The superannuation sector is going through a golden era of fund mergers. Every few months we hear of mergers announced, commenced and completed.
Negotiating and executing a superannuation fund merger is challenging, exciting, stressful and rewarding. It calls for a laser-like focus on the benefits to fund members, careful negotiation with stakeholders and a keen eye for detail to ensure that members’ interests are not only protected but enhanced.
Once the merger is completed and the party poppers have been binned the real work starts. As the old adage goes, the proof of the pudding is in the eating – or in the case of mergers, in the execution.
If the merger is between a large and a small fund, often the ways of working, systems and processes of the larger fund are adopted. This is not unexpected nor wrong but there may be a better approach.
Things are more complicated when a merger is between funds of about equal size, sophistication and complexity – a mergers of equals.
In these mergers, trustees must make decisions about every component of the value chain to decide which elements will be adopted, discarded or changed to ensure that the merged fund is more than simply the sum of the parts of the previous funds.
This requires working through key questions: Which administration, risk and compliance systems should prevail? Which processes best support the new fund? Which people are needed to take the merged fund into the future? What will the product and service suite look like? What is the strategy and vision for the future? All must be considered carefully and meticulously worked through.
There are three broad ways trustees can shape the operations of merged funds:
In each approach there are different levels of complexity and confidence about execution success. These considerations are valid but the more important test should be: What approach will deliver the best net long-term outcome for members? Everything else is somewhat interesting and ultimately in the control of the board and management.
So which approach is best? Each has pros and cons and the final answer is likely to be a mix.
The objective of any merger of superannuation funds should not simply be to scale up for scale’s sake, or to be a vessel to sum the funds under management and number of members. This is the 1 + 1 = 2 outcome. Scale matters, but only if it helps you play the ball forward and will deliver a better outcome than the two merging funds could achieve singularly.
The objective of a merger should be to change the equation (or the answer, at least) to 1 + 1 = 3. That is, the sum of the parts should deliver exponential benefits to fund members.
The business case supporting a merger of superannuation funds is often couched in terms of tangible and intangible benefits that will flow to members. Trustees will rightly seek assurance and evidence that benefits will accrue, such as enhanced members’ retirement outcomes, reduced costs (in real terms and relative to a non-merger scenario), enhanced future services and product development, and expanded investment opportunities.
Also critical as a driver of long-term member benefit are the opportunities to supercharge the for-purpose culture of the new entity and retaining and attracting the very best people.
This is not an exhaustive list and trustees rightly seek many other benefits as they embark on a merger.
So if the will, the skill, and the intent is in place, shouldn’t it be relatively straightforward to achieve the benefits set out in the business case?
Of course, the answer is it is neither simple nor easy, but it is too important to get wrong. Transforming a business while continuing business as usual adds to the difficulty.
We have all seen case studies and statistics showing that not all mergers (whatever the sector) achieve the benefits expected in their business cases. The reasons range from issues in the development of the business case to poor execution. These issues are not necessarily the same for superannuation fund mergers and I expect there have been surprises on the upside and downside.
So how can we ensure we are one of the successful merger case studies?
In my view, that can have a big influence in merger success are:
My top five are not a point-in-time undertaking nor a project. They transcend individual, technical pieces of work and instead, relate to a way of doing things, every day of every week.
Contact us to explore how we can help you deliver exceptional outcomes for your members.
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Published on 31 October 2022.