Digital advice tools are likely to form part of the solution to the advice challenge in relation to retirement. We speak with HESTA’s Josh Parisotto about the experience over the past 18 months since the launch of the tool, Future Planner.
The final report of the Quality of Advice Review led by Michelle Levy, Partner at law firm Allens, is a comprehensive work that includes 13 recommendations, affecting the entire advice spectrum.
But if there is one thing that becomes clear from the report, then it is that financial planners alone cannot meet the demand for all the various forms of advice. And as more Australians move to retirement, the demand for advice will only increase.
Levy is keenly aware of the challenges and observes that there are simply not enough planners to service everyone who needs advice, while there are also barriers to access advice caused by the costs of full-scale advice.
“There are only around 16,000 financial advisers in Australia and their numbers are declining,” Levy says in the final report, which was released on Tuesday, 8 February.
“If the regulatory framework continues to require all personal advice to be given by a financial adviser, it would exacerbate the existing accessibility and affordability issues which are part of the reasons for this Review.
“Happily, I do not think it is necessary or in the interests of consumers to require all personal advice to be given by a financial adviser,” she says.
Levy sees an important role for digital advice tools, and technology in general, as part of the solution to the advice challenge.
The key challenges that we face in building our retirement strategy and engagement model was around the balances of our members and in particular the two challenges we face around the casualisation of the workforce and the lower pay rates, which have a direct impact on what that future retirement balances of members are when they reach retirement – Josh Parisotto
“Digital advice tools… have the capacity to make it possible for financial institutions to employ staff who are not financial advisers to provide advice to their customers and to help financial advisers do their jobs more efficiently,” Levy argues in the report.
Superannuation fund HESTA reached a similar conclusion when it looked at the demographic of its member base.
HESTA represents employees working in the health and community services industries and about 80 per cent of its members are female, which in practice means their members often have lower account balances, partly due to broken work patterns .
Full scale financial advice is unlikely to be appropriate for the majority of the fund’s members, and this was a key consideration in the development of its retirement strategy.
“The key challenges that we face in building our retirement strategy and engagement model was around the balances of our members and in particular the two challenges we face around the casualisation of the workforce and the lower pay rates, which have a direct impact on what that future retirement balances of members are when they reach retirement,” Josh Parisotto, Chief Advice Officer at HESTA, says in an interview with [i3] Insights.
“The average member that we see in the fund is a female, aged 44, with an average balance of about $37,000 and income on average around $60,000 mark. So that in itself is challenging, when building a decent accumulation balance for retirement.
“But even at the age of 67, members have around $100,000 on average, so we need to look at ways to maintain that balance at age 67 up to life expectancy, whether it’s 82 or 83 years of age.
“That is what started our journey: How do we offer services to these membership cohorts?” he says.
A full Statement of Advice (SOA) costs between $3,500 – 5,000, which is out of reach for the majority of HESTA’s members, so the fund looked at how digital advice tools could provide a solution, which led to the development of the Future Planner tool.
“We know that advice is episodic,” Parisotto says. “Members engage with the fund at the time of need, but they also need to be confident in terms of utilising that service to take action.
“So we conducted a review of our advice services and we found most members are looking for a few things: one being help, the second is guidance and the third part is that they said: ‘give us confidence’.
“It is not about (financial) education, because it became very clear through the Future Planner co-designed with members that they didn’t want that. They said: ‘Just give us guidance and give us confidence so we can actually make a decision’,” he says.
It is not about (financial) education, because it became very clear through the Future Planner co-designed with members that they didn't want that. They said: ‘Just give us guidance and give us confidence so we can actually make a decision’
Parisotto gives the example of a member who went through the pilot program of Future Planner, named Sarah. This 44 year old childhood educator said that she liked the fact the tool, and in extension the fund, wasn’t merely about numbers, but was interested in what mattered to her.
“We looked at this and said: ‘We’ve got to have a really good user experience, because that gives members the confidence to take action’,” he says.
The tool provides simple information, but also enables a member with more detailed questions to be referred to HESTA’s retirement hub, where they can talk to a general advice specialist. HESTA has about 12 such specialists in the team.
Parisotto gives another example of Sonia, a 54 year old nurse, who said not to have thought about retirement before, but found the tool helped her to look at what retirement looks like in the future. Looking into the future and having the ability to talk to someone when going through the tool gave her the confidence to take action.
“Members often say that they have got to remember the numbers and that it is too hard for them and so they disengage,” Parisotto says. “That has changed our thought process, and so we built a strong user experience, took out the jargon and made it really simple, which goes back to that confidence argument,” he says.
“But as soon as the member wants to know more about a retirement income stream, or has questions around drawdown limits or contribution limits, that’s when they’ve got the ability to book a time in with a retirement hub person.
“Now, it is only general advice that this team provides and if they identify a personal advice need where, for example, a member might say: ‘Do you think I should start an income stream?’ then that would be triaged to our super advisers, which goes into our intra fund licensing.
“If the retirement hub team identifies that this member has non-super and super needs, then they will refer that on to our external financial advice panel,” he says.
If we look at the usage rate of our members online, which is our online access [portal], then one in every four members actually go on and utilise a Future Planner tool. So to have a 25 per cent hit rate means there is definitely demand
Since August 2021, HESTA had about 153,000 members accessing its website through its member portal, and when they do they are presented with an informational video on Future Planner.
Parisotto says that a quarter of them engaged with the tool.
“If we look at the usage rate of our members online, which is our online access [portal], then one in every four members actually go on and utilise a Future Planner tool. So to have a 25 per cent hit rate means there is definitely demand,” he said.
“We’ve had over 24,000 members take action, so this is actually going through the tool, not talking to anyone, but actually physically taking action themselves, filling in the forms and making a contribution to the fund,” he says.
HESTA has also developed a transition to retirement tool, which provides single issue advice. This tool links to an advice and help page, which has seen engagement numbers of 700 eligible members so far .
This tool can also form the starting point for personal advice, Parisotto says.
“We’ve had 680 members eligible for personal advice go through the retirement hub team since August,” Parisotto says.
HESTA is currently building a network of partners to fill in the gaps of products and services that its members are looking for in the future.
“We’ve got a partnership model in place, where we offer financial planning services on a referral basis,” he says. “We specialise in super retirement income streams, but anything outside of that we’re going to have partners in place,” he says.
[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.