Simplifying the superannuation nest

Chris Jansen explains how providing standalone superannuation advice could be a win-win.

Many of us are in a constant battle to simplify our lives. We return duplicate wedding presents, cancel our gym membership once we’ve taken up a sport, and even consolidate our debt to make it cheaper and easier to manage. So why do so many Australians avoid consolidating their super, especially when the benefits are far greater than creating more cupboard space?

According to the latest report from Rice Warner Actuaries on super fees, Australians have three superannuation accounts on average, and it is estimated that this results in a loss of $1.1 billion a year in extra fees, lost payments and missed earnings.

This is an industry-wide issue. Some people have super accounts they are not even aware of, which means they could be paying too much in fees when they don't need to, and this can have a big impact on their retirement savings in the long-term.

So how can financial planners help more customers consolidate their super to improve their retirement nest eggs? And how can the process be simplified to ensure a positive experience for planners and their clients?

Why should clients consolidate their super?

From a client’s perspective, it’s important to be able to easily articulate why it is beneficial to consolidate numerous super accounts.

Some of the benefits of consolidating super include:

• Savings on fees – if clients have multiple super accounts, they are probably paying more fees than they need. 
• Super balance growth – with compounding returns, combining super balances and saving on fees could help clients maximise their super balance over the long-term.
• Lower chance of lost super – the process of consolidation usually ‘mops up’ any lost super and makes clients more aware of keeping track when they move jobs.

However, even with knowledge of these benefits, many people still put off consolidating their super because it can be a confusing and time-consuming task, and in many cases they simply don’t know where to start. 

So this is an opportunity for a financial planner to help guide clients through the consolidation process. It is an opportunity (for planners who are willing and qualified) to provide piece-by-piece or scaled advice. Let’s look at who is most suited to this approach.

Super consolidation and scaled advice

Many Australians still don’t understand the value of financial advice, with only about 20 per cent actually seeking the advice of a financial planner – this is despite Australia’s ageing population and the escalating need for people to fund their own retirement.

There is no doubt that good quality financial advice delivers results. Research commissioned by the Financial Services Council reveals that someone who starts saving with the help of a qualified financial planner at age 30 could be more than $91,000 better off at retirement. 

Even those who receive financial advice later in life can benefit, with an average 45 year-old gaining a potential $80,000 more or at age 60 a potential $29,000 more, by age 65.

So why do so many Australians overlook financial advice, especially when it comes to super and saving for their retirement? It could be that, as revealed by ASIC’s 2010 research, many Australians (particularly those that have never engaged a financial planner) want simple, scaled advice rather than a comprehensive financial plan.

Scaled advice can help those unsure about seeking financial advice feel more comfortable as it’s less overwhelming than completing a comprehensive plan. It is also a cost-effective option.

Planners who are qualified to do so could offer piece-by-piece advice, beginning with super consolidation, to highlight the value they can provide to new clients. Super consolidation is a good first place to start as it’s relevant to people at all life stages, and maximising a person’s retirement nest egg is important for most people.

Tips for smooth super consolidation

Even if a financial planner is using the scaled advice model to offer super consolidation, they must still begin with a thorough fact-finding consultation with the client. It’s important to discuss areas outside of the scope of advice that need to be addressed at some point in the future.

While the process of advising on super consolidation is relatively straightforward, there are some things that may be worth considering for different age groups:

18-34 year-olds:

• Explain the value of considering retirement income, which may seem a long way away and not a priority for this group.
• Ensure the individual’s risk profile is considered when choosing an investment option. Options with a greater growth focus may be more appropriate in an individual’s early years.

35-54 year-olds:

• Explain how super fits into a more long-term financial plan, in addition to paying off the mortgage and keeping up with monthly bills, as these are usually this group’s immediate priority.
• Explain the options for the individual or couple. Again, risk profiling is an important part of the process. 
• In conjunction with super consolidation, this is a good time to look at the client’s retirement nest egg and their transition to retirement strategy.

55-64 year-olds (pre-retirees):

• Ensure you don’t make this group feel guilty about where they’re at or the choices they’ve already made. Regardless of where the client is at, consolidating their super will simplify their funds, reduce their fees and ensure they have the right level of insurance.
• Look at how you can make the most of the time they have left in employment to grow their super balance and ensure they are in a product that will allow for a smooth transition to retirement.

Super consolidation and beyond

Offering to consolidate a new customer’s super, including finding lost super and insurance within the super, is a good first touch point with any client. Helping them with this task is a great way to build trust and demonstrate the value of financial advice.