Partners in Investment and Growth Futuro Financial Services ABN AFSL

Partners in investment and growth Accountancy – The New Advice Standard September 2014 Christopher Hirst Futuro Conference

Partners in investment and growth Agenda Background Regulatory enforcement Licensing choices Risks Costs Futuro Options Revenue expectations Benefits of changing now Conclusion

Partners in investment and growth Background prior to 1 July 2016 Accountants are currently providing their clients with the following: –providing advice on setting up and closing a SMSF. –recommending what type of super contribution could be made, how much and when. –Recommending taking out income protection policies to reduce taxable income

Partners in investment and growth To Licence or not to licence If Accountants want to obtain a limited licence and begin offering advice by July 2016, they need to be taking active steps during Partners need to look beyond the financial costs and consider the non-financial ongoing costs and risk to the business.

Partners in investment and growth Regulatory Enforcement ASIC has announced that un-licenced financial advice in the SMSF sector will be a focus and they will be taking regulatory action against unlicensed operators. We [ASIC] do not want to see SMSFs become the vehicle of choice for unscrupulous operators (ASIC Report 337)

Partners in investment and growth Licensing choices Accountants choices involve the following: –Obtain and maintain a limited AFSL –Obtain and maintain a full AFSL –Become an Authorised Rep of another AFSL –Recruit an additional partner who is licensed and/or authorised to service the SMSF client base –Focus of referral relationships and partner with an AFSL or AR –Do nothing and step back from providing SMSF advice

Partners in investment and growth Risks of Self Licensing If a business chooses to become self-licensed, it will typically be the partners who becomes the Licensee’s Responsible Manager. This may mean that the highest fee earning staff member in the business will also have the responsibility of keeping up to date with the compliance requirements of holding the licence, managing relationships with ASIC, service providers such a research houses, dispute resolution bodies, legal advisers and education and training providers

Partners in investment and growth Risks of Self Licensing For most accounting partners, this time away from client work can conservatively add up to 100 hours per annum, which at a charge out rate of $400/hr could amount to up to $40,000 lost revenue.

Partners in investment and growth Risks of Self Licensing Need to ensure all advice complies with all financial services laws Need to keep up to date with regulatory change Must maintain the competence of those staff employed to provide advice and ensure they meet ASIC training requirements Must manage complaints and disputes Report significant breaches Manage conflicts of interest

Partners in investment and growth Risks of Self Licensing Many accountants are considering outsourcing this function but are unaware of the financial and non financial costs and risks. Irrespective of having these functions outsourced, partners remain responsible and are accountable for the actions of these third parties.

Partners in investment and growth Risk of being Authorised Must enter into a legally binding agreement with the Licensee to comply with the Licensee’s compliance and other requirements. For both self licenced and authorised, the adviser must meet the client’s best interests according to law.

Partners in investment and growth Other obligations Recruitment and Onboarding Client Ownership Contractual Arrangements Quality of Advice Monitoring and Supervision Training and Education Record Keeping

Partners in investment and growth Costs Futuro indicative member fees Essential adviser - $11,250 p.a Strategic adviser - $14,000 p.a Comprehensive adviser - $31,000 p.a Excludes the Regulators levy of 3% but includes Professional Indemnity insurance.

Partners in investment and growth Self Licence Vs AR Set up Costs Set up costRelated feesAverage cost Who organise s Self licenceASIC’s fee for self application$1,485You Consultancy fee to help with the application$5,000You Training – covers RG146 requirements, delivered face to face (8 units of DFP at $1,000 per unit as a minimum $8,000You Registering a company$1,100You Total upfront costs15,585 Authorised Representative Licensee application fee$0n/a Consultancy fee to help with the application$0n/a Training – covers RG146 requirement, SMSF specialist training $3,300Licensee Registering a company$1,100You Total upfront costs$4,400

Partners in investment and growth Self Licence Vs AR Ongoing Costs Self LicenceRelated feesAverage cost Who organises FixedPreparation on annual return and comp. fee$750You PI insurance$7,000You Membership with EDR$495You ASIC annual fee$560You VariableCompliance support$5,000+You Responsible officer training$2,000You CPD Training$3,000You Research$1,000You business software$3,000You Total ongoing costs$22,805 Total first year cost$38,390

Partners in investment and growth Self Licence Vs AR Ongoing Costs Strategic Adviser Related feesAverage cost Who organises FixedPreparation on annual return and comp. fee$750You PI insurance$1,300You Membership with EDRn/aYou Licensee member fee – Strategic adviser$14,000You VariableCompliance supportincludedYou Responsible officer trainingn/aYou CPD TrainingincludedYou ResearchincludedYou Business software$3,000You Total upfront costs$19,050 Total first year cost$23,450 Costs Differential $14,940

Partners in investment and growth Futuro Options Essential (Restricted) This is the basic option for Accountants who want to provide advice on recommending SMSFs, basic super advice or product advice for basic deposit products. Futuro will provide access to basic advice templates, training, ANMs and SMSF technical support. Training requirements are DFP 1 & 4 or equivalent ASIC approved course + Basic SMSF Course + Licensee course. Advisers can only provide non-product related advice

Partners in investment and growth Futuro Options Strategic (Limited) This is the mid-tier option for Accountants who want to provide detailed strategic and product advice concerning SMSFs (reserves, pensions, borrowing, death benefits), basic super advice including review and rollovers of super funds or product advice of basic deposit products. Futuro will provide access to detailed advice templates, training and ANMs, modelling software models and SMSF technical support. Training requirements are Diploma of Financial Services (discounted) or equivalent ASIC approved course + SMSF Course + Licensee course. Advisers can only provide non-product related advice

Partners in investment and growth Futuro Options Comprehensive (Open) This is the top-tier option for Accountants who want to provide extensive financial planning advice including non-superannuation strategic and product advice (investments, insurance, gearing), SMSFs (reserves, pensions, borrowing, death benefits), basic super advice including reviews and rollovers of super funds or product advice on basic deposit products,. Futuro will provide access to detailed advice templates, training and ANMs, modelling software models and SMSF technical support.

Partners in investment and growth Futuro Options Comprehensive (Open) Training requirements are Advanced Diploma Financial Services (discounted) or equivalent ASIC approved course + SPAA Accreditation (SSA) (discounted) + Licensee course. Comprehensive advisers can provide extensive product advice and recommendations

Partners in investment and growth Futuro Options Comprehensive (Open) You also have the ability to attain expertise to provide advice in the following area: Direct equities Structured products Margin lending Aged care

Partners in investment and growth Revenue expectations Practices that choose to become licenced or authorised now and begin charging for the full scope of financial advice may earn, as a starting point, in excess of $200,000 more in the first year, than their non-licenced or un- authorised competitors. Clients will compare practices and ask why one practice can offer services where another can’t.

Partners in investment and growth Revenue expectations Advice areaPractice A (non-licenced or authorised) Practice B (strategic SMSF advice) Initial Advice Advice and implementation fee$0$2,500 Set up fee (e.g. deed)$1,500 Total fee 1 client/week$1,500$4,000 Total revenue (over 50 weeks) $75,000 p.a.$200,000 p.a. Ongoing Advice Ongoing advice fee$0$1,000 Total fee 1 client/week$0$1,000 Total revenue (over 50 weeks) $0$50,000 Additional value created$0$175,000 Practice value0.75 x ongoing revenue 3 x ongoing revenue $0 (no ongoing revenue stream) $150,000

Partners in investment and growth Benefits of changing now Establish your practice as a market leader Capitalise on market trends – clients are driving accountants to offer further advice and become a ‘one-stop-shop’ advisory service Immediate revenue gains from expanding strategic advice services

Partners in investment and growth Benefits of changing now Your choice of education provider and timing of becoming qualified. Increasing the succession value of your business by 300%. Retain control of my clients and oversee the quality and diversity of advice your clients can receive. Attract and retain younger staff and adapt to generational change.

Partners in investment and growth Conclusion Delaying the decision and being unprepared for the changeover may result in your business not meeting the 30 June 2016 transitional cut-off More importantly, early adopters can start maximising their earning potential and increasing the value of their business. Where do you want your business to be by 2016?

Partners in investment and growth Questions?

Partners in Investment and Growth Futuro Financial Services ABN AFSL Disclaimer This is general advice only. It does not take into account an individual's objectives, financial situation or needs, which are necessary considerations before making any investment decision. Opinions constitute our judgment at the time of issue and are subject to change. This report was prepared by Futuro Financial Services for the sole use of the intended recipient. Its contents should not be disclosed, in whole or in part, to any other party without prior consent in each case. To the extent permitted by law, Futuro, its employees, consultants, advisers, officers and authorised representatives are not liable for any loss or damage arising as a result of any reliance placed on the contents of this report. Please contact us directly should you have any queries in relation to the information provided in this Report on