AFS licensing requirements for accountants who provide SMSF services

This information sheet (INFO 216) is for accountants who provide services relating to self-managed superannuation funds (SMSFs). These services are referred to as 'SMSF services' in this information sheet. It covers:

How the AFS licensing regime applies to SMSF services provided by accountants

The Corporations Act 2001 (Corporations Act) regulates people who provide financial services – that is, certain types of services or activities that relate to a 'financial product'.

Financial products include an interest in an SMSF and many of the investments that are typically held by an SMSF, such as securities and interests in managed investment schemes. Other common types of financial products are:

  • debentures
  • general and life insurance
  • superannuation products.

While real property is not itself a financial product, an interest in an SMSF is a financial product. Providing a recommendation or a statement of opinion on using an SMSF as a vehicle to invest in real property is financial product advice, and requires an AFS licence with an appropriate authorisation.

The financial services typically provided by an accountant might include:

  • providing financial product advice – providing a recommendation or statement of opinion, or a report of either of those things, with the intention of influencing a person’s decision on a financial product (or that could reasonably be regarded as being intended to have such an influence)
  • dealing in a financial product – including applying for, acquiring, varying or disposing of a financial product on behalf of a client, or arranging for someone else to do any of these things.

For more information on financial products and services, see Regulatory Guide 175 Licensing: Financial product advisers—conduct and disclosure (RG 175) and Regulatory Guide 36 Licensing: Financial product advice and dealing (RG 36).

A person providing financial product advice must also comply with provisions under the Corporations Act that ban conflicted remuneration: see Regulatory Guide 246 Conflicted remuneration (RG 246) for more details.

Other regulatory guides which are relevant to the provision of financial product advice are Regulatory Guide 244 Giving information, general advice and scaled advice (RG 244) and RG 245 Fee disclosure statements (RG 245).

Generally, a person who provides financial services must be covered by an AFS licence, either by:

  • holding an AFS licence, or
  • becoming the representative of an AFS licensee and providing financial services on behalf of the AFS licensee.

However, there are a number of exemptions from the requirement to be covered by an AFS licence, including for accountants providing services relating to SMSFs. These exemptions apply to a variety of different activities, and are outlined in Table 1: SMSF services and the AFS licensing regime.

One former exemption, which allowed recognised accountants (i.e. certain accountants who are members of CPA Australia, Chartered Accountants Australia and New Zealand, or the Institute of Public Accountants) to give financial product advice about acquiring or disposing of an interest in an SMSF, was repealed on 1 July 2016. This exemption was in regulation 7.1.29A of the Corporations Regulations 2001 (Corporations Regulations). The repeal of regulation 7.1.29A reflects the Australian Government's policy decision that financial product advice about acquiring or disposing of an interest in an SMSF should be within the scope of the AFS licensing regime, regardless of who provides that advice.

This means from 1 July 2016 all accountants must be covered by an AFS licence to give advice about acquiring or disposing of an interest in an SMSF to their clients.

Limited AFS licence regime

To facilitate moving into the AFS licensing regime, accountants can apply for an AFS licence to provide a limited range of financial services relevant to SMSFs. We refer to this form of licence as a ‘limited’ AFS licence: see regulations 7.8.12A and 7.8.14B.

A limited AFS licence only authorises the licensee to provide a limited range of financial services relevant to SMSFs – for example, advice about SMSFs, advice about a client's existing superannuation holdings (in certain circumstances) and 'class of product advice' – depending on the authorisations that are selected in the application and granted by ASIC.

'Class of product advice' means financial product advice about a class of products that does not include a recommendation about a specific product. For example, an accountant covered by a limited AFS licence could provide class of product advice about mining shares or shares in the ASX 100, as long as that advice did not include a recommendation about a particular mining share or a particular share in the ASX 100.

A limited AFS licensee can be authorised to provide 'class of product advice' about the following financial products:

  • superannuation
  • securities
  • simple managed investment schemes
  • general insurance products
  • life risk insurance products
  • bank deposit products

We have provided more details on applying for a limited AFS licence and class of product advice at our webpage Limited financial services.

Accountants who wish to provide broader financial services than those authorised under a limited AFS licence will need to be covered by a full AFS licence with the relevant authorisations.

Discussions about borrowing through an SMSF

An SMSF is permitted to borrow money in limited circumstances and subject to certain rules – for example, having limited recourse borrowing arrangements: see section 67 and 67A of the Superannuation Industry (Supervision) Act 1993 (SIS Act).

A limited recourse borrowing arrangement may be a margin lending facility (and therefore a financial product) if the credit is provided to an individual and is used to acquire a financial product: see section 761EA. If you are recommending that a client establish a margin lending facility within an SMSF, you will need to be covered by a full AFS licence with an appropriate authorisation.

If you are discussing options for borrowing for investment in residential property through an SMSF with your clients, you might need to be covered by an Australian credit licence. For example, if you suggest an individual SMSF trustee apply for a particular loan from a particular credit provider to invest in residential property, or assist them to do so, you will need to hold a credit licence (or be a representative of a credit licensee). Alternatively, you may refer clients to a credit licensee.

See Regulatory Guide 203 Do I need a credit licence? (RG 203) for more details on when a credit licence is required, including when your discussions with clients might amount to ‘suggesting’ they take out a loan.

Exemptions for certain SMSF services

While the licensing exemption in regulation 7.1.29A for recognised accountants who gave financial product advice about acquiring or disposing of an interest in an SMSF has been repealed, a range of other exemptions still continue after 1 July 2016. Under these exemptions, you can provide some types of financial services without being covered by an AFS licence: see Table 1: SMSF services and the AFS licensing regime for a summary of these exemptions. It is important to understand which types of conduct fall within an exemption and which require a licence.

SMSF services provided by accountants usually fall into one of three categories:

  • 'traditional' accountant services – for example, preparation and lodgement of tax returns, which are not regulated as financial services
  • financial product advice relating to SMSFs – this is a financial service that requires the provider to be covered by an AFS licence
  • exempt SMSF financial services – an AFS licence is not required to provide these services, as they are either not a financial service or they are covered by a licensing exemption. However, in some cases, you might still be required to meet other requirements, such as providing your clients with warnings (see the Table 1: SMSF services and the AFS licensing regime for an overview).

Generally, the exemptions will apply if the financial service happens to be an integral part of or incidental to another type of service typically provided by an accountant – that is, you would reasonably need to provide the exempt SMSF financial service in order to carry out your normal accounting practice.

The exemptions operate concurrently, so you may rely on different exemptions for different aspects of your practice: see Table 1: SMSF services and the AFS licensing regime for an overview.

However, it is important to be aware of the limits of any exemption you rely on. Even if you rely on an exemption to provide one type of SMSF service, if you also provide financial product advice recommending an SMSF or particular investments through the SMSF at the same time, this advice will trigger the requirement to be covered by an AFS licence. Operating under an exemption does not remove the requirement to be covered by a licence for other types of financial service.

Exemptions that apply for SMSF services

Recommending that a person acquires or disposes of an interest in an SMSF is financial product advice and requires you to be covered by an AFS licence. It is also financial product advice if you recommend that a person should not dispose of an interest in an SMSF, or that they should remain in their non-SMSF superannuation fund and should not acquire an interest in an SMSF, because this is financial product advice about a person’s existing interest in their superannuation fund.

However, there are other types of advice and services you may provide without an AFS licence. This table provides an overview of the other types of SMSF services you may provide, and whether a licensing exemption applies.

Table 1: SMSF services and the AFS licensing regime

Type of SMSF serviceWhat you may do without being covered by an AFS licenceRelevant legislation
Establishing, operating, structuring or valuing an SMSF, including advice and assistance on administrative and operational issues, and the process of   winding up or exiting an SMSF You may provide advice on establishing, operating, structuring and valuing an SMSF, as long as you give your client the appropriate warnings. This includes:
  • advice provided for the sole purpose of, and only to the extent reasonably necessary for, ensuring compliance with the superannuation legislation
  • advice on the process of winding up or exiting an SMSF.

You may not recommend that your client acquires or disposes of an interest in an SMSF.

For further information, see Establishing, operating,structuring and valuing an SMSF.

Regulation 7.1.29(5)
Asset allocation and investment strategy

You may provide a recommendation or statement of opinion on how your client should   distribute their available funds among different categories of investments.

You may not advise your client to make particular investments through the SMSF.

For further information, see Asset allocation and investment strategy.

Regulation 7.1.33A
Tax advice on SMSFs and other financial products

You may provide tax advice on financial products, such as an interest in an SMSF and underlying investments held by the SMSF, as long as you   do not receive a benefit as a result of your client acquiring a financial   product (or a financial product that falls within the class of products) mentioned in the advice and you give your client the appropriate warnings.

For further information, see Tax advice on SMSFs and other financial products.

Regulation 7.1.29(4)
Referring clients to an AFS licensee or representative

You may refer clients on to an AFS licensee or representative for financial product advice, as long as   you make the appropriate disclosures.

For further information, see Referring clients to AFS licensees or representatives.

Regulations 7.6.01(1)(e)–(ea

Establishing, operating, structuring or valuing an SMSF

You may provide advice on establishing, operating, structuring and valuing an SMSF without a licence: regulation 7.1.29(5). This means that without being covered by an AFS licence, you can:

  • provide advice on:
    • the practical steps that need to be taken to establish or wind up an SMSF
    • how to add new trustees and members to an existing SMSF
    • the different ways an SMSF could be structured
    • how to process transfers or rollovers of funds
  • assist clients to complete paperwork (e.g. to acquire securities through the SMSF, as long as you do not influence the decision to acquire those securities)
  • help clients to add new members and trustees to a fund or to exit a fund
  • arrange to wind up an SMSF on a client’s behalf.

You may also provide other relevant factual information that your client should know about establishing an SMSF (e.g. that they are required to have the financial accounts and statements for the SMSF audited each year by an approved SMSF auditor).

You can only rely on this exemption if the advice is provided to a trustee, a director of a trustee, an employer sponsor or a person who controls the management of the SMSF. The advice must be given to the person in their capacity as a person who controls the assets owned by the trustee of the SMSF, and not in their capacity as a beneficiary (member) of the SMSF.

Where you are relying on this exemption, if your client is a ‘retail’ client (as opposed to a 'wholesale' client – see section 761G and related regulations for the definition of this term), under regulation 7.1.29(5)(d) you must provide a written statement to your client that:

  • you are not licensed to provide financial product advice under the Corporations Act
  • they should consider taking advice from an AFS licensee before making a decision about a product.

The advice you give about establishing, operating, structuring or valuing an SMSF must not amount to an explicit or implied recommendation to establish an SMSF, or to acquire or dispose of an interest in an SMSF (or another superannuation product). However, we recognise that advice given to a person about the establishment of an SMSF may also carry an implicit recommendation that the person acquire an interest in the SMSF. Therefore, you are more likely to be able to rely on the exemption when your client has already made a decision to establish the SMSF before seeking your assistance to take the next steps. For example, you may recommend the best structure for an SMSF to suit your client's situation, once they have made the decision to establish an SMSF.

Advice for ensuring compliance with the superannuation legislation

You may also provide advice that is for the sole purpose of, and only to the extent reasonably necessary for, ensuring compliance with superannuation legislation – that is, the SIS Act, the Superannuation Guarantee (Administration) Act 1992 and the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations): regulation 7.1.29(5)(c). This might include matters such as:

  • modifying contribution levels due to changes in the superannuation guarantee levy
  • complying with rules on investment restrictions.

Advice provided for the sole purpose of ensuring compliance with the superannuation legislation may stray into areas that would not normally be covered by the exemptions applying to SMSF services – such as advice about acquiring or disposing of an interest in an SMSF, the investment strategy of the fund, and financial products acquired through the fund. For example, you may provide advice on how to comply with the requirement for an SMSF trustee to act in the best interests of beneficiaries (section 52(2)(c) of the SIS Act) – but if you then go on to recommend the purchase of a particular asset through the SMSF because this would generate a good investment return for beneficiaries, this would not satisfy the requirement that the advice be for the sole purpose of, and only to the extent reasonably necessary to, ensure compliance with the legislation.

If you provide advice about compliance with section 52(2)(f) of the SIS Act (which places a duty on trustees to act fairly in dealing with beneficiaries within a class) or advice about compliance with regulation 4.09 of the SIS Regulations (which imposes certain standards for trustees in formulating an investment strategy for SMSFs), you must ensure that the advice:

  • is not about the acquisition or disposal by a superannuation fund, including an SMSF, of specific financial products or classes of financial product
  • does not include a recommendation that a person acquire or dispose of a superannuation product
  • does not include a recommendation about a person's existing holding in a superannuation product, for the purpose of modifying an investment strategy or a contribution level.

If your client is a retail client, under regulation 7.1.29(5)(d) you must also provide a written statement warning them that:

  • you are not licensed to provide financial product advice under the Corporations Act
  • they should consider taking advice from an AFS licensee before making a decision about a product.

Asset allocation and investment strategy

Without an AFS licence, you may not advise your client about their retirement investment strategy, including whether your client should increase or decrease their contributions into their SMSF, what their overall investment strategy should be for their SMSF (e.g. what the target investment return should be and how to achieve this), or what contributions they should make to their SMSF relative to any other superannuation fund of which they are a member.

However, you may provide a recommendation or statement of opinion to your clients on broad asset allocation within their SMSF: regulation 7.1.33A. That is, what proportion of funds should be allocated across one or more of the following categories:

  • shares
  • debentures
  • debentures, stocks or bonds issued, or proposed to be issued, by a government
  • deposit products
  • managed investment products
  • investment life insurance products
  • superannuation products
  • other types of assets.

Providing a recommendation or statement of opinion to clients on asset allocation within their SMSF is different to providing class of product advice, which requires a licence: see Limited financial services. The exemption for providing a recommendation or statement of opinion on asset allocation does not apply to making a recommendation on or giving a statement of opinion about specific financial products or classes of financial product: see regulation 7.1.33A.

This means that you may provide a recommendation or statement of opinion on asset allocation among the broad categories listed above, but not among classes of financial product or specific products within those categories. For example, you may recommend that your client hold a certain proportion of their SMSF funds in one of the eligible product types (e.g. shares), but to make any of the recommendations set out in the table below you will need the appropriate licence.

Table 2: Licences required for specific types of recommendation

Recommendation that your client hold Type of licence(s)required
A specific product (e.g. shares issued by a particular biomedical company) AFS licence
A particular class of shares  (e.g. shares issued by companies in the biomedical sector, generally) AFS licence or limited AFS licence
A certain proportion of international shares

AFS licence or limited AFS licence

Shares that may have franked dividends AFS licence or limited AFS licence

Tax advice on SMSFs and other financial products

Providing tax advice is a core part of an accountant’s practice. However, in the course of providing tax advice relating to SMSFs, you might also provide financial product advice. For example, when you advise on the taxation implications of acquiring, holding or disposing of an interest in an SMSF, or a financial product held through the SMSF (e.g. shares), this could be financial product advice because it might influence a decision about that financial product.

Under regulation 7.1.29(4), you may provide advice on the taxation implications of financial products without being covered by an AFS licence. This exemption allows you to provide financial product advice on your client’s interest in an SMSF or a financial product they hold through their SMSF, as long as this advice is merely incidental to the tax advice you are providing and not a separate recommendation on the merits of the financial product itself.

However, you can only rely on this exemption if:

  • you do not receive a benefit as a result of your client acquiring a financial product mentioned in your advice (other than the remuneration you receive directly from the client or someone associated with the client, such as another SMSF member)
  • your client is a retail client and you also provide a statement warning them that:
  • you are not licensed to provide financial product advice under the Corporations Act
  • taxation is only one of the matters that must be considered when making a decision on a financial product
  • they should consider taking advice from an AFS licensee before making a decision on a financial product.

All AFS licensees and their representatives who provide tax advice in the context of financial advice (tax (financial) advisers) for a fee or other reward must be registered with the Tax Practitioners Board. For further information about tax (financial) advisers and the requirement to be registered, please see www.tpb.gov.au.

Referring clients to AFS licensees or representatives

At various points across the range of SMSF services you provide, clients might seek advice from you that is financial product advice and does not fall within any of the exemptions described in this information sheet – for example, whether they should establish an SMSF, whether they should transfer their balance from another fund, or what investments they should make through the SMSF.

While you may not provide such advice without being covered by an AFS licence, you may refer your client on to an AFS licensee or representative: regulations 7.6.01(1)(e)–(ea). In doing so, you must:

  • let your client know that the AFS licensee or representative can provide the type of financial service or services the client requires
  • give the client contact details for the AFS licensee or representative (rather than arranging for contact to occur yourself)
  • unless the AFS licensee or representative is related to you (e.g. it is a related company or you are its representative), disclose any benefits or commissions that you or your associates might receive as a result of the referral or any subsequent services provided to the client.

How the exemptions will apply if you are covered by an AFS licence

Establishing, operating, structuring or valuing an SMSF exemptions

If you are covered by an AFS licence, including a limited AFS licence, you cannot rely on the exemption for the provision of advice on the establishment, operation, structuring and valuation of a superannuation fund (regulation 7.1.29(5)) to a retail client. This is because an AFS licensee, or its representatives, cannot comply with the requirement in regulation 7.1.29(5)(d)(i) to provide a written statement that the person providing the advice is not licensed to provide financial product advice under the Corporations Act.

Therefore, any financial product advice that you provide to a trustee of a superannuation fund about the establishment, operation, structuring and valuation of the fund is not an exempt service and will generally be covered by your licence. This includes advice given for the sole purpose of complying with superannuation legislation.

Asset allocation exemption

If you are covered by an AFS licence, including a limited AFS licence, with an authorisation to provide financial product advice, you can rely on the asset allocation exemption in regulation 7.1.33A. This is because the provision of relevant asset allocation advice is not the provision of a financial service for which a licence is required.

Tax advice

If you are covered by a limited AFS licence, you can rely on the exemption in regulation 7.1.29(4) to provide tax advice on financial products that are not covered by an authorisation in your licence. ASIC Corporations (Recognised Accountants: Exempt Services) Instrument 2016/1151 modifies subparagraph 7.1.29(4)(c)(ii) as it applies to limited AFS licensees and their authorised representatives, so that you do not have to provide a written statement that you are not licensed to provide financial advice under the Corporations Act. Instead, you must provide your client with a written statement that:

  • you are a limited AFS licensee or the authorised representative of a limited AFS licensee who is authorised to provide one or more limited financial services
  • taxation is only one of the matters that must be considered when making a decision on a financial product
  • they should consider taking advice from an AFS licensee before making a decision on the financial product.

If you hold a limited AFS licence, the exemption to provide tax advice on financial products does not extend to advice that is covered by your licence. A representative of a limited AFS licensee similarly will not be able to rely on this exemption if they are providing the advice on behalf of the licensee.

However, you can rely on this exemption to give tax advice on financial products that are not covered by your licence.

If you are covered by a full AFS licence rather than a limited AFS licence, you will not be able to rely on this exemption. This is because the type of advice addressed by regulation 7.1.29(4) will normally be covered by your licence.

Referrals

AFS licensees, including limited AFS licensees and their representatives, may refer a client to another AFS licensee or to an authorised representative for advice that they themselves are not authorised to provide.

Where can I get more information?

  • For more information on your obligations, see the following regulatory guides and information sheets:
    • RG 36 Licensing: Financial product advice and dealing
    • RG 104 Licensing: Meeting the general obligations
    • RG 105 Licensing: Organisational competence
    • RG 175 Licensing: Financial product advisers—Conduct and disclosure
    • RG 203 Do I need a credit licence?
    • RG 244 Giving information, general advice and scaled advice
    • RG 245 Fee disclosure statements
    • RG 246 Conflicted remuneration
    • INFO 205 Advice on self-managed superannuation funds: Disclosure of risks
    • INFO 206 Advice on self-managed superannuation funds: Disclosure of costs
  • For more details on applying for a limited AFS licence, see Limited financial services 
  • Contact ASIC at www.asic.gov.au/question.
  • Contact your professional or industry association (e.g. the SMSF Association, CPA Australia, Chartered Accountants Australia and New Zealand, or the Institute of Public Accountants).
  • Go to ASIC's Licensing webpage at www.asic.gov.au/afslicensing.

Important notice

Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice.

You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases, your particular circumstances must be taken into account when determining how the law applies to you.

This is Information Sheet 216 (INFO 216), issued in December 2016. Information sheets provide concise guidance on a specific process or compliance issue or an overview of detailed guidance.

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Last updated: 08/12/2016 09:23