What is APES 230?
Proposed Accounting Professional & Ethical Standard (APES) 230: Financial Planning Services (APES 230) is a proposed professional and ethical standard for members who provide financial planning services. It is designed to ensure that those who provide such services do so ethically and professionally. The Accounting Professional and Ethical Standards Board (APESB) was established by the profession to develop professional and ethical standards.

What are Financial Planning Services as defined by APES 230?
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 services as:
Financial Planning Advice means advice in respect of a Client’s 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) taxation advice which is related to advice provided under (a) or (b);
(d) advice and services related to the procurement of loans and other borrowing arrangements, including credit activities provided pursuant to an Australian Credit Licence; and
(e) advice that does not require an Australian Financial Services Licence, such as real estate and non-product related advice on financial strategies or structures.

To Whom does APES 230 apply?
APES 230 is designed to apply to members of the IPA, CPA Australia and Institute of Chartered Accountants in Australia (ICAA) 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 industry.

Members in industry are only required to apply the standard to the extent possible to accommodate the fact that as employee members may not be able to influence operational requirements such as remuneration. They should not be punished for something they have no control over.

The IPA has determined that it does not support APES 230 in its current format. The Institute therefore will not impose APES 230 on members of the IPA. The Institute though will issue its own Pronouncement (Pronouncement 11) in place of APES 230.

When does the standard come into force?
APES 230 was initially due to start 1 July 2013 with the delay in implementation of certain aspects until 2014 and 2016). The APESB declared that it was changing the start date until 1 July 2014. Pronouncement 11 will commence 1 July 2013.

What are Soft Dollar benefits?
Soft Dollar Benefits means all non-monetary benefits received by a Member from parties other than the Client in connection with a Financial Planning Service. Soft Dollar Benefits includes:

  • 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.

The IPA’s Pronouncement 11 does not restrict soft dollar benefits beyond the limits imposed by the law.

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.
  • 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 that they are not Commissions and are disclosed to the Client by the Member. 

The IPA’s Pronouncement 11 does not restrict third party payments beyond the limits imposed by the law.

What are the requirements for documenting the relationship under APES230?
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:
(a) identity of the person or the entity responsible for providing the Financial Planning
(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;
(d) the details of the professional fees;
(e) information about any actual, potential or perceived conflicts of interest;
(f) information about the nature of any safeguards and an explanation of the reasons why
the Member considers those safeguards to be effective; and
(g) information about the nature and extent of any interests, associations or relationships,
including family that have the potential to affect the Member’s ability to act in the Best
Interests of the Client.

The IPA’s Pronouncement 11 will have similar requirements to those in APES 230 as set out above.

On what basis must the financial planning advice be made?
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 financial needs, relevant circumstances, objectives and priorities; 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.

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.

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.

The IPA’s Pronouncement 11 will have similar requirements to those in APES 230 as set out above.

What does APES 230 say in relation to remuneration?
A Member in Public Practice shall not charge a professional fee for providing a Financial Planning Service to a Client that is expressed or collected as a percentage of the value of the Client’s assets or funds under management (or any component of, or changes in such values).

If a Member in Public Practice proposes to make a material change to the basis upon which the Member charges professional fees, the Member shall notify the Client and obtain the Client’s written consent to the amended terms in accordance with APES 305 Terms of Engagement.

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

Where a Member in Public Practice receives Third Party Payments and there is no reasonable way of having such payments made directly to the Client by the third party, the Member shall fully rebate such payments to the Client 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 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 Member's Financial Services Guide and Statement of Advice. 

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.

The IPA’s Pronouncement 11 will not restrict remuneration other than as imposed by the law. Members will be able to use asset based fees as far as they are not banned by the law. Members will be able to receive commissions from insurance and mortgage broking under Pronouncement 11.

What is IPA Position on APES 230?
The Institute supports adopting a principled and high standard in relation to the provision of financial planning advice. The Institute supports elements of APES 230 designed to increase standards in relation to the provision of financial planning advice such as in relation to best interest duty and the need to document the advice provided. The Institute though does not support APES 230 in relation to banning of particular remuneration models that are permitted under the law. In particular the Institute does not support banning asset based fees (other than in relation to borrowings), banning commissions in relation to mortgage broking and risk/insurance or retrospective banning of trailing commissions. The Institute is of the view that these are operational and commercial decisions of firms and should not be the subject of banning in the proposed standard.

For this reason the Institute has publically said it will not adopt APES 230 in its current format. In the mean time the Institute is to produce Pronouncement 11 as a replacement for APES 230, adopting many of the aspects of APES 230 that are non-controversial while leaving out those elements not supported by the profession.

What will IPA do in relation to APES 230?

The Institute at this stage does not intend to implement APES 230 for Institute members and will in its place implement Pronouncement 11.