Service providers feel consolidation flow-on

Consolidation of super funds will create winners and losers amongst the finance industry's service providers, according to Holding Redlich partner Jenny Willcocks.

Industry consolidation as a result of Stronger Super reforms would create increased competition among accountants, actuaries, law firms and investment advisers as the market became smaller and competition increased, according to Willcocks.

"Consolidation will therefore not be confined to just the number of superannuation funds," she said.

"Each merger results in winners and losers for these service providers."

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Smaller super funds that chose to go alone rather than join another fund could find it difficult to perform under incoming regulations, she said.

"The viability of some of these funds going forward is questionable and it remains to be seen whether they will succeed in obtaining an authorisation (for MySuper) from the Australian Prudential Regulation Authority (APRA)," said Wilcocks.

Industry consolidation among APRA-regulated funds had reduced the number of APRA-regulated funds from 463 four years ago to 344 now, she said.

Higher compliance requirements, duty of care, and obligations imposed on the directors of super funds would make it difficult to operate a low-cost fund, according to Willcocks.

"Those funds that run lean to keep their costs down may find this is simply not possible after 1 July 2013," she said.

"When you add in the lack of scale, the flow-on effect is likely to be an increase in merger activity over the next 12 months."

Continuous change in the super industry over the past 20 years showed no signs of abating, regardless of the outcome of the upcoming election in September, Willcocks said.

This was leading to the disappearance of small corporate funds, and industry funds that were unable to develop the same member benefits and cost savings as the larger funds.

It was "inevitable" that reforms would lead to larger, fewer super funds she said.

Recent research by Buchan Consulting suggested super reforms would constrain the number of mid-sized funds — but smaller specialist funds would survive.