In a recent meeting with some luminaries in the financial planning industry I was taken aback by someone’s suggestion that the Rudd Labor Government could be toying with the idea of making the cost of financial plans tax deductible. Now let me reveal that the guys in question were from different sides of the political fence, and from contrasting sectors within the industry. One was politically well connected, while the other was very senior in the financial institutions arena.
When the idea was mooted I “thoughtvocalised” my reaction, which is my way, and that reaction could be summed up as: “Sure.” However, the people in question reiterated their view while putting the rider on their revelation that it was only something that had been hinted at by those in Government. That said, there was a suggestion that Labor does want to make some impact on making Aussies prepare more professionally for retirement.
You must remember that there are many Labor diehards who know workers need to stow 15 per cent of their wages in super for 40 years to be able to retire comfortably. A few years back the Association of Superannuation Funds of Australia (ASFA) defined “comfortable” as meaning someone retires with two-thirds of their pre-retirement income. This is both a sound economic and social objective. However, it is in the politically too-hard basket, because after being put on the spot before the election, Labor said it would not pursue this goal.
Of course, it could be redefined as one of those John Howard-created “non-core promises”, but that’s the sort of stunt more likely to be tried by a Government that has made it to the second term. Sniffing that there could be a decent story in this one, I took the suggestion to Senator Nick Sherry, who is the new Minister for Superannuation and Corporate Law, and I got neither confirmation nor a denial. I’m still waiting, some weeks later, which either proves that I am of no consequence, which I try not to believe, or that the rumour may have legs.
The cynic in me told my financial-institution source that Treasury would never buy the idea of allowing ordinary Australians to claim a tax deduction for the cost of their financial plan. But he pointed out that financial institutions claim a very hefty tax deduction for the commissions and payments that they make to financial planners.
How was that relevant to the whole story? Well, that’s the juicy bit, which could raise a few eyebrows or two. My “deep throats” both suggested that the tax deduction might not be available for those clients of planners who take commissions as payment.
Now, this is all speculation at this time, but it seems consistent to believe Labor would have preference for fee-for-service planners over the commission collectors. And while we are in the speculation caper, I suspect Labor politicians would prefer “true fee-forservice” planners, who charge by the hour and don’t collect, say, a 1 per cent fee off clients’ nest eggs.
One of my sources implied that could be Labor’s position, but I reckon it would be a hard road to hoe. After all, there aren’t many “true feefor- service” planners around. Of course, that might change if a future government ever tried to give these minority planners a leg-up.
After a few chats with heavyweights in the industry super movement, I know this latter group of planners are the ones that industry super bosses prefer. And you don’t have to be Laurie Oakes to work out that the industry super bosses would have had a word or two with the Labor minds looking at super.
This could all amount to nothing. It could be pure speculation about a new government, which understands that retiring Australians need guidance to ensure not too many of them run out of money before they go to their maker and wind up back on the pensioner payroll. On the other hand, I’m sure there are Labor heavies who would love to reshape financial planning to match their party’s political philosophy. As a former Labor Treasurer – John Kerin – once said: “Watch this space.”
Peter Switzer is the founder of Switzer Financial Services, a financial planning, accounting and coaching business.