Financial advisers aren’t the only beneficiaries of action against unlicensed advice and the whole system should be paying for enforcement, the Financial Advice Association Australia has argued in a pre-budget media briefing.
When Treasury completed its review of the industry funding model (IFM) in 2023, it said that advisers were the key beneficiaries of enforcement activity due to its positive effect on consumer confidence and that they should be the only group to pay for it.
But FAAA chief executive Sarah Abood said that model is unfair asthe profession has no control over unscrupulous actors.
“We can’t stop them and yet they’re out there ripping off consumers, and those consumers are not protected,” Abood said.
“But equally, we can’t continue to sustain the costs. Advisers are small businesspeople. We’re a micro-business sector.”
David Sharpe, the association’s chair, said that advisers are required to not only pay for investigations via ASIC but also any remediation that comes through the Compensation Scheme of Last Resort.
“We’re just forking out money with no say,” Sharpe said.
He added that Standard 12 of the financial adviser Code of Ethics requires advisers to hold their peers accountable for misconduct.
“I can’t be expected to look after 28 million [Australians] after I worry about 15,000 [advisers], there’s an element of unsustainability and unjustness about that,” Sharpe said.
Abood said that moving enforcement penalties from consolidated revenue directly into ASIC’s recovery costs would go a long way to improving funding the regulator.
“My first year in the role we paid for by far the largest share of the cost of ASIC,” Abood said.
“The financial advice sector, how crazy is that? We were paying more than the listed investment companies, more than super funds.”
The former Coalition government froze the ASIC levy during the Covid-19 pandemic afterthe industry lost thousands of advisers in the aftermath of the Hayne royal commission, but the 2023 Treasury review essentially reverted to the previous model.
Advisers paid the minimum levy of $1500 per licensee, plus $2314 per adviser for FY25.
“The way the ASIC levy is allocated is ASIC looks at its enforcement costs, it allocates them to sectors, and then the proportion of total enforcement activity you are responsible for is the proportion of ASICs total costs that you bear,” Abood said.
“It also means that we were paying for a very large share of the fixed costs of running the regulator itself.”
The rest of the five key priorities of the pre-budget submission were increasing the supply of professional financial advisers, gaining ATO portal access, improvements to the tax deductibility of advice and making the CSLR sustainable. The priorities largely mirror those of previous submissions.
Former Minister for Financial Services Stephen Jones announced at the Professional Planner Advice Policy Summit last year that the government would seek to expand the education standard to include more degrees.
However, the federal election, a change of minister and the collapse of the Shield and First Guardian master funds has halted advice reform, although new Minister for Financial Services Daniel Mulino said the change was necessary for the future of the profession at the FAAA National Congress in November.
Abood said the association is still unsure of what progress will made on the policy.
“That would open up the number of students that are in a position to consider entering the financial planning profession,” Abood said.
The FAAA is seeking more government support for practices taking on professional year candidates and to have the women in finance scholarships re-instated, which the government stopped funding.
“There’s a huge amount of support the government offers for apprenticeships so we’re looking for something similar,” Abood said.
Abood noted that increasing costs like the ASIC levy and CSLR levy were making the profession less attractive for people to join with the association again campaigning to reform both levies.
The collective CSLR levy for FY27 will be $127 million – potentially doubling if some Shield and First Guardian complaints are included – and will require another special levy to fund the shortfall.
“The CSLR needs to have more powers to pursue the people who did the wrong thing and they need to be funded by government to do that,” Abood said.
The association also wants all financial advice to be fully tax deductible.
Although the Australian Taxation Office expanded what financial advice fees are considered deductible, the association is still pushing for full tax deduction of financial advice fees.
Despite the expansion, the FAAA said in its submission that the practical implementation of the interpretation is highly complex for financial advisers.
“What is deductible varies by type of advice and what tax laws it relates to, requiring careful apportionment of costs,” the submission said.
It’s good to see the FAAA publicly backing advisers on this – their history in doing so is, frankly, very poor, but I’ll take it. For those who don’t know, financial advice is a small business sector. With roughly 15,000 advisers nationally, that translates to about 10,000 small businesses across the country. These aren’t big corporates with deep pockets and armies of lawyers – they’re mum-and-dad practices trying to do the right thing by their clients while being slugged with ever-increasing levies to fund enforcement against people they’ve never met and have no control over. The idea that this tiny sector should bear the lion’s share of ASIC’s costs and fund a CSLR that could hit a quarter of a billion dollars is patently absurd.
The core structural problem has always been the concentration of all risk and compensation into the AFSL. That model has left everyone else in the value chain – platforms, trustees, product manufacturers – comfortably off the hook. They tick their boxes safe in the knowledge that if anything goes wrong, the AFSL’s PI insurance will pick up the tab. That’s not a funding issue, it’s an architectural one, and it always has been. And the tragedy is that this small business sector has had arguably the worst professional representation imaginable. The FPA, now rebranded as the FAAA, spent years cosying up to government and regulators rather than fighting for its members. If they’re finally willing to stand up and call this out, better late than never – but the profession has paid a steep price for decades of weak advocacy.