A convoluted, excessively layered regulatory framework is preventing accountants from being able to replace waves of financial advisers leaving the industry according to Keddie Waller, financial planning policy adviser for CPA Australia.
The peak accounting body released a report this morning, ‘The impact of complex regulatory reform’, which details the role of accountants in financial planning and the struggles they have operating in an expensive, often-overlapping regulatory framework.
Central to the problem, Waller tells Professional Planner, is that new regulation is being bolted onto the profession without proper regard for the existing framework.
“An incremental accumulation of regulations not only increases compliance costs but also increases the risk of new regulations conflicting with existing rules or interacting with them in unintended or unexpected ways,” the report states.
Waller says policy-makers aren’t stepping back and looking at regulation holistically. “They’re not looking at how systems interact, or how they can be harmonised,” she adds.
The issue is set to be exacerbated by the promised implementation of all Hayne’s royal commission recommendations, Waller believes.
“What we don’t want is more complex regulation, but effectively we’re going to get that because the government is going to implement the recommendations.”
CPA Australia is the largest accounting body in the country with around 164,000 members.
The report highlights the estimated 30 per cent of financial advisers that will leave the industry in the wake of the royal commission, and says the accounting profession “has an opportunity to supply new financial planning advice capacity” to a growing unmet advice need.
“However, professional accountants find themselves restricted by the current regulatory framework from providing such services,” the report continues. “If they wish to provide a full suite of services to their clients, professional accountants must acquire multiple licences and registrations, attain numerous qualifications and designations, and adhere to myriad regulatory requirements, overlapping ethics standards, education requirements and CPD obligations imposed by a number of different regulatory bodies.”
Waller quotes figures in the study showing that 90 per cent of consumers trust their accountant to “always service their needs in the best way possible”, and roughly 70 per cent “preferred their professional accountant to meet all their advice needs, if only their accountants had the necessary licenses or registrations.”
The cost of providing advice services under an Australian Financial Services (AFS) Licence, however, is too much for accountants when added onto their primary expenses, Waller says. The report estimates the cost to provide a full suite of “holistic financial planning advisory services” at $112,414; this includes $44,878 for accounting and auditing services, $22,846 for tax advice, $19,489 for mortgage/finance broking and $46,125 for financial advice.
“If that’s the sort of money you’ve got to give up before turning the lights on, you can see why the cost of giving advice is so high,” Waller says.
A loss leader
Accountants currently have three options pertaining to the provision of financial advice. They can provide SMSF-related (and ‘class of product’) advice under a limited license provision, become a fully authorised representative operating under a full AFS licence, or simply avoid it altogether.
While the limited license option is cheaper than operating under a full licence, Waller says it “hasn’t been the success it could have been” because the time and cost to provide the advice is still too prohibitive.
“Accountants feel like they can’t actually charge what it costs for them to give advice,” she explains. “It ends up becoming a loss leader for them.”
Further, there is no distinction made between limited license providers and fully licensed providers in the eyes of the Financial Adviser Standards and Ethics Authority (FASEA), which means accountants acting as part-time advisers need to meet the same educational requirements as full-time financial advisers.
This means limited-license operators need to an extra 40 hours of FASEA-prescribed continuing professional development and adhere to FASEA’s code of ethics, the report states, on top of the meeting the CPD requirements of CPA Australia and adhering to its own ethics charter.
Bolting on a new set of rules
The report comes less than a week after Pamela Hanrahan, a professor of commercial law and regulation at UNSW, spoke out at the Professional Planner Risk Advice Summit on how non-holistic policy is undermining advice business models and putting advice out of reach for consumers.
‘Where we’ve had difficulty implementing policy change… was that we tried to bolt a new set of rules and a new set of economic imperatives onto the existing business models,” Hanrahan explained.
Like Waller, Hanrahan voiced concern that in their eagerness to address systemic issues in the industry by implementing all of Hayne’s recommendations, the government is losing sight of the overall regulatory framework.
“Sometimes you can get dragged along by perhaps a mistaken belief that policy reform and regulatory reform is something that you can take and try and shape to the existing business model,” Hanrahan said.
According to Waller, the report gives CPA Australia a foundation to start lobbying to simplify this framework.
“Unless you actually stop and take stock of what is impacting one person it’s very hard to appreciate the compliance obligation they’re under,” she says. “Putting that on a page is very powerful.”