New regs could devastate adviser incomes
By WP | 29/11/2012 12:00:00 AM | 5 comments
The APES 230 standard for provision of financial planning services by accountants could have serious implications for adviser incomes.
According to Asteron Life, the new regulations will negatively impact financial advisers who have links to accounting firms by increasing advice fees and reducing the affordability of advice.
This, claims Asteron Life, would ultimately diminish any potential or current revenue stream from an advice practice to accounting firm as a referral incentive, therefore forcing them to significantly restructure their business.
The transitional provisions set by the APES board are that:
Fees for assets under management are to be prohibited.
All financial advice product commissions are to be prohibited, including insurance and mortgages.
These rules will apply retrospectively (with no grandfathering).
“While we’re still assessing what the full impact of APES 230 will be, the standard treats advisers who partner with accountants more harshly than advisers in the open market when it comes to remuneration for insurance advice,” said Asteron Life executive manager Mark Vilo.
“The banning of risk commissions and all third party payments is more severe than FoFA, and it’s alarming that, with more than 160 submissions, the APES board has ignored our industry’s concerns and forged ahead with banning insurance commissions.”
He added that advisers are deeply concerned about the impact APES 230 will have on the future of their business.
“Accountants have long been seen as a trusted adviser by most consumers and hold a strong status in Australian society. However, clients will essentially end up paying more for their insurance advice if they go through an adviser linked with an accounting firm, as they’ll be charged a fee for service from 1 July 2016,” said Vilo.
“For those advisers linked with an accounting practice, they face the double-sell of not only the insurance purchase, but also selling the fee for advice, which is to their own, and their client’s, financial detriment by increasing the cost of advice. This will exacerbate the underinsurance problem. Currently, only 5% of Australians have adequate life insurance cover.
“The government’s consultation process with the industry on FoFA was robust. This engagement resulted in insurance products being identified as unique, and therefore carved out of the requirements for fee-for-service. But in direct contrast, APES 230 suggests commission for risk insurance is conflicted remuneration.”
So what can be done about this situation? In its discussions with advisers, Asteron Life is now considering a number of alternative propositions for their business in the future, including:
the business structure of their own entities (i.e. consideration of setting up a separate license);
distancing their accounting practice away from their industry association; and
remuneration structures of advisers who provide risk insurance advice.
Aaron Rogers on 29 Nov 2012 12:05 PM
As per usual, in relation to most comments related to APES 230 by vested interests, Asterons claims are completely unfounded rubbish and typical of the shallow thinking that resides in many insurance companies and those opposed to the standard. The cost of insurance will not increase, rather over the life of the policy it will significantly decrease. The premium cost will be 30% p.a. less for a client advised by an APES 230 compliant firm. They will charge a fee to advise and implement the cover, a separate one when a review is required and in the event of claim, another at the point. Under the current remuneration arrangements and regardless of which commission structure is chosen, the cost of the cover is 30% more than it will be to a client of an APES 230 compliant firm. How many years at that rate does it take for the average client to recover the upfront cost of advising and implementing cover? In a lot of cases 1, at worst 3. Any more and you have to start asking yourself how inefficient is are your processes. Trust me getting the client to buy the cheaper option is not a hard sell. That being the case why does the client need to pay 30% more every year for the next 10-20 years that the policy remains in place or gets hand balled from one insurer to the next. Oh of course because we have to do so much work if there's a claim because you can't trust the evil insurers - another one of those typically baseless, motherhood statements. More like that's how its been done in the past and I really like the annuity income stream i receive from my book for doing very little.
Times are a changing boys. APES 230 will bring fundamental, competitive change to the financial services market in way that the industry itself and legislation was never able to achieve.
For my 20 cents, I would like to say a special thank you to the Accounting Professional & Ethical Standards Board for having the guts to approve the standard. Well done.
david m on 29 Nov 2012 12:25 PM
Pig's ass. The punter will get 25-40% cheaper premiums and pay a fee upfront.
Michael on 29 Nov 2012 07:45 PM
The Board may be pushing ahead with this but all the major professional accounting bodies have advised that they do not agree. This is simply the ideal world conceived by acadmics and bureaucrats who do not operate in the real world. Despite the logic of pay a fee and ultimately save money it won;t happen. Just look at how many people pay 15% to 20% more for the same policy just so they can pay by the month.
Clients like asset management fees. They have had 5 years to appreciate what a fixed fee means in a declining market.
APES 230 hopefully will be modified to take on the considered positions of both the CPA's and CA's.
Aaron Rogers on 04 Dec 2012 02:46 PM
What the considered positions of the Count and Securitor firms who made up the bulk of the submissions which, in the main, were just a signed pro-forma letter provided by head office? Or if some "consideration" went into it, the same pro-forma letter with some slight modifications. Is that the "considered positions" your referring to Michael or did I miss something?
BTW, members who practice on the FP side make up about 2.5% of the total membership across the 3 accounting bodies. The board is there to set standards for 100% of members, not the commercial interest of the minority.
What you seem to be overlooking is that there are already numerous firms operating in line with 230 [the Board found 50 firms alone after just a few hours on Google] and I'm sure you will find neither an academic or bureaucrat amongst them, more likely profitable operations run by sharp operators.