Speaking on a recent podcast, SMSF Association policy manager Tracey Scotchbrook said the use of accountants’ certificates and the $2.5 million net asset test is a popular method for classifying clients as wholesale or sophisticated investors.
“We’ve seen some interesting activity that’s been reported to us by members where they’ve been approached by people who are not clients or dealt with before seeking to have certificates signed off,” said Ms Scotchbrook.
“This is a concern given the nature of what’s being attested to and the importance of it.”
Whilst the accountant is providing a statement of fact around someone meeting a test, Ms Scotchbrook stressed that accountants still have a professional ethical obligation to make sure that the certificate is correct and appropriate for client circumstances.
“[My] recommendation would be that unless you know the client, then perhaps decline the engagement,” she advised.
She also highlighted the importance of keeping good records so that practitioners can show how the client has met the test where they do agree to sign off on a certificate.
“It’s important that the client understands why they’ve been moved into that sophisticated or wholesale environment. So whether they’re an SMSF client or an individual client, the same process should be applied,” she stated.
“You do have an ethical obligation under APES 110 to ensure that you’re providing a statement that’s true and correct and not false. You also have duties to make sure that what you’re signing or the service that you’re providing is in the best interests of the client.”
Ms Scotchbrook said it’s also important that accountants are across what their professional bodies specifically require or their recommendations regarding accountants’ certificates.
In terms of a financial advice perspective, advisers, she said, need to consider the code of ethics.
“You need to consider whether or not that’s appropriate for that [client’s] circumstances because any time you’re moving a client out of a retail client environment they’re losing their consumer protections,” she said.
“So be really careful to make sure that it is appropriate in the client circumstances that they do understand why.”
Systems and processes, she said, are also really important.
“You need to make sure that if you’re advising both sophisticated and retail clients within your client base, that they’re clearly identified and the way that you engage with those clients is appropriate,” she said.
“Once someone is a retail client, and once a product has been placed as a retail investment then it will forever be in that retail environment. So it does require some careful planning processes [and] procedures to make sure that you’re engaging their clients in the right way.”
In an earlier submission to the Quality of Advice Review, the SMSF Association noted there had been an increase in the use of the wholesale investor regime recently, likely driven by the increasing cost and complexity of providing advice.
“This is of deep concern and should be viewed as a significant red flag. It is a ‘canary in the coal mine’ moment for the advice sector,” the submission warned.
“Advisers should not be incentivised to shift clients away from a regime which contains vital consumer protections.”
Lazy or Cunning? I’d say Cunning. This is just a way of relying on the indemnity insurance of the accountant when things go pear shaped. Hard to credit that qualified people cannot read a tax assessment notice that shows the level of income. Or look at the balance sheet they took during interview and then do a property search/ask for bank statements to prove net wealth. Same goes for banks with lending. They provide the credit, they should be responsible for their own analysis. Not ask the accountant to unwittingly void their PI by providing declarations in relation to credit matters (assuming the firm does not have a credit license)!
Accountants are not necessarily best placed to verify a clients assets. Perhaps advisers should be able to verify an issue wholesale certificates with a tick list to verify their due dil of client position. Not controversial and not hard.
The retail disclosure regime does little to “protect consumers”. All the current interpretation of the Chapter 7 requirements does is wallpaper AFSLs. It is not about the client by any stretch. Even ASIC supports this over emphases on process rather than outcome by reviewing client files back 7 years and making licensees remediate historical breaches. This is regardless of the client’s view on “harm” or the relationship they have with the adviser. I struggle to see how treating a client as retail assists them to make informed decisions about financial recommendations. It is just lawyers grandstanding about their legislative interpretation ability coupled with extremely risk adverse licensees. The poor client wouldn’t have much chance of understanding the current form of advice documentations even though it is laid on in spades.
The “concerns” around wholesale certificates is just another example of the nanny state Australia seems to relish.
The biggest panacea to bad investment placement has been the DDO regime. Whilst still finding its straps, it could potentially be the key to reducing individuals being starry eyed about potential investments. If TMDs were removed from the advised client requirements (more nanny state) and beefed up to apply to all unadvised investment placement, including wholesale, the system would be more transparent and hey, we might even get to the state where the consumer takes responsibility for their decision making.
Do you include the house in these calculations – no clear guidance from ICAANZ
If Australia got rid of the ridiculous Annual Fee Consent forms, that do not exist in any other nation on earth, this would be a complete non issue. This nation is being destroyed by unnecessary time wasting compliance.