This requirement is due to a change in the Corporations Regulations where accountants will no longer be exempt from providing advice and not holding an AFSL.
In order to facilitate the transition into the new law, the Federal Government has created a new form of AFSL under the Corporations Regulations – the limited AFSL. The limited AFSL allows a limited AFSL holder (includes any person and not just accountants) to continue to provide advisory and dealing services in relation to SMSFs.
What is a limited AFSL?
A limited AFSL is a type of licence that allows the holder to:
1. Provide financial product advice in relation to interests in an SMSF;
2. Provide financial product advice that is ‘class of product’ advice; and/or
3. Arrange for a person to deal in an interest in a SMSF (e.g. applying to set up an SMSF on behalf of another person).
So what do these authorisations mean?
Provision of advice
Limited AFSL holders can provide advice in relation to establishing or disposing of SMSFs. This provides limited AFSL holders with some flexibility in making a recommendation to establish a SMSF or provide advice on contributions or pensions under a superannuation product.
Additionally, limited AFSL holders can provide advice on a class of products. This involves providing strategic (but not specific) advice about a class of products, including SMSFs, superannuation, securities, general insurance, life risk insurance, basic deposit products and simple managed investment schemes.
Therefore while limited AFSL holders can advise in relation to this broad class of financial products, they are restricted to providing factual information and general advice only. Limited AFSL holders cannot make recommendations about specific financial products and whether those particular financial products are suitable to the needs of a client. For example, a limited AFSL holder may recommend different insurance products to a client (e.g. life insurance) however they cannot recommend a particular insurance provider, which would cater to their client’s needs.
Accountants who are unlicensed from 1 July 2016 will only be able to provide factual information to clients. The difference between factual information and general advice can be difficult to determine when providing services to clients.
Factual information is objectively ascertainable information and doesn’t involve the accountant expressing an opinion or recommendation. For example, providing information in relation to the different types of investments available on the market is factual information. Where the accountant presents a particular type of investment as more favourable, this will constitute general advice.
Accountants may also be caught where they provide factual information to clients but it is presented in a manner which may be regarded by the client as a suggestion, or implying a recommendation. For example, an accountant may provide the client with factual information about a range of products and state that a certain investment is more desirable during periods of volatility in the market. In circumstances like these, accountants who are unlicensed will need to be very careful that the information provided to clients does not fall within the scope of general advice.
Arranging for a person to deal
Arranging for a person to deal allows limited AFSL holders to arrange for a client to establish a SMSF or acquire or vary in an interest in an SMSF. If a limited AFSL holder does not acquire this authorisation it means the limited AFSL holder can only provide advice in relation to SMSFs.
How can I get a limited AFSL?
Applicants (including any person not just accountants) seeking to acquire a limited AFSL, they will need to prepare and lodge an application with ASIC prior to 1 July 2016. This involves addressing ASIC’s online application form and the accompanying proof documents, such as a business description and financial statements. Where the nominated Responsible Manger (“RM”) is a recognised accountant, applicants will only need to provide ASIC with proof of the RM’s relevant knowledge (ie: training or qualifications).
Applicants who apply after 1 July 2016, must be mindful that they will need to appoint an RM who satisfies the strict experience and knowledge requirements of ASIC Regulatory Guide 105.
Applicants will also need to hold Professional Indemnity Insurance and become a member of an external dispute resolution scheme like the Financial Ombudsman Service.
When will my application be approved?
ASIC can take anywhere from 3 to 9 months to assess an application and given the deadline for the transitional measures we suggest now is an ideal time to consider commencing an application for a limited AFSL to ensure you are appropriately licensed by 1 July 2016.
Sophie Gerber has worked with some of Australia’s largest financial services organisations in compliance, legal and operational roles. She has also worked with small businesses to provide tailored solutions with a strong understanding of business practicalities as well as obligations to regulators. Ms Gerber has a Bachelor of Commerce and a Bachelor of Law from the University of Sydney, and has also spent a year studying finance at Boston University. Sophie is admitted as a solicitor in NSW and is currently studying for a Masters of Law from the University of Sydney.