Incorporating a financial advisory service into a practice

How can I do this?

My practice and financial planning

An increasing activity for many Chartered Accountants is the provision of “financial planning” or financial advisory services. Whilst financial planning is becoming more important for Chartered Accountants to ensure a comprehensive service is provided to clients and to build a practice, there are a number of structuring alternatives to be considered.

Whilst many will suggest that the issue is “Should your practice become involved in financial planning?”, the real question is “How will your practice become involved in financial planning?”

Introduction

From a business perspective the key issue initially is to understand what the term financial planning entails. This term has traditionally been the domain of accountants with their expertise in taxation, business structuring, business and personal financial mentoring. Financial planning is not just an activity focussed on personal or individual issues but also includes businesses.

Whilst financial planning is often seen as sales service relating to financial products, its true positioning is the provision of strategic advice.

The introduction of the Superannuation Guarantee is just one example of the need for Chartered Accountants to consider providing financial advice (or at least the service). Over the next 10-20 years, clients will be accumulating a significant asset and will increasingly require advice in regards to their superannuation needs and eventually retirement income streams. These are only a small component of the strategic financial planning offering.

There has been much debate over the introduction of the Financial Services Reform Act (FSRA) back in 2002 but also provided opportunities. These opportunities include the need to assess ones practice and for many practices the opportunity to leverage off their existing services into the financial planning area.

With the depth of knowledge and understanding of a client’s financial situation, Chartered Accountants are well placed to offer this service.

The introduction of the FSR in 2002 significantly changed the environment in which accountants operate within their practice in terms of the advice that they could provide. The provision of personal financial advice requires an individual to be licenced or authorised. Without this an accountant cannot provide financial advice to retail clients – except within certain limitations as set by the legislation. (The definition of “financial product advice” has been widely drafted. Accountants may be specifically exempted from this definition if they engage in certain specified activities – refer to regulation 7.1.29 of the corporations regulations 2001.)

A key reference is the FSR : Accounting Industry Guide (April 2005)

As a result, for accountants to provide a comprehensive service to their clients, they need to incorporate financial planning by assessing and selecting the most appropriate structure for themselves, practice or business.
In addition to providing a comprehensive service to clients, financial planning will add significant value to a practice, in terms of ongoing revenue and also value for succession planning.

There are many considerations, some of these include:

  • Am I prepared to spend the time learning about the financial planning process?
  • Do I have an existing client base?
  • Do I have the resources that I need? (training, time, finances, office space.)
  • Finally, what is the most appropriate framework to incorporate financial planning into my business?

What are the alternatives?

In simple terms there are four structures or options that can be considered:

  • A referral program to a qualified financial planner/ financial planning practice.
  • Develop a joint venture with an AFS licence holder
  • Join a Dealer group and operate under the Dealer group’s licence.
  • Apply for your own AFS licence

Each of these options has a variety of considerations in terms of costs, client service, compliance and time. In many cases there may only be one option that is appropriate to your practice.

Article last updated 9 August 2011