Compulsory super was introduced in 1992 and at some time, most of us have thought “I could do with the money in my hand” or “I think I can be trusted to use the money in my own best interest”.
Indeed, it took the government and the regulator over 25 years to introduce legislation that said service providers must act in the client’s best interest. One might have thought that such a standard was obvious for 25 years but apparently, it’s never been the case.
The government and the regulator are moving once more to re-regulate bad practises within the financial services industry and, in particular, around super. The government is now boasting they are implementing all the recommendations made by the recent Royal Commission.
Re-regulation has been constantly applied to this sector. Based upon the problems aired by the Royal Commission, however, this seems to have been unsuccessful. If we repeat the same exercise, wont we just get the same result? The Royal Commission identified some very bad errors made by product providers but it may not have identified the underlying problem with super.
So, what is the dominant service model that is currently being applied in servicing super as an individual asset?
The Dominant Super Service Model
The financial services industry does have a standard service model prevalent across all super product providers. Every product sounds like they are promising service, which they are. However, they are not actually promising you an individual service to optimise your super.
Products are only promising what is commonly known as general advice which means doing nothing to help you optimise your super. Let’s simply define general advice as meaning general information.
Super products are well aware of the challenges of providing the public with information that indicates they might not be your first choice if you knew what they know; or if you understood what their advertising truly means as opposed to what it tries to imply. All products provide a service in recording your balances, with a one size fits many approach in terms of how you optimise your super.
The components of the one size fits many approach are:
- A standard fee structure without any responsibility to be competitive.
- An uncomfortable feeling that the fees are higher than the product is worth.
- A standard insurance design without any responsibility to make sure premiums are competitive.
- No advice on when to review or cancel your insurance as most people live to spend their asset in retirement.
- No effective promotion on salary sacrifice.
- A standard default investment choice, labelled by the government as MySuper and commission free.
- The product providers appear to feel no responsibility for any underperformance in their default MySuper investment strategy.
- All product providers have investment choice menus which are never used to recommend what would be a much better investment strategy for the individual.
The real problem is that the dominant super service model, as designed by product providers, only offers a standard definition of individual service at a population level. This is very different to personal scaled advice at an individual account level.
Unfortunately, the Royal Commission has not examined the overall super service model closely enough to reset the regulation of super in an effective and individually beneficial manner.
Projected Income In Retirement
Everybody deserves their optimum lifestyle in retirement, and everyone is entitled to know what they are buying, and especially what is not included in the fee.
SuperWiser indicates what improvement you can get by managing your super better, showing you a projection of your retirement income in today’s dollars. It also offers an advice and implementation service for an affordable one-off fee of $220 (inc GST). Try it and confirm for yourself that the benefit in seeking this advice exceeds the cost. I am sure you will be in for quite a surprise.
Get started by completing a free Super Review today.