Don’t miss the forest for the trees (or the Kiwis)
Financial planning is heavily regulated and has been getting more so. It also involves a lot of technical knowledge and expertise. But it’s important, sometimes, to step back and see the forest for the trees – and remember what clients are looking for when they engage with a financial planner.
Looking at the differences between financial planning in Australia versus New Zealand can provide a fresh perspective.
I worked in the Australian financial services industry for roughly 10 years and have been providing financial planning services in New Zealand for the last three years.
And boy, there are a lot of differences between Australia and New Zealand when it comes to financial planning.
I won’t go into any detail regarding regulatory differences. All I’ll say is that I feel for what you’re going through in Australia. Here in New Zealand we are going through a number of changes including a complete re-write of the legislation impacting financial advisers, which introduces something resembling Australia’s licensing regime and increased educational requirements and conduct standards for advisers in the risk and lending space. This has passed into law and we are about to enter into a lengthy transistional period. But in my view, our experience is nothing like the scale of change being experienced in Australia.
On top of this, from a technical perspective, it is much easier to provide financial planning services to clients in New Zealand than in Australia.
- Our KiwiSaver regime is relatively uncomplicated. There are basically no tax concessions associated with KiwiSaver. All you get from the Government is a maximum Government co-contribution of $521 (which you get if you contribute $1,043 or more over the course of a year). Some employees will also benefit from an employer co-contribution, which is usually 3%, but that depends on their employment agreement. You can also only be a member of a single KiwiSaver scheme. Unless locking your funds away until you’re in your mid- to late-sixties is a feature rather than a flaw (and that is the case for some people), there isn’t much reason to focus too strongly on KiwiSaver;
- In New Zealand, there is no equivalent to self-managed superannuation funds (SMSFs);
- You can’t pay for insurance via KiwiSaver;
- At age 65, all Kiwis who meet the eligibility requirements (which relate to how long you’ve lived in New Zealand as an adult) are entitled to a universal pension of roughly NZD$21,000 ($19,449) for a person living alone and $32,000 for a couple. This pension isn’t means tested;
- The top marginal tax rate in New Zealand is 33%. However, there are very few items you can deduct against your income; and
- There is no capital gains tax.
The only areas where things are slightly more complicated in New Zealand relate to our Accident Compensation Corporation (ACC) and the popularity of trusts. But if I’m being candid then these differences are pretty minor.
Our ACC regime, which provides generous cover to Kiwis who suffer accidents, can make Kiwis a little complacent about their need for personal insurance. But once you point out their exposure to non-accident related risks, they can usually appreciate the value of insurance.
Advising clients in their personal capacities as well as in their capacities as trustees of family trusts usually isn’t that difficult once you’re used to it, either.
(As an aside, some of the reasons trusts are more popular in New Zealand than in Australia relate to historical accident; the lack of options that are more beneficial in Australia such as tax-concessional superannuation; and the lack of capital gains tax in New Zealand, meaning there is no tax disadvantage to holding a family home in trust.)
The long and short of all of the above is that it’s harder to demonstrate your value as a financial planner in New Zealand, at least in pure financial terms.
It’s virtually impossible to recommend a strategy to clients and point out a specific saving they’ll make by making additional contributions to superannuation or by implementing a transition to retirement strategy.
If I want to point to a specific dollar benefit, I can usually point to savings I can generate from not paying fees that I consider unnecessary. Or where appropriate, by pointing out to clients that they are over-insured and can afford to reduce their level of cover on some policies and therefore their premiums. But except in rare cases these figures are minor, and ancillary to what is fundamental to the advice I provide.
Despite this, clients still receive a lot out of the financial planning process and perceive that they do so.
It’s easy to think about all of the technical expertise and knowledge you have.
But I draw this distinction between New Zealand and Australia to point out something more fundamental about the advice process.
Sure, clients want to make sure they’re not paying more in fees or tax than they otherwise would be. They want to ensure their financial affairs are structured appropriately.
But those strategies are really a means to an end.
- Clients want to make sure they’ve got an appropriate plan in place, and that it is tailored to them;
- Clients want to know that they’ll be okay;
- Clients want to ensure that they have a plan in place that will help them live a life in line with their values and priorities;
- They want to be able to sleep at night, knowing that they’ve considered many of the things that can go wrong in their lives, and that they have strategies in place to help manage these risks (through insurance and otherwise);
- They want someone to listen to them and provide them with an external perspective. They want someone who can facilitate conversations about money (and other important things) that they might necessarily have with their partner. They want someone who can be a devil’s advocate and challenge them, and get them to entertain other perspectives and approaches; and
- At the end of the day, many clients want comfort and confidence.
All of these things are true wherever they are located. It doesn’t matter whether they’re in Australia, New Zealand, or elsewhere.
As a financial planner in New Zealand, it’s important to get to the heart of this. Because our financial system is so simple, we can’t point to dollars saved in tax by contributing to KiwiSaver or how to make the most of SMSFs, or by paying for insurance within these structures.
We have to put a special focus on the client, make sure they are heard, and provide them with confidence that they have a plan that is tailored to their situation.
With all of the regulatory changes you’re dealing with in Australia, and all of the technological knowledge and expertise you have to muster, it’s important to remember that all of this is a means to an end:
Who is the client, what do they care about, and what do they want from working with you?
Everything else is important, and in most cases, essential. But ultimately, it’s a means to an end and that end starts with the client.
Sonnie Bailey is founder and principal of Fairhaven Wealth.
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