Advice: retail super funds’ home ground advantage
One of the less contentious points raised in our breakfast strategy session earlier in the month was that retiring is complex. It’s difficult to retire effectively in Australia without financial advice. So in a market that is maturing rapidly as the baby boomers retire, a natural conclusion might be that those funds with the biggest advice networks are best placed to win in post-retirement.
And at first glance that would seem to hold true. Today’s first chart shows there is a strong correlation between the scale of a fund’s salaried and aligned planner force (the bars) and the size of its pension division (the red dots) – you can see the retailers with their substantial distribution forces all have more than 20% of their assets in pension mode. In fact, there is already evidence that funds with the largest networks of advisers are attracting the largest number of retirees – and those with underweight advice networks are struggling to retain members at the critical point of retirement.
Source: Tria Super Funds Review; IFA Top 100
For many funds the lack of an adequate advice proposition requires an urgent response
Many not-for-profit funds are facing a very large advice capability gap indeed. Today’s second chart shows the number of fund members per aligned adviser and compares a number of large industry funds with their retail counterparts.
Source: IFA Top 100; Tria analysis
While this ignores supportive IFA networks, it does give a sense of the advice gap between industry and retail funds.
Many industry funds are already being seriously challenged by their members’ demand for advice. For many not-for-profit funds urgent action is needed to develop a practical and effective advice strategy.
However they are not alone, most advisers have less than 250 active clients, so even the retail sector with its much larger aligned adviser forces and supportive IFA networks is under pressure.
As discussed in last week’s Trialogue, the industry here and overseas is exploring less labour intensive scalable advice options such as digital or ‘robo’ advice and mass telephone based advice offers (eg MoneySolutions).These solutions offer the potential for funds to close the advice gap by bringing down the cost of face-to-face advice and providing assistance to those who would not have access to advice at all.
Industry funds have been winning market share from retail funds for some time, however as members enter retirement at an increasing rate, could this trend reverse?
It’s something that we look at each year in the Super Funds Review and the answer is; not yet. The table below shows superannuation category market share trends over the last 10 years, with Retail declining over -6% and Industry funds gaining just over 5%.
Source: Tria Super Funds Review 2014
It’s clear that industry funds continue to perform well in workplace super and any issues attracting and retaining retirees are yet to cause a problem for market share of the sector as a whole. However with the forces we’ve outlined above, without any type of response it’s only be a matter of time before we start to see a significant shift in the competitive landscape.
The advice capability arms race, in all its forms, will be one of the most interesting contests in the super industry over the next few years.