Accountants accuse financial planners of getting easy ride

by |

University of Queensland associate professor of accounting Julie Walker says accountants are not happy with new standards:

Right now, the Australian accounting industry is in uproar about financial planning. The new standard APES 230 Financial Planning Services, issued by the Accounting Professional and Ethical Standards Board last month, has generated huge concern within the profession.

The controversial issue in APES 230 is the banning of conflicted remuneration such as commissions on insurance and percentage based fees on investments. APES 230 has limited grandfathering provisions for the new rules, with compliance required by 30 June 2018.

This is inconsistent with the recent Future of Financial Advice (FoFA) legislation which permits the continuity of asset fees (except on gearing) and commissions on life insurance (except on certain insurance policies in superannuation funds).

The APES standard binds members of the three Australian accounting bodies CPA Australia, ICAA and IPA. In other words, APES 230 sets a different, higher standard for accountants who also provide financial planning advice versus financial planners with no professional accountancy qualification.

The APES Board justifies its position on conflicted remuneration as in the “best interest” of the client, stating in an APESB explanatory memorandum that: “threats to the fundamental ethical principles of integrity, objectivity, and professional competence and due care arise from receipt of conflicted remuneration”.

This is despite FoFA legislation already establishing a statutory fiduciary duty for financial advisers requiring them to act in the best interests of their clients.

The APES Board was established by CPA Australia and the ICAA in 2006 to set the code of ethics and professional standards for Australia’s professional accounting bodies. Development of APES 230 commenced in 2007 with the first exposure draft issued in 2010.

Submissions to the APESB from the three professional accounting bodies recommended that APES 230 follow the FoFA requirements. The first tranche of FOFA legislation commenced on 1 July 2012 with a voluntary compliance period until 1 July 2013, aligning with the commencement date of APES 230.

The FoFA reforms are aimed at improving the trust and confidence of Australian retail investors in the financial planning sector. Apart from the “best interest” duty, FoFA also enshrines the term, “financial planner” with recent draft legislation providing that only those fully licensed and authorised to provide personal financial advice can call themselves a financial planner or financial adviser.

Licensed financial planners hold an Australian financial services licence. Many accountants also complete the necessary qualifications to become a licensed financial planner. However, not all licensed financial planners complete accounting qualifications. It’s not surprising then that many in the accounting world are claiming that APES 230 will impose significant differential costs on accountants who also provide financial planning advice, or those who partner with financial advisers.

The IPA has already indicated that it will not promulgate APES 230 but will instead develop its own standard consistent with FoFA. There are also rumours of a possible legal challenge to the standard.

The furore within the accounting fraternity is not as self serving as it might appear. The FoFA reforms have dramatically changed the financial planning industry in Australia and financial advising is a major revenue source for many accounting firms. For these firms APES 230 represents a costly add-on to the existing significant costs of FoFA implementation, placing them at a disadvantage in the financial advising marketplace. At the same time, there appears to be little benefit to the retail investor who is unlikely to understand the difference between a licensed financial planner who is also an accountant and one who is not.

A longer term consequence of APES 230 is the likely separation of financial planning and accounting professional services. Membership of an accounting body now brings with it the obligation for members providing financial advice to use “non-conflicted” or fee-for-service remuneration models, an obligation not imposed on non-member licensed financial planners. The higher “best interest” standard on financial advising contained in APES 230 may simply mean fewer accountants in the future.

This article was originally published at The Conversation. Read the original article.

Do you think the same rules should apply for accountants providing financial advice, and financial planners?

  • Peter Vickers Chartered Accountant on 8/01/2013 11:30:34 AM

    I have my own FSRA licence. What APES 230 means is that there will be a separation between those that sell product and thus earn commissions or give conflicted advice and us public accountants whose advice can be relied on to be in the best interests of clients.
    This is a clear delineation between product salesmen and advisors.

  • Mervin C Reed Financial Adviser and Planner on 8/01/2013 12:19:43 PM

    What is means is that Accountants have to act in the best interests of clients and not sell them MIS schemes with large upfront commmissions to provide tax solutions, with effectively no advice. The thousands who have lost their funds and in some cases their tax deductions will now be re-assured that accountants will be acting in the best interests of clients.

  • Ian Choudhury Licensed Financial Adviser on 8/01/2013 12:19:44 PM

    I think the APES 230 standard should be adopted by everyone as % based fees (i.e. AUM) and commissions produce conflicts. My practice has been operating under the same standards as APES 230 for the past 2 years and has had no adverse impact on income or client numbers. Actually, I think we have attracted some HNW clients because of our flat fee structure.

  • Andrew on 8/01/2013 12:46:26 PM

    Urgent message to all mirror salesmen : A self righteous accountant is ready to buy up big as he really enjoys looking at himself...!

  • Andrew on 8/01/2013 2:41:00 PM

    APES230 should not include a ban on accountants who are also authorised representatives from receiving insurance commissions. There is already a huge underinsurance problem in Australia, which APES230 makes worse. Very few clients are likely to pay ongoing fees for insurance advice. The time and effort required to assist clients at claim time can be extensive, with ongoing commission often not covering the cost of the effort. Charging a client a potentially huge fee for many hourse of service at claim time, especially as this would normally co-incide with the client recovering from illness or injury or grieving, is just plain wrong. Sensibly, the Federal Government recognised this and excluded an insurance commission ban from FoFA. The APES Board are being pig headed by not recognising that the ban on insurance commission is wrong. I suspect the APES Board want to justify their existence since they have been working on their proposal since 2007. The APES board should face the fact that their 5 years of work was a waste of time, and that FoFA addresses conflicted remuneration adequately.

  • Alan on 8/01/2013 3:29:23 PM

    What's going on here? Accountants need to decide whether they want to be tax advisers and planners OR financial advisers and planners. I would have thought that if you are doing complex company and personal tax returns, it wouldn't leave much time to be doing all the other investment and risk planning work. Accountants now advise and set up SMSF's which I personally believe are "oversold". If you prefer to be a financial planner or risk adviser, then that's what you should do, not throw criticism at those who are doing it. Incidentally, as a risk adviser and proud of it, I receive my hard earned remuneration by way of commission and it certainly isn't conflicted. There is a lot of misunderstadning out there!

  • Guy Mankey on 8/01/2013 5:44:27 PM

    Sounds like the FPA has infiltrated the Accounting profession. Professional bureaucratic do-gooders (who historically have little or no practical experience in the profession they are 'fixing' - John Brogden anyone?) trying to force a utopian dream upon us with no idea what-so-ever about how the real world actually works. They build their little fiefdoms and next time you look, they've gone.

    Simple solution. Full disclosure, then, rather than tell everyone what is and isn't in their best interest, actually leave it up to the adults of this country to decide for themselves how they want everyone to be paid. I have NEVER met an Accountant who would put his client relationship at risk by referring them to a substandard adviser. Under the referral system the fee invariably comes out of the adviser's income, not as an additional cost to the consumer. I know some accountants who put the commission against the client's fees. The client pays no extra but gets access to an expert who is not only answerable to the client but also the Accountant.

    Bottom line is that the nanny state serves no-one but the nannies!

  • Keith L. on 9/01/2013 9:33:42 AM

    I entirely agree with Alan. I fail to understand why fully disclosed financial services industry commission can be so tainted that it earns a "Conflicted Remuneration" tag when so many undisclosed commissions in various forms applicable in other fields are quite acceptable. I have clients who would prefer to remunerate me using a traditional commission basis than via a fee for service. The semantics sound so idealistic and righteous to the uninformed but the fact of the matter is that the "best interest" provision protects the interest of the clients and the ban on commission only deprives clients of an alternative and often preferred method of remunerating their advisor. I strongly suggest that if a particular type of remuneration is conflicted then it follows that any type of remuneration is also conflicted in that we all expect to be paid for our services and the payment in any form is the motivation for providing the service.

  • Matt on 9/01/2013 10:21:25 AM

    In response to Andrew, if you have a client who is on a claim against insurance you will find most insurance companies will pay a financial planning benefit for the client to receive advice on any lump sums received. As you are providing clients with investment advice from the insurance im sure you will find they will pay a fee as they value the advice you give right? Incidentally that is why Hybrid commissions are a much better solution for insurance commission for long term clients.

  • david m on 9/01/2013 11:24:24 AM

    Insurance commissions are conflicted. If I choose policy a witha highr premium I get a higher commission. This my friends is called a conflict of interest. This is not to say that I or you choose the higher commission, but the conflict is present.These conflicts are present in most industry's, but we are under the spotlight. This is complicated, and I don't have the solution..but to simply state there is no conflict is blind.

  • Alan on 10/01/2013 11:34:02 PM

    david m. my friend, sorry but you win the clown comment! If an adviser "chooses" a higher premium just to get a slightly higher commission, then he does it at his own risk. Most advisers I know would advise using a reputable company with a LOWER commission so that there is a better chance of keeping the client which after all is the key to a successful business. Your suggestion is arrant nonsense as the difference in commission would be quite negligable anyway. I also repeat, if you work in the interest of the client, commission remuneration is NOT conflicted. Speak to a risk adviser sometime and get educated please!

  • Travis Martin on 11/01/2013 12:01:30 PM

    I don't think there are too many advisors out there would actually choose a higher premium to get a higher commission. But simple fact is, because it is actually possible to put a client into an 'inferior' product in return for a higher commission, means that a conflict of interest does exist. It doesn't mean that advisors will choose the inferior product, but the conflict of interest is really there. You can’t deny that a conflict of interest exists, simply because you wouldn’t be influenced by it. If we are to improve the professionalisim of our industry, we must remove these (real or perceived) conflicts.

WP forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions