The Government should consider reviewing the delivery of financial advice within superannuation as well as single-issue advice outside of superannuation, in circumstances where there is a lack of good data about how well the system is working and the quality of financial advice varies between funds.
Actuarial research house, Rice Warner has used its submission to the Government’s Retirement Income Review to point to the lack of good data and to cite the “obscurity of current legislation” which makes it difficult to deliver advice efficiently.
However, on the question of how that advice is paid for, and contrary to the recommendations of the Royal Commission, Rice Warner is arguing that it is reasonable to deduct adviser fees from member accounts, provided the advice pertain to the member’s superannuation.
“Many funds allow members to authorise them to deduct fees for services from a financial planner relating to superannuation. The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry recommended prohibiting such fees being made from MySuper accounts,” it said.
“The logic appears to be that a member in a default structure does not need advice. However, there are many members in MySuper products who have chosen to join them either directly or based on financial advice. Even those in their employer’s default MySuper might still want advice on their total financial affairs including monitoring of their superannuation,” the submission said.
The Rice Warner submission also recommended simplifying the processes around the delivery of advice in retirement with the goal of reducing costs and increasing member usage.
“As members approach retirement, it becomes more difficult for superannuation funds to assist members. As there is no default retirement product, each member needs to be placed in an investment strategy which is ideally determined only after provision of a comprehensive financial plan. The cost of delivering such a plan (usually $2,500 to $5,000) is more than most members will pay,” it said.
“Within the retirement phase, most regular advice is about budgeting and appropriate levels of withdrawals. This retirement counselling is valuable, and all funds should provide this as part of their account-based pension product.
“Like the work of money or finance coaches outside superannuation, this activity does not fall under the financial advice regime. Consequently, it should be possible to deliver the service cost-efficiently using technology and retirement counsellors within call centres.
“Funds could then offer event-based advice to their account-based pensioners periodically based on the need of each retiree. Such events would include the death or divorce of a partner, the need for a late life annuity or home equity release, and the need for Aged Care services. This advice could be delivered for a flat fee by a financial adviser (not necessarily related to the fund).”