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?

Your editorial piece on the fact that accountants and financial planners are different is as interesting as it is misguided.

I am well aware that Money Management is a magazine that represents financial planners and hence will generally publish views that are supportive of its readers.

Having said that you should at least, in an editorial, make some attempt at presenting a credible argument.

So, let's begin the process of dismantling your misguided and in most cases completely irrelevant analysis.

The reason accountants have not gone out and obtained a limited Financial Services licence goes well beyond your simplistic conclusion.

• Firstly, many accounting firms do not generate much in the way of fees from ‘financial’ advice and as such the costs of registration, CPD, PI insurance etc makes registration financially uneconomic.
• Secondly, many accountants have referral arrangements with a trusted financial advisor so they do not need a licence.
• Thirdly, we all know the value of assets and how they will yield and grow overtime is the function of an incredibly complex financial system. We live in a world where the total GDP output of the entire planet is but a tiny fraction of the collective value of tradable assets, debts and derivates. Add to this the sheer scale of algorithm trading, central bank market money printing and government interference in so called free markets and it is no surprise it takes very little time to find Noble laurates and others who argue that the world’s financial system is highly volatile and could easily ‘correct.’ What this tells you is that financial planners are clueless about what everyone really wants to know and that is “what will my assets be worth tomorrow?” On the basis that I do not know either I am, nevertheless, not convinced that getting a financial services licence is the answer.
• Fourthly, a lot of clients want generic advice – they want to have a chat! In many cases that chat can end up in a referral to a financial planner. In others, such “I have got $100,000 to invest where should I put it? It is not so obvious that a financial planner will have anything useful to add? In most cases a financial planner will recommended a share portfolio and some reporting function and review process to make it look like proactive management. On the basis, however, of evidence that passive index investing often out performs managed equities etc – you cannot blame me for my scepticism. If you respond with ‘but the planner can source all this knowledge from this or that individual, group or colleague,’’ then I would counter so can the accountant – so what!

The next issue is that most financial planners are not managing clients with multi-million dollars portfolios – they are looking after much more modest amounts. Just like most accountants are not looking after multimillion dollar clients, no shame in this it is called the real world!

Financial planners and accountants are not different we are the same!

We both work in an industry where the amount of information we would like to have in our heads is far beyond what we can ever hope to hold. In my view a good financial planner needs to understand economics, financial systems and mathematics, the Social Security Act, estate law, superannuation law and regulations, basic taxation law and regulations, the financial aspects of age care delivery, the banking system, corporate regulations, investment products, insurance products and on it goes. How many financial planners are even remotely competent across such a wide knowledge set?

The same problem afflicts accountants. We are meant to be masters of accounting and bookkeeping systems, understand taxation law, be across software platforms, appreciate automation and how to apply it, recommend business administration solutions, be street wise and have knowledge of how business is done and deals made, be experts on lending, budgeting, have a highly developed ability to interpret financial information and on it goes. How many accountants have that knowledge set?

The problem with your editorial is that you are totally confusing a legal issue ‘licence’ with a conceptual one ‘knowledge.’

I have serious doubts about the benefit to society of the army of tax agents out there who do tax returns all day because Australia’s taxation laws are so complex people give up and seek ‘professional help.’ I also have serious doubts about how much value your typical financial planner adds to society once they get away from advising on planning and start advising on assets and what are the best ones to own.

Your, concluding remark that, ‘accountants continue to market themselves as trusted advisors while all too many of them are unlicensed’ is the sort of comment I would expect from a brainless bureaucrat who thinks the solution to every problem is another rule or regulation.

If you are going to write editorial and call yourself a journalist then a bit of intellectual excellence not excrement if you please. We both know this email to you will never see the light I day. I almost never wrote it because your insecurity will ensure you will never publicly respond. Remember, however, you have the advantage of having the last word - a major benefit for anyone whose thinking is being questioned.

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