Can limited licensing be a win-win for accountants and planners?
There has been plenty of debate around the implications flowing from the limited licensing arrangement for accountants, but Greg Holman argues it can be a win-win for accountants and financial planners.
There are two major initiatives that I believe will now see forward-thinking accountants embrace financial services (risk, lending and planning) like never before.
Firstly, the removal of the accountant’s exemption and the new limited licensing option available from the 1 July 2013 is expected to result in over 10,000 accountants applying for this class of licence.
I have read that many financial planners are concerned that they face competition from accountants who will now attempt to undertake financial services work.
I believe the exact opposite will happen. Accountants will now look to partner with experienced quality advisers, either on a referral basis or joint venture relationship. A recent survey we conducted seems to confirm this.
Most accountants we spoke to simply wanted to get their limited licence so they could talk openly to their clients about the need for insurance, lending and financial planning and then refer the client to a suitably qualified adviser – whether that be on a mere referral basis or to someone in-house if the firm was large enough to justify a full-time adviser.
Having operated a large accounting firm in Noosa for over 19 years, I speak from experience when I say accountants are flat out keeping abreast of constantly changing tax legislation as well as managing their businesses.
They don’t have the time – and in most cases won’t have the desire – to learn a completely new skill set, whether it’s risk, lending or planning.
Accountants have now realised that if they don’t acquire a limited licence their business will suffer after the 1 July 2016, when the accountant’s exemption is removed.
With 10,000 accountants predicted to obtain a limited AFSL, clients of accounting firms will expect that the accountant can assist them in managing their financial affairs by referring them to a suitably qualified adviser.
Clients over time will expect this service offering as part of the norm of what accountants do.
It is important to understand that whilst 10,000 accountants are expected to apply for a limited AFSL, this option does have a number of restrictions on what accountants can do.
They can’t give specific advice in relation to financial services and they cannot prepare SOAs. They can only talk generally about a class of product advice – not specific product advice.
The overwhelming feedback I have received from accountants is that they will look to work with a like-minded professionally qualified adviser on either a referral basis or joint venture basis. They are interested in the following two remuneration models:
1) Referral arrangement
Under this model the accountant may receive 20 per cent of all the revenue generated from referrals of a client’s risk, lending and planning needs.
I suggest the accountant should also own 20 per cent of the capital asset being created from these referrals.
Some advisers may question this, but as an accountant if you want me to actively refer I need to share in both the revenue and capital asset my referrals are creating. Over time this becomes a very valuable asset and part of my succession planning.
If advisers don’t share the capital asset, I don’t think there is enough motivation for the accountant to embrace the referral process – and with limited licensing the accountant will seek out an adviser who is happy to share both income and capital asset. As an adviser you can have a large piece of a small pie or a smaller piece of a large pie – the choice is yours.
Under the referral arrangement there are certain things the accounting firm would be doing:
- Ongoing quality referrals. Not merely one or two referrals a year but one, two or more referrals a week;
- Use of office facilities for the adviser to meet clients at the accountant’s premises;
- Regular fortnightly catch-ups with key people in the accounting firm to discuss referrals and follow-up; and
- Marketing of the adviser’s services in a proactive fashion to the accounting firm’s entire client base.
2) Joint venture agreements
Once the adviser and referral partner have gained each other’s trust and share similar goals and believe they are aligned culturally, they may consider a joint venture arrangement.
This may mean that a separate unit trust or company is formed, with each party owning a percentage of the business.
The accounting firm does not have to be very large to make it commercially viable to have an adviser working full time in the accounting firm.
Fourteen years ago when I employed an adviser full time I had seven accounting staff and accounting revenue of less than $500,000.
It was amazing how quickly both the accounting and financial planning businesses grew with ongoing cross-referrals.
Part of the advice the adviser was providing to clients led to extra accounting work, whether it be the set-up and administration of SMSFs or extra accounting work as the clients now had rental properties and share portfolios.
The joint venture may pay all overheads, including commercial rent, to the accounting firm for use of the premises.
The adviser’s salary should be paid by the business, with profits-split based on shareholding after all commercial expenses have been allocated to the business.
Proper monthly management meetings should be held comparing actual results to budgeted forecasts, along with the development of appropriate KPIs tracking the number of referrals, average sales, conversions and activity.
Whether it is a referral arrangement or joint venture, we suggest a proper business planning session should be held annually with all accounting partners present.
The starting point in the business planning session is to analyse the client base of the accounting firm. I believe clients of accounting firms fall into one of three categories:
- Getting started in life. These are risk-only clients who currently have little money to invest.
- The Accumulator. These clients are aged from 25 to 50 with 10-15 years to retirement. They own a house with debt but have some equity and can invest upwards of $150 after tax per week.
- The Wealth Management client. These are the retirees, pre-retirees and high net worth individuals.
The first step in the planning meeting is to determine the number of clients in each category.
An activity calendar should be developed based on the type and number of clients the accounting firm has, whether it be insurance, accumulator or wealth management referrals.
Ideally workshops should be held throughout the year for each client category and should be ideal for the accounting partner to host in conjunction with the adviser.
Importantly, workshops should always focus on strategy and not product.
A Dashboard should be completed incorporating number of referrals, number of workshops, budgeted average sale, conversions, total revenue etc. These business planning sessions need only take three to four hours.
My experience as a director of GPS Wealth Ltd is that once we have undertaken these planning sessions, the accountants are staggered by the level of detail, systems and processes that form part of this turnkey business modelling approach.
In essence it is simply high-level business consulting over a number of hours – similar to what the accounting firm would undertake for their own A and B class clients.
Greg Holman is the principal of a Queensland-based accountancy firm.
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