Getting APES 230 passed is “no slam-dunk” as many accountants find it unacceptable, Peter Day, director of the APESB, reported in late April. “Those who don’t support it say they will be disadvantaged compared to their non-accountant associates. Some say they would resign their membership from the accounting bodies if the standard is approved,” he says.
Robert Brown, an educator and chartered accountant, shared this view. He says APES 230 is facing noisy and emotional opposition from some accountants as well as the financial planning industry. “If it fails it will be because those who don’t support it have managed to convince the board to simply reflect the politically compromised law of the land in the new standard,” Brown says. However, those who have made the transition to a fee-only approach instead of a commission model say the value of their practice has grown, not dropped, notes Day.
“A fee-only model helps accountants who are also financial planners (accountant financial planners) to run a better business,” he points out.” They say the law is playing catch up to what should be the correct position.” Brown says “accountant financial planners” would be trusted to act in their clients’ best interests because they would not be encouraged to sell products or accumulate funds under management to make a living.
Given the opposition to APES 230, it still is quite possible for the accountants to retreat from leading the market move toward a more fee-based payment system for advice. Yet backing down now would be bad after donning the mantle of trailblazer and saying that the only way to achieve trust and professional status that the financial planning industry so badly wants to achieve is to remove the remuneration conflict.
Reneging on APES 230 will be a huge setback for the financial planning industry, says Jerry Parwada, an associate professor in Banking and Finance at the Australian School of Business. He urges commitment to it. “If they don’t approve it, the rest of the industry will just bunker down and put the whole idea of revisiting their business model on the backburner, so it’s very important the draft standard is approved,” says Parwada. Adopting APES 230 is a clear way for one group of financial planners to differentiate themselves from the other, which can only be good for the market. “Having one group of planners that subscribes to a different model offers greater investor choice.”
Further dilution
Despite being a political compromise and a watered-down version of what FOFA initially intended to do, Parwada thinks the FOFA reforms are a starting point. But he says it doesn’t go far enough in addressing what sections of the financial planning community have been clamouring for – that their profession be treated like any other. “Would you trust a doctor, a lawyer or an accountant who receives conflicted remuneration? No. The same rule must apply to financial planners if they are going to be trusted as true professionals. They either subscribe to professionalism or they don’t,” he says.
Without it, the financial planning industry’s long-term future is shaky since people will continue to rely on the more credible sources of advice they have at their disposal, Parwada believes. “Clearly, when most people think about financial affairs they don’t think of going to a financial planner so you would think the financial planning industry would take the plunge and professionalise rather than delay the inevitable,” he says.
Brown also does not have much confidence that the industry will build on FOFA as a starting point due to the opposition by strong vested interests against reform. In his view, FOFA fails to set comprehensive principles, thus allowing the industry to avoid the intention of the legislation. “The reform process is frustrating because most people know what needs to be done,” he says. “However, there are many commercial vested interests, which will stop that happening. Therefore, we’re likely to end up with a highly politically compromised piece of legislation with which no one is particularly happy.”
