A survey examined over 130,000 financial advice cases and discovered that small-scale advice is being offered more often than ever in a variety of ways within non-profit superannuation funds at affordable prices.
Industry Super Australia (ISA) and the Australian Institute of Superannuation Trustees (AIST) conducted the research across 19 non-profit super funds.
Non-profit superannuation funds in Australia produced over 130,000 pieces of advice to clients over 2013/14, with this advice being broad, covering piece-by-piece advice, intra-fund advice, personal advice and holistic advice, delivered by phone, online using web chats, and face-to-face.
Education is a huge part of the funds' functioning, collectively having run 18,000 workplace seminars and 16,000 general seminars (including webinars) in just a year. Attendance to these events is estimated at over 100,000 people.
Who is being advised?
The topics most commonly advised on by the (mainly) 42-60-year-old advised age bracket were investment choices and transitioning to retirement, with the split between men and women fund members receiving advice being reasonably even (53 and 47 per cent respectively).
Advice was given to members with balances as low as $10,000 (or less) up to those with balances of over $2 million, however the average balance of those receiving advice was $34,000 in the lowest average-balance fund, and for those funds with highest average balances, $440,000. The average balance for those receiving advice across all funds was $193,000.
With over $2 trillion in assets, the superannuation industry is a significant arm of Australia’s financial system, soon to become the main section just two decades from now when it hits $7 trillion in funds under management.
The impact of a changing advice landscape is being seen by fund members with access to uncomplicated advice on a range of topics, with intra-fund, general and personalised advice diverging, under the instruction of regulations, into quite distinct (and evolving) groups.
Costs and nature of fund advice and advisers
The preference for small bites of advice rather than large and comprehensive financial plans seems to be an emerging trend in super funds, along with the myriad changes to the financial advisory business model, particularly concerning remuneration, with a focus on scaled advice, specific advice pertinent at various life-stages, and tailored advice for specific circumstances. Non-profit super funds have never charged commissions on advice, however they do offer a range of payment options, though this advice errs heavily on that related to retirement.
It is assumed that costs are high for any type of financial advice, and while that may be true in many circumstances, the fund survey estimated that the median cost per member for intra-fund advice was $2.81 per year, with the average member cost being $9.65. The main cost here was found to be administration fees charged by funds, or some combination of administration fees and specific service fees. The channels of advice allow for this heavy cost reduction for this type of advice, and it takes into account the high number of superannuation members who will never seek advice, reducing the cost per member.
Fee-for-service (piece-by-piece) advice was charged in a variety of ways ranging from a collective charge to members, to full fee-for-service. Each model takes its members and the complexity of the advice into consideration, with fees ranging from $200 to $500 for a single topic. The average fee was $466 per topic, which is consistent with other research indicating the same advice from a retail fund adviser would cost around $750. Each channel used has a different pricing structure, for example some advice offered over the phone may be given free, but if a member wants a face-to-face meeting, a fee may be charged.
Full advice – holistic services – have a variety of costs, but most commonly cost from $1,000 to $3,000, depending on complexity. The hourly rate of an adviser in these circumstances ranges from $120 to $340, with the average fee for holistic advice being $1,849. If the advice relates to superannuation, these advisory fees can be taken from the superannuation balance.
Adviser education and experience
Over half the advisers in the funds surveyed were Certified Financial Planners (CFP), and have a degree of some kind, leaving half with variations on the minimum standards set out by regulatory bodies. The average years of financial planning experience were 7.7.
ISA’s deputy chief executive Robbie Campo said that the survey shows that the non-profit sector of superannuation is 'shaping up to be a very significant provider of financial advice', with growth expected.
She added, ‘The intention of the [Future of Financial Advice] reforms was to deliver greater access to more simple forms of financial advice – and for that advice to be high quality and in the client’s best interest.
‘Our members are more likely to be younger and with lower super balances. The survey shows that funds are delivering simple, scaled advice that meets the needs of many people who in the past might not have gone near a financial planner.’
The future of not-for-profit advice
Advice dished out by non-profit superannuation funds is growing, with an estimate of growth by 43 per cent by 2018/19, with general advice for individuals growing by four per cent over the same time period. Piece-by-piece advice is estimated to grow by 13 per cent, with holistic advice growing by 21 per cent.
The way advice is being delivered is changing too, with a variety of methods available to improve financial literacy in general, and advancing member knowledge. Digital media offers new and interesting ways to present information, including financial advice, that is being taken up by innovative funds.