Presently, there’s a lot of gloom among accountants who have opted to be licensed under the new FOFA rules. The prevailing view is that it will be difficult to pass on the costs associated with being licensed. Further, the new requirement to document superannuation-related advice in statements of advice (SOA) is seen as a drain on productivity and a service which will be resisted by clients.
This article challenges that view and explores ways in which accountants can adapt and prosper in the new environment.
“But my clients won’t pay for that”
At the risk of stirring up a hornet’s nest, it’s a bit presumptuous for accountants to make blanket assertions about what their clients will see fit to pay their primary financial adviser. Particularly when it comes to statutory compliance, there’s a strong body of evidence that clients will gladly pay. Just think about all the rules that have been introduced over the years for which clients have needed to engage their accountant. Some obvious examples include –
- Fringe Benefits Tax
- Goods and Services Tax
- The regular changes to Income Tax
- The still-pending latest round of superannuation changes, which now have to traverse a complex political environment and will likely become even more complex
In summary, if there is one area where Australians are conditioned to accept change, complexity and the need to pay for advice, it’s superannuation.
Keeping SOA production in perspective
Before we get into a discussion of fee models, let’s first consider what will be involved in complying with the new requirements.
Much of the advice accountants provide in this area is relatively similar from client to client, which lends itself to using standard advice templates. A case in point is advising clients on annual contribution levels. Accountants are already proficient in using templates for issues such as transmitting tax returns and assessments, so why not SMSF advice?
Happily, the SOA that accountants prepare will not mimic the door stoppers that financial planners are obliged to produce. Accountants’ SOA will typically be quite short due to being focused on strategy and contribution levels. (Much of the additional volume in planners’ SOA relates to product selection, product information and disclosure of product-based remuneration arrangements, none of which will apply to limited licence accountants.)
Accountants who are licensed with an arm’s length AFSL will likely have these templates provided to them, along with introductory training and ongoing advice coaching in their use. Some AFSLs also provide a para-planning service to prepare the documents.
From coaching a wide range of accountants, I know it’s possible to make their back office processing to become vastly more efficient – another reason to think that documenting advice in an SOA should not be as onerous as first perceived.
A further aspect to consider is whether the SOA can be made more valuable to the clients receiving them. Arguably, there’s not much more you can say other than, “Here's your tax return” with standard compliance work. On the other hand, modelling the difference that various levels of contribution and investment returns will make to a final superannuation balance would be a captivating value add for many clients.
Arresting profit leakage
Let’s consider how accountants have historically been remunerated for providing advice in areas which are now covered by the licensing regime.
It is submitted that aspects of superannuation advice, typically around amounts which can be contributed to super and withdrawn by pension, have often been undervalued by the accountants providing it. I dare say that charging on a time-incurred basis is a recipe for undervaluing this advice. Historically, a three-minute phone conversation with a client about contribution levels may not even be recorded on a time sheet, let alone invoiced. There’s a strong argument to say that the value of this advice is much more significant than this cursory treatment.
The prevailing practice in many firms is to give verbal advice, often for little or no direct fee, without making an adequate file note. Certainly, it’s less likely this value will slip through unacknowledged now that the advice has to be put in writing.
To help overcome this tendency to dispense free advice, accountants should build in an expectation of providing assistance throughout the year. This might be by way of a retainer or bundled into a package which includes the annual compliance documents, meetings, instalment notices and pre-year-end planning. Many clients prefer an arrangement where they are able to ring their accountant and not hear a clock ticking on the other end of the line. It also means that clients won’t receive an invoice for the SOA in isolation.
Opportunities to add genuine value
My purpose with this article is not to downplay accountants’ understandable feelings with respect to the new regime they find themselves in. However, I venture to say that until now, there has been inadequate focus on the opportunities which are now available to those who are licensed.
For far too long, accountants have paid scant attention to their clients’ overall wellbeing. In regard to the SMSFs they administer, accountants have restricted their role to being the scorekeeper, rather than proactively guiding clients to achieve their retirement objectives.
To illustrate, let me touch briefly on two aspects directly related to SMSFs which traditionally have received only cursory attention from accountants.
Licensed accountants are now allowed to assist trustees in determining the appropriate amount of insurance cover that should apply to each beneficiary in the fund. Of all the services that an accountant provides to a client, this potentially could turn out to be the most important.
Respectfully, a significant numbers of accountants currently produce a flimsy, one-page investment policy document which shows desirable allocations for each asset class as being anywhere between “zero to 100 per cent”. In other words, it’s a statutory compliance document that otherwise serves no useful purpose. How much better it would be for accountants to have a significant conversation with every client at least annually about where their super is invested!
Studies consistently show clients want their accountant to be more involved in their financial lives. It is therefore extremely likely that accountants will find their clients very receptive to offers of assistance in both of these areas. An easy way to test the water is to bundle these example services into a “gold package” of annual SMSF services that clients can choose to subscribe to.
There’ s a more positive perspective that licensed accountants should adopt regarding FOFA.
Systemising the procedural aspects and packaging the way clients pay for FOFA-imposed services will meet statutory expectations and help to defuse concerns over recoverability of licensing costs respectively.
Above and beyond this, there is a significant opportunity for accountants to provide additional advice and service in areas many of their clients will likely appreciate.
Scott Charlton, director of coaching, Slipstream Coaching