This is the second Bulletin in a 4 part series, in which we explore the thin (sometimes, very thin) line that accountants can inadvertently cross when giving advice to their clients. The "line" is of course the need to hold an Australian Financial Services License (AFSL) to cover the provision of that advice.

For the purposes of these Bulletins, we're assuming that the client is a retail client under the Corporations Act 2001 (Cth) (Corporations Act).

In Issue 1 of this series, we commented that, to the extent a person gives an opinion or a recommendation which is intended to influence another person to make a decision in relation to an SMSF (or could be seen to be so intended), that will constitute financial product advice, and hence a financial service for which an Australian Financial Services License (AFSL) is required (unless exemptions apply, such as the "accountant's exemption").

Conversely, it must be the case that if a communication falls short of being an opinion or a recommendation, it must not be financial product advice which would necessitate an AFSL (putting aside whether an exemption applies).

Communications which are merely the provision of factual information are generally recognised by the regulators as falling short of being an opinion or recommendation.

So, what is the difference between a "recommendation" and "factual information"?

Recommendations

ASIC takes the view that (Regulatory Guide 36 (RG 36), para. 23):

"If a communication is a recommendation or a statement of opinion, or a report of either of those things, that is intended to, or can reasonably be regarded as being intended to, influence a client in making a decision about a particular financial product or class of financial product (or an interest in either of these), it is financial product advice. Communications that consist only of factual information (i.e. objectively ascertainable information whose truth or accuracy cannot be reasonably questioned) will generally not involve the expression of opinion or recommendation and will not, therefore, constitute financial product advice." (emphasis added)

The key aspect of "factual information" (from ASIC's perspective) is that the communication consists of objectively ascertainable information whose truth or accuracy cannot be reasonably questioned. In the context of SMSFs, this would probably include things such as the following:

• how to establish an SMSF
• information about tax rates that apply with SMSFs
• what "salary sacrifice" means when it comes to SMSFs

ASIC does, however, offer the following caution (RG 36, paragraph 24):

"...in some circumstances, a communication that consists only of factual information may amount to financial product advice. Where factual information is presented in a manner that may reasonably be regarded as suggesting or implying a recommendation to buy, sell or hold a particular financial product or class of financial products, the communication may constitute financial product advice (e.g. where the features of two financial products are described in such a manner as to suggest that one compares more favourably than the other)."

ASIC takes the view (RG 36) that a communication is likely to be "factual information" where there is no value judgement about the communication. "Value judgements" would include things such as:

• the merits of salary sacrificing into an SMSF
• whether an SMSF is more desirable than other investments for tax purposes.

In this regard, ASIC comments that (RG 36, paragraph 31):

"Factual information may be likely to be advice if it is presented in a way that is intended to, or can reasonably suggest or imply an intention to, make a recommendation about what a client should do."

Sounds simple in theory, but in reality most communications between an accountant and their SMSF clients will draw close to the line on whether a value judgement is being made by the accountant in relation to their clients' circumstances, even where factual information is being provided. Moreover, could it be also be said that the mere fact that the accountant sets out "factual" matters about various investment options (for example, an SMSF versus an alternate investment), is itself an implication of what the client should do, and therefore a recommendation? The line is thinner than most people think.

ASIC does offer some assistance in this regard. In one of its "frequently asked questions" (QFS 123), ASIC comments as follows in the context of accountants giving SMSF advice:

"Merely setting out options and discussing the benefits and disadvantages of each option will not necessarily involve a recommendation...It is more likely that a recommendation may be inferred where an option is presented as the only option, or other options are described in terms that indicate that the adviser considers that they will not be suitable for the investor.

For example, the regulations allow a recognised accountant to give financial product advice in relation to the establishment of an SMSF where the client has already decided to set up the SMSF and dispose of interests in another superannuation fund...in order to do this. In this instance, you would only be asked for advice on administrative issues in establishing the SMSF and arranging for the rollover of funds from the...fund to the SMSF. You would not be providing a recommendation about disposal of the client's interest in the...fund.

However, if the client has not yet made the decision to dispose of interests in the...fund, and you explain the superannuation options available, and the general benefits of the different types of fund, you should be careful that you do not imply that it would be appropriate for the client to dispose of their interests in the...fund in order to set up an SMSF. In this instance, you could be making a recommendation about the disposal of interests in the...fund, and would require an AFSL to engage in that conduct.

Gold and Platinum members read on to see a worked hypothetical example of an accountant's advice to their client about an SMSF, and the differences between a recommendation and factual information.

Conclusion

Accountants should be aware of the differences between a "recommendation" and "factual information", the latter usually falling short of requiring an AFSL authorisation. However, and as ASIC warns, factual information may be likely to be considered financial product advice if it is presented in a way that is intended to, or can reasonably suggest or imply an intention to, make a recommendation about what a client should do.

Written by Cristean Yazbeck
Head of Financial Services
Rockwell Olivier Sydney

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