The accounting industry is preparing to move into broader SMSF advice and services under the new licensing regime, but Krystine Lumanta discovers the unknowns around the added financial burden to practices remain a major concern.
As more details of the replacement for the accountants’ exemption came to light in 2012, the accounting profession is well and truly focusing on how to tackle the regulatory costs of operating within the Future of Financial Advice (FOFA) framework. However, there is great concern over just how much the addition of financial services to a practice will cost.
In June this year, after more than two years of consultation between the federal government and interested parties, a new Australian financial services licence (AFSL) will replace the accountants’ exemption, which has been in operation since 2004 as part of the Financial Services Reform Act 2001 (FSRA), whereby accountants could only assist in the set-up or closure of an SMSF.
Now officially under the FOFA reforms, accountants who advise on SMSFs must hold the new limited AFSL in order to provide a broader range of financial advice. In addition, accountants are able to give class-of-product advice, however, this must be exclusive of specific product recommendations.
The transition period for the limited AFSL was marked by Financial Services and Superannuation Minister Bill Shorten as 1 July 2013, to conclude on 30 June 2016.
Shorten also announced streamlining arrangements for accountants holding a public practice certificate from CPA Australia, the Institute of Chartered Accountants in Australia (ICAA) or the Institute of Public Accountants (IPA), removing the need to demonstrate relevant experience to the Australian Securities and Investments Commission (ASIC) and therefore making it easier to obtain the limited AFSL.
Furthermore, holders of the conditional AFSL will be able to lodge a compliance certificate rather than an annual audit to help minimise the additional regulatory costs of operating within the AFSL regime.
State of play
While the accounting profession expects the licence application process to ASIC to be straightforward, the cost of all the components required as well as ongoing costs remain the top concerns for the industry. Additionally, the costs of the limited licence have been somewhat exaggerated as well as downplayed since the announcement, according to industry players.
IPA executive general manager Vicki Stylianou says the association’s main discussion with its members has been around the estimated costs of applying for the limited licence, as it was well beyond awareness-raising in regard to the changes.
“The cost of the licence itself is a big deal,” Stylianou says, adding she believes the majority of IPA members will be applying.
“At the moment, we don’t have a lot more detail around it, but we’re trying to work out what it might cost, particularly for a small firm because it’s not just the cost of the fee to ASIC.
“As soon as you introduce financial services, professional indemnity (PI) insurance tends to go up, you’re going to have to put in place risk management and training for their staff, join a dispute resolution scheme and do the annual compliance certificate. If you put all of that together, it will probably be in the thousands; potentially up to $5000.”
She says IPA members who already deal in financial planning are across all the costs, understanding there are multiple cost components to take into consideration and not just the licence itself as many in the industry believe.
“If you speak to others [involved in] the compliance work for SMSFs, they hear the conflicting reports and with some of them there is a degree of scepticism,” she says.
SMSF Strategies principal Grant Abbott believes ASIC will ensure the application process will be streamlined, which will encourage a strong take up come 1 July.
“To date, the regulations still haven’t been produced, but if you look at the SMSF auditing rules that came out, the ASIC audit fees they’re paying each year is about $100 set up and then $50 ongoing, which is the same price as normal ASIC fees for an SMSF. I’m expecting the licensing fees for accountants to be pretty low, streamlined and be very easy to get into,” Abbott says.
Since Shorten’s announcement, Abbott has heard more accountants are looking to sign up to the licence.
“They’ve got up until 2016 in terms of showing their relevant experience, so there’s a three-year move that they’ll make,” he says.
“But I’m presuming the good accountants will move sooner rather than later because it will enable them to take money out of super, roll over a fund and do a whole lot of general investment advice, rather than rely on the accountants’ exemption.
Licensing: cost or opportunity
It’s been a tough challenge for IPA members to accept the addition of financial services to their practices as a positive, as opposed to a burden or setback, Stylianou says.
“We’ve been telling our members to look at it as an investment into your business, which of course has the benefit of servicing your clients better,” she says.
“Sure it’s a challenge, but seeing the opportunities in financial services and the way the market is going these days, there’s a blurring of the line between accountants and planners, even lawyers and tax agents, so the professions are really starting to change in terms of the parameters.”
In response to the initial outlook that the licensing changes would result in a mass exodus, Abbott says it is more likely the opposite will occur, as many accountants have been sitting on the sidelines or, alternatively, have not been able to act due to the delay in detail.
“If accountants get a licence that’s regulated and effectively comes from ASIC, they’ll probably go full tilt and will really get stuck into it,” he says.
“I believe we’re actually going to end up with the reverse and they will also start to do class-of-product advice so we’ll end up with a big swing to SMSFs.”
The Self-Managed Super Fund Professionals’ Association of Australia (SPAA) has been advocating for the removal of the accountants’ exemption and introduced its public practice certificate in September 2012 to coincide with Shorten’s proof-of-experience requirement for the limited AFSL.
SPAA chief executive Andrea Slattery says the huge void of information has made it difficult for the sector to properly comprehend the changes, but it now has an opportunity to work out what is required from a compliance perspective.
“Our biggest concerns about the limited licence are the practical costs of having a licence and the practical cost of holding the PI insurance,” Slattery says.
“What we’ve seen is that ASIC has reduced the cost of application [where] they’ve allowed a statutory declaration to occur instead of an audit, so they basically cut out a $20,000 per annum compliance cost to your organisation.
“But we’re still concerned that there may be other serious costs involved. There will also be a cost to the market initially, but over time those market conditions will allow people to compete more appropriately.
Insto offerings gain interest
As a response to the removal of the accountants’ exemption, in November last year the IPA partnered with Axa, now AMP, and MLC to provide its members with a cost-effective financial services package. The arrangements provided the options of becoming an authorised representative of a licence holder to provide in-house advice or referring clients to the institutions’ adviser networks.
But with the licensing process appearing to be less complicated than originally expected, Abbott says institutional offers to support and license accountants may have come out too early and could be scrapped depending on further regulation details and costing.
“People are still marketing that it’s going to cost you $10,000 to $12,000 to set up, but my feeling is that it is going to cost under $500,” he says.
“If we have a look at what happened with the audit experience, the original costs that were bandied around were the same with people saying it was going to cost $5000 to $7000 for an auditor to get registered. But now it’s going to cost $100 then an ongoing $50, so it will end up the same for accountants.”
He says a low financial barrier to entry along with paperwork that is not daunting would mean a lot of licences will come through.
Kath Bowler, head of AMP-owned SMSF Advice, says there has been notable progress with its licensing offering as accountants begin to decide which pathway to take in order to be licensed.
“Accountants are becoming aware that with self-licensing, compared to becoming an authorised representative, it is not so much about the cost of the licence but more about the cost of maintaining their licensing obligations,” Bowler says.
SMSF Advice’s strategic authority has garnered the most interest from accountants. It offers a similar scope to the limited licence, without the accountant having to maintain the licensing obligations.
“Given the long transition period offered to accountants, it is not surprising that movement at this early stage is slow,”
“One of the biggest hurdles for accountants moving into licensing is addressing their Regulatory Guide 146 training. SMSF Advice launched a summer school earlier in 2012 to assist accountants upskill in this area.”
She says the cost factors are much less of an issue for accountants who view the licensing opportunity as a means to grow their business.
MLC Accountant Solutions national manager Nick Hilton also says the vast majority of the accountants the group has been speaking to are interested in applying for a strategic-based licence.
“While there will be 10,000 accountants that go down the licensing path, they want to provide strategic advice and not necessarily financial product advice, so there’s an opportunity to partner [with advisers],” Hilton says.
In addition, MLC has been communicating the importance of factoring in the cost of time spent managing the licence.
“Accountants would rather spend time with their clients rather than using up their time to do this,” Hilton says.
“The other one is the compliance cost associated with taking on the risk of managing a licence, which is not a simple thing to do.
Added competition for advisers
Given the ample transition period, Bowler says it is still too early to tell exactly how many accountants will take the leap. However, the majority of industry players are backing the initial view that 10,000 public practice accountants will seek to be licensed and enter into responsibilities they previously abdicated to financial advisers.
Late last year, MLC conducted a survey of more than 200 accountants during its Accountant Seminar Series, revealing that 75 per cent of accountants want to deliver financial advice to clients under the proposed new licensing regime.
While the move to expand the role of accountants will facilitate the expansion of financial advice to Australians, the substantial swell of advisory ranks by 10,000 will no doubt continue to influence the evolving dynamic between accountants and advisers.
In particular, strategic advice may be the next big battleground for both sectors, as early indicators show the majority of accountants are looking to specialise in this area, while a number of surveys from 2012 noted clients are more likely to choose and pay for strategic advice and recommendations, compared to holistic advice.
“There are a lot of accountants who actually feel they lost ground when the FSRA came out more than 10 years ago, so some see the new licensing as a chance to regain it,” Stylianou says.
“Some will continue doing what they’ve been doing and planners will continue what they’ve been doing, but under a different regulatory scheme, and others see it as a whole new world and a new lot of opportunities, but a large number [in that group] are already in that space.”
SPAA says it already has 1350 competent accountants working as SMSF specialists in the market.
“Don’t forget there are also a significant number of accountants that haven’t been taken into account,” Slattery says.
“What we’re going to see is that there will be more people in the market, but if you extend your knowledge and skill to a higher level, you’ll always be able to add value to your clients and be a leader in the pack.”