The Federal Government this week accepted the majority of recommendations in Murray’s Financial System Inquiry (FSI) report. Many recommendations have direct or implied technology impacts for financial services firms that, once legislated, will require changes to or investment in new systems. Below we present our take on some of the key recommendations and the likely impact on wealth administration.
Comprehensive income stream products (CIPRs) have been a hot topic in the industry over the past two years. Broadly, we are likely to see more funds partner with annuity suppliers – and related life companies – to offer annuity-style retirement products alongside more conventional account-based income streams. From an administrative perspective, this can be facilitated via the superannuation fund holding an annuity contract (which is a life policy similar to group life in super) with the annuity provider in the member’s name. Also, moves to ease legislative hurdles and facilitate innovation in the retirement income stream market are likely to increase the variety of pension product designs on offer. Registry systems will be expected to accommodate this greater diversity of products, such as deferred lifetime annuities.
There are several reforms that are likely to further fuel the existing trend of fund consolidation. These include measures aimed at improving competitiveness in the superannuation system – in particular how default funds are selected – as well as the proposed review of the system’s overall efficiency. Funds with fewer members and higher costs will need to merge with funds of greater scale that employ modern, efficient technology and processes to deliver members more compelling offerings at lower costs.
Efforts to make existing legislation technology neutral can be expected to have some system impacts, as the recent proposed changes to the lost member uncontactable definition aptly demonstrate. In this example, member contact was broadened to include member emails and log-ins to the member website. In the same way, any areas of legislation that define communication channels between funds and members will similarly need to become technology neutral.
Government support for the FSI’s broad-reaching recommendations around innovation will result in more innovative electronic interactions between individuals and businesses in the areas of payments, identity verification, consumer consent and authorisations, and product disclosure. Opportunities exist to extend the use of administration systems to facilitate innovative disclosure. Further, in the superannuation industry, we are already seeing a shift to XBRL formatted ebMS messaging (SBR2) between funds and the ATO. Over the next two years, the standard will be developed to include new interactions, ensuring all contact between funds and the ATO is truly electronic. In the longer term, we can expect the ATO to employ the standard as its preferred mode of interaction with other providers, such as managed funds and tax agents. Government agencies are also likely to adopt a similar approach in the future, extending the standard to interactions with APRA and ASIC.
So, as you can see, the Federal Government’s response to the FSI has the potential to impact the wealth administration industry on a number of fronts. Bravura Solutions will continue to monitor these developments closely. Should these proposed reforms translate into corresponding legislation, we will keep our clients informed of any changes required to Bravura systems.
Look out for a more detailed analysis of the proposed changes in our November Legislative Update newsletter.