Stronger Super begins a new technology journey for super funds

The implementation of Stronger Super and its associated SuperStream initiative represents the beginning of a technology journey but, as Damon Taylor writes, it is a journey with many twists and turns yet to be navigated. 

From administration and custody to member communications and advice, technology underpins much within Australia’s superannuation industry. Indeed, in recent years the technological balancing act between efficiency and innovation, client and member, has been a tricky one. 

But for Darren Stevens, director of strategy for Bravura Solutions, it is one funds must continue to excel at. 

“The industry is having to do both and I think will continue to have to do both,” he said.

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“Working simultaneously towards efficiency and innovation will always be vital – but there has been a move to a more dedicated focus on the member as well. 

“So at the moment, super funds are looking at retention as one of their biggest priorities – how they can fight to win and retain members – and that’s the piece that’s really pushing them in terms of innovation.” 

Yet for Stevens, super funds’ biggest asset in technology development is the extraordinary amount of crossover that can be achieved in all areas of their business. 

“Developments around engagement and analytics and mobility are assisting them in pushing out what they do more efficiently,” he said. 

“In many ways, superannuation is becoming self-service to the member, and with funds doing that in a straight-through processing way, efficiencies are coming from the fact that members are doing certain aspects of administration themselves. 

“There are some purely mandatory pieces around SuperStream that are focused very much on efficiency as well, but even that gets into how funds work with those employers that are contributing to the fund,” Stevens added. “So there’s a piece around engagement in that as well.” 

However according to Ron Mullins, principal consultant for the IQ Group, the more difficult technology balancing act funds must handle at the moment is between efficiency and compliance.  

“Broadly speaking, the super industry is experiencing a great deal of pressure on efficiency at the moment,” he said.

“With so much compliance activity in SuperStream, Stronger Super and the new APRA (Australian Prudential Regulation Authority) reporting requirements, funds find themselves constantly working towards compliance – but they’re also having to balance that as they seek operational efficiencies across their business. 

“So when you look at compliance-driven activity, whether its SuperStream or APRA reporting, funds are looking to implement but they’re actually looking at efficient ways to deliver the outcome as well,” Mullins continued.

“Across the board, they’re faced with real pressure in terms of doing the same, or more, with less.” 

But when putting efficiency in the context of innovation, it seems both Mullins and Stevens are of the same mind when it comes to the super industry’s increasing focus on member and employer engagement. 

“We’re seeing that in digital engagement pilots or extending mobile services or the use of data analytics,” Mullins said.

“Those are areas where the concept of innovation is starting to come through. 

“Examples we’ve seen recently are some great mobile websites that let members navigate their accounts or switch online,” he added. 

“We’ve also seen some great innovation in terms of how members can join funds online, but when I’m talking to funds I think the broad thing we’re seeing is that there’s this huge raft of legislation and compliance-driven activity – and once that’s all delivered, funds are going to be able to take a breath and start focusing on innovation. 

“But it’s just as clear that the smart funds are starting to gear up for that now.” 

Yet while Australia’s super industry may be anxious to innovate, the unfortunate reality is that legacy issues persist.  

Despite the best efforts of custodians, administrators and even the SuperStream legislation itself, manual processing remains prominent and for Mullins, it is a status quo that must change. 

“The implementation of SuperStream is just one piece but it is a significant piece of the puzzle when it comes to removing manual processing,” he said.

“I think what SuperStream delivers is the enabler, it delivers the connectivity between all the stakeholders. 

“It’s effectively the framework between members, employers, funds and Government, allowing them to send data and money in a standard format,” Mullins continued. 

“But again, it’s the smart funds that recognise that this is the connectivity that gives you end-to-end processing and will ultimately lead to the removal of manual processing altogether.” 

Mullins pointed to the on-boarding of a member as an example. 

“So someone joins a fund and wants to roll their money into that new fund, which is obviously standard practice,” he explained. “The first part of that is to process an application. 

“Now if funds are going to manually key-in an application on a paper form yet leverage SuperStream to process part of a rollover, they’re not really achieving a good outcome,” Mullins continued.

“They need to look at the end-to-end process, look at removing the manual steps and of course recognise that the member’s experience is part of this as well. 

“Its really about end-to-end connectivity.” 

Similarly, Peter Hill, managing director of SimCorp Asia, said that manual processing continued to challenge efficiency and automation for both investment management and back-office administration. 

“Manual processing, workarounds, spreadsheets, cutting and pasting between one spreadsheet to another, individuals creating a formula, particularly in the investment management and administration process, is still a major issue,” he said. 

“Fundamentally, what a superannuation fund needs to know is what assets they have, what the value of a portfolio is and what their exposure is. 

“But they need to know that in a real-time and accurate manner,” Hill continued.

“So SuperStream is an important contribution and I think what will result from that will be that superannuation funds will start to look at the investment process as well. 

“SuperStream tends to focus more on the member administration and the collection of contributions and so on, but I think the next step is what are we doing with those contributions in terms of the investment management.” 

Continuing Hill’s line of thinking, Stevens said that when it came to manual processing, super funds had only just started to digest the implementation of rollovers and the infrastructure around SuperStream. 

“That was the first stage and it hasn’t all gone smoothly for all parties,” he said. “Contributions are a whole new ballgame and it’s the big part of SuperStream, so I think we’re going to continue to see a level of inefficiency through to 2016 and beyond while this is all bedded down. 

“But it’s more than that as well,” Stevens added. “We’ve worked with a lot of our clients around streamlining the back-office procedures that link in to SuperStream. 

“So it’s all well and good to get the electronic messages pumping into your systems, but if they then hit manual processes behind the scenes, that’s not going to improve efficiency in the business.” 

For Mullins, the key was for funds to ensure that it was the end-to-end process that they were focusing on and not isolated aspects of existing workflows. 

“It’s taking that end-to-end experience and looking at the way the stakeholders engage with the fund,” he said. “And that member on-boarding experience is the great example. 

“In isolation, funds would say ‘look, we’ve removed paper and cheques from rollovers, this is great,’” Mullins continued.

“But if you step back and look at the end-to-end experience, where a member joins the fund and consolidates, its still riddled with lots of manual points. 

“The smart funds are the ones who can look at an end-to-end process and then orchestrate that end-to-end experience.” 

Of course, the method of how best to deliver that end-to-end experience to members presents super funds with yet another challenge with respect to technology.

Indeed, the choice between bringing services in-house or instead outsourcing has been a constant in recent years – and one which Mullins believes funds are still grappling with. 

“Look, this is always going to be a fundamental dilemma for funds,” he said. “In-sourcing will bring funds control in so much as they can manage the inputs and outputs and they then own the outcome. 

“But the risks involved in in-sourcing centre around the adequacy of expertise and innovation in that fund,” Mullins explained. 

“The other side of the coin is outsourcing and it always comes at a cost, with the fund needing to shift their focus to a vendor management framework – and then the art is in managing the outsourcer rather than the service itself. 

“But I don’t think it’s a simple case of in-housing versus outsourcing anymore – it really is a mixed approach to obtain the best outcome, to obtain best of breed.” 

Alternatively, Stevens said that trends towards in-housing or outsourcing were largely driven by a fund’s particular circumstances. 

“AustralianSuper, for example – you see them in-sourcing quite a bit of their business,” he said. “They’ve become a scale player in their own right and so it’s no surprise that they want to take more control. 

“But a lot of that is focused around investment capability and that’s where they can actually save cost,” Stevens continued. “Where we’re seeing people look increasingly at outsourcing is in pieces like technology.” 

According to Stevens, a changing legislative environment and the need to transact using modern communications standards could become a powerful motivation for funds to seek outside expertise. 

“If you’ve got to keep three legacy systems up-to-date with regulatory change, and if you’ve got that in-house by yourself, you’ve essentially got to do all of those changes yourself every single time they occur,” he said.

“That’s no easy task whereas if you’ve outsourced that to a specialist technology provider like ourselves; we cover that regulatory change for our entire client base as a matter of course. 

“But the other aspect to this question is the speed at which technology is changing and how vital it’s become for funds to be on modern, up-to-date software and hardware,” Stevens added.

“Some of the older, legacy platforms tend not to conform with the modern communication standards that we see with modern solutions. 

“So web services and service-oriented architecture are buzz words that have been in the industry for a number of years now – the ability for you to access the underlying system in a standards-based communication method, to have a system that allows clients to have their website that they design and can control but that can then seamlessly connect in to our underlying registry systems using these standards-based communication methods.

"It’s all critical to funds operating their business efficiently and keeping their services in sync.” 

Interestingly, Hill pointed out that there would inevitably be aspects of the superannuation business that lent themselves to one model or another. 

“The relationship with the member is obviously critical in terms of being able to scale your business and retaining that over the life of both the accumulation phase and pension phase,” he said. 

“Some of those aspects are important but equally, where funds can bring something like investment management in-house and do it more efficiently, that can be a pretty compelling proposition as well. 

“In things like technology and administration, there’s no doubt that funds are better off seeking the scale and expertise that an external manager can provide, but in things like investment management, where the expertise might be in-house already, the efficiency argument quickly starts to gain traction.” 

Indeed, if there is one common theme linking all aspects of technology within superannuation, it is funds’ desire to do more for their members.

Online calculators, social media, mobile websites, even data analytics all have their foundations in technology, but for Stevens these are now tools and services that good funds have offered for some time now.  

“So certainly, everybody has either got in place the basics or has put in place the basics around the tools, the calculators, the member communication, online access to statements and so on,” he said. “All of that is just hygiene factor now. 

“But the analytics piece is the one where everyone is focusing, that and mobile delivery,” continued Stevens. “And so the question becomes how you, as a super fund, take all of that good stuff that you’ve got and make it relevant for the person who’s looking at it when they’re actually looking at it.” 

And in a financial services environment in which comparisons to the banking industry are common, Stevens said that the key was ensuring not only relevance but usability as well. 

“So don’t give them a big PDF document on what’s going on in the industry,” he explained.

“Give them something really easy to read on an iPad or on a mobile phone that’s specific to their current situation. 

“Look at their age, look at their trends, look at whether they’ve got a new house, understand that and realise that it’s going to have an impact on what they need to do with their super,” continued Stevens. “If you do that, it’s easy to present them with relevant information – but it’s also more effective. 

“People have talked about this kind of thing for a long time but the analytics and the availability of the data is there now for funds to actually deliver.” 

Following a similar line of thinking, Mullins said that while there were significant differences between the services offered by the superannuation and banking industries, super funds would do well to learn from the big banks’ success. 

“Comparisons between the super industry to the banking industry come up all the time,” he said. “Is it fair to compare these industries? Probably not, because there are some fundamental differences between the two. 

“I think though that there are lessons that need to be leveraged across all industries,” Mullins continued.

“And it’s an obvious consideration given that there’s actually $1.45 trillion in superannuation, a figure that now exceeds Australia’s banking deposits in terms of total funds under management.” 

In terms of where the super industry needs to be with respect to client or member-facing technology, Mullins pointed to two key themes. 

“One is a robust system and that’s really around Government and prudential regulation,” he said. “They’re starting to set clear expectations and we’re seeing this through APRA reporting, PPG (Prudential Practice Guide) 235, data management and so on. 

“There’s a huge prudential focus on the systems, and the industry needs to have the technology in place today – not to mention the controls and governance – in order to meet those demands,” Mullins continued.

“But the other side is the reality that this industry is screaming out for better member and employer engagement.  

“It really centres around innovation and the application of technology for better retirement outcomes, not just creating single-point solutions but bundling together different technologies for an end-to-end outcome.” 

As Australia’s superannuation industry continues to evolve in the face of changing legislation, changing demographics and the hard work of individual funds, it seems clear that the implementation of technology will be key.  

Indeed for Stevens, it is inevitable that the larger funds will set the pace and that competition will be fierce. 

“The larger players are the ones that are now working on scalable solutions; they’re the ones that are thinking about focusing on their core businesses and outsourcing the pieces of business that are better done by specialist organisations,” he said. 

“But all super funds, irrespective of size, need to have the flexibility in their platforms to offer that wide range of financial wealth products with a far greater level of personalisation.” 

Offering a quite different perspective, Hill said that technology development would also have to focus on investment. 

“I think the main thing is broader asset classes,” he said. “So traditionally, you’ve gone into a significant amount of fixed income in terms of bonds and some element of equities. 

“But what we’re seeing internationally, and what we’re now seeing in Australia as well, is people taking large positions in specific infrastructure assets,” Hill continued.

“They’ll take significant positions in individual companies, in property, but nevertheless they’re still going to have the vanilla investments in terms of bonds and equities and so on. 

“The challenge they’re going to have is changing their investment mix as they get more scale but, at the same time, maintaining that holistic view.” 

For Hill, the reality of volatility in investment markets means that fund executives need to know as much as possible as quickly as possible. 

“They’ve got complex investments, they need to know what their assets are, what their portfolios are worth and what their exposure is,” he said.

“And given the volatility we’ve experienced lately, the exposure issue is an important one. 

“You need that holistic view, but it needs be accurate and in a real-time manner so that you can make decisions and, more importantly, be confident in them.” 

Yet the reality, according to Stevens, is that super funds need to apply technology to both investment and the member in equal measure. 

“The super industry is in a quite interesting situation, with trends similar to what we’re seeing in private banking and private wealth type solutions on the one hand, and a huge great lump of MySuper clients who are going to be very hard to engage on the other,” he said.  

“So funds’ real focus will be balancing those default members with a superannuation business that’s moving towards what is essentially a retail-style solution. 

“This is a trend that started back in 2005 with Choice of Fund but with the rise of self-managed super funds, member direct investing and advances in advice, its been accelerating rapidly,” Stevens continued. “So the bottom line is that this industry needs to compete. 

“Funds needs to compete with the banks and the big retail wealth managers, they need to build loyalty, they need to build engagement and to just keep pushing out the use of data analytics to better serve the member.”