New research released by Roy Morgan shows an increase in people seeking professional advice when switching super, however, the advice given may not be compliant with the ‘best interest’ rules imposed on financial planners.
The findings from Superannuation and Wealth Management in Australia, which was released last week, are based on five years’ worth of interviews that included comprehensive coverage of superannuation. In total, over 250,000 interviews were carried out.
In the 12 months ending December 2014, of the 72 per cent of people who sought advice when switching superannuation funds, only 35 per cent consulted a financial advisor or accountant. The remainder sought advice from friends or employers. Recommendations from professional advisors were responsible for 43 per cent of retail super fund clients, but for only seven per cent of those new to industry super funds.
The research also indicated that there was a rise in the number of advisors who were tied to the larger financial groups and major banks and therefore recommending a product to which they were linked. Although the increase was only slight – one per cent up from 2013 to 77 per cent in 2014, this flies in the face of performance, with research showing that industry super funds have consistently outperformed retail super funds over this time.
The percentage of consumers seeking advice directly from financial institutions has risen from six per cent in 2010 to 9.3 per cent in 2014. The higher the super balance, the more likely a person is to seek advice, with the average balance of $102,000 for those consulting a financial planner, compared to $44,000 for those who don’t seek any advice. However, the reason for the difference in these amounts is more likely to be age-related (older people having accumulated higher balances) than salary related, as the difference in annual income is only $10,000.
As expected, those switching to a self managed super fund were more likely to seek the advice of a professional (71 per cent) and, of those opting for an industry super fund, only 13.2 per cent sought advice from a financial advisor.
Norman Morris, Industry Communications Director, Roy Morgan Research says:
“While it is a positive trend that more people are seeking advice when switching their superannuation fund manager, there are still some issues regarding where people get advice — not to mention the 28 per cent who don’t get any advice.
“This research shows that people with high superannuation balances are more likely to seek professional advice than those with less funds. Besides cost, the potential reasons for this include a lack of trust in financial advisers, low financial literacy, and lack of availability of scaled advice”.
Read more at Roy Morgan Research.
Superannuation is a complicated issue and despite how much of a handle you think you have on your finances, seeking professional advice is often the best course of action before making any major financial decision. Yet even though the Roy Morgan research shows that more people are seeking professional advice, those with lower super balances are more reluctant. This may be due to the belief that a low balance doesn’t warrant advice, however, a level of distrust with the financial planning industry is also likely to be a factor.
The band-aid solutions, such as a register of financial planners and the best interest rule, to inherent problems in the industry only serve to confuse consumers. They are also likely to give those seeking advice a false sense of security that their chosen planner is indeed acting in their ‘best interests’.
With the big four banks and AMP accounting for more than 80 per cent of financial planners in Australia, finding a planner who will offer truly independent, qualified advice is like looking for the proverbial needle in a haystack. But this shouldn’t deter you; you just have to be more prepared. To help you choose the right adviser for your retirement income needs, why not check out our list of 50 questions you should ask an advisor?
Do you think there’s still a level of distrust with the financial planning industry? Should the government do more to ‘clean up’ the industry? Or is it an individual’s responsibility to ensure the safety of their own retirement funding?