“Everyone wants to fix the system, that to me, isn’t broken.” This was Chris Cuffe’s assessment of the default superannuation system at a recent Women in Super lunch held at Sydney’s Doltone House.
At the packed event, the former Chairman of UniSuper and one-time head of Colonial First State shared his views on superannuation and the wider financial services sector in a Q&A style session.
Topics covered included:
Default super system: I’m a convert
Cuffe admitted that if you’d asked him a decade ago, he would have said he was philosophically opposed to the default system, where those who don’t deliberately choose where their super funds will go have them deposited in a predetermined fund. But having been a director of an industry fund for over 10 years, he is now a convert.
“The default system has created monoliths (like UniSuper) which have achieved great economies of scale which have brought costs down significantly, provided very good service to their members, and achieved solid performance.”
Unwinding of vertical integration: the merit of ‘banks just being banks’
When discussing how a number of banks and large financial institutions had acquired an array of different companies, from funds management to financial advice to insurance, Cuffe said he wasn’t surprised to see some of these unwind. According to Cuffe, the customer experience from these services varies significantly and not always in a positive way. The customer experience can depend on returns from investment markets, or the ‘fine print’ of a policy document or underwriting conditions, or the experience of the staff member servicing the customer. Banks have big, delicate brands that need to be carefully protected to maintain trust.
These varying activities do not sit well together, and the profit contributions of non-bank financial services are relatively low compared to banking. Cuffe said that banks slimming down their operations was logical so they can focus on ‘just being banks’.
Internalisation of funds management: consistency is key
Another hot topic was the decision of a growing number of industry funds to internalise funds management in an attempt to deliver further value for members. Cuffe believes this can work for those with the right scale.
“Once you are large enough there is no reason why you cannot employ your own people with the same skill set as external fund managers. It’s about turning a variable cost into a fixed cost … leading to lower costs as the funds continue to grow.”
Past performance is in fact a good indicator of future success
Cuffe holds a common-sense point of view of past performance over long term cycles as an indicator for future success. Many people, particularly regulators, say you should not rely on past performance when making an investment, but it is an important indicator of the skill level of a fund manager.
Should industry funds be compelled to have independent directors?
Cuffe said the issue has never been about independent directors, but more about the skill set. Many industry funds are very large, with billions of dollars under management, thousands of members, complex administration systems, insurance and financial planning services and extensive superannuation laws to comply with. They are some of the largest organisations in Australia. The board of directors should comprise individuals who are experienced in those fields. Such experience is unlikely to be found within the employers/employee representatives of most funds.
Does A.I have a place in financial services?
When thrown a curve-ball question around artificial intelligence, a philosophical Cuffe responded: “We have to ask ourselves – where is the end-game and who will hold the power?
Susie Bell is a Partner and General Manager at Honner.