ASAP Advice chief executive Jim Hennington says while a survey conducted last year with 300 SMSF accountants revealed that the proportion of accountants who are licensed could increase from 34 per cent to over 50 per cent by 31 December, there has since been a significant change in sentiment.
Mr Hennington said discussions with more than 100 accounting firms have challenged the findings from the qualitative research the firm conducted in December.
“A lot has changed in four months. Now we’re in the peak tax-planning season, the implications of licensing are really being felt,” he said.
“If you have a license, then ASIC insists you deliver SMSF tax advice through your license, whereas unlicensed accountants still enjoy the tax exemption. When accountants learn this, there is often disbelief.”
This announcement, which was made in information sheet 216, has been a “significant deterrent to accountants considering a license”, Mr Hennington said.
He said the information sheet makes it clear that for financial products that are covered by their license, any tax advice that is given to clients must be covered by the license.
“Even if the accountant has set up a separate entity for their license, we have been advised that they cannot make use of the tax advice exemption they enjoyed prior to having a license.
“Normally, this means they must conduct a client fact-find and prepare a written statement of advice, thereby losing the practical benefit of their tax advice exemptions.”
Mr Hennington has little doubt this will have a major dampening effect on licensing growth beyond current levels.
“We expect that many licensed accountants will not renew, and may indeed seek to revoke their license in order to regain the efficiency and protection offered by the remaining exemptions to the AFS licensing regime set out in Corporations Act Regulation 7.1.29,” he said.
In addition to this, accountants are also hearing about negative experiences from their peers who are licensed, ranging from bigger than expected loss of billable hours in managing the license to an inability to charge clients for a service they previously received for free.
"With disincentives to holding an AFS license continuing to mount, smaller accounting firms risk being squeezed out of the SMSF advice industry," he said.
“The key issue is purely a commercial one. The vast majority of SMSF accountants have a handful of SMSF clients and can’t figure out how to generate a return on the large investment needed to obtain and maintain a license,”Mr Hennington said.
He said there may still be opportunities for unlicensed accountants to provide value by counselling clients on their choice of financial adviser.
“By recommending an adviser who can limit the scope of their advice to supplement, not duplicate the accountant’s service, unlicensed accountants can continue giving tax advice under the exemption and most importantly retain control of the client relationship.”