Big vs Boutique: Q&A with Cbus' and GROW Super's CEOs

Conversation around the disruption of the super industry is not new, but over the last few months the subject has been hotting up as various new players in the boutique super fund space have been entering the market. Are they just a flash in the pan, or have they got what it takes to lure members away from the well-established super funds? Industry Moves asks David Atkin, CEO of $38 billion industry super fund, Cbus, and Joshua Wilson, CEO of newly-established millennial focused fund, GROW Super, to weigh in on the hot topic and share their thoughts on the benefits of both boutique and traditional funds.

Q&A with David Atkin and Joshua Wilson

What is it about the current superannuation environment that is prompting the establishment of smaller funds?

Joshua: There are a couple of obvious things that are enabling new entrants to join the market. The introduction of SuperStream completely automates the backend administration and allows customers to move more freely between funds. These processes would have previously been a significant burden on a new fund. So increasing automation and streamlining allows new players to establish themselves more cheaply, but more importantly the current state of play makes it easier to acquire customers. The lower entry costs create the opportunity and SuperStream enables execution.

Very few existing funds are fully maximising the SuperStream technology to benefit consumers. So we saw the opportunity in building a high quality fund that also provides our members access to online tools that will actually benefit them.

David: Australia's superannuation system is at $2.2 trillion dollars and counting so it is certainly an attractive proposition for those who have a new product to market. There is obviously a view that there are gaps in the market and these new funds are looking to plug those gaps.

Are the financial risks of joining a new fund worth the "perks" that they offer?

Joshua: Let's get real about this: some new funds are actually offering an inferior holistic experience for their users than the incumbents. Simply slapping an app on a bunch of generic ETFs and saying the user "has more control" because the experience is a digital one will deliver no genuine benefit to the customer.

People shouldn't be investing in new funds simply because they are new or marketed well. People should be judging all funds by the same criteria: what is the net customer benefit? This is a combination of investment quality, fees, access to clear and empowering information and the availability of tools that will actually engage you and help you manage your super. One of the unique features of GROW Super is Super Spare Change, which allows people to make small, regular contributions to their super that will have a significant impact on their overall balance. These are the tools that ultimately engage consumers and help them actively grow their wealth.

David: When joining a new fund, you should do the due diligence as much as you would for any other major financial decision. It's important to be aware of what you're signing up to and what the consequences of changing over are.

(Table supplied by Atkin)

Sometimes the online joining processes of new funds are unclear and we've had Cbus members calling us to tell us that they didn't realise they had rolled their savings over to a new fund.

Should larger super funds provide more tailored offerings to compete with these new funds?

Joshua: There's a common misconception that people of all ages, not just millennials, are disengaged with superannuation. We don't believe that. In fact we believe that people are very engaged, but stuck in a state of inertia. Unfortunately many Australians have a very low level of financial literacy, especially in regards to super. On top of that, the way superannuation products are marketed could not be more complicated. So you have a huge number of people who can't engage with the information that's being put in front of them and don't feel confident to make a decision. That's before we've even started talking about unique offerings.

The entire industry as a whole should be driving each other to deliver a better customer experience, and that ties into the kinds of product offerings that we all bring to market. Improving financial literacy and transparency of information should be the industry's core focus. At the moment, funds are not attempting to engage their members because they don't really have to. But technology is giving consumers more power, with more information available at their fingertips, and oversight of where their money is being invested. The funds that ignore their members and refuse to innovate their products and services are the ones that will struggle in the long-term.

David: Many funds already do. At Cbus we are 100% member focussed - everything we do is in our members' best interests and we can't do that unless we provide them with a service that is tailored to their needs. We know our members, we understand them and their industry and that allows us to tailor investments, insurance, advice and services such as pursuing unpaid super, a major problem in the construction and building industry. Our members expect this of us and we understand the importance of doing so.

Our members work in one of the most dangerous industries, so insurance is extremely important to them. Cbus is able to offer insurance to our members who either directly themselves, or through commercial funds, not be able to get insurance due to occupational risk. Another key differentiator is that we invest back into the industry in which our members work. Cbus members build our nation, so there is a natural symmetry with their superannuation being invested into their industry that creates jobs and economic activity today and strong returns for a secure retirement into the future.

According to recent Investment Trends research, Cbus was equal first for member satisfaction, at 83% compared to an industry average of 69%, and we were first in willingness for members to promote our product, with 46% compared to an industry average of -19%. Our members know that we support them now and into the future.

"The funds that ignore their members and refuse to innovate their products and services are the ones that will struggle in the long-term." - Josh Wilson

Are start-up funds the latest fad or the face of the future?

Joshua: Any company that comes into the industry trying to make a quick dollar without a genuine understanding of the industry will not last and we are probably already starting to see that.

There's a misconception that technology is going to be this big disruptive force in superannuation. While that's true to an extent, super is one of the most legislated industries in the world. It's going to take a hell of a lot of legislative and political shifting to drive genuine and meaningful change in superannuation. The incumbents are so entrenched within the default space that the true pool for new entrants competing for choice customers is simply not as big as everyone thinks in the current environment.

New entrants need to get their heads around this before they enter. Establishing a new fund is a long grind, and you need to genuinely understand not just super, but the entire system behind it. However, the evolution of super will hopefully see some new entrants with high quality offers that provide genuine returns for their members and who are able to drive competition and push incumbents to improve their offerings end to end.

David: Time will tell. The industry fund profit for member model based on low costs and strong returns, is compelling more than 30 years on. Cbus doesn't take our members for granted - they're why we exist and what we exist for.

"It's important to be aware of what you're signing up to and what the consequences of changing over are." - David Atkin

In your opinion, what's the most effective way to engage with your members?

Joshua: Real conversations. There's no secret to marketing in this space: know where your customers are and put yourselves in front of them in a format that they like. We know where our customers are and we understand how they like to digest content so we go to them with information and tools that make superannuation relevant to them right now, like our Super Spare Change tool and our entertaining social media content. This approach has allowed us to put superannuation front of mind for people who would traditionally not be that interested at this point in their lives.

David: In Cbus's case, our members tell us that they are the expert in their trade and they expect Cbus to be the expert when it comes to their super. We engage by providing advice, products and services that are in their interests not ours. Access must be on the members' terms - on the worksite, mobile, online, over the phone or face to face in our office. Last week we had our annual member briefing where we give members the opportunity to hear first-hand how things are going and ask us questions or make suggestions about how we can do better. This process has seen us make a range of member focussed changes over the years that have put us in a better position to meet their needs.

In a digital world that is constantly changing, do new start-up super funds run the risk of becoming obsolete when the new best thing is revealed?

Joshua: Digital is simply the icing on the cake, so yes, new funds won't survive if their sole value proposition is "we are digital". That's simply not good enough, you haven't actually changed anything! The average Aussie is already $330,000 short in retirement so putting a funky app on top of a flawed system changes nothing. You still need to be providing members with quality returns and helping them engage with a complex system. Superannuation is there to support people to have a dignified retirement and help them achieve financial wellbeing. You need a hell of a lot more than tech and a sexy app to do that.

David: Start-ups can be risky, some will survive, some may not. Those that are likely to survive will be those offering real value to their members.

"Superannuation is there to support people to have a dignified retirement and help them achieve financial wellbeing. You need a hell of a lot more than tech and a sexy app to do that." - Josh Wilson

Joshua, how do you convince a potential member to switch to your fund?

Joshua: We're overcoming this challenge because we have a clear value proposition. We will speak to you in ways that you understand, we will empower you with information that will enable you to make an informed decision and we will provide you with real time tools to make that decision. Our product, our brand and our marketing are a manifestation of our values and that really resonates.

Most marketing in the industry has focused on 'low fees', but if that was the key indicator of a great fund, why is the average balance still $330,000 short of where it needs to be? Something is not right.

Australians need more tools and information from their fund to help them actively close that gap, which is GROW's big differentiator. Not only can you manage your retirement savings entirely within an app, you can see your balance in real time, graph where you are now and where you want to go based on your goals, and make regular contributions to help you proactively close the gap.

David, what do you think smaller funds might struggle with?

David: Lack of scale impacting fees, investment opportunities, advice in the members' interest and service and insurance are obvious things to call out. It has been suggested that the drive for low fees is misguided and people are happy to pay more for tailored services. The fact is, higher fees eat into retirement balances and at Cbus we provide a service dedicated to our members that also includes low fees.