Hip to be Square

22 March 2023

Jason Andriessen CFP®

Jason Andriessen is consulting partner at financial services research boutique MYMAVINS and chair and co-founder of Catalpa, a community of independent financial planners.

As we await the recommendations from the Quality of Advice review, one in particular could have a significant impact on financial planners, whether Big Super will be re-entering financial advice. In this article we hear from Jason Andriessen from MYMAVINS on how financial planners can prepare for this changing competitive landscape.

If the Quality of Advice review recommendations are implemented, Big Super will get back into advice. And our recent MYMAVINS research shows that when they do, they will be successful.  In a survey of 401 adult Australians, two in three respondents agreed that ‘free’ advice from their super fund is all they will need at retirement, rather than paid advice.

Super funds are highly trusted, and they are the first place members turn to when they are planning for their retirement. They have the data capabilities to reach out to members at the right time with the right message, and the platform to serve more efficiently and at a lower price point than traditional financial planners.

Consumers will undoubtedly benefit from super advice because it will bridge the advice gap and provide peace of mind to Australians who would otherwise not access it.  All that’s missing is a regulatory framework to allow advice to be provided at scale.

So, should financial planners be feeling threatened by the changing competitive landscape?

The missing link

At the moment, regulatory risk is holding the super funds back from fully embracing their data capabilities.  They don’t want to be caught foul of the personal advice obligations in the Corporations Act, like the requirements to provide a Statement of Advice (SoA) and for advice to meet the Best Interest Duty (BID) obligations.

The recommendations in the Quality of Advice review address the regulatory uncertainty. If the members data is used, then it’s firmly in personal advice territory. But no SOA must be produced and if the fee is averaged across the membership, rather than user paid, the adviser doesn’t need to be a relevant person. So, the BID obligations won’t apply to the advice.

In light of this, is there anything you should be doing right now to improve the sustainability of your practice and career?

Three things you should be doing now

1. Get real about your practice and who you serve

The modern industry fund has three sources of new members: members who join via the workplace; members who actively choose to join directly; and members who are advised to join by their financial planner.

The outcome of this, particularly since the Royal Commission retail fund exodus, is that industry funds are broad churches, with white-collar professionals sitting comfortably beside blue-collar manufacturing workers in the membership.

The reality is, unless your practice is highly specialised in some way, it is likely that you will compete for new and existing clients with the super funds.

2. Play to your strengths

Super funds have a plethora of data on their members, and most have built data science capabilities in-house.  Using segmentation models, artificial intelligence and machine learning, super funds can predict the behaviour of the members and reach out with the right message at the right time via the right channel.

But super funds have lots of members. They will embrace scaled, or scoped, advice on a transactional, once-off basis. Services will be multichannel, with members interacting digitally, over the phone, and in person according to their preferences.

But for all of that, the super funds can’t offer what members truly value: an intimate relationship with a professional.  We know that over time clients build into our lives as much as we build into theirs.  An intimate professional relationship with high trust that deepens over time provides the right environment to challenge the client when required and measure the success of actual behavioural outcomes.

3. Focus on client outcomes

The core role of financial planners is to improve outcomes for the client, whereas super funds’ primary role is to manage a pool of money on behalf of the members efficiently and effectively. The two are very different roles.

When it comes to retirement planning, for example, if you focus on returns you miss the bigger picture.  Most retirees are both long and short-term investors, all while they’re trying to manage their cash flow.  The management of downside risk is essential, as is the need to avoid selling quality assets at depressed prices to fund lifestyle expenditure. This can be solved in the context of an ongoing planning cycle, where funds are judiciously rebalanced to top up lifestyle without crystallising losses.

The wisdom of Huey Lewis and the News

With the super funds able to invest in technology and data capabilities, traditional financial planners are at risk of being left behind.   The better course of action is to take control of their careers and instead, like Huey Lewis did in 1986, embrace the differences that make it hip to be square.

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