Jaime Lumsden Kelly

With the transition period for accountants’ licensing ending on 1 July 2016, now is the time for accountants to decide whether or not they need an Australian Financial Services (AFS) licence.

Senior Lawyer at The Fold Legal, Jaime Lumsden Kelly, who is leading The Fold’s accountant’s licensing services, said accountants who advise clients about self managed superannuation funds (SMSFs) need to make two key decisions. “Accountants need to decide whether they need a limited advice licence or a full licence,” she said. “The limited licence allows accountants to give some kinds of general and personal advice on superannuation – including SMSFs – and provide strategic advice on basic deposit products, securities, simple managed investment schemes and general and life insurance.”

Ms Lumsden Kelly said the limited licence won’t allow accountants to provide full financial planning advice or advice on specific financial products except in the context of SMSFs. “If accountants want to provide full financial planning advice services, they will need to apply for a full AFS Licence.”

The second decision for accountants according to Ms Lumsden Kelly, is whether to obtain their own licence or whether to become an authorised representative (AR) of an existing licensee.

“Acting as an AR does avoid the time and cost of the licence application process and also the ongoing management and compliance requirements,” she said. “It also means you won’t need to appoint a Responsible Manager to satisfy ASIC that you have the capability to provide your services.”

Ms Lumsden Kelly said like anything, there are downsides to acting under a third party licence. These could include:

• Finding a licensee that aligns with your interests, your practice and your clients
• Being bound by the licensee’s approved product list in terms of the products you can recommend
• Restrictions to acting within the confines of another entity’s licence – e.g. lack of autonomy
• Potential loss of independence and impartiality in the eyes of your clients

“There’s no right or wrong answer to which option accountants should choose,” Ms Lumsden Kelly said.  “The appropriate path will depend on the extent of the services offered and the extent to which independence is important. There are plenty of options on offer, so take the time to consider them carefully and seek advice if you’re in doubt.”

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Jaime Lumsden Kelly

Many financial services businesses offer services through a number of different entities, sometimes supported by a service company – but this does not necessarily mean each of the entities needs to hold its own Australian Financial Services (AFS) licence, according to Senior Lawyer at The Fold, Jaime Lumsden Kelly.

“Essentially, there are two options,” Ms Lumsden Kelly says. “Certainly one of those options is for each entity providing a financial service to hold its own licence. This can make it easier to sell parts of the business, but it will multiply compliance tasks.”

The other option is for one entity to hold the licence and appoint the other entities that service clients as authorised representatives (AR)s. The service company shouldn’t need an AFS licence as it doesn’t provide financial services to clients.

“The thing to consider with this option is which company should hold the licence,” Ms Lumsden Kelly says. “A holding company that does not itself provide financial services may be a good choice, but it’s not the only alternative. When making a decision, you need to be mindful of the fact that the entity that holds the licence will need to undertake monthly cash flow forecasts. They also need to obtain all the authorisations needed for all the financial services offered throughout the group.”

Licensing arrangements like these can complicate the issue of  which employees need to be appointed as authorised representatives .  “The thing to remember is that the only employees who need to be formally appointed are employees of companies who are unrelated to the AFS licensee,” Ms Lumsden Kelly says. “Employees of the AFS licensee, (even if they are seconded to work for an affiliated but unrelated company) or employees of companies related to the AFS licensee do not need to be formally appointed.

A company will be ‘related’ to an AFS licensee if the licensee owns more than 50 per cent of its issued share capital; it owns more than 50 per cent of the licensee’s issued share capital; or a third company owns more than 50 per cent of the issued share capital of both the company and the licensee. But confusingly, companies owned by the same individuals are not ‘related’.

“This can be a complicated area, so when in doubt, seek legal advice,” Ms Lumsden Kelly says.

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SPAA backs ASIC warning on property advice by unlicensed real estate agents.

The SMSF Professionals’ Association of Australian (SPAA) fully supports the ASIC statement issued on Wednesday that strongly warns the real estate industry about agents recommending investors to use an SMSF to invest in property.

SPAA CEO Andrea Slattery says: “The ASIC warning is both timely and needed in light of the enormous media attention that has been given to this issue in recent months.

“From SPAA’s perspective, it’s been our constant stance on SMSFs investing in property that there are technical dangers, and as such we have always recommended that trustees get professional licensed advice, either from a professional SMSF Advisor who holds a licence or is an authorised representative of a licensee.

“We took that position a year ago in a detailed technical bulletin to all our members warning of the risks of property investment, and it remains our position today.”

She says property is an investment option for an SMSF, but, like any investment, it must be suited to the fund and take into consideration the members’ circumstances.

“In relation to property, there may be an interest in this asset class now because, in a low interest environment, people are looking for investment opportunities with higher yields than cash or bonds, and while there are still fears held about equities.

“It’s exactly because of this heightened interest in property that the regulator should be on the front foot to warn the real estate industry that its members must use licensed advice when recommending setting up an SMSF or recommending an SMSF acquires a property.

“ASIC is the ‘consumer awareness’ regulator and gained new powers on 1 July 2013 to target inappropriate marketing and spruiking within the Financial Services sector.

In its statement, ASIC said it was concerned that with the increased popularity of SMSFs and property investment, adding that real estate agents may not realise they are providing financial product advice and need an Australian financial services (AFS) licence when making recommendations or statements of opinion to a person to use an SMSF to invest in property.

ASIC has written to the REIA, the state and territory real estate institutes and property investment associations (real estate bodies), setting out its concerns and asking the real estate bodies to communicate these to its members.

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APT’s licence authorised it to operate managed investment schemes and act as a responsible entity, among other things. It operated two such schemes, both of which invest in direct real property.

ASIC surveillance found that APT failed to:

• comply with the financial conditions of its licence, and
• lodge audited financial reports on time for APT and the schemes it operated.

Commissioner Greg Tanzer said that to help ensure confident and informed investors, schemes wanting to take on the responsibility of managing investors’ money must be backed by REs with appropriate financial substance.

‘ASIC imposes financial conditions on licensees to help ensure that they have adequate financial resources to provide the services covered by their licence. ASIC will not hesitate to take action where licensees fail to meet these requirements’ Mr Tanzer said.

‘Companies also have obligations that are central to ensuring the transparency and accountability of the reporting process. These obligations must be complied with to ensure users of financial reports like unit holders and creditors have the information available to help them make informed decisions.’

APT has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decision.

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“Premium was founded by accountants and alignment with accountancy practices and principles have always been central to our business,” he said.   “Accountants are among the most trusted professions.  And as we know, sadly advisors still do not have the perception of trust they merit.   We think that many of the other initiatives introduced via FOFA will only have a small impact on rebuilding this trust in the eyes of the community.

“We believe this new accountant’s licencing initiative will increase the uptake of advice and help move financial advice into the status of a profession.

Mr Harding-Davis said it was a natural progression for the firm to offer licencing to accountancy firms.

“We will offer the three tiers of licencing and the support services that go along with it, such as monitoring, audit and training.  Additionally, accountants will need to be RG146 compliant, so we will provide access to the necessary training packages, along with a sensible pricing model.”

“We also believe the referral opportunities this will create will be of significant value for the advisors in our network. We think it’s unlikely that all accountants will want to get involved in the specific investment or insurance product decisions by clients, so reliance upon the knowledge of advisors will be essential in this regard.”

The step by Premium is the latest initiative in an active growth strategy.

“We have recently increased the number or advisors in our network and are in discussions with a number of others. We also recently announced that we have formed an alliance with The Emerald Club to provide licensee and dealer group support for members.”

“We think this latest initiative will further enhance the attractiveness of our Group for firms who wish to remain free from institutional imperatives.”

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Revisions to ASIC’s regulatory guidance for AFS licence applicants removes the requirement to submit paper versions of documents lodged online.

Under the changes, applicants for an AFS licence will no longer be required to lodge:

• the signed application form and the supporting documentation in paper text, allowing applicants to submit these documents electronically, and
• certified true copies of background credential checks known as ‘People Proofs’.

Updated guidance to reflect these changes is set out in:

• Regulatory Guide 1 AFS Licensing Kit: Part 1 – Applying for and varying an AFS licence (RG 1)
• Regulatory Guide 2 AFS Licensing Kit: Part 2 – Preparing your AFS licence or variation application (RG 2)
• Regulatory Guide 3 AFS Licensing Kit: Part 3 – Preparing your additional proofs (RG 3).

The removal of the requirement to lodge paper versions of the applications and supporting documentation, and the certified copies of the ‘People Proofs’ will simplify and streamline the AFS licensing process.

ASIC Commissioner, Greg Tanzer, said these changes will save industry time and money, especially important for small business operators.

‘These updates reflect our commitment to efficient registration and licensing, essentially cutting red tape for business. We will also continue to review our policies and procedures to improve efficiency dividends for business where we can’, Mr Tanzer said.

The updated guidance provides current and prospective licence applicants with ASIC’s requirements for the AFS Licence application process and requirements for the preparation of ‘People Proofs’.

The updated guidance takes effect from Tuesday 12 June 2012.

13 June 2012

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