Online Super Advice

The current scandal engulfing the BIG 4 consulting firm PWC has shone a spotlight on why receiving advice from a conflicted source is fraught with danger.

For anyone not familiar with the current scandal, PWC was engaged by the Australian government to provide professional consultation and advice on how to get global companies such as Google, Apple and Microsoft to pay their fair share of taxes for business carried out in Australia.

These global companies happened to be clients of PWC as well so one of the partners at PWC saw an opportunity to profit from the inside information they collected from the Australian government by charging consulting fees to these large companies on how they could avoid paying tax under the proposed tax changes.

Having worked as a contractor for another Big 4 consulting firm in 2018 I witnessed firsthand the obvious conflicts of interest in their business model so it wouldn't surprise me if these dodgy business practices were more widespread.

So how does this relate to superannuation and retirement?

Prior to 2018, banks were the main employers of financial advisers who were incentivised to act in the interest of their employers over the interest of clients/customers.

This conflicted remuneration model led to wide-spread misconduct which was uncovered during the 2018 Royal Commission into superannuation, banking and financial services.

Fast forward to 2023.

Banks no longer employ financial advisers, while superannuation funds continue to employ more and more financial advisers.

When you are an employee financial adviser of a superannuation fund (or bank) you are inherently conflicted - there is no way around it.

It is very difficult to provide financial advice that is in the best interest of your client (as is required under law) when you are under pressure to recommend the in-house products of your employer.

Cheap/free advice from your super fund or any other conflicted source may save you money in the short-term but could be very costly over the longer-term.

Whether you are many years from retirement or have already retired, having a clear plan helps to alleviate stress and anxiety, according to this latest study from Vanguard Australia.

Purposeful planning key to retirement confidence: Vanguard Vanguard research has revealed that Australians who seek advice and have a clear retirement plan have the highest levels of confidence about their future.

When it comes to financial advice, you can have cheap or good but you can't have both.

The Quality of Advice review into making financial advice affordable and accessible to more Australians has recommended (among other things) that there be a two-tiered system of financial advice.

It is essentially proposing that the law should be changed to allow employees of banks and super funds (non-relevant providers) to provide "good" advice to their customers and members while relevant providers (licensed financial advisers) will continue to be held to a higher "best interest duty" standard.

So, if you get advice from an unqualified employee of a super fund it will be good/free/cheap, but if you seek advice from a professional financial adviser you will need to pay for it but you can instruct the super trustee to have the fee paid from your super account.

This post from a lawyer on LinkedIn sums up the inequity and issues of the proposal brilliantly:

"Will the Quality of Advice Review lead to a 2-tier advice industry?

While we have been generally supportive of the bold recommendations coming from the Quality of Advice Review (QAR) we are less convinced of the fairness and wisdom of Recommendation 3 which would divide the industry into ‘relevant providers’ (i.e. financial advisers) and non-relevant providers.

Let’s explain.

It has been well-recognised that banks, super funds and other big institutions are likely to dive headfirst into the advice space again if the Quality of Advice Review (QAR) recommendations are implemented as tabled. This comes hot on the heels of ASIC issuing a final update on the fee for no service and non-compliant advice scandals where Australia’s six largest banks and financial institutions have paid or offered $4.7B in compensation to consumers over this conduct: see ASIC media release 23-057MR.

And why wouldn’t these big institutions dive back into the financial advice space when they will be able to provide personal advice without having to meet those pesky professional standards (including education and training and complying with a Code of Ethics) and statutory best interest duties that the professionals, i.e. financial advisers, must meet? Of course, high standards are part and parcel of any profession and they should be encouraged. But naturally, ensuring such high standards are met imposes additional costs and compliance burdens on those bound by such standards. The financial advice industry has been working on becoming a profession for years.

The flipside of that is that non-relevant providers do not need to meet these professional standards or a best interest duty. It flows from that that an advice provider who is not a relevant provider can provide personal advice to the market from a lower cost base than relevant providers.

Also, when you consider that to be a non-relevant advice provider, you just need to ensure that clients don’t pay a fee for personal advice and issuers don’t pay a commission where such personal advice is provided, those non-relevant advice providers get to bring such advice to market even cheaper because they have done away with any payments directly related to providing personal advice.

It doesn’t take Einstein to work out that such arrangements are tailor-made for the banks and other big institutions who will have every incentive to vertically integrate and cross-subsidise their products and services so they can take their products and advice directly ‘from the farm to the plate’.

Then they will be able to go to market with ‘personal advice’, much more cheaply than relevant providers. But how will the average consumer be able to tell the difference between those offerings? Both will be personal advice and one will be significantly cheaper than the other. A fair, level playing field? Unfortunately, we don’t think so.

Investment scams continue to be the largest category of scams in terms of money lost.

You are much less likely (in fact, extremely unlikely) to be scammed by a licensed, registered financial adviser than by someone you've met on the internet who is unregistered and unlicensed to provide financial advice.

As per the Corporations Act, only licensed financial advisers can provide financial product advice, which includes advice on superannuation and managed funds.

As an authorised representative of an Australian Financial Services licensee, Online Super Advice can only recommend financial products that appear on our licensee's Approved Product List (APL).

Only managed funds which meet acceptable ratings criteria from trusted Research Providers such as Lonsec, Zenith, Morningstar and SQM can be recommended to clients

If a managed fund has a rating below the set criteria, special approval needs to be sought before the fund can be recommended to a client.

As far as direct shares and ETF's are concerned, Online Super Advice can research and recommend all ASX Top 500 shares.

We are also permitted to recommend the use of some major Investment Platforms (including Master Funds and Wrap Accounts), depending on the sophisticaion of the investor.

Lastly , we are able to recommend Industry Super Funds operating under the Industry Funds Association of Australia.

In summary, be wary when someone offers you free financial advice.

This includes scammers on the internet and, to a lesser extent, advice from your super fund.

Free financial advice usually means that you are likely to pay for it somewhere down the line.

Over $1.5bn lost to investment scams in 2022 The latest Targeting Scams report has revealed Australians lost over $1.5 billion in investment scams in 2022, with the number targeted for investment scams via social media rising by a third.

The article is interesting but the comments are even more so.

There are so many comments with the same "it's my money and I'll spend it as I wish" theme.

I totally understand this attitude but it also reveals a lack of appreciation of why it's important to plan for the retirement phase of super.

The Australian superannuation system is around 40 years old and it's only on 1 July 2022 (last year) that the Retirement Income Covenant (RIC) came into force.

Essentially, the RIC requires super trustees to develop a retirement income strategy for their members.

It's essentially an acknowledgement by the government that the drawdown phase of super needs to be improved in order to address key risks that have been identified including longevity, inflation and investment risk.

Boomers urged to stop hoarding With 800 Australians due to retire every day for the next decade, giving them access to a whopping $1.5 trillion in superannation, Baby Boomers are being encouraged to stop hoarding and start spending their retirement funds – or risk new taxes being imposed.

Thanks to everyone who participated in the poll asking "What keeps you from seeking financial advice?"

There were 75 votes and the results show that "Cost" and "Lack of Trust" are by far the main reasons people in this group do not seek financial advice.

In August 2019, the Australian Securities and Investments Commission ran a similar poll and the results were:

Financial advice is too expensive: 35%
My financial circumstances are too limited: 29%
I like to manage my finances myself: 26%
I do not trust financial advisers: 19%
I do not see the value of consulting a financial adviser: 18%

I suppose the good news is that people in this group appear to acknowledge that a financial adviser can add value to their situation.

Would be good to run further polls to gain a deeper understanding of why cost and lack of trust are still major factors.

In the retirement (pension) phase of super, we generally recommend that our clients have their super invested in such a way that about 2 years equivalent of pension payments is invested defensively (in cash and bonds) while money needed for the longer term is invested in a combination of growth and defensive assets, according to their risk tolerance.

From a psychological point of view this provides clients a certain level of peace of mind knowing they're able to ride out any short-term volatility in the sharemarket.

Unfortunately, many super funds only have a single diversified MySuper option that invests young accumulators and retirees super in the same way.

The graphic below is an example of such a single diversified investment option.

This goes some way to explaining why so many super members in retirement phase who have not sought financial advice panic when sharemarkets become very volatile.

Investing in a single diversified investment option in pension phase means having to sell down growth assets everytime you receive a pension payment.

Rather than have one investment option, our strategy for those in retirement phase is to employ several single sector investment options.

This allows us to seperate defensive assets like cash and bonds from growth assets like shares and property allowing short-term pension payments to be made only from the defensive side of the portfolio.

In pension phase, the objective is not out and out returns.

If this was the case, we would recommend clients invest 100% in growth assets like shares.

Instead, the objective is to obtain an acceptable risk-adjusted return without having to worry about short-term volatility so that you can enjoy the retirement you've worked so hard for.

When it comes to retirement planning, it helps to get a handle on what you can and can't control.

The graphic below provides a great summary of the things you have total control over, the things you have no control over and the things you have some control over.

One more thing I would add that you do have control over are the fees you pay on your super on an ongoing basis.

The average person can expect to pay ongoing administration and investment fees equivalent to about 1% of their super balance.

Research shows that reducing your administration and investment fees by 0.50% or more can help you save tens of thousands of dollars over time (depending on your super balance).

So, rather than paying your super fund excess administration and investment fees that add absolutely no value, you are likely to be far better off paying for professional retirement planning advice that takes into account the issues listed below, and more.

ChatGPT is a powerful new chatbot powered by artificial intelligence (AI).

Everybody's been talking about it this week so I thought I would give it a go.

I asked ChatGPT: "Why should Australians seek retirement advice?"

This is the answer I got - with no alterations:

"There are several reasons why Australians may want to seek retirement advice. One reason is to help plan and save for retirement, as having a solid retirement plan in place can make it easier to achieve your financial goals and maintain a comfortable standard of living during retirement. Additionally, seeking advice can help you understand the various retirement income options available to you, such as government pensions and private savings plans, and choose the best ones for your needs. Finally, retirement advice can help you navigate the often-complex rules and regulations surrounding retirement, such as tax laws and eligibility for government benefits, which can be difficult for individuals to understand on their own."

If something as smart as ChatGPT thinks there is value in seeking retiement advice then it just may be onto something.

"Australians who received comprehensive financial advice had an average of 22% more funds in their superannuation account and were able to withdraw funds at a higher drawdown rate, according to new research."

Australians receiving financial advice likely to have higher super balances | Money Management New research by Aware Super found members who receive advice are likely to end up with higher superannuation balance and withdraw funds at a higher drawdown rate.

I was shocked to see this post on LinkedIn yesterday.

This guy is blatantly advertising his unlicensed, dodgy financial advice on such a public forum, putting at risk the life savings of hard-working Aussies.

Essentially he has recommended that his 62-year old "customer", who plans on retiring in 5 years time, transfer his money out of his industry super fund to a self-managed super (SMSF) fund and invest soley in crypto so that he can turbo-charge his retirement savings and enjoy "the lifestyle he deserves."

Seriously?

Unfortunately, it seems like the regulator (ASIC) does not have sufficient resources to police this type of unlicensed financial advice as there are far too many operators like him out there duping retirees.

Investment scams are on the rise so its now more important than ever to make sure you receive your financial advice from a licensed, registered, qualified financial adviser.

Financial advisers like Online Super Advice are entrusted to provide advice on people's life savings so its imperative that we do so with the utmost care and diligence.

While we as advisers don't often enjoy the "overkill" compliance that applies to our industry, its great from a consumer perspective as it ensures that adequate saftey nets are in place to ensure that the financial advice you receive is provided by an adequately trained and educated person who, under law, has to act in your best interest.

As an emerging profession, we have to adhere to stringent rules and regulations in order to retain our license which includes completing 40 hours of Continuing Professional Development (CPD) each year.

As a comparison, lawyers are required to complete 10 hours of CPD per year and accountants are required to complete 15 hours.

Financial advice is a thorough process that involves gaining a deep understanding of your existing financial situation and what you are trying to achieve and then applying our knowledge and expertise along with hours of research and strategising to deliver customised solutions.

The objective is to help you to prepare for the best possible retirement.

It is not uncommon for retirement to last longer than 20 years and considering that superannuation is most people's largest financial asset, investing in licensed retirement planning advice is one of the smartest investments you could make.