Super funds increasingly find offering advice ‘unsustainable’: SuperRatings

At a media briefing in Sydney on Wednesday, Joshua Lowen, research analyst at SuperRatings, said advice was the second most asked about topic at super fund annual member meetings, behind only investment strategy-related questions.

“Three-quarters of funds had some kind of question from members asking for advice in an annual member meeting,” Lowen said.

“Funds can’t actually answer advice questions in these meetings, they’re public forums, but members wanted advice. It was pretty interesting, actually, if you read the minutes, there were funds that then sent financial planners to these members.

“It really highlights that for an engaged member, advice is really important. And probably for a disengaged member, advice is important, they just don’t know it.”

SuperRatings executive director Kirby Rappell added that for many members, they are unsure what level of service they need.

“I think members are generally confused whether they want help or whether they want advice,” Rappell said.

“For a lot of people, that probably isn’t full scale, financial advice looking for, I think they’re probably looking more for help, and they just don’t know specifically how to ask for it, which is pretty reasonable when you think about that.”

Despite this interest in advice among super fund members, there has been a sustained decline in the number of funds that offer advice services going back to the financial services royal commission.

The research house noted the proportion of funds offering comprehensive advice has decreased from 71 per cent in 2019 to 59 per cent in 2023 while scaled advice has declined from 76 per cent to 62 per cent over the same period.

“What we’ve found going back since 2019, is there has been a pretty decent drop off in comprehensive advice. Less and less super funds are finding it sustainable to be able to fund a comprehensive advice offering internally, so the demand may not be there or the ability to make it cost sustainable may not be there,” Rappell explained.

“So, there’s actually less superfunds offering internal comprehensive advice. But I don’t think the demand for advice is necessarily going down, it’s probably the places that the end client or the end super fund member needs to go to get that advice is shifting.

“It will be either the people who’ve signed up for an adviser panel with a super fund, super funds doing referrals, or people out there finding their own financial advisers, hopefully using reasonable resources to figure out who’s a good planner for them.”

He added that while simple intra-fund or scaled advice has also seen a reduction, it has held up better than the provision of comprehensive advice and “seems to be the domain of where super funds are going”.

“The actual level of usage of financial advice, and it’s probably not helped by the contraction number advisers in the market, but only about 0.3 per cent of members of the median super fund actually got financial advice last year through a scaled means and about the same, or even a little bit less, on the comprehensive advice piece,” Rappell said.

“So, the actual level of usage of financial advice is actually pretty low.”

The challenge, he said, is around super funds communicating the value of advice to members, as well as figuring out whether they should lean into product rather than advice.

“You actually find that the internally offered advice is actually cheaper. It might be in the $2,000 to $5,000 range and external might be sort of $4,000 to $7,000 range, but you do find that members are quite price sensitive within super funds,” Rappell said.

“Secondly, their average balance is a bit lower than people going out talking to advisers, so I think the threshold to get advice has actually gone up quite a bit. The industry is a little bit stuck trying to get an understanding what the value of advice is and finding a price point that members are willing and able to pay for it.

“I think the key theme that seems to be going through the industry is that funds need to choose between providing advice and providing product. There are more super funds going back to providing a bit of help and guidance and product, and less so advice.”