How to be an effective CIO and COO of a super fund

Graeme Arnott & Gerard Parlevliet
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(pictured: Graeme Arnott and Gerard Parlevliet)

By Greg Bright

Talking to Gerard Parlevliet and Graeme Arnott, winners of this year’s CIO and COO of the Year Awards, and you can discern some clear themes in how they approach their roles at big super funds. A major theme is that they need to be deeply involved in where their organization is going. They cannot perform their roles, effectively, in isolation. And they need to be empowered to empower those around them.

The CIO of the Commonwealth Bank Group Super and COO and deputy CEO of the NSW’s First State Super also emphasise the importance of the culture of the fund and the primacy of being member focused.

The Commonwealth fund split the role of CEO and CIO three years ago, with Parlevliet accepting the CIO position and the new recruit, Doug Carmichael, becoming CEO.  The bank fund had earlier appointed an independent chair, Neil Cochrane, as another first in its evolution.

Parlevliet says, however, the fund’s structure has not changed markedly since it was set up in its current form, with its own board, in 1995 in response to the SIS legislation. Prior to then, the managing director of the bank was in charge of the fund.

“The change in my role probably recognized that we had been doing a lot of work so that members were comfortable that they were in a value-for-money fund that they could stay in for life,” he says. “This together with the changing investment and economic environment, following the global financial crisis, and ongoing regulatory changes meant that the role was getting bigger and bigger. The fund has been successful in its endeavours, receiving a Rising Star 2011 Award from SuperRatings and continues to be recognized by external benchmarking organizations as a leading value-for-money fund.”

The fund has more than 68,000 members, including 26,000 who no longer work for the Commonwealth Bank.

“When I was doing the broader role, if I had a choice of where I would spend my time the answer would usually be on the investments side. I thought that’s the best role for me and I was well supported by the chairman.”

The members should be happy with the decision. Whether this was coincidental or not, the fund’s default option has been one of the best performing in the surveys of all funds in the past two years.

Graeme Arnott, the former Australian head of JP Morgan Worldwide Securities Services, was made deputy CEO of First State Super this year, as well as continuing his COO role at the fund. He describes the role as being responsible for the fund’s operational platform, including administration, custody, insurance and, even, the web site, to ensure that the fund is delivering on both its outsourced and insourced capabilities.

“When you have an outsourced arrangement there are operational functions which are expected to work perfectly but, by their nature, there will be occasional problems,” Arnott says. “The job is to control the events, understand the causes to help prevent problems and, sometimes, to support the individuals responsible.”

He says: “You are most effective in the role if you are deeply involved in driving the organization. We own all the risks, except investment risk… Often, in the operations area, you are fighting for funding against far sexier opportunities to spend money.”

Arnott and his CEO, Michael Dwyer, are the only two executives at the fund who sit on all committees.

Parlevliet has a relatively small team of four and he believes that in the past 12 or so months approximately one full-time position, in terms of work hours, has been devoted to adapting for regulatory change. Every fund executive you speak to will say something similar about the quantum and pace of regulatory change in that period.

“APRA has issued 12 prudential standards in the past year or so,” he says.  A governance standard, for instance, with associated guidelines, required funds revisit their governance processes to make sure they fit with the standard. As part of the new outsourcing standard, also, a fund is required to notify APRA in advance of the appointment of a foreign-based manager, all of which takes time and effort.

Both he and Arnott agree that the type of people who are attracted to work at a fund, rather than elsewhere in the financial services industry, are those who want to be “on the members’ side”.

“You need a clear line of sight to the member,” Parlevliet says. ‘We are here for the members to get their benefits in retirement.”

Arnott says: “I think the people we’re attracting are probably a little less motivated by (personal) money… They have an idea of our culture and the people who come to see me, even if we don’t have a position vacant, really do want to work for our organization.”

Arnott has several teams reporting to him: an insurance team which acts as the members’ advocate in dealings with the insurer; a business development team which runs member seminars and so on; a team to liaise with the administrator, Pillar; a small unit-pricing team; and a corporate facilities team which looks after finance, IT, the office space and other infrastructure.

In terms of providing motivation, Parlevliet says it is important to acknowledge the source of ideas within the team, not just for the top people to get the kudos, and ensure visibility of the team with the key stakeholders, including the investment committee and our key investment partners.

Mergers can often take up a lot of fund executives’ time, as well as the board’s deliberations. The Commonwealth fund, as one of the few remaining big corporate funds has undertaken a few mergers in the past as it sought to consolidate the corporate funds that have been acquired through mergers at the company level. First State Super has also been active in this space, last year completing the integration of Health Super.

Arnott says that both sides in a merger have to be prepared to compromise. “In the not-for-profit world you can’t just throw money at a problem – you have to solve it… And you have to be true to your culture.”

First State Super has recently reviewed its branding. “We had to think about what we stand for, what we mean and then decide how we present ourselves,” Arnott says.

The CIO and COO Awards are organized by La Trobe Financial. They carry a prize of $10,000 to each of the winners to spend on educational purposes. The author is one of the judges.

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