The government’s plans to push superannuation funds and schemes to offer retirement income solutions could spawn intra-fund strategies that test the existing boundaries of advice and guidance, an industry discussion has revealed.

A group of superannuation funds within the country’s largest by assets raised the possibility that proper retirement solutions fit uncomfortably with the existing advice and guidance frameworks at Investment Magazine’s recent Retirement Conference.

Funds currently take a conservative approach to the provision of intra fund advice because what constitutes financial advice is not clearly defined, but the work being done by policy makers and the funds themselves to clear the way for the government’s Retirement Income Covenant will likely open new pathways for advice within super, the conference delegates heard.

“As we get more data about our customers and members, a fundamental question for me is to what extent are nudges advice,” said Damian Hill (main picture), chief executive of Commonwealth Superannuation Corporation, the country’s largest provider of superannuation and pension plans in the government sector.

CSC has been building its thinking and capability in advance of the Retirement Income Covenant in its investment solutions team, Hill told the room of 60-plus people, which included representatives from the largest 13 funds, a handful of service providers, academics, regulators and policy makers at the UN-style meeting in Canberra in mid-June (pictured below).

A big point of discussion internally at CSC revolves around the behavioural perspective and using guidance and advice as part of the retirement solution for members, Hill continued. CSC will look to use data from the behaviors of its defined benefit clients to better understand the needs and behaviors of its soon to retire accumulation clients, Hill said.

“As the super industry gathers more of this data, it might limit or push funds down a particular path, the question then becomes how is that data used and how potentially might funds need to limit their use of data so they don’t fall foul of the regulatory environment,” he added.

“What’s the right balance here because I think we are going into a very different world and we are more heterogenous in post-retirement world. The nudges are going to be more important if we want a default system of type the Retirement Income Covenant is pushing us towards,” Hill commented.

Data acceleration

Numerous funds are undertaking data projects like CSC to better understand members as the Retirement Income Covenant draws nearer to implementation on July 1 next year; these kinds of projects are being encouraged by Minister Jane Hume who said she will be actively engaged with the superannuation industry in coming months as legislation in this area is formed.

“The covenant will only work if trustees get to know their membership base and the diverse situations of their member cohorts creating tailored strategies for their needs, giving their money back thoughtfully when it’s time to do so,” Hume said during her prepared remarks to close the conference.

Aware Super has recently embarked on a new data strategy to try and move the fund towards having a household view of its membership base, a project that will feed into its approach to intra fund advice and guidance, Jacki Ellis, Aware’s portfolio manager of retirement strategies, described.

“Advice is really critical and can deliver real value to our members, which is why we have a significant advice presence to service the individual advice needs of our membership,” Ellis noted.

Aware’s ownership of StatePlus puts it among the largest owners of advice in the super fund industry.

“We also need to develop ways to help nudge and guide our members, given the large number who are likely to retire within the next 5-10 years,” she added.

“As an industry we certainly need to build better retirement products, but we need to be building those products in parallel to building a informed understanding of our members, so that we can help them make good decisions and enjoy their best possible retirement. For a fund of our size, being able to do this effectively at scale is key,” Ellis said.

Room to move

Guidance is definitely an area that superannuation funds have had to grapple with, Deborah Ralston (pictured, below), a professorial fellow at Monash University who was one of three members on the panel of the Retirement Income Review, commented.

Ralston made the point that super funds could possibly push the boundaries further with the guidance they provide through the provision of intra fund advice without stepping into personal advice definitions.

The Retirement Income Review outlined a list of things which are called guidance in intra fund advice and they’re specific and they’re things like retirement income forecasts, pension estimates and so on, she explained.

The RIR outlined that guidance can be provided on age pension entitlements, financial position and debts and assets, how and when to pay down debt, likely future living expenses and retirement income needs.

“A lot of what’s outlined is broader than what funds are doing right now and it seems to me there is a lot of confusion about what’s general advice and what’s not,” Ralston said.

Ralston also noted that the definition of what constitutes financial advice is not always clear, and this ambiguity may explain funds’ reluctance to offer guidance – a point that was also stated in the RIR.

The recent High Court ruling against Westpac for the provision of personal advice to members of a fund under a general advice strategy was not raised during the conference but surely plays on the minds of trustee boards considering more progressive intra-fund strategies.

Ripe for fintech

Funds need to think outside the box when it comes to their advice and guidance strategies, Pamela Hanrahan, professor of commercial law and regulation at UNSW’s Business School, said.

“Superannuation funds should start by thinking about what digital advice or support they need to provide for a 50 to 70 year age group would look like and design for that before worrying about what the specific regulatory settings are for that,” she said.

“Once you can demonstrate you can give people meaningful guidance and support using that technology and then test it against existing data sets, the next steps is identifying where is the risk in that delivery model that requires a regulatory intervention … and then let that drive the regulatory response rather that start with the existing regulatory framework and trying to fit within that,” she said.

Ralston added: “I think the potential for digital advice within superannuation is enormous and I think to get there funds have to be thinking about guidance in the right way.”

“Guidance is something that members have to receive through accumulation and into the retirement phase, it’s not something that starts at the retirement phase,” Ralston said.

Australian Labor Party shadow financial services minister Stephen Jones MP (pictured, below) used his prepared remarks on the day to point out problems the advice industry collected during its ownership by the banks and urged vigilance as the superannuation industry forges its own pathways into advice.

“We have to be careful we don’t recreate a model in seeking to provide advice that was generally available. So we need, not just one model but many models of advice, which provides access to advice at particular times they need it,” Jones said.

“The great problem we’ve got is that never have Australians been retiring with more wealth and never have they had greater need for professional advice that is 100 per cent focused on the interests of the person who is receiving the advice and not on the remuneration model that is attached to the product being sold,” he said.

“Never has there been a greater need for that but never has it been more difficult for middle income earners and lower income earner to afford advice and we desperately need to address that,” Jones said.

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