Superannuation funds are missing out on a powerful member engagement tool if they fail to offer financial advice, a new paper by Mercer argues. Superannuation members should be able to access low-cost, simple advice to position their superannuation for a secure retirement and trustees should be embracing the opportunity to provide advice according to Mercer.
The paper, ‘Financial Advice: risky business or critical growth engine?’ outlines different types of advice trustees and fund providers can offer, and the best delivery models to achieve their differing objectives. The paper was written following detailed dialogue with Mercer’s clients and superannuation funds, where they raised their concerns, ideas, and approach to servicing members.
“Members are hungry for information. Many don’t know how to pick an investment option in their superannuation, or what level of insurance cover is suitable for their needs. Financial literacy remains lower than we would like” said Mercer’s Financial Advice Leader, Jo-Anne Bloch.
“The reforms proposed in ASIC’s Consultation Paper 164 on Scaled Advice and Intra Fund advice should put advice squarely on the agenda for trustees and fund providers.
“Scaled, or simple advice via a superannuation fund is essential for 80% of members whose advice needs are likely to be straight forward. The advice also needs to be affordable because members are already paying for their super to be managed,” said Ms Bloch.
Mercer says that some fund trustees believe financial advice is too costly, or brings additional liability and risk. In reality, however, trustees have a number of options available to them to accommodate their different member servicing strategies.
Mercer argues an advice offering is achievable for funds of all sizes, whether they outsource to a third-party licensee, provide scaled advice in-house, or provide all advice in-house. Moreover, this advice is directly linked to member satisfaction and retention.
“Super funds could minimise their cost of retaining members if they used simple advice as a way of better communicating the benefits they offer, or clearing up misconceptions a member might have on issues such as insurance or fees.
“Members who call their fund for advice may not understand, and definitely won’t care, about advice having to be treated under different regulatory requirements – they just want their questions answered,” said Ms Bloch.
Funds and providers should also be able to continue to bundle the cost of providing scaled superannuation advice into their management or administration fees. Funds and providers should also be able to deduct financial advice fees from members’ superannuation accounts where the advice is about their super fund.
“Removal of the ability to include simple superannuation related advice into overall superannuation management fees will see demand for advice drop dramatically and the cost of advice increase as dramatically”, said Ms Bloch.
Ms Bloch said the Government has much work to do to see through to fruition the Future of Financial Advice (FoFA) reforms.
“If the original objectives were to improve confidence in the financial planning sector then a good place to start is with our very large number of superannuation members who are saving for the longer term. Those who are joining an employer for the first time might be working for 50 years or more. They need to know they have the best superannuation fund in place and are making the most of the benefits on offer,” said Ms Bloch.
Mercer is a global leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 55,000 employees worldwide and annual revenue exceeding $12 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. Follow Mercer on Twitter @MercerAU @MercerInsights