SMSF changes put spotlight on accountants and advisers

As SMSF regulatory reform puts the spotlight on the relationship between accountants and financial advisers, David Clatworthy looks at how the relationship may evolve in the future. 

Since the removal of the accountants’ self-managed super fund (SMSF) exemption was announced as part of the Future of Financial Advice reforms, there has been an increased focus on the relationship between financial advisers and accountants.

Yet this relationship is nothing new and the two parties have long been working together to meet the broad needs of their clients. 

With insights from a new Macquarie study revealing that 36 per cent of Australians look to a specialist when seeking advice on investment decisions, it is clear that both accountants and financial advisers have important roles to play. 

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Combine this with the fact that people are time-poor and will often look to existing trusted sources for recommendations when engaging new specialists and it clearly makes sense for both parties to have established relationships. 

So why has regulatory reform now put the spotlight on the relationship between accountants and financial advisers? Before delving into the specific impact, it is worth taking a brief look first at the accountancy sector in Australia. 

According to the recent edition of the IBIS World Accounting Services in Australia report, there are more than 32,431 accounting practices in Australia and the industry is projected to grow by a compound annual rate of 3.8 per cent by 2018.

Still a ‘cottage industry’ made up primarily of small, public practices, further consolidation is expected in the accountancy sector over the next five years as larger firms look to grow market share.  

This is where the reform has the potential to make a real impact, because it is no longer just larger accountancy firms that may be part of this consolidation; financial planning firms are now conceivably a big part of the picture. 

With the need for accountants to operate under an Australian Financial Services Licence (AFSL) if they would like to continue to provide advice about SMSFs after 30 June 2016, it is clear that there are opportunities for further collaboration, and therefore growth, with financial planning firms. 

While the change to licensing requirements means that some accountants may cease self-managed super fund (SMSF) origination if they don’t want to obtain their own AFSL, for many accountants who want to continue offering this service it means establishing a referral relationship with an AFSL holder, becoming an authorised representative under an existing AFSL or obtaining their own AFSL. Many of these options involve forming some sort of relationship with financial planning firms. 

When considering which path to take, accountants need to think carefully about how they want their business to look in future – and of course their clients’ needs.

Many accountants are keen to keep their professional independence, but also recognise the need to ring-fence clients from the threat of competition. 

With other accountants and financial planning firms joining forces to offer a ‘one-stop-shop’ for clients, those that don’t offer a comprehensive service may miss out, so it is important for accountants to think about how to keep their offering competitive.  

Research from Investment Trend’s April 2013 Self Managed Super Fund Accountant report showed that 85 per cent of accountants say their SMSF clients had approached them with investment-related queries, which provides evidence of the demand from clients and clearly shows there is a good opportunity for accountants to form stronger ties with financial advisers or directly participate in this space. 

Beyond the reforms, this confirms the relationship is evolving and points to the observation made earlier: with accountants being some of their most trusted advisers, clients are naturally going to look to them for guidance about where to get their financial advice from.

Whether it is through a referral partner, a strategic alliance or an in-house financial adviser, what matters most is the endorsement from an already trusted adviser. 

A big factor in deciding how the relationship evolves between the two parties is reliant on accountants making the decision about what they want their future to look like. 

As a small business, there is much greater benefit for accountants to have financial planning clients on the books at sale time.

An accountant-only business will typically sell for approximately a single-multiple or less recurring revenue, whereas a financial planning-only business can sell for around three times-plus recurring revenue.

Therefore, those accountants who are committed to growth are seeking to evolve into fully integrated businesses.  

Like all relationships, there are many different stages of the cycle, with accountancy and financial planning firms on varying ends of the spectrum.

Those in the ‘marriage’ stage have a fully integrated relationship, those in the ‘de facto’ stage are still in the process of locking down certain elements, while there are those who have already ‘divorced’, with the relationship having broken down for some reason or another. 

Then of course, there are those ‘flying solo’ who have chosen to find their own way ahead.  

The key to many successful relationships is the ability to retain one’s own identity, so it is no surprise that a common trait for accountants at every stage of the relationship cycle is their desire to remain professionally independent. 

While they see the value in forging closer ties with financial planning firms, for many accountants the greatest value they see for themselves and their clients is leaving the advice process to the experts while they continue to do what they do best, albeit with a trusted financial adviser within arm’s reach. 

David Clatworthy is the accountancy segment director at Macquarie Bank.

Originally published by SMSF Essentials.