Calls for uniform rules governing everyone who gives advice on SMSFs has led to the FPA being accused of having it in for accountants. Kristen Paech reports.
The financial planning industry stands accused of attempting to scupper the services provided by accountants to self-managed super funds (SMSFs). The Financial Planning Association of Australia (FPA) wants uniform qualifications and competency standards for anyone who advises on the setting up and running of SMSFs, and has called on the government to amend the legislation accordingly.
According to the government, there are more than 368,000 SMSFs with over 700,000 members and more than $300 billion in assets – one quarter of total superannuation fund assets. Some 85 per cent of new SMSF establishments are completed with the help of tax agents or accountants. The call for a “level playing field” was made in the FPA’s submission to the review of SMSF governance announced by Minister for Superannuation and Corporate Law, Senator Nick Sherry, in February.
Since then, various industry bodies have weighed into the debate over whether an overhaul of SMSF regulation is necessary. The main bone of contention is the exemption provided to accountants, which the FPA wants removed. The exemption allows accountants to provide some financial services in relation to SMSFs, including advice about their establishment, operation, structuring and valuation, without needing to hold an Australian Financial Services Licence (AFSL).
Accountants are strictly forbidden from providing advice relating to the particular assets or investment strategy of the SMSF, which the FPA says prevents them from offering a holistic service to clients.
“You aren’t able to sit down with your clients and say ‘maybe an SMSF is not right for you’,” says Jo-Anne Bloch, chief executive officer of the FPA.
“We think that the prevalence of low balance SMSFs has something to do with the fact that that’s all accountants can offer.”
However, some accountants claim the FPA is throwing stones and living in a glass house.
“Most accountants I’ve met are not interested in giving financial advice; they never were, even before [the Financial Services Reform (FSR) Act] was in place, because it was outside their expertise,” says George Lawrence, a Chartered Accountant based in Bowral, NSW.
“If we accountants want to get nasty, we could go after [planners] for giving taxation advice, because I would imagine not many of them are registered tax agents. There were two or three instances where my clients sued planners because they were giving taxation advice and got it wrong, and the planners gave refunds to my clients of the money [the mistake] cost them.”
HLB Mann Judd offers both accounting and financial planning services to clients. Michael Hutton, head of wealth management, says the financial planning side of the business is brought into the mix when people require retirement planning and pension payment advice.
“We have an SMSF division and a financial planning division and typically the advice to set up the fund would come from either of those two divisions, not other people in the firm, even though the accountants do have that exemption to touch on that subject,” he says.
However, while those who advise on the setting up of SMSFs at HLB Mann Judd generally hold a financial planning qualification, Hutton does not believe there’s a need to scrap the exemption.
“As long as the accountants are sticking to talking about the structure [I don’t see a problem],” he says.
“To me an SMSF is an investment structure; it’s not an investment itself. As long as they are talking about the mechanics of the structure and so forth then I think the accountants are well placed to talk about that.”
Adrian Raftery, a Certified Financial Planner (CFP) and Chartered Accountant, believes wearing both hats affords him an objective view.
Raftery, who is the chief executive officer of AccountantsRus, says while the financial planning industry’s knowledge of tax issues has improved on the back of product rulings and general education, the provision of taxation advice needs to be more heavily scrutinised.
“I do think there is a strong argument that if you’re restricting accountants with super advice, there should also be some sort of restriction with financial planners and tax advice in terms of the policing of that,” he says.
“There are a lot of financial planners who don’t understand the full [tax] implications of some of their strategies.”
Yet having undergone the requirements to become a CFP, he supports calls by the planning industry for standardisation around the provision of advice.
“I do appreciate that it’s a separate profession altogether and as such, if accountants want to give advice they should do the minimum RG146,” Raftery says.
“The legislation is in place already, it’s just a matter of [getting] the accountants to stop being pig-headed, get the accreditation and move on. The smart accountants will look at this as a business opportunity for them, bypassing the financial planner to do a lot more services directly for the client.”
One group that focuses entirely on helping accountants offer financial planning to their clients is Count Financial.
Director and chief operating officer Marianne Perkovic says accountants are ideally placed to make the transition into financial planning.
“Our view has always been that tax and financial planning fundamentally go hand in hand, so if you’re only doing one and not the other it’s difficult to service your clients and help them create wealth,” she says.
“Where the difficulty lies [with SMSFs] is how much of the discussion is only about structures. Most clients need information on more than just the structure to make a decision as to what they want to do. It’s difficult to segment out the structure conversation and then refer to a financial planner for the process. We’re lucky in our group that they can facilitate both. But for an accountant that’s not licensed it would be difficult to end the conversation in structure and have the client understand the breaches relating to going outside of the information that [the accountant] can provide.”
Lawrence argues that if accountants are made to obtain a licence in order to recommend SMSFs, then the financial planning profession will become redundant.
If this happens, he says he will lobby the Institute of Chartered Accountants of Australia (ICA) to become a licence holder, which would allow any member who wants to advise on SMSFs to become a proper authority holder under the institute’s stewardship.
“If worst comes to worst we’ll do it, we’ll become licensed financial planners, and [planners will] disappear overnight,” Lawrence says.
“If that happens, no accountant is going to recommend anybody to a financial planner because they won’t have to, and the clients who don’t really want to see a financial planner because they don’t trust them won’t have to. They’ll stay in-house.”
But Bloch is adamant that the planning industry would not disappear.
“I don’t think there’d be no longer a need for the financial planning profession,” she says.
“There’s a skill shortage at the moment; we’d welcome more financial planners. Accounting and financial planning is a fabulous combination, so we would welcome that and I think our members would as well.”
The premise of the FPA’s argument for removing the exemption is straightforward: it doesn’t matter who is giving advice to whom, so long as minimum competency requirements are met and appropriate licensing is in place.
“Giving advice to people requires a certain skill set and just having a professional qualification of itself isn’t necessarily appropriate unless your professional qualification is as a financial planner,” Bloch says.
“I don’t for a minute suggest that anything untoward has gone on; I don’t think the SMSF market is broken; I don’t think people are being badly served. But I do think people could be better served if given comprehensive advice rather than one-off [advice].”
Senator Sherry has expressed concern where “individuals are subject to aggressive marketing strategies and are persuaded to establish an SMSF without being aware of their role and responsibilities and without appreciating the costs involved”.
While stressing that this concern “is not directed at any particular segment providing advice to the SMSF market”, the FPA is not the only industry body to have singled out accountants.
The Australian Institute of Superannuation Trustees (AIST) submission says advice provided by an accountant regarding the establishment of an SMSF should be brought within the definition of “financial service” under the Corporations Act.
“While accountancy firms and individuals are presumably sufficiently qualified and resourced to provide accountancy and tax services to SMSFs, in our view, the decision to establish an SMSF, in preference to investing in another form of superannuation fund, is properly considered financial advice, and as such should be subject to the same regulatory safeguards as financial advice provided by financial planners, or large superannuation funds,” AIST says.
Likewise, the Association of Superannuation Funds of Australia (ASFA) submission notes: “There exists ample anecdotal evidence that suggests a number of individuals are being convinced to establish an SMSF inappropriately, in that the potential trustee is not fully aware of the costs and responsibilities of running their own fund. In ASFA’s view the current drafting of Corporations Act Regulation 7.1.29 (5) provides a framework where all options in relation to superannuation structures do not need to be canvassed with a client. ASFA believes this may not be in the best long-term interests of the client, as there are in effect no minimum standards in relation to the advice that can be provided under the regulation.”
Another frequent criticism of accountants is that they are recommending the establishment of SMSFs for their own financial benefit.
While the ICA admits that “much has been made of the accountant’s exemption and its practical application”, it disputes the claim that the profession is driven by a desire to generate ongoing fees.
“If you consider that SMSFs have been around for a long time and chartered accountants have been providing advice to their clients on tax and small business issues, it could be argued that there should be even more SMSFs if they were just looking at setting them up to generate that income,” says Hugh Elvy, manager of financial planning and superannuation at the ICA.
Elvy says any review of the exemption should not be undertaken in isolation.
He says there’s a need for the government to examine the range of services and exemptions relating to business planning, tax and the advice that can be provided for superannuation funds.
“We would say that the issue is looking at what are the exempt services and so forth that are involved in the regulations, and not necessarily looking at the accountant exemption on a stand-alone basis,” Elvy says.
“The financial planning industry raises the issue of licensing for recommending SMSFs but there are also issues for members of the account- ing profession who put together certain financial reports, independent reports, investigating reports which potentially may require them to have some licensing as well and that’s an issue which still needs to be clarified.”
Indeed the push for a level playing field is not limited to advice around SMSFs.
Richard Gilbert, chief executive officer of the Investment and Financial Services Association (IFSA), says any advice around superannuation should be subject to the same stringent guidelines.
“People need the protection and regulation of advice if they’re going into superannuation matters,” Gilbert says.
“If it’s strategic advice, if it’s particular advice, it needs to be properly regulated because it comes with various protections.”
He adds: “This is a case of, you can’t be half pregnant; you’re either giving super investment advice or you’re not. Superannuation is the great bulk of everybody’s money, and it needs the highest possible regulation where there’s advice being given. It doesn’t matter whether it’s advice about a particular asset class or a structure; it needs the full force of FSR behind it.”
IFSA has also long argued for Australia to be put on an equal footing with other global markets to attract higher levels of long-term offshore capital inflows.
The Government’s decision to lower the with-holding tax rate on managed funds, announced in the May Budget, is expected to go a long way towards achieving this goal.
The Budget delivered a progressive reduction in the withholding tax rate – tax levied on income from securities owned by non-residents – from 30 per cent to 7.5 per cent from July 1, 2010, making Australia competitive with rates in Singapore, Japan and Hong Kong.
“From the point of view of financial planners, the message the Government sends by addressing this issue indicates their commitment to having a strong financial services centre,” Gilbert says.
“This may not have a dollar value on it, but in the medium to long term it has important implications.”
IFSA is also in favour of clearer distinction between general advice and personal advice.
This is one of the issues being addressed by the Australian Securities and Investments Commission’s (ASIC) retail investor taskforce, set up late last year to examine the risks for retail investors, help address those risks and improve access to quality advice for the wider population.
“What we’re saying is that general advice versus personal advice needs to be distinguished in the law; there needs to be some improvement around that,” Gilbert says.
“Getting everybody giving [general] information out there off the hook, as it were, if they’re just giving information would be a good result for everyone and that could cheapen advice and improve access.”
ASIC’s recent structural overhaul, including the introduction of a stakeholder team devoted to financial advice, is likely to enable the regulator to address such challenges more easily.
According to Tony D’Aloisio, ASIC chairman, the restructure is intended to bring the regulator closer to the market.
Bloch hopes the reforms will help ASIC to identify the root of the problems within financial planning more quickly.
“We’re hoping this much closer interaction with the financial planning community will enable us to collectively define what the problems are, prioritise them and make sure ASIC’s focus is at the high end of the risk parameter where there are some real problems, rather than focus on things that might be a problem but are not as high up in the order of things,” she says.
