Jaime Lumsden Kelly

Competitions where insurers or underwriters reward broking staff with a ‘prize’ for meeting certain volume goals for quotes for business placed are rife with conflicts, whether the broker wins a prize or not.

The Fold Legal senior lawyer, Jaime Lumsden Kelly says entering a competition can easily lead to a breach of the broker’s Australian Financial Services (AFS) licence. “Regardless of whether a broker wins or loses a competition, merely entering creates a potential conflict of interest,” she says.

“Participating staff could be motivated to prefer their own interests to those of their clients and brokers who give personal advice to retail clients, could also breach the best interests duty.”

Ms Lumsden Kelly says AFS licensees need to take a stand on competitions. “The options are to either avoid it altogether and not allow broking staff to participate or to manage it. When licensees tell their brokers to avoid it, they should keep reminding them and inform the insurers they deal with as well.”

If the licensee opts to manage it, they must act on two elements; disclosure and the best interests duty. “The potential for staff to win prizes needs to be disclosed in the Financial Services Guide for retail clients and in the disclosures you make to wholesale clients. All disclosures must be timely, prominent, specific and meaningful,” she says.

“To meet the best interests duty, implement a policy that broking staff must recommend insurers and policies that are appropriate for the client, without any regard to the prospect of winning a prize. Put it in writing and periodically check that it doesn’t happen.”

Ms Lumsden Kelly says that managing conflicts of interest can be complex, but seeking legal advice for identifying and developing policies for managing them can be of assistance.

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Claire Wivell Plater

Bitcoin businesses should actively seek advice on whether their businesses are compliant, as there may be difficulty in applying existing Australian Financial Services (AFS) licensing laws, according to Claire Wivell Plater, Managing Director of the Fold Legal and Amor Sexton, Digital Currency Lawyer atAmor Sexton.

AFS regulatory expert, Ms Wivell Plater says bitcoin isn’t easily characterised. While some regard it as money others call it a digital currency. A third view is that it’s a commodity.

“There could be other views,” she says. “What we do know is that it’s one of the fastest-growing technologies since the birth of the Internet, primarily because it offers a low-fee payment gateway that can bypass foreign currency remitters and banks.”

Ms Wivell Plater says it seems unlikely that bitcoin itself is a financial product under the AFS laws as they currently stand.

“Therefore, some businesses, like bitcoin exchanges or ATMs, may not need an AFS licence,” she says. “However, some services associated with bitcoins may well be financial products. For example, a facility by which people can use bitcoin to pay for goods and services may be what’s known as a non-cash payment system for which an AFS licence would be required. Similarly, bitcoin futures or other derivatives based on bitcoin would clearly be a financial product.”

The need for a licence will depend on the business model, Ms Wivell Plater warns. “Even small variations may be important. Bitcoin businesses should take advice at an early stage to ensure that they are aware of their legal obligations. Operating without an AFSL can attract serious penalties, not the least of which could be the need to suspend trading until the AFSL is granted.”

Ms Sexton, who is an adviser to a number of bitcoin businesses, warns against taking a ‘one-size fits all’ approach. “For most regulatory requirements, the focus is on what the business is actually doing with bitcoins,” she says. “It is important to get advice that is specific to your business model and processes.”

Bitcoin businesses need to be aware of possible obligations under the Corporations Act, the Competition and Consumer Act, the Privacy Act, the Payment Systems (Regulation) Act, the Anti-Money Laundering and Counter-Terrorism Financing Act, the Financial Transactions Reports Act, the Banking Act, the various State consumer protection legislation, the GST Act and other tax laws.

Ms Sexton believes the novelty of bitcoin means that the application of these laws to bitcoin businesses can be complex and difficult to determine.  However she believes that it is only a matter of time before this changes.

“It will be interesting to see how the law develops as the adoption of bitcoin increases. At the moment bitcoin is a new concept and it is easier for the regulators to try to fit bitcoin within the existing legal framework,” she says. “When bitcoin use becomes more mainstream, it will challenge the government to tailor the legal framework for digital currencies.”

Ms Sexton also highlights the potential impact that developments overseas can have on the Australian legal status of bitcoin. “If an overseas country decides to declare bitcoin as legal tender, this would mean that it would be considered ‘foreign currency’ under Australian law.  This would have a massive impact on the way that the regulators approach bitcoin.”

According to Ms Sexton, this possibility is not too far-fetched. “A country can adopt whatever currency they want as legal tender. For example, in Zimbabwe both US dollars and South African rand are legal tender. The central bank in Zimbabwe has also begun to allow the use of Australian dollars, Chinese yuan, Indian rupees and Japanese yen. It is possible that another government may see value in allowing a digital currency to be another form of legal tender.”

Until a change like this happens, bitcoin businesses will need to consider how their activities fit within the traditional legal framework, she says.

Although compliance can be time consuming, both Ms Sexton and Ms Wivell Plater see commercial benefits for a bitcoin business. “The rules are based around best practice. If the public sees that bitcoin businesses are complying with the rules, their confidence in using bitcoins will increase.  This will have a positive commercial effect on the businesses and the industry as a whole,” Ms Wivell Plater says.

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Stuart Abley

AMP’s SMSF Advice has debunked the commonly held view that for a typical accounting practice, the cost of establishing and maintaining a limited Australian Financial Services Licence (AFSL) is less expensive than becoming an authorised representative of another AFSL holder. 

Accountants can expect to pay from $20,000 to $34,000 for self licensing, compared to $15,000 to $20,000 for becoming an authorised representative, according to AMP SMSF Advice research conducted as accountants consider their licensing options.

Most accountants view the $1,485 ASIC application fee as their only up-front licensing cost, but in reality, licensing set up can cost accountants about $11,500, more than eight times what most accountants expect.

Many accountants are unaware they should begin business preparations at least a year in advance if they’re planning on acting under a limited licence when the accountant’s exemption is removed.

These are some of the insights AMP’s SMSF Advice has unearthed after speaking with more than 500 accountants over the past year.

SMSF Advice has unlocked six key insights into what accountants are thinking – and not thinking about – when it comes to licensing. SMSF Advice’s special report, To licence or not: The real cost of your decisions, explores the big questions facing Australian accounting professionals.

From 1 July 2016 the exemption which allows accountants to set up an SMSF without the need for a licence will be removed and accountants who want to continue doing this will need to be licensed.

Accountants have a number of licensing options, including obtaining and maintaining their own licence or becoming an authorised representative of another AFSL holder.

AMP’s Head of SMSF Advice Stuart Abley said it’s crucial for accountants to have an accurate understanding of the licensing options available and the implications of each.

“After speaking with over 500 accountants about licensing we know that the big areas of confusion for accountants are around cost and timing,” Mr Abley said.

“The question of licensing for accountants is about how, and not when – the time to act is now.

“Getting ready for licensing is a lot more involved than most accountants anticipate with preparations estimated to take well over a year, including training to meet RG146 competency requirements, collection of documentation, creating compliance procedures, understanding FOFA advice obligations and the opportunity to develop a new pricing structure.

“The choice between becoming self-licensed or an authorised representative of a licensee is an important decision and while most accountants are concerned with the cost implications of change, some are limiting their focus to costs only.

“This is a terrific opportunity for accountants to transform their business by embracing advice and benefiting from the value it can add to their practice with increased revenue and profitability and, most importantly, the opportunity to offer clients a valued service.

“The Australian SMSF asset pool is worth $530 billion and accountants who want to continue to service their clients with SMSF advice, or build strength in this growing sector, have some big decisions to make about the best way forward for their business,” Mr Abley said.

SMSF Advice spoke with over 500 accountants across Australia over the past year and landed on six key insights about accountants and their licensing journey:

• Not all licensing costs are being considered. In the first year, total up-front and ongoing management costs of holding a licence could be as high as $20,000 to $34,000, compared to costs of around $15,000 to $20,000 for becoming an authorised representative of another AFSL holder.

• Accountants need to look beyond financial costs and consider the non-financial, ongoing costs, including maintenance of the licence.  This maintenance work is often carried out by the practice partner, the highest fee earning staff member.  Accountants also need to consider their ability to absorb the risk into their business model associated with becoming self-licensed.

• The type and scope of SMSF advice accountants can give under the licensing options vary. In choosing which licensing option to take, accountants need to be very clear on the type and scope of SMSF and other financial advice they want to provide to ensure they meet all legal and compliance obligations.

• Accountants are unsure about how to incorporate ‘advice’ into their business structure. More than half of accountants are not charging appropriately for the strategic advice they give to clients, pricing it at the same level as a client’s general tax advice, rather than at a more strategic advice level.

• Many accountants are concerned they may be providing advice beyond the SMSF accounting exemption.

• If accountants want to obtain a limited licence and begin offering advice by July 2016, they need to be taking active steps during 2014. Most accountants are unaware that if they are planning to act under a limited licence, they should begin preparing their business at least a year in advance, including undertaking the RG146 training, time for collecting and collating licensing documents and business preparation.

My Abley said the most important question accountants should be asking themselves is, “How do I transform my accounting business now so it remains relevant in the future”, and licensing is an important first step in this opportunity to focus on future growth.

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Information Sheet 179 Applying for a limited AFS licence (INFO 179) gives practical guidance to help applicants work through the licensing process.

INFO 179:
Provides guidance about ASIC’s licensing application process, and how it will apply to those seeking a limited AFS licence
outlines what information needs to be submitted in support of a limited AFS licence application, and
gives information about which ASIC guidance will be most relevant for those seeking a limited AFS licence.

An exemption in the Corporations Act 2001 currently allows accountants to provide advice on the establishment of self-managed superannuation funds (SMSFs), without the need for an AFS licence.

As part of the Future of Financial Advice (FOFA) reforms, this exemption will cease to apply on 1 July 2016. From 1 July 2013, accountants will be able to apply for the new limited AFS licence.

To review the information sheet, click here.

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Click here to download the document (pdf)

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Click here to download the document (pdf)

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A financial planner is someone who provides personal advice to individuals and small businesses concerning financial strategies and products in areas such as superannuation, investment, insurance and personal financial management.

To practice as a financial planner, an individual must both;

• operate under an Australian Financial Services Licence (AFSL), either as a licensee or as a representative of a licensee, and
• be competent to practice

Australian Financial Services Licence (AFSL)

Licensees may be individuals or companies, so an individual offering financial planning services can choose to:

• apply for a licence either personally or for a company they control, or
• operate as an employee or authorised representative of another licensee. Large institutions such as banks and insurance companies who offer financial planning services hold licences, sometime authorising hundreds of smaller corporate or individual financial planning practices to act as representatives under their licences.

Because of the difficulties and cost of replicating the support available from large licensees and of meeting onerous compliance obligations, new entrants to the profession are usually best advised to begin by acting as an authorised representative. Even large, successful practices often do not find the move to holding a licence justifiable.

Competency

A person is competent if they have either;

• completed a course (or courses) that is listed on ASIC’s training register(see:  http://www.asic.gov.au) or
• been assessed as being competent by an authorised assessor. This second option is only available to people with relevant industry experience.

Note that there are no other options. One consequence is that a person who has relevant industry experience and who has completed training that is not listed on ASIC’s register can opt for assessment and have that training taken into account. A person who does not have industry experience, however, has no option other than to complete courses that are listed on the register, regardless of what other qualifications they may hold.

The courses or assessments which are completed must cover;

• generic knowledge of financial markets and products, and
• specialist knowledge and advisory skills for each of the particular areas (“Content Areas”) in which advice will be provided, such as:
  • Financial planning
  • Securities
  • Managed investments
  • Superannuation
  • Insurance—general and  life

A financial planner will need to complete a course (or courses) which covers all of these areas, while an insurance adviser, for example, will only need to complete a course (or courses) which covers generic knowledge and insurance.

Financial planners who advise in other specialist areas, such as derivatives or foreign exchange, will need to complete courses covering those areas as well.

Some areas, notably direct property, which is covered by State licensing laws, are not covered by RG146. Nevertheless, advice on property based securities such as REITs is caught, as is advice against securities/superannuation etc in favour of property. The production of financial plans that range more broadly than advice that is strictly limited to property also requires authority under an AFS licence and compliance with RG146.

Course standards

In order to be listed on ASIC’s register, courses must be at or beyond the standard required for a Diploma. A Diploma qualification is equivalent to 1/3 of a three year bachelor’s degree; that is, it is equivalent to one year of full time study at a university or TAFE.

BE VERY WARY OF COURSES THAT OFFER UNREALISTICALLY SHORT TIMEFRAMES, EVEN IF THEY APPEAR ON ASIC’S REGISTER. It is not possible to complete a third of a bachelor’s degree in 14 days.

Completion of courses or collections of courses that are listed may entitle the student to a qualification such as the Diploma of Financial Services (Financial Planning) {DFS (FP)} or, in the case of courses listed by universities, degrees.

Note that completion of a Diploma of Financial Services (Financial Planning) or a university degree does not automatically mean that the training requirements have been met. To be effective, the course must;

a.    be listed on ASIC’s register, and

b.     cover each of the Content Areas required. Details of the Content Areas covered are published on the training register by ASIC for each course listed.

Continuing education

When practicing as a financial planner, continuing education will be required by

a.    the law, which requires that individual training plans are prepared by the licensee, and records of training are kept, so that the competency of  each advisor is maintained, updated and developed, and

b.    the AFS licensee and any professional associations, such as the Financial Planning Association of Australia (FPAA), that are joined. These will have explicit rules about the continuing training that they require.

Further study

A popular next step from the entry level Diploma training is to complete the Advanced Diploma of Financial Services (Financial Planning) {ADFS(FP)}. Beyond this, many advisers undertake a Master’s program, complete the FPA’s Certified Financial Planner (CFP) program or undertake specialist study in areas such as self managed superannuation.

CFP

Full details of the FPA’s Certified Financial Planner (CFP) program can be found under the “Education and CPD” tab at www.fpa.asn.au, and this short summary does not pretend to provide all details.
The program comprises 4 units of study and a 5th assessment unit.

1. To commence the first 4 units of the program, a person needs:
   • 1 year’s relevant experience {usually means as an Authorised Representative (AR)},
   • to be a member of the FPA, and
   • to have a finance related degree or an Advanced Diploma (Financial Planning).
2. To enrol in the 5th unit a person needs, in addition:
   • an extra years’ (ie a total of 2 years’) experience.
3. After the study program is successfully completed, to be accepted as a CFP a person needs:
   • yet another year’s (ie total 3 years’) experience.
   • to sign on to a Code of Ethics.
   • an approved finance degree, or alternatively, any degree plus an ADFS(FP).

This means, regarding the education requirements, that:

1. the holder of an ADFS(FP) with no degree can enter and complete the CFP program. They will not be granted CFP status, however, unless at some point they complete a degree of any kind,
2. the holder of a degree that is not finance related will have to complete an ADFS(FP) to start the CFP program. On completion, they will be able to apply for CFP status, and
3. the holder of an approved, finance related degree can go straight into the program and ultimately apply for CFP status. They will not need an ADFS(FP).

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