Data collection and protection: the big sleeping problem for supers
It’s been over a decade since the First State Super (now Aware) was embroiled in a data breach issue, but, whichever way you look at it, data management is increasingly an issue. leaders who influence the industry’s strategic decisions in the future.
Some in the industry dismiss it as yesterday’s story thanks in part to outsourced administration to Link et al, but Andrew Boal of Deloitte, among others, sees data as a big underlying problem.
Cybersecurity in particular, following the First State issue, is obviously still in focus.
In 2012, the Privacy Commissioner found that First State breached national privacy principles for failing to take reasonable steps to protect member data on its website.
Alarm bells are ringing
No fines were issued in part because of the fund’s quick responses, but alarm bells for the rest of the industry were ringing loud and clear.
AustralianSuper, for example, now stores members’ data in the cloud and, to solve the problem no doubt, issues a disclaimer on members’ emails saying: “AustralianSuper will never ask you for your personal details or link you to a login page”.
The digital age has highlighted the benefits for all businesses of making better use of the data they collect in the normal course of their business.
But there are plenty of issues facing the super industry this year, including APRA’s My Super benchmark tests which, for follow-up failures, effectively mean handing over the keys to the shop.
Then there is the extension of the benchmarks to products of choice, scale and best member performance in interest, retirement income policies and the upcoming review of financial advice.
The My Super APRA benchmarks obviously loom large for the funds involved, but strategically the decisions that will decide who clears the benchmarks have already been made.
Key strategic value
For those who survive, collecting and managing data is of key strategic value.
Digital giants like Google, Amazon, Meta and Apple are basing their business future on their ability to collect and make the best use of customer data. The same game applies to the retirement pension.
The recently enacted retirement income covenant has further underscored the need for funds to have better member data.
Others point out that the best financial interest rules also require better use of data so the fund knows what members need.
SuperRatings’ Kirby Rappel acknowledged the concern but noted: ‘Funds in general are much better with their data management [than they were]”.
One way or another, the sustainable performance of fund administration will depend on the quality of data available to the fund and how it is used. The starting point, however, is that the more data you have, the more effort you need to put into protecting it.
Investment performance is clearly paramount and funds will soon have to disclose more details about the assets they own. But it’s in administration where data is key, starting with whether funds should follow AustralianSuper’s lead and store member data in the cloud.
Insurance data is a whole new area of concern and a potential competitive advantage.
Three years ago, APRA raised the bar saying it would “improve, the breadth, depth and quality” of the data it collects and when the regulator talks about improving its data, that means that you have to raise your own standards.
JANA’s John Coombe said that on a more basic level, for some funds just knowing who is an active member is a challenge due to the huge turnover of members and their locations.
Luke Barrett of UniSuper says the commitment problem is solved over time as members get closer to retirement or fund balances reach a point where they become attractive.
The reality is that for the majority of members, superannuation is a “set and forget mechanism” until the commitment lifts.
“A Fraudster’s Dream”
Obviously, funds want more engaged members for the simple reason that it’s easier to design products for people who care.
APRA’s mandate is clear: “It is essential that licensees, regulators, members and other interested stakeholders of the Registerable Superannuation Entity (RSE) have access to consistent and high quality to assess industry performance and outcomes for superannuation members”.
The flip side, he warned, is that superannuation is “a fraudster’s dream, including full names, addresses, email addresses, membership number, age, insurance information, superannuation amount, fund allocations, beneficiaries and employer information”.
When funds design retirement income products, the more information they have the better, including spousal income, other assets, tax records and bank accounts.
On another level, Treasurer Josh Frydenberg and Superannuation Minister Jane Hume have made it clear that superannuation is next in line for Consumer Data Right (CDR).
CDR enshrines consumer access to their data which can be shared with third parties to access better deals. This means better comparisons can be made across different products and services to help consumers better manage their own finances.
This year it’s rolling out from banks to telcos and energy companies, but in a statement last year they noted that “open finance” will follow “open banking.”
Compare and save
The ministers said in a statement: “Open finance will allow consumers to compare and save on a wider range of financial products covering not only banking but also general insurance, pensions, merchant acquiring and non-bank lending service providers”.
They added: “This paves the way for the creation of innovative new services such as personal finance and life administration apps to reduce the time, cost and complexity of everyday tasks and big financial decisions for people. Combining open financial data sets with banking transaction data can also provide consumers with a more holistic picture of their financial situation, which is kept in one place.
The goal is to get people to switch providers, which in theory will encourage competition through better products and services.
Investment performance may be the ultimate benchmark, but part of that depends on cost.
The riddle of advice
In the coming weeks, the federal government is due to release the final terms of the financial advice investigation, including who will lead the review.
The aim is to establish the best path to affordable and accessible quality advice and, again, data holds the key.
CDR allows consumers to easily consolidate all of their financial information into one note to submit to an advisor, significantly reducing costs and increasing transparency.
A wave of new rules for the industry carries with it an underlying competitive message: better data management contributes to the sustainable performance of members.