Advisers with links to accounting practices may be forced to undertake significant business restructures as a result of the APES 230 Standard, according to predictions from some of Australia’s leading life insurers.
As previously reported, the Accounting Professional and Ethical Standards (APES) Board is set to introduce new guidelines for accountants who provide financial advice services to their clients. Specifically, the guidelines (known as APES 230) set out a ban on certain forms of remuneration for accountants, including commissions for insurance and third party payments.
However, some insurers have warned that APES 230 may apply to a broader section of the industry, picking up advisers who work in an accountancy firm, or have a joint venture with an accounting practice.
Asteron Life’s Executive Manager, Mark Vilo, explains: “They’ve set out standards for accountants who also do financial planning, but unfortunately the broad definition also means that if you’ve got an accounting practice with a financial planning arm – and that includes financial advisers who work in that business who aren’t accountants – they will also be bound by this.”
Mr Vilo said that early indications are that some advisers are already reviewing their own business structures. “Those that are part of an accounting business are thinking about whether they should become a separate entity, and set up their own license, to be able to deal with this,” he said.
… advisers that have seen success with joint ventures or splitting revenue with accountants are going to be up against it
Marc Fabris, National Manager, Life Risk Sales Strategies and Research at Zurich, said the impact of the APES 230 Standard ban on risk commissions could ultimately be felt more strongly by advisers than accountants, because life insurance advice was often ‘outsourced’.
“I would suggest the minority (of accountants) actually conduct those services themselves. Financial advice is probably more likely provided through a joint venture or a third party referral arrangement. And the majority of those arrangements have some sort of financial incentive for the accountant involved. The bottom line is that the large proportion of advisers that have seen success with joint ventures or splitting revenue with accountants are going to be up against it,” Mr Fabris said.
Despite the APES Board’s determination that risk commissions represented a conflict of interest for advice professionals, the majority of life insurers who spoke to riskinfo said they were in support of commissions.
MLC’s Executive General Manager Insurance, Duncan West, summed up the position of many, saying it should be up to the accountant and their client to determine the most appropriate remuneration structure for the services provided.
“We believe it is up to the client and their financial adviser or accountant to agree on the most appropriate remuneration option for their situation.
“MLC has always firmly believed that commissions have a valid and important role to play as a remuneration option on insurance and, importantly, commissions often allow low-income clients to access insurance advice,” he said.
According to Brett Clark, CEO Retail Life for TAL, which has previously expressed concerns with the APES 230 Standard, one of the other issues with the policy is that it contradicts the determinations made during the Future of Financial Advice (FoFA) reforms.
“The FoFA process critically examined the role of commissions in life insurance and supported the continuation of commission arrangements. We also support commissions as an appropriate remuneration tool. Underinsurance remains a substantial community and social issue. While we continuously debate remuneration models among ourselves we are missing the bigger picture.
“The APES proposal as it stands will be an unfortunate outcome from a public policy perspective, and is why TAL’s submission to the APES Board recommended that commission-based referral fee arrangements should be retained,” Mr Clark added.
These comments were echoed by BT Financial Group’s Head of Dealer Groups, Matt Englund, who said: “We’ve now got a subset of the industry who have a different remuneration structure, potentially being forced upon them, which is not consistent with their ability to manage that relationship with their clients independently. I’ve always formed the view that an adviser and their client, where there is full and transparent disclosure and a meeting of the legislative requirements, should be free to agree the terms upon which they operate together. This Standard doesn’t appear to leave them in that position and I believe that’s unfortunate.”
“Commission works for risk,” agreed Mr Fabris. “It works in respect of new business, in that some clients proceed and some don’t, and it’s a way of being able to cross-subsidise the advice being provided to some clients. The more that you make it difficult financially for advisers to service lower-value clients, the less those clients will be seen.”
I’m concerned with any piece of standard setting where so much of the industry comes out saying: ‘This isn’t in the best interest of the public’
Mr Vilo said that whilst these issues were raised in the majority of submissions to the APES Board during its consultation period, the Board had “effectively ignored those concerns.”
“Even the accounting associations themselves have said they don’t believe the APES Board has actually considered all the issues. Those groups are actually reviewing their own positions and will provide a response by the end of the year. So not only does our industry have concerns, but so too does the accounting profession itself.”
Mr Englund added: “I’m concerned with any piece of standard setting where so much of the industry comes out saying: ‘This isn’t in the best interest of the public’.
“My view is that the public interest is best served by having more people receive good quality financial advice and good quality insurance. And I think the industry has formed a view that we’re not certain how this achieves that objective.”
The basis for this decision by APESB is that they believe commissions are conflicted.
Whilst they are correct in saying those commissions are conflicted remuneration, so too is the manner in which the majority of their members charge.
I don’t for one moment suggest that the way that accountants charge is not appropriate or prevents accountants from providing their clients with excellent advice that is in their client’s best interest. However, to suggest that accountants do not face conflicts between their interests and the interests of their clients is wrong.
In general, whilst I think that fee for service is flawed in respect of risk advice, I wouldn’t presume to tell someone else how to charge their clients.
In my opinion, many of those that charge fee only for risk advice are not being adequately compensated for the professional risk that comes with providing advice (assuming the adviser accepts responsibility for that advice). However, that is their business, not mine. I do, however, find it interesting that medicos (surgeons in particular) seem to have a better grasp of being remunerated for professional risk than many risk professionals.
We have reached a ludicrous point in this debate where the way in which an adviser is remunerated is more of a measure of their professionalism than competence, qualifications, experience and depth of knowledge. It is a tragedy for consumers that quality of advice has been disregarded by the red herring of remuneration. A red herring ironically being promoted by vested interests.
Commissions are the most appropriate form of remuneration for my practice. I am no more conflicted than any of my colleagues who charge using a different model. That is, there is necessarily a conflict between my interests and my clients. However, just as doctors, dentists, accountants, solicitors and, indeed, my fee-for-service colleagues manage that conflict so do I
Just as much a question as a statement. Directors of PTFC Financial Counsellors P/L holds a 49% interest in an accounting practice and there are common directors across both entities. They are however separate legal entities. There is no sharing of revenue between the entities, there is however a n understanding of mutual referral of clients back and forth without the sharing of client specific fees. The only income that is received is Profit Distributions that emanate from normal trading. My question relates to the common Directors of both entities and whether this is seen as a contravention of the APES Board proposal. Where can we obtain clarity about this issue as it has a significant impact on our Financial Planning business if as an AFS Licensee we are precluded to accept commission as a form of remuneration for Risk Related advice. We are confused and need clarity but from who.???
Commission (and the inherent responsibility periods that go with it) is simply the best method of remuneration.
Imagine the chaos that would reign if a FEE were charged (that cant be written back by an insurer),insurance,could,and would be moved about more often by the very operators all of this FoFA over kill is designed to stamp out.
small premium clients will be charged disproportionaltly more for advice, and may resort to more expensive , no advice,online options.
I only wish an election were being held this week, so this nonsense could stop and sanity prevail
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