While the government has set out to reduce the cost of advice and improve its accessibility, the advice industry has put the blame on the Compensation Scheme of Last Resort (CSLR) levy, increases to the Australian Securities and Investments Commission (ASIC) levy, as well as excessive red tape and compliance requirements driving up operating costs.
However, on the latest episode of the Challenging the Standard in Financial Advice podcast, PlanningSolo founder and podcast co-host Jordan Vaka, noted the role of the Australian Financial Services Licence (AFSL) system in driving up the cost of advice, owing to it being one of the largest expenses of an advice firm.
“This is not an indictment of individual people, individual licences. This is a structural and systemic issue that suppresses, infantilises and increases the cost of financial advice in Australia,” Vaka said.
“For the QAR to talk all of a sudden, pivot to affordability of advice and never touch on the cost of licensing, is a complete joke. Makes the whole thing irrelevant to me. It dismisses the entire discussion.”
To put the cost in perspective, Vaka outlined the impact of the Australian licensing system using an approximate average of licensing fees.
“On a very broad level, if you just assume that every single adviser in the country, the 15,500 advisers, is costing $50,000 a year in licensing costs. That is $775 million in licensing costs that are just being paid up to licensees,” he said.
“Now, if you change that instead, let’s be generous. So, take $25,000, that’s $388 million being spent in licensing costs … Where is that money going? It’s to pay payroll, management, employee systems, for this body that sits between us and doing our job properly.
“Now that cost then needs to get passed on to clients or the advisers cop it. That drives me nuts.”
Comparatively, the CSLR has a subsector cap of $20 million and a total annual cap of $250 million, while the 2023–24 ASIC levy totalled $48.4 million, both of which have been put on blast for their role in driving up the cost of advice.
While Vaka’s dislike for the licensing system is not new, explaining in a previous interview with ifa that he was known for this being his “soapbox” issue, the lack of attention on the subject throughout the cost of advice discussions is notable.
“When I was an adviser through a big licensee, they always got paid first, and fair enough, that’s the commercial arrangement. But why are they there?” he said.
“I am a qualified, functional, capable, competent professional striking an arrangement with my client directly to help them with advice, but now I’m paying some third party for the right to do so.
“It’s ludicrous, it’s stupid, and it’s expensive … Nobody has been able to explain to me why that is OK.”
Just wondering if there are any licensed medical doctors who DID NOT obtain a degree…
The government appears reluctant to address issues with Australian Financial Services Licenses (AFSLs) due to potential conflicts of interest. Politicians may avoid reforming the system because, after their political careers, lucrative director roles within AFSLs often become appealing. Furthermore, AFSLs lack transparency about the dealer fees they charge advice practices, which generate additional profits beyond the cut they receive from adviser fees charged to clients.
It’s perplexing that professionals like doctors, whose work directly involves saving lives, face relatively low licensing, software, and professional indemnity (PI) costs. Meanwhile, financial advisers bear significant expenses imposed by ASIC, the Compensation Scheme of Last Resort (CSLR), their dealer groups, and others. This disparity raises questions about fairness and efficiency within the financial advice licensing system.
The AR-AFSL model appears fundamentally flawed. Research, including the studies referenced [here](https://www.griffith.edu.au/__data/assets/pdf_file/0025/205765/examining-legitimacy-authorised-) and [here](https://www.griffith.edu.au/__data/assets/pdf_file/0024/1330656/FPRJ-Vol6-Iss1-2020-Paper3-McInnes.pdf), suggests that Australian advisers should operate under a self-regulatory, independent licensing framework akin to those used by doctors, lawyers, and accountants. However, the Labor government seems disinclined to pursue this path due to its vested interests in maintaining the current AFSL model.
Hi Dr McInness – can you please revisit the links you’ve posted above. The first one does not work.
Interesting post. Thank you for putting it up.
Makes a lot of a good points.
No other profession has this ridiculous arrangement.
No other profession seems to have such an unlevel playing field between advice provider types (which is going to get even worse in 2025 probably).
Australia is a joke.
!00% Correct. Professional advisers should not be under the AFSL regime. The AFSL regime should be reserved for product providers providing advice to have a level of oversight of their (conflicted) activities.
Very well said! We can run our own businesses, work with our own clients and collect our own fees – it’s ridiculous to keep this structure and cost going – it’s just another middle man expense.
well said mate
Michelle Levy is a lawyer whose clients include AFSLs. She was never going to bite the hand that feeds her, by recommending they are all wound up. This is why she was always the wrong person for the job.
Well, she was handpicked by former Australian Super staff member Jane Hume to give the ‘right’ recommendations.
I agree 100% with Vaka and have been saying this for years. Why are we the only profession that needs a middle man?
The problem now with licensees, like any organisation, they become self serving and act out of self-preservation. They make submissions to regulators and legislators arguing, like product providers, that advice should always involve themselves, so they still get paid. The employees and owners of the licensee all want to continue to get paid.
Self-licensing is the way to go, no middle man required.
Could not agree more
Maybe if Vaka ran his own license he would have a better understanding of Licensee costs. The reporting has gone through the roof (Breach, Incident, complaints – even if you don’t have any) and PI and software makes up anywhere from 50-70% of the total costs. Add the costs of ASIC Fees, AFCA fees, CSLR and Kaplan and the monitoring adds a big portion of the rest. Most licenses are pretty lean to the point where practice mgt is now a virtual exercise and supervision and monitoring is what you are left with. When you strip out all the above costs we get our AR costs down to just under $12k which is to pay for the resources to manage the above and collect revenue to pay advisers. If that is a practices biggest cost then maybe they shouldn’t be in practice
You forgot about high employee salaries and profits paid to licensee owners. All paid for by clients. All of what you said above can be done at practice level at a lower cost. Hence the prevalence of self licensed practices that have been doing so for decades.
He does. He’s self licensed. What an uninformed bias remark
the point is AFSLs still don’t add much value to the client do they Paul F, clearly
Vaka has his own license
sounds like a practice manager job, which any competent manager can do. Don’t need to be paying lawyer’s rates for this kind of job.
You could have done 1 minute of research on the bloke, instead you choose to make assumptions, over analyse and then come up with your own conclusions.
Your comment is as inefficient run as the larger AFSLs you defend.
Sorry Paul, a quick look at the financial adviser register and you will see that Jordan does in fact run his own AFSL. I also note that he was ex Synchron (WT) as was I. I was paying a flat fee to them plus a percentage of revenue and then paying systems, PI and Kaplan on top of this. So please tell me more about that 50 – 70% of costs that the Licensee applies going to these items?
I now also have my own AFSL and my running costs are 50-70% below what they were under WT, with increased revenue.
Paul, costs aside, what value does and AFSL provide to advisers?