Financial Planner or good accountant?

Discussion in 'Financial Planning' started by sfdoddsy, 27th Mar, 2019.

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  1. sfdoddsy

    sfdoddsy Well-Known Member

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    Thanks to combination of good luck, good timing and a very generous buyer of my house, I've recently received a very hefty chunk of money.

    When combined with existing investments it should easily be enough to retire early should I choose to do so.

    Doing due diligence, and on the strong advice of a friend, today I went to see a very nice chap at a major Financial Planning firm.

    Our chat was enlightening.

    His suggestions for structuring how we invest the money in a tax effective manner (discretionary trusts etc) appear on first glance to have the potential to add $100,000 a year to our potential income.

    Which is good.

    However, his suggestions for what we actually invest in are a little more problematic. His firm, so he says, is a believer in active direct investment. So individual stocks rather than an index, individual bonds/property trust/whatever.

    Which is a slight worry.

    He proudly showed me a simulation giving a decent return over a decent time time period.

    The figure bandied about was 7% (4% income, 3% growth). Diversified in the usual Modern Portfolio manner.

    I pointed out that a diversified index fund (like VDHG) would have given a very similar return. And that my exisiting super fund (Australian Super) was even better still.

    And that I was intrigued by dividend investing a la Thornhill.

    Rather than get into the pros and cons of active versus index we agreed to postpone the discussion until after they had done a Statement of Advice giving concrete suggestions.

    The cost of this is $1800. A figure I don't mind spending given the sums involved.

    However, given they would be taking a cut (.33%) of any money I invest with them, their active stock-picking strategy is a concern.

    So I'm wondering if I wouldn't be better off with a smart accountant who can set up the same kind of structure and who will leave it to me to specify the investments.

    What are the thoughts of the experts here?
     
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  2. Gestalt

    Gestalt Well-Known Member

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    Don’t claim to be an expert, but here are my thoughts.

    If it was me I’d use an accountant to assist with a tax efficient structure, and put the money into index funds or ETFs (VAS, VGS, VDHG, take your pick).

    I wouldn’t want a financial planner guiding me to an actively managed portfolio which would probably result in underperformance vs the index, higher portfolio turnover, CGT and trading costs, and the privilege of paying the firm a clip along the way.

    Call me a cynic, there are a few good FPs out there but most are just salespeople with a piece of paper.

    Not advice, just my thoughts on what I’d do in the same situation.
     
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  3. sfdoddsy

    sfdoddsy Well-Known Member

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    Yes. I'm unconvinced of the value of paying someone $16K a year for the same result (or worse) than I can do by just whacking the money into VDHG or similar.
     
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  4. Nodrog

    Nodrog Well-Known Member

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    I suppose the only issue with Disc Trusts is what happens to them if / when Labor’s elected. Under Labor’s proposed changes to DTs If no beneficiary is on a tax rate less than 30% then it probably won’t make a difference.

    Personally given how close an election is I would be waiting until more is known.

    Experts here might disagree.
     
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  5. sfdoddsy

    sfdoddsy Well-Known Member

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    I asked about that. The response was that Labor was proposing removing complex transfers between various trusts and entities, not the more simple simple structure envisaged.

    One of us may well be under the 30% rate as far as non-investment income goes.
     
  6. Nodrog

    Nodrog Well-Known Member

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    That’s not my understanding but I’m simply a layperson. I thought it was intended that all beneficiaries pay no less than 30%?

    It would be interesting to hear @Terry_w, @Paul@PFI and others thoughts on this?
     
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  7. willy1111

    willy1111 Well-Known Member

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    I was under the same impression.

    Proposed minimum 30% tax on distributions received from discretionary trusts.

    This from Shortens website confirms it A FAIRER TAX SYSTEM FOR ALL AUSTRALIANS - SUNDAY, 30 JULY 2017
     
  8. sfdoddsy

    sfdoddsy Well-Known Member

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    That link seems rather different to what I was told.

    What I took out of the FP's explanation was that the trust could direct payments to the person/entity who pays the least tax. It could be super (thus 0-15%), a company (thus 30%) or an individual (thus whatever that person's tax rate might be, 0-47%).

    The figure quoted was reducing an average 40% tax on payouts to around 17%.

    I may well have misunderstood, but if this may change or is wrong, it would obviously affect our decision.

    Keep 'em coming.

    :)
     
  9. The Falcon

    The Falcon Well-Known Member

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    So you are talking around 5mm invested ?

    What is your family situation? That will determine strategy. This is about structure not product. Product is straight forward if you want it to be. Agree with what I read your view to be, these guys are ticket clipping plonkers :)

    You need to bear in mind what the ALP has already said they intend to do - place a min 30% tax on trust distributions. This may mean that you want to hold assets in non working (?) spouse name (0-30% tax) and company / trust structure (30% accumulating franking credits).
    You will also want to ensure both of you are utilizing 25k concessional super contributions.

    Agree this is a GOOD accountant issue rather than FP.
     
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  10. blob2004

    blob2004 Well-Known Member

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    That is my understanding as well, so you lose most benefits of distributing for tax reasons.

    Even if you distributed to beneficiaries under the tax-free threshold it would still be taxed at 30%. Although I supposed that is better than getting taxed 37% or 45% on a higher income bracket.

    I have also asked my accountant about this and he thinks that if this policy becomes legislated it is highly unlikely to commence in the coming financial year immediately (so you could at least have a year's worth of tax savings?).

    Another way around it is potentially clearing your distribution as a wage instead but you do have to demonstrate that your beneficiary is doing some sort of admin work for you in case of an audit (perhaps managing your portfolio in some way?).
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Structure set up is legal advice. You need a lawyer
     
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  12. sfdoddsy

    sfdoddsy Well-Known Member

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    Total pool is a bit more than that including existing super and Vanguard funds and an IP (which may get the flick due to the hassle and very ordinary returns after expenses).

    The unexpected appearance of an amount just less than your guess (from a developer who appears not to have read all the reports of the Sydney property market plunging and thus paid way over even the most generous valuation) has provoked both pleasure and consternation and is currently sitting in the bank earning 2.4%.

    I'm ashamed to admit to logging into my account far more than I should just to look at the zeros.

    Sad but true.

    I'm 57 and recently under-employed after decades of being over-salaried.

    When I do work, however, I get paid very well for it.

    My wife is 41 and has her own business. Judging by her discretionary purchases it seems to be doing fine.

    We have a six year old.

    Were it not for him I'd just sod off to Europe and be degenerate for as long as possible.

    But I'm trying to be responsible.

    :)
     
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  13. sfdoddsy

    sfdoddsy Well-Known Member

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    Assuming that is the case, why would you bother?

    Wouldn't you be better off without the trust structure and just splitting whatever investments you can't get into super?

    That way the person who is not working will probably pay less than 30%, especially with franking.
     
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  14. Nodrog

    Nodrog Well-Known Member

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    Ah I was wondering what your age was. I assumed you were younger. In which case at 57 getting as much into Super as possible depending on caps would seem like an important component of any overall strategy. Preservation ages:

    15572BA8-1E86-4BB4-AC91-78A3B4DF9F2D.jpeg
     
  15. Ross Forrester

    Ross Forrester Well-Known Member

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    Your financial planner is an amazing person. Tax advice, investment advice, legal advice and insurance advice all rolled up into one person.

    That rings alarm bells to me.

    Keep your advisors friendly but not friends.
     
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  16. willair

    willair Well-Known Member Premium Member

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    Maybe just ask one simple question to the ""FP"",What % do they earn most of their money from,as a financial advisor or as an ""Investor"" truthfully.
    btw I,m no expert...
     
  17. bunkai

    bunkai Well-Known Member

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    Are you sure it is only 0.33%?

    How much is brokerage or do they use a "platform" where you pay another 100 bps for management services.

    Last time I reluctantly spoke to a planner - they were a high end of town firm - he admitted their value proposition when compared to an industry fund was that they had great Christmas parties and events. They also talk to you a lot, about what I'm not sure.

    I really wonder what sort of capability a typical FP has as a stock picker - you'd want someone with actuarial or CFA type qualifications ... But your own analysis tells you that;)
     
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  18. Zenith Chaos

    Zenith Chaos Well-Known Member

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    1. Market at extreme valuations right now, if you go into equities do DCA not lump sum.
    2. Learn yourself and ditch FP, passive VDHG will beat them in the long term after fees IMO.
    3. Accountant is necessary for structuring. Depending on how long to retirement super may be a good option. Trusts are the target of Labor so I would wait until the outcome of the election before outlying significant money for something that needs to be taken down anyway.
     
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  19. Nodrog

    Nodrog Well-Known Member

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    In regard to Super providing the $1.6 mil NCC cap won’t be exceeded and depending on whether you have already taken advantage of brought forward contributions the following could be a possibility.

    1. Prior to end of F/Y each contribute $25k Concessional Contribution (CC) and $100k Non-Concessional Contribution (NCC). Total = $250k

    2. At begining of next F/Y again contribute $25K CC. Use 3 year bring forward rule to each contribute $300k NCC. Total = $650k

    Overall Total Contribution over this 4 month period = $900K.

    Still only a modest chunk of your available investible Funds but it could prove useful.

    Not advice.
     
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  20. sfdoddsy

    sfdoddsy Well-Known Member

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    Yep, that's exactly what we have planned, whether we use the FP or not. Then chuck in the maximum possible down the track.