Australia’s industry fund movement may hold the key to delivering financial advice to the masses. Industry Super Australia (ISA) itself represents 15 individual super funds, including the country’s largest, AustralianSuper. In total, ISA’s industry super funds have more than $165 billion in funds under management and more than five million members.
Getting financial advice to these members would go a long way to closing the yawning gap between those who receive advice, and those who don’t.
It is estimated that only about 20 per cent of adult Australians currently use the services of financial planners, and a significant portion of the remaining 80 per cent are members of industry superannuation funds.
ISA funds aren’t the only not-for-profit super funds – a number of significant funds sit outside the ISA framework but are still classified as industry funds, meaning they don’t charge commissions, and return all profits to members.
According to Robbie Campo, ISA’s deputy chief executive: “Industry funds were created in the mid-1980s. We’re really about halfway to maturity. In about 20 years, the first generation of industry fund members will be retiring; that will mean more people who need advice.”
Industry super fund members have relatively low balances at retirement compared to members of retail funds – about $100,000 is the average – and the economics of getting advice to these members often don’t work for traditional financial planning approaches.
So industry funds have been quietly, but consistently, building in-house financial advice capabilities and forming strategic partnerships with like-minded fee-for-service planners.
Industry super funds have also developed their own financial planning services as a defensive measure for retaining members, and protecting them from being switched into higher-cost retail superannuation products.
An advertising campaign run by ISA in 2011 has been a long-running source of animosity for some financial planners. Many believe industry funds are anti-advice. According to Campo, they aren’t, and never have been – they are merely anti-conflicted remuneration.
“I think that, post-FoFA [Future of Financial Advice], there is quite a different relationship between advisers and super funds,” she says.
“The animosity and scepticism is diminishing, as there’s been recognition that actually, we’re very aligned in terms of wanting to create a professional framework for advice.”
A perception that the advice capabilities within industry funds were inferior to those of external planners was also part of this.
“We’ve always made sure that [our planners are] very highly qualified,” Campo says.
“You still need to meet the regulatory requirements, and we strongly support that. There’s a very high barrier.”
Against commissions in all forms
Though not formally involved in the formation of the Life Insurance Framework, ISA has been a vocal participant in the broader debate, and wants commissions to be banned entirely.
“We still have quite a strong position on insurance commissions, and really think that there should be dedicated work toward phasing them out entirely, [but] there would need to be a transition period,” Campo says.
She does not believe industry funds’ push into greater provision of advice is perpetuating another form of conflict between ISA and the broader advice community.
“I think the history of it was, funds moved into this [ISA] because most of the rest of the industry were still paying commissions,” she says.
“So in order to ensure that our members aren’t impacted by commissions, and because our funds don’t pay commissions [they moved]. But I think that, post-FoFA, it does create an environment where there’s a different relationship.”
Additionally, because of the sheer scale of members involved in industry funds, she believes partnerships with external financial planning practices are necessary and inevitable.
The industry fund flagship
AustralianSuper, the country’s largest superannuation fund and the flagship of ISA, is adopting a joint approach of digital engagement strategy and outsourced planning partnerships.
“Traditionally industry funds have had a very high level of disengagement, [largely because of] the default arrangements and the low average super account balances,” says Shawn Blackmore, group executive, member experience and advice, AustralianSuper.
“But we are starting to see, as people are in the system a bit longer, that’s starting to change from what it was 10 years ago, which in itself is helping create engagement.”
The sheer scale of AustralianSuper creates a serious challenge in seeking to make advice accessible to its more than two million members. Blackmore asks how they can possibly meet members’ demands for advice, “if they all rush to get it; that’s going to be the trick for us in a few years’ time”.
Recent figures indicate that in the 2014-15 financial year, 370,000 AustralianSuper members received online intra-fund advice and 14,100 took up phone advice.
The utilisation of face-to-face advice was considerably lower, with 3555 and 1150 members receiving in-house intra-fund and external intra-fund advice, respectively, from a planner.
AustralianSuper employs 20 advisers delivering phone-based intra-fund advice; and 20 planners and an education team of around 30 through its external advice service team.
In 2012, it also launched an external partnership program, calling for independent financial advisers who want to be part of its advice delivery.
“There was a lot of scepticism about whether there would be any interest, but we can’t keep up with demand from IFAs [independent financial advisers] who want to be part of it,” Blackmore says.
Contrary to the concerns some advisers may have about industry funds locking them out of a massive potential advice client base, this move wasn’t merely about referring members to pre-vetted planners.
Blackmore explains there are two clear groups among planners they work with: those who want to receive referrals from the fund, and those who already have a large number of existing AustralianSuper members as clients.
“That second part was something we didn’t have enough awareness of when we first started, but the numbers of industry fund members that already have a relationship with a non-aligned financial planner are quite high, and in many cases they want to retain their fund, but want to receive good quality advice,” he says.
“You roll that back even five years ago, and [the member] would generally have to change products [to get the financial advice].”
Blackmore says planners want the ability to access the fund and to get the basic servicing details right.
“Their environment is changing rather quickly, but the value they can add is through the provision of advice, not the provision of product, and that’s driving a different model for them, to be able to demonstrate the value they provide,” he says.
Breaking down the walls
“I think the barriers are coming down. When I look at what we’re trying to achieve…for the short term, we did try to limit the number of planning groups we were having relationships with,” Blackmore says.
However, this was during what he calls the greenfield stage, when AustralianSuper had to understand the level of service demand, “so we didn’t want to just
open it up and deal with everyone”.
This learning process has highlighted a number of other systems and processes it needed to implement, such as a web portal for advisers to access the relevant member details – something retail dealer groups have used for a long time.
“Now that we’ve got that in place…once we get the technology solution in place, we should be able to open up the channel to any adviser,” Blackmore says. “What we will look to do is ring-fence who we give referrals to, and to have deeper referral processes with certain groups…and one that is scalable.”
For AustralianSuper, he says the economics of building a big in-house team of planners just didn’t stack up.
“It just wasn’t a core business for us,” he says.
Instead, it will continue to build its internal intra-fund advice capabilities through the digital channel, while outsourcing advice for members wanting more complex, comprehensive financial advice.
“That’s the massive challenge. But we’re starting to see that starting to increase,” Blackmore says.
“A lot see advice as something only rich people get…for us, it’s more about engagement and help rather than advice.”
He believes digital technology will lower the entry point into advice – something AustralianSuper uses to help triage people through the advice proposition, and to cut out some of the inefficiencies.
Sunsuper is another big fund that’s focusing on building its access to digital advice, and also to external planners, instead of creating a large team of in-house financial advisers.
Anne Fuchs, Sunsuper’s national manager of retail distribution and advice, multiple channels, says: “We’re neutral in terms of which channel our members choose. All we want them to do is get advice.”
“We know people are materially and psychologically better off if they get advice,” she says.
“We’re working on our virtual advice. Robo-advice hasn’t come to fruition yet, but that will be a channel in the short term.”
Fuchs believes concerns about industry funds moving into greater provision of advice are understandable, but unwarranted.
“There’s always going to be a segment that, because of the historical goings on, will see it as a threat, but certainly, there’s been wonderful firms I’ve met at both the AFA [Association of Financial Advisers] and FPA [Financial Planning Association] that have become product neutral,” she says.
“They charge a fee for service, they act in clients’ best interests, they’re adopting behavioural finance et cetera.”
Sunsuper is one of a handful of industry funds to partner with the FPA in order to access Certified Financial Planner (CFP) accredited planners.
Cbus was one of the first super funds to roll out a similar program in mid-2014, followed by AustralianSuper and Sunsuper. However, Fuchs emphasises that the way Sunsuper has structured its national advice panel is quite different to the others.
“We have our memorandum of understanding with the FPA, but that’s really been something to ensure integrity as we established the national advice panel;
but we’re sourcing the firms directly,” she says.
“I’m responsible for this…I really need to eyeball the advisers myself, look at their FSGs [financial services guides], their offices…I’m not comfortable with a middle body taking on that responsibility; though that’s not a criticism of the FPA.”
Currently, with more than one million members, Sunsuper has access to planners from around 35 firms, with this number growing rapidly.
Digital disruption in super advice
Since retiring from Vanguard in 2010, Jeremy Duffield has focused on building what he believes is a better way of engaging with super fund members on retirement planning. SuperEd is a virtual advice platform that uses digital techniques to engage with pre- and post-retirement clients on what their prospects are likely to be, and to assist them with creating and implementing a plan.
Speaking about planners in this space, he says: “They need to look to digital to really change the economics of supply of advice…and look at it as a continuing journey, not just Statements of Advice.
“You’ve got to find a way to get the member engaged, to find a way to take them on a journey as they approach retirement.”
Duffield doesn’t believe industry funds’ expanding provision of financial advice poses a threat to financial planners who aren’t already part of the industry fund network.
“No, I don’t think the traditional financial planner is threatened,” he says. “I think there are plenty of opportunities to service the traditional high-net-worth clients they work with.”
Duffield believes the traditional ways of providing advice are simply not accessible to mass-market Australians, so different approaches and solutions
are needed.
“It’s not saying that more traditional ways of telephone-centred and face-to-face advice aren’t important,” he says. “It’s just that you’ve got to complement that with something that’s more cost-effective, and try to use it to make advice more cost-effective as well.”
