it all goes back to the client. At the end of the day these are schemes run for and on behalf of the members and in terms of the passive versus active discussions what I mean we should give the members the choice. If they want to run a passive fund, then fine, they have the opportunity to invest into it. We'll offer that active element as well if they desire it.
PC: The problem we've got is 85 per cent of people don't know the difference between passive and active.
AC: So I agree that there's a lot to do on the education side of it.
PC: It's advice. Advice is the oil that greases the engine. The rest of it's all academic.
PR: Yeah, the role of advice is absolutely paramount, and we've seen examples, haven't we, where it hasn't worked, but it'd be great for people to get access to appropriate advice at an appropriate price.
PC: We do that. We have our own advice business and we charge $880 for a plan, and it works beautifully.
PR: And we've got tiered models that would come in cheaper than that in some aspects and other aspects not. Full service more expensive.
LT: I think the thing we've got to be mindful of is that we're all working in the industry and in probably all of our cases for a long time and to your point there, Paul, $880, that's great for us that understand that, but I can tell you for, say, a 38 year old mechanic, 880 bucks is a lot of money.
PC: Well, you're 100 per cent right, but at 48 they'll spend it in a second.
LT: Well, they might, but I think the one thing that we're all in violent agreement about is that we need to be thinking about the member. Unfortunately, with a lot of debate that's going on at the moment, I think that just gets lost.
PC: I've learned more about the need for advice in the last five years than never before. I thought we could get away with it, but we run the fund, they get their advice. It's joined at the hip. You've got to have advice as part of it. If you don't you're basically turning off a whole tap because the experiences we've had is that people get to a point in their life, late forties, where they will focus in on it like a laser beam and the only way you can contend with that is through an advice mechanism.
You can have guys out on the road like we do constantly talking about it, but at some point they want their hand held, and it's from that late forties point into 55 and into 60 - 65 to get them over that bridge into retirement. As you say, the 38 year old couldn't care less. He's paying off the house, the wife, the kids, all that sort of stuff. When he gets to 48--and I'm speaking generally here--they're at that point where they can see the finish line. That's just there. It's just down the road.
LT: Or it's getting further away. <Laughs>
PC: Well, the problem is though, that people of our generation have still not got there mentally...It's marked in their brain at 55 I've got to--or maybe 60 because it's tax-free income. No-one's thinking 67. I'm not, but kids 20 years younger than us, they've got 67 imprinted on their brains. We don't, but the reality of it is we may have to. But it's very important that the advice starts as early as possible because you're right, when you're at forties - fifties, there's not much more you can actually do because you haven't got that much more runway to lead to a retirement. When you're in your 20s and 30s and that educational piece about the need for retirement and planning--
AC: And that's the failure of the system.
PC: Because we don't get the time with them early enough.
LT: No, but we can send some really, really simple messages, and this is one thing that I've thought about for a long time, particularly with [respect to] young people and again if I think about my member demographic and some of these people are joining the fund at very young ages. The one simple message, call it advice, call it education, but the one very simple message that they can have is the magic of compound interest. I mean God, if you just get them to understand that. You put it away and it keeps growing. That's half your battle done at that very early age. I just don't think we take advantage of those simple opportunities.
PC: I agree with you 100 per cent but it's generation-wide trying to get a concept through their head they have no interest in is just- you know, the problem is we get a few people who are interested in it and the bulk of them don't. And you can talk till you're blue in the face and because they can't access it, that's tomorrow's problem. Deal with it then.
LT: Why not send it as a picture? See it as a snowball going down a mountain.
PC: You know, we spend a lot of time on demographics. We do focus groups, all that sort of stuff, and the thing we're trying to pick here is: how do we get this little nugget for a 24 year old to actually pay attention? And the best bit of information we got is put a credit card around it because that's instant gratification and they might pay attention to it. Other than that you're wasting your time.