Becoming licensed or authorised to provide advice is the easy part. David Lunn points out it’s what will happen after 1 July this year that accountants should really focus on.
Much has been written about the imminent removal of the accountants’ exemption and what accountants need to do before 1 July, but obtaining a limited Australian financial services licence (AFSL) or becoming an authorised representative of an AFSL is only the start of the journey.
Furthermore, it’s the easy part.
Few are prepared for life beyond 1 July. They’ve never held a licence or limited authority before and they’re unfamiliar with all the compliance work involved. Transitioning to the new regime will take some adjusting.
The fundamental difference is there’s more regulation and compliance involved in providing financial advice than there is in providing tax and accounting services.
For the first time, many accountants will need to record and store comprehensive client file notes and produce statements of advice (SOA).
It won’t be enough anymore to simply have a client conversation, make a recommendation, scribble rough notes on a pad and file them away.
Accountants will need to follow an Australian Securities and Investments Commission (ASIC)-proof advice process. They’ll need to perform thorough due diligence to support their advice recommendations and they’ll need to record that due diligence in greater detail than they may be used to. They’ll also need to record any alternative strategies considered but not recommended.
Even those who opt to remain unlicensed after 1 July and no longer offer SMSF advice in-house, but provide an execution-only service, may need to follow a disciplined process, including taking detailed notes.
The key reason is that clients who are used to getting advice from their accountant will continue to expect that same level of service.
They’ll continue asking questions, which leaves accountants vulnerable to inadvertently providing advice outside the scope of their licence.
In an increasingly regulatory and litigious environment, accountants must be able to clearly demonstrate they complied with the new compliance regime.
There are innovative technology-based solutions designed specifically to help accountants provide compliant advice or oversee the provision of compliant advice, store and retrieve client information, and fulfil their licensing obligations.
Accountants don’t have to navigate ASIC’s new regulatory framework alone.
What many accountants don’t know is the majority of advisers follow an advice process that has been developed by their licensee. Few produce their own advice documents and write their own SOAs.
Instead they rely heavily on their dealer group (if they have one) and planning software, such as Xplan or Coin, as well as paraplanning staff or contractors. Having a template is only the beginning.
Accountants, on the other hand, generally don’t have access to expensive planning software and because most only provide limited advice as a complement to their core tax and accounting work, it’s not economical to buy it, let alone spend time and money on training to become proficient in using it.
Accountants can leverage technology to automate parts of the advice process, although there are currently only a small number of options.
Unlicensed accountants can use technology to automate the provision of financial advice by an independent third party.
Under this model the accountant’s role is akin to a project manager. They oversee the provision of advice and remain the client’s primary trusted adviser, but for all advice matters they defer to a licensed adviser.
Technology sits in the middle automatically collecting data, capturing and safely storing file notes and, importantly, generating SOAs. It helps create clearly-defined boundaries between what the accountant does and what the adviser does to ensure they operate within the lines. This only becomes feasible with the high use of technology, otherwise it’s likely to be very costly to the client.
It may also increase a practice’s capacity to provide efficient and cost-effective advice to a greater number of clients.
As the end of the accountants’ exemption looms, there will be many accountants who miss the deadline. Some will discover they don’t need to be licensed in order to continue operating an outsourced advice model, but they can still remain the primary adviser and centre of their clients’ lives.