Bringing it Home – How could SMSFs dominate the Superannuation Industry

Peter Williams –  a recognised practitioner in innovation – discusses how SMSFs could dominate the Superannuation Industry in Australia….

As someone who works in the fields of Innovation, Disruption, Futures and Digital I am not a superannuation industry specialist but I have kept a very close eye on the Australian Superannuation System for many years.  What has held my interest is the battle for market share that has been playing out over the years between retail, industry and corporate superannuation funds (the APRA funds) and Self-Managed Superannuation Funds. I called out SMSFs as a disruptive innovation a number of years ago because they displayed three key characteristics of disruptive innovations; firstly they were set up to cater for non-users of the mainstream system, secondly, in the early days they cost more and you got less, finally, they had a different value proposition which was ability to control your funds.

The subsequent upstream march, from the explosion of innovation in the sector, contributed by many participants in the system, has seen costs as a percentage of funds under management fall below those of the APRA funds. Combining the factors of control of your retirement assets together with lower fees; SMSFs are extremely well positioned.   Recent research by my colleagues at Deloitte identifies that SMSFs now account for 34% of the superannuation  market, the largest single segment, with Retail Funds coming in at 26% and Industry Funds at 21%. This very heartening to me based on my earlier predictions, (future forecasters always like their predictions to come good because when we make them we can never be sure if they will).

SMSFs also get the vast majority of Voluntary Contributions and the research also forecasts SMSFs will dominate the post retirement market going forward. This makes sense as people rethink their financial position at retirement and control is a very front of mind issue once the member retires.

For SMSFs to achieve domination across the sector the key goal should be to maintain the dominance in the post retirement phase and to get a greater share of pre-retirement contributions.  So how does the industry do that?

Collaborate, Collaborate, Collaborate

My group at Deloitte, Centre for the Edge, recently published a collection called Patterns of Disruption  which looks at the different pathways that disruption innovations can follow.   The second pathway is one where a large collective of fragmented players displace the leading incumbents.  This is the model that fits the innovation network SMSF Industry in Australia, effectively a decentralised model that in my view is moving much faster than the incumbents can, either individually or collectively. Effective collaboration across the industry demonstrated by a willingness to work together to solve problems, a willingness to try new things and share learnings will be crucial.

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Scale Trust through a focus on the Individual

 My Centre for the Edge colleague John Hagel recently participated in an interview called Scaling Trust about scaling a business model based on deep knowledge of an individual.

 His key points were with the advent of Big Data, sophisticated analytics, social software, the Internet of Things and cloud computing, just to name a few of the enabling technologies, the “trusted advisor” business model now has the potential to expand from the niche of the very wealthy to become a mass market event. These technologies make it feasible to compile a detailed understanding of the social and economic context of the individual at much lower cost than previously imaginable. We don’t have to submit to detailed interviews or fill out endless questionnaires to provide this information. The trusted advisor, with our permission, can simply watch and analyse the “digital exhaust” from our activities to develop deep insight into who we are and what is important to us.

Through the use of these technologies the SMSF industry can create a broader value position based on the notion that because we know and understand you as an individual customer and we can tailor an appropriate bundle of products and services to meet your individual needs better than anyone else. This is not something the incumbents are set up to do.

Absorb Technology change Faster than the Incumbents

 As organisations scale it becomes more difficult for them to rapidly absorb change, particularly when it relates to technology. They tend to focus on bigger technology initiatives and have many people in roles that they need to engage with to implement any change which means things take a lot longer to put in place.  Smaller organisations tend to adopt a more experimental approach to technology change.  It is not impossible for large organisations to move quickly but it tends to be more an exception than the rule.  As many of the players in the SMSF industry are small to medium sized business they are well placed to adopt new technologies such as those that were mentioned in the paragraphs above.

I believe that the SMSF industry can dominate the market and I personally hope you make my predictions come true.  Remember innovation is about leaning by doing and hopefully these thoughts help keep you moving forward.

Peter Williams


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