Parameters for accountants

The accounting profession is still looking for a practical alternative to the limited licensing regime that is clearly not working. While this process continues, LightYear Docs director and founder Grant Abbott offers a reminder of the SMSF advice accountants can provide without having to be licensed.

Australia has over 600,000 SMSFs with close to $900 billion in assets and represents a large market for specialist SMSF advice. Until 2016, accountants had a specific exemption when it came to advising on SMSFs and provided extensive advice to small and medium business clients on these types of funds. Classic strategies, such as acquiring business real property in an SMSF and leasing it back to a member’s business, as well as transferring proceeds from the sale of a business, courtesy of non-concessional contribution concessions, provided a great advice avenue plus significant tax benefits for clients.

Apart from tax strategies, there were great incentives for accountants and tax agents to offer SMSF services, including advice and administration. With each SMSF annual administration fee costing upwards of $2000, having 100 or more SMSFs was great recurring fee income. And with the Association of Superannuation Funds of Australia predicting the amount of money in SMSFs by 2040 to top $3 trillion, servicing these funds should be considered a must for accountants.

The limited licensing regime

In 2016, the accountant’s SMSF advice exemption was diluted and a limited licensing regime was introduced. In short, accountants were able to apply for a ‘limited’ Australian financial services licence (AFSL) tailored for providing specific financial services related to SMSFs. This licensing approach is detailed in Superannuation Industry (Supervision) regulations 7.8.12A and 7.8.14B.

Key aspects of the limited AFSL for accountants include:

• Scope of services: The limited licence allows for advising on SMSFs, a client’s existing superannuation holdings (under certain conditions) and providing ‘class-ofproduct advice’.

• Class-of-product advice: This refers to advice about a category of products without recommending a specific product. For instance, an accountant with a limited AFSL could advise on mining shares or equities listed on the ASX 100 Index, but could not recommend a specific company’s stock.

• Authorised products: A limited AFSL may be authorised to offer ‘class-ofproduct advice’ on a range of financial products, including:

o superannuation,

o securities,

o simple managed investment schemes,

o general insurance products,

o life risk insurance products, and

o bank deposit products.

The downside of limited AFSLs

Licensing accountants to provide SMSF advice sounded in principle to be a great idea until the roadblocks started to appear. Some such inconveniences included:

• Increased compliance and regulatory burden: Obtaining and maintaining an AFSL involves adhering to strict regulatory requirements. Accountants must comply with ongoing professional development, auditing and reporting requirements, which can be time-consuming and complex. This includes preparing a lengthy statement of advice for even the most menial recommendation, such as making a tax-deductible contribution up to a member’s concessional contributions cap.

• Higher costs: The process of obtaining an AFSL, or paying a licence holder to be an authorised representative, along with the ongoing costs associated with compliance, can be significant. These costs include licensing fees, training expenses to meet compliance requirements, insurance and potentially hiring additional staff or consultants to manage compliance-related tasks.

• Liability and risk exposure: Providing SMSF advice under an AFSL increases the accountant’s exposure to legal and financial risks. This includes the risk of litigation if the advice is deemed inappropriate or if it leads to financial loss for the client. The responsibility for providing accurate, compliant advice can be a significant burden.

• Limitation on the scope of advice: Even with a limited AFSL, there are restrictions on the range of advice an accountant can provide. This limitation can sometimes hinder the ability to offer comprehensive financial planning services to clients as it may not cover all areas of financial advice.

• Resource allocation: The focus on compliance and managing the requirements of an AFSL can divert resources away from other areas of an accountant’s practice. Time and resources spent on licensing issues could otherwise be used for client service, business development or other value-added services.

Currently there are only just over 800 accountants holding a limited licence in a pool of over 600,000 funds, which means one of three things for those SMSFs not being looked after by one of these practitioners:

i. SMSF administration-only services are being provided for clients running their own super fund with no strategic advice,

ii. financial planners are teaming up with accountants to make strategic recommendations for SMSF trustees under the planner’s AFSL, and

iii. accountants are providing advice without a licence.

ASIC SMSF exemption for accountants

INFO 216 shows there is a vibrant landscape of opportunity for accountants to provide valuable SMSF advice without the need to hold a limited AFSL. One of the crucial takeaways from INFO 216 is the range of services accountants can provide without needing to be licensed. These exemptions are not loopholes, but well-defined areas where professional accountants can operate confidently and legally.

Key exempt services and rules for accountants include:

i. Investment strategy recommendations: Accountants can make recommendations to the trustee of an SMSF about investment strategies. This is a vital area where accountants can apply their financial acumen to guide trustees in aligning their investment strategies with the fund’s objectives. Importantly, an investment strategy is not a financial product. This extends to asset allocation, but not advising on specific stocks.

ii. Taxation advice: Informing clients about the taxation consequences of different SMSF actions, like commencing a pension or making a contribution, is within the accountant’s purview. This service is especially valuable given the intricate nature of tax laws and their impact on superannuation planning.

iii. SMSF borrowing for property: Property is not considered a financial product nor is borrowing, so any advice an accountant might provide to an SMSF trustee about the use of gearing to buy residential, commercial or holiday property does not require a licence.

iv. Factual information provision: Providing factual information about SMSFs, including processes, compliance requirements and general market information, falls within the exempt category. This empowers accountants to educate and inform clients without crossing into territory where they would need to be licensed.

Three important examples from INFO 216 highlight these exemptions:

i. Establishing an SMSF: The advice accountants give about establishing, operating, structuring or valuing an SMSF must not amount to an explicit or implied recommendation to establish an SMSF or to acquire or dispose of an interest in an SMSF (or another superannuation product). However, we recognise advice given to a person about the establishment of an SMSF may also carry an implicit recommendation that the person acquire an interest in the SMSF. Therefore, you are more likely to be able to rely on the exemption when your client has already made a decision to establish the SMSF before seeking your assistance to take the next steps. For example, you may recommend the best structure for an SMSF to suit your client’s situation after they have made the decision to establish an SMSF.

ii. Contributions: Under the exemption, a registered tax agent may provide advice on any tax implications of contributions into an SMSF (or other superannuation fund), such as a client’s eligibility to make concessional and non-concessional contributions and the tax treatment of those contributions. For instance, a tax agent can use a client’s total superannuation balance to advise the client on their eligibility for:

a. the unused concessional contributions cap carry forward, and

b. the non-concessional contributions cap and the two-year or three-year bring-forward period. However, they cannot recommend a client make a particular level of contributions although they can advise on the maximum level of contributions a client can make. This is because the decision to make a particular level of contributions involves considerations other than tax.

iii. Pensions: A registered tax agent may also advise a client on the tax implications of moving their superannuation benefits from accumulation to pension phase, but may not make a recommendation to a client about when to do so. For instance, a tax agent may advise the client about the tax implications of retiring at different ages, such as a client being able to withdraw superannuation benefits tax-free after a certain age, but should make it clear to the client tax is not the only consideration involved in making retirement decisions.

ASIC SMSF exemption for accountants

Section 766B(5) or the Corporations Act 2001 provides exemptions for both lawyers and tax agents advising on financial products, including SMSFs. In that regard, lawyers can advise on SMSFs in the ordinary course of their business of providing legal advice. For an accountant registered with the Tax Practitioners Board as a tax agent or business activity statement agent, they do not need to be licensed to provide advice given in the ordinary course of their activities and reasonably regarded as a necessary part of those activities under section 766B(5)(c) of the Corporations Act.

The accountant as the SMSF adviser

INFO 216 opens a window of opportunity for accountants to delve into the world of SMSF advisory with confidence and competence. By understanding and adhering to the guidelines, accountants can continue to be pivotal in guiding their clients through the complexities of SMSFs, enhancing their financial strategies without the constraints of holding or operating under an AFSL. This is a field ripe with potential and accountants are well positioned to seize these opportunities, adding immense value to their clients’ financial futures.

However, accountants must keep up to date with the ongoing review of licensing being conducted by the government as it relates to SMSFs. But in the meantime, INFO 216 is a must read and must do for accountants.