Shocking new research from Roy Morgan has indicated that in the three years to November 2015 the average amount of superannuation switched per year was $35 billion with 31 per cent of switchers receiving no financial advice before making the move.
As the government prepares to implement new laws, opening the $9 billion default super market to allow everyone to choose their own fund, this figure could soon be on the rise.
Of the remaining survey participants, 33 per cent of those who switched funds sought professional advice from either a financial planner, adviser or accountant while the remaining people talked to either their employer, financial institution, friend or family member before changing funds.
Norman Morris, the Industry Communications Director at Roy Morgan, commented, “Given the complex nature of superannuation, the lack of consumer engagement, poor understanding and low confidence in the system, it is vital that more people get advice when making decisions about switching their fund.”
However, these figures point to a larger issue of mistrust within the community towards financial professionals that the Turnbull government is seeking to remedy with new regulations. The regulations include an increase in the amount of education required to become an accredited financial adviser as well as mandatory ongoing professional development and a comprehensive code of ethics.
However, with the changes not due to be implemented until next year, it seems unlikely that they will have an immediate effect on the number of Aussies seeking professional advice before switching funds.
The report also revealed the inaccessibility of professional financial advisers that limits lower income earners from using these services. The average super balance of those seeking professional advice was $233,000 compared to $109,000 of those seeking no advice and $96,000 for those receiving advice from their employer.
With most financial services incurring a hefty fee for their advice it is often simply not practical for low income earners to engage their services.
The likelihood therefore of everyone engaging professional services before making a decision to switch super funds is low. Instead it will likely continue that more and more Australians do their own research and use comparisons to make their own decisions.
ASIC has provided a set of guidelines to consider before making the decision to switch your super fund:
- Check how well your current fund performed over at least 5-10 years. The fund’s annual report tells you about the investments it made and how they performed during the year.
- Check if the actual return broadly matches the return target for your fund. If not, look for a reasonable explanation. Don’t panic if the short-term returns are negative: remember that super is a long-term investment.
- Make sure you understand the consequences of changing, especially if you’re in a defined benefit fund. Check for exit/termination fees, higher/lower employer contributions, any changes in insurance cove and how the change affects your retirement benefit.