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Ask the Expert: Low-cost financial advice is possible – here’s where to look

One-on-one financial advice doesn't have to cost the earth.

One-on-one financial advice doesn't have to cost the earth. Photo: Shutterstock

Question 1

  • I try to get financial advice and tell them my dire situation yet they then quote many, many thousands of dollars. When you tell people to seek financial advice, most people just can’t afford it. Is there a low-cost way to navigate this?

There are different types of financial advisers and types of financial advice.

It’s important to have at least a rough idea of what you are after to choose the appropriate type of adviser.

Let’s have a look at some options.

You are correct in that to see a traditional financial adviser the costs have increased significantly. This is because of additional education and compliance requirements now placed upon them.

However, most of the requirements were made to help the industry become a profession and weed out the bad apples.

They tend to provide ‘comprehensive financial advice’ and they can develop a financial plan to reach your financial goals. This covers things like savings, investments, insurance and super and retirement planning.

This could be one-off advice, or they can also provide ongoing advice which involves regular monitoring and review of your financial plan and situation.

If you do not have a complicated situation, you may not require ongoing advice. 

If you only want some advice over your super, such as which investment option should I invest in, how best to contribute, and how much insurance do I need in super, then many super funds offer advice over these at no additional cost, i.e. the cost is covered in your existing membership or admin fees.

Finally, you say your situation is dire. Then perhaps a financial counsellor may be able to assist.

Financial counsellors are sometimes confused with financial advisers but the services provided are quite different.

Financial counsellors work with people who are in debt or are not able to meet their ongoing expenses. They can:

  • Assess your financial situation
  • Provide advice about what to do if you’re struggling to pay bills and fines
  • Help you negotiate with government agencies, your landlord, utilities, telcos and other creditors
  • Assist you if you’re being harassed by debt collectors
  • Refer you to other services you might need, such as legal, accommodation, health and crisis services.

There is generally no cost to see a financial counsellor. 

Question 2

  • Hi Craig, nice article, very interesting. Could you please explain your computations in the first example – how did you come to these components $63,000 taxable *$337,000 tax free.  I went through your numbers and can’t see the same outcome. Please help. Interested Reader

Hi Interested Reader,

In the article I go over how you can reduce the tax payable upon your death when your super benefits are paid to a non-tax beneficiary, such as adult children.

This tax is sometime referred to the ‘death’ tax.

A common way to reduce or eliminate the tax is to withdraw funds from super, then re-contribute them back in as an after-tax ‘non-concessional’ contribution.

This type of contribution goes to the tax-free component of super and is never taxed again.

So effectively what you are doing is recycling money from the ‘taxable’ component in a ‘tax-free’ component. Once you are over 60 and have met a condition of release that can be done tax free.

The example I gave was where someone had $400,000 in super and 90 per cent of it was in the taxable component ($360,000). If you were to pass away and left the money to adult children, the tax payable would be $61,200 (i.e. $360,000 x 17 per cent).

By the way all employer SG, salary sacrifice, personal tax-deductible contributions and all earnings within super go to the taxable component.

So, unless you have made an after-tax, non-concessional contribution you may have no ‘tax free’ component.

Back to my example, by withdrawing $330,000 and putting it back into super your components would now be:

  • $63,000 taxable
  • $337,000 tax free

Let me explain those numbers. When you withdraw funds from super you cannot nominate which component they come from, they are withdrawn proportionally, i.e. in this example a $330,000 withdrawal is made 90 per cent from the taxable component and 10 per cent from the tax-free component.

Therefore, the taxable component started at $360,000. The withdrawal of $330,000 is made up of $297,000 taxable component ($330,000 x 90 per cent). You are therefore left with $63,000 in taxable component ($360,000 minus $297,000).

The remaining $33,000 part of the withdrawal comes from the tax-free component ($330,000 x 10 per cent).

All the money that goes back in goes into the tax-free component. 

The resulting tax on the $63,000 taxable component would be $10,710. That’s a big savings of $52,290 ($63,000 minus $10,710) for your beneficiaries.

There are a few things to bear in mind. With very large super balances you could do withdrawals and re-contributions over many years to reduce the taxable component even more.

But bear in mind large account balances could also restrict the amount of funds you can re-contribute back into super. I would recommend seeking personalised financial advice.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.

The New Daily is owned by Industry Super Holdings

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