Speaking at a seminar in Melbourne on Wednesday, Paradigm managing director Patrick Nalty said that accountants must earn a minimum of $300,000 per annum in order to successfully run their own Australian Financial Services licence (AFSL) once the accountants’ exemption is removed on July 1 2016.
Mr Nalty warned against joining institutionally-owned AFSLs or applying for a full or limited AFSL.
“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,” he said.
“The reason institutions own dealer groups and support advisers is to secure distribution for their products.”
Based on Mr Nalty’s calculations, only large accounting firms with around eight partners and approximately $6 million in revenue will have adequate resources to properly maintain their own AFSL.
“There are onerous responsibilities attached to holding an AFSL and other intricacies which most accountants are unaware of,” he said, citing as an example the free dispute resolution services available to retail investors if a complaint or dispute arises.
Retail clients have access to two external dispute resolution schemes which can award up to $280,000 in compensation without legal representation.
Conversely, clients who want to sue their accountant must take them to court.
Mr Nalty said that 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.
Specialising in SMSF advice and administration, Paradigm employs 20 staff and has over $300 million under advice.
Finally some sensible advice on Accountants Licensing “partner with an independently owned financial planner”. The key to making this work is to make sure the partnership is based on mutual respect for both professions and the roles they play in their client’s financial lives.
Having a strong institution provide an extensive approved list and a strict compliance regime is a good thing. Those who feel an open slather approach to selecting investments has merit don’t fully appreciate or overestimate an individuals or small firms ability to source, research and select suitable investments. Also given most large institutions have rigorous compliance regimes, the protection afforded by this to the consumer and the practitioner is little understood until it hit the fan. Mr Nalty is talking his own book.