A petition asking the federal government to review the structure of the ASIC cost recovery levy has been set up by a Fremantle-based financial adviser, who believes the burden for funding the regulator is becoming shared inequitably between licensees and individual advisers.
Petition EN5784 – ‘Fairer outcomes for the ASIC Supervisory Cost Recovery Levy’ calls on the government to lift the levy paid by Australian financial services licensees from the current fixed amount of $1500.
Voyage Financial partner and principal financial planner Matt Grant says the precipitous drop in the number of practising advisers between 2019 and 2022 means a greater share of the levy is now being paid by those individual advisers remaining.
“Advisers are due to pay $2800 per adviser, whilst the licensee is only charged $1500,” Grant tells Professional Planner.
He says this does not reflect the actual regulatory activity in-market because ASIC doesn’t deal with every single adviser separately, but “deals almost exclusively with the licensee”.
“It is AFSL holders who are responsible for the conduct of the advisers that operate under their license,” Grant says.
“I understand the necessity for the levy and am more than willing to contribute. However, I’m concerned that a significant cost asymmetry has emerged between individual financial advisers and AFSL holders. This is only going to get worse as more AFSLs are created. A model that more closely aligns to the actual costs of ASIC is imperative.”
The Coalition government froze the ASIC levy in 2021, with the current Labor government announcing the end to freeze after the completion of the ASIC industry funding model review.
The advice sector was expecting to pay $1500 per licence plus a graduated component of $3217 per adviser, until the regulator confirmed the reduced figure of $2818 per adviser.
The petition set up by Grant says ASIC is aiming to recover about $47 million of costs from the advice industry.
“We are concerned by the significant cost asymmetry that has emerged between individual financial advisers and AFSL holders,” the petition says.
“It is AFSL holders who are responsible for the conduct of the advisers that operate under their licenses and who must ensure that the financial services their advisers are authorised to provide are delivered honestly, fairly and in accordance with law. We submit that ASIC’s main regulatory focus (and therefore its costs) relate to AFSLs, rather than individual advisers.”
Grant says there “seems to be a disconnect between who’s paying the fee, essentially”.
“The petition just calls for an increase to the cost to each licensee.”
The petition does not specify what the levy to licensees should be increased to. However, Grant calculates that if the $47.6 million were to be shared equally between advisers and licensees – and assuming there are 15,400 advisers and 2766 licensees – then the levy per adviser would fall to about $1500 while the levy per licensee would increase to about $8600.
Altering the split so that licensees footed 75 per cent of the bill would see the levy per adviser fall to about $770 and the levy per licensee increase to about $13,000. If the levy were funded exclusively by licensees, the cost would increase to about $17,000 per licensee.
The petition can be signed online and is open until February 15.
The ASIC Industry Funding Model is also the target of a pre-Budget submission by the Financial Advice Association, which says it is “very concerned about the fast-increasing cost” of the model.
“These rapidly increasing costs are a factor in the increasing cost of financial advice to consumers,” it says.
Among its views on reforming the model, the FAAA submission suggests the government implement the changes to the funding model recommended last June by Treasury, and the proceeds from successful ASIC enforcement actions are used to offset the levy on advisers and licensees.
It also suggests insulating the advice sector from the costs of action against non-advisers – for example, “the Melissa Caddick matter alone cost the advice profession $687,852 in the FY23 financial year, and yet her activities would more accurately be described as running a Ponzi scheme rather than providing advice”.
It has also flagged potential confusion in the allocation of ASIC enforcement costs if financial product issuers including banks, life insurers and super funds begin to deliver financial advice on their products, “using staff who will not be professional financial advisers”.
Shifting the cost to licensees would lead to licensees putting up their fees to advisers – they would not absorb the added cost. Advisers would pay anyway, and with less clarity on what for.
My observation is that while the pain is put directly to advisers the industry is vocal about it and more likely to keep the ASIC Levy in check; if you roll it into a licensee fee it will get less attention whenever it is repriced and distort what advisers are paying for in their licensee fees.
Treasury is making 1.6 times ASIC enforcement costs (quote Hon Stuart Robert 2023). (1) ASIC gets penalties paid from wrong doers and (2) ASIC investigation and enforcement costs are then charged in levy recovery to advisers. It is anti-competitive abusive against small business AFS licensees. In comparison to SEC in USA in 2023, it had 780 successful cases against wrong doers and pulled in US$5.1 billion in compensation and penalties and no levy on USA financial advisers, which makes ASIC look inadequate. The ASIC Cost Recovery ACT 2017 should be repealed and all levies reimbursed to payers since 2918. Get your industry history knowledge right: Do your petition on that! Ross Smith, Director, Shenton Pty Ltd