Seize the day
As the big four banks continue the exodus from their wealth management businesses, accountants have a unique opportunity to stake a claim on territory long seen as the domain of financial advisers.
The ongoing financial services royal commission continues to wreak havoc on the big four banks. Amid continuous reports of misdemeanours and client misgivings, it is unsurprising they want to exit the wealth management space. It is also a damning indictment of the vertical integration model upon which the big four banks have been operating wealth advice.
On top of that, the royal commission has done major damage to the reputation of financial advisers, both bank and non-bank aligned. A survey conducted in June by financial services marketing agency Yell and research firm Ipsos revealed consumer trust in financial advisers dipped by 6 per cent since 2017, while trust in banks dropped by 8 per cent. In addition, recent research from the Governance Institute of Australia found that only 33 per cent of Australians believed financial advice practices to be ethical businesses.
On the other hand, the same survey revealed that 51 per cent of Australians thought of accountants as ethical. Even as the royal commission inflicts significant damage to the reputation of the financial services industry overall, the accounting sector has been left relatively unscathed.
The advice opportunity
Accountants now have a major advisory opportunity being presented to them, says Smithink director David Smith. He acknowledges that every accounting firm is in a different place when it comes to their technical skills and resources and that there is no one right approach to adopting advisory services.
“I don’t think there’s a ‘one size fits all’ here. Some firms might have accountants with real skills and the desire to be able to develop their financial planning service in house,” Mr Smith says.
“Other firms recognise that there’s an opportunity to provide a better service to their clients but for one reason or another don’t have the skills or the resources to be able to do that, in which case partnering might be the right answer.”
A critical skill Mr Smith has been working with firms to develop is their ability to have broad-based conversations with their clients in uncovering their needs, noting they can be both business and personal financial affairs. By creating broader-based conversations, firms should also not expect every conversation to be around financial planning.
“There may be issues that they might have [such as] marketing issues in their business. They might have HR issues. They might have IT issues. They might have all sorts of different things going on,” says Mr Smith.
“If they do have those holistic conversations with their clients, one of the things that’s going to spin out of that will be a need for strong financial planning and insurance advice, because that’s such a critical component in everybody’s lives to get right.”
The fundamental difference between accounting and financial planning, according to Mr Smith, is that financial planning is a different game in terms of communicating and engaging with a client.
“Accountants are very good at what they do and have very strong trusted relationships and great knowledge of the client’s affairs, but in many cases either lack the time and resources to develop financial planning services or don’t really have the manner to be able to engage with clients in the way which is best when you’re talking about the development of financial plans and the like,” he says.
Over the last few years, Hoffman Kelly director Michael Kerwin has noticed more collaborative relationships between financial advice and accounting firms in Brisbane, where his firm is based, whether that be done in-house or through some sort of joint-venture relationship with an external firm.
“There is a great deal of benefit to be had on both the accountant and the adviser to have a collaborative approach. I think that has been increasing over the last five years, and I think that will continue to increase,” he says.
However, Mr Kerwin’s approach is much more cautious. He has found that when a client comes to him from another financial adviser, often the frustration from the client’s point of view is that no one speaks to each other. This often results in multiple conversations between the accountant, the adviser and the lawyer about a client problem when normally one would suffice. As a result, the accountant/adviser relationship needs to be carefully navigated.
“There are some risks in there around accountants pushing into [wealth advice], especially managing the conflict-ofinterest issue, which is what got the banks into all this trouble in the first place,” he explains. “As an accounting firm, you’ve got to be very careful that that is managed.”
Mr Kerwin says Hoffman Kelly went through an extensive vetting process in order to find the right set of advisers to partner with before choosing HKS Planning, also in Brisbane. The partnership has been going strong for more than 10 years.
“We’ve got a partner that’s very aligned. I think for other accountants, that’s the first step, and it goes a long way to having very few of those issues. The other reason why we have a good relationship is because we don’t put our noses into the planning piece,” he explains.
“We obviously discuss strategy with them, making sure that our tax and asset protection instruction advice fits in with their investment advice. We don’t stick our noses in and go, ‘We don’t think you should recommend product A, B and C’. They run their own business. They’re very good at what they do, and we trust them to make those right decisions.
“We’ve had that for many years now, and we feel very lucky we’ve got that sort of partnership. I think that is probably the model you should go with.”
Bringing the exemption back
As the client wealth advice gap widens, it is perhaps unsurprising that there has been a broader push from the Institute of Public Accountants for the reinstatement of the exemption allowing accountants to provide advice on self-managed superannuation funds.
In lobbying for the exemption in August, IPA chief executive Andrew Conway said the principle at play is ensuring Australians have access to affordable financial advice. Ever since the exemption was removed on 1 July 2016, he says some Australians have simply opted out of advice altogether, something that “may ultimately place their financial future at risk”.
“The capacity of an accountant to provide advice on selfmanaged superannuation funds has long been held as not being a systemic risk to the integrity of the financial services system,” Mr Conway says.
“The public rely on their annual interaction with their accountant to finalise their tax affairs and seek guidance on issues, which unfortunately is now considered financial advice as part of this process.
Without this guidance, many will receive no financial advice at all for important matters such as retirement planning.”
Since the Future of Financial Advice became a mandatory form of compliance for financial advisers on 1 July 2013, Mr Conway thinks the reform has ultimately failed to achieve its policy objective of making financial advice affordable.
“As trusted advisers, accountants can play an important role in helping clients manage their financial affairs and revisiting the accountants’ exemption is paramount to restoring access to basic financial advice. Seventy per cent of the population and 95 per cent of all businesses have a trusted accountant behind them, and denying them access to any guidance is not in the public interest,” he argues.
Hoffman Kelly’s Mr Kerwin agrees, calling the removal of the accountants’ exemption “a terrible decision”. He says he has met a lot of his clients who have simply said they “just don’t want a financial planner”, and thinks this is something that firms will be encountering more often in the future.
“I think we will see more people trying to navigate complex investment decisions on their own, which I think largely is a terrible thing,” Mr Kerwin says.
“I think accountants can at least have that exemption back when we can have limited discussions around certain aspects.
“At least it might help those clients get some advice instead of potentially no advice.”