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.
Accountants are historians and, from observation, some struggle with that.
If you were a potential consumer of financial planning services, which would you choose?
A member of the IFAAA Simon. You know, the ones who haven’t been charging asset based fees for over 6 years if not longer. Those that specialise in financial planning rather than try to master both tasks.
Yet again the small number of independent financial advisers (members of the IFAAA) have been ignored and overlooked in this article.
Where is your proof that accountants are massing on the border Simon? There is nothing stopping them from stepping over the boarder right now. Truth is those accountants who have ventured into financial planning did so because they were attracted by the “money for jam” to be made under the “asset based fee” model. They’re the same ones now complaining about APESB230.
Many of those that haven’t ventured into financial planning have made this choice because they didn’t believe in the asset based fee model.
A mass marketing campaign by the major accounting bodies about the problem with asset based fees (from a consumers point of view) would do great things to engender more trust in our profession (of financial advice) thereby attracting more consumers to obtain advice.
AMP and AFA are being drama queens estimating those job losses. All it says to me is that many AMP and AFA members are ready to quit and go and try and make easy money elsewhere. Good riddance to any adviser that quits the profession because of these changes. Fact is, they’re holding us back from reaching our potential.
“A mass marketing campaign by the major accounting bodies about the problem with asset based fee”
A mass marketing campaign by the major accounting bodies about the problem with asset based fee might lead to some questions being asked about the conflict inherent in the fee charging methodology currently adopted by accountants.
Peter,
Guess what
“Accountants explain to their clients all the options and then let the client make the appropriate choice. Usually this is obvious like; which action saves you tax, which action gives you control of your affairs and which action reduces risk”
You are giving advice to your clients……. This is exactly what we do as financial planners, but we then follow this with a 60 page document with or without product + all the compliance and risk. I would love to run my business this way. You should check your PI insurance.
Blimey, I think some of the accountants here overestimate their relationship with their clients. An accountant is merely a reporting vessel for the ATO. Quite honeslty I am yet to come across a client who is really happy with their accountant. And it is the financial planner who has the closer relationship with a client; we know about their dreams, aspirations, health issues, family issues and of course finances. As for the melodramatic posts here from George and Mark, surely you have heard of Count; accountants have been financial planners for years and there is a still a financial planning industry. The smart accountants won’t get into financial planning.
Good to see that the debate is getting nasty. If “An accountant is merely a reporting vessel for the ATO” then a financial planner is just a product salesman after his commission.
Please note that as an accountant, I know ” about their dreams, aspirations, health issues, family issues and of course finances” better than even the client. I have been doing financial planning for my clients for the last 33 years. The first with an exemption for clients and then with a license.
Hi Guys
I am a CPA who has specialised in Financial Planning for 25 years. The first thing I would say is all this us and them stuff is nothing more than macho rubbish. Talk of finacial planners waging a “war” on accountants and the like is not only laughable but not useful to the whole debate.
A couple of observations if I may,
1. I am flat out keeping up with all I need to in Financial Planning so have no hope of practising tax with any degree of competence. I assume it will be the same for the public accountants, most of whom are flat out with the tax and business requirements of their clients. So unless someone can give us an extra eight hours in a day the status quo of specialists doing what they do best will continue.
2. This whole painting of accountants as pure as driven snow doesn’t stand up. Let’s not forget who sold 99% of the agri business that was generating commissions (there’s that dirty word) between 10%-30%. Seemingly with no recourse. Where was the professionalism in this instance?
So if accountants want to become financial plannersand vice-versa that’s terrific. But lets reserve the insults and denigration to ourselves. frankly I am sick of it.
Well done Paul, I think that Simon likes to throw the cat among the pigeons to stimulate debate but somtimes in doing so throws common sense out the window.
I agree Paul, when I was working as a BDM for one of the fundies, I went to an accountants office who also dabbled in planning. In his reception was a huge photo frame with this chap posing next to trees, stacks of timber, on a tree stump, etc presented to him by Wilmot Forests. I almost turned around and walked back out…
He proudly told me that in his first year he invested $10M of his clients money and Wilmot sent him a cheque for $1M. Nice work (please note the sarcasm). His first year was 2007 and he’d pumped similar amounts in since then, until it all crumbled.
The only question he had about my product was “how much commission does it pay?” When I told him that there was no built in comms, he wasnt interested.
As a planner, I’ve never recommended any agri to clients. I couldnt see how it benefited them for me to get such a huge chunk of the ‘investment’ as a sales comm.
Sensible comments Paul. In my business I work productively with accountants (many of whom are specialists in their area), solicitors and financial planners who specialise in different areas to me.
Whether it is accountants deciding to give financial planning advice or financial planners (most of whom these days have the same qualifications as accountants) deciding to become accountants two things are certain: clients will suffer, both industries will be brought into further disrepute.
Your article is based on a false premice. Accountants have always provided financial planning to their clients. What they have refused to do is be salesmen for products. Remember that as a CA I am “Number One in Numbers”. Note that I have not used the word advice. This has two different meanings. Accountants explain to their clients all the options and then let the client make the appropriate choice. Usually this is obvious like; which action saves you tax, which action gives you control of your affairs and which action reduces risk. However to public servants, advice means; this is what you are going to do and you are going to hold me liable for that advice.
Accountants do not need a client to provide a ‘fact find’ as the accountant knows the client’s affairs better than the client.
Peter, that’s a pretty dumb comment, that accountants do not need a client to provide a fact find. You’d better hope that no ASIC auditors visit this website; they might decide to come and pay you a visit.
In relation to AP”s comment: an accountant doesn’t have to do everything. He/she could hire an in house planner. The point is that clients, who have had a long term relationship with an accountant, would rather stay there and get the financial advice rather than have to go to an outside person who they have known for 5 minutes!!!
Hello George – i talked about my accounting partners not trying to do everything ? Whilst our planning company is a seperate entity we sit in the same office and aim to provide a great planning service to the accounting clients. The point is “Jack of All – Accountants / Planners” will do no service to the accounting or planning industry. Thankfully my accounting partners always understood this and thus i was brought in as the specialist.
My accounting partners have not set up a SMSF for 4 years because they realise that us as planners are much better able to serve the client. Especially after 1 of my partners set up a SMSF and the client lost all their corporate life insurnaces and nothing was looked at to replace them for a young accumulator client. That is boarding on negligence through lack of understanding the full picture of advice needed. It goes far beyond simply setting up a SMSF.
Accountants far and wide provide much financial planning advice but fail to ever provide a Statement of Advice. And as my accounting partners say, they never will. So if accountants really wont to provide planning advice get used to the extreme compliance rubbish the government makes us do for even strategy work only.
And Mr Vickers, i bet if you ever did a fact find you would learn far more about your clients than you know, i often meet with old accounting relationship clients and i know more about their overall personal and financial affairs in 2 hrs than the accounting partner in 10 yrs.
I disagree with you AP. I’m a CA who went on to study a Graduate Diploma in Applied Finance (financial planning). Your comment that people providing both planning/accounting services “will do no service” is utter nonsense. Clients deserve unbiased, well rounded advice and Accountants are best placed to give this. All I can say is be prepared, the Accountants are coming whether you like it or not!
Mark says:
“Clients deserve unbiased, well rounded advice”
Are accountants free of conflict when they recommend that a client establish an SMSF that will end up generating more accounting fees?
In any case, agree that “clients deserve unbiased, well rounded advice”. As such, I believe that they deserve advisers who have the experience and qualifications. Despite having a commerce degree as well as post-graduate qualifications in economic and finance and a Master of Financial Planning and 20 years in the industry including accounting, I don’t believe for a moment that one adviser can have the appropriate expertise and experience to properly look after all aspects of financial planning let alone tax.
In my experience, anyone who has a sufficient depth of knowledge in their area of expertise understands the merits of specialisation, understands that it is an important element of all professions (including accounting) and understands that in trying to do it all themselves they are seriously misrepresenting their own expertise and the client’s needs.
I work as an adviser for a business bank. Most clients are actually not happy their accountants and are actively seeking a referral for a good accountant.
If this is the case, good luck to them when offering financial planning services. Further to this, who is going to be their licensee, how will this be funded, will they provide CPD, will they use an admin platform?
Almost all other industries offer volume rebates to distributors…why should our industry be the only one dragged over the coals? Other industries pay and receive commissions, why can’t we?
All of this is a joke and a waste of time. We should let the consumer decide on what they are willing to accept or not (i.e., free market).
Sure some accountants may move into planning but that only leaves a whole in the accounting profession as they can’t do both jobs. Any decent accountant (such as my accounting partners) know they can’t be both, there is simply too much to know and to try to implement with any decent level of skill and compliance. Good luck to the jack of all “accountant / planner” who will hardly do a good professional job at either in a world of increasing specialisation.
You can bet your bottom dollar that the industry will be affected!! Financial planners have waged a war against accountants, all because of the so called accountant’s exemption to purely and simply assist clients set up a self managed super fund. Ever since FSRA I have said that if accountants become planners (and no longer refer clients to outside planners) the planning industry will have anything up to a 60% loss of revenue especially if they ever go to full fee for service. Well my friends that day is looming large! George Lawrence Chartered Accountant Bowral NSW.
George
As an adviser I have always supported the accountant’s exemption with respect to being able to recommend that client’s establish SMSFs as long as they have experience with SMSFs (preferably accredited by SPAA). However, in my experience, many delve into this area without an appropriate level of understanding of SMSFs let alone the service they are switching from. In that spirit, in my opinion, there are a lot of financial planners theoretically able to advise on SMSFs who shouldn’t be.
Clearly advice SMSFs straddle the expertise not only of accountants and financial planners but also solicitors. Thus, my concerns are less about whether advice is given by an adviser or an accountant and more about whether that adviser is appropriately qualified to give this advice.
As someone who has accounting qualifications and accounting experience I certainly wouldn’t provide tax advice. I am a specialist in my area and have more respect for my clients than to attempt to provide advice in areas where my advice is not comprehensive or current.