Accounting, Investments

Treat investment strategies as product advice

investment strategy financial product

Accountants should treat investment strategies as a financial product and be guarded in their advice to avoid legal missteps, an SMSF lawyer has claimed.

Non-licensed accountants and advisers should treat an SMSF investment strategy like a financial product, even though the law does not do so, to prevent giving unintended advice, according to an SMSF legal expert.

DBA Lawyers special counsel Bryce Figot said recent comments about an investment strategy not being classified as a financial product were correct under the definition of the latter within the Corporations Act 2001, but he advised against an unlicensed adviser using that definition to provide a strategy to a fund.

“Can an unlicensed adviser merely provide an investment strategy to an SMSF trustee without providing a financial product or financial service that is covered by the act?” Figot said as part of a webinar presented by the legal firm last week.

“The technical answer is ‘yes’, but the practical answer is that it is risky. It’s like asking if you can walk through a lion’s cage without being hurt. It is possible, but would you do it? It can come undone in so many ways.”

Figot contrasted the work required by an accountant or adviser operating under an Australian financial services licence (AFSL) and claimed it was unlikely someone operating outside that regime would do the same work.

He highlighted a licensed advice provider would agree on the work to be conducted and provide a financial services guide, while also undertaking a fact-finding exercise and a risk profile of the client before providing a statement of advice, and documenting each step of the process.

“Would an unlicensed adviser or accountant, that is, someone not operating within the AFSL regime, be engaging in these steps? It seems unlikely,” he added, pointing to the need for an investment strategy to also consider whether trustees of fund should hold insurance that provides cover for members of the fund.

“What happens to an accountant or adviser that is not operating under the AFSL regime who gives a template investment strategy that includes wording such as ‘the trustees have considered insurance cover on each member and have resolved not to implement any cover’, and the member is injured or dies?

“What liability might you have? Have you given advice that said the trustee did not need insurance?”

He encouraged non-licensed advisers and accountants working with a template investment strategy to state they are precluded under the Corporations Act from providing assistance and insist they seek advice from a licensed adviser or use service providers that can assist them to prepare their own investment strategy.

This advice should be recorded in file notes and a letter of execution issued that covers the accountant or adviser in the event their client alleges they provided any financial product advice or related financial service, he added.

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