Welcome to our world of complexity. A generation ago the advice we dispensed as financial advisers was much simpler. In those days there was an overwhelming desire by clients to simply reduce their exposure to tax.
Welcome to our world of complexity. A generation ago the advice we dispensed as financial advisers was much simpler. In those days there was an overwhelming desire by clients to simply reduce their exposure to tax.
In the mid-1980s the top income tax rate was a disheartening 66 cents in the dollar and so New Zealand investors took what few options were available to reduce their tax. Among the popular options were the insurance-linked superannuation schemes, which by today’s standards were poor performers and bloated with commissions. Yes, but they provided a tax break. For similar reasons, millions of investors’ dollars poured into such notorious tax shelters as film partnerships or bizarre, badly researched start-ups like ostrich farming. Rogernomics may have been liberating the capital markets, but by the time of the 1987 crash, the share market and financial markets were still crude, simplistic, dangerous and unregulated.
Anything that promised reduced tax was a Klondike, but in recent decades the focus has gone into offering better investment options, robust risk management and a financial landscape that is heavily audited and regulated. And complicated. Today’s investment market now offers a bewildering array of choices and decisions.
Changing technology has also driven volatility. With the internet has come amazing innovation, rapid change, new services, sudden wealth and, just when the going looks good for investors, a gaping new opportunity for hackers and cyber-criminals to do their worst.
And let’s be honest. Our rising lifestyle expectations have also played a part in the complexity. If the theme in the mid-80s was “where can I reduce tax exposure?” Today’s theme appears to be Great Expectations. We want it all. A flash house. Travel. A holiday home. A great job. We work harder and harder, trying to fit the good life into a 7-day week.
In our work as financial planners we have also seen the emergence of more inter-generational planning. Baby boomers have accumulated a lot of wealth compared to their parents, and subsequent generations are now keeping an eye on their potential inheritance. There’s a whole new field of planning around the prevention of ugly family squabbles.
Baby boomers have accumulated a lot of wealth compared to their parents, and subsequent generations are now keeping an eye on their potential inheritance.
To give you an idea of the breadth of advice and guidance we provide to our clients, the following are some of the issues we have been involved with over the last six months alone.
- Downsizing. Selling up in Auckland and moving out of town.
- Helping the next generation to buy into the property market.
- Renovations. Prompted by increasing property values and the ability to borrow at low interest rates.
- Substitution spending. Put back those travel plans and instead renew the kitchen, or bathroom.
- Retraining or study. Allocating time and setting aside money.
- US citizen renunciations – unshackling onerous tax and compliance transactions.
- Winding up trusts – new legislation has made these less attractive.
- Setting up new trusts – protecting assets when forging new relationships.
- Modifying investment strategies due to lower interest rates,volatility, a change in tax rates.
- Selling rental properties. Triggered by increasingly burdensome obligations.
- Moving to a retirement village. An unexpected solution arising from health issues or a desire to simplify life.
- Starting up a business.
- Replacing cars. A quiet incentivised switch to electric vehicles?
- Expats returning or contemplating a return to NZ. Dealing with sometimes unexpected tax implications.
- Deciding how best to deal with overseas pensions.
- Kiwis moving to Australia. Taking advantage of some tax benefits of being a temporary Australian resident.
- Changing bank arrangements brought about by cheques not being accepted anymore, and bank branches closing.