A few thoughts on the current state of play with FOFA Tranche 1 as it begins to be debated in Parliament.
A helpful document from Treasury accompanying the draft legislation called an Explanatory Memorandum goes through the strategic intent of the Government in formulating policy, the various options open to it and the impact of these actions which can be viewed on their website. It is insightful in revealing in stark detail the prediction of a loss of jobs of around half of the financial planning community over the next few years while seeking to increase access of advice to a wider number of Australians at the same time. Treasury’s concluding remarks were that there was an inadequate amount of research to support the Government’s preferred option and recommending further consultation.
As a practicing self licensed adviser this leaves me with a number of confusing anomalies to work through as the various carve outs are negotiated behind closed doors. In investments I can charge a brokerage on a direct share or ETF but not on a Index Managed Fund which achieves a similar function.
I can charge a fee of $1000 for advice but not brokerage of $50 for the same outcome. I can receive commission on a individual risk insurance policy but not on a group plan which may be a better more cost effective outcome for a client. I can charge a % based fee on a geared share fund but only a flat fee on a geared portfolio. I can receive a profit share on group business as do the Industry funds as long as it’s not called brokerage. Finally of course there is no certainty that this will actually be the final legislative result or survive the inevitable legal challenge.
Of immediate concern is of course the welfare of clients in the current volatile market which coupled with yet more insurance claims keeps me busy. It is hard for clients over 50 to plan future super contributions from next financial year as there is no certainty on the amounts that can be contributed and any lifetime limit to this amount so caution and flexibility are the current watchwords. With so much uncertainly a clear heady and a steady hand is as important as ever.
Finally my prediction for FOFA is that it will be referred to a Parliamentary Enquiry where the real issues of long term retirement income streams can be thought through. Currently the wrong clients are taking the wrong level of risks at the wrong time of their lives in a game of Russian Roulette.
We need to earnestly dovetail retirement income streams with centerlink benefits to reduce the equity risk being taken by retirees. With good judgement and commonsense it should be possible for all Australians to have access to advice at a reasonable price without favouring one lobby group over another.
