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Accountants and the AFSL regime


Accountants and the new AFSL regimeThis article highlights some of the issues that accountants that have decided not to obtain an Australian financial services licence (‘AFSL’) or become an authorised representative (‘AR’) of an AFSL holder need to consider in view of the removal of the recognised accountants’ exemption from 1 July 2016.

In addition, this article is also relevant to those advisers that have an AFSL or an AR but they also, typically via an accounting firm or related entity, provide services that are not covered by an AFSL.

To assist accountants in managing the transition from operating under an exemption to operating in the new regulated environment, we have prepared a useful kit that can be used in two ways:

  • Non-licensed accountants — for accountants that have not elected to obtain an AFSL or become an AR of an AFSL holder: As accountants in this category cannot provide clients with financial product (‘FP’) advice or related financial services, we have prepared a comprehensive set of template communications that can be used in relation to execution only services, or where factual information only is being provided to clients. The kit also contains an in depth memo and training material that can be used to educate and inform staff members that are not licensed and assist with the firm’s compliance with the AFSL regime
  • Licensed accountants — for accountants that have elected to obtain a AFSL or become an AR of an AFSL holder, the kit contains an in depth memo and training material that can be used to educate and inform staff members that are not licensed and assist with the firm’s compliance with the AFSL regime. In addition, there may well be financially sophisticated and experienced clients that do not wish to receive FP advice or financial services, and who are comfortable with an execution only service and general factual information. In this instance, the kit contains sample disclaimers that can be tailored to ensure that the accounting firm minimising its risk when engaging in these services.

For more information, please refer to: Non-Licensed (AFSL) SMSF Advisers Kit launched

Most accountants appear to have no licence

ASIC has reportedly only approved approximately 150 limited SMSF AFSLs as at 23 May 2016. There were, however, over 500 applications pending at 30 June 2016 (although a significant number of these are likely to be withdrawn or rejected). These numbers are considerably lower than the many thousands of accountants who were initially expected to have obtained an AFSL when the transitional period commenced in mid-2013.

For accountants that have decided not to become licensed (or operate as an AR), it is important that they stay within the boundaries of the services they can legally offer. This will mean that all FP advice, especially recommendations and dealings in respect of SMSFs, are precluded.

This will result in a restricted practice for many accountants and changes to past practices and habits. It might also result in strategic limitations to an accountant’s future business growth and strategy compared to competitors who are covered by an AFSL.

Moreover, accountants who operate without an AFSL will risk being sued (eg, if a client suffers damages as a result of the accountant’s advice, which should have been provided by a financial adviser with an AFSL).

As a result, DBA Lawyers have prepared a special Non-licensed (AFSL) SMSF Advisers Kit. Accountants will be subject to considerable risk if they do not adjust to comply with the new regulatory environment.

What accountants can and cannot do from 1 July 2016

Accountants need to comply with respect to the advice and services they offer not only in respect of SMSFs but also in respect of superannuation generally. Similarly, the Corporations Regulations 2001 (Cth) also restricts accountants from providing advice on private companies and trusts. Thus, the setting up of a private company or trust also has to fall within one of the exemptions in reg 7.1.29.

Indeed, reg 7.1.29 is a very complex regulation. Where business advice includes FP advice, reg 7.1.29(3)(c) requires the FP advice to relate to the securities/interests of the actual entity carrying on the business (eg, shares in a company or interests in a trust) or related entities (eg, a related body corporate such as a subsidiary). The advice must also be provided to an ‘interested party’, eg, a director, shareholder, trustee or beneficiary.

Example of an accountant registering a company:
An accountant setting up a $2.00 company for a mum and dad who are to become the directors and shareholders of that company is providing FP advice and potentially dealing in a FP, but would be exempt where this FP advice relates to an eligible accounting service, such as advising mum and dad on business structures and a suitable disclaimer is issued.

Further, while an investment in real estate is not a FP that is covered by the Corporations Act 2001 (Cth) (‘CA’) (as it is not a facility through which a person makes a financial investment or manages financial risk in accordance with s 763A), ASIC considers that an adviser who recommends or encourages a person to acquire real estate via their SMSF is providing FP advice. ASIC’s Report 337 at paragraph 173 states:

A person provides a financial service (i.e. financial product advice) if they recommend that an existing or proposed trustee/member of an SMSF purchase real property through their SMSF. This is because the vehicle through which the underlying investment is made is an SMSF and an interest in an SMSF is a financial product.

Therefore, accountants providing factual advice on limited recourse borrowing arrangements (‘LRBA’) need to ensure that they do not cross the line and provide advice for which an AFSL or an Australian credit licence is required, particularly if they ‘project manage’ the LRBA or assist in obtaining finance for their clients.

Accountants can provide factual information

While accountants can provide factual information, eg, where a client intends to set up a new SMSF, an accountant can provide a product disclosure statement (‘PDS’) in respect of an SMSF to the client in connection with an execution only service, this information may be perceived by the client as the accountant providing or endorsing FP advice and potentially dealing in a FP.

Before an accountant provides a PDS to a client, they should ensure that the PDS complies with the CA in respect of the short form regime and that the PDS is a factual document rather than a marketing document. Some PDSs supplied by SMSF document suppliers are more akin to a ‘product spin document’, ie, a PSD, rather than a PDS.

There is a major distinction between a PDS and a PSD.

A PSD is designed to encourage a client to establish an SMSF and sets out the many advantages, etc, that an SMSF may provide. DBA Lawyers have seen a number of PSDs in SMSF suppliers’ documents.

For this reason, DBA Lawyers recommends that SMSF documents should only be obtained directly from law firms that have SMSF expertise. Otherwise, accountants should engage an SMSF lawyer to review the documents they may obtain to determine whether it exposes their firm to risk.

Using automated services without an AFSL

Automation can provide great efficiency and result in substantial time savings. However, accountants must be cautious when using these services as they could give rise to significant penalties, as highlighted in the following example:

Example of document supplier that also establishes a bank account:
An accountant who uses a document supplier to establish an SMSF for a client, that also sets up a cash deposit account for the SMSF would also be arranging and dealing in a FP. An accountant would typically need an AFSL to deal in FPs to facilitate this service.

Accountants can provide taxation advice

Tax advice can be provided in respect of a FP by a tax agent under reg 7.1.29(4) provided the accountant does not obtain any benefit in respect of that advice and a special disclaimer is issued. Keep in mind, however, that the Tax Agents Services Act 2009 (Cth) only provides authority for a tax agent to provide advice on Commonwealth tax law, but does not cover State or Territory laws such as stamp duty, land tax and payroll tax.

Accountants must also ensure they do not undertake legal work. The case of Legal Practice Board v Computer Accounting and Tax Pty Ltd [2007] WASC 184 highlights the risks associated with accountants preparing or varying SMSF deeds especially via web based services. In this case, the accountant merely inserted the names of the SMSF trustees in the SMSF deed as part of the process to establish a new SMSF. It was not a defence that the pro-forma deed had been drafted by a lawyer.

Other changes accountants should consider

Accountants who do not have an AFSL should not provide investment strategy templates to their SMSF clients. Accountants should recommend their SMSF clients obtain advice from a financial planner with an AFSL to formulate a considered investment strategy having regard to the client’s objectives, financial situation and needs.

Further, accountants should be proactive in notifying their SMSF clients that each SMSF investment strategy should be reviewed and updated on at least an annual basis and as such, prior investment strategies (including any previous template documents provided by the accountant) should no longer be relied upon and the client should obtain FP advice from a financial planner with an AFSL as soon as practicable.


Accountants who wish to continue without an AFSL need to make substantial changes to their services and processes to ensure they do not incur significant penalties. The above is a brief summary of some of the points addressed in our comprehensive Non-licensed (AFSL) SMSF Advisers Kit that we recently launched (refer to: Non-Licensed (AFSL) SMSF Advisers Kit launched).

Note that DBA Lawyers are not recommending that accountants operate without an AFSL. DBA Lawyers’ position is that the decision to operate with or without an AFSL depends on an analysis of each accountants’ business and the services offered. We would be pleased to undertake a review and provide legal advice on what we consider to be the most appropriate option if requested.

DBA Lawyers provides legal services and an extensive range of education options to keep accountants compliant and up to date with the latest changes.

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