Industry superannuation funds have widened their lead in customer satisfaction rankings over retail funds in the last 12 months, according to research from Roy Morgan.
At the end of August, industry funds customer satisfaction levels stood at 59.7 per cent, 2.7 per centage points above the score for retail funds of 57 per cent.
A year earlier in August 2015, industry funds’ led retail funds by only 0.7 per centage points at 59.6 per cent, compared to 58.9 per cent for retail funds.
In higher balance accounts of $250,000 or more, industry fund satisfaction levels also outscored with an 83.3 per cent satisfaction level, compared to 80.5 per cent for retail funds.
“Of particular significance is the fact that satisfaction among industry fund customers has remained ahead of retail fund customers for many years, and also poses a real threat in the higher balance segments,” said Norman Morris, industry communications director with Roy Morgan Research.
Satisfaction levels for industry and retail funds have varied quite dramatically since 2010, with industry funds extending their lead dramatically during the global financial crisis. That lead narrowed sharply by mid last year but has since widened.
The key differential driving the relative performance appears to be the retail funds’ larger exposure to the share market. When the GFC pushed share prices down dramatically, the popularity of retail funds tanked, while industry fund members became disaffected to a far lesser degree.
Conversely, retail funds made up ground considerably between 2012 and 2015, when the Australian Securities Exchange’s All Ordinaries index rose 48.3 per cent. The gap widened in favour of retail funds over the last year as the ASX fell around 10 per cent from its peak in 2015.
Industry funds have more invested in stable areas like infrastructure and private equity and a relatively lower reliance on shares.
The research also shows industry fund membership is much more concentrated among those with balances under $100,000. Although more than six out of ten (60.8 per cent) people with superannuation have balances of less than $100,000, they account for less than a sixth (16.4 per cent) of the dollars held in superannuation.
People with $250,000 or more in superannuation account for more than half (54.5 per cent) of all funds but represent only 15.7 per cent of total customers.
This highlights the significance of ensuring that people in the top brackets should be targeted to achieve the highest levels of satisfaction so as to avoid defection of their considerable funds.
At the top end of the scale, those people with $700,000 or more in superannuation account for only 2.8 per cent of members but have 17.6 per cent of total balances, Roy Morgan found.
Interestingly, even at the medium, high and very large fund size cohorts, where industry funds account for significantly lower numbers of accounts than retail funds, their members were more satisfied with their funds’ performance than were retail fund members.
In the high value market where balances are over $700,000, industry funds lead with 83.3 per cent satisfaction, compared to 80.5 per cent for retail funds. This is the segment where competition is greatest from self-managed super funds, with a current satisfaction rating of 81.5 per cent.
“Lower value customers and their problems have been a major focus of the recent banking inquiry and as such will require more attention by financial institutions in order to improve their satisfaction levels,” Norman Morris said.
“With intense competition between retail super funds and industry funds, it is important to understand what fund customers think regarding the financial performance of the two groups.”
“It should ultimately be the customers who decide where their funds are best directed, but there may be difficulties for many understanding or accessing performance tables, and advisors may also influence a less-than-optimum choice.”
“It is important to note that both (industry and retail funds) face potential losses to self-managed funds from their higher value customers if satisfaction levels decline. Currently however, satisfaction with self-managed funds in the $700,000 and over group is 81.5 per cent, only marginally ahead of retail funds on 80.5 per cent but behind industry funds with 83.4 per cent,” Mr Morris said.