Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
Advisers inundated with early release super enquiries
Strongly divided views about the wisdom of using the early release from superannuation have prompted large numbers of fund members to seek the advice of financial planners.
Losing insurance cover, reducing retirement benefits and crystallising losses are the main issues commentators have highlighted.
According to AMP’s technical adviser support team, early release of super was the topic most frequently asked about by advisers’ clients during March and April.
Colonial First State’s (CFS) technical superannuation team have been flooded with the same enquiry.
Specifically, CFS notes one of the main questions asked by financial advisers regarding the government’s new measures is clarifying the situations where members will qualify for early access to their super and where they won’t.
CFS technical services manager Craig Day says: “The focus from advisers to date has been on understanding how the different rules may benefit their clients to help them make important financial decisions during these difficult times.”
The Australian Prudential Regulation Authority has released figures from superannuation trustees covering the number and value of early release benefits paid to superannuation members and the processing times of those payments.
Around 107 funds have processed 162,879 applications out of the 665,310 applications received and paid members $1.3 billion. The average benefit paid was $8,002.
Senator Jane Hume says: “It is particularly pleasing to note that trustees have listened to the needs of members and are delivering funds within an average of 1.6 days after the receipt of their applications from the Australian Tax Office.”
CFS’ Day reiterates that members remain informed about their policy and consider the impact on their super before they access it.
“There could be some unintended consequences for some members. For example, fully withdrawing a small balance could result in the inadvertent cancellation of a member’s salary continuance, life and total and permanent disability insurance”.
Perri says a range of measures are available to help people through a period of lost income, both from the government and private sector, such as the mortgage payment pause offered by the banks.
Australian Securities and Investments Commission (ASIC) capped advice fees regarding the early access of super at $300 and allows advisers to provide a record of advice rather than a comprehensive statement of advice in this circumstance.
In addition, the Financial Planning Association has released digital versions of the record of advice (ROA) template to support members who have been inundated with requests for advice.
The template allows advice to be provided for a single or a couple, and for withdrawals immediately twice or the recommendation that no withdrawal is made.
Dante De Gori, chief executive of FPA says the FPA understands this is a difficult time for its members to be able to provide advice to existing clients on accessing super at the price point set.
“Financial advice is of national importance, especially in times like now, our members need to be armed with the tools and support needed to help their clients and where possible the greater public,” De Gori says.
The general consensus from industry bodies is for this option to be a last resort.
AMP technical strategy manager John Perri says: “This is a great initiative by the government, which is supporting Australians doing it tough, but it will impact retirement balances. We’re therefore encouraging people to make sure they understand the implications and all available options to support their finances before applying for early release.”
ASIC’s retirement savings calculator shows that someone aged 25 withdrawing the maximum $20,000 this year would have $47,000 less in today’s dollars by the time they retired at 67.
SuperRatings executive director Kirby Rappel says trustees switching to cash or a more conservative option will lock in the losses in their fund and will miss out on the upside when the market eventually recovers.
He says: “Knee-jerk changes to your portfolio could have a negative effect on your retirement.”
Industry Super Australia (ISA) and the Australian Institute of Superannuation Trustees share the view that members who are facing financial hardship should take up the assistance offered by welfare support before dipping into their super.
ISA chief executive Bernie Dean says: “Members need to know that taking your super now is like selling a house at the bottom of the market- you’ll lose money you would probably claw back overtime.”
Sally Loane, chief executive of Financial Services Council Loane agrees: “Accessing superannuation should not be the default response to providing income support for Australians in need over the short term, so we are pleased to see that this is a temporary measure as part of a broader income support package.”
