Super Review February 2011

T H E L E A D I N G I N D E P E N D E N T J O U R N A L FO R T H E S U P E R A N N U AT I O N A N D I N S T I T U T I O N A L F U N D S M A N A G E M E N T I N D U S T RY February 2011

Volume 25 - Issue 1

MySuper to miss its mark With superannuation returns rather than

10 SURVEY

costs being the dominant factor

Industry gives MySuper a chilly reception

in generating a comfortable retirement, new research suggests that MySuper will fall short of the mark.

12 ROUNDTABLE Private equity – is enough ever enough?

16 INSURANCE Delivering on your group insurance promises

Print Post Approved PP255003/01111

20 POLICY Coming to terms with legislative reform For the latest news, visit superreview.com.au COMPANY INDEX

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cient funds to enjoy a comfortable retirement.

“We do not believe the intended MySuper investment default will make a material difference, particularly if we see a move away from well diversified arrangements to a more narrow indexed option purely driven by cost considerations,” he said.

“No doubt a key driver for the MySuper default is that the absolute majority of members – 80 per cent plus – either deliberately select or are automatically placed in the investment default, [which] is invariably a multi-manager fund,” Butler said.

“However, many products offer a vast range of investment options, including multi-manager, single manager, diversified and sectoronly, all of which add to the costs that all members currently pay,” he said.

Looking generally at fees, the Heron research found that investment costs invariably represented the greatest component of total fees, with the average for the most common default options increasing from 0.71 per cent to 0.73 per cent over the past 12 months.

It said that total fees impacting fund members stood

THE Federal Government’s implementation of its universal default MySuper product is unlikely to make a material difference to the ability of Australians to enjoy a comfortable retirement.

That is the bottom line of the latest Heron Partnership assessment of the Australian superannuation industry, which has reinforced the criticism that if the objective of MySuper is simply to lower costs, this will not necessarily translate into better investment returns and a more comfortable retirement.

“We need to ensure that the focus on fees does not result in homogenous products and, in particular, lower returns that disadvantage investors,” Heron Partnership managing director Chris Butler said.

He said he believed it was in every investor’s interest that real competition be maintained.

Commenting on the overall situation confronting many Australians, Butler said it was just as well that an increasing number of people were finding themselves able to defer retirement beyond age 65 because the impact of the global financial crisis had made them realise they would not have suffi3

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Chris Butler

The lowest fee structures were maintained by First State Super, followed by Super SA, Club Plus, AGEST and UniSuper.

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at around 1 per cent a year of assets, with the lowest total fee being around 0.35 per cent and the highest being around 2 per cent.

It said that of the products researched, the lowest fee structures were maintained

by First State Super, followed by Super SA, Club Plus, AGEST and UniSuper.

The research also revealed that JANA remained the most used investment advisory company followed by Mercer and then Russell, while the most used insurance providers were Tower and CommInsure followed by OnePath (ING) and AIA. SR 23

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MANDATES Recieved By Independent Franchise Partnership Russell State Street Antin Infrastructure Partners Schroder’s QEP Value Fund Dimensional Fund Advisors Ankura

Type of Mandate

Issued by

Ammount

International equities Administration Custody and administration Alternative assets International equities Emerging markets equities Australian equities

AvSuper AvSuper REST Super Asset Super Asset Super Asset Super Prime Super

$52 million NA NA $30 million $16.5 million $13.5 million $125 million

Rcieved by

Type of Mandate

Issued by

Amount

Macquarie Funds Group Bennelong Funds Management Colonial First State Ankura Macquarie Funds Group Bennelong Funds Management Colonial First State

Australian equities Australian equities Australian equities Australian equities Australian equities Australian equities Australian equities

Prime Super Prime Super Prime Super Westscheme Westscheme Westscheme Westscheme

$125 million $49 million $49 million $349 million $349 million $136 million $136 million

Stay out of the shadows The Apostle Loomis Sayles Senior Loan Fund aims to combine an attractive yield over a full market cycle with controlled risk. As Loomis Sayles conduct their own in-depth credit research, they can position the Fund to minimise unnecessary risk that erodes the Fund’s yield.

This means that some of the most important decisions they make are which investments to avoid.

To stay out of the shadows, call us on (02) 8224 2900 or visit www.apostleam.com.au.

THE NAME BEHIND THE NAMES Issued by Apostle Asset Management Limited (“Apostle”) (ABN 60 088 786 289) (AFSL No. 246830). Offers of units in the Apostle Loomis Sayles Senior Loan Fund (the “Fund”) will be made in the disclosure document issued by Apostle, which is available by contacting Apostle. You should consider the disclosure document and whether or not the Fund is appropriate for you before making an investment decision. This information and the Fund are not intended for retail clients.

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NEWS 3

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APRA data confirms strength of listed markets AustralianSuper

By Mike Taylor THE cost of investing in unlisted assets continues to weigh on industry funds, according to the latest data released by the Australian Prudential Regulation Authority (APRA). The data shows that the rate of return for industry funds was trail-

ing that of the public sector and retail funds last financial year.

Notwithstanding this relative underperformance, the industry funds represented the fastest growing segment of the industry for the period, while self-managed superannuation funds (SMSFs) remained the

largest segment (although account balances remained below $500,000). The data revealed that total superannuation assets in Australia for the year to 30 June, 2010, increased by 13.9 per cent to $1.23 trillion, with $722.6 billion held by funds regulated by APRA and $390.9 billion held by SMSFs regulated by the Australian Taxation Office.

The fastest growing part of the superannuation industry for the year was the industry fund sector, with assets increasing by 17.9 per cent.

The APRA statistics said that the number of SMSFs grew by 6.5 per cent for the period, while the number of

APRA-regulated entities with more than four members decreased by 8 per cent.

The data revealed that members of small funds held the largest average account balance of $478,873, while the lowest account balances were held by members of industry funds at $19,641 – slightly behind members of retail funds with $20,248.

The APRA statistics revealed that the average rate of return for superannuation funds with more than four members was 8.9 per cent, with public sector funds recording 9.8 per cent, retail funds recording 8.7 per cent and industry funds recording 8.5 per cent. SR

AvSuper drops Wellington for IFP

By Chris Kennedy AVSUPER has switched an international equities mandate from US firm Wellington Management to Independent Franchise Partnership (IFP) following a recent review.

AvSuper’s international equities portfolio makes up 25 per cent of about $1.15 billion of total funds under management, of which the IFP mandate makes up $52 million, according to AvSuper chief executive

Michelle Griffiths.

Wellington GRE is being terminated to make room for the IFP placement, which is a much more concentrated investment, she said.

The switch reflects changes to the underlying asset allocation determined by the fund’s investment committee following a review of AvSuper’s international equities sector, performed with the fund’s investment advisers, JANA, over several months, she said.

As the fund has grown it has become better able to construct an active portfolio using specialist fund managers, as it did with the allocation of an emerging markets mandate to Genesis last year, Griffiths said.

AvSuper described IFP as a global equities manager that aims to generate attractive investment returns while minimising business and valuation risk using the purchase of franchise businesses as its tool. SR

FSC supports income tax changes

By Caroline Munro

John Brogden

CHANGES to the income tax treatment of the investment income of foreign funds will provide tax certainty for foreign investors investing in Australian managed funds, said the chief executive of the Financial Services Council, John Brogden.

Brogden stated that the Federal Government’s changes would take away the uncertainty that currently exists, which can result in foreign investors being unfairly taxed.

“The Investment Manager Regime was a recommendation of the Financial Services Council to the Financial Centre Taskforce (Johnson Review) and we strongly support the Government’s initiative,” Brogden said when the changes were announced.

“The importance of this change cannot be underestimated – it removes a major barrier to Australian-based fund managers attracting foreign investment,” he said, adding that it would give Australian based fund managers the certainty they needed when competing internationally. SR

prioritises flood victims

AUSTRALIANSUPER members affected by the flooding in south-east Queensland and northern New South Wales will have payment applications prioritised, the fund has announced.

“AustralianSuper is very concerned for our members who may be suffering as a result of the devastating floods affecting Queensland and NSW and we have already implemented steps to assist them,” said AustralianSuper head of operations Shawn Blackmore.

This includes prioritising applications for financial hardship, payments made on compassionate grounds subject to approval by the Australian Prudential Regulatory Authority (APRA) and partial payments where members have unrestricted super for eligible members affected by the floods, he said.

“We are following up for confirmation and guidelines from AUSTRAC [Australian Transaction and Reporting Analysis Centre] on identification relief, similar to that provided to victims of the Victorian bushfires, for members who may have lost identification as a result of the disaster. Once these are received we will implement them as quickly as possible,” he said.

“Finally, we have placed a message on our website and reconfigured our call centre menu to help quickly direct members affected by the floods to the correct area. We are closely monitoring any member requests during this period and we are committed to doing all we can to best assist them.” SR

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State Street wins REST custody mandate The largest superannuation fund transition ever to be completed in the Australian market

By Chris Kennedy STATE Street Corporation will provide custody and administration services, including fund accounting and complex tax services, to REST Super following an extensive 14-month due diligence process.

State Street Global Services Australia’s head of sales, Greg O’Sullivan, described the long-term deal as the largest superannuation fund transition ever to be completed in the Australian market.

The transition will be run by a dedicated transition team, and there is a governance structure in place that includes senior representatives from both organisations, he said.

The deal is especially significant for the market because it demonstrated a genuine alternative to the existing superannuation custody duopoly of JP Morgan and National Asset Servicing, he added.

REST chief executive Damian Hill said the selection was based on State Street’s overall service and value proposition, and reflected its global reach and track record, its solutions-oriented focus and its ability to service large and sophisticated institutional clients.

Super funds are becoming increasingly sophisticated in their servicing requirements and State Street is meeting those demands by investing heavily in infrastructure and technology, according to the head of State Street

Global Markets, Ian Martin.

“With the growth in Australia’s superannuation sector accompanied by increasing demands and market sophistication, we are very well placed to manage this mandate across expansive asset classes, investment activities, and alternative assets,” Martin said.

The deal is a good example of the changing requirements of superannuation and the need to partner with someone who has broad experience in servicing that sophistication and those changing needs, O’Sullivan added.

“We’ll be aggressively looking to grow our market share. This is a sector we think we can be very successful in,” he said. SR

Super dips in November, rebounds in December

Warren Chant

THE median growth superannuation fund dropped 0.2 per cent in November due to negative share returns both locally and overseas, but a rebound in December pointed to a positive outlook for 2011, according to research house Chant West.

The median growth fund gained 5.6 per cent from July 1 last year to mid December, despite pulling back slightly in November amid renewed concerns about European debt and China’s latest move to kerb inflation, said Chant West principal Warren Chant.

The bullish sentiment returned in December, with both domestic and international markets performing strongly, meaning the median growth fund ended up returning 7 per cent for the half-year from 1 July, according to Chant West figures.

Industry funds have a lower weighting to listed shares compared to master trusts, which led to a slightly better performance through the November downturn. Industry funds slipped 0.1 per cent compared to a drop of 0.4 per cent for master trusts in the month. SR

Australian funds seeking US tax exemption

By Mike Taylor THE Australian superannuation industry has made a plea to the US Government for Australian funds to be exempted from proposed stronger regulations with respect to tax evasion.

In a submission to the US Treasury and the Internal Revenue Service, the Association of Superannuation Funds of Australia (ASFA) has argued that Australian superannuation funds pose a low risk to the US taxation regime.

The submission has asked that

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Australian superannuation funds be included among those foreign retirement plans exempt from certain sections of the US legislation because they “pose a low risk of tax evasion”.

It has suggested that, in the alternative, Australian superannuation entities should be excluded from the definition of ‘foreign financial institution’.

“We submit that entities held 100 per cent by Australian superannuation entities pose a low risk of tax evasion,” the submission said.

It said that this was because of the

nature of their investors, and that the entities should be exempt from withholding under the US legislation in the same way their superannuation investors are.

The submission said such an exemption would reflect aspects of the Australian taxation law that extends tax concessions to entities that are 100 per cent owned by Australian superannuation entities.

It said that Australian superannuation entities should be defined to include regulated superannuation funds, approved deposit funds and pooled superannuation trusts. SR

Damian Hill

Investor confidence continues to climb GLOBAL institutional investor confidence continued its climb in December despite a large drop in European confidence, according to the State Street Global Markets Investor Confidence Index, which quantifies investor confidence based on their allocation to equities.

After a huge jump in November that reversed a three-month slide, global confidence rose 8 points to 104.4 in December. The rise came on the back of an increase in North America of 7.7 points to 103.1 and a 7.4 point jump in Asian confidence to 102.9, according to the index.

“Clearly, the scenario for moderated world growth with recovery in the US has increasingly gained traction,” said index co-developer professor Kenneth Froot of Harvard University.

“Confidence in both North America and Asia has now edged above the neutral level of 100, after a relatively weak mid-2010.”

Paul O’Connell of State Street Associates, who also co-developed the index, said the decline in Europe showed that the region’s investors remained jittery in the face of intraEuropean turmoil.

“European investors are back again worrying that high sovereign indebtedness may prove destabilising for the region,” O’Connell said. SR

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BlackRock/BGI still paying for GFC as Westscheme looks elsewhere

By Chris Kennedy WESTSCHEME completed an overhaul of its $970 million Australian equities portfolio just before Christmas as BlackRock and Barclays Global Investors (BGI) pay the price for the global financial crisis (GFC), less than a month after Prime Super completed an identical reshuffle.

The new lineup consists of a 14 per cent allocation to both Bennelong Australian Equity Partners and Colonial First State Asset Management, and a 36 per cent allocation to Macquarie Funds Group and Ankura Capital. The manager configuration previously comprised allocations to

BlackRock and BGI. Westscheme takes a low-risk approach to investing and was disappointed with the lack of risk protection and poor risk/reward outcomes provided by BlackRock and BGI over the course of the GFC, according to Westscheme chief executive Howard Rosario.

Westscheme had enjoyed good exposure for several years through Barclays and had been rewarded through its style of investing, Rosario told Super Review.

“When we went through the GFC we didn’t protect ourselves, we didn’t find ourselves well enough protected from downside,” he said.

As a consequence, Westscheme in-

stigated a review and decided to increase the variation in the portfolio, without significantly increasing the risk budget, he said.

“We’ve blended up a number of different styles, so there’s fundamental indexing in there, it’s just slightly enhanced – we couldn’t call it highly active equity management,” Rosario said.

The fee structures comprise a moderate base fee and meaningful performance fee component to better align the interests of the new managers with those of the fund’s members, according to a statement from Westscheme.

“Importantly, all incoming managers are utilising tax-aware strategies ...

More women needed on super boards: APRA

By Ashleigh McIntyre THERE is still not enough being done about gender diversity on superannuation boards, according to new research from the Australian Prudential Regulation Authority (APRA).

While the report found that the number of women on boards has improved over the past five years, it also found that the majority of trustees would not meet the current goal of a 40 per cent female board as set out in

the Cooper Review.

Licensed trustees currently have an average of less than 20 per cent of women on their boards, while ASX100 boards hover at around 10 per cent.

The Australian Institute of Superannuation Trustees (AIST) chief executive Fiona Reynolds welcomed the research, which she said added weight to calls for a minimum of 40 per cent of females on all company and superannuation fund boards.

“While super funds are

going better than corporate Australia … we shouldn’t be celebrating this,” Reynolds said.

“It’s fine for us to have high expectations for the companies we, as funds, invest in, but we too have to meet these expectations.

“Superannuation funds and sponsoring organisations need to do more to promote women as directors on their boards. They need to be upskilling the next generation of potential directors,” she added. SR

Principal Global Investors commits to responsible investment PRINCIPAL Global Investors has joined the ranks of those that have signed the United Nations-backed Principles of Responsible Investment.

The chief executive of Principal Global Investors Australia, Grant Forster, said the decision to sign up to the principles was in line with the asset manager’s investment strategy and culture.

Signatories commit to six aspirational Principles of Responsible In-

vestment related to environmental, social and corporate governance.

“As a leader in the global asset management industry, we believe appropriate consideration of these issues is part of delivering superior risk adjusted returns,” Forster said.

“We are committed to acting in the best long-term interests of our clients and will apply the principles where consistent with our fiduciary responsibilities and in alignment with our investors’ expectations.” SR

Consistent with Westscheme’s focus on after-tax investing, the incoming managers’ performance (and associated performance fee benchmark) will be measured against a gross of franking credits benchmark,” the statement read.

The reshuffle is identical to the lineup announced several weeks earlier by Prime Super, which also parted ways with BlackRock and BGI. Both funds employ the services of asset consultants Access Capital Advisers.

The two funds had also previously announced changes to their international equities lineups, which now consist of 35 per cent allocations to AQR and PanAgora, and 15 per cent allocations to Realindex and MFS. SR

AMP Capital leverages Chinese infrastructure

By Chris Kennedy THE AMP Capital Asian Giants Infrastructure Fund (AGIF) has invested $2 million in a 19.11 per cent stake in Qujing Gas, which AMP Capital said it would be looking to grow to $20 million.

Qujing Gas holds a 30-year concession to run the gas distribution franchise in Qujing City in the southern province of Yunnan, and is the fund’s first acquisition in China, AMP stated.

AMP Capital’s global head of infrastructure, Phil Garling, described the investment in Qujing Gas as an attractively priced, early-entry strategy in a high-growth sector that positions the fund to participate in future opportunities in the gas sector in Yunnan.

“We expect rapid growth in the infrastructure sector, particularly as estimates are of a global US$25 trillion gap in government infrastructure spending over the next 25 years,” Garling said.

AMP Capital’s co-head of infrastructure Asia, Xiao Wei, said the investment also provides an opportunity to participate in future deals in gas and other infrastructure sectors in Yunnan, with the Chinese Central Government looking to increase gas consumption from 4 per cent to 9 per cent by 2020. SR

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Members win out in Cbus/CONNECT merger Members set for better insurance returns

By Chris Kennedy A MERGER between Cbus and CONNECT not only proceeded quickly and smoothly but also generated better insurance returns for all members, according to Sean Leonard, executive manager of fund integration and product strategy at Cbus and the former chief executive of CONNECT. Insurance presents great variation in policy terms and conditions between funds and making sure no members are left behind is an important process in a merger such as this, he said.

Both memberships have benefited from improved terms and conditions through the negotiation of the Cbus pol-

icy with Hannover. CONNECT had previously been insured with ING, (now OnePath).

For example, several wordings were improved, several new features were included and there were significant changes to default covers and levels of insurance, including an increase in the default cover of a special division for electrical contractors called electech from $50,000 to $100,000, Leonard said.

From an investment perspective, Cbus maintained exposure to roughly 12 of 22 investment managers following the merger, in some cases due to manager overlap or because CONNECT had some investments in private equity and infrastructure where there was a long

lock-in period. Cbus redeemed investments in CONNECT equity managers where they varied from Cbus managers, but maintained emerging markets exposure through Genesis.

Cbus retained Frontier as an asset consultant whereas CONNECT previously used Jana already.

ASFA moves to change super education

By Ashleigh McIntyre

Pauline Vamos

THE Association of Superannuation Funds of Australia (ASFA) has moved to be the first education provider to launch superannuation qualifications under the new financial services training package.

Following the revision of the rules surrounding financial services training by Innovation and Business Skills Australia (IBSA) last year, ASFA Learning has launched a new suite of learning products to comply with the changes.

ASFA CEO Pauline Vamos said that the main changes were not to the content of courses but to their delivery and structure.

“What they’ve done now is re-organised the courses in a much more structured way. The way students can move from one certificate to another is much more streamlined, with less repetition and duplication of content,” she said.

Vamos said that while the deadline for courses to change was not until the end of July this year, ASFA wanted to be proactive in providing a benchmark for superannuation professionals. SR

ASFA opposes AUSTRAC funding

By Mike Taylor KEY sections of the superannuation industry are objecting to Government moves to have them ante up to help fund the Australian Transaction Reports and Analysis Centre (AUSTRAC).

The industry opposition has been revealed in a submission filed by the Association of Superannuation Funds of Australia (ASFA). It said the Gov-

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ernment announced the cost-recovery approach in last year’s Budget but that ASFA was strongly opposed to the proposal, which would be unique to Australia.

What is more, the submission makes clear that the establishment of AUSTRAC to oversee Australia’s Anti-Money Laundering and Counter Terrorism Financing regime (AML/CTF) was the result of the nation meeting its international

obligations rather than any domestic shortcomings.

“In effect, the Australian AML/CTF regime was the Government’s response to an international obligation,” ASFA said. “It was not because of a perceived need to, or public demand for, a change to the existing transactions reporting system.”

The submission also noted that the activities undertaken by AUSTRAC and the services it provides do

not fall strictly within the cost recovery guidelines administered by the Department of Finance and Deregulation because those being asked to provide funding had not created the need for its existence.

It said there was no evidence that AUSTRAC provided reporting entities with Government goods and limited evidence it provided reporting entities with services. SR

The funds shared a custodian in National Asset Servicing.

From a staffing perspective, all CONNECT staff were offered and then took up roles in the merged fund, and Leonard said overall the merger was done with a very collaborative and cooperative approach.

One of the bigger tasks in the merger was a full data and record change from AAF, which managed CONNECT, to Super Partners, he said. The fund was still working through the task of identifying duplicate accounts left over from the merger and consolidating those, and aside from that there were only a few small machinery matters left to deal with, Leonard said. SR

Performance fee refund concept floated HEDGE fund advisory and fund of hedge fund boutique Hermes BPK Partners is offering institutional investors a new point of difference – a performance fee structure that it claims allows investors to clawback unearned performance fees.

According to Hermes’ founding partner and joint chief investment officer, Mark Barker, the mechanism is designed to ensure long-term alignment between the investor and the investment manager.

He said the new model allowed for reimbursement to the clients of performance fee overpayment in underperforming years, resulting in fees being paid only on the gains actually achieved over a three-year period.

“The introduction of this unique three-year performance fee structure provides greater alignment of interests with clients who take a long-term view with regard to their investments,” Barker said.

He said Hermes had been canvassing the new arrangements with clients and had noted significant interest. SR

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AIST calls for online TFN verification in super Real-time online verification to reduce admin errors

By Chris Kennedy REAL-time online tax file number (TFN) verification would reduce administrative errors and ensure confidence in the integrity of the TFN as a primary identifier, according to the Australian Institute of Superannuation Trustees (AIST).

The verification could be provided when a new TFN is entered into the administration system and would enable the super fund to take immediate action if the TFN provided was incorrect, according to AIST chief executive Fiona Reynolds.

“The TFN is only going to work if everybody is 100 per cent confident

that the number they have in front of them is the correct one,” Reynolds said.

In its discussion paper, ‘The silver bullet? Using tax file numbers as the primary superannuation account identifier’, the AIST called for the use of TFNs as a primary identifier, along with online verification, to be implemented on 1 July this year.

The use of TFNs in the auto-consolidation of super funds needs to address concerns about insurance cover, loss of services and protection from consolidation into high-fee superannuation products, the paper stated.

The AIST recommended that consolidation arrangements between

Fiona Reynolds super funds operate on an opt-out basis for members of MySuper products but on an opt-in basis for members of choice products because consolidation would benefit members who were not engaged with their super, while engaged members may

have made conscious decisions to hold multiple accounts.

The AIST also recommended that the SuperStream subgroup be tasked with liaising with the Australian Prudential Regulation Authority and that the superannuation industry develop a set of guidelines to address consolidation between super funds.

The AIST further recommended super funds review privacy policies following any change to the use of TFNs; that the Government commit to funding Australian Taxation Office costs related to the extension of the TFN as the primary identifier; and that an individual’s quotation of their TFN remain voluntary. SR

Synergies drive member benefits in Energy Super merger Push for risk labelling on CFDs

IMPROVEMENTS in financial planning services and insurance benefits mean members from both funds will win out in the recently confirmed merger between Queenslandbased energy industry super funds ESI Super and SPEC Super.

The merger is effective from 1 April, with the $3.6 billion merged fund to be called Energy Super. It will adopt a best of both worlds approach from the two existing funds, according to Bob Henricks, current chairman of both ESI and SPEC Super.

Both funds currently use AIP for income protection but members of the two funds will benefit from an increased membership base, which means a better platform for negotiations, Henricks said.

The general insurer has yet to be confirmed but Henricks anticipated members would also be in a better position following the merger due to an improved platform for negotiations.

SPEC Super members are already taking up the inhouse financial planning offering currently employed by

ESI Super, which Henricks said is working far better than SPEC’s previous outsourcing arrangement.

Through the fund’s financial planning service it is also offering additional member education services, including online modules around topics such as the basics of investing, which is getting high recognition and usage from members, Henricks said.

Making members more knowledgeable and easily able to compare apples with apples when comparing super funds makes them more loyal,

and they respond well when they understand the services they’re getting, he said.

Energy Super has also adopted ESI Super’s insourced call centre model, leading to a greater sense of ownership of the fund among members, Henricks said.

SPEC Super’s streamlined administration model with IFAA will be retained for the merged fund, while JANA will continue on as the investment consultant having already established a relationship with each fund individually. SR

Retirees’ cost of living increases slightly THE aggregate costs for a couple living comfortably in retirement rose 0.5 per cent over the third quarter of 2010 to $53,729 per year, according to the latest Westpac and Association of Superannuation Funds of Australia (ASFA) Retirement Standard.

The costs for a retired couple with a modest retirement lifestyle increased by a similar proportion to $30,557. A single living modestly would need to spend $21,132, and $39,302 to live comfortably.

The 0.5 per cent increase was actually slightly lower than the overall consumer price index increase of 0.7 per cent due to a lower emphasis on housing and financial and insurance costs.

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For retirees, the increase was led by higher water and sewerage rates, electricity rates and property rates and charges, which saw their annual increases implemented in July, according to ASFA. These were somewhat offset by decreases in the price of petrol, vegetables, pharmaceuticals and audiovisual equipment, partly due to a stronger Australian dollar.

The easing of the drought also helped reduce food costs, but the cost of takeaway and restaurant meals increased.

There was a slight increase in the costs of domestic and overseas travel and accommodation, while communication costs were largely unchanged. SR

THE Association of Superannuation Funds of Australia (ASFA) has called for standardised risk labelling of financial products such as contracts for difference (CFDs) as well as a clear definition of what constitutes a ‘retail’ investor.

“Ultimately, what we need is a move towards standard risk labelling for products. This is a complex area, but one that is worth pursuing,” said ASFA chief executive Pauline Vamos.

Retail superannuation and retirement investors, including self-managed super fund (SMSF) trustees, need an easy way to differentiate, recognise and be warned of the dangers to avoid dissolving their super funds through poor investment, Vamos said.

“CFDs are highly complicated products which require more detailed and visible labelling to alert potential investors to the risk of losing their money,” Vamos said.

CFDs are at the high-risk end of investment products and are currently under scrutiny by the Australian Securities and Investments Commission (ASIC), which is undertaking an initiative to improve the labelling and product disclosures on CFDs, which Vamos said is “a great start”. SR

9 EDITORIAL

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When the numbers don’t add up The Australian Prudential Regulation Authority is pursuing a dual role as a regulator and a national statistical agency for the financial services sector, but the evidence suggests it should narrow its focus.

Mike Taylor

T

he Australian Prudential Regulation Authority (APRA) does something that its sister regulator, the Australian Securities and Investments Commission, does not. It regularly produces statistics covering the investment performance and other elements of the industry sectors it regulates.

Indeed, APRA says that a part of its mission is to “act as the national statistical agency for the Australian financial sector”.

The problem is the Commonwealth of Australia already has a fully-fledged and funded statistical agency in the form of the Australian Bureau of Statistics and, on the available evidence, APRA is a far better reg-

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ulator than it will ever be a statistical agency.

It probably would not matter that APRA was expending valuable resources on the collection and analysis of industry statistics if its operations were being fully funded by the Commonwealth but, in truth, those operations are being substantially underwritten by levying the industry.

What is more, where the superannuation industry is concerned, there is hardly a set of data released by APRA in any one year that does not represent ‘old news’ because it has already been published either in part or in whole by private research and ratings houses.

A classic example of APRA’s approach to being “the national statistical agency for the Australian financial sector” was evidenced in early January when it released the ‘annual’ superannuation data covering last financial year – the period between 1 July, 2009, and 30 June, 2010. That’s right. The data was finally published six months

EDITORIAL Managing Editor – Mike Taylor Ph: (02) 9422 2712 Fax: (02) 9422 2822 email: mike.taylor@reedbusiness.com.au Features Editor – Angela Faherty Ph: (02) 9422 2210 Fax: (02) 9422 2822 email: angela.faherty@reedbusiness.com.au Reporter - Chris Kennedy Ph: (02) 9422 2819 Fax: (02) 9422 2822 email: chris.kennedy@reedbusiness.com.au Contributing Reporter – Damon Taylor email: damon.taylor@c-e-a.com.au Ph: 0433 178 250

While not in any way inaccurate, the APRA data is neither timely nor particularly relevant.

after it was relevant.

This compares with similar data published by the Australian Bureau of Statistics covering the home building industry – building approvals and housing finance – which was published in September last year. It also compares with the analyses provided by privately-owned research houses such as Chant West and SuperRatings that were published within a month.

There is no questioning, of course, that the range of data

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that APRA seeks to collect is more comprehensive than that provided by the private research houses, but when the timeliness of relevant data can be a crucial issue, it really does beg the question of whether the industry is getting good value for the levies its pays.

Then too, there were the efforts by the former Minister for Financial Services, Superannuation and Corporate Law, Senator Nick Sherry, to have APRA deliver statistics on individual fund performance – something the former minister hoped would assist members in making objective comparisons between funds based on performance and the fees they charged.

Having been tasked by the minister in late 2008, the regulator ultimately delivered the resultant data set in the second half of 2009, which was immediately criticised because in the view of many industry operatives it had failed to sufficiently disaggregate superannuation fund performance data such that consumers could identify the outcome of individual strategies.

In the words of the principal of Chant West, Warren Chant: “At first sight, the data may appear to be harmless, but that is not the case.

Where the harm lies is in any

suggestion that these league tables are at all useful in helping consumers to compare and choose funds. They’re not and, rather than help consumers, they have the potential to confuse and mislead them.”

Much the same might have been said of the data covering the 2009-10 financial year released by APRA in mid-January.

Most superannuation fund executives and trustees would have already been aware of the data and, in the context of a rapidly changing investment environment, it might simply serve to confuse ordinary consumers.

Any consumer searching for accurate and impartial data relating to superannuation fund performance should be able to safely assume that the statistics collected, collated and analysed by a government agency or regulator can be usefully relied upon. Sadly, that is not the case.

While not in any way inaccurate, the APRA data is neither timely nor particularly relevant to the average superannuation fund member.

Perhaps then, in all the circumstances the best interests of consumers and the industry would be served if APRA’s focus was on regulation rather than data collection and analysis.

The Australian Bureau of Statistics would seem more than capable of filling any void. SR

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FEBRUARY 2011

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10 METLIFE/SUPER REVIEW SURVEY

www.superreview.com.au

Industry washes hands As the Government moves further down the Stronger Super path, the latest Metlife/Super Review Survey has confirmed continuing doubt in the minds of industry players.

T

he Government may have committed to the implementation of the Cooper Review’s MySuper proposal but it is a far from popular option within the superannuation industry itself, according to the findings of a Metlife/Super Review survey conducted late

last year.

The survey, conducted throughout November and centred on the Association of Superannuation Funds of Australia national conference in Adelaide, found that while industry participants were prepared to strongly embrace the effi-

ciency initiatives contained within the Cooper Review’s SuperStream proposals, they were overwhelmingly negative about MySuper.

Indeed, the survey revealed that only three of the core proposals delivered by the Cooper Review were likely to carry long-term industry support – SuperStream, the ban on paying commissions with respect to financial advice related to superannuation and a code of governance for superannuation fund trustees.

A significant 66.8 per cent of respondents to the survey were either strongly or very strongly in favour of

the SuperStream proposals, which would see a greater use of data matching by superannuation funds and the use of tax file numbers (TFNs) as member identifiers.

However, this compared with 64.4 per cent of respondents who felt negatively about MySuper and a further 13.3 per cent of respondents who were largely indifferent about the proposal.

More than 50 per cent of respondents were strongly or very strongly in favour of a ban on commissions and there was also strong support for the recommended

Should there be fewer but larger super funds?

Are you in favour of SuperStream?

40 %

Yes No

60 %

Are you in favour of MySuper?

Should super funds be stress tested?

17.8 %

22.3 %

Yes

Yes

Indifferent

No

No

13.3 %

82.2 % 64.4 %

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code of governance for trustee boards.

By comparison, there was little industry support for an increased research role for the Australian Prudential Regulation Authority (APRA) – something that may reflect respondents’ cynicism over the regulator’s efforts to deliver on an earlier ministerial request for more effective comparative fund data more than two years ago.

Another suggestion made by the chairman of the Cooper Review, Jeremy Cooper, that there be fewer but larger superannuation funds, also met with a thumbs down from industry respondents.

Asked whether they believed there should be fewer but larger superannuation funds, 60 per cent of respondents indicated they did not believe this should be the case.

At least some of the negativity expressed by survey respondents to the MySuper proposals appears to reflect a widespread view amongst superannuation trustees that the proposal will impose further costs and administrative pressures and simply duplicate many of the facets of existing default schemes.

The Assistant Treasurer and Minister for Financial Services, Bill Shorten, has indicated that while the Government will develop legislation around the Cooper Review recommendations during the life of the current Parliament, it will not be implemented before 2013.

METLIFE/SUPER REVIEW SURVEY 11

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of MySuper Super funds fail the stress test

SUPERANNUATION funds should be compelled to undergo stress testing to ensure they have adequate levels of liquidity.

That is the strong bottom line of a survey conducted during November last year, including at the Association of Superannuation Funds of Australia national conference in Adelaide.

The Metlife/Super Review survey found 82.2 per cent of respondents believed stress testing needed to become a fact of life for superannuation funds operating in Australia, which appears to reflect concerns expressed at the height of the global financial crisis.

At that time, a number of superannuation funds sought relief from the Australian Prudential Regulation Authority (APRA) on the basis of obtaining regulatory relief with respect to their liquidity position. A number of those funds then sought a second round of relief.

The survey also revealed that a significant majority of respondents, almost all of them employed in the financial services industry, believed that the trustee boards of superannuation funds should hold specific qualifications.

The survey found 68.8 per cent of respondents favoured the holding of specific qualifications.

Bad sports SUPERANNUATION funds that spend money sponsoring sporting teams may be treading on thin ice.

A Metlife/Super Review survey, conducted in November last year, has reinforced a consistent trend in the superannuation industry to oppose the use of member funds on sporting sponsorships.

Super Review has included questions around the advisability of using funds to support sporting teams three times over the past two years and on every occasion has obtained an overwhelmingly negative response.

However, the most negative response received came immediately after a rugby league team, Melbourne Storm, had been punished for salary cap breaches in the middle of last year.

The most recent survey has revealed very little change in respondents’ strongly negative attitudes, with 75.5 per cent saying superannuation funds should not spend money sponsoring sporting teams.

Among the superannuation funds to have provided sporting sponsorships are Hostplus and HESTA.

Push for a single industry voice grows THERE are probably too many organisations seeking to represent the Australian superannuation industry.

That appears to be the bottom line of a Metlife/Super Review survey conducted in November last year that found the two dominant organisations in terms of membership were the Association of Superannuation Funds of Australia (ASFA) and the Australian Institute of Superannuation Trustees (AIST).

The survey found that a significant number of respondents had chosen to be members of both organisations, but if they had to choose just one organisation it would be ASFA. However, the preference for ASFA needs to be weighed against a significant portion of the survey being conducted at the ASFA national conference in Adelaide.

What the survey found, however, was that more than a third of respondents had chosen to belong to both ASFA and the AIST, with very few acknowledging that they or their organisation had any affiliation with the Financial Services Council.

Specifically asked whether the interests of the industry would be met by having a single voice in Canberra, more than 73 per cent of respondents said yes, with those most in favour of a single voice in Canberra being members of ASFA.

Should trustees hold specific qualifications?

Yes

22.3 %

Indifferent No

13.3 %

64.4 %

Should super funds sponsor sports teams?

25 %

Yes No

75 %

Should the industry have a single voice in Canberra?

27 % Yes No

73 %

The number calling for a single voice in Canberra is actually well up on the results of two years ago when survey respondents were much more evenly divided on the question of a single voice representing the industry in lobbying the

Federal Government.

More than 50 per cent of respondents to the survey described themselves as either being trustees or working for a superannuation fund or superannuation administration company. SR FEBRUARY

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12

ROUNDTABLE

www.superreview.com.au

How much is enough?

Similarly to hedge funds, superannuation trustees have struggled to understand and allocate towards private equity – but the outlook remains positive.

Mike Taylor: Welcome everyone to this roundtable. As you know, the central topic is private equity. And looking at private equity investment in the context of superannuation, it seems to me that it is not unlike, I guess, the situation with hedge fund investment five years ago.

There’s a lot of talk about investing and allocating towards private equity but, in fact, the levels of those allocations are still well below 10 per cent. So my question to the roundtable panel is, what is an appropriate level of investment by institutional superannuation funds in private equity?

Pauline Vamos: It’s an interesting question because, particularly with private equity, it opens up the whole question of the level of influence investors like superannuation funds want to have on their investment; so along the scale of being a steward at the business with private equity where you have a very clear and large vested interest – so you virtually are running the shop – to an ambivalent investor investing across the whole economy. I’m not sure if that question has been answered, and I think the answer may be different for different SUPERREVIEW

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Present: Mike Taylor – managing editor, Super Review Pierre Jond – managing director BNP Paribas, Australia Daryl Crich – head of product, BNP Paribas Chris Adams – head of alternative solutions, BNP Paribas Pauline Vamos – CEO, Association of Superannuation Funds of Australia Bruce Russell – director, Shoreline Investment Industry Consultants.

Kar-Mei Tang – Australian Private Equity and Venture Capital Association

funds, different sectors and different sizes.

Pierre Jond: There’s another angle as well to consider. Okay, we see private equity as if it was a standard or a uniform type of asset, but under private equity you can have a very different economy called underlying investments. You could have a tall

road in Chile, you could have a forest in New Zealand, or you could have Silicon Valley types of companies that are not listed. I think rather than saying this is private equity as such, you might want to consider one level deeper [which sort of] fundamentally economic assets you want to have exposure to. So breaking it down, you’re looking for infrastructure, for a particular sector, for the type of company.

Chris Adams: I think the other thing is that the recent financial crisis has shown that lots of private equity classes that were supposedly non-correlated with a list of assets actually were [correlated]. So in many cases, when one is investing, it’s much more about the liability side of the investment rather than the asset side of the investment and how it’s structured.

And certainly in response to what Pierre said, all of those kinds of things are important because in many ways private equity as a separate asset class is not as separate as people once thought in some cases – and if you think about the logic of the actual underlying asset, that shouldn’t come as an enormous surprise.

Daryl Crich: I think the range of allocations across the different super funds is interesting in itself because you have a very small allocation to a lot of the larger funds averaging around 10 per cent, but some are quite high, some are as high as 20 per cent, 30 per cent. I think that can indicate a couple of things. One,

Daryl Crich

that there is no industry consensus per se. You’ve got to realise that while it is an industry of super funds, it is also a very different mix of investment profiles and risk appetites within those funds based on member profiles and product profiles. And I think that’s a very complicating factor when you’re trying to look for a trend across such a broad spectrum of funds.

PV: It also depends on the strategy, on how to engage with the asset class, because the larger funds clearly can take more of an active role in the asset, whereas the smaller funds will tend to just take a fund approach, so like in the

other asset class. That’s an important consideration as well, and it reflects that percentage when it comes to the whole portfolio.

LIQUIDITY ISSUES MT: One of the factors that emerged through 2008-09 where we’re looking at the global financial crisis and the general downturn was that when it came to liquidity, private equity, like a lot of things, is regarded by super fund trustees in large part as a highly illiquid investment – it’s not as if you can cash in your investment overnight and basically turn things around. So I wonder, given the lessons

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that were learned a mere 18 months to two years ago, whether we should really expect Australian super funds to be enthusiastic about it at this point.

PV: But I think they’re fairly short-term compared to other unlisted asset categories; private equity seems to be on a much shorter time horizon. So I don’t think there is a reason to shy away from it.

Bruce Russell: I think just from an operational perspective too – the clients that we’ve dealt with – some of the observations have been not only the liquidity but also the perceived lack of transparency that you have when you invest in private equity asset classes, and particularly around trying to measure your risk exposures from a market risk, from a counter-party risk, et cetera. I know from a sort of chief operating officer’s perspective that there’s still probably a level of nervousness around [whether we can] properly monitor the risks and get transparency down to the underlying asset, because the very nature of the product is sometimes actually quite difficult.

PV: I agree. And it’s not only the transparency, it’s the cost of managing the asset – you’re really managing a business.

And the further you are away from managing the business, the more guesses you have to make, and that certainly causes some of the smaller funds some concern because they can’t get close to the asset.

Left to right: Pauline Vamos, Pierre Jond and Kar-Mei Tang

QUEENSLAND FLOODS AND INFRASTRUCTURE INVESTMENT MT: Because we are in part talking a lot about private equity in terms of infrastructure, I wonder whether given recent events in Australia, and the rebuilding that’s clearly now confronting the Commonwealth and the states, across three or four states as it happens, whether the whole private equity question and the infrastructure question becomes a matter of government policy more than it has been to date? We were discussing before the roundtable began the fact that the Gov-

ernment is facing a problem which it didn’t budget for. So I wonder whether 2011 by default becomes a year in which super funds are very heavily encouraged to invest?

PV: Well that encouragement has already started, and this has been on the table for quite some time. But the big processes around infrastructure assets, and the lack of any certainty on risk as well as term, fundamentally is at odds with what most superannuation funds really are here to do. And it also throws up the public policy issue [that] infrastructure in the main is the responsibility of state and federal govern-

ments. And that is their responsibility – you don’t turn that responsibility over to the private sector.

CA: We’re looking here from Europe at the devastation that’s happened in Brisbane and so on. And I think where you’re talking about public infrastructure – bridges, roads, airports, terminals and things of this nature – what we’ve seen obviously in other locations, in the Middle East and to a certain degree in Europe, is the kinds of take or pay contracts where the state can intervene to a degree, but it does create an environment in which private investments can play a valuable part.

13

But as you say, I think the public policy needs to move in a certain direction decisively for it to be successful because, particularly with the super funds, with their trustees, there are certain types of responsibilities that they have. I think obviously they’re going to be naturally cautious about the levels of commitment that will be required. But I think somebody has to pick up the tab, and if it’s not going to be the Australian taxpayer ... there are also political issues around infrastructure investment being owned by foreign companies.

So from what I’ve seen in other locations, it very much depends on the decisiveness of the political decisions, which clearly need to be made very, very quickly. And how public policy will then influence the extent to which the economic climate is made attractive for private investments to rebuild that infrastructure.

But from what I understand, that final bill is going to be colossal, and the Australian taxpayer cannot sustain it on their own.

PV: They can’t, but when you look across the global governments, the level of debt of Australian and state governments is very, very low. And that’s the change of policy that needs to happen. It’s okay to borrow. We all borrow to fund our homes, it’s okay to borrow. And that’s a political sell that has to be made. ReContinued on page 14 ☞ FEBRUARY 2011 * SUPERREVIEW

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ROUNDTABLE

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How much is enough? ☞ Continued from page 13 member, the superannuation monies in Australia, like many countries, but particularly in Australia because of its Australian bias, is across the whole economy – it’s not sitting in a box under somebody’s bed.

So if you have a change in government policy where you have to skew more into infrastructure, with the risks and the lack of transparency the same as private equity, then it would have to abandon another asset class, and that is the domino effect. In fact, that impact on the Australian economy would make the Australian market very, very jittery.

BR: I think it’s a useful case study perhaps to look at New Zealand and some of the requirements that the Government have put on New Zealand super funds with respect to having minimum amounts invested in that local economy. And that’s actually had some interesting implications on them in terms of sourcing assets. And I think your earlier point around there’s no free lunch – if you’re forced into a particular asset class then there’s an opportunity cost of not going into those other asset classes. So I think the Government encouraging investment into infrastructure has to be mindful of what you give up on the other side, and also the fact that that may impact the returns to funds.

PV: Big time, that’s right.

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Left to right: Mike Taylor and Daryl Crich

PJ: If you want to have, for instance, financing of infrastructure done by super funds, you need to have a way to enforce a return on that investment. And I don’t know if you can actually put a toll on every street, on every road in Queensland – some investment interest will not be generating returns. Fundamentally, that’s what you have a state for, which is initially to build a number of infrastructures. You will not get the super funds to invest in infrastructure if you don’t have a proper return simply because the trustee has got the responsibility vis a vis the holders of these funds, or you are not in a situation where

you have by law a requirement for all super funds to have five, 10, 20 per cent investment in infrastructure. But that’s the fact of a nationalisation of the industry.

PV: And the difficulty with that is that we still have enormous liquidity pressures on the industry. Those industries that do invest heavily in infrastructure are defined benefit funds. So you have a much greater ability to calculate when the money is going to start going out. We have 30 days, so the importance of liquidity is vital.

CA: I agree with all of those comments. I think the

only thing we’re talking a little bit about is fiscal policy, and the only thing I’d say is, here in Europe, there are some interesting case studies going on at the moment about what happens when you increase public debt significantly – and they’re not pleasant.

If we look at the way investments have been made to industrialise certain parts of India and China, particularly the roll out of railways and things of this nature, I think placing the majority of the burden on the taxpayer through debt is a path that people, certainly in Europe, are very, very cautious about at the moment.

DC: I think also you need to be very careful. Over quite a number of years, the Australian super industry with the oversight of the regulators has been very careful in making sure members understand the investment risk return profiles that they’re going into with their options.

To then slant existing pools of money towards one asset class ... is totally changing the risk return profiles that the financial planners and advisers have been taking ... people through over the last 20 years to set them up for their retirement.

Regulators put a lot of pressure onto the super funds in terms of disclosure, ‘plain English’, so that the investors understand. To then pull the rug out from under people and just say, ‘Well yeah, that’s good but we have to take 10 per cent of your fund and stick it into infrastructure’, that could really undermine confidence in the super industry.

PV: The other big one is the costs of monitoring and managing, and the cost of that asset class. And this is the big unknown in infrastructure, and it’s one of the unknowns of course in private equity as well. And I think it’s going to be interesting as we go through stronger super, and there’s some more transparency on trustees to disclose the underlying management costs of various asset classes, and they actually start to do the analysis, then we’ll start to see some interesting decisions made.

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ferent tax jurisdictions as well.

And then you’ve got the issue where the broader your investment is across those sub-asset classes, if it’s property, or if it’s utilities, you’ve got to have that expertise, and you’ve got to pay for that expertise on the government side. And because that is a fairly unknown cost, and because there’s so much pressure on trustees to keep their costs down, it will never be a big part of a portfolio because there is very little control over it.

BR: The other point I’d add to that is the legal and tax costs that we see associated with investing in that asset class. An example is we’re working for a client at the moment that’s launched a private equity-like fund. In order to really eliminate tax leakage through withholding tax, they’ve had to create quite a complicated structure, which means flying to Luxembourg to attend support meetings to approve transactions. And the reason they need to do that is ultimately to make sure that the returns are competitive with alternative products.

Quite often you do need an army of lawyers and account-

15

Mike Taylor

ants on-hand just to navigate some of the complexities associated. A good example is if you happen to invest in the US and you’re deemed to be deriving active US income, it puts you in an extraordi-

narily difficult position where you have to do some fake tax returns, et cetera. If you were going to make it a more attractive asset class, if there was a way to try and streamline some of those minefields

around tax and accounting, I think that would be helpful.

Kar-Mei Tang: I agree entirely.

PV: But it’s very hard when you’ve got assets based in dif-

KMT: That’s one thing I’d like to add to the point – that it’s not a big section of your asset allocations at the moment. I think for the most part those that do invest, invest something around 2 per cent to 8 per cent of assets in private equity as a whole. But it’s probably a kind of growing maturation of the industry. As superannuation funds grow and begin to invest more resources into private equity they will then be able to do better due diligence on the funds and do better assessments and reporting.

Hopefully we will see that begin to grow because it’s not a big part of US investors’ portfolios as well. But like the CALPERS [California Public Employees’ Retirement System], which has probably two allocations to private equity and so on on a proportional basis, it’s still larger than what superannuation here invests in private equity.

PV: But they don’t have liquidity challenges because they are defined benefit funds. SR

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16 INSURANCE

www.superreview.com.au

Delivering the group Competition has been intense for group insurance mandates over the past few years but, as DAMON TAYLOR reports, the underlying challenge remains profitably delivering what has been promised.

W

ith the super industry’s sights already set on what will be an eventful 2011, it seems likely that trustees’ attention will be largely on legislative change.

Yet despite the distraction, the necessity of providing fund members with a competitive superannuation service remains the same – and for the general manager of MLC group and direct insurance, Andrew Howard, that means insurance will continue to be a trustee priority.

“The raft of legislative changes and being ready for them ahead of time as well as when they come into play is very much top of mind for anyone involved in the superannuation industry,” he said. “But having said that, I think there’s enough bandwidth on both sides of the insurance equation to consider insurance for the members, particularly if there’s an issue with the existing insurance offer for the super fund.

“They won’t just pass that by because the competitive cycle amongst funds is so strong,” Howard added. “Each fund needs to keep up with other funds in their segment and so they ignore the importance of maintaining a quality insurance offer at their own peril.”

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Howard said that from an insurer’s perspective, the other factor to take into account was that there was still plenty of scope for current insurance offerings to be upgraded.

“Insurance teams are able to provide their expertise and augment their existing superannuation fund’s offers with respect to insurance upgrades,” he said. “And I think that’s going to be the differentiator between insurers in this period, the extent to which you have a stable, knowledgeable and good quality team who can add value to the offers of the superannuation fund.

“We’ve worked really hard in the MLC Group Insurance team to build a team with lots of experience and also with a great relationship focus and we think that will help a lot, particularly as funds have distractions with respect to legislation.”

Paul Trigg, OnePath Australia manager for group and life risk, also admitted that trustees would have their plates full when it came to implementing the recommendations coming out of 2010’s Super System Review. He pointed out that some of the same recommendations related directly to insurance.

“There’s no doubt that

Paul Trigg

trustees will have a lot to do but at the same time, their duties continue,” he said. “Yes, they’ll have a lot more administration and changes to make which of course takes valuable time, but some of the recommendations made also relate to insurance.

“Insurers such as OnePath will be working with out trustees, rolling out packages to actually help them with implementation but to a large extent it’s business as usual,” Trigg continued. “A lot of the funds that we deal with now, given their sheer size, have specific teams who work solely on insurance.

“So we’ll be focusing on ensuring that we’re working with them to develop the insurance

strategy that they’re now required to develop.”

INDUSTRY CONSOLIDATION Yet while supporting their client funds and trustees through any and all legislative change is top of mind for insurers, recent months have shown that there are other things to be aware of.

A number of fund mergers have shown that super industry consolidation is a definite possibility and according to Trigg, insurers will be watching future developments carefully.

“It certainly looks as though MySuper will accelerate the merging of smaller funds with larger funds,” he said. “And the Government is clearly stating that you need to have some sort

of scale to operate and compete in the new environment.

“I think in terms of any industry that consolidates, there’ll be less business out there and there’s certainly more insurers out there in the group insurance market right now,” continued Trigg. “We’ve had a lot of insurers enter the market very aggressively over the past five years and that’s certainly intensified competition.

“But I would also point out that a play to enter the market and build market share is not necessarily the right way to go.”

Trigg said that reality of the group insurance business was that insurers had to be priced sustainably.

“You’re potentially at risk for 45 to 50 years for some people where you’ve got a long-term income protection benefit,” he said. “So you’ve got to charge a premium commensurate with that risk.

“That’s something we’ve certainly tried to do is have sustainable pricing,” Trigg continued. “We’ve seen a lot of price competition of late in the tenders and it seems the larger the tender, the higher the price competition – so it’s something we’re acutely aware of.”

Taking an alternate perspective, Howard said that MySuper and SuperStream and the incumbent legislative reform was as much an opportunity as it was a stumbling block.

“What you would say about MySuper is that it is defining a very simple, basic insurance offer that will be applicable to all members,” he said. “But in many cases, funds – and corporates for that matter – will be looking to differentiate their insurance above and beyond the simple offer that may be in a

INSURANCE 17

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promise MySuper environment.

“So I think that one of the things that we’ll be turning our minds to is how can we make attractive insurance benefit designs and attractive insurance processes for members to get their appropriate level of cover,” Howard continued.

“And we have to do that knowing that many Australians don’t have the appropriate level of cover and that those that do have it probably have special needs around particular lines of cover – specifically income protection.

“It’s like anything. There’s a potential impact here but there’s also an opportunity.”

And in an industry set to undergo such significant change, it seems seizing such opportunities will be vital. Group insurance is, after all, a market with a large number of players that is itself growing increasingly competitive.

GROUP INSURANCE So is consolidation on the cards in the group insurance space as well?

For Tower head of group life Andrew Boldeman, it is a definite possibility.

“Overall, we’re seeing that as funds themselves consolidate, there’s fewer mandates and those mandates are bigger,” he said. “With the larger mandates, there’s more risk coming across to insurers and the margins are still thin compared to other lines of business – but service expectations are increasing quite sharply.

“So to my mind that all adds up to an industry that’s going to need some degree of specialisation and more specialisation than perhaps was there five years ago,” Bolde-

man continued. “We believe that the group insurance market will certainly change in the super funds space and consolidation towards a few specialised players is certainly a possibility.”

According to Howard, there is no getting around the fact that the Australian market is exceptionally well served from a group insurance perspective.

“There’s around about a dozen group insurers out there and that’s a lot,” he said. “I think, as you’ll see with AMP and AXA coming together, there will be other potential consol-

the organisation serving them all pay claims and look for ways to pay claims.

“Those things become important and if they’re not there, there’s always the chance that funds will change their mind and go knocking on other doors before their time is necessarily due.”

FOCUSING ON SERVICE Naturally, the emphasis Howard places on the relationship between an insurer and its client fund will not come as a surprise to insurance industry executives.

“That’s one aspect of service but the second aspect is related to service to the end members of funds,” Boldeman continued. “And there are a number of metrics that funds have there in terms of the interaction that insurers would have through the claims and underwriting process.

“The claims one is probably the most important: are the decisions appropriate, are insurers reaching those decisions quickly enough, is communication with members as good as it could be, how prompt is that communication, how clearly do

“If you ask clients who are happy what’s been important to them, they’ve long forgotten the price that they’ve paid per unit per member.”

– Andrew Howard idations in the market but in terms of characterising competition, one of the interesting things in the last 12 to 18 months is that there has been this concept around the market of the power of incumbency.

“It’s certainly true but it relies on a really good relationship, and where relationships are disrupted or the experience or quality of the team serving a group insurance client changes, there have been notable examples of clients moving. I think that will continue to occur over the next 12 to 18 months if there are disruptions in relationships,” Howard continued.

“As relationships change, funds will turn their minds to what kind of long-term relationship they want to have and it becomes very important that the people and the experience and

Where price per unit of cover was once trustees’ first and last thought when it came to insurance, service is now even more vital and, for Boldeman, something insurers must excel at.

“There’s two aspects of service: service to fund members; and service to the super fund itself, in terms of supporting them in delivering their own objectives,” he said. “So when it comes to actually dealing with funds, it’s really around whether the insurer is on board, is there an alignment of interest, do they feel that the insurer is supporting the objectives of the fund, are they moving quickly enough, are they coming back with solutions to objectives and problems that the funds themselves have – they’re all key drivers of service.

members who are seeking to claim understand what they need to do? It’s all vital.”

Continuing Boldeman’s line of thinking, Howard said that the manner in which an insurer handled claims was paramount when it came to measuring service.

“Insurance is effectively a contract that says that in the event of death or disablement, the insurer will pay a benefit,” he said. “And where a client is having trouble either through length of time or through dispute on a regular basis (and it doesn’t have to be that many times because it’s such an emotional issue), where they have problems around that then service is considered or perceived to be poorer.

“So the emphasis has to be on being a good claims payer and

a good claims manager, and that’s certainly our focus when it comes to service.”

Howard point to flexibility as being another key aspect of service in insurance provision.

“So what I mean by that is the extent to which you’re willing to have a conversation with members of a superannuation fund or the management of a superannuation fund over the grey areas when it comes to claims or when it comes to granting cover,” he said. “And that ability to be flexible and see the bigger picture around the probabilities of selection or administrative issue are what can differentiate an insurer’s service.

“If you ask clients who are happy what’s been important to them, they’ve long forgotten the price that they’ve paid per unit per member,” continued Howard. “Obviously we have to be clear that price is still an important consideration and the ticket to the game, but when all is said and done, that isn’t what they remember.

“They remember the claims paying, they remember the flexibility and they remember the relationship.”

Also reiterating the importance of the relationship, Trigg said that at the end of the day, service was about peace of mind for the fund trustee and fund executive.

“One of the CEOs from one of our client funds recently said to me that insurance was something that was never on his radar because we do such a good job,” he said. “He said that that was Continued on page 18 ☞

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18 INSURANCE

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Delivering the group promise ☞ Continued from page 17 the way he wanted to keep it and that if he was seeing it, then it was only at that point that it became an issue.

“And obviously that’s the way we want to keep it as well, so that on the odd occasion that there’s a disputed claim he knows that he can ring myself, the claims manager, our relationships manager – whoever – and the issue will be resolved at a senior level and in an expedient way.”

Yet if service is a challenge that insurers are now taking in their stride, insurance provision to the superannuation is still fraught with its fair share of dilemmas. One such issue is balancing insurance benefits tailored to a fund’s different demographics against the necessity of obtaining the best possible rate and, according to Trigg, finding the right solution is always tricky.

“It is something that’s quite difficult and it tends to be a historical issue, particularly in industry funds where they’ve had $1 per week as the basis of premium,” he said. “It might actually be $3 per week or $9 per week, but in the end you’ve got a table which has a unit of $1 buying a reducing amount of cover.

“It might start at $100,000 when you’re 25 and then drop down to $89,000 when you’re 35 but I think most funds are starting to see that not only does that rating structure include an inherent amount of cross-subsidies where the younger members are cross-subsidising the older members but it’s also probably not the right amount SUPERREVIEW

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of insurance cover based on peoples’ ages,” continued Trigg.

“So if you’ve got a person who’s 20, do they really need three units of $100,000 when they have no financial dependents and no debts?”

Answering his own question, Trigg said that the answer was probably ‘no’, but that when looking at a unitrated/sum-insured table, funds used to say: ‘Well, how long can we keep a higher sum insured, how long can I keep the $100,000 cover for?’

“So if you extend it out to age 35, that’s one premium – but if you extend it out to age 40 that’s a huge impost of premiums to extend that line out,” he added. “And what we’ve been trying to show our trustees is changing the traditional way that we look at those sum-insured scales and providing a smaller amount of cover with less age cross-subsidies in the younger ages and more in the centre.

“It’s almost like a bell curve; a model where you provide a small amount of cover but you have automatic increases, since traditionally peoples’ debts and financial dependents increase and then, as they get more money in their superannuation account, the level of cover drops off at the later ages,” continued Trigg. “But it is difficult because if you’re moving from one to the other, there will always be some members who are disadvantaged and that’s where we’ve been trying to assist funds where we can in having a user pays system so that the appropriate age and classification of member pays based on their respective risk.

“That’s the move that we’ve been seeing and it’s going to be

a slow process, it may take a few review periods to move from the traditional scale to what I see as being the scale that’s more appropriate.”

Alternatively, Howard said that it was a decision based largely on the fund’s overall long-term strategy.

“It does vary from trustee to trustee and it comes down the fairness test member per member,” he said. “Some see the bigger picture and say it’s of greatest benefit to most of the

across the board,” added Howard. “And again, it’s a fundby-fund situation. The longer term considerations of the fund are always going to be growth, the number of members it has and the scale that it can generate – they’re what will help dictate what their decision on that will be.

“That said, I would always come back to the fact that it’s important to strike a good and fair rate for all the members and also to partner with an in-

Andrew Howard

members where others look to ensure that it’s price appropriate for the type of member, but the position on that varies from trustee to trustee and it also relates to their strategic considerations as to where they want to grow the fund.

“We’ve also seen from time to time trustees taking a view that it’s important to offer a price competitive rate in a certain occupation class rather than to provide a homogenous rate

surer who focuses on service and extends that service well beyond price.”

FACING THE CHALLENGE So despite the legislative and market uncertainty that persists within Australia’s superannuation industry, it seems group insurers are clear on the challenges set before them and, more importantly, how to go about tackling them.

All insurers will have a 2011

checklist and for Trigg it starts with retention.

“Retention is probably my number one priority because it is such a competitive market and because insurers, certainly over the last few years, have offered pricing that is potentially unsustainable,” he said.

“It’s difficult to ensure that your clients actually see that what you’re offering is a total package; you have all of the services, you have the relationships, you have the commerciality in decisions – you have all of these things that extend well beyond price.

“We’ll also be making sure that we’re prepared for any re-tenders or mergers that come up,” Trigg continued.

“So keeping a close eye on who’s merging with who and making sure that we’re ready to put forward a very good offer, particularly if one of those funds is already a OnePath client.”

In a situation where a merger involving a current client was in play, Trigg said that it was absolutely vital that the OnePath offering was competitive and that the fund/insurer relationship was rock solid.

“It really is all about having a good relationship with your client, not just providing them with the service that they want but also being there for them when they need something,” he added.

“I don’t mean meeting service standards 98 per cent of the time, it’s about the oneoff situations that occur every week.

“You need to be able to look at those things commercially and assist your client to resolve them quickly, effectively and to the benefit of all parties.” SR

20 POLICY

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Wrangling with reform From the Future of Financial Advice changes to the Cooper Review recommendations, superannuation trustees are facing significant change but, as DAMON TAYLOR writes, the devil will be in the detail.

SUPER GUARANTEE

H

aving seen Jeremy Cooper’s recommendations out of the 2010 Super System Review and, more importantly, the Government’s response to them, 2011 is already shaping up to be a busy year for Australia’s super industry.

To date there has been plenty of policy talk but the interesting question, according to Jason Marler, director of business strategy and operations at Russell Investments, is what the Government’s 2011 walk will be.

“The Government released a fairly comprehensive response to the Cooper Review in December of last year where they largely accepted most of the recommendations,” he said. “I think it was 130-odd out of 177 recommendations that they’ve accepted; some were in principle, a small number were deferred and others they’ve just noted for later implementation.”

As to what Government action there would be over the next 12 months, Marler said that it would largely revolve around industry consultation.

“The first step for the Government will be to establish some consultative sub groups, some of which have already started, but a lot will happen before the final form of the regulation is drafted,” he said. “I SUPERREVIEW

fund trustees.

“The main thing here is that trustees need to prepare themselves for these changes and have a look at the competitiveness of their fund because if MySuper in its current form comes in, we’re going to see a lot of competition and at that point the challenge shifts to differentiation.”

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do expect that draft sometime this year but I don’t think the legislation in its final form will come through all at once.

“We’re talking about a lot of change here so I expect they might wait on some of the bigger and more contentious ones until after the Greens get control of the Senate in the middle of the year,” Marler continued.

“That may allow easier passage in the back part of the year.”

Echoing Marler but also speaking to MySuper in particular, Russell Mason, worldwide partner at Mercer, said that with so much policy debate set to occur, the next 12 months would be a period of strategy and planning for fund trustees.

“The Government has signalled quite clearly that they’re going to adopt the Cooper recommendations,” he said. “And a number of those recommendations – SuperStream for instance, using tax file numbers and so on – they’re good changes and the industry will welcome them.

“Will we see the beginnings of the SG [superannuation guarantee] increase to 9 per cent and a quarter per cent that’s been flagged for July 2013?” Mason asked. “I don’t know but I don’t think that will have a great impact on the longterm strategy and actions of

Of course, in terms of policy specifics, the one of most profound significance to superannuants is the potential rise of the superannuation guarantee from 9 per cent to 12 per cent. And according to Robin Bowerman, principal and head of retail for Vanguard Investments, it is a move that cannot come soon enough.

“The SG rise is due to come in by 2019 with the Future of Financial Advice reforms due from July 2013,” he said. “Realistically though, I think much of the industry would ask why the wait for that rise from a 9 per cent SG to 12 per cent? Why wait until 2019?

“It could certainly be implemented sooner, particularly given the economic environment we’re in, a strong economy and full employment,” Bowerman continued. “I think the Government’s probably been conservative around that, however, I think the caveat that Chris Bowen [former Minister for Financial Services, Superannuation and Corporate Law] and then Bill Shorten [current Minister for Financial Services and Superannuation] have legitimately put out there is that this is a significant step for the superannuation industry and it’s the right thing to do, but it is conditional upon the finan-

cial planning industry getting its house in order to ensure that we remove discriminatory commission practices and so on and so forth.”

Bowerman said that people shouldn’t underestimate the fact that Bowen had made it pretty clear that he’d managed to win cabinet support for going from 9 per cent to 12 per cent

on the basis that the financial planning industry adopt more transparent fee practices.

“And in terms of logical sequence, it makes good sense,” he said. “You clean out distribution channels, remove the commission issues that have really held the industry back from a credibility point of view and then the 12 per cent SG kicks

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in from 2019.”

Yet while the SG increase is undoubtedly well supported from the superannuation industry itself, the reality is that a change of this magnitude does not go unchallenged, and Marler said an employer backlash was a definite possibility.

“It’s certainly possible,” he said. “The Coalition’s position on this is to oppose the 9 per cent to 12 per cent SG on the grounds that it will put strain on smaller businesses that essentially cannot pass it through as a wage trade-off.

“Larger businesses can obviously do that very easily but, in saying that, the increase from 9 to 12 per cent is in very small increments over a lengthy period until 2019,” added Marler.

“It’s not going to have any large, one-off, immediate impact for business and my view is that because it’s done so gradually and over such a long period of time, employees won’t see it as a wage trade-off at all.

“But that’s effectively what will happen, certainly for the large businesses, as this is implemented. Indeed, that was what happened when the SG was first introduced and award superannuation before that in the 1980s.”

For Marler, the reality surrounding any SG increase was that there would still be a significant under-provisioning for retirement within Australia.

“At the moment, I think Rice Warner estimates that that under-provision is about $900 billion,” he said. “So something like increasing the SG from 9 per cent to 12 per cent will go part of the way to addressing this gap that’s building up as Australia’s population gets older and the proportion of re-

tirees to workforce members grows larger.

“Will it get all the way there?”

Marler asked. “No, definitely not. Depending on the individual circumstances, 9 per cent is enough for a small number of people but for most people, you’re looking at somewhere between 12 and 20 per cent to make sure they can live adequately, sustainably, comfortably in retirement.”

Robin Bowerman

MYSUPER CHANGES Of course, the other side of Cooper’s superannuation reform coin is the introduction of the MySuper legislation. While an increase in the SG, and by extension Australia’s retirement savings pool, has been met with significant industry support, MySuper continues to prompt debate and discussion which, according to Marler, is undoubtedly warranted.

“Broadly speaking, I would say that I support the concept of MySuper and what it’s trying to achieve,” he said. “And I would define those things as making superannuation simpler and easier for members to understand, having high quality default arrangements for those who are disengaged, having the necessary protections as well for those who are disengaged by potentially removing some of

the conflicts and structures that exist in the industry, having outcomes transparency and also having a trustee focus on maximising value and net outcomes for members.

“All of those objectives are very good ones and I would certainly support them in that context, but the big question then becomes how you achieve them and how you get there,” Marler continued. “The Cooper Review’s response to that was to create this thing that they call MySuper and a lot of the debate will come down to the final form of the regulation.”

Marler added that the significant and industry-wide discussion that had been taking place in recent months had raised legitimate concerns around MySuper and many of those concerns remained unaddressed.

“One of those concerns is around entrenching member disengagement and I think there’s some substance to that,” he said. “I would say MySuper actually makes it harder in some circumstances for individuals to make simple choices. For example, it’s currently very easy for a member of a superannuation fund to move from a balanced 70/30-type portfolio, which is the default that most of them are in, to a slightly less risky investment style, so being 50 per cent growth assets, 30 per cent growth assets – something like that.

“It’s very easy for them to do an investment switch and there’s not a lot of hassle in doing that,” continued Marler.

“But the way Cooper is setting up MySuper will mean that’s a big change, you lose some protections because you’re suddenly no longer disengaged and

you’ve actually got to change a fund or a product to do that.

“The last thing we want is people saying that it’s all too hard for them to move out of their MySuper product, especially when it’s in their interests to do so.”

More focused on the benefits MySuper has been tipped to bring, Bowerman said that any super system that was more transparent and that encouraged greater understanding on

It will be the trustees who will really be the people charged with looking after it and making sure of good outcomes.

– Robin Bowerman the part of fund members and investors had to be a good thing.

“So far, there’s been quite a bit of discussion on two levels.

Number one is that it might reduce the incentives for people to be involved with their superannuation,” he said. “But I think there’s also a good amount of behavioural finance research which shows that a lot of people, albeit more at a lower account balance level, just aren’t going to be engaged in the way the industry wants people to be.

“So, to me, the architecture that the Cooper panel recommended makes absolute sense,” Bowerman continued. “If people really don’t want to be that involved in it and they just want it to be done properly for them, then the trustees have the responsibility to look after

them and actually do that with what you might call a benevolent paternalism-type framework.

“It will be the trustees who will really be the people charged with looking after it and making sure of good outcomes and then, as you move up the scale and you’re saying that you do want to select investments or want to have more choice about it, you can. To me, it’s a range of options that makes great sense.”

Yet while he acknowledged that the goal of transparency, as mentioned by Bowerman, was one that the Government had firmly in mind, Marler said that he remained concerned about some the unintended consequences of MySuper.

“Cooper and the Government and the Cooper Review panel, they’ve very much stressed that their objective is maximising net outcomes for members,” he said. “But what we’ve seen so far with the move to greater transparency and greater homogeneity of product is that people are almost clustering together and offering the cheapest headline price and product that they can, so putting together a mix of passive investment styles and less features for members to get the headline price down.

“So while Cooper and the Government will say no, no, no, that’s not the intent at all, the trustee should be taking into account the value delivered to members. I would suggest that there’s already some evidence out there that says people will go for a simple product, a low cost product that you can sell as a headline MySuper offering,” Marler continued. “And at the Continued on page 22 ☞

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22 POLICY

☞ Continued from page 21 end of the day, that may not deliver the best outcomes or value for the members.”

Providing a counterpoint to Marler’s argument, Bowerman said that low cost did not necessarily mean low return.

“It can often mean the reverse and, within Cooper, the way we’ve read it is that it’s not saying you must go for the lowest cost option,” he said. “It’s saying that if you’re going to pay higher fees for a particular type of fund, whether that’s private equity or a hedge fund, that’s fine but you need as trustee to be very confident that you’re actually going to get a higher return to justify the higher fees.

“So I think the debate around that has become a little off track; they’re sort of missing the point that the Cooper panel is making when they were really saying that fees, particularly on an after-tax basis within a super fund, are a really important driver of the net return an investor gets.

“And as we saw through the global financial crisis, a lot of high cost active strategies basically failed to deliver what investors thought they were paying for.”

According to Bowerman, the other key aspect of MySuper related to the price pressure and additional competition that could be brought to the table.

“So despite the fact that we’ve got a great superannuation system and the industry has, by and large, done a good job of it, what we haven’t seen is a lot of price pressure or margin pressure to bring fees down,” SUPERREVIEW

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he said. “Now, Vanguard in the US is actually roughly the same size as the total Australian superannuation system – it’s about $1.5 trillion – so if you look at Vanguard as almost a case study, well fees on the funds there have reduced dramatically as they’ve gone from being a relatively small player at $100 million to $200 million up to $1.5 trillion.

“Fees have gone to about a third of what they were 25 to 30

Advice reforms. Announced on ANZAC Day of last year, their impact upon financial planning has been significant but, according to Mason, that impact has not yet been shared by the super industry.

“We haven’t seen a lot of impacts at this stage but what I think we have seen is a lot of funds looking at the financial planning services they provide,” he said. “Now that we’re moving towards a level fee-for-service

closer to their members and also to offer a full financial planning service to their members, so I expect this time next year, a lot more funds will be offering financial planning and in far more sophisticated ways.”

For his part, Marler said that one of the interesting things that had come out of the Future of Financial Advice reforms related to the value proposition of advisers and advice.

“You’ve probably seen some

The focus this year will be on preparing and getting your business models and structures right to enable the implementation to be straightforward.

– Jason Marler years ago,” Bowerman added.

“So that’s a good example of where I think the benefit of scale is proven, and we haven’t actually managed to pass that through as an industry to the end investor, to the fund member, as well as we could have.

“That’s why the SuperStream reforms, in terms of clearing up the back-office, will be fantastic and, together with MySuper, will actually provide a very clear, transparent way for people to compare the fees that they pay for their MySuper option versus another MySuper option. So as that transparency introduces price competition and price pressure, ultimately that’s got to be good for the end investors.”

But while MySuper is certainly set to take centre stage in 2011, the final piece of legislative change waiting in the wings is the Future of Financial

playing field, we’ll see planners forced to do away with commissions and effectively move to a fee-for-service model.

“As a result, a number of the industry funds are saying ‘we’ll just put a toe in the water’ or ‘so far we haven’t really adopted financial planning and advice for our members, but maybe now’s the time to do it and do it on a cost effective and competitive basis’,” Mason continued. “So I would expect that during the course of the next 12 to 18 months, you’ll see a number of funds look at the way they offer advice to members or look to get financial planning licences; look to become authorised corporate reps of other financial planning organisations; look at having embedded planners in their fund.

“There’s a number of models, all with their various pros and cons, that allow the funds to get

of the research around what consumers are prepared to pay for comprehensive advice and it comes in at about $300 or $400, something like that,” he said. “But the cost of actually delivering full financial advice right now could be five or 10 times that amount, so there’s a big gap there.

“I think one of the key issues and challenges for the industry will be how we deliver cost effective advice, and not least in that challenge is that we’ve got a lot of older financial advisers – who have done financial advice in the old paradigms – who are retiring and selling off practices and all sorts of things,” Marler continued. “So there’s less of a new wave of advisers coming through and more customers who are going to need advice, so the baby boomers who are just coming into retirement phase, and arguably

that transition to retirement and retirement phase are where people have the greatest need for advice.

“The very big challenge for the industry is how advice, and it doesn’t matter whether it’s single issue, intra-fund or full financial plan, the challenge is how that advice is to be delivered cost effectively.”

So with plenty on the policy radar in 2011, the challenge is clearly navigating what will undoubtedly be a significant amount of legislative change.

What will bring individual funds, service providers and the wider super industry safely through to the other side?

The answer, according to Marler, is preparation.

“For us, the key thing is preparing for these changes,” he said. “We’ve seen this in a lot of businesses already, as they launch new products that look very much like MySuper products.

“That will be the recipe for success in my mind. Whilst we’ve got transition periods, whilst the final form of the regulations isn’t known in lots of these areas, it seems pretty likely that we’re going to head in this direction, and the planning for that can occur right now,” Marler continued. “To my mind, this won’t be some big bang thing. The timeframes for these changes, whilst they overlap, are significantly different, so I don’t think it’s so much going to be a focus this year.

“The focus this year will be on preparing and getting your business models and structures right to enable the implementation to be straightforward in the years to come. And in that, it’s a case of the earlier you start the better.” SR

APPOINTMENTS 23

www.superreview.com.au

BNP Paribas names Asia Pacific CEO Events Calendar Super Review’s monthly diary of superannuation industry events around Australia and abroad.

FEBRUARY New South Wales 4 – ASFA Sydney Golf Day. Venue: St Michael’s Golf Course. Jennifer Street, Little Bay. Enquiries: ASFA Events Department. Ph: (02) 9264 9300 or 1800 812 798.

9 – FSC Professional Series Briefing. Risk and Compliance. Speaker: David O’Reilly, general counsel of the Financial Services Council. Venue: FSC. Level 24, 44 Market Street, Sydney.

Queensland 14 – ASFA Luncheon. Well said, well led. Speaker: David Bird, managing director, International Wise Counsel. Venue: Sebel and Citigate. King George Square, Brisbane. Enquiries: ASFA Events Department. Ph: (02) 9264 9300 or 1800 812 798.

Australian Capital Territory 16 – ASFA Luncheon. 2011: The political landscape and advocacy. Speaker: Pauline Vamos FASFA, chief executive, ASFA. Venue: Boathouse by the Lake.

Grevillea Park, Menindee Drive, Barton. Enquiries: ASFA Events Department. Ph: (02) 9264 9300 or 1800 812 798.

Western Australia 22 – ASFA WA Superannuation and Investment Forum.

Venue: Perth Convention and Exhibition Centre.

Mounts Bay Road, Perth. Enquiries: ASFA Events Department. Ph: (02) 9264 9300 or 1800 812 798.

Fax details of conferences, seminars and courses to Super Review on (02) 9422 2822

Eric Raynard appointed chief executive officer for corporate and investment banking Asia Pacific.

BNP Paribas has appointed Eric Raynard as chief executive officer for corporate and investment banking Asia Pacific (APAC).

Raynard will help corporate and AMP Financial Services has boosted its group risk team with the addition of three new appointments.

Victoria Simpson has been appointed as acting group risk product strategy manager, and will develop and implement the strategic and operational plans for AMP’s group risk product set.

Jenny Vaitsas will also join the team as its new acting group risk product manager, while Chris Taylor has been appointed acting group insurance business relationship manager.

Michael Paff, AMP director of wealth protection products, said Taylor would primarily focus on life insurance and salary continuance, as well as managing strategic relationships within the business.

These appointments come as AMP goes through the process of merging with AXA, pending regulatory and shareholder approval.

Russell Investments has hired two specialists who will be directly responsible for growing and servicing the business’ industry and government super fund and nonsuper clients.

Mark Plimley has been appointed as senior business development manager, financial institutions – a newly created role within Russell’s institutional sales team headed by Chris Briant. Plimley joined Russell from UBS Asset Management where he was director, consultant relations.

Also joining the company is Divyesh Bhana, current BNP Paribas securities services relationship manager. Bhana has been appointed to the position of consultant relationship manager

investment banking capitalise on multiple opportunities in both the mature and high-growth markets and support the growth of the bank’s investment solutions busi-

nesses in the region.

Raynard has spent more than 12 years in Asia during his career and performed various senior roles for BNP Paribas. He also became a member of the bank’s corporate and investment banking executive committee in Europe.

Raynard commenced his new role in early January and will be based in Asia.

Glen Foster, who joined Perpetual in 2009 as an analyst for its quantitative equities investment team, will assist with the ongoing development of Perpetual’s active asset allocation strategies as well as its quantitative systems.

Glen Foster

Chris Briant at Russell, while the existing senior business development manager, Ty Thurgood, will be responsible for working with all non-corporate super funds, including industry funds, government funds and not-for-profit super funds.

International asset manager Threadneedle has attracted fund managers from Goldman Sachs and Aberdeen Asset Management to join its global emerging markets equities and fixed income teams.

Goldman Sachs’ former executive director of its principal strategies group, Irina Miklavchich, will join the Asia (ex Japan) and global emerging markets equities team and will manage a number of global emerging market funds.

Matthew Cobon has joined Threadneedle’s developed government and currency team from Aberdeen Asset Management/ Deutsche Asset Management, where he was global head of currency fund management.

Perpetual Investments has appointed a senior investment analyst to it diversified funds team.

Foster’s focus will also be on the development of a range of ‘beta prime’ strategies across asset classes, which Perpetual stated sought to achieve an improved and highly cost effective risk/return outcome for investors compared to a passive approach.

International equity fund manager Insync Funds Management has added to its investment team with the appointment of Bob Desmond as senior portfolio manager.

Desmond has more than 16 years experience in global and emerging market equities and comes to Insync from Seilern Investment Management in London. He was also a co-founder and chief investment officer of Fleming Asset Management Zimbabwe (now Imara Asset Management), which grew into the largest independent asset manager in the country. SR FEBRUARY 2011

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ROLLOVER

THE OTHER SIDE OF SUPERANNUATION

The winner takes it all

Wish you were here

ROLLOVER has long understood that for every winner there has to be a loser or, indeed, someone who doesn’t even rate a mention in the post-match commentary.

Thus, he should not have been surprised when he discovered that some feathers had been ruffled by Tower Australia’s success in scoring back-to-back victories in Super Review’s Group Insurer of the Year award.

For those who don’t know it, the Group Insurer of the Year award is the product of combining which companies have won and held group insurance mandates in the superannuation industry in any one year with the outcome of a survey of superannuation fund executives.

As it happened, Tower managed to hold and win more mandates than most of its

ROLLOVER is pleased to note that with one or two exceptions, most superannuation industry conferences in 2011 will be held in the Sunshine State.

Apart from the fact the Queensland economy will need the boost after January’s widespread flood devastation, it ought go without saying that Rollover appreciates the warmer climes.

The year of warmer conferencing begins with the Conference of Major Superannuation Funds (CMSF) next month and will conclude with the Association of Superannuation Funds of Australia conference in November.

There is, however, the exception – August’s Australian Super Investment conference in deepest Hobart. Oh well. SR

competitors last year and emerged well from the survey process with respect to service levels and client satisfaction.

Hannover Life Re won the service level award while both AIA and CommInsure emerged reasonably high in the ranking, with Metlife a little behind both of them.

While some of the insurers may have hoped to topple Tower last year, none of those who gave the company its strongest competition ended up complaining about the outcome. That dubious honour went to a company that did not even make it into the mid-tier.

Rollover admires any BDM who feels so strongly about what he is selling that he will fight for its honour, but perhaps his energies would be better expended fighting for new mandates. SR

Performance you can bank on On the receiving end BEING a journalist, Rollover is inevitably oblivious to his own failings. Thus he does not always appreciate the level of angst a phone call from a member of the so-called ‘fourth estate’ can generate.

He was therefore somewhat intrigued and not a little bit amused to observe the manner in which the chief executive of the Association of Superannuation Funds of Australia, Pauline Vamos, became just a bit tetchy when her arrival at a meeting with Rollover and others was deSUPERREVIEW

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layed by a call from a member of the media.

Vamos, as it turned out, was trying to explain to the journalist why some data recently published by the Australian Prudential Regulation Authority (APRA) should be carefully interpreted, and seemed to be arguing that sometimes apples weren’t apples but actually pears.

Having dealt with the journalist in question, Vamos calmed herself, turned to matters at hand and accepted a glass of grape. SR

ROLLOVER knows the debate over which funds perform best was lost a long time ago, with industry funds emerging as the undoubted winners.

However, if Chant West’s data for the past seven years is any guide, it would not have hurt to be a banker, and specifically a member of the Commonwealth Bank of Australia Officers Fund.

The data showed that the top 10 performing growth funds for the seven years to the end of December last year were in rank order: CBA OSF Mix 70 (7.8 per cent), Catholic Super Balanced (7.6 per cent), REST Core (7.4 per cent), Telstra Super Balanced (7.4 per cent), BUSSQ Balanced Growth (7.4 per cent), Australian Super Balanced (7.3 per cent), NGS Super Diversified (7.3 per cent), Health Super MT Growth (7.2 per cent) UniSuper Balanced (7.2 per cent) and CareSuper Balanced (7.1 per cent).

Seems that for the long haul it pays to be a banker or a member of an industry fund. SR

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Email editor@superreview.com.au or send a fax to (02) 9422 2822.