The competence of financial planners to provide appropriate advice around superannuation has been identified as an area of concern by two offshore academics providing a submission to the Productivity Commission (PC) inquiry into the competitive and efficiency of the superannuation system.
Discussing the backdrop against which the PC is considering the superannuation industry, the two academics – Nicholas Barr and Peter Diamond from the London School of Economics and the Massachusetts Institute of Technology pointed to the finance advice as being a problem area alongside fund fees that do not reflect performance.
The pair said problems arose with respect to financial advice in superannuation, “even where providers generally try to do a good job”.
“For example, it is not clear how to choose a good financial adviser,” the submission said before adding that some might be of limited competence meaning the complexity of the superannuation system meant they might not do a good job on some issues.
The submission also pointed to the risk of “biased advice” where advisers might suggest the wrong product or the wrong price and the risk of deception where there was a lack of consumer information and missing or ineffective regulation – something which led to the risk of misleading advertising and mis-selling.
The submission suggested that these problems also applied to the draw-down phase and was “compounded by annuity markets that are frequently thin and often offer poor value”.
The two academics then used their submission to recommend a single, government-organised default life-cycle structure, claiming that both the default and the pension system as a whole would benefit from a single contribution collector and record-keeper.