Taking Europe first, the funds market has traditionally been separated into national silos. It was distinguished by different currencies, regulations, tax laws, customs and practices, meaning transfer agents and third-party administrators in multiple European countries had to develop different systems and TA process models for each domicile. The EU, with some degree of success, has made significant strides to try and consolidate this fragmented market. The introduction of the single currency swept away foreign exchange issues for the Eurozone bloc and the various UCITS directives have provided an EU- wide funds regulatory regime.

Across the Atlantic, the United States enjoys a large, wealthy, and homogenous market with a single currency, a single regulatory regime and an integrated banking and payments system. U.S. TA providers have leveraged the scale of that single market to invest earlier and more heavily in technology than their European counterparts. The market has amortised that investment over a much larger investor base leading to lower administration costs and typically lower fund annual management costs. The massive investment made by early entrants represented a significant barrier to entry to other players and the market is now concentrated in the hands of a few large TA providers.

In Asia, the funds market is totally fragmented along national lines and despite a few fledgling initiatives, has no realistic chance of moving towards a homogenised single market in the foreseeable future. Markets are characterised by protectionist barriers to entry and overly bureaucratic local regulatory requirements make it difficult to operate TA efficiently. Despite this, the potential size of some of these individual national Asian markets and the rapid emergence of huge wealthy middle classes within them are making the region an attractive target both for western fund promoters and for new domestic providers.

Switching our attention back to Europe, how close are we to a level playing field for the cross-border management and marketing of funds? The UCITS IV directive in particular, provides many of the enabling regulations that will permit a single central fund range across Europe. However it is likely to take several years for fund management groups to make the huge structural changes required.

Until then, the EU TA market will continue to be more fragmented and more expensive to operate compared with its U.S. counterpart.

The recent volume of super reforms has led to funds and administrators implementing seemingly stop-gap solutions to meet compliance obligations, and I question if this is having the right impact and will truly result in long-term benefit.

Of this latest battery of reforms, I say ‘what is all the fuss about?’ Between 16,000 and 30,000 pensioners will be affected who are earning interest above $100k p.a. This, like the doubling of contributions tax for earners over $300k p.a., only impacts a small number of high net worth individuals. What is concerning is the impact of negative media coverage of the reforms on an already disengaged member base.

There are bigger issues in the industry.

Super providers are juggling priorities; retaining clients, attracting new business and complying with regulations. They are bolting on complex member direct investing solutions to combat the loss of business to SMSFs. At the same time they are focused on retaining clients as ‘simplified’ MySuper accounts are introduced. They are looking at scalable advice models and ways of achieving ever-elusive member engagement through a mash up of tools, calculators, business intelligence and social media.

Then there is the SuperStream ‘onion’. The more you peel, the more is revealed, the more your eyes water. This will not be solved with a simple file translation and message service as some believe; it is about reengineering business processes and systems to create efficiency and compliance gains. Many of the solutions being considered won’t scale when the contributions side of SuperStream comes online. From 2016 existing fund portals to collect employer contributions will not be compliant; however, aspects such as this are not even on people’s radar yet.

In terms of systems, these latest reforms will translate to relatively minor changes but will – yet again – inhibit implementation of real long-term solutions.

While individually the changes to administration systems are relatively simple, they take up management and IT bandwidth that distract funds from looking at the longer term. One area that will create increased systems and administration burden is around the proposed transitional taxation on capital gains. This is most likely to have the biggest impact on SMSF administrators, but will also extend into the new member direct offerings that are being added to many industry and corporate funds. Funds that have bolted on a mixture of disparate systems and services to accommodate these offerings typically feel more pain when these kinds of changes to legislation are made.

Funds are continuing to bolt on complex solutions as a way of being able to rapidly complete during the constant state of change, meaning that they are unable to take a step back and re-architect their infrastructure for the long-haul. An inability to take this step means that funds are missing out on a plethora of benefits and continuing to incur unnecessary costs and are burdened with ongoing inefficiencies.

There may be light at the end of the tunnel.

My hope is that a more structured and sustainable approach will come from the proposed Council of Superannuation Guardians, allowing funds and administrators to make strategic technology decisions, reap the benefits of modern technology and cost savings, and ultimately pass these benefits on to members.

A big theme that carried through much of the conversation at the conference was creating efficiencies. The shared goal is to be able to do more with less and develop greater connections or synergies between the various parts of the SMSF administration, advice and audit value chain to create higher value and more seamless client experiences.

It was clear to me that many SMSF administration businesses were growing rapidly but needed better systems and processes to manage this growth and reap scale advantages. Many people that I spoke with expressed a need to remove manual processing from their businesses to be able take on the next spurt of growth they were expecting. Having systems that can help automate processes and manage greater quantities of processes appears to be the way forward for most administrators that want to take advantage of the industry’s expansion.

The second main takeaway from the conference was that as an industry we need to create better relationships between different functions to improve how the SMSF industry operates, so that we can reduce costs and errors and deliver better service. By streamlining the connection between vendors (with things like common approaches to file formats, providing basic common client information and naming of data fields, and having common methods for information distribution to facilitate straight-through-processing), all parts of the industry would be better off in costs and efficiency. In addition, it should be possible to add significant value to clients within the value chain by making it easier to select vendors to receive information and, in turn, receive information back as connectivity between suppliers would be better harmonised. It is likely that this harmonisation will drive industry consolidation vertically as vendors attempt to add greater value at lower prices as well as horizontally to gain further scale advantages.

SuperStream – an emerging theme at the conference for SMSFs – will actually help drive both of the above focus areas as the electronic transmission of information becomes mandatory for SMSFs. I was, however, surprised and concerned to find that SuperStream was not on many people’s radar yet.

Administrators and trustees will need to be nimble and ready to align software and processes with the new SuperStream requirements to ensure that the promised efficiency outcomes are achieved. The traditional superannuation industry has found both the regulatory requirements and the technical changes required for compliance difficult to understand and implement. The lesson for SMSF administrators is to be on the front foot with readiness in order to ease the transition and avoid hefty government penalties for non-compliance.

As a relatively young industry, there are many opportunities for SMSF administration businesses to both grow and improve service levels to clients. A focus on improving efficiency and leveraging SuperStream, in particular, as a catalyst to improve services and align related functions will allow businesses across the board to benefit from the industry’s significant growth potential.

Looking back to a year ago and our thoughts on the direction of 2012, Darren Stevens, our Director of Strategy predicted that, in preparation for FOFA, we would see a fight for access to High Net Worth (HNW) customers, with providers seeking to retain clients and dealer groups, and advisers pursuing an increased share of the value chain by becoming platform providers. True to these predictions, through 2012 we saw consolidation of dealer groups in the face of FoFA; the acquisition of Count Financial by CBA being an example.

As we move into 2013, the impact of FOFA will start to be felt as advisory firms continue consolidating and adjusting to a brave new revenue model. However, much like the GST and Carbon Tax before it, the effect will not be as severe as initially predicted, with consumers ultimately benefitting from these legislative changes.

Legislative change will be the hallmark of 2013, and the government’s Stronger Super initiatives, including MySuper and SuperStream, will drive superannuation funds and third-party administrators to focus on product and platform enhancements and spur industry consolidation.

I recently had a conversation with Michelle Lusty, our Head of Product Management – Wealth Management, where she forecast a widespread realisation that in order to not only comply with legislation, but seize the opportunities offered by the changing legislative environment, there needed to be heightened focus on investing in modern systems.

“Many of our customers are focused on near term compliance obligations; but I expect that a second wave of projects will be needed to streamline business practice and technology solutions to reap the real efficiency benefits that the legislation was intended to yield,” she said.

This use of technology to derive business benefits will be widespread, extending to the self-managed super fund (SMSF) sector. The growing appeal of SMSFs will continue the trend that is forcing traditional players to offer members more flexible investment options and create stronger member engagement through online and social initiatives.

We have already started to witness these predictions coming to fruition, with Australian Super leading the way and other funds now following suit. I think that we are likely to see this trend continue as funds attempt to stem the flow of cash to SMSFs, particularly after the last year which saw the largest ever number of SMSFs being created.

Darren Stevens correctly noted the continued significant growth in SMSFs last year. He also discussed how platforms and retail fund managers would increase functionality to provide SMSF-like additions to their platforms, as well as extending support for the likes of IMA/UMA and ETF functionality.

Our resident SMSF expert, Principal Consultant, David Barrett agrees: “As more and more Australians are choosing to take direct control of their retirement savings, the professionals who assist them are increasingly demanding software solutions that are tailored to their specific needs”.

On the technology front, we also predicted last year that there would be increased thinking around BPO, hosting solutions and IT outsourcing. 2012 was the year that cloud based options and BPO activity hit the main stream, and it was well represented in the conversations we had with clients about their plans. In the coming year I think that this trend will continue as more service providers deliver offerings and the market becomes increasingly comfortable with the idea, and the benefits that can be obtained.

In my opinion, the most important technologies in wealth management in Australia this year will be message-oriented middleware and open web-services. These powerful integration technologies will be widely deployed to meet SuperStream obligations and, as businesses come to see their benefits, they will be quickly applied more broadly than regulation alone demands.

Time will tell how the year pans out; however, I think we can be sure that regulation will be a major factor in market trends in general, and that technology will certainly play an important role in leveraging these changes and maximising benefit.

In the current highly-fragmented market, the vast majority of SMSFs are still administered by small to medium accounting businesses that also provide a wide range of other services and often only look after a small number of self managed funds. As a result, these firms can have trouble finding and retaining staff with the specialised skills required to administer an SMSF. In addition, their processes are often highly manual and inefficient causing unnecessary errors and delays.

In an address given by ATO in September this year, Assistant Commissioner Stuart Forsyth revealed that 26 per cent of SMSF tax returns are not being lodged on time. This statistic suggests that a significant proportion of accountants are not only struggling to cope with the complex nature of the work involved in administering a fund, but that they have been unable to develop the necessary systems and processes to ensure that their funds’ annual compliance work is being completed on time.

Outsourcing potentially provides a ‘best of both worlds’ solution for an industry based heavily on personal relationships between suburban accountants and their clients. Outsourcing ensures the relationship between the accountant and their client is retained, while allowing the administrative work to be done professionally by a team of specialists.

However, from a technology point of view, the move towards consolidation and outsourcing begs such questions as; ‘What sort of software solutions will the large-scale SMSF administration firms of the future require?’, and ‘Will the products that are currently designed for small to medium sized firms be able to properly cater for the needs of an ‘industrialised’ sector?’.

A large administration firm needs to be able to take advantage of their size to achieve economies of scale so that they can operate more profitably and efficiently. For instance, they require a more ‘business-centric’ system that allows them to process common transactions in bulk across multiple funds rather than a traditional ‘fund-centric’ system that generally only allows users to work on one fund at a time.

A large scale operator also needs business-wide workflow and reporting tools that provide them with information about the progress of work across their entire client base. For a firm that may be responsible for tens of thousands of funds, the ability to quickly pinpoint blockages in the processing cycle is critical to ensuring that agreed service standards are maintained and that fund returns are being lodged on time.

In addition, an online communication portal is an important tool for maintaining efficiency and ensuring fund compliance. An administrator will often be presented with transactions that cannot be properly processed without further information from the client. Deferring the processing of these transactions to the end of the year not only reduces efficiency, but can also result in inadvertent breaches of contribution caps, pension draw down limits, and even lead to a breach of the terms of the Superannuation Industry Supervision Act (SISA).

Ongoing growth in the self managed super fund sector seems assured as more and more Australians look to take control of their retirement savings. However, legislative change and the ever increasing consumer demand for better service at a lower price is disrupting the traditional software model.

The development of a new and more powerful generation of SMSF administration software, tailored to the needs of large administrators, will allow the industry to provide a more comprehensive and timely service to members, at a lower cost. This technology driven shift will open up the benefits of self managed funds to a much larger proportion of Australians, driving increased member engagement across the industry and allowing more people to take personal control of their retirement savings.

From a transfer agency (TA) perspective there are two key components to the change. The first, and easiest to automate, is the redenomination of a fund into a new currency. This will involve setting up the new currency as a valid tender on the system, creating a new version of the fund denominated in that currency, and then performing a capital event to move existing holders from the Euro version of the fund to the new version. This is essentially the reverse of what most providers did when originally merging into the Euro. Clearly a system which can support funds denominated in multiple currencies is a base requirement here.

The second aspect is more difficult and relates to investors who have bank mandates set up on the TA systems that are currently Euro denominated but which will change to a new currency as a result of their home country withdrawing from the Euro. These mandates may belong to investors in funds which will not themselves be re-denominating (e.g. a Greek investor investing in a Luxembourg domiciled fund). Identifying the potential subset of impacted bank mandates is problematic and this is compounded by the fact that the redenomination of these investor bank accounts may involve a change in the bank account number and/or IBAN code. This can’t be derived systematically and it will need to be supplied by the investor and manually updated by the transfer agent.

If and when it comes, the speed at which a country exits from the Euro is likely to be far quicker than the time period which was allowed for these currencies to originally merge into the Euro. It is important for transfer agents and their technology partners to keep their contingency plans up to date and ensure that key personnel are up to speed and ready to implement the plan at short notice.

How have you prepared?

The most recent of these is an ING DIRECT Financial Wellbeing Report which confirmed that 67 per cent of baby boomers (those aged between 50 and 64) are ignorant of their superfund’s investment allocation.

With average super balances for males aged 65 rapidly approaching $200,000, what is driving this chronic lack of knowledge?  Why are so many Australians remaining wilfully ignorant of the details of one of their biggest and most important investments?

Sadly, the answer is that many Australians don’t really feel any kind of positive emotional connection with their superfund.  In fact many people feel a very real (and in some cases quite visceral) sense of cynicism and suspicion of anything related to the superannuation system.

So how can this deeply entrenched negativity be overcome?  How can we turn the tide and get Australians feeling positive about their retirement planning?

Interestingly, a template for success already exists – in the form of the Self Managed Super Fund (SMSF) sector.

A recent Russell Investments research paper indicated that SMSF trustees and non-SMSF trustees hold almost polar opposite views with regard to their confidence in the superannuation system, and that most SMSF trustees indicated that their fund’s performance had lived up to their expectations.

So if SMSF trustees are subject to the same constant government tinkering with the super rules as the rest of us, and if they’re suffering the same disappointing investment returns as the rest of us, why do they have such a high level of confidence and satisfaction when compared to people who don’t have an SMSF?

The answer is – emotional connection.  An SMSF trustee is more likely to have a far greater sense that the money in their fund is theirs. And because they enjoy direct responsibility for their money, they are far more likely to stay engaged and to try to learn from their investment mistakes.

So how can this level of engagement be encouraged in non-SMSF clients?

The key lies with access to information and an ability to have some real-time control over their savings.  The majority of SMSF trustees can easily rattle off a detailed list of most (if not all) of the investments in their fund, along with a comprehensive justification for why they invested in each one.  Ask yourself, can your clients do that?

Do they have round-the-clock access to detailed and up-to-date information about their investment portfolio?  Can they easily track their progress against contribution caps and take ownership ensuring they never breach them?  And most importantly, do they feel like they control the decision making process when it comes to their investments?

Technology provides us with tools that give us the ability to engage with superannuation clients in entirely new ways and to customise our approach to suit different client needs.  For instance, many people have regular access to a computer while they’re at work; however a lot of Australians spend their working day on the road, or in a non-office environment.

Smartphone access allows clients to monitor the details of their investment portfolio and process contributions and pension withdrawals from virtually anywhere.  Up-to-date performance reports on a per-holding basis are now available for clients to review while they’re on the move.  Providers should now be looking to pro-actively contact members with personalised messages about their portfolios, their value added services and market conditions.

Other developments such as the Australia Post digital mailbox will offer the ability for members to retain all their superannuation documentation and trading information in a real-time, secure location allowing access by planners and accountants to offer informed and relevant advice and support to their clients.

Web-based tools are becoming increasingly flexible, powerful and personalised. The way we learn to harness them to keep our clients informed and empowered will be critical to ensuring they become – and remain – engaged and therefore  ‘emotionally connected’ to their superfund.

Product design approaches we have identified can be broadly classified into:

• Rebadging existing default schemes
• Launching a new scheme
• Launching a new division, product or category into the existing scheme
• Combining MySuper and Choice in the same member account and treating MySuper as an investment option within the account – either within a new or existing scheme

For some superannuation funds, MySuper is simply viewed as a ‘re-badging’ of the existing default scheme. For these funds, it will drive some simplification of historical issues, and of course deliver the obligatory objectives of simpler fees, insurance and investment strategies the legislation intends. Other institutions are leveraging the MySuper opportunity to drive a wider review of product strategy, as well as considering how MySuper aligns with future aspirations. ‘Lifestyle’ investment options are being considered by many as a core MySuper product feature.

Launching a new superannuation scheme requires the normal legal and compliance tasks, in addition to consideration of how to aggregate data for customer statements and websites. There is an opportunity to improve the member experience by presenting customers with a ‘whole of portfolio’ view where they have other business with you – choice, defined benefit or investment accounts, as well as other assets – ETFs (Exchange Traded Funds), direct shares or term deposits. This combined account option positions product providers well for the future introduction of value-added services and features on the Choice side, without the need to open a new account.

Establishing a new division, category or product within a superannuation scheme overcomes the problems with multiple schemes, however consideration must be given to the impact on the segregation of data for industry and regulatory reporting, changes to operational processes and ease of implementation on existing technology.

‘Member centric’ technology systems pose some constraints when compared with ‘customer centric’ systems. In a ‘member centric’ system the customer details and account records are combined which makes it difficult for the member to exist multiple times in the same scheme. ‘Customer centric’ systems allow for a single customer record that can hold multiple superannuation accounts.

Defining MySuper as an investment option within a customer account which also allows Choice contributions creates a simplified member experience, and makes it easy for members to switch between MySuper and Choice, and back again. A simplified and flexible member experience works towards that holiest of superannuation grails – member engagement.

This concept of using MySuper to enhance member engagement has taken an interesting turn in the retail segment of the industry. We are seeing product innovation where MySuper is being delivered ‘D2C’ (Direct to Client) via web delivery channels and member engagement is being engineered into the website using ‘gamification’ principles that enhance the overall experience. An entirely new landscape is opening up – we can now realistically envisage members being drawn back to the fund website to check their superannuation point balance, tweeting their progress and ‘liking’ their fund on Facebook.

MySuper is offering the industry and members opportunities beyond its beginnings as a simplified default option. Whatever the product design approach taken, or the role MySuper is allocated to fill, the new regime presents the opportunity to leverage technology to enhance new propositions with a view to delivering improved member services and product offerings.

 How is your organisation going to leverage the MySuper changes to improve customer engagement and consolidate product distribution capabilities?

Some of Bravura Solutions’ Wealth Management clients and other industry experts discussed the topic in detail, and a common theme arose: financial service providers are fundamentally seeking value through modern and flexible technology platforms that seamlessly integrate with the diverse existing corporate system framework. Our discussions also highlighted the fact that technology platforms must have true depth of business functionality to meet the pressures on providers to deliver a broader and diverse range of products, ultimately allowing them to win new business.

Prudential Life’s CIO, Sumit Puri, stated that a key concern when choosing new technology is whether the solution is able to effectively integrate with his business’ legacy systems. Before making a decision, Prudential Life ensures that the solution gels with its technology landscape in terms of overall platform and design.

An effective method of achieving truly integrated solutions is the concept of ‘surround technologies’, whereby software platforms are designed with service orientated architecture that allow organisations to ‘link up’ their existing systems and provide real-time data ‘handshakes’. This methodology puts the days of overnight batch processing well behind us; modern technology intrinsically provides efficiency through end user self-servicing and by presenting a real time client centric view of the data in a consumable format. In my opinion, the true strategic solution is to migrate to a modern technology platform which creates competitive advantage and cost efficiency through rationalisation and scalability.

Of course, before undertaking a truly strategic modernisation of technology, a rigorous assessment process should be completed. Dennis Brandt, Managing Director of First Treasury, said that that the integration of a new technology solution into an existing business environment needs to be properly planned from the outset. Dennis believes that this ensures a seamless process and avoids the potential for project drag and increased costs.

Sumit added that Prudential Life insists on a comprehensive demonstration session before reaching a decision on technology selection. For Prudential Life, ease of use is paramount; the solution must be simple and elegant in its design, with an intuitive interface.

Darrell Prins, Consultant at Russell Investments, said that when Russell chooses new technology, it wants to touch, feel and see, rather than listen to a presentation. The product must be tangible with a clear roadmap which shows that the company and the technology solution can grow together.

Naomi Ballantyne, Managing Director of New Zealand based life insurance company, Partners Life, added that the potential for a strong partnership is also key to the technology selection process, saying that Partners Life is an expert in life insurance, not technology. It outsources its needs to companies with deep technological expertise and chooses technology partners on the basis that they will work with the business as a team.

What is clear from our industry discussions is that there are a range of considerations in addition to underlying technology; it’s about integration, usability and functionality. I believe that in addition to offering the benefits that modern technology solutions can bring – greater reliability, reduced costs and tighter security – it’s important for a technology provider to be more than a vendor, they need to be business partner and offer solutions that contain the functional depth and ease of use that the end client needs, all while integrating into the labyrinth of an organisation’s existing technology stack.

From 1 October this year, the reforms began being phased in, starting with the country’s largest companies. By the end of this year, companies employing over 50,000 people must enrol workers, and by April 2017 all UK companies, even those with only one employee, must comply.

The number of employees that choose to remain in the pension will be an important determinant of auto-enrolment’s success. The challenges faced were highlighted in a recent report by Aviva which found that only 43% of employees without a pension said they would remain in the scheme once they were automatically enrolled, while 21% were undecided and more than a third (37%) said they will definitely opt out.

Another key ingredient is the introduction of a flat-rate state pension – vital to allaying concerns that auto-enrolment will penalise savers who would otherwise qualify for means-tested benefits. Despite rumours that the Prime Minister has personally intervened in the plans and demanded a rethink, the Pension Minister, Steve Webb, speaking at The Professional Pensions Show in October dismissed speculation and confirmed that the flat-rate was on track and set for implementation early in the next Parliament.

As with any significant reform, side issues have arisen. With the advent of auto-enrolment, the potential exists for employees to build up a series of small pension pots in a variety of employments. Indeed, the Department for Work and Pensions (DWP) estimate that without change, there will be around 50 million dormant workplace defined contribution pension pots within the system by 2050, and that over 12 million of these will be under £2,000 (in 2012 earnings terms). This situation is also mirrored in Australia, with workers accumulating multiple superannuation accounts. The Australian government’s Stronger Super initiative will see the auto-consolidation of smaller funds that have been sitting idle into the largest most active fund.

The burden of these small pots is compounded by the fact that systemic barriers, like cost and complexity, prevent people from moving and consolidating their pensions into one place. A joint industry working group is exploring the options available to tackle these inefficiencies and agree on a solution that allows employees to keep track of their pension savings.

An automated ‘pot follows member’ approach has government backing – however, the scheme has been met with criticism from industry bodies, claiming that workers who change jobs risk losing up to a quarter of their pension.

Whatever the framework eventually agreed upon, technology will feature prominently with automated systems that improve back office efficiency. Technology has a fundamental part to play in providing a consolidated view of an individual’s pension wealth, increasing transparency and addressing small pot concerns – on both sides of the world.