Speaking to SMSF Adviser, Jaime Lumsden Kelly, solicitor director at the Fold Legal, noted that while licensed accountants can give “unfettered” advice on SMSFs, when recommending a client switch from one product to another, the accountant is necessarily advising on the existing product as well.
“Because of this, accountants are allowed to advise on non-SMSF superannuation products when advising on an SMSF, but only to the extent necessary to assess if the SMSF is in the best interests of the client,” she said.
“What accountants don’t have is an authorisation to advise on specific life insurance products, not even in the context of advising on SMSFs.
“In considering the current superannuation product held by a client, an accountant must also consider any life insurance policies held within that account. However, because accountants can’t give product-specific life insurance advice, they simply cannot do this lawfully.”
Ms Lumsden Kelly notes that ASIC’s guidance on providing SMSF advice even states specifically that advice on any life insurance policies held in the client’s existing superannuation accounts must be provided before recommending a client etablish an SMSF.
“For accountants who can’t give this advice, the only choice is to refer the client to a planner or life adviser – and practically speaking, no client wants to incur costs on a second piece of advice just to get the first piece of advice.”
Ms Lumsden Kelly also reminded accountants they can only advise on the current superannuation arrangements to the extent necessary to advise on setting up an SMSF.
This means they cannot tell the client to close the old account since this is not strictly necessary to recommend an SMSF, nor can they answer the question ‘Should I close my old superannuation account?’ with a firm yes or no answer.
“Accountants are trapped by the law into answers such as ‘If there is no life insurance held within a superannuation account, and no account balance, generally it would be best to close the account’, as this is general class of product advice on superannuation,” Ms Lumsden Kelly said.
“The line between class of product advice and product-specific advice is very fine and easily crossed, particularly where clients are pressuring accountants to commit to a position,” she said.
Accountants can advise on non-SMSF superannuation to the extent necessary to advise on contributions strategies, Ms Lumsden Kelly noted.
“This allows an accountant to devise a contributions strategy for a retail or industry superannuation fund account held by a client. However, there is no authority to advise on specific securities or deposit accounts or other products to the extent necessary to formulate a contributions strategy,” she said.
“What this means is that accountants cannot formulate contributions strategies except salary sacrifice or moving contributions between funds. This is because advising a client to take money out of one financial product and into superannuation is ‘product switching’ advice, and requires the accountant to advise on the specific financial product the client is exiting.
“Because accountants have no specific product advice authorisations besides SMSFs, they cannot advise clients to redeem securities or close a term deposit or take money out of a bank account to put the funds into a superannuation contribution instead,” she said.
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KCA, I have seen a number of accountants from a small sample size providing what I believe is inadequate advice (about 25%). I have also seen a number of accountants providing excellent advice (about 30%). The remainder are somewhere in between in my opinion.
There are many clients for whom an SMSF is an excellent vehicle but when profits are at stake it is human nature for some people to take things too far, which I believe some accountants have done.
This is comparable to the investment schemes offering high commissions upfront which were oversold by both financial planners and accountants and is also reflected in property developers now targeting SMSF’s.
My principal argument, which I did not state well in hindsight is that if you are providing good advice then licensing should not be an issue. If you are giving bad advice then licensing provides protection for the consumer, which is currently lacking. It is therefore a good thing.
Scott have you got any empirical evidence that a lot of accountants recommend their clients into SMSF to grow their fees and have a expensive holiday paid for by their clients.
In reply to THE accountant
They were accountants who were used personally in a previous role. They were both good on compliance but I left them because the poor investment advice was done purely so they could receive commissions and also one of them overcharged me. My accountancy is now done by a family member.
I can give lots of examples of bad advice from accountants (lets set up a SMSF with $30,000 being my recent favourite with one particular local accountant making this recommendation to two clients of mine in the past 12 months using the rationale that if they put their money into cash it is safe). I was going to report this person to ASIC but that process is too hard from previous experience.
Some accountants are good, some are bad. Some financial advisers are good, some are bad. Licencing simply places everyone on a level playing field and provides consumer protection which surely can’t be a bad thing.
[quote]For the record I am a financial planner with an accounting qualification and I am yet to meet an accountant I would take investment advice from. My experience is however limited to two accountants who recommended investments which went into liqudation with these recommendations being purely tax driven with no thought given about the chance of a return being generated.[/quote]Maybe these were the sort of accountants that referred work to you. I (accountant)spend most of my time steering my clients away from terrible investments and dodgy financial planners. To each their own.
In relation to Gary’s previous comments let’s get honest and admit a lot of accountants recommend SMSF’s to increase their fees and a lot are doing it for the right reasons.
Licencing is a necessary step to provide protection for those that are dealing with accountants who are doing it purely to afford a holiday at this time of the year. If you are giving advice on superannuation you should be licenced, fairly simple. This increases the cost of providing advice but if you prefer you can choose not to provide advice in this area, it is a business decision.
For the record I am a financial planner with an accounting qualification and I am yet to meet an accountant I would take investment advice from. My experience is however limited to two accountants who recommended investments which went into liqudation with these recommendations being purely tax driven with no thought given about the chance of a return being generated.
It’s not just the product replacement issues. Few accountants realise that planners don’t write Statements of Advice, not directly anyway. Either a para planner or Xplan/coin (which is like BGL or Class but for planning needs) does most of the hard work.
Therefore in the future accountants with a limited licence will be writing SOA’s themselves whilst planners with a full licence will continue to present, but not write, the actual documents.
Non licenced accountants do have options but the key is technology. Licenced accountants can get SOA’s written easily and efficientlybut again technology is the solution.
For both a safe compliance framework is essential. Mistakes by slipping into full licence territory are both very easy and potentially disastrous if ASIC gets a sniff.
[quote name=”Michael Rowe”]At this moment it is very confusing as some lawyers are suggesting that salary sacrifice advice (in a SMSF or in any other fund) is also about increasing an superannuation interest of a member, hence a financial product and no advice can be provided by an accountant without a AFSL.[/quote]
It always has been…
Any mention of[quote name=”Michael Rowe”]At this moment it is very confusing as some lawyers are suggesting that salary sacrifice advice (in a SMSF or in any other fund) is also about increasing an superannuation interest of a member, hence a financial product and no advice can be provided by an accountant without a AFSL.[/quote]
Always has been, they is how the legislation is written.
basically any super discussion is financial advice. Investment option, contributions, changing funds, insurance etc etc
[quote name=”GARRY ALFORD”]I am a single ant ts into non specific non kick back solutions fo…[/quote]
wHAT ABOUT SWITCHING, CLOSING THEIR CURRENT FUND, INSURANCE.
tHE LEGAL RIGHTS AND OBLIGATIONS OF AN smsf trustee.
coMPLAINTS MECHANISM?
do YOU DISCUSS THESE WITH YOUR CLIENTS.
bUT anyway welcome to the paperwork jungle…
ANd thanks for the cheap shot insults about kickbacks. Lets not start on Gunns, forestry etc… Pushed my more accountants then FPs.
Are you still telling client good tax advice is to buy tools, clothing new car etc etc.. Depreciating assets..
I have the same education as you, and even another masters so stop acting like a spoilt brat.
I am a single operator with about 15 SMSF doing it for 20 yrs . I have to spend minimum of $1000 and get a piece of paper and find a Licence thingamabob – I am not flogging financial products – a fully qualified accountant without this unconstitutional bit of paper can’t tell his client the same thing he has been telling them for years – open a bank account try some shares – really RG146 should be renamed RG Bargee. I am getting sick od Govermnent’s introducing Emron type of legislation and applying it retroactively to professionals who have directed clients into non specific non kick back solutions for their investments, THANKS HEAPS now I will have to add $200 plus to each client just to pay for the course that will allow me to advised what I have been advising properly always for the last 20-30 yrs. Seriously I have a Masters in Taxation & they are sending me back to Kindergarten ……
With almost 6 months to go, the government should have considered legislative changes to allow accountants to discuss SMSF establishment and rollovers with clients under a limited licence.
The additional compliance costs means the looser is the client.
i would rogue that the “simple” solution is for accountants to form an alliance with a specialist planner, start their own planning firm or merge with one.
The life and planning landscape is changing as well, and there is strong evidence that the regulator and the government want a tighter ship.
Strategic alliances between planners and accountants can only be beneficial to the client, no doubling up on cost, the clients best interest is being looked after.
one could rogue that having an alliance, rather than an in house arrangement might go a long way to improving checks and balances.
[quote name=”Michael Rowe”]At this moment it is very confusing as some lawyers are suggesting that salary sacrifice advice (in a SMSF or in any other fund) is also about increasing an superannuation interest of a member, hence a financial product and no advice can be provided by an accountant without a AFSL.[/quote]
Salary sacrifice is a contributions strategy for superannuation, however accountants with a limited licence will be able to advise on contributions strategies for SMSFs and other super products. There are limitations, but the authorisation is broad enough to encompass salary sacrifice. The problems arise when transferring money out of one financial product to put it into super.
[quote name=”the patriot”]begs the question, then, why allow limited licencing?
If it means the accounting client is going to end up confused and lacking a recommendation, the accountant needs to be fully licensed or not provide any SMSF or superannuation advice at all. Saves them time and allows referral to a qualified and trusted adviser who can provide the answer….if the accounting firm owns the financial planning firm, they still make money.[/quote]
Accounting firms that own a financial planning firm can either get a full AFSL or refer to their in-house financial planner as they prefer. Accountants in that boat really don’t have much to worry about.
It’s accountants who don’t have that option, who need to establish friendly relations with an existing financial planner or who need to get a licence, who have real concerns about how best to manage this issue.
begs the question, then, why allow limited licencing?
If it means the accounting client is going to end up confused and lacking a recommendation, the accountant needs to be fully licensed or not provide any SMSF or superannuation advice at all. Saves them time and allows referral to a qualified and trusted adviser who can provide the answer….if the accounting firm owns the financial planning firm, they still make money.
At this moment it is very confusing as some lawyers are suggesting that salary sacrifice advice (in a SMSF or in any other fund) is also about increasing an superannuation interest of a member, hence a financial product and no advice can be provided by an accountant without a AFSL.