'I have a bonus and want to know whether to put it into super" is typical of the questions people are likely to ask their accountants all the time. But accountants are not allowed to give an answer, even though it does not involve any financial product recommendations.
Accountants want to be able to give "strategic" financial advice but are being challenged by the financial planning industry, which says there are potential dangers for consumers if this is allowed.
The government is reviewing the role of accountants in advice-giving as part of its reforms of the financial advice industry.
As the law stands, accountants are limited to advising on matters such as tax and tax structures such as family trusts and the administration of self-managed super funds. Yet their clients may also want to know whether money they have is better used to pay down debt such as the mortgage or invested elsewhere.
Campaign for change
Only accountants who hold or work under a holder of an Australian Financial Services Licence, are able to give full financial advice, including financial product recommendations.
But most accountants are not interested in making specific product recommendations. They just want to be able to give strategic advice without having to get a licence.
Whereas the legal minimum education of a financial planner advising clients on their life savings is as little as five hours a week over a year (though most have more), accountants have an undergraduate degree and usually post-graduate qualifications. Accountants argue that consumers are being denied the expertise of accountants to help them with their planning needs.
CPA Australia and the Institute of Chartered Accountants are running a joint campaign to increase awareness among the public of the importance of allowing accountants to give strategic advice on super, life insurance, managed funds and bank products and shares.
Accountants are highly educated professionals who advise clients on tax and on their small businesses and so on, but are prohibited from holding a general discussion on financial health with their clients, says the head of business and investment policy at CPA Australia, Paul Drum. "It is quite absurd
that someone who has been in practice for 20 or 30 years cannot talk to their clients about simple, non-product advice on where their money should or should not be,"
he says.
Under the so-called "accountants' exemption", they are allowed to advise on setting up and closing self-managed super funds and administration of the funds without having a licence.
But they cannot even give advice on investment strategy inside the self-managed fund.
Advice reforms
As part of the federal government's sweeping reforms to financial planning, the accountants' exemption will be replaced with something else. While the government has yet to release details of the replacement, it is believed accountants who want to give strategic advice will be able to do so under a conditional licence.
However, the conditional licence will likely be limited to giving non-product advice on life insurance, simple bank products and superannuation only. The accountants say that is far too narrow.
"That is a far from an ideal policy outcome," says the general manager for leadership and quality at the Institute of Chartered Accountants in Australia, Yasser El-Ansary.
"There are millions of taxpayers who visit an accountant to get their tax done who are not going to be happy with that," he says.
The accountants want to be able to have discussions about managed funds and shares, for example. They want to be able to talk to the 50-year-old who wants to know the rules on super and whether the $20,000 they have should be put in super and to help the 25-year-old decide what they should do with their bonus, El-Ansary says.
The chief executive of the Financial Planning Association, Mark Rantall, has concerns over where the line is drawn between personal advice, general advice and product recommendations.
"The starting point is to make sure consumers get the best advice that they can get," he says.
Anyone giving advice on what people should be doing with their money must have the right skills, Rantall says. He says an accountant is free to gain a full licence, which will ensure that any gaps in training and competencies are closed and consumers will get the protection that licensing brings.
The accountants say they are prepared to enter into the arrangement under a conditional licensing model that allows them to give strategic, non-product advice, as long as areas they can talk about with their clients are widened.
The head of financial advisory services at the Institute of Chartered Accountants in Australia, Hugh Elvy, says sole practitioner accountants in particular are unlikely to be able to satisfy the "experience" component in order to obtain a full licence.
The regulator requires, for example, that someone wanting a licence needs to have worked under the direction of a licensee, which most accountants have not done. But accountants do not want to give up their independence by working under the licence of one of the big financial institutions.
Rantall says a conditional licence could be a good compromise for those who just want to give strategic advice, but it would have to be a "level playing field" and the licence would have to be made available to financial planners who just want to give strategic advice. Elvy estimates at least 10,000 accountants are likely to be interested in applying for a conditional licence.
Accountants outrank those with a plan
ACCOUNTANTS are more trusted by the public than financial planners. A survey of what people think of the "honesty and ethical standards" of 30 professions by Roy Morgan Research has accountants with a score of 49 per cent, compared with financial planners, at 26 per cent.
Accountants rank 11th-highest behind university lecturers and just in front of religious ministers.
Planners rank 17th behind pollsters and just in front of directors of public companies. Nurses received the highest score of 90 per cent and car salesmen the lowest at 2 per cent.
It is this trust that makes accountants feel they have earned the right to be able to answer their clients' questions about their finances without having to deal with mountains of paperwork and expense that comes with onerous regulation and licensing. The accountancy profession has largely avoided the problems of financial planners, which prompted the government to reform the financial planning industry.
However, the reputations of some accountants and some planners were tarnished with the collapse of the primary industry investment schemes.
These schemes, such as Great Southern and Timbercorp, were always sold on their attractive tax breaks for high-income earners in the lead-up to June 30, sometimes in return for commissions. The investment merits of the schemes were not always obvious.
Frequently Asked Questions about this Article…
Can my accountant give me financial advice about superannuation or investments?
Under current law accountants can advise on tax, tax structures (for example family trusts) and the setup and administration of self-managed super funds (SMSFs), but they generally cannot give full financial product recommendations or investment strategy inside an SMSF unless they hold or work under an Australian Financial Services Licence (AFSL).
What is the 'accountants' exemption' and how does it affect SMSF advice?
The accountants' exemption allows accountants to set up, close and administer SMSFs without holding an AFSL. However, the exemption stops short of permitting advice on investment strategy inside the SMSF — accountants can handle administrative and tax matters but not product or investment recommendations for the fund.
Will accountants be able to give more strategic financial advice under upcoming reforms?
As part of federal financial planning reforms the government plans to replace the accountants' exemption with a new arrangement. It is believed accountants may be able to give strategic, non‑product advice under a conditional licence, but the proposed scope is likely to be limited to life insurance, simple bank products and superannuation unless the rules are widened.
What is a conditional licence for accountants and how might it help everyday investors?
A conditional licence would allow accountants to give non‑product, strategic advice without a full AFSL. Proponents say it could help clients get straightforward guidance on topics like super and simple bank products from their trusted accountant, though industry groups disagree on how broad the conditional licence should be.
How do accountants and financial planners compare on training and consumer trust?
Accountants typically hold undergraduate and often postgraduate qualifications, while the article notes the legal minimum formal training for some financial planners can be relatively modest (described as as little as five hours a week over a year in that context). A Roy Morgan survey cited in the article also found accountants scored higher for honesty and ethical standards (49%) than financial planners (26%).
If I want product recommendations, should I go to an accountant or a licensed financial planner?
Anyone seeking product recommendations (for example specific investments, managed funds or insurance products) generally needs advice from someone operating under an AFSL — that is typically a licensed financial planner. Accountants without an AFSL or without working under one cannot give full product recommendations under current rules.
Are accountants prepared to accept conditional licensing, and how many might apply?
Accountancy bodies in the article say they are prepared to enter a conditional licensing model that allows strategic, non‑product advice — provided the allowed advice areas are widened. The Institute of Chartered Accountants in Australia estimated at least 10,000 accountants could be interested in applying for a conditional licence.
What investor risks does the article highlight from past scheme failures like Great Southern and Timbercorp?
The article notes that reputations of some advisers and accountants were tarnished by the collapse of primary industry investment schemes such as Great Southern and Timbercorp, which were often marketed on attractive tax benefits. The piece highlights the danger of schemes sold mainly for tax breaks where the investment merits were not always clear — a cautionary point for everyday investors to scrutinise both tax and investment substance.
Call 1300 880 160
Start a chat
Schedule a call
