Monday 03 April 2017
How to turn the super reform measures into client value
Monday 03 April 2017
We explain how the latest super reform measures could make the role of financial advisers even more valuable
Jason Rance, Director of Custodian Financial Group, believes that, while superannuation is an important investment vehicle for all Australians saving for retirement, very few people use the superannuation system effectively.
“The majority of people, financial advisers and clients alike, mistakenly view super purely as an investment vehicle. In fact, super is a tax environment and many people underestimate, ignore, or simply do not understand the financial opportunities and tax savings that this environment provides.”
He also sees many of the recently legislated super reform measures as important opportunities for financial advisers: first, to educate clients about their more technical strategic options, such as splitting contributions or starting a transition to retirement income stream; and second, to offer them alternative investment vehicles once super balances hit the new cap.
Educating clients about their technical options
“The reform is significant and has the potential to impact some of our clients negatively. Our clients rely on us to help them develop the right strategy within the constraints of the new legislation.”
He says Custodian is well-positioned to provide this advice without needing to increase its resources.
“We have a sophisticated and flexible client management system that allows us to segment our client base by filters like age, account balances or how much people are contributing. We’ve found it easy to identify which clients are impacted by which changes – and what we need to talk to them about.”
“At that point, you really need to speak with clients on an individual basis. We structure our client meetings to have one of their meetings towards the end of the financial year, so we have been and will be able to have most of these conversations as part of our regular end of financial year reviews with full knowledge of the now legislated reform. There hasn’t been too much additional work required, other than changing our thinking and assessing the individual cases.”
Jason Rance says, in Custodian’s experience, clients are aware that super changes are coming into play, but usually don’t know the specifics.
It may be smart to restructure now to protect against hitting the $1.6 million point in five or 10 years’ time.
“One of the main reasons people use our service is because we’re very focused on the technical side of things, so they don’t have to keep up with and know the impacts of all the changes. Most people come into our meetings knowing about the reduction in the contribution caps. But they may not understand details such as the fact that there won’t be any opportunity to make non-concessional contributions at all post 30 June 2017 if their super balance is over the $1.6 million mark.”
He says the super reform is precipitating a number of different conversations.
“For young accumulators, equalising their member balances with their spouse is now more important than it has been in the past. For couples, if one person has a larger balance than the other, then we’re looking at super splitting before 30 June 2017.”
“This can be important even if today’s balance is a long way below the cap. For those who are still accumulating, you need to model what the future may look like. It may be smart to restructure now to protect against hitting the $1.6 million point in five or 10 years’ time.”
Because Custodian has a lot of Canberra-based clients, other meetings are focused on the reform’s effect on defined benefit funds.
“The reform applies commensurately to members of defined benefit schemes by multiplying by a factor of 16 for existing pensions. In practice this means an annual income stream of $100,000 is deemed to be the equivalent of a $1.6 million super balance.”
Offering alternative investment vehicles
Looking ahead, Jason Rance says the $1.6 million balance cap will require financial advisers to offer more of their clients a wider range of investment vehicles.
“Now that super, which most clients rely on heavily, is more restricted, advisers will need to help their clients navigate through the minefield of other options. Some people will need a mixture of alternative vehicles, including trust structures or investment bonds.”
“Like us, most wealth managers already offer these vehicles as part of their service offering. The difference will be, in the coming years, we’ll be using them in a greater capacity with a higher percentage of our clients.”
He thinks that, because of this, the reform might make the need for a good financial adviser even more important, enabling firms to better position themselves as trusted advisers.
“There’s no doubt the changes to super are creating additional work over the short term. But, in future, what used to be an obvious choice will no longer be straight forward.”
“I believe it will make our role even more valuable to clients.”
View our super reform adviser toolkit to access more insights and information regarding how the changes may affect Macquarie super products.
Unless stated otherwise, this information has been prepared by Macquarie Bank Limited ABN 46 008 583 542 AFSL and Australian Credit Licence 237502 and does not take into account your client’s objectives, financial situation or needs.
This information is provided for the use of licensed and accredited brokers and financial advisers only. In no circumstances is it to be used by a potential client for the purposes of making a decision about a financial product or class of products.