Whispers within the financial services industry seem to suggest that financial planners have something to fear as the financial year ends. However, Kate Kachor discovers that if advisers keep their cool they too can avoid the end of financial year headaches.
In offices across the country the noise will be reaching a fever pitch. The sound of documents, receipts and files being frantically scoured in readiness for the financial world’s D-Day, June 30.
For many planners, June 30 conjures up horrific images of audits and rejected deductions. For others, the end of the financial year is a time to take out the magnifying glasses and review business strategies and look closely at other practice management issues.
However, despite the even spread in concern for what the end of financial year will bring, industry figures are unanimous in their belief that the major challengers that face planners is the changes in tax returns.
This tax year marks the birth of the Financial Services Reform Bill (FSRB) and Alienation of Personal Services Income (APSI) into Australia’s taxation system.
“APSI is definitely a problem for financial planners,” says MLC National Technical Manager, Chris Drummer.
“Alienation and transitional arrangements are like a blow torch to the belly for many planners.”
Drummer says that many planners are still caught up by the government red tape, making it almost impossible for them to know which way they are going to turn.
Earlier this month Drummer fronted a crowd of financial planners at a Financial Planning Association (FPA) seminar in Sydney. Joined by FPA policy manager, Con Hristoduolidis, Drummer found himself bombarded with questions by confused and irate planners.
“Many planners don’t understand what is going on. They are confused. It has been a learning curve and journey that is hopefully coming to an end,” he says.
As the debate over the legislation is still moving back and forth from the FPA to the Australian Tax Office (ATO) and politicians, Drummer says there is only one way for planners to overcome their confusion, get ahead of the game.
He says planners should ring the ATO and ask to speak with tax accountants. He says those advisers who are worried about being caught in the APSI net should get as much information and assistance with the legislation as they can.
Zurich senior technical analyst Martina Poignand is in agreement with Drummer. Poignand also believes, if planners get in early and ask for assistance, from the tax office or from colleagues, then they will not find themselves trapped and panicking at the eleventh hour.
“A lot of people have put the issue of alienation into the too hard basket. Many planners have forgotten the alienation rules, and are confused by not being able to deduct superannuation contributions for associates,” Poignand says.
According to Poignand, the lack of understanding by planners is a great concern as June 30 is rapidly approaching.
In a report released by Zurich in December last year, the issue of misunderstood superannuation contributions was pushed hard.
The report stressed that the period leading up to June 30 will be the most important as the industry comes to grips with provisions under the law.
Under the alienation law, the rules can deny the deductibility of superannuation contributions made by an employer on behalf of an employee, where the employee is an associate of the employer.
Apart from scrutinising over the tax changes, planners should also a little closer to home and that includes how they operate their own business.
Professional Investment Services assistant general manager, Stephen Poole says planners should not get bogged down in tax changes and remember they have a business to run.
Poole says planners should look at reviewing their clients on a tax basis as well as look at the ongoing services given to clients.
“Planners need to remove themselves and look at the income and look at service standards they provide,” Poole says.
“It is an on going circle but I think the planner needs to ascertain what type of business they are in and what services they need to look at,” he says.
Poole says, planners need to concentrate on referral services, have an accountant working with a financial adviser and have a risk writer.
“They need to decide whether they want to be an advisory business which provides clients with a one stop shop,” he says.
Echoing Poole’s stance on wider issues of concern is MLC general manager adviser solutions Matt Lawley.
Lawley says there has been a few themes which planners should look at before the end of the financial year.
He says planners need to get down to basics. They need to “get both their bank balance and life balance in order”.
“There will always be pressure on ongoing value to the clients and then pressure on the ongoing value in revenue,” Lawley says.
“What planners need to do is to reassess their ultimate value and understand the core value that they offer clients. Then they have to eliminate and automate and outsource everything else,” he says.
Lawley says planners also have to have a clear understanding of their staff and owners expectations in terms of what they want to pay.
He says planners should make sure there is a framework for measurement, and that there is clarity around what they’re measuring.
Apart from general administration and staffing issues, Lawley says another main issue is business income and liability.
“Planners need to look at whether their business has some sort of predicability of income. In short, when the doors open on the first of July does the adviser know what to expect,” he says.
Lawley suggests planners who feel daunted by the end of the financial year should seek help from an external source. He says advisers should think about speaking with individuals that act as business coaches.
“Advisers should have their own financial adviser. Mainly for accountability and on both a financial sense and also a lifestyle sense,” he says.
“They are people who know your business fundamentally and implicitly and can advise and make decisions on that and then help offer specialist services.”
