The interim report of the Financial System Inquiry (FSI) covered a wide range of topics relevant to the financial services industry at large. Of particular relevance to the wealth management sector was the suggestion that superannuation fees and charges remain too high. It’s important to remember that the full benefit of SuperStream reforms are yet to be realised, since contributions processing is not fully implemented, and some reduction of administration expenses within super should be expected in the medium term.
Nevertheless, the FSI has raised the spectre of a requirement for further reductions. The question of how these reductions are likely to be delivered was the subject of a recent poll conducted by Bravura Solutions. The most likely source of cost reduction was found to be the adoption of new technology to enable process improvements, automation and productivity improvements. The process of transitioning from legacy systems to the open, scalable architecture of next generation software provides the opportunity to review current administration processes and build new ones. In this way, inefficiencies can be eliminated, automation introduced and administration costs reduced. While the costs of active investment management have been questioned in some quarters, reducing these costs doesn’t appear to be top of mind for many super fund administrators at present.
In light of the concern over superannuation costs, it will be interesting to see how the industry responds to the need for new retirement income products. The potential need for these innovations to be lower in cost than current products will stretch traditional product development resources and methods. The sense that we get from our poll is that the cost of development and implementation, and associated risk, plays heavily on the minds of decision makers in our industry, more so than current regulatory impediments or the low appetite amongst planners and retirees for such products. The role of technology will be crucial in enabling new products to be delivered cost effectively, and in a timely and responsive manner.
The flexibility to enable a business to grow and expand, without constraint from limited IT resources was identified as the key benefit that cloud based outsourcing can bring. It is this flexibility that will contribute to the new processes required for rapid product development. This alternative to traditional, on-site, in-house IT management is both viable, and increasingly, the choice of many organisations.
All the evidence points to continuing downward pressure on fees and charges, coupled with market demand for new and innovative products in the short to medium term. Openness to new technology solutions, delivered in non-traditional ways, are fast becoming key contributors to sustainable competitiveness in this environment.