Accountant licensing survey results
WHAT’S WORKING, WHAT’S NOT.
A.S.A.P. carried out an in-depth study to learn how Australia’s 10,000 SMSF accounting practices are dealing with the repeal of the ‘accountants exemption’. The following article summarises our key findings from this survey.
LEARN HOW OTHER ACCOUNTANTS ARE DEALING WITH LICENSING…
MANY ACCOUNTANTS HAVE STOPPED GIVING ‘FINANCIAL ADVICE’ TO SMSFs: A large proportion – 35% – of unlicensed accountants (UAs) ceased giving ‘financial (product) advice’ to SMSF clients after the repeal of the accountants exemption on 1 July 2016.
MANY DON’T THINK THEY’VE BEEN ASKED FOR ‘FINANCIAL ADVICE’ YET: 26% of all UAs said that the issue hadn’t yet arisen in their practice. That is, they don’t believe any client has yet asked for ‘financial product’ advice since 1 July 2016.
This perhaps isn’t surprising given how much accounting/tax work is retrospective rather than prospective in nature, and given that advice questions probably don’t arise until the February-June tax planning period for SMSFs, some time after this survey was conducted.
While this won’t be news to many accountants, it may surprise ASIC and numerous media commentators who, in response to unexpectedly low levels of financial license uptake, appear to have assumed that many UAs have been defiantly conducting ‘business as usual’. This survey provides another explanation worth considering – there was simply no pressing need to deal with this issue before the new calendar year.
THE LICENSING OPTION IS BEING TREATED CAUTIOUSLY: 66% of accountants with SMSF clients (‘SMSF accountants”) were not covered by an Australian Financial Services (AFS) license on 1 July 16. Over the next 6 months to December 2016, this figure only reduced to 59%, quashing any suggestion that there existed pent-up demand for licensing that would correct the perceived short-fall in take-up.
Instead, 90% of unlicensed accountants remained that way after the exemption was repealed.
…BUT LICENSING IS STILL BEING CONSIDERED BY MANY: While they may not have been quick out of the blocks, 25% of accountants who weren’t licensed on 1 July 2016 said they’d still consider becoming licensed.
This could potentially invert the ratio of unlicensed to licensed accountants from 3:2 to 2:3.
However, since our survey was issued, ASIC announced a significant deterrent to accountants considering a license, set out in information sheet 216 (‘AFS licensing requirements for accountants who provide SMSF services’). It stated, for financial products that are covered by their license, any tax advice that is given to clients must be covered by the license. Even if the accountant has set up a separate entity for their license, we have been advised that they cannot make use of the tax advice exemption they enjoyed prior to having a license. Normally this means they must conduct a client fact-find and prepare a written Statement of Advice, thereby losing the practical benefit of their tax advice exemptions.
While we don’t know whether ASIC intended this requirement to stymie accountant demand for licenses, we have little doubt that it will have a major dampening effect on licensing growth beyond today’s already low levels.
We expect that many licensed accountants will not renew, and may indeed seek to revoke, their license in order to regain the efficiency and protection offered by the remaining exemptions to the AFS licensing regime set out in Corporations Act Regulation 7.1.29.
Accountants who do have a licence no longer have an exemption to give tax advice on products covered by their licence .
FOR NOW, THE MAJORITY OF UNLICENSED ACCOUNTANTS ARE REFERRING, OR WILL REFER, SMSF CLIENTS TO LICENSED ADVISERS: 53% of UAs said they were managing removal of the exemption by referring relevant client queries to traditional financial planners and/or specialist digital financial advice licensees such as A.S.A.P. Meanwhile, only 2% said their firm would recruit an in-house planner.
THIS OUTSOURCING IS EXPECTED TO GROW OVER THE LONGER TERM,: While 53% of UAs are now referring their SMSF clients to external licensees, 56% said they’d be doing so in the longer term.
SOME ACCOUNTANTS WILL ONLY REFER CLIENTS TO NEW DIGITAL SMSF ADVISERS AND NOT HUMAN FINANCIAL PLANNERS: Despite low awareness of the new breed of digital SMSF advisers, once they were made aware, an impressive 63% of unlicensed accountants (UAs) would consider recommending a digital advice platform to their SMSF clients. This is higher than the 56% of UAs saying they’d refer financial advice to an adviser generally, which indicates that some accountants would only refer clients to a digital adviser.
AS AWARENESS OF DIGITAL SMSF ADVISERS GROWS, SOME ‘IN-SOURCERS’ WILL BECOME OUTSOURCERS: Remarkably, despite having gone to lengths to obtain their own financial licenses, on hearing about the advent of digital SMSF advisers, 57% of licensed accountants said they’d also consider referring clients to a digital adviser. This is only 6% lower than digital referral rate for unlicensed accountants.
Not only does this extraordinary finding corroborate the observation that many accountants prefer digital rather than human SMSF advisers– it clearly indicates that licensed accountants view digital-advisers as a strong fall-back option if they can’t break-even with an internal licensing model.
Given many survey participants’ concern about clients not wanting to pay a fee for what was previously a ‘free service’, we may not need to wait until the end of the insourcing experiment – some will perhaps ‘cut their losses’, let their licenses lapse, and pre-emptively choose outsourcing over insourcing.
While it’s not surprising that 63% of UAs were open to digital/online licensed advisers, it was remarkable that the proportion of licensed accountants who’d do so was only marginally lower, at 57%.
FINANCIAL PRODUCT TRANSACTION NUMBERS ARE LOW, AND UNLICENSED ACCOUNTANTS SEE LESS THAN HALF AS MANY TRANSACTIONS AS LICENSED ACCOUNTANTS: Perhaps the most unexpected survey finding was the fact that accountants only assist their clients with low volumes of SMSF product transactions each year, with the difference between licensed accountants and unlicensed being dramatic.
In a typical year, a licensed accountant gets involved with only 26 of the financial product transactions listed in our survey, with fund contribution strategy being the most common type, at roughly double the number of SMSF establishment briefs.
Unlicensed accountants see less than half this volume, stating that they only get involved with an average of 11 of these financial product transactions each year.
This really shows what a difficult business decision accountants are faced with when considering a license. For just one or two pieces of advice per month, the overhead of a license seems excessive compared to referring to a licensed adviser or the convenience of referring to a digital adviser.
For more information about A.S.A.P.’s digital advice platform for SMSF accountants,
Call 03 6240 1575.
 ASIC information sheet 216 (see heading ‘Tax advice’). Different licensees (and PI insurers) will have different requirements for how SMSF tax advice should be delivered if you have a license. There appears to be some confusion about how this will work for individual accountants who work for both an unlicensed entity and a separate licensed entity. We expect to see this issue clarified in coming months.