One of the largest providers of scaled advice to superannuation funds, Money Solutions, has warned that super fund members are less likely to seek financial advice or even engage in the advice process if they think they will have to pay for it.
In a submission lodged with the Parliamentary Joint Committee reviewing the Future of Financial Advice (FOFA) bills, Money Solutions has backed calls for scaled financial advice to be paid out of a superannuation fund’s administration fees.
The company, which provides scaled financial advice services to big industry super funds REST, said, "Our experience strongly suggests that members of superannuation funds are far less likely to seek advice or engage in the advice process if they have to pay for simple pieces of advice".
"They expect it to be part of the value proposition offered by their superannuation fund," the submission said. "For some, the commission system has also conditioned the market to the concept of ‘free’ advice."
The Money Solutions submission said most members did not know when they needed financial advice, and when the advice needed was identified, they did not immediately understand the value that quality advice could deliver.
"Our experience shows that 70 per cent of members of superannuation funds will engage in the advice process when the first piece of advice is paid for by the fund," it said. "Members need to experience the advice process and understand the value that it makes to their retirement outcome."
"It has been our experience, where superannuation funds do not pay for the first piece of advice, the take-up rate for advice reduces to around 20 per cent," the submission said.
It said that, additionally, where only the first piece of financial advice was paid for by the superannuation fund (for example, advice on which investment strategy to choose), less than 12 per cent of members are willing to pay for any additional advice which they may need (for example, advice on obtaining the right amount of insurance cover).
The submission said this was despite the fact that the additional piece of financial advice generally would cost less than $300.
The Money Solutions submission said it was important to note that many of the members to whom the company had provided financial advice had relatively low superannuation balances and were on low incomes.
"They are not serviced by the traditional financial planning model which focuses on delivering comprehensive advice," it said. "Of the 94,000 pieces of advice we have delivered, the average annual income of members is approximately $33,000."
