Why SMSF trustees could be the big losers

First published in the Financial Review on 7 September 2022.

Accountants are crucial to DIY super funds yet their role has been overlooked in the Quality of Advice Review.

When the Quality of Advice Review consultation paper was handed down recently, there was one notable omission amid the myriad reform proposals – the role of accountants in the future advice regime appears to have been overlooked.

This was surprising, and – for the many self-managed super fund trustees who consider their accountants a trusted adviser – disappointing. The surprise arose from the fact that this issue has been on the table for several years at the prompting of two significant inquiries.

First, the Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry called for a review of measures (recommendation 2.3) to improve the quality of advice, with accountants to be included, in its final report handed down in February 2019.

Later that year, the review of the Tax Practitioners Board (TPB), which noted that there was a need for a level playing field for accountants, recommended (recommendation 7.2) that the federal government initiate a specific review of what advice accountants can and cannot give regarding superannuation and to which accountants that might apply.

In response, the then-government sought to combine the TPB and Hayne reviews into the Quality of Advice Review, with the TPB’s recommendation 7.2 included in the terms of reference. But the Quality of Advice Review consultation paper was mute on the subject.

The licensing regime intended to regulate financial advice and service providers also has an impact on accountants and their ability to provide the advice that their clients want and expect.

Take, for example, many small and family-owned businesses that need to get year-end tax planning advice to determine distributions from family trusts. An accountant’s ability to explore different scenarios with clients, including specific amounts for tax-deductible superannuation contributions, is not permitted unless the accountant is licensed to provide financial advice. For many trustees, this comes as a surprise.

The small business capital gains tax (CGT) concessions are complex. Clients often need long-term tax planning and structuring advice to ensure that they can qualify in the future. Then there is the advice on applying the tax concessions when the time comes. Included in these concessions are two measures that allow the small business owner to contribute to their SMSF.

However, despite all the complex tax planning advice and structuring given by the accountant, they fall short at the final hurdle. They cannot, even though it is integral to the overall advice, advise trustees about how much to put into superannuation. They either need to be licensed or have a financial adviser involved in the advice process to provide the contributions advice piece.

Frustrating situation

It is true that collaborative relationships between accountants and financial advisers are powerful and valued by clients. However, many trustees are unable to access the services of a financial adviser in the current environment. The regulatory regime has created a frustrating situation where an unlicensed accountant can tell a trustee what a contribution cap is and whether it is tax-deductible, but not, even where it is directly connected to the provision of specialist accounting and taxation advice, discuss a specific contribution amount.

Another area that is problematic is the specialist tax advice that applies with the tax concessions that apply to retirement pensions. Tax planning strategies that involve timing of asset sales or structuring of member benefits to maximise the tax concessions within a SMSF can fall foul of the licensing regime. Advice that is purely tax advice in relation to an investment or the outcome of a transaction is fine.

But often the scenarios at play are far more nuanced and extend beyond what is purely taxation advice. It is a troublesome line for accountants to walk. Trustees can’t understand why the accountant cannot provide the advice they need. They see it as an intrinsic part of the advice and services provided by their accountant.

Under the current education requirements, any accountants who want to become licensed will need to complete an approved degree in financial planning and complete a professional year. The professional year is structured workplace learning under the supervision of an experienced adviser. Unless an accounting firm has a financial planner or licensed accountant in their practice, there is no way these requirements can be met.

This process applies regardless of whether the accountant wants to become a financial planner or to become authorised to provide only SMSF and simple superannuation advice. In other words, it is unlikely we will see accountants lining up to become licensed.

Most accountants are not interested in providing financial planning advice. They simply want to be able to do what they are qualified to do in the field of accounting, which includes important tax and structuring advice. This gap is leaving many trustees unable to access essential advice they need. Let’s hope when the Quality of Advice Review hands down its final report, the role of accountants is addressed.

Opinion piece written by
John Maroney, 
SMSF Association