These important reforms will ensure that accountants remain on the right side of the law. They will let accountants provide investment advice. But they will also require accountants to choose the future direction of their practice.
“Most accountants want the ability to sit with their clients and talk to them about their holistic financial affairs, their over-arching strategy, their super, their property and their share investments,” says David Smith, principal of accountancy consulting and business coaching firm Smithink 2020. “But under the regime as it now stands, they can’t really have that kind of discussion unless they are licensed to some extent.
“I would argue that most accountants probably break the law right now, in that they’re having those discussions with their clients regardless.”
With the accountants’ exemption on the way out, to have a more holistic discussion about a client’s overall investment strategy will require either a limited or full Australian Financial Services Licence (AFSL), or becoming an authorised representative of an AFSL holder. Accountants can register for an AFSL under the new arrangements from 1 July 2013.
The ability of accountants to offer investment advice is certainly made clearer by the FoFA reforms, but that path won’t be attractive to every accountant.
For many, the business opportunity will be more than tempered by compliance requirements, the added costs of training and the likelihood for clients of lower investment returns in the near future compared with pre-GFC days.
The retail space
The extent to which accountants will be affected depends on their desire to work in the retail space, says Geoff Gray, director of business and compliance in the investment advisory services division at Pitcher Partners.
“A lot of middle-market accountants actually won’t be greatly affected by the FoFA reforms, because a lot of the work that they do is with high-net-worth individuals,” he says.
“Many of those clients, as ‘sophisticated investors’, are effectively considered wholesale investors and are exempted from a lot of the things that are coming in – things like the fee disclosure statements, opt-in and, to some extent, client’s best interest and these types of issues. So, it depends whether you intend to play in that retail space or not.”
As with financial planners, Gray believes many accountants will be reluctant to work in the broad retail market. “The retail space will be under-serviced by everyone, and accountants are going to be no different,” he says. “If you’re going to go into advice, why would your target market be retail clients? It’s a low-margin, high-advisory-cost business.”
Gray adds that in the retail advice market, clients “often don’t recognise the value that you’re adding”. That makes it hard to charge accordingly. “That was true in the good times, and arguably it is going to be more of a factor in tough times, when low returns – or returns lower than what the clients think they should be – become more normal,” he says.
