Fees paid for financial advice should be fully tax-deductible in order to encourage more people to consult professional advisers when arranging their financial affairs, an association representing the Australian funds and investment industry is arguing.
The Investment & Financial Services Association (IFSA) set forth its arguments for greater tax deductibility during recent hearings in Canberra before a parliamentary inquiry into the collapse in January of Storm Financial, a Townsville, Queensland-based advisory firm.
Fees for tax advice as well as ongoing financial advice currently are tax deductible in Australia. However, the advisory industry believes low- and moderate-income people, who typically need advice the most, benefit least from this system, since they tend to seek advice rarely if at all.
The industry believes tax deductability should be extended to any fees paid for financial guidance, including for the initial visit as well as sporadically-sought advice, such as when individuals begin to approach an age when they ought to begin shifting into lower-risk investments.
IFSA chief executive John Brogden, who was among those who testified, said maximising access to financial advice was “integral to increasing retirement incomes for working Australians”.
“All fees for financial planning should be tax deductible to improve access to advice,” Brogden said.
“Indeed, millions of Australians who need advice don’t get it now because of the cost. IFSA believes that increasing access to affordable advice is critical.
“Providing tax deductibility for all financial advice is essential in ensuring that investors are able to effectively exercise choice in how they pay for their advice – be it up-front or ongoing.”
In his testimony, Brodgen also called on the Australian Securities and Investments Commission (ASIC) to become "more pre-emptive" to market misconduct, and said licensing requirements and professional standards for financial planners should be raised.
‘AUM = stock exchange market cap’
Brogden noted that in about two years’ time, the dollar value of Australia’s so-called superannuation – the mandatory, government-organised pension scheme – “will equal the capitalisation of the Australian stock exchange”, a fact he said underscored the scale of the need for the population to understand better how to handle it.
“The majority of the population has an absolutely minimal understanding of [the superannuation’s] complexities,” he noted. “That is why we would like to see continued financial literacy programmes…
“We do not want people making bad decisions about their superannuation. They are going to live a lot longer than their grandparents and greatparents did after they retire, so having a very well-planned superannuation is quite critical. ”
As many as three-quarters of Australians are believed to opt for a default superannuation fund rather than choosing one themselves, which experts say reflects the general lack of knowledge about investment matters, and means that many investors’ portfolios may not be optimal for their age or circumstances.
Under the superannuation scheme, Australian companies are obliged to pay a percentage of each employee’s salary into a superannuation fund, for use when they retire. Originally set at 3%, the percentage has been raised in recent years to 9% of regular wages and bonuses, and some groups are lobbying to increase it to 12% to ensure the country’s ageing population is adequately provided for.
