The baby boomer generation is retiring. As this happens, the life savings of about one million industry fund members will be at stake, says Kay Thawley, CEO of Industry Fund Services (IFS). This is because the financial advice and investment options that funds currently offer to people close to or entering retirement are inadequate. Thawley says they should be offered advice that recognises their complete financial situations – such as housing debt, dependants and non-super investments – not just their super balance. “The absence of that service in Australia is a great tragedy and people out there are suffering,” she says. Filling this void is one of the reasons Thawley joined IFS from NAB in early 2010. Being nearly 50 years of age, she has known people whose savings have stagnated or fallen after receiving poor or inadequate advice. “It’s hugely motivating to have the opportunity to do something worthwhile,” Thawley says.
IFS plays many roles for its stakeholders. It manages the $1.2-billion AUSfund, which aims to connect lost super balances with their owners, and is developing investment products, run by Industry Funds Management and advised by Frontier Investment Consulting, to offer to members. But its major new initiative will be embedding more options into the advice services provided by its advice arm, Industry Funds Financial Planning (IFFP), Thawley says. The financial crisis of 2008 exposed a glaring weakness of the superannuation system. Markets crashed as some fund members were preparing for or entering retirement. Savings diminished when they were needed most and many people were unable able to recoup losses by resuming work. Gains made through the accumulation years were largely lost. Much of the blame for this lies with the dearth of comprehensive financial advice services for retiring fund members with low and average balances, Thawley says. “Australians don’t fit into 10 risk profiles,” she says, illustrating industry funds’ inability to recognise the individual circumstances of members. This realisation is even echoing throughout the CBD offices of service providers to super funds.
“Until you discover individuals’ specific circumstances and spending patterns it’s very difficult to build a bespoke solution,” says John Wilson, domestic CEO of global bond manager PIMCO, says. “Do we want to gamble on the wellbeing of people based on a set of averages?” Greg Cooper, CEO of Schroder Investment Management in Australia, says the concept of an average person is outright wrong. “Individuals get different outcomes to the average,” Cooper says. But a common phenomenon among members is that they earn most of their investment returns towards the end of their working lives. This is when the amount of money at work is at its greatest. It is also when they are most vulnerable to the risk of capital loss. “The order in which we receive returns matters enormously,” Cooper says. A fund may perform well over a long time frame but this does not matter to members who begin to draw on their savings during or after a period of bad performance. Twenty-year returns are meaningless for someone retiring halfway through that period, he says. “It’s about the rate of return an individual earns, not the rate of return a fund or strategy earns.”