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BFCSA: Hayne puts wrecking ball through super fund brand

Posted by on in ROYAL COMMISSION URGENT
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Hayne puts wrecking ball through super fund brand

The Australian 12:00am April 23, 2019

Richard Gluyas

 

EXCLUSIVE  The Hayne royal commission has caused a dramatic collapse in the level of trust across the financial services industry, with the once-muscular AMP brand now the weakest of the nation’s top 26 superannuation funds, according to independent research consultancy CoreData.

The sharp decline of AMP and IOOF, which emerged as the villains in the royal commission’s public hearings on advice and super, is captured in CoreData’s “Future of Advice” survey, which is only distributed to industry players. A survey on the brand strength of the top 26 funds measured by number of members reveals that the $47 billion Cbus scheme — the largest super fund for the building and construction industry — comes out on top, followed by Australian Super, HESTA and QSuper.

IOOF, AMP and the ANZ unit OnePath record the lowest scores, based on a survey of 2370 respondents conducted in December and January.

Confirmation of the implosion of the AMP brand comes before a difficult annual meeting for the wealth giant next month, when four directors including chairman David Murray are up for re-­election.

Proxy advisers CGI Glass Lewis and Ownership Matters have advised investors to vote in favour of all four directors, while ISS provided “qualified” backing for those involved in the controversial $3.3bn sale of AMP’s life insurance division.

AMP also suffered a 61 per cent vote against its remuneration report last year. If repeated, it could lead to a board spill.

CoreData principal Andrew Inwood said the IOOF and AMP brands suffered significant damage in the royal commission, and AMP was “almost a cautionary tale in how to lose a brand”.

AMP, he said, was in the top quartile of financial services brands as recently as 2017.

“Management and distribution stumbles have resulted in the brand falling to the bottom quartile, as consumers, investors and its significant distribution force all report that they are confused about the future of the business and whether it can successfully manage its way through this period,” Mr Inwood said.

CoreData’s main finding in the Future of Advice survey, which polled 1000 people in every quarter of 2018 to assess the impact of the royal commission, is the ruinous impact on trust in banking, super, financial advice and insurance.

Superannuation remains the most trusted element of financial services, but trust fell by 30 per cent and is still yet to significantly recover, while banking suffered the biggest decline in trust, down by 40 per cent.

Mr Inwood cautioned that the trust scores were not evenly distributed.

ING Direct, for example, performed consistently and was now possibly the nation’s most trusted banking brand, albeit with a relatively limited offer. Trust research was also nuanced, with the key questions probing the extent to which an organisation would act in the respondent’s best interest.

The survey found super was trusted by 75 per cent of respondents in the first quarter of the year, but closed out 2018 with a trust rating of 53.7 per cent, while insurance declined from an early peak of 42.4 per cent to 30 per cent.

Banking fared no better, with a 60.8 per cent level of trust in the March quarter smashed to 36 per cent by the final quarter.

Financial advice started out at 60.1 per cent, but the April royal commission hearings precipitated a rout as the level of trust collapsed to 35.2 per cent in the September quarter.

Trust levels recovered to 41.2 per cent in the three months to December.

Unsurprisingly, the poor brand rankings for the likes of IOOF, AMP and OnePath showed up in a mass exodus of funds into the industry schemes.

In the June quarter of last year, the $632bn in industry-fund asset holdings surpassed the $622bn in retail funds for the first time.

Mr Inwood said it was clear that the simple message being pushed by the industry funds of lower fees and superior returns, along with relatively benign appearances before the royal commission, had been good for the sector — from a brand as well as a financial perspective.

“Most of the bigger industry funds that CoreData spoke to were recording record switching into them, with new money mainly coming from AMP and the big four banks,” he said.

“What’s also clear from the data is that industry funds which have the benefit of a clear group identity, like Cbus (for building and construction industry workers) and HESTA (health and community services), can outperform businesses like AustralianSuper, whose brand identity is less well-defined.”

Mr Inwood said retail funds had mostly “written off” competition with the industry funds, blaming the employment award effect, where industry funds were effectively using employer payroll offices as a key distribution channel.

While this may have been true in the past, it was no longer the case.

“The bigger industry funds are now sophisticated businesses with strong member capabilities, great understanding of their members, and they use sophisticated metrics for understanding member satisfaction,” the CoreData principal said. “It would be wrong to dismiss this split as temporary or simply the effect of the royal commission.”

 

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