DO YOU NEED TO OBTAIN YOUR OWN LIMITED LICENCE OR BECOME AN AUTHORISED REPRESENTATIVE?

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1 DO YOU NEED TO OBTAIN YOUR OWN LIMITED LICENCE OR BECOME AN AUTHORISED REPRESENTATIVE?

2 2 From 1 July 2016, Regulation A (also known as the accountants exemption), will be repealed. From this date accountants will need to hold an AFSL or Authorisation if they provide advice, deal or arrange to deal in an interest in a SMSF (up until this point, Accountants are able to recommend, set up and administer an SMSF, provided no specific product recommendations are provided aside from the SMSF itself). For the purposes of identifying what activities Accountants can undertake without the need to hold an AFSL or be an Authorised Representative of an AFSL; we have reviewed a number of key Corps Act sections and Corps Regulations references that relate to activities as a professional accountant, particularly surrounding superannuation and taxation advice. ACTIVITIES THAT DO NOT REQUIRE AN AFSL OR AUTHORISATION UNDER AN AFSL As we already know, anyone who provides a financial service (i.e. provides financial product/ class of product advice or deals in a financial product) is required to hold an AFSL or be an Authorised Representative (AR) of an AFSL (and subsequently required to meet particular obligations under the Act and Regulations). However, the Corps Act states that a number of accounting activities/services are exempt from being a financial service (and thus not covered by the Corps Act). These areas predominantly relate to superannuation, business and taxation advice. Guidance on these can be found at Corporations Regulation 2001, Regulation and A. It s important to remember that this regulation will remain in place. The regulations permit a range of accounting services including taxation advice, traditional accounting activities and broad asset allocation advice, as they are not considered to be financial services under the Corps Act: Accounting activities Reg and Reg A These regulations provide exemptions to the licensing requirements for certain accounting activities. Business planning Business planning advice in relation to the establishment, running and sale of a business. Accountants are able to advise on the most appropriate structure for setting up a business, e.g. as a sole trader, partnership, trust or company. Accountants are also able to assist their client in setting up those structures. They are then able to assist with the ongoing administration of these types of businesses. Compliance advice Accountants can provide compliance advice in order to meet their obligations under another Act.

3 3 Financing the acquisition of assets Providing advice about using existing financial products as security for purchasing assets, (other than financial products), is not considered to be the provision of financial product advice. Insurance Accountants have a professional and legal duty to provide their client with all necessary information on managing business risks. Therefore they can provide generic risk management advice that is not restricted to merely business clients. This allows other clients, such as private individuals, to receive basic risk management advice, including taking out insurance. It does not allow the recommendation of advice about specific financial products including how much insurance a client should hold. This exemption is limited to the presence of a risk that a person may face and does not allow the recommendation of advice about specific financial products. Share valuations These activities can be provided by accountants without the need for an AFSL or to be an AR where activities are part of the range of services the accountant provides to their clients and does not involve advising the client as to their investment portfolio. Superannuation Regulation allows accountants to provide limited advice without the need for an AFSL or to be an AR. In all cases, the client must be, or must be likely to become, a trustee, a director of a trustee, an employer sponsor, or a person who controls the management of the superannuation fund. The following advice can be provided by an Accountant: An unlicensed accountant can set up a SMSF on the instructions of a client. Advise clients on the taxation implications for superannuation contributions. Compliance advice in respect of SMSFs and other superannuation funds. Provide employers with advice on SG obligations. Provide audit work and advise the client in respect of legislative breaches and their resolution. Generally discuss investment issues including broad asset allocation about certain assets. Advise on deficiencies and otherwise of a trust deed. Advise an employer or employee client what choice of funds is and how it can be implemented. From 1 July 2016 an accountant can still arrange for the increase or decrease of an interest in a financial product (such as a SMSF) by preparing a document of registration or transfer in order to complete administrative tasks on instructions from the person.

4 4 An accountant cannot: Recommend an SMSF over another superannuation structure, or recommend that the client switch from another superannuation structure to an SMSF (Accountants cannot advise the client to close their existing superannuation account for the purposes of establishing the SMSF). Provide advice about the acquisition or disposal by the superannuation fund of specific financial products or classes of financial product. Provide advice about a client s existing holding in a superannuation product to modify an investment strategy or a contribution level. Up until 30 June 2016 when Regulation A (also referred to as the accountants exemption) will be abolished, Accountants are able to recommend, set up and administer an SMSF, provided no specific product recommendations are provided aside from the SMSF itself. From this date Accountants cannot recommend the establishment or winding up of an SMSF unless appropriately licensed. Taxation advice Reg (4) / Corps Act s766b(5) Accountants can continue to provide tax advice to their clients, including the tax implications of certain investments. Regulation (4) specifically requires a written disclaimer be provided if the tax advice is financial product advice, i.e. it is given in relation to a financial product. For example, where a client is seeking advice on the taxation implications of different financial products they are considering purchasing, the accountant may provide advice about the tax implications of those products. In these situations, the following disclosure must be provided: Accountant is not licensed to provide financial product advice under the Act; taxation is only one of the matters that must be considered when making a decision on a financial product; and you should consider taking advice from an AR or the holder of an Australian Financial Services Licence before making a decision on a financial product. It should be noted that tax advice may not be used as a pretext for providing financial product advice on the basis that an Accountant is promoting taxation advantages. The advice must relate to the taxation consequences (and related issues) of financial products but should not be used to recommend particular financial products.

5 5 Broad asset allocation advice Reg A This regulation provides relief where the advice relates to the allocation of funds that are available for investment between shares; debentures; debentures, stocks or bonds issued, or proposed to be issued by a government; deposit products; managed investment products Accountants cannot make a recommendation or statement of opinion that relates to specific financial products or classes of financial products. Accountants will need to hold an AFSL or be an AR to provide specific advice. Under the Act, financial product advice includes not only advice about particular products (e.g. ABC Imputation Fund, XYZ Ltd Shares), but also about classes of products (e.g. banking shares, mining shares). Further to the above, it is also important to remember that the following are not considered as a financial service/financial product: Factual Information will generally not involve the expression of opinion or recommendation and will not, therefore, constitute financial product advice. NB: Where the factual information is delivered in a manner that may reasonably be regarded as suggesting or implying a recommendation to acquire, dispose or hold a particular financial product or class of financial products, it will be financial product advice (even if this was not the intention of the accountant). Credit facilities (excluding margin lending facilities) are not considered financial products. NB: If an Accountant provides credit advice or provides credit assistance, then they will need to hold an Australian Credit License (ACL). This is separate to an AFSL. Direct real estate is not a financial product, so any advice given in relation to direct real estate (e.g. you should buy 1 Smith St) will not be financial product advice. NB: If Accountants recommend an SMSF purchase real property, this would be considered financial product advice as the vehicle through which the property investment is made is a financial product (the SMSF). ASIC s view is an Accountant cannot recommend a person purchase a property through an SMSF unless they hold an AFSL or are an AR.

6 6 ACTIVITIES THAT DO REQUIRE AN AFSL OR AUTHORISATION UNDER AN AFSL As you can see from the above, Accountants can continue to access a range of exemptions under the Corps Act and Corps Regulations allows them to continue with most of their current advice and services. We reiterate that only Regulation A the Accountants Exemption is being removed advice to acquire or dispose of a SMSF. When determining whether Accountants need to hold an AFSL or be authorised under an AFSL, the key is to identify whether the accounting activities are considered an exempt financial service or whether they extend to financial product advice or class of financial product, or dealing in a financial product. Generally, if it leads to the either of the following, then it would be considered a financial service and therefore require an AFSL or be an AR of an AFSL. Provide Financial Product Advice: A recommendation or statement of opinion, or report of either of those things that is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or could reasonably be regarded as being intended to have such an influence. Deal in a Financial Product: Applying for or acquiring a financial product, issuing a financial product, in relation to securities or managed investment interests underwriting the securities or interests, varying a financial product or disposing of a financial product. NB: It s not difficult for an Accountant to be involved with the dealing of a financial product i.e. assist with rolling over Superannuation balances from a retail super fund to an SMSF or where accountants use SMSF administration services that also set up a cash management accounts. Example of a simple advice scenario: A client asks how much can they put into super for the year: An Accountant can provide the client with factual information such as the relevant contribution caps, or when giving tax advice, explain the different tax treatment between the types of contributions (to Superannuation); without the need to be licensed. However, if the client asks how much should they put into super for the year, then this changes the context of the Accountant s advice. If the Accountant advises that they should make a concessional contribution of $10,000 above their existing SG amount in order to maximise the concessional cap, this would constitute financial product advice as the advice/opinion is intended to influence the client in making a decision in relation to a particular class of financial product acquiring an interest in Superannuation. Therefore the need to hold an AFSL or be an AR would be required to provide this next layer of advice to the client. Taking this further, accountants cannot advise clients to redeem securities/managed investments, close a term deposit or withdraw money out of a cash account to contribute to Superannuation. This is because advising a client to move money out of one financial product and into superannuation is product replacement advice, and requires accountants to advise on the specific financial product the client is exiting.

7 7 You could apply the same underlying principles when a client asks What is an SMSF? and Is an SMSF is it right for me? An Accountant will not require an AFSL/Authorisation to provide factual information on what an SMSF is. However, assessing the suitability and providing advice on whether or not they should establish an SMSF crosses the boundary into financial product advice. From these two examples, you will see that there is no hard and fast rules; the need to hold an AFSL or be an AR will depend on the discussions you have. Many discussions are primarily focused on the taxation side of things however, it s extremely important that Accountants understand that those taxation discussions also involve a particular vehicle to facilitate the taxation advice. The taxation advice could lead to advice on those vehicles i.e. super strategies such as concessional contribution strategies, TTRs, LRBAs. Ask yourself if your advice sits outside of the exemptions detailed above: Is your advice in relation to a specific financial product? (i.e. XYZ Super Fund) Is your advice in relation to a class of financial product? (i.e. Superannuation including SMSFs) Does your advice imply one superannuation product over another? Are you providing advice beyond factual information? Can your advice or the way you have delivered your advice influence the client to acquire, dispose or hold an interest in a specific financial product or class of financial product? Are you providing advice on contributions or pensions strategies in relation to a non- SMSF superannuation product? If you have answered yes to any of the above, you will be required to hold an AFSL or become an Authorised Representative of an AFSL. For more information please contact Capstone s Accountants Support Team.

8 FURTHER INFORMATION AND NEXT STEPS For further information or to discuss an option that will suit your business requirements, please feel welcome to contact Capstone Financial Planning on or DISCLAIMER Capstone Financial Planning. ABN Australian Financial Services / Credit Licence No The contents of this document does not constitute legal, financial or commercial advice. You should consider obtaining independent advice before making any investment, financial or legal decision. In the preparation of this document, we have collated information from a number of sources including the publication Financial advice and Regulations: Guidance for the accounting profession (1 May 2014) by HNLaw Pty Ltd, trading as Compact - Compliance & Training, and Holley Nethercote Commercial & Financial Services Lawyers. Whilst every care has been taken in the preparation of this document, to the extent permitted by law, Capstone Financial Planning Pty Ltd expressly disclaim all and any form of liability to any person in respect of this document and any consequences arising from its use by any person in reliance upon the whole or any part of this document.