SMSFA

A good start, but more needed

JOHN MARONEY is chief executive of the SMSF Association. The federal government has released draft legislation which, if implemented, will establish a new disciplinary system for financial advisers – a recommendation of the financial services royal commission.

Calling for consultation on releasing this announcement, Superannuation, Financial Services and the Digital Economy Minister Senator Jane Hume said: “The draft legislation will strengthen oversight of financial advisers while simplifying the regulatory framework governing the provision of financial advice, helping to reduce complexity and cost for advisers.”

The SMSF Association concurs. The draft legislation implements a recommendation of the Independent Review of the Tax Practitioners Board (TPB) by removing the requirement for tax (financial) advisers to be registered with the TPB. In one fell swoop, it introduces a single disciplinary and registration system for financial advisers, who also provide tax (financial) advice services, by having: • a single point of registration, • a single code of conduct, and • continued oversight with relevant tax experts to be appointed to the Financial Services and Credit

Panel to hear disciplinary matters that involve taxrelated advice.

It’s a reform the association has long been calling for: a practical measure that simplifies the registration and regulatory framework for advisers, removing complexity and red tape, while ensuring appropriate standards and oversight are in place.

But more needs to be done to simplify the system to ensure SMSFs can receive quality advice that is cost-effective. From the association’s perspective, there needs to be a solution to the vexing issue of accountants providing only SMSF advice and still needing to be licensed by the Australian Securities and Investments Commission.

We have previously stated the limited licence regime has failed and there needs to be an alternative way to allow accountants and others to limit their advice around SMSFs without all the licensing red tape they now experience. As we said in our submission to ASIC Consultation Paper 332: “We believe the limited licence regime has failed and should be removed and transitioned to a new consumer-centric framework. This may be in the form of a strategic advice offering.

“We believe SMSF and superannuation advice lends itself to strategic advice. In fact, the limited licence framework was built upon this premise. That is, advice is usually centred around making contributions or starting a superannuation pension. We hope ASIC explores opportunities on how this could be implemented in the advice profession.”

This issue has a long history. Before the introduction of the limited licence regime, an accountants’ exemption existed that authorised a recognised accountant to provide advice in relation to the acquisition and disposal of an interest in an SMSF.

However, it was determined all financial advice should be afforded the same level of regulatory protection, irrespective of who delivers the advice. Under the prior exemption, accountants were able to avoid regulation in dealing with SMSFs, which were not defined to be a financial product.

Therefore, the accountants’ exemption, which was introduced as a temporary measure, was removed to align with the Future of Financial Advice intention to enable consumers to obtain access to more affordable and competent financial advice. So, from 1 July 2016 advisers have had to hold an Australian financial services licence (AFSL) or operate as an authorised representative of the holder of a full or limited AFSL to provide SMSF advice services.

However, the expected take-up under the limited licence regime simply did not happen. In 2015/16, only 228 limited AFSLs were approved, followed by 512 in 2016/17 and 23 in 2017/18, numbers far removed from the government’s intention to have 10,000 accountants licensed to provide a much broader range of financial advice.

The association is anecdotally aware of many advisers currently leaving or choosing not to enter the limited licence regime going forward. Not only is this because they find the framework complex with scoping difficult to achieve, but those limited licence advisers who saw the benefits in the intent of the framework are now being forced out by licensees who do not see it as a profitable venture.

In short, the limited licensing regime has failed and the losers are SMSF trustees who cannot obtain the basic advice they need in a convenient and affordable manner. Currently, trustees wanting basic SMSF advice are either required to spend significant money seeking financial advice from a licensed adviser or must act without advice. This means there are important unmet SMSF advice needs in the market.

The draft legislation to streamline the oversight of advice is an important step forward and will benefit SMSF trustees if it comes to fruition. Removing and transitioning to a new consumer-centric framework should be the next reform item on the agenda.