Growing Capability in Financial Advice

Transcription

1 Growing Capability in Financial Advice How superannuation funds can grow their capability in financial advice without breaking the bank DATE: OCTOBER 2012 AUTHORS: PAUL DIVINY

2 Growing Capability in Financial Advice In efforts to retain members or grow market share, superannuation funds are increasingly turning their attention to the role of financial advice in their strategies. For most funds with established comprehensive financial planning services using either their own team, an embedded service or fully outsourced their attention is focussed on providing Intra Fund and simple Single Issue advice in the most cost effective manner. For others, the time is perfect to consider their needs across the entire advice spectrum. Why is financial advice so important? When it comes to developing a financial advice strategy, the Future of Financial Advice, Stronger Super and Modern Award reforms weigh heavily on superannuation fund trustees decision making. The current climate creates a perfect storm : relaxed regulations regarding Intra Fund advice delivery; emphasis on fee-for-service advice; new platform tools for member self-service; the need for MySuper products to have adequate intra-fund advice offers; and increased member concerns with investment choice, retirement outcomes and insurance. Looming account consolidation means many funds face significant retention issues. Advice is viewed as an ideal mechanism to assist retention, particularly if it is well targeted, cost effective and simple to deliver. Advice is a major catalyst for member retention, acquisition and growth Exhibit 1: Advice is a major catalyst for member retention, acquisition and growth Can your fund capitalise on a more engaged member s need for advice whilst the rest of the industry is focussed on dealing with the Government s superannuation reform agenda? Advice Strategy Key Issues SPP Observations Implications for Funds Educating members on accessing affordable advice is a key challenge Members want a seamless experience across multiple channels Many funds struggle to get members to take action and even then ~50% of plans are converted Members prefer a mix of channels to complete their advice experience Funds need to find ways to increase conversion especially now that new information sources encourage members to take action Funds need to provide channel options for different member segments Funds are competing with major banks to access quality planners FOFA reforms are causing an industry shakeout with questions on whether planners will embrace a fee-for-service proposition Funds (or their third party agents) need to offer a compelling planner proposition Funds face several options to invest in advice Advice expansion options are wide and varied Funds must ensure any investment is clearly linked to achieving their strategic outcomes In SPP s opinion, funds can steal a march on their competitors by exploiting the market s preoccupation with reform by focussing on member needs for advice. Source: SPP Analysis LUC-BD-002: LUCRF Super Advice Strategy Page 1 Strictly private and confidential 2

3 What is the return on investment? Members accessing financial advice (particularly when promoted by their employer) are more likely to increase voluntary contributions, exercise investment choice, optimise their insurance cover and stay with their existing fund. This provides a measurable return on investment for funds considering how much to invest in their offering. Exhibit 2: Impact of Advice on Member Behaviour (% Members) Evidence of Member Engagement Low Advice (3-9%) High Advice (20%) Co-Contributions 3-6% 15-35% An intangible benefit is how members behave after the advice interaction. Do they recommend it to their work colleagues? Do they suggest others should join the fund based on this service? Member surveys are important to measuring the overall ROI impact. What are your options for cost-effectively meeting members advice needs? The market for financial planning services is evolving rapidly new channels and business models are appearing at a rapid pace and provide several choices for funds to consider. Before deciding on your best option, it is important to consider your fund s goals and objectives (refer Exhibit 3 for ideas). Investment Choice 20-30% 85% Insurance 3-6% 35% (Income Protection) Exhibit 3: An advice strategy balances a Fund s current situation and future vision ADVICE STRATEGY FIVE KEY QUESTIONS Key questions: Strategic planning outcomes: What is our advice offer today and how popular is it? Understand how we are performing at the moment Key questions to answer in a Strategic Planning process What s the advice vision, e.g. all flight risk members receive advice annually? What might stop us getting there? Can we meet demand? Can we afford it? Do we agree on how we will get there? What s the plan? What are the trustee and member benefits? Can we make an investment case? Identify improvement opportunities Agree our long term goals and objectives Identify gaps and limitations to achieving objectives Develop a plan of action Organise resources around priority activities Agree roles and responsibilities EXECUTE! 3

4 Recent SPP experience Strategic Project Partners assists funds with their advice needs including: strategy development; business case development and business planning; conducting RFP s; and strategy implementation. Some key findings from recent assignments include: Intra Fund and Single Issue advice is the next battleground new vendor services are emerging and providing funds with ample choice to select services to complement or replace current capability; Take care not to over-commit to Intra Fund advice in case demand exceeds your capacity to pay and service it market research, segmentation and small campaigns help here; Organic planner growth should be considered alongside sourcing from third parties embedded or outsourced decide your preferred member experience and structure around that, not vice versa; Segmentation ensures members are aware of your services, understand what suits their circumstances, and know how they can take appropriate action use research based segmentation factors; and Vendor performance measures should include responsiveness, accuracy, cost and member advocacy ensure your ROI measures factor in all quantitative and qualitative benefits and costs. Seven things you could do now SPP believes strongly in funds taking adequate time to think through their options before committing to an action that has long term consequences for their member retention, acquisition and growth. Funds looking for an edge over the competition are using this approach: 1. Advice strategy: gaining a deep understanding of where the Fund is going regarding advice 2. Business case: ensuring Boards are comfortable with investment in end to end service for members 3. Business plan: developing a way forward to translate the strategy and vision into a go to market approach 4. Planner capability: evaluating best of breed third party vendors viz hiring your own team 5. Funding: consider funding options via a user pays or fund subsidised approach in line with new legislation and competitive boundaries 6. Strong performance culture: developing skills, processes and systems in place to achieve your objectives 7. Continuous improvement: reducing cycle time from Time to Appointment to Time to Implementation, understand what drives members to use and recommend your service including shadow shopping as required 4

5 About SPP We are a general management consultant firm focussed on ensuring our clients and partner organisations gain the benefit of a structured, tailored, and evidence-based approach to solving complex business problems. Established in 2005, SPP has delivered successful outcomes for a broad range of commercial and government sector clients. As a result, we have strong relationships with many businesses, from Top 50 listed companies through to small enterprises. About the authors Paul Diviny Paul is a highly innovative, senior financial services executive with expertise in program management, consulting, business transformation and operations management in superannuation, business banking, consumer lending and payments, gained in some of Australia s leading financial institutions. Strategic Project Partners Level 41, 120 Collins Street Melbourne, Victoria 3000 Phil Noble m t e phil.noble@spp.com.au Insig ht Influen ce Impa ct 5