by Norman Tweeboom*
The Royal Commission and Productivity Commission have sparked a ‘New Age of Transparency’ for Australia’s superannuation industry, joining it in the global march towards better retirement saving outcomes and experiences.
How successful it will be relative to other global retirement systems depends on how well the superannuation ecosystem can future proof their operating model in an environment challenged by disruption from all sides. Digitisation, technology disruption, rising consumer expectations, ageing populations, intensifying regulation and veracious performance scrutiny is driving a new mandate for superannuation funds – transparency and data disclosure. This is not just an Australian phenomenon.
Regulators around the world concur that transparency is critical for the sustainability of superannuation funds and the integrity of the retirement system. APRA recently announced plans to ‘usher in a new era of superannuation transparency’ to address industry shortcomings and improve retirement provision standards in Australia. Meanwhile, ASIC has pivoted sharply from overseer of superannuation funds to proactive enforcer, intervenor and where appropriate, litigator.
In the UK the representative bodies for asset management, pensions and local governments recently launched “The Cost Transparency Initiative”, standardizing disclosure requirements for institutional investors. The Californian state teacher’s pension fund, CalPERS, recently announced changes to disclosure around its private equity investments. On a macro level the EU’s MiFID II has required new levels of transparency that have had profound impact on the way research fees are disclosed.
As market interconnectivity grows, the future success of asset owners in all markets around the world will depend on their data driven strategies to improve operating models and optimise engagement.
Transparency driven by data
To rebuild trust and foster confidence, asset owners need to put data at the core of its growth strategy.
Generating and using data is not the challenge. The finance industry already generates vast amounts of data and the infrastructure exists to manage it.
As an example, here at Bloomberg we receive more than 100 billion market data messages and ingests two million new stories a day from 125,000 news sources. Every second, our predictive analytical tools powered by machine learning algorithms and natural language processing sift through the noise to find and deliver the most critical information to investors.
The challenge for the industry is to ensure the data sets generated and consumed are high quality, consistent, linked and ready to use across an organization. Only then can firms think about automating data production, analysis and delivery for end users, be it for a member, regulator, portfolio manager or partner.
Funds also need to bear in mind that it will not just be regulators, but members demanding much more transparency in this new environment, leading to an even more customer-centric approach from providers large and small.
Performance-driven operating models
One of the challenges highlighted by both the Productivity and Royal Commissions is to improve the quality of data to enable performance comparisons between funds.
APRA has done a significant amount of work on this, but these tidy looking data sets defy the fragmented, disparate and very linear-fashioned sources from which they are generated. Further, these sources vary widely from firm to firm.
This presents a problem for the industry in its mission to embrace disclosure and facilitate consumer choice. Regulators will need to get together to standardise reporting from superannuation firms, and this conversation needs to start right away. Only then can firms in Australia start their journey towards a more transparent and efficient operating model.
Having consistent, standardised data can drive improved outcomes in multiple areas of the superannuation supply chain. It can:
- empower portfolio allocations
- help manage risk and understand exposures in an increasingly globalised investment environment
- optimise relationships with partners and providers to drive efficiency, best execution and operational alpha
- facilitate expansion into new types of investment such as active ETF and ‘quantamental’ investing strategies, and into new technologies such as machine learning and AI
- support accurate and timely reporting and governance
- inform business strategy and decision-making
- empower engagement with stakeholders including consumers and regulators
The coming opportunity
Being more data and customer-driven opens up tremendous opportunities to refresh and improve member engagement. That means more transparency, in a timely manner, around performance and fees, and more choice around what to do with that information.
Data can also play a part in reflecting the changing priorities, hopes and biases of members entering the savings system.
According to a recent Morgan Stanley survey, 84% of Millennials cite investing with a focus on ESG impact as a central objective. At Bloomberg we have invested significantly across our indices business including launching new indices in areas such as Gender Equality and Sustainable Investing precisely to give investors the information they need.
Modern consumers are also very aware that modern technology is giving them control of their own investment decisions, demonstrated by a rising number of mobile and online apps available to them. This is a sign that members of the public are becoming more technology savvy and demanding a better way to manage their finance and make choices.
As custodians of member assets, superannuation funds will increasingly be evaluated for their governance standards and those of companies that it invests in.
Reflection and re-imagination
Australian superannuation has been a stunning success by global standards and given its importance in providing retirement incomes it is right that the industry has been subjected to public scrutiny.
Standing at over $2.6 trillion, amassed in under 30 years, this sector now dwarfs the entire $1.5 trillion market capitalisation of the ASX that is subject to rigorous disclosure rules and penalties for the protection of investors and market integrity.
Superannuation has bulged under generations of investors whose technology and consumption behaviors are evolving faster than ever. For younger members superannuation is likely to mean far more than a financial means for retirement.
There is a natural period now of self-reflection and re-imagination for superannuation funds to consider how they navigate enormous change and risks to their viability. One known outcome is increased regulatory oversight and enforcement extending to potential litigation for poor performance, which will drive industry consolidation and greater collaboration through technology.
Superannuation funds need to be having these conversations today so that the outcomes they deliver in the future are the result of data-enlightened engagement with members, regulators, providers and peers. Only this will create a more open, efficient and competitive retirement industry.
*Norman Tweeboom is the Asia Pacific head of buy-side enterprise at Bloomberg.