Accountants licensing not fit for purpose

The new accountants licensing regime is not fit for purpose and this largely explains the reluctance of accountants to become licensed, according to specialist financial services lawyer, Ian McDermott.

In an analysis to be published in Money Management, McDermott has concluded that the limited licensing regime "is seriously and structurally flawed" and this has been recognised by accountants.

"Our experience is that there is a broad chasm between the way accountants typically operate and the stringent compliance requirements of the financial services regime," he said. "Accountants, like most professionals, have great freedom as to how they can operate their accounting businesses. It can be quite a culture shock when accountants look at expanding into financial services and realise how compliance-driven and procedure-dependent it is."

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McDermott has pointed to the costs associated with the limited licensing regime stating that from what his firm had noted, $5,000 to $6,000 would be a rock bottom sort of annual fee to maintain a limited licence with typical costs including PI insurance, monitoring and supervision, financial requirements, external dispute resolution membership, ongoing compliance obligations, filing your compliance certificate, meeting your ongoing training requirements and, perhaps using commercial software to help you produce Statements of Advice.

"Plus accountants will have a raft of setup and establishment costs as well," he said.

"It seems to us that accountants will need to either do a lot of SMSF advice to make a limited AFSL (Australian Financial Services Licence) worthwhile or be prepared to use limited licensing as a loss leader for strategic reasons," McDermott said. "In other words the limited licensing regulatory solution is too cumbersome and expensive to fit the need in the market. It is not fit for purpose."

He said it was his firm's view that even though it would be more expensive, it believed a full AFSLs (or, full authorised representative status under a third party's licence) was a much more legitimate solution for accountants than limited licensing.

"Or, if accountants can't justify that expense, then establishing trusted referral relationships with financial advisers will be another viable solution with the financial adviser undertaking all the necessary activities under their AFSL and the accountant maintaining their strong client relationship," McDermott said.

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I think the same comments could apply to the licensing regime full stop. It's a complex, burdensome nightmare based on the assumption that disclosure of conflict is a suitable substitute for the removal of conflict. Since FSRA the industry has moved further and further away from the flogging of product and it's time the licensing system reflected the fact that conflict free advice shouldn't carry the same compliance requirements as conflicted advice. The best way to lower cost and improve access to advice is to provide a competitive pricing advantage to advisers that are free from conflict.
If it costs $3,000 to implement life insurance advice commissions are required. If that cost was $200 I can reasonably expect a person to pay a fee for my time. Instead the government has decided to suck accountants into our nightmare and everyone loses.

The AFSL is a complete con job. It has removed from the financial advisory landscape any semblance of independence. The whole system is designed to channel funds into the regulatory investment arena. Hence, anyone giving "advice" under this system is nothing more than a paid robot selling major financial institutions offerings. Anyone giving the type of one to one financial advice as was the case with accountants and their clients is now silenced. Even if they play the game under the new rules they are silenced unless they are spruiking the majors products. No wonder many skilled accountants do not want a bar of the system which requires them to pay thieves or to become thieves themselves. This is the super-retardation of Australians, in my opinion.

John you can give strategy advice without products, not every recommendation has a product at the end of it. There are many planners that offer strategy only. So its up to the individual as to how they operate, dealerships put the rules down, you just need to operate in these rules. So you can be a robot if you want, or there is the opportunity of doing things differently too. Dealerships are different in terms of what they want from planners this needs to also be considered. The planner needs to make sure they are working in the right dealership that suits their business plan and how they want to operate.

CPA's have their license issued now. I think in a decade they will control a large part of the financial advice market, compared to the institutional saturation now.

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