‘Execution only’ approach with SMSFs high-risk for accountants
An industry lawyer has warned the unlicensed accounting firms recently contacted by ASIC that justifying the provision of services without a licence on the basis that it was ‘execution only’ is a risky move that could land them in more trouble.
Last week, ASIC distributed letters to unlicensed accounting firms after analysing their advertising and corporate websites, requesting further details about their services and demanding a response explaining their SMSF services.
In these letters ASIC requested accountants provide a written statement within 14 days outlining the details of SMSF-related services they provide, and where they feel no need to be licensed as a basis for this view.
Speaking to SMSF Adviser, The Fold Legal solicitor director Jaime Lumsden Kelly said for accounting firms which plan to respond by stating that all the SMSF services provided are execution only or on the instruction of the client, ASIC is unlikely to accept that as an answer.
“I expect ASIC would then come back and ask a series of questions along the lines of: How do you know that the client has been appropriately advised? How are they informed of the risks? Do you have an arrangement with someone else that will provide the advice? If you don’t have an arrangement with somebody else that provides advice, a financial planner on a referral basis, how do you make sure the client understands the significance of the decision that they’re making?”
They may also ask about the types of clients the firm is providing these services to, said Ms Lumsden Kelly.
“Obviously, ASIC will be very concerned if somebody is out there setting up SMSFs for say Mum and Dad type clients, and these clients haven’t had any advice and may not properly understand how the SMSF works or what it means for them,” she said.
“I don’t think just saying it’s an execution only will be sufficient.”
There are a number of accounting firms, she said, that believe they’re operating on an execution only basis when they actually aren’t.
“If you tell the client that it’s an execution only basis and that you can’t advise them and the client then says: ‘Well, what would you do?’ Well, as soon as you say: ‘I would definitely set one up’, then that’s advice,” she explained.
“The accountant might not think it is, and I’ve certainly had conversations with people who don’t think it is, but from a legal perspective, it absolutely 100 per cent is, because it’s an opinion about a financial product, being an SMSF.”
While this may be difficult to prove since it’s not written down, this doesn’t mean ASIC isn’t going to ask, she warned.
“They will ask a series of questions and they will push until they get the information that they want. The reason being, that if they get a short answer, they can’t actually assess whether the person that they’re talking to fully understands their obligations,” she said.
“So they’ll then ask a more comprehensive series of questions to receive a more comprehensive answer, so that they can actually make some assessment about whether they think this person knows what they’re doing or not, and if they decide not, then they will probably categorise them as high-risk and initiate further investigations.”