The removal of the accountant’s exemption in 2016 has failed on the government’s objective of improving access to SMSF advice, with over 35 per cent of practices having no licence, according to a new study released today.
The Smarter SMSF “Future of SMSF Report 2018” said it is inarguable the measure has not improved trustee access to advice from accountants on compliance and advice.
The report also said the measure has had a “detrimental impact” on the growth of the SMSF sector.
While the survey of 488 respondents showed 35.8 per cent of practices have no licence, this number is even higher among smaller-sized practices, with 59.7 per cent of those with revenue of less than $500,000 a year having no licence.
This number decreases as the practices grow in size, with only 2.6 per cent of practices with revenue over $5 million operating without a licence.
In an open letter to the SMSF industry included with the report, Smarter SMSF co-founder and chief executive Aaron Dunn said while quality of advice is the top priority for regulators, a recalibration of the rules of engagement is required on how to advise SMSF members.
Dunn acknowledged calls from certain sections of the accounting profession to reinstate the accountant’s exemption, adding such a move has some merit.
“In its simplest form it is not about reinstating the accountant’s exemption and setting up a framework that pits accountants against financial planners,” he said.
“Rather, we need to question how SMSFs fit into the financial product framework, particularly delineating between strategic and investment advice, that is, handling of client monies, but ensuring the outcomes do not lower the barriers for entry.”
Given the introduction of limited licensing has not achieved its policy intent, the backdrop of the banking royal commission is an opportune moment to re-examine the policy setting to ensure advice is encouraged and available for those who require it at different stages of their lives, he noted.
“What this could entail is that it may require accountants and/or administrators to also need to become regulated as an SMSF service provider, but that’s a discussion that needs to be had post royal commission,” he said.
Generalist practices are more likely to be unlicensed, 37.8 per cent, compared with specialists, 25.4 per cent, the report found.
Cost of licensing is the biggest barrier to entry, with 43.8 per cent of respondents citing this as a reason. This was followed by difficulty to generate sufficient revenue to justify this cost, 40.3 per cent.
Additional education requirements, including those posed by the Financial Adviser Standards and Ethics Authority, were cited by 29.9 per cent of respondents as a barrier.
Many unlicensed respondents acknowledged being restricted in what they can discuss with clients, 27.6 per cent, while 46.2 per cent of respondents are attempting to limit their discussion to factual information and deliver execution-only services across various SMSF services.
The report also examined the magnitude of the impact of super reform legislative changes at 1 July 2017 on practices of all sizes, the number of funds and generalists versus specialists.
Regardless of the size of the practice and level of specialisation of an individual or business, respondents ranked the impact of these legislative changes as the biggest challenge.
“It is the significance of these recent super reforms that have meant professionals have needed to rewire their own skills and that of their staff,” the report said.
Having said this, it found legislative changes ranked highest for generalists, while there was a level of comfort with legislation from SMSF specialists.
Specialists ranked issues of efficiency and competitiveness higher.