How to get value from ‘financial’ gym memberships
There are occasions in life where we all pay for something and then don’t use it enough to justify the purchase.
Gym memberships are probably the best example when good intentions fail to be matched by actual usage but streaming services, film clubs and vouchers (gifted or otherwise) for a wide range of goods and services can also fall into the same boat.
Of course, these membership follies can be an easy road to reducing spending when it comes to renewal time there are some times when you have no choice but to pay for a service you may not need.
A prime example of this is one of the recommendations arising from the so-called Levy report – the Quality of Advice Review that was chaired by Allens partner Michelle Levy.
While the review was mainly concerned about reducing the quantity of junk paperwork and costs within financial planning, only 14 of the recommendations were implemented by Assistant Treasurer Stephen Jones out of 22 recommendations.
The rest have gone into a large back burner pot and may or may not emerge in some form down the track after some more industry feedback.
Is collective charging different to fees for no service?
One of the changes that is coming in – and is highly reminiscent of an underused gym membership – is that superannuation funds will be able to charge all of their members for the provision of financial advice, even if many of them are not using it.
The so called “collective charging” model which super funds will be able to implement will allow them to ramp up efforts to give members financial advice around retirement.
Although the way they implement that will be up to individual funds, it runs the risk of being seen as something quite similar to the “fee for no service” issue that so scandalised the Banking Royal Commission and led the big four banks to largely get out of the financial planning business.
That is because all super fund members will pay for the provision of financial planning advice for their members but some of those members may never seek or need the financial advice they have paid for.
Insurers and banks left out – for now
Perhaps understandably, Mr Jones decided not to proceed at this stage with the Levy report recommendations that would have also let the banks and insurance companies in on the “collective charging” caper, which is set to give “legal certainty’’ to super funds on how to collectively charge for advice.
The main hope now for consumers is that the super funds will keep a tight rein on fees and tailor their advice model to expected demand, rather than to simply slug every member with a hefty fee and work out the details later.
Many funds are already well down the path of providing financial advice to members although it remains to be seen how generalised that advice will be, given that preparing for retirement can be a very broad remit.
The funds may even develop electronic advice tools to help their members navigate financial planning now that the shrinking financial advice industry has been priced beyond the reach of many.
Of course, just as with a dormant gym membership, the best answer for many super fund members is to actually use the advice offered as a way to keep financially fit at all life stages, rather than pay for it and sit on the couch or wait until retirement beckons before getting advice.
The best super gains happen when young
Depending on the rules each fund has, it would be a good idea to seek advice even when just starting out at work because getting the risk tolerance right at the start of the journey offers massive rewards down the track.
Getting a realistic plan on which fund is likely to perform best over the very long term – even if that risks some losses along the way – would be a very valuable first lesson to get right.
Young super fund members have the most valuable weapon of all – time – to generate compounding returns that can generate the money that will provide a better than average retirement.
Getting another consultation at various life stages would also be helpful in setting clearer financial objectives both within and outside super and making sure that investment risk is correct and allows for a sound sleep each night.
Going in for a regular financial tune up
An experienced financial planner within a super fund should also be able to shine a light on any investment opportunities that are indeed “too good to be true” and also how to safely navigate major life changes such as forming a household, the arrival of a child, changing jobs and preparing for retirement.
Each visit might only be a tune-up rather than the sort of bells and whistles financial plan that currently costs an incredible median price of $3500 a year but combined with some personal study and reading, that might be all that it takes.
Hopefully the super funds will be able to design some good models to provide such advice and that fund members will be smart enough to take the advice to heart.
After all, they will be paying for it so hopefully they will be coached into some sound financial decisions that will more than cover the fees for advice that have been paid.