It’s easy to read a preliminary report into the shortcomings of governance at CPA Australia and conclude that the association’s venture into financial planning was an unmitigated disaster. In the language of these sorts of reports, the advice business’s performance has been “below expectation”.
Reading more generally about what’s been going on at CPA Australia, it might also be easy to think the establishment of the advice business was driven exclusively by ego and hubris. Almost certainly, there was some manoeuvring and some competitive consideration involved, as CPA Australia sought to steal a march on other associations.
But the preliminary report of the CPA Australia Independent Review, chaired by former auditor-general Ian McPhee, is pretty clear that there was a sound strategic rationale for it, and “there was no evidence to suggest that there were other motives for the establishment of CPA Advice”.
CPA Australia gained its Australian financial services licence (AFSL) in April 2016 to give members a licensing option when the so-called accountants exemption ended in July that year for those who wanted to continue giving advice on self-managed super funds (SMSFs).
[The abolition of this exemption was part of a tit-for-tat exchange between accountants and financial planners that included financial planners having to register with the Tax Practitioners Board as tax (financial) advisers – but that’s a story for another day.]
If the strategy was sound, the execution was less so. The independent review’s preliminary report, published yesterday, states that many of the forecasts for the business were too optimistic and have not been met. The timing was iffy – the review finds that by the time the new business got off the ground, most accountants seeking an SMSF licensing solution had probably already decided what they were going to do. And ARs operating under the CPAA licence were going to have to comply with section 923A of the Corporations Act, which relates to the issue of ‘independence’. It’s a tough test and hardly any advisers measure up to it now, because it outlaws certain forms of remuneration that for the majority of the industry remain entrenched – for CPAs as well, it seems.
The implications of this finding are a bit troubling. If the reason an accountant did not become an AR of CPA Advice (and let’s be frank, there were a number of other reasons why they might not have) is because they would no longer have been able to call themselves ‘independent’, ‘impartial’ or ‘unbiased’ (and, more recently, other terms with broadly the same import), but that’s what they’d been doing previously, and continue to do now, then compliance with the Corporations Act might be an issue for them.
Despite CPA Advice receiving more than 600 expressions of interest, only 27 accountants became ARs of the licensee. That’s a pitiful conversion rate. The basic licensee fee – essentially allowing accountants to continue doing business as usual – was going to cost $650 a month, or $7800 a year. That was apparently too expensive.
For comparison, an alternative licensee operated by the National Tax and Accountants Association, offering the same sort of authority, started at $250 a month, or $3000 a year. Last time Professional Planner looked, which admittedly was a few months ago (in June), the NTAA licensee, SMSF Advisers Network, had 748 authorised representatives listed on the financial advisers register (FAR). In May 2016, only 13 months earlier, this licensee had just 33 ARs. (These numbers are a bit dated because, to be honest, manipulating the data that comes out of the FAR is a pain in the ring.)
If any other licensee has added more than 700 ARs in the space of just 12 months, assuming those FAR figures are correct, then we haven’t seen it. And in the past, we’ve seen licensees growing at a much slower rate than that subsequently struggling with compliance issues, so hats off to the NTAA.
A broader source of discontent with the CPA licensee idea was that it was perceived as being in direct competition with its members’ own businesses. Imagine if, say, the Financial Planning Association (FPA) or Association of Financial Advisers (AFA) – or any other advice-based association – obtained its own AFSL and started touting for ARs, and you get a sense of how many accountants felt.
The story of what went wrong at CPA Australia is still being written, and a definitive version will not emerge for years. When it does, the failure of CPA Advice will be a chapter or two on its own. The impact that the establishment of the advice business had on CPA Australia’s Professional Standards Scheme insurance for public practitioners will be a particular focus. That insurance scheme was pulled, leaving CPA Australia scrambling to arrange alternative cover for members.
It’s a shame that CPA Advice has become something of a lightning rod for criticism of all things CPA-related. And perhaps it is symptomatic of the broader issues the association faced. Despite the implementation issues and its subsequent performance, this country remains in dire need of high-quality, professional, genuinely independent advisers. A licensee such as CPA Advice had the potential to make a meaningful contribution to that effort.
The preliminary report recommends a “comprehensive post-implementation evaluation of CPA Advice”. The timing of the final report is up to the review panel, but it’s to be hoped this recommendation carries over, and that the evaluation can find a way to preserve and then develop a potentially significant source of independent financial planning services.