Investment and Superannuation: Meeting the Needs of Tomorrow’s Savers

The next generation of savers have different expectations of investment firms and superannuation funds. The investment industry must explore how it can leverage data and technology to evolve and meet shifting client preferences, as well as the needs of their members.

Demographic change has sizable implications for investment firms and superannuation funds. In an industry contending with volatile economic conditions, growing geopolitical tensions and a packed regulatory agenda, the ageing population – sometimes dubbed the ‘silver tsunami’ – is having a transformative effect.

At the recent Fund Summit in Sydney, we discussed how industry leaders can rise to the challenge and shared our vision for how data and technology innovation can help the industry navigate the journey ahead.

Planning for the industry’s next phase

The silver tsunami phenomenon requires the investment industry to reconsider the needs and ambitions of its clients for two main reasons.

Firstly, for the significant proportion of savers moving into retirement, the question of how to balance income with wealth preservation is crucial. These individuals will need to draw down funds while also ensuring they maintain a sufficient amount for their needs.

Secondly, we are approaching the most significant inter-generational transfer of wealth in history. Retirees are leaving assets to children to help them meet their life goals. A new generation of savers – younger, more tech-savvy, and with different priorities – will manage its money differently.

The industry must be prepared to support these different demographic of savers, but economic uncertainty presents an additional challenge. In volatile times, retirees are struggling to work out how much income they can withdraw from their savings, while younger groups are trying to balance short-term needs with longer-term aspirations.

So, how can Superannuation funds design an operating model that can help achieve better outcomes for today’s retirees and tomorrow’s savers?

Building a fit for purpose infrastructure

To engage and inspire younger generations, firms need to offer a more relevant and personalised proposition. Simply put, savers want customised insights. They are looking to know where they stand, and where they’re headed, rather than receiving generic information.

Moreover, the conversation needs to take place through a variety of channels. In particular, younger savers are mobile-focused – they are accustomed to running their lives from their phones, and they want a user experience designed with that in mind.

Funds need a technology infrastructure capable of satisfying a wide range of preferences while leveraging high-quality data to deliver personalised insights and services that enable savers to experiment and plan income and capital preservation strategies. Additionally, funds should offer savers access to these insights and services on the channels of their choice, with interactive tools that motivate them to engage with their money.

Delivering personalisation is complex however: It requires managers and funds to bring to acquire and aggregate data across asset classes, geographies and currencies – to provide the saver with a singular, individualised view.

Governance matters, and so does knowing your critical data

As organisations become ever more dependent on data, the need for strong governance is non-negotiable. Every organisation needs to be confident in their data – not just with respect to the validity of the insights that they give to savers, but also in the context of regulatory scrutiny and data privacy.

The right approach to governance is organisation specific. Good governance isn’t simply a question of throwing resources at data verification and management. Rather the key is to identify critical data, assess areas of greater risk, and build processes that are appropriate in that context.

One way to think about this challenge is in terms of data lineage. It should be possible to understand, record and visualise data as it flows from its source to the point of consumption, with auditability a key consideration.

Define your core capabilities

There is no one-size-fits-all operating model that can deliver on all the challenges that the investment industry faces. However, the ability to integrate, collate, validate, and utilise investment data – whether from internal or external managers, from markets, or even from sustainability advisers – is critical. This ability requires managers and funds to build robust platforms with the flexibility to integrate new tools and capabilities as they become available.

Interoperability is another key consideration. It is impossible to anticipate all future business and technology developments – and thus to completely future-proof your operating model – but building with compatibility in mind provides the ability to flex and change. It may help to think in terms of smartsourcing – an approach that strikes, on an ongoing basis, the optimal balance between internal and outsourced capabilities. Providing the right people with access to the right data, in the right format at the right time, funds will be in a strong position.

Establishing a stable and strong platform that can seamlessly connect best-of-breed solutions from key service providers will enable funds to evolve their value proposition as they see fit.

Regulation in focus: Moving towards the one-stop shop?

One question for the investment industry as it focuses on the operating model of tomorrow is whether regulation today is set to drive consolidation or reduction in the overall number of outsourced service providers.

Forthcoming CPS 230 regulation focused on operational resilience requires funds to have strong oversight of the resilience of their service providers – and of providers further down the supply chain. The European Union’s Digital Operational Resilience Act (DORA) regulation carries similar requirements.

Organisations with extensive networks of service providers may struggle with such requirements. The extent of the oversight required may be prohibitively costly: regulators may not be convinced that firms with multiple service providers, each with their own supply chain, can sufficiently assess their resilience to operational risks and disruptions.

Key takeaways for investment firms and superannuation funds

At the Fund Summit, it was clear that the industry shares a common view that investment firms and superannuation funds must now focus on how they can meet the needs of new generations of savers. In our experience working with clients on this topic, we see the need for them to recognise the value of smartsourcing and develop operating models that enable:

1. Autonomy and flexibility: An offering that evolves with your operating model
2. Data transparency and control: Full ownership and end-to-end visibility of your data
3. Scalability and growth: Technology that evolves with and supports your growth
4. Predictable costs: Tailored solutions that get you past the barrier of costly outsourcing
5. Access to expertise: Continuous support from subject matter experts and cutting-edge technology built for the future.