First things first: Choosing your path
There are significant pros, as well as significant cons, to both a limited and a full AFSL. What have the experts got to say about your options?
Licensing options are spread across a spectrum ranging from the most basic version of the limited licence – which generally allows the practitioner to advise on establishing or winding up an SMSF – to a full AFSL, which enables the practitioner to advise on virtually any financial product.
If you are authorised under a limited licence, you can give advice about SMSFs, a client’s existing superannuation holdings in certain circumstances, and class of product advice.
It’s important to note that the authorisation to give class of product advice does not include authorisation to recommend a specific product within that class.
Becoming authorised under a limited AFSL is the closest an accountant can get to continuing as normal with their SMSF clients. If you’re not looking to the licensing regime as an opportunity for business expansion, but you’re also not keen to outsource your SMSF client base via referral relationship, a limited licence is likely your best option.
For some though, like business broker John Birt, principal of Radar Results, the limited licence is seen as a "band-aid solution" for accountants.
If accountants want to provide quality financial advice, they should be committed fully to the industry standards and processes, he believes.
"Would you be happy to have a part-time surgeon give you a triple heart bypass? You just can't do it part-time," he says.
"I can see what the government wanted to try and achieve by offering this band-aid solution, but I cannot see it working effectively. You're either fully in or fully out. That's how mistakes are made when you do something half-heartedly."
Similarly, Tony Bates of Bluepoint Consulting believes a limited AFSL, under which the practitioner is confined to speaking on three or four areas, could be positively unappealing.
“[It] adds a whole lot of new compliance, new costs, new risks, new supervision for doing what they have always been able to do,” he argues.
“I can understand their frustration because they are not really going to be able to pass these costs and liabilities to their clients.”
Several lawyers, including The Fold Legal’s Jaime Lumsden Kelly, have highlighted the potential “nightmare” accountants could face if operating under a limited AFSL when it comes to providing basic services they have always offered.
For one, under a limited AFSL, accountants recommending their client establish an SMSF may not be able to fully discuss the product the client is potentially leaving, such as another superannuation fund.
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, Ms Lumsden Kelly said.
“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.”
The trusted adviser
Accountants have long held the mantle of trusted adviser. Clients typically have faith in their accountant and have a natural expectation to be able to talk to them about their superannuation, investments and insurance – making the prospect of a full AFSL appealing from a business perspective.
“This change in the licensing laws is not the threat that many see it as. It’s actually the catalyst to take advantage of the opportunity to provide more services to their clients and lock them into their practice,” says Mr Bates.
While many accounting firms might struggle to obtain their own full AFSL, Count chief executive David Lane also believes a full authorisation generally makes more sense for accountants.
“You need to be able to provide financial advice and the full suite of financial advice, not just establishing SMSFs – that, to me, is the firm of the future,” he says.
A full AFSL presents an opportunity to both continue capitalising on the growth in the SMSF sector, but also leveraging the position of trusted adviser within a new realm of financial advice.
As the regulatory landscape shifts for accountants providing SMSF advice, traditional client bases are also evolving. An accountant continuing to rely on traditional sources of revenue may find their business drying up, the Institute of Public Accountants’ chief executive Andrew Conway has told SMSF Adviser on several occasions.
“Increasingly, clients want to discuss their wealth beyond the basics, and professionals should equip themselves with the tools to provide these services,” Mr Conway said.
“So whether people like it or not, the reality is that the market is shifting. Our advice […] is we are sort of at the dawn of a new era and [we] encourage people to think more broadly about the directions of their practice,” Mr Conway says.
Financial advice offerings could potentially add value to an accountancy practice when it comes time to sell, Mr Conway suggests, adding there could potentially be a declining market for practices that are purely compliance based.
“There is no question that […] providing a diversified service to the client base including tax and financial advisory is a very strong proposition for those who are wishing to sell their practice,” he says.
“Building financial advice into a practice does almost in all cases increase the value of the practice.”