Complex and costly regulations could result in a dramatic reduction in the number of accountants offering financial advice.
According to CPA Australia’s Regulatory Burden Report, 24.2% of accountants currently offer financial advice services. But 12.5% are considering stopping offering these services, while only 3.7% are thinking about moving into the space – potentially resulting in a decline to 15.4% of accountants giving financial advice.
Though financial advice tops the list of services accountants are considering ceasing providing, it is not the only one – 23.0% are considering ceasing SMSF audit services, 17.1% business advisory, 16.2% non-SMSF audit and 14.4% tax agent services.
CPA Australia says these professionals are being “driven out by the related compliance burden”.
“Despite the increasing demand for financial planning advice and pressure on traditional accounting service areas from regulation, automation, technology and competition, professional accountants who are authorised representatives of an AFS licensee are hesitant about continuing to provide financial planning advice as the associated costs become unreasonable and compliance burden becomes too onerous.”
CPA Australia recently defended its position on a potential return of the accountants’ exemption.
While acknowledging the need for regulations to keep public confidence in the financial system, CPA Australia says “new legislation and regulation as well as consistent amendments and additions to existing obligations over the past decades have put professional accountants under an increasing compliance and regulatory burden”.
“An individual accountant may face significant costs and be required to attain multiple and overlapping qualifications, registrations and designations, or risk breaching their compliance obligations.”
CPA calculated that the cost of being an accountant and auditor – including registration fees, insurance, and software – is $44,878 a year. Adding being a tax adviser, mortgage broker and financial advisers takes the total to $112,414.
“Not every accountant provides a full service, but such a heavy cost burden creates a barrier for those who want to expand the range of their services.”
61.3% of accounting practices are spending more time on compliance than they were a year ago, and 79% more than 5 years ago. 52.5% have seen their costs increase to deal with compliance compared to a year ago, and 64.9% compared to 5 years ago.
And at least some of these costs are passed on to clients, increasing the costs of advice.
“When professional accountants are unable to bear the cost and compliance burden of providing financial planning advice, and when the motivations or priorities of financial advisers are perceived as not being aligned with the consumer’s best interests, consumers tend to seek advice from unqualified sources.”
When told their accountant told them they would need to seek advice from another professional 79.3% did so, but 27.8% of consumers did research themselves, 5.6% “didn’t do anything” and 4.8% relied on friends and family. But 72.2% would have preferred that their accountant could provide personal financial advice.
One recommendation to address these issues is for the introduction of ‘strategic financial planning advice’. This would involve separating the strategic elements of financial advice from product advice. This would allow a licensed accountant to advise on, for example, a superannuation contribution strategy, without having to deal with the regulations around financial products.
CPA Australia found that 62.3% of accountants currently offering financial advice services think the definition of strategic financial planning advice should be created, and 88.1% of consumers think it could be enough to meet their personal advice needs.
“Focus groups found that consumers and SMEs looking for financial planning advice are not necessarily looking for product recommendations, but rather more strategic guidance through their personal and business journey.”
CPA Australia is also recommending for the individual licensing of financial advisers, instead of though the authorised representative system.
The accounting body points out that the holders of the financial services licence can “restrict or direct” the advice provided by their authorised representatives, and representatives “could be threatened with removal of their authority if they breach a licensee’s standards or practices”.
“Direct licensing would lead to greater individual responsibility and accountability, requiring greater personal commitment to integrity, competence and ethics. Supporters of this recommendation believe that moving to a system of individual licensing would also reduce or remove conflicts of interest between consumers and licensees that may arise in the current regulatory context.”