Intrafund advice simply not enough says FPA

People who receive comprehensive financial advice experience an 85% higher financial well-being than those who receive intrafund advice.

That is one of the core elements of a Financial Planning Association (FPA) submission to the Government Retirement Income Review, with the planning organisation arguing that the inherent complexity of the Australian Retirement Income System (RIS) makes the involvement of financial planning critical to ensuring retirement incomes adequacy.

It said that, on the available evidence, the complexity of the existing system and the inter-linkages between the superannuation guarantee, the age pension and personal savings, made it difficult for consumers to understand.

As well, the FPA sought to play down the usefulness of intra-fund advice beyond superannuation.

“…the capacity of intra-fund advice as an enabler of the ‘system’ and the interaction of the three pillars is limited, as such advice cannot consider the individual’s circumstances outside their interest in the fund,” it said. “This limitation is of most significance when considering transitioning to retirement. Absent from intrafund advice considerations are the individual’s assets held outside of that particular superannuation fund, tax implications, health and aged care needs, spousal and family financial arrangements, and eligibility to social services benefits including the Age Pension, for example.”

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“Decisions made in relation to the individual’s superannuation can positively or adversely affect the other pillars of the system. Hence, making decisions about superannuation in isolation can hinder cohesion of the system.”

“Personal financial advice plays a key role in improving the cohesion of the system by helping clients overcome the issues created by the complexity of the RIS, making the interaction of the pillars work as appropriate for each client’s circumstances, and importantly, educating clients about the system and financial management more broadly,” the submission said.

“Further, those individuals who engage in comprehensive financial planning experience an 85% higher financial wellbeing over those who have engaged in limited planning such as intra-fund advice. Increasing understanding can impact on member engagement and reduce the possibility of poor decision making.”

The submission said that financial planners also acted as a conduit between consumers and providers, both private and Government, providing service providers with an informed source of consumer information and detailed insights into consumer needs and preferences.

“It should be noted that the financial planning industry has undergone significant reform over the past decade. For example, the Future of Financial Advice (FoFA) reforms and the establishment of legislated professional and education standards have been implemented,” it said.

“Government, the private sector, and individuals all face a challenge to encourage a savings culture and integrate the roles of the three pillars to provide an adequate, equitable, sustainable and cohesive Retirement Income System into the future. The role of personal financial advice in helping to change the attitude of consumers in relation to the accumulation, use and management of retirement savings and the cohesion of the RIS is significant.”

“Making personal financial advice more accessible for all Australians would enhance the operation, sustainability, adequacy and cohesion of the Retirement Income System,” the FPA submission said.