Speaking at a recent media event, Ignition Advice chief executive, Asia-Pacific region, Craig Keary said there has been significant growth with digital advice offerings in the UK and there are signs that Australia will soon follow the same path.
“Our view is that all firms will have contemplated digital advice as a strategy in the UK by 2023. We’re also seeing signs of that coming here to Australia,” said Mr Keary.
“Certainly, the interest in solving the advice gap in Australia has accelerated and the retirement income covenant will accelerate that further for superannuation funds.”
While Australia is currently around a year behind the UK in terms of digital advice offerings, Mr Keary said the Quality of Advice Review and a strong desire by the institutions to try and solve the advice gap is likely to prompt a lot of activity in this space over the next 12 to 18 months among larger super funds and other wealth management firms.
Ignition Advice APAC head of clients Robert Coulter said the retirement income covenant, which applies to APRA-regulated super funds from 1 July, is a “burning platform” that will put a lot of pressure in the system.
“All super funds need to have contemplated by 1 July what their retirement strategy for the fund will be. Many funds have an ageing demographic and their members trust that their fund will look after them,” Mr Coulter said.
“Most of the fund executives and trustees that we’ve met have an incredible desire to meet that expectation.”
The issue that many funds have with engaging with their membership in this way at the moment is with scale, with some funds servicing over 2 million members, explained Mr Coulter.
Mr Keary said there is a growing tension between the inexorably growing demand for personal advice, driven by rapidly increasing numbers of older members, and the limited human advice capacity of super funds, typically capped by headcount or spending constraints.
“To date, that tension has often been resolved by the member seeking advice elsewhere, also often resulting in the member leaving the super fund,” he explained.
“As the number of older, higher-balance members within many super funds now grows rapidly, many exits by such members would be an outcome which undermines the fund’s desire to assist members in their transition to retirement.”
Mr Keary said the application of digital advice technology would help super funds to greatly expand their capacity to offer intra-fund advice services.
“Digital advice technology is well suited to a fund’s intra-fund advice offer and can be delivered by a fund in different ways, including member-driven, adviser-led and hybrid, where digital is used to leverage human intra-fund advice teams. Our international experience suggests a hybrid model leads to positive member and institutional outcomes,” he explained.
Ignition Advice has released a paper, the Going Digital with Intra-Fund Advice blueprint, which explores digital advice solutions for intra-fund advice for superannuation trustees to deliver cost-effective, accessible advice to members to optimise their retirement outcomes.
“Digital advice fundamentally changes the economics of advice delivery by substantially increasing a fund’s advice capacity in a highly cost-effective manner, while improving member experience. A hybrid digital advice model allows a fund’s human advisers to be redeployed to support members requiring personal assistance or with complex needs, while technology addresses the most common intra-fund advice needs,” stated Mr Keary.
“In essence, the hybrid model creates the capacity for a fund to deliver on underlying member demand for intra-fund advice. This means funds can address the advice gap, serve more members at lower costs and ultimately help more members access the benefits of advice to achieve better retirement outcomes.”
