The ATO recently issued a statement about accountants referring clients to robo advice businesses. It has since removed the statement from its website likely because it crossed into an area of advice regulation beyond its remit. Despite the overstep it’s an area accountants need to be mindful in and as a robo-adviser, we understand there is some confusion on the topic.
The statement confirmed that accountants can refer clients to robo advisers for advice just as they can refer clients to a traditional financial adviser. However, accountants who do not operate under an Australian Financial Services Licence (AFSL) who refer clients to robo advisers need to be careful not to provide the advice or guide clients through the process.
This is consistent with how we’ve been working with accountants who refer clients to us and reiterates that robo advice now gives accountants more power to ensure their clients get the best advice.
The advice gap
A recent ASIC report showed 75 per cent of advice provided by the banks and AMP did not comply with the best interest duty. The problems with vertical integration of investment products is well known by accountants and the many investment advice scandals has made them think twice before referring clients to a financial planner.
When the 2016 ASIC repeal of the accountants exemption advice came into effect many accountants were placed in a difficult situation. Accountants not operating under an AFSL faced serious upheaval for how they could:
a) Discuss financial products with their clients including the appropriateness of an SMSF, and
b) Where they can refer clients to ensure they get advice that suits their personal situation.
For an accountant, referring a client off to a financial adviser can be an unknown quantity. This has created what we call ‘the advice gap’ paradox. Accountants cannot provide financial product advice but they’re unsure how to help their clients find good advice, particularly on the right investment strategy.
The ATO also encouraged accountants to consider the quality of the tool before referring clients. This is important for accountants to have an understanding of the type of investment advice and financial products provided by robo-advice providers and traditional financial planners
Digital technology fills the gap
Accountants are arguably one of the greatest beneficiaries of technologies streamlining business functions that benefit their bottom line. The SMSF administration software firms and major accounting software firms have led the transformation.
How robo advice works
Robo-advice can help accountants refer clients to a licensed investment advice provider without losing their relationship or risking their client receiving unsuitable advice. The entire advice, investment and reporting process is online. There’s no need to refer a client to an external provider with limited visibility or to stray across the investment advice line.
Robo advisers assess if a client should be investing or paying off debt and provide a personalised Statement of Advice (SOA). Clients get an investment plan that reflects their financial goals, investment horizon, risk capacity and cash-flow needs, which is updated regularly.
It negates the pressure for accountants to be AFS licensed as the robo adviser provides the advice. At the same time accountants have full visibility over the investment strategy and financial statements so they can provide tax, structuring and compliance advice. It’s also lower risk than a client selecting direct shares or investing into a single asset managed fund.
Chris Brycki, chief executive, Stockspot