Advisers and accountants really are different

The Financial Planning Association has clearly defined the difference between planners and accountants and why one size does not fit all with respect to remuneration, Mike Taylor writes.

While it was widely believed that when the Federal Government removed the so-called accountants’ exemption with respect to providing advice around self-managed superannuation funds (SMSFs), there would be a significant influx of accountants into the financial planning industry, reality has fallen well short of expectations. 

The removal of the accountants’ exemption and its replacement with a limited licensing regime has, indeed, seen an increased number of accountants become licensed to give advice, but the numbers are well short of those which prompted some dealer groups and others to invest heavily in wooing accountants into the new licensing regime.

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At least one measure of this over-estimation has been CPA Australia’s own efforts in the field, with CPA Advice boasting only around 24 authorised representatives despite the level of investment overseen by its former chief executive, Alex Malley.

There are a number of reasons why the predictions around accountants and licensing proved wrong, but one of the most significant is that notwithstanding the need for accounting practices to diversify their revenue streams and the number of accountants who already provide licensed advice, accounting and planning remain two very different professions.

And the differences between the two professions were driven home very clearly and very accurately by the Financial Planning Association (FPA) this month in a submission to the Accounting Professional and Ethical Standards Board (APESB) dealing with the board’s post-implementation review of APES 230 Financial Planning Services.

The APESB was canvassing whether to amend APES 230 to limit remuneration to fee-for-service and it was a proposal which elicited a sharp “no” from the FPA on the basis that a strict fee-for-service approach might work for accountants but it would certainly not work for financial planners. In doing so, the FPA effectively drew a line in the sand on what makes the two sectors so different.

The FPA submission said bluntly that there was a strong need to understand the difference between accounting services and businesses, and financial planning services and businesses.

“Accountants’ services are more transactional in nature and are limited to tax matters. Financial planning businesses can manage millions of dollars for their clients – the larger the client portfolio, the more time is needed to appropriately service the client, and the higher the risk of things going wrong,” it said.

“Financial planners need to have the ability to charge an appropriate fee commensurate to the risk, size and complexity of the client. All financial planning fees are required to be offered to and accepted by the client, and it is a legal requirement to ensure they are in the best interests and appropriate for the client. This client engagement and choice is vital.”

“An accounting fee-for-service model is not transferrable to financial planning. They are different services and business models,” the FPA submission said.

Financial planners should appreciate the point being made by the FPA because it goes to the essence of a long-standing debate in the industry and one which coloured some of the early discussion around the Future of Financial Advice (FOFA) and, indeed, continues to colour the attitudes of Federal politicians.

While accountants continue to market themselves as “trusted advisers”, the truth is that all too many of them remain unlicensed to give advice.

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As an FPA member its disappointing to hear how the FPA isn't that different to AFA in trying to justify percentage based fee models. Commissions by another name, not legally, but certainly in practice and everyone know it.

If more investment capital involves more complexity and more work, then determine the appropriate greater fixed dollar advice and service fee. It's not that hard, but obviously harder than letting go of commission like income.

When are advisers going to stop exploiting the psychological shortcomings of their clients, when they are supposed to be helping clients by making them aware of such shortcomings and advising them accordingly.

Client first. Really?

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