Australians who have an active relationship with a financial adviser are better off. They worry about money less, enjoy better mental health, and have better personal relationships with family and friends. And they are wealthier. They are able to spend more and do more with less risk along the way.
In January this year we conducted a survey of 882 people living in retirement and we found those who have an active relationship with a financial planner feel more prepared to deal with the unexpected, are more confident with their financial decisions and are more likely to feel satisfied with their life in retirement.
The trouble is, an emerging advice gap is keeping professional holistic financial advice out of the reach of most Australians. While consumer demand for advice is increasing, the supply of services is decreasing.
With adverse changes to the economics of advice and higher education and professional standards bearing down, financial advisers are fleeing the industry and not being replaced. According to ASIC’s Financial Adviser Register, active adviser numbers have fallen 24 per cent to the end of July 2020. There were fewer than 80 new industry entrants in the 12 months to end April 2020.
Those who remain are jostling for position to make the most of the opportunities. Adviser appetite for innovation has reached unprecedented levels as practices corporatise and invest in technology to reduce costs to serve. We are seeing new ‘platform-up’ businesses emerge that are seeking to make the most of scaled advice processes by providing low cost, accessible advice.
And advice doesn’t get lower priced or more accessible than intra-fund advice provided by super funds to their members.
The important role of super
When it comes to their super, most members want to engage on their terms. Super funds know that they are only relevant to the extent that they can help the member solve a problem at a particular point in time.
The first place members reach out to when they have questions about their super account is their super fund. Most of their questions are administrative in nature, but sometimes they stray into the realms of financial product advice. Questions are asked like, ‘Do I have enough insurance?’ or ‘Am I in the right investment option?’
Super funds need a mechanism to have sensible conversations with their members. Members don’t care about the Corporations Act and its requirements for the provision of personal advice. They want solutions to their problems.
That is the utility of the intra-fund advice mechanism. It is a way for super funds to efficiently help their members solve the basic questions they have about their existing super accounts. It serves an important social function by helping people feel more organised and to grow in confidence. In turn, members become increasingly likely to engage in their financial decisions, they feel more prepared and their confidence grows even further.
Not all advice is the same
But when it comes to more complex decisions, members expect more of super fund advisers than the intra-fund restrictions allow.
Consumers expect an adviser to consider more than just their super account. They expect advisers to consider their broader circumstances and the suitability of their existing investments compared to alternatives.
According to CoreData’s Trust in Financial Services survey of 579 super fund members conducted in December 2019, more than three in four members would expect an adviser employed by their super fund to give advice on more than just their super.
Three in four would also expect an adviser employed by their super fund to recommend an alternative super fund to them if the adviser considered it better than their current fund.
As we know, the restrictions on intra-fund advice do not allow the adviser to consider the client’s broader circumstances or advise on alternative products.
Intra-fund advice may meet the legal definition of personal advice, but it certainly doesn’t meet the consumer’s definition of advice.
Consumers expect a structural separation between advice and products. Intra-fund advice serves an important social function by enabling questions to be answered about super accounts. But it is no substitute for professional personal advice, and we need to remember that as we make our plans for the future of advice.