Accountants eye move into financial planning

While the debate about the Future of Financial Advice (FoFA) continues, the accounting profession is quietly getting on with the job of developing its own standard for financial planning, via the Accounting Professional and Ethical Standards Board, or APESB.

What will emerge from the APESB process is a standard, APES230, that will give the accounting profession a foundation on which to launch a full-scale assault on the business of financial planning.

We’re not talking about inconsequential numbers. CPA Australia has more than 130,000 members. The Institute of Chartered Accountants (ICA) has something like 57,000 members. The National Institute of Accountants (NIA) has more than 20,000.

APESB is independent of the professional associations, yet its standards are binding on each and every member of those associations. No ifs and no buts. Once APESB issues a standard it becomes, in effect, law.

Each of the accounting bodies is free to make submissions to APESB on any proposed standard, but APESB sets the standards, and the professional bodies fall into line.

It’s worth considering the potential implications of greater numbers of accountants offering financial planning to the public, and of them having a professional standard to work to.

Consider, for a start, that APESB230 sets a far more stringent set of rules and requirements than FoFA does. A financial planner that adheres to APESB230 will be operating at a “higher level” than a planner operating to the basic standards of FoFA.

The issue of conflicted remuneration is a case in point. The final report of the Parliamentary Joint Committee on Corporations and Financial Services (PJC) set out to remove remuneration conflicts. But opposition from the industry and effective lobbying by various parties has resulted in watering down of what could have been a more hardline stance.

So now it’s OK to receive commissions on some kinds of risk insurance, but not on others. Some volume-based payments are OK; others are not. And it’s perfectly fine to charge a client based on a percentage of assets under advice or under management or under administration, and call it a “fee for service”.

The exposure draft of APES230 says, simply, there shall be no conflicts. There shall be no commissions received – from anything. There shall be no volume-based payments, of any description. Asset-based fees are out.

The exposure draft states:

“‘Fee for service’ does not include commissions, percentage-based asset fees, production bonuses, or other forms of fees or remuneration that are calculated by reference to product sales or the accumulation of funds under management, whether paid by the client or a third party such as a product manufacturer.”

A number of accounting-based financial planning firms (or should that be financial-planning-based accounting firms?) objected to the exposure draft, and the APSEB was asked to review it. It’s done that, and a final draft is being worked on now. There’s a good chance that the final version will closely reflect the draft on all key issues.

And it could come into effect within months. Conceivably, it could be operational before FoFA comes into effect – particularly if, as expected, the financial planning industry is given an extended transition period.

So where does this leave us? It leaves us with one group, parts of which are giving the impression that it will reach something resembling professionalism only by being dragged there, kicking and screaming; and another group with an unimpeachable reputation for professionalism laying the foundation for its members to enter financial planning.

If you were a potential consumer of financial planning services, which would you choose? From which group do you think you’d have the better chance of finding someone in who professionalism is ingrained, rather than someone who is complying only grudgingly with a set of rules and standards – and who doesn’t think they will work anyway?

In a recent paper, Planning for Success, the research firm CoreData hit the nail on the head:

When speaking to CPA Australia, Jeremy Wardell, CEO of Countplus said: “Accountants have probably the greatest trust relationship with their clients of any professional group in a society; particularly in the financial area … they potentially have a moral obligation to provide their clients with other financial services advice and in particular financial planning.”

The FoFA reforms will undoubtedly have a significant and positive impact on the business of financial planning – that’s the point – but one impact that might have been overstated recently is the issue of job losses.

In a submission to recent PJC hearings, AMP Financial Services estimated that FoFA could lead to the loss of 25,000 jobs in the financial planning industry.

And AMP is not alone – the Association of Financial Advisers (AFA) says the number could be 35,000.

FoFA might spell doom for some existing financial planners, and job-loss estimates might be based on accurate estimates, but they are only part of the picture.

The accountants are massing on the border, they’re ready to fill the demand for financial planning, and the financial planning industry had better be prepared.