Lower-income clients are being priced out of the market for financial advice, according to the Association of Superannuation Funds of Australia (ASFA).
The big superannuation industry body has used its submission to the Government’s Retirement Income Review to point to the fact that while the complexity of the retirement incomes system is increasing, the ability of consumers to access financial advice is diminishing.
“Decisions concerning retirement outcomes are complex, and most individuals lack the financial expertise required to self‐govern their retirement savings effectively. As members approach retirement, the financial decisions they need to make are significant – some of which may be irreversible,” it said. “As Australia’s population ages, the necessity for quality advice services will only increase.”
In doing so, the ASFA pointed to increasing costs and the daunting impact of the regulatory environment.
“Cost is a barrier to the widespread take‐up of personal advice. And as new regulatory and structural changes flow through the industry, the costs of operating a financial advice business will rise. This is likely to price out lower‐income clients and lead to a decline in the number of advisers in the market,” it said,
Pointing to research undertaken by actuarial research house, Rice Warner, the ASFA said: “… even now many people are becoming increasingly unwilling, or unable, to pay for advice”.
“Overall, this means that financial advice models will need to continue to evolve to respond to cost pressures and offer much‐needed services,” it said.
“It is likely that digital forms of advice will become more widely available – facilitated by ongoing advancements in technology and data analytics (which is itself an emerging field).”
“That said, there are a number of major challenges for funds (and relevant service providers) in the development of non‐traditional forms of advice:
- The quality of advice is a function of the information upon which it is based. Funds (or service providers) will need to improve the scope and quality of their data regarding members’ personal preferences and circumstances;
- Funds (or service providers) will have to improve their data analytics capabilities to process member information and derive more sophisticated insights about their members; and
- Funds will need to ensure advice services are well integrated into the fund’s broader retirement income solutions – that emphasise financial outcomes and income replacement.
“The nascent state of these services is reflected in the findings of a recent ASIC survey – which reported that only 1% of respondents had used digital advice, although 1% said they were open to it.”