Super funds can learn the power of choice from SMSFs

By

09/02/2018

OPINION | There are nearly 600,000 self-managed super funds in Australia, managing assets totaling an estimated $696.7 billion.

SMSFs have quickly become a major force. The sector already holds a market share of 32.6 per cent of the retirements industry and it’s poised for further growth.

So, what has driven this shift from ‘traditional’ super funds to SMSFs? And what defining characteristic of SMSFs should super funds look to emulate?

The Centre for International Finance and Regulation argues that the answer is ‘choice’, specifically, the ability to choose investments.

Super funds have struggled with providing the member-centric advice necessary to create truly personalised investment portfolios. As a result, with the vast bulk of members’ funds tied up in default investment options, many Australians – especially those with decades remaining before retirement – may not be maximising their long-term returns.

In contrast, SMSF providers have leapfrogged their larger counterparts by taking advantage of robo-advice – a new group of tools that provide automated advice tailored to the individual’s financial goals and risk tolerance – to ensure choice sits at the core of their offering.

One example of this more client-centric approach is the recent partnership between Class Super – an SMSF software provider – and fintech startup StockSpot, to provide customers with a seamless investment experience. StockSpot offers clients robo-advice by employing an algorithm to suggest investments based on variables such as a customer’s age, existing funds, income, and expected time to retirement.

The service provides a low-cost method for investors to receive substantive financial advice and, thereby, develop a personalised portfolio, while circumventing hefty adviser fees.

Similarly, BT Panorama has partnered with Ignition Wealth, allowing its accountants, advisers and investors to use Ignition Wealth’s robo-advice solution. The advice engine will have access to an investor’s BT account, allowing it to review their portfolio and transactions in real time, with statements of advice being updated accordingly.

A few super funds, notably QSuper, Mercer and REST Industry Super, have also begun to recognise the benefits of robo-advice, and have partnered with digital advice platforms such as Decimal and Midwinter in order to roll-out the capability to their members. The robo-advice tool is usually located in the member section of a fund’s website. It helps members choose from the fund’s existing range of investment options, based on a set of questions similar to those other providers have asked.

A long way to go

While the intent is laudable, it’s clear these funds are still in the early stages of using robo-advice for ease and sophistication.

I recently walked through one super fund’s new robo-advice process and found the user experience sub-optimal, to put it politely. Navigating from the member login page to the advice section was difficult. I was asked the same question repeatedly, and the amount of text I had to wade through before entering my details was voluminous.

Subsequently, the Statement of Advice just reiterated that my existing investment option was already aligned to my life stage, risk appetite and personal preferences. It also failed to showcase other investment options if I  answered the risk appetite and personal preference questions differently. I was hoping it would playback a more provocative and engaging Statement of Advice –  something that would question my current investment strategy and perhaps spur me into action – but if super funds harness the digital expertise of fintech partners, I’m confident such tools will be honed over time.

More importantly in the short-term, the robo-advice process highlighted a severe shortcoming of many super funds, and that is the limited number of investment options available to members. If the variables robo-advice algorithms captured were to include detailed personal preferences such as an environmental, social or governance screens, this would probably provide a clear business case for super funds to increase their number of available investment options, allowing a greater level of portfolio personalisation for members.

With the number of individuals investing via SMSFs surging past 1.13 million, it’s clear that only those super funds that seek out the help of innovative fintech companies, to obtain more advanced robo-advice tools and transparency of data, will maintain their competitive position and hold on to their lion share of the market.

Benjamin Chong is a partner at venture capital firm Right Click Capital.

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