Why reforms will make financial planning more affordable for you
Financial planning is about to become more affordable and increasingly available through your superannuation fund following changes announced by Financial Services Minister Stephen Jones this week.
The changes are a very good thing because only 16 per cent of Australians get any financial advice and just 43 per cent of people say they are prepared to pay for advice.
The cost of advice has been a barrier for many to get the information they need to improve their financial situation.
And with five million Australians approaching retirement, that need is increasing all the time.
Financial Services Minister Stephen Jones’ announcement on Tuesday will help make advice more affordable in two ways.
That is good because, as the table above shows, advice is currently unaffordable for many people.
Superannuation fund advice
The ability of super funds to give members personal advice will be greatly improved.
Members can only be offered guidance on retirement and asset allocation in relation to their own accounts at the moment.
But when the reforms – which come in response to the Quality of Advice Review recommendations – become law, then super funds will be able to look at a member’s family situation and overall financial circumstances more broadly.
That could mean looking at your age, income, spouse’s income, number of dependents and financial commitments, such as mortgages or other debts.
Through an algorithm you could get questions like ‘Why don’t you pay off your mortgage?’ or ‘Have you thought of making extra super contributions?’
There will also be more complete advice on retirement incomes, how long your super will last, age pension entitlements and whether it would be attractive for you to downsize your home or help your children in some way.
The change will recognise the fact that people retire as households, not individuals, and it will help people plan better.
Using emerging AI technology, funds will be able to give a much higher level of advice to members who can’t afford the expense of hiring a personal financial adviser.
“This is a positive step forward for millions of members, as they will now be able to access the level of financial advice they require,” AustralianSuper CEO Paul Schroder said.
“The removal of barriers on the provision of digital advice is a game changer, whether that is simple guidance to assist members in delivering an income in conjunction with the age pension or more complex advice needs.”
Planning costs will also fall
Those choosing to use a personal financial planner, which can now cost between $3500 and $4500 for a plan, will also likely get cheaper fees.
That’s because the reforms will cut much of the red tape and duplication in preparing financial plans.
“We have created a system that is very complex and that adds to the cost of advice,” said Sarah Abood, CEO of the Financial Advice Association of Australia.
“Many hours are spent preparing documents that can be literally duplicated up to nine times in a year,” Abood said.
The changes will see the advice process streamlined dramatically “and that I expect will have the effect of lowering the cost of advice because administration will be less expensive”, Abood said.
Getting value from advisers
Financial advice can be expensive, so you need to make sure you are getting as much value from it as you can.
“It’s really important to be clear on what your goals are when you see a planner,” Steps Financial principal Antoinette Mullins said.
That means working out your aims – saving for a mortgage, reducing the mortgage you already have, reducing tax, or finding ways to boost your super.
That way you can develop strategies to achieve those goals.
“Financial planning is about strategies and using the system to get you further ahead in life,” Mullins said.
“If you need to reduce your mortgage then it is: ‘How can I manage my cash flow better to do that’?”
She said there is also a need to work out what you can do yourself and what a planner can do.
“You might say ‘well I want to manage my own money’ but you have to be realistic about your own abilities and the time and effort it will take for you to do that.”
The new rules for super funds, which offer more holistic advice packages to members and the likely reduction in base rates for personal advice through planners, will help put more people on a better financial trajectory.
“I think every Australian needs some sort of financial advice, but the level, duration and complexity of that advice will differ greatly,” Mullins said.
This story first appeared in our sister publication The New Daily, which is owned by Industry Super Holdings