Higher-balance members are turning to SMSFs through advisers because the level of service received from APRA-regulated funds can’t compete – and those members are willing to pay for the expense.
CoreData founder Andrew Inwood told the SMSF National Conference in Melbourne as the balance of a member rises, their expectation of service quality rises with it, which industry funds can’t match.
“If you’re in a large industry fund, you’re not actually getting service that you’re expecting. Everyone gets the same service,” Inwood said.
“There’s no frequent flyer number, there’s no number for special people. It’s not like working with you [advisers] where they have a special relationship, where they call up and they expect to call back and it’s not like working with you where you understand their problems instead of going into a queue.”
The CoreData research found members with balances over $300,000 are looking to move. “It spikes up and it spikes up really aggressively,” Inwood said.
“People are seeking all sorts of things but one of things that they’re most seeking and they’re most worried about is service.”
Inwood said while industry funds are competitive on performance, the sector has now become homogenous on fees – mitigating an advantage they once had – and industry funds underwhelm on service quality.
The issue with service quality from super funds was laid out in a joint venture with CoreData and Conexus Financial, the publisher of Professional Planner.
“Higher balances are going to leave and they’re going to be coming to people like you and they’re going to be seeking services and outcomes. That’s going to put pressure on you to deliver that service,” Inwood said.
Cost to serve
While higher balance members seek a better provision of service, advisers still need to be able to match the cost to provide it.
Inwood told the audience that not only do advisers need to make sure they’re adding enough to cover the cost of advice, but also ensure clients will see the value of what they’re paying for.
The researcher has figured the “best” they can currently ascertain on the cost to onboard a client is $10,000.
“Three advisers I spoke to today all put their first meeting prices up and I still think they’re too low,” Inwood said.
The sentiment is backed up by the data – CoreData figures found “value for money” was the most cited factor for switching funds (57 per cent), followed by competitive pricing (47 per cent) and competitive investment performance (41 per cent).
“Price, it turns out, isn’t particularly relevant anymore – it’s value and trust,” Inwood said.
“Value for money is absolutely driving competitiveness. It’s much more important than price, investment performance, trustworthiness. That’s the biggest driver – having that conversation about what you do, how you do it, and how you build those services into it, is going to be the thing that drives choice in the market right now.”
Despite this focus on value for money, Inwood explained there is a strong argument that advisers aren’t pricing their services correctly.
Fight or flight
Last month, Inwood told the chairs of the country’s largest superfunds at the Investment Magazine Chair Forum, hosted by the sister publication of Professional Planner, that they would continue to bleed members due to advisers offering higher quality services.
Presenting much of the same data to a room of SMSF practitioners, Inwood told the conference the researcher’s data found the likelihood of switching to a SMSF was 29 per cent for a small industry fund member, 22 per cent for a large super fund member, 30 per cent for a small retail fund and 33 per cent for a large retail fund.
Inwood said members are increasingly dissatisfied with their fund and in turn, the funds are scrambling to reactively rebuild their satisfaction.
“That’s going to take them some time to recover so the leakage is going to be significant,” Inwood said.
“You will notice that every one of those funds is trying to build relationships with financial advisers and start to have a network with, but they’re still not doing what they perhaps need to make that actually work for you.”
The level of higher quality service is not something the researcher expects super funds to offer. Aside from the shortage of advisers generally in the country, funds are under regulatory pressure to keep costs down.
“I had long conversation with one of the regulators yesterday and was talking about the fact that large superannuation funds see the cost of providing service is really expensive and they’ve been driven to the lowest possible cost,” Inwood said. “The corollary to that is it’s not something you can give away.”
