I know of one instance where a major employer wanted to know just how many dollars actually showed as revenue in their service provider’s P & L. The particular service provider was actually annoyed about the question and refused to provide an answer.
There are many employers who are quite happy with the “service” being provided, but so few employers actually see the quality of service from an employee’s point of view and very few employers have a way to examine the value being presented by their current arrangement.
There is definitely a need for change and improvement in employer super as it is clear that no employer knows how to manage super as a remuneration benefit.
There now exists an analysis of the different service models within employer super. It identifies what is good about any sales or service model but also what is not good about a particular model. The SPOV stands for ‘Substantial Proof of Value’, a much needed analysis of a service industry managing a significant amount of asset owned by individuals who want to know how to optimise their projected income in retirement.
The level of commercial knowledge required to analyse a significant portion of the financial services industry requires a high degree of skill. If you are going to change an industry for the better, you have to know what you are talking about and then you have to have the evidence to back up your opinions.
Outcomes are dependent upon the skills of the people doing the analysis and drawing conclusions from the situation. As an analogy, do you really think there is a politician with the ability to run an economy? Likewise, in examining the outcomes since, was the Royal Commission staffed by people who could analyse the financial services industry and improve its operation?
What needs to change?
The most prevalent strategy within employer super is the MySuper investment default. Every product has its own design and not all of them are good. They are all labelled and promoted as being superior and generally speaking performing against their stated benchmark. The government introduced MySuper as a license regime for products and, as an afterthought, APRA has now come up with a methodology to identify and disqualify underperformers, based on PDS cost and return over a fixed period.
From its introduction to this latest initiative by the government, MySuper as a solution appears to be an example of interference and not clear improvement.
In terms of prioritising change, I always think the top three initiatives, if measured on the level of improvement, is the perfect place to start:
- Employer Knowledge
Employers need to be more curious about the highest employee benefit from the point of view of value and then need a source of data to inform about best practice in employer super.
- Product versus Service
Within employer super, product has dominated the market model for thirty years in terms of practices adopted by the financial services industry. Consider how much of the conversation with your current provider is about product performance as opposed to service performance and try to identify what the appropriate measures are for service value.
- Projected Income in Retirement
Start to consider the optimisation of asset at an individual account level based on projected income in retirement and the impact of cost, contribution and investment return. There are many typical flaws which detract from optimising an employee’s projected income in retirement, some never discussed by the platform concerned.
Essentially the product model continues to dominate the quality of servicing within employer super. Platforms will complain they are not licensed to provide personal advice and they are running financial wellness programs for all employees to attend. Within such financial wellness programs, the management of the employer plan is minimised as a subject and then so few people turn up to such events and even fewer people do anything about their super at the right time.
Employer super is still controversial and if you want to better understand what is right, what is wrong and what to do about it within your current plan arrangement, please contact AXIS on 1800 111 299 or by email at firstname.lastname@example.org
For your information, AXIS Financial Group is a privately owned partnership with its own Australian Financial Services License. AXIS has no commercial arrangements with any platform or product.