Industry funds struggling to get to grips with increasingly complex new retirement income products should collaborate with the broader advice community for help in matching products to retiring members’ needs.
Chant West general manager Ian Fryer told the Professional Planner Researcher Forum that while industry funds are “good at the easy stuff”, such as accumulation due to default options, “they’re not very good at hard stuff”, including assessing and using complex retirement products.
As there is no default option when a member reaches retirement “the outcomes that you get from a range of different choices is going to vary so widely, because the drivers of different optimal outcomes are so varied”, Fryer said.
The largely homogeneous accumulation environment, which suits big providers working at scale, is slowly moving to something more heterogeneous as more members retire. Super funds have competing priorities and it is difficult to make retirement number one, but Fryer said retirees without advisers will have “very little guidance” and few funds provide intra-fund advice for less than an estimated fee of $5000.
“In the absence of that, I think they’re getting nothing,” Fryer said.
Morningstar Australasia director of manager research ratings Matt Olsen said heterogeneous retirement income offerings take different approaches, and funds will not know which product will work best for a member. Consequently, funds need to tap into the expertise of advisers.
“One of the main things [is] we really need to collaborate,” Olsen said.
“We really need more advisers. Any of those policy responses to getting more advice in the hands of retirees is going to be very helpful.”
Fryer agreed and said “the key to the retirement puzzle is advice”, due to the shift to heterogeneous offerings.
“If you can have heterogeneous [offerings] how do you do that without…someone from a fund or an adviser looking at a particular individual situation and saying, for you, this is what we recommend?”
However, the complexity of retirement products means the broader advice community struggles to compare the various available offers on the market.
“We need to have products that might be complex under the hood, but intuitively they make sense,” Fryer said.
“The requirements of advisers [are] going to go up in terms of their knowledge and level [of] sophistication, but hopefully we’ve got product providers who can help them with that.”
The Conexus Institute* executive director David Bell told the forum there is going to have to be an “uplift in advice processes” among super funds and it will be “systems-led”.
Advisers have “got to become experts, explaining some of those things and framing them up in a way that gives their client comfort to adopt the [financial] plan,” Bell said.
Furthermore, because each product is different a potentially more challenging aspect is how the adviser chooses which particular product to use. Fryer questioned how advisers can know what the best product is for their retiring client.
Olsen said advisers, in choosing a product, might want to “look at the ability of the provider to continue paying out what they’re promising, and whether there’s adequate capital there, and…the skill and experience of the teams implementing it”.
Bell agreed that comparing products presents a major challenge to advisers, in addition to the products’ complexity.
“A real challenge for the research community will be to say, well, how are we going to compare these products and their features and so forth and provide good guidance down to our end users, which is advisers,” Bell said.
Fryer suggested licensees could have a role to play in the introduction of new retirement products. He told the forum there was “a lot of work that licensees could do with their advisers to show them how these products can work and set expectations”.
All the panellists agreed a new wave of retirees is fast approaching and it was the right time for advisers and super funds to be learning more about and considering retirement products.
“If there’s ever going to be a right time, it’s now,” Fryer said.
*The Conexus Institute is an independent superannuation think-tank philanthropically funded by Conexus Financial, publisher of Professional Planner.
