Working with third parties could ensure funds suit all members

It is crucial for super funds to recognise that their members have different needs and different risk appetite and they should have a strategy in place for those who do not fit their product range, which might include working with the third parties.

Speaking at the Australian Institute of Superannuation Trustees (AIST) conference, Mercer’s senior partner, David Knox, pondered whether, in the absence of the adequate products, funds should advise their clients to look for products elsewhere and send those clients to the third party.

“What a fund needs to do is have a strategy to say what we are doing for these who do not fit the products that we offer. There is no reason why a fund cannot work with a third party, whether it is a life insurer or whether some other form of organisation, maybe someone with the pool of the longevity products,” he said.

“I don’t think the fund has to have full suite of products but they need to recognise there is a heterogeneity of members with different needs, different desires and different risk appetites.”

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Knox stressed that some members would want a very high growth, riskier approach, while others would be on the other end of the spectrum, and even when a fund does not offer a full range of such products, and all needs should be taken into account.

“Of course, the problem with that is that most funds do not want to pass assets on somebody else or members on somebody else. But there will be some cases when this will be appropriate,” he added.

According to Geoff Warren, an associate professor at the Australian National University (ANU), one of the biggest challenges that super funds faced when developing their retirement strategies was the heterogeneity of the members.

“This raises the question that if you are dealing with a lot of different dimensions [of clients] what member information you would need to cohort and tailor [the strategies] effectively,” he said.

The other thing funds needed to have was a mechanism which would design the joint investment strategy and a drawdown strategy.

“The retirement strategy is essentially two components: there is an investment strategy and the drawdown strategy that will be actually working in tandem,” he said.

In order to build such a strategy, the funds would need to decide which investment building blocks they want to use. This might be some combination of growth asset portfolio, defensive asset, longevity insurance or annuities, among others.

“And I am a big fan of thinking about it as combing various building blocks rather than developing products, so dividing building products and drawdown strategy to arrive at an overall retirement strategy.”