The controversial Accounting Professional and Ethical Standards Board (APESB) financial planning standard will go ahead largely unchanged, but with new and generous transitional arrangements, which mean that some of the key standards will not come into full effect until 2018.
The APESB met on Friday to confirm that the Accounting Professional and Ethical Standard 230 Financial Planning Services (APES 230) will proceed unchanged in substance, and come into effect on July 1, 2013, but with new arrangements to ease the introduction.
The standard is largely consistent with the provisions of the Future of Financial Advice (FoFA) reforms that come into effect on July 1 next year, with the notable difference that asset-based fees will be banned under APES 230. In addition, members of the key accounting bodies – the Institute of Chartered Accountants (ICA), CPA Australia (CPAA) and the Institute of Public Accountants (IPA) – that offer financial planning services will not be permitted to receive commissions on life insurance business, nor to charge asset-based fees.
On board with FoFA
The draft standard met considerable resistance, but the APESB has not significantly altered the substance of the standard.
However, it has recognised that the standard will force substantial changes on some accountants’ business models and it has granted additional time for those changes to be made.
The standard may also have an effect on referral relationships between accounting firms and financial planning firms. There remains some uncertainty as to whether it is permissible for an accounting firm to refer clients to a financial planning firm that operates at a standard “lower” than APES 230.
APESB standards are binding on members of the ICA, CPAA and the IPA.
The APESB says that if a member provides financial planning services which include the sale of life insurance or “other risk contracts and the procurement of loans” before July 1,2013, then they can only continue to receive commissions if they provide additional services.
If between July 1, 2013, and July 1, 2015, a member provides financial planning services that include the sale of life insurance or “other risk contracts and the procurement of loans”, then they can only receive commission for those sales up until July 1, 2018, and only if “the member receives specific disclosures and informed consent from clients”.
“The board clarified that the proposed standard allows members to accept trailing commissions for financial planning services which are entered into prior to July 1, 2013, in respect of life insurance, other risk contracts and the procurement of loans as long as the member does not subsequently provide further services in respect of those contracts or loans,” it said.
“The board further determined to prohibit third-party payments from July 1, 2013. The provision of professional development for members from third parties will be excluded from this prohibition provided such professional development meets the requirements of the FoFA legislation.”
APES don’t always understand
The ICA and CPAA released a joint statement that said there were still “a number of important issues that we believe the APES Board has failed to fully consider in resolving to issue this important standard”.
“Members of the Institute and CPA Australia promote and uphold the public interest in all aspects of their role as trusted professional advisers to millions of households and businesses right across Australia,” it said.
“The two bodies are reviewing and analysing the latest proposals from the APES Board and will consider all options in regard to how we may respond.
Once this analysis has been completed, the Institute and CPA Australia will then be able to advise members of their joint response and position in relation to APES 230.
A win for the public interest
Robert MC Brown, a chartered accountant, Professional Planner contributor and staunch supporter of the accounting standard, says the aim of APES 230 is to establish “a self-regulated professional and ethical structure above the minimum level of the law”.
“That’s the hallmark of any true profession,” Brown says.
“My hope is that over time this important decision by the APESB will lead to all financial planners, not just accountants, adopting similar professional and ethical principles.
“I have no doubt that making the change will be challenging for some, but it must be remembered that many financial planners already operate in accordance with these principles, and that doing so has improved the profitability of those practices, while creating unqualified trust between planners and their clients through the removal of conflicted remuneration.
“That’s a win for the public interest, for clients and for financial planners.”