April 2016 marked the six-year anniversary since then finance minister Chris Bowen, under the Gillard government, announced the Future of Financial Advice (FOFA) reforms.
So what’s happened in the past six years? How has the landscape changed? How do these changes impact on accountants and financial advisers? How do they affect your clients and your practice? What are the opportunities within your grasp and how do you seize them? While we can’t answer all of these questions here, let’s take a snapshot.
FOFA – where to now?
After a tumultuous legislative journey, we have arrived at the end of the FOFA reforms, at least the first tranche. We are now facing more legislation with the government’s attempt to lift the education, professional and ethical standards of financial advice. While FOFA addressed some systemic issues raised through the Ripoll report, this next tranche is taking aim squarely at improving individual capabilities.
Take-up of the limited Australian financial services licence has been very low, which is hardly surprising given the advantages are outweighed by the risk and the compliance burden involved.
There don’t seem to be any firm numbers on how many accountants have become authorised representatives or have established referral arrangements, either new or existing. Surveys of Institute of Public Accountants (IPA) members in practice indicate more than half are opting for referral arrangements with about another 20 per cent opting to become authorised representatives, with the balance distributed among those who aren’t involved with SMSFs or who will be withdrawing from the sector.
Research and trends
Research shows some definite trends and themes.
The International Federation of Accountants’ “Global Small-Medium Practice Survey 2015” showed the top challenges as attracting and retaining new clients (58 per cent), keeping up with new regulations and standards (57 per cent), pressure to lower fees (51 per cent), rising costs (50 per cent) and differentiating from the competition (50 per cent).
Bstar’s “2015 Accountants Research Report” found the top five strategic threats facing the accounting profession are digital disruption and technology, government regulation, changing client loyalties, shifting demographics and increased competition.
The “2015 CommBank Accounting Market Pulse” report results show an upsurge in optimism about business conditions, but a negative view of the Australian economy, with firms in New South Wales, the Australian Capital Territory and Northern Territory the most optimistic about revenue growth in the next 12 months; ongoing concerns with traditional accounting and tax-based work becoming more commoditised and price driven; most firms are looking for cost reduction strategies to protect margins; and the trend to outsource or offshore continues unabated.
As the largest procurer of information and communications technology (ICT) in Australia, the government plays a major role in shaping the ICT sector.
The introduction of the government’s policy for the digital economy and e-government is a major influencer. On the flip side, only 40 per cent of accountants believe they are using technology effectively to improve practice efficiency and 61 per cent don’t have a formal social media strategy to attract new clients, according to Bstar. Major trends include robo-advice, predicted to rise to $250 billion in funds under management by 2019, and the rise of fintech.
In response, the IPA and others have been urging accountants to specialise, diversify, consolidate, embrace and optimise the opportunities and gain new skills. Research indicates the growth areas are financial services, management accounting, strategic tax planning, technology advice, wealth management and succession planning.
The “2015 Intergenerational Report” points to the government belief that opportunities exist to boost productivity and economic growth by increasing female participation, through policies to support parents, and harnessing the potential of all demographic groups. It also points to reforms that improve the competitiveness of businesses and markets, and encourage entrepreneurship and innovation. This is reflected in recent government policies in relation to competition reform and the innovation agenda. It will also include taking advantage of opportunities presented by changing technologies and new markets. What does this mean for accountants? It means more people needing more advice to support living longer, more people to choose from for staff and incentives to promote competition and innovation. The innovation agenda has various tax measures on which strategic advice will be needed. Let’s hope all this activity and change means increased economic growth for the next six years and beyond.