What advice can accountants give in relation to SMSFs without needing an AFSL?

This is the first in a 4 part series by Cristean Yazbeck, Head of Financial Services at Rockwell Olivier.

In this series Cristean explores the thin (sometimes, very thin) line that accountants can inadvertently cross when giving advice to their clients. The "line" is of course the need to hold an Australian Financial Services License (AFSL) to cover the provision of that advice.

First up, we'll explore what types of advice accountants can give in relation to Self-Managed Superannuation Funds (SMSFs) without needing an AFSL.

For the purposes of this series, we're assuming that the client is a retail client under the Corporations Act 2001 (Cth) (Corporations Act).

Financial advice

As a general rule, a person who provides "financial services" in Australia (as defined under the Corporations Act) is required to hold an AFSL. "Financial services" includes providing financial product advice.

An SMSF is itself a financial product, so to the extent that a person gives an opinion or a recommendation which is intended to influence another person to make a decision in relation to an SMSF (or could be seen to be so intended), that will constitute financial product advice, and hence a financial service for which an AFSL is required.

Sounds pretty glum if you're an accountant, right?

The Corporations Act and the Corporations Regulations 2001 (Cth) (Corporations Regulations), however, provide some relief, particularly to accountants, though there is some complexity to navigate. What follows is a brief explanation of what has otherwise been referred to as the “accountant’s exemption”.

Part 4 of this series will look at the forthcoming removal of the “accountant’s exemption” from 1 July 2016, and the new “limited” AFSL that can be obtained in the meantime.

Accountant's exemption

Section 766A(2)(b) of the Corporations Act provides that the Corporations Regulations may set out the circumstances in which a person is taken not to provide a financial service.

This takes us to Reg 7.1.29 of the Corporations Regulations, which states that a person who provides an eligible service in the context of conducting an exempt service is taken not to provide a financial service.

“Eligible service” is defined by reference to the definition of financial service in s766A(1) of the Corporations Act. It therefore includes (as is relevant to accountants) providing financial product advice in relation to SMSFs.

“Exempt service” includes (as similarly relevant to accountants giving advice in relation to SMSFs) the following (Reg 7.1.29(5)(a) and (b) of the Corporations Regulations):

“…advice in relation to the establishment, operation, structuring or valuation of a superannuation fund…[where] the person advised is, or is likely to become…a trustee…or director of a trustee…or a person who controls the management…of the superannuation fund.”

However, Reg 7.1.29(5)(c)(ii) of the Corporations Regulations requires that the advice does not include a recommendation that a person acquire or dispose of a superannuation product.

So, if we were to stop there, we’d see that a person cannot – without an AFSL – recommend that someone establishes their own SMSF or dispose of their existing superannuation interest (perhaps to transfer the benefits to an SMSF), even if that advice is given in the course of providing advice on the "establishment, operation, structuring or valuation" of the SMSF. The establishment of an SMSF would be considered the acquisition of a financial product.

The “accountant’s exemption” kicks in, however, as follows:

Reg 7.1.29A of the Corporations Regulations provides that Reg 7.1.29(5)(c)(ii) (ie the regulation outlined above which prohibits a person giving advice (without an AFSL) that someone establishes their own SMSF), does not apply if the advice/recommendation is given by arecognised accountant in relation to an SMSF.

“Recognised accountant” is defined to include members of CPA, ICAA or the Institute of Public Accountants.

This last regulation is the one which will be removed from 1 July 2016, but we’ll say more about that in part 4 of this series.

To be able to properly rely on Reg 7.1.29 and the corresponding “accountant’s exemption”, there are other requirements which need to be met.

  • The client is, or likely to become, a trustee or director of the trustee (and therefore a member of the SMSF), an employer-sponsor or a person who controls the management of the SMSF.
  • No advice is given which relates to the acquisition or disposal by the SMSF of specific financial products (as defined in the Corporations Act) or classes of financial products, unless the advice is given for the sole purpose of ensuring compliance with theSuperannuation Industry (Supervision) Act 1993 (SIS Act) or Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations), and is reasonably necessary for that purpose.
  • No recommendation is made in relation to a client's existing holding in a superannuation product to modify an investment strategy or contribution level, unless the advice is given for the sole purpose of ensuring compliance with the SIS Act or SIS Regulations, and is reasonably necessary for that purpose.
  • Any advice which constitutes financial product advice is accompanied by a written warning that the accountant is not licensed under the Corporations Act to provide financial product advice and that the client should consider taking advice from someone who holds an AFSL before making a decision on the SMSF.
  • The advice is not for inclusion in an exempt document or statement under s766B(9) of the Corporations Act (for example, an expert report).

If the advice is being provided in the course of providing advice on the tax implications of SMSFs, the following additional restrictions apply:

  • The accountant will not receive a benefit such as a fee or commission (other than from the client) as a result of the client establishing the SMSF.
  • The advice is accompanied by a written statement that the accountant is not licensed under the Corporations Act to provide financial product advice, and that tax is only one of the matters that must be considered when making a decision, and that the client should consider taking advice from someone who holds an AFSL before making a decision on the SMSF.

What about accountants who are also tax advisers?

Invariably, advice by an accountant in relation to a person’s SMSF will lead to a discussion of tax, in particular the taxation implications of investing via an SMSF and other related matters such as contributions caps and excess contributions tax risks.

So, to what extent does such tax advice constitute financial product advice, and are there AFSL exemptions under the Corporations Act or Corporations Regulations?

Tax agents' exemption

Section 766B(5)(c) of the Corporations Act 2001 (Cth) (Corporations Act) provides that advice given by a registered tax agent, which is given "in the ordinary course of activities as such an agent and that is reasonably regarded as a necessary part of those activities", is notfinancial product advice.

"Exempt" services under the Corporations Act as they apply to tax advice

As noted above, s766A(2)(b) of the Corporations Act provides that the Corporations Regulations may set out the circumstances in which a person is taken not to provide a financial service. This takes us to Reg 7.1.29 of the Corporations Regulations, which states that a person who provides an eligible service in the context of conducting an exempt service is taken not to provide a financial service.

Regulation 7.1.29(4)(a) of the Corporations Regulations provides that "advice to another person on taxation issues including advice in relation to the taxation implications of financial products", is also an exempt service. This would cover things such as:

  • Tax rates that apply in relation to SMSFs
  • Contributions caps and excess contributions tax.

However, to be able to rely on this exemption, further conditions need to be met:

  • The accountant must not receive a benefit such as a fee or commission (other than from the client) as a result of the client establishing the SMSF.
  • The advice must be accompanied by a written statement that the accountant is not licensed under the Corporations Act to provide financial product advice, and that tax is only one of the matters that must be considered when making a decision, and that the client should consider taking advice from someone who holds an AFSL before making a decision on the SMSF.

Conclusion

The various AFSL exemptions available to accountants in relation to their clients' SMSF dealings no doubt provide significant opportunities.

However, not only do the legislative complexities need to be navigated, but accountants should also be aware of the conditions and restrictions which apply to particular exemptions, especially where client disclosures are required.