The danger of getting finance advice from tax accountants

From your flaws and advantages, if anyone understands the pressures of your or your business’ financial situation, it’s your accountant. And if you’ve sought services from the same tax accountant for a long time, it is likely that they know all the ins and outs of your business, whether you like it or not. Which is why naturally, you may find it easy to discuss other business-related issues and financial goals. And by simply having a comfortable relationship with you, your accountant may provide some financial advice. This is particularly common in the case of when a client is looking to start a self-managed super fund (SMSF). But before you can take any of their financial recommendations, consider the danger of getting financial advice from tax accountants.

At first you may think that the danger is that their advice is ineffective, putting you in a worse financial position. However there is more to the story than the validity of their recommendation. For one, you need to understand that accounting services are not the same as financial services. A company offering financial services requires an Australian financial services (AFS) licence to advise clients legally. This licence will allow the company or financial planner to:

  •        provide financial product and advice
  •        deal in a financial product
  •        make a market for a financial product
  •        operate a registered scheme
  •        provide a custodial or depository service, or
  •        provide traditional trustee company services.

However, with the case of SMSF, where particular financial products are not being recommended, many accountants have gone under the radar to provide SMSF advice without a licence.

When a company or person applies for an AFS licence, they are subject to assessment by the Australian Securities and Investments Commission, who are regulators of the financial services industry. Any person or company awarded a licence is deemed to be capable of providing clients advice ethically and responsibly.

Holding an AFS licence is by no means a guarantee that the advice provided is perfect. But what it does mean is that the company have ongoing obligations to ASIC that helps make them accountable for any breaches in operation. And as of the start of the 2016-2017 financial year, providing SMSF advice legally will be limited to those who hold an AFS licence.

But if you ask any tax accountant whether they own an AFS licence, you may find that too many of them don’t have one. In fact as of the 23rd of May 2016, of 800 AFS licence applications made by accountants, only 149 have been approved according to ASIC. However, these few licenced accountants only make up 2% of accounting firms known to be operating SMSF services.