Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 153

Large funds need to earn retirement loyalty

This is the third in a series of articles highlighting the leadership attributes that can help superannuation industry executives move from their historical focus on accumulation to a whole of life view and particularly the provision of retirement income.

For executives in the super industry, driving change from an accumulation to a whole of life focus is a major change management exercise. How do you drive change management? Leadership expert Harvard’s John Kotter identifies creating a sense of urgency as step 1 of the 8-step programme he prescribes in Leading Change.

Where is the sense of urgency?

It’s often said that we need a ‘burning platform’ to create the sense of urgency to drive change. While APRA statistics suggest we should have that urgency due to poor member retention, rarely do we hear the word ‘fire’ from our executives.

According to the 2015 APRA report, over 50% of funds are losing more accounts than are coming in and, likewise, over 50% have higher outflows than inflows when benefits payments are included. And most funds are doing a poor job in retaining members into pension phase, with the number of lump sum payments dominating pension account openings by a factor of four to one.

The retention problems can be devastating for fund economics and, like demographic changes, can manifest themselves slowly at first and be overlooked. But continued gradual losses of members or outflows erode a fund’s economic competitiveness. The industry would appear to have an impending loyalty problem.

Fred Reichheld has been perhaps the most articulate advocate of ‘loyalty management’ as an imperative of business success. The author of The Ultimate Question and creator of the Net Promoter Score championed the idea that loyalty leadership was the key driver of success in many businesses.

Loyalty drives firm economics. Firms with better client loyalty enjoy both higher revenues and lower costs. Higher revenues come from more sales to existing clients, the additional revenues from not losing clients or holding onto them longer, and from referrals from satisfied clients. Lower costs come from satisfied clients having a lower cost to serve for many reasons (eg acquisition costs are defrayed over a longer tenured relationship). And lower marketing costs accrue from referral.

Driving client loyalty

Even before I joined Vanguard in 1980, the redemption ratio (the inverse of retention) was a key driving variable. We drove redemption rates to less than half the industry average. That meant Vanguard each year had to sell billions less, later tens of billions less, and today hundreds of billions less than competitors to exceed them on cash flows. That fact, certainly more than large or clever marketing spend, was the driver in making Vanguard the top US mutual funds manager by cashflow for nearly every one of the last 20 years.

Client loyalty is something you have to earn and can’t buy or take for granted. It’s multi-dimensional as clients appraise your features and services against competing offers. It’s built on trust over time, is hard won and easily lost. It’s often built on a relationship - personal or brand-related - and a sense of engagement. The heart of a firm’s strategy and execution should be beating to earning client loyalty.

But it’s also obvious that there are certain critical points in customers’ lives when client loss is more likely. The two most important for our industry are job change and approaching retirement. We’ll focus on retention at retirement here. People over 50 control more than 60% of assets in the super system and balances are, on average, much larger for pre-retirees and retirees than for younger members.

Member retention in retirement

It should be an urgent and galvanising problem that many superannuation funds are losing more than 90% of their members going into retirement phase. Ironic indeed that a fund should nurture its members throughout their working careers and then lose them when the fund should be helping them with the ultimate mission of the super industry: assistance through retirement years.

Talking to fund executives, few have really taken the retirement phase loyalty challenge to be a matter of urgency, and there are even some executives who think the fund is only about accumulation. Some funds don’t even offer a pension choice.

It’s a loyalty leadership challenge. A multi-year and multi-dimensional approach to increasing the organisational focus on retirement is needed. The fund needs to demonstrate its credentials and interest in helping members with their journey to and through retirement. Raising awareness that the fund is there for the member in retirement is a key element.

Providing retirement income forecasts is an obvious and effective way to start members thinking about retirement with the fund, supplemented by coaching and advice solutions. Advice is probably the best way to help members with retirement. And as traditional advice won’t reach the vast majority of members, digital advice has to come to the forefront, with the option of triaging to traditional telephone based or face to face advice when needed.

Simplifying the transition to retirement is also critical. A complex transition is the enemy of member loyalty. Behavioural finance research shows how making something easy is a winning strategy for serving members. A default solution, like the government’s mooted Comprehensive Income Product for Retirement, may well be part of the answer.

It's critical to the member that they make the right choice and get the help they need to do so. The right decisions at retirement are challenging and highly personal. Default MySuper may get many members through their accumulation phase but in retirement members will need a personalised solution.

To focus on maintaining loyalty, the right metrics are critical. As Peter Drucker argued, “what gets measured gets improved.” Funds should establish their loyalty metrics around retirement and then work relentlessly to improve them.

Fund executives have a burning platform to move fast on client retention around the retirement phase. They must develop the sense of mission that can motivate their teams around highly measureable goals. Funds that lead and win in maintaining client loyalty through retirement will grow and prosper.

 

Jeremy Duffield is Co-Founder of SuperEd. See www.supered.com.au. He was the Managing Director and Founder of Vanguard Investments Australia, and he retired as Chairman in 2010.

 

RELATED ARTICLES

Improving access to account-based pensions

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

Latest Updates

Taxation

100 Aussies: seven charts on who earns, pays, and owns

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

7 key charts on the state of the Australian property market

The Australian property market stirs fierce debate - often bullish optimism versus crash predictions. But beyond the noise, seven charts reveal what's really driving prices and the outlook for residential real estate.

A simple alternative to the $3 million super tax

Division 296 aims to introduce improved fairness into the superannuation system, yet is overly complex. This scours the world for better ideas and suggests a simpler alternative which can achieve the same goals.

CBA and the index conundrum for super funds

After the hyperbolic rise in CBA shares, super funds are floating the idea of carving out the weightings of ASX bank securities and indexing them within their portfolios. This looks at why that might be a big error.

Strategy

10 policies to drive Australian productivity higher

Here's a comprehensive list of proposed reforms to fix Australia's stagnating economy, including introducing a flat income tax rate, reducing migration, and making childcare tax-deductible.

Interviews

Where to find big winners in Asia

As more money looks for a home outside the US, Asia may soon get some love. Fidelity's Anthony Srom outlines the best places in Asia to invest, including in Chinese consumer names, Indian financials, and Thailand.

Investment strategies

We have trouble understanding the time value of money

We overvalue the present and underestimate the future - it’s a cognitive glitch called hyperbolic discounting. It affects savings, spending, and loans, and it's more common - and costly - than we think. 

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.