Public practitioners have important decisions to make in coming months.
After more than three years of policy debate, the countdown to the removal of the accountants’ licensing exemption has commenced.
The first of July marked the beginning of a three-year transition period, which will conclude with the removal of the current accountants’ licensing exemption on 30 June 2016.
It also marked the introduction of a new limited Australian Financial Services Licence (limited licence), designed to replace the exemption and provide a pathway for professional accountants to move into providing a broader range of strategic non-product advice.
But what does this really mean and is it the only option?
The accountants’ licensing exemption was introduced in 2004 to enable professional accountants to give their clients advice on whether they should establish or wind up an interest in a self-managed superannuation fund (SMSF).
However, the limited nature of the exemption had caused further issues, especially following the introduction of superannuation choice.
The announcement of the removal of the exemption provided an opportunity to address these issues and, importantly, develop a replacement that enables professional accountants to provide a wider range of valuable advice to their clients while maintaining their professional independence.
The limited licence
Under the limited licence a broader range of advice can be provided than currently permitted under the exemption.
While the limited licence will still allow practitioners to recommend the establishment or winding up of a SMSF, it will also permit a broader range of SMSF advice such as contribution and pension advice.
It will also allow class of product advice – advice that does not recommend a specific financial product – on:
- Simple managed investment schemes
- Insurance (life and general)
- Basic deposit products
Examples of the type of advice that can be provided under the limited licence include advice on:
- The SMSF investment strategy
- Holding direct shares through the SMSF
- The types of shares (e.g. banking versus mining)
- Types of insurance and the amount of insurance required
To apply for the limited licence you will need to comply with a range of requirements including training, general obligations (compliance, risk, people, resources), professional indemnity insurance, dispute resolution and financial obligations.
While much of the industry debate has focused on highlighting these obligations, the reality is that as a public practice certificate holder many of these obligations will already be familiar to you.
More importantly, a range of free resources will be provided to members holding a public practice certificate to provide both initial and ongoing support for limited licence holders.
One of the most important elements of the transition period is the streamlining provisions available to professional accountants.
Normally when you apply for your own Australian Financial Services Licence you need to meet the competency and experience requirements to be a responsible manager for the licence, as set out in ASIC’s Regulatory Guide 105 Licensing: Organisational competence (RG 105).
The responsible manager is directly responsible for significant day-to-day decisions about the ongoing provision of financial services and this is how ASIC ensures licensees comply with their ongoing obligations.
The minimum experience requirement is equivalent to three years’ experience as a licensed financial planner over the past five years.
If you are a full member of CPA Australia (or Institute of Chartered Accountants Australia or Institute of Public Accountants) and hold a public practice certificate you will be deemed to have met the experience requirements of RG 105 if you apply for the limited licence during the transitional period.
You will still need to meet the education requirement of RG 105 and training requirements of ASIC’s RG 146.
However, the right education course, such as CPA Australia’s RG 146 Compliance solution, will meet both of these training obligations.
If you decide to authorise any staff members under the limited licence they will also have to meet the training obligations of RG 146.
Meeting these training obligations will be the most time-consuming requirement to fulfil during the transition period.
If you are considering applying for your own limited licence, or being licensed under another entity’s licence, the best option would be to start your training now.
As mentioned, a range of resources have been developed to assist those members who wish to apply for the limited licence, including:
- DIY Licensing kit and compliance manuals
- Compliance templates that can be tailored to each practice\
- Disclosure templates and guidance
These free resources will only be available to members who hold a public practice certificate with CPA Australia and can be requested by emailing [email protected].
CPA Australia also has a cost effective professional indemnity insurance policy for members with a limited licence.
ASIC has published a range of guidance and information on the limited licence, including a new streamlined online application form, which can be accessed from www.asic.gov.au.
What are my other options?
While the limited licence is one option available, it may not be the right option for every member. The other options include:
- Provide a range of advice that does not require licensing, for example tax, traditional accounting advice and broad asset allocation advice
- Operate as an authorised representative under another entity’s licence
- Recruit a financial planner to work within the practice
- Establish a joint venture with another financial planning practice
Depending on your circumstances a range of solutions may be necessary.
For example, if you decide to only provide advice that does not require licensing or you hold a limited licence you should consider developing a referral arrangement to a licensed financial planner for your clients who request or may need financial product advice.
Further, while each option has advantages and disadvantages, the key consideration will be what advice you want to provide to your clients.
Once you have established this, you can then consider the pros and cons of each of your options.
For example, if you decide you need to be licensed under another entity’s licence, this means you can focus on advice while the licensee is responsible for ensuring compliance.
However, it may also mean that you may compromise your professional independence – and for many members this is why they are in public practice.
Cost will also be an important factor, but it should not be the only consideration.
CPA Australia, in conjunction with the Institute of Chartered Accountants Australia, has a range of resources designed to help members understand their options and things they need to consider before making their final decision. Resources include:
- What advice can and cannot be provided if you are not licensed?
- Advice that can be provided under the limited licence
- Indicative costs of applying for and holding the limited licence
- Key considerations when choosing a licensee
Importantly, you need to ensure whatever option you choose, you and your staff clearly understand what advice can and cannot be provided.
If you currently operate under the exemption you have a number of important decisions to make around how you will address this reform. The important thing to remember is that you have time.
The exemption will remain in place until 30 June 2016 and you can continue to operate as business as usual during the transition period.
This means you can use the next three to six months to thoroughly consider your options to make sure you make the right choice for both your practice and your clients.
Make use of the wide range of resources being provided and if you need further advice or have questions, CPA Australia is here to provide the ongoing support you need regardless of which option you select.
Find out more about becoming a financial planner.