A financial revolution is quietly under way, with superannuation funds now the first port of call for investors seeking financial advice. The convenience of being able to phone for simple advice is creating a surge in the number of members seeking help.
Mercer reports a 27 per cent increase in advice given over the phone in the past year. During 2011, it provided general and simple advice to 20,000 members in the workplace over the phone.
Industry funds have been experiencing an even greater uptake.
The national practice manager, strategic clients at Industry Fund Services, Frank Gayton, estimates there has been a 50 per cent spike in phone and email advice inquiries from members of industry funds in the past year. He says the bulk of inquiries comes from older baby boomers. "Those born in 1947 have just turned 65, or are about to and they are looking seriously at their retirement options," he says.
Changes made by the government in 2009 allow funds to advise members on their super investment options, insurance and whether they should be making extra contributions through salary sacrificing.
But complex advice, such as whether to switch to another fund, is excluded from the provisions.
The need for counsel appears to be increasing, particularly from those nearing retirement.
A survey of over-40-year-olds by Investment Trends found the proportion who said they were "pretty much" or "definitely" on track to reach their retirement goals dropped from 38 per cent to 27 per cent, while those who said they were "way behind" climbed from about 20 per cent to 26 per cent, from a year ago.
However, those proportions are magnified as people get closer to retirement.
The chief operating officer at Investment Trends, Eric Blewitt, says the three years before retirement seems to be the rabbit-in-the-headlight moment, with 40 per cent, down from 60 per cent a year earlier, saying they are going to meet their retirement objectives.
That large increase close to retirement is due to market impact as well as a "harsh glimpse of reality", Blewitt says.
As well as the convenience of obtaining simple advice over the phone, other likely reasons for the increase in the advice-giving by super funds is that most people who do not have a financial adviser are unsure of what they would bring to the table.
The point was underlined by a survey of more than 1100 investors without an adviser. Almost two-thirds said key barriers to seeking advice were that they were unclear of what advisers could provide and lacked trust in them.
Most demand, at least among the self-directed investors surveyed, is for "scaled" advice, rather than for holistic advice.
Almost 60 per cent said they would be interested in scaled advice - catering to their specific needs - rather than a full-service relationship.
About half said they would prefer a financial adviser to provide the limited advice about a quarter preferred their super fund to provide the advice and a further quarter said they were unsure who they would prefer to give the advice. Kristen Turnbull, the head of advice, wealth and super at CoreData, which conducted the survey, says the number of direct investors has been growing in recent years, driven by the market environment, a desire for flexibility and control and the explosion of social networking, which is creating a "me" mentality.
She says the survey shows that there are some key barriers advisers need to overcome, including low trust and a lack of understanding of the value of their advice.
Keeping it simple
Most large funds provide simple phone advice at no cost to members. This is paid for by the collective administration fees from all members.
Most funds limit access to phone advice. Members requiring complex information are referred to a financial planner employed by, or aligned with, the fund.
For comprehensive advice, the adviser must know their client's full financial details which can be a lengthy undertaking. A full financial plan can cost an average $2500, and more for more complex work.
Industry Fund's Frank Gayton says most traditional planners acknowledge that the super funds have a role to play. He says industry fund planners are remunerated for their advice and not dependent on selling financial products.
The "channels" through which investors can get advice look likely to expand further, with government draft regulations allowing accountants to provide "strategic" advice to their clients.
At present, accountants are limited to advising on matters such as tax and tax structures, including family trusts and the administration of self-managed super funds.
Yet clients might also want to know whether their money is better used to pay down mortgage debt or invested elsewhere.
The new measures, which come into effect from mid-2013, enable suitably qualified accountants to apply for a limited financial advice licence, under which they can provide advice on super and self-managed super funds, simple managed investment schemes, securities, general and life insurance needs, and basic deposit products. They will not be able to make product recommendations.
REFORMS TIPPED TO BOOST CONFIDENCE
While lack of trust is often cited as the No.1 reason consumers don't use a financial adviser, there are good reasons for believing the reforms of the financial planning industry, once fully implemented, will increase consumer confidence.
From July 1 next year, among other reforms, there will be a mandatory requirement for financial advisers to act in
their clients' best interest, as well as a ban on commissions
and other types of conflicted remuneration.
Start dates for the reforms vary and some, like the banning of commissions, only apply to new clients.
While the financial advice industry has been moving in the right direction, a section of the industry still adheres to a sales culture.
In March this year, the Australian Securities and Investments Commission released the results of a shadow shopping survey it commissioned last year using real consumers seeking retirement advice.
While most of the advice (58 per cent) was considered adequate, 39 per cent was poor, and just 3 per cent was good quality advice.
ASIC found that where advice fees were contingent on a product recommendation, there were numerous examples where it was "structured towards recommending or selling financial products".
"Two-thirds of the advice in the shadow shopping study involved the recommendation or continuation of in-house products or products associated with the advice group," it said.