How superannuation funds are tapping into the technology revolution

The changing rules with respect to the provision of advice within superannuation, combined with the recommendations of the Cooper Review, are driving technological change. The challenge, Damon Taylor writes, is to understand the options.

From core registry solutions to the processing of transactions to financial advice platforms, the scope of what technology provides the super industry has been increasing.

Competition within the super industry seems to be driving systems and process complexity and yet, just as there are multiple technology providers to this industry, so too are there a number of approaches to technology implementation. The challenge lies in fund trustees’ ability to pick between them.

Commenting on the technology now required by super funds, Bravura global head of product Darren Stevens says that the complexity is certainly increasing, and that in a post-Cooper environment it will only be enhanced.

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"The requirement to give intra-fund advice for example, which hasn’t really been defined, versus the choice advice, the full advice, will mean that you’re going to end up with specialist providers of those technologies," he says.

"Funds will need to have the ability to provide a lot of that intra-fund advice on a cheap basis with straight-through processing linked into their admin systems and linked into specialist calculators.

"The requirement to have to do detailed projections going out to retirement will require specialist providers," continues Stevens.

"So you’ve got guys that are producing that right now and it’s the ability of the underlying registry solutions and the admin solutions to integrate with those that is what’s going to be important."

For IQ Business Group chief executive Graham Sammells, much of the technology status quo has been dictated by constant regulatory change within the super industry.

"The super industry has been burdened by constant regulatory change and that has meant that the platforms that exist out there in the marketplace today have had no choice but to focus on the core registry functions," he says.

"So by that, I mean managing member details, benefit calculations and configuration and they simply haven’t had the chance to keep up with a lot of the peripheral services like workflow, reporting, intelligence, CRM [customer relationship management], dash-boarding and the like.

"I think they’d be the first to acknowledge that they’re behind the market there and, in fact, some of them have taken a conscious strategy to focus on the core and just do that really really well.

"Some super fund customers are taking that strategy as well and sort of going ‘best of breed’ specialisation on the key peripherals around it," Sammells adds.

"They’re therefore opting to make systems talk to each other in order to achieve the best outcome rather than having the one platform try to do everything."

With a very different perspective on the merits of specialisation within superannuation platform technology, DST Global Solutions Bluedoor executive director Mark Cassar says while integration is certainly the key, it is difficult to achieve it with a range of products from different providers.

"What we’ve had in the past is a whole bunch of specialisation," he says.

"You’ll see major institutions buying workflow systems, imaging systems, web systems, and each one of these is a specialist system in its own right.

"Of course, the issue with those is the integration project that’s required to make everything work together and in an efficient manner," continues Cassar.

"So what we’ve seen in recent times is a shift away from that kind of approach to an end-to-end, purpose-built superannuation system taking into account the whole end-to-end business process.

"And that’s really what we need because at the end of the day, we’re effectively trying to do more with less."

Cassar says fund trustees have only to look at where the wastage is in their superannuation systems and processes to see how important integration is on the whole.

"The wastage is where people get involved in processes and we don’t want that to happen for two reasons," he says.

"One, we don’t want them to do the work to begin with and secondly, when they do the work, they make mistakes and those mistakes can be pretty profound.

"The true differentiator here is integration," continues Cassar.

"It’s the way all of these systems are integrated and work together and the cost of getting that to happen. And even if you could get to spend the money on making that work, there have been a litany of different projects that have failed to deliver on that outcome.

"They just don’t get to the end, it’s just too expensive, too time-consuming and things go wrong."

Of course, the other side of technology implementation comes down to where scale fits into the equation.

In the past, scale has been a vital ingredient in the technology game, but according to Sammells scale can be accomplished even with the use of multiple products.

"I think that if there’s clear delineation between what each part of the application stack is supposed to do, then actually scale can be well managed and perhaps better managed when using multiple ‘best of breed’ specialised products," he says.

"Nowadays, using open standards, the whole exercise of integration, while I won’t say it’s easy, is more optimal.

"And if you can get that integration right, then you can leverage the ‘best of breed’ in each of the specialties, to do what they do well, and particular customer relationship management (CRM) vendors will achieve scale and functionality a whole lot better than trying to build that stuff into an existing platform," adds Sammells.

"So I think that if the integration’s right and if the process is right, that scale is achievable without the big enterprise platform model.

"But the key here is working out what that right technology and systems architecture is so that you can fit the pieces together."

Commenting specifically on the delivery of financial advice platforms, Provisio Technologies director Cameron O’Sullivan says that there might be elements of the technology game where perspectives on scale are changing.

"What we’re all looking for in the advice space — and by that I mean the members, the funds and the guys trying to provide the advice tools — is the ability to service a much greater percentage of the fund membership than is currently possible," he says.

"And the only way to realistically do that without dramatically changing the fee structures and the fee bases all the members are paying is to be able to do it at a significantly lower cost than would be possible using the traditional tools that everyone’s been running with.

"Some combination of web delivery and call centre solutions really is the only answer for those funds with a 60 to 70 per cent portion of their membership who really aren’t appropriate for a full face-to-face type advice process," O’Sullivan continues.

"Their needs don’t justify it and they’re not willing to pay the fees.

"To me, scale implies that you have to get to a certain size before this will work but in reality, any fund large enough to exist probably has enough members to justify some form of rapid advice process because its going to deal with the majority of their members."

Alternatively, Cassar says that scale will always be best leveraged by an end-to-end system.

"It goes back to this whole purpose-built theory and obviously we can get economies of scale across that," he says.

"But it’s a different kind of scale. When some financial institutions talk about scale, they’re talking about 200 different administrators and doing more with another 200.

"When we talk about scale as a vendor, we’re talking about a goal of having 30 different institutions and so we can leverage any development cost across all of those clients," continues Cassar.

"If, for example, ANZ pick a workflow system and AXA pick a workflow system and AMP pick a different workflow system, they each have to do that full integration and the cost is three times as much.

"But when we do it, we do it once for everybody and we do it in a far deeper, more seamless sort of way than individual institutions could ever achieve in their own right."

Not surprisingly, one of the major catalysts for a renewed focus on technology and the role it has to play within super has been rebounding investment returns. While views seem to differ on the consistency of technology spend throughout the global financial crisis (GFC), Stevens believes current circumstances have given funds an opportunity to take stock of their technology situation.

"Most of the funds that we’ve been talking to have been looking through their various processes and determining where the bottlenecks are," he says.

"And when I look at the SuperStream projections on what’s going to be saved in the industry, I think most of the savings are going to come out of these sorts of administrative processes that people have been working through.

"I know about three or four funds at the moment who are putting in new workflow systems, they’re putting in optical character recognition systems to get the straight-through processing occurring with way less paper handling and people are putting in CRM systems as well," Stevens continues.

"So I’m seeing a lot of that ancillary system work happening right now and, in time, you’ll see the benefits of that downstream."

Cassar says that he’d be more inclined to say that the GFC has presented funds with an opportunity when it comes to technology.

"What the GFC did above all else is put pressure on funds and their executives," he says.

"When you think that in order to maintain margins in an environment where revenues are decreasing, you’ve got to decrease your costs — and you realise that that’s not an easy thing to do.

"So if you’re not on a reasonably efficient system, if you can’t take advantage of some of the technological improvements that have been coming over the last couple of years, then you’re definitely at a disadvantage."

Looking at both technology spend through the GFC and many funds’ renewed interest in technological improvement within their business processes, Sammells says it will be interesting to see what the next 12 months will bring.

"Part of all technology spend has to be consistent because that’s the basic maintenance activity," he says.

"But only recently have we noticed some funds starting to really lift their heads on some discretionary technology spend, putting a proper focus on certain data management activities or investing in some data warehousing and reporting capabilities where these kinds of projects have been off the radar for the last couple of years.

"The most important thing here though is that the thought process happened," Sammells continues.

"I think it gave funds a real opportunity to look at not just systems but all the processes that go with it and we’re finding some funds and some administrators putting a good focus on process improvement and not just technology.

"That’s pretty healthy because the reality is that you can’t have one really doing well without the other."

Yet while technology broadly is being viewed with fresh eyes by all super funds, if recent press is any indication, financial advice delivery is its biggest drawcard.

Advice in all its forms is creating a great deal of interest on the part of trustees and members alike and according to Sammells, technology providers are well placed to assist.

"We’ve seen a few funds get on the front foot with some new pieces of technology that are being integrated into their environment and offering a particular solution to this issue of intra-fund advice," he says.

"Some of these are off-the-shelf packages and some funds have tried to do their own thing using some sort of rules engine to talk to the platform to then expose the outcome of that through the web.

"So that’s clever and there’s plenty of other solutions out there like that, but they’ve typically been bolt-ons to the core platform and not the platform itself expanding outwards," Sammells continues.

"I think some funds have started to look at what’s out there and some are still going through the mindset of ‘should I try to develop my own?’ or ‘should I go back to the platform vendor and ask them to build something for me?’ versus the third party packages that are out there."

Sammells says that many fund executives are still making their minds up on what direction to take when it comes to the provision of financial advice.

"And I say that because I only know of probably a handful that have gone out there and said that they’ve acquired applications and are going to be offering that service," he says.

"But certainly, they’ll be looking long and hard at the whole issue of how to do it on scale and technology has undoubtedly got a key role to play."

However, the key question, according to Stevens, is whether funds will be able to implement financial advice delivery platforms around their existing processes, systems and software.

"There’s definitely going to be some element of increased technology spend for the older solutions," he says.

"Whereas some of our legacy systems have a full suite of APIs [application program interfaces] or remote procedure calls which allow for that integration to occur, that’s just because we’ve had them around for years and we’ve been integrating with websites for years.

"But there still will be additional requirements and SuperStream as well will bring in additional requirements," Stevens continues.

"So the more modern architecture, the service-oriented architected solutions are certainly the ones that will be the lower cost for super funds."

For his part, O’Sullivan says that just about every fund that has tried using one of their existing solutions, which usually meant some form of holistic software, has really struggled to get the efficiency gains they were looking for.

"You’re looking at somewhere between two and three SOAs [Statements of Advice] a day and that’s going to struggle to ever deliver the scale that people want," he says.

"But within transactional advice and the new systems specific to it, if the phone call takes half an hour then the whole advice process takes half an hour because during the phone call, and as part of quantifying the benefits to the member, you’re building the scenario and the moment the phone call’s finished, the click of a button is all that’s required for the advice documentation to come out.

"You’re not cutting corners in terms of the advice service — the phone call’s going to take however long it takes to explain the strategy to the member and get them comfortable with it — but the actual paperwork production after that is a click of a button," O’Sullivan continues.

"And that’s far more the sort of scale that funds are going to need."

So looking to the future of technology within the super industry, the primary challenge seems to lie in balancing legacy systems that may or may not be working sufficiently against new technology that may be in the form of multiple products or one end to end solution.

As a broad comment, Cassar says that a great deal of the industry’s current technology is comprised of legacy systems.

"We’ve seen some of the big providers try to take some steps forward in order to get their scale up but the whole scale argument is an interesting one," he says.

"What we’re seeing, in industry funds in particular, is if you read the financial press, you’re reading that these funds with less than $6 billion can’t survive, less than this many hundreds of thousands of members and this kind of thing.

"Well, the technology today is actually changing that, because if you take the sublime to the ridiculous, if you’ve got no administrators because everything is happening online and in real-time with no one having to do anything, then does it matter whether you have 10 accounts or 10,000 accounts or 10 million accounts?" asks Cassar.

"So when it comes to this whole argument about scale, the legacy technology is where scale’s really important because they can’t get that efficiency.

"But with the later technologies, when you’re doing everything online, self service, that sort of thing, its changing the nature of that scale debate."

Stevens says that his main observation is that many funds have well-established legacy solutions and are comfortable with them.

"They’ve tended to focus on the areas of inefficiency in their businesses, through workflow, OCR [optical character recognition], and making sure that integrates with their legacy systems," he says.

"A good example is someone like Mercer who have spent quite a lot of money and time and effort themselves over the years building their own suite of solutions around the outside of our heritage solution Superb.

"So if you went to Mercer and said ‘look, will you be migrating off or changing Superb?’ they’ll sit there and say ‘no, it works, it’s a good calculation engine and we’ve fixed up the rest of our business by doing other things’.

"Over time that will change but it will change depending on the type of businesses that are there."

Giving a guide to what the technology provider focus will be in the future, Cassar says that DST Global Solutions Bluedoor will continue working to improve the efficiency of the administration process.

"We’re doing that by fully integrating all the components of the end-to-end business process," he says.

"Firstly, we’re trying to remove paper from the system entirely, and Cooper will help to do that, but even in the legacy businesses where paper is still very much a part of the world we’re providing automation.

"So from the time mail hits the mailroom and is scanned, we’re reading the image data on a piece of paper and pre-populating that data into the system," Cassar continues.

"And that means that the administrator is checking that we’ve extracted the data off the paper correctly rather than keying it in themselves. But even in that sort of old world context, we’re still creating higher levels of efficiency and we’re doing that with that really tight integration between our modules.

"Our continual aim is to get higher levels of efficiency, taking that natural cluster of systems that make up that whole business process of the administration of super and really tightly integrating that."