Key takeaways
- As investment portfolios become increasingly complex, advanced data management systems are able to provide funds with up-to-date, detailed insights, offering personalised services to members.
- Funds are investing heavily in digital transformation strategies to boost member engagement and deliver more personalised advice.
- Funds see enormous potential in Artificial intelligence (AI) but are initially deploying it cautiously to speed up simple processes.
Australia’s $3.9 trillion1 retirement system is one of the most advanced in the world. It is a diverse landscape that includes mega-funds which have been propelled by strong returns and merger activity, as well as smaller niche funds targeting specific parts of the community.
Yet they all face similar challenges in an uncertain economic environment characterised by rising geopolitical risk and regulatory change. Superannuation funds are navigating these challenges with an ongoing focus on innovation, using data to generate insights and digital transformation to boost member engagement.
As funds continue to grow and mergers are bedded down, operational efficiency is another key area where funds can generate crucial yet incremental gains. AI and increased automation promise significant gains in future years as funds explore their potential.
J.P. Morgan recently interviewed executives at some of Australia’s largest super funds, supplemented by an industry poll, to gauge their views on just how important these elements are, particularly as work practices and the pace of innovation have radically accelerated in recent times.
Superannuation funds are updating their operating models
Super funds operate in a heavily regulated yet complex and uncertain environment. They face multiple challenges including delivering investment returns in a higher interest rate environment, fee pressures, new regulations and to guide members through retirement.
This was reflected in the 2024 J.P. Morgan Future of Superannuation survey, which found funds ranked several issues at similar levels. Improving member engagement and communication strategies was marginally ahead of enhancing digital capabilities including technology infrastructure and cybersecurity measures.
In the context of your fund’s operational model transformation, please rank the following areas in terms of priority.
Super funds ranked a number of operational areas as equal priority, including enhancing digital capabilities, improving member engagement and communication strategies.
Nick Paparo, head of Securities Services Sales, Australia and New Zealand at J.P. Morgan said the COVID pandemic was a key turning point, underscoring the importance of resilience during times of disruption.
“Funds with less standardised and a lack of straight-through-processing were more vulnerable,” he said.
“Clients are particularly concerned about ensuring that their operating models are robust and efficient. This aligns with our focus on streamlining processes to mitigate risks and enhance operational resilience, allowing funds to operate smoothly even in challenging circumstances and adapt to evolving regulatory requirements.”
In terms of efficiency and innovation, where are the main areas your fund is deploying its efforts?
Looking at efficiency and innovation, super funds ranked member engagement and digital services as the priority areas of focus.
One of the country’s largest funds, Aware Super, has integrated four other funds in recent years, prompting it to review its entire operating model. To improve service and reduce costs and risks, it consolidated from three of everything to one of everything. This included moving to one registry and advice system, one website and app and bringing administration in-house.
“Having full control means we can now innovate with speed. The new approach allowed Aware to quickly launch online binding, non-lapsing beneficiary nominations,” said Jo Brennan, Group Executive, Member Engagement, Education & Advice, Aware Super.
For example, many super fund member requests traditionally required paper applications or PDF print outs. On average 40% of these will have some form of error because superannuation forms are complex, formal documents. All of Aware Super’s online solutions include pre-validation to eliminate errors with 85% of all transactions completed by ‘straight-through processing.’
AustralianSuper’s Mike Backeberg, Chief Technology Officer said managing the growth in member numbers and assets was the biggest challenge facing the sector.
“Funds need to deliver the right services to members through the right channels at the right time. A major focus for us is how we can leverage scale to better service our members while meeting their expectations as they evolve. Growth in our digital channels is at the core of this and it also means we need to scale effectively across our investment and corporate teams.”
Funds are also building digital frameworks that enables them to identify and measure any potential security risks, which are then managed with strong controls, according to Adonis Polychronopoulos, APAC Regional Information Security Officer and APAC head of Cybersecurity & Technology Controls at J.P. Morgan.
“Automate these controls as much as possible so you are not reliant on manual processes, use template configurations – for example, so that non-approved tools and configurations are automatically blocked in your technology environment.”
What is ‘operational alpha’ and how are super funds using it?
Australian super funds have generated impressive long-term returns. The median fund has gained an annualised 7.2% a year over the decade ended September 30, 2024, according to SuperRatings.2
However, investment returns can be volatile which puts the impact of fees and costs into sharp focus. Many funds have cut their fees in recent years owing to their growing size and scale, but it also adds complexity.
Operational alpha describes the way funds can overhaul common manual processes and procedures to improve their efficiency. This can flow into better member services, lower fees, or higher investment returns.
“We have been enabling greater digitalisation and straight-through processing across the fund to improve the experience for our members,” said Siva Sivakumaran, Chief of Staff at UniSuper.
Operational alpha is the value generated by adopting more efficient processes and procedures. What are the three newest areas your fund has been concentrating on in the last 12-24 months?
Super funds are concentrating on technology upgrades, fees and data quality as they modernise their operating models.
“This is important from a member experience perspective because we want to resolve 80% of member interaction with us immediately. This is a key component of our member servicing strategy,” Sivakumaran said.
Backeberg said “Digital interactions and other forms of member communication need to be seamlessly connected to make processes and transactions smoother and faster.”
“As an example, allowing members to authenticate seamlessly when engaging the contact centre makes this a superior service for members. This is aligned with how we want to provide members with guidance as they work towards and into retirement.”
The majority of funds pointed to technology advancements as the key to unlocking greater operational alpha. However, it is not just technology that enables streamlining processes; better data management, as well as enhancing data quality and integrating it into operating models, also play crucial roles.
"Asset owners seek platforms that integrate data seamlessly while ensuring consistent operations," said Jane Dauparas, APAC head of Product Development for Securities Services at J.P. Morgan.
"We are completing our transition to global platforms, which enhance efficiency and streamline processes for clients. Accounting is our final component, and the project is set to be completed by 2025, aligning with the industry's increasing digitisation,” Dauparas added.
How super funds are using data to unlock investment and member insights
Funds are now managing huge amounts of data from multiple providers, including investment information and member data.
Dharmendra Dayabhai, head of Portfolio Analysis and Implementation at UniSuper, said “Better use of data has given the fund much greater visibility over its $139 billion portfolio.”
“In some instances, we thought we had an over exposure to a particular sector, but when we got that clarity of data all the way down, we realised it may not be enough to move the dial. So, we've either increased or decreased that in certain sectors or country exposures. We are continuously looking at refining that.”
Data is also crucial to boost member engagement, which ranked as the number one area of focus to improve efficiency and innovation according to J.P. Morgan’s survey.
How many data providers (e.g., investment data, ESG data) is your fund using today?
Most super funds surveyed are using between one and five data providers to improve efficiency.
“We’re moving into a much more competitive environment with stapling and choice being introduced – we need to fight for every member we get and retain them,” Sivakumaran said.
“We have a lot of member data. One of our biggest focus areas is how we utilise that data to understand our membership better so that we can personalise the service we provide in the way they want to receive it, so they’re more likely to engage with the fund and stay with us,” Sivakumaran explained.
“But managing such data is highly complex. Funds typically create large cohorts to segregate similar members, but Aware Super plans to create an ultra-personalised ‘cohort of one’ in the next three years,” Brennan said. “Data is fundamental to fulfilling that vision.”
“We have data custodians for each of our data domains who work with certain rules and within clear governance frameworks, and we have data quality dashboards that come through to owners daily for checking and recording,” Brennan added.
"Our data governance council meets monthly to oversee our policies and processes, and, importantly, our governance framework around data and information."
That data could allow the fund to create personalised nudges as a member approaches retirement and improve the overall retirement experience.
Last year, industry regulator APRA encouraged the industry to make better use of data to help members improve their retirement as part of the Retirement Income Covenant.
How are super funds using Artificial Intelligence (AI)?
AI is expected to provide a $15.7 trillion boost to the global economy by 2030, revolutionising common business practices and boosting demand, according to PwC.3
John Livanas, CEO at State Super, said “AI (Machine Learning) has helped our organisation interpret massive amounts of market data into possible market signals for our investment team. Given that our funds are in severe negative cashflow, we don’t have the luxury of allowing the market cycles to play out. Our machine learning capabilities allow our investment team to consider these signals as part of their market assessment and respond more rapidly to downside surprises.”
Livanas continued, “Separately, given that our fund manages complex defined benefit schemes, we are also exploring how we could integrate an AI Large Language Model to access and accurately summarise our complex scheme rules. This is intended to provide relevant support to our Customer Service team when they are responding to complex member queries.”
The fund is also rolling out Microsoft Copilot inside the organisation to speed up the pace of retrieving data and policies. “As we get into a more highly regulated environment, we need to be able to interpret regulations and polices in our operations,” Livanas added.
While the potential of AI is huge, funds are only slowly experimenting with AI given the highly regulated environment they operate in.
“One of the areas we will be testing is the chatbot, which can quickly respond to questions and summarise information. Some customers have told us they prefer using a chatbot initially because they can start asking basic questions to start their learning journey without feeling judged,” said Brennan.
New AI-based frameworks across all industries are ensuring that people always make final decisions in crucial AI-influenced workflows.
Super funds and digital transformation
“Super funds are investing heavily in digital transformation to upgrade the member experience. Innovation was crucial, but that funds faced multiple challenges,” said Livanas.
“We need to continually innovate and move forward – as remaining stagnant is not the right approach. I think regulation hasn't yet caught up - we need to assist in bridging that gap. We need to better educate our directors and senior executives and then empower them to take the initiative with digital transformation,” Livanas added.
“The idea of a self-contained financial institution is long gone. You have to get really good at optimising an integrated ecosystem of partners to provide the best products or services for your members to drive the best returns.”
The pace of implementing innovation has been turbocharged by the widespread adoption of cloud technology, which also enables high-powered AI, according to HESTA’s Stephen Reilly, Chief Operating Officer.
“The idea of a self-contained financial institution is long gone,” Reilly said. “You have to get really good at optimising an integrated ecosystem of partners to provide the best products or services for your members to drive the best returns, the most efficiency, personalisation and relevancy of what it is you offer.”
“It has also taken a cultural shift across the industry, which has traditionally lagged behind the banking sector,” Backeberg said. “Innovation within the fund has progressed quickly in recent times.”
“We have an established innovation centre that provides colleagues with opportunities to bring forward thought leadership, new ideas and to solve problems,” Backeberg explained. “The fund has completed four hackathons and has multiple success stories which are now applied across AustralianSuper.”
Members are now demanding more from their funds, including education and retirement guidance. A significant number of funds are now offering licensed digital advice to serve low to middle-income earners, which is complementing in-person advice.
“We think we'll have almost 25,000 Aware Super members moving into retirement every year,” Brennan said.
“Our focus, in response to that big shift, is honing in on how we are unmatched in helping our members across that full spectrum from simple engagements, education, intra-fund and simple advice, as well as more complex advice.”
Summary
Australian funds are continuing to innovate in an environment of ongoing regulatory pressure and change.
They are employing a mix of operational alpha, AI, digital transformation, and new engaging member tools to change the way members interact with their funds and think about retirement.
References
APRA: https://www.apra.gov.au/news-and-publications/apra-releases-superannuation-statistics-for-june-2024
Rappell, K. (2024). Media release: Funds deliver strong quarterly return despite uncertain environment–Lonsec. Lonsec. Retrieved from https://www.lonsec.com.au/2024/10/08/media-release-funds-deliver-strong-quarterly-return-despite-uncertain-environment
PricewaterhouseCoopers. (2024, October 30). PwC’s Global Artificial Intelligence Study: Sizing the prize. Retrieved from https://www.pwc.com/gx/en/issues/artificial-intelligence/publications/artificial-intelligence-study.html
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