At the Australian Financial Review’s Super and Wealth Summit 2024, Wayne Swan, former treasurer and current chairman of Cbus, said the quiet part out loud. Delays in the processing of death benefits and insurance claims by superannuation funds have been making headlines for over a year now. An obviously angry Swan excoriated their administrator’s “very poor performance” and the “paucity… of competent administrators in the field.” Also, commenting on outsourced administration, Assistant Treasurer, Stephen Jones, remarked that he had “regularly asked both treasury and the regulators whether we have any systemic weaknesses in this area.”
Since the collapse of Superpartners in 2014, superannuation administration in Australia has been dominated by Mitsubishi UFJ Financial Group (MUFG) and Mercer. The last five years has also seen the entry of new participants into the sector, including Apex, Grow Inc, Tech Mahindra, SS&C, Iress, and FNZ — though MUFG remains by far the biggest player, with estimated 80% market share.
Over that time, superannuation funds have been animated by common goals. Recognising the role of a fund as an orchestrator of services, they have sought to strike a balance between best of breed and an unmanageable proliferation of service providers. They have been under pressure from all corners to provide high-quality customer experiences. And they have needed to implement change and innovate, quickly and cheaply. It will be apparent to anyone who has spent time in the industry that the prevailing model of administration needs to change if it is to meet these needs.
We propose changes to the way that administration is delivered that broadly fall into two categories:
- Commercial and operating model.
- Technology stack.
Commercial and operating model
We continue to be strong advocates for changing the commercial and operating models underpinning outsourced administration arrangements.
The scope of activities that a modern superannuation fund needs to engage in has grown dramatically. Making the right decision about which activities the fund should perform itself and which activities it should outsource — and outsource to whom — is critical. The prevailing model has seen administrators perform an incredibly varied range of tasks on behalf of funds, more by historical accident than design. These include software and technology infrastructure, call centres, processing of contributions and rollovers, accounting, business intelligence and data analytics, financial advice, and general business process outsourcing — to name just a few. Anyone familiar with the concept of a conglomerate discount will be unsurprised to hear that administrators have been unable to provide best-in-class service across this diverse remit. The issue that Wayne Swan alluded to is a common and current theme in the sector. Many administration teams (be they outsourced or internal departments) are facing challenges with the efficient and effective processing of death benefits and insurance claims. While resourcing levels may be the proximate cause, it is worth considering whether the more fundamental issue lies in the dependence on a highly manual, human dependent process that, in 2024, should be much more automated.
There are infinite ways to unbundle monolithic outsourcing arrangements. Funds need to balance the benefits of having the best vendor for each discrete function with the unwieldiness of having too many service providers. We think that a logical place to start is in splitting out the management of technology from business process outsourcing. The complexity of technology and the criticality of technology to success in the modern economy has exploded in recent years. Superannuation funds need to ask themselves whether it is reasonable to expect providers of business process outsourcing to keep pace with the ever expanding and evolving disciplines required of a technology provider. History seems to indicate that it is not. Organisations that are, at heart, business process outsourcing shops will always reach for human resourcing solutions — throw more people at the problem — even when the answer is technology modernisation.
Funds need to balance a range of consideration when designing a technology operating model. They may want to inhouse control of technology that is key to member experience, but any utility functions should be outsourced. Selecting the right partner and ensuring that commercials are structured in a way that incentivises them to deliver good outcomes is crucial. Done right, this arrangement should see funds saving money, having access to more modern technology, reducing the time and cost associated with change, and enjoying a better-quality experience overall. Obviously this is easier said than done, and tech stack and approach to managing the grey areas between technology management and business process outsourcing are critical. Enlisting a specialist technology provider is a good starting point.
Technology stack
There is no single best tech stack or architecture for administration services, but there are principles that any specialist technology provider should adhere to.
- Integration of legacy technology into a modern tech ecosystem.
Legacy technology is an inescapable part of technology in financial services. At an enterprise level, technology needs to be designed so that legacy utility systems can interface and integrate with modern technology. - Openness and interoperability.
Even now, funds and their counterparties find it difficult to access data held by their administrators, and to integrate directly with systems operated by them. The modern administration tech stack needs to promote openness and interoperability, so that data and application integration is easy both internally and with external parties. - Automation.
Everything that can be safely automated should be automated. Integration, workflow tools, robotic process automation, and artificial intelligence all have a role to play here. If specialist technology providers are to offer a higher quality service to funds at a lower cost, automation will be essential. - Data-driven operating models.
Funds want to be able to use data to drive efficiency, decision making, insight, and innovation. Administration technology should support this, or at the very least, not hinder it. - Configurability.
There will be grey areas where it may be debatable whether a technology component should be managed and operated by the fund, its administrator, or its technology provider. The onus here is on the technology provider to ensure that systems and platforms are designed to be easily configurable by the fund and the administrator where this is appropriate.
Improving the quality of administration services in superannuation is going to be a whole industry effort. In our dealings with the incumbents, we have always been impressed with the talent, skills, and expertise of the individuals who comprise them. The task now is to move to a model where, supported by the right technology, they can realise their potential to deliver high quality services for funds and their members.
Kevin Fernandez is General Manager, Market Strategy and Propositions at Novigi, and is based in the Melbourne office.
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