Decision time looms for accountants - SMSFs

The most significant change looming for the SMSF sector is the scrapping of the accountants' exemption to advise on SMSFs as of 1 July this year. Accountants wishing to continue advising on SMSFs will be required to hold a limited Australian financial services licence (AFSL), or become an authorised representative of a licensed firm.

Yet January figures from ASIC showed only 87 out of the 259 accountants who had applied for a limited AFSL had their licences approved.

The SMSF Academy's Aaron Dunn said, however, that the numbers did not reflect the very disproportionate percentage of accountants who were authorised representatives of a dealer group, rather than AFSL holders.

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This option would provide them with training wheels through business development support, licensing support, and compliance support.

"A lot of the discussion today has been, ‘oh well there's been just over 100-odd applications, half of those haven't even got through, etc.' whereas on the flipside, there is a growing number of accountants moving into either a basic licence or a strategic type licence," he said.

Whereas 12 months ago, many accountants were looking at education options, they were now sorting out licensee options, he added.

But while the authorised representative route might seem like the convenient option, The Fold Legal's solicitor director, Jaime Lumsden Kelly, warned accountants would have to adapt to certain practices that financial planners were accustomed to, as those practices would migrate to an agreement with an accountant.

The sticky point for accountants had been the prospect of having to pay a clip of their fees to their licensee.

"They view it as their clients, it's their money, it's their fees, and they're already paying them to use the licence, why should they get a cut of the fees. Accountants aren't necessarily unfairly unhappy because it's not a system that they're accustomed to."

While many accountants were hoping the legislation would disappear, Lumsden Kelly warned ASIC would expand its operations to catch accountants advising on SMSFs without a licence.

They were already targeting property developers who traded unlicensed, or SMSF administration platforms that provided advice or advertised on SMSFs without the appropriate licence.

"Accountants could be looking at five-year bans or longer, which would mean that they wouldn't be able to get a licence. We've seen so much moving on this it would be difficult to say that it wasn't deliberate and wilful," Lumsden Kelly said.

Compliance support was especially vital as there was a perception that cost was going to increase because of the compliance piece, according to Perpetual Private state manager, Dermot Lindsay.

"Therefore, how do they charge that cost to clients? How do they pass that cost on, if they can?" Lindsay asked.

Other challenges included operationalising statements of advice, monitoring and compliance audits.

According to a Perpetual Private survey of accountants within their network in November last year, almost 80 per cent of accountants had not begun the process yet as they were either undecided on which path to take or had made their decision but had not put their plan into action.

Half of all respondents felt the new regime would have a negative impact on the industry, while less than 30 per cent felt positively about the change.

Meeting them halfway

Accountants and financial planners could view this change as an opportunity to build a relationship to meet these challenges, industry experts said.

Accountants who opted for limited licences would still not be permitted to give full product advice, and would only be allowed to give class of product general advice on certain products like life insurance, securities, general insurance and basic deposit products.

The SMSF Association's Jordan George said there was an opportunity for financial planners to seek partnering or referral arrangements with accountants to share the client load between tax compliance and investment advice.

"I definitely do think that with the change to the accountants' licensing and getting rid of the accountants' exemption, that there is going to be more integration between accountants and financial planners," he said.

Lumsden Kelly suggested a light touch tailored licensing regime where financial planning practices were flexible enough to offer certain authorisations to accountants.

"It's basically a limited licence authorisation done in an authorised representative model. They seem to be having more success capturing those people," Lumsden Kelly said.

Read part one of this feature here: Managing those who manage themselves
Read part two of this feature here: Laying down the law – legislation in limbo

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