Accountants’ top 10 burning questions

Small notes with When, What and Question Marks written on them

Concerns have been raised that data used to project the cost of removing franking credit refunds failed to include the impact of the transfer balance cap.

A lack of knowledge around licensing has prevented many accountants from deciding whether to get licensed to provide SMSF advice. With the deadline looming, Kath Bowler provides answers to the most frequently asked questions about the topic.

Over the past three years, I have been actively involved in the licensing for accountants space and it astounds me just how many unanswered questions accountants still have on this topic. It’s no wonder nearly half of those affected by the licensing change still haven’t made a decision when they don’t have the answers to even the most basic questions. This article covers the 10 questions I have been asked most often regarding licensing.

1. Does everyone in my practice need to be licensed?

No. It’s likely only client-facing accountants giving financial planning and superannuation advice will need licensing. Note, Australian financial services (AFS) licensing differs from the tax agents’ registration, where just one accountant in a practice may be registered and takes overall responsibility for all tax work. Under financial services licensing, all client-facing accountants providing financial planning and superannuation advice require licensing.

There is a high cost involved in obtaining and maintaining a licence, so it is a good time to review your business model and establish just how many practitioners need to be licensed. If some client-facing accountants specialise in areas such as compliance, insolvency or business advice, it could be more cost-effective for them to refer clients to the specialist licence holders in your practice.

2. What is the difference between a licence holder and an authorised representative?

The key difference is if you’re a licence holder, you’re responsible for fulfilling all the licence obligations and advice and dealing obligations under the law. If you’re an authorised representative, you’re responsible only for the advice obligations.

The licence obligations, including risk management, human resource management and supervision of advisers, can be time consuming and onerous. However, if you hold a licence, you have full control over your business and won’t have to operate under external licensee directions you may find restrictive.

As an authorised representative, you should receive tools, templates and support, enabling you to focus solely on giving advice. The main issue is you’ll need to find a licensee that shares your values and provides and charges only for the services you want and need.

3. When do I need to obtain a licence?

Before deciding when you need a licence, first ascertain if you need one at all.

The only exemption being removed as part of the Future of Financial Advice reforms is the one to recommend the establishment and wind up of SMSFs. If you are providing compliance-based services and the only advice you are currently providing is to recommend the establishment of SMSFs, you will need to be licensed by 1 July 2016.

However, if you are providing advice in other areas, such as advice regarding contributions, limited recourse borrowing arrangements, pensions and transition-to-retirement strategies, and are looking beyond just the tax considerations of these strategies, you should consider licensing now. Otherwise you may find you’re holding your business back, as well as potentially losing financial planning and superannuation revenue to practitioners who are already licensed.

It will take between six months and two years to complete the licensing process, including the Regulatory Guide 146 (RG 146) training often provided as part of a diploma of financial planning.

4. How do I know what education I need?

If you find the education requirements for financial services licensing confusing, you’re not alone. The key requirement you need to be aware of is the Australian Securities and Investments Commission’s RG 146. This guide stipulates minimum training requirements must be met before you can provide licensed advice. To add further complexity, RG 146 is broken down into specialist knowledge areas – your specific requirements will be determined by your licensee and the areas in which you will be providing advice. So when investigating RG 146-compliant courses, you should confirm which RG 146 specialist knowledge areas are covered.

Before any advice can be provided, you will need to demonstrate you have met these training requirements. In most instances this training should have been completed within the past five years, unless you have been actively advising as an authorised representative.

Your RG 146 training options

Many organisations offer RG 146 training. If you are planning to become self-licensed for ‘class-of-product’ advice, please be aware your initial RG 146 training requirements are no different to those of a full adviser. This is most commonly delivered via a four-unit diploma program.

We strongly recommend you complete your training with a reputable RG 146 provider. We have analysed many of the providers and identified three market leaders that offer complete training options suited to accountants – CPA Australia, Kaplan and IIT.

5. I have a relationship with a financial planner. Do I still need to be licensed?

You will need a licence if you want to provide strategic advice to your clients. If you give that advice, you must also provide a statement of advice (SOA). You can get assistance to draft the SOA, but the document must come from you and the responsibility cannot be handed over to the financial planner.

It is expected the new licensing regime will change many relationships between accountants and financial planners. For example, if you want to give strategic advice, will your financial planner be happy just giving the investment advice and product recommendations? Or will they want to give strategic advice too? Some experts are predicting the re-emergence of investment specialists who would dovetail well with licensed accountants.

6. Do I need a licence if I’m just giving tax advice?

Are you really just giving tax advice?

If you are genuinely giving tax advice only, and not taking any other client needs or circumstances into account, you are exempted from needing a licence. However, you will need to provide a disclaimer noting that you provide only tax advice and that your clients must seek other advice from a licensed adviser.

But if you are taking other factors into account, such as when your clients can afford to retire or how they could use the funds, you will need to be licensed.

7. What SMSF activities can I do without licensing?

The AFS licensing regime differentiates between advice and dealing (that is, administration). If you’re giving SMSF advice, you need to be licensed. If you’re carrying out only administration, there is quite a bit you can continue to do without obtaining a licence, including establishment and rollover paperwork, most administrative tasks, some SMSF strategy tasks, some contribution and pension tasks, and some investment and implementation tasks.

8. The ongoing costs seem expensive. What do I get for my money?

The ongoing licensing costs vary enormously, but in most cases you get what you pay for. Strategic licensing will typically cost between $10,000 and $15,000 a year per adviser. If you self-licence, the costs may initially seem quite low, but you will need to invest significant time and/or money to ensure you meet the licensing obligations as well as the advice and dealing obligations. It’s estimated annual self-licensing expenses won’t actually be a lot less than costs for authorised representatives.

If you are considering becoming an authorised representative and the annual costs are around $5000 or less, you need to check exactly what you are getting. It could be:

  • the licensee has poor compliance practices,
  • only minimal support is being offered (that is, templates or training),
  • the authority is very restricted,
  • there are expectations of product revenue or referrals from their advisers.

You need to investigate which of these applies to the offer you are looking at and go in with your eyes open about why your offer is at such a low price.

If the cost quoted is between $10,000 and $20,000, you should be getting extensive templates that are updated in line with legislative changes, a software system for generating advice templates, good technical support, 15 to 20 hours of annual continuing professional development and all your licence obligations taken care of.

If the licensing arrangement costs more than $20,000, you should also be getting access to face-to-face practice management support and business coaching.

As with any such purchase, you need to check the fine print carefully. For example, make sure you know how difficult it is to pull out if you find the arrangement unsatisfactory. Further, if you do pull out, do you or does the licensee own the client base?

9. Who’s going to check on me?

If you self-licence, ASIC will carry out random checks through means such as shadow shopping and auditing particular targets or topics. It’s highly recommended you engage an independent compliance firm to audit your operations and give you a clean bill of health each year. You will also have to monitor your own operations and report to ASIC in the event of certain breaches of your obligations as it is an offence if you do not.

If you become an authorised representative, your licensee should be auditing you at least once a year. Accountants are not used to such regular audits, but a good auditor is there to both check your practices and to suggest improvements that could benefit your business.

10. Do I have to prepare an SOA?

Yes. This applies whether you are self-licensed or an authorised representative and whether you are giving narrow recommendations or strategic advice.

If you are the one providing the advice to the client, you are the one who needs to be licensed and the person required to prepare the SOA. You will also need to ensure other disclosure obligations, such as providing a financial services guide, are met.

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