Commissions can create conflicts of interest

A taxation expert has warned that the potential conflicts of interest created through commission payments is affecting the advice given to consumers who wish to transfer retirement funds from offshore accounts into Australia.

Chris Wallis, director of training firm Tax Matrix, told delegates at the Self-Managed Super Fund Professionals’ Association of Australia (SPAA) national conference that some agents were acting on the ‘how’ of transferring client money, without considering the ‘why’. He said this was potentially the result of the agents’ vested interest in bringing the money into Australia in order to earn a commission fee on the sum.

According to Wallis, the complex questions relating to the transfer of offshore retirement funds are not appropriately answered with commissioned advice.

Wallis said in some cases, advisers were rushing the transfer of funds to meet the six-month rule, which states that funds transferred within six months of a client becoming a resident are tax free.

But Wallis said the benefit of this tax-free amount was often not justified by the commissions or charges arising from the advice. Furthermore, in many cases the correct advice would be to leave the funds overseas for a period of time.

Wallis said there was anecdotal evidence to say that advisers acting on a commission basis were less likely to look at issues arising in the source country, and instead were focused on “trying to bring the money in”.

When a person is paid a commission for completing a task, Wallis said, it stands to reason that they are “more likely to give advice that that task needs to be undertaken”.

Wallis did add, however, that “some people advising in this space are not bound by financial services regulation or the Tax Act”.

Wallis also questioned the advisers' role in terms of the information requested by clients. He said where a client did not have a sufficient level of education to be able to ask the appropriate questions, advisers had a responsibility to broach the important topics.

“Do you only answer the questions the client asks?” Wallis said.

“Or do you have a duty to them beyond the client’s question?”

Wallis said financial planners have an obligation to determine if their clients are capable of asking the right questions, or if they are reliant on them for both the answer and the initial question.

Wallis also warned that planners giving advice on the transfer of overseas retirement funds may be caught under the Tax Agent Services Legislation, although there are varying opinions on this matter.