Category: General Articles

As the accounting exemption expiry hangs over the industry like Damocles sword it appears that planners are listening to the regulators and responding in significant numbers while accountants continue to bury their heads in the sand. This article written by Miranda Brownlee on Thursday, 10 December 2015 appeared in the SMSF Adviser magazine.

One industry lawyer has warned accountants of the danger of complacency within the accounting industry, with the number of registered tax financial advisers fast approaching 17,000.

Speaking to SMSF Adviser, DBA Lawyers director Daniel Butler said the latest figures from the Tax Practitioners Board (TPB) indicate that at the end of September 2015, there were 16,743 registered tax (financial) advisers.

Mr Butler said this figure has grown from 16,329 registered tax (financial) advisers as of 30 June 2015.

The deadline for notifying the TPB of the intention to become a registered tax (financial) adviser is 31 December 2015.

According to the Tax Practitioners Board website, AFS licensees and authorised representatives who notify the TPB by this date will not need to pay an application fee. Individuals will not need to meet education and experience requirements and partnerships and companies will not need to meet the sufficient number requirement.

Registration as a tax (financial) adviser means an adviser will “have tax as an arrow in their quiver because it’s another angle they can compete on”, Mr Butler said.

“It certainly does position a financial planner much better with their client because they’re legally able to talk tax.”

While a financial planner may still face obstacles, in comparison with an accountant, in providing more sophisticated tax advice for businesses and individuals that hold complex trust structures, when it comes to giving tax advice to individuals, financial advisers can now be much more strongly positioned.

“A financial planner now has the capacity to talk tax; what they cannot do today is actually lodge a return, but it’s probably not going to be that hard for a financial planner to bring tax in-house, to then become a true competitor with the accountant,” Mr Butler said.

While both accountants and advisers have made “a move to the middle”, there are still only 78 approved limited AFS licence applications, based on the latest ASIC figures, he said.

It remains unclear how many accountants have become authorised representatives since there is no real data on this. However, on the figures alone, it appears financial advisers have been quicker in the uptake to gain a competitive strategic positioning, according to Mr Butler.

“A lot of traditional accountants are also suffering another onslaught, and that’s disruption,” he said.

“Even the ATO now does a lot more work on E-Tax so that it’s easier for an individual to lodge their tax return through the ATO and bypass a tax agent.”

This disruption is likely to take the traditional accountant who lodges individual tax returns out of the equation.

“There won’t be a great need for people to be lodging tax returns; the financial advisers can give rounded advice on investments and lifestyle decisions, and they can also give this tax advice,” he said.

Fwgs continues to conduct RG146 training sessions and consult on licensing solutions around the country. Not one of the participants or their firms intend to apply for a license because of the cost, the complexity and the direct client liability.

If you would like to discuss the most appropriate solution for your firm please contact [email protected] or call u

The SMSF Adviser magazine continues to be an excellent resource for accountants seeking information on how to manage the accountant’s exemption expiry. The following piece was written by Alicia Pevely, a financial services lawyer from Sophie Grace Compliance and Legal, on Friday 30th October.

Given ASIC’s recent activity in the superannuation space, it is important for advisers who provide advice in relation to SMSFs to be aware of the breaches most common in the industry.

Common – and often basic – breaches include:

• Inappropriate assessment and discussion of the risks of switching to an SMSF from an industry or retail super fund;
• Inadequate assessment of the client’s best interests and meeting the duties in s961B of the Corporations Act;
• Lack of assessment of the time, costs and skill of the client and their ability to operate an SMSF;
• Inadequate disclosure in SOAs; and
• Misleading and deceptive advertising

One of ASIC’s recent focus points has been in relation to advertising in the SMSF space, with firms such as Omniwealth and Dixon Advisory Group facing penalties from ASIC. The advertising of your services, particularly in relation to the benefits of SMSFs, must be carefully considered.

Advisers must ensure they provide a balanced approach in their advertising. This means assessing the returns, benefits and risks of investing in an SMSF and giving these thought when developing your advertising. For instance, any comparisons in advertising, particularly where the comparison relates to the costs and performance of SMSFs compared to industry and retail super funds, should be carefully reviewed and include relevant qualifications. A disclaimer at the bottom of the ad will not ordinarily suffice. Advisers must ensure that those viewing the ad are aware of any qualifications to the comparison upon first view. A simple way of ensuring SMSF advertising is compliant is to have it reviewed prior to release by your external compliance consultant or legal counsel.

Breaches relating to the provision of advice to clients often relate to the discharge of the best interests duty, particularly in relation to conducting a reasonable investigation into the financial products that might achieve the goals of the client. The requirement to conduct a reasonable investigation is included in s961B(2)(e)(i) and is scalable. This means that less extensive enquiries are required where the advice is for a simple purpose. Where a client is looking to redirect their superannuation to an SMSF from their existing fund the adviser cannot simply conduct a reasonable investigation into the SMSF to determine whether it meets the needs of the client. The adviser must also conduct a reasonable investigation into the existing fund. Advisers need to ensure they obtain full details from the client in relation to all existing investments and conduct investigations into the existing investments to determine whether redirecting their superannuation to an SMSF would in fact achieve the goals of the client.

Obtaining a limited AFSL

Before applying for a limited AFSL, accountants should be very clear on the authorisations they require to operate their business. A significant issue for accountants looking to apply for the limited AFSL is the scope of services that can be provided under this type of licence and whether this is appropriate for the business model, both now and in the future. The limited AFSL is just that – limited.

Accountants will not have the ability to provide personal advice or apply for a financial product on behalf of their client under the limited AFSL. When considering their application, accountants should think about their business model and determine the type of services they want to provide to their existing clients and the opportunities to provide additional services in the future.

For example, the limited AFSL will allow accountants to establish an SMSF or acquire an interest in an SMSF, but they will not be able to provide that client with advice regarding the products the SMSF will invest in.

RG146

Accountants obtaining the limited AFSL need the ability to show RG146 compliance in order to satisfy ASIC’s knowledge requirements contained in RG105. Not only do applicants need to demonstrate RG146 compliance at the time of applying for the limited AFSL, ongoing training must be conducted to ensure their RG146 compliance remains up to date.

For a small accounting practice, the ability to conduct ongoing training (in addition to what is already completed to maintain their accounting certification) can be expensive and time consuming. RG146 compliance is a requirement for all staff of the practice who provide advice to retail clients and is a condition on the AFSL. Limited AFSL holders need to conduct training for their staff to ensure they maintain RG146 compliance and also need to keep detailed records of the training completed. Training must be relevant to the class of products on the AFSL and should deal with the provision of advice.

Compliance issues post-July 2016

When limited AFSL holders opt to provide financial product advice about a class of products, they are authorised to provide strategic advice on a particular class of products. Those without an AFSL cannot provide advice at all. For limited AFSL holders, this means that they can provide factual information and general advice only. This can be problematic as it prevents SMSF advisers from making recommendations about specific financial products and whether those particular financial products are suitable to the needs of a client.

One of the major compliance issues we see for limited AFSL holders is developing procedures which monitor the provision of advice across their practice to ensure no personal advice is provided. The information provided to clients in a face-to-face meeting and any written advice or correspondence must all fall within the limits of factual information and general advice. Limited AFSL holders need to develop robust compliance procedures around their provision of SMSF advice to ensure they do not provide advice outside the scope of their authorisation.

For those without a limited AFSL and who are not authorised under any AFSL, compliance measures will need to be established which ensure that no class of product advice or financial product advice is provided. Given the many years of the exemption applying to advice about the establishment of SMSFs there is a risk that accountants will continue to provide the same level of advice unlicensed.

The reality of the long transition period to phase out the accountant’s exemption and the low numbers of accountants becoming licensed makes this issue quite significant. If you haven’t considered your position after 1 July 2016 to advise on SMSFs, now is the time to start.

James Barger-Bos, CEO of Finance Wise Global Securities Pty Ltd, has over 27 years of financial services experience. Fwgs is offering accountants a simple clear and cost-effective solution to the accounting exemption. By becoming authorised representatives they will have an intuitive web based software solution, a complete range of training options (including an RG146 face to face course) and, for the first fifty accountants, a share of the net profit.

In the first article of the series James went through a real life example of advice being completed today which would not be appropriate when the accountants’ exemption expires. James then reviewed the impact that the recent APRA changes are having on lending policy and the ever shrinking number of SMSF lenders.

In this article James reviews his experience in obtaining funding for an SMSF using the Bank of Queensland.

Firstly, why the BoQ? I have been asking myself the same question since 28 August when I signed the purchase contract. As a broker, we earn both an upfront and a trail from our lending clients.  I was willing to ignore this benefit and use a lender not on my panel because of an appealing advertised rate.

Mistake 1! They advertised a 3 year fixed rate that included a limited time interest rate discount to 3.99%. Two weeks after the submission I was told that I no longer qualified. OK the rate is still 4.29% which is excellent and I have a finance deadline so I will push on.

Every document that was required on the SMSF checklist had been submitted to the Adelaide branch, to their Head Office and subsequently to a branch in WA. I was then required to submit information as a personal borrower as my wife and I are required to guarantee the transaction personally. We knew this and I wondered why I was never provided the additional checklist upfront. I constantly asked, “is there any other information?”.  I was told “no”.

As an aside for accountants dealing with the accounting exemption, how many SMSF will you establish if the government does ban personal guarantees for SMSF loans? You may answer “some” but, without this security, will there be any lenders willing to pursue this risk? My guess: NO.

So, after 13 business days with the lender, the application was finally submitted to their credit team. This is very taxing on the nerves; when mortgage brokers are used to dealing directly with the credit managers on scenarios sometimes weeks before the submission.

Today is business day 24 and I am still waiting for the final Letter of Offer. I have received one which requested six additional items all of which were provided to the lender but not the credit team and when I asked for these conditions to be removed I was told that wasn’t possible. This is not an unconditional approval, by the way, it’s a document where I agree to pay fees for the next steps to commence.

Of most interest is the loan amount. I am being forced to take out more money which I DO NOT need. BoQ has a peculiar liquidity ratio so the more you borrow the more liquid funds must be in evidence at the time of the submission. I have to pay a split loan fee and an additional monthly fee before I payout the variable portion of the loan that I DO NOT need after settlement is completed.

I would not mind some of this grief if it was communicated in reasonable time, or I was getting paid, or I was at least confident of the outcome. I fear this tale will not have a happy ending..

So, with a combination of ASIC changes (RG146), APRA changes (making loans more expensive and reducing competition) and Government changes (deleting personal guarantees and exposing the lenders to significant risks) one might ask whether it is worthwhile for the suburban accountant to advise in this space after the exemption expires.

If you would like to discuss how the constantly changing banking environment would affect your capacity to provide advice once the exemption expires then please feel free to ask us by emailing [email protected].

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