For accountants working in the superannuation space, 1 July 2016 represents the beginning of a brave new day for the profession. No longer will accountants be able to rely on the accountants’ exemption allowing them to recommend setting up or winding up a self-managed superannuation fund without a financial services licence. ASIC’s concerns over the increase of low balance SMSFs, failure to properly consider insurance and potential high risk limited recourse borrowing arrangements suggest that many do not provide their clients with a full understanding of the risks and responsibilities of commencing a SMSF.
Announced as part of the FOFA changes in June 2012, accountants were provided with a transitional regulatory framework to allow recognised accountants to advise on a limited basis. This limited licence was touted as the future of the industry, allowing accountants the ‘best of both worlds’. The licence would allow certain accountants to provide financial advice on SMSFs and class of product advice on a range of products including superannuation, securities and certain insurances. However, only three months out from the end of this transitional period, ASIC are reporting few have taken up this option, with less than 90 licences being approved to date.
With limited numbers taking this option, it would suggest that accountants may be looking elsewhere for a solution. Partnerships, joint ventures or referral arrangements with a party who is operating under a full AFSL are becoming increasingly popular, allowing accountants to continue to operate under the provision of tax advice, with the full financial advice being provided by the partner. Other accountants are rejecting the restrictions of a limited licence and are exploring instead becoming an authorised representative and providing full financial advice to their clients. For these people – time is also fast running out. ASIC has repeatedly warned that any applications not submitted by 31 March may ensure accountants do not have time to become fully compliant. Training, software, insurance and compliance all require a heavy time investment and for many this has simply been left too late.
Others are simply hoping that under the guise of tax advice, it will be ‘business as usual’. Some have suggested that the provision of execution only arrangements will allow you to continue to establish SMSFs if requested directly by a client. However, these should also be used with care. ASIC has again confirmed they will be investigating large numbers of execution only arrangements to determine if these are being used to rort the system.
Fundamentally – it is important to remember it is the best interest of the client that was intended to be protected as part of these regulatory changes. Time will tell if higher costs, greater compliance and fewer options will provide the support that is needed.
RSM Financial Services Australia Pty Ltd (AFSL 238 282)