Value of advice needs to be delved further

The Retirement Income Review needs to assess the value of financial advice before and after retirement across portfolio, financial, and emotional outcomes, Vanguard believes.

In a submission to the review, Vanguard said some of its recent research in the US found that advice led to more appropriate portfolio outcomes relative to the experience of unadvised investors – such as improved diversification – and that the improved emotional component was a significant driver of overall outcomes.

“A similar exercise in Australia, if possible, would provide insights into the cohesion of the system,” it said.

Vanguard also said the value of advice assessment needed to find out whether the current advice framework of general information, general advice and personal advice, along with corresponding restrictions of product and service providers to household and individual information aligned with delivering the purpose of the retirement income system.

“Treasury, for example, in its Retirement Income Covenant Paper recognises in principle seven that ‘the specific preferences and characteristics of an individual member may affect their optimal retirement income solution’ and to meet this advice may be necessary,” it said.

“It raised that key factors, such as marital status and age pension eligibility could be brought into scaled advice provisions.

“In Vanguard’s experience, factors such as these can have a significant impact on strategy recommendations, and therefore it would be valuable for the review to consider ways to make such information more generally available to deliver strong outcomes.”