Ever since the accountants’ limited licence regime was introduced, limited licensees have been at a disadvantage compared to full licensees.
Red tape is unnecessarily complicated
The application process for limited licensees is unnecessarily onerous. Even full licensees have never had to comply with some requirements, such as the need to make multiple declarations about their financial status.
Accountants have also lost the ability to appoint Responsible Managers (RM) who don’t have 3 years’ regulated experience due to an ASIC policy change for financial services relating to SMSFs.
This is at odds with ASIC policy for full licensees, who can appoint an RM using a broad range of experience. We are aware of RMs who are competent in general insurance because of unregulated reinsurance experience, RMs competent in alternative risk management models because of insurance experience, and RMs competent in Australia due to a mix of unregulated overseas experience and regulated Australian experience.
This inconsistency has created a huge issue for licensed accountants with RMs who wish to retire, or have fallen ill unexpectedly. If an accountant needs to change their RM before the third anniversary of their licence, they will need to contract someone to fill that role, because no new RMs will now meet ASIC’s competency requirements for SMSFs prior to that date.
Accountants who provide tax advice are most impacted
ASIC’s decision to modify the “tax advice exemption” for licensees has a significant impact on licensed accountants and their employees.
Previously, any person could comfortably provide tax advice without holding an Australian Financial Services licence, even if it was also financial product advice. This was because the exemption meant the tax advice was treated as if it was not a financial service at all. If it’s not treated as a financial service, then it’s not regulated, regardless of whether the accountant is licensed or not.
To rely on the exemption, the person giving the tax advice must:
While ASIC correctly identified that a licensee would not be able to comply with this exemption, because they could not make a statement that they were “not licensed”, in attempting to solve that problem, new problems were created.
ASIC could have simply solved this conundrum by modifying the disclosure - “this advice is not subject to financial services regulatory protection” would have been sufficient.
While this change affects all licensees, the most far-reaching consequences are for accountants operating under the limited licence regime because it has created substantial discrepancies in the treatment of tax advice between licensed and unlicensed accountants.
For example, an accountant who is advising a client on whether (and how) to establish a pension based on tax outcomes will:
This is particularly challenging for tax accountants who provide no SMSF financial services but who are nonetheless employed by a licensee as they may no longer rely on the tax advice exemption.
The outcome is absurd and ignores the core need - to protect the consumer. If a consumer is adequately protected without an SoA or the best interests duty when dealing with an unlicensed accountant, then why do they need greater protection from a licensed accountant?
This issue has been brought to ASIC’s attention but it remains to be seen whether it will be resolved or if something new will be inflicted upon accountants instead.
If you require clarity on what services are and are not regulated by the financial services licensing regime, the Fold’s SMSF Services Manual is a comprehensive resource. If you need guidance on a specific scenario, do seek legal advice. We’d be happy to help.
Author: Jaime Lumsden