The day Alex Malley was scheduled to meet Professional Planner, the government announced that banks will be required to front a parliamentary committee once a year to explain and justify their actions on a range of business activities.
It was a busy morning which went on to be a busy day for Malley who, as the chief executive officer of CPA Australia, representing about 160,000 members, pursues a very public agenda of speaking out on matters that the organisation perceives to be of public interest. The idea that the banks could appear once a year “and somehow that’s a panacea for the markets” was utterly laughable to Malley, and that’s what he was saying, to anyone (and everyone) who would listen.
A high profile and a willingness to speak out are two characteristics that Malley brings to financial planning as chief executive officer of CPA Australia’s advice subsidiary, CPA Australia Advice (CPAAA). CPA Australia is well aware of the shortcomings of the financial planning and financial advice industry, and how those issues potentially reflect on its own members as well as jeopardising the public interest.
But just speaking out isn’t enough enough, Malley says. CPA Australia’s management has the backing of the board to get out and actually do something about it – to put, as it were, some money where Malley’s mouth is.
It has cost “in the millions” – Malley won’t talk about specifics – to get CPAAA to where it is today, having officially launched on July 1 this year, some 14 months after the idea was first taken to the CPA Australia board. Malley will be happy if the advice business pays its way; if it generates a profit, any surplus will be reinvested in education programs and other activities.
On the face of it, it was an unusual move for a member association to enter an industry and compete, in many instances, with businesses run by its own members. But it makes more sense when explained as a physical manifestation of CPA Australia’s public interest advocacy, and as a way of reclaiming the “advice” space for accountants generally, and CPA Australia members in particular.
The big decision
“Fundamentally – and I’ll take you to the moment when the board and management had the conversation – it was clear to us, seeing what was going on from a consumer point of view, that there was a public-interest chasm when it came to this generic term called ‘financial planning,’ particularly as it related to the culture of the banks, and certain other operators that had made a name for themselves in the media in all the wrong ways,” Malley says.
“Here’s the challenge: the financial services sector as we know it today is the insurance agent at one end, and the triple-degreed CPA at the other end. And I think that’s wrong.”
The definitions of who can and cannot offer advice “needs to be tightened up,” Malley says.
“We need to be clear on what is coherent, important financial advice, and it should not be such a broad range as what it is now [where] everyone gets a prize,” he says.
“And if you’ve snuck into the tent at the wrong end, don’t ever think you can call yourself a financial adviser at the level we understand.”
Faced with a public interest issue to address and his members’ reputations to protect, Malley says CPA Australia simply couldn’t sit on its hands and had to act. The term ‘advice’ had broadened, and CPA Australia was not prepared to accept a “diminishing role potentially in that, into the future.”
“Accountants used to own 100 per cent of advice, then it was 80, then it was 70, and I can see a time, left unattended, when we could be under 50 per cent of the advice providers in the main area of finance,” he says.
“We respect the fact there are other advice groups out there in the market providing good frames for their ARs, and all of that. We’re not presuming that just because we’ve entered the market we’re the only good one. But at the core of our offer is the very core of what accounting has always been: independence.”
Malley says that while the board was unanimous in its support of CPAA entering the advice space, it also recognised there were going to be some “incredibly complex [issues], not just in the process of building this business, but in understanding there’d be CPAs out there giving advice under other banners, there would be CPAs who would stay in practice and not seek to move into this area of broader advice; and we had to do justice to all of them.
“Framing this direction was not just to say that overriding this everyone who has got a CPA designation will be better for this adjustment, because even if they do not come in under this banner we will be providing a whole series of educational pathways, educational programs, that give you a better position in the market whether you sit under the banner or not,” he says.
Malley says the CPA financial planning programs are available to all members, whether they choose to become authorised representatives of the advice business or not.
“If they want to do education programs with us, but stay where they are, that’s fine,” he says.
Poll: Do you think CPA Australia’s advice offering will set a new benchmark for financial planning?
An eye on the future of the profession
But Malley also has one eye on the future, with programs such as the Naked CEO website and book aimed at new entrants to the accounting profession, and providing them with pathways to financial planning. This approach addresses an issue often voiced by the heads of educational institutions, that even if a school leaver sees financial planning as a future career, there is frequently a parent in the background advising they pursue something less tainted – like accounting.
“We’re about to get five million people on thenakedceo.com website,” Malley says.
“The whole intent of that product was to revamp the image of what accounting and accountants are, framed around the word ‘leadership’.
“In many ways, although this sounds more serious and severe, CPA Australia Advice is the same thing.
“We’re saying that from next year we can go out to universities and talk to financial planning students and accounting students with the same intent. If you wish to become an adviser in the fullness of your life, there’s a beacon out there called CPA Australia Advice, with independence at the core of its theme, where all fees come into CPA Australia Advice and then get reimbursed to the ARs. And if you come from financial planning background then your pathway is going to look like that to become a CPA; and if you’ve done accounting, your pathway is going to look like that.
“For the first time in about 20 years, before the financial planning programs started, we are able to go back to our grassroots and talk to everyone. The long game for us is the next 10 to 20 years, following the youth market on this, and being the beacon they aspire to from university days. And we went into this knowing that’s a 10 to 20-year horizon.”
Malley says the CPA programs will run in parallel with the emerging financial planning degrees and “if someone is studying the new fandangled financial planning program at one of the unis, we’ll have for each of those programs a pathway to become a CPA.”
“Say you’ve done this one at Western Sydney [University], then you’ll be required to do these units to become part of the CPA pathway and become a CPA program graduate – and you can go into the advice market because you’re a member.
“The real filter that becomes the really important foundation is you have to be a CPA Australia member, or be eligible to become one. We know there are certain requirements to get to that point, so if you’ve pained yourself through all of that, then you’re telling us that you understand professionalism, you understand your responsibilities to yourself and to others, you understand ethics and the public interest, all of those things. That’s not a bad starting point.
“But we need you to climb even higher on the mountain, and say no commissions, no asset-based fees, no link to product. And we’ll ensure that by collecting the money and making sure that’s all sorted.” (See box.)
Poll: Do you think CPA Australia’s advice offering will set a new benchmark for financial planning?
A modest start
CPA Australia Advice has made a modest start. At the time of writing it had six authorised representatives, with 11 in the process of being added to the register. A further 15 are completing the requisite programs to become financial planners.
“And then we’ve got about 140 who are working through their [CPA] programs,” Malley says.
“We’re encouraging a slow start because we want to get it pristine, we want to get it through with some smaller numbers.”
With an eye on the future, and new entrants to the financial planning field, Malley says the association is “not pushing” CPAAA as the only financial planning option for members.
“We’re saying CPA Australia Advice is an option, depending on where you want to go, depending on your motivations. Your call.” Malley says.
However it pans out, Malley says he is convinced that the CPA Australia approach to financial planning is the right one for where financial planning is headed as an emerging profession. Malley says his views were formed during the process of formulating the Future of Financial Advice (FoFA) laws.
“I sat on the FoFA committee representing three accounting bodies,” he says.
“It was the greatest insight I could ever have imagined into the dysfunction of government, regulator, community and politics.
“At at one point I said, I don’t know who’s driving this agenda, because a lot of the groups around the table are not of any dimension or history to even be at the table, one; and two, it’s either Treasury, the regulator or [then-minister Bill Shorten].
“He said, it’s not me – and he said this in the context of some of the agendas I could see; there were some agendas being driven that I could not understand. He said they’re not [his] agendas. I said that may be right, but you’re the only one who can fix it.
“What was really clear to me was the profession has a far more important place to run and play in the area of advice than I could have ever imagined, had I not been on that committee. If I had not been on that committee I don’t think I would see it as clearly as I see it now.”
X marks the spot for independent advice
CPA Australia chief executive officer Alex Malley says at the core of the association’s advice approach is creating an environment where its authorised representatives can offer independent advice, in terms defined in the Corporations Act.
“There’s not an inherent conflict of interest every time you open your mouth,” he says.
“If, for example, you work for a bank, no matter how you set up your structure and how well meaning you are, you’re still flogging your own product. We don’t have a product. We provide advice, so there’s a separation of product from advice.
“ASIC, and the law more broadly, is becoming very, very harsh around people calling themselves independent unless they meet those standards.”
Malley says having made the decision to go down the independence route, the association then had to create systems and processes to support it and customising Xplan software was “our biggest concern”.
“We had to review all the [alternatives] in the market, we had to be comfortable with the choice we made and then we had to focus on that one area in particular that built a culture around revenue management,” he says.
“Fundamentally we have no asset-based fees and no product. We provide advice with no commissions, and all fees come into CPA Australia Advice to be reviewed. All of our focus … has been around revenue management.”
Chief operating officers Adam Awty and Jeff Hughes say CPAAA needed a customised application of the Xplan financial planning software to improve efficiency and wer involved establishing rigorous processes that enable efficient rebating of commissions back to the client.
“It’s making sure we’ve got the right IT platform to collect the commission and then be able to identify it and rebate it back to the consumer,” Awty says.
“When an adviser invoices a client, all their fees come back through CPA Australia Advice and any commission, if there is any commission – and our
Awty says customising Xplan was “less about changing the system and more about ensuring we applied the intellectual capacity to leverage and tailor functionality”.
“Our remuneration model is that clients pay fees which are centrally accepted by us, as the licenceholder. We pay the adviser 100 per cent of these fees. We take no dealer margin.
“Our dealing with commissions is totally transparent and to the clients benefit.
“All commissions are received via the IRESS CommPay system, and are then rebated back to the client directly by us. The adviser doesn’t have to worry about that.”
Awty says CPAAA worked with Xplan for about 10 months to achieve the result it wanted.
“[Our] requirements have been generic in terms of the financial advice processes around disclosure, fact find, file notes, revenue processing and the like – they just needed to be customised to reflect the independent nature of our business,” he says.
Hughes says CPA Australia worked closely with Xplan and “I dare say they may benefit a little bit from having completed this with us”.
“We would be happy to discuss with CPA Australia members in the first instance and ultimately a wider audience as we believe independence of advice is in the public interest,” he says.