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Vol.25 No.15 | April 28, 2011 | $6.95 INC GST
The publication for the personal investment professional
www.moneymanagement.com.au
FOFA COULD MAGNIFY UNDERINSURANCE: Page 5 | CONCERNS OVER EXCESS CONTRIBUTIONS: Page 12
May Budget to ring in super changes By Mike Taylor THE Federal Government is expected to announce a number of key changes in the May Budget aimed at overcoming what are regarded as unintended consequences around the so-called ‘Simpler Super’ regime and the excess contributions tax (ECT). If the Government delivers on the expected changes it will be consistent with lobbying from virtually every major financial services group in circumstances where some clients have inadvertently found themselves in breach of the excess contributions rules – with the result that the amount was taxed at an accumulative rate of 93 per cent. The changes will also reflect concerns expressed by the Commissioner for Taxation, Michael D’Ascenzo, who made clear to the industry that the ability of the Australian
Michael D’Ascenzo
Fiduciary duty nothing new By Caroline Munro
CARE needs to be taken in mandating a ‘best interest’ or fiduciary-like duty, because it would imply that one did not already exist, according to Argyle Lawyers principal Peter Bobbin. “To introduce a best interest or fiduciary duty as a new standard implies that it didn’t exist before. This would be a surprise to the many professional financial planners who always considered it to be the standard that applied to them, and the standard that they applied to client servicing,” said Bobbin. “And to the extent that it is a new standard, there will be two client/planner relationships pre and post implementation. How is the cross over of the new standard to be applied?” The Treasury and the Future of Financial Advice Peak Consultation Group is currently mulling over two possible approaches to a proposed
best interests duty: one that is outcomes based and considered by some to be closer to a fiduciary-like duty, and another that is processbased. Bobbin said that whichever route Treasury and the consultation group took, consideration needed to be taken regarding what standards financial planners were currently operating under and what kind of relationship already existed between planners and their clients. Argyle Lawyers associate and member of its financial services team, Lisa Chambers, said Treasury’s fiduciary-like duty option was problematic in the financial planning context because it would “almost certainly be subject to caveats and qualifications”. “This would dilute the impact and undermine what should be the true intent of facilitating better advisory outcomes for clients, as licensees and advisers grapple with Continued on page 3
Taxation Office (ATO) to exercise full discretion on inadvertent breaches was limited. “The law places strict limits on the application of the discretion which may only be applied where there are special circumstances and the decision is consistent with the objectives of the relevant tax laws,” D’Ascenzo told an industry conference. While the Government is not expected to accede to calls by organisations such as the Self-Managed Superannuation Fund Professionals’ Association of Australia (SPAA) to return contribution caps to pre-2009 levels, it is expected to tidy up some of the issues identified by D’Ascenzo and the ATO. The Assistant Treasurer and Minister for Financial Services, Bill Shorten, has re-stated the Government’s intention to restore the $50,000-a-year contribution cap for those aged over 50 and with less than $500,000 in
super assets, starting from the middle of next year, but the SPAA and a number of other organisations have asked the Government to go further. However, in circumstances where the Treasurer, Wayne Swan, has spent most of the past month signalling a tight Budget, most industry lobbyists believe that whatever superannuation-related concessions are delivered on 10 May will be at the margin. They said they would count it as an achievement if the Government tied up the unintended consequences around ECT and perhaps extended the concessional contribution cap arrangements for those over 50 to include people with up to $750,000 in super savings. For a full report, see the SMSF feature on page 12.
Risk advisers defiant of FOFA By Milana Pokrajac WHILE many financial planning practices have moved to the fee-for-service remuneration model in preparation for the introduction of the Future of Financial Advice (FOFA) reforms, most risk-focused advisory businesses are not shying away from commissions as yet. The Association of Financial Advisers (AFA) vice president and risk specialist, Adam Smith, said most risk specialists hadn’t moved to the fee model, which was mostly due to the general optimism within the industry around the government’s reconsideration of insurance products. Australian Securities and Investments Commission (ASIC) commissioner Dr Peter Boxall recently said that the Treasury had acknowledged that insurance was different from investment products and that it was looking to explore concerns about affordability and the potential for underinsurance. “The feel is that risk commissions will remain,” Smith said. “And a lot of that basis is on consumer research conducted by the likes of Zurich around consumer preferences on how they’d rather remu-
Dr Peter Boxall nerate advisers for insurance advice.” Both Smith and Synchron director Don Trapnell also believe the Australian government would not wish to follow in the footsteps of the United Kingdom. “They [United Kingdom] have now reintroduced commissions on the risk side because they were finding that the penetration of protection for families dropped dramatically,” Trapnell said. He added that Synchron, as a risk-focused dealer group, had not moved away from the commissionbased remuneration model. “Certainly, we’ll have some contingency planned, Continued on page 3