Industry Funds The Next Demutualisations

Transcription

1 Industry Funds The Next Demutualisations Colin Yellowlees Colin Yellowlees This presentation has been prepared for the 2016 Financial Services Forum. The Institute Council wishes it to be understood that opinions put forward herein are not necessarily those of the Institute and the Council is not responsible for those opinions.

2 Motivation Present

3 Demutualisations Life Co.s Capita (MLC) National Mutual Colonial Mutual AMP Health Funds NIB AHM MBF Manchester Unity Building Societies NSW BS Civic Co-op PBS United PBS Perth BS & Hotham PBS Tasmanian PBS Metropolitan PBS Ipswich & West Moreton BS St George BS Illawarra Mutual BS Wide Bay Capricorn BS Mackay PBS Pioneer BS Canberra Permanent Cooperative BS The Co-operative BS of SA The Rock BS RESI-Statewide BS First Provincial BS Friendly Societies IOOF IOR Over Hibernian 50s Mutual FS FS Hibernian Over 50s Mutual FS FS Credit Unions MyState Statewide Financial Credit CU Statewide Society Credit Society My State Financial CU ASX NRMA Other

4 Colin Yellowlees Colin Yellowlees This presentation has been prepared for the 2016 Financial Services Forum. The Institute Council wishes it to be understood that opinions put forward herein are not necessarily those of the Institute and the Council is not responsible for those opinions.

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9 Superannuation Assets SMSF ($597bn) Retail ($541bn) Total assets = $2,046bn Corporate ($54bn) Public Sector ($354bn) Industry ($446bn) Source: APRA 2015 December Quarter Superannuation statistics

10 Distribution of Industry Fund Membership Source: APRA Superannuation Fund Level Quarterly Statistics, Dec 2015

11 Strengths Current strengths Default fund position Good story Profit for members Lower Fees Fewer perceived conflicts Staff motivation Managing for longer term A good story Benefits of commercialising Access capital To diversify Incentivise A good staff story Increase accountability Regulatory framework Mergers and acquisitions

12 Weaknesses Current weaknesses Sole purpose test Limited access to capital Poor at tailoring Benefits of commercialising Access capital To diversify Incentivise A good staff story Increase accountability Regulatory framework Mergers and acquisitions

13 Regulatory Choice of fund Default fund Account consolidation Governance Retirement Incomes What s changing Technology Blockchain Robo advice Big Data Cloud Computing AI P2P IoT Demographics Ageing Union membership Workforce turnover

14 FSI Recommendations Inquiry Recommendation 10 Improving efficiency during accumulation Inquiry Recommendation 11 The retirement phase of superannuation Inquiry Recommendation 12 Choice of fund Inquiry Recommendation 13 Governance of superannuation funds

15 Regulatory Choice of Fund Employment arrangement Technology Demographics Choice of fund Default fund Account consolidation Governance Retirement Incomes Blockchain Robo advice Self employed Big Data Cloud Computing AI P2P IoT Collective agreement Individual arrangement Ageing Union membership Award only

16 Regulatory Choice of fund Default fund Account consolidation Governance Retirement Incomes Default Fund Develop alternative models for a formal competitive process for allocating default fund members to products. Source: Productivity commission

17 Default Fund Regulatory Choice of fund Default fund Account consolidation Governance Retirement Incomes Retail - Choice, 45.5% Retail - MySuper, 9.5% Industry Fund - Choice, 16.0% Industry Fund - MySuper, 29.0% Source: APRA fund level statistics

18 Account consolidation Regulatory Choice of fund Default fund Account consolidation Governance Retirement Incomes Number of super accounts as at 30 June 15 No. of accounts Percentage of people 1 account 55% 2 accounts 26% 3 accounts 11% 4 accounts 4% 5 accounts 2% 14 million Australians had a superfund account 45% of these had more than one account Source: ATO 6 24 accounts 2%

19 Regulatory Choice of fund Default fund Account consolidation Governance Retirement Incomes Technology Blockchain Robo advice Big Data Cloud Computing AI P2P IoT Demographics Ageing Union membership

20 Regulatory Choice of fund Default fund Account consolidation Governance Retirement Incomes Technology Blockchain Robo advice Big Data Cloud Computing AI P2P IoT Demographics Ageing Union membership

21 Technology Retirement Incomes Blockchain Robo advice Big Data Cloud Computing AI P2P IoE Demographics Ageing Union membership Source: Scotsman newspaper, 1 April 2016.

22 Demographics Regulatory Ageing Union membership Workforce turnover Technology Choice of fund Blockchain Default fund Robo Autoconsolidation advice Big Data Cloud Governance Computing AI Retirement P2P Incomes IoT Source: ABS

23 0.5% Source: Grattan Institute Minifie, J., Cameron, T., and Savage, J. 2014, Super Sting: how to stop Australians paying too much for superannuation (

24 Source: Grattan Institute Minifie, J., Cameron, T., and Savage, J. 2014, Super Sting: how to stop Australians paying too much for superannuation ( Fees % Expenses %

25 commercialise Why demutualise Current strengths Default fund position Good story Profit for members Fewer perceived conflicts Staff motivation Managing for longer term Lower Fees?? Benefits of commercialising Diversify/Regulatory framework Access capital Incentivise staff Increase accountability Consolidation

26 One scenario Industry Funds will lose their privileged position as default funds through an open tender process Retail funds will compete more strongly on fees and other services Small Industry Funds will reconsider their viability and merge with larger funds (not necessarily another Industry Fund) Industry Funds will discover that they can no longer compete on fees and are unable to provide the same breadth of services Industry Funds start to demutualise

27 Who owns/controls Industry Funds Employer Employee Independent representation AustralianSuper Australian Industry Group ACTU None Sunsuper REST Chamber of Commerce & Industry Queensland Australian National Retailers Association Queensland Council of Trade Unions Australian Workers Union of Employees Queensland Shop Distributive and Allied Employees Association (SDA) Cbus Master Builders Association CFMEU AWU ACTU Communications, Electrical and Plumbing Union AMWU One-third Independent Chair One independent director HostPlus Australian Hotels Association United Voice One-third Hesta Aged and Community Services Australia Australian Healthcare and Hospitals Association Catholic Health Australia Leading Aged Services Australia Australian Private Hospitals Association Australian Council of Social Service Australian Nursing and Midwifery Federation Health Services Union United Voice Australian Services Union ACTU Independent Chair

28 LESF Small industry fund (4k members, $90m in assets) Trusteeship and administration transferred in August 2013 Went from not-for-profit to for profit LESF needed greater resources and promotion to sustain and improve member benefits over the longer Term Source: LESF 2013 Annual Report

29 Potential valuations North platform valued at ~3% of FUA IOOF market cap ~ 2% of FUA BTIM market cap ~ 3.5% of FUM Average super fund fees (b.p.) IF Retail Diff Default Choice Very simplistically: 30 b.p. x 70% x 15 = 3.15% of FUM

30 Potential valuations Sum = $13bn >$1,000 per member

31 Conclusion Retail Retail funds and Industry Funds will compete much more directly for customers Low Fees Product Breadth Fee based competition will increase Distribution Industry Funds may struggle to provide the same breadth of services Industry Funds Future

32 Questions???