Accountants face stark choices to avoid risks
by Craig Myles
Increasingly the spectre of the application of the Financial Advisers Act 2008 (FAA) is dawning on the consciousness of the accounting profession. As a result those accountants who have turned their mind to the issue are realising that they will be faced with some stark choices.
While s.12(e) of the FAA states that accountants are not financial advisers where they are giving advice as "a necessary incident of professional accounting practice". It is very unclear as to what these words mean in practice. This leaves the probability that unless greater certainty is bought to bare on this definition, accounting professionals run the risk of falling foul of such a nebulous measure, and worst of all, retrospectively.
If found to have been acting as a financial adviser within the definitions of the FAA, a person will have breached the act and come under the jurisdiction of the Commissioner of Financial Advisers and the Securities Commission. It is most probable in this situation that the outcome would be very severe indeed for the professional concerned as they most probably would have committed offences under clauses 114, 115 and 117 of the FAA. Offences under section 117 alone for "failure to disclose", carry fines of up to $100,000 for an individual. "Failure to disclose" almost certainly will have occurred as the accountant concerned would not have thought of themselves as a financial adviser, therefore they are most unlikely to have provided a Disclosure Statement. Alternatively, if they had provided a Disclosure Statement, it would then be hard to argue they were not acting as a financial adviser.
Turning to the practical considerations, there seem therefore to be some important decisions of principal which accountants need to consider:
1. what constraints are appropriate to put around client conversations?
2. is a zero risk approach the most sensible and practical option?
3. if a zero risk approach is adopted, what does this mean in how trustee responsibilities are conducted?
4. is identification of a "trusted financial adviser" to refer clients to the best way forward?
Based on conversations the writer has had with leading accounting professionals, there seems to be some parallels that are being drawn on to inform how they plan to respond or are responding to these issues of principal:
1. the move towards licensing of auditors
2. the awareness that the drive towards legislative harmony between Australia and NZ, mean drawing from the practices of the Australian accounting profession may be useful.
Whilst seemingly disconnected from this issue, both observations provide useful learnings and probably support the adoption of the zero risk approach, i.e. if matters of a personal financial planning or investment nature arise in dealing with a client, they are directed either towards the in-house specialist financial adviser within the accounting practice, or outsourced preferred service provider.
The only other alternative will be to become a financial adviser and fall within the FAA with all the necessary compliance requirements that will entail. Clients will expect referrals in the same way that accountants refer to legal advisers. The basis for the referral is a separate topic in itself.
It is highly likely that when the Accountants Society further refines the draft practice guidelines of 2008 on this matter, they will encourage their membership to make a very clear choice. This is the only position which they can responsibly take on this matter.
The role of Trustee, even through a corporate entity is another matter which needs careful consideration. In this regard, the role of a Director provides some useful help. Best practice suggests that the role of a Director is a governance role and as such provides a useful guideline as to how professional accounting advisors in their role as Trustees should act.
The risks of straying into the realm of acting as a financial adviser within the role of a Trustee is likely to mean the risk management techniques of acting as a Trustee through a corporate entity are undone. This is because the risk is personal, i.e. the accountant may be found to have acted as a financial adviser and therefore have either breached or need to comply with the requirements of the FAA.
The contention of the writer is that for the reasons stated above and the lack of clarity as to when an accountant has strayed into the path of the FAA, there is a need to consider evasive action now.
Well considered risk management techniques will assist greatly. The writer has certainly seen an increase in the number of accounting professionals looking to mitigate some or all of these risks from their practice.
Craig Myles is a director of financial planning firm Myles Wealth Management.
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