Regular readers may recall a series of columns in 2012 devoted to the accounting profession, including a discussion of the draft standard APES 230, Financial Planning Services, in light of the principles stated in the FPA Code of Ethics. Readers may not be aware of an interesting development in the accounting profession’s governance standards relating to financial advice. First, a quick summary of the story so far.
The Accounting Professional & Ethical Standards Board (APESB) sets principle-based professional standards for the Australian accounting profession, comprising members of all three accounting bodies: the Institute of Chartered Accountants (ICAA); the Certified Practising Accountants (CPA Australia); and the Institute of Public Accountants (IPA).
Because accounting is a profession, the APESB was determined to set a higher standard of behaviour for accountants practising in financial advice compared with the standards set by the FPA for financial planners. The relevant draft standard, APES 230, was controversial for clearly specifying the principles – and the implications of applying those principles – particularly in areas of responsibility such as integrity, objectivity and fairness. After a long and emotive consultation period, the final APES 230 was released in April 2013, with some signifi-cant concessions around the two most controversial sections: third-party payments, and fees expressed as a percent-age of funds under management (FUM).
Interestingly, one of the accounting bodies, the IPA, was still not happy with APES 230 and in October 2013 it invoked a “get out clause” which allowed its members to ignore the APESB and follow an alternative standard, as pronounced by the IPA. I have read the December 2013 version of this standard – Pronouncement 11, Providing Financial Advice – which is due to take effect on July 1, 2014.
After that lengthy preamble, I would like to make some observations.
I would encourage readers to take the time to read Pronouncement 11. It is a brief paper and the body comprises only seven pages. It may be valuable to test your beliefs against the principles espoused in that standard. In my opinion, on first reading, the standard sets high expectations about the behaviour of IPA members when it comes to providing financial advice. The only apparent “soft” specification is that client engagement documents need only be updated every four years.
So that puzzled me. Why did the IPA go to so much trouble to set an alternative standard to APES 230? I read the IPA press release – dated July 3, 2013 – which announced the draft pronouncement; and I read the IPA press release – dated October 14 – which announced that they would adopt Pronouncement 11. Neither press release explains the IPA’s problem with APES 230.
Still puzzled, I compared the two standards, and I then drew a different conclusion about Pronouncement 11. Cleverly, it simply avoids mentioning the contentious sections of APES 230. Nowhere in Pronouncement 11 does it mention third-party payments. Nowhere in Pronouncement 11 does it mention the question of fees expressed as a percentage of FUM. It appears that by ignoring those critical clauses, it simply allows members to draw their own conclusions. This is a curious application of the principles of integrity and transparency.
It is quite possible that I am missing something – so members of the IPA are most welcome to respond to this column and explain their problem with APES 230. I would also like to understand why that problem is not mentioned in the press releases or the pronouncement.
In any event, if nothing else, the issue serves to remind us of the importance of the ethical principles that support professional behaviour.
These are the best of times to really behave as a professional – and enjoy the benefits of differentiation from those merely claiming to be professional.
Martin, it’s interesting to view the the two sides here using a nature Vs nurture perspective.
Financial advisors are from the insurance sales gene pool and have had their behaviours shaped by commission driven remuneration. Accountants have substantial differences in both the genes and the way their behaviour is policed. The accounting profession is based on the application of laws and codes and if they don’t apply them within the letter they suffer the big stick of the ATO.
It will take more than a few press releases in a deregulated financial planning market to change the spots of the two sides. Advisors will continue to be mistrusted by investors as conflicted product salesmen and accountants will continue to approach their clients needs within the bounds of what’s professionally correct.
The businesses that leverage the marketing skills of the former and the ethics of the latter will grab the holy grail.
Thanks, Glenn,
Whilst a broad generalisation, I agree with your assessment of the impact of the tradition and heritage of the “two sides”. In terms of your latter point, I may have been too subtle with my wording. I think the accountants, especially the IPA, have missed a great chance to differentiate on “ethics” and professionalism in their response to APES230. I am open to an alternate explanation….