The lines about Financial Advice from an Accountant are blurring

New regulations will soon change the way accountants talk about a Self Managed Superannuation Funds (SMSF)

When it comes to giving advice about SMSF's, most accountants previously provided advice under an accountant's exemption from having to be a licenced financial adviser. As of 1 July 2016, that’s about to change.

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.

You can…

  • 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

You can't…

  • 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.

If you're an Accountant and interested in discussing how to work with a Financial Adviser, contact us today here to see if we can help you and your clients get certainty about your situation.

author pic drew browneDrew Browne is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses.  He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog here. You can connect with him on LinkedIn Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.

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