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Life after licensing

Once licensed, accountants will need to comply with the AFS requirements on an ongoing basis.

Insights Jaime Lumsden Kelly 16 July 2015
— 2 minute read

With the current focus on getting licensed before the end of the transition period, these obligations haven’t received much attention.


Statements of Advice have a bad reputation as an onerous and time-consuming obligation. While this may be true for financial planners, the picture should be very different for accountants.

SoAs are only required for financial product advice that’s tailored to clients’ needs and circumstances. For financial planners this is a daily activity, but for many accountants – other than SMSF specialists - it will only be required when:
• recommending a client establish an SMSF;
• advising the client about the ongoing suitability of their SMSF, i.e. every 1-2 years; or
• providing tailored strategic advice about financial products e.g. a term deposits, life insurance, etc.

This is not the core business of many accountants, so unless you’re an SMSF specialist, it’s likely that you’ll only need to prepare SoAs occasionally.

Financial planning SoAs are typically lengthy and complex, but too often they contain superfluous or irrelevant information. Don’t fall into this trap! Given the limited extent of the advice accountants will provide, your SoAs can and should be short and concise.

Responsible Manager Liability
Concern that Responsible Managers (RMs) may have additional liabilities post-licensing is a key issue for accountants deciding whether to fill that role.

In fact, additional liability does not attach to RMs in the same way it does to directors and partners. The highest risk of liability attaches to giving advice – which SMSF partners already do, and will continue to do under a limited licence model, regardless of whether they are an RM or not.

Any liability which might be perceived to attach to an RM because of that role usually arises because of the RM’s role in supervising the advice given by, and mentoring, other advisers – which is also an activity already undertaken by SMSF partners. It is unlikely a partner, director or senior accountant practising in the area of SMSF advice would incur additional liability merely by assuming the RM role.

There seems to be a misconception about the extent of the ongoing AFS training accountants will need. Accountants advising on financial products only need to be ‘adequately trained’ to provide the financial services for which they are authorised.

As accountants can only provide detailed advice on SMSFs and ‘class of product’ advice on a limited range of other financial products, they should only require:
• sufficient training on the purpose, use and structure of SMSFs to be able to appropriately recommend their use;
• a general level of knowledge on the financial products on which ‘class of product’ advice is provided; and
• periodic compliance training to ‘refresh’ their knowledge of the compliance requirements or on any changes.

It seems likely that this will only comprise a small part of most accountants’ annual training.

Ongoing Compliance
Similarly, there is a widespread concern that post-licensing compliance is too onerous and time consuming. For a practice with a small number of advisers located in one office, in most cases an annual file review together with a full external compliance audit once every 2 – 3 years will amount to sufficient compliance reviews in combination with day-to-day monitoring and supervision.

Practices that experience significant breaches or large numbers of disparate non-reportable breaches may need to undertake additional targeted compliance activities, and large practices with multiple office locations may need a more rigorous compliance system to account for geographical spread.

The estimated annual compliance costs for file reviews and external audits for a practice with two advisers is approximately $5000 when using a responsive, external compliance resource.

It is worth noting that accountants who act under an authorised representative model will still need to dedicate time to file reviews and external audits, as they will be obliged to cooperate in those reviews arranged by their licensee.

Life after licensing
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Jaime Lumsden Kelly

Jaime Lumsden Kelly

Jaime Lumsden Kelly, solicitor director, The Fold Legal
Jaime Lumsden Kelly is Solicitor Director at The Fold Legal and provides advice on a wide-range of issues arising out of the AFS and Credit legislation including compliance signoffs of disclosure and advertising material, designing and structuring distribution arrangements, advising on AFS licensing financial requirements, providing innovative legal solutions, assisting with product design in the insurance and finance space, and advising on other commercial issues.