Guy Thompson, managing director of Adelaide-based financial planners Rise Standards, does not see the mandatory Australian Financial Services (AFS) licensing of public accountants as encroaching on the hallowed turf of his company and other financial planning firms. Rather, he sees it as a golden opportunity, and has developed a lucrative business model that complements the new licensing regime.
Under the current regime, a so-called “accountants’ exemption” permits accountants to give advice on the establishment of self-managed superannuation funds (SMSFs) without needing to obtain an Australian financial services (AFS) licence. But from July 1, 2016, these accountants will be required to obtain a limited AFS licence to continue providing such advice.
Shrinking revenue from traditional compliance work means that few accountants, if any, can afford to exit the SMSF advice space. Best Treasury estimates suggest that around 10,000 individual accountants will need to apply for some sort of AFS licence to continue servicing their SMSF clients after June 30, 2016.
Admittedly, with nearly two years left to run before the cut-off, there’s been no rush to choose between the two immediate options. However, given that it’s by far the cheaper alternative, 100 individual accountants have already elected to become authorised representatives of an existing AFSL holder. Meanwhile, fewer than half that number (40) have chosen to spend $20,000-plus annually operating their own limited AFS licence.
As a general rule of thumb, accounting firms with four or fewer partners – the vast majority – typically don’t have the critical mass to justify operating a limited AFS licence. So having taken that option off the table, the next question they’re confronted with is what kind of authorised representation they should be looking for.
While institutionally owned dealer groups have been successful in bringing accountants on board as authorised representatives, Thompson expects many of these relationships to quickly end in tears. He thinks that accountants who were wooed into becoming authorised representatives of institutionally-owned dealer groups will soon see why they need to work with financial planners that have no affiliations with banks or financial institutions.
Providing what they want
The authorised representative model being offered to accountants by Rise Standards has no such affiliations. Much of the model is based on providing everything that, according to Thompson, most institutionally-owned dealer groups either don’t offer, or claim to offer but fail to deliver. Interestingly, while Thompson’s model was first conceived back in 2010, interest levels from accountants only started gathering serious momentum about a year ago, following revelations that the accountants’ exemption would finally be axed.
Thompson further refined this model after interviewing 98 practices to find out a) what advice they were offering and b) what they wanted to do once the exemption was
gone. “As well as concluding that few, if any, accountants wanted to give up doing SMSF work, we also discovered that smaller accounting firms were the ones needing all the help,” he says.
Thompson’s research proved convincingly that accountants wanted to continue talking with clients about setting up an SMSF, choosing which assets to hold within that structure, and the tax implications. However, he says it also became clear that most accountants were often drawn into advising on things well beyond what the exemption allowed.
“Given that most accountants didn’t understand the parameters of the exemption, they were attracted to a model where the grey line disappeared and allowed them to talk about anything,” Thompson says. “It would also address the miscommunication often experienced between financial planner and accountant when dealing with a mutual client.”
Rapid expansion
Four years after initially offering his authorised representative model, Thompson now has 18 accounting practices operating under the firm’s wing; and in the past three months, the firm has written the same amount of business as it did in the previous year.
Thompson has another 180 accounting firms in the pipeline, with an expected conversion rate of 60 per cent. He also expects many of the accounting firms dissatisfied with their dealer group experience to find their way to his door through word of mouth, well after the exemption expires.
Assuming Thompson can achieve a 60 per cent conversion rate, he will have 126 accountants under his wing, and this will force the business to hire another 20 staff.
While this could happen within the next 12 to 18 months, he expects the AFS licensing of accountants to present big opportunities for financial advisers for up to five years.
“If everything goes to plan, the business will have grown by 500 per cent within the next three years,” Thompson says. “For every six to 10 accountants that come on board, the company will need to hire one additional financial adviser and administrator.”
Flexibility and customisation
From day one of developing the company’s authorised representative model, Thompson sought participation from accountants who were interested in coming on board, in order to ensure the right buy-in.
That meant addressing two fundamental questions, he says. First, what is the role of an authorised representative? And secondly, what support did the accountants require?
Thompson says the two reoccurring themes resonating from accountants were: the need for flexibility; and assistance with the “admin and compliance” obligations that they had not dealt with before. As a case in point, he says if accountants want to continue handling only SMSF work, then they would only be required to complete four parts of the Regulatory Guide 146 certification that relate directly to this outcome.
“By comparison, some institutionally-owned dealer groups require accountants to complete all of RG 146, which is a little self-defeating and can take them off track,” Thompson says.
He says it was equally important to recognise that accountants lack the time, interest and experience needed to compile a lot of pieces in the puzzle leading up to the completion of a statement of advice (SoA).
That’s why Thompson’s authorised representative model takes responsibility for all supporting documentation, such as preparing and implementing an SoA, which is something that institutionally-owned dealer groups typically won’t do, he says.
Thompson says accountants that are only provided with templates risk being out of their depth right from the get-go.
“We realised from the beginning that most institutionally-owned dealer groups just haven’t done enough homework to really understand accountants,” he says. “Accountants also didn’t want to give their clients the perception they were aligned to an institutionally-owned dealer group, for fear of being caught up in their inflexible processes or becoming a conduit to product flogging.”
To further differentiate the company from the “one-size-fits-all” approach that many institutionally-owned dealer groups favour, Thompson says it was important for every accountant’s authorised representative relationship to be tailored to their own unique requirements. For example, accountants can choose to either present advice on their own, have a financial planner do it for them, or choose to present jointly.
Building the trust
Thompson says it’s important to give accountants sufficient time – on average six months – to develop trust and rapport with the firm before expecting them to refer clients to the financial planning side of the business.
Thompson is not surprised that some institutionally-owned dealer groups have stopped promoting their services to accountants, having not received the referrals they were hoping for.
“We want referrals to flow naturally, because there’s no pressure,” Thompson says. “Our model is based on 10-to-15-year relationships, whereas most institutionally-owned dealer groups want revenue now, which is the opposite of how accountants want to operate.”
