Sent: 09-06-2009 11:45:02
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Lower income earners: DIY financial advice
The need for financial advice across all sectors of society has never been more necessary.
You don't have to get too close to the regulatory regime to realise that the rules are amazingly convoluted and complex.
Consider all the permutations and commutations of:
- Compulsory super
- Insurances in super
- Government co-contributions
- Super regulation
- Salary sacrifice
- Family Tax Benefit - Parts A and B
- Child care benefit and rebate
- Age Pension
- Aged care
- Tax offsets
- Allowable deductions
The list goes on and on. You'll no doubt note that I have only mentioned government rules and regulations.
From a financial planning perspective I have left out product issues, economic and market factors and asset ownership considerations to name a few.
My list above is deliberately framed to provide a range of factors typically faced by low to moderate income earners.
Even for low to moderate income earners, it's almost impossible for anyone to get their head around all these rules without getting some advice.
But who is going to provide this advice? Right now it is principally provided by advisers charging commissions because the low to moderate income earner can't afford to pay for advice out of their own pocket. (It goes without saying that one could question the quality of some of this advice and also the prevalence of product selection bias.)
I would be surprised if many people in the financial planning industry didn't agree that this type of business is marginally profitable at best (if profitable) even allowing for the commission payments. It might be profitable but it might not be cash flow positive.
The word on the street is that the government is about to outlaw commissions. Fine. The government has the legislative power to do this if it wants.
But when commissions are gone there will need to be a recognition that financial planners will need to turn their attention exclusively to the higher income and wealthier people. This is not a bad thing. Most of these higher income earners, whom the Rudd Government treats with almost barely concealed contempt, pay the majority of its taxes. Increase higher income tax rates, reduce or remove higher income earner incentives and the government will get lower tax revenue (read my article from last week if you don't believe me).
Perhaps when this happens financial planning might then happily say what it should have been saying for some time - that it's main focus will be on higher income earners because unfortunately these are the only people who can afford what we do. We'd like to provide a good cheap service but the advice and other regulatory rules are simply too complex and convoluted.
Unfortunately "struggle street" (whatever that stupid term means) will need to solve their own financial problems. It's a shame but the government will get what it wants - an overly complex regulatory environment and no advice for 80% of people impacted by their regime.
Perhaps we might get some "simplification" as a result. Sorry some pigs were just flying past my window!
This email is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Be aware that the information in these articles may become innaccurate with time. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended and hence this publication is not "financial product advice" as defined in Section 766B of the above legislation. All expressions of opinion by contributors are published on the basis that they are not to be regarded as expressing the official opinion of any other person or entity unless expressly stated. No responsibility for the accuracy of the opinions or information contained in the contributor's articles is accepted by any other person or entity. Copyright: This publication is copyright. If you wish to reproduce this article you require a license, which can be purchased here, to do so.