The Accounting Professional and Ethical Standards Board (APESB) has issued APES 230 Financial Planning Services, which sets new requirements for accountants providing financial advice.
The controversial guidelines are the result of more than five years of public and industry consultation, which attracted submissions from professional bodies, accounting firms, dealer groups, financial institutions, the regulator, consumer groups, various professional associations as well as individual members of the accounting profession.
While the standard was initially expected to provide a framework for all accountants offering financial planning services, what has emerged is seemingly a compromise reflecting significant divides in the accounting profession.
Fees for service
The area attracting most comment was remuneration for financial advice with APESB’s strong preference for accountants to be remunerated on a fee-for-service basis, as defined in APES 230.
CPA Australia and the Institute of Chartered Accountants Australia support the APES 230 Financial Planning Services standard but the Institute of Public Accountants maintains the view that it is illogical to impose a higher regulatory burden on accountants than that provided by the Future of Financial Advice (FoFA) legislation.
“We acknowledge that with the introduction of the federal government’s FoFA reforms we are operating within a new framework and APES 230 has been finalised within that context,” said APESB chair Kate Spargo.
Despite the APESB’s strong preference for accountants to be remunerated on a fee-for-service basis, it has decided to also permit the use of asset-based fees and third party payments in some cases.
“The Board strongly recommends to professional accountants that clients be charged on a fee-for-service basis for financial planning services to minimise the opportunity for conflicts of interest,” Spargo said.
Informed consent
However, when accountants and clients agree to asset-based fees or third party payments, the accountant will need to obtain informed consent from the client and be able to comply with additional procedures.
According to Spargo, ‘informed consent’ is an established legal principle that requires a higher standard than simple disclosure and some clients may not have the capacity to provide informed consent to their professional accountant.
“Informed consent requires that the client has a clear appreciation and understanding of the relevant facts in relation to the charging for services, as well as the implications of what the client is agreeing to,” she said.
“The accountant must also form a view about the level of understanding of his or her client. In the event of any challenge, the reasonableness of this view would be assessed by an adjudicating body on an objective basis.”
There are also additional requirements including annual disclosure to the client about the actual and estimated amount of the fees, comparative quotes in the case of insurance and disclosure in relation to the impact of changes in fees.
Spargo added that the APESB will monitor and review the alternative remuneration methods of asset-based fees and third party payments to evaluate their effectiveness in practice.
Conflict and best interest
“If the safeguards prove to be inadequate, we will readdress the issue of conflicted remuneration in the future,” she said.
The majority of the standard will be effective from July 1, 2014, with the exception being the remuneration provisions that will commence from July 1, 2015.
CPA Australia’s chief executive Alex Malley said APES 230 was a new professional standard balancing higher levels of professional service and disclosure than the law with the evolving environment in which financial planning and credit advice is provided to consumers.
“APES 230 reflects the high expectations of consumers and the overriding responsibility of the profession to act in the public interest, and ensures professional accountants set a higher benchmark in the advice they provide,” he said.
Institute of Chartered Accountants chief executive officer Lee White added that the finalisation of APES 230 comes at a critical time in the financial services area, when the value of good financial advice has never been greater.
However, IPA chief executive officer Andrew Conway remains against a higher regulatory burden on professionally qualified public accountants to that imposed by the FoFA legislation.
“To do so would create an unlevel playing field and open the door for regulatory arbitrage. We believe the regulatory platform created for accountants through FoFA strikes a sensible balance and enables accountants to provide a range of financial advice that is underscored by the added safety net of strong professional and ethical standards that have been in place for many years,” he said.
“However, we will analyse the revisions to APES 230 closely to compare them with the FoFA provisions. We will also engage with our membership as we have throughout this debate and our board of directors reserves the right to issue a pronouncement if it believes the proposed standard is contrary to our members’ best interests.”
For a full copy of APES 230 Financial Services or Basis for Conclusions: APES 230 Financial Planning Services, visit www.apesb.org.au.
