A new paper released by The Conexus Institute and co-authored by one of Hayne’s royal commission advisers proposes the introduction of a low-cost, standardised modelling tool that provides access to retirement planning but sits outside the current regulatory parameters.
The proposal, put forward by the institute’s David Bell and UNSW Business School professor Pamela Hanrahan, suggests a tool – initially rolled out via APRA-regulated funds and registered financial advisers – that takes client data, maps the available products and produces a “retirement transition support plan”.
Underpinning the tool’s effectiveness would be a regulatory exemption based on the premise that the tool itself is “safe by design, not by regulation”.
The current regulatory settings make the provision of low-cost retirement advice commercially unviable in many cases, the paper argues, leaving a vast swathe of pre-retirees without access to advice.
“Solutions that are usually proposed as a means of improving the accessibility of personal financial product advice – expanded intra-fund advice, fintech enabled digital advice, or ‘scaled’ advice – have not successfully addressed this problem so far,” the paper states. “Each is inhibited by a combination of legal, regulatory, behavioural and operational factors.”
As the advice market shrinks and the cost to serve rises, advisers are increasingly reluctant to take on clients with retirement balances south of $500,000. That leaves a large chunk of the 250,000 people that retire every year without an affordable advice option.
“High net worth households are well served by the existing private wealth management and financial planning sectors,” the paper continues. “Those retiring with no or very low superannuation balances who qualify for a full aged pension have different needs, including different support needs. We are looking for a scalable solution to current lack of support for pre-retirees in the middle.”
This is where the carve-out comes in. If the tool is designed so that the regulatory protections are “baked in”, and it comes without the agency risks of regulated advice, the need for expensive regulatory settings is abated.
“We decided the solution is not to get rid of regulation that you need but get rid of the need for regulation,” Hanrahan tells Professional Planner. “The aim at the outset is to make it low-cost, and taking away the compliance piece does that.”
A regulatory exemption isn’t the only thing policymakers could do to facilitate the idea, Hanrahan continues.
“One of the things we looked at was whether the government could give everyone a voucher when they turned 62, which could be paid for by a levy on the superannuation funds,” she says. “It’d be nicer than some of the other things you get at that age.”
A guiding hand
According to Bell, proposing super funds and advisers distribute the tool – with the scope to add other professionals like accountants – was a natural decision given the alignment of industries and relevant expertise.
Making it self-directed wasn’t feasible, he says.
“You always want some degree of direction involved because financial literacy – and literacy in general – can be a concern,” he says.
Another reason, Hanrahan adds, is that the proclivity of people to use tools is greater when they have someone helping them.
“The research indicates there is a really high drop out rate when people try to do things like this on their own,” she says.
The paper’s authors acknowledge that the proposed tool would be “less detailed” than a comprehensive financial plan and less able to accommodate individual preferences.
While the embedded fact find would be “incredibly robust” by necessity, it’s not meant to compete with or replace the kind of holistic strategic advice a registered financial adviser would deliver, Bell says.
Rather, the tool would provide an alternative for people who can’t pay for it. And, he adds, it would help the people who simply don’t want to pay for financial advice.
“That’s why we didn’t want to target the tool at a specific cohort of people that have saved up to a certain level,” Bell says. “Instead of looking at everything through a dollar value, we want it to cater to anyone who is looking for guidance.”