I read with great interest the release by Treasury of a discussion paper regarding a ‘Review of the Tax Practitioner’s Board’ (TPB) which is requesting feedback and comments on the future role of the TPB and the potential reforms to the regulation of Tax Practitioners in Australia.
Of most significance was the perceived recognition that the current framework for accountants and financial advisers is not working. It is staggering to think that a licensed financial adviser has obligations across eight (8) Government agencies with very little centralisation to support the ever-increasing compliance function against a backdrop of protecting consumers. Whilst the agencies interact with each other, the discussion paper acknowledges ‘overlap’ and seeks views on alternate models – 7 options in total for Tax Financial Advisers (TFAs).
Interestingly, one option (option 7) would allow for financial advisers that provide incidental tax advice to not have to be registered with the TPB. As a result, such a concession would effectively reinstate reciprocal arrangements for accountants that permit incidental financial advice that was repealed from 1 July 2016 (a.k.a. the accountant’s exemption).
The Treasury discussion paper is seeking advice on this matter through 10.15.7 where:
Option 7 would allow financial advisers to provide incidental tax advice without needing to be registered with the TPB. In addition, this option would bring back the accountants’ exemption and allow accountants to provide basic self-managed super fund advice and services without having to operate in the AFSL environment.
So, is this a good idea?
In my ‘open letter to the SMSF profession’ in the Future of SMSF Report released in November 2018, I stated that “whilst the quality of advice still remains at the forefront for regulators, a re-calibration of the rules of engagement to advise SMSF members is needed. In its simplest form, it is not about reinstating the accountant’s exemption and setting up framework that pits accountants against financial planners – rather we need to question how SMSFs fit into the financial product framework, particularly delineating between strategic and investment advice (i.e. handling client monies). Most importantly however, we must ensure that the outcomes do not lower the barriers for entry where we’ve seen scrupulous activities around one-stops shops for property and more.”
The discussion paper recognises the very importance of this issue, in particular with the need for consistency with the recommendations by Commissioner Hayne in the Financial Services Royal Commission (FSRC).
The FASEA impact on accountants
It has been interesting witness the continued drop-off of accountants within the limited licensing regime. The requirements under FASEA that requires individuals to sit a further competency exam that covers areas that they don’t even have scope to discuss under their limited licence have become a step too far, even where credits have been provided by their professional bodies in many instances. Any now, many good advisers are simply saying it’s too much and exiting the system.
And this is why I think fixing the problem through a revised model for accountants is a good idea. The outcomes from introducing limited licensing have clearly not achieved their policy intent, so against the backdrop of the Royal Commission, it provides a perfect opportunity to re-explore the policy setting to ensure that advice is not only encouraged but is readily available for those who need it at different stages of life.
Importantly, I’m now of the view that a greater level of regulation is needed around accountants who provide services to SMSF trustees. The latest ATO SMSF statistics (2016-17) show a fascinating insight into the still highly fragmented SMSF service provider industry. Today, 65% of tax agents currently only deal with 9% of the SMSF population – yes, more than 8,800 tax agents provide services to a little more than 55,000 SMSFs. The remaining 35% deal with a staggering 91% of the SMSF population, having an average of 112 funds in their practice. That is, approximately 4,800 tax agents deal with just shy of 600,000 funds. This statistic alone in my view paints a highly important challenge for the Regulator in dealing with (risk rating) service providers and their ability to support trustees in meeting their obligations within the SMSF environment.
Similarly, to what we’ve seen with auditor’s post Cooper Review in 2010, this could entail accountants and/or administrators to become regulated (as an Approved SMSF service provider / agent), whether that’s through ASIC, the TPB or otherwise (subject to any recommendations from this Treasury discussion paper). Importantly, this is not to exclude firms from administering SMSFs, but based upon a threshold – let’s say 20 funds, you would need to sit a competency exam to demonstrate a relevant skillset to continue to service SMSF trustees, and only through the accredited process would individuals be able to rely upon any specific exemptions to discuss strategic issues such as making contributions, starting pensions and the like. This to me is the perfect ‘carrot and stick’ – enable some more rope for accountants to engage in conversations with your SMSF clients, but ensure that the Regulator has greater powers to take action in the event of inappropriate outcomes.
More to do in our own backyards
With the ATO currently spending a greater focus on trustee education for new entrants, I still hold the view that we can improve on getting our professional backyards in order first, just as I made that comment 10 years ago when Phase 3 of the Super System Review (Cooper Review) looked at the SMSF sector. A by-product of a profession governed by higher standards is a better and more educated trustee entering the SMSF sector, without any mandated obligations that act as a barrier to entry. I’m all for encouraging the understanding of responsibilities by trustees, but I think a mandated outcome plays perfectly into the hands of the APRA-regulated sector.
These views expressed here are going to form part of my submission to Treasury on this matter, supported by data the results in last year’s Future of SMSF report. I’d love to hear your views on the role of accountants providing advice to SMSFs in the future by commenting below.
Aaron, I agree with your practical suggestions to fixing a public policy failure. I would also add that changes to the regime should make it very clear that qualified accountants are able to have open and broad conversations regarding their SMSF clients’ investment portfolios. Yes, they can already do so under the category of providing “factual information“, but many accountants are concerned they might be inadvertently crossing the line into giving advice. As long as the accountant is not putting forth a product in which they have a financial interest they should be allowed plenty of flexibility to discuss different ways the client can obtain professional investment help, as well as the features, pros and cons of these alternatives. Keep up the good work! Cheers, Andrew
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