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This FAQ provides guidance to about
whether an accountant needs an AFS licence to conduct various
activities in relation to SMSFs.
Accountants should not assume that their activities
fall outside the scope of AFS licensing merely because they
were activities undertaken in the past without a licence.
Unless covered by an
exemption, if you advise or deal, or provide any other
financial services, in relation to SMSFs, you will need an AFS
licence. The maximum penalty, if convicted of carrying on a
financial services business without an AFS licence, is
$22,000, a two-year term of imprisonment, or both. Reg 7.1.29
and reg 7.1.29A of the Corporations Regulations provide that,
for accountants, certain conduct is taken not to be the
provision of a financial service under the Corporations Act
(the Act). This FAQ provides guidance about how these
regulations apply to services provided by accountants in
relation to SMSFs.
For a
general discussion of when an accountant may need an AFS
licence see our FAQ - QFS 10 - Do
the AFS licensing requirements apply to accountants?
Part A: Summary -
What can and can't a recognised accountant do without needing
to hold an appropriate AFSL
authorisation?
What can
I do?
In general, if you are a
member of the CPA, ICAA or NIA (a recognised accountant), you
may provide some financial services in relation to SMSFs
without needing to hold an AFSL. There are important
restrictions on the types of advice and other services that
you can give, and the circumstances in which you can give
those services (which are referred to in more detail below).
However, in general:
1. You
can give financial product advice
in relation to the establishment, operation, structuring or
valuation of a SMSF to a client who controls or will control
the management of the SMSF (eg a member who is or will become
a trustee of the SMSF ('member trustee') or a director of a
corporate trustee of the SMSF ('member director')). For
example:
- You can provide advice about
administration and operational issues, including how to
establish a SMSF, the addition of new trustees and members
and valuation of the fund assets.
- You can recommend that your client
establish a SMSF.
- You may be able to recommend that your
client join a SMSF if that recommendation is reasonably
necessary to, and an integral part of, advice about the
establishment, operation, structuring or valuation of the
fund.
- If your client is already a member of a
SMSF, you can recommend that your client dispose of their
interest in the SMSF (but you cannot recommend that they
switch into another type of superannuation fund).
- You can provide advice that is for the
sole purpose of ensuring compliance with particular
superannuation legislation. This includes advice on meeting
the in-house asset rules and modifying contribution levels
due to changes in the superannuation guarantee level. It
does not include advice on the investment strategy of the
SMSF. You cannot recommend that a client's employer cease
making superannuation guarantee contributions to another
fund and start making superannuation guarantee contributions
to the SMSF, as this advice would not be for the sole
purpose of ensuring compliance with the
legislation.
2. You
can organise for a client who
controls, or will control, the management of a SMSF (eg a
member trustee or a member director) to acquire or dispose of
interests in a SMSF by:
- Organising for your client to establish
a SMSF and join a SMSF if reasonably necessary to and an
integral part of the advice about the establishment of the
SMSF.
- Processing the transfer or rollover of
funds into, or out of, a SMSF where the decision to transfer
or rollover the funds has already been made (but you cannot
recommend the transfer or
rollover).
3. You
can give financial product advice
in the course of advising on taxation issues, such as the
taxation implications of holding an interest in a
SMSF.
If the service that you
provide is financial product advice, you must give your client
a written warning that you are not licensed to provide the
financial product advice and that they should consider taking
advice from an AFS licensee before making a
decision.
You must also ensure
that, when providing these financial services, you do not
engage in misleading or deceptive conduct.
What can't I
do?
You will not be able to do
the following things without holding an AFS licence, even if
you are a recognised accountant:
| 1. |
You cannot
give any advice that relates
to the particular assets or investment strategy of the
SMSF, including whether the trustee should acquire or
dispose of certain financial products or classes of
financial product. |
| 2. |
You
cannot recommend that the
client dispose of interests in another type of
superannuation fund (such as an employer fund or public
offer fund), or any other type of financial product,
even if the recommendation is for the client to dispose
of that product in order to establish or join a SMSF
(for example, by rolling over funds from the other
superannuation fund to the SMSF). |
| 3. |
You
cannot recommend that the
client change the investment strategies or contribution
levels of another type of superannuation fund. That is,
you cannot recommend that the client stop contributing
to an existing superannuation fund and instead make
contributions into a SMSF. You cannot give advice to
switch between investment options. |
| 4. |
You
cannot recommend that your
client should not invest in other types of financial
product. |
| 5. |
You cannot
recommend that your client
join an existing SMSF unless that recommendation is
reasonably necessary to, and an integral part of, advice
about the establishment, operation, structuring or
valuation of the
fund. |
Part B:
What restrictions apply to the exemptions in regs 7.1.29 and
7.1.29A?
Reg 7.1.29 and reg
7.1.29A of the Corporations Regulations provide that certain
financial services are taken not to be financial services
under the Act for licensing purposes. This means that the
licensing provisions of the Act will not apply if you provide
those services. Other obligations will apply, however, such as
the requirement to give the warnings specified in reg 7.1.29
and prohibitions on misleading and deceptive
conduct.
However, there are a
number of important restrictions on the reg 7.1.29 exemptions.
The main general restriction is
that:
| 1. |
the financial service
that you provide (referred to in reg 7.1.29 as an
eligible
service) must be
provided in the course of conducting an
exempt
service;
and |
| 2. |
it must be reasonably
necessary to provide the eligible service in order to
conduct the exempt service; and |
| 3. |
the eligible service
must be provided as an integral part of the exempt
service. |
Regs 7.1.29(3) to (5) set out a number of services
that are exempt
services. Exempt services that
are relevant to SMSFs include:
- providing advice about the
establishment, operation, structuring or valuation of a
SMSF: reg 7.1.29(5); or
- arranging for another person to deal in
interests in a SMSF: reg 7.1.29(3)(f); or
- providing advice on taxation issues,
including taxation implications of SMSFs: reg
7.1.29(4).
In addition,
there are some specific
restrictions on the circumstances
in which a service will be an exempt service (and therefore on
the circumstances in which exemptions are available for
financial services provided in the course of conducting the
different types of exempt services).
Specific restrictions: Advice on establishment of a
SMSF etc, or arranging for the client to establish, join or
leave a SMSF
If you are
providing financial product advice in the course of advising a
client on the establishment, operation, structuring or
valuation of a SMSF, or you are arranging for a client to deal
in interests in a SMSF, you can only rely on reg 7.1.29 if the
following restrictions are met:
| 1. |
The client is, or is
likely to become, a trustee or a director of the
trustee, an employer sponsor or a person who controls
the management of the superannuation fund. For SMSFs,
the client will therefore generally need to be a member
who is a trustee of the SMSF ('member-trustee'), or a
director of a corporate trustee of the SMSF('member
director') or a person who will become a member-trustee
or member director if the SMSF is
established. |
| 2. |
No advice is given
that: |
 |
a) relates to the
acquisition or disposal by the superannuation fund of
specific financial products or classes of financial
products; or
b) includes a
recommendation that a person acquire or dispose of a
superannuation product (except where the recommendation
is made by a 'recognised accountant' in relation to a
SMSF: see reg 7.1.29A); or
c)
includes a recommendation in relation to a person's
existing holding in a superannuation product to modify
an investment strategy or a contribution
level;
unless the
advice:
d) is given for the
sole purpose of ensuring compliance with the
Superannuation Industry
(Supervision) Act 1993 (SIS
Act) (but not s52(2)(f) – investment strategies), the
SIS regulations (but not SIS reg 4.09 – investment
strategies) or the Superannuation Guarantee (Administration) Act
1992, and is reasonably
necessary for that purpose. |
| 3. |
Any advice that
constitutes financial product advice to a retail client
is accompanied by or includes a written warning that you
are not licensed under the Act to provide financial
product advice and that the client should consider
taking advice from the holder of an AFS licence before
making a decision on a financial product (see also reg
7.6.01(e) and (ea) for the exemption covering mere
referrals and its conditions). |
| 4. |
The advice is not for
inclusion in an exempt document or statement under
s766B(9) of the Act (eg by an
expert). |
Specific restrictions: Taxation
advice
If you are providing
financial product advice in the course of providing advice on
taxation implications of SMSFs, you can only rely on reg
7.1.29 if the following restrictions are met:
| 1. |
you will not receive a
benefit such as a fee or commission (other than from the
client or an associate of the client) as a result of the
client acquiring a financial product, or a product
within a class of financial products, mentioned in the
taxation advice; and |
| 2. |
if the client is a
retail client, the taxation advice includes, or is
accompanied by, a written statement
that:
a) you are not licensed
to provide financial product advice;
b) taxation is only one of the matters that
must be considered when making a decision;
and
c) the client should
consider taking advice from a licensed person before
making a decision on a financial
product. |
What is a recommendation?
Merely setting out options and discussing the
benefits and disadvantages of each option will not necessarily
involve a recommendation. A recommendation does not have to be
express and no particular form of words is required. It is
more likely that a recommendation may be inferred where an
option is presented as the only option, or other options are
described in terms that indicate that the adviser considers
that they will not be suitable for the
investor.
For example, the
regulations allow a recognised accountant to give financial
product advice in relation to the establishment of a SMSF
where the client has already decided to set up the SMSF and
dispose of interests in another superannuation fund (such as
an industry fund) in order to do this. In this instance, you
would only be asked for advice on administrative issues in
establishing the SMSF and arranging for the rollover of funds
from the industry fund to the SMSF. You would not be providing
a recommendation about disposal of the client's interest in
the industry fund.
However, if
the client has not yet made the decision to dispose of
interests in the industry fund, and you explain the
superannuation options available, and the general benefits of
the different types of fund, you should be careful that you do
not imply that it would be appropriate for the client to
dispose of their interests in the industry fund in order to
set up a SMSF. In this instance, you could be making a
recommendation about the disposal of interests in the industry
fund, and would require an AFSL to engage in that
conduct.
What is a
"recognised accountant"?
"Recognised accountant" is currently defined in reg
7.1.29A(2) for the purposes of that regulation as
meaning:
- a member of CPA Australia who is
entitled to use the letters 'CPA' or 'FCPA' , and who is
subject to and complies with CPA Australia's continuing
professional education requirements;
- a member of the Institute of Chartered
Accountants in Australia (ICAA) who is entitled to use the
letters 'ACA' , 'CA' or 'FCA' , and who is subject to and
complies with ICAA's continuing professional education
requirements; or
- a member of the National Institute of
Accountants (NIA) who is entitled to use the letters 'FNIA'
, ''FPNA', 'MNIA' or 'PNA' , and who is subject to and
complies with NIA's continuing professional education
requirements.
Part C: Do any other Corporations Act or ASIC Act
obligations apply to me if I provide a financial service that
is covered by reg 7.1.29?
Yes. Reg 7.1.29 only has the effect that the
financial service that you provide is taken not to be a
financial service for the purposes of Chapter 7 of the Act.
You may still be providing financial services for the purposes
of the ASIC Act, and you will therefore need to comply with
the consumer protection provisions in Div 2 of Part 2 of the
ASIC Act.
For example, you must
not engage in conduct that is misleading or deceptive in
relation to the financial services you provide, or conduct
that is likely to mislead or deceive. You should note that
this is an objective test and does not depend on any
particular person in fact being misled. It is sufficient if
your conduct is likely to mislead. It may be misleading or
deceptive to suggest that you are able to lawfully advise
about financial products for which you do not hold an
authorization to advise.
| EXAMPLE
This example is illustrative
only. It is not exhaustive and is not intended to imply
any particular rule. Whether a person is entitled to the
benefit of the exemption in regulation 7.1.29 will
depend on the particular circumstances in each
case |
Mary is Peter's accountant. She is a Recognised
Accountant. She set up Peter's business structure for him and
prepares the business's accounts and tax returns. She reminds
him that the law requires certain payments to be made for
superannuation. Peter asks whether she can recommend what to
do. Mary says that there are a number of options open,
including establishing a SMSF and contributing to a public
offer fund. She says that there are a number of considerations
in deciding what to do. She says that, for example, SMSFs may
suit people who have the capability and interest to play an
active role in decisions about the assets underlying their
superannuation interests (subject to compliance with
investment restrictions) and public offer funds may suit those
who want to rely on professional management expertise for
those decisions. Mary says that, as she is not an AFS
licensee, she cannot make a recommendation about what kind of
superannuation fund Peter should arrange for contributions to
be made to, and suggests he speaks to a holder of an AFS
licence. However, as a Recognised Accountant, Mary can
recommend whether Peter should or should not establish a
SMSF.
Mary informs Peter than
she knows an AFS licensee named Paul who is able to provide
financial advice. Mary informs Peter than she does not receive
any commissions or other benefits from Paul. Peter then goes
to see Paul for advice about retirement planning. After a
detailed analysis of Peter's personal circumstances, Paul
recommends that Peter should establish a SMSF. Peter is
concerned that he will not have the time or the skills to run
an SMSF. Paul informs Peter than a SMSF does require time and
effort on the part of the trustees and that all members of the
SMSF must be trustees. Peter and Paul agree that Paul will
advise Peter on the underlying investments of the SMSF, but
Peter will get taxation and accounting advice from a suitably
qualified person. Peter decides to retain Mary as his
accountant and tax adviser, as he already has a relationship
with her.
Peter asks Mary to
set up a SMSF for him, and provide accounting and taxation
advice in relation to establishment and operation of the SMSF.
Peter explains that Paul has advised him to set up an SMSF and
that he is satisfied that a SMSF is the best option for his
superannuation. Mary, as a Recognised Accountant, also
recommends that Peter establish a SMSF and informs him of his
obligations as a trustee. She does not give advice about what
investment strategies the SMSF should adopt.
What are the licensing
implications for Mary and Paul?
Mary
If, in the
course of establishing the SMSF for Peter, Mary arranges for
the issue or the acquisition of a financial product, or gives
financial product advice, this activity will be covered by reg
7.1.29 and not be a financial service if:
- it was reasonably necessary for Mary to
provide that financial service in order to give advice about
establishment, operation, structuring or valuation of the
SMSF or to arrange for dealings in the SMSF and the service
was conducted as an integral part of that advice or
arranging; and
- Mary gives Peter a written statement
that:
- she is not licensed to provide
financial product advice; and
- Peter should consider taking advice
from the holder of an AFSL before making a decision on a
financial product.
The provision of factual information about the
features of different kinds of superannuation products or the
skills needed to be a director of the trustee of an SMSF will
also not, of itself, be financial product advice. Mary may
also give her opinion about the advantages and disadvantages
of different kinds of superannuation products or about what
qualities a trustee director should have, provided this
opinion is reasonably necessary to, and an integral part of,
advice about the establishment, operation or structure of the
SMSF.
If Mary had recommended
that Peter should not set up an SMSF, Mary could still provide
factual information about the different types of
superannuation fund structures, but could not make any
recommendation about which type of superannuation fund Peter
should join. For example, if Mary said that Peter should join
a public offer fund, taking into account her view that Peter
did not have the required skills to be a trustee director,
this will be financial product advice and will not be covered
by reg 7.1.29(5). Further, this recommendation will not be
covered by reg 7.1.29A because it is a recommendation about a
superannuation product other than a SMSF. More generally, the
recommendation to join a public offer fund may also not be
covered by reg 7.1.29 because it is not reasonably necessary
for Mary to give this recommendation in order to give Peter
advice about the establishment of a SMSF (and the
recommendation would not be an integral part of such advice).
Mary could, however, recommend to Peter that he should
not
establish a SMSF and could refer him to Paul or another AFS
licensee to get advice about the alternative options available
to him.
Again, to the extent
that Mary provides a service in the course of providing
taxation advice and it was reasonably necessary for Mary to
provide the service in order to give the taxation advice, this
activity will also be covered by the exemption in regulation
7.1.29(4) provided that Mary:
- does not receive a benefit (other than
from Peter or Peter's associate) as a result of Peter
acquiring a financial product (or class of product)
mentioned in the advice;
- gives Peter a written statement
that:
- she is not licensed to provide
financial product advice;
- taxation is only one of the matters
that must be considered when making a decision on a
financial product; and
- Peter should consider taking advice
from the holder of an AFS licence before making a decision
on a financial product.
If Peter decides not to acquire an interest in a
SMSF, and Mary complies with the provisions set out above, the
exemption for taxation advice will still
apply.
Paul
Paul will need
to have an AFS licence with authorisations covering financial
product advice in respect of superannuation products and the
underlying investments. Paul will need to comply with the
training standards in Policy Statement 146 Licensing: Training of financial product advisers
[PS
146].
What if Peter does not
consult Paul?
Peter may decide
that he does not wish to see Paul about retirement planning.
He may make his own decision to establish a SMSF. If Peter has
decided himself to establish a SMSF he can still ask Mary to
set up the SMSF and provide accounting and taxation advice in
relation to the establishment and operation of the SMSF. Mary
does not need an AFS licence to provide these services if she
makes no recommendations about what investment strategies the
SMSF should adopt.
Even if
Peter has not made his own decision to establish a SMSF, as
Mary is a recognised accountant for the purposes of reg
7.1.29A, she can give Peter a recommendation to set up a SMSF
provided that she gives him the required written warning.
However, this recommendation may not include a recommendation
that Peter dispose of another superannuation product in order
to set up the SMSF (ie. rollover another superannuation
interest into the SMSF) or change contribution levels in
relation to another superannuation fund unless she holds an
appropriate AFS licence
authorisation.
Published
8/10/2003
Revised
26/3/2004
Updated
22/12/2004 |