The Informed HR/Rewards Manager
Everyone seems to have an opinion about super. The national pool of super assets sits at around $3.9 trillion, and like any other enormous pot of money in Australia, the government continually changes the regulations around managing it.
Introduced by Paul Keating around 30 years ago, the goal of super was to ensure that generations of Aussies did not retire into poverty or a poor lifestyle in retirement. While Paul Keating’s foresight in introducing super deserves the highest accolade, one can observe that 30 years later and, based upon the conclusions of the 2018 Royal Commission, super continues to be a controversial subject.
The question is, who owns the asset?
Employers fund super as part of their proposition to their employees, but employees own the resulting asset and therefore should be engaging with the management of their super as a personal asset.
Now the question is, should employers assist employees to optimise super to improve their lifestyle in retirement?
Regulations of Poor Financial Value
Several dominant authorities regularly tinker with super to suit their point of view. Likewise, many service providers in the industry also try to manage the asset from their perspective but not, and perhaps more importantly, from the perspective of the individual asset holder.
When the government enacted the MySuper legislation in 2012, rules changed restricting the deduction of adviser fees from an asset invested in the MySuper investment default. Time passed, and the 2018 Royal Commission looked to ban adviser fee deductions from super assets altogether.
The introduction of the intra-fund advice fee was a “late concession” (as described by industry sources) that resulted in the Trustee paying the advisor to provide general advice only. To earn the intra-fund advice fee on an ongoing basis, the adviser had to achieve specific targets determined by the Trustee.
Not all super platforms liked this option of an intra-fund advice fee, and some did not offer such an arrangement with advisers. Most advisers took the intra-fund advice fee where available. I know only one adviser group that never accepted the intra-fund advice fee. That being AXIS Financial Group. But why is that important?
While not directly deducted from individual super accounts, when queried during a tender process, a well-known super platform said they could not discount the administration fee charged to plan members as this funds the payment of intra-fund advice fees for adviser services. AXIS negotiated to terminate the intra-fund advice service, and plan members subsequently received a reduced administration fee.
The Ideal Service Model
So, employers fund the asset, and employees own it. Therefore, effective regulation should ensure that those servicing the asset must prove their value proposition to their target market.
Generally, the service providers to the market are financial advisory firms engaged by the super provider to provide general advice only. Alternatively, employers can engage a financial advisory firm to provide financial education and offer personal super advice to all employees to help them optimise super as a remuneration benefit.
Current market observations:
- Super products only provide a registration system to record individual account balance movements and do not necessarily intend to optimise super.
- Relative to adviser groups providing general advice and earning the intra-fund advice fee, it is important to note:
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- General advice does not intend to change the standard proposition offered by the super product.
- Employees who meet specific criteria may obtain comprehensive financial planning advice. However, this is a high-cost service, not generally affordable for the average employee.
- Most employees lack the appropriate financial education to understand and critique product capability and functionality and know little about investing their super asset in the global economy through their careers and into retirement.
- Most employees do not effectively engage with their super as a personal wealth creation asset.
- The general advice service model fails to provide all employees with adequate information to make informed decisions, resulting in the majority ending up with sub-optimal outcomes.
The ideal service offering addresses the limitations of the general advice model by providing all employees with access to super optimisation advice specific to their circumstances. Simply put, employees who do not have access to affordable financial advice will likely fail to optimise their super as a remuneration benefit.
Find Out More
Read more of our blogs at https://www.axisfg.com.au/resources/
Call 1800 467 467 to speak to Richard Matsinger or Ryan Teo or email consulting@axisfg.com.au
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Check out www.superwiser.com.au
SuperWiser is the online client portal AXIS uses to deliver super optimisation advice and ongoing servicing at a fraction of the cost charged for comprehensive advice.