Why now is the right time for making crucial decisions.
After more than three years of policy debate, the countdown to the removal of the accountants’ licensing exemption has commenced. In fact, we are already more than nine months in. Yet, there is still confusion around this reform, which is understandable given the nature of the reform and the many stakeholders now active in this space.
Essentially, from 1 July 2016 a recognised accountant can no longer recommend a client establishes an SMSF unless the accountant is appropriately licensed.
A new limited Australian Financial Services licence (“limited licence”) has been introduced; it is 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?
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 a recommendation to establish or wind up an 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
To apply for the limited licence, you need to comply with a range of requirements including training, general obligations (compliance, risk, people and resources) professional indemnity insurance, dispute resolution and financial requirements.
While much of the industry debate has focused on highlighting these obligations, the reality is that professional accountants are already familiar with many of them. In addition, a wide range of free resources have been developed to provide additional support.
However, one of the most important elements of the transition period is the streamlining provisions available to professional accountants.
If you are a full member of CPA Australia, the 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 to apply for the limited licence during the transitional period.
Importantly, you will still need to meet the education requirements for the limited licence. This will be the most time-consuming requirement to meet during the transition period.
My advice is that if you are considering applying for your own limited licence, or being licensed under another entity’s licence, start your training now.
Beyond the limited license
Is the limited licence your only option? No, and frankly it will not be the right option for every professional accountant. The other options include:
• Provide 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
The options are not necessarily mutually exclusive; 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 holding a limited licence, you should consider developing a referral arrangement to a licensed financial planner for 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 option.
Cost will also be an important factor, but it should not be the only consideration.
Importantly, you need to ensure whatever option you choose, both you and your staff clearly understand what advice can and cannot be provided.
Operating under the exemption
If you currently operate under the exemption you have a number of important decisions to make around how you will address this reform.
The exemption will remain in place until 30 June 2016 and you can continue business as usual during the transition period.
It is now time 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, you can always refer to your professional accounting body, regardless of which option you select.
Keddie Waller is CPA Australia's policy adviser for financial planning. This article originally appeared in Self-managed Super, Quarter 2014, issue 005.