It’s too late to start trying to manage members’ expectations when investment markets are already volatile and account balances have fallen. Member engagement is best undertaken even when markets are more benign, as a way of introducing members to the idea that things don’t continue upwards forever and ever. But paradoxically, that’s also when they’re likely to be least receptive to that idea.
Superannuation is unlikely to be top of mind as long as their fund doesn’t actually blow up and if their balances are gradually increasing in value. Even so, the true test of how well they’ve understood what superannuation actually is, what it’s designed to do for them and how committed they are to a course of action, will come when they open the email or envelope and see their account balance has fallen.
Then there’s a real possibility of poor decisions being made. There is still a fundamental misunderstanding in the community of what superannuation is and a worrying lack of financial literacy overall. An organisation recently released the results of a survey of 1000 people which asked them where the best place is to put their money right now.
Top of the list is a high-interest savings account, even though such accounts − according to the same research − are paying, at best, four per cent a year at a time when inflation is running at double that. Third on the list is an investment property but second on the list is superannuation. Clearly, there is no understanding, at least among these respondents, that superannuation isn’t an asset class. It is likely to be a surprise to them that because their super fund is invested in markets that have declined in value, their account balances have declined. When people are surprised, they often make unwise or hurried choices.
At some point in an individual’s 40-or-so-year working life – and probably more than once – they’re going to experience declining markets and the impact on their retirement savings. They need ready for the day they receive that news. They need to be primed to understand what it means and given some sort of perspective with which to assess what to do next. Super funds need to engage members and manage expectations to reduce the likelihood of poor decisions.
One of the worst things a member could do now is panic. Following the GFC, a significant number of super fund members – who were unadvised and were not engaged with their super liquidated assets – moved into cash. They still have not, and may never, make up the ground they lost compared to members held fast, understanding the ups and downs of investment markets.
It’s easy to sneer at poor investment decisions when it’s someone else’s money. It’s especially easy if one has the luxury of time to allow markets to recover. Members who today are nearing retirement won’t feel anywhere near as sanguine about what’s going on as members who still have 20, 30 or 40 years to go.
If older members are not engaged with their super, if they have not received financial advice, and if they do not know what the future is likely to hold, then they’re prime candidates to make unwise, short-term decisions.
Irrespective of how the law may be interpreted, it seems difficult to accept that providing low-cost, easy-to-access advice and information to members, and engaging with them actively on investment issues, isn’t in their best interests, or that it doesn’t have a role to play in maximising their retirement outcomes.
We also need to remember there’s much more to a member’s satisfaction with their retirement than just how much money they have in their account on the day they retire.
The increased certainty, confidence and sense of order that comes from having a financial plan and being engaged on the issues that matter is just as important and, as emerging research shows, possibly even more important.
It’s all about managing expectations.