Proposed changes under the Future of Financial Advice (FOFA) reforms could affect financial adviser's strategies to use the government co-contribution to fund insurance premiums, an IOOF executive said.
As a result of the planned reduction in the co-contribution matching rate by the government from 1 July, certain low-income clients could be up to $500 worse off under the changes IOOF technical sales manager Damian Hearn told InvestorDaily.
Hearn said as a precaution, advisers need to consider taking advantage of other strategies to protect client savings.
"If the funding source reduces then obviously we have a shortfall," he said.
"The first way you can overcome that shortfall is to reduce the amount of insurance that you have. [But] that would give a negative outcome because you have initially gone and sought out insurance to cover yourself."
He explained that there are several other strategies that advisers should be looking at: a contribution split from a higher income earning spouse; an increase in investment returns; or to make more personal contributions or salary sacrifice.
However, he said the current market environment is not the best time to try to increase your returns in your investment allocation because it comes with more risk.
Advisers need to work with their clients to decide what is the most suitable outcome for them, he said.
"Advisers will need to take advantage of other strategies otherwise this could reduce their client's final retirement savings. This is a great opportunity to demonstrate the value of advice within the current market conditions," he added.
