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‘Execution only’ approach with SMSFs high-risk for accountants
An industry lawyer has warned the unlicensed accounting firms recently contacted by ASIC that justifying the provision of services without a licence on the basis that it was ‘execution only’ is a risky move that could land them in more trouble.
Last week, ASIC distributed letters to unlicensed accounting firms after analysing their advertising and corporate websites, requesting further details about their services and demanding a response explaining their SMSF services.
In these letters ASIC requested accountants provide a written statement within 14 days outlining the details of SMSF-related services they provide, and where they feel no need to be licensed as a basis for this view.
Speaking to SMSF Adviser, The Fold Legal solicitor director Jaime Lumsden Kelly said for accounting firms which plan to respond by stating that all the SMSF services provided are execution only or on the instruction of the client, ASIC is unlikely to accept that as an answer.
“I expect ASIC would then come back and ask a series of questions along the lines of: How do you know that the client has been appropriately advised? How are they informed of the risks? Do you have an arrangement with someone else that will provide the advice? If you don’t have an arrangement with somebody else that provides advice, a financial planner on a referral basis, how do you make sure the client understands the significance of the decision that they’re making?”
They may also ask about the types of clients the firm is providing these services to, said Ms Lumsden Kelly.
“Obviously, ASIC will be very concerned if somebody is out there setting up SMSFs for say Mum and Dad type clients, and these clients haven’t had any advice and may not properly understand how the SMSF works or what it means for them,” she said.
“I don’t think just saying it’s an execution only will be sufficient.”
There are a number of accounting firms, she said, that believe they’re operating on an execution only basis when they actually aren’t.
“If you tell the client that it’s an execution only basis and that you can’t advise them and the client then says: ‘Well, what would you do?’ Well, as soon as you say: ‘I would definitely set one up’, then that’s advice,” she explained.
“The accountant might not think it is, and I’ve certainly had conversations with people who don’t think it is, but from a legal perspective, it absolutely 100 per cent is, because it’s an opinion about a financial product, being an SMSF.”
While this may be difficult to prove since it’s not written down, this doesn’t mean ASIC isn’t going to ask, she warned.
“They will ask a series of questions and they will push until they get the information that they want. The reason being, that if they get a short answer, they can’t actually assess whether the person that they’re talking to fully understands their obligations,” she said.
“So they’ll then ask a more comprehensive series of questions to receive a more comprehensive answer, so that they can actually make some assessment about whether they think this person knows what they’re doing or not, and if they decide not, then they will probably categorise them as high-risk and initiate further investigations.”
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
The citizen's are simply being 'dumbed down' by stealth, because they need to be protected from themselves - so, if they see an accountant or administrator or adviser, they can blame someone else - it's part of the journey to the 'new world order' that is permeating society....I say, give the public responsibility to make their own stuff-ups, because at the end of it all, they should seek out and pay for advice - responsibly!0- Absolutely.
'Caveat emptor' has become 'caveat venditor'.0
- So, to be clear. A client asks me to set up a SMSF for them.
If I say "Yep, good idea, that will be good for you" I'm in trouble with ASIC because, apparently, that's financial advice.
If I say "No, not right for you, I don't recommend it" I'm in trouble with ASIC because, apparently, that's also financial advice.
If I just go ahead and set up the Fund, as directed, apparently I'm in trouble again but this time because I haven't given them any advice.
The implication to be drawn from this article is that individuals must be forced to take advice before setting up an SMSF. Apparently free choice is no longer an option in this space yet an individual can pick an industry fund on the basis of a TV advertisement, with no further advice from anyone, and that's OK.
Or they can be put into a default fund by their employer, at the behest of a union and with no consideration of their personal circumstances, and apparently that's OK too.
Or they can just jump online and set up their own SMSF, go to the bank and open an account, fill out the rollover docs to drop the money in, and away they go. Apparently that's OK too.........so long as they don't ask an accountant any of this.0- Thats right. If the client uses a professional then that professional has to adhere to higher standards that are now in place.
Even tradesmen are way ahead of you guys.0- And if I ask have they sought advice before coming to me and they say "No", to which I respond "this is a complex area, I recommend you go see ABC to get some advice then come back to me", and their reply is "Nope, don't need it and don't want it. Just set up the Fund for me, I'll do my own investing".........what would your next response be?
The point is, many Trustees don't want advice - licensed or unlicensed - they want the freedom to manage their own affairs. It has nothing to do with professional standards or ASIC regulations.
My job is to recommend they seek FP advice, and I can do so until I'm blue in the face, but if they choose not to then that's their business. There isn't any law in place that forces people to take advice before making financial decisions; and no law forcing them to follow any advice that may be given.
As an accountant I would rather be involved at the client-directed execution level, because at least then I can make sure they remain compliant and don't break any rules. I can point out the complexities and the pitfalls, and continue to recommend they seek advice, but that's about it.
The rest is up to the client because, despite all the new regulations, it's still THEIR money.0- If you set up the fund when the client has asked for it to be set up then you have provided no advice. The question then becomes that if you have changed them a considerable fee for that service you have profited and therefore if your fee is high you are implying you have given advice. Your notes would also need to indicate you haven't given advice and more importantly your relationship with the client would need to be such that you can't be considered to have provided advice or a perceived recommendation in the past. If however you state anything, even if it stops them breaking the law or saves them money they you have provided advice. Welcome to financial planning, ASIC and FOS.0
- If they go online there is no one that they can ask any questions. They read the info, they decide. If they cock it up, it's their fault. That's where it's caveat emptor. But if they go to a planner or an accountant, they are going there because they want advice and assistance. They are looking for direction from their 'trusted advisers'.
I'm dealing with an SMSF for a client who set it up on line. They dont have a contact centre where you can speak to anybody, even after u set the fund up. You have to engage via the client portal and they respond in writing. Even then there is no advice, it's you can either do A or u can do B. As trustees make a decision and we will implement. An audit trail kept as a record.
If the suburban accountant tries this verbally, there is no record and the client can always say that the accountant emphasised option B when he explained it, or he casually put his finger next to option B, all in a way to indicate to us that option B was the way to go. or he said something like "I've used option B in my fund...."0
- Lots of speculation in the article "I expect ASIC would then come back and ask a series of questions". It would be much more useful to hear what ASIC actually does0
- It means you'd be leaving yourself open to ASIC finding a lot of other things wrong in your business.0
- How are administrators going to provide advice about the commutation of pensions if they are not licenced?
How can administrators with AFSLs provide advice if they have no authorised representatives?0 - Whatever happened to having a free choice. Surely Trustees have the right to seek advice and if they opt not to do so aren't they the ones acting negligently. If an accountant acts simply in the capacity of execution without giving advice how can he be deemed to be at fault when he has clearly not advised a Trustee. Once again this is one big witch hunt by ASIC.0
- If you look at ASIC activities over the last 7 years since Labor appointed Kell & Medcraft, heads of ASIC, (and they promptly then hired a senior ex-employee of Industry Super Australia) they have done little else except make it difficult for people to have any other viable cost effective recourse but to join an industry fund.
They changed both the processes of accounting and planning professionals to such a degree that it inherently increased costs tenfold for those seeking alternate super arrangements.0
- How do you explain the so called "SMSF Administrators", who advertise a free set up?0
- Incompetence on the part of the regulators.0
- Always best to be safe in these circumstances and avoid it if you are unlicensed.0
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