Tuesday, March 1, 2016

Alternatives to a limited AFS licence: what issues should I consider?

Brett Walker, Managing Director of SMART Compliance

Many accountants are still yet to make a concrete decision about whether to obtain a limited Australian financial services (AFS) licence.
Right now I see 4 possible pathways for accountants in the SMSF space:
          1.       Stop operating altogether in the SMSF sector;
          2.       Re-structure your business to refer SMSF work “out” to a suitably qualified AFS licensee;
          3.       Become a representative of an established AFS licensee – institutional or otherwise; or
          4.       Become self-licensed by applying for a limited AFS licence
Let’s consider some of the practical issues involved:
Options 1 & 2: Stop operating in the SMSF space, or refer SMSF work out
The first two pathways are fraught if you want to still help clients with their retirement needs after 30 June 2016. If you plan to refer SMSF work out, you will need to make sure your business has clear policies for staff on what they can and can’t say to clients.
Incredibly, I am hearing that some accountants intend to just ignore the licensing regime and continue establishing SMSFs after July without a licence. I know how easy it would be for ASIC to get data from the ATO to confirm SMSFs established and the accountant who established them. ASIC will pursue unlicensed operators through the courts.
Option 3: Become an authorised representative of another licensee
The third pathway is really just a default choice, but the price of choosing this path is not just your independence (because dealers need to actively control what their representatives do), but also any dealer fee you must pay for the “safe harbour” of someone else’s AFS licence.
Anyone thinking they can simply “test the waters” with a dealer now and maybe opt to get their own limited AFS licence later should know this: “relevant experience” tests apply from July 2016. This means that each responsible manager will need to demonstrate 3 years’ experience in providing the relevant financial services. We simply don’t know yet if, after 30 June, ASIC will accept experience gained under the current accountants’ exemption.
So if you take this third pathway, you may have to wait until at least July 2019 to extract yourself from an unhappy marriage with a dealer. Therefore, those who are considering applying for a limited AFS licence of their own should consider applying by 30 June 2016 because the “experience” requirement is waived until that date.
Option 4: Obtain your own limited licence
The fourth choice – getting your own limited AFS licence – seems the logical pathway for anyone who wants to be able to dictate how they operate their SMSF business after 30 June.
Long term, I believe there will be a competitive advantage for any accounting practice that self-licenses because they will be able to adopt new ideas and adapt their business quicker than their dealer-controlled competitors. And the ongoing compliance obligations are simply not as brutal as some dealers would have you believe.

Don’t ignore the changes. Choose a pathway, choose carefully and choose now.

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