Opposition on the offensive over regulatory-driven advice costs

Shadow Minister for Financial Services Luke Howarth has called out the Albanese government for a raft of budgetary measures which could potentially require further cost recovery from the advice sector.

During Question Time in Parliament on Wednesday, Howarth pointed to several budget measures that would require additional cost recovery levies through ASIC which could affect financial advisers.

“Financial advisers are doing it tough and paying more under this government at a time when people in our electorates right around Australia need [financial] advice,” Howarth said. “That’s what they need.”

Specifically, Howarth was referring to the budget laying out $1.6 million over two years from FY25 for ASIC and Treasury to consult on the design of a labelling regime to regulate the use of sustainability labels on retail investment products.

There was also $206.4 million over four years from FY25 and $7.2 million per year ongoing to improve data capability and cyber security of APRA and ASIC’s systems, as well as continuing to stabilise the business registers and modernisation of legacy systems.

A further $37.3 million has been earmarked over four years from FY25 with another $8.6 million per year ongoing for the Australian Competition and Consumer Commission, ASIC, and the Australian Communications and Media Authority to administer and enforce mandatory industry codes for regulated businesses to address scams on their platforms and services.

“My question to the minister is: how much of these additional ASIC levies will be paid for by financial advisers?” Howarth said.

Howarth also noted that GST receipts were upgraded in FY24 to $85.8 billion from the mid-year economic and fiscal outlook of $84.1 billion and asked whether this covered changes in the Reduced Input Tax Credit for GST on fees paid for financial advice in super.

Currently the RITC provides a 75 per cent discount on GST charged on advice fees collected through a fund or platform, but from next financial year super funds and platforms will no longer be able to claim RITCs for GST on advice services.

In a memo published earlier this year by AMP North, the platform provider explained an advice fee of $110 including GST would give the client a credit a credit of $7.50, for a net cost of $102.50. But from FY25 the client would pay the full $110.

“We’ve estimated that GST receipts have increased by $250 million because of the ATO’s new interpretation,” Howarth said.

“Does that account with the minister’s estimate? Finally, does this situation, minister, accord with the government’s stated aim of reducing the cost of financial advice and increasing accessibility for Australians? They’re the minister’s own words. I’d love some answers in relation to that.”

The Opposition has pounced on the minister’s underwhelming attempt at advice reform after he promised to fix the “hot mess” of financial advice regulation.

The minister marketed the government’s QAR response as being the primary mechanism to reduce the cost of advice, foregoing any relief through the ASIC and CSLR levies.

The ASIC levy was frozen during the Covid-19 pandemic to control costs amid the departure of 12,000 advisers. The funding model underwent a review which concluded last year only for the cost to return to around the pre-freeze level.

Queried over whether he would take a crack at reforming the levy to offer advisers relief, Jones told Professional Planner at an industry event that any changes to the levy directed by the government would be a low priority, with QAR the lead focus for sector reform.

However, issues with the ASIC levy were further compounded by the high price of the CSLR levy which has almost hit the $20 million sector cap due to Dixon Advisory complaints which the advice sector anticipated would be covered by the pre-CSLR levy, and by the government funding the first period of the levy.