Advice vital to super retention

As financial advisors look back on their industry, the changes it has experienced in recent years and consider its current state of play, it seems clear that their feelings will be mixed, Damon Taylor writes.  

Following the Future of Financial Advice reforms and even the advent of intra-fund advice, the industry has seen shifts that have changed the fabric of financial advice permanently and yet for James Panaretos, General Manager, Business Development for State Super Financial Services (SSFS), there is yet work to be done.

Engagement

"As a general rule, Australians simply haven't engaged enough with financial advice," he said. "And with the statistics showing only 11 per cent of people actually taking up financial advice, I think it's clear that the professional standards within the industry need to be lifted quite substantially.

"It's something that we're quite focused on here at State Super Financial Services because we don't think the industry's done a good enough job of connecting with people, whether they be super fund members or standalone clients, on their own terms," Panaretos continued. "So we've done a whole lot of work in understanding our own membership base and what we've found is that people like to have a face-to-face initial meeting, just to build trust, but once they've built that trust, they want to be able to interact with their advisor on their own terms.

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"So as an industry, we're really just turning our eyes to that, to look for better ways to connect with people and on that basis, there's still a great deal of work to be done."
According to Dante De Gori, Manager Policy & Conduct for the Financial Planning Association of Australia (FPA), the financial advice industry's key concern continued to be perception.

"It's something our members talk to us about constantly, particularly with respect to some of the negative comments that get voiced in the media," he said. "Now for the most part, it hasn't impacted business because it's still busy, there's still many clients out there looking for advice.

"But it definitely has prompted questions from consumers, whether they be existing, potential or brand new clients coming on board," De Gori continued. "And I suppose that's a good thing in some respects because it means those consumers are becoming a bit more informed.

"But what I can also say is that Investment Trends recently conducted a survey that showed that 47 per cent of consumers actually understood that they had an advice need so the question then becomes why they haven't obtained that advice or what is potentially stopping them from doing so."

Indeed on the back of Investment Trends' research, De Gori said that respondents came up with three main reasons as to why they were not actively seeking financial advice.

"The main reason is because they feel they don't have investable assets, so they don't feel that a financial planner would actually see them," he said. "The second one is cost - either they believe it's too expensive or they perceive it to be too expensive.

"But the third, and perhaps most important one, is trust and confidence. And I think that's telling in itself because if you were to look at the media alone, if you were just concentrating on what was said publicly in the press, I would be thinking that you would be more concerned about the trust and confidence of the advisor rather than how expensive they were.

"Yet irrespective of which concern is the greatest, we know that our members are very concerned about this last one, not only because it impacts their businesses but because it's a hit to their confidence and professionalism as well."

Super and advice

Bringing the superannuation industry into the picture, Panaretos said that there was no doubt that super funds themselves had a vital role to play in financial advice delivery.

"So when members have been part of a super fund for a long time, there's a certain sense of familiarity, they understand who their super fund is and they're used to receiving that annual statement," he said. "At the barbecue, they might be able to rattle off the one or two or three funds that they're members of or the investment option that they're in and so naturally, there's an element of trust that's already been established.

"So just as advice delivery is a work in progress for advisors, I think super funds need to get a whole lot better at the way that they provide advice as well," Panaretos added.

"They're in a very, very powerful position to be able to provide that advice and while there are certainly a number of regulatory challenges to be overcome, there's no doubt in my mind that they need to be taking advantage of that."

Adding weight to Panaretos' comments De Gori said that the FPA had already noted super funds demonstrating a far greater awareness of the value-add financial advice could become when it came to member retention.

When members have been part of a super fund for a long time, there's a certain sense of familiarity, they understand who their super fund is and they're used to receiving that annual statement – James Pararetos

"I think a lot of super funds have realised that from a member's perspective, superannuation offerings can look largely the same," he said. "So apart from competing on cost, one of the other things you can compete on is service and financial advice fits perfectly within that.

"Add to that the fact that membership demographics are changing, that members are now wanting advice around retirement and how to structure income streams and the reality that those members have assets and financial concerns outside of super and it becomes clear that the super industry's reached a tipping point," De Gori continued. "So whether they're looking at online solutions, at referral arrangements or looking to bring financial advisors in-house, the interest is there.

"And on the back of increasing member demand and the need to compete, it's likely there to stay."

Robo-advice

Of course, the online advice solutions alluded to by De Gori are currently the source of much debate amongst financial advisors and super industry executives alike. But while robo-advice may have its detractors, Jenny Brown, National Vice President of the Association of Financial Advisors (AFA), said that it offered significant advantages as well.

"Look, there is a certain segment of the market who will never actively seek advice in the form of a face-to-face meeting with a financial advisor, either because they can't afford it or because they simply don't want to," she said. "So if those people were able to receive at least some type of advice through a series of questions on a website, then that is clearly better than nothing.

"So certainly, from that point of view, it is not without its advantages," Brown continued. "But I guess my concerns lie in the extent to which the algorithms can actually work to take into consideration all of the consequences and permutations and combinations that a person's financial circumstances may have to offer."

For Brown, if a person's query related to putting a deposit on a house, to choosing a bank account or finding the best interest rate, then robo-advice was clearly a good option.

"But for somebody who is about to retire, who may be eligible for Centrelink benefits under certain circumstances but not others, then it clearly isn't going to suffice," she said. "It really comes down to looking at what stage of life you're at, what your requirements are and how complicated it is as to what works and what doesn't."

Not surprisingly, it is defining the line between those two scenarios, where robo-advice is and isn't appropriate, that De Gori believes is the key issue.

It's almost as though once they've met you and they've eyeballed you, they're happy to interact with you via Skype, via online chat, via email or whatever method suits them – Dante De Gori

"So the first point I'd make is that advisors should absolutely be embracing and looking for technology solutions to better run their business and better engage and provide services to their clients," he said. "But it then comes down to what role robo-advice has to play and if, at a minimum, it provides information in a way that consumers can interact and engage with, then I think advisors need to consider whether that technology is something that can enhance and support their existing businesses.

"On that basis, I think it's definitely an opportunity."

Indeed De Gori, like Panaretos, said that there was strong evidence to suggest that while clients liked to have an initial face-to-face meeting, they were then happy to engage via other mediums.

"It's almost as though once they've met you and they've eyeballed you, they're happy to interact with you via Skype, via online chat, via email or whatever method suits them," he said. "They actually want that sort of flexibility and convenience and are happy for technology to make that happen - that is, provided there's a human being at the end of the line.

"So I guess the distinction I'm trying to draw is between the utilisation of technology and the provision of advice that is purely robotic," De Gori continued. "Because that's where the ambiguity lies, as to whether or not such services are actually providing advice, whether they're being setup to avoid obligations or whether there's a mismatch between what clients think they're getting and what they're actually receiving.

"So whilst we want clients and advisors to embrace technology, the question with robo-advice is who has accountability, how the licensing arrangements work and what happens if something goes wrong."

Sharing many of the views expressed by both Brown and De Gori, Panaretos said that while he felt the name 'robo-advice' could be misleading, such services definitely had a place in the financial advice industry's overall service offering.

"Firstly, we don't like the name 'robo advice' because it is so misleading," he said. "It conjures up the idea that someone can go online regardless of their circumstances, punch in a whole bunch of information and a statement of advice will be spat out regardless of how complex their needs are."

"What its actually referring to is the use of some kind of online, self-service, algorithmically based portfolio management tool where a bunch of questions are asked of the investor," Panaretos explained. "They're then used to come up with some sort of generalisation around their risk profile before it directs them to an ideal portfolio based on that profile.

"So those sorts of calculators or online tools do absolutely have a place for the more general types of questions that people might have and if such platforms help to engage people, then we say 'bring it on'."

In fact for Panaretos, while there would always be a danger in such tools being used inappropriately and as a replacement for face-to-face financial planning, such concerns could be alleviated through careful implementation.

"As long as these sorts of tools don't purport to be everything to everybody, as long as the limitations are well understood and as long as - and this is really really important - the medium provides an avenue for that member to escalate upwards to either phone-based advice or face-to-face advice, then those sorts of issues should be kept to a minimum," he said. "As long as clients have an opportunity to escalate when their situation becomes a little bit more complex, then robo-advice is a fantastic mechanism with which this industry can connect with people and overcome that hurdle of people being completely disengaged."

Preparing for retirement

Yet irrespective of the role robo-advice may or may not have to play in the delivery of financial advice, it seems clear that Australia's advice demands are only set to increase. Indeed with an ever increasing number of baby boomers approaching retirement, such a statement should be obvious but for Brown, post-retirement advice is something consumers do not yet appreciate.

"What we're finding as we speak to clients who are two, three, even four years out is that they've never even sought advice," she said. "So it's at that stage when they say 'wow, I need to actually go and find somebody' or 'I need to know that I'm doing the right thing, that I've got myself in the right situation'.

"Fortunately, there are those that start planning in their 50s but a lot of consumers do tend to wait too long before they seek advice because they don't feel that its required and necessary," Brown continued. "And the reality is that even simple strategies, like transition to retirement strategies when someone turns 55, can be extremely profitable to that client.

"So you don't have to wait until you're about to pull the pin and stop working and I don't think enough people realise that."

Talking specifically to whether superannuants were well serviced when it came to post-retirement advice, Panaretos said that there was no doubt that both the superannuation and advice industries had been focused on accumulation rather than de-accumulation for a long period of time.

"So the industry's recognising now that in the 25 years that compulsory super's been in the system, we've been so focused on getting to the point of retirement that there's now a whole generation of people who are now on the threshold of retirement," he said. "And I think it's become apparent that we really need to start thinking about the downside, the post-retirement piece.

"But the challenge when it comes to advice is that there are so many factors, so many levers that you can change to affect someone's retirement," Panaretos explained.

"Things like how long they're going to retire for, for instance.

"So someone might retire at age 65 with the expectation that they're going to live for the next 30 years but then they become unwell and suddenly their costs go up or they might have to go into an aged care facility or require medical care or any number of things."

Alternatively, Panaretos said that that the exact opposite was equally likely.

"They might have that first seven to 10 years, that active retirement phase where they want to enjoy themselves and go off and have holidays, before settling down to smell the roses," he said. "The point though is that there are so many factors to what influences the amount of money that they're going to be spending.

"So the post-retirement dilemma is a tricky one," Panaretos continued. "And we think that as this huge baby boomer bubble is about to burst, there will be increased demand for advice but to link that back to that whole 'robo' conversation, I just can't imagine that someone who retires with a lump sum of $150,000 or $200,000 is going to rely on a computer to provide them with the solution for the way that they should be managing their life savings.

"So that's the trigger point, that's when they sit up and say 'you know what, I need to eyeball someone here, I need to build trust with someone who can help me through this process.'"

Trust

Of course as super funds and individual financial advisors alike contemplate the future of financial advice, it is that word 'trust' that continues to be key. And according to Panaretos, that fact is something industry participants are acutely aware of.

"As an organisation, I think it's fair to say that we're focused on the adequacy of superannuation funds' financial advice models," he said. "We've just spent a huge amount of resources on getting our own operations in order, on building a CRM (customer relationship management) system that integrates well with financial advice software and that will ultimately link in with our registry system.

So as an entire industry, we want to make sure that this profession is full of good quality, trusted advisors and that we continue to raise the bar in terms of education – Jenny Brown

"So getting our operations right has been a really expensive exercise and one that we've had to invest a huge amount of resources into managing," Panaretos continued. "But now that we've got that, we've got a very good platform to be able to scale up and offer our services to a much wider audience.

"And so that's what we're focused on - talking to funds and understanding what their challenges are because it all comes back to the same thing - trust, member retention and the role that financial advice plays in that."

On the advisor front, Brown said that the challenge lay in altering perception.

"So as an entire industry, we want to make sure that this profession is full of good quality, trusted advisors and that we continue to raise the bar in terms of education," she said. "We want advisors to continually go out and improve when it comes to their professional development because while there's a very large proportion that do already, it's now critical to the way the public perceives advisors and trusts them in what they do.

"To a large extent this is about perception and not tarring everybody with the same brush," Brown continued. "And if we can actually make sure that the industry is growing and that the public perceives financial advice as being value-add and quality, then we will have achieved that.

"And I do believe that that can happen - it's just going to take a bit more work than anybody really anticipated even 12 months ago."