The Accounting Professional and Ethical Standards Board (APESB) has a second chance to create a new benchmark for financial planning, as it reviews its controversial Accounting Professional and Ethical Standard (APES) 230.
Even before the new Financial Adviser Standards and Ethics Authority (FASEA) gets out of the blocks, APESB’s standard for accountants who provide financial planning services could set the pace.
As part of a planned and routine review, APESB wants to know how APES 230 has been going since its implementation a couple of years ago. A consultation paper sets out specific questions that may give some insights into what the board is thinking about areas that might need to be reviewed. For example, the paper asks: “If APES 230 was transitioned to limit remuneration to fee-for-service basis, would this work? Would such a change create any challenges?”
And: “What transition requirements would be needed?”
Why would APESB pose this specific question? It may be wishful thinking on Professional Planner’s part, but maybe the board wants to revisit the issue of remuneration, and push for fee-for-service, like it did in early drafts of the standard. Of course, it’s also possible it’s just giving opponents of fee-for-service remuneration, and supporters of conflicted remuneration generally, another chance to voice that opposition. But much has changed in financial planning since APESB released its financial planning standard, and much is different on the board itself, and there’s early cause for mild optimism that this focus on remuneration might not be just lip service.
Since the original standard was released, the board of APESB has almost completely changed. It has a new chair in Nicola Roxon, a former attorney-general. It has all-new members, including Claire Mackay, principal and head of advice at Quantum Financial. (Disclosure: Mackay is also a member of Professional Planner’s advisory board.) APESB’s other directors are Kevin Osborn, John Cahill, Craig Farrow and Penny Egan.
Only Osborn’s appointment predates the standard, and even then by only three months. In other words, the substantive work on APES 230 – including the campaign from within the accounting ranks to water it down – was completed before he joined. And it is to be hoped a fresh board brings a fresh resolve for helping APES 230 fulfill its original potential.
APES 230 was issued in April 2013 and came into effect in two phases – on July 1, 2014, and July 1, 2015. It originally was supposed to come into effect in 2011, but was delayed after APESB received 163 submissions to an exposure draft that stirred up a hornet’s nest with its proposal to outlaw commissions, including percentage-based “asset fees”.
Regular readers may have worked out over a number of years that Professional Planner is not a fan of asset-based fees, which achieve the distinction of being both unprofessional and dishonest. And it wasn’t a big fan of the final form of APES 230. The standard is OK as far as it goes, but it doesn’t go far enough – nor even as far as APESB originally wanted it to – and the process that led to its implementation was, let’s say, fraught. At the time, Professional Planner likened the process to a Marx Brothers movie.
In its early iterations, APES 230: Financial Planning Services (its full title) had the potential to set a benchmark for financial planning that far exceeded anything that had gone before.
It would have elevated financial planning services provided by accountants – that is, members of CPA Australia (CPAA), Chartered Accountants Australia and New Zealand (CAANZ) and the Institute of Public Accountants (IPA) – to a level that could have been reasonably described as professional. And it would have created a standard to which all other financial planners could only aspire.
Sectors of the accounting profession, especially those with significant accounting-based financial planning businesses (Was it coincidental that many were owned by product manufacturing institutions?) argued strongly against the remuneration aspects of the standard.
In the end, in the same media release in which APESB announced a standard that allowed conflicted remuneration arrangements to remain in place, it argued that accountants should charge only on a fee-for-service basis to “minimise the opportunity for conflicts of interest”.
The opposition to APES 230 succeeded in having the standard watered down to the point that financial planning services provided by accountants became indistinguishable from financial planning services offered by everyone else. No accountant had to change the way they did anything.
The IPA opted out, claiming the standard created an un-level playing field. It certainly did – it would have put the accounting profession on the high ground. CPA Australia opposed the standard, too, only to turn around later and launch CPA Australia Advice, with the claim that its representatives would adhere to ethical and professional standards that exceeded those required by law – and which looked remarkably like the original version of APES 230, including the ban on asset-based fees.
CAANZ seemed to go along with the others, and then found itself hung out to dry when CPA Australia launched its own advice business.
Even as APESB undertakes its review, FASEA is yet to hold its first formal board meeting. One of FASEA’s tasks is to create a code of ethics for financial planners and advisers, and by the time it gets this process underway APESB’s review will be well advanced, possibly even concluded.
It would be ideal for a single set of ethical and professional standards to apply to all financial planners, irrespective of their allegiances, employment status, licensee affiliation or any other consideration. Personal financial advice should be delivered to consumers consistently, irrespective of the source of that advice.
Where APESB goes with its review will create a roadmap tor FASEA to follow. And if FASEA does, indeed, choose to follow APESB, let’s hope the accountants don’t steer themselves into a ditch again.
