Accountants currently considering their licensing options allowing them to continue servicing their SMSF clients must assess all of the associated costs rather than just the initial expenses incurred when acquiring the licence, according to the head of a major accounting firm.
Count Financial chief executive David Lane told selfmanagedsuper that while the cost of securing an Australian financial services licence (AFSL) at the outset was dominating discussions in accounting circles, the expenses incurred to maintain the AFSL were higher and more significant, warranting greater examination from practitioners.
Lane identified the cost of having a responsible manager to oversee compliance with the AFSL requirements as an example of the continuing cost commitment.
“It’s a very senior position and one that carries a lot of responsibility. ASIC (Australian Securities and Investments Commission) looks to that person to ensure the practice is complying with the licensing requirements. So you need someone who is senior, smart and will take the role very seriously,” he said.
“That means if you’re looking around an accounting firm, you’ll be looking to appoint one of your senior people, if not a partner, then certainly one level down from that, but someone who is very senior and can handle that amount of responsibility.”
He estimated that when all of the duties associated with the role were taken into account, the responsible manager would have to make a 45-hour commitment to the position per week, which would in turn generate two types of costs.
“The first cost is if you’re paying somebody, let’s say, $130,000 a year and 10 per cent of their time is spent on responsible manager duties, there’s a cost of $13,000,” he said.
“The other cost is the forgone costs. Presumably small accounting practices don’t have people who are sitting around not generating business and usually a senior person generating business. If they’re charging out $250 to $260 an hour, there’ll be four hours a week they’re not charging because they’re providing responsible manager services.
“That’s an extra $50,000 a year. So right there you’re looking at an expense of $63,000.”
In addition to the cost of having a responsible manager, accountants will also need to consider the increased professional indemnity insurance premiums as a result of providing financial advice and the costs of the necessary detailed compliance procedures usually involving outsourced services.
“When you add it all up, the total costs will be well north of $100,000 per year. How much further north will depend on what your risk tolerance is,” Lane said.
