It’s not an option to wait until the accountants’ exemption has been repealed – now is the time to be prepared.
With just over 12 months until the accountants’ exemption is removed, it’s time to stop thinking about what you might do, and act.
Waiting until the accountants’ exemption is repealed is not an option. In fact, it only limits your options when the new rules commence. Even leaving it this late to act means you risk not having the right solution in place for your practice and clients come 1 July 2016.
So what’s actually changing, what do you need to consider, and what are your options?
On 30 June 2016, Regulation 7.1.29A – commonly referred to as the accountants’ exemption – will be repealed. This regulation currently permits a recognised accountant to recommend that a client establish or wind up an interest in a self- managed superannuation fund (SMSF) without being licensed under the Australian Financial Services (AFS) licensing regime.
That’s it. The new regulation does not permit a recognised accountant to make recommendations regarding pensions, contributions or an SMSF investment strategy, for example. You already need to be appropriately licensed to provide this type of advice.
If you want to recommend a client establishes or winds up an SMSF from 1 July 2016, you will need to be licensed to provide this advice.
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What you need to consider
Before considering your options, first consider what advice and services your practice currently provides and will provide in the future. Factors such as technology, offshoring and changing client needs will continue to have a significant impact on traditional accounting services. You should consider what your practice will look like in five years’ time – it should be an integral part of your decision-making process.
It’s also very important to understand that recommending that a client establish an SMSF under a licence is very different from providing the same recommendation under the accountants’ exemption.
This exemption restricts you from considering the client’s existing superannuation, insurance cover and other relevant financial product investments. However, these are things that you may need to consider when providing licensed advice to comply with the statutory best interests duty and related obligations towards your clients.
You also need to comply with mandatory disclosure requirements, including the obligation to provide a statement of advice every time you provide financial product advice. This includes, for example, a recommendation not to establish an SMSF.
Complying with these obligations takes time and comes at additional cost. Obtaining a limited AFS licence to simply replace the accountants’ exemption may not deliver to your practice the benefits you think it might offer (see ‘What are your options?’ at right).
Once you finalise the advice and services you wish to provide going forward, you can establish if you need to be licensed.
Top 5 limited licensing questions
I don’t want to provide product advice, just SMSF advice. Do I need a licence?
An SMSF is a regulated financial product. Therefore SMSF advice is regarded as financial product advice. From 1 July 2016, you must be licensed in some capacity to recommend that a client sets up an SMSF. All other requirements when providing financial product advice will also apply.
- I hold a public practice certificate (PPC). Do I just pay a fee and register with ASIC for the limited AFS licence?
Applying for the limited licence is not just a registration process. You must demonstrate that you meet a range of requirements including educational, resourcing and financial.
- I hold a PPC. Do I meet the training requirements?
No. If you hold a PPC you can access the streamlining provisions, which means you are deemed to meet the experience requirements. However, you must still meet the education (RG 105) and training (RG 146) requirements.
- I need to be RG 146 compliant. What training do I need?
This will depend on how you will be licensed. If you are going to be an authorised representative, then check with the potential AFS licensee to see what training you need to complete. If you are applying for the limited AFS licence with all authorisations, you will need to complete training that satisfies both RG 105 and RG 146. Refer to section 4 of the Information Guide: Accountants’ exemption reform for more details, available at cpaaustralia.com.au/smsfadvice
- Do my staff need to do the training too?
Anyone that you authorise under the limited AFS licence to provide advice to your clients will need to complete RG 146 training. One option could be to require staff to complete the same RG 146 training that you completed to ensure they meet this requirement.
Top 5 mistakes when applying for the limited AFS licence
Applying for the limited AFS licence in the wrong entity. You cannot apply as a sole trustee of a trust under the trustee’s ABN.
- Not lodging mandatory “core proof” documents at the same time as the application is electronically lodged in the “eLicensing” portal. This will result in the application not being accepted for lodgement and a new application will need to be lodged.
- Applying before meeting the relevant education and qualification requirements.
- Financial statements providing for the wrong entity. They must be prepared in the name of the entity that is lodging the application.
- Membership of EDRS (External Dispute Resolution Scheme) or certificate of coverage of PI insurance is not in the name of the lodgement entity.
If you hold a PPC and are considering the limited AFS licence, email [email protected] and request your copy of the exclusive resources for the limited AFS licence.
Do you need to be licensed?
If you only provide administration, compliance, audit or tax advice in respect of SMSFs, you don’t need to be licensed. Regulation 7.1.29 will continue to permit the provision of these types of advice and services in respect of a financial product.
For guidance on the advice and services you can provide without being licensed, read Financial advice and regulations: Guidance for the accounting profession.
What are your options?
If you don’t provide SMSF establishment advice or don’t want to provide it from 1 July 2016, you can refer clients to a licensed financial adviser. The new code requires you disclose any benefits you may receive from the referral to the client.
Become an authorised representative
You can provide financial product advice, while the AFS licensee is responsible for ensuring compliance with the licence obligations. Depending on the scope of the advice, you may also be able to provide specific product recommendations beyond the SMSF. Importantly, the licensee will set the training requirements, so check with them regarding the training you need to be authorised. Considerations when selecting an Australian Financial Services (AFS) licensee, available at cpaaustralia.com.au/smsfadvice, provides guidance on factors to consider including the scope of advice, support and costs.
Limited AFS licence
Holding your own licence means you are responsible for compliance with the licence obligations, however it also allows you to maintain your professional independence.
It may also provide a practical solution to rural members allowing them to continue providing advice to their communities.
Full AFS licence
If you have not been licensed before, you will need to employ an experienced responsible manager who can meet the experience requirements to take up this option.
This allows you to provide a complete financial planning solution to clients without personally providing financial product advice. You must commit to integrating financial planning within the practice and investing adequate resources to make it a success. Each of the options has its own advantages and disadvantages. They are not mutually exclusive. If you decide to apply for a limited AFS licence you will still need to have a referral or joint venture arrangement in place for your clients who require specific financial product recommendations. Take the time now to do your own due diligence to determine which option/s will be the most appropriate for you and your practice.
Keddie Waller is financial planning policy adviser at CPA Australia
Read more: The countdown commences
Read more: Your SMSF licensing guide