The IPA position on APES230

This page provides information on APES230, and the Institute of Public Accountants' position on the standard.  

For further information on our position on APES230, please contact our Media Relations team at publicaffairs@publicaccountants.org.au 

Q: What is APES 230?

A: The Accounting Professional & Ethical Standards Board (APESB) issued APES 230: Financial Planning Services. APES 230 sets the standard for Members who provide financial planning services.  It is designed to ensure that those who provide such services do so ethically and professionally. See below for the APESB definition of financial planning advice and services.

APES 230 should be read in conjunction with other professional duties of Members, including APES 110 Code of Ethics, and any legal obligations that may apply.

APESB was established by the accounting profession to develop professional and ethical standards. Refer to www.apesb.org.au.

Q: What are Financial Planning Services as defined by APES 230?

A: The proposed standard is designed to capture a wide range of services beyond what some may consider to be financial planning services.  The proposed standard currently defines financial planning advice and services as:

Financial Planning Advice means advice in respect of a Client’s personal financial affairs specifically related to wealth management, retirement planning, estate planning, risk management and related advice, including:

a) advice on financial products such as shares, managed funds, superannuation, master funds, wrap accounts, margin lending facilities and life insurance carried out pursuant to an Australian Financial Services Licence;

b) advice and dealing in financial products as defined in section 766C of the Corporations Act 2001;

c) advice and services related to the procurement of loans and other borrowing arrangements, including credit activities provided pursuant to an Australian Credit Licence; and

d) other advice such as taxation, real estate and non-product related advice on financial strategies or structures provided as part of the advice under (a) – (c).

Financial Planning Service means a service where a Member provides Financial Planning Advice to a Client.

Q: To whom does APES 230 apply?

A: APES 230 is designed to apply to members of the IPA, CPA Australia and Chartered Accountants  Australia New Zealand (CAANZ) who provide financial planning services (as defined above) either as a principal in a firm (PPC holder) or as an employee who works in a financial planning business.  All requirements are mandatory on members in practice (PPC holders) and to the extent possible by members in business. However, the IPA has rejected the standard (see below) so it won’t apply to IPA Members.

Members in business are only required to apply the standard to the extent possible to accommodate the fact that as an employee, Members may not be able to influence operational requirements such as remuneration. It acknowledges a lack of control. 

In addition, APES 230 impacts financial planners working in an integrated practice as APES 230 applies to the whole business including planners in the business. 

Q: When does the standard come into force?

A: The standard became effective from 1 July 2014; except for paragraphs 8 and 9 relating to remuneration (professional fees, third party payments and soft dollar benefits) which will become effective from 1 July 2015. Earlier adoption is allowed.

Q: What are the requirements for documenting the relationship under APES 230?

A:  A Member in Public Practice shall document and communicate to the Client the terms of engagement to provide the Financial Planning Service in accordance with APES 305 Terms of Engagement and this standard.

Before commencing a Financial Planning Service, a Member shall disclose in a written form to a Client or a prospective Client the following terms of engagement and obtain the Client’s written agreement to such terms:

(a) identity of the person or the entity responsible for providing the Financial Planning Service;

(b) the nature and scope of Financial Planning Services to be provided or offered including any limitations of scope;

(c) significant factors that affect or may affect the Member’s ability to provide the Financial Planning Service to the Client on an objective and independent basis;

(d) the details of the professional fees, including the basis on which the fees are determined and the services covered by the fees;

(e) information about any actual, potential or perceived conflicts of interest that have the potential to affect the Member’s ability to act in the Best Interests of the Client;

(f) information about the nature of any safeguards which the Member may have adopted to eliminate or reduce to an Acceptable Level(1) any identified conflicts of interest or other threats to the Member’s ability to comply with the Code; and an explanation of the reasons why the Member considers those safeguards to be effective;

(g) the need for the Member to obtain the Client’s written Informed Consent(2), where the Member is to be remunerated for a Financial Planning Service through a Third Party Payment or where the Member charges a professional fee solely determined or based on a percentage of the value of the Client’s assets or funds under management; and

(h) information about the nature and extent of any interests, associations or relationships, including family, contractual or agency relationships, whether of a financial nature or otherwise, that have the potential to affect the Member’s ability to act in the Best Interests of the Client.

1. Acceptable Level means a level at which a reasonable and informed third party would be likely to conclude, weighing all the specific facts and circumstances available to the Member at that time, that compliance with the fundamental principles is not compromised.

2. Informed Consent means a Client’s voluntary decision to accept a Financial Planning Service from a Member that is given with the knowledge and understanding of the costs, benefits and risks involved including the potential consequences of any proposed transaction and without coercion or inappropriate pressure by the Member. Informed Consent requires the Member to fully inform the Client by providing all relevant information that bears upon the decision, including the monetary and non-monetary benefits to the Member and any third party provider. It requires the Member to carefully explain the information in a manner that is understandable to the Client bearing in mind the likely imbalance of knowledge between the Member and the Client. Informed Consent also requires the Client to be given sufficient time to form an opinion about the information and any proposed transaction.

Q: On what basis must the financial planning advice be made?

A: A Member providing Financial Planning Advice shall analyse and evaluate the Client’s relevant circumstances existing at the time of providing the advice and take reasonable steps to ensure that the Financial Planning Advice takes into consideration:

(a) the agreed scope of the Financial Planning Advice including any limitations of scope;

(b) the Client’s objectives, financial situation and needs and other relevant circumstances; and

(c) significant assumptions used to develop the Financial Planning Advice.

A Member shall gather sufficient appropriate evidence by such means as inspection, inquiry, computation and analysis to establish a reasonable basis for Financial Planning Advice. When determining the extent and quality of evidence necessary, the Member shall exercise professional judgment, considering the nature of the Financial Planning Advice and the Member’s understanding of the Client’s objectives, financial situation and needs, and other relevant circumstances.

The Financial Planning Advice must have reference to the Member’s evaluation of various strategies and courses of action that could reasonably be expected to meet the Client’s objectives, financial situation and needs, including the relative effectiveness of the various strategies and courses of action.

A Member who is providing Financial Planning Advice shall inform the Client of all significant assumptions and their sensitivities that are reasonably expected to impact upon the Financial Planning Advice. The Member shall agree with the Client to the extent practicable all significant assumptions and their sensitivities that impact upon the advice taking into consideration the Client’s relevant circumstances. The Member shall document the significant assumptions used to prepare the advice.

Where a Member who is providing Financial Planning Advice uses estimates, forecasts or projections in the Financial Planning Advice, the Member shall ensure that those estimates, forecasts or projections are presented and communicated in a manner that avoids the implication of greater certainty than in fact exists.

A Member shall not provide Financial Planning Advice if the Member finds that information on which the Financial Planning Advice is to be based contains false or misleading information or omits material information. If this is the case then the Member should take reasonable steps to notify the client and to revise the advice (this provision is not mandatory).

Q: What does APES 230 say in relation to remuneration?

A: A Member must either:

  • charge a professional fee on a Fee for Service basis. In determining the fee the Member can take into consideration the value of the Client’s assets or funds under management;
  • or where the Member charges a professional fee solely determined or based on a percentage of the value of the Client’s assets or funds under management, the Member must obtain, prior to the commencement of the Financial Planning Service, written Informed Consent from the Client to charge and collect the professional fee on a percentage basis. The Member must also disclose on an annual basis to the Client the amount collected for the Financial Planning Service and provide an explanation for any significant variation from previously advised fees; and obtain thereafter on at least a biennial basis written consent from the Client to continue to charge and collect the professional fee on a percentage basis.

A Member in Business who undertakes a Financial Planning Service should follow the requirements and guidance relating to remuneration and professional fees to the extent practicable.

What is Fee for Service?

Fee for Service means a professional fee for a Financial Planning Service determined by taking into consideration factors such as the nature and complexity of the Financial Planning Service, the scope and scale of the service provided, the level of experience and expertise of the Member and the Member’s staff, the degree of responsibility applicable to the work, inherent risks associated with the service, and the time spent on the Financial Planning Service. Fee for Service can include a consideration of the value of assets or funds under management of the Client or Third Party Payments or other forms of fees calculated by reference to product sales or volumes, but cannot be solely determined on this basis.

What are Third Party Payments?

Third Party Payments means:

  • All amounts received by a Member from parties other than the Client to whom a Financial Planning Service is provided as a result of providing that service.
    • Includes commissions, production bonuses, remuneration based on sales volumes, remuneration benefits received for the sale of in-house financial products or other like payments from financial product providers.
    • Excludes non-recurring fixed referral fees received by a Member as a result of referring a Client to another service/product provider provided they are not commissions and are disclosed to the Client by the Member.

Where the Member is to be remunerated by Third Party Payments, the Member must:

(i) obtain, prior to the commencement of the Financial Planning Service, written Informed Consent from the Client for the receipt of these Third Party Payments;

(ii) disclose to the Client three comparative quotes, where available, in respect of Financial Planning Advice on new contracts for life insurance and other risk products and the procurement of new loans;

(iii) disclose on an annual basis to the Client the amount or estimated amount of Third Party Payments to be received for the Financial Planning Service;

(iv) disclose on an annual basis to the Client the amount of the Third Party Payments received for the Financial Planning Service; and

(v) where applicable, disclose to the Client the impact of any proposed changes to existing life insurance, other risk contracts and loans including the impact on Third Party Payments received or receivable by the Member as a result of recommending changes to these contracts and loans.

Where a Member in Public Practice provides a Financial Planning Service in respect of life insurance, other risk contracts and the procurement of loans and is to be remunerated on a Fee for Service basis then the Member shall fully rebate to the Client any Third Party Payments received as soon as practicable. Where a Third Party Payment is not related specifically to an individual Client, the Member shall apportion the amount amongst all relevant Clients in a fair and reasonable manner.

A Member in Public Practice is not prevented from continuing to accept Third Party Payments (commonly referred to as trailing income) for Financial Planning Services in respect of life insurance, other risk contracts and the procurement of loans which are entered into prior to 1 July 2014 provided that the Member does not subsequently provide any further Financial Planning Services in respect of those contracts and loans.

With the Client’s knowledge and agreement, a Member in Public Practice may accept a payment of all or part of the professional fee for Financial Planning Service provided to the Client from a party associated with the Client. Such parties may include family members and associated entities.

A Member in Business who undertakes a Financial Planning Service should follow the requirements and guidance to the extent practicable.

What are Soft Dollar Benefits?

Soft Dollar Benefits mean all non-monetary benefits received by a Member from parties other than the Client in connection with a Financial Planning Service. Soft Dollar Benefits include:

  • free or subsidised services or equipment such as office space, computer hardware, or commercially available computer software; or
  • free or subsidised attendance (including travel and accommodation) at, or sponsorship of, conferences or functions of one or more days duration conducted by a third party, where the principal eligibility is based on or related to business volumes written or held.
  • Soft Dollar Benefits excludes free or subsidised professional development as defined in the Corporations Act 2001.

A Member in Public Practice shall not accept Third Party Payments or Soft Dollar Benefits in relation to a Financial Planning Service provided by the Member except as below.

A Member in Public Practice may accept a Soft Dollar Benefit which is trivial and insignificant, provided the Member:

  • records it in a register within 10 business days of receipt;
  • maintains the records of the Soft Dollar Benefit for 5 years after receipt;
  • makes the register available for inspection by the Member’s Financial Planning Service Clients and the Member’s Professional Body within 2 business days of request or as required by regulatory authorities; and
  • includes a specific reference to the availability of these records in the appropriate disclosure document provided to the Client.  

A Soft Dollar Benefit is trivial and insignificant if it is for gifts or other incentives as defined in Division 2 of Part 7.7A of the Corporations Act 2001 to a value of not more than $300.

Q: Are there other requirements under APES 230?

A: Yes, there are other requirements relating to reporting the financial planning advice to Clients; recording the advice and providing other documentation; and quality control.

For instance, there is an obligation that Members prepare and retain working papers for the advice and services provided to clients. Members must also develop and retain documents prepared in the advice process including file notes, Financial Service Guides, Statements of Advice, credit guides, quotes and written assessments regarding suitability of credit provision.

Q: What is the IPA’s position in relation to APES 230?

A: After a long period of consultation between the APESB and the three accounting bodies, the IPA determined that it was not in the best interests of IPA Members to adopt APES 230. There has been considerable comment and discussion by the IPA and others on the IPA’s decision to reject APES 230 and instead to adopt a replacement standard (in the form of a pronouncement).   

The IPA has always argued that APES 230 should not place accountants at a competitive disadvantage and that the APESB does not have jurisdiction to intervene in or impose restrictions on the commercial model of Members’ firms. Further, there was no compelling reason for APESB to go beyond the Future of Financial Advice (FoFA) reforms.  The IPA position remains that the policy objectives of FoFA (consumer protection and providing access to affordable and competent financial advice) are adequately served by the FoFA reforms together with the additional professional, ethical, education and disciplinary requirements placed on professional accountants.

In 2013, after extensive consultation with IPA Members and after obtaining legal advice, the IPA decided to issue a replacement standard, being Pronouncement 11. Pronouncement 11 essentially follows the FoFA reforms and enables IPA Members to act in the best interests of their clients in the provision of financial planning advice.

October 2014