Superannuation funds turn to technology for a competitive edge

As superannuation funds and administrators seek to keep pace with an ever-evolving regulatory environment, Damon Taylor writes that technology is at the core of remaining competitive and keeping members engaged.

Drives for efficiency are nothing new for administration technology providers within Australia’s super industry. Indeed, as the architects of those platforms providing the foundation for super fund operation, such drives reflect the providers’ own goals – even play to their strengths.

Yet in the current superannuation environment, the search for efficiency and cost reduction has intensified and for Darren Stevens, global head of product, wealth management for Bravura, this has necessitated a degree of change to providers’ focus.

“What we’ve seen is a trend towards managed service and outsourcing of IT as a key focus, particularly for some of the larger players,” he said.

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“In the past, they’ve had their own IT shops, they’ve been working and developing their systems, and what we’re seeing is a dichotomous change in the market where they’re not only having to look for the efficiency piece.”

“Providers are now looking to quickly get some new function or differentiation to combat, for example, self-managed super funds,” Stevens continued.

“But we’re seeing the IT component coming in as well - they’re looking to the managed service, where we provide everything from the hardware to their administration systems, we guarantee a level of service back to them, we manage their IT change requests that come through to develop new functionality and we provide the disaster recovery and first line help desk.”

“So that’s taking away the commoditised component of the administration function and allowing funds and administrators to focus on those differentiation components.”

Illustrating such a point of differentiation, Stephen Mackley, chief executive of Financial Synergy, said the changing superannuation landscape had placed his company’s focus very firmly on improving member and advisor online capabilities.

“A lot of super funds have a members’ online portal, but very few have direct processing straight through to the backend or the registry system,” he said.

“So what we’ve done is push straight through processing to the point where we’re designing and building something that will compete with what the banks are currently doing.”

The point, according to Mackley, is that almost all Australians now do their banking online.

“Now when that change occurred, the efficiencies gained by the banking industry were enormous,” he said.

“Now, super hasn’t gained that because all the online stuff, a lot of it goes into some system, and then it gets put into some batch system and that then finally updates the registry – it’s just not a terribly efficient way of doing it.”

“So what we’ve done is bring everything that can be online, online,” Mackley continued.

“And we’ve done that because if you do everything online and it’s straight through, you can’t have errors - the only person that can make an error is the member.”

“The result gives confidence as they see the change instantaneously on their member portal and the benefit is that you don’t have to be huge to get those efficiencies; if you’ve got total automation, straight through processing, then anyone who’s got that system can compete,” he said.

Yet while technology providers’ focus may be on increasing efficiency through product enhancement and business process change, the most fundamental gap in the super industry’s systems remains manual processing, and for Stevens, the prime example is SuperStream.

“What’s happening out of the (SuperStream) regulations is that gateways are going to come into effect,” he said.

“Those gateways are going to provide some translation services to the organisations, but it’s when it gets inside the organisations, when that message arrives, that there are gaps around automated efficiency and taking them into legacy systems.”

“The audit components and lifecycle management components of those messages are going to become critical as well,” Stevens continued.

“Being able to measure and prove that you’re achieving your SLAs (service level agreements), being able to handle the errors that come in in the new format and send them back to the originator in an extremely short timeframe - they’re all going to become vitally important.”

“But what we’re hearing at the moment is that funds think they’re going to get away with manual processing behind the scenes while they build their systems out. That, for me, is a scary prospect.”

Naturally, Stevens added that he was not oblivious as to why many super funds had not yet made changes to their existing infrastructure in preparation for SuperStream.

“It’s a complex moving feast,” he said.

“We’re getting different standards coming out every day and we’re trying to understand the environment around how gateways are likely to work.”

“Even internally, clients are grappling with how they actually integrate this into one or, in some of the larger cases, multiple different registries that operate in different ways,” Stevens continued.

“And, at the same time, they’re getting pressured heavily by their marketing and product people to get differentiators in the marketplace to retain funds through this whole process.”

“But don’t get me wrong, there are a lot of players out there already working on it - I’ve heard quotes of everything between $2 million and $10 million budgets to cope with SuperStream so people have allocated it, they realise they’ve got to mobilise but it’s this lack of certainty that is still coming through,” he said.

Also, seeing the industry’s propensity to rely on manual processing as a significant disadvantage, Rory Wainer, managing director at Synchronised Software, said that there was strong evidence that a paradigm shift was occurring.

“People think we’re near the end of the automation game but we’re only in the middle of what is a whole generational change,” he said.

“So once upon a time it was a registry driven business, then the next evolution was that people bolted workflow systems on to those registry systems.”

“So even then, you still had a whole lot of people in the process,” Wainer continued.

“But the current model we’re moving towards is really an automation-driven system where pretty much all of the rules and the routing and the decisions – both B-to-B (business to business) and C-to-B (consumer to business) – are determined by automation.”

According to Wainer, the first steps towards such automated systems were taken a number of years ago when workflow systems were bolted on to existing products.

“Conceptually, it was right, architecturally it was wrong,” he said.

“So we’re kind of in that middle generation now where B-to-B people are implementing automation solutions and they’re solutions that are quite different from a registry system.”

“I think SuperStream is providing the pressure to do that, but I think it’s just the first of several things,” Wainer continued.

“There’s a real paradigm shift going on here and we think it’s fantastic.”

Of course, the very presence of gaps in current superannuation systems brings into focus the need for strong relationships between all stakeholders.

Administrators, technology providers and super funds themselves must not only acknowledge those gaps, but work diligently to fill them in order to improve their existing offering.

The key, according to Wainer, is realising the interdependencies at play when it comes to technology.

“There really is no difference between the business of technology providers and the business of administrators,” he said.

“We’re identical businesses, part of a common value chain delivering to the member, and so we partner with our customers to the extent that our entire fee and business model is based on that symbiotic relationship.”

“We’re in the same business they are, so the most valuable component of our business model is that relationship with our administration customers.”

Echoing Wainer, Mackley said that call centres were a perfect example.

“A fund may make it quite clear that they want to retain control of the call centre and so we don’t end up managing that component,” he said.

“That means we’ve got to give the client access to our workflow system so it’s this blurring of where you draw the line between the client and the provider.”

“It’s not like we said ‘okay, you’re the call centre, you have your own CRM [customer relationship management], you need to do it,’ we’ve said ‘no, we’ll integrate with you and you’ll have access to our workflow system’,” continued Mackley.

“That sort of integration is really where we see the future being.”

For his part, Stevens said relationships were valuable not only in the transactions between provider and customer but also between the customers themselves.

“We’ve always had a very strong relationship, not just with individual clients but with our client base as a whole,” he said.

“In the Australian superannuation industry, we’ve got over 40 providers that are using our solutions and we hold working groups, we hold quarterly user groups and we create that community.”

“And that’s simply because a lot of what we do in this administration space is commodity stuff, where they all benefit from it, where they all provide intellectual property, where they can all get in and discuss what’s important to them,” Stevens continued.

“And through that, we act as a facilitator and a partner for delivering that technology back to them.”

And if relationships were important between the technology provider and any one individual customer, Stevens said they were vital within managed service arrangements.

“With the larger players, the likes of a managed service arrangement is obviously one of a high degree of trust,” he said.

“If you’re giving up your control and ability to manage those systems in-house, then they’ve got to have a really strong belief in your business and your ability to partner with them as if you were an internal IT department.”

“But more tangibly, the relationship piece can be that key differentiator - if you’re line ball with some of your competitors, people will always go with the trusted relationship,” Stevens said.

So as Australia’s superannuation industry continues to prepare itself for SuperStream, the next area of focus is, inevitably, innovation.

And for Wainer, automation and its increase continues to be SyncSoft’s primary focus.

“To my mind, there’s going to be a massive shift in the way superannuation data is transacted,” he said.

“Currently, we operate in substantially a B-to-B world; the technology provider sells some software to an administrator who provides a service for a super fund.”

“They’re all B-to-B’s who eventually deal with an employer who has some employees, but the trick is to dramatically shorten that chain,” Wainer continued.

“So the next wave of innovation – certainly coming from us – is that we’re going to chop that chain up.”

“Instead of five links, it’s only going to be about two,” he said.

Interestingly, Wainer said that his point was well illustrated by the past, present and even future of music distribution.

“Think back a generation ago when you used to go into a record shop to buy your record,” he said. “There was a distributor and a retailer and so on.”

“But you don’t buy your music like that anymore and the question is, why would you be buying your advice or your administration or your investments or your insurance in that way?” Wainer asked.

“Why would you keep buying through the current retail models that exist?”

“The answer is that you wouldn’t – at least not if there’s a solution to do it differently,” he said.

Drawing comparisons between the features of self-managed super funds and those of the larger industry and retail funds, Stevens suggested that the next frontier lay in giving superannuants choice and flexibility in how they managed their accounts.

“So it’s consolidating those features that provides clients with a lot more ability to manage the funds themselves,” he said.

“And intrafund advice and scalable advice are integral parts; it’s the real-time integration of those pieces through a modern technology base that becomes critical.”

“So platforms need to be based on service oriented architecture and they need to truly reuse the underlying components,” Stevens continued.

“When people are entering information on to the website, when people are pre-populating things on the website, it has to be real-time, real information coming off that administration system and not from some highly manual external process that’s bolted on.

“You simply can’t afford to do that.”

For Wainer, the fundamental truth was that there were listeners and leaders in technology provision.

“Take, for example, a technology provider that’s in the general IT business and has acquired a product,” he said.

“They’re not going to be seen as a leader and I would argue that they’re actually in the business of a cash cow.”

“At SyncSoft, our recent successes all turn on the fact that customers are looking for a partnership that has some vision – they’re wanting an organisation that is looking to the future and one that understands that the administrator isn’t just a customer of the technology provider,” Wainer continued.

“As I said before, we are actually in the same business and the technology end of it is the visionary end of it.”

Wainer said that, in many respects, the super fund, the administrator and the technology provider were, inevitably, the same organisation.

“Now sometimes we’re distributed and sometimes we have separate ownership, but we’re the very same organisation,” he said.

“So if you are not a technology provider with vision, then I think your chances of succeeding are much less.”

“When things were static, you could be a big international and copy a local leader in this business and that would be okay,” Wainer added.

“But the market and the world is moving too quickly now.”

“If you’re not an innovator and a visionary, then people don’t want to have a relationship with you because, at the end of the day, no one wants to be charged fees just so you can catch up.”