Year-end tax strategies: talking tax with clients

Tax is an integral part of a client's financial affairs - particularly in relation to superannuation - so financial advisers need to regularly discuss it with clients. Janine Mace reports.

Strategy Steps director Louise Biti agrees it is an important professional service and part of a holistic approach to financial planning.

“It can be a form of health check. If clients have a tax plan, it helps with wealth accumulation.”

“Advisers are effectively negligent if they don’t at least raise the issue of tax with clients and provide information on the tax impact of the strategies they are suggesting,” according to MLC head of technical services Gemma Dale.

She believes advisers should appreciate the importance of good tax planning.

“Discussions about tax are part of a value-added service to keep clients on track with their plan. Planning opportunities can also come out of restructuring assets.”

BT Financial Group technical consulting senior manager, Bryan Ashenden, agrees: “Any opportunity to get in front of a client should not be passed up.”

This includes sending clients information and reminders about the upcoming year-end.

“It can be an opportunity to demonstrate you are providing holistic advice. It can also be a trigger for clients to discuss changes in circumstances they had not thought to mention,” he says.

Talking about tax also creates opportunities to discuss future financial plans – particularly in relation to retirement.

“Transition-to-retirement is a tax planning strategy and while it doesn’t have to be done at any particular time of the year, this can be a good time to get clients to think proactively about doing something,” Biti says.

“It encourages and helps them to sit down and think about their tax and financial affairs for the future.” Ashenden believes year-end can also be used to spark discussions about other issues.

“You also need to consider estate planning and wills. You should see it as an opportunity to do a review of all the client’s financial circumstances,” he suggests.

Biti agrees this is important. “It may also allow discussions about next year. If you identify that the client will pay too much tax this year you may not be able to change it, but it could be a trigger for better planning for next year.”

She says this can include changes such as switching high-income clients out of a unit trust into insurance bonds, setting up a family trust or starting a transition-to-retirement or salary sacrifice strategy.

“There is no immediate benefit, but it can be planning for the future. By having this discussion, it can lead into a broader discussion about what is important to the client and helps you to get to know them and their goals better, which helps with the planning process,” Biti says.

It is also beneficial given the upcoming legislative changes.

“With the introduction of the Future of Financial Advice reforms – and especially the opt-in arrangements – is it a good idea to use tax discussions as an opportunity to sit down with clients and talk about what your value proposition is, and about the advice services you will be providing this year.

"By doing this, clients will become familiar with these types of discussions,” Ashenden says.

“This will help it becoming part of normal business practice and not new when it is implemented in 2012. If you start to do it now, it will be much easier and clients will not find it different or an intimidating experience.”

There are also practical benefits from referring clients to their accountant for specialist tax advice.

“It helps build better relationships with local accountants and this works both ways and often sees accountants referring their clients to the planner,” Biti says.

“Planners need to look for opportunities to link in with other professionals.”