It will not be long before CPA Australia, the body that represents some 150,000 accountants in Australia, reveals more details of its keenly anticipated foray into financial planning.
This is a potential game-changer for financial advice in Australia, if the association gets it right, and the industry’s incumbents would be well-advised themselves to sit up and take close notice of what it’s doing.
Critically, CPA Australia Advice (CPAAA) will comply with the strict definitions of “independent” under the Corporations Act. It will carry the imprimatur of a recognised and respected professional association – not something that everyone thinks is appropriate – as it will be fronted by a consummate pro in the guise of CPA Australia chief executive Alex Malley (pictured). What could possibly go wrong?
CPAAA’s application for an Australian financial services licence (AFSL) is with the regulator. It plans to offer three levels of licensing for its potential authorised representatives (AR). Level 1 is designed to replace the accountants’ exemption and enable its members to essentially carry on giving financial advice – particularly in relation to self-managed super funds – just like they always have. Level 2 will enable ARs to offer strategic financial planning advice and to build a financial planning proposition into an existing accounting practice. And Level 3 is designed to permit strategic and product advice.
Irrespective of the level of licensing an individual selects, they will have to comply with s. 923A of the Corporations Act, which – to recap briefly – provides that no adviser operating under the CPAAA licence can receive or accept:
– Commissions, unless those commissions are rebated in full to the client
– Forms of remuneration calculated on the basis of the volume of business placed by the person with an issuer of a financial product – this could arguably include asset-based fees
– Other gifts or benefits from an issuer of a financial product which may reasonably be expected to influence the person.
And nor can the adviser’s employer.
Onerous requirements
Those are pretty onerous requirements, and as such, any accountant who switches from an existing licensee might have to make some business changes. And “business as usual” might not look so “usual” to accountants entering the licensing regime for the first time, either.
All ARs under the CPAAA licence must be RG146-compliant, which really is a very basic requirement.
Compliance with the Corporations Act has been welcomed by the Independent Financial Advisers Association of Australia (IFAAA).
The association’s founder and president Daniel Brammall says CPAAA’s entry into the market in its intended form will accelerate the professionalisation of financial planning, and will help to restore pubic trust in the profession and its services.
As things stand, there are hardly any financial planners who can call themselves independent in accordance with the Corporations Act. IFAAA’s members –and Brammall’s own firm – are among the few. If the CPAAA licence attracts large numbers of accountants, then the number of truly – legally – independent advisers will explode.
“Genuine independence is a very valuable asset for a financial services practice because it’s the hallmark of professionalism,” he has said. “This quite rightly inspires trust. But with independence comes responsibility.”
Acting responsibly?
That’s a good point, and another of the key bodies in the accounting space, the institute of Chartered Accountants in Australia and New Zealand (CAANZ) has questioned whether CPA Australia is acting responsibly, as a professional body, by directly entering an industry in which its members are employed.
CAANZ says it has “previously considered a similar business model” and believes it’s not appropriate for a professional body to become a market participant. Imagine, for a moment, the uproar that would follow the Financial Planning Association launching an AFSL.
“As an independent professional body we have two key roles,” CAANZ says.
“Firstly, to provide a widely recognised, high-quality professional and educational framework for our members in business and finance; and secondly, to ensure oversight of our members’ compliance with their professional responsibilities and obligations.”
So the stage is set for an absorbing and fascinating battle for the high ground in the financial planning industry. A very significant player will have created a new standard for how financial planning businesses are structured and how financial planners conduct themselves.
If Malley and CPA Australia succeed, then the face of financial planning in Australia will change, possibly forever, but certainly for the better.
