Financial services reform has contributed to a changing landscape for corporate superannuation in WA.
The financial services industry has undergone a sustained period of regulation over recent years and corporate superannuation has not escaped unscathed, with some interesting opportunities and challenges emerging.
The regulatory spotlight applied to the industry has resulted in a stringent licencing regime for all industry participants who provide advice.
This licencing regime is now extending to the trustees of company superannuation schemes and ING corporate super manager for Western Australia, Mike O’Donnell, said this presents a significant opportunity for the WA superannuation market.
“Previously, as an alternative to an externally managed superannuation plan, companies have been able to run their staff superannuation plans in-house with the trustees of the scheme made up of equal representation of staff and management,” he said.
“Licencing requirements for the provision of financial advice will now extend to cover the trustees of company superannuation plans from July 1 this year.”
To continue running company superannuation plans internally will require one or more of the plan’s trustees to go through an education program to comply with the licencing requirements of industry watchdog, the Australian Prudential Regulation Authority.
This provides a significant opportunity for the adviser-driven sector of the financial services industry in WA, as companies have to decide whether to comply with trustee licencing requirements to keep the fund in-house or outsource the superannuation plan.
There are current examples of major WA companies pursuing both of these alternative courses of action.
Industry sources in Perth believe Clough Engineering has already gone down the path of licencing its trustees to maintain the fund as is and Wesfarmers may consider following.
Worsley Alumina has its superannuation administered by Mercer Investment Consultants.
Such decisions have a substantial impact for the local financial planning industry.
Company superannuation funds for big WA employers can be worth upwards of $100 million in funds under management, when individual employee account balances are aggregated.
A specialist corporation superannuation adviser providing advice on the choice of superannuation fund and ongoing advice on the plan will earn a significant amount of ongoing income by charging a fee for service based on the plan’s funds under management.
So, when major WA employers like Westrac, HBF, RAC and Wesfarmers announce their intention to review their superannuation scheme it creates considerable interest from advisers.
Western Power is believed to have outsourced its super fund late last year, and this presented a different issue for WA advisers.
The decision making process on who would manage the plan was coordinated by eastern states actuaries Rice Walker and WA superannuation groups were effectively cut out of the loop from tendering for one of the largest state-based plans available.
This is not to say there is a shortage of expertise in Perth.
There are a number of specialist corporate superannuation advisers operating in the local market, including David Andrew of Capital Partners Financial Consulting, Richard Matzinger of Axis Financial Group, Financial Solution’s Eugene O’Sullivan, and Alan Rickerby from West Coast Group.
Typically, large company superannuation funds will be put out to tender when the company is seeking to change or review its superannuation arrangements.
A tender manager will take the needs and wishes of the company on-board and invite appropriate groups within the financial services industry to pitch for the business.
This will include specialist superannuation advisers, like those mentioned above, as well as corporate superannuation consultants such as Mercer.
The company was last year successful in winning the $340 million Woodside superannuation fund through a tender process managed by Pricewaterhouse-Coopers in Perth.
The tender initially considered 16 options, which was short listed to four before Mercer was selected as the best-fit for Woodside.
Tenders for such a big book of business are time consuming and rigorous and Woodside even made on-site visits to the call centres of the four short listed contenders.
Advisers operating in corporate superannuation tend to be particularly aware of their target market because of the considerable investment of time needed to submit a tender.
David Andrew said his business focused on small to medium size businesses of between 200 and 500 staff.
“We can do justice to servicing funds of this size, which involves dealing with individual members of the fund, where as larger funds stretch our capabilities and are not our target market,” he said.
There are also other challenges for WA corporate superannuation advisers.
Industry funds have mounted a long-running promotional campaign based on their cost effective fee structures.
The line between industry funds and adviser-driven master trusts is becoming increasingly blurred, as industry funds now carry more of the product features that were previously unique to master trusts and the fee argument is opened to debate.
The product features include wide-ranging investment choice and on-line access for member information.
The result is the corporate superannuation products have become largely commoditised and it can be argued the major point of differentiation is now the advice component.
“Ten years ago an adviser’s role would be to fix a company’s superannuation administration mess. Now that’s not needed so much and you spend more time providing assistance to members,” Mr Andrew said.
Superannuation choice legislation is bringing an even sharper focus to the debate between master trusts and industry funds.
WA workers employed on state awards have had superannuation choice for the past eight years, and federal legislation in this area will come into affect from July 1.
This will give employees the right to choose their superannuation fund and they will be able to choose an industry fund if they wish, further squeezing the market for financial advisers.
Two of the biggest industry funds, Australian Retirement Fund and Superannuation Trust of Australia will merge in July this year, creating a superannuation entity with more than one million members and $18 billion in assets.
A fund of this scale starts to resemble the look and feel of a brand name superannuation fund manager, like AMP, AXA or MLC, and points to the future convergence of roles within the industry.
None the less, the complex and changing nature of superannuation legislation continues to highlight the need for professional advice.
