Accountants warned against AFSL

20-Mar-2014

By Krystine Lumanta

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Accountants would be better off employing an adviser or partnering with an advice business rather than joining an institution or applying for an Australian financial services licence (AFSL) as a result of the accountants’ exemption.

According to the managing director of a wealth management firm, accountants would need to earn a minimum of $300,000 a year in order to successfully run their own AFSL once the exemption was removed on 1 July 2016.

The best options for accountants were to either employ an experienced adviser to run their financial planning arm or partner with an established independently-owned advice business, Paradigm Wealth Management managing director Patrick Nalty said.

“Accountants who decide to become an authorised representative of an institutionally-owned licensee will ultimately end up leaving once they realise that they have to comply with their dealer group’s compliance regime and approved product list,” Nalty said at a seminar in Melbourne yesterday.

“The reason institutions own dealer groups and support advisers is to secure distribution for their products.”

Based on his calculations, only large accounting firms with about eight partners and about $6 million in revenue would have adequate resources to properly maintain their own AFSL.

“There are onerous responsibilities attached with holding an AFSL and other intricacies, which most accountants are unaware of,” he said.

He cited as an example the free dispute resolution services available to retail investors if a complaint or dispute arose.

“Retail clients have access to two external dispute resolutions schemes, which can award up to $280,000 in compensation without legal representation,” he said.

“Conversely, clients who want to sue their accountant must take them to court.”

He said professional indemnity insurance premiums were much higher for financial advisers and the new conditional licence regime only allowed accountants to provide limited class-of-product advice.

“Accounting practices can continue providing quality advice to clients, but be absolved of the additional responsibilities by entering a joint venture with an independent advice business,” he said.

While the majority of accountants were not expected to decide on which option to take until the start of 2016, he said Paradigm had been approached about a potential strategic partnership.

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