Margaret Cole

At the Conexus Retirement Conference in August, APRA deputy chair Margaret Cole outlined the need for super funds to prioritise retirement as much as accumulation by pointing out that a further three million fund members will become eligible to draw from their super in the next 10 years.

“They are entitled to rely on their super fund for assistance as they plan for a sound financial future,” Cole said.

Jane Eccleston of ASIC pushed the point home further at the same conference. She said: “Without being able to provide personal financial advice to members there is little progress that can be made on retirement outcomes for members.”

Then Minister for Financial Services Stephen Jones weighed in.

“The government sees the lack of advice and information around retirement as the biggest gap,” he said “Members would significantly benefit from being able to access assistance, including to help them navigate simple decisions.”

Jones has also stated that the government expects funds to play an important role in providing this advice and guidance. Indeed, he saw it as a necessary part of the increased obligations now placed on trustees. The government has hence committed to expanding the provision of advice through superannuation funds.

So it should be no surprise that the government’s commentary around the Quality of Advice Review seems to be placing super funds at the epicentre of making personal financial advice available to more Australians.

With the additional obligations placed on super funds via the Retirement Income Covenant (RIC), it’s becoming obvious that the expectation on super funds from the government and members will result in significant change to how super funds will be run in the future.

Super funds can no longer be the passive custodian of Australians’ $3.5 trillion of retirement savings. The government is essentially ordering super funds to be more proactive in maximising retirement outcomes for members.

So how can super funds meet these obligations and have a better report card when APRA and ASIC complete their next Retirement Income Covenant review in mid-2024?

The first step is to understand what members are seeking from their super fund alongside the obligations placed upon them by the RIC. Unsurprisingly they are very similar.

  • Nine out of 10 Australians would like their super funds to provide advice on issues that affect their ability to add to their super fund
  • More than half (53 per cent) of members want their fund to offer advice
  • Almost eight in 10 (79 per cent) want their super fund to be more proactive in providing advice

Members are crying out for their super fund to not only offer advice, but also to be proactive in providing them with that advice.

The next hurdle that super funds need to overcome is how they can provide services to meet the RIC obligations at a scale that will result in appropriate advice for each individual member’s unique situation.

Existing capabilities with advisers and call centres do not have the capacity to engage with a super funds membership. If they did grow those resources, the cost of providing the services to meet the RIC obligation would not only place strain on super funds, but put the cost out of reach of most members.

This is where digital advice solutions can fill the void and be an initial point of contact for members wanting some help, guidance or advice.

Colonial First State’s recent research highlights that 53 per cent of Australians are open to digital advice solutions with another 28 per cent stating they would want more info on what digital advice can provide. That’s potentially 81 per cent of Australians willing to utilise digital advice. The demand for digital advice grows to 63 per cent for those aged under 40.

Digital advice can work with super funds in different ways.

  • Hybrid solution – where call centre staff can utilise a digital advice platform to assist members while simultaneously providing access to the digital platform to members.
  • Direct access – enabling members to utilise the tool on their own with an option to reach out to their super fund contact centre for help if required.

The great news is that digital advice solutions already exist. They can provide advice on the traditional intra-fund advice topics of investment options, contributions (concessional and non-concessional) plus longevity of income in retirement and insurance assessment.

But they can go a step further and provide the advice that meets the super funds obligations under the RIC, but more critically it enables super funds to deliver services their members are seeking.

Digital advice, with appropriate member information, can provide advice that optimises a member’s super balance and also provides recommendations on the most efficient way to structure their income in retirement. Digital advice will assess the member’s personal situation and project retirement income across various sources; allocated pension, annuity-style products, age pension and income from other assets.

The great thing with digital advice platforms is that the member will only be required to provide information that is relevant to that specific inquiry (be it an investment section or advice on extra contributions or insurance needs or income in retirement). Then, as soon as all the required information has been provided the advice can appear immediately (along with an SoA).

Being an online solution members could come back at different intervals at not be required to re-enter information, but just to confirm it is still correct or update it where things have changed. The advice would automatically be updated to reflect their current situation.

Then upon confirmation of an action by the member, the super fund can execute the change for them. This can be done via existing manual processes via the back office in a super fund or even better via straight-through processing, where the technology within the super fund exists.

Fees for digital advice can be kept to a minimum (less than a coffee per week) and can be paid from super fund admin fees or even more appropriately be paid by the member from their individual super fund account.

Digital advice platforms can incorporate functionality that enables a member to reach out to a contact centre or advisers for additional help. In such an instance digital advice platforms can then enable simultaneous access to the members digital advice account for both the member and the call centre staff or phone-based advisers.

Super funds can also utilise the member’s additional information to proactively reach out to them and provide the type of assistance 79 per cent of members are seeking — for their super funds to be more proactive in providing advice. Advisers can also access the digital advice platform and gain a headstart with client information already collated and the ability to see historical advice that has been provided to the member.

It’s imperative that digital advice platforms have the same compliance and client best interest obligations as traditional face-to-face advisers. Integrity of the advice and security of member data must be a priority of any digital advice platform.

With 53 per cent of Australians open to digital advice it’s an obvious component for every super fund in the quest to meet the RIC obligations. The final challenge is not with the member’s willingness to utilise digital advice platforms, but rather with the super funds taking the initiative and utilising an innovative approach to ensure all members can get the advice they want when they need it.

What’s more, pursuing digital transformation can allow more Australians to access financial advice. Plus, we’re finding individual members appreciating the fact that their advice comes from an external source that can be seen as more transparent and trustworthy.

On the other end of the spectrum, super funds are quickly recognising that digital channels are the quickest and most efficient way to connect with their members at scale. It’s no longer a matter of whether advice can be delivered digitally, it’s here already. It’s just a matter of how super funds and other financial services firms will utilise such platforms.

Michelle Levy put it well in a recent article published in the Australian on 21 September, 2023.

“In some cases, the nature of the advice may mean the advice should be given by a financial adviser,” Levy said.

“But in other cases, the nature of the advice may mean it can be given by a person who is trained to follow a script. Increasingly, advice might be given by a digital advice tool and not by a person. In any case, in 2023 the law should not continue to assume that financial advice is given by a person.”

The reality is that super funds have an obligation to provide retirement advice for all members, and these obligations can not be met with the current thinking and approach to member engagement. Digital advice platforms may not be suitable for all members, but with over half of members willing to try digital advice solutions, it’s now up to super funds to provide it to them and meet their RIC obligations.

Some super funds will embrace this historic structural recalibration and others will be left wondering how they will meet their new broader obligations. It’s time for super funds to innovate and ensure their members are better off.

Paul Feeney is the founder and CEO of Otivo. 

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