Financial advice through super funds: What’s on offer?

More than 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.

As mentioned earlier, 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.

In the lead-up to this change, Head of Research at Chant West Ian Fryer says funds were saying they offered general advice, but members were asking ‘what should I do?’. Now more funds are answering that question.

Types of advice offered by super funds

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. What they can’t give you is personal advice or recommendations.
• Simple personal advice. The next step is simple personal advice on a single issue. For example, you might be in your fund’s default MySuper option but wonder if it’s the best option for you. This advice begins with a free, no-obligation phone consultation followed by a statement of advice (see note above) with recommendations for a fee (see ‘The cost of advice’ below).
• Comprehensive personal advice. The next step is more complex financial advice that takes your full personal circumstances into account. This is for members who don’t have an adviser but who may want a financial plan. This might include advice on insurance, tax structures, retirement planning, aged care and estate planning. Advice is provided by Certified Financial Planners (CFPs) with an Australian Financial Services Licence (AFSL) from the Australian Securities and Investments Commission (ASIC). 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.

Some of the biggest innovation in the provision of financial advice by super funds is the method of delivery.

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. To scale up the advice they can offer members, more funds are outsourcing.

Ian Fryer says there are currently two advice models:

• In-house: Some funds employ their own in-house salaried advisers
• Outsource: Some funds fully outsource while others retain some in-house advisers and outsource the overflow.

In another example of the impact of COVID, face-to-face meetings with your adviser are increasingly likely to take place via video, a trend that could be here to stay.

At the same time, COVID has increased the uptake of digital services across the economy. Some funds are beginning to see a digital first strategy as a means of reaching more of their members in an affordable way. As the technology becomes more sophisticated, digital advice is likely to become more personalised (see Link Advice case study below).

There is no right or wrong model, with good examples of innovation using both in-house and outsourced approaches. The following fund examples are for illustrative purposes only; they are not recommendations.

In-house

Aware Super (the new name for First State Super and VicSuper which merged in July 2020) and UniSuper are examples of not-for-profit funds with their own salaried advisers on a reasonably large scale.

Aware Super has around 230 advisers in over 40 locations, mostly in NSW and Victoria, following the purchase of the StatePlus financial planning business. It now has the largest not-for-profit advice business in the country. UniSuper has advisers on every campus where it has members as well as those who can deliver advice over the phone or video.

Like all not-for-profit 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 is 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 Sydney, Brisbane, Melbourne or on university campuses. For example, UniSuper’s advisers spend much of their time on university campuses so they are readily accessible. UniSuper won Chant West’s 2020 Best Fund, Advice category.

Fully outsourced

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.

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.

Partial outsourcing

AustralianSuper 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 ten working Australians), Australia’s biggest fund realised it needed to outsource to get the scale it needed to provide comprehensive financial advice.

AustralianSuper is one of 17 super funds that outsource some advice functions to administration services provider Link Advice, part of the ASX-listed Link Group.

The cost of advice

While personal financial advice is getting easier to access via your super fund, it’s 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. Ian Fryer says some industry funds subsidise advice while others charge a similar amount to outside financial planners. He says feedback from funds indicates that fees for comprehensive advice generally range from $1,000 up to around $3,000.  

Aware Super’s Sarah Forman says the bulk of advice for their members is around the $2,500 level. A single issue such as consolidating two or three super accounts might be $1,600, while a comprehensive financial plan could go as high as $8,000, depending on the needs of the client and the complexity.

“We are passionate about re-building trust in advice and part of that is helping people understand the value of financial advice. The challenge is that we are often designing moves that need to be made now but the outcome of these moves won’t be known for many years to come,” she says.

Link Advice’s Duncan McPherson cites similar figures. “There is a big gap between intra-fund advice that can be offered at no cost to members and face-to-face advice which generally starts at around $2,000–$3,000,” he says.

“Some people do baulk at the fee,” says McPherson. “Everyone should have the right to advice but quite often (the industry) defaults to people who can afford to pay for it. We talk to people with $60,000–$100,000 in super and they just want to understand it more and make the most of what they’ve got. We’ve got to help with informing and educating as well as advising (members).”

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 2019 the Financial Planning Association of Australia (FPA) found that its members charged, on average, $2,671 to prepare a statement of advice (SOA) for new customers and $3,757 a year for ongoing advice (based on a client with around $750,000 in assets). These are averages only and don’t take into account the complexity (or simplicity) of advice you may need, or the value of your assets.

There is a lot of discussion in the superannuation industry at the moment about making advice more affordable and accessible to everyone who needs it. McPherson says super funds have got a role to play because they are trusted and there is research that supports that.

“We know that if people take a little more interest in their super, they’ll be better off. It’s about helping people answer some simple questions so they can get on with other stuff.”

Who pays for advice?

‘Free’ intra-fund personal advice is appealing but the downside is that it is subsidised by all members via the administration fees they pay.

Fees for more complex personal advice may be paid directly by the member or deducted from their super account, depending on the fund.

However, funds are under notice to scrutinise financial advice fees deducted from member accounts. ASIC and the Australian Prudential Regulation Authority (APRA) recently wrote to funds instructing trustees to review their governance of these arrangements, to ensure they satisfy the sole purpose test and are in the best interests of members.

The Government wants to go further and ban the deduction of advice fees from MySuper products. This was one of nine recommendations concerning super to come out of the Banking Royal Commission. Legislation is still pending but, if passed, this would impact funds that outsource financial advice and allow advisers to deduct fees from members’ accounts.

Challenges and trends

One of the biggest challenges facing super funds is the unmet demand for affordable advice around retirement, especially for members with a mid-level balance.

McPherson says the volume of calls to super funds for advice since COVID has been extraordinary, many of them pre-retirees. “People close to retirement may have lost their job, had their hours wound back or be worried about their future employment and want to know what their retirement options are,” he says.

He says someone with, say, $300,000 in super and eligible for a part Age Pension doesn’t have a huge amount of money to be paying for ongoing advice. They may need help accessing Centrelink benefits, developing a financial plan and implementing it.

For some in this group, he says intra-fund advice may be a stepping stone to comprehensive advice. For others, Link is working on innovative approaches using phone and video conferencing to help people not only develop a financial plan but implement it at an affordable price.

Wealthier retirees with more complex finances are more likely to have their own advisers.

People with a low super balance receive a full Age Pension, but many want advice on how to do that. “It can be a daunting process but delaying can cost pension payments they would have received if they had applied earlier,” says McPherson.

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 that 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.

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 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.