Advisers brace for significant ASIC levy increase as government remains tight-lipped

The 2022–23 financial year is expected to see a big increase in Australian Securities and Investments Commission (ASIC) fees paid by financial advisers following the expiration of a two-year freeze implemented by the previous government.

Namely, in August 2021, Josh Frydenberg, former Australian treasurer, announced “temporary and targeted relief” that restored ASIC levies for personal advice to retail clients charged to financial advisers to their 2018–19 level of $1,142 per adviser.

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But instead of heeding the advice of industry groups and extending the freeze when it assumed government, Labor announced last year that it had commenced a review of the ASIC funding model which would “have regard” to the temporary levies relief provided to personal financial advice licensees in respect of 2020–21 and 2021–22.

“The Albanese government is committed to ensuring that ASIC, and the frameworks it uses, are sustainable, in step with the times, and appropriate for today’s financial sector,” Financial Services Minister Stephen Jones said at the time. 

And while advice bodies, such as the Advice Association of Australia (AFA) and the Financial Planning Association (FPA) applauded the announcement, they also pushed for the continuation of the ASIC industry levy freeze to ensure cost certainty for the sector during FY 2022–23, while Treasury reviewed ASIC’s funding model.

However, while consultation on the review ended in October, little has been shared by the government regarding its progress.

Speaking to ifa, Phil Anderson, AFA chief executive officer, said: “We are now in a year where financial advisers are exposed to the prospect of a significant increase in the levy”.

“There are a number of factors in play with this, including the significant reduction in adviser numbers, an expected decline in the spend on enforcement activity, however an increase in other ASIC costs, such as through the creation of the FSCP (Financial Services and Credit Panel),” Mr Anderson said.

“We have previously called for an extension of the ASIC funding levy relief in the context of the review of the ASIC funding model. We are, however, not aware of any plans by the government to provide any further relief or make short- term changes to the model that could lead to a reduction in the amount of the likely increase,” he explained.

Additionally, Mr Anderson cautioned that from 1 July 2024, financial advisers could also be exposed to a further increase to fund the proposed Compensation Scheme of Last Resort (CSLR).

Similarly, Sarah Abood, the chief executive of the Financial Advice Association Australia (FAAA) — the new association following the merger of the FPA and AFA — told ifa that she too remained concerned that the cost of the “unfrozen” levy is likely to be substantially higher, with any changes to apply in January 2024.

“The model is based on a fixed fee per entity plus a variable amount based on the number of advisers associated with that entity. The pool of advisers to pay the levy has almost halved, and the large licensees which were the focus of much enforcement action have dramatically decreased their advice footprint over the freeze period,” Ms Abood said.

“Many in our profession work as sole traders or in small-to-medium sized practices, and their capacity to absorb additional regulatory costs is very limited.”

Ms Abood assured that the FAAA does not want the outcome to be a much smaller pool of professional and compliant advisers paying for ongoing enforcement action against previous poorly behaved participants.

“We continue to advocate for the freeze to be extended until any changes to the model are finalised and the implications known, and for proceeds of fines levied and litigation proceeds against those entities to be offset against ASIC’s costs,” she said.

Budget unlikely to address ASIC levy

Neil Macdonald, CEO of The Advisers Association (TAA), told ifa he too does not know if there will be an update on the ASIC levy freeze in the upcoming budget.

“Our position at the time was that the freeze should continue until the ASIC review was completed. We now believe the freeze should continue,” Mr Macdonald said.

According to Mr Macdonald, increasing the ASIC levy for small business advisers is “unfair”, particularly when it was primarily the bad behaviour of the banks that prompted the need for it in the first place.

“Advisers are being forced to pay for sins that were largely perpetuated by others. As we said at the time, we are not against a user-pays model, but it should be proportionate, fair, and reasonable.”

Peter Burgess, SMSF Association CEO, similarly said he doesn’t expect any movement on the levy freeze in May. 

“It is our understanding that there are no further plans to freeze the cap until the conclusion of the Treasury review,” Mr Burgess told ifa. 

“We would encourage the government to consider extending the freeze until this process is completed.

“The ASIC levy is a concern not only for our financial planning members but also accountants authorised under limited licenses who are levied at the same rate. This will likely push more accountants out of the AFSL regime at a time when individuals are already finding it difficult to access advice from qualified SMSF professionals.”