ASIC industry funding fees: user pays model raises more questions than it settles

Concerns are rising about the hefty fees financial advisers are about to be slugged with for being regulated by ASIC.

For businesses of all kinds, having to pay for regulatory oversight is not new. But price hikes levelled at some practitioners by ASIC have led to a lot of ire in the sector and raised serious questions about whether they are justified.

By Zilla Efrat

Concerns are rising about the hefty fees financial advisers and certain types of auditors are about to be slugged with for being regulated by the Australian Securities and Investment Commission (ASIC).

CPA Australia’s business policy adviser Gavan Ord describes some of these fees – the result of ASIC’s new industry funding or “user pays” model – as egregious and worries that they may make it significantly less attractive for members to become auditors, especially SMSF auditors and financial advisers.

For financial advisers, the situation is particularly perturbing. ASIC’s bill will arrive at the same time as other new compliance fees start to kick in, including large charges as a result of professional standards reforms and the establishment of a new complaints authority.

“When they all come together, they are quite significant for advisers,” says CPA Australia’s financial planning policy adviser Keddie Waller.

“Combined with other costs, such as professional indemnity insurance, they make it very hard for some small and medium-sized independent professional accountants with their own licenses.”

In fact, Waller says some smaller licensees report that when put together, the costs are so prohibitive that they are now considering whether to stay in advice.

She adds that advisers should pass their rising costs on to clients, which could adversely affect access to affordable advice.

The missing link

Ord notes that in some areas, CPA Australia cannot see how the fees associated with ASIC’s user pays model even relate to ASIC’s actual costs.

He is particularly concerned about the A$1927 registration fee self-managed super fund (SMSF) auditors will have to pay. On top of that, there is a deregistration fee of A$899.

In contrast, individual registered company auditors face a registration fee of A$338 over and above their estimated annual flat levy of A$222 and yet their capacity to generate fees as an RCA are much greater than a registered SMSF auditor. Nevertheless as the fees are based on the cost of the service to ASIC, it begs the question as to why ASIC is incurring costs five times higher to register SMSF auditors than to register company auditors.

“As an organisation, we believe the fee for SMSF auditors is unconscionably high,” Ord says. “It will dissuade people from becoming SMSF auditors and create shortages, which could have impacts on consumer choice particularly in regional and rural areas which don’t have access to many SMSF auditors.”

On the adviser side, licensees that provide personal advice to retail clients on relevant financial products are set to pay an estimated minimum levy of A$1500 a year.

“This flat fee will apply to everyone, regardless of whether they are a sole trader or a large corporation,” Waller continues.

“There will also be a graduated fee based on the number of advisers they have under their Australian Financial Services [AFS] licence.

“But if you look at financial planning services, there are about 25,500 authorised representatives or financial advisers and they all sit under around 6500 Australian Financial Services licences. Most of the risk has really sat with the Big Four [banks] and AMP.”

Professional Development: RG146 Compliance Solution - Module 1 Financial advice foundation: the RG146 Compliance Solution program has been designed to address the competency requirements outlined in the ASIC Regulatory Guide 146 (RG146).

Confusion abounds around the new model

“Another key issue is that we also don’t know what the graduated fee will be because it will depend on ASIC’s final costs, which we won’t know until October,” adds Waller.

ASIC’s new model requires that it recover the actual amount it spent on regulating entities in a financial year. But it can’t determine the final figure until the end of that year. So, after collecting information between July and September each year, it will publish its indicative costs every October and then send an invoice with the actual costs to regulated entities every January.

ASIC says the aim of the new model, which came into effect 1 July 2017, is to allow it to better focus resources on sectors that are creating a need for the most regulation.

But Waller is emphatic that if advisers are going to have to pay for their regulation, there should be some level of assurance of what that means and that the money will be used appropriately and effectively.

“What isn’t being discussed is the setting of expectations and accountability for ASIC,” she says. “ASIC will recoup its costs for regulating 48 sectors by charging either flat or graduated levies."

Unanswered questions

The new funding model is also being introduced when ASIC has been in the spotlight of the Banking Royal Commission. Senator Rex Patrick has called for the new chair of ASIC to provide the public with a statement as to the confidence he holds in his Commissioners, in light of some of the Royal Commission’s findings and “the very clear failure of ASIC to effectively regulate the financial advice services of the banks”.

"In earlier times, ASIC Commissioners would have already fallen on their sword – they should not wait any longer to do the right thing and take responsibility for their failures,” Patrick says.

"ASIC's senior executives are directly responsible for a softly-softly regulatory approach that has been characterised by a marked reluctance to take robust law enforcement action in relation to the banks and other financial institutions.

"Ultimately, however, the buck must stop with someone – and that includes Commissioners and other senior executives at Australia's corporate regulator."

Read next: Financial planning reforms impact practice staffing

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