What consumers expect from superannuation and financial advice

KPMG has conducted a survey that reveals insights into what consumers expect from their superannuation and financial services institutions in the ongoing pandemic world.

QSuper ceases offering comprehensive advice

One of Australia's largest superannuation funds, QSuper, has ceased offering comprehensive advice to new members.

While the move seems sudden, QSuper says the decision is on the back of several years of data showing that few members are taking up the service, less than 1% of the fund's 585,000 members.

"Overwhelmingly, our members have told us that they need advice about their investment strategy, ways to make the most of their QSuper account, and help with retirement planning," CEO Michael Pennisi said in a statement.

To that end, the fund is adding more staff for over-the-phone financial advice, which is provided at no additional cost to the member.

Divesting the service meets a larger financial services trend of ceasing vertical integration to focus on core business services. Many large organisations, like Westpac, have gotten out of the game because it either wasn't profitable or they weren't able to provide the service that members expect.

In other cases, the separation was mandated by regulators or legislation.

Comprehensive financial advice offered through a superannuation fund has always been an odd offering. Intra fund advice, like selecting investments or contribution strategies, makes sense as it is aligned with the needs of customers. But would an adviser who is employed by a superannuation fund recommend that you leave that fund if it were in your best interest?

That perceived conflict of interest - whether it actually exists or not is irrelevant - could cause concern for some members. It's not limited to superannuation funds; any institution that recommends its own products and services could be seen as self-serving and not serving the customer.
At the same time, I understand that people who underwent comprehensive advice through their fund were more likely to stay with that fund through the rest of their life. In that way, comprehensive advice is more of a marketing and customer loyalty tool.

There are, sadly, real impacts for people working at QSuper. 23 paraplanning-related roles will be made redundant next months and 32 more support roles will be affected in October.

"Right now, our focus is on supporting affected staff and, as a first option, finding a new role for them within the QSuper Group where we can. We will work with each staff member affected to support their wellbeing and their career," a QSuper spokesperson said.

What do people actually want?

QSuper's rationale for leaving comprehensive advice is that people have shown that they don't want that service from their superannuation fund. Less than 1% of QSuper's members engaged the service.

2018 Roy Morgan research found that nearly 10% of Australians have used a financial planner or adviser for their superannuation or managed funds, however it wasn't broken down by limited or comprehensive advice.

The majority of those people, however, got their advice from one of the big four. And, at that time, they were also in an older demographic (55-64) that were nearing retirement.

A more recent survey conducted by KPMG both in Australia and abroad found that younger people are starting to get interested in making the most of their money - and they want to do it differently.

80% of the 1,500 people surveyed said they want digital financial advice rather than traditional face-to-face offerings, a trend that may have been accelerated by the behaviour changes that came about due to the coronavirus restrictions. The majority of people under 40 favoured digital advice.

The contrast comes from what people say they want and their actual behaviour. Nearly 60% of respondents said they wanted financial advice from their superannuation funds. Digging into the numbers, however, it appears that what they mean is advice on contribution and investment strategies, as they are seeking "better value." Those who see a financial planner see the value but the most don't want to pay for the service.

Digital is the new normal

"Our survey shows the financial impacts from COVID-19 are highly significant and are having far-reaching consequences on consumer spending, attitudes and sentiment to products and services, and preferences to service channels," said KPMG's Tim Thomas. "It finds clear signs among consumers of a 'refusal to return' to the old pre-Covid-19 ways of interacting with their providers. There is an expectation in the COVID-19 era that businesses will offer greater value for money and be more flexible in the services and products they offer."

Thomas says that providers need to be aware that people are starting to watch their spending even if their employment hasn't been directly affected by the coronavirus economy.

Trust is the primary metric

While perceived value and objective costs were among the things consumers were looking for, the idea of trust surfaced as something consumers need - and businesses must provide. "As examples, many super fund members are asking for advice on alternative options rather than just accessing their funds early, while insurers are increasingly expected to offer a discount or rebate without being asked," said Thomas. "By meeting these new expectations businesses can build trust among consumers, which is evolving as a concept and now has to meet a 'will you put my needs first?' test.

Consumers want to buy from providers they trust - both with their data, and in terms of companies having a 'social conscience; and being seen to put customers, employees and communities ahead of profits."

Face-to-face meetings provide an inherent level of trust. While going digital may be more efficient and convenient, it adds an impersonal filter to a transaction which may cause some consumers, particularly "an older minority", concern.

Of those surveyed pre-crisis, 51% favoured digital methods for engaging with a company. As of May, those who preferred other methods (telephone or face-to-face) have shifted their support to digital channels like email and online portals.

Interestingly, those who prefer a face-to-face meeting are even keener to do so following weeks of shutdown and limitations.

Younger Australians getting proactive

Unsurprisingly, there has been a significant increase in two-way engagement between providers and customers across all channels. Between quarantine, job losses, and reduced hours, people have had more time on their hands to engage with different providers.

What is notable is that younger people have been more likely to reach out to a range of providers than older Australians.

The significant account balance drawdowns enabled by the early release scheme is one reason why this has happened. Half of consumers surveyed said they are now more aware of their super balance since the crisis. 57% said they need to review their investments and nearly half say they had their savings and retirement plans interrupted by the pandemic.

Superannuation funds need to increase engagement

"Super funds do need to increase engagement with members," says Linda Elkins, KPMG's head of asset and wealth management. "The survey shows it is less frequent than in other financial services areas.

"Nearly two-thirds expected to be able to deal with their super provider wholly digitally and this is an area which many funds are addressing, but they need to focus on operational improvements even more to meet expectations."

Members say that financial advice from their provider is important but they aren't willing to pay extra for it.

The pressures of decreasing FUM due to early release, declining market performance, and liquidity challenges combined with increased member demand and expectations and regulatory requirements, "will increase the likelihood of more fund mergers to achieve greater scale," says Elkins.

Financial planners are becoming more important

While consumers surveyed by KPMG found that people view financial advice as a discretionary spend, and the majority aren't willing to pay for it, those that use the service see it as essential.

70% say they're satisfied with their planner, compared to 59% who were satisfied with their superannuation fund.

KPMG's Tim Thomas says that, like superannuation funds, planners need to increase their engagement and be more proactive in contacting customers while maintaining flexibility in both the products and services they provide.

"Despite the financial pressures many people face, there is much here that financial planners can take heart from," says Thomas. "The challenge for planners is turn that underlying potential into services that consumers are willing to pay for. Personal relationship with advisers is often as important as the funds invested in, so regular engagement is critical, and this must be through a variety of channels, given that two-thirds now want to go wholly online.

"With such a community focus on improving the affordability and accessibility of financial advice the big opportunity for advice organisations is to respond to customers shift in mindset to engage financial planners through a hybrid of face to face and digital interactions, which should go some part to reducing the cost of advice delivery without compromising on its quality."