On superannuation fund mergers, after the party poppers comes the hard work

By Michael Pennisi

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.

A takeover or a merger of equals?

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.

Three ways to bring funds together

There are three broad ways trustees can shape the operations of merged funds:

1. Takeover: Adopt the strategy, vision and business model of one of the funds. This is pragmatic but may overlook better options because rarely has one organisation got it completely right – and there was a reason for the merger in the first place.
2. Best of both worlds: Take the best parts of the value chain from each fund and build a “best of both worlds” model – a better approach.
3. Re-imagine what’s possible: Challenge every aspect of each fund’s operations, people and culture and rebuild from the ground up, agnostic of whether this comes from one of the original funds or from elsewhere. Get broad internal and external views – and challenge everything.

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.

Realising the business case is not always easy

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:

1. A clear vision, strategy, culture and purpose. No surprises here. These should be genuine, relatable, ambitious and understandable. Articulate each endlessly and role-model expected behaviours every day. To harness the passion of an organisation, people need to believe in the light on the hill and their leaders. An unrelenting focus on culture and purpose is the fuel that drives the engine – get this right and you can move mountains.
2. Think long-term but deliver to the short-term. Be clear about what must be done, why and by when, and how each part contributes to the whole. Getting everyone on the same page is essential. We’ve all seen projects that have multi-year timeframes where the scope changes and the project ebbs and flows. The longer the timeframe, the greater the risk of disappointment. Break up programs to a series of shorter-term, aligned deliverables and get early wins.
3. Articulate what success looks like. Then line up every decision, priority and action to achieve it. If a task or initiative does not directly align to the end game or is merely nice to have – stop it in its tracks, quickly. There is a time and place for second and third priorities, and you can go back to them later.
4. Surround yourself with the best people and resources. Empower and equip them to get on with the task and support them with practical and fit-for-purpose governance that exists solely to deliver the right outcomes in the right way. Deliver and measure outcomes, not effort, celebrate innovation and successes, and learn from mistakes.
5. When it gets difficult (and it will), get more determined. Challenge yourself and the naysayers who put forward barriers rather than solutions – but do it respectfully and transparently. Culture and expectations grow from every word and every action. Never forget the job at hand and the responsibility to the members who rely on you to fund their retirement.

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.