As we settle into the swing of a new financial year and continue to sharpen our focus on the breadth of your financial needs, it’s a good time to step back and take a look at the evolution of Financial Decisions, where we are headed and where we are targeting our efforts to maximise the client experience.
In this edition of Exchange we also discuss Superannuation and Insurance, taking a closer look at balance cap transfers and the rules that govern the practice.
The Evolution of Financial Decisions
It may seem counter-intuitive to some, but we adopted the view that the turmoil and uncertainty triggered by the Royal Commission presents a unique opportunity for growth.
While it triggered panic and the ensuing disposal of the advisory service arms of many firms and larger dealer groups, we have been on a steady path of acquisition. Our model of taking ownership of quality independent firms has strengthened our foundations while also driving client engagement with deeper and more comprehensive financial service offerings.
Why Target Growth During Uncertainty?
One of the most tangible fallouts from the Hayne Royal Commission relates to corporate accountability and the intense scrutiny that accompanies the burden of compliance factors. These elements signalled the death knell for many firms, which in turn created a call to action for us to capitalise on the evolving market conditions.
We have been strategic and committed to best practice compliance by enhancing our scale through acquisition and remaining steadfast in our service offerings and unparalleled level of client care.
A Wealth of Opportunities
Evidence highlights that the increased burden of compliance has lead to a considerable number of older advisers transitioning out of the large dealer groups and, in some instances, completely out of the industry.
In addition, the sale of advice arms by large dealer groups has given rise to a migration of young, savvy advisers seeking to join smaller, well-established firms that have the freedom of independence from banks and institutions.
Research confirms what we have been observing, as follows:
- In the first 6 months of 2019, 2,825 (equating to 10%) of Australia’s licensed financial advisers left the industry with only 19 joining (source: IFA 2019)
- In the June 2019 quarter alone, 1,750 advisers exited the large players (source: IFA 2019)
- 507 new independently licensed advisory firms have sprung up in the past 18 months, and younger advisers on a sharp career trajectory are heading in large numbers to these types of operators (source: Financial Standard 2019)
We believe our firm is stronger than ever because we have remained laser-focused on our clients’ needs and developing strong building blocks around our delivery of services and understanding the importance of compliance.
What Does it all Mean?
With an unprecedented exodus from the large dealer groups it has become clear that only the strong will survive in the new landscape of financial service firms.
By purchasing small, like-minded advisory businesses with extremely strong, well-established client bases, we have positioned ourselves to capitalise on the pronounced shift away from the major institutions. Essentially, we have strengthened our ability to offer the full range of financial services to our clients, meaning they can come to us for the entirety of their wealth creation and management needs. In addition, we have dedicated staff providing expert support in:
- Compliance
- IT
- Investment analysis
- Marketing
- Training, learning and development
What Does the Future Hold for Us?
We have invested heavily in evolving technologies that will carry the finance industry deeper into the digital age. But that is only a small part of our strategy.
When making an acquisition, we are determined and uncompromising in our due diligence with the client-first culture we have established and personalised nature of our services of the utmost importance.
So, while we may have more staff servicing more clients, we will continue to pride ourselves not on the amount of business we have, but on the quality of business that we conduct.
With enhanced understanding of our matrix of comprehensive financial service offerings all available in-house, people are continuing to identify and benefit from the money and time efficiencies that having greater oversight of your personal financial needs presents. We are also able to offer greater discounts for greater levels of service when collaborating on all your financial service needs.
We are now moving to a monthly direct-debit payment model (much like a subscription to our services) for the following reasons:
- Fixed monthly fees that ensure no nasty or unexpected surprises.
- Clients feel more inclined to engage directly with their adviser or accountant with adhoc questions and queries.
- The connection and rapport between adviser or accountant and client is enhanced and functions as an on-going relationship – not an EOFY compliance discussion.
- Because of improved relations, speed of interactions is enhanced (e.g. via swift response to phone or email), in-turn preventing additional charges.
- Rather than being reactive, we are able to be more proactive with advice throughout the tax year as opposed to EOFY when limited strategies can be implemented.
- Improved cash flow management for clients.
The Next Generation of Advisers
We are creating a team of young professionals with diverse specialties that will form the core of our talent and deliver personalised service across all of our platforms.
In an industry-wide shake up, minimum education requirements for advisers have been moved out to 2026. This ensures sufficient time to help advisers earn their degree while gaining important client-facing experience. However, the foundation of our talent strategy is to immediately employ experienced, quality advisers who hit the ground running and commit to ongoing education. A core consideration is ensuring all staff undergo the industry ethics exam before January of 2022.
We support the minimum education initiatives employed by the government and identify the positive impacts they will have on improving the quality of advisers operating within the Australian market.
Insurance and Superannuation
Transfer Balance Caps
Since 1 July 2017, a cap has been in place that limits the amount of funds that can be transferred to a tax-free account-based pension (known as the ‘transfer balance cap’) to a nominal amount of $1.6 million.
What Exactly is the Cap?
The transfer balance cap restricts the total amount you can transfer into the retirement phase of a pension or annuity fund, regardless of the number of accounts held or the number of times you transfer funds to that retirement phase.
The cap also takes into account pensions or annuities you receive for other reasons, such as:
- your partner passes away and you receive a pension from their super fund; or
- your former spouse has been ordered by a court to transfer a portion of the income stream derived from their pension as part of a family law settlement.
However, any subsequent growth or loss of funds does not apply to the cap. We have provided the following example to illustrate this scenario:
- In 2018, you started a pension with $1.6 million. By 2019, the value of the pension grew to $1.65 million. You are able to roll that cash over into a new fund without breaching your cap requirements.
Considerations when Using Super to Fund Insurance Policies
Spouse or dependents (as defined in the Tax Act) seeking to claim from a superannuation or account-based pension should receive the funds tax free:
- The amount from which they can draw a tax effective pension will be limited by the Transfer Balance Cap (see above)
Taxable funds left to non-dependents (e.g. adult children) may be taxed at 15% plus Medicare levy:
- If they are claiming from a life insurance policy owned by your superannuation fund, the tax rate increases to 30% plus Medicare levy
Insurance premiums are getting more expensive as you get older:
- It is prudent to keep an eye on the amount you are paying in premiums and how this in turn erodes your super balance, or how much of the additional contributions your are injecting into your account are being used up paying for premiums
Income protection insurance as part of your Superannuation Plan:
- Income protection premiums are generally tax deductable to the super fund or to the individual, depending on who is paying the premium
- The tax rate in a super fund is 15%, whereas individuals can be taxed at the marginal rate which is as high as 49%
What does this mean? Essentially, funding premiums through your super fund might improve your cash flow in the short term but, for longer-term strategies, most people would be better off paying the premium themselves and getting the deduction in their own name.
We’re Here for You
If you have questions about any element of your economic well-being or would like to speak with an adviser or accountant about sharpening your financial strategies, please call us on (02) 9997 4647.
Disclaimer: This publication has been compiled by Financial Decisions (AFSL/ACL Number 341678). Past performance is not a reliable indicator of future performance. While every effort has been taken to ensure that the assumptions on which the outlooks given in this publication are based on reasonable data, the outlooks may be based on incorrect assumptions or may not take into account known or unknown risk and uncertainties. Material contained in this publication is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The information and any advice in this publication do not take into account your personal objectives, financial situation or needs. Therefore you should consider its appropriateness having regard to these factors before acting on it. While the information contained in this publication is based on information obtained from sources believed to be reliable, it has not been independently verified. To the maximum extent permitted by law: (a) no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up-to-date or fit for any purpose; and (b) Financial Decisions nor its employees are in any way liable to you (including for negligence) in respect of any reliance upon such information or advice. September 2019
Contact: Financial Decisions PO Box 484 Mona Vale NSW 1660, T 02 9997 4647, F 02 9997 7407