Australians are so optimistic about their retirement readiness that a growing cohort feel comfortable side-stepping costly financial advice completely.
Assuming State Street Global Advisors' latest (SSGA) Global Retirement Reality Report is any proxy, less than one in ten Australians have sought financial advice in the past six months.
Around 40% of the 606 Australians surveyed cited confidence in their own abilities as the primary reason for not seeking professional financial advice.
There’s also been a notable uptick in the number of people feeling chipper about their financial preparedness for retirement. This is up from 24% in August 2023 to a third (33%) in the latest survey.
Three drivers of confidence
Based on the survey’s findings, the three single biggest drivers of heightened confidence in financial preparedness for retirement are:
- Little to no short-term debt (43%).
- Wise investment of their super or retirement plan (43%).
- The ability to save (40%).
Market uncertainty bites
However, despite growing confidence around retirement readiness, SSGA head of investments for Australia Jonathan Shead says many Australians are altering their plans in the face of growing market uncertainty.
Shead believes the three single biggest drivers of retirement anxiety - inflation, increased cost of living, and medical expenses – highlights the tension between personal financial management and global macroeconomic dynamics beyond anyone's control.
"… a third of Australians have changed their outlook on retirement in the past six months, and many are adjusting their plans - either by delaying full retirement or embracing partial retirement," Shead noted.
“… many Australians plan to increase their short-term savings in the next six months, likely due to the market volatility we are seeing.”
Unaware of what’s in front of them
Interestingly, while super is the number one topic Australians want financial advice on, most remain unaware that the advice they seek could come direct from their funds.
According to Colonial First State’s (CFS) Empowered Australian Report, the three most sought after topics of advice were:
- Superannuation (45%).
- Saving for retirement (34%).
- Planning for retirement (31%).
Given that over a third (36%) cited affordability as the reason for not using an advisor, this clearly presents a golden opportunity for super fund-generated advice over independent financial advisers.
Interestingly, while the fees between super fund-generated advice and independent financial advice may not vary much, having it taken out of super makes it appear a lot less painful than via the household budget.
The affordability factor
While affordability is more acutely felt by those aged between 30 and 49, overall 70% of all Australians would like to see advice priced according to their needs, from simple to complex.
Lack of affordability may go a long way in explaining why the number of Australians receiving professional financial advice has dropped from 3 million in 2007 to just 1.8 million in 2022, despite population growth over the period.
“As government starts developing guidance on super and retirement, this should also inform all Australians that if the financial advice relates to issues associated with how you could use your super to save for retirement, the cost of that advice can be deducted from your account,” CFS noted.
While 92% of unadvised Australians were unaware that they could pay for financial advice via their super fund, this appears to be the most cost-effective option.
For example, while recent Treasury research suggests four out of five Australians aged 45-54 need financial advice, they typically can’t afford the annual $4,000 - $12,000 fees for a personal financial plan.
Investment Trends data suggests the average annual advice cost is now $5500, up 17% on the previous financial year.
As a result, we witness an increase in the gap between supply and demand.
In other words, while Australians’ need for high-quality financial advice is growing, affordable and personalised options remain scarce.
Hopefully, super fund-sourced financial advice can bridge this ‘need versus demand’ disconnect without cannibalising members' long-term wealth accumulation along the way.
While super funds offer general advice at no extra cost and select advice (for contributions and investment strategies) also without a direct fee, comprehensive advice with fees can range from $3,200 to $7,000.
