Keeping super advice straightforward makes a lot of good sense

ONE of the objectives of the Future of Financial Advice (FOFA) reform package is to facilitate the delivery of simple financial advice to help people position their superannuation for a more comfortable retirement. We should, therefore, embrace the opportunity for superannuation funds to connect working Australians to quality advice as an excellent starting point.

Unfortunately, opposition to some parts of FOFA, particularly in relation to advice within a superannuation fund, threatens to remove this opportunity by eliminating the ability to include simple superannuation-related advice into overall superannuation management fees. Further, recently released legislation ("tranche two") outlining the new best-interests test has also created much debate and controversy, again around the capacity to provide limited or scaled advice to consumers, including members.

There is no question about the appetite for financial and superannuation advice. According to Mercer's Superannuation Sentiment Index, released last March, 42 per cent of working Australians sought advice from financial advisers, and 40 per cent from their superannuation fund 54 per cent said they wanted to improve their level of knowledge about super and only 14 per cent said they had good knowledge already.

There is also no question that advisers must act in the best interests of their clients. What we need to ensure is that the process to fulfil this duty can be implemented to support limited or scaled advice rather than detract from it. Advisers must have certainty around the nature of the advice agreed with their client, which leads to the ability to deliver the right advice. Treasury is working hard to deliver on the government's commitment to ensure more accessible advice through scaled advice, and we need to engage ASIC in this process to enable the best-interests test to be applied effectively so we don't land up where we are now, which is to overengineer the advice process unnecessarily "just in case".

Mercer's experience has shown simple advice can be delivered to members in a cost-effective and straightforward way. We've been offering limited personal advice to our 1 million-plus superannuation fund members since 2003, and in 2010 alone some 20,000 members of the Mercer Super Trust, corporate, public sector and industry funds benefited from high-quality, simple advice.

The large majority of members want answers to specific questions. In analysing our inquiries, we see almost one-third want to discuss their investment options (31 per cent) to ask general queries including understanding the tax position (19 per cent) and for general questions about retirement planning (15 per cent). Insurance and contributions were the next topics most frequently asked about (9 per cent).

The regulators would like to draw a line between financial "information" and "advice", but unfortunately, our members don't draw imaginary lines so we need to offer both. They would never call us back otherwise they just want answers.

As a result, we make sure our people and processes meet the requirements of the law but we do this quietly and cost-effectively. With a small team of people providing simple advice, costs are managed effectively and treated as an operational expense, much the same as claims management, administration and online access. Moreover, callers tend to want one-off advice, rather than long-term relationships or complex strategic advice. There are, of course, those people who do require more detailed advice and we do respond to those needs appropriately, through face-to-face consultations. However, it is far-fetched to suggest financial advisers are not meeting their legal obligations if they don't give holistic advice, even when a simple question is asked.

We estimate it costs about $5 a member a year to provide education and limited superannuation advice on the phone or through the workplace. Members are already paying us a fee to manage their superannuation and if we were to add a fee every time a member called, members could quite rightly ask the question: "Why am I paying you more to answer my question about my superannuation fund?"

We would first need to ensure the call was indeed for advice, price the advice on the call or seminar, set up a charging facility and engage the caller on the cost and method of payment, provide the advice, determine the final fee, bill the fee and collect the fee. Not to mention issuing the Statement of Advice that would also be required. Costs would escalate to at least $150 to $200 a call.

When the markets went haywire in August this year, Mercer experienced a 15 per cent increase in calls to our member helpline and 800 members consulted our website for information on the latest round of share market movements, within the first few days. The number of members requesting phone-based advice increased by 30 per cent.

Members wanted reassurance about their asset allocation and their investments overall, or they wanted to discuss their investment options and whether they should make changes. Imagine the chaos if we had to implement the above onerous system.

If the FOFA reforms remove the ability to include simple superannuation-related advice into the overall superannuation management fees we will see demand for advice drop dramatically and the cost of advice increase just as dramatically.

FOFA will deliver better outcomes for consumers, with greater access to quality advice at an affordable price.