The AFA has called on the Government to extend the current tax deductions to include up-front advice and the cost of advice on life insurance.
In its pre-budget submission to Treasury the association says its recommendation is made in the context of the rapidly rising cost of financial advice and the fact that cost is a significant detractor in people seeking advice.
“Access to tax deductions at the marginal tax rate will assist in reducing the cost of financial advice and therefore make it more affordable.”
It says this deduction should not be seen as a revenue reduction to the Government, “… but more an investment into creating awareness and encouraging Australians to take financial control of their own future and, in doing so, reduce the short-and-long term burden on the Government”.
…the Government might want to put a cap on this tax deduction for upfront advice as a control measure…
The AFA says it understands that the Government might want to put a cap on this tax deduction for upfront advice as a control measure “…and we would support something that covers the majority of the mass market (i.e. fees of up to $5,000)”.
The submission explains that at present the cost of ongoing financial advice, that is related to the earning of ongoing investment income, is tax deductible to consumers. The cost of initial financial advice is not tax deductible.
“Premiums for Income Protection insurance that cover the commissions paid to financial advisers are also tax deductible to many Australians however premiums for other forms of life insurance are not tax deductible so the cost of advice, that is built into these premiums (through commissions), is also not tax deductible.”
It continues: “The cost of advice that is charged to a superannuation fund, or life insurance premiums paid by a superannuation fund, is deductible to the fund at the rate of 15 percent.”
Support for Professional Year Students
Amongst other recommendations the AFA pre-budget submission also asks for Government help in creating growth and employment through Government support for Professional Year Students.
It recommends that the Government provides an incentive for financial advice practices to employ Professional Year students.
“This could work as a wage subsidy, as has been the case in the Covid-19 relief measures. A $10,000 subsidy would make a material difference in encouraging financial advice practices to appoint Professional Year candidates.”
The AFA submission notes that at present there are only 58 Provisional Financial Advisers registered on the FAR. This is the number of new financial advisers in the second half of their Professional Year, who have passed the FASEA exam.
It says more needs to be done to ensure advisers leaving the industry are being replaced by new advisers and to encourage more employment and growth in small business and more jobs for students.
It says there are a range of factors at play here, including:
- The exit, or the significant downsizing, of the large institutionally owned licensees who were previously an important sector of the market for the development and support of new entrants
- The significant cost involved in bringing a new entrant into financial advice, including 100 hours of structured training and 1500 hours of on-the-job training, when their contribution to the business is limited and the employer would need to compete with other employers to attract candidates
The AFA says the majority of financial advice practices are small businesses “…who are currently under tremendous financial strain, however with the right incentive they could grow their businesses and provide valuable employment opportunities to students after many years of study and set them up for a meaningful career”.
Click here to read the AFA’s full submission.
