Super funds facing major technology upheavals

While the superannuation industry has faced plenty of recent challenges in implementing policy changes, SimCorp’s Peter Hill writes that there are more technology-driven changes ahead. 

The new wave of technology is upon us. Rapid advances in information technology are reshaping virtually every facet of corporate life, and the superannuation sector is not immune. 

This will be a new chapter in integrating the custodians and the services they provide to the super funds. Services such as hosting integrated front office technology will be one of the key differentiators that will set the custodians apart. 

But what does it really mean? How will the industry benefit from this? When can the super funds expect these services to become available? 

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Legacy systems and processes that have been in place for years are now being replaced by faster and more efficient operating methods.

The organisations that successfully embrace these new technology tools will be best placed to deliver the superior levels of service that customers will come to expect. 

One of the areas of increased focus is now front office services. While most super funds outsource middle and back office services to custodians and service providers, front office capabilities (in terms of portfolio management, execution, etc) is still an untapped market for the custodians, leaving the super funds with the burden of establishing their own operational capability. 

This will soon change. By removing barriers and improving the flow of information, custodians will be able to set themselves apart in terms of the services they can provide to their clients – and the super funds will benefit from a complete, real-time front-to-back service offering, available in the market. 

Key to the successful evolution of real-time front office services is the use of an integrated system. Super funds who increasingly manage funds internally will benefit from modern portfolio management technology – and from services being available at prices that reflect the economies of scales which they are accustomed to in their middle and back office offerings. 

Rather than individual firms ‘going it alone’ and implementing inhouse systems with add-ons, significant benefits can be gained through the adoption of standardised, robust hosted offerings. 

To gain an understanding of the challenges and issues the industry faces, Super Review magazine recently hosted a round table discussion with a number of key industry executives which provided an insight into how they see things evolving in the future. 

Alex Hutchison, CEO of Energy Industries Superannuation, said: “I want to go preferably to one source, probably the custodian, and say ‘I don’t want to go to a third party. I don’t want to run my own separate internal data warehouses. I just should be able to go online or ask you for a report and receive that report. I’d be more comfortable if custodians could step in and simply provide it to me at a proper cost.’ That’s where I see things now for the current challenges we have.” 

This thinking provides great opportunities for custodians. They have the option of extending their services because if you can get closer to your client and provide what technology can now offer – from trading and execution right through to the investment, administration and all data requirements – the business opportunities are endless. 

David Mackaway, general manager of operations at Challenger, said changes in the broader market were also increasing pressure on industry players to make their operations more efficient and interconnected. 

“As people transition from accumulation to retirement, all of a sudden there is a lot more focus from Australians on what they have in their retirement savings and what they are going to do with it.” 

Peter Curtis, head of investment operations at AustralianSuper, highlighted the increasing complexity of investments as a challenge for the sector.

As the total investment pool continues to increase, fund managers are constantly seeking new ways to maximise returns. Here, having the most appropriate technology systems in place is vital. 

“I think that, with the whole issue of complexity, the ability to still look across the portfolio is just becoming more and more important to us. Our custodian sits at the centre of our eco-system of all the various parts that we are interacting with across the whole investment portfolio.” 

Mackaway asked whether Curtis would consider using his custodian as AustralianSuper’s underlying technology provider for portfolio management capability, to which Curtis responded: “If they came up with a solution that met our needs, yes, certainly. We took a look at anything they had which was going to fill a gap.” 

Portfolio management, trade execution and integrated solutions are real offerings that custodians can offer their clients, and discussions on this are already underway in Europe. It is the custodians who are best placed to provide a fully-integrated offering – from back to front office – to the super funds. 

The technology needed to achieve such an integrated approach is already tested, proven and in production in Australia today. While it’s true that there is a level of reluctance among some custodians to shift from their existing legacy platforms, the benefits of extending their services will more than outweigh the investment and effort required to make it happen. The time to start is now.

Peter Hill is the managing director of SimCorp.