Every now and then a news story becomes so ubiquitous that whenever I see it mentioned I either ignore it or mentally switch off. On occasion I take even more drastic action, like muting the TV or changing to another channel, while a new angle on the story is thrashed out.
I would be amazed if most people didn’t act in a similar way.
Right now you might be thinking another story about accountants and financial services licences is just plain boring. What’s more, it’s not a new topic – it has been actively discussed for more than 15 years and was first nominated as firm government policy in April 2010 when then financial services minister Chris Bowen announced the Future of Financial Advice reforms. Despite its longevity, the topic remains controversial.
Regardless of this, I think there are a few aspects of the financial services laws that aren’t well understood and need to be explained.
Firstly, the issue of providing financial product advice. Typically in order to provide financial product advice you need to hold an Australian financial services licence (AFSL) or operate under an AFSL.
The Australian Securities and Investments Commission (ASIC) in Regulatory Guide (RG) 36 says “if a communication is a recommendation or a statement of opinion, or a report of either of those things, that is intended to, or can reasonably be regarded as being intended to, influence a client in making a decision about a particular financial product or class of financial product (or an interest in either of these), it is financial product advice”.
ASIC also says objective factual information that doesn’t expr
ess an opinion won’t be financial product advice, but it may be financial product advice (and therefore you might need an AFSL) if “presented in a manner that may reasonably be regarded as suggesting or implying a recommendation to buy, sell or hold a particular financial product or class of financial products”.
ASIC has issued RG 244 about three topics, including giving information and general advice to help guide people through this rather complex area.
After all, the financial services laws often work on a reverse onus of proof basis. That is, it’s not what a provider of information thinks has been said or conveyed, but what the receiver thinks has been delivered. Our tax laws often work on a similar basis – that is, the ATO forms a view on what you’ve done and why, and you have to prove them wrong.
An interesting issue here is SMSF trustee research released from time to time often shows a sizeable number SMSFs receive advice from their accountants when running their fund. What they mean by advice will be highly variable.
The next issue is the existing accountants’ exemption. This is in two parts and found in regulations 7.1.29 and 7.1.29A of the Corporations Regulations.
The first regulation provides a wide number of exemptions, especially in relation to work often performed by accountants, such as taxation, audit services and business planning. Importantly, this exemption continues after June 2016.
The second exemption only applies to suitably qualified accountants who are members of the three main accounting bodies and allows them to provide recommendations in relation to the set-up and wind-up of SMSFs. This exemption is repealed after June 2016.
The final issue is the new operating environment that will be in place after June 2016. As I noted above, this is a controversial topic.
There will be accountants who never provide any services to SMSFs, their trustees or members and do not recommend or advise clients in relation to other financial products. In all likelihood these accountants do not need to worry about the July 2016 transition date or Australian financial services licensing going forward. If they decide to change their business or take on a new client that runs an SMSF who wants more than just compliance advice or audit services, then Australian financial services licensing becomes an issue they need to consider. They would have a similar problem if they wanted to advise or recommend another type of regulated financial product or they had a client who approached them about seeking an opinion about these products.
There are a large number of accountants who do provide compliance advice, administration, tax and audit services to SMSFs. Not all of these accountants will be providing financial product advice as defined in the Corporations Act. It’s likely some are, or their client’s might think they’re receiving regulated advice, and it is these accountants who need to think carefully and urgently about Australian financial services licensing. For those intending to remain unlicensed, they need to consider how they will ensure their clients understand the advice they are being provided.