Licensed accountants can give unfettered advice on SMSFs, but when recommending a client switch from one product to another, the accountant is necessarily advising on the existing product as well. 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.
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.
ASIC’s guidance on providing SMSF advice even specifically notes that advice on any life insurance policies held in the client’s existing superannuation accounts must be provided before recommending a client etablish an SMSF. For accountants who can’t give this advice, the only choice is to refer the client to a planner or life adviser – and practically speaking, no client wants to incur costs on a second piece of advice just to get the first piece of advice.
Other things accountants cannot do include:
Advising a client to close a superannuation account
Accountants can only advise on the current superannuation arrangements to the extent necessary to advise on setting up an SMSF. This means they cannot tell the client to close the old account, as this is not strictly necessary to recommend an SMSF, nor can they answer the question, ‘Should I close my old superannuation account?’, with a firm ‘yes’ or ‘no’ answer. Accountants are trapped by the law into answers such as, ‘If there is no life insurance held within a superannuation account, and no account balance, generally it would be best to close the account’, as this is general class of product advice on superannuation.
The line between class of product advice and product-specific advice is very fine and easily crossed, particularly where clients are pressuring accountants to commit to a position.
Advising a client to put specific money into superannuation
Similarly, accountants can advise on non-SMSF superannuation to the extent necessary to advise on contributions strategies. This allows an accountant to devise a contributions strategy for a retail or industry superannuation fund account held by a client. However, there is no authority to advise on specific securities or deposit accounts or other products to the extent necessary to formulate a contributions strategy.
What this means is that accountants cannot formulate contributions strategies except salary sacrifice or moving contributions between funds. This is because advising a client to take money out of one financial product and into superannuation is ‘product switching’ advice, and requires the accountant to advise on the specific financial product the client is exiting. Because accountants have no specific product advice authorisations besides SMSFs, they cannot advise clients to redeem securities or close a term deposit or take money out of a bank account to put the funds into a superannuation contribution instead.
This means it will be difficult for accountants to advise clients on lump sum contributions, because that money will nearly always be sitting in another financial product (even if it is just a bank account). Leaving clients to decide for themselves whether to pull money out of financial products and put it into superannuation is also dangerous, since there will usually be exit costs and tax consequences that clients need advice on.
Apply for or acquire financial products on behalf of the client
As accountants have no ‘dealing’ authorisations on their limited licence apart from establishing SMSFs, an accountant cannot do any of the following on behalf of the client:
– open a bank account;
– make applications for shares;
– rollover superannuation funds; or
– open a non-SMSF pension account.
While it is clear enough that clients cannot completely outsource any of the above activities to their accountants, it is more difficult to identify ‘arranging’, which is also a financial service. ASIC considers that someone is ‘arranging’ a financial product if they play a key role in the transaction, such that it is unlikely to proceed without them, and if they add value. Given the nature of the accountant-client relationship, there are many circumstances where this could be true.
Practical solutions
Accountants can tackle advice questions from clients by using fact sheets, which can be supplied to clients to help equip them to make decisions without advice, eg, when to close a superannuation account could be addressed with a fact sheet.
Accountants should also position themselves as a trusted adviser who brings in specialist experts as appropriate, eg, sourcing a life adviser to advise on life insurance in superannuation. Savvy accountants will establish relationships with other advisers and control those relationships by inviting the adviser into the accountant’s meeting with the client, rather than instructing the client to call the other adviser.
Accountants may even choose to contract with these advisers on behalf of their clients to add value and ensure optimum levels of client service while reducing the risk of client poaching.
Jaime Lumsden Kelly, solicitor, The Fold Legal
