The submission noted that as of 26 May 2022, only 889 advisers remained in the limited licensing regime, a drop from 1,608 at 1 July 2021.

In that same period, 152 limited licences have been cancelled. Just 256 limited licences remain, it stated.

The submission explained that from 1 July 2016, SMSF professionals have been required to be licensed or authorised with ASIC either through a full AFSL or limited AFSL to provide SMSF advice services.

“Accountants who intended to give SMSF financial advice spent considerable time and money reshaping their businesses to meet the new limited licensing regime,” it noted.

“This has involved the duplication of entity structures as a separate entity is required from which licensed advice services are to be provided. It must be clearly separate and distinct from the main accounting practice entity.”

This duplication, the submission explained, has also brought a duplication of costs in addition to the costs of licensing itself.

“It also creates a significant level of complexity when it comes to providing advice services to clients. This structuring is about limiting the exposure of the AFSL to the activities of the broader accountancy practice,” the submission stated.

“Clients do not understand nor care about a firm’s structuring and simply want to obtain the advice they need from their professional adviser.”

The submission also outlined the complexities with the exemptions and legal obligations associated with a limited licence.

Non-licensed advisers, it explained, can provide certain advice regarding SMSFs if it falls under one of the exempt items listed in Corporations Regulations 2001 under regulation 7.1.29 including factual information, taxation advice, traditional accounting services, broad asset allocation advice and execution only services.

“Interpreting where an exemption lies and where a licence is needed has been a complex task for the SMSF industry,” the submission said.

The lines between taxation advice and financial advice can quickly become blurred, it said.

The submission gave the example of tax planning advice on commencing a pension in an SMSF where a capital gain will be incurred on the sale of a fund asset.

Advisers who are covered by an AFS licence, including a limited AFS licence, it noted, cannot rely on the same exemptions as accountants who aren’t.

“Advisers who are not covered by any AFS licence can provide advice under an exemption, such as broad asset allocation advice, with limited documentation,” it stated.

“However, advisers who have become licensed to provide compliant advice cannot provide the same advice as an unlicensed adviser without having to undertake extensive fact finding, providing various disclosures, and producing complex and costly statements and records of advice.”

The submission also highlighted that the FASEA educational standards have failed to appropriately recognise or account for the limited licence advice regime, particularly for accountants with a licence to provide SMSF advice.

“All industry participants have been treated the same as a fully authorised, comprehensive financial adviser,” it stated. 

Given the low take-up rates and the rapid exit of accountants from limited licensing, the SMSF Association said this means by and large the accounting sector is operating without a licence.

“The fallout from the poor take-up of the complex and costly limited licence regime means that a portion of advisers are acting on the reliance of ‘execution only’ services,” it stated.

“This approach is generally much cheaper than being licensed and undertaking extensive due diligence, providing AFS related disclosures, and creating costly and lengthy statement of advice documentation. Without essential and fundamental advice this may also lead to adverse consumer outcomes.”

The SMSF Association said this is the unintended consequence of a failed limited licence and advice framework.

The limited licensing regime also prevents SMSF trustees from obtaining basic SMSF advice in a convenient and affordable manner.

“SMSF trustees who wish to seek basic SMSF advice are either required to spend significant money seeking financial advice from a licensed adviser or must act without advice,” it stated.

The submission stated that the current framework is built on the provision of financial product advice, which not all advisers seek to provide.

“Strategic advice could be the foundation for which a consumer-focussed framework is built,” the submission explained.

“This could ultimately allow appropriately educated professional advisers to provide strategic advice on areas such as superannuation, retirement, and cashflow without specific reference to financial products.”

A strategic advice model allowing suitably qualified professionals to practice under a ‘no product recommendation’ environment, it said, would see advisers given increased ability to provide strategic advice without conflicts of interest.

“It would also address the false perception that financial advice is simply the ‘selling of products’ and in time would help to address the issue of trust in the sector,” it stated.

“Specific consumer-focussed documentation could be implemented on the back of strategic advice. When products are required, there would be additional education requirements, compliance obligations, and documentation provided to ensure consumers are protected.”

The SMSF Association has also made a recommendation that professionals providing SMSF advice should be required to have completed specialist education  in line with the Productivity Commission’s 2018 Superannuation Report, FASEA’s Financial Planners & Advisers Code of Ethics 2019 Guide, and ASIC’s Report 575.

SMSF Association chief executive John Maroney said these reports have highlighted that education improves the quality of advice and consumer outcomes.

“As such, an approved course or accreditation must be completed, and appropriate ongoing professional development maintained to retain that certification or accreditation,” said Mr Maroney.