Striking the right balance

“Accountants and financial advisers have a critically important role to ensure that only those investors for whom an SMSF is suitable go into the SMSF sector and in doing so are fully informed.”

This statement was made by ASIC deputy chairman Peter Kell in December 2016 when ASIC released Information Sheet 216 “AFS licensing requirements for accountants who provide SMSF services”.

For anyone providing services to SMSF clients, the information sheet should be compulsory reading because it sets out the guidelines on what services you can or cannot provide to an SMSF client if you do or don’t operate under an Australian financial services licence (AFSL).

This delineation on the services you can offer is important given the removal of the accountant’s exemption from 1 July 2016 and the requirement for accountants to operate under a limited AFSL (or full AFSL) to provide these services in the future.

Historically, there has also been an element of competition and, perhaps, confusion between accountants and advisers about who can do what. It’s not uncommon to hear jibes about advisers dressing up tax advice as financial advice. Conversely, there is a perception some accountants are giving financial product advice under the guise of tax advice.

Ultimately, but perhaps in the best interests of the client, this led to two significant changes: firstly, the replacement of the existing accountant’s SMSF exemption with a new limited licensing regime, and, secondly, the requirement for advisers to be registered under the Tax Agents Services Act.

With licensing falling within ASIC’s remit, the release of Information Sheet 216 helps to clarify what accountants are permitted to do with or without the new limited licence. Some of the major points of clarification it provides are as follows.

Establishing an SMSF

If you want to provide a recommendation to a client to join or exit an SMSF, you need to operate under an AFSL. If you want to advise a client to stay in their SMSF or their non-SMSF super fund, you also need to be licensed.

An unlicensed accountant can continue to provide factual information about the steps required to establish or wind up an SMSF, but they need to be careful to ensure the way this information is provided is not an explicit or implied recommendation to set up, join or exit an SMSF.

The possibility of implied recommendations is an area to be wary of as it is often the view of how the client interprets the information that is relevant, not the way the accountant intends it to be read (even with appropriate warnings or disclaimers). ASIC notes that in these cases it is preferable for it to be clear that the client has already decided they want to establish an SMSF (as an example) before an unlicensed accountant provides the factual information on the steps involved.

Asset allocation and investment strategy

It’s a requirement under super law that SMSF trustees develop and review an investment strategy for the fund on an ongoing basis. Because it relates to investment specifics, this generally falls into the type of service for which an AFSL is required.

However, in the information statement, ASIC makes it clear unlicensed accountants are able to provide recommendations (or statements of opinions) on broad asset allocations within an SMSF to trustees, but only at a very high level, such as the allocated proportion of funds across various asset categories, such as shares, deposit products and managed investment products.

Unlicensed accountants need to be careful not to go beyond this as they are not permitted to give recommendations even at a class of financial product level. For example, unlicensed accountants could not give recommendations about what proportion of funds should be allocated to Australian versus international shares, to one segment (for example, financial) over another (for example, industrial) or even to those which may have franked dividends.

Again, an unlicensed accountant can discuss the tax implications of different investment types (for example, what the consequence would be of holding shares in a company that pays franked dividends to the SMSF), provided this is incidental to the actual tax advice provided and not a recommendation on the merits of the shareholding itself.

Overall, the information sheet provides important reading, not only for accountants, but also for advisers who operate under an AFSL, particularly where the adviser is also an accountant. Going back to the opening comment by Kell: he correctly states both accountants and financial advisers have critically important roles – not one or the other. A great working relationship between all professionals servicing the needs of your SMSF clients is the clear pathway to success.

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