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Gaining a limited licence or limited authority could be riskier than holding a full licence, because of how easy it is for accountants to get dragged ‘across the line’ by client demands.
Limited licensing myths and misconceptions
16 March 2016
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9 minute read
Life under the regulator’s new licensing regime will be quite different for many accountants.
With the removal of the accountants’ exemption on 1 July, practices which provide advice on self-managed superannuation funds (SMSFs) have five key options.
- Stop providing SMSF advice
- Just provide general, factual information
- Gain a limited or full Australian Financial Services (AFS) licence
- Gain a limited or full authority from an Australian Financial Services (AFS) licensee
- Refer clients to a licensed adviser
The first option really isn’t an option for the majority of accountants who currently provide SMSF advice, unless they’re on the verge of retirement.
Anecdotally, many accountants see option 2 as their best bet not realising that option 2 is possibly the riskiest choice, given there’s a fine line between fact and opinion, making it easy for them to inadvertently break the law.
Regulatory guide RG 244 states: “If a communication is a recommendation or a statement of opinion [...] that is intended to, or can reasonably be regarded as being intended to, influence a client in making a decision about a particular financial product or class of financial product, it is financial product advice.”
Therefore, if an accountant informs a client that the assets supporting an allocated pension are tax free and if they’re retired and over age 60, pension income is not assessable personally – which is factually correct – they may be breeching the law if the client perceives that information to influence their decision-making.
Only those who opt for option 3 or 4 and either gain an AFSL or become an authorised representative of an AFSL will be able to provide advice and make recommendations. They must also provide clients with a Statement of Advice (SoA).
For accountants who want to continue providing basic SMSF advice, a limited authority is likely the right option – however, in the same way those who plan to only provide factual information may inadvertently cross into advice territory, it’s highly plausible that accountants with a limited authority will be dragged into comprehensive advice territory by demanding clients. Even with a limited licence, accountants are not exempt from the ‘know your client’ rule, best interest duties and safe harbour provisions that apply to full licence holders. Conceptually comprehending these principles is what most accountants already do but achieving them under an AFSL framework will be completely foreign simply because they've never had to do it before.
Accountants who opt for the full licence or full authority may need to provide advice on super, investments, insurance, portfolio construction, retirement incomes and estate planning. This is a significant increase in individual knowledge. To become an expert in these areas will make maintaining appropriate accounting expertise challenging, if not impossible, for most.
They will be required to provide their opinion on a range of matters, which is complex and risky and well outside the scope of the client engagement methodology accountants are traditionally used to.
Importantly, client conversations need to be fully detailed in file notes and articulated in a formal SoA.
Given most accountants have no experience writing SoAs, nor do they have access to the systems and resources available to financial advisers to efficiently produce SoAs, they may find themselves spending hours on each document.
The final option is to refer clients to a licensed adviser, which may be an internal adviser or an external adviser. A licensed adviser would include a limited licence accountant.
While this option is perhaps the lowest risk, it’s not risk free. Again, ASIC has made it clear there’s a difference, albeit slight, between ‘referring’ a client and ‘arranging’ for a client to see another adviser.
Arranging is more akin to recommending.
For example, when referring a client, an accountant may say: “Here is the name of an adviser who specialises in advice on budgeting and cash flow management.” If they say something like “you should speak to adviser about starting a transition to retirement pension”, that will most likely be deemed ‘arranging’.
Serious penalties apply to those who breech the law.
Heading into the regulator’s new regime, there are no risk-free options for accountants.
While many accountants will opt for option 4, they’ll still need automated systems that enable them to document, store and retrieve client files. It must also be efficient enough for them to continue running the tax and audit side of their business.
Providing limited or comprehensive advice, in addition to running a traditional accounting business, can be made easier with the right support systems and processes.
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- <p>I agree David, Option 2: no license & continuing to provide SMSF clients general "factual advice" is where most accountants want to stay. We cannot just cut clients loose & refuse to answer their questions come 1 July 2016.</p><p>Can we tell them that what the contribution caps are, or should we tell them to go & "google it"? Your example of explaining how a pension & a pension paying SMSF is taxed may be considered to be an inducement is classic. This is publicly available, taxation information and we are licensed tax agents. We cannot just stop talking to these clients.</p><p>Most SMSF trustees don't want or use a planner, thats why they choose an SMSF, to be self directed. All the stats I have read prove that financial planners have little penetration in the SMSF market. Yet the vested interests would have you believe having an SMSF is like a baby playing with a gun. Its false. They want in on what they see as a "gravy train".</p><p>The Cooper Review in 2010 using ATO, APRA & ASIC statistics found that the SMSF sector is well run. The regulators were not complaining. However the financial services dealer groups & industry super funds had haemorrhaged $500Billion to SMSFs, with no end in sight. Blaming accountants for the growth in SMSFs, they collectively lobbied the then Labor Govt to try & stop the bleeding. You know how it works, political donations combined with dis-information so that the politician can justify changes arguing "public interest".</p><p>The irony here is that accountants weren't generally making "recommendations. SMSFs are attractive to Australians who want to be self-directed. We are SMSF service providers, but the vested financial planning interests looking through an accountants window hungrily, and would have you believe we are calling the shots or flaunting the law. Its absurd. They want a level playing field, but financial planners are not professionals, and will never be in our league.</p><p>But where were our accounting bodies that we pay to represent us during this process? Sitting on their hands seems the only logical conclusion.</p><p>ASIC's RG244 opinion that factual advice can be considered to influence a SMSF trustee is exactly that, their "opinion". The opinion of public servants, and i vehemently disagree. We all know that ATO rulings don't have the force of law. We have seen how the ATO tries to stretch legislation in their favour in such rulings, to flex their muscle. Often the ATO are taken on, and very often they loose, and amend their rulings.</p><p>So now ASIC needs to be taken on over their attempts to stretch the rules to give them more clout in RG's like this, which also don't have the force of law.</p><p>Well now the accounting bodies have the chance to step up, do their job & redeem themselves. It is patently absurd that an accountant cannot tell an SMSF trustee the laws of the land. That is factual advice. If the tax & compliance rules for superannuation & smsfs are generous & attractive, its because Govt policy designed them to be so to encourage people to save. Just because some rules are good, it doesn't mean we are trying to influence anyone.</p><p>The accounting bodies are listened to by Govt, especially a conservative Govt who did not actually propose this ridiculous licensing regime for accountants. After the conservatives came to power, the accounting bodies still did nothing on our behalf to educate them as to the ludicrous nature of Labor's licensing of accountants or even try to turn this around.</p><p>The accounting bodies must do something other than just expect us to knuckle under. They should get together and have a joint summit on this question of "factual advice" & "execution only" services and start lobbying..... now!<br></p>0
- <p>Well written!</p>0
