As the finer details of Stronger Super are being finalised, the questions of how we deliver low-cost advice to superannuation members and how we can improve member engagement overall continue to puzzle superannuation funds. So it comes as welcome news that a new version of scaled advice is on the agenda for consideration.
This is important given the link between financial advice and member engagement, and the very obvious fact that members who have received financial advice are more confident and satisfied with their superannuation arrangements.
As Mercer’s most recent Superannuation Sentiment Index demonstrated, members with the highest level of knowledge are also the members who feel most prepared for retirement, have higher levels of trust and loyalty to their fund, and are most likely to view super as an effective way to save for retirement.
This survey of 1028 working Australians aged between 25 and 65 conducted in December 2010, found 43 per cent of those who had sought financial advice were confident their savings would be sufficient, compared to only 30 per cent of those who had not sought financial advice.
Furthermore, people who had sought financial advice were generally more positive towards their main superannuation fund, rating it highly for financial security, trustworthiness and investment performance.
The other important insight for the industry to bear in mind as it prepares for the introduction of the Stronger Super reforms is the role superannuation funds play in providing advice to members. Mercer’s study found when looking for advice, most people consider approaching their superannuation fund (40 per cent), their financial adviser (42 per cent) or their fund website (24 per cent).
Therefore, the real issue for funds, and for those in government, ASIC and Treasury who are consulting on this issue, shouldn’t be whether or not to offer intra-fund or scaled advice in MySuper only, but how to make it cost effective and easy for all superannuation members to access relevant advice.
Mercer has provided general and limited personal advice via the phone and workplace seminars and workshops for members of the Mercer Super Trust and other clients since 2003. The service is widely used and is a cost-effective way of meeting the advice needs of our members.
In fact, 80 per cent of Mercer’s superannuation members’ needs can be serviced through general, limited and scalable advice via the phone or a workplace seminar or workshop. For those with more complex needs, which often extend beyond superannuation, they can be referred to Mercer’s strategic financial advice team for a more detailed advice service.
Mercer’s own tracking shows members who attend a seminar are six times more likely to implement additional contributions or consolidate their super and are more than twice as likely to access their account online.
One of the reasons this advice model works so well is that simple advice is available through a range of channels that are easy for the member to access.
Importantly, too, is the fact the cost is built into the overall superannuation cost – meaning all members can access simple advice in relation to their superannuation account conveniently and don’t need to pay for advice separately.
We have come to realise through extensive experience over many years that superannuation members are very reluctant to get out the credit card or cheque book when asking for advice about their superannuation account on the phone.
From their perspective, the straightforward question they called about relates to their super, for which they are already paying a fee. The fact the law requires that question to be considered as advice is not the member’s concern.
When it comes to agreeing a fee for advice in relation to a transition-to-retirement strategy, an extensive consolidation of a number of accounts or non-superannuation-related matters, for example, members are quite prepared to make an appointment with a financial adviser and pay for that advice separately.
Financial advice is a highly-effective engagement tool and for 80 per cent of superannuation members it can be delivered cost effectively and efficiently.
What will make it successful is first and foremost that we define what scaled advice actually is. We call this advice intra-fund, limited, simple, piece-by-piece, scalable, single, one-off advice, and, not surprisingly, confusion reigns at trustee and member level.
We need a term that is member friendly rather than one that fits the regulations. At Mercer we are starting to refer to this as simple superannuation advice.
Thereafter we need to ensure simple superannuation advice is easy to access and the cost of simple superannuation advice is affordable and bundled into the overall fee charged to members.
Simple superannuation advice should also be provided by all licensed financial advisers and not just those licensed by superannuation trustees. Finally, members should also be able to deduct the fee for this advice from their superannuation account.
Offering simple superannuation advice to all superannuation fund members with the above criteria in place is the perfect solution for a largely disengaged population.
The more members seek advice, the better placed they are to achieve a comfortable retirement and the more confident and better informed they are with the process. That sounds like good public policy to me.
Jo-Anne Bloch is Mercer head of financial advice, and member communication and engagement, and is a former chief executive of the FPA.
