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Members reluctant to pay for advice, says Sanlam

22 May 2013 Fiona Zerbst
Fiona Zerbst, FAnews Online Editor

Fiona Zerbst, FAnews Online Editor

Sanlam’s Benchmark Symposium provides Sanlam with an opportunity to share its survey results with the public. The symposium was held in Midrand on 14 May and, as always, the speakers left the audience with a lot to think about.

“Funds see these annual results as a benchmark, which leads to further debate and hopefully also to improvement”, said Dawie de Villiers, CEO Sanlam Employee Benefits, in the opening session. Sanlam conducted four separate surveys this year: standalone funds, umbrella funds, members and pensioners. The results in question give us insight into the current state of the retirement fund landscape.

De Villiers said that the trend towards industry consolidation and umbrella funds continues, but there is a future for standalone funds. “Despite the move towards industry consolidation, standalone funds serve a purpose and they should not be sidelined, despite the rather paternalistic view held by the industry,” he said.

Overcoming retirement apathy

 

De Villiers made a compelling case for overcoming apathy when it comes to retirement – whether we’re savers, financial advisors, employers or fund trustees. The theme of this year’s symposium, ‘What happens when one day becomes day one’, shows that making the wrong retirement choices on day one will have broad ramifications. For this reason, the symposium focused very much on the role employers can and should play in terms of furthering their employees’ knowledge around retirement.

Statistics show that only 51.7% of the members surveyed are happy with the original decisions made; and 89.7% indicated they did not revisit those decisions when they joined their employer. More than half the members say they trust the trustees will make sound investment choices when they put together default portfolios. This appears broadly consistent with the satisfaction South African consumers appear to have with regard to retirement products – they continue to purchase retirement products in droves.

“What this emphasises is the crucial role that employers and HR play in terms of guiding employees,” said de Villiers.

He also pointed out that, collectively, everyone who works within the industry has to try to “make savings sexy, something you want to talk about over the braai,” because South Africans are not saving enough. “High returns will no longer make up for a lack of savings, as they may have done in the past,” he cautioned. “The market is tough and we’re facing low expected real returns.”

Wagieda Suliman, Head of Institutional Research: Sanlam Group Market Intelligence, said it’s been proved that behaviour is the key here – it’s really not about how much money one earns, but about how much one saves.

Sanlam’s research indicates that combined employer and employee contributions stand at 15.61%, but this still isn’t enough to secure an adequate pension – herein lies the challenge for the industry.

Members not prepared to pay for financial advice

A worrying aspect of this research is the fact that members appear to be reluctant to pay for financial advice: 43% of members have not made use of a financial advisor and a full 63% say they’re not prepared to pay for financial advice. Although 33% say they understand all the information contained in their benefit statements, 47% say they understand most of it – there’s a gap that needs to be filled, but who are members going to turn to? Sanlam says it appears as if fewer funds have a formalised strategy for rendering financial advice to active members, but it also appears that more funds or companies are using the services of worksite advisors.

This research could, of course, indicate that consumers have not acquired the requisite mindset regarding paying for advice, and education is needed. It’s a worrying sign, though.

Three quarters of Principal Officers (POs) indicated that retirement funds provide some kind of pre-retirement counselling, which takes place on average four to five years before retirement date. Two thirds of retirees said they had sought advice about 11 years before their retirement date, giving them a 10-year horizon to improve their financial position.

Of those individuals who sought out retirement financial advice, 45% of retirees approached their employer or HR office for assistance, which strengthens the case for persuading employers to play a greater role on the retirement stage. Roughly 50% of the Principal Officers canvassed said the employer is the catalyst when it comes to improving the financial standing of members at retirement, Suliman said.

Umbrella survey and advice

 

The umbrella fund survey revealed that 54% of respondents said their consultant or broker was independent of the sponsor – that’s slightly down from 59% in 2011. Some 33% of consultants or brokers are remunerated by statutory commission, while 27% negotiate a fee with the employer – these figures are much the same as they were in 2011. Some 59% of respondents felt the level of remuneration was commensurate with consulting services provided – up from 51% in 2011.

Sixty-nine percent of sub-funds have a formalised strategy for giving financial advice – up from 64% in 2011.

The matter of costs

Research shows that pensionable remuneration has remained more or less consistent, at around 84% of the employees’ guaranteed package. Employers’ remuneration packages, structured on a total cost-to-company basis, are down to 52% from 61% in 2011. But Sanlam has noted a slight reduction in administration and operating costs, to slightly below the 1% of salaries mark.

Of interest is the fact that the umbrella fund industry does seem to be improving its value proposition over time – costs are, on average, lower in umbrella funds than standalone funds. But clients do still struggle to understand the cost structures and this obviously needs attention.

Editor’s thoughts:
Market forces continue to drive industry consolidation and cost reduction, which is good news for the consumer. Challenges remain, though, and savings education is as urgent as ever. Do you think employers should play a greater role in terms of educating employees about retirement saving? Comment below or email fiona@fanews.co.za.

Comments

Added by Andre Kruger, 22 May 2013
If employers were expected to inform, coach, advise members of funds, where does it leave the intermediary? Just my 2 cents
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Added by Steven Akakios, 22 May 2013
Employers have enough requirements on their plate. The constant mind set expecting more and more responsibility of Employers has gone too far. Professionals in the Financial services Industry must take hold of its responsibility and in so doing will be the proponent of responsible saving. The Industry at large has the ability to galvanise itself and focus on social matters such as savings. It needs to wake up and get on with its core work. Since the consumer is able and has resources to pay for other or unrelated professional services so too exists the possibility to afford to remunerate intermediary advice and services. The million dollar question is whether the consumer is aware of the possible financial planning services they are missing and if not where lies the problem. It is my view the implementation of FAIS has impacted Industry players and yet to benefit and impact the consumer as it is meant to have. There is much more work that must be done toward providing professional financial services to the market.
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Added by Irene, 22 May 2013
It is a misnomer and confusing to members to state "combined employer and employee contributions stand at 15.61%". The public is not aware that, once costs and "Benefits" are deducted, much less remains to cater for a retirement pension. The Life & Retirement industry does not favour INDEPENDENT financial advisers to assist the public. Most advisers, especially those linked to Retirement Fund Administrators, are tied to their employers and truly independent and reliable advice is virtually impossible to obtain. Why should members or the public pay for a consultation, when all one is going to get is a biased product offering?
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