With the licensing exemption for accountants providing SMSF advice due to be removed at the end of the 2016 financial year, accounting practices around the country are considering their options. George Haramis details the options available and the associated opportunities.
Since 2004, CPA Australia, Institute of Chartered Accountants in Australia and Institute of Public Accountants members have been able to provide advice on establishing SMSFs without either obtaining an Australian financial services licence (AFSL) or gaining an authority from an existing AFSL holder. That’s set to change on 30 June 2016, when the exemption will be removed and a new licensing regime introduced.
This is a watershed moment for the accounting profession.
Currently, accountants are exempt from the exacting requirements of the AFSL regime, including the requirement to ensure employees are competent, qualified and adequately trained, the need for adequate dispute resolution mechanisms, and the need for ongoing training and compliance.
Meeting those requirements and acquiring a licence can be both expensive and time consuming, often requiring practices to re-engineer their business models from the ground up. So while two years might seem ample to prepare for the new regime, it’s important for accounting firms to start considering how they will respond.
Those who act now have the opportunity to gain a significant competitive advantage by creating a broader and more attractive advice offering targeted towards high-value clients.
The options
So how should accountants prepare for the new regime? There are four main options:
- Enter into a referral agreement with a licensed advisory group holding an AFSL.
- Become an authorised representative of an AFSL-holder with a limited authority to provide class-of-product advice only.
- Become an authorised representative of an AFSL-holder with full authority to advise on SMSFs and other investment matters.
- Obtain your own limited AFSL.
The option you choose will depend on your view of the growth potential of the SMSF market and the style of service you would like to be able to offer your clients: providing simple class-of-product advice under a limited authority, providing actual advice yourself via a full authority, or going all the way and obtaining your own AFSL. Remember, your AFSL holder will determine the extent of your focus on and involvement with the client, so it is essential to choose carefully.
But it is also important to understand the practical realities of obtaining and maintaining a licence. Even meeting the requirements for a limited AFSL can be onerous, potentially distracting principals from the core business of building strong client relationships and providing high-value advice.
Becoming licensed – what’s really involved
ASIC Release 179 makes it clear accountants seeking a limited AFSL will in time (the exempt licensee status will be repealed on 1 July 2019) need to meet the same requirements as a full licensee, providing comprehensive written proof the business can operate an AFSL. Among other things, they need to demonstrate that:
- the responsible manager has appropriate qualifications to operate the licence (not simply a practising certificate),
- the business meets the compliance requirements of the Corporations Act, and
- advisers operating under the licence are RG 146 compliant.
Then there is the expense. After factoring in the costs of SMSF accreditation courses, licensing fees, professional indemnity insurance, compliance services, training, coaching and ongoing professional development, a limited authority is likely to cost about $5000 to $6000 per year, while a full authority may cost around $30,000 per year and a full AFSL up to $50,000-plus a year. That is without considering time invested in ongoing professional development, updating systems for full compliance, and carrying out audits and technical testing.
Finally, while many firms may prefer just to hold a limited authority, they must also consider the practicalities of how they should refer their clients for any advice need. To ensure the accountant avoids any possibility of additional liabilities, any referral should logically be made to their respective AFSL holder and not to any other financial planning business or another AFSL holder. While they themselves may have provided sound class-of-product and strategic advice, they may be held accountable for any issues arising from advice given to the external adviser, even extending to legal action.
Partnering with a full AFSL holder
The advantage of this approach is it not only fulfils the new licensing requirements, it also enables you to leverage the skills and infrastructure of a proven advice business. By selecting the right partner, you can benefit from ongoing support with a range of related activities, potentially including:
- SMSF licensing and business services
- training requirements,
- monitoring and supervision,
- dispute resolution,
- managing conflicts,
- risk management systems,
- written service and compliance procedures,
- approved compensation arrangements,
- yearly file audits,
- compliant advice documentation, and
- advice specific obligations.
Wealth and advice services:
- A referral program for ongoing income,
- strategic wealth advice,
- insurance,
- property services,
- lending and finance,
- operational support,
- marketing and business development,
- client collateral and events,
- client profiling and diagnostics, and
- business coaching.
As a result, the right partner can help you create a more profitable and sustainable business by establishing a compelling value proposition for one of the fastest-growing wealth segments in Australia today.
The wrong partner, however, may place undue pressure on your business, for example, favouring restricted product and service offerings in their approved product list, issuing agreements with unnecessary sales and revenue targets, and insisting you work within a very limited advice offering.
The opportunity
The scale of the opportunity offered by the SMSF segment should not be underestimated. As at December 2013 there were more than 522,000 SMSFs managing over $543 billion in assets, representing around 30 per cent of Australia’s super assets – more than any other sector.
The ongoing growth of the sector is underpinned by government legislation and increasing client demand for control and flexibility. Around 65 per cent of SMSFs are in the accumulation phase, while the age of new SMSF members is falling. In summary, the SMSF segment is a growth industry all accountants should aim to be involved in.
By partnering with an established advice business to create a professional SMSF offering, accounting practices can generate an ongoing income stream with significant growth potential, enhancing the capital value of the business. They can also access new generations of clients as the SMSF market continues to expand. And they can diversify away from increasingly commoditised compliance services by moving to higher-value advice offerings, underpinning sustainable value creation.
Your critical decision: selecting the right partner
For this approach to be successful, it’s essential to select the right advice partner. Remember, when an accountant becomes an authorised representative of an AFSL holder, they are legally required to refer all clients to that organisation for any financial advice they may need, regardless of the circumstances. So it’s essential to choose an AFSL holder whose business model and client service philosophy reflect your own values, rather than an organisation that simply wants to sell product.
We suggest aligning your practice with a genuine partner that will collaborate with you to enhance the value of your business and your client relationships. At a minimum, they should provide:
- specialist SMSF advice documentation and technical support,
- state-of-the-art SMSF administration and auditing services,
- relevant business coaching to help you define the right strategic services for your practice and your clients, and
- high-quality, non-aligned wealth and advice services for your clients.
By establishing a partnership on these terms, you can create a fully integrated wealth and advice service and a significant value driver for your client relationships and overall business results.