Intra-fund advice is a topic that is at the forefront of the industry’s mind. Many advisers look at the regulatory landscape and see unfair carve-outs that apply to super funds. However, if the industry can sort out these difficulties and create a considered and more level playing field for advisers, there is a great opportunity for super funds to become an engine room for financial advice, taking over this role from the big banks who are exiting the industry.
Despite ASIC’s ongoing efforts to clarify the rules around what constitutes intra-fund advice, questions and conflicts around product recommendations and Best Interest Duty (BID) remain. Advisers also point to the fact that an entire fund’s membership base will cover the cost of this advice despite the majority not asking for nor receiving advice. This seems like a double standard, particularly in light of the fee-for-no-service scandals that were brought to light in the Royal Commission. Further, many are worried that the much-maligned vertically integrated business models applied previously by the wealth institutions will be replicated by super funds.
Simply put, more work is required. But an incredibly important point may be lost in the partisan nature of the current debate.
Super As An Engine Room For Advice
If we leave aside the obvious legislative issues that need to be addressed, we can see a future where super funds, with an increasingly engaged membership base (as seen from the response to the early super withdrawal scheme), will be able to drive effective and positive financial advice outcomes for more Australians than ever before. And this would span all phases of general and personal advice, including intra-fund, scaled, and comprehensive.
Many industry and not-for-profit funds already hold their own licence or use an outsourced “third party” approach, like AustralianSuper, CBUS and Sunsuper. With the overall growth of these funds versus the retail segment, adviser numbers have grown in these licensees, and in the case of First State Super, it built further scale by acquiring StatePlus. It’s hard to see this segment slowing down. Forecasts a few years back by some of the Big Four chartered accounting firms remain close to the mark. They predicted sustained long-term growth in the volume of scaled advice compared to comprehensive advice. Much of this opportunity should land in the laps of the super funds. This is further endorsed by the latest views of the digital financial tools sector, which describes a general pivot from general to scaled advice (that may also involve helping super funds deliver intra-fund advice digitally).
Member Retention For Funds
Super funds are embracing advice because it can make a world of difference to member retention, but it’s particularly relevant as members head towards retirement. This is a major life stage event, often associated with complex advice needs. For that reason, the largest funds need better coverage of their members, both geographically and in terms of the specialised skills required to cope with the increasing demand, diversity and complexity of advice needs. Industry funds that take a more laissez-faire approach do so at their peril.
Adviser Ratings has run the ruler over the top ten super funds (by number of members*) to see what demand could emerge for personal advice over the next few years. Although each fund has a different member demographic mix, we assumed that 30% of fund members could be considered in the “sweet spot” for personal advice:
- Age 55+ in pre-retirement mode / transitioning to retirement
- Age 30-40 forming families and taking on major liabilities like mortgages and school fees
We then took as an aspirational target that 20% of this audience takes up some form of personal advice:
- Single issue / transactional advice (3/4 of the 20%)
- Ongoing comprehensive advice (1/4 of the 20%)
This would mean that just 6% of a fund’s member base would take up some form of personal advice beyond intra-fund. This is not a huge assumption, given 10-15% of the general population currently takes personal advice in some form.
Given the average adviser would service 100 ongoing clients in a comprehensive fashion, or alternatively, an adviser delivers 150 single issue advice transactions per year, we calculated the Top Ten super funds (by member numbers) could potentially require around 6,000 advisers to perform these services. These resources may be additional internal hires - but are more likely to be sourced through expanded partnerships with suitably screened external advisers. This number of advisers is of a similar magnitude to the number of advisers who were authorised by the major banks in recent times.
Of course, this exercise has many assumptions built-in, but it is fair to say it can show the potential for the superannuation sector to be a significant driving force in the future of financial advice in this country.
Now, for the industry and the regulators to find some common ground…