Where are advisers requiring support?
Demand for technical support from financial advisers jumped by over 11% during the 2021 financial year – and while the uncertainty caused by COVID-19 and changes to super contribution rules drove much of that increase – analysis shows demand for non-investment strategic advice grew across a broad range of areas as both demographic shifts and policy settings continue to play out.
With this in mind, it may be timely for advisers to better understand these trends and position themselves ahead of the curve to meet their client’s growing strategic advice needs into the future.
The breakdown of enquiries received by CFS’ FirstTech team (Chart 1) showed that superannuation remained the dominant technical topic, making up over 48% of all queries.
This was followed by social security, estate planning, along with issues on aged care and self-managed super funds (SMSFs) – these top five topics made up 82% of the questions we received.
While this distribution of questions remained broadly consistent with what we have seen in previous years, there were some stand-out changes compared to the last financial year that were worth noting.
SUPERANNUATION TECHNICAL SUPPORT
For most advisers in 2020/21, super was the key focus for their clients, driving enquiries up by 15% over 2019/20 levels, with significant increases in a number of individual topic areas.
Contributions generated the most queries – up by a massive 146% on last year – with most questions centred on the Federal Government’s proposed extension to the non-concessional bring-forward rules to people aged 65 and 66.
The big driver in demand here was advisers wanting to know whether the new rules affecting their clients, which took a lengthy 405 days to get through Parliament, had become law yet and what their effective date was.
We also saw a significant increase in questions relating to concessional super contributions during 2020/21 compared to the previous year. While this rise was likely driven by a range of factors, one of the more common concessional contribution enquiry topics related to the carry forward concessional contributions rules, which only came into effect on 1 July, 2018.
The interest in this topic continues to grow each year in line with the potential benefits of the strategy as the rules continue to phase in before it reaches full maturity in 2023/24.
Questions about the carry forward concessional rules were mainly practical with advisers wanting to know whether the client needed to notify the fund (or the Australian Taxation Office) that they will be making carry forward contributions; if there is a maximum age limit for making carry forward concessional contributions; and where advisers can access information about their clients’ unused concessional contribution cap amounts.
Superannuation income streams
Income streams also featured prominently in queries about super received by the FirstTech team compared to 2019/20. This increase was driven by a range of issues, including the announcement in May that the Government would extend the halving of the minimum pension drawdown requirement for an extra 12 months to cover 2021/22, while we also saw more questions relating to transition to retirement pensions.
In addition, we also saw a massive 80% increase in the number of enquiries relating to members satisfying the retirement condition of release.
While this surge in questions may be driven by demographics and the fact that more and more baby boomers are reaching retirement each year, it could also be a consequence of people technically satisfying a retirement condition of release, such as where they lost their job or were made redundant after turning 60.
ESTATE PLANNING
Estate planning was also a big issue for advisers in the 2021 financial year. Questions, which covered both super and non-super issues, increased by 39% over 2019/20 levels.
This continues a trend that FirstTech has observed over the past five to 10 years to the extent that estate planning issues now make up the third most common type of enquiry we receive.
While the increased focus is to be expected given the ageing population with more people now having significant estate planning needs, what’s also clear is that more and more advisers are looking to assist their clients in this area.
While estate planning involving the establishment of wills and testamentary trusts is still very much the domain of specialist estate planning lawyers, we have noticed that more advisers are upskilling in this area and looking to work with legal service providers to leverage their skills and understanding of their clients’ needs and circumstances to facilitate the implementation of comprehensive estate plans.
As a result, FirstTech has seen not only a jump in these enquiries but also noticed the increase in complexity of the enquiries received over the last several years.
Reduced demand for social security support
At the other end of the spectrum, demand for social security technical support surprisingly fell by 12% in 2020/21 compared to 2019/20 levels. However, this reduction appears to be a one-off event caused by a significant spike in the number of enquiries received in late 2019/20 related to the Federal Government’s COVID-19 social security announcements, rather than any reduction in the overall level of technical enquiries received from year to year.
Technical questions in relation to the assets and income tests as well social security pensions increased by 42% and 110% respectively compared to 2019/20. While it is difficult to be certain, these increases are likely due to advisers seeking to understand how the significant market volatility and changes to the deeming rates would impact their clients’ social security entitlements.
SMSF SUPPORT DRIVEN BY LEGISLATIVE CHANGE
We also saw questions for SMSF clients rise 31% compared to the previous year making up approximately 7% of our total technical enquiries for 2020/21.
Further analysis shows a combined 70% increase in in-specie asset transfer and related party transaction enquiries in 2020/21 compared to 2019/20 levels. This may have been due to an increased number of people looking to take advantage of decreased asset values in early 2020/21 to transfer assets such as listed shares and business real property into their SMSF.
We also saw more enquiries relating to SMSF income streams as well as the segregation of assets. While it’s not possible to determine the precise catalyst for these questions, it’s likely to be associated with a range of factors such as SMSFs being unable to meet their minimum pension liabilities due to the financial impacts of COVID-19, the extension of the 50% reduction in the minimum pension requirement for 2021/22, as well as proposed changes to the way SMSFs will be required to calculate their exempt pension income.
Our review of this enquiry data shows that advisers are not only continuing to add real value through the development of long-term strategies to help their clients meet their financial goals, but also demonstrates how subsequent change, such as through new legislation and macroeconomic events, may impact them and help to guide them through that change.
Such evolution should also serve to keep advisers well informed and on course to pursuing new strategies to secure their clients’ futures.
Craig Day is head of technical services at Colonial First State.
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