Product showcase: Reframing financial advice

The retirement savings confidence gap between 'advised' and 'unadvised' Australians is set to widen following the Federal Budget handed down in May. The Budget announcement introduced what many describe as the most significant tax reforms in two decades, centred on proposed changes to Capital Gains Tax (CGT) rules, negative gearing, and the tax treatment of discretionary trusts.

Against this backdrop, many advisers are already preparing to navigate a changing tax environment. While reforms still require Parliamentary approval, those who are across them now are best placed to help deliver better after-tax outcomes for their clients and reduce tax bills down the track.

"There's a lot of uncertainty and policy changes announced at the moment. It's a real period of discovery for advisers and individuals as they reassess their tax structures and financial circumstances," says John Laver, head of investment at Generation Life.

Diversified tax structures 

Advisers are reframing strategies to prepare for a new tax regime.

Traditionally, 'don't put all your eggs in one basket' referred to diversifying across asset classes. After the Budget, the same principle applies to tax structures, Laver says.

"What we're seeing in the tax optimisation space is advisers looking not just at investment strategies but at how product structures fit together from an after-tax perspective."

Many advised Australians have relied on a combination of superannuation, bucket companies and discretionary trusts to manage tax. But the proposed reforms are prompting a serious review.

They are stepping back and asking questions, including what life-event goals are they solving for, what is their tax position today, and how will it impact their life goals over the next 5, 10 or 20 years?

The answers can determine whether existing structures remain fit for purpose and if not, what alternatives are needed.

A sense of responsibility 

Because incoming new tax rules may fundamentally reshape tax positions for years to come, advisers are viewing tax structures through a multigenerational lens.

"There's a real sense of responsibility now, like 'How am I going to leave my money and build a legacy for my family, not just the next generation but generations to come?'" he says.

According to the Grattan Institute, overall, longer lifespans add another layer of complexity. Estates are increasingly passed down to beneficiaries in their peak earning years, pushing the recipients into higher tax brackets.

"You're having to future-proof estate planning against legislative change risks - something people haven't really had to think about before," Laver says.

With larger estates, higher marginal tax rates and bracket creeps, wealth transfers are no longer straightforward.

Tax optimisation is key 

Generation Life offers advisers a suite of investment bonds that are designed to answer the need for flexibility and, at the same time, greater certainty within the tax paid bond.

The group's competitive edge over other product providers is its understanding of the tax profiles of most of their individual investors versus the 'pooled' tax treatment elsewhere.

"We're in a privileged position of knowing the tax rate of most of our investors. That's a massive headstart over structures where you're managing money for people with very different tax rates."

A fund manager investing for a mix of super funds, high-income earners, retirees and companies can't optimise for all of them simultaneously. "If they preference one profile, they disadvantage another," Laver says.

Generation Life, by contrast, can tailor decisions to improve individual after-tax outcomes.

"We know the tax consequences for most of our investors  of every trade, we know how long our cohorts of investors are likely to stay invested, and in many cases, we know why our cohorts invest ... whether it's for estate planning, tax-effective accumulation or long-term wealth building. That's a powerful starting point."

For those unfamiliar with the main benefits of investment bonds, Laver explains that they are a 'tax-paid structure' where earnings are taxed internally within the product to help reduce the impact of higher personal marginal  
tax rates.

If the investor keeps the investment bond for 10 years or more and it is not reset, it's considered fully tax-paid, meaning it can be withdrawn 'tax-free'.

And given the uncertainty around CGT, investment bonds allow for less CGT events.

Laver says putting all these features together means the effective tax rate of the product may fall from the headline 30% tax rate down to the annual 10-15% range for many long-term investors.

This tax optimisation amplifies the compounding effect of wealth over time.

Reducing client conflict 

Once a client is ready to transfer assets, intergenerational conflict becomes a real risk.

"We're seeing a lot of clients who want to transfer wealth discreetly, with clear rules. They want to control how income is paid to the next generation, or to a charity, and they want it to occur outside the estate to reduce the likelihood of conflicts, particularly in blended families," Laver says.

According to ABS data, more than a third of marriages are remarriages, and the 2021 Census recorded more than 500,000 blended families.

"There are multiple pillars to a legacy unit these days - previous partners, children from earlier marriages, and people you may want to leave money to outside the immediate family," he says.

These situations require flexible estate planning structures to try to reduce litigation risks. In 2023, 47% of estate disputes in NSW involved blended families, according to the NSW Supreme Court Registry.

"Nobody wants to leave wealth that is burdened by conflict. At Generation Life we offer tools that can reduce conflict risks while providing control."

For example, Generation Life's investment bonds offer beneficiary nominations that allow wealth to pass directly to chosen recipients, outside the estate, reducing the risk of disputes to the will and ensuring the individual's intentions are honoured.

From wealth accumulation to wealth transfer, fresh uncertainty around the tax system increases the likelihood of unadvised Australians making sub-optimal decisions about their savings and estate plans simply because of the layers of complexity involved.

But for advised Australians, financial advisers can demonstrate their value by providing solutions that help them stay ahead of known tax reforms, reduce anxiety over regulatory changes and preserve their wealth for future generations.