There is something more interesting in the SMSF market than speculation about what super changes in the Budget will see the light of day, especially for many accountants. Perhaps a hand grenade ready to explode is the best analogy for the change in the rules regarding how accountants can give SMSF advice from 1 July 2017.
Accountants who want to advise on SMSFs are currently subject to regulation that is significantly different from normal accounting practice. Specifically, they have to follow the rules that financial planners use when advising, though they supposedly have reduced obligations if the advice is limited to SMSFs.
Broadly, following the miss-selling in the financial planning community, the rules for giving financial planning advice are pretty onerous. They now obligate someone to, in effect, do a financial risk and needs due diligence on their client, make recommendations that are consistent with what they found in that investigation and formally document that they have done both those things (the ubiquitous Statement of Advice).
What happened to ‘financial planning lite’?
So did accountants get the ‘financial planning lite’ regulation they were promised? Probably not. I’ve scoured the ASIC rulings to see if those client due diligence obligations are less onerous if they are just talking to them about an SMSF as opposed to full financial service advice. I’m blowed if I can see it.
ASIC makes some observations about ‘scaled’ (read limited) advice, but even when you are operating in a scaled environment you still have to tell the client that their other financial risks and needs, death and disability insurance for example, are not being advised on.
Now, I’m not the smartest person it the room but it seems to me that if you have to tell them that you are not advising on their other financial risks and needs you have to know what those other financial risks and needs are.
In that case, you, in effect, have to do a full financial risk and needs due diligence to be able to tell them you won’t be advising on all those financial risks and needs, just on SMSFs.
So, these financial planning lite rules limit your workload, right? No. They limit your regulatory risk, right? Well, no again. Tick tick tick. Is that an unexploded hand grenade I hear ticking away in the background?
Oh, and finally, there is the hostility of the accounting profession having to now practice in this way. I will admit I’m pretty close to the accounting profession, having worked with them on SMSFs for the last four years, but I do have some sympathy for their predicament.
The fact is that there is virtually no significant evidence of malpractice by accountants in the SMSF space. OK, there were some recommendations about setting up a SMSF when the indicators were that it wasn’t in the clients’ interest but benefitted the accountant. However, Jeremy Cooper’s Panel’s view of the SMSF sector was that it was well managed.
Regulatory overreach on accounting profession
It seems to me that the accounting profession has been sold a pup with these rules. Indeed, it can even be said that what we have here is regulatory overreach. All very interesting, but these rules, if breached, have serious consequences; the grenade exploding perhaps.
Gordon Mackenzie is a Senior Lecturer in taxation and business law at the Australian School of Business, University of New South Wales.