New generation super advice

Not long ago, while the financial advice sector was in turmoil from advisers leaving the business and fees escalating, the most advice that many super funds offered were calculators that estimated fund performance over a lifetime. 

The calculators were promoted, and still are, as helping members, and anyone else, gauge their super savings and estimate how much they were on track to achieve the retirement they wanted. 

It was a cheap and simple way for the funds to be seen to be assisting members – but not a substitute for advice from a registered financial adviser. 

Enter AI and the next generation of digital financial advice tools. 

Super funds have been under pressure from regulators, government and inquiries, including Michelle Levey’s Quality of Advice Review, to improve customer services, communications, and advice. 

Tens of thousands of retirees needing professional advice were left to fend for themselves following the Hayne royal commission into financial services – resulting in an exodus of financial advisers with little replacement coming from the funds.  

However, superannuation funds have found a cost-effective and cheap way to provide financial advice, following a legislative change that allows them to provide limited personal financial advice and deduct the cost from members’ accounts. 

According to the Australian Financial Review, at least three funds have unveiled new digital advice solutions following the first tranche of the government’s delivering better financial outcomes (DBFO) legislation that passed in July. 

The funds are partnering fintech and IT companies to develop new digital advice tools that enable members to access advice about their investment options, contributions strategy and insurance arrangements. The tools can suggestion actions to be taken by the member. 

Where the calculators could only offer generic numerical estimations, these tools offer personalised advice, using algorithms to consider a range of factors including risk appetite and financial goals. 

One fund charges its members a $88 fee to access the tool. The payment is deducted from their super account and can be used an unlimited number of times over a 12-month period.  

The tools generate a statement of advice, but at least one fund admits they can’t provide a “full, comprehensive, detailed financial plan”. This is because under the first tranche of the DBFO legislation, super funds can only make recommendations based on the information they hold. 

This means funds cannot ask members for additional details such as the assets they own outside of super, their debts or their partner’s financial details to create a holistic financial picture. 

The AFR says the second tranche of the DBFO legislation is expected to allow funds to:

• Request information about a member’s broader financial circumstances 

• Clarify which advice topics can be paid for from super balances

• Enable funds to “nudge” members, such as prompting those approaching retirement to consider how they will draw down their super. 

It is also expected to legislate for the introduction of a less-qualified and cheaper class of financial advisers, known as qualified advisers.

New research from investment group MLC and social research agency McCrindle boosts the need for more affordable and accessible financial advice.  

It found many Australians are not confident about managing money and are worried about wealth and being unprepared for financial challenges. 

Fewer than one in four people are satisfied with their current financial position, and 41% regularly worry about their finances, according to the 2024 MLC Financial Freedom Report. 

More than 2,500 people participated in the report, which found Australians’ most common goals are: 

• Financial independence 

• Regular holidays 

• A good work-life balance 

• Having a trusted group of family and friends. 

Perhaps surprisingly, owning a home ranked sixth on the dreams list, just below having a happy marriage. 

According to MLC head of technical services. Jenneke Mills the barriers to achieving life goals were time, a lack of financial literacy and education, and not knowing who to talk to. 

The report detailed these barriers: 

• Cost of living 62% 

• Being in debt 21% 

• Not having savings 20% 

• Current spending habits 16%. 

“People are really time-poor,” Ms Mills told The Australian. 

“They wear many hats, and 24 hours a day is not a great deal of time to be an employee, a partner, a parent, for some a carer, and that’s on top of all of life’s other responsibilities. For some, taking the time really to invest in yourself may feel quite indulgent.” 

It seems internet-based information, calculators and digital tools could be counter-productive. 

Ms Mills said this could lead to information overload that turned people off working on their finances. 

“Too much information almost paralyses you and your ability to synthesise it and apply it to your circumstances, and it all becomes too hard,” she said. 

Advice can come from financial planners, super funds and a mountain of online tools and tips offered by financial institutions. 

Some 70% of people told the study that financial wellbeing was the key to achieving life’s aspirations.

“Taking some action is better than no action,” Ms Mills said. 

The report offered what it called “some small but effective moves” people can make today to build financial confidence: 

• Review your current spending habits 

• Create a budget so you can find opportunities to save 

• Build an emergency fund 

• Review your super and see if you’re on track. 

An infographic summary is available here

Related reading: AFR, MLC, The Australian