- On September 30, 2015
Investor financial literacy and education rank as two primary levers available to superannuation funds that seek to deepen engagement levels with members and improve a member’s retirement decision making and outcomes.
So it makes intuitive sense that quality financial advice services would help to underpin the way funds go about enhancing member outcomes.
Does financial advice add value in this way?
Recent research conducted by Rice Warner for State Street Global Advisors (SSGA) shows a positive correlation between those who are more financially savvy and who receive financial advice. They have an understanding of retirement products, confidence in meeting retirement goals and a lower reliance on the Age Pension.
In comparing the results between those who are advised against those that are not, advised members are substantially more confident in meeting their desired retirement goals and income.
For those who are already retired, a substantially greater proportion of advised people say that they have maintained their lifestyle into retirement, while one third report it has improved. Those who are advised are also much more likely to contribute extra to their superannuation and to have specific objectives. Therefore, they are able to see, together with an adviser, if they are on track or not.
This SSGA study was an important piece of work that also helped to further debunk the myth that a majority of Australians take their superannuation as a lump sum and spend it, relying instead on the Age Pension.
The SSGA research showed that fewer than one in five people plan to take their superannuation as a lump sum. In fact, of those who are retired, the survey showed that only 13 percent took their superannuation as a lump sum. Other studies by Rice Warner show similar results and the lump sums are often reinvested for retirement income.
However, what is clear is the lack of knowledge and understanding of even basic superannuation concepts, showing there is plenty of upside for quality advice to make a difference. For example, only one third of people understand superannuation basics such as whether or not they are able to contribute extra to their superannuation.
Australians need to better understand the benefits of advice, what it is, how much it costs, do they pay for fees out of their pocket or does it come out of their superannuation account, and how it can be delivered. Superannuation funds have a significant role to play here. The majority offer advice services to their members, some through in-house teams, others outsource, and some use hybrid models. However, due to a lack of promotion, targeted communications and messaging, there is substantial lack of awareness and take up by fund members.
It’s no surprise then that most superannuation funds are currently reviewing their advice models and how they position themselves for the future, considering issues such as resourcing (including advice partners), how members want to receive advice and through which channels.
With a projected increase in the take-up of advice by fund members over the next decade, the 16,000 to 18,000 practicing financial planners will not be able to service demand via face-to-face conversations. Digital advice, as well as phone-based advice will help solve the scale conundrum. It is here where superannuation funds are focusing on triaging and guiding members to the most appropriate advice channel.
Salvador Saiz, Senior Consultant