CPA Australia only has itself to blame. Only a miracle on par with Moses parting the Red Sea will not prevent CPA public practice members losing additional protection from malpractice lawsuits from 8 October 2017.
The Professional Standards Council has confirmed that its professional standards scheme, which limits the liability of participants who are members of an appropriate industry organisation, will not be renewed before it expires on 7 October 2017. The consequences of this are that many public practice members will see an increase in their Professional Indemnity insurance premiums and be exposed to unlimited liability for negligence.
But it’s not as though this came out of left field. The Professional Standards Council warned CPA Australia back in 2015 that there was a potential conflict of interest between it and the establishment of CPA Australia Advice.
This is how things turned to mud….
CPA Australia decided to assist its members through the new legislative changes requiring providers of SMSF services to be licensed.
By 30 June 2016, such providers had to either obtain an AFS Licence, or become an Authorised Representative of a licensee.
CPA Australia established CPA Australia Advice, a wholly owned subsidiary, which subsequently obtained an AFS Licence with the intention, amongst other things, of being the vehicle by which CPA members could become authorised to provide certain financial services.
Only 24 members signed up. It would be an understatement to suggest CPA Australia expected more.
Figures indicate that the new venture brought in about $50,000 in revenue, but this was more than offset by about $7.5 million in expenditure (much of this was salary related).
So besides being a lousy business decision, here is the stinger - since CPA Australia was now competing with its own members, it no longer had the objectivity to discipline its own members which is a legal requirement. Talk about a conflict of interest!
Because of this, the Professional Standards Council determined that it could not include CPA Australia as part of its professional standards scheme.
Let us not forget the former CEO, Alex Malley, proudly heralding the new venture. There he stood, side by side with ASIC Chair, Greg Medcraft, in June 2015 announcing CPA Australia Advice. But I do not blame ASIC for this costly venture - ASIC’s role is not to regulate dud decisions. There was nothing illegal about the new company, nor was there any allegation of wrongdoing or impropriety from a regulatory perspective. At the time, Greg Medcraft welcomed the move and said:
CPA Australia is a long-standing professional body that has come up with an alternative model for financial advice, which I hope will provide Australians with more choice in selecting a financial adviser – and that can only be a good thing.
At the time of the launch, Alex Malley confirmed that the pricing structure was still being developed but was confident that the model would offer competitive value. He stated that CPA Australia did not know how many members would take up the offer, but indicated that the company expected to launch with about 40 support staff position. Let me just remind you that at the time of publication, there are only 26 individual authorised as “Financial Advisers” - that is, a person who is permitted to provide personal financial product advice to a retail client. I cannot imagine staffing to client levels of 1.5 anywhere else, other than Qantas First Class.
CPA Australia’s Press Release of the same date (5 June 2015) provides even more compelling reading.
Here are some Alex Malley highlights:
Too many everyday Australians have suffered as a result of poor financial advice driven by conflicts of interest, said Mr Malley, who will be CEO of both CPA Australia and CPA Australia Advice. [How he did not keep a straight face when delivering these words is beyond me - ed].
The company we are announcing today will set a new benchmark for professional and ethical conduct in making independent financial advice available to all Australian consumers. [Pot, kettle anyone? - ed].
CPA Australia Advice represents a game changer for financial advice in this country. [No arguments there - ed].
CPA Australia Advice will have an ethos of integrity and transparency built into its charter and consistent with the culture of CPA Australia over its history. [He’s wrong about the first claim, but spot on about the second. CPA Australia Advice’s culture is certainly consistent with that of its parent - ed].
So forgive me for being a bit angry about how things have turned out. CPA Australia used to be the benchmark of governance, integrity and accountability. I fear that my once loved industry body is now a dud and I don’t see a way forward, other than a complete clean out at the top. Don’t forget - a culture of compliance trickles down the corporate ladder.
Should you have any queries about ASIC or other issues involving compliance, licensing, or corporate governance, please contact Jeremy Danon, director of Ariel & Associates Pty Ltd on (02) 8223 3355 or at firstname.lastname@example.org.