Joshua Parisotto
News

Opportunity presents itself in turbulent times

By Joshua Parisotto

Since the introduction of the Parliamentary Joint Committee on Financial Services, debate has raged over the future of the industry and the impact these changes will have once the dust has settled.

The intended purpose of the ‘Future of Financial Services’ reforms was to tackle conflicts of interest within our industry, and to restore the confidence and trust of retail investors in light of the Storm, Opes Prime and WestPoint debacles.

There are a number of key issues under scrutiny, such as the:

  • prospective ban on conflicted remuneration structures including commissions and volume based payments;
  • percentage-based fees on geared products being banned; and
  • removal of accounting licensing exemption in relation to self managed super funds.

While most advisers are well aware of these issues, the reforms are becoming increasingly relevant and important to accountants who also practice as financial planners.

The Accounting Professional and Ethics Standard Board (APESB) has proposed new industry standards that require members of Australia’s three professional bodies (CPA, CA and National Institute of Accountants) to charge clients on a legitimate fee-for-service basis.

In theory, the new proposal will not allow financial planners, who also operate as accountants, to charge client commissions and asset based fees from 1 July 2011. The proposal by the APESB specifically states: “The fee for service basis in the proposal standard prohibits all remuneration practices which are based on product sales, or accumulation of funds under management, including commissions, percentage-based asset fees and production bonus”.

The proposed APESB ban on asset-based fees is stricter than the proposed government regulations and has gone one step further than any of the financial planning associations.

Over the past few years, there has been an increasing trend in the number of accountants who have realised the value of offering financial planning to their clients; and that this generates far more revenue in fees and commissions for accounting firms than any other time in the profession.

The new APESB proposal has highlighted the finding from the CPA that ‘income from financial planning’ has increased dramatically, primarily coming from referral relationships and commissions paid by other organisations (ie dealer groups, product manufacturers). The income from these sources was relatively small in the past, but now many accounting firms are looking to set up separate divisions or joint venture businesses as financial planning income is becoming more prevalent and in some cases a core revenue driver in the firm.

So what does all this mean?

Whilst accountants have become more dependent on financial planning revenue, they are now under the same, if not increased pressure, to convert this income to fee-for-service. For many, wearing ‘two hats’ is already proving difficult and this latest pressure may mean the offering of financial planning services becomes all too hard. Many practitioners have already indicated that they may revert to offering solely traditional accounting services that are already fee-for-service.

For those advisers with centres of influence (COIs) or joint venture or referral relationships with accounting firms, these changes present a great opportunity to consolidate these relationships and by offering their assistance.

Financial planners have a real opportunity to revisit boutique accounting firms and assist them in establishing or refining their business model where financial planning plays a part. Financial planners who are able to offer assistance around the key areas of establishing a value proposition to clients, and formulating a fee-for-service model, will prove invaluable to these boutique firms.

Summary

Now is a great time to re-examine your COI relationships and offer your expertise to consolidate existing relationships as well as build new ones.

Remember, the key to building effective referral relationships (not just with accountants, but with other professions such as general insurance brokers and lawyers) is to follow a clear process and ensure that, between the two businesses, there is:

  • cultural and business fit;
  • trust and a genuine relationship; and
  • clear understanding of financial advice and the value it adds to the referrer’s clients.

For more information on this topic or assistance with building successful COIs, please contact your BDM.

Kind regards,
Joshua Parisotto
Head of Practice Management