The accountants’ licensing exemption is over, and a new regulatory era is well underway.
Yet there’s a disturbing amount of apathy in the industry, given many unlicensed accountants continue to deliberately or inadvertently give clients advice about self-managed super funds (SMSFs).
Many thousands of accountants have delayed in taking action before the accountants’ exemption ended on 1 July 2016. I suspect that less than half of accountants who should hold an Australian Financial Services (AFS) licence by now actually do.
Too many thought the legislation would be overturned or delayed. They now find themselves operating in dangerous territory. They are putting at risk their professional reputations and qualifications, and may erode the trust that is a cornerstone of strong client relationships.
In February, ASIC deputy chair Peter Kell confirmed that the regulator was shadow shopping the quality of SMSF-related advice, with a focus on SMSF setups, across the industry.
This type of shadow shopping is a regular activity by the regulator. It works closely with the ATO which provides full data about each new SMSF setup, making it a simple process to check the circumstances.
Those accountants who are not licensed but continue making recommendations about establishing or closing an SMSF are breaking the law.
Only 899 accountants had applied for an AFS licence or a limited AFS licence before the 30 June deadline last year, according to ASIC. Those who still have not applied and continue to give advice risk a range of potential ASIC penalties, including individual fines of up to $34,000 and two years' imprisonment.
Despite a lengthy transition period, many accountants remain confused about the type of licence they need and the associated education requirements, as well as the documentation they must provide to clients.
With their busiest time of the year behind them, many accountants will now be making time to apply for a licence before 30 June although many will also be rightly nervous if they have continued ‘business as usual’ up until now.
It doesn't need to be a scary ordeal. Becoming an authorised representative can be as simple as completing an RG 146 course and then finding a licensee who meets your requirements in terms of compliance and professional indemnity insurance.
Unfortunately, many accountants who have tried to do the right thing have also been let down by licensees who have not provided adequate support.
The Statement of Advice hurdle
Accountants have had many years to adapt to the new financial advice disclosure requirements and a significant number have attempted to comply with the legislation.
However, it’s easy to underestimate just how big a cultural shift this has been.
I’ve heard from many accountants – whether under their own limited AFS licence, full AFS licence, or as an authorised representative of another entity’s AFS licence – who are struggling with the practical elements of how to give clients a statement of advice (SOA).
Unfortunately, many licensees promising to make accountants’ lives easier are not delivering. Some accountants are taking an extraordinary 20 to 25 hours to complete a SOA. They are unsure about what information needs to be included and are having to reinput the same information across multiple software programs. This leads to significant extra workload and manual errors.
I believe this is now the biggest issue faced by all accountants who have satisfied the licensing requirements. It is a fundamental business process that can drag down the profitability of their practice or help power its growth.
Intuitive technology should play a major role in helping streamline the process.
Technology should work with the adviser – not against them – and systematise production with inbuilt compliance checks. This type of effective process-driven method for completing SOAs should cover simple SMSF advice, pension resets, transition to retirement strategies and limited recourse borrowing arrangements. If not, an accountant’s business can quickly be weighed down by bureaucracy.
A good accountant will naturally want to talk to clients about the pros and cons of investment structures, such as SMSFs, and then set one up where appropriate – this requires a licence.
This doesn’t mean an accountant should take on the role of a planner – in fact, it provides a clear pathway forward for them to work together far more than in the past.
The accountant should then refer that client to a highly skilled financial planner (preferably working on a fee-for-service basis) to complete the detailed investment strategy and insurance requirements.
I believe it is impossible to be both the accountant and adviser given their highly specialised skill sets. But together they can create a powerful team for clients: accountants have significant tax and commercial knowledge, while advisers are specialists in strategy and investment. The combination can provide a complete financial advice solution for clients while also meeting their own rising regulatory requirements in a more cost-effective manner.
In practice, a good accountant is a facilitator – the accountant-client relationship is the most trusted of all. Licensing is a necessary path to underpin that trust and continue to give the fullest spectrum of advice that clients expect and deserve.
Greg Holman (FCPA) formed Holman’s Accounting Group in Noosa 21 years ago. His firm was listed by BRW as one of the top 100 accounting firms in Australia by revenue and one of the top 10 fastest growing. In the late 1990s, Greg was joined by Rob McGregor and together they established an award-winning financial planning business. In 2012 they sold their accounting firm and launched GPS Wealth Ltd – an AFSL designed for accounting firms looking to embrace financial services as a key service offering. GPS Wealth was recently named Dealer Group of the Year by AccountantsDaily's sister publication ifa. It is also the 2015 CoreData Licensee of the Year.