Dispute resolution process, compliance framework, PI insurance, audit certificates, responsible managers, ASIC and legal requirements– all part of the landscape for those accountants who wish to obtain their own limited AFSL with the removal of the accountant’s exemption.
Figures from $15,000to $30,000 are bandied about in the financial services media about the costs of obtaining your own limited (not full) AFSL. The Federal Government believed that 10,000 accountants would apply for a limited AFSL during the three-year transitional period from July 1, 2013, to June 30, 2016. ASIC advised recently that only 27 limited AFSLs had been issued.
I believe the Government got it wrong. I also note both the Institute of Chartered Accountants and Certified Practising Accountants are busily preparing limited AFSL kits enabling accountants to apply for their own licence – I believe they may have got it wrong as well.
I am a CPA, having built a fairly large accounting firm in Noosa from scratch 19 years ago. In 2009 my accounting firm was listed by Business Review Weekly as one of the top 100 accounting firms in Australia by revenue and one of the top 10 fastest growing.
Key dynamics
I speak to many accountants all round Australia in my role as a Director of GPS Wealth. My job at GPS Wealth is to assist forward thinking accounting firms to successfully embrace financial services as a key service offering to their clients. The key dynamics of accounting firms are quickly changing via cloud computing, offshore processing of back office work and the demand from clients for the accountant to be the trusted Business Adviser referring them where required to service providers for their insurance, lending and planning needs (whether in-house or on a Joint Venture basis).
Let me perhaps qualify my statement above. For an accounting firm with eight partners or more there may well be valid reasons for setting up their own limited or full AFSL. For firms less than this size I fail to see any valid reasons that outweigh the time, cost, resources and potential liability exposure to both set up your own limited AFSL and continue to operate same.
Accountants basically have four alternatives between now and June 30, 2016, under the transitional measures –
1. Do nothing (in which case they cannot provide any advice at all in the SMSF space after July 2016).
2. Obtain and maintain their own limited AFSL.
3. Obtain and maintain their own full AFSL.
4. Obtain a limited, strategic or full Authority through an existing AFSL.
Cease to exist?
If the accountant chooses option 1 then I believe they will cease to exist in any meaningful way beyond the next five to seven years. Given nearly one million Australians hold assets within a SMSF, clients want the accountant to be able to recommend and discuss the pros and cons of considering the opportunities within a SMSF. If they are not able to discuss SMSF’s beyond July 1, 2016, it’s akin to the accounting firm saying I can prepare your business financials but unfortunately I am unable to complete and lodge your tax returns as I don’t have the applicable licence.
Options 2 and 3 have considerable set up and ongoing costs. A recent media report stated: “Self-licensing will likely cost accountants between $20,000 and $34,000, the AMP research showed, compared to $15,000 to $20,000 to become an authorised representative.”
As well as the monetary cost there is also the potential liability if anything goes wrong. There is also considerable time and people resources required to maintain and run the licence. I believe those resources are far better focused on further building the accounting firms profits and capital value. An eight-partner firm and beyond may have the resources to devote to running their own limited or full AFSL – but even then they need to ask themselves – do we really have the time and expertise to do this and what is the lost opportunity cost?
For most accounting firms a far better option is to maintain an authority under an existing AFSL. That means that all the back office licensing maintenance and operations from compliance, audits, responsible mangers, policies and procedures along with PI insurance is maintained by the existing AFSL. This enables the accounting firm to focus on what they do best – building a successful and profitable accounting firm whilst embracing financial services as a key service offering.
Resistance is … understandable
I understand the reluctance of accounting firms to join an existing AFSL which is owned or controlled by a bank, insurance company or product provider. As an accountant we pride ourselves on our independence. But there are some independent AFSL’s who have no institutional ownership who may be able to provide a limited or strategic authority or full authority to enable the accountant to satisfy their licensing requirements post June 30, 2016.
Some key factors the accountant needs to consider when deciding which AFSL to partner with are:
• Who are the owners of the AFSL? Is it privately owned or owned by a bank, insurance company or product provider?
• What experience do the key management team of the AFSL have in working with accountants?
• Do they have the client engagement tools, referral tools and resources to enable me to provide financial services to my clients either on a referral basis or joint venture basis?
• What costs am I up for. A limited or strategic authority should cost between $5,000 to $10,000 annually. If there is no cost at all you need to look a lot more closer – is there a hidden catch?
• What templates are provided to enable me to provide advice in relation to SMSF? Do they provide the tools, training and processes to enable me to add strategic advice in the SMSF area?
• Do they offer an RG 146 course to enable me to satisfy the educational requirements with the removal of the accountant’s exemption? What training do they offer on an ongoing basis?
• Will I be forced to recommend certain products? (You need an AFSL with a clear focus on strategy not product.)
• Do they understand what I do as an accountant and what the key drivers of my accounting firm are?
• Am I aligned with the culture, people and processes of the AFSL?
• Has the AFSL or any of its advisers attracted any negative publicity? Remember if you have heard about any negative press then there is a good chance your accounting clients have also – perception can be everything.
• How do the advisers of the AFSL charge? As an accountant I want an AFSL that provides a pricing model that is completely transparent to clients with all fees quoted upfront.
I personally believe it is impossible for the accountant to be both the accountant and the financial adviser. They are separate skill sets, each demanding continual training, knowledge and expertise. An accountant and adviser working together solving client issues is a very powerful team which in most cases will generate fantastic outcomes for clients that an accountant or adviser working separately may never achieve for the client.
Wonderful opportunity
The removal of the accountant’s exemption and the new licensing regime provides a wonderful opportunity for accounting firms to offer an added level of strategic advice in relation to SMSF’s. By working with a skilled adviser either on a referral basis or joint venture it also provides a tremendous opportunity to build a new service offering to the accounting firm’s clients. In essence it helps the accounting firm create the “one stop shop”. It will further cement the accountant’s role as the trusted business adviser.
For forward thinking accountants it’s not a question of whether I should get licensed it’s simply a question of I need to get licensed and which option is the best fit for my accounting firm given my size and available resources.
I also advise all accounting firms to start the licensing process now. We are already approaching the half way mark of the three-year transitional period.
Beware any AFSL offering an endless supply of “freebies”. There is an old saying: “If it sounds too good to be true then then there is probably a catch.”
