Why planners should avoid getting their own licence. An Australian Financial Services Licence (AFSL) has the potential to destroy the value of small financial planning practices, according to Barry Lambert, executive chairman and founder of Count Financial. In a recent No More Practice blog, he criticised arguments that financial planning practices should get their own AFSL and said this would be a mistake for many practices. "There are many disaster cases where financial planners went out and got their own AFSL, but didn't realise how much time and effort is required to keep it, and this created a real mess for their practice. The last thing a financial planning business needs is distraction when they should be focusing on building value and creating a great practice that someone will want to buy," he said.
Improving the professionalism of planners. It will take more than codes of conduct and certificates on a wall to lift the professionalism of the financial advice industry, according Richard Klipin, CEO of the Association of Financial Advisers (AFA). "The most effective way to help advisers to adapt to the new world is through leadership – a carrot rather than a stick approach," said Klipin. "Leadership of the financial advice industry is about setting standards and raising them; it is about improving educational standards, it is about formulating robust codes of ethics and ensuring members abide by them. But more importantly, it is about standing true to what we believe in and advocating for advisers and for the profession as a whole, because we are all in this together."
ATO warns of sophisticated structured financial products. Investors should be cautious about sophisticated structured financial products that claim to offer franking credits and other tax benefits, according to the Australian Tax Office. “These complex highly-structured investment products claim to offer investors exposure to a portfolio of listed securities but use a derivative instrument, such as a swap to direct the cash dividend to a counterparty, while attempting to retain the benefit of franking credits on the dividends," said tax commissioner Michael D’Ascenzo. Franking credits attach to distributions paid by a company, representing tax paid by the company on its profits. However, D’Ascenzo said franking credits are only available under the law to the true economic owners of the shares in the company, not those who dispose of the risks and benefits of owning the shares.
SMSFs hit by fraud or theft have legal options. Trustees of self managed super funds (SMSFs) do have legal options in the event of fraud or theft, according to SMSF Professionals’ Association of Australia (SPAA) CEO Andrea Slattery. “In the wake of the Trio/Astarra scam, there has been a misconception that SMSF trustees are swimming outside the flags when they lose their superannuation savings because of fraud or theft. A recent court settlement, in which an elderly woman got back most of her life savings of $1 million she lost in the Trio/Astarra fraud, is positive proof that SMSF trustees do have legal recourse when these tragic events occur,” according to Slattery, who said SMSF investors potentially do have options available to them should they suffer fraud or loss, and the court settlement is strong evidence of this.
Importance of accountants’ exemption replacement underlined. An appropriate replacement to the accountants’ exemption is arguably the most important of part of the Future of Financial Advice (FoFA) reforms because it will impact more than 9 million Australians, according to Institute of Chartered Accountants CEO Lee White. “Ensuring that the government puts in place the right policy settings to allow over 70 per cent of working Australians to obtain trusted strategic advice from their professional accountant is critical. After two years of concerted advocacy work, we are getting closer to a final decision that will deliver precisely the right outcome,” said White in a recent institute update. A Treasury official recently indicated that accountants will be included in the government’s FoFA reforms.
Small business should make most of EOFY. Small businesses should think about specific actions they should take to put their business on the right track and keep it there, according to CPA Australia. In a recent publication, Good practice checklist for small business, CPA Australia said small businesses should cover off four areas to get their affairs in order ahead of end of financial year. These included financial tasks (from entering all data promptly, and with accurate transaction dates, through to reviewing forward orders), strategic financial tasks (from setting targets for financial performance through to preparing cash flow forecasts), strategic management tasks (from creating or updating your strategic plan through to seeking ways of using less resources in the business) and sorting personal affairs of the business owner (from ensuring trust distributions are properly made through to undertaking tax planning).
More shares, less cash for clients: advisers. Many financial advisers are looking to re-balance their clients’ portfolios to hold less cash and more growth assets such as Australian shares in the next 12 months, according to a Zurich survey. “As the market goes through its cycle, it is likely the dependence on cash will eventually diminish. How long that cycle will be depends on timing, something we all acknowledge is notoriously hard to do,” said Patrick Noble, senior investment strategist at Zurich Investments. The survey of 200 advisers found that of those advisers who will rebalance clients’ cash holdings, 94 per cent will move to growth assets. Forty per cent are looking to move to Australian shares, while 25 per cent are looking at international shares, 19 per cent will move to direct equities and 10 per cent are looking at property securities.
Strategies needed to manage sequencing risk for investors. A combination of the post-global financial crisis and longer life expectancies in Australia has brought sequencing risk to the forefront, according to Chad Padowitz, chief investment officer of Wingate Asset Management. "The key challenge facing older Australians – and those who advise them and who manage their superannuation funds - is how to mitigate sequencing risk so that superannuation savings last long enough to ensure a comfortable retirement," said Padowitz, who noted that traditional 'de-risking' strategies, such as changing asset classes or changing investment styles, can have unintended consequences. "Switching to a different asset class at retirement age - for instance, from equities to fixed income - could reduce the expected return at a time when investors most need to maintain their superannuation balances," he said.