Decisions, decisions

However, should a significant number of accountants opt for a full or limited licence – effectively becoming advisers themselves – this will undoubtedly have a flow-on effect on the already heated competition for funds under advice, as well as potentially impacting licensee services and fees. To help accounting professionals with this important decision ahead of the 2016 deadline, ifa sister title SMSF Adviser assembled an expert panel at the recent SMSF Adviser Strategy Day to deep dive into this bubbling topic.

MODERATOR
Aaron Dunn
managing director, The SMSF Academy

PANELLISTS
Anna Carrabs
director, business advisory, William Buck
Vicki Stylianou
executive general manager, Institute of Public Accountants

AD: How is the experience [of falling under an AFSL] going to be different for practitioners going about their day?

AC: I think it’s going to involve a lot more thinking. The reality is while you can have that conversation, you have to be very clear on what you can and can’t say. Yes, those rules have been out there for a while but I think having that exemption, people have just assumed – maybe incorrectly – that they could have all these conversations. I think that’s going to be gone and you actually have to give a lot of thought to what you have to say.

AD: What are clients expecting now from you as a professional working in the SMSF space?

AC: Clients’ expectations are that I am paid to help them with whatever it is they need – either help them or be able to refer them to somewhere if I can’t. We’ve built that relationship and it’s not good enough for me not to give them a solution or somewhere to go.

VS: It’s that holistic, integrated advice that clients now want. It’s a trend everywhere you go these days. On our end, it’s indicative of a lot of accountants generally. There is definitely a need to re-examine the business model and re-examine the value proposition.

We also talk about competition. It used to be there were accountants, financial advisers, lawyers etc. Now there is a lot more convergence. There is a lot more of what we call blurring the lines. There is a lot more competition. We’ve got banks now offering free tax returns as a loss leader. Everyone is getting into everyone else’s space. We’ve got lawyers buying financial planning practices. There is a whole lot of convergence going on. In amongst all of that, where do you stand as a professional adviser?

AD: Is the limited licence the natural step that you see accountants taking?

VS: There are definitely different tiers – the members and accountants who simply want to keep doing what they’ve always been doing are more inclined to go for the limited licence because that’s all they’re interested in. We get a lot of accountants saying, ‘I don’t want to do more education and training; I just want to keep doing what I’ve been doing’. Then we have the innovators and the early adopters that have already been doing some type of financial advice work and see it as an opportunity for the future. They’re the ones who seem more attracted to the middle level of licensing, as an authorised representative. They’re the ones more likely to go to the strategic level of licensing, which is not quite the full comprehensive, so they can’t recommend particular products but they can talk about investment strategies. That seems to be where the trend in terms of demand from clients is. What we’re seeing is the ones who want to keep doing what they’ve always been doing go for the limited licence and the ones who see more opportunity jumping towards becoming authorised representatives of a full AFSL holder.

AD: You regularly come across people who say, ‘I just want to keep having conversations I’m already having’. But how many of those conversations are in the ‘grey zone’ anyway?

AC: My thoughts are if they don’t [get a licence], it’s going to frustrate the hell out of them. If they want to keep doing what they’re doing, they have to comply with all these rules with no return. Presumably, these are just conversations you’re having with clients; they’re not putting it forward as ‘This is the value of what I’m bringing to the table' or 'This is what the cost is going to be’. It’s going to be a whole level of frustration.

I think it’s a big decision about restructuring your practice and knowing where you want to go. Do you want to do this full bore? If you do, then do it on a strategic level. Yes, take the licensing, become an authorised representative. Go and ask all the right questions before you sign on – because that comes with obligations as well.

Understand what kind of advice you can and can’t do. Notwithstanding that they might all look the same, but there are some that allow you to give advice about limited recourse loans and others don’t. If your intention is to [move into the advice space], you’d better be clear what you can and can’t do under those licences.

VS: At the moment, we’re still in the transition period. People don’t realise exactly what’s going to be involved. You still have to comply with all the disclosure and all other obligations under FOFA and the Corps Act, even with a limited licence. There will be a lot of grey and there will still be a lot of breaching of the new licensing regime. Enforcement via ASIC is another story.

Definitely under the limited licence, the scope of advice is broader, which recognises there was a lot of breaching of the exemption. But I think there will still be a lot of frustration and people will eventually make the decision to stay or get out – or have a good referral system in place.

AD: What are the things accountants need to be looking for in making that decision [about licensing]?

VS: Essentially, it is a business decision. It’s a case of where do they see their practice going, what sort of clients do they have now and what sort of clients they want in the future.

Once they have made that decision, for example, to become licensed and go into financial services and into SMSFs, then it’s a case of deciding. If they really want to get into it, the limited licence is simply not going to be appropriate for them.
Then it becomes a question of: ‘full licence’ or becoming an authorised rep? Most are not in a position to go for a full licence. So then they have to become an authorised representative and it’s a question of who with.

Then that opens up a whole different conversation around what kind of criteria you look at. One thing for sure is that AFSL holders are all very different and you really have to spend time researching each one. You might have some who have certain lures like cheap upfront prices, but then you pay for everything later and you might not get the support that you need.

They’re all different and certainly I say to members constantly to spend a lot of time researching. Everyone is different, but definitely research will pay off.

AD: What do we see as the potential roadblocks in this journey?

AC: It’s interesting because when we went down the path of getting our own licence, the sole reason we did it was independence. When you … ask those questions about becoming an authorised representative under an existing licence, the question really has to be: it’s great to get the support, it’s great to get the benefits, but you really need to understand what is expected of you.

We didn’t want to sell anyone’s product; we wanted to be independent, we wanted to sit there and actually not have conflicts. Having that understanding is the key.

There are a lot out there. They may all look the same, but I think you really have to delve into it and fully understand what you’re getting yourself into. The benefits are one part of it, but for us, knowing that independence is so important to us, it’s making sure that we’re not going to end up with conflicts or we go into someone and six months down the track find that it’s not working for us.

Q: Do you see that as an ideal situation – where accountants are going into a joint practice arrangement [with a financial adviser]?

AC: It can work. Is it hard? Of course it is, but if you have the processes in place, it is beneficial.

We also have strategic arrangements with other accountants who have decided they don’t want to be in the financial services space. You have to find the right partnership. I don’t know if joining together necessarily is the outcome; it’s about having a common understanding. If each party trusts one another and they know that each other is looking after their client, to me, that’s good enough.

I think the murkiness gets created where they are sharing their fees and to me, that creates conflicts. They need to disclose that to their client and I wonder how many times that actually occurs.

I think the challenge at that point, with accountants looking to move into a licensing regime and maybe even providing advice, is to work out where the accountant wants to stop that conversation and the planner can come in or vice versa. Where the conflict starts arising is when the point where they are supposed to be meeting in the middle, actually overlaps. If there is conflict between that advice, then tension arises. If people are looking to move into that space or planners are looking to form a relationship with an accountant, it’s about finding out where the wall is and making sure that the relationship ceases at the wall.

You don’t work against one another. I’ve seen so many situations where the planner wishes the accountant would disappear and vice versa. It causes confusion for the client and, in the end, both of them lose that client. That’s what they don’t realise – if they’re not on the same page, that’s what happens.