WHERE TO NOW FOR ACCOUNTANTS’ LICENSING

Ask almost any financial services practitioner and they will tell you the regulatory system for SMSF advice just isn’t working.

Reforms over the past two decades aimed at improving advice to consumers have resulted in multiple licensing and registration regimes, overlapping codes of ethics and continuing education obligations for accountants and advisers who work in the area.

Complying with the requirements is a huge expense, CPA Australia head of public practice Keddie Waller says. It costs $112,414 a year for a CPA practice with 400 clients, including 120 SMSF audit clients, to offer holistic financial planning services, according to CPA Australia’s analysis.

“Accountants are struggling to pass the costs on to their clients, so it becomes a loss leader in their practice and that’s not a sustainable business model,” Waller explains. Rising costs have led some accountants who advise clients on SMSFs to stop offering that service. CPA Australia surveyed its members in April 2019 and found 36 per cent were considering dropping financial planning advisory services and 23 per cent were considering no longer providing SMSF audits.

Meanwhile, consumer demand for financial advice, including on SMSFs, is increasing. The Australian Securities and Investments Commission (ASIC) found in its report, “Financial Advice: What Consumers Really Think”, that 41 per cent of consumers intend to get financial advice in the future, while 27 per cent had received advice in the past.

Deloitte Australia partner and national SMSF leader Liz Westover says accountants are in an excellent position to provide advice on SMSFs due to the robust educational, professional and ethical standards they already uphold, plus their existing relationships with consumers.

“Accountants have a unique opportunity in that they engage with their clients at least on an annual basis because of the tax obligations that our clients have,” Westover suggests. “That is such a great opportunity for clients to be able to ask questions of their trusted adviser around some simple strategies and questions about superannuation and retirement savings. If we don’t make the most of that, the advice gap

is going to grow even bigger.”

She plans to keep offering advice to SMSFs, but is frustrated with the existing regime.

“It’s expensive. It’s complex. And it’s really difficult to navigate all of the rules and requirements, and in particular how they interact,” she says.

The priority in any revision of the system should be to ensure the level of regulation is appropriate, Institute of Public Accountants (IPA) advocacy and technical group executive Vicki Stylianou says.

“In this country we tend to swing too much one way and then we swing too much the other way. It’s a case of striking the right balance so you’ve got the integrity and

regulation, but not to the point where it’s strangling the ability of consumers to get the advice they need,” Stylianou observes.

Professional accountants have obligations under ASIC, the Tax Practitioners Board (TPB) and the Financial Adviser Standards and Ethics Authority (FASEA). In addition, they may be members of an accounting professional body, the Financial Planning Association (FPA) and the SMSF Association. Each organisation charges levies or fees. Each has its own continuing professional development (CPD) requirements and code of ethics, and these are often inconsistent. “For example, advisers are having to do a lot more CPD hours than they would otherwise have to do, which adds to the cost. And that’s just one small thing,” Stylianou points out.

Harmonising the requirements of each organisation and reducing duplication would go a long way towards cutting costs, but the latest round of regulations, introduced by FASEA, is making matters worse.

Many accountants provide advice to SMSFs under a limited Australian financial services licence (AFSL).

The limited licensing regime began on 1 July 2016, replacing a previous exemption to ASIC licensing requirements that allowed recognised accountants to advise clients on establishing and winding up an SMSF.

Under a limited licence, accountants can give personal advice about SMSFs, some aspects of a client’s existing superannuation holdings and so-called class-of-product

advice, such as whether or not to invest in ASX 100 shares. However, they cannot advise on specific products, such as an individual Australian Securities Exchange-listed company’s shares.

But FASEA’s education requirements, exams and code of ethics do not consider people who work under a limited licence. Accountants who provide financial advice as a small part of their service offering must complete the same breadth of training as fulltime advisers operating under a full AFSL. Waller says this adds costs, but it’s the mentoring requirements of the FASEA professional year, rather than the study itself, that present problems for accountants.

“If I’m a professional accountant running my own practice and I want to become a financial adviser as well and bring that discipline into my practice, I have to be mentored for 12 months under the supervision of a financial adviser. You have to have the equivalent of 12 months’ full-time experience. If I’m running a practice and only doing financial planning one or two days a week, it’s going to take me five years to get that experience, which is not achievable,” she says.

“The other thing is the perception. If you’ve had a relationship with your clients for the last 10 years and suddenly you have to tell them that your professional adviser is someone they’ve never met and they have to oversee the advice, that’s quite a challenge.” According to Chartered Accountants Australia and New Zealand (CAANZ) leader of advice Bronny Speed, the FASEA code of ethics, which came into force from 1 January 2020, creates another complication for people who work under a limited licence. “The most recent FASEA code of ethics requires that you must look more broadly at your client’s position, but a limited licensee only allows you to look at what you’re licensed to do. In my view, therein lies a conflict. You must do research to find out what are the ramifications of your advice, but if you’re not licensed to do that, how do you do that?” she says.

The continuation of the limited licence has been up for debate since last August when a

Treasury review of the TPB suggested a return to the accountants’ exemption. That proposal has been widely rejected by the industry. CPA Australia, CAANZ, the IPA, the SMSF Association and the FPA have formed an alliance to work with regulators to find a preferable alternative.

CAANZ has been conducting workshops to seek members’ views. The workshops revealed members want to be able to give strategic advice that provides more than basic factual information, but less than full licensing would allow. They want to reduce red tape and therefore costs, while increasing education standards and maintaining consumer protections.

“That’s where we’ve got to get to, otherwise we’re going to have accountants leave in their droves,” warns Speed, who in addition to her role with CAANZ is the founding director of AccountantsIQ and works with accountants to integrate financial planning advice into their practices.

Speed is encouraging accountants to retain their licences or authorities to advise. She is optimistic the five industry bodies, working collaboratively, will be able to come up with a solution that benefits consumers and the industry.

SMSF Association chief executive John Maroney would support a move to make it easier for accountants to provide strategic advice to SMSF clients on topics such as contribution levels, starting a pension and how to close down a fund that has become uneconomic or too difficult for a surviving

spouse to manage after their partner has passed away. SMSF clients find it frustrating when they can’t get simple answers from their accountants about self-managed superannuation, Maroney says.

“We really want SMSF trustees to be able to get basic SMSF support and advice from accountants or others without having to go through the full rigmarole of statements of advice,” he adds.

At the root of the issue is the fact SMSFs are considered under financial services

regulation to be financial products. Accounting bodies and others in the financial advice industry have long been arguing they should be treated as structures rather than products, and different rules should apply. “There is a lot of advice and guidance that accountants have traditionally provided to SMSFs that was not product related but was more strategic, and we think that is something that accountants could do,” Maroney says.

However, not everyone agrees. Regulators classified SMSFs as financial products through the Future of Financial Advice reforms, despite protests from accounting and advice bodies. Self-managed Independent Superannuation Funds Association managing director Michael Lorimer says while accountants have a critical role to play in assisting SMSF trustees in the technical and administrative tasks involved in establishing, running and winding up the funds, they should not be specially treated when it comes to giving financial advice.

“It makes total sense that accountants as a professional, as a trusted adviser, should still be able to provide services in this space, but ultimately, I personally believe, there shouldn’t be any special carve-out just because we’re dealing with self-managed superannuation funds,” Lorimer says. He does not draw a distinction between an SMSF and any other type of superannuation fund, be that industry, retail or small Australian Prudential Regulation Authority fund. “A super fund is just a structure, granted, but a membership interest in either an SMSF or a non-SMSF public offer super fund is a financial product, full stop. That’s how the framework works, so to steer somebody towards an interest in any superannuation structure is financial product advice,” he says. He agrees there are flaws in the existing regulatory system, but he does not see a need for a strategic advice category to cover SMSFs.

“My view is that you are either operating in the regime of the Corporations Act with a full AFSL or you’re not,” he says.

Without a licence, accountants can advise clients on topics such as the procedures involved in establishing or winding up an SMSF, how an SMSF could be structured, how to add new trustees or members to an existing SMSF and how to process fund transfers or rollovers.

“The vast majority of compliance services to SMSFs are still provided by accountants, so there’s a huge benefit in allowing that to continue. There are a lot of things that accountants can do for SMSF clients which are business as usual,” Lorimer notes.

One option to simplify the existing licensing system, put forward by CPA Australia, is to individually license or register practitioners who offer financial advice.

“The advantage of having an individual licensing or registration mechanism is that it holds you as the individual accountable,” Waller says. “You are accountable for complying with your obligations. You are accountable for your conduct and behaviour. And you are then responsible for ensuring you are reporting or meeting your ongoing obligations,” she says.

This approach is common in other professions and the TPB already operates along these lines, she points out.

The FPA supports individual registration, but chief executive Dante De Gori says companies employing those people should still be required to hold a financial services licence to help protect consumers.

“Licensing is about a financial service business as opposed to the practice of financial advice. Just because you’re a good practitioner, doesn’t mean you’re good at running a business, therefore they should be two separate things,” De Gori explains.

A corporate entity holds the licence and takes responsibility for running the financial services business, supervising practitioners and complying with regulations. Individual practitioners are responsible for the advice process and client interactions, not necessarily running a business.

Whatever licensing solution is adopted, the shape of the regulatory environment for accountants advising on SMSFs will depend on how effectively any overlapping requirements can be streamlined. It will also hinge on how successful the accounting bodies, the FPA and SMSF Association are in making their case that SMSFs deserve to be treated differently from other superannuation funds.