The future of licensing requires accountability and consumer choice 

The Financial Services Council (FSC) white paper on the future of advice licensing makes an important contribution to the discussion about how the industry can strengthen consumer protection and confidence in financial advice. However, it is important to recognise that the FSC primarily represents product providers and a small number of large licensees, rather than the financial advice profession as a whole. All advisers, regardless of licensing arrangements, should have a voice on the future of advice licensing. 

The FSC paper concludes that Australia’s AFSL framework remains fit for purpose and that the focus should be on stronger supervision, improved transparency and earlier regulatory intervention where risks emerge. The Principals’ Community (TPC) supports that conclusion. The existing licensing framework provides stability, preserves accountability and accommodates a broad range of advice businesses serving different consumer needs.

One aspect of the paper that warrants closer examination, however, is the proposal to recalibrate the ASIC levy by significantly increasing the amount payable by advice licensees to fund enhanced supervision.

The question is not whether stronger supervision has value, but whether a funding model based on the premise that larger licensees are inherently safer is appropriate.  The Financial Services Royal Commission exposed some of the most serious advice failures among the largest licensees at the time. The collapse of Dixon Advisory reinforced that significant consumer loss is not confined to small licensees while the failure of Shield and First Guardian demonstrates that harm can arise through complex distribution chains involving product issuers, platforms, lead generators, RMs, advisers and advice groups of differing sizes. 

These examples do not establish that any single licensing model is inherently safer than another. They instead support a risk-based approach focused on governance, conduct, accountability and product distribution. A fixed levy falls disproportionately on smaller licensees without addressing the underlying causes. The result could be less competition, fewer choices for advisers and consumers, and greater market concentration.

Consumer choice matters 

Australians are not all seeking the same advice experience. 

Some consumers prefer large national advice businesses. Others choose boutique firms, specialist advisers or principal-led practices because they value personal relationships, local knowledge and direct access to decision-makers. 

A healthy profession should accommodate the full range of consumer preferences. 

One of the strengths of the current licensing framework is that it supports a diverse range of business models operating under a common regulatory standard. Consumers benefit when they have genuine choice about who provides advice and how that advice is delivered. Importantly, the FSC’s consultation concluded that the size of a licensee is not a reliable indicator of risk.  

The risk of unintended consequences 

Higher regulatory costs affect businesses differently. Before considering additional regulatory costs and how they are funded, it’s worthwhile looking at how other jurisdictions operate for insights. Internationally, regulators have adopted a range of approaches to support investor protection and regulatory oversight.

For example, in the United States, monetary sanctions imposed through SEC enforcement actions may be directed toward investor compensation and contribute to regulatory costs. In the United Kingdom, regulatory fines can be used for regulatory oversight, compliance improvements and remediation of harmed customers. Before imposing additional levies on licensees, consideration should be given to directing ASIC recoveries and enforcement proceeds toward funding consumer protection, supervision and remediation initiatives.

Considering the FSC levy recalibration proposal, a flat single licensee fee – for example, $25,000 or $40,000 per licensee – would fall very differently across the market. Large licensees that license multiple smaller businesses can generally spread fixed regulatory costs across a broader base. By contrast, smaller self-licensed businesses often have far fewer opportunities to absorb or share those costs.

This is not an argument for lower standards, rather it is a recognition that funding models must be designed carefully so they do not unintentionally favour larger institutional or dealer group structures over smaller advice businesses. Additional regulatory costs are ultimately borne by consumers of advice. Depending on their chosen provider, some consumers may pay more. 

The debate also cannot be separated from the broader regulatory cost environment. Advice businesses are already managing rising CSLR costs, ASIC levies and increasing technology and cyber requirements. Each measure may be justifiable in isolation. Collectively, however, they influence the cost of delivering advice and, ultimately, the affordability of advice for consumers. 

Directors, executives, responsible managers and others in leadership roles play a critical role in determining whether compliance arrangements operate effectively and whether risks are identified and addressed before consumers are impacted. Major advice failures have repeatedly demonstrated that systems alone are not enough when accountable leaders do not act on warning signs. Effective supervision must therefore place clear accountability on the people who make, oversee and implement decisions, and ensure they are held to account when failures occur. 

Regardless of licence size, effective consumer protection depends on leaders having visibility of risks and taking appropriate action when concerns are identified. In many principal-led businesses, decision makers are closely connected to both client outcomes and operational practices, which can support strong accountability.

Advice accessibility 

Financial advice remains out of reach for many Australians. Consumers consistently identify affordability as a major barrier to seeking professional advice. At the same time, adviser numbers remain well below historical levels, and many communities continue to experience limited access to advice services. 

The challenge for policymakers is not simply how to increase supervision, but how to do so in a way that improves consumer confidence while also expanding access to advice. 

Against this backdrop, every proposed reform should be assessed against a simple test – will this make quality financial advice more or less accessible? 

The FSC is right to focus on preventing consumer harm through earlier identification of risk. Strong supervision and strong consumer protection are essential, but reforms should also be measured against their impact on affordability, competition and access.  

A better conversation 

TPC supports strong action against misconduct, better regulatory intelligence and effective supervision of higher-risk operators. 

Licensees play an important role as risk managers within the advice ecosystem. The focus should therefore be on ensuring licensees are well governed, adequately supervised and held accountable for consumer outcomes, rather than creating settings that favour one model over another. As demonstrated in recent and past findings by the regulator, licensee size has no correlation to systematic failures. It is typically the standards, behaviours and actions of the underlying licensee, responsible managers and directors.  

The future of advice should preserve a marketplace where consumers retain the freedom to choose between different advice models. 

Consumer protection, competition and choice are not competing objectives. The most effective regulatory framework is one that delivers all three. 

Kon Costas is managing director of The Principals’ Community.