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.