Part two: Here are some vital checklist items for accountants who are obtaining their own AFSL – what do you need to have in place to get licensed?
Although meeting the training and education requirements is one of the most obvious steps in the process for getting a licence, many accountants still do not realise there are gaps in their training until they reach the stage of filling out the application.
“I’m told by some of the lawyers preparing the applications that they’re sitting there twiddling their thumbs waiting for the potential responsible manager to finish their training,” says Tony Bates from Bluepoint Consulting.
“Many applications have been sent back or withdrawn and many have been due to lack of evidence of training.”
According to ASIC, there are two key areas of training the responsible manager of the limited AFSL must meet.
“To be a responsible officer of an Australian Financial Services Licence there is another regulatory guide, RG105, [the accountant must meet], with more complex requirements and training,” says Mr Bates.
“In the remaining small window [prior to the deadline], an accountant who does this training could be accepted as a responsible officer, but after 1 July 2016, he or she will effectively be locked out for three years due to the three years’ experience requirement, currently waived.”
There are two options relevant to professional accountants to prove they meet the knowledge requirements of RG105, according to ASIC.
One option is to “hold a university degree in a relevant discipline and complete a relevant short course”. The other is to “hold a relevant industry or product-specific qualification equivalent to a diploma or higher”.
The training requirements under RG146 must also be met by the responsible manager. The RG146 course also needs to be completed by accountants looking to become authorised representatives under a licence, says Mr Bates.
The time required to complete their training will depend on the type of services they want to offer clients.
“It also depends on what experience you’ve had as to what exemptions you might have in the training,” he says.
Compensation and dispute resolution
Another requirement of applying for an AFSL is putting in place adequate compensation and dispute resolution arrangements.
The Financial Ombudsman Service’s lead ombudsman, Dr June Smith, says accountants have an obligation, if they wish to hold their own limited licence, to implement an internal dispute resolution scheme and also become a member of an external dispute resolution scheme.
And while this is mandatory, she says, being a member of an external dispute resolution scheme can also be helpful for accountants.
“They should use it to help build resilience within their business and reduce risk as well. It sends a message to clients that they’re a trusted service and gives clients the confidence that if something goes wrong then the matter will be handled independently,” she says.
“It gives the accountant control to maintain and retain their client’s relationship, and it’s much more effective than a protracted litigation experience where the parties are in an adversarial situation.”
One of the other things accountants need to be looking at, says Dr Smith, is their professional indemnity insurance cover and liability.
“[Accountants] also need to ensure there’s an endorsement on that cover of any compensation that may be payable to a client under the dispute resolution frameworks they have in place,” she warns.
Mr Lindsay says the accounting practice should already have some form of professional indemnity cover, so extending it to cover the advice they are providing should not result in a significant increase in cost.
Other checks for the responsible manager
The responsible manager of the limited licence will also need to provide a series of documents to ASIC to demonstrate they are of “good frame and character”.
Mr Wilkinson says the responsible manager will need to undergo police checks and prove “they have the experience or level of expertise to provide the type of service they want to provide”.
ASIC says the responsible manager of the limited licence will need to “provide a statement of personal information, copies of qualifications and professional accreditation certificates, and copies of a national criminal history check and a bankruptcy check no more than 12 months old”. It also warns accountants that criminal history and bankruptcy checks can take time to obtain.
Mr Thompson says ASIC may also check to see if the accountant was an adviser previously and if there is anything that needs to be reviewed as a result of that.
“They will look to see if there was client activity that perhaps wasn’t so good or that they were involved in,” he explained.
Preparing processes for the licence
Ensuring the practice has the necessary processes in place to comply is an important aspect of preparing for the limited licence, but one that is often overlooked.
Dr Smith says there are disclosure documents required under law that include statements of advice and financial services guides.
Depending on the type of licence they apply for, Dr Smith says, accountants may also need to provide the client with access to product disclosure guides if they are giving advice on financial products.
It is also vital, she says, that practitioners ensure they take adequate records of their dealings with clients.
“The client file should represent the journey the client and the accountant go on together,” she says.
This means making regular records on the client’s file to ensure the recommendations given to clients and instructions given by the client to the practitioner about the advice provided are fully recorded.
“Accurate file noting and accurate recording of discussions is very important,” she says.
For general conversations with clients, file notes and financial services guides will generally be enough, although they may also need to provide clients with information disclaimers, says Mr Thompson.
“If the advice becomes personal then they’re going to need to complete a statement of advice, however. I believe this is the most time-consuming aspect of providing advice,” he says.
“[Most accountants] don’t have the experience, the inclination or the actual resources to find the time to be able to do that – a comprehensive statement of advice can potentially take 10 to 15 hours to produce.”
In most cases, according to Guy Thompson of Rise Standards, if a new client wants to establish a new SMSF, the accountant will need to produce a statement of advice.
If the accounting firm does not already have the systems to be able to produce these documents in an efficient manner, there are services that can assist them in complying with these requirements.
“[These services] provide the accountant with a template and checklist to ensure they have collected the right information in order to draft statements of advice,” says Wilkinson Superannuation’s director Mark Wilkinson.
According to Mr Wilkinson, the transition to these new procedures will probably represent the greatest change for accountants under the new licensing regime.
“There’s been a lot of advice in the past that’s been provided in a verbal manner and it’s not been written down, and in many cases it hasn’t been charged for, so it’s going to be a significant change in their practices with the way advice is going to have to be delivered,” he explains.
“If they don’t make these changes then they won’t be in compliance with their licence requirements and they’ll be subject to penalties by ASIC.”
Capstone Financial Planning managing director Grant O’Riley says it is also important accountants remember to provide clients with documents such as privacy statements and adviser profiles.
“When I talk to accountants about data collection forms they usually have something they use from an accounting practice perspective, but it’s nowhere near as complete as what it needs to be,” says Mr O’Riley.
The APES 230 guide on financial planning services, provided by the Accounting Professional and Ethical Standards Board, provides a good outline of its obligations.
“If you comply with that standard, then we anticipate you’ll be able to demonstrate you complied with your legal obligations under the law,” he says.
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