Accounting for different levels of advice

Regulation 7.1.29 of the Corporations Act is commonly regarded as the accountants’ exemption in relation to the giving of advice generally relating to self-managed superannuation.

Simply put, the licensing and disclosure requirements of the Corporations Act don’t apply if the accountant is giving advice in relation to four specified matters for a super fund: the establishment; the operation; the structure; or the valuation of the fund.

Advice can only be given to a person who is likely to become a trustee, or director of the company to act as trustee.

Furthermore, the advice must be given in the course of conducting the “exempt service”, so the issue of how superannuation is structured would need to arise with the client as part of the accounting advice or services provided.

This means an accountant can, if asked by a client, address the superannuation arrangements for that client, and can comment on a self-managed super fund as a structure for super savings.

Limitations on advice

However, there are practical limitations on the extent to which accountants can give this advice. Unfortunately, the importance of these limitations appears to have been overlooked by some in the accounting profession.

The four specified matters do actually limit the actual ambit of the exemption.

For example, advice on the establishment of the fund will only cover how the fund itself is actually set up. That is, the accountant can explain the detail in relation to such things as the creation of the trust, its trust deed, and who can be trustees. In other words, advice on how it is set up, not whether it should be set up in the first place.

What an accountant can say in relation to the operation of the fund will only cover such things as the trustee duties, administration requirements (and who would undertake these) lodging of documents with the Australian TaxationOffice (ATO), and dealing with the members. In other words, the advice here can only relate to the ongoing tasks of running the fund.

In relation to the structure of the fund, this will relate only to the “framework” of the superannuation trust, such as how the self-managed super fund is different in structure, what the purpose of the trust deed is, and the role of the trustees.

Finally, comment upon the valuation of a superannuation fund will obviously only relate to such things as how the accounting of the member’s interests is to be undertaken, and the valuation of less liquid or common types of assets.

Therefore, unless authorised under a licence to do so, advice cannot be given that recommends a client establish a self-managed super fund as the most appropriate superannuation vehicle for that client.

Choice of fund

It is inconceivable that one could advise any client on superannuation without explaining their choices. Any professional would be expected to advise clients not only about the available choices, but what they will cost, and what the consequences of each choice will be.

Moreover, the expectation of advice in relation to superannuation is that the advice will place the consumer in the position of making an informed choice. Therefore, a Statement of Advice is required, and only authorised representatives are able to provide this form of communication, thereby effectively excluding accountants (where they do not have the required authorisation ) from giving this type of advice.

Setting up a SMSF

When advising clients in relation to the set up of a self-managed super fund, a financial planner should also be careful to ensure that advice in relation to the investment strategy of the fund is given as a separate piece of advice.

This is because until the fund is actually established there is no ‘trust’ in existence, and therefore no trustees. It is only when the trust deed is executed and the clients have formally assumed the status of trustees, that advice can be given to them in that capacity as to their responsibility in setting the actual strategy and then as to the actual investments.

Furthermore, in setting the strategy, the advice should not refer to the ‘client’ risk profile, but to the member profile of the fund.

In setting an investment strategy the ‘objective-subjective’ approach should be taken. What I mean by this is that the planner should firstly take into account the risk profile and investment objectives that the members have (the ‘subjective’ factors), but should then take the discussion further by stating what persons at that age, with that amount in superannuation, should reasonably have as objectives and as a risk profile.

This second limb ensures that the clients will take an objective approach, which they are required to do as trustees.

Joint practice

Another common area of concern exists where a financial planning business is an adjunct to an accountancy practice.

In those cases where the recommendation to establish the self-managed fund is properly made by an authorised representative within the financial planning arm, all too often the accounting and compliance or audit function for the fund is carried out by the accountancy side of the overall practice. This is clearly a conflict of interest on each side.

For the financial planner, how impartial is the ongoing advice to the clients in relation to the costs of running the fund, since these expenses are basically incurred in audit, accounting and compliance services?

On the other side, for the audit function, the level of impartiality and objectivity may be compromised if the auditor detects that the planner has not seen to the updating of the trustees’ investment strategy, or the planner has allowed investing to occur outside of that strategy.

Lucille Benetto is head of compliance at LonsdaleFinancial Group.