ASFA speech highlights new thinking on advice
Adapted from Jeremy Duffield’s speech at ASFA 2015
Apollo 11 astronaut Buzz Aldrin, speaking at ASFA 2015, talked about mankind’s push to get to Mars as our next great space challenge. Buzz claimed “Our future is in space.” Well, the super industry may have its feet more fixed on the ground, but we have great challenges and opportunities, too. To paraphrase Buzz, I reckon: “Our future is in advice.”
Sarah Brennan of Comparator began our ASFA session on what’s disrupting traditional advice models with the remarkable statistic that only 2% of fund members get advice each year. She added that the average fund had only one financial planner per 35,000 members. In a complex retirement system that heaps the burden of responsibility on members’ shoulders, that coverage is clearly not doing enough to help our members get where they want to go.
I argued that we don’t personalise our services nearly enough for members.
That a good metaphor for the current state of industry practice was the 'Bus to Mystery City'. Our funds are moving masses of people and have created efficient transport. But we haven’t really said where we’re taking members. And we haven’t identified where they want to go. We’re just shunting them along to a mystery city.
That metaphor may raise a few eyebrows, but it conveys the idea that our institutional funds haven’t adequately recognised the individual needs of our travellers, or catered to them by creating a personal journey.
In contrast, many of the headline conference speakers discussing disruption, from Chris Riddell to Kevin Spacey, highlighted the importance of personalised solutions in so many of today’s familiar innovations. To continue with the transportation analogy, when self-drive (SMSFs) is so demonstrably popular, and all kinds of innovations from Uber to the Google driverless car are coming on the scene, our industry needs to move beyond non-personalised mass transportation.
A number of conventions have held us back but our thinking is changing.
The change in thinking
- Our mission has changed from a focus on accumulation to a lifetime focus and especially on retirement income. As AustralianSuper’s Ian Silk put it in his industry oration: Our grand ambition should be to “do all in our power to help all Australians have an adequate retirement income.”
- We once focused on product (building a better 'bus'). It now has to be about the destination, the journey and the experience. It’s about getting the member to, and through, a satisfactory income in retirement. And that takes advice. So, advice has become critical.
- The thinking that defaults are enough is changing to personalised solutions are better. Defaults are cost-efficient but as the poet Robert Zend said: “People have one thing in common -- they are all different.” My corollary when talking to friends considering retirement is that “it’s in retirement, that we’re most different.” It’s hard to imagine that the mooted Comprehensive Income Products for Retirement can be one-size-fits-all solutions. New technology enables a move to efficient personalised solutions.
- Balance reporting was once the convention. Now there’s a move to additional reporting on retirement income forecasts. If super is all about providing retirement income, then it’s easy to see that providing an intermediate target like a balance is of little help to our consumer and that retirement income forecasts are a significant improvement. A big step away from Mystery City Bus Tours.
An ongoing advice journey is the answer
Advice will evolve from a focus on 'transactional' or 'one-off' advice to ongoing delivery of advice. Our current mode of thinking about advice has been that we largely wait for someone to realise they need advice. We may do a few things to prompt it (hold seminars, write emails). And then we deliver once-off advice.
We see instead the opportunity to provide an ongoing advice journey. Funds have the opportunity to escort their members on a multi-decade journey to and through retirement so they better achieve their objectives.
With many funds losing more than 90% of their members at retirement, it’s evident that super funds haven’t succeeded in making members see their value in retirement. Advice can be the 'glue' that makes the difference.
Funds need to embrace digital
Funds have made significant efforts to expand advice capabilities but going the traditional approach with face to face and telephone advice has meant that only a tiny fraction of the membership can be served cost effectively.
The unpleasant reality is that our traditional ways of providing advice just can’t scale to the needs the membership has. It’s too expensive. You can’t hire enough financial planning talent. It’s a model that doesn’t scale! Funds cannot live by traditional advice alone. Funds need to embrace DIGITAL ADVICE, which has a number of substantial advantages:
- extending the reach to potentially the whole membership
- there when the member needs it
- lowering the unit cost
- avoiding sales incentives and conflicts
- offering a whole new set of interactions with members based on learning from behavioural finance and adult learning.
The many innovations in digital client experience, from Amazon to Fitbit, to Uber and beyond, encourage us all to see a future for helping members meet their goals with a highly personalised experience.
The SuperEd difference
SuperEd sees a very different approach to advice than traditional financial planning. Our virtual advice platform creates an advice journey for members so they can seek better retirement outcomes over a many year program of education, engagement and advice. It doesn’t deny the value of human advice but seeks to complement that advice; it’s an AND strategy, not an OR strategy. We think it enables super funds to roll out advice to a much greater percentage of their membership and to help those members achieve better outcomes. The added benefit for funds is increased retention over the long term.