SMSFs and accountants - fitting a square peg into a round hole
Many have advocated that accountants simply get licensed if they wish to advise on SMSFs .
However, Liz Westover claims the current single licensing model poses many difficulties for accountants.
Since its introduction, the accountants’ exemption has polarised practitioners in the broader financial and accounting industries.
Particularly since the Federal Government’s announcement of its removal as part of the Future of Financial Advice (FOFA) reforms, it has been the source of much angst and discussion. Perhaps it’s timely, therefore, to examine the exemption a little closer.
The accountants’ exemption is the ability of recognised accountants (members of the Institute of Chartered Accountants in Australia, CPA Australia and the Institute of Public Accountants) to recommend the set up and closure of a self-managed superannuation fund (SMSF) without holding an Australian Financial Services License (AFSL).
Under the Corporations Act 2001, SMSFs are classified as a financial product. Normally, therefore, any advisor recommending an SMSF would be required to hold or operate under an AFSL.
Under section 7.1.29A of the Corporations Regulations, the “accountants’ exemption” quite literally exempts accountants from being licensed where they are advising on SMSF set-up and closure.
When the Government announced as part of the FOFA reforms the removal of the accountants’ exemption, it also committed to finding an appropriate replacement.
The professional accounting bodies supported this undertaking due to the shortcomings that the accountants’ exemption posed in its current form, while recognising the importance of accountants being able to advise their clients on SMSFs.
This is consistent with the Government’s objectives for the FOFA reforms, to make financial advice more accessible and affordable for the Australian public.
While workable, the exemption is seen to be quite restrictive in its application.
It provides the means by which accountants can consider SMSFs in providing advice to their clients, but it doesn’t afford accountants the ability to recommend any alternatives for superannuation savings when an SMSF is deemed to be inappropriate for a client.
Interestingly, it doesn’t give accountants any scope to advise a client not to set up an SMSF if they had already determined to do so.
It also doesn’t allow an accountant to talk about a range of other related issues, like consolidation and pensions, which may need to be considered when discussing an SMSF.
The accountants’ exemption is often misunderstood, and for many accountants, the lack of clarity around what they can and cannot advise on has been a constant source of frustration.
Many don’t understand why it is important for accountants to be able to continue to talk about SMSFs and why the exemption was originally introduced.
At the time of its implementation, SMSFs were viewed as possessing characteristics of a financial product.
However, it was also recognised they had specific aspects in line with business structuring advice, which was never intended to be included under the AFSL regime.
Hence, the accountants’ exemption was the means by which the policy objectives could be achieved.
The exemption was seen as necessary because of the type of advice that accountants give their clients, and in fact, without the exemption in place, consumers may not be getting the most appropriate advice from their accountants.
Typically, accountants talk to their clients about their business structuring needs. They will discuss the relative merits of different entities and structures for their clients to manage their business and financial affairs.
Often this will involve consideration and comparison of operating as a sole trader, corporate entities, family trusts and superannuation.
Accountants need to be able to talk about SMSFs in this context because they are a viable and useful means to manage financial and business affairs.
The reality is that, when considering where to hold business real property, SMSFs are frequently the best option for a client in terms of asset protection and taxation outcomes.
Accountants are in a unique position to offer advice on business structuring due to their specific skills and training.
Nothing has changed in terms of the structuring advice that accountants give their clients since the exemption was introduced.
The rationale for its existence is as relevant as it always has been.
While the profession recognises the shortcomings of the accountants’ exemption, the replacement for its removal must ensure that the reasoning behind its existence is still considered and that accountants are able to continue to talk to their clients about SMSFs.
Clearly, it is in the public interest to find an alternative for the accountants’ exemption that addresses its shortcomings and ensures that accountants can provide appropriate, broad advice to their clients.
Some have advocated that accountants simply get licensed.
Unfortunately, licensing accountants under the current AFSL regime is like fitting a square peg into a round hole. Many aspects of the current single licensing model do not accommodate different types or levels of financial advice.
The current model poses many difficulties for accountants in terms of relevant experience required by ASIC, responsible managers, applications, AFSL audit requirements, costs and professional indemnity insurance.
Licensing may also limit the ability of many accountants to maintain their professional independence.
Many accountants and their clients value their professional independence, believing they can better advise their clients away from conflicts that have traditionally surrounded the ‘sale’ of financial products.
The solution, it would seem, that would satisfy relevant stakeholders in this debate is a form of conditional licensing for accountants that recognises their (and their clients’) need for professional independence and allows them to talk about a range of non-product related issues.
However, conditional licensing must only be introduced for accountants in a way that appropriately reflects the type of advice they will be giving and takes into consideration the education and experience that accountants possess.
If changes are required to the AFSL regime to accommodate accountants, then these should be made to ensure that Australians are able to access advice from their chosen adviser.
Product advice in its generally accepted interpretation (for example, specific shares or insurance products) should continue to require a full AFSL.
Too much of the debate around the accountants’ exemption has lacked any real assessment of the right outcomes for Australian consumers.
We have a real opportunity to make appropriate changes to ensure the deficiencies of the accountants’ exemption are not repeated and the licensing model of the future truly reflects the types and level of financial advice required by consumers.
If accountants are to be licensed, the model needs to accommodate accountants to ensure consumers are able to access the advice they seek.
A significant number of Australians seek the services of their accountant on at least an annual basis. At these times, Australians should be able to ask and have answered basic questions around their financial affairs.
Should this not be possible, those questions will too frequently go unasked and unanswered. Surely, this is not the right outcome.
The appropriate replacement for the accountants’ exemption must recognise the significant role that accountants can play in ensuring Australians have access to financial advice.
Liz Westover is head of superannuation at the Institute of Chartered Accountants in Australia.
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