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Removal of volume-based adviser fees will test super funds
Intra-fund advice will likely fall short of what people need to plan for their retirement and this situation may be made more problematic if a future government outlaws volume-based fees, according to actuarial research house, Rice Warner.
In a paper published this week, Rice Warner has warned that moving all financial advice to fee for service, expressed in dollars and not a percentage of assets could drastically reduce the demand for advice.
“Problems will arise in the market with the introduction of new products. For example, the Government’s proposed Comprehensive Income Products for Retirement (CIPR) position paper put forward that:
“The Government would require trustees to provide guidance (which may or may not be financial advice) or intra-fund advice tools to help members navigate between the retirement income products offered by the fund”,” the Rice Warner analysis said.
“The reality is that most retirees need comprehensive financial advice to develop a retirement strategy and select an appropriate product. However, we have a conundrum – the volume of money flowing to retirement is growing rapidly as the population ages while at the same time we have an exodus of financial advisers from the industry, with nearly 6,000 advisers leaving the industry in 2017 alone,” it said.
“It is difficult to plan retirement using intra-fund advice,” the Rice Warner paper said. “In addition to setting an appropriate investment strategy, and determining the amount of monthly pension payments, members will need to know about Centrelink (for the means-tested the Age Pension). All this requires knowledge of assets held outside superannuation or held by their spouse. Further, the two-thirds of Australians who are married at retirement will want to plan their retirement together.”
“Advisers and superannuation funds will need to look to innovative models for advice using technology to improve value and reduce costs. Otherwise the wave of baby-boomers heading into retirement will be underserviced as they grapple with one of life’s most complex and important decisions.”
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The future of superannuation policy remains uncertain, with further reforms potentially on the horizon as the Albanese government seeks to curb the use of superannuation as a bequest vehicle.
Superannuation funds will have two options for charging fees for the advice provided by the new class of adviser.
The proposed reforms have been described as a key step towards delivering better products and retirement experiences for members, with many noting financial advice remains the “urgent missing piece” of the puzzle.
APRA’s latest data has revealed that superannuation funds spent $1.3 billion on advice fees, with the vast majority sent to external financial advisers.
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