What were the changes?
Stopping Bad Behaviour
The Government and the Regulator have been determined to eliminate unacceptable behaviour in the industry. Over time, remediation costs have been high, administrationn costs have lowered, the licensing regime tightened and educational standards revised.
It’s All About Scale
Simply, scale is cost based on percentage-based fees. So, if you are a platform servicing employer super, then scale has become increasingly important – with the initial target limit of $30b increasing. This appears to have been a Government direction to force fees down, as well as introduce other initiatives such as the APRA Heat map and stapling. It has resulted in the number of platform providers in the market reducing.
Many of these changes appear to be punitive. This is notably distinct from successful change management strategies and is likely to be more damaging to market competitiveness as a result. There is clear evidence of cost-cutting within platforms to maintain margins, which is more likely to reduce the quality of service as opposed to improving the operation of the financial services industry overall.
Is there an alternative approach?
In examining any industry and its operations, one has to contemplate two modes or models of operation:
- Sales Model – this is about brand, value proposition and point of difference in market. This is the method through which a supplier offers services at a price to make a target level of profit.
- Service Model – in this model, the cost is incurred by the individual for a product or service which will deliver a benefit well over cost.
It is important to consider these models when assessing whether an employer super is the preferable way to deliver a superior remuneration benefit as funded through SG contributions.
What Can Happen?
In some industries, there is a balance between sales and service models, a situation to everyone’s advantage. With employer super, the sales model is out of kilter with the service model. The supplier simply promises to deliver in areas where they have limited capability and then still charge a premium price for their offering. There is a noticeable public lethargy (a different word from “disengagement”) around super as an asset. It has not been addressed in public discourse in recent decades.
By paying attention to super on an individual account level, everyone can improve performance and therefore their account balance at the point of retirement. This is the key moment when you discover what you can expect by way of income after you finish your working life. It is possible that super can be managed and delivered by each employer as a superior benefit in a much better way than it is now.
Employer Super vs Public Perception?
Public perception is based on clever product marketing and the annual returns published throughout the year, but especially at year-end when statements are delivered. Every product provider may promote their value proposition, but not all products are actually best for their customers as they all claim.
Our takeaway
AXIS Financial Group has analysed best of breed between platforms supporting employer super versus personal retail and industry fund accounts. Our projections consistently show that employer super has a place in the Australian market and, if well managed, designed and serviced, can provide a superior financial outcome for employees. That is, besides the additional advantage of insurance without proof of health at premiums based upon a group policy.
Every platform in the employer super market positions itself as your sole source of information and they are all adept in both sales and client management. We would encourage any manager responsible for employer super as part of their job responsibility to ask different questions and seek a source of information who has not reciprocal trade with your platform. This out-of-the-box thinking on behalf of your employees will aid you in realising your responsibility to examine and measure the value being delivered to your workers, a move that would be consistent with good governance. Want to learn more?
Connect with me, Harry Burke on LinkedIn or get in touch with myself, Roy or Richard on 1800 111 299 or email consulting@axisfg.com.au to make an appointment. Thank you for reading this far!
