CPA Australia directors appeared before a Senate hearing in Canberra to address the modernisation of the Corporations Act. However, their support for refreshing the act was largely sidelined by a blistering line of questions from Mr Xenophon about the viability of CPA Australia Advice.
Mr Xenophon labelled CPA Australia Advice a “financial disaster,” pointing to its losses of $7.2 million and revenue of $49,000 in 19 months, as well as its loan from CPA Australia of almost $20 million.
CPA Australia Advice is also a primary reason that the association could not secure its professional standards scheme before renewal next month, leaving members with a public practice certificate without the additional protection of limited liability cover.
Both president Jim Dickson and director Graeme Wade repeatedly rejected that the licensing arm is a failure.
In fact, Mr Wade – with a similar defence to that used by former chief executive Alex Malley – said the board was prepared for a struggle in the initial years of establishment.
“This is a long-term strategy, one that the board has deliberated over for many years. We had been hesitant to take that step because of the difficulty of establishing that business,” Mr Wade said. “We knew it was going to be a long, hard ball.”
When pushed on whether CPA Australia Advice would continue to operate, Mr Wade said it was up to the new board. As of 1 January 2018, any directors who operated in the era of Mr Malley will have departed the association.
Mr Wade said the business plan for the licensing arm outlined that it would be a five- or six-year project, a copy of which Mr Xenophon requires by this Friday.
Hold on. These guys lead a professional association that prides itself on giving advice to businesses owners, right? (i.e. faux-MBA).
Seems like they got the risk v return equation all wrong in this instance…
Me reading this reminds me that in my 20 plus years as an adviser I’ve come across multiple accountancy businesses that tried to add financial planning to their services and it failed and ended in pain and loss. I don’t actually think accountants trying to do or run a financial planning business actually works. They are too focused on 5 minute increments and billing accordingly and they can’t get it in their mind that clients will want to talk about stock market crashes or legislation changes and how do you balance all this with tax and BAS season and so something finally gives. This is exactly like this scenario but on a bigger scale.
Agree wholeheartedly. The accountants that do succeed are those that bring advisers on board and seek counsel on the intricacies of building a financial planning practice. Synergies can then be built as accountants learn about the financial planning space and advisers learn about the accountants space.
Agree McGlashen. The few that have made it work are the ones where the accountants knew that time-based billing was a stupid concept and were looking at financial planning as a strategy to get away from that. While they also moved to fixed fees in the accounting side of the business, they still couldnt make the leap to ditch time-based activity accountability entirely. They still had all staff doing the 6 minute blocks, timesheet fudging, write ups/write offs of WIP to make it all ‘balance’ like good little accountants do.
The CPA foray into providing a solution for accountants was doomed from day one because they took an ego-maniacal attitude of “we know better” and rather than providing a commercially viable alternative for member through listening and understanding they used the big stick approach which came back to hit them. Plenty of AFSL providers have successfully delivered a low cost and profitable option for accountants needing to be licensed without this stupid “long hard ball” outlook. Rather than adapting to the market and changing their approach, they doubled down and started imposing requirements on CPA members who were licensed elsewhere to demand compliance to CPA Advice standards. Hard to teach an idiot new tricks even when they are certified and practicing accountants!
C’Mon what do you expect from a POM !
How much of Alex Malley’s $6.7 severance pay would he like to donate to CPA Australia Advice to help prop it up for a while??.
What an utter joke.
Don’t forget folks Mr Medcraft of ASIC specifically and publicly endorsed this little frolic at its opening media event, and refused to back down in front of a PJC. One wonders where Medcrafts next job will be.
let me hazard a guess. a large financial institution on the board as non-exec director cushy jobs, pat on the back for a job well done he he matey welcome back
Medcraft you clown, how does this sit with your media whoring ‘advent of a new era of professionalism’? Perhaps it does perfectly match ‘professionalism’ as defined by incompetent self serving public servants who are increasing their own pay rates with no justification and have failed abysmally when it comes to common sense basics such as proper researching before pushing for restrictive legislation. Glad to see you go, the world would be better if you also stepped off it as well.
But its all right because they all have degrees, and thus a makes a profession according to current logic ??
Malley, Medcraft & co had such a toxic, hateful attitude towards financial planners when they established CPA Advice. It is now coming back to bite them. If they had properly engaged with financial planners in a professional way we could have taught them a few things and they might have avoided such an embarrassing mistake.
This highlights the ignorance of pushing an idealistic business model without having a realistic understanding of the revenue required to make it work. Many businesses fail on this basis. ASIC and CPA should get off their pulpit and eat humble pie. First step is that the current board should step down and Medcraft must go.
Just more evidence the FP industry is a complete shambles. The FPA have destroyed the whole industry. It is impossible financially for most business to scale up and make money honestly. Yes there are some individuals and certain firms that are making money but let’s see them breeze through a tough audit. Let’s see them pass the best interest test. Let’s see them JUSTIFY why all of their clients are paying fee for service when most of them do not need to. Let’s see them explain why it’s good for their clients and what they are actually doing to justify the fee for service rort.
Most and I would say 99% of you all would fail the test therefore making your business a financial and moral DISASTER.
Stephen, this subject here is CPA Australia Advice – not let’s have a melodramatic rant about the whole Industry (which, by the way I think will probably be quite ok without your rambling analysis thanks).
It wouldn’t be the same without Steven’s rant that all ongoing advice fees are theft. Like a good socialist, he knows best how other peoples money should be spent.
Steven you need help. We all appreciate that you’ve realized after 20 years of paying commission to some fat AMP guy and being invested in some crap AMP fund that made 0.2% over twenty years that you’re looking around to blame someone… my advice….move on buddy you got ripped. Your argument being repetitive and boring is deeply flawed. We have opt in now and I have not had a single client opt out. Every meeting I tell my clients you’re paying me $2,000, $3,000 $12,000 whatever in fees and you can walk out the door today and turn it off. None of them have, and they turn and say some things are worth more.
Wheat from the chaff Steven. Like any profession there will be those that will act unethically and may profit in the short term but then get found out eventually. If you have a good business model you will stand the test of time. The FP industry has come a long way in the past 15 years, yes your argument would have some credence back then and in some circumstances now. However with ASICs interventions I think the industry has a lot to be proud of. Nothings perfect!!
Steven to run a business you need to demonstrate how you add value to your customer and in return they will pay you a fee. If you have failed to deliver any value to your customers that is a shame but don’t push your failure on others. You should apply for a job at ASIC where there is no accountability for service or whether you add value or not. And you will get paid for your ignorant rants. Academia is full of experts who could never make it in the real world.
A summary of the issues created through poor application of professional standards. I am glad the question is being asked at the higher levels, maybe it will result in better governance of a professional member body.
Too funny for words, perhaps they should have had a plan?
So with a loan of almost $20 Mil, lets say at 6% pa interest only, CPA Advice is up for $1.2 mill pa interest. Of which obviously it can’t pay so the interest must capitalise.
I think CPA Advice may need to find a decent accountant to help with it’s cashflow and business plan problems.
Maybe ASIC who were such wonderful supporters of this venture can help ?
While I actually agree with Xenophon, what right do the government have to question bad business decisions and where will it stop. No public funds were used and there has been no impact on the general public, only members
Agreed, a slippery slope.
While no public funds may have been used directly, a senior public sector employee used his position of influence to promote this commercial venture, while simultaneously slandering its commercial competitors. That’s the angle Xenophon should be probing much harder.
Yep, a public servant is a position of considerable standing and authority no less.
Hang on a minute. They borrowed $20M from the CPA members and they have no way of paying that back. Surely that deserves government attention.
Why? Government involvement isnt the answer to every question.
Business decisions? CPA are a professional standards association, not a business with shareholders.
A bit like saying that the Australian Medical Association can open up a franchise of medical clinics and private hospitals.
I’m glad I’m not a member of CPA Australia. I would be ropeable if my money had been spent on this frolic. If accountants want to meet the s923 definition of Independence then they have enough options to do so on their own. In my experience, accountants had gravitated to financial planning bwcause it got them away from billing in 6 minute increments. Most accountants know that time based billing is a hopeless, limiting structure but cant get away from it because it is so ingrained in their psyche. How many accountants waste time looking at WIP reports and write off time on the slate because they cant/wont bill it?