Pension Funds Focus on Maintaining Loyalties of Existing Customers
September 13, 1999
BUENOS AIRES - Five years after their inception, and while there are still some two million potential clients yet to be converted from the old state system, Argentine pension fund management companies (AFJPs) seem to have lost some of the aggressiveness that characterized their debuts. Instead, they appear to be concentrating their commercial strategies on developing the loyalties of the members they already have in their portfolios.
"Maintaining a client is much cheaper than looking for a new one to replace him, and the industry in general is on the verge of this objective," said Jose Aragone, manager of marketing at Consolidar AFJP. "Our goal as a business is to make a difference at the time in which service is received by the person."
"At present, the competition has centered on service to the affiliate, basically in the facilitation of the steps for retirement or pension and in specialized consulting, for which much work has been done in the training of salespeople in the different types of services," said Roberto Alonso, manager of institutional relations at Orgines.
The practice of persuading plan participants to transfer their assets to their company's funds, the most widely-used strategy for taking market share from competition, has been noticeably reduced thanks to recent regulations from the Superintendent of AFJPs which now obligate salespeople to make transactions in a branch office.
However, competition among the leading companies for market share has not lost its intensity. The most widely-used strategy in the last two years to grow has been the fusion or acquisition of AFJPs of smaller size, that were not able to reach the critical mass of clients necessary for the business to be profitable. Companies that have used this strategy include Maxima AFJP, which bought Patrimonio; Orgines, which absorbed Activa, Anticipar, Mas Vida, and Claridad; Consolidar, which ended up with Fecunda and is close to a deal with Previnter; and Siembra, that took possession of Dignitas and Ethika. After these transactions, these four AFJPs accounted for almost 70 percent of the market.
"Growth through adding members is difficult and very costly," said Aragone. "The mergers, on the other hand, offer an immediate magnitude."
Consolidar is the second largest retirement and pension fund company in number of members, behind Orgines, which, with a little more than 1.4 million clients, leads the market.
Gone are the days when each AFJP had an army of salespeople on the street to secure new clients. The very low ratio of contributors to members that the industry presently shows, on the order of 48 percent, has greatly reduced the margins of earning for the companies, causing a cutback in the sales forces. Individuals may be non-contributing members of plans if they have lost their jobs or if they, as independent workers, fail to make payments.
Before the start of the system, it had been foreseen that the business would have a floor of seven or eight paying contributors for every 10 workers affiliated with the fund, AFJP managers said. The fact that this ratio has become so low - 45 percent have stopped paying - precludes the possibility of reducing commissions or management fees that shareholders pay, managers said.
This reducing of commissions was an alternative that, according to the initial plans, would be one of the central arenas of competition among the management companies. The average cost of the system for members is still 3.5 percent of his monthly salary.
"In a market with more reasonable deliquency levels, this would be an important factor of differentiation," Alonso said.
Tom Ciampi is the editor of Latin Fund Management, an SDP publication based in Buenos Aires covering the asset management business in Latin America.