Why accountants are saying goodbye to limited advice

Recent data from Adviser Ratings has revealed that there were fewer than 200 limited licensed advisers — mostly accountants — at the end of last year, compared to 1,000 a few years ago.

Despite the already rapid decrease, Adviser Ratings said it expects limited licensee numbers to fall into double digits this year.

Accountants were able to give limited advice about SMSFs prior to 1 July 2016 without needing to hold an AFS licence, however, after that date, an accountant who wished to continue to provide advice that was broader than that permitted by the exemptions in the Corporations Act was required to apply for an AFS licence.

A limited licence allowed the accountant to provide narrowly defined financial product advice, often in relation to self-managed super funds.

Speaking to ifa, Tony Negline, superannuation and financial services leader at Chartered Accountants of Australia and New Zealand (CA ANZ), pinpointed two key reasons for the exodus of limited licensee advisers. First, he said, accountants probably haven’t been using the license as much as they expected to, and second, the incurring of costs as a consequence.

“If you’re not really using it, you’ve got increased cost of PI (professional indemnity) insurance, operational costs, and so on. If you’re not using the license, I think people are turning around and saying, ‘why am I paying all this?’” Mr Negline said.

These issues were brought to the attention of the Quality of Advice Review lead, Michelle Levy, who in her final report said there does “not appear to be much merit in holding a limited AFS licence”.

“Limited AFS licence-holders are still required to meet all of the relevant obligations that attach to a licensee, including complying with the general obligations of an AFS licensee, holding professional indemnity insurance, being a member of the AFCA and paying the ASIC levy and so, the benefits of a limited licence seem, well, limited,” Ms Levy wrote.

“It is then unsurprising that few accountants or other tax agents have taken up the opportunity to hold a limited AFS licence,” she added.

Ms Levy also pointed to suggestions voiced by accounting and SMSF groups that accountants should be able to provide advice more broadly about their clients’ superannuation needs, including whether to establish a SMSF without an AFS licence, limited or otherwise, and without being a representative of an AFS licensee.

“Advice on superannuation products, including interests in SMSFs, is financial product advice. And it should be regulated as financial product advice. I do not see any reason for making an exception,” Ms Levy explained.

“This will ensure that consumers who receive this advice will do so with the same protections as all other recipients of financial product advice, including that the advice is good advice (if it is personal advice), the requirement for advice providers to act in their best interests (if a fee is charged for the advice) and access to AFCA, just to name a few.”

While Ms Levy acknowledged that some of the issues related to limited licensees were outside the scope of her review, she explained that her recommendations would make it easier for all advice providers, including accountants who are authorised by an AFS licensee to provide personal advice to their clients.

Amid all the noise, Mr Negline noted that accountants already have a small range of concessions in the Corporations Act, which, he said, are quite complex and create a great deal of uncertainty for the profession.

“It is very easy for an accountant going about their ordinary work to accidentally fall foul of the laws and provide financial advice, or financial product advice, as understood by the Corporations Act and potentially be doing unlicensed activity,” Mr Negline explained.

“That would be an accidental issue, but the law is very confusing about what you can and can’t do.”

If these laws were to be straightened out, Mr Negline concluded that accountants are well placed to be able to provide advice in relation to superannuation matters.

“Hopefully, there is some freeing up in relation to that over the next little while. Hopefully [Minister Stephen Jones] looks at that and goes forward.”