Rice Warner has released its sixth edition of its Superannuation Expense Benchmarking survey which provides our key insights on industry trends and drivers of change. There continues to be a market wide focus on investing to improve member engagement via education, advice services and data analytics, while at the same time, funds are positioning to grow inorganically.

The report allows a participating fund to gain a deeper understanding of its costs relative to peers and outlines expense trends for its peer group. These insights allow funds to identify areas for improvement and gain an understanding of drivers of costs such as market and legislative developments, transaction volumes and scale.

Operating expenses vary significantly between sectors, with retail funds having the highest recent increases as well as the highest operating expenses per member. Industry funds the lowest between 30 June 2014 and 30 June 2015. Public Sector Funds have also experienced a low increase to expenses per member with corporate funds being the only sector that has experienced a decrease – but this comes from a declining population as the more expensive smaller company funds have outsourced to multi-employer funds.

The report illustrates that overall operating expense for the peer group decreased over the year to 30 June 2015. The savings are being used to improve product design and features for members. The changes in expenses can be attributed to three main factors:

1. Technology – decreased by 29%

There were high technology costs in 2013 and 2014 partly attributed to large projects being undertaken by funds in relation to the implementation of Stronger Super reforms, including SuperStream. These upgrades generally have a large upfront development costs with a lower trailing expense per year for maintenance. We have also seen initiatives by many funds to have modern digital strategies, which also require capital investments. The large decrease in the 2015 financial year expenses are largely a function of these SuperStream related projects being completed or winding down.

2. Compliance – increased by 29%

Compliance costs have increased at a steady rate since 2013. This can be attributed to the new APRA reporting standards. As a result, funds are increasing the size of their compliance teams to meet growing board, regulator and community expectations around risk management and governance.

3. Marketing and communications – increased by 17%

Marketing costs have become an increasingly large component of superannuation fund expense budgets over the past decade increasing from 14% in 2013 of the peer group expenditure to 20% in 2015. Since the introduction of choice of superannuation fund legislation which came into effect from July 2005 (choice for federal public servants was awarded in July 2006), the superannuation market has become increasingly competitive.

Many of the differentiating features of funds have become common place, while aspects that used to define industry segments have become blurred. For example, most industry funds now offer advice to members while many retail funds are now available without advice. As a consequence, the expenditure on member engagement activities has increased significantly over this time.

At the same time, many funds are putting in place strategies to grow their membership numbers inorganically which comes at a cost.

With an industry focus on being innovative at low cost, understanding where money should be spent to provide efficient outcomes will be crucial to the future success of all funds.