Are accountants qualified to advise on SMSF’s?

One of the key reforms announced by the Government as part of its Future of Financial Advice (FoFA) package will allow accountants to provide greater levels of financial advice, particularly with respect to self-managed super funds (SMSF’s).

Presently, accountants are not required to hold an Australian Financial Services License (AFSL) but are permitted to provide ‘limited’ advice on SMSF’s. This situation is known as the accountant’s exemption. Under the exemption, accountants can advise on the establishment and closure of SMSF’s but cannot (unless they hold an AFSL) provide investment or strategy advice, even if such advice is tax-related (it should also be noted that financial planners can also recommend SMSF’s be established and wound up).

SMSF’s are classified as financial products and financial product advice can only be given where the adviser holds an AFSL. Most financial planners are authorised to provide advice under an AFSL. The result? We end up with a situation where a financial planner often becomes the primary adviser on a financial product that an accountant recommended be set up in the first place.

With this in mind, it’s clear to see that the current accountant’s exemption could be detrimental to the adviser/client relationship.

If your accountant recommended that you established an SMSF, presumably they have done so because they believe it to be in your best interests (i.e. they have a reasonable basis). To make this determination, your accountant would therefore need to have at least a reasonable understanding of SMSF’s and the benefits they would provide to you. Assuming this reasonable knowledge and understanding, your accountant may therefore be sufficiently equipped to advise on your SMSF on an ongoing basis, but is precluded from doing so because they don’t hold an AFSL. The accountant is then forced to bring in a new adviser with which you have no existing relationship.

Fortunately, the Government too have recognised the limitations of the current accountant’s exemption and have announced plans to scrap it and replace it with a licensing regime. A new (optional) license will be introduced for accountants (and financial planners not currently operating under an AFSL).

Basically, the new license will be a restricted version of the existing AFSL as issued by the Australian Securities and Investments Commission (ASIC). Like existing AFSL’s, the new license will be captured under the consumer protection provisions of the Corporations Act. This simply means advice given by the license-holder will be subject to the best interest duty requirements (another FoFA reform) recently passed by the Senate.

The new license will allow accountants to provide ‘class of product advice’ on basic deposit products, general and life insurance, securities and simple managed investment schemes. The license will not, however, allow specific product recommendations – an unrestricted AFSL will still be required for advice of this nature.

According to the Minister for Financial Services and Superannuation, Bill Shorten, the new license is designed to enable holders to provide more strategic and low-cost forms of financial advice. And with regard to SMSF’s, accountants holding the new license will be able to provide strategic advice with regard to contributions, pensions and consolidation of other superannuation monies. This is a significant increase to the scope of advice afforded to accountants under the existing accountant’s exemption.

A three year transition period (1 July 2013 – 1 July 2016) will apply to the new licensing regime to make it easier for accountants to gain recognition for their existing qualifications. However, regardless of existing qualifications, accountants wishing to apply for the new license will still need to meet ASIC’s training requirements to hold a license and provide financial advice.

The recently-announced licensing regime seems to be far more sensible than the ill-considered accountant’s exemption. It appears it will improve access to financial advice for consumers, especially those with SMSF’s, but by what degree remains to be seen. The take-up rate by accountants will determine this.

Regardless, one issue remains. Self-managed superannuation is a highly complex area and often a specialist SMSF adviser (whether it be an accountant, lawyer, financial planner or combination of advisers) is needed to maximise the strategic opportunities available. The new licensing regime will not assist in this regard.

It should also be noted that financial planners providing advice under existing (unrestricted) AFSL’s are not required to have a minimum level of SMSF knowledge as a condition of the license.

Therefore, if you have an SMSF, it is important that you ensure your adviser is suitably qualified and experienced in providing SMSF advice. A good starting point is to contact professional associations such as the SMSF Professionals’ Association of Australia (SPAA). SPAA require advisers to have a specialist level of SMSF knowledge to be eligible for membership.