How to build your practice through tax advice?

[ December 05, 2012 ]

There are a number of ways planners can become clients’ primary adviser when it comes to provision of tax advice.

The 2012 mid-year economic and fiscal outlook statement announced changed to the rules for financial planners providing tax advice from 1 July 2013.

In summary, financial planners who are not otherwise qualified to provide tax advice (ie who are not tax agents or solicitors) and who want to provide tax advice will be subject to the Tax Agents Services Act, and must satisfy education and experience tests and follow an industry code of practice.

Tax law is one of the most technically difficult areas of the law. I have practiced it for nearly 30 years now, and as each year goes by I realise there is even more that I do not know.

Tax law is getting harder every year. Tax law has many traps for young players – bear traps, things can easily go wrong.

Yet tax law permeates financial planning principles, and must be considered in every SOA if the SOA is to be effective. An ineffective SOA is an offence under the Corporations Act.

There is nothing worse than an SOA that sets out a strategy with clear, but unarticulated, tax implications, that meekly ends with “and we recommend you seek tax advice before relying on this advice.” Guess what? The client does not seek the advice of a tax professional, nothing happens and the strategy falls into another heap. Or the client does seek the advice of a tax professional, and suddenly someone else is advising your client. You are no longer the primary adviser.

What should a financial planner do?

If you want to be your clients’ primary adviser, and not be limited to a secondary role, you have to be able to provide competent (and “clear, concise and effective”) tax advice in your SOAs.

The obvious option is to complete the training to satisfy the new requirements. You can’t beat them, so you should join them. Put the time and energy into your practice so you can offer bigger and better services to your clients. Then find an AFSL that allows you to provide tax advice and is competent to monitor your compliance with the tax law, and is insured for tax advice. There are not many, but they are there.

A second option is to find an AFSL that can actually write the tax advice for you, and become responsible for it. The AFSL needs to be a solicitor or a tax agent itself, and needs to have the years of tax experience and training needed to operate competently in the tax space. It’s an elegant solution: your write the non-tax part of the SOA, and the AFSL writes the tax part of the SOA, with full credit, and responsibility, attributed to the AFSL. If necessary the AFSL should co-sign the SOA.

Clients love the second option. It shows competence and integrity. It shows you are part of a bigger and better team. It shows you have the skills and resources to provide an efficient and comprehensive service. It shows you can get better results for them, and validates their decision to have you as their primary adviser.

And it means someone else is not advising your clients.

The Dover Group