Exploring Service Models
Within the financial services industry, the Royal Commission should have set the bar in 2018. Instead, we have been taken through a pain and punishment exercise in mistakes that should never have happened. The controlling force within all Super, including Employer Super, is now compliance and adherence to regulation rather than being focused on improving service to the account holder and optimising an Australian employee’s projected income in retirement. Some brands are disappearing whilst others are restructuring, with no apparent improvement in the value being delivered.
In terms of the wider market, there are two competing forces in employer super; one being master trusts and the other industry funds. Within each of these, there are distinct differences in the service model, none of which would be apparent to the public. There is the least variation in the service model within industry funds.
In examining progressive regulation over the past decade, cost has been a clear focus of regulation. There have been many measures taken by the government to increase the cost of compliance while pressuring service providers on price.
The Employer Super Model
We all know the tag lines for each of the different brands because every service provider has an effective marketing department. However, in evaluating which brand is best, it needs to be considered whether your organisation would like to manage super as a remuneration benefit. Medium to large-size companies are more inclined to view and optimise super as an employee benefit, despite every employer knowing that the successful management of their workforce is a prime determinant of their financial performance
The determination of what is best practice in promoting super as an employee benefit involves examining the existing culture of the workforce and whether Super as a remuneration benefit is a practical proposition. This requires a technical analysis of comparable solutions that may or may not optimise Super at an individual account level. Super specialists (like us!) should scrutinise the current arrangement and compare it to other possibilities using the universal measure of projected income in retirement. This approach ensures any decision is based on knowledge of the options and the financial impact on each employee’s Super. This assessment could identify that the existing arrangement escapes appropriate management attention and essential scrutiny in terms of cost/benefit analysis.
The Positive & Negative Indicators
In inspecting any employer super plan, we identify unasked and unanswered questions and explore what the responses reveal. Any employer plan can have negative indicators. We look to identify these negative indicators and present a different perspective. This frequently results in a reduction in cost, increases in return and improvements to an individual’s Super balance. We frequently find by reviewing the plan with expert eyes, we can deliver significant improvements to an employee’s projected income in retirement. A straightforward exploration and the unearthing of previously unknown facts can easily improve every employer plan, where service is dominated by the product.
Understanding MySuper Investment Defaults
In 2012, MySuper Investment Defaults were introduced and applied within Employer Super. The different products all developed standard investment defaults as an important part of their brand differentiation. Subsequently, APRA introduced a review process to qualify each of these different products. The review process assessed the MySuper performance on a PASS or FAIL basis. The assessment was based on non-disclosed calculations and a review of the cost of investment performance; one FAIL and the product incurs brand damage, two FAILS, and it penalised the product.
The public doesn’t appear to be any the wiser of this review system, in which the ramifications of these failings are significant, and so when an individual receives a notification from their product advising them that their My Super Investment Default failed the APRA Heatmap examination – it does not lead to complaints or often even a change in product.
Improving or changing My Super Investment Defaults is a challenge; pinpointing and identifying the problem to be fixed and then providing an appropriate solution – is especially tricky.
So, what is best practice?
In any service industry, there are multiple levels of competition which can service the various needs of the individual client. Often, a low cost simple product can be chosen or, depending on preferences, they could opt for a higher cost product with more functionality.
Interjections from the various governments have sought to improve commercial competition in employer super. However, it may have just homogenised the appearance of the products and further confused those who own the asset. This leads to the question: what is best practice in employer super and how do you identify which arrangement best suits your workforce?
Indeed, if you are looking to offer Super as a superior remuneration benefit to your workforce, one that incentivises staff and minimises churn, it’s difficult to determine the right combination of services required. This is where we can come in. We work closely with you to enhance your employer funded employee entitlement.
Want to learn more? Get in touch with Roy or Richard at AXIS on free call 1800 111 299 or email email@example.com..