You have your AFS licence. Now what?

ASIC has already taken its first action against an AFS licensee and will no doubt pursue more

After a long transition period, Regulation 7.1.29A, the accountants’ exemption for giving SMSF advice, has finally been repealed.

If you’ve made the decision to continue providing self-managed superannuation fund (SMSF) advice after 30 June 2016, you should now have your own limited Australian Financial Services (AFS) licence or have been appointed as an authorised representative of an AFS licensee.

In the lead-up to its removal, accountants had the option to become licensed, become authorised, or to implement a referral arrangement to an appropriately licensed entity or individual.

Providing advice to clients is nothing new to professional accountants, but it’s now time to focus your attention on providing licensed financial product advice. The first step is to ensure you understand the extent of the advice you can provide and your obligations in the advice process.

What advice are you authorised to provide and how does it fit in with the business model of your practice? Are you simply providing broad SMSF advice, focusing on strategic advice, or are you authorised to provide both strategic and product advice to clients?

Remember, providing any unlicensed financial services is illegal, and if ASIC becomes aware of people, including accountants, providing unlicensed advice, it may take regulatory action.

"ASIC has already taken its first action against an AFS licensee for alleged breaches of best interests duty and will no doubt pursue more."

Recent reforms to the Corporations Act have brought in a statutory obligation that you, as the advice provider, must act in the best interests of your client. It is important to fully understand this obligation, as well as the relevant safe-harbour provisions. 

You also need to familiarise yourself with the relevant ASIC guidance when providing licensed advice. Two ASIC Regulatory Guides in particular are RG 175 Licensing: Financial Product Advisers – Conduct and Disclosure; and RG 244 Giving Information, General Advice and Scaled Advice.

RG 175 Section E outlines what ASIC believes is required of advisers to meet the “best interests duty” and related obligations. For example, when assessing if an adviser has complied with the best interests duty, one of the factors ASIC will consider is if a “reasonable” advice provider would believe the client is likely to be in a better position if he or she follows the advice. 

Professional Development: SMSF Strategies learning manual examines strategies that can be considered or used within an SMSF. Learn more.

ASIC has already taken its first action against an AFS licensee for alleged breaches of best interests duty and will no doubt pursue more. In its first case, ASIC is seeking declarations of breaches and financial penalties. It has alleged the licensee failed to take reasonable steps to ensure its advisers complied with best interests obligation when providing advice to clients, and that the licensee did not provide appropriate training to its advisers to ensure clients received advice in their best interests.

RG 244 also contains guidance and examples that outline what advisers can do to help ensure they meet their legal obligations, including the best interests duty and related obligations, when providing scaled advice. 

In addition to the Regulatory Guides, ASIC has published a number of information sheets. Two information sheets that are particularly relevant to limited AFS licensees are INFO 205 Advice on Self-Managed Superannuation Funds: Disclosure of Risks; and INFO 206 Advice on Self-Managed Superannuation Funds: Disclosure of Costs. In essence, these indicate factors ASIC is likely to look at on assessing if an adviser has met the conduct and disclosure obligations when providing personal advice to retail clients about SMSFs. 

INFO 205 provides an overview of the risks that ASIC expects to be disclosed when you’re providing advice to retail clients on establishing or switching to an SMSF. These include any potential benefits that may be lost, such as access to statutory compensation for SMSFs, the impact on insurance, and the skills and the time required to run an SMSF. 

INFO 206 focuses on costs that should be disclosed, including the cost-effectiveness of an SMSF, as well as set-up, operating and wind-up fees. Importantly, ASIC states these costs should be disclosed to the client at the time of the advice, usually in the Statement of Advice (SOA), but as a matter of best practice, they should also be provided in person, regardless of whether the advice is or will be included in the SOA. 

Given the importance of complying with these obligations, all new advisers should ensure they understand ASIC’s expectations and put in place measures to meet these expectations. CPA Australia has a range of resources on its website to support members providing financial advice.

A guide to obligations when holding a Limited AFS Licence is also available to public practice certificate holders.

Michael Davison is CPA Australia’s senior policy adviser, superannuation and financial planning


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September 2020
September 2020

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