Super funds have been rolling out low or no cost retirement preparation advice in the hope of funnelling disengaged members through to higher value members over the coming years.
After a number of hiccups getting Tranche 1 of the Delivering Better Financial Outcomes legislation passed, super funds are on tenterhooks waiting for the second tranche to be rolled out.
The move follows Quality of Advice Review recommendations that super funds step in to be the primary source of financial advice for fund members, resulting in funds plotting a path into the advice sector.
In the meantime, the challenge lies in delivering simplified advice at little or no cost to some members and more complex advice to others seeking help from their fund to create a more comprehensive retirement plan.
Research by Investment Trends shows that 12.6 million (61 per cent) of Australians have unmet financial advice needs.
Meanwhile, despite being the first generation to enter the workforce with compulsory superannuation from day one of their working lives, research from ASIC reveals that nearly half (48 per cent) of surveyed millennials admit they don’t know how to maximise their super.
RMIT associate professor of finance Angel Zhong says the industry needs a considerable overhaul of the language used by super funds, with terms like ‘retirement planning’ and ‘pensions’ failing to resonate with a generation more focused on immediate financial goals amid a cost-of-living crisis.
“From an investor psychology standpoint, when we are consumers see complicated things, our attention is shifted because we only have so much mental bandwidth,” Zhong says.
“Super funds need to avoid jargon and use relatable examples so people can proactively engage.”
SuperRatings insights manager Joshua Lowen says funds have moved away from providing more complex advice as it often doesn’t make sense for a fund to do this given the costs involved given the small number of members seeking this service.
Instead, many funds are increasing the amount of help and guidance they make available, with more education and general advice through webinars and seminars.
Funds are also investing in third party financial advisers through additional servicing, digital portals and facilitating external advice fee payments from member balances, Lowen says.
“There are still a handful of funds with membership demographics that mean providing comprehensive, complex advice themselves makes sense and from those funds, we are seeing a commitment to providing the full range of advice to members,” Lowen says.
As funds wait for the second tranche of legislation to be passed, preparations are underway as funds contemplate how to improve their data capabilities to support ‘nudging’ once its available as well as reviewing the design of their advice services to allow for qualified advisers in the future.
“A key part of this will be their advice offering and how advice supports better retirement outcomes,” Lowen says.
“However, funds will be seeking ways to ensure their decumulation phase offering is of the same standard members have become accustomed to from the accumulation phase. The costs involved are difficult to determine, but almost all funds are investing time and energy into their advice offering.”
However, Lowen says this expansion of advice is broader than the traditional advice services offered, given the need to educate and guide members.
“We’ve seen some renewed interest in digital advice offerings, although members still tend to want advice from a person, with technology playing a supporting role in efficiency,” Lowen says.
“Funds are also investing in data and analytics to support identifying members most in need of advice.”
Key considerations include determining what level of advice service members actually need, if improvements should be added incrementally or via a larger overhaul of services, and how advice provided by the fund will complement and support advice provided by third party advisers, he says.
“Funds also need to consider if their systems are capable of delivering the required data about members to advice providers as this will be crucial to ensuring efficient delivering of advice in the future,” Lowen says.
