The standard would ultimately diminish any potential or current revenue stream from an advice practice to accounting firm as a referral incentive, therefore forcing them to significantly restructure their business.
The transitional provisions set by the APES Board are that:
Fees for assets under management are to be prohibited.
All financial advice product commissions are to be prohibited, including insurance and mortgages.
These rules will apply retrospectively (with no grandfathering)
“While we’re still assessing what the full impact of APES 230 will be, the standard treats advisers who partner with accountants more harshly than advisers in the open market when it comes to remuneration for insurance advice,” said Mark Vilo, Executive Manager, Asteron Life.
“The banning of risk commissions and all third party payments is more severe than FoFA, and it’s alarming that with more than 160 submissions, the APES Board has ignored our industry’s concerns and forged ahead with banning insurance commissions.”
Asteron Life says advisers are deeply concerned about the impact APES 230 will have on the future of their business.
“Accountants have long been seen as a trusted adviser by most consumers and hold a strong status in Australian society. However, clients will essentially end up paying more for their insurance advice if they go through an adviser linked with an accounting firm, as they’ll be charged a fee for service from 1 July 2016,” Mr Vilo said.
“For those advisers linked with an accounting practice, they face the double-sell of not only the insurance purchase, but also selling the fee for advice, which is to their own, and their client’s, financial detriment by increasing the cost of advice. This will then exacerbate the underinsurance problem. Currently, only 5% of Australians have adequate life insurance cover”, Mr Vilo said.
Mr Vilo argued that the standard also creates too much red tape and is not needed with FoFA already in place.
“The government’s consultation process with the industry on FoFA was robust. This engagement resulted in insurance products being identified as unique, and therefore carved out of the requirements for fee-for-service. But in direct contrast, APES 230 suggests commission for risk insurance is conflicted remuneration,”
In its discussions with advisers, Asteron Life said they are considering a number of alternative propositions for their business in the future, including:
· The business structure of their own entities (i.e. consideration of setting up a separate license);
· Distancing their accounting practice away from their industry association, and
· Remuneration structures of advisers who provide risk insurance advice.