How often do you get a chance to solve a range of problems with the single stroke of the pen? Now is the time to make financial advice tax deductible.
As an investor you can deduct ongoing fees every year once you and your adviser have a plan up and running.
But you can’t deduct the initial upfront costs which are the most expensive costs and the key factor that keeps millions away from seeking financial advice.
Just now there is a list of suggestions for how to solve the advice problem – and none of them are going to offer the complete answer, because the complete answer is dead simple: just make it deductible to everyone, all the time.
Inside tax circles there is an ongoing principle of separating establishment costs – or capital costs – from ongoing costs. That’s why you can claim ongoing expenses on a rental property but not the expenses of getting the property in the first place.
But the principle is hardly set in stone. Moreover, the current laws that guide financial advice tax deductions go back to 1995 which was a very different time when financial planners had fewer qualifications than they have now.
Here’s the thing: There has been an eye-popping reduction of 46 per cent in the number of advisers in the local market. It’s been a clean-out of dramatic proportions.
And the key fact of life for financial advice in the post royal commission era is “affordability”. costs of establishing a plan often run above $4000 and then another $3500 annually so fewer people are prepared to make the move.
No wonder then that we have financial scandals every other day whereby otherwise sensible people walk into financial traps.
The issue is coming to a head after Treasury called for submissions to a “retirement phase of superannuation” discussion paper which closed earlier this month.
The big super funds are currently pushing to widen their ability to give advice, while the traditional planning industry is going through a personnel crisis. In 2019 there were 26,500 advisers compared with about 16,000 now – and only a few hundred join the ranks each year.
Treasury’s call for submissions has, as might be expected, garnered a range of ideas which often reflect the ambitions of key industry stakeholders.
One high-profile idea already raised by governments is a version of the UK’s Pension Wise scheme set up in 2015 which is a government-owned financial advice agency aimed at the over 50s.
Among supporters of this concept is Vanguard, one of the biggest fund managers in the world, and a new entrant to the Australian superannuation sector.
Consumer group Choice is another high-profile backer of an Australian version of the Pension Wise which cost the UK government about $70m a year to run and has been criticised by British pension boards for its low take-up rate.
Meanwhile, the Financial Advice Association Australia, which is one of the most consistent advocates for fully deductible tax advice, has also raised the idea of a special rebate for advice fees. A scheme proposed would offer investors a special rebate of $2000 that would be subjected to a means test.
“There are barriers to advice in the market and we support reducing those barriers,” says FAAA chief executive Sarah Abood.
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