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It is a rare person who doesn’t want to improve their financial situation, but Australians are reluctant to seek professional advice. According to the Productivity Commission, up to 80% of adult Australians have never used a financial planner or adviser yet 48% say they have unmet financial advice needs.
For past generations, financial advice was not such an issue. The average Australian worked, bought a house, raised a family and retired on the Age Pension. But the introduction of compulsory super changed all that.
Now every Australian with a super account is exposed to capital markets. They are also encouraged to fund their own retirement, so the performance of their super, how it intersects with the Age Pension, other investments and constantly shifting super rules really matters.
The growing complexity of our retirement system means most people will need to seek advice to get the most out of their super and plan for retirement.
A matter of trust
The main reason people give for not seeking financial advice is cost, although the Hayne Royal Commission has seriously dented the reputation of the advice industry. The commission unearthed conflicts of interest where advisers are rewarded for selling certain products whether they are in the client’s best interests or not, as well as systematic overcharging, hidden fees and fees for no service.
The commission has made 10 recommendations for financial advice that, if adopted, will go a long way towards restoring confidence in the sector. For instance, it recommends that ongoing fee arrangements must be renewed annually by the client, so people know what they are being charged.
Not all financial advisers are guilty of these bad practices, but it is hardly surprising that people are wary of paying for advice, especially if that advice is conflicted.
The good news is that there is excellent advice available that is low-cost, and even no-cost. The government’s Financial Information Service and your super fund are a great place to start if you simply need information, or if you need to increase your understanding of super and retirement planning issues before you take the next step and seek personal financial advice.
The Financial Information Service
The federal government’s Financial Information Service provides free information on a range of financial issues, from investing to superannuation, retirement planning, the Age Pension and aged care. The operative word here is ‘information’.
The service can’t offer personal financial advice, free or paid, because it isn’t licenced to do so. That means it can’t sell or give advice, prepare a financial plan, recommend investments, tell you how to invest your money or recommend a financial adviser.
But sometimes, information is all you need to make to make your next financial move or lifestyle choices.
Note: A financial planner or adviser (the terms are used interchangeably) is a person or authorised representative of an organisation licenced by the Australian Securities and Investments Commission (ASIC) to provide advice on some, or all, of the following: investing, super, retirement planning, estate planning, risk management, insurance and taxation.
What FIS can do is explain:
- How to make informed decisions about your finances
- The risks of certain financial products
- How you can increase your overall retirement income
- The roles of financial professionals
- How to choose a financial adviser.
FIS is operated by the Department of Human Services. It is open to anyone of any age – you don’t need to be a retiree or on Centrelink benefits.
You can phone and speak to a FIS Officer (FISO) or make an appointment for a free face-to-face consultation at your local Department of Human Services service centre. You can take someone along with you, allow someone to speak on your behalf (subject to signing an authority naming them as your representative) or request an interpreter.
FIS also holds regular seminars in capital cities and regional centres across the country. Topics include planning for retirement, understanding superannuation, the Age Pension, retirement accommodation options and aged care fees and charges.
I attended one of these seminars on the Age Pension to see first-hand how useful they were. At the very least, it provided an opportunity for the people who attended to start their information gathering, ask questions and identify issues to follow up, perhaps with a face-to-face interview with a FIS Officer or their financial adviser.
- Call 132 300 to speak to a FIS Officer or arrange a face-to-face appointment.
- Call 136 357 to book into a free seminar.
For more information on the service and upcoming seminars in your state or territory, check the FIS website.
What advice do super funds offer?
Many super funds these days offer low or no-cost advice to members. This is referred to as intra-fund or scaled advice, because it is only available to members and it’s offered at various levels of complexity and price, depending on your needs.
These advice services are offered by most industry, corporate and public sector funds, as well as retail funds that you have accessed without the help of a financial adviser.
If you have what is referred to as an ‘advised super product’ such as a super wrap, where you need an adviser to gain access to the product, then you won’t be offered free advice or other intra-fund advice services.
Advice services are expanding
A decade has passed since ASIC gave the thumbs up to super funds providing personal financial advice over the phone, via email or face-to-face without establishing members’ overall financial position, provided the advice was limited to their super account.
In the lead-up to this change, Ian Fryer, Head of Research at Chant West says funds were saying they offered general advice, but members were asking ‘what should I do?’ Now more funds are answering that question.
The advice offered by some funds has expanded dramatically in recent year as part of their efforts to improve member engagement with their super. Less altruistically, member services are another way for funds to stand out from the pack, attract new members and keep them loyal.
The advice currently being offered by super funds falls into three broad categories or levels of advice:
- General advice or information. The name your fund uses might be different, but the first level of advice is the same across the board, and often starts with their call centre. They can provide information on specific topics related to your account or the fund’s offerings, to help you make decisions. For example, information about your investment options, super contributions, insurance options, transition to retirement pensions or withdrawals. However, they can’t give personal advice or recommendations.
- Single issue advice. The next step is simple personal advice on a single issue. For example, like most members you might be in your fund’s balanced option but wonder if it’s the best option for you to be in. This advice begins with a free, no obligation phone consultation, followed by a Statement of Advice (see note below) with recommendations for a fee (see ‘The cost of advice’ below).
- Comprehensive advice. The next step is more complex financial advice which takes your full personal circumstances into account. This is for members who don’t have an adviser but who may want a financial plan or a retirement plan. This might include advice on insurance, tax structures, retirement planning, aged care and estate planning. Advice is provided by Certified Financial Planners with an Australian Financial Services Licence. Some are employees of the fund while others are external advisers. This advice also starts with a free, no obligation conversation with information about the fees you will be charged if you choose to proceed. Some funds offer face-to-face consultations, help with implementation and review.
Note: According to ASIC, a Statement of Advice (SOA) is a document that sets out the advice given to a consumer by their licensed financial planner or adviser. It must include the basis on which the advice is given, details of the providing entity, and information on any payments or benefits the adviser or licensee will receive.
How is advice delivered?
After years of rapid industry growth and consolidation, large super funds are finding that they can no longer get by with a handful of their own in-house advisers. In order to scale up the advice they can offer members, more funds are outsourcing.
Chant West Head of Research, Ian Fryer says there are currently two advice models:
- DIY, where funds employ their own in-house salaried advisers;
- Outsource. Some funds fully outsource while others retain some in-house advisers and outsource the overflow.
There is no right or wrong model, with good examples of innovation using both approaches. The following fund examples are for illustrative purposes only, they are not recommendations.
VicSuper, QSuper, First State Super and UniSuper all have their own salaried advisers on a reasonably large scale. First State has over 100 advisers, the others a little less. Like all industry funds, advice is on a fee-for-service, no commission basis. Advisers are Certified Financial Planners covered by an Australian Financial Services Licence. The cost of advice will be disclosed upfront, after an initial free, no obligation consultation and will depend on the extent and complexity of the advice required.
Fryer says one of the reasons this model works well for these funds is that the concentration of members is quite high. Most are public servants or academics clustered in and around Brisbane, Melbourne or on university campuses. For example, UniSuper’s advisers spend much of their time on university campuses so they are readily accessible. And VicSuper, which won the Best Advice category at the 2018 Conexus Financial Superannuation Awards, holds face-to-face appointments at 19 locations across Victoria.
Some but not all allow advice fees to be deducted from the member’s super account.
SunSuper used to have a handful of in-house financial advisers for their million-plus members. Now, when members want more than simple or single-issue advice (which is free over the phone), they are referred to an outside financial adviser who is culturally aligned with the fund. The advice fee can be deducted from the member’s super account.
SunSuper took out Chant West’s Best Fund Advice Services 2018 as well as its top fund gong. Advisers are given access to a fund portal where they can get information about the client to help tailor their recommendations. Lack of access to this information has been a criticism of advisers in the past.
“We think the open architecture of SunSuper works well; it also removes conflicts of interest because advisers are not obliged to sell SunSuper’s products”, says Fryer.
Retail super funds also outsource advice for members who come to them independent of an adviser, but this is generally to their own dealer network.
For example, non-advised members of BT’s Super for Life products are referred to Westpac advisers (BT is part of the Westpac group). BT offers free general factual advice but members who want personal advice will be referred to an adviser after an initial free, no obligation conversation. The adviser will then arrange a second appointment where the cost of advice and products will be disclosed before proceeding.
Australian Super is one of the funds that have tweaked the outsourcing model by retaining its own advisers through Industry Funds Services and augmenting this with a panel of accredited advisers around the country. With more than 2.2 million members (one in 10 working Australians), Australia’s biggest fund realised it needed to outsource to get the scale it needed to provide comprehensive financial advice.
The cost of advice
While personal financial advice is getting easier to access via your super fund, it is still difficult to know what it will cost until you contact your fund or their nominated adviser and agree on the scope of advice you want. The reason given for this is that each person’s needs will be different, but it could pose a disincentive for many people.
The range of charges is huge. Fryer says some industry funds subsidise advise while others charge a similar amount to outside financial planners. So a full advice package might cost as little as $500 or up to a few thousand dollars.
Cheap, discounted personal advice is appealing but the downside is that it is generally subsidised by other members, with the cost added to the administration fees paid by you and all your fellow fund members. In-house advisers are generally cheaper than outsourced financial advisers who are more likely to charge commercial rates.
To give you an idea of the average cost of financial advice from a licensed financial planner, SuperGuide has reported on the latest surveys. For example, in 2018 the Financial Planning Association of Australia (FPA) found that its members charged, on average, $2435 to prepare a Statement of Advice (SOA) for non-clients and $3354 a year for ongoing advice. These are averages only and don’t take into account the complexity (or simplicity) of advice you may need.
Quality of super fund advice
As things stand, the quality of advice offered by super funds is mixed. Some funds offer a similar service to external financial advisers, but most funds are still unable to offer anything beyond advice on your super account.
Fryer says one area that needs work is that SOAs are generally little more than compliance documents full of legal jargon which many members find hard to understand. He believes this is a major reason why only around half of those members who inquire about advice take it up.
It’s also possible that some members are reluctant to proceed once they know what the advice will cost.
Intra-fund advisers are also at a disadvantage because they can’t follow up with members who are left to implement the advice themselves. Implementation is higher with a personal financial adviser because they do it for you.
Risks and remedies
When you seek simple, factual advice from your super fund you are only going to get advice about their investment options and services, so to that extent the advice you get is limited if not conflicted. However, under ASIC rules super funds are required to manage conflicts of interest in their dealings with members.
Fully outsourced advice does do away with some of the concerns about conflict of interest because advisers can offer products from other funds, including advice on SMSFs.
If you are not happy with the advice you receive or you have a complaint, you should take your complaint to your super fund first to give them the opportunity to address it.
Then, if you are still not satisfied you can lodge a complaint with the Australian Financial Complaints Authority (AFCA). This is a free ombudsman service whose decisions are binding on superannuation fund trustees.
Learn more about financial advice in the following SuperGuide articles:
- Find an Australian independent financial adviser
- Independent financial advice: Why it’s important, and how to find it
- What makes a financial adviser independent?
- 8 warning signs that you’re with a bad financial adviser
- Financial advice: What are the risks and benefits?
- Super advice: How to find a suitable financial adviser
- Retirement planning: How much does financial advice cost?
- SMSFs: What advice can an accountant provide?
- What are the different types of financial advice available?