Important updates on your 2016 SMSF licensing options

Are you ready to make a decision on which SMSF licensing option to use?

From 1 July this year, accountants in Australia will need to wear an official financial adviser’s hat to provide advice to clients about self-managed super funds. There are three licensing options to choose from; which is the best for your practice?

If accountants in Australia want to provide advice on self-managed super funds (SMSFs) to their clients, they have less than five months to apply for their own Australian Financial Services (AFS) licence or become an authorised representative under another licensee.

At the moment, accountants who recommend a client to set up or wind up an SMSF do so under an exemption allowed under the Corporations Regulations. But that comes to an end on 1 July 2016.

It might seem as if there’s still plenty of time to apply for a licence, but CPA Australia estimates it can take from 18 to 24 months to complete the requirements, including completing the required training, to gain a limited AFS licence. So, if you haven’t already commenced the relevant training, it might be too late.

Shirley Schaefer, national lead partner for superannuation at professional services firm BDO, says accountants who want to advise on setting up an SMSF, winding up an SMSF, making contributions to an SMSF, drawing pensions from an SMSF or any strategic investment advice involving an SMSF will all need to be licensed.

“In most cases, some form of limited licence will be sufficient, but this still involves obtaining the necessary credentials under RG 146,” she explains.

Anyone who provides financial product advice is required to meet the training requirements of RG 146 set by the Australian Securities and Investments Commission (ASIC).

Professional Development: RG146 Compliance Solutions – Superannuation & SMSFs Intensive: the RG146 Compliance Solution program has been designed to address the competency requirements outlined in the ASIC Regulatory Guide 146 (RG146).

The options are to obtain a limited AFS licence or a full AFS licence, or become an authorised representative of a third-party licence.

While accountants who want to offer investment advice to clients will obviously need an AFS licence, those who provide basic services such as preparing financial accounts, business planning and audit and tax services can continue as before.

There is information on both the ASIC and CPA Australia websites as to what services fall inside and outside the licensing regime. But if you’re still in doubt as to whether you need a licence, it could be worth erring on the side of caution and applying for a limited AFS licence at the very least, according to some practitioners.

Paul Sweeney, a Sydney-based partner at advisory firm McGrathNicol, managed the process when his business attained a licence to broaden its range of transaction advisory services in 2013.

“It’s better to be licensed than inadvertently provide services you should have a licence for,” he says.

Yet perhaps that’s not the case for every firm.

“It’s not mandatory to get a licence,” advises Andrew White, managing director of private wealth at BDO.

“For some practices – generally those that offer basic services – it will make sense not to get a licence and to instead enter into a joint venture or refer clients to a licensed adviser.” This of course only applies where no financial product advice will be provided.

Getting a full or limited AFS licence means a business incurs higher regulatory costs, which may outweigh the benefits a licence delivers to a practice, especially one that focuses on providing basic accounting services.

“Being licensed allows accountants to speak to clients about a broader range of areas, so there will be more scope to add genuine value.”

Aside from licence fees and expenses involved in documenting compliance and risk management obligations, businesses should also consider the cost in terms of how much time staff spend away from the practice to undertake training.

To be granted an AFS licence, practices must also demonstrate their financial capacity, dispute resolution practices, and ongoing professional development and training. However many of the current Continuing Professional Development requirements for accountants in Australia are the same as those demanded under the AFS licensing regime.

To be granted a full AFS licence, an accountant will have to demonstrate he or she has experience in providing the services for which an AFS licence is sought. This could be challenging for smaller practices that want to be licensed but don’t yet have the runs on the board in providing licensed financial product advice.

Despite the increased costs, there are plenty of upsides to getting a licence. For one thing, indicating on a letterhead that a practice holds an AFS licence adds to the credibility of the business.

Scott Charlton, from Fortnum Professional Strategies, advises accountants on their licensing options and sees an AFS licence as a way for practices to expand horizons, both their own and their clients’.

“It’s my hope accountants engage clients in conversations about a broader range of issues – what their financial goals are, what their expectations are in retirement, their attitudes to risk,” he says.

“To engage with clients in this way, accountants will need to widen the scope of client conversation. At first, this will need to be formalised – that is, you will need to put it on the agenda at client meetings – before it becomes more second nature.”

Looked at another way, an AFS licence allows a practice to continue to advise in areas where accountants have traditionally played a role, such as structuring advice and the option of an SMSF.

“Not being licensed will see a ‘shrinking of the frontier’ regarding areas where accountants can advise without a licence,” Charlton warns.

In his view, accountants who concentrate on traditional tax preparation services will find life progressively more challenging.

“Clients largely see a tax return as a grudge purchase and such services will be under increasing fee pressure,” he says.

“Being licensed allows accountants to speak to clients about a broader range of areas, so there will be more scope to add genuine value.”

Pitcher Partners has had a full AFS licence since 2003, and Brad Twentyman, its director of superannuation, says licensing can resolve a common stalemate that occurs when clients are seeking advice that cuts across tax and financial services.

“The profession reached a situation where in interacting with clients, you were conscious of not letting conversations stray into areas which could be construed as financial advice,” he says, giving BHP Billiton’s share buyback in 2011 as an example.

“In the BHP scenario, clients were arguably not receiving complete advice. Accountants were reluctant to advise as it could be construed as financial advice, and financial planners were reluctant to advise as it could be construed as tax advice.”

Twentyman sees the new licensing regime as a way to resolve such stand-offs.

“Licensing allows practitioners to have more meaningful conversations about their clients’ situation,” he says.

But it’s important to understand what’s involved with complying with the AFS regime.

Related: Know about your three SMSF licensing options before you choose.

“Accountants already provide written advice, but the advice they give isn’t as regulated as it is when it’s given under an AFS licence,” says Twentyman.

“There are numerous disclosure requirements that must be included in each advice document, so advice can become a compliance-driven process.

“Lots of accountants may underestimate the additional paperwork needed to provide advice and how critical it is to have the right procedures in place to generate efficient advice. Some accountants may think all they need to do is just get the licence, but it’s much more involved than that. They may need to change the way they work.”

When licensed accountants give advice under the regime, they will be required to comply with conduct and disclosure obligations, which may involve an obligation to provide clients with a financial services guide and produce a statement of advice.

They will also need to be able to show an audit trail of the advice they give. As Twentyman notes: “This can make it hard for smaller firms to provide advice in a compliant, cost-effective manner.”

One solution is to use technology to streamline part of the advice process and, more generally, to standardise the way a practice gives advice. Given the licensing regime, it’s an opportune time for accountants to consider how new practices and software can make their businesses more efficient and cost-effective.

Independent, always

Where an accountant has become an authorised representative of a third party, rather than holding their own AFS licence, they may need to explain to their clients that they remain independent, despite operating under another entity’s licence.

“It’s inevitable that some clients will be unsure about the ongoing independence of their adviser, but the idea is to talk to them and explain how the licensing regime works, to give them comfort they are still receiving quality advice,” notes Twentyman.

“Licensing allows practitioners to have more meaningful conversations about their clients’ situation.”

Scott Charlton from Fortnum Professional Strategies also reminds accountants that not all licences are owned and controlled by product providers; some are independently owned.

“But when an accountant decides to align with a licensee owned by a product provider,” he says, “I’d be emphasising that the advice being provided will feature the same degree of integrity and independent thinking that has been a feature of the traditional services that have been provided to the client.

"In all cases, being open and transparent about fees and the firm’s relationship with any aligned third parties will be important in maintaining clients’ trust.”

What you need to know 

  • If you haven’t done so already, it’s time to implement a solution.
  • If you haven’t commenced your RG 146 training, then it is unlikely you will finish in time to apply for your own limited AFS licence before 30 June 2016.
  • You still need a solution, so consider a referral arrangement or a joint venture with a practice that is licensed and fits the culture and needs of your clients.
  • Doing so does not mean that you cannot become licensed to provide advice after 1 July 2016.
  • After 1 July 2016, you can continue your training and, once it’s completed, become licensed as an authorised representative to provide financial planning advice – there is no experience requirement to become an authorised representative like there is if you choose to apply for an AFS licence.
  • Importantly, you cannot provide advice to a client about establishing or winding up an SMSF after 1 July 2016 until you are appropriately licensed.

Look ahead

CPA Australia financial planning policy adviser Keddie Waller says, “With less than five months before the accountants’ exemption will be repealed, now is the time to implement a solution so you are ready for 1 July 2016.

“If you have not commenced your RG 146 training, it will be challenging to complete this now and lodge your application for a limited AFS licence with ASIC before 30 June 2016. You may need to consider setting up a referral arrangement for clients who require this advice from 1 July 2016.”

Importantly, once the new regulation comes into effect, you can still complete your training and become licensed as an authorised representative of another entity’s AFS licence; however, you cannot recommend that a client sets up or winds up an SMSF until you are appropriately licensed.

CPA Australia has a suite of tools that its members can access to help them implement their preferred solution. The resources include templates and application forms to streamline the process of applying for a limited AFS licence.

The options

What’s good

What’s not

Qualifications needed

No further licence

There’s no extra effort required! You can still provide basic accounting services, including tax preparation.

You will no longer be able to recommend a client establishment or wind up of an SMSF.

Current requirements for a public practice certificate.

Limited Australian Financial Services licence

You can continue as before, advising clients about SMSFs, and also giving class of product advice (for example, equity funds vs cash funds), which doesn’t involve a specific product recommendation.

You’ll take on average 18 to 24 months to complete the required qualifications. You’ll incur higher regulatory costs.

Among other requirements, you need to comply with organisational competence (RG 105) and financial product advice training (RG 146) requirements. CPA Australia’s RG 146 Compliance Solution meets the training requirements for the purposes of a limited licence. See

Full Australian Financial Services licence

You can speak to clients about a much broader range of financial and investment areas, going beyond SMSFs and class of product advice to suggest specific products, building a deeper adviser relationship.

Higher regulatory costs, including insurance costs. The paperwork involved in documenting compliance is extensive. Staff training can take a lot of time.

ASIC requires extensive documentation to apply for a full AFS Licence, including proof of organisational competence, responsible managers’ competence, and experience in providing financial advice. For more information see

Authorised representative under another entity’s Australian Financial Services licence

You can provide financial product advice to clients, including establishing or winding up SMSFs, while the licensee ensures compliance with the licence obligations.

Licensees may have an affiliation with financial institutions and product providers that could impact on your independence. It’s the licensee who sets the limits on the type of advice you can provide to clients. While you may have to use the licensee’s templates to give financial advice, you may still be held personally accountable to ASIC if there is a breach of the best interests’ duty.

You will have to comply with APES 110 Code of Ethics for Professional Accountants and APES 230 Financial Planning Services. Licensees will also need you to complete training about their products and systems.

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