The Achilles heel of unbundled services
The popularity of Self Managed Super Funds (SMSFs) has fuelled the rapid growth of an extensive range of unbundled services that promise trustees greater choice and control, as well as lower costs than traditional bundled services. However as Darren Speirs reports, the way in which unbundled service providers currently interact stands to jeopardise the very qualities that make them so attractive.
Over the past decade, hundreds of thousands of Australians have flocked to the SMSF space, away from super funds and wrap platforms that were perceived as placing limits on their investment choice and fund performance, as well as unnecessarily inflating costs.
In direct response to the desire for self management, the rise of unbundled services in the superannuation landscape – including establishment, portfolio administration, accounting and compliance, audit, actuarial, financial planning, research, analytics, modelling and trade execution – has been phenomenal.
In practice, the SMSF trustee – or their financial planner – has a need to exchange information with any number of these service providers and this presents a dilemma. Operating outside a unifying platform, how can trustees and unbundled service providers effectively and efficiently interact?
Many providers have sought to address this challenge by developing their own interfaces to service their own particular interaction needs. Given that technology is outside their core area of expertise, it is not surprising that these interfaces have typically lacked interoperability, flexibility and extensibility. The bulk of them cannot ‘speak’ to each other at all and, when they do, they do so poorly.
As a result, SMSF trustees and advisors find themselves dealing with data silos, having to painstakingly log in to each individual service provider to obtain, share and download information – a process that is time consuming, inconvenient and inefficient.
Significantly, where unbundled service providers have gone to the expense of building an integrated solution tailored specifically to other preferred providers, they have effectively locked themselves – and their trustees – into an arrangement that severely limits choice and control. In this scenario, a decision to change service providers is likely to incur significant additional integration costs, which ultimately will be passed on – at least in part – to the trustee.
Therefore, in the absence of effective integration, the very qualities that made unbundled services so attractive in the first place – choice, control and cost effectiveness – are under threat and stand to become the market’s Achilles heel.
While there are no simple solutions to this dilemma, the SMSF market must come to terms with this vulnerability and actively seek out technology solutions capable of achieving easy, unlimited integration between unbundled service providers and trustees.
Already, some entrepreneurial technology companies have stepped into the gap, serving as third party intermediaries that exist solely to deliver seamless integration between parties. For example, on the data feeds front, businesses that specialise in data feed aggregation are helping trustees and advisors overcome the fixed, ‘take or leave it’ data formats of the big players by taking care of the integration and providing the end user with a single, palatable data solution. On the upside, this arrangement saves service providers the time, money and hassle associated with developing their own interfaces and updating these every time there is a change in processes or service provision. It also effectively restores choice and control, as trustees are not bound to any one particular provider. On the downside, the intermediary service comes with a higher price tag. On balance though, the benefits of this arrangement far outweigh the increase in cost.
In an ideal world, unbundled service providers would work collectively to develop a common approach to their interfaces across the SMSF marketplace. Specialist technology companies would assist providers to create robust, standardised interfaces that support integration, flexibility and complete freedom of movement across each space.
Sound like pie in the sky? I don’t believe so. For unless the question of integration is comprehensively addressed by the SMSF market – and choice, control and cost effectiveness are fully restored – the continued growth and sustainability of unbundled service providers cannot be guaranteed.