As the end of the financial year (EOFY) quickly approaches, advisers are facing new and old concerns in their discussions with clients.
One concern prevalent among advisers is ensuring superannuation contributions are completed, as super funds often close for contributions by mid-June.
Link Wealth managing director Stephen Sloane tells Professional Planner the EOFY is “always a crunch, but this year advisers are juggling even more”.
“Most super funds shut the gate by mid-June, so there’s a scramble to get concessional and catch-up contributions sorted, especially the final chance to use unused caps from [FY20] for balances under $500,000,” Sloane says.
“A big part of our job right now is cutting through the noise, lodging contributions on time and giving clients clarity in an uncertain environment.”
Arrow Private Wealth associate director Kreston Leggett says the EOFY is focused around executing strategies established over the year, including super contributions, pension payments and prepaying expenses.
“We’re increasingly discussing superannuation recontribution opportunities for estate planning purposes,” Leggett says.
“Pleasingly, some platforms have introduced efficiencies that allow these transactions to be administered without selling assets or incurring the typical costs associated with trading.”
Close to the EOFY, the work ramps up for advisers as many clients need help at the same time, especially with advice on super contributions.
Braeside Wealth director Lance Swansbra says the EOFY is “hands down one of the busiest times of year” with clients looking to get advice on contributions, meeting pension minimums and other ways they can reduce their tax bill.
“Advisers are flat out juggling meetings, emails, forms and follow ups, especially for clients with SMSFs or more complex setups,” Swansbra says.
“There is often a mad dash to maximise contributions and make sure everything is processed on time.”
Swansbra says while this presents a challenge to advisers, the silver lining is it’s a chance to not only show clients the value of advice but the value you provide as an adviser.
Skirting the Division 296 tax
Preparing for the commencement of the proposed Division 296 tax was another key concern emerging among advisers, in addition to EOFY work around super contributions.
In its current form, the Division 296 tax introduces an additional 15 per cent tax on superannuation balances exceeding $3 million, but the bill still awaits passage in the new term of Labor government.
FinancialAdvisor.com.au founder James Gerrard says the overwhelming feedback he has received from clients about the Division 296 tax is that it is unfair.
“Although not legislated yet, we have been meeting clients who have super balances above $3 million and discussing the likely implications and workshopping some of the options available,” Gerrard says.
“These include transferring funds in super above $3 million to an investment bond or family trust, neither of which attract tax on unrealised gains.”
He provides an example of a client presenting their intention to take out $1 million from their super fund to reduce the balance from $4 million to $3 million so they would not be liable for the Division 296 tax.
Sloane says he has dealt with clients concerned about the super tax, but these concerns mainly focus on potential future problems.
“Clients are nervous about the proposed Division 296 tax on balances above $3 million, even though it won’t affect most people right now, there’s concern it could in future, especially since the cap isn’t indexed,” he says.
Leggett also says a small number of clients are concerned about the tax, but it has not been the main focus of discussions.
Mid-June deadline
Due to administrative restrictions, advisers need to have spoken with and provided advice to their clients by mid-June, according to Paramount Financial Solutions director Wayne Leggett.
Leggett says the EOFY used to be “madness” for advisers as they would be accepting application forms and cheques until the last business day of the financial year.
“Nowadays, between the requirement to provide written advice before actioning an investment transaction and the increased administrative requirements for institutions accepting these investments, if you haven’t presented your recommendations to clients by the middle of June, you’re not going to be in a position to help them.”
He says while this is a reasonable process for engaging a new client, it causes huge headaches for advisers and their existing clients.
“The restrictions on being able to assist an existing client without the need for such procedures causes ongoing and unnecessary frustration, not just for advisers, but for our existing clients,” he says.
Leggett says he hopes there will be some easing of the restrictions from the Delivering Better Financial Outcomes legislation, which was started by previous Minister for Financial Services Stephen Jones and is yet to be picked back up by his successor Daniel Mulino.
