Are Financial Advisers & Accountants being forced to be friends?

1 July 2016 could be the start of a new era for Accountants and Financial Planners. It might also be another failure at getting the two professions to partner better together.

In 2012, ASIC implemented new legislation stating that Accountants would need to have an Australian Financial Services Licence by 1 July 2016 if they wished to recommend their clients to open or truly help them manage their Self Managed Super Fund.

For the past four years, It has been widely accepted that the legislation would get delayed but surprisingly it stands from last week. Most Accountants have been delaying any action and are now scratching their heads because they believed like myself that it would be delayed.

Since the beginning of time; Accountants have been able to advise their clients to open a SMSF if they thought it was appropriate. But from last week unless they have an AFSL licence they no longer can.

If they want to advise their client to salary sacrifice in to their super fund, they no longer can. If they wanted to help them invest their money, they no longer can.

It’s a big change for Accountants because they have been correctly (sometimes incorrectly) recommending SMSFs to their clients for many years but now that will stop unless they make a change. 

If I put myself in the shoes of an Accountant for a minute, I see the legislation as additional paperwork and pointless if I know what I am doing with the right professional relationships in place with other partners such as financial advisers and solicitors. But while it is added compliance, I do not see it as too big of a burden because I will refer the clients on regardless for the right advice. 

But if I am an Accountant who has been helping my clients manage their own superannuation for many years this is a huge burden and compliance risk. I have now been told that I have to go through many hoops with every client. Many of the things I advised on before I no longer can legally. I may have been doing a great job for my clients but ASIC have said not anymore. 

As a financial adviser, I do see reasons why this legislation was put in place to "better protect consumers”. I have seen many Accountants setup SMSFs incorrectly based on clients thinking they need or want an SMSF - "the Accountant or the newspaper said I needed one".

I have also seen many financial advisers setup SMSFs incorrectly and therefore it's clearly not just Accountants.

The main problems with SMSFs is that they put a lot of risk on the trustees (the members) and when you look at the facts many should not be running.

They can work great if it is best for the client to invest in residential property, they already own commercial property that they would benefit from transferring in or they have very large funds that they want to put together as a family to manage.

But if they want to buy some shares or a property and have $200,000; it is not a good idea I can assure you. 

 

So why did this happen?

ASIC knew that incorrect advice was happening and the legislation should force accountants and financial advisers to work better together for their clients. It should ensure clients are getting the best advice across everything in their financial world and from both professionals. 

It's a good idea but my gut feel like all legislation is that the reality will be very different. It actually may fail completely and do more damage then good.

Whether it does or does not work will depend on the quality of the relationship the accountant sets up with a financial adviser and other professionals. This is not at all different to the situation before 1 July 2016 and what they should have had before.

The main concern from ASIC comes from the clients of accountants getting poor or no advice in regards to investing their superannuation, personal insurance to protect their family or the significant responsibilities the trustee has when owning a SMSF.

ASIC are also concerned about the grey area whereby accountants are providing personal financial advice without having a licence or knowledge to provide it. 

I find that depending on the accountant I speak to, they either think that the legislation is stupid and pointless or have already accepted that it is there for good reason going forward. 

For years, Accountants and Financial advisers have been sitting on different sides of the fence barking at one another with no attempt to become friends.

Apparently both want to be the clients “trusted adviser” and believe they don't need one another. I argue however that nobody said that there has to be one trusted adviser in the first place.

Accountants tend to see financial advisers as under qualified cowboys who make easy money selling insurance and investment products. They do not trust advisers and if asked why they do not have a relationship with a financial adviser it is because they can't find a good one.

Financial advisers tend to see Accountants as order takers who help clients with the past but could do more for their clients in planning for the future. That may be business planning, investing, debt management, insurance advice and retirement planning. But that's not their job really? 

The battle has gone on for years and the solution has usually been a very poor one. The accountant either does not refer and leaves big holes in their clients financial house; or when they do refer the financial advisers ends up doing something stupid for the client with their commission in mind. 

I also find that financial advisers do not build relationships with accountants and when a client asks for an accountant they look to the sky and wonder if they do need one.

It is clear that I am generalising here and there are relationships that do work but these great partnerships have usually taken many years for each party to truly trust each other and them taking the time to truly understand the value each can provide to their client.

So what does this legislation mean for “the battle” going forward. Are accountants and financial advisers being forced to work together rather than by choice?

 

For any relationship to work there needs to be a common ground. I find that this can usually be found very easily if you put everything aside and look at the best interests for the client. It makes sense for it to work.

Every client is different but in every case there will be parts of their life where either party can add a lot or perhaps only a little bit of value. There are benefits for the client to have some form of a relationship with both parties. 

But how does the relationship move forward?

 

I like to see it this way; if an Accountant can focus entirely on improving the clients business top to bottom in real time; and the financial adviser focuses entirely on improving their personal position from top to bottom than we are starting to work from the same page.

There are 100s of way Accountants can improve a business by tracking change and helping them keep their finger on the button. That might be helping their clients improve their cashflow, business structuring, tax outcomes, debtors, inventory, payment terms, lending, the list could go on.

Similarly the adviser, could look at their lifestyle plans, debt, investments, cashflow, insurance and overall wealth building strategy. Working hand in hand, the adviser may help the accountant understand what they need to sell the business for one day or alternatively what income they need to withdraw to hit personal lifestyle needs and goals.

The accountant might tell the adviser that the business is going through a great or tough time and what can should they do with the profits. 

For years however I have watched as this relationship has been flawed. For clients and professionals who have experienced the right synergy, it can work perfectly.

I said earlier in my article that this success will come from the Accountant deciding on the right financial adviser as a partner.

This will be no easy feat and generally speaking the biggest reason I have heard from Accountants on why they do not refer to an adviser – "they can’t find one they can trust".

There are 20,000 odd advisers in Australia of many different breads. There are so called self proclaimed Investment Gurus, Life Planning Financial Coaches and Insurance and Super Product Lovers.

As an accountant, you would find it hard to refer to a churn and burn type of adviser – Product lovers. It would be hard to justify if that is in your clients best interest and would it truly improve their situation. Sure the client may get some insurance or a new investment but there are many holes in what the adviser should also do.

The other type of adviser - is the Investment guru. The one who knows where the world is heading. That Brexit was going to happen, the oil crash and Donald Trump will be president. Fortunately,  excuse the pun but I will burst that bubble as it’s arguable that financial advisers are any better than accountants or their clients themselves at predicting investment markets. 

So while I am obviously biased, there really is only one type of adviser left that would complement what an Accountant does perfectly – Life Planning Financial Coaches.

These type of advisers focus on helping clients put a strategy in place around their life dreams and start at the very beginning of their financial world and slowly work their way through it. The goal is to align their life choices with financial ones and ensure no stone is left unturned.

Unfortunately however that this growing bread of adviser is still only a portion of the industry and just knowing who they are and that they give this type of advice might not be enough. You also need to know, like and trust them that they will have your clients best interest at heart.