Insurance commissions will be banned as a form of remuneration for accountants providing financial advice to clients, under a new ethical standards policy currently being drafted.
The Accounting Professional & Ethical Standards Board (APESB), which sets the code of ethics and standards by which members of Australia’s three professional accounting bodies must abide, is developing a new Standard for the provision of financial advice by its members.
Under the new standard, APES 230 Financial Planning Services, accountants will be banned from accepting all forms of conflicted remuneration, including commissions for life insurance advice.
According to the draft Explanatory Memorandum issued with the Standard, APES 230 has been developed as a result of the Future of Financial Advice (FoFA) reforms, and covers issues such as fees, disclosure, and acting in the best interests of the client. The document states that while life insurance was excluded from the ban on conflicted remuneration within the FoFA reforms, the APES Board ‘…were of the view that Financial Planning Services should be treated as an integrated professional advice discipline’ and therefore ‘..APESB determined that insurance, risk and mortgage broking services provided by Members must remain within the scope of the Standard’.
Specifically, the proposed Standard sets out that:
Members are prohibited from receiving third party payments and/or other benefits including Soft Dollar Benefits in relation to a Financial Planning Service from parties other than the Client to whom the service is provided, as such receipts create threats of self-interest and/or advocacy to the fundamental ethical principles for which no safeguards exist which can reduce the threats to an Acceptable Level.
… the ban on conflicted remuneration … will apply retrospectively
In addition, the ban on conflicted remuneration includes asset or percentage based fees, and will apply retrospectively (after a two-year transition period).
The changes to APES 230 were tabled for discussion at an APES Board Meeting on 17 May, and if approved, will come into effect from 1 July 2013. It will apply to all members of the Institute of Chartered Accountants (ICAA), Chartered Practicing Accountants (CPA) and the Institute of Public Accountants (IPA).
IPA Executive General Manager, Representation & Innovation, Vicki Stylianou, said she believed APES 230 had been a “bit of a sleeper”, with the industry’s attention focused primarily on FoFA.
“We’ve been saying from the beginning that APES 230 needs to be closely aligned with FoFA,” Ms Stylianou said. “It’s going to be a higher standard anyway but it should be aligned.”
However, she said the IPA was concerned about the practical implementation of a ban of life insurance commissions.
It’s going to be really difficult to ban commissions on risk products…
“It’s been one of the main points of contention. It’s going to be really difficult to ban commissions on risk products so it will be interesting to see how it works out in practice.
“We’ll have to have a good look, digest, and have more discussions. FoFA is the main game, and we need to make sure we’re in alignment.”
In November 2011, the IPA announced a partnership with MLC and AXA to deliver a financial planning licensing and referral package to its members. Ms Stylianou said that it was too early to determine what impact the Standard may have on referral arrangements but added that it was something the IPA would be keeping a close eye on.
“I think sometimes you can create policy and standards but if you don’t do them with an eye to the practical application, then you’ll end up having to review them again down the track.”
Would an Accountant still be able to receive a third party payment from an Adviser of who he has a joint venture agreement with, if the Adviser is providing Risk advice?
Would this still be classified as a third party or soft dollar benefit and put them in conflict under the new guidelines?
The accountant will rebate the insurance commission to the client and charge them a fee for service not disimilar to the commission,and everyone feels good about themselves.
When will the profession and the public wake up to the fact that time cost billing by accountantants and solicitors is as “conflicted” as commissions … it is in the interests of the accountant or solicitor to run up hours so that they can charge a higher fee … tell me that this doesn’t alrerady happen!!!
Commission and asset based fees is more transparent and honest … if an adviser is sloppy with his work the client doesn’t carry the cost
If you changed the word to fees instead of “commission’ and is disclosed to the client what is the problem. Advisers still need to be paid for the work done and if all funds are disclosed and the client signs off on it what is the problem.
It is only confusing the client yet again.
To rebate commission to the client, the accountant must have actually received the commission in his bank. Thats automatically conflicted advice-makes no difference in my view what he does AFTER its received
I am not even sure that an accountant under these proposed guidelines would be able to write nil commission risk, because there may still be some VB paid to the Licencee – depends on the deal. And that VB could be passed on in some “supportive ” way to the practice
I can’t see the life offices giving up on that business, even though BDMs tell us that accountants dont write a lot of risk
And the many joint ventures around still pass on some remuneration, don’t they ?
Maybe, just maybe, accountants may have to recognize the high quality risk advice available from most riskies ( yes there always the cowboys ) and enter into genuine arms-length two-way referral arrangements.
A little side benefit may eventuate. I have always had the view that some accountants have been a keen contributor to the yearly churn of term life products, always in the interests of benefiting the client, of course. That might stop now that there’s no dollars up for grabs.
Of course if the life offices were open and frank about churning, they would be able to say if churning was strictly limited to those advisers whose primary purpose was to sell risk
I am a CPA working in a financial planning business (incorporated) with several partners who are not CPA or CA. How does this standard apply? To the business? To me as a salaried adviser?
Nice to be holier than thou, but often insurance takes a long time to implement, especially if there are health or other issues. A good adviser negotiates the best outcome for the client but if it is time charged the cost to the client would be too much.
Tis will be very interesting to see play out I own 2 business one a financial planning business and the other a tax and accounting business and are 2 seperate entities. The accounting business is not licenced for financial planning and refers client to the financial planning business given that I guess I can still receive commissions
I am so tired of professional pontificating around these issues.. I say to the IPA ‘stop fiddling’ and let us all please get on with looking after our clients in a commercially sensible way!
Its a mistake which smacks of arrogance for the IPA to prescribe standards which go beyond the FOFA legislation. Accountants who also act as Authorised Reps of an AFSL holder should be able to be remunerated for that part of their work in the same manner as any other planner. It hardly seems fair that an AFSL holder applies a different standard because one is an ‘accountant’ to that which applies to their other Authorised Representative’s.
Good luck!
The IPA and other accounting bodies need to be careful as membership of these bodies is not necessarily mandatory to enable a person to provide either business management, taxation or financial planning advice to clients.
As long as a professional practitioner maintains his tax registration, his financial planning authority, his professional education as required by regulatory authorities plus whatever else needed to continue in business maybe – just maybe – membership of such bodies becomes irrelevant?
Fee for service is fine. However when selling life insurance there will be a problem if an accountant/financial planner charges a fee and then rebates the commission to cover in part or all of that fee. If the policy lapses within one year then the claw back of the rebated fee will be made against the financial planner. So the planner will then have to chase the client for his fee. It is rather messy.
So we all will have to somehow charge a fee based on time and somehow convince the client that his reduced premiums will more than compensate him for the fee paid. What happens if the fee is $30,000 or $40,000. Can anyone expect the client to pay that? I think the accounting bodies have to think this through. I am an FCA and CFP so this will affect me but I will not lose out: of that you can be sure
This idea of conflicted remuneration is confusing. It is a form of remuneration, but it is not conflicted. It would be that if an adviser were always choosing one insurer who paid a higher commission than most. But that may only represent an extra 2 or 3%. I alway look out for that extra 2 or 3%, don’t we all. REALLY! This whole issue is a total non event, and a total waste of time.
All this does is give us reason to reorganize our practices. These yobbos have made accountants in the financial planning arena uncompetetive, whereas I believe that we had actually introduced ethics into what was years ago a fairly unetical industry (not profession). My non accounting,qualified wife now owns all our financial planning interests, and I won’t be signing any further SoAs. Come and get me!!
Comments are closed.