Advice: not negotiable!
The need to use a professional, accredited financial adviser to assist people with retirement fund decisions is becoming critical. Not least as a result of the increasing range of choice offered to retirement fund members.
While advice has always been an important element of successful retirement planning, given that your level of comfort in retirement depends largely on decisions relating to your employer retirement fund as well as your own personal financial decisions, Sanlam’s 2013 Benchmark study showed an alarming set of concerns.
Factors influencing decision making
Sanlam’s research study looked at the decisions retirement fund members make and the assistance they called upon to make these decisions.
Included in decision making are, for instance, how much people contribute to their retirement fund, how early they start saving, their choices of asset allocation and preserving their retirement savings. It also includes the decisions made at retirement.
On the issue of how much to provide for retirement, almost half of the retirement fund members surveyed estimated that about ten times their salary or less was needed. And 10% of people indicated that they didn’t know how much money they would require for retirement.
This tells us that personal financial advice is becoming essential.
Financial advice
One advice related aspect has shown a positive improvement since 2010; 20% of members polled indicated that one needs to obtain advice regarding retirement 20 years prior to retirement. Alarmingly, just over a quarter of members still think you can obtain advice less than five years prior to retirement and 7% of members think it’s unnecessary to seek retirement advice.
When asked who would be their first point of contact for retirement fund issues or understanding something about the fund, half of the members said they would speak to the human resources (HR) professional. Only a quarter said they would speak to a personal financial adviser or broker.
While it is very comforting that half of the fund members polled indicated they would make an investment decision based on the advice from an adviser or broker, 10,6% randomly selected an investment fund, and 21,2% received advice from a colleague.
The concern is that these critical decisions, which impact on an individual members’ investment return and ultimately his/her retirement outcome, are being taken without obtaining proper advice.
According to Sanlam’s research, 43% of retirement fund members do not consult a financial adviser or broker about retirement savings and investments.
New members
The choices that newly appointed retirement fund members make, directly impact their retirement outcome and other benefits they receive through their retirement fund.
Choosing the appropriate level of cover or investment that will suit the members’ needs, risk profile and age is an extremely important decision that requires appropriate advice.
Sanlam’s research into this area found that almost 65% of members thought they had sufficient knowledge to make an informed decision. Some concerning aspects from the research pertain to whether employees were allowed enough time to obtain advice:
• 18,6% of members had to take a decision within a couple of hours and,
• 44,2% were given a few days.
Sanlam’s survey suggests 62% of members were assisted by HR and there is no evidence that new retirement fund members obtained financial advice from a professional.
Growing inportance
Retirement savings is one of the three biggest expenses for a quarter of retirement fund members, and there is growing recognition of the importance of financial advice in the employer retirement fund environment. While the financial services industry has invested much to support the training and accreditation of financial advisers, there is not enough evidence that people obtain qualified, professional advice in their retirement funding decisions and it seems many fund members tend to take critical decisions based on advice from their employers’ HR department.
