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Accountants may need separate advice entity

Accountants looking to become licensed to enable them to continue to service their current SMSF clients and add financial advice to their value proposition may be best served legally by setting up a separate entity to house the new advisory arm of the business, a sector lawyer has suggested.

DBA Lawyers director Daniel Butler made the recommendation in light of the professional indemnity (PI) insurance arrangements accountants will have to put in place if they add an advisory service to their businesses.

Speaking at the latest DBA Strategy Seminar in Sydney last week, Butler said accountants would already have PI cover for their traditional activities, but needed to understand how cover for financial planning activities would dovetail into their existing policies.

“If there is going to be a dispute, you want to make sure at the time there is a claim it is entirely black and white which side of the fence it is on. Is it on the financial planning practice [side] or the accounting practice [side]?” he said.

“But will it be a case where you’ve conflicted yourself and neither policy will pay out?”

In light of those circumstances accountants needed to be doubly sure they had legal protection and obtaining a licence might not be the only action required, he said.

“For the small practice that is going down the journey of getting a licence it’s not too long down the pathway, and is becoming very abundantly clear, they need more than a licence, they need a separate legal entity,” he said.

“Why? It’s then very distinctly clear which side of the ledger things are sitting.

“It’s something I think a lot of practitioners need to get into their head – it’s not just a licence. Generally it’s a whole shooting match at the end of the day.”

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