Financial advice for $88

As expected, the government has made a conscious decision to increase the regulatory framework around financial advice, which in conjunction with the Compensation Scheme of Last Resort, has increased the cost to provide financial advice, which has subsequently seen the cost of receiving financial advice rise to a level that it is not accessible for all Australians.

This has opened up the doors for the government to legislate and allow for product providers, including super funds, to provide low cost or digital advice.

These details were discussed in the Financial Review - in an article by Michelle Bowes.

https://www.afr.com/policy/tax-and-super/financial-advice-for-88-super-funds-launch-low-cost-tools-20240924-p5kd0g

We wanted to provide our response to this article.

Response to Financial Review Article:

As financial planners, we welcome any efforts that make financial advice more accessible to Australians. However, it's critical to highlight the potential downsides of the recent rise in digital advice solutions offered by superannuation funds and insurance companies. While these tools promise convenience and cost effectiveness, they often lack the nuance and personalised focus that comes with advice from an experienced financial planner whose sole responsibility is to act in your best interest—not in the interest of retaining your money within a product provider’s ecosystem.

The recent Financial Review article illustrates the growing trend of superannuation funds providing digital advice tools following legislative changes. While these tools may be a step towards addressing the unmet advice needs of many Australians, they carry significant limitations. These digital platforms are built around algorithms and typically offer a narrow view based only on the data a super fund holds. While they may provide general guidance on investments, contributions, and insurance, they fail to consider the full scope of your financial situation—such as external assets, debts, or partner finances—that are crucial to creating a comprehensive financial plan.

The Risk of Overlooking Key Financial Factors The real-life example we experienced recently is a perfect case in point. One of our clients received advice directly from their superannuation provider to move their benefits from accumulation to pension phase. On the surface, this seemed like a sound move. However, after our detailed analysis, it became clear that this decision would cost the client over $100,000 over the next five years—a massive loss that could have easily been avoided with thorough, non-aligned advice. The super fund’s focus was primarily on moving assets within their ecosystem, rather than considering the client’s broader financial goals and tax implications.

Human Advice vs. Digital Tools Digital advice tools, like those being rolled out by Colonial First State, Hostplus, and others, are certainly cost-effective. However, the low fees come at the cost of depth. These tools generate basic recommendations based on limited data, and as Ms. Power from CFS acknowledged, they cannot provide a comprehensive financial plan. The tools are not designed to consider broader financial circumstances such as your debts, real estate holdings, family situation, or long-term objectives.

In contrast, when you work with a dedicated financial planner, every aspect of your financial life is taken into account—your current situation, future aspirations, tax obligations, and even unexpected life events. The advice you receive is holistic and personalised, designed to maximise your financial wellbeing in the long term. Moreover, as fiduciaries, we are bound by law to act in your best interest—something that a digital advice tool simply cannot replicate.

Long-Term Impact of Incomplete Advice The limitations of digital advice from product providers should concern anyone nearing retirement or making critical financial decisions. One notable issue with super fund-provided advice is the focus on retaining funds within their own products. The advice may fail to inform you of options outside of their ecosystem, potentially costing you thousands in lost opportunities, tax inefficiencies, or poor investment outcomes. This narrow approach contrasts sharply with the unbiased advice provided by a non-aligned financial planner, whose role is to ensure your entire financial house is in order.

Superannuation and retirement planning is far more complex than merely moving funds from accumulation to pension phase. Taxation considerations, withdrawal strategies, estate planning, and structuring your assets for long-term sustainability are just a few of the layers that need to be analysed with care. For example, many clients may not fully grasp the implications of moving into pension phase or the government-imposed minimum withdrawal rates that escalate as you age, forcing you to draw down assets even if you don’t need the income—potentially exposing you to additional tax outside the super environment.

The Value of Personal, Tailored Advice Our role as financial planners is to educate and empower you to make the best financial decisions, not only for today but for tomorrow too. We focus on strategies that align with your personal circumstances, allowing you to protect and grow your wealth, plan for your family’s future, and avoid costly mistakes. Whether it's managing investments, tax strategies, or preparing for retirement, having a human advisor to walk you through these complex decisions ensures you’re not leaving money on the table or making decisions that could cost you in the long run.

While digital tools may serve a purpose for some, there’s simply no replacement for the value of personalised, unbiased advice from a professional financial planner who has your best interests at heart.

At Newcastle Advisors, we pride ourselves on delivering financial strategies that are as unique as the people we serve—because your future deserves more than a one-size-fits-all approach.