The governments regulator ASIC announced Accountants will no longer have an exception covering their advice about SMSF guidance. If an accountant doesn't hold an AFSL (Australian Financial Services Licence) and is unlicensed to provide financial advice – and most currently are – they will need to confine themselves to offering factual information.
So what does factual information actually look like?
Factual information is defined by ASIC as "objectively ascertainable information whose truth or accuracy cannot reasonably be questioned". The upcoming legislative reforms don't change anyone's ability to provide factual information but accountants will need to be much more cautious about not straying from providing only factual information into offering general or personal advice.
Many accountants are yet to fully understand the different types of advice
For example, if a 48-year-old woman with a high income, significant assets come to your office, you can educate her about how a SMSF differs to a retail or industry fund.
- provide factual information on the establishment, structure and operation of SMSF funds
- explain the differences between a SMSF and retail or industry super fund in relation to the control of investments and in-house asset investment opportunities
- recommend the client set up an SMSF as opposed to keeping her money in a retail or industry super fund
- and you can't 'so much as seem to be hinting' at a recommendation about what superannuation choice the client should make
Personal and General advice
If you want to provide either personal or general advice you’ll need to have an AFS licence or be authorised by an AFS licence holder. As with factual information, you should start by clarifying with the client that you are providing general or personal advice before doing so.
General advice is given without regard to the client's personal financial situation, their needs or objectives. This fact needs to be communicated to the client and they have to be instructed to consider the advice in light of their circumstances.
- A general advice warning should also be provided at the time of the advice and in the same way that the advice is being given. For example, if this is an email conversation, the general advice warning needs to be in the email, if this is verbal advice the general advice warning needs to be given verbally too
- If the advice involves acquiring or potentially acquiring a financial product the client should also be provided with a Product Disclosure Statement (PDS)
- It’s probably good practice to make a file note of when and how both these occurred
When general advice slips into personal advice
Advising a client that ‘many high-income earners clients who have significant assets and a reasonable level of financial literacy, actually find SMSFs an attractive option’ is likely to be general advice. Telling a client you've taken into account their salary, assets and retirement plans and concluded they should set up a SMSF is likely to constitute personal advice.
The main issue accountants will probably face is staying within the factual information perimeter Drew Browne
The lines are definitely blurring for accountants and financial advice
So what’s the advice to accountants without an AFS licence, or authorisation to operate under one?
"The minute they start talking about pros and cons of SMSFs they've strayed into giving general advice and need to be licensed. And if they suggest that an SMSF is appropriate for a client based on their personal circumstances that is personal advice”.
If you're an Accountant and like more information about providing information and advice safely, ASIC's Regulatory Guide 244 is a good place to start.