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Welcome to the Spring edition of the Financial Planning Chapter Newsletter.
Headlines
- Chair's message
- APS12 Statement of Financial Advisory Service Standards released
- CA – Financial Planning Specialist referral Directory
- News and Updates (Including ASIC Latest Release)
- Glue that holds our financial life together
- Free Offering to ICAA members from the Institute's Information and Research Service
- Regional Updates
- What do you need and What do you want?
- Disclaimer
1. Chair's Message
The term “financial planning” has become identified in the minds of most Chartered Accountants as an activity which invariably requires the sale of a product and the payment of a commission. It is for this reason that the average CA is uncomfortable with the process of “financial planning”, viewing it as an untrustworthy and unprofessional sales process designed to line the pockets of salespeople and funds managers.
As a result of this strong perception, the accounting profession has been far too slow to grasp that “financial planning” is an activity in which we have always been involved. Regrettably, the term has been hijacked, and narrowed in our minds to refer to a process that involves products, licences and voluminous compliance requirements; rather than the provision of comprehensive strategic advice in which investment advice is only a small part.
The leadership void left by our profession has opened up the “financial planning” space to new professional associations; and to individuals whose motivations, in many cases, are less than professional.
It would be unrealistic to expect the government to “turn back the clock” to the days when accountants were in a privileged position. But it would be realistic for the accounting profession to understand that professional “financial planning” is an activity to which we are uniquely suited by virtue of our training, educational qualifications, independence of mind, and ethical standards. Furthermore, for most of us, “financial planning” (as broadly redefined) is something which comes naturally, being at the CORE of our practices, not on the margin.
The “licensing bit” is simply the legal requirement imposed on us to enable us to be specific about superannuation products, and managed funds, and insurance.
It’s an important matter of professional and public interest that we reclaim the space, which we mentally vacated some 25 years ago upon the advent of the so-called “financial planning industry”. Doing so requires repositioning and broadening of our thinking about the meaning of the term “financial planning”.
Over the next twelve months we intend to emphasise and develop that theme, which must be widely adopted within our profession if we are to capitalise on the unique skill set and professional attributes that we offer to the public.
Robert M. C. Brown
Chairman
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2. APS12 Statement of Financial Advisory Service Standards released
As you should be aware from recent communication in the e-bulletin, the joint standard APS 12 (Statement of Financial Advisory Service) was recently released by the Institute and CPA. This Standard sets fair, ethical and professional standards relating to the provision of financial services.
The feedback from the press media has been very positive. In addition the Standard demonstrates the importance the Institute and CPA view financial planning as a significant and growing area for members.
The APS 12 statement provides an objective set of measures against which members, who are involved in the provision of financial advisory services, will be assessed. The statement was developed through an extensive consultation process involving members from both professional bodies, industry regulators and other stakeholders.
APS 12 governs all aspects of financial advice provided by members. It includes clear definitions in relation to fees and commissions, states that fees should be the preferred method of remuneration and bans heavy initial-fee discounting to avoid recovery through subsequent higher fees and commissions.
APS 12 provides the basis for all members to operate at what is currently identified as best practice. The Standard complies with and, in many cases, exceeds current regulatory benchmarks for financial advisers set by the Australian Securities and Investment Commission and other professional organisations.
For example members are:
- To provide clients with a terms of engagement agreement that clearly outlines fees, deliverables and timeframes prior to commencement of work
- Banned from receiving certain gifts and sponsorship as a result of achieving specific sales targets, known as 'soft dollar commissions'
- To provide clients with clear terms that explain the cost of the initial and ongoing advice
- Disclose buyers of last resort arrangements, as such arrangements are often linked to preference for certain products; and
- To fully disclose any conflicts of interest that cannot otherwise be avoided.
APS 12 became effective from 1 November 2005. Failure to comply will lead to disciplinary proceedings.
We urge you to review this Standard immediately. APS 12: www.icaa.org.au/APS12_Oct05.pdf
Should you have any queries please contact Hugh Elvy on 02 9290 5564 or Email: business_practice@icaa.org.au
An additional Guide will be available shortly.
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3. CA – Financial Planning Specialist referral Directory
An email was sent out to all CA-Financial Planning Specialists introducing an Institute initiative to assist unlicenced members and CA-Financial Planning Specialists.
One of the key focuses of the Institute is to assist members operating under the FSR framework. A current project we are implementing is to provide members with a list of the CA- Financial Planning Specialists who they can refer clients to obtain specialist financial planning advice. Currently there is a facility on the Institute website “Find a CA” and selecting the financial planning specialist drop down menu. This search engine provides a random list of 10 Financial Planning Specialists, however this facility is not widely used.
As such a simple handbook is being developed listing all CA - Financial Planning Specialists by State. This list will be a combination of those members already list on the “Find A CA” search function on the website and those members who have replied to the email for inclusion. This handbook will be produced in PDF form with a link on the Financial Planning technical resources page. Members will be able to print off the handbook and/or conduct searches from the downloaded document.
The Directory is currently with the design team and should be available from early December. A communication will be forwarded to all Institute members in e-bulletins promoting the handbook and the opportunity to provide a quality service to their clients.
On a different issue:
A question the Institute regularly receives is in regards to how to get into financial planning. It is important that we build the number of members who are involved in financial planning.
We would be very interested in speaking with those members who operate under a JV structure.
Could you email your details to: business_practice@icaa.org.au and Hugh Elvy will be in contact.
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4. News and Updates
- CA Program and Public Practice program
An issue, which arises quite often from members relates to the inclusion of Financial Planning as a component or an elective within the CA program. As many of you are possibly aware the CA program has recently been reviewed and the new structure of the program is transitioning next year and fully commencing in 2007. As a result consideration of Financial Planning being included will not occur until after this time. As an interim measure we have been in discussion with the CA program developers to include Financial Planning as a career path consideration in the final module of the CA program. Following on from this is the development of an articulated pathway post CA program to further studies through the Securities Institute of Australia. This will ensure that candidates are fully aware of the opportunity of following a Financial Planning career and a formalized pathway to assist them should they wish.
In further developments to raise the profile of financial planning within the Institute we will be involved in the review of the Public Practice program review early next year. A key issue is incorporating the legislative FSR requirements of members in practice and also the associated issues of incorporating Financial Planning into a practice.
Both of these initiatives will increase the profile of Financial Planning and its importance for members in the future.
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ICAA Superannuation policy
The Institute is reviewing a wide range of superannuation regulations and rules and is drafting a Superannuation policy. This policy will be the basis of the Institute’s lobbying efforts over the next 12 months. The focus is on removing anomalies and reducing the inconsistencies and complexity.
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Financial Planning Seminars and Conference
The Institute continues to provide CPE in regards to superannuation and SMSFs issues. The Institute is currently reviewing the financial planning specific offerings via CPE. The intention is to increase these offerings in the coming year either developed internally or using an external provider. Whilst a Financial Planning Conference was not held this year a review is underway to provide alternative arrangements, for example specific 1 day seminars, depending on the response and requirements of members.
Business Forum in NSW next year in particular will have an increased level of financial planning and superannuation sessions. In NSW there will be up to 8 sessions on FSR, Superannuation, Stock Market, Succession Funding, Retirement Income Streams and Financial Planning.
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Regulator and Government Update
The last couple of months have seen the Institute increase its efforts in regards to liaising and working with Government and the Regulators, specifically on issues relating to financial planning. We have had a number of productive meetings, particularly with ASIC and Treasury. In addition a number of submissions have been completed and forward to government on issues such as FSR Refinements and Superannuation regulations.
A key issue going forward is the tax deductibility of financial planning fees. In light of the introduction of superannuation choice and encouraging consumers to obtain this advice, such deductibility would be of an enormous benefit.
At one of the most recent meeting with Treasury we raised a variety of issues including Choice of Superannuation Fund, Transition to Retirement, Defined Benefit Pensions, Superannuation Splitting, Superannuation Surcharge and other Budget measures, Government Co-contribution, Implementation of Superannuation Trustee Licensing, Fund Disclosure and anomalies in regards to the Superannuation and the Self Employed.
Further meetings have been held in regards to the compliance requirements and practical operation under the FSR framework.In addition to the Institute’s regular meetings with ASIC, the Institute has been involved in the discussion groups in regards to SOAs. This continues to be a significant issue for members and the industry generally.
Any feedback or specific comments in this area would be appreciated. Please email your feedback / comments to business_practice@icaa.org.au
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ASIC update
Our regular meetings with ASIC provides the Institute with the opportunity to raise member concerns, particularly from a practical perspective and also allows ASIC with an opportunity to raise issues we can communicate to members.The following are some bullet points from the last meeting:
- As many of you would be aware shadow-shopping surveillance of the industry is progressing looking at superannuation advice given to 300 real consumers.
- Results/ reports should be available from early December
- Of note is that this survey will also assess whether accountants are working within the exemption they currently have.
- ICAA raised the issue that whilst compliant advice and disclosure is important, does ASIC intend to assess consumer understanding. ASIC stated that it is not the intention of this survey exercise to assess consumer understanding/ financial literacy.
Latest NewsASIC releases Report to the Parliamentary Joint Committee on superannuation switching advice surveillance
Download a copy of the ASIC report, dated 9 November 2005, providing more detail on the results of our super switching surveillance, conducted in late 2004 and early 2005, as requested by the Parliamentary Joint Committee on Corporations and Financial Services.
www.asic.gov.au/asic
Superannuation Switching Surveillance
- In addition to the report released in early August, another report will be produced in regards to further detail of this campaign conducted at the end of 2004 and early 2005.
- ASIC’s major concern was in regards to the issue of conflict of interest or at least the potential for conflict of interest when recommending funds from related companies.
- ICAA raised the issue as to whether the advice/ disclosure of advice in this campaign was as poor as indicated in the report and press. In addition, were there any positives come out of the survey. ASIC stated that from the assessment of 19 licencees they found most had concerns.
- ICAA supported ASIC’s concern of the inadequate explanation and research into the ‘From’ fund.
- ICAA raised the issue of the ongoing compliance framework and the difficulty for many consumers to obtain advice. There appears to be a focus on the high net worth end of town and not the consumer with minimal investment needs who actually need it.
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Superannuation Choice
- ASIC to review superannuation PDS’/ fees disclosure.
- Assess advice being provided by Planners to employers
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Statement of Advice
- ICAA provided some additional feedback to ASIC.
- ASIC welcome any further comment or feedback on the issue of the SOAs.
- Commended ASIC on their intention to provide assistance to the industry by giving examples, particularly the focus of reducing the length of the SOA. However the ICAA stated that it should be emphasized that SOA length should relate to the complexity of the advice being provided.
- ICAA stated that whilst the intent was positive the example SOA is unrealistic and there continues to be a focus on product as opposed to strategy and advice.
- ICAA also raised the issue of clear guidelines in regards to risk profiling.
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SMSF Advice
- ASIC’s initial focus has been on the use of SMSFs and the promotion of SMSFs in terms of illegal early access. ASIC has prosecuted a number of operators.
- ASIC believes that the accountants’ exemption in regards to SMSFs is quite narrow.
- ASIC has concerns over accountants give advice outside the exemption parameters and also over the $amount held in a SMSF.
Should you have specific issues you wish the Institute to address with Gvernment and the regulators, please contact Hugh Elvy on 02 9290 5564 or email:business_practice@icaa.org.au
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Review of the provisions of pensions in small superannuation funds
In late September the Government released details from this review. The Institute is providing a submission in response to these draft regulations.
As many of you would be aware the regulations:
- Extend the maximum term of the market linked and other life expectancy income streams so that payments continue until the recipient reaches age 100 (or until a person's spouse reaches age 100)
- Allow annual payments of the market linked income stream to vary between plus or minus ten per cent of what would have been calculated under the normal payment rules
- Update allocated pension (and annuity) drawdown factors in line with current life expectancy, effective from 1 January 2006. The current PVFs have been in place since 1992 and reflect the changes in life expectancy. Some of the new PVFs for certain ages have changed quite significantly, for example for an individual aged 75, the maximum withdrawal was 23.2%, and the new PVF is 16.1%. This will no doubt require further analysis as to individuals’ retirement income streams and therefore their lifestyle requirements.
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Chartered Accountant financial planners master the class
Twelve Chartered Accountants made it into the financial planning elite after being named in Personal Investor magazine's top 50 Masterclass.
This is a great acknowledgement of the technical competence of our financial planning specialists. A couple of these financial planning specialists have been top 50 Masterclass for a number years.
In addition to the credos of making the top 50, planners will receive national exposure through the new Australian Financial Review Smart Investor magazine in November, inclusion on BT Financial Services list of recommended financial planners, the opportunity to use the rank of top 50 status as a marketing tool, and a personalised certificate.
These members will be profiled in their State’s local CA news e-bulletins and profiled in this and upcoming financial planning newsletters.
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Top 50 Masterclass
- Andrew Frith - Leenane Templeton Pty Ltd
- Louis Geronazzo - Open Financial Services Pty Ltd
- Antony Grzeskowiak - Gant Financial Management
- John Jamieson - Goldman Sachs JB Were
- Peter Macmillan - Bayview Financial Planning
- Dominic Mulcahy - Shadforths
- Suellen Ohl - Kennas Financial Sevices Pty Ltd
- Adrian Raftery - ARW Chartered Accountants
- Glen Rice - Aspire SRS Pty Ltd
- Colin Ritchie - MTP Wealth Accountants
- Peter Rowsell - DFS Financial Services
- Craig Stone - Clark Financial Management Pty Ltd
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10 Quick Questions with Adrian Raftery - ARW Chartered Accountants
- How long have you been involved in Financial Planning?
Since 2001
- What made you decide on Financial Planning as a specialisation?
When I saw the proposed FSR legislation that restricted accountants providing financial advice, together with the introduction of the minimum PS146 requirements, I knew that would provide an opportunity to my firm.
- How did you get into the Financial Planning industry?
My accountancy practice was sub-leasing office space in the Sydney CBD from a dealer group which we use to cross-refer business. One day, myself & my business partner decided to obtain our Authorised Rep from them.
- What do you enjoy most about being a CA - Financial Planning Specialist?
The ability to be able to proactive and provide a full range of financial solutions and alternatives to client’s queries.
- What do you consider to be the greatest challenge in your role as a FP specialist?
Staying on top of all the paperwork due to regulatory requirements for compliance and disclosure.
- What skills and attributes do you think distinguishes a CA-Financial Planning Specialist from other Financial Planning specialists?
I think we have a stronger technical background and adapt a lot easier to the compliance requirements of FSRA. Consumers definitely consider us to be the more trusted adviser in the market place.
- What is your personal philosophy on Financial Planning?
Fail to plan … plan to fail. It is a necessary part of the equation in achieving your financial goals and objectives.
- Looking ahead - what do you consider to be the greatest challenge to the profession in the next 12 months? In the next 5 years?
Over the next 12 months, I think it is a branding issue and getting the appropriate recognition from the public & fellow professionals that we are the specialists when it comes to financial matters. In the next five years, it might being able to sustain current returns as the market will be saturated with investment monies due to the compound effect of compulsory superannuation. Also getting through the next five Federal Budgets.
- What is the best financial advice you have ever received- and from whom?
When I was in high school, my dad told me “that cars & women cost money … in that order!” I supposed I listened to him because I waited until I was 26 before I bought my first car and I am still single!!
- What do you think the ICAA could be doing to support you as a CA - Financial Planning Specialist?
Branding and advertising our specialisation a bit more. Perhaps marketing our services to other Chartered Accountants who need financial help.
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10 Quick Questions with Louis Geronazzo - Open Financial Services
- How long have you been involved in Financial Planning?
10 years
- What made you decide on Financial Planning as a specialisation?
The challenging nature of developing investment/retirement strategies that fit with clients’ lifestyle objectives.
- How did you get into the Financial Planning industry?
I first worked as the financial controller for a licensed financial services group and moved into client advising.
- What do you enjoy most about being a CA - Financial Planning Specialist?
The credibility it gives you with clients.
- What do you consider to be the greatest challenge in your role as a FP specialist?
Ensuring our firm stays at least one step of the pack.
- What skills and attributes do you think distinguishes a CA-Financial Planning Specialist from other Financial Planning specialists?
A better understanding of the tax implications of the advice we give.
- What is your personal philosophy on Financial Planning?
Every client’s circumstances are different and advice has to be tailored to each individual’s particular situation and life style objectives. There are no “off the shelf” solutions.
- Looking ahead - what do you consider to be the greatest challenge to the profession in the next 12 months? In the next 5 years?
I believe that there is, and will always be, the challenge of keeping up to date with the changing nature of financial planning. From changes in tax laws, investment products, compliance and clients needs.
- What is the best financial advice you have ever received- and from whom?
The best advice I ever got was from my business partner Jason Ennels-“The share market eventually recognises quality and that quality bounces back where as rubbish is gone forever.”
- What do you think the ICAA could be doing to support you as a CA - Financial Planning Specialist?
Promote/advertise to other CA’s and the general public that if they need financial planning advice they should go to a CA - Financial Planning Specialist
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5. The glue that holds our financial life together.
An often ignored but vital component of financial planning is risk management. A recent report by ASIC reiterated this issue from a personal perspective. Although the report’s focus was on general insurance, it is also relevant from a life insurance perspective. The report again reveals the misunderstanding by many consumers of the importance of insurance and the impact this misunderstanding has. ASIC called for homeowners to consider the level of insurance they hold in light of their report examining underinsurance of home buildings. (This call should also extend to consumers in regards to their personal and business life insurance.)
The key points of the report were:
- There are significant levels of underinsurance by Australian homeowners, especially against current rebuilding costs.
- At least 27% of and possibly as many as 82% of homeowners are underinsured by 10% or more.
- An annual indexing of the sum insured by CPI does not keep up with the increase in building costs. (Between 2000 and 2005 CPI increased by 17%, while building costs increased by 33%)
- ASIC recommended reviewing your insurance and shop around, as cost is often a key influence.
“The single greatest insurance lesson from the bushfires of 18 January 2003 is that in the event of total loss, one is probably destined to be underinsured whatever one’s good judgment and advice. Make a poor judgment or obtain bad advice and the outcome can be financial ruin, often at a time in life that precludes full recovery. There is little if any room for error.”
A consumer responding to ASIC’s ACT bushfire survey, 2004.
The other issue that the report indicated was not only the financial burden with underinsurance but also the mental anguish and concern. The financial burden is not just in regards to rebuilding the home but there is the also the non financial issues such time and inconvenience.
This report is a great lesson and reminder in terms of insurance overall – and the basis as to why it is critical that the insurance considerations for financial planning are so important.Unfortunately for many, insurance does not have a very positive reputation – being seen as an “evil we have to have”, “a cost with no perceived return”, ‘commission driven” and also it focuses on negatives – loss of home, car, life, sickness. It is not as exciting and sexy as the wealth creation strategies like margin lending et al. But interestingly the success of the exciting strategies is at times dependent on the less sexy insurance recommendations.
Even from a planning perspective the goal maybe financial i.e. save for a holiday or pay off the mortgage but the underlying issue is to assess what are the risks that that goal will not be achieved.
Financial planners allocate a vast amount of time to identifying, analyzing and developing comprehensive investment advice recommendations. Without an equally comprehensive risk management assessment and importantly its resultant implementation of the advice, the overall financial plan may well fall apart.
A critical area to be covered at a later time is business succession funding. This is an important service that should be provided to clients who operate small business. This is just as important as personal insurance and is a rapidly growing opportunity.
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6. Free offering to ICAA members from the Institute’s Information and Research Service
Two comprehensive newsletters from LexisNexis are now available free to members, providing access to the latest developments in workplace taxes and estate planning.
Australian Workplace Taxes and Retirement and Estate Planning Bulletin can both be accessed in PDF format from the Institute’s Information and Research Service/Library web page:www.icaa.org.au/services under References: Free LexisNexis online Newsletters.
Australian Workplace Taxes gives up-to-date news and discussion across the full range of employment tax issues including fringe benefit tax, income tax, pay as you go, salary packaging, salary sacrificing, superannuation tax and workers compensation.
Retirement and Estate Planning Bulletin provides expert analysis on retirement and estate planning issues for accountants, financial planners and lawyers. Some of the areas covered include superannuation, wills and probate, testamentary trusts, business succession, asset protection and taxation of death benefits.
The Institute’s Information and Research Service is continually reviewing products and delivery methods so that members can have the opportunity to view subscriptions electronically.
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7. Regional Updates
NSW Financial Planning SIG Luncheons
Luncheons are held in NSW bi-monthly and are a great way for members to meet with other members as well as hear speakers from a wide variety of backgrounds.
The luncheons are held at:
Conference Centre (Level 5)
Institute of Chartered Accountants in Australia
Chartered Accountants House
37 York Street Sydney from 12.00pm to 2.00pm
Attendees qualify for 1.5 CPE hour.
The NSW Steering Group is always seeking to provide relevant topics for these luncheons. Subscribers and Specialist of the NSW Chapter are invited to register their suggestions or feedback to susans@icaa.org.au
The meeting dates for the remainder of 2005 are:
- 2 December 2005
NSW Financial Planning Chapter Luncheon
Speaker: TBC
Topic: TBA
For more information and to reserve your place, please call Susan Smith on 02 9290 5679 or email: susans@icaa.org.au
If you are interested in attending any of the above activities or would like to find out details of events that may be happening in your state please contact the following representatives at your regional office on the details listed below:
NSW & ACT– Susan Smith: Email: susans@icaa.org.au Tel– 02 9290 5679
VIC & TAS – Kat Brennand:Email: brennand@icaa.org.au Tel– 03 9641 7407
WA – Samantha Huigens : Email: shuigens@icaa.org.au Tel– 08 9420 0411
SA – Susie Chmielowski: Email: susie@icaa.org.au Tel– 08 8113 5508
QLD – Hayley Rees: Email: heyleyr@icaa.org.au Tel- 07 3233 6512
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8.What do you need and What do you want?
What topics would you like to have covered in the financial planning newsletter?
Please email to the following email address:business_practice@icaa.org.au
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9.Disclaimer
This newsletter is a publication of the Institute of Chartered Accountants in Australia. The copyright for all articles is reserved and such articles may not be reproduced in whole or in part without permission.
Opinions of authors are their own and do not necessarily reflect policies of the ICAA or the Financial Planning Chapter Special Interest Group. Financial Planning Special Interest Group Newsletter is available by subscription for $66.00 annually (inclusive of GST).
For further information please contact:
Lily Shin
The Institute of Chartered Accountants in Australia
37 York Street, Sydney NSW 2000
Email: business_practice@icaa.org.au |
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