Salvador Saiz, head of advice, wealth and super at Core Data Consulting, responds to a Deloitte contention that superannuation funds should be offering product look-alikes or partnering with financial institutions providing self-managed superannuation fund (SMSF) services.
It’s no secret that SMSFs are top of mind for all superannuation funds, big or small, retail and not-for-profit. Offering direct investment options (DIOs), including term deposits, equities and exchange-traded funds has been the weapon of choice (and will continue to be) used by a number of funds in the hope that these are the solution to stopping the leakage of members to SMSFs.
It seems only logical to conclude that if the main reason people leave their super fund to set up an SMSF is because they want to have greater control of their investments and financial future, then such options will give members the tools to do so and therefore be the most effective way to retain them.
If such strategies were to be successful in their aim, then the SMSF sector, which is expected to continue to grow for some time, certainly would have a fight on its hands.
Factors in conjunction
It is too early to tell, of course, but DIOs and other SMSF-lite solutions are unlikely to be the panacea that some funds hope they are. Though they will be effective in retaining some members, the fact is that the greater proportion of those migrating to SMSFs are likely to leave despite the availability of these options.
As CoreData’s 2013 Post-retirement Report findings highlighted, while members do want greater investment choice and the flexibility and control of DIOs, these are not in themselves the key factor in retaining their business and are, in fact, low on the priority list.
What is more likely to be effective in conjunction with DIOs and SMSF-lite solutions is funds’ greater focus on member engagement. This means conducting segmentation research, identifying triggers and those members most at risk of leaving (and reason for wanting to leave), and targeting members with appropriate communications and messaging.
However, few funds are actually doing this. Despite the misconception that SMSF trustees want to do and control everything themselves, the reality is that about half of SMSF trustees are what CoreData classifies as coach-seekers, that is, they would rather do things themselves and want to retain a sense of control but are looking for help. Coach-seekers actually look for guidance and a trusted person to have that conversation with. Super funds aren’t doing that and don’t seem to know when to have such conversations.
Communication skills?
In fact, there seems to be little idea or agreement on when members should be contacted with regards to financial advice and retirement, with many funds of the view that somewhere in a member’s 50s is appropriate. Given our most recent SMSF research reveals the largest level of growth in SMSF demand cited by advisers is from the 41 to 50 year old cohort, it is no wonder that SMSF advisers are poaching members before the funds themselves have even begun to think about having a conversation around financial advice.
And it’s not just this cohort that funds need to engage with regards to advice, with a majority of advisers noting substantial growth in demand for SMSFs from the 31 to 40 segment.
Of course, in many cases members simply aren’t aware of their funds’ financial planning services (or the costs) or the different types of advice available through their funds, whether comprehensive or scaled advice. So it’s no surprise to see that only 10 per cent of 45-plus year-old members have used their main funds’ financial planning services, yet close to half would strongly consider doing so.
This therefore represents a great opportunity for super funds as they battle with accountants and financial planners looking to poach their members towards SMSFs, with 45 per cent of 45-plus year-old members having an SMSF.
With such low usage of advice through super funds at present, the threat to advisers generally will become only too real as funds realise the power of advice as an engagement and retention tool and increasingly dedicate greater resources to this area in their fight to keep members. Watch this space.
Salvador Saiz is head of advice, wealth and super at Core Data Consulting