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."
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.