Limited AFSL 2 years on – the good, bad and ugly

Prepared by Peter Hagias

Its been a bit over 2 years since accountants have had to operate under a limited AFSL to provide SMSF advice. Has the regime been successful? Are clients better off? We look at the good, bad and ugly of the regime.

The good ….

Better advice

There is no doubt the regime has resulted in better advice being provided to clients about their superannuation affairs. Accountants are required to consider their client’s existing superannuation funds in light of their goals and objectives before recommending an SMSF. In some cases, that has appropriately resulted in a recommendation that a client shouldn’t acquire an SMSF. Remember, they aren’t appropriate for everyone.

Accountants ‘get it’ more and more

Complying with the limited regime isn’t just limited to providing an SOA – it’s more complicated than that. Licensees need to have procedures in place to ensure they are complying with all of their regulatory obligations – the majority of which are ‘back-end’ obligations. With appropriate compliance support, accountants are operating their businesses with a greater level of confidence that they are in fact complying with their AFSL obligations. Understanding these obligations is no different to understanding any other business process, and not ‘getting them’ presents a business risk to the accounting practice.

The bad …

Are unlicensed accountants really that clean?

ASIC stated that it had undertaken a review of SMSF advice provided by unlicensed accountants and didn’t find any systemic compliance issues. We’re not questioning ASIC’s review although any industry review has its limitations. However with only 800 limited AFSLs on issue nationwide and the take-up of AR arrangements said to be quite low, where are clients receiving advice on their superannuation/SMSF? Logic suggests that these stats either present a huge opportunity for accountants that can provide that advice or that unlicensed accountants continue to provide advice that needs to be provided under an AFSL (remember it’s not just limited to setting up an SMSF, it includes advice on contributions, pensions, rollovers, for example).

Execution-only

This isn’t just an issue for the limited regime, but ASIC is yet to publish its view on execution-only transactions. Reality is that they happen, and we think they are appropriate in certain circumstances. But until ASIC publishes its guidance, this uncertainty will continue to plague licensees and their compliance managers.

The ugly …

Positioning value of advice to clients

Accountants continue to be plagued with the issue of positioning the value of the SOA and advice process to clients, and particularly the costs involved in preparing an SOA. An SOA doesn’t, and shouldn’t, merely reflect what an accountant was going to advise the client. The advice should only be documented after a thorough analysis of the client’s circumstances and objectives has occurred – that is what the client is paying the accountant to do. It’s a strategic document that should add value to the client. If it isn’t, then the SOA and the thought process behind preparing the SOA is probably very wrong.

Advice isn’t right … yet

ASIC’s recent report on SMSF advice found that a staggering 90% of SMSF establishment advice was not compliant. It also found that a significant number of clients interviewed didn’t understand the fundamentals of an SMSF. 32% of clients found the cost of running an SMSF to be more than expected. 38% found it more time consuming than expected. Licensees should have documented processes in place that ensure the advice process (that is the whole process, and not just the content in the SOA) invariably results in appropriate advice to the client.