IFA ARTICLE ~ “ASIC levy another ‘nail in the coffin’ for advice businesses”


It is not clear yet whether the increase to the ASIC levy for advisers will drive more from the profession, but it is another layer of pressure added onto advice businesses.

At the end of June, the Australian Securities and Investments Commission (ASIC) published its draft Cost Recovery Implementation Statement (CRIS), in which the corporate regulator said the cost of regulating licensees that provide personal advice to retail clients was $55.5 million in 2022–23, down from $56.7 million budgeted last year.

The cost will be divided among a total of 2,655 AFS licensees, encompassing 16,019 advisers. As such, advisers will pay a minimum levy of $1,500 plus $3,217 per adviser.

However, under the former government’s ASIC levy freeze, the costs actually charged to the sector amounted to $22.8 million. This meant that at the time, advisers were charged a minimum levy of $1,500, plus $1,142 per adviser.

The founder and director of Forte Asset Solutions, Steve Prendeville, said the increase will impact a significant proportion of the industry, with 45 per cent of the industry operating at less than $500,000 total revenue per annum.

“With revenue at these levels, there is little or no flexibility in the profit and loss or balance sheet of these businesses to absorb costs other than principal take home remuneration,” Mr Prendeville told ifa.

“The ASIC levy is just another nail in the coffin for many of these businesses as there are rising costs across the board. There are now significant labour costs coming to bear as the reduced talent pool is being experienced.

“Dealer fees have also gone up to reflect the cost of software and administrative service increases. The only bright light is we are seeing PI costs being maintained and, in some cases, lower as more providers return to Australia.”

He added that while there is new, organic business coming in, most businesses operating at under $500,000 revenue are at full utilisation, meaning they can only onboard one new client per month.

“These businesses are at capacity and whilst they see the growth opportunities, can do little to capitalise on it. We are seeing more mergers or office-sharing agreements being entered into in this sector to try and spread the cost increases,” Mr Prendeville said.

“Larger businesses will absorb the costs as they can offset against new business generation.”

Mr Prendeville explained he doesn’t expect more professionals to leave the profession due specifically to rising ASIC levies but added that as a part of total rising costs, many will have to ask themselves the question of whether to grow or go.

Association of Independently Owned Financial Professionals (AIOFP) executive director Peter Johnston believes that chances of getting the levy removed any time soon are slim, however, he did suggest a different way to make use of the funds generated through the levy.

“In a nutshell, it’s hard to get a tax eliminated once bureaucrats take control via legislation. We think the best time to approach its demise is leading into the next election when all sides of politics are vulnerable to making promises,” Mr Johnston said.

“A very useful application in the short term would be using it to fund an independent panel of research houses who would rate any new PDS registered by ASIC before market release.

“This should eliminate the greatest conflict in our industry of product manufacturers ‘shopping around’ and paying for a favourable rating. Advisers should be the only cohort funding research.”

Lack of transparency painful for advisers

According to Ben Neilson, founder and director of Neilson & Co Wealth Management, the lack of transparency is hurting advisers.

“The recent ASIC levy increase is both unfair, unjust, and for the academics in the room, incalculable. We don’t really know what metrics go into the interface, nor how the fee sort of comes about,” Mr Neilson told ifa.

“If we assume that it’s just an adviser base fee, when we look at the reduction of advisers, can we therefore assume that next year is going to be even larger?”

He added that the environment that led to the ASIC levy being instituted has, in many ways, been cleaned up.

“The conditions whereby we needed to be regulated were with commissions, churning, fee for no service — all those issues now have kind of been addressed,” Mr Neilson said.

“There are caps on commissions, there’s significant clawbacks, there’s fees that will stop every five months. In effect, why are ASIC charging an increase whereby their onus to regulate has also been decreased? I think significant legal arguments could be made that advisers in Australia are acting under duress and have been for some years now.”

The necessity of passing the fee on to clients also doesn’t sit well with Mr Neilson.

“It is another increase that we have to pass on to consumers that we feel extremely conflicted by,” he said.

“Advisers have a law whereby they have to act in a client’s best interest, but what argument has been made to suggest that regulators and litigators need to act in adviser’s best interest?

“To some extent, if this continues, most will consider leaving the profession and that decision is almost valid given just how expensive it is to be an adviser.”

Article by Keith Ford ~ 12/7/2023