Don’t like these principles?
APESB has others

Groucho Marx once said: “Those are my principles. And if you don’t like them, well, I have others.” The Accounting Professional and Ethical Standards Board (APESB) is beginning to look like a Marx Brothers movie.

From April 5, it’s entirely possible that for accountants offering financial planning services, professional standards will effectively be optional.

The APESB board is due to meet on Friday to consider the latest revisions to APES 230 – its standard on financial planning services.

A key characteristic of the draft standard to date has been its position on conflicted remuneration. In a nutshell, the APESB concluded that the highest professional and ethical standards dictated commissions on life insurance and asset-based or volume-based fees should be banned for any accounting practitioner bound by the standards – which is to say, any accountant who is a member of the Institute of Chartered Accountants (ICA) or CPA Australia.

A third body, the Institute of Public Accountants (IPA), has already indicated it will reject the contentious directive in its current form.

New year, new position

But the latest draft proposes that accountants can either adhere to the “highest” standards of professional behaviour and eschew all forms of conflicted remuneration, or if they don’t like those standards, they can accept conflicted remuneration subject to certain disclosure requirements.

Those are the principles. But if you don’t like them, well, APESB has others.

At some point after November last year it appears that APESB had – let’s be charitable – a change of heart.

Perhaps the board has suddenly realised that commissions and asset-based fees are not conflicted forms of remuneration – in which case all of its previous drafts were just plain nonsense; or maybe it has received some startling new information proving that neither commissions nor asset-based fees can give rise to either a perceived or an actual conflict.

A possible alternative is that the standard-setting board for the accounting profession in Australia has been bullied into submission by powerful vested interests in the financial planning industry. But that is a scenario that simply doesn’t bear thinking about – because if that were the case, then its credibility as an independent standard-setting body could be shot to pieces.

(At the time of writing, a key paper for the April 5 board meeting, setting out the board’s “basis for conclusions”, had not been published. It was “in progress” and due to be available “on or after April 4”.)

The conflict argument

Plenty of people and organisations – including the Financial Planning Association of Australia (FPA) – argue that asset-based fees aren’t conflicted. But just 12 months ago, in the April 2012 edition of Professional Planner, the chair of the APESB, Kate Spargo, said that any method of remuneration that relies on the aggregation of funds to calculate remuneration “does encourage them to sell more product – which may or may not be appropriate; it just provides a conflict that we feel is better eliminated”.

Spargo said: “We were trying to eliminate methods of calculating fees that related to conflicts because we think that’s a risk. There are not sufficient safeguards you can put in place to avoid – or at least be seen to avoid – the potential to use that inappropriately.”

It’s worth noting that it took the APESB the better part of five years to reach the position that Spargo outlined and which the APESB publicly restated as recently as November last year. That period involved a high level of transparency and consultation with the profession and the public.

But it took less than five months to change its mind.

This is a significant issue. Accountants involved in financial planning need standards just as much (and arguably more, as befitting their professionalism) as any non-accountant financial planners for many of whom the Future of Financial Advice (FoFA) reforms will apply from July 1 as a lowest-common-denominator set of rules.

What’s in it for me?

Less than a week ago, the representative of a product manufacturer related a story in which he took his product to an accounting firm that provides financial planning services. The principal of that firm wasn’t particularly interested in how the product worked, nor what benefits it might bring to his clients. All he wanted to know was what was in it for him? Why should he use it? The product in question pays no commission. Needless to say, it will not be offered to the accountant’s clients.

So the idea that all accountants are whiter-than-white and cleaner-than-clean is a furphy, and standards like APES230 are critical in maintaining high professional standards and in maintaining the public’s confidence in the profession and its practitioners.

A “victory” for the vested interests opposed to higher standards and the elimination of conflicts – real or perceived – would be a Pyrrhic one indeed.