May 31, 2017

Advice: What’s it worth to a super fund?

Advice: What’s it worth to a super fund?

Financial advice has been causing headaches across the industry over the last few years, from disparaging newspaper headlines to ASIC interventions and threat of disruption, there has been no let-up in pressure to fix the problems of the past and innovate for the future.

Advice presents a conundrum for all workplace superannuation providers, industry fund and retail corporate schemes alike. How far can general advice go? Is face-to-face better than digital? How many advisers are required? Who funds the cost? How should advice be optimised? How is success measured?

Despite the challenges, and against the macro trend of reducing adviser numbers, there has been a constant increase in the hiring of financial advisers by super funds, resulting in the number of advisers almost doubling over the past five years. While super fund advisers still represent only single digits as a proportion of the total advice market, the upward trend in an otherwise declining market is clear.

There are two drivers for funds expanding into advice.

The first, the fiduciary case, is clear: more members are nearing retirement (a process which can be complex and daunting), balances are higher (bringing more disparate and complex needs with which members need help), and intra-fund advice rules facilitate super funds providing limited advice. In other words, providing advice is a fundamental part of helping members achieve better retirement outcomes.

However, there is a second opportunity presented by getting advice right: a strong commercial case for funds helping their members retire effectively.

We collected data from a range of not-for-profit super funds on this topic recently and uncovered some interesting statistics highlighted in today’s infographic:

  • 10% of members older than 45 years had received financial advice from their fund
  • Those members, on average, made voluntary contributions $12.5k higher than their unadvised peers
  • Almost all personal advice is delivered face-to-face by planners, with less than 10% given over the phone or digitally

These statistics show a clear business case for having a quality advice process, and begs the question – should advice be a cost centre? Because it turns out providing advice to members not only improves engagement and retention, but also improves assets under management.

The other insight is that the ongoing reliance on face-to-face advice is unsustainable. Each year we have more members retiring, most will need help of some kind, and a growing portion will have balances worthy of financial advice. Assuming funds don’t participate any further in the war for talent in advice, they have to consider carefully how they get phone-based advice to deliver to their promise of member value and efficient cost, and how digital channels can be effectively leveraged for advice.

In speaking with funds it’s clear there is wide divergence in their ability to use advice to deliver on retention, additional contributions and member outcomes. Funds with more experience under their belts, who have optimised their advice models, refine how they charge and how advice is delivered are achieving substantially better results than the averages presented above. But it is still early days for everyone.

Advice done well can lead to greater engagement of members and larger contributions to their super – a win for both the industry and for members by providing better retirement outcomes. And we’d suggest the time for funds to get their advice model right…is now.

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