In Ancient Greece, the early democratic politicians who led Athens were sometimes accused of “hubris” – heightened self-confidence that could lead to complacency and even a sense of invincibility, being able to challenge the gods.
As Australian superannuation surges to $3.5 trillion and funds transform into serious players on the global stage, some of their leaders may be falling victim to this age-old phenomenon.
It should go without saying that superannuation has been a national achievement of which we all should be proud, especially the political and union movement leaders who helped establish it, ensuring regular workers received some of the benefits flowing from participation in financial markets.
Conexus Financial wholeheartedly supports the compulsory superannuation framework, which continues to face challenges from ideologically motivated critics, who would prefer investing remained an exclusive pastime of the privileged.
But that doesn’t mean it doesn’t have deficiencies, or that it isn’t starting to become a victim of its own success. The Albanese government, which could hardly be considered hostile to the super industry, has made clear it wants super funds to improve on key public-facing metrics such as customer service and helping their members prepare for retirement.
Conexus Financial’s own research, conducted in partnership with research house CoreData, backs up the government’s rhetoric. In early 2023, we polled 6,900 members over the age of 45 and found lacklustre levels of satisfaction. Retail funds achieved an overall index score of just 57.1 out of 100, while industry funds achieved a score of 52.1 – a near fail.
On the critical issue of retirement preparedness, industry funds did fail, with a score of 49.6. Retail funds were given a collective score of 54.8.
Interestingly, across the sector, small funds were found to outperform large funds, with an overall satisfaction index score of 58.7 compared to 53.9, and similar results on the various sub-components such as retirement, confidence, living standards and financial discipline.
The finding challenges the mantra that bigger is better, which is an important and difficult conversation we need to have as a number of mega-funds hurl towards $500 billion or even $1 trillion in assets. Some of them frankly seem intoxicated by that thought, but academic research by The Conexus Institute (a not-for-profit think-tank our business philanthropically funds) questioned the consensus that scale equals better outcomes for members.
While size can open up lucrative opportunities and result in cost efficiencies, it can also do the opposite: large global organisations are almost by definition more complex to run, which can lead to a raft of risks and cost blowouts that could drag – rather than aid – performance.
It is true that many funds (especially the large profit-for-member funds) have grown rapidly, much faster than any forecasters could have expected, thanks to the seismic shock of the Hayne royal commission, which Conexus publicly advocated for. Despite their size, these funds do not have large pools of R&D capital to draw on to improve processes. The poor financial health of some outsourced providers of user experience and advice have also compounded the problems, leading to an unvirtuous cycle.
But while these facts may help explain the deficiencies, they do not excuse them. The sector cannot say it hasn’t been warned.
Minister for Financial Services Stephen Jones and the commissioners at both ASIC and APRA have consistently raised the alarm over the past year, including at our Group Insurance Dialogue in July, partly responding to consumer complaints to AFCA, which continue to increase.
Their comments are not part of some kind of anti-super conspiracy but are an inconvenient truth – and they provide ammunition to those voices who really do oppose the system and would support scrapping the superannuation guarantee.
Threats from the authorities aren’t the only risk to consider. After years of disengagement, members may actually vote with their feet. Our research with CoreData found 12 per cent of members of large industry funds are considering leaving their fund, alongside 8 per cent of small industry funds and about 6 per cent of corporate and retail funds (which have already experienced multibillion-dollar outflows since the royal commission).
Fixing the problem is going to take some honest introspection and action, not denial that the problem exists or attempts to make it go away by challenging the gods.
Colin Tate AM is founder and managing director of Conexus Financial, publisher of Investment Magazine and Professional Planner.
For more information about the Conexus/CoreData research, including fund-specific findings, please contact commercial director Ben Thomas at firstname.lastname@example.org