Members of one of the major professional accounting bodies have expressed concerns over the proposed ban on insurance commissions to be applied by the Accounting Professional & Ethical Standards Board (APESB).
In preparing its submission to APESB on the draft APES 230 Financial Planning Standard, the Institute of Chartered Accountants (ICAA) said its members were concerned about a number of measures contained within the regulations. The ICAA specifically singled out insurance commissions and the retrospective nature of the standard as two of the areas of concern.
APES 230 sets out the principles for accountants who provide financial advice to their clients, and includes recommendations relating to fees and charging, acting in the clients’ best interest, and disclosure (see: Risk Commissions to be Banned Under New Accounting Standards). It proposes that commissions are banned as a form of remuneration for all products, including insurance. In addition, the ban on conflicted remuneration will apply retrospectively (after a two-year transition period).
Head of Financial Advisory Services at the ICAA, Hugh Elvy, hosted workshop sessions with members around Australia to discuss the draft standard.
“Members have flagged a number of important considerations, including insurance commissions, the retrospective nature of the draft standard and the timing for implementation,” Mr Elvy said.
Accountants who do not currently provide financial planning advice on a fee for service basis will need to make changes to the way they conduct business
When issuing the draft standard for consultation in late July, APESB Chair, Kate Spargo, said the regulations had been in development since 2007, and already been through several public consultations.
“Amendments have been made, where appropriate, that reflect stakeholder feedback and the Future of Financial Advice (FoFA) legislative reforms,” Ms Spargo said.
“Accountants who do not currently provide financial planning advice on a fee for service basis will need to make changes to the way they conduct business. The Board is setting a high standard for members of the accounting bodies and it believes that this will contribute to the ongoing professionalism of those accountants and by doing so, enhance consumer confidence and loyalty,” she added.
Final submissions on the proposed standards are due on 7 September 2012.
It is little wonder that the ICAA and CPA are losing so many members, in how they attempt to dictate how members are remunerated. This is clearly against their own internal policies, as one key facet of the regulations is that the ICAA does not dictate how members charge for their services, and will not get involved in fee disputes with clients.
It is amongst one of the many reasons why the ICAA lost myself and many other members several years ago, and more members to resign in the coming months.
This is the most ridiculous proposal I have seen! it completely ignores commercial reality. The massive disruption it will cause members businesses to implement the changes for existing clients is going to be far reaching. No other Accounting Body in the world has proposed such a standard! I have been a member of the CPAs for over 30 years and I’ll walk away from them if I have to. Lawyers are able to charge asset fees and so are Architects does that make them any less professional. We don’t work in a perfect world. Besides hourly rates promote ineffciency none other than the retired Chief Justice of the High Court of Australia said so! If a Doctor recommends a person undertake cosmetic surgery isn’t that a conflict of interest? You don’t hear the AMA threatening to ban this activity do you? The CPAs are getting a massive amount of push back from its Financial Planning members on this and I’m sure the other 2 accounting bodies are as well. I reckon Choice and the Industry Super Network have hijacked this body and are trying to do what the Federal Government failed to do after it was made to see reason in March this year!
Let’s all be clear about this. The accounting profession bodies simply do not believe financial planners should be recognized as professionals. They believe that if accountants receive remuneration in a like manner to financial planners such as through commissions including trail commissions and asset based fees this will compromise their own professional standards.
Pure and simply, they see themselves as professionals but they do not see financial planners in the same light nor do they wish to recognize planners as professionals.
If this means their clients are financially worse off then so be it.
They are on a slippery slope with this one and they know it.
The ICAA and CPA need to realise they are not a religious sect sprouting sermans for the betterment of humanity or to have every Australian follow us because we are some sort of holiness. This is a business profession and needs to generate income. If I have to charge on top of premiums for insurance advice then my clients will look to the “product manufactures for free advice” with inbuilt “bonuses” for their adviser, but it wont be open or full advice as I can offer.
I want to know who proposed and seconded this notion and what their interests are? What next, a ban on fees forcing us to run our business on kind donations from joyous clients?
Stop running this like a religion and get back to treating us like “professionals” eg paid to work.
The comments made by Chris, Daryl and John say it all. I have been a member of the CPA’s for 28 years. If this proceeds it will be my last.
The ICAA and others are losing touch with the reality of what is required to run a FP business. I have been fee for service for many years but being dictated to on the way my clients wish to have me remunerated is way outside the scope of what we expect their “leadership” role to be. As long as clients are fully informed of up front and ongoing costs then there is no need for accounting bodies to try and dictate hoe clints pay for the service they receive.
Conflicts of interest erode the quality of advice. Asset fees and commissions are incentives. Incentives are conflicts of interest. Therefore asset fees and commissions erode the quality of advice.
Have a look at the Independent Financial Advisers Association of Australia (www.ifaaa.com.au) because it is possible to run a profitable practice without resorting to conflicted remuneration.
As far as I’m aware all of the life companies pay commissions at the same rate so where is the conflict of interest? Just changing the name to a fee rather than commission does not change the fact that professionals need to be remunerated for the work they do. I agree with the other comments, as long as the client knows what they are paying and how it is being paid, I don’t believe there is an issue. At some point in time the professional bodies need to have faith in their members to do the right thing by the client,if they are not then the professional bodies should not allow them to continue being members. They obviously have a high opinion of their members if they believe that legislation is necessary.
Insurance is one area of financial services that is difficult to charge a fee for service because so much depends on factors outside the advisers control. The adviser could spent hours seeing a client, completing application forms, following up the underwriting process only to find that the client is uninsurable – is the client going to pay for this outcome, probably not, yet the adviser has done the work. Are they supposed to do it for nothing?
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