Superannuation funds look to leverage off of technological advantage

On the back of strong in­vestment returns, recent years have seen tech­nology providers to the super industry enjoying funds’ abili­ty to invest in their products and truly innovate their mem­ber offerings.

Of course, the story for 2008 is somewhat different. Invest­ment markets are volatile and account balances are suffer­ing — hardly the environment one would think conducive to technology spend.

But according to Ian Math­ieson, chief executive officer of DST International’s Australia and New Zealand arm, such tough times actually represent significant opportunity.

“Right across the financial services marketplace, recent years have seen people become far more conscious of their spend and the value they’re getting out of that spend,” he said.

“But while there is definitely more caution out there at the moment, we be­lieve that we should see a posi­tive impact on our business from the current environment, and not a negative one.”

Mathieson attributes that positive impact to business models.

“Our business model is about engaging our clients and show­ing them that our service is more than technology provi­sion,” he said. “It’s about re­viewing their current process­es and re-engineering when necessary.

“For us, it’s not technology that is the silver bullet, it’s the way that technology is used.”

Similarly, Ken Galbraith, man­aging director of technology and administration provider Finan­cial Synergy, said that the un­settled markets of 2008 had done little to change how funds were viewing their technology needs.

“There has been a greater focus on back-office cost sav­ings for a number of years now, so that is nothing new,” he said. “Even as far back as 2003, we were selling based on efficien­cy, and that is still the case.”

Instead, Galbraith said that funds’ focus was on organic growth of their funds under management and on retaining their existing membership base. What impact there has been, from the perspective of tech­nology provision, has been based on awareness.

“This year’s market volatili­ty, growth in the number of self-managed funds out there and legislative change have combined to mean that there is a greater member awareness of superannuation and the value that it represents,” he said.

“For super funds, that awareness has created a touch point that didn’t exist a num­ber of years ago and has meant that members are relying on funds for information and ed­ucation more and more.

“Until recently, superannu­ation was a commodity,” con­tinued Galbraith. “A person’s contribution appeared on their payslip and then disappeared into their fund, and that was the end of it.”

However, Galbraith added that with funds now providing more services, this was no longer the case.

“There is now a strong need for funds to differentiate their services,” he said. “And this places more emphasis on the platforms being used and on the technology providing them.”

But putting the effects of in­vestment markets aside, it seems clear that the goals for technology remain the same — efficiency and cost saving. Yet for Mathieson, though technol­ogy providers have ticked off many of the boxes on the way to this goal, there remains room for improvement.

“Twelve months on, I don’t think providers have ticked off anywhere near enough of the boxes they need to,” said Math­ieson.

“There continues to be a lot of talk and airplay on straight-through-processing (STP), but realistically, what the industry has done with respect to STP has been pretty poor.”

Mathieson said that super funds and technology providers would only get the sort of gains people were looking for with STP once there was total co-op­eration across all segments of the industry.

“And that means total co-op­eration between funds, banks, custodians and right the way through to the dis­tribution end of the process,” he said. “That’s where we can provide the best cost savings to the end user — the superannuant.”

According to Galbraith, the greatest gains in the 2007-08 fi­nancial year has been in au­tomation, the availability of real-time and online informa­tion and adviser facilities based on self-managed superannua­tion fund (SMSF) growth.

“When it comes to STP, we have a number of solutions in place that significantly reduce overheads for our clients,” he said.

“And that is where much of our emphasis will remain. There are big opportunities for errors to be made at the end of the process, so the use of au­tomation in these areas low­ers administration effort and, more importantly, lowers that error risk.”

For David Mendelovits, business development man­ager for Supercorp, the focus for improvement continues to be web related.

“A great deal of our Supervi­sor II focus continues to be on the web,” he said.

“Core parts of our new development include overall web access, the ability for users to access the administra­tion engine remotely and im­provements in terms of the plat­form’s general look and feel.”

And when asked where the most value was to be gained, where funds should have their emphasis so that efficiency gains could best correlate to de­creased costs, Mendelovits pointed to interoperability.

“I’d say the greatest efficien­cy gains, and therefore the greatest cost savings, are to be had from focusing on interop­erability between products,” he said.

“Platforms need to be able to integrate with workplace sys­tems, customer relationship management (CRM) systems and so on. As an integrated sys­tem, Supervisor II is able to ful­fil this role [whereas] a num­ber of our competitors are just member systems. That kind of interoperability is essential.”

However, it seems that plat­form and system interactions with the various parties involved in the superannuation transac­tion are top of mind for Galbraith as well. He said that though a number of things had come out of the last 12 months for Finan­cial Synergy, these interactions remained most important.

“For us, the target area has to be workplace efficiency and an automated and integrated workflow,” he said. “Funds aren’t going to get a lot of effi­ciency gains from pure back-end processing.

“An automated workflow is about more than handling pa­perwork, scanning documents and then escalating from de­viations,” continued Galbraith. “CRM services have to be a part of the mix as well.

“Funds now have huge amounts of information to deal with in addition to increasing demand from members for both information and education. CRM systems are essential.”

Interestingly, Mathieson’s view on where efficiency efforts should be focused is not point­ed at any specific technology or system improvement. Instead, he suggests technology providers look to the end user — the fund members themselves.

“For those funds looking for value, the biggest gains are found by going back to the end client and asking them,” said Mathieson. “This is something that we haven’t done well as an industry. We’ve made too many assumptions.

“Now is the time to focus on the end user and to discover what it is they want,” he con­tinued. “That may be web ac­cess, or it may not. It may be something completely different, but that is where the technol­ogy spending needs to be.”

Of course, web access, STP and automation represent but a few of the means by which technology providers are seek­ing efficiency and cost savings for super funds. There is yet another to add to the list — service oriented architecture (SOA).

But while SOA has been flagged as the next big thing for technology and the super in­dustry for a number of years now, Galbraith does not see it as the key achievement others have intimated.“SOA is important, but in it­self doesn’t deliver anything,” he said.

“SOA provides a plat­form where applications, im­proved web services and other tasks can be integrated. “So while we’re heading down that path as an industry, it’s one of those technology areas that is much more about how you provide it rather than just providing it.”

Alternatively, Mathieson said that he believed that most large vendors had SOA high on their priority lists.

“That means it is being seri­ously considered, in progress or already done,” he said. “The de­gree of completion varies.

“SOA is definitely important because it creates an environ­ment that is much cheaper from the software vendor’s per­spective and for the end user,” continued Mathieson.

“But bear in mind that there are many funds in the marketplace that are continuing to use older products.”

And for Australian super funds, this seems to be the key issue. It is no secret that the newly competitive marketplace brought about by Choice of Fund has many funds scram­bling to get adequate technol­ogy in place.

However, the fact remains that legacy systems persist and that a transition to a new platform is rarely easy.

So for those funds looking at a technology upgrade, what is the message from providers?

Mendelovits suggests fund executives keep in mind the reasoning behind any upgrade decision.

“People are investing in a new system so they can re-en­gineer their existing process­es,” he said. “And they’re look­ing towards the improvement that can be gained from such efforts.”

But Mendelovits also ad­mitted that the question of when to upgrade would always be made more difficult by the rate at which administration and service technologies were improving.

“Funds should probably be looking at a 10-year timeframe,” said Mendelovits.

“But at some point, you’ve got to put a stake in the ground,” he continued.

“At some point, funds have to bite the bullet and replace their existing systems knowing full well that there will be new technologies along two years later.

“That plunge has to be taken.”

Galbraith, on the other hand, views legacy systems remaining within the industry more favourably.

“Superannuation in Australia is a mature market and many of the older systems and process­es continue to work for that rea­son,” he said.

“So if funds are looking to improve their tech­nology, then I’d say it’s more im­portant to develop leading edge delivery systems rather than back-end processes that real­ly haven’t changed for years.

“These are systems and processes that can be migrated slowly,” Galbraith continued. “So I really don’t see the need to re-write them into new lan­guages just for the sake of it.

“That will happen, but there’s no need to race into it when it can be done in a much slower and safer manner.”

From Mathieson’s perspec­tive, though he believes some form of platform upgrade was necessary for all funds in the lead up to choice, the decision to undertake a complete up­grade will always be huge.

“Realistically, the gains have got to be a quantum leap for a fund to jump onboard that kind of overhaul,” he said.

“And un­fortunately, the disturbance that it represents is often rea­son enough for funds to stay with their current platform and maintain legacy systems.”

For Galbraith, if legacy sys­tems can interface with mod­ern platforms at the front-end, then a gradual upgrade is sufficient.

“But if that is not the case, then yes, you’re looking at a total system change,” he said.

“At that point, if we’re se­lected to replace a legacy sys­tem, then there’s a lot of rigour around the integration and transition process,” Galbraith continued.

“We aim to minimise distur­bance to the fund’s adminis­tration if at all possible, but un­fortunately, there aren’t any shortcuts.”

Yet while platform upgrades and the need to reconcile new and old technologies will re­main a theme for technology provision, it seems its future will be dictated by competi­tion.

And in the first instance, consumer demand for servic­es from their super fund should provide the lead.

Mendelovits said that he could already see consumer demand for various super ap­plications increasing.

“Funds offering ATM access to pension accounts, for ex­ample,” he said.

“Baby boomers tend to be comfortable with technology and competent with its use. So as they reach retirement, or even if they continue to work, it’s necessary to provide them with its benefits,” continued Mendelovits.

“In the case of real-time access to account bal­ances and so on, they may not make use of that technology every day, but it is becoming es­sential to have those kinds of regular updates available.”

According to Galbraith the technology for superannuation services akin to Internet bank­ing and share trading is ready and waiting.

“We’re not very far off being able to provide a fund’s mem­bers with online products that could deliver a comparable level of service to online banking,” he said.

“And the demand is almost there now. We’re starting to get the feel­ing that members are looking for that level of service.

“There certainly aren’t any barriers here from the tech­nology perspective.”

However, the competition driving technology provision to the super industry is not lim­ited to the client space. Con­solidation continues to occur for super funds and technology providers alike and the trend seems set to continue.

But could we reach a stage where technology, administration and even custody are services of­fered by a single provider?

Technology providers seem divided on the issue.

Despite Financial Synergy’s provision of both administration and technology to the super in­dustry, Galbraith said that he could not see such a consoli­dation happening.

“Financial Synergy sits in both the administration and technology worlds and we looked at expanding into cus­tody some years ago,” said Gal­braith.

“But from a legislative and technological point of view, that kind of package becomes quite difficult to deliver.”

Alternatively, Mendelovits admitted that technology providers represented a good link between service providers, adding that Super­corp was itself looking at a move to administration.

“That move will be towards the administration of small funds and SMSFs,” he said.

“The heart of the business will continue to be software provision,” Mendelovits added.

“But by offering both administration and technolo­gy to clients, we can better feel the pain of any problems that arise and better under­stand where they might lie.

“We can get a real-life view that is invaluable input for our final product.”

But for Mathieson, a con­solidated package of technol­ogy, administration and cus­tody services is not only possible, it’s likely.

“The current model is inef­ficient,” said Mathieson.

“Potentially, there’s a role for the larger and more dominant players to provide software and other services, including cus­tody,” he continued.

“It would probably take an existing cus­todian or administration provider to make that first step, but I think it’s a possibility.”

Mathieson added that the chance a consolidated service provider would have difficulty focusing on such specialised businesses was not a concern.

“Look at administration as a broader subject,” he advised. “Whether custody or adminis­tration, it’s still reporting, record keeping, processing and so on. It’s still administration.

“I think the greater danger is that we become too spe­cialised. Our market can cer­tainly support broader based administrators.”

So what next for technol­ogy? In the midst of market volatility, is it a case of weath­ering the storm or, as Math­ieson suggests, capitalising on opportunity?

According to Galbraith, there is no need for technol­ogy providers to change their strategies based on invest­ment markets.

“Yes, there is fluctuation in the market, but demand for technology and the solutions it provides is as strong as ever,” he said.

“The focus should remain on the de­mands of members and the services funds are offering.”

Mathieson reiterated that in­vestment market volatility was not something DST Interna­tional was concerned about.

“No one worries about bring­ing efficiencies when things are going well,” he said. “After all, what difference do small gains make when markets are buoy­ant and performing well?

“We’re looking at the current situation as a significant op­portunity,” said Mathieson.

“Times like this differentiate various market participants, differentiate those just offering technology and those leaving clients on their own.”