Receiving financial advice is a critical factor in addressing the issue of adequacy of retirement savings and confidence in the superannuation system, according to new research published by State Street Global Advisors.
The Australian Retirement Vision Survey, published this week, shows there is a link between receiving financial advice and confidence in achieving retirement objectives. It shows that people who receive financial advice are more likely to have specific retirement targets in the first place, such as a retirement date or a level of income in retirement.
The research has found that confidence in financial planners depends greatly on whether the individual has had received advice or not.
“One of the things that struck me was we asked respondents how confident they were that a financial planner would be valuable in helping them to achieve their goals,” says Jonathan Shead, head of portfolio strategists for Asia Pacific for SSGA.
“If you split respondents up between advised and non-advised you get some very, very different results.
“People who have received advice seem to be, by and large, very confident in the advice that planners provide.
“That is at odds with some of the press and the incidences of advice that we’ve seen in recent years.
“If you look at the percentage of people who are confident or extremely confident that a financial planner will be valuable in providing advice, [among] people who are advised it’s 60 per cent and [among] those who are not advised its 11 or 12 per cent.”
Benefits of advice
Shead says the benefits of financial advice “come through in multiple areas” of the research.
For example, says Dan Farley, chief investment officer of SSGA’s Investment Solutions Group, people who receive advice are more likely to take on the investment risk they need to manage the competing risks of inflation, longevity and the sequencing of investment returns in the lead-up and to and the early years of retirement.
“When you look beyond the questions around being concerned on the legislative side of it, another area of concern people have is longevity risk,” Farley says.
“Roughly one-third are concerned and another 25 per cent are very concerned about not having enough retirement savings to live the life they want to.
“When you look at the return challenges that folks have, there’s a juxtaposition between managing inflation risk and longevity risk, and managing sequencing risk.”
Farley says the report supports the idea of that financial advice leads to higher confidence levels and potentially better retirement outcomes, but “the corollary to that is there’s people who need advice, who aren’t getting it”.
“How do we identify ways to deliver across the wealth scale something that is meaningful, and scalable?” Farley says.
Can do better
Shead says the report shows that the system is working reasonably well for unadvised fund members, but “I think it can do better”.
“We have moved to a point where superannuation is virtually universal, and one of the really encouraging things from this report is when you ask people what they intend to do with their superannuation benefit we had a very strong response to say I will use it for an allocated pension or an annuity or [other] income stream,” Shead says.
However, Shead adds that the shift in mindset from lump sum to income “hasn’t been uniform, and there are still segments who don’t really understand what superannuation is for”.
Shead says the concern revealed in the survey about uncertainty over ongoing regulatory changes to superannuation is “valid, but the superannuation sector is not the only sector that has to deal with change”.
He says another benefit of advice is to help people “navigate that change with out the sense of fear” that can be experienced by people who do not receive advice.
The Australian Retirement Vision Survey is based on 1200 responses from members of super funds regulated by the Australian Prudential Regulation Authority (APRA). About 200 of the respondents were aged between 22 and 44. The research was commissioned by SSGA and conducted by Rice Warner.
