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Accountants - Limited AFSL for Financial Advice

While any person can apply for the new limited AFS licence, recognised accountants who apply between 1 July 2013 and 30 June 2016 can take advantage of transitional arrangements. Under the transitional arrangements, different organisational competence arrangements will apply where the responsible managers of the applicant are recognised accountants.

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Accountants – Limited AFSL for Financial Advice

Currently accountants are able to provide advice on SMSFs under the exemption provided by Regulation 7.1.29A of the Corporations Regulations 2001.  From the 1st July 2016, as a result of the Future of Financial Advice (FoFA) reforms, this exemption will be removed, meaning that accountants will be unable to provide SMSF advice (or any other financial product advice) without holding an Australian Financial Services Licence (AFSL) in their own right or being an authorised representative of an AFSL holder.

Accountants and other advisers who obtain the limited AFSL will be authorised to provide financial advice on SMSFs and class of product advice in relation to selected other financial products. Accountants will be able to make recommendations in relation to a client’s existing superannuation funds to the extent needed when making a recommendation to establish an SMSF or when providing advice to clients on contribution and pensions. Accountants will also be able to assist a client to establish or wind up a SMSF.

Types of advice you can provide

Examples of the types of advice accountants will be able to provide under the authorisations listed above include:

  • advice on the sorts of life insurance cover (for example, life cover, total and permanent disability cover, trauma cover and income protection) that would be appropriate for a client in light of their relevant circumstances (for example, their existing level of cover) and whether they should hold the cover directly or through a superannuation fund;
  • advice on which simple managed investment scheme would be appropriate for and in the best interests of a client – for example, cash funds versus equity funds;
  • advice on whether shares are an appropriate investment option given a client’s relevant circumstances including their tolerance for risk and whether alternative classes of product might be more suitable; and
  • advice on the types of basic deposit products that would be appropriate for and in the best interests of a client saving for a home deposit (for example, term deposits, online savings accounts or first home saver accounts).

Without an AFSL, accountants will be allowed to present the pros and cons of various investment strategies to client, as long as is it purely factual and not product specific. Accountants must ensure they have robust compliance policies and procedures to ensure the information does not fall within the definition of financial product advice.

The transitional arrangements to obtain a limited AFSL are available to accountants who hold a public practice certificate from one of the professional accounting bodies (CPA Australia, the Institute of Chartered Accountants in Australia and the Institute of Public Accountants) until 1 July 2016. These arrangements remove the need for ASIC to consider whether each individual accountant meets the experience requirements of Regulatory Guide 105 to provide the kinds of advice listed above, making it easier for them to obtain a limited AFSL.  After 1 July 2016, accountants seeking to obtain an AFSL will be required to satisfy the same experience requirements as anyone else when applying for a limited AFSL. ASIC generally takes 3-4 months to assess an application and have provided a soft deadline of 1 March 2016 as the date all limited AFSL application should be lodged to take advantage of the transitional arrangements.

What does this mean in practical terms?

At the moment many accountants provide product advice and specific advice on the basis that they are unaware they are breaching the Corporations Act or they simply don’t care as it is the way they have always done business. The accountant, planner, insurance adviser who feels they can offer a complete advisory service is doing their client a great disservice with this assumption. This legislation is an attempt to safeguard the retail investor and rectify this situation.

The provision of general versus specific advice when tacked on to the end of a tax planning session is a very grey area. It would be difficult to prove compliance with corporations law should questions be raised regarding the provision of general versus specific advice. This is because accountants know so much personal information about their clients. Accountants would be wise not to take the risk and end up in the complaints forum which would be costly in both time and money.

Training Requirements

Accountants will need to meet ASIC’s existing training requirements under Regulatory Guide 105 to hold an AFSL and provide financial advice. This will ensure only accountants with appropriate skills and knowledge are authorised to provide financial advice under the limited AFSL. Accountants that take advantage of the transitional requirements only need to provide ASIC will evidence of their qualifications including:

  • A Certificate of Public Practice issued by the Chartered Accountants Australia and New Zealand; or
  • A Public Practice Certificate issued by CPA Australia Ltd or the Institute of Public Accountants; and
  • RG146 qualifications in all products which you are applying to provide advice in.

Consideration will be given as to whether other professional qualifications could also form part of the transitional arrangements.

Ongoing Requirements

As accountants will be operating within the AFSL regime, they will be subject to all the other licensing, conduct and advice requirements to which financial advice providers are subject, including FOFA measures such as the best interests duty and membership with an External Dispute Resolution Scheme (EDRS). This ensures there is a robust regulatory framework around the provision of advice and important consumer protections are in place. It also ensures that all advice providers are operating on a level playing field.

In order to minimise the additional regulatory costs of operating within the AFSL regime, holders of the limited AFSL will be able to lodge a compliance certificate to ASIC each year.  In contrast, full AFSL holders are required to undergo an annual external audit of their financial statements and internal controls to ensure compliance with the Corporations Act. The reduced audit requirement would be available to advisers who hold a limited AFSL and do not handle any client money in connection with the provision of financial advice.

Limited AFSL holders will also need to hold PI insurance which covers the provision of financial advice in accordance with Regulatory Guide 126. ASIC has committed to reviewing the minimum PI insurance requirements in its regulatory guides in light of the limited advice accountants would generally be providing. ASIC would need to undertake consultation and actuarial analysis based on established claims history for class of product advice before making a decision on the minimum requirements it will implement for limited AFSL holders. This will include consultation with accountants on how any modifications to the professional indemnity insurance requirements interact with the existing professional indemnity insurance held by accountants, therefore we cannot expect to see any changes for at least 12 months.

The disclosure requirements contained in the Corporations Act will also apply, including the obligation to provide clients with a Financial Services Guide (FSG), a Statement of Advice (SOA) and a Fee Disclosure Statement (FDS) (where there is an ongoing fee arrangement with the client).

If you would like further information or assistance, please contact Sophie Grace directly.