Following the Australian Prudential Regulation Authority’s (APRA) recent paper on ‘Delivering member outcomes into the future’, operational efficiency is emerging as a key challenge for the investment industry. At this year’s 12th Fund Summit, delegates ranked “operational efficiency through automation and AI” as their top strategic priority for 2026. A subsequent poll found that “process automation / efficiency” was the main objective of current transformation projects (55 per cent) ahead of enabling data and analytics (33 per cent) and enhancing member/client experience (13 per cent).
The timing is no coincidence. APRA’s analysis highlights an increasingly complex operating environment, marked by rising cyber security threats, data governance challenges and mounting cost pressures. The regulator’s message is that superannuation trustees must invest in the systems, skills and governance required to manage risk effectively, but that they must do so efficiently, so as to avoid putting unnecessary upward pressure on member fees.
The efficiency equation
In a notable development, the regulator has introduced an operational efficiency metric that measures administration and operating expenses (AOE) relative to fund assets. The logic is simple: the larger the fund, the greater its proportional spending capacity. Applying that metric, APRA subsequently found that while the data shows overall improvement across the sector, roughly a quarter of funds remain higher-cost outliers.
In addition to operational metrics, APRA has also introduced growth and competitive positioning metrics, based on cash flow ratios, member growth and rollover activity.
Not surprisingly, funds that fail to perform on these metrics are encouraged to ‘actively consider whether members would be better served by another fund or a merger of funds.’
Scale isn’t everything
The question whether scale is the key to driving greater member outcomes remains the subject of debate, however. In theory, the logic is fairly straightforward. Larger funds tend to benefit from economies of scale, greater technology investment and broader diversification. Yet, as was pointed out by speakers at this year’s Fund Summit, the advantages of size can also be undermined by ‘operational sprawl’. As organisations grow, claims processing, insurance administration and other core member services risk becoming slower and more complex, diluting the very efficiencies consolidation seeks to achieve.
As one panelist noted: “We’ve seen examples in the superannuation industry where some of the larger players have been caught out on certain challenges, with death benefits, claims processing, those kinds of issues. Those experiences suggest that bigger doesn’t necessarily mean better, in fact it probably creates a higher hurdle to achieving the same delivery of net outcomes that you were able to achieve before.”
Growth in scale also raises questions about investment capacity. With limited domestic investment opportunities, more funds are looking offshore while many are also internalising investment capabilities in an effort to add value and save on fees. Both options demand more complex operating models – spanning multiple jurisdictions, regulations and technology systems, which – at least in the short term – require a level of upfront investment that needs to be matched against member returns. The question then becomes, how long and deep a J-curve can superannuation funds sustain, before “members’ best financial interest” is negatively impacted.
As one conference participant noted: “Are we able to justify the delivery of those member outcomes? What does our strategic planning process look like? How confident are we that these benefits will be delivered? They’re all big challenges and there’s no one easy answer.”
Ultimately, the tension between size, service and the cost of achieving efficiencies is what will shape the next wave of mergers. Forecasts suggest the super landscape could eventually consolidate into a handful of ‘mega-funds’ supported by niche, specialised providers, but the sector’s challenge is to ensure that all these funds – large or small – will also become better: more agile, data-driven and member-focused.
Efficiency is key
The upfront investment in systems and processes required to expand efficiently is not the only challenge facing the investment industry.
A second challenge, which was also debated, is the need to ensure that operating models and risk management processes can keep up with new developments in technology. Indeed, for all the industry focus on ‘adaptive operating models’, few organisations have actually achieved this challenge.
An audience poll found that 50 per cent of participants described their current models as ‘somewhat adaptive – able to evolve, but only with effort’. Thirty-two per cent said that every change required major work, while just 18 per cent were able to reconfigure quickly.
Similarly, keeping up with the risk side of things remains a challenge, particularly where AI-related disruptions are concerned. Just 21 per cent of participants said their resilience was ‘strong and proactive’. Sixty per cent said their firms’ resilience was ‘moderate but improving’ and 19 per cent said they were ‘reactive and exposed.’
What sets successful firms apart, the conference found, is execution. The firms that thrive combine strong business ownership, empowered cross functional teams and modular operating model architectures that can evolve with technology. They invest in people, not just platforms, and treat transformation as a continuous process.
