The insurance market has hardened following the royal commission, according to head of licensing at The Fold Legal, Sonia Cruz.
This poses a serious hurdle for new AFSL applicants, who must prove they have arrangements in place for compensating clients for losses suffered as a result of a breach by the licensee or its representatives.
Further, accountants and advisers can find themselves facing headaches at the point of annual renewal.
This situation could apply to those holding a limited licence as well as a full AFSL, according to Ms Cruz.
“The PI insurance obligation applies to all AFS licensees dealing with retail clients so yes this does apply to advisers providing SMSF advice and licensees operating under a limited AFS licence,” she told SMSF Adviser.
Practical solutions
For Ms Cruz, there are steps an adviser or accountant can take to mitigate their risks:
– Start looking for insurance early.
– Find a broker who specialises in PI insurance.
– Know your PI insurance needs, because not all services require PI insurance.
– In your licence application, be clear about the business and services you will be providing.
editor@smsfadviseronline.com.au
A farce for sure. SMSF in full pension received 2 co-contributions from the government. For the sake of less than $2K this fund was obligated to get an actuary certificate at a cost of $176 (8.8% of the value of the accumulation segment – but a fair fee). To roll the money out or to withdraw, these clients were facing the prospect of obtaining licensed advice. And to stop their pension consolidated balances and then restart was going to cost even more! Only licensed advisors can provide this type of advice. The cost of that advice was going to be in excess of the value of the money involved. Now that is a farce! Ideally the money should have gone to a different fund – with low fees. But . . . . they only operated an SMSF. There was no choice offered when the payment was made. MAYBE the government can consider offering an option of where to pay the co-contribution? Or should there be a “de-minimus rule” for situations like this. Where an unlicensed person can outline/suggest options available, without risk of breaking the law, so the Trustees can make a fee-free decision OR obtain professional advice. Surely for low-value amounts information and assistance can be provided without further eroding the fund’s bank account!
You should get a more cost effective actuary. One of the BGL/Class partners does them for $89 now.
Am I right that “financial advice” that isn’t “product advice” doesn’t actually need a license?
Whatever it is accountants have been doing, ASIC seem ok with it. Their 2018 review of accountant compliance with changes to SMSF advice licensing gave the sector a clean bill of health!
Maybe they don’t understand what goes on out there….!!
https://asic.gov.au/about-asic/news-centre/find-a-media-release/2018-releases/18-127mr-asic-reviews-accountant-compliance-with-changes-to-smsf-advice-licensing/
Here is another “step an adviser or accountant can take to mitigate their risks:”
– Don’t get an AFSL
ASIC aren’t policing product advice if done by accountants with no AFSL and where the client is a confident SMSF who doesn’t want to pay for licensed advice. So long as you’re not spruiking commission paying investments or making pushy recommendations then you seem to be off the hook.
They seem blind to the fact you get ongoing accounting fees from some products and not others.
Correct. If you are licensed you must adhere to the “best interests duty” and can’t do any execution only setups even if the client is “Self” directed. Unfortunately ASIC don’t understand what the meaning of “Self” is within a SMSF
Any accountant who gets a license is treading into dangerous waters. As a financial planner I know of many accountants who have decided it is much easier to simply not be licensed and work on the basis ASIC won’t touch them and make everything execution only and to date it has worked for them. It’s illegal but each to their own.
One word description of the current financial advice industry = circus.