Clients have a habit of excluding the wider implications from their train of thought, according to Jemma Sanderson, so it’s important that advisers choose their strategy carefully and check in with the client as regularly as possible.
As a director at Perth-based Cooper Partners Financial Services, where she heads up the SMSF and Succession division, Sanderson is used to dealing with well-meaning but often misguided clients.
She uses the example of estate planning, and the tendency of people to flip-flop from one beneficiary to another.
“People change their minds as often as they change their underpants sometimes,” Sanderson says. “Today they want their money to go to the kids from their first marriage, then tomorrow they want it all to go to the spouse. The next day it’s these kids but not those ones.”
Sanderson says she is involved in a number of disputes at the moment involving clients that want to push the boundaries around what a trustee “can and can’t do”.
“It’s important to get it right,” she says.
Advisers need to think about the wider implications of things like estate planning and pension strategy, she says, on behalf of the clients. Unfortunately, this isn’t always the case.
“People aren’t necessarily thinking about the wider implications for things like the estate planning. They might just automatically make it reversionary, which can be a perfectly valid strategy that is exactly what the client might want, but in certain situations – for example in a blended family – you might not want that pension to be reversionary.”
Sanderson uses the example of a father with a reversionary pension who passes away, but wanted his money to go to the kids from a previous marriage.
“The spouse then gets the money and all of a sudden you’ve got people fighting over whether that was the right thing and everyone gets embroiled in the mix. So just that one question – do you want it to revert to your spouse – can open a whole can of worms,” she says.
Clients tend to have a myopic way of thinking, Sanderson explains, and focus on the one desired outcome.
“They might say ‘look, I want to start a pension up to my transfer balance cap to get the most tax effective outcome’,” Sanderson says. “That’s probably all they’re thinking about, and they might be perfectly happy with that. But what happens when they pass away? What happens when they’re divorced?”
Advisers need to make sure the client is aware of all the possible outcomes – in the present and down the road – and consistently check in with them to see if their goals match up with their strategy.
“And then at least the client’s aware of what’s going to happen, she says.
Sanderson will be speaking at the upcoming Self-managed Superannuation Funds Association National Conference, held in Melbourne from the 20th to the 22nd of February.