Levies ‘look wrong’: FAAA demands ASIC disclose numbers

Addressing a parliamentary inquiry into the Australian Securities and Investments Commission (ASIC) last week, Sarah Abood, the chief executive officer of the Financial Advice Association Australia (FAAA), said she is concerned advisers may be paying for expenditures that shouldn’t have been attributed to them.

Speaking to ifa following her Senate appearance, Ms Abood explained that ASIC’s enforcement division remains off limits to advisers, meaning it’s almost impossible to probe the rationale behind the numbers.

Ms Abood explained that not only is ASIC’s enforcement division closed to advisers, the FAAA has not had much luck in eliciting their response.

“As far as I know, we’ve never met with them. It’s like a black box when things get to enforcement, you don’t know what’s going to happen. I think that’s the case even within the organisation. The advice team themselves don’t have a lot of information about what the enforcement team are up to,” Ms Abood said.

“The biggest concern for us is transparency. We think they could probably enjoy a great deal more support if they were willing to be more transparent about their activities and their rationale about things,” she added.

In its latest Cost Recovery Implementation Statement (CRIS), published in June, ASIC confirmed that to cover the cost of regulating licensees that provide personal advice to retail clients, which stood at an estimated $55.5 million in 2022–23, advisers will pay a minimum levy of $1,500 plus $3,217 per adviser.

ASIC also estimated expenditure of $18.2 million in 2022–23 on enforcement activity in the advice sector, while recoveries are only penned at $2.1 million.

Direct impact on advisers

The ASIC levy, Ms Abood stressed, is a big focus for the FAAA because of its direct impact on advisers.

“It’s kind of symbolic of the way that the regulator wants to engage with the sector, so we’ve asked a couple of times for more information. We’re broadening our request,” she told ifa.

“So, as I said at the Senate inquiry, the numbers look wrong to us. How could they really have spent $55 million on advisers which is more than they spend on super funds and listed companies?

“The other thing that really pricked up our ears was the $34,000 they spent on the wholesale sector. That just can’t be right. It would be a massive scandal if ASIC were not undertaking any regulatory activities in the wholesale sector. That’s a really big sector. That’s 16 per cent of the Australian population. There are almost 2,000 wholesale licensees.

“So, I find it pretty hard to believe that ASIC would seriously be going light on the people that deal with high-net-worth individuals. I don’t think that would be the case, but that’s what the numbers are suggesting.”

A mistake has been made

The FAAA’s view is that “someone has just made a mistake”.

“Someone has allocated a case incorrectly to the sector, but we can’t get to the bottom of that unless we can see the numbers. So that’s what we’re asking for,” she said.

The FAAA is, however, yet to get the sought documentation from ASIC.

“There’s a whole lot that ASIC believe they can’t do due to legislation, so there will be particular acts or regulations that say that they can’t share certain information. It may be that we need to seek some help from the government directly,” Ms Abood said.

“If you ask, presumably they’ll provide the information.”

She stressed that the FAAA will “keep trying”.

“We can’t let ourselves be put off by this, because it’s such a big issue.”

Under the former government’s ASIC levy freeze, which was in place during the pandemic, the costs charged to the advice 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.

Ms Abood earlier highlighted the issue of a “complete lack of clarity or transparency” regarding the allocation of proceeds from ASIC’s enforcement activities.

“ASIC has estimated expenditure of $18.2 million in 2022–23 on enforcement activity in our sector, yet recoveries are only $2.1 million. 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,” said Ms Abood in late June.

“For example, ASIC was 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? 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.”

At the time, Ms Abood also stressed that when the levy was originally frozen, at $1,142 per adviser, the profession had substantially more participants than it does now.