- BRW Lists
Published 08 April 2013 11:05, Updated 11 April 2013 00:45
CPA Australia chief executive Alex Malley says the new rules hold accountants to a higher standard than is required by law.
Accountants wanting to charge their clients asset-based fees or obtain commissions from third parties to sell their products will be able to continue to do so, but only if they get written consent from their clients.
After months of lobbying, the major accounting groups finally got their way on APES 230, with the Accounting Professional and Ethical Standards Board (APESB) backing down on its earlier commitment to force accountants to charge their clients fixed fees.
The APESB is the body that sets ethical standards for the accounting industry and is funded by the three major lobby groups, CPA Australia, the Institute of Chartered Accountants Australia (ICAA) and the Institute of Public Accountants (IPA).
The suggestion that accountants were conflicted and would have to do away with asset-based fees, also known as percentage-based fees, was enough to send the accounting groups into a frenzy. Their members, who have long charged their clients asset-based fees and/or received commissions from third parties, had threatened to end their membership with the accounting groups if something was not done.
BRW Rich lister and Count Financial executive chairman Barry Lambert told BRW at the time, the original APES 230 proposal had the potential to destroy businesses. “The reality is that you can’t interfere in market practice,” he said. “Provided accountants are giving good value and service, the way the fees are charged is not of great concern.”
The release of APES 230 follows more than five years of public and industry consultation and the new standards will take hold from July 1 next year (with the exception being the remuneration provisions that will start on July 1, 2015).
In a media release issued on Friday afternoon APESB chairwoman Kate Spargo said remuneration for financial advice was the area of most heated debate.
She said the original proposal to completely do away with percentage-based fees had been aimed at “eliminating or reducing to an acceptable level the threats created by the conflicted remuneration methods of asset-based fees and third party payments”.
But she was now convinced that with the introduction of the federal government’s Future of Financial Advice (FoFA) reforms, “we are operating within a new framework”.
Spargo also accepted the lobby group argument that banning asset-based fees would bring in an uneven playing field for accountants that goes above and beyond other financial services industry players who only have to adhere by FoFA.
Despite this, she says the board’s “strong preference is for accountants to be remunerated on a fee-for service-basis” and “strongly recommends” accountants charge their clients fixed fees to “minimise the opportunity for conflicts of interest”.
“The board has determined to also permit the use of asset-based fees and third party payments, but only in circumstances where the accountant is able to obtain informed consent from the client and complies with the additional requirements specified in APES 230,” she says.
For accountants who want to continue to charge asset-based fees the board requires the following:
It’s unclear how many accountants will move to fixed fee arrangements, and whether they will adhere with the APESB proposal to get informed consent.
The APESB says informed consent “requires a higher standard than simple disclosure and some clients may not have the capacity to provide informed consent to their professional accountant. Informed consent requires that the client has a clear appreciation and understanding of the relevant facts in relation to the charging for services, as well as the implications of what the client is agreeing to”.
If the accountant does not get written informed consent and are using asset-based fees and third party payments then they will be subject to disciplinary and quality control procedures, the APESB says.
But how regulators actually monitor that level of disclosure isn’t clear.
Spargo says the APESB will monitor and review the industry and “if the safeguards prove to be inadequate, we will readdress the issue of conflicted remuneration in the future”. She also points to additional safeguards under FoFA including annual disclosure to the client about the actual and estimated amount of the fees, comparative quotes in the case of insurance and disclosure in relation to the impact of changes in fees
The Institute of Public Accountants had most vehemently come out against the original threat to ban asset-based fees, saying they would not adhere with the proposal. The other two lobby groups CPA Australia and ICAA meanwhile jointly led the lobby effort to have the board change it’s mind.
In a joint statement, CPA Australia and the Institute of Chartered Accountants Australia welcomed the new regulations, saying they would provide their members with additional training on the new obligations imposed under APES 230.
“The end result of the five-year consultation is a new professional standard that requires higher levels of professional service and disclosure than the law,” says CPA Australia chief executive Alex Malley.
“At the same time it balances these obligations with the evolving environment in which financial planning and credit advice is provided to consumers.”
Institute of Chartered Accountants chief executive Lee White says the need for sound financial advice has never been greater and APES 230 raises the bar. “Australians deserve up-to-date, high quality financial advice,” he says.
IPA chief executive Andrew Conway acknowledged the recent lobbying efforts of the two other groups, but has left open the option not to follow the new APESB proposal. “We will analyse the revisions to APES 230 closely to compare them with the FoFA provisions,” he says. “We will also engage with our membership, as we have throughout this debate, and our board of directors reserves the right to issue a pronouncement if it believes the proposed standard is contrary to our members’ best interests.”
The IPA has called on the federal government to make financial planning advice tax deductible in the May budget in order to encourage more Australians to take up financial advice. Conway says only about 20 per cent of Australians currently use a financial planner.
“Right now, the absence of a tax deduction for these fees discourages many Australians from pursuing strategic advice which would help them to organise their finances and increase their financial independence,” Conway says.
“The cost of tax deductibility for financial planning advice will be significantly outweighed by the longer term benefits of assistance provided to tax payers as they plan for independent retirement.”