The public sector and corporate fund segments both have higher average account balances and more mature membership structures, which explains the higher demand for advice in these segments. In dollar terms the proportions are even higher, due to the higher average account balances.

A threat to business?

Although industry funds do have some members with substantial account balances, the bulk of accounts are relatively small. Figures from APRA show that at June 30, 2010, the average account balance for the industry fund segment was $19,600 ($55,200 for public sector funds and $90,800 for corporate funds). Even for members above age 65 the average account balance was only $75,700.

The demand for advice is therefore driven mainly by questions relating to co-contributions, insurance adequacy and investment choice. Our research into industry fund advice patterns indicates that a surprisingly low number of enquiries actually make it through the process to either a formal Statement of Advice or a referral to a financial planner for full advice. The process is mainly one of education and general advice to help the member reach a decision on a single, isolated question.

In the case of retirement planning, more funds are realising that even members with a relatively low retirement benefit (such as the $75,700 average quoted earlier) need assistance to help maximise their age pension and social security entitlements, rather than detailed investment advice.

In all of these cases, there is a clear demand for services that are best delivered on a low or nil-fee basis. It would be difficult for a professional full-service planner to build a commercially viable business around these mostly low-value transactions.

Trail commissions by another name?

Should the cost of advice be disclosed separately, where a fund is charging all members for a service that may only be used by some?

As indicated above, there is clearly a need for low-cost advice to help members make simple decisions relating to contributions, rollovers et cetera. Given the historically vocal position of industry funds regarding trail commissions, they can expect equally vocal criticism if intra-fund advice starts to creep away from servicing members to become focused on retention, product distribution and business development.

However, is intra-fund advice substantially different to a general call centre service or fund website that is only used by some members, but paid for by all? If so, industry funds would be justified in maintaining the cross-subsidies, as the services are available at any time for members when they do need them.

We consider there is a need for more public debate and education to understand the ramifications of providing advice and charging in different ways.

Bill Buttler is a director of Rice Warner Actuaries – www.ricewarner.com

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