The current financial advice model serving retirees in Australia is suboptimal for their needs, argue Lonsec head of investment consulting Lukasz de Pourbaix and Milliman practice leader Wade Matterson explain all.
Politicians, financial advisers, fund managers and superannuation funds don’t share too many immediate parallels, particularly when it comes to how strongly their survival is linked to keeping their stakeholders happy.
A politician’s very existence depends on their ability to keep tapping the changing zeitgeist of an electorate. Former Prime Minister, John Howard, survived over 10 years on his uncanny ability to ‘read the play’ among the nation’s battlers and aspiring middle classes.
Conversely, financial advisers, fund managers and superannuation funds in Australia have, for many years, been shielded from such a Darwinian existence through legislated industry revenue growth via the Superannuation Contribution Guarantee (SGC), a sustained era of rising equity markets and, in the ‘for profit’ sector, a symbiotic relationship underpinned by opaque commission-based remuneration structures.
To be blunt, until now, it simply didn’t matter how investment and financial advice needs were changing when fund flows were safely guaranteed by legislation and markets were consistently rising. In that environment, superannuation funds could collectively manage business risk ahead of the risk of portfolios not meeting investors’ objectives, with widespread peer risk-driven ‘herding’ behaviour evident in thinly-differentiated investment approaches. An industry of 16,000 financial advisers could sustain a comfortable existence with less than 25% of the population utilising their services.
Disquiet among investors is now growing as they conclude that the advice (fees) and products (performance) they were sold have failed them.
So what does all this mean for the provision of post-retirement financial advice (and product suitability) for this sector?