Discontent in the ranks of a peak accountancy body and confusion around accreditation for accountants wishing to offer financial advice in self-managed super funds (SMSFs) has clouded the debate on industry operating standards.
Speaking at the SMSF Professionals’ Association of Australia (SPAA) National Conference on Friday, Institute of Public Accountants (IPA) chief executive, Andrew Conway, said the body would reject the contentious Accountants Professional and Ethical Standards board’s directive on financial advisory services (APES 230: Financial Planning Services) in its current form.
“We fundamentally believe in providing our members with certainty. Public accountants and others engaged in the provision of financial advisory services are craving certainty,” said Conway (pictured here with SPAA CEO Andrea Slattery).
“We believe APES 230 in its current form will create an unlevel playing field. The IPA has advocated extensively on behalf of members on the Future of Financial Advice (FoFA) reforms and APES 230, and we believe the profession must be provided with certainty.”
IPA rising
This need for a dedicated licensing solution led the IPA to canvass its members on diversification into financial advice and ultimately reject APES 230 in its current form.
“In order to provide this certainty the IPA will, upon the promulgation of APES 230, move to immediately issue a standard that sets it aside,” Conway added (pictured below with Sue Viskovic).
“In its place, we will issue an IPA pronouncement that ensures a level playing field and is aligned with FoFA. This means members will be able to continue to operate under our practice model at no disadvantage. We expect our members to try and get ahead of the game and try and get an advantage in the three-year transition period. Wouldn’t you?”
One industry source told Professional Planner Online that the IPA has added significantly to its membership due to its stance on FoFA, with the other two peak accountancy bodies expected to adhere to the higher APES 230 standard.
Who wants what anyway?
Opinions are divided on the number of accountants who will want to deliver financial advice to clients, the range of this advice and the regulatory framework they will operate under.
Accountants looking to provide financial advice within SMSFs could potentially operate through APES 230 or under FoFA legislation with an Accountants Australian Financial Services Licence (AFSL).
This replaces the current accountant’s exemption on SMSF advice with Minister for Financial Services and Superannuation, Bill Shorten, upbeat on up to 10,000 accountants becoming licensed under the new regulation.
A recent MLC survey found that 75 per cent of accountants want to deliver financial advice to clients under the proposed licensing regime.
The survey also found that of the accountants who want to deliver financial advice, 67 per cent would like to do so in house.
Accountants can consider applying for the “streamlined” AFSL option for from July 1, 2013.
Get cracking
However, many accountants looking to move into financial planning via SMSFs are in for a shock when they discover the complexities involved in transferring to the new licensing regime system.
This is the view of Premium Wealth Management chief executive, Paul Harding-Davis, who argues that while the 2016 deadline may seem a distant one, extensive additional training and the application process could take longer than previously thought.
“Accountants will need to start having conversations with licensees today in relation to finding a cultural fit for their business,” said Harding-Davis.
“Additionally, accountants will need enough time to complete minimum education requirements, obtain PI and also learn the practical side of preparing advice documents, and meeting compliance requirements.
“For example, as recently as the SPAA conference last week, ASIC reminded all of the need for an accountant to produce a statement of advice and to have conducted a broad enough fact find.
“This is not an overnight process and those accountants who leave the transition to the last minute will be behind the eight ball if they wish to continue to provide SMSF advice to their clients after the 2016 deadline.”
Recent reports on accounting practices suggest that only around one-third plan to have a licensing framework in place by July 1 this year and many are still unsure of when they would have the appropriate framework in place.
For full coverage of the SMSF Professionals’ Association of Australia (SPAA) National Conference, click here.
The IPA are kicking and screaming about this, but the CA and CPA aren’t, are they?
I must confess, I’d never heard of the IPA before this article. All the accountants I’ve dealt with are with the CA and CPA.
For years now I have listened to Accountants denigrate Financial Planners primarily because they receive commissions and because of the conflicts that are thus created. Now, as we sit on the verge of a new world order where Financial Planners are banned from conflicted remuneration, it appears that Accountants want to reject APES230 because it does too thorough a job of removing conflicted remuneration from the clutches of Accountants. What a sad day it was when I discovered that Accountants are the new Financial Planners. Come on – put the best needs of your Clients first. The person who truly has their Clients interests at heart and the person who can justify commissions cannot co-exist. Time to make some tough choices and be judged accordingly.
“The person who truly has their Clients interests at heart and the person who can justify commissions cannot co-exist.”
Why not?
One of the immutable principles of the established professions is that the client or patient must come first and they have all operated with conflicted remuneration models for as long as they have been around.
Jamie, are you referring to commissions on insurance or both insurance on commissions AND investments.
Hi Matthew
Both.
Regards
Jamie
Jamie – respectfully I’d be the first to acknowledge that the overwhelming majority of professionals (in all walks) truly strive to adhere to the ethos you have espoused. However, if you earnestly believe that a Medical Profession in the grip of the Pharmaceuticals Industry or the Financial Services Professions in the grip of Product Manufacturers is ultimately in the best interests of the Client (Consumer) then I’m afraid you are either naive in the extreme or the brainwashing campaigns of the big boys has worked. If these Professions really want to walk their talk why would they complain about removing the conflict rather than “operating with conflicted remuneration models”. People have been selling drugs to school children for as long as I can remember. That doesn’t justify its continuance or make it best practise.
Hello Pro
Consumer (Whoever you are, I’m sure that the irony of maintaining your ongoing anonymity
in a debate around conflicted relationships is not lost on you.)
You areconflating the debate on methods of remuneration and the debate on product
manufacturers ‘owning’ the means of distribution. (I’m not so sure that you appreciate the irony in conflating arguments in a debate on integrity.)
You are also over-simplifying the conflicted relationships that all professions deal with.
With respect to your example, whilst there has been advocacy and legislation in relation to the relationship between doctors and product manufacturers, doctors are still employed by hospitals and medical practices. This relationship gives rise to numerous conflicts in relation to revenue targets, a requirement to use
that hospital’s facilities (for which the patient is, of course, charged), the potential for over-servicing and so on.
By the by, in relation to the regulations on doctor’s relationships with product manufacturers, you may or may not also be aware that there has been quite a bit of discussion about whether they have in fact been in consumer’s best interests with a lot of
experienced industry practitioners holding the view that the unintended consequence of the regulations has resulted in worse outcomes for consumers.
As to drawing an analogy between commissions and selling drugs at school, I am not sure if you
have completely missed the point, being deliberately offensive in order to draw a reaction or simply being hysterical.
Giving you the benefit of the doubt, I will assume that you have missed the point.
The point I was making is that commissions are no more conflicted than other methods of remuneration including alternative methods currently being adopted within the financial planning industry. Furthermore, the established professions have lived with and managed that conflict effectively and ethically for as long as they have been around.
The issue isn’t whether there is a conflict of interest but to accept that where a service provider is providing a service for a fee that, no matter how that fee is charged, a conflict is inevitable. It is not creating an illusion that no conflict exists that matters but effectively managing the conflict.
Unless, of course, you don’t have the personal integrity to effectively manage conflicts ethically, in which case I can see why you would wish to
attempt to create the illusion that no conflict exists.
Jamie,
“Who you are speaks so loudly I can’t hear what you’re saying.” (Emerson I believe)
If you’re so convinced that “professionals” will do the right thing by their Clients despite the temptations of conflicted remuneration – then try this “Pepsi Challenge”.
Right now thousands of Financial Planners and Accountants are using the “mere referral” loophole in the NCCP Act to give actual or implied advice to Consumers and receive upfront and trailing commissions from the Lenders (Product Manufacturers). They are doing this despite their lack of training or licensing in Credit Advice and without sufficient data or tools to even know whether their recommendation is in the Client’s best interest. In fact I estimate there are more ‘unlicensed Credit Assistants’ in Australia currently than licensed ones.
Apart from the very rare ‘fluke’ not one of these referrals is in the Client’s best interests – but it is certainly in the Referrer’s financial interests.
And when I say very rare ‘fluke’ – I mean the same statistical anomaly that allows an infinite number of monkeys let loose on an infinite number of keyboards eventually produce the script for MacBeth.
It is this sort of behaviour that APES 230 would ban. But you’re probably right – its clearly being managed brilliantly by the high-minded Professionals of which you speak – so why ban it and be certain?
Your point in relation to people without the appropriate training, providing advice in financial services is a good one. It is a shame that FOFA was obsessed to the point of distraction by remuneration methods and didn’t address this issue more thoroughly.
After all, the one trait that is common to all of the traditional professions is a high minimum level of competence.
I’d be interested to know who these “thousands” of people are who are exploiting the “mere referral” loophole. If you can point me to a source I’d appreciate it as I am told that 95% of people make up their own statistics.
Furthermore, I am not suggesting that it is being “managed brilliantly”. In fact I am suggesting the exact opposite: that, as an industry, we are not managing conflicts of interest at all well let alone brilliantly.
I just think that the proposed approach (a) fails to address all conflicts of interest, (b) will have adverse unintended consequences for consumers and (c) has distracted the industry from discussion more consequential issues (such as competency standards).
Had I suggested that it was being “managed brilliantly”, you might have a reasonable point. But I didn’t, so you don’t.
What I am suggesting is that there is likely to be a more effective way to manage conflicts of interest rather than respond to the knee-jerk instinct to ban.
Whilst I disagree with you, I applaud you for the thought and time you are putting into this discussion as it is an important one.
Jamie,
“I am told that 95% of people make up their own statistics”. Love it. (I heard it was more like 97%). Anyway – I’m stealing it :)
I agree wholeheartedly that there are better ways of managing conflict than (poorly drafted) regulation or codification.
The problem is that most of the ‘better ways’ ignore the ‘human condition’ – frailty, incompetence, disinterest, avarice, drug dependency, embezzlement, gambling addictions, insufficient data, insufficient time etc etc.
Moreover – how does the Consumer tell the ‘real deal’ from the ‘window dressed’ con artist?
I think we must acknowledge that conflicted remuneration is being received by otherwise well intentioned and ostensibly decent human beings – but the ‘best interests’ test is often missing or being poorly applied.
At this point I have to confess that I’m probably doing a better job of “problem spotting” than “problem solving”.
I concur with you that it is an important issue that needs further debate (and introspection). But its a difficult debate to have when so much vested (dare I say ‘conflicted’) interest is at stake.
Cheers.
Oh – I nearly forgot. Of course no one can have a finite count of those not ‘licensed’ or ‘registered’ to give Credit Advice but who are nonetheless doing so. But I’ll leave you to ponder this. The Banks have literally hundreds of well dressed and well remunerated BDMs targeting unlicensed (for Credit Advice purposes) Professionals to win their “mere referral” business. The significant majority are straying into advice and are receiving kick-backs from the Banks.
A big investment by the Banks to garner ‘mere referrals’ – so one assumes its paying off. I tend to adopt the “Watergate theory” – if something doesn’t make sense – follow the money.
IPA equivalent in FP is AOIFP. Enough said.