In each of the past three years (up until the end of November 2015, anyway) members of superannuation funds switched about $35 billion between funds – either from industry funds to retail or self-managed super funds (SMSFs), from SMSFs to industry or retail funds, or from retail funds to industry funds or SMSFs.
A total of more than $100 billion switched during the 36-month period. In the scheme of things, that’s a fairly small amount – it’s a fraction each year of the $2 trillion that the Australian Prudential Regulation Authority said was invested in super funds as at September 30, 2015.
Even so, in absolute terms, it’s not an amount to be sneezed at. Who would turn down an opportunity to provide advice on $100 billion of FUM?
However, the concerning fact for the financial planning industry is that barely a quarter of the people who switched funds sought advice first.
Roy Morgan Research data released this week paints a picture for financial planners, and sheds some light on the competitive issues facing practitioners.
Planners aren’t in the picture
Put bluntly, when it comes to making decisions on superannuation, financial planners still really aren’t in the picture for a lot of people.
Superannuation fund members represent a reasonably broad cross-section of the community. Only about 26 per cent of them sought financial planning advice before they switched – and that’s a figure that’s below the oft-quoted (but not often well-sourced) estimate that two out of every five adult Australians use the services of a financial planner.
What makes the 26 per cent figure even more concerning is that these are people who – presumably – are engaged with their superannuation at least enough to have decided to move from one fund to another. Yet with such a financial decision to make, they’re still clearly not convinced by the value proposition of the financial planning industry.
The industry has to ask itself: why not? Some of the answers are cliched and mistaken: financial planners are product salespeople; some of them are crooks; you need to have a lot of money before it’s worth seeing a financial planner; they’ll do what’s better for them than for me; et cetera.
Whatever the reason, the message about the benefits of professional advice isn’t getting through – at least, it’s not getting through equally well to all segments of the superannuation market.
Propensity to seek advice
The Roy Morgan Research data shows there is still a big difference in the propensity to seek advice, depending on the type of fund in question. People switching to SMSFs were about five times more likely to seek professional advice from a financial planner, an adviser or (for the time being) an accountant than were people switching to or between industry funds; but even among SMSF switchers, about 15 per cent of people sought no advice at all, and a roughly equivalent number sought advice from family and friends.
People switching to a retail fund were about three times more likely to seek advice than people switching to or between industry funds, but still about a quarter of these people sought no advice at all, and another 10 per cent consulted family and friends in preference to an adviser.
Roy Morgan’s industry communications director Norman Morris said in a statement that “given the complex nature of superannuation, the lack of consumer engagement, poor understanding and low confidence in the system, it is vital that more people get advice when making decisions about switching their fund”.
It’s hard to argue with that – the benefits of receiving good financial advice have been well documented over the years. People who receive advice tend to stick to a plan better than people who don’t receive advice, and therefore have a better chance of achieving their financial goals; and there’s growing evidence that good financial advice can have far wider benefits for an individual’s overall wellbeing.
Morris said the negative image of planners is “potentially a barrier to more switchers choosing to use them”.
Addressing perceptions
“Issues relating to conflict of interest and professional qualifications of planners are likely to take some time to improve, but the industry is taking measures to address perceptions in these areas,” he said. Some of those steps will be put in place over the course of 2016. Still, it doesn’t necessarily reflect well on an industry when higher professional and ethical standards have to be set by government, rather than being self-generated.
Morris said that with the amount of money being switched between funds every year, the financial planning industry has a great opportunity to extend its reach to more people.
But he added that ensuring that people “realise they’d generally be better off getting advice, and that they can feel confident in their adviser” is a challenge for the industry.
And based on the latest figures, apparently it remains quite a big challenge.
