The Accounting Professional and Ethical Standards Board (APESB) financial planning standard will negatively impact advisers with links to accounting firms, by increasing advice fees and reducing client affordability.

This is the view of Mark Vilo, executive manager of Asteron Life, who claims the standard will 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 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.”

Vilo claims 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 July 1 2016,” he said.

“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 per cent of Australians have adequate life insurance cover.”

Vilo argues that the standard also creates too much red tape and is not needed with FoFA already in place.

“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,” he said.

In its discussions with advisers, Asteron Life said they are 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.

18 comments on “APES 230 could harm risk advice industry”
    Avatar
    Jamie Forster

    The primary basis for this decision by APESB is that they believe commissions are conflicted.

    Whilst they are correct in saying that commissions are conflicted remuneration, so too are most forms of remuneration paid to professional advisers including the manner in which the majority of their members charge. Indeed, the hourly method of charging clients has been the subject of criticism over many decades and well before the discussion into remuneration for financial planning commenced.

    I don’t for one moment suggest that the way that accountants charge is not appropriate or prevents accountants from providing their clients with excellent advice that is in their client’s best interest. However, to suggest that accountants do not face conflicts between their interests and the interests of their clients is wrong.

    In particular, for my area of specialisation of risk insurance, it is my view that an hourly fee or fee-for-service is flawed in respect of risk advice. I believe fee only for risk advice makes it difficult to be appropriately compensated for the professional risk that comes with providing advice: that is assuming the adviser accepts responsibility for that advice.

    However, that is their business, not mine. I would certainly not presume to tell someone else how to charge their clients let alone suggest that it be mandated. I do, however, find it interesting that medicos (surgeons in particular) seem to have a better grasp of being remunerated for professional risk than many risk professionals.

    We have reached a ludicrous point in this debate where the way in which an adviser is remunerated is more of a measure of their professionalism than competence, qualifications, experience and depth of knowledge. It is a tragedy for consumers that quality of advice has been disregarded by the red herring of remuneration. A red herring ironically being promoted by vested interests.

    Commissions are the most appropriate form of remuneration for my practice. I am no more conflicted than any of my colleagues who charge using a different model. That is, there is necessarily a conflict between my interests and my clients. However, just as doctors, dentists, accountants, solicitors and, indeed, my fee-for-service colleagues manage that conflict so do I.

    Avatar
    Jim Stackpool

    Ian – thanks for your comments. The majority of advisory firms want to best serve their clients. The majority of advisory firms have loads of ‘pro bono’ clients for whom they support (we challenge that firms can only sustain about 10% of their base as pro bono before they might need pro bono services themselves doing too much for too many for too little a return…that’s another topic though isn’t it).
    What does ‘..does not play out in practice’ mean for you as it means different things for different people.
    Does it mean ‘…you haven’t been able to convey the value of your time, effort and expertise to enable you to charge a $1000 or $2000 fee?’
    Does it mean ‘…you assume no low income earning client will ever pay that sort of fee?’
    Does it mean ‘…you have had no experience with differing payment terms for your low income earner to pay your valued fee’
    Does it mean all of the above?
    If it does – you’re normal Ian – like many great advisers, they honestly believe all the above to be true and that’s their beliefs to this day.
    I’m working with advisers that have successfully challenged those beliefs – that’s my point to Mark. They have challenged those beliefs, better served their clients, overcome their former beliefs that their efforts can be paid by fees, not just commissions, better served their businesses and maintained their pro bono base.
    I just believe that there are more and more advisers ‘playing out in practice’ the theory that all clients (including low income earners and pro bono) can still be well served in a world without commissions

    Avatar
    Jim Wilkinson

    Once again we are seeing the influence of a corrupt Union led Government with its agenda for social re engineering. This time its tentacles are reaching to those who are charged with setting the professional standards.

    All my risk clients are happy for me to be paid for my services via a commission paid by the life office. They do not wish to be invoiced on a fee for service basis as they realise that they will have to pay me whether or not I am successful in having them underwritten accepted.

    Under the present system it is the adviser who takes the risk. Clients will not wish to pay out on a ‘do and charge basis’ if after all reports are in they find that are not medically accepted at standard rates. There are many other resons that lead clients not to proceed with an adviser’s recommendations in the SoA. One is affordability particularly if a loading is ultimately required.

    Under the APES’, the client will have already paid for a service that in the final analysis has led to an outcome that is not attainable. Is this really what the regulators want?

    It is not acceptable for a Government (or its surrogate) to dictate the method of remuneration. This is a matter for determination between the professional and the client.

    Charging for services on the basis of an hourly charge out rate can lead to inefficiencies. Solicitors do this with results that are often not in the best interests of their clients

    Avatar

    I speak as a degree and cfp qualified mainly risk adviser of many years service. Unfortunately the theories as posited by Jim and Tony do not play out in practice. For example how does a risk adviser charge a fee sufficient to cover costs for say a low income earning client with an annual premium of 1 or 2 thousand dollars . A case such as this could take many hours’ work by the adviser, paraplanner and assistant. It certainlymay not be profitable if commission (even up front) is taken but one does it anyway as a service and I am delighted that I can provide said client with much needed affordable cover structured in a cost effective manner. If I charged a fee which fairly represented my hours then the client would not be able to afford it. The other issue is how, as an adviser, do I charge for little things such as changing adresses, methods of payment, beneficiaries etc? I doubt whether many of the anti commission people have had any practical experience in this area. And emotive statements by Tony using words NEVER and EVER are simply his opinion, nothing more.

      Avatar

      Ian, we have been rebating commissions on insurance and charging professional fees for 7 years. This includes for large cases and small. For smaller cases, I concede there is often a higher cost in the first year, but the payment for our fees can be structured over a year or two or taken from their super (given that a fair proportion of their insurance – TPD & life – will be funded from super. Works for us “in the real world”.

      Avatar
      Tony Taggart

      Ian,
      Of course what I’ve written is my opinion, I said that. What else would it be? I think that you have shot yourself in the foot when you talk about getting precious little commission, which I take it doesn’t cover costs anyway and then you talk about not charging a fee that covers costs!! We all do work that on a straight charge basis does not cover costs, that’s part of a professional practice. It doesn’t stop you applying an admin fee!! If none of you clients buy enough business to cover your costs, even with a commission, then why are you wasting your time? Do something else? I also referred to being paid a fee for providing “value”, that remains. I simply cannot accept that a commission based fee is “value”. Sorry, but I think it’s an unethical rip off.
      Out of time.
      Tony

      Avatar
      Jamie Forster

      Tony

      Whilst I didn’t agree with your opinion that specialist qualifications are not important (from previous posts) and I don’t agree with your comments regarding commissions it is important that all opinions are heard and, yours is as important as anyones.

      I have read your comments, thought about them and am more informed from having done so.

      Without knowing your business I couldn’t possibly comment about you are the way in which you run your business.

      However, I am intrigued that for you the method of remuneration is more of a mark of a professional than specialist skills. That is certainly not the way the established professions see it.

      What I do take issue with is your comment that anyone with a commission-based remuneration model is unethical. As a commission-based risk specialist it is hard to not be just a little bit offended. More importantly, I don’t think that such emotive and baseless comments advance the interests of our industry as a profession, nor do they put any of us in a position to better assist our clients.

      When reading your comments I assume that you acknowledge the conflicts of interest inherent in your own remuneration model and are therefore no more or less ethical than me. I assume that you put your client’s interests first and provide excellent advice (your objection to specialist skills notwithstanding) and therefore don’t rip your clients off any more than I do.

      Avatar
      Tony Taggart

      Jamie,
      I’m not pursuing this in writing any longer. The media is NOT the place to debate this issue simply becuase written words are now being distorted and impugned erroneously. Continuing the dialogue will only make it worse.
      The ORIGINAL argument was about the method of remuneration, value for money, not about the quality of advice.
      My simple point is that Comission remuneration IS a “Rip Off” and does not provide customers with value for money, and if a client were to be charged a commission based sum of money that was reduced to an hourly rate then most clients would simply slam the door in your face.
      I’m in the phone book if you – or anybody esle wants to cal me and discuss the issues.
      I’ll also add that the accounting, real estate and “advice” professions are NOT doing themselves any favours by charging people fees that are completely disproportionate to the value that is being provided. Is selling a house for $1.5m worth a fee of $18K. Is getting a commission of the same amount for the same investment for placing a client’s money with some managed fund equitable?
      I say No – some say Yes
      Out of time.
      Tony

      Avatar
      Jamie Forster

      Fair enough Tony.

      However, it was you that called me and others unethical “rip-off” merchants not the other way around.

      If you wish to make statements like that, in the media or anywhere else, expect to be challenged particularly by those you are accusing.

      If you only wish for people to agree with you, may I respectfully suggest that you not make public statements of opinion.

      As to “value” I will leave it to my clients to decide. As my fees are disclosed in simple and transparent terms and explained to them I am confident that they are more than able to make an informed decision.

      As to whether or not it is worth it on an hourly basis, I am not just filling in paperwork. My advice is based on twenty years of experience as well as my academic and specialist qualifications. Furthermore, I take professional responsibilty for my advice.

      Because of that, my advice is worth more to my client than someone on the end of a phone line plugging numbers into quote software.

      I therefore price my advice accordingly. That is, based on the time and expertise provided. Furthermore, because I take professional responsibility for my advice I expect to be remunerated for the professional risk involved.

      A specialist risk adviser would be responsible for billions of dollars of contingent liabilities during the course of their career. In my opinion, anyone not being remunerated for that risk is not expecting to be held professionally responsible for doesn’t understand the nature of risk. However, as I’ve said before, that is their business.

    Avatar
    Jim Stackpool

    My clients provide a range of financial services which includes risk. My clients rebate all commissions that they can (where product manufacturers allow). My clients work extensively with accountants and include a retainer fee (not a percentage of product) which includes monies for the accountant (or other professionals). My clients secure approximately 80% of the terms of engagements they present to their clients. Mark – welcome to the new world of advice. You argument is not about APES230, it’s not about our under-insurance problem which the current modus operandi has created. It’s fundamentally about beliefs. There are many like yourself that believe delivering greater advice to clients needs commissions and there are a growing number of advisers out there today who do not believe that and are proving it every day. There are huge opportunities for prospering in the emerging world of financial advice.

    Avatar
    Tony Taggart

    Mark Vilo’s view is, in my opinion, unfounded and hollow. The overall pitch of the adjustments to APES 230 are desperately needed and I applaud them.
    At last, clients will get exactly what they pay for and will not be subjected to a very large cost impost which adds absolutely nothing to their wealth and creates a lazy and moribund system of management.
    There has NEVER been any justification for commission based advice in the investment arena and I go as far to say that there has never been any justification for commission based advice on real estate, insurance or stock broking either, for that matter.
    Time based costing is open and honest and forces advisers to actually work for their money and to provide value for the service.
    Of course, so that Mark doesn’t seem “victimized” by me, I also believe that the remuneration bonuses that are paid to company executives that are not directly tied to share performance so that remuneration rises and falls over set time periods as does the share price, should be scrapped. The Lee Iacocca model of remuneration, remains the best model of executive remuneration EVER.

    Avatar

    It is really time that the APES Board started to get in the real world and take notice of the large quantity of submissions. Alternatively the major accounting bodies can not accept the decision on APES 230 just like the IPA have and will do.

    The strange thing is that the 2 of the bodies appear to have been reasonably silent on this issue. Also the Accounting bodies could seriously consider changing their nominated representatives on the said board.

    A very bad decision and well out of step with FOFA.

    Avatar

    Mr Vilo, explain exactly how a client, over the life of their policy, will pay more under a fee for service arrangement. Is it because Astrron do not adequately reduce the premiums like others when stripping out commissions?

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