Azzet recently caught up with Sydney-based partner of FreshWater Wealth, Roger Perrett, for insights into how his advice firm is handling the challenges and issues currently confronting clients.
Azzet: Financial advice has changed in recent years. How do you add value for fee-paying clients?
Roger Perrett (RP): While most of our clients are high net wealth investors in the $2 million to $5 million range, there’s a lot more to providing advice than managing their investment portfolios. While some clients want to be involved in everything, most tend to leave granular investment and asset allocation details to us and focus more on high level outcomes like overall market performance.
It’s our job to constantly manage changes in A) a client’s personal situation and their goals, B) the economy and markets and C) the legislative environment.
For example, the biggest recent legislative change was the proposed $3 million super tax, which would have imposed an additional 15% tax on top of the 15% tax already in place. While the government has since abandoned this measure, clients also need guidance with the myriad of (aged-based) tax rules around super and the different caps.
But that said, we find there’s also a huge emotional benefit to clients from the financial forecasting we give them. Some clients simply need reassurance that it’s OK to spend their money, and that comes down to knowing how much they can afford to live on.
Azzet: What noteworthy changes are you witnessing in the investment landscape right now?
RP: Investment fundamentals haven’t changed, but at the tactical level, we’re witnessing greater client interest in private credit and private debt markets, especially for clients who previously invested in hybrids for regular income.
While there are a growing number of private credit products from home loan-based to corporate debt offerings with differing returns, it is important clients understand what’s under the hood of these products. They also need to understand how the liquidity differs between say a Listed Investment Company (LIC) and an unlisted private credit product.
I’m also witnessing more investors favouring platforms over running a self-managed super fund (SMSF).
Azzet: That’s interesting. What's driving the growth in investors using an investment platform?
RP: All my clients invest via a platform and many have replaced their SMSF with a platform that offers similar levels of control without the additional fees.
What attracts clients to platforms is the flexibility of doing everything under one umbrella, like switching between investments and strategies, catering for all their tax considerations, while giving them a complete picture of their overall financial position.
In many cases platforms charge the same as SMSF’s but without tax-related and compliance costs of around $3,000.
It’s important for investors to realise that not all platforms have a wide range of investment options, with super fund platforms typically limited to in-house options.
We find that platforms with wider menus can minimise sole-manager risk, opportunity cost and out-of-market risk.
It’s the huge menus good platforms offer that give them the feel of a SMSF.
While investors can operate a platform without an adviser, in my experience most will have access to both.
However, SMSFs still have their place, especially when there are off-market assets involved or other estate-planning and blended-family-type considerations.
Azzet: Are there any pet issues that you constantly have to explain to clients?
RP: Yes, given that our clients tend to be aged 60-plus, the issue around death tax – a colloquial name for potential tax on a deceased client’s remaining super balance – requires constant explanation.
Super funds left to a spouse or dependent children are not taxed when the fund owner dies.
However, tax considerations become trickier when funds are left to non-financial dependents, like [most] adult children.
There are three basic options to avoid a future tax on the super balance you leave behind:
- Live until you’re 100 by which time all your retirement funds will probably be spent.
- For those with a limited timeframe, due to illness, a practical approach is to withdraw all funds from super while they’re still alive.
- Use a recontribution strategy by taking it out of super and putting it back in as a non-concessional contribution from previously taxed income.
