The perfect storm: super funds vs. the advice industry

Australia is on the brink of a retirement surge. Over the next decade, the number of Australians leaving the workforce will skyrocket - placing unprecedented pressure on financial advice.

Living longer is good news, but also raises tough questions. How do you fund a retirement that could last 30 years? Given the accelerating demand for advice on pensions, aged care and superannuation, the industry is at a critical turning point. Who will step up to meet this need?

As superannuation funds expand their financial advice capabilities, lines are blurring. Is this a natural evolution - or is financial advice now in direct competition with super funds?

There has been a number of things happening in the background to lead us to this point:

• 1. An increasing demand: The number of Australians entering retirement is set to explode, with age groups 65-85 years and 85+ years predicted to grow 25% and 50% respectively¹.
• 2. A growing advice gap: Over 11.8 million Australians have unmet advice needs² and 80% aren’t getting the education or guidance they need from their super fund³.
• 3. A spotlight from government & regulators: superfunds are under increasing pressure to be transparent about how they’re investing money into better outcomes for members, with increased regulatory demands under the Retirement Income Covenant.
• 4. A financial literacy crisis: Good financial literacy can add $100k over a lifetime. Unfortunately, in Australia financial literacy has gone backwards by as much as 14%.

What does this mean for the industry?

These four elements have created the perfect storm for both financial advice and superannuation. And while some might view a storm with some trepidation, others see it as the chance to ride a swell.

What does this swell look like? At least 486,000 new holistic advice clients⁴ and 4.6 million Australians ‘interested in advice’. With this wave of potential new advice clients coming in at $320-580 per person⁵, the Australian advice market could grow by 64% by 2030.

So: how do super funds and financial advisers seize this opportunity?

Super funds have a great opportunity to provide advice at scale. With the regulatory push to improve financial literacy and access to advice, they are well-positioned to step up. Iress recently launched Digital Advice Solutions to complement comprehensive advice by providing superannuation funds and other industry players with the ability to deliver personalised digital advice and financial education at scale.

Financial advisers should expect to compete with the superannuation industry for this future market growth, or differentiate their value proposition. Advisers can meet this wave of retirement demand by carving out their niche. They must define their ideal customer segments, hone their specialisation, and tailor their offering to stand out.

A secure retirement income

One thing is clear - Australians want more security for their retirement.

According to the TAL and Investment Trends 2023 Retirement Income Report, 65% of non-retirees are unaware of existing retirement income products offered by their super funds. Even among those who are aware of pensions or lifetime income product options, understanding is limited.

We recently surveyed the advice industry on retirement income products, asking whether advisers incorporate lifetime annuities into their clients’ retirement strategies. Respondents who said that they did not use lifetime income products as part of their client’s retirement transition strategy cited inadequate modelling tools and too many procedures as the main barriers existing with the current process. The consensus? The industry needs access to better tools for seamless and efficient modelling to illustrate the impact of including a lifetime income stream.

Super funds are responsible for ensuring stable and sustainable retirement income at the prudential level, but advisers have the ability to help clients make up the difference. At Iress, we are working with the industry to increase awareness and simplify access to retirement income products by fully integrating them throughout the advice journey in Xplan.

Keeping a human touch in a digital age

Addressing these challenges will require scale and efficiency—something that super funds will be able to adopt with the use of digital tools.

At the same time, advisers remain essential; demand for their expertise isn’t going away. The challenge will be balancing the use of digital efficiency with face-to-face engagement that some demographics still prefer.

Striking the balance between technology and the human touch will be key to how advisers differentiate their service from super funds.

No matter how you look at it, the pressure is on the financial services industry to deliver smarter, more accessible retirement advice.

Visit thebigshift.com.au to review the four key choices that advisers have to make to maximise competitive differentiation and play to existing strengths, while putting the customer at the centre.