The FAAA is “extremely concerned” by the increase in the estimated ASIC levy for the 2022-23 year, labelling it “drastic and unfair” and noting it is an almost tripling of the per-adviser cost.
A statement from the association outlines that the ASIC release of its estimate of the levies that will apply for the 2022-23 financial year comes after the Minister, Stephen Jones, confirmed the ASIC funding levy freeze, which has been in place for the past two financial years, will not be continued (see: ASIC Releases Adviser Levy Estimates.)
Sarah Abood, CEO of the FAAA, says the levy freeze for the past two financial years “…was achieved as a result of strong advocacy on the need for fairness and equity in the way the levy is calculated. This resulted in substantial savings for the financial advice profession in the 2020-21 and 2021-22 years.”
She says the association is “…extremely concerned to see the impact of the end of the freeze on the ASIC levy resulting in an almost tripling of the per-adviser cost.”
Abood says this comes before the recommendations of the recently-released review into the Industry Funding Model for ASIC have been implemented. The review highlighted several deficiencies in the current model, and the need for reform.
She acknowledges the Government has accepted some recommendations that should make future charging fairer. “These include more fairly sharing the costs of enforcement activity, including against unlicensed participants and emerging sectors, and looking at whether the sub-sector definitions for financial advice activity continue to be appropriate.”
Two Major Problems
…current financial advisers appear to be being charged for enforcement activities undertaken against past entities that in many cases are no longer even in the profession…
However, Abood states there are two major problems here.
“Firstly, it is evident that important recommendations have not been accepted in the IFM review. For example, current financial advisers appear to be being charged for enforcement activities undertaken against past entities that in many cases are no longer even in the profession.”
Abood says this breaches one of the major principles of the Industry Funding Model “…that those who create the need for regulation should bear the primary cost. The moral hazard involved in this is of great concern and a fundamental flaw in the design, that must be rectified.”
She states that it’s “…unsustainable to have a model in which the good actors in our sector disproportionately bear the costs of the misbehaviour and risk taking of the bad actors, including those who are no longer operating or who are unlicensed.”
…Even more concerning is the complete lack of clarity or transparency on what happens to the proceeds of enforcement activities…
Even more concerning, she says “… is the complete lack of clarity or transparency on what happens to the proceeds of enforcement activities. ASIC has estimated expenditure of $18.2m in 2022/23 on enforcement activity in our sector, yet recoveries are only $2.1m. Financial advisers are funding litigation costs against large institutions, when the fines are going to consolidated revenue, and advisers are left with a tiny fraction of these costs being recovered.”
As an example Abood points to ASIC being successful in court against Westpac in April 2022 “…with $113 million in penalties being awarded in this single case (which included advice-related matters). What has happened to those penalties? Have they simply gone into consolidated revenue?”
She says if “…that is in fact the case – that financial advisers are funding ASIC action against these participants, and yet the government is keeping all the proceeds – then this breaches really fundamental principles of fairness and equity.”
The Second Key Problem
…It’s deeply unfair to proceed to charge advisers using a model that is already acknowledged to need reform…
The second key problem Abood points to is that “…even those suggestions in the review that have been accepted are not reflected in this year’s Cost Recovery Implementation Statement. It’s deeply unfair to proceed to charge advisers using a model that is already acknowledged to need reform.”
She also notes that when the levy was originally frozen, at $1,142 per adviser, the profession had substantially more participants than it does now.
“The increase for this financial year, to an estimated $3,217 per adviser, almost triples the costs. Advisers will be forced to pass the cost increase on to consumers at a time when we are all working hard to make financial advice more affordable.”
Abood concludes that the association calls on the Government “…to urgently reconsider the removal of the freeze in light of the flaws in the model being used to calculate the levy, and the negative impact on Australian consumers who will ultimately bear the costs.”
Sorry, but the FAAA should have been banging tables in the Treasurer’s office, OR Mr Jones’s office and insisting on having an input to the recent Treasury review.
If you read Mr Jones’s comments it would appear he hasn’t heard from anyone, as he just rattles off with the Treasury mantra which can be summed up as “users pay”
The problem with that ideological position is that all of the users that caused all of the problems are no longer on the FAR, and can’t be levied for the cost of ASIC action. The totally irresponsible former advisers and their employers the banks (primarily) have flown off into the sunset, laughing all the way at us poor fellows still on the FAR .
As our numbers are getting less , but the ASIC levy bill will continue to escalate exponentially
And then there’s the question of fairness and equity. Our levy funds ASIC legal action where we don’t share in the benefits of the reparations paid, because they are funneled into Consolidated Revenue.
Advisers on the FAR are effectively acting as LITIGATION FUNDERS, BUT without any opportunity to reap a benefit. Not a good business model!
AFA/FPA/F AAA have to learn to bang the table and demand a reversal of the policy. Nice words will not cut it!
I’ve already withdrawn my application to transfer from the AFA to the FAAA because I can’t afford to pay membership fees AND an ever-increasing ASIC levy of some $3217, and that’s just for starters!
And incidentally, why was there no mention of an “administrative fee” to transfer across to the FAAA. That wasn’t mentioned in the glossy spiel on the wonderment in unity. No PDS anywhere.
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