Planners need to push asset protection

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Managing and protecting assets is an essential part of the financial planning process, and clients need to be reminded to review their investment structure more regularly, says financial planning firm Centric Wealth.

Broadly speaking there are four main types of investment structures, says Centric Wealth’s Adam Pearsall.

  1. Personal

Centric Wealth tends to recommend personal ownership for clients who are on a low marginal tax rate and likely to remain so in the future. “This investment structure is also best suited to those investors who want unrestrictive access to their income and capital,” says Pearsall.

  1. Company

Company ownership has one of the highest set-up and compliance costs, so is most often used for business rather than investing purposes, although it can be a worthwhile approach if the client is on a high marginal tax rate or acts as a beneficiary of a discretionary family trust.

“One of the main advantages of investing via a company is that income and capital gains derived by a company are taxed at a flat rate of 30% which is significantly less than the maximum marginal personal tax rate plus medicare levy of 46.5%,” says Pearsall.

  1. Trust

When it comes to trust ownership, discretionary and fixed trusts are the most popular due to their ability to provide asset protection, maximise tax-effectiveness, and assist with estate planning (testamentary trusts).

“Like company ownership, trusts can be relatively complicated to set-up and maintain,” saysPearsall. “They also have higher set-up and compliance costs. We generally recommend trusts for clients who want to maintain control of their investments, add a layer of asset protection and tax-effectively stream income or capital gains.”

  1. Superannuation

“The biggest advantage of superannuation is the favourable tax treatment it receives.   Once fund members start receiving a pension, they are likely to pay no tax on either income or capital gains.”

Pearsall says that the right investment structure is an essential part of the financial planning process because it dictates how assets will work for clients. But investment structures need to be regularly reviewed to ensure clients are getting the best out of their financial assets.

“Because investment structures control how your investments are legally owned, it is vitally important you review them when your financial or family circumstances change due to a bereavement, inheritance, divorce or changes to your employment status,” Pearsall says.

Pearsall says that when choosing which investment structure suits clients’ circumstances, the key objective must be to ensure assets are protected, and kept in the most appropriate and tax-efficient structure to maximise their after-tax income.

  • Ike Devji on 5/10/2013 4:04:13 AM

    Glad to see the issue raised here. This is important for several reasons that I share when I teach advisors across the U.S.:
    1. Spotting gaps in planning in the area of asset protection is part of your fiduciary duty to clients.
    2. Helping them protect their wealth protects your wealth too; you can't charge fees on money they've lost to some outside exposure;
    3. HNW clients are more concerned with loss than growth, including a basic knowledge of these issues in your practice helps serve, attract and RETAIN those clients.

    Finally, have a real resource that has the right amount of experience, your local buddy the estate planner usually can't do this right.

    Ike Devji, J.D.

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