Skip to main content Skip to main navigation
Skip to access and inclusion page Skip to search input

MONEY TALK: Surge in separations raises ethical question for advisers

01:30pm October 17 2023

Divorce rates are on the rise in Australia. (Getty)

When clients separate, financial advisers face an ethics-related question: can they advise one or both individuals? And how can they manage any conflict of interest that may arise?

There’s little doubt that the COVID pandemic and cost of living pressures have put extra strain on a lot of relationships in recent years. The number of divorces in Australia hit 56,244 in 2021, according to the most recently available national statistics, the highest level since 1976.  

So it’s no surprise that BT’s technical services team have been fielding more queries from advisers around client separation. Questions on the topic were among the most frequently asked via the BT technical hotline in the three months to end-September. Also popular were questions on superannuation and the indexation of pension thresholds.   

1. The ethics around client separation

The breakdown of a relationship can have wide-ranging impacts on all the members of a family. In some cases, the parties’ interests align. For example, when the living arrangements and education costs of young children are the agreed priorities, other financial issues tend to fall into place around these. In that instance, a financial adviser can usually advise both parties. In other situations, there may be conflicting interests.

While advice practices may have specific policies that apply to client separation, advisers must always be guided by ethical principles, and their obligations under the industry’s Code of Ethics, when faced with a potential conflict of interest. 

Similar to legal advice, in some cases it is more appropriate or even necessary for each individual to seek their own independent financial advice. The next challenge for the adviser is deciding who, if any, to keep as a client, while approaching how they end a client relationship with empathy and sensitivity. 

2. Winding up of Self-Managed Super Funds

A relationship breakdown is one of many reasons why an SMSF may need to be wound up, and it’s important for fund trustees to be across the exit strategy and potential costs involved as their circumstances change.

BT’s technical services team has seen an increase in questions from advisers on the implications for winding up SMSFs, such as on transferring SMSF assets to public offer funds or to a member. Most listed assets can often be transferred in-specie to a public offer fund. Other investments can be purchased from the fund by the fund’s members. 

3. Carry-forward concessional contributions 

From July 1, 2023, clients can carry-forward their unused concessional contributions into super from the previous five financial years. As the legislative measure started from July 1, 2018, an individual could previously only look back to the ‘start’ and carry-forward one previous year from July 2019, then two years from July 2020 and so on.

Clients are eligible to carry forward unused concessional cap amounts from previous years, and effectively increase their contribution caps in later years, if they have a total super balance of less than $500,000 at June 30 of the previous financial year.

Advisers may wish to remind their clients that unused cap amounts are available for five years and expire after this time. So if a client has an unused cap amount from the financial year ending 2019 and does not use that amount by the end of June 2024, it will expire.

4. Total super balance and bringing forward a non-concessional contribution

The team is seeing high demand for BT’s non-concessional contribution (NCC) calculator, which helps advisers cross-check clients’ eligibility to bring forward an NCC.

A client’s total superannuation balance (TSB) can impact eligibility. For example, a client’s NCCs across three years can total $330,000 if their TSB is below $1.68 million. Advisers also need to consider the eligibility age to trigger a bring-forward non-concessional contribution: you must be aged under 75 on July 1 of the financial year of contribution., while timing of the acceptance by the trustee must be before the 28th day of the month following the client’s 75th birthday. 

The calculation can be complicated, especially since the work test no longer applies for these types of contributions. Hence advisers are asking questions to clarify the rules around eligibility, as well as using tools such as the NCC calculator. 

5. Indexation of pension thresholds on September 20

Indexation offers some respite to those most impacted by the rising cost of living, with the rates of social security payments such as the maximum basic rates of age pension, disability support pension and carer payment increasing on March 20 and September 20 each year. 

Also notable is the means testing thresholds for these payments changed from July 1, 2023 due to the high rates of inflation, increasing by almost 8 per cent since last financial year. The increases may lead to clients receiving a higher rate of payment, given the same level of means before July 1, while those with means above disqualifying limits prior to July 1 may now be eligible.

Receiving social security income support such as the age pension, even if it’s a small rate of payment, can give a client several ancillary medical and pharmaceutical benefits via the pensioner concession card, helping to ease cost of living pressures. 

Clients may also be able to receive a range of state government rebates. For example, in New South Wales these include an electricity rebate of up to $285; plus there is a National Energy Bill Relief Household Payment of $500 for the 2023/24 financial year.

DISCLAIMER: The information in this article is general information only, it does not constitute any recommendation or advice; it has been prepared without taking into account your personal objectives, financial situation or needs and you should consider its appropriateness with regard to these factors before acting on it. Any taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. You should also consider obtaining personalised advice from a professional financial adviser before making any financial decisions in relation to the matters discussed.

Tim Howard is an Advice Strategy & Technical specialist at BT, with experience across various roles from providing financial advice to clients, through to assisting financial advisers with all areas of advice strategy. He has a strong background in superannuation, self-managed super funds, tax, estate planning, pre and post retirement planning and all associated areas of financial planning and financial advice.

Browse topics