Consumers to benefit from lift in financial advice standards

The Accounting Professional and Ethical Standards Board (APESB) recently proposed a new standard applying to accountants who are also licensed and qualified to provide financial advisory services.

The standard, known as APES 230, will apply to accountants who are members of the three main Accounting Bodies; the Institute of Chartered Accountants of Australia (ICAA), CPA Australia and the Institute of Public Accountants (IPA).

If APES 230 is implemented, accountants providing financial advice under the new standard will no longer be able to:
Charge percentage-based fees linked to funds under advice (also known as asset-based fees)
• Receive commissions on mortgages
• Receive commissions on Life and General Insurance products
• Receive third party payments and commission arrangements put in place prior to 1 July 2013
• Receive volume benefits on business prior to 1 July 2013 (e.g. volume payments from product providers)
• Receive soft dollar benefits (e.g. entertainment provided by product providers)

According to APESB, the new standard will remove current practices that create conflicts of interest that threaten members’ objectivity and impartiality. “Instead, members will be required to set their fees based on the service they provide, taking into account factors such as the scope, scale and complexity of the financial advice and the expertise of the financial planners and their staff,” APESB said.

Currently, accountants who provide financial advice must adhere to the standards contained in the Government’s recently legislated Future of Financial Advice (FoFA) reforms. Financial planners must also comply with FoFA standards. While FoFA includes some of the same prohibitions as APES 230, it is important to note that the Government was forced to water-down its original proposal significantly due to pressure from industry heavyweights.

Since introducing APES 230, the APESB have received countless submissions and stakeholder feedback on the proposed changes. Overall, 81% of respondents have been against the reforms. This is a similar reception to that of FoFA initially and a clear indicator that accountants providing financial advice not only make up a significant proportion of the financial planning industry, but are also heavily reliant on revenues from commission-based financial planning activities.

When comparing the (proposed) standards of APES 230 with the legislated standards of FoFA, there is one thing that stands out; an accountant who operates under APES 230 is far better positioned to act in their clients’ best interests than under existing FoFA standards. Furthermore, if the accountant holds their own Australian Financial Services License (AFSL), they may be able to provide independent advice to clients under APES 230. In contrast, an accountant working to FoFA standards would not be able to provide independent financial advice to clients.

The APESB held a Board Meeting last Friday 16 November to determine the next steps for APES 230 and regardless of the backlash from the accounting fraternity, they have elected to proceed with the new standard.

Consumers are the big winners from APES 230 and the APESB deserve recognition for not caving under the pressure from the three main Accounting Bodies and other industry participants.

The proposed changes will lift existing advice standards significantly. Accountants who provide financial advice to their clients will be less conflicted than previously, and there may be scope for them to offer independent advice to clients.

Shame then that APES 230 won’t extend to all financial planners. Financial planners who are not also accountants (and are not members of the ICAA, CPA or IPA) will continue to work to FoFA standards.

As FoFA allows financial planners to accept commissions and charge asset-based fees, consumers will always have grounds to question whether advice is in their best interests given the conflict of interest that exists.

However, there is a way for consumers to get advice that is free of conflict and influence; use an independent financial planner. Members of the Independent Financial Advisers Association of Australia (IFAAA) are genuinely independent and work to standards that not only exceed FoFA, but exceed APES 230 too.

 


This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax advice prior to acting on this information.Opinions constitute our judgement at the time of issue and are subject to change. Financial Planning Expert Pty Ltd does not give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.
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Phone: (03) 9708 8126

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