Administration operations models in the Australian superannuation market are evolving. What funds want from their providers and what service providers can offer is changing.

Rice Warner assists superannuation funds with the benchmarking and selection of administrators and related service providers. Through this work, and with being closely involved in developing member journeys and assisting to enhance the operating models of funds, we have gained valuable insight into what funds are seeking from their providers.

In this blog, we discuss the evolving requirements of administration operations, the functions that are increasingly being brought in-house by funds and how providers are enhancing their offerings to accommodate the changing landscape.

Evolving requirements of administration operations

Historically, the market has adopted one of two main models for administration operations. The first is a fully outsourced model where the administrator is the primary provider of nearly all of the operational capability of the organization. Under this model, trustee staff typically have low levels of involvement in administration, instead focussing their efforts primarily on governance, investments and marketing of the fund.

The second is a model of full insourcing, under which there are a number of bespoke systems (or versions of them) and a significantly higher number of internal staff supporting all the various operational needs of the fund and the trustee office.

More recently, there has been significant growth in the adoption of a hybrid model approach which, by its very nature, is not a singular option. How a hybrid model operates very much depends on the fund’s appetite for operational responsibility and scale.

The three models are illustrated in Figure 1.

Figure 1. Administration models

The hybrid model will typically evolve over time. An example of this would be when a fund takes control of the contact centre in-house, followed later by other functions such as data analytics.

There is growing interest in software as a service. Historically a fund adopting a fully insourced model would select the administration registry system and have their internal IT team take responsibility for hosting and applying updates to the software. Alternatively, a fund can buy a licence for a hosted version of the administration registry system from a vendor. This can result in a significant uplift in data security, at a time when this is becoming increasingly important for funds. It can also result in considerable savings from a reduced IT team and capability requirement. Software vendors also benefit from avoiding version proliferation.

The extent of offshoring which can realistically be achieved by administration providers is difficult from a scale and political point of view, although we have seen that offshoring can deliver significant cost savings for individual funds. Funds that self-administer may look to automation to solve this cost equation. The hybrid model can achieve a balance in this area.

Overall, the trend is for the administrator to move from being the supplier of all things to being a vital but more narrowly “scope-defined” partner of the fund.

So what is being brought in-house?

Functions being retained / brought in-house by funds

In general, funds are seeking to retain control of most, if not all, member facing activity. This frequently takes the form of funds in-housing the contact centre which allows the voice of the fund to be created and maintained. This not a cost saving strategy, although the initial business case may be positioned as such. In general, funds might be expected to spend more on an in-house operation than they might have been prepared to pay an external administrator. This allows for the adoption of a customer relationship management system (CRM) to support the contact centre while also promoting a more personalised service to the member. Smaller funds often lack the scale to bring these services in-house.

Next in focus are websites, member portals and mobile apps. Often there is frustration around the interface and user experience of the member portal, which needs to also access the administration registry system, being quite different to the fund’s own website. Funds are also looking to fully integrate other member tools such as calculators and contribution tools to have a single source of truth for members.

Servicing of employers is an area that can be more challenging to bring in-house especially if the clearing house is provided via the administrator. However, this is an area where funds are seeking to have greater input.

As funds in-house more investments this can have an impact on the administrator around cash flow management and the striking of unit prices and subsequent uploading of these to the administration system.

Any service that creates a meaningful point of interaction with the member will be one that funds will consider retaining or insourcing, for example, complaints handling, insurance claims etc.

In general, in a hybrid model this needs to be supported by a comprehensive CRM of some sort.

The importance of data and member engagement

As funds bring in-house those services with a high value member interaction, data becomes an increasingly important commodity. In particular, the ability to own and access data is critical for how funds seek to differentiate their approach to member engagement. Most funds use data to drive marketing campaigns instead of blanket marketing to the whole membership and/or prospective membership. However, the degree of sophistication can vary significantly, and it would be fair to position the industry at a point where there is more intent and desire than true delivery in this space.

Many funds have found themselves unable to effectively reach their desired state due to a lack of data or lack of ability to integrate data in an effective or timely manner. Data integrity issues can also impact the ability to integrate data successfully.

Funds have a small number of data points for default members, often limited to date of birth, account balance and contribution information. Many funds run age-based and balance-based campaigns typically with the objective of retaining members into retirement and avoid losing large balance members to competitors.

Funds are striving to engage more effectively around particular life and activity milestones, for example engaging with a member with who has recently married or has newly dependent children. However, funds are often limited in their ability to so do efficiently by data which is dated and less insightful. This is often a consequence of the frequency with which data is extracted from the administration system and the time taken to run models and generate insight.

The ideal model will be one where the data is processed on a near real time basis and a single source can be used to drive all engagement activity. More holistic and timely data allows funds to have more specific individualised engagement with the member.

The most advanced funds are using such data to drive the next best conversations with the members as they make contact with the fund (but in general this is in early stages of development). There are interesting examples of large financial services operations in the USA where such insight directs the member’s inbound call to the operator most equipped and skilled in the area the call is most likely to be focused on. This results in shorter handling time and fewer abandoned calls, as the call does not need to be transferred as often. All of this ultimately leads to higher member satisfaction and a better experience.

What else are administrators doing for funds?

Based on our conversations and work with funds and providers alike, we have identified the following as some key focus areas in the market today:

• Cybersecurity

Cybersecurity as an administrative service continues to be a key area of focus. In particular, we have seen significant improvements from some providers in the area of fraud and identity theft prevention for example, ensuring the security of member actions and protecting any such activity from fraudulence.

Strong capabilities in this area are becoming increasingly valued by funds. We consider that such capabilities would be difficult for self-administered funds to offer and as such, administrators are positioning themselves so that they can add value in this area.

• Financial planning and advice

Many funds require that the administrators be able to provide or support the provision of advice. If not fully outsourced to the provider, funds may still use the provider as an external resource to scale demand as required. The range of services in this area is extensive and it is important that providers have developed capabilities for example, intra-fund advice, digital advice and tools.

• Technology / digital strategy

Many funds seek an administrator who can provide a full digital solution with a clearly articulated digital strategy. The vision is for high touch and high-cost functions such as call centres and advice to shift predominantly to, or at least supported by, digital interfaces.

As the industry moves to a world where members are stapled to funds, there will naturally be more non-default members joining funds. Online systems and portals should facilitate user friendly and efficient onboarding, and while it is common for funds to retain ownership for these systems, administrators will certainly have a part to play.

Further areas where funds are developing their capabilities include data analytics, improving data access, increasing automation and support of direct shares and SMSFs.

• Pension Transfer Bonus

The Pension Transfer Bonus is a feature that a growing number of funds are offering to members. When a member transfers to an account-based pension, unrealised capital gains tax provisions are released, creating the potential bonus to the member.

Design of such pension transfer bonus schemes can vary and there are complex considerations from an implementation and ongoing administration perspective. Indeed, not all providers currently have the capability to administer such schemes. We expect that there will be growing pressures on administrators who do not currently have this capability to develop it, as the pension transfer bonus becomes a more common offering by funds.

Conclusion

It is clear that administration operations models are evolving and will continue to do so. The industry is facing multiple pressures in a post Royal Commission era to improve member outcomes, reduce costs and navigate an increasingly complex risk and compliance environment. All the while balancing the need to improve member experience, improve retirement incomes and deliver new products and services.

The merger landscape is as active as it has ever been as funds aim to better leverage economies of scale to deliver improved member outcomes. We expect this to continue.

Now more than ever, funds are expecting their providers to be future focused, innovative, efficient and ambitious. Automation, accessibility, cost-effectiveness, data management, insightful data analytics, emerging technologies; these are the tools that the industry is turning to ultimately deliver real benefits to member experience and outcomes.